The Current State of NYC’s Rental Market and Where It’s Headed (Part 5 of 5)
Where is the NYC Rental Market Headed?
In the final portion of this 5-Part series, we will be sharing our thoughts on the future of the NYC rental market. Although we do monitor the market daily and consider ourselves experts in NYC rentals, we must disclose that any portion of this article speculating on the future of NYC is speculative (obviously). The information provided here is based on our observations, as well as the opinions and forecasts of some of NYC’s leading news outlets and economists. If you’re curious about where the market was pre-Covid, and where it is today, please review parts 1 through 4 of this series.
2022: Limited Supply and High Levels of Demand
Conclusion: 2023 & Beyond
2022: Limited Supply and High Levels of Demand
There is a serious problem created by the complex web of interests involved in NYC rental housing, but long story short: Low Supply + High Demand = High Apartment Prices.
Low Supply: Currently in NYC, many people believe that government policies don’t properly incentivize landlords to renovate regulated apartments to be rentable. Basically, if a landlord can’t charge market rent for an apartment, they are significantly less incentivized to renovate it to make it habitable. Furthermore, if a developer can’t charge market rent in a building they are developing, they are significantly less incentivized to go forward with the project. This has resulted in an incredibly skewed, low supply of NYC apartment rentals in both occupied rent stabilized units, where current tenants do not want to leave…and also in vacant rent stabilized units, where it would cost the landlord more money to renovate it than they could charge for rent. These factors, along with others, have resulted in over 100,000 NYC apartments currently sitting vacant, 60,000 of which are rent stabilized with landlords not planning on renovating them until laws are changed. This number has been rising.
Recent efforts to make the housing market more affordable have also backfired in regards to new developments, where NYC Landlords/Developers and NYC policy-makers seem to be misaligned. While policies to incentivize affordable housing in new developments are common, if you look at what new projects New York is producing compared to other U.S. cities, it's alarmingly low. In 2021, New York City produced about 2.9 new housing unit permits per 1,000 residents. In Austin, it was 23.4.
Incentivizing affordable housing seems to have caused the opposite effect of what was intended. As Howard Hosack from the NYPost put it when discussing the affordable housing policies: “‘Affordable’ subsidies in so-called ‘inclusionary’ buildings, which include both income-restricted units and “market-rate” apartments, are just a recipe for higher rents in the “non-affordable” apartments, so developers can make projects work out financially. It simply adds new chapters to that notorious tale of two cities in NYC: the very rich and very poor”. Basically, landlords are either keeping rent stabilized units off the market, OR they need to charge extra across other units to make up the money they are losing on the stabilized units. Limited affordable housing has made the affordable housing that does exist, unaffordable due to such high demand.
High Demand: Now, the lack in NYC apartment rentals is not a new problem, but it has been exacerbated in recent years, especially post-covid where demand has skyrocketed. As discussed in part 1, high interest rates for mortgages, the reopening of venues, an increase in work from home and several other factors have lead to spike in demand in Manhattan and Brooklyn since 2020.
During the summer of 2021 and into 2022, new leases expanded month over month , and in October 2022, the vacancy rate (on non stabilized units) remained under 2 percent for 7 months straight, even as prices remain high: “It was a perfect storm coming out of the pandemic,” Hal Gavzie, Executive Manager of Leasing at Douglas Elliman said. “There was a lot of leverage for the landlords, not so much for the renter.” This seemed to be the case throughout 2021, into 2022 and up until now.
Throughout 2021 and 2022, the problem of high demand has affected many renters, in regards to the prices they’re paying and the stress they’re facing. “We have seen a lot of renters taking apartments sight unseen, which is a direct factor of these renters being just frustrated,” Gavzie explained. “They are losing apartment after apartment. So they are just wanting to apply immediately even before getting into the units.” High demand and low supply gives bargaining power to landlords and brokers, which in turn causes the average NYC renter a ton of stress and money.
Conclusion: 2023 & Beyond
As we head into Winter of 2022 and beyond, we look back on the last few years in the NYC apartment rental market, and breath a sigh of relief…almost as if we’ve just gotten off a roller coaster. NYC’s rental market was already fast-paced and chaotic, and Covid-19 really sent the market into an unprecedented tornado of uncertainty. Some people moved out of the city never to return, some people got awesome, once in a lifetime deals who have since lost those deals and moved out, and so so much more! As we head into 2023 and things continue to return (in some part) to normal, we at ApartmentsTogether, see things looking up for renters, with only a few more bumps in the road before the market finally steadies out.
Winter 2022
Winters are typically significantly slower for rentals compared to Summer months (we cover Summer Cycle vs. Winter Cycle in part 1 of 5), and since August 2022, apartment prices in NYC have began to cool off a little. Bad news for renters is that even if rents begin to cool off a bit more as the recent data show, it doesn’t necessarily mean rents will decrease, but more likely that they will just increase at a slower pace — which, granted, is better than the eyebrow-raising hikes New York City has been seeing throughout 2021 and 2022. In any case, we have started to see prices leveling out since August 2022, with some neighborhoods actually seeing a reduction in the average rent price, like Upper East Side, Midtown East & West, Harlem and even some areas of downtown like Gramercy and Lower East Side.
As we head into December 2022 and the new year, our belief is that prices will continue to fall in the aforementioned neighborhoods, while also leveling out Brooklyn as well as in the more expensive Manhattan neighborhoods (such as Tribeca, Greenwich Village, Chelsea, etc). Our hope is that this slight dip in the market will provide renters with a brief opportunity to capitalize on lower demand and prices, before the wave of Summer market renters start appearing during April 2023.
Summer 2023
Summer months are almost always busier than the winters when it comes to trying to rent an apartment. Starting in April 2023, we foresee that any discounts and bargaining power that existed for renters during the Winter lull will have vanished. Our belief is that, baring government intervention, the Summer of 2023 will be comparable to the Summer of 2022, and most past NYC summers: busy, hectic, expensive and stressful. We expect demand to come back next summer just as strong, and depending on the slowdown during Winter 2022, we’ d expect apartment prices should return to the levels found in Summer ‘22, which were generally higher than Summer ‘21.
Our advice is to try to make your move during the early months of 2023 when, hopefully, demand has slowed to its lowest yearly point. This will result in price drops, although these price changes will depend on how the landlords do during the Winter, and the forecasted demand (based on interest rates, market trends etc.). If you wait until April 2023, prices and demand will already be on the rise.
Winter 2023 and Beyond
Now, I want to reiterate that this is speculation. BUT… based on what we’ve seen in the market, what I’d expect to see moving forward is this: First, as mentioned, I see prices dipping slightly Winter 2022, and then rising back to Summer 2022 levels in Summer 2023. After Summer 2023, though, I do foresee a more significant change coming either Winter 2023 or beyond. I expect to see prices in Winter 2023 be LOWER than winter 2022, and prices in Summer 2024 to be lower than prices Summer 2023.
My thought is that the market is still reverberating the effects of Covid, with the swing of the pendulum pushing prices slightly beyond their natural state. As we move away from Covid and the world adjusts to Post-Covid life, less city-wide demand and more options for working from home should result in the rental market cooling down, before dropping market-wide slightly and finding it’s balanced state. What do you think?
