No, Rents Are Not Falling in NYC

The rental landscape in today's NYC (archdaily)

The rental landscape in today's NYC (archdaily)

Even though the nation is in the midst of an unprecedented affordable housing crisis, and that 50% of New Yorkers are rent-burdened, it’s entirely unsurprising that the media seizes upon news about falling rents instead.  This is how the media covers housing and it’s almost always wrong.  One of the immediately obvious problems with the recent spate of articles about “Rent In New York Is Falling” is that it isn’t true. 

Well, not entirely true.  A more accurate title would be “Some Rents In Some Parts of New York Are Sort of Falling” but obviously that lacks click appeal.  I’ll get into the numbers in a moment but most of us shouldn’t get our hopes up anytime soon.

These types of articles are examples of my frustration with how the real estate market is covered in the media.  Frankly, I have never liked the language we default to: Real estate is property as an asset. Housing is structure as a shelter. Of course there is strong overlap in the rental market, but we shouldn’t conflate the two experiences. In some of my previous blogs (here and here) I have talked about the difference between this confusion in terms of  “asset market” and “shelter market” but generally the media doesn’t make that distinction.

This failure leads to our constipated conversation about housing policy. It also leads to false articles about rents falling.  From the perspective of a small segment of the real estate market, this might be true right now. But from the perspective of housing in general, for most renters, this isn’t true at all.  Too often the media internalizes the narrative of the asset market at the expense of addressing the broader, more troubling narrative that is the affordable housing crisis.

The recent pieces about rent falling are a good example.  They stem from monthly reports from Streeteasy, Douglas Elliman, and Citi Habitats showing that in October and November rental prices went down slightly in Manhattan, Brooklyn, and Queens and vacancy rates crept up slightly in Manhattan (from 2.02 to 2.11) compared to last year.

The media coverage of these reports have failed to provide context for this data (even though each report does.) The reports are designed for asset market participants – investors, brokers, leasing directors, etc - and are intended to be snapshots of certain sections of the market as opposed to a comprehensive view.  Most people following these closely understand that, the general public might not. There are obvious problems with the media failing to clarify.

First, these reports don’t track all rental data in the city. They only cover Manhattan and Brooklyn (Douglas Elliman covers northwest Queens too.) Even that’s misleading. Though most reports cover a decent amount of Manhattan neighborhoods, only a handful of the tonier Brooklyn neighborhoods are tracked. Drawing conclusions about the NYC market from these reports that cover less than a quarter of city neighborhoods is clearly absurd.

Second, the lowering numbers in these reports are exclusively centered around the luxury market – the sleek glass towers popping up in downtown Brooklyn, LIC, and parts of Manhattan.  Although it is a heavily capitalized and flashy segment of the market (and represents virtually all of the new-build data in the city) it still represents a small fraction of rental transactions overall.

Undoubtedly this market is softening and will continue to. The sheer volume of new inventory (either currently on the market or coming soon) was bound to impact prices in this segment.  It’s the closest the city has to an honest-to-God rational supply and demand relationship. There are simply too many units and not enough renters at these current price points.

But does that signal some crash on the horizon as some people in the media are wondering? No.  During the last housing crash in 2008, thousands of finance jobs were lost in the city, which caused a considerable rippled effect across much of the rental market. That level of economic upheaval hasn’t happened and doesn’t seem likely in the immediate future (not to say there isn’t risk of a slowdown of course.)

But even in 2007-2009 a lot of the housing market remained largely unaffected.  A longer look at the data shows that some rents at the upper-end of the market hit a bump during this period while the rest of the market continued to climb after a brief slowdown. Much as we’re seeing right now, the asset market fluctuates as any market is supposed to in relation to the rest of the economy. 

However, the shelter market hasn’t responded that way and remains under considerable, sustained pressure.  Even if prices continue to dip on the high end of the market, that won’t help most renters in the shelter market for three reasons.

First, even a dramatic short-term fluctuation won’t change the fact that those rents are still too high for most New Yorkers and will only go up considerably at some point in the future. Maybe a few types of young professionals will get a good deal on in new building right now (more power to you), but most renters aren’t in a position to capitalize on the softening.

Second, the type of housing flooding this market isn’t what most renters need in New York. The one-to-two bedroom lifestyle buildings packed with rooftop patios and gyms aren’t designed for families, older residents, working class immigrants, or most types of younger students/artists. 

Third, they (mostly) aren’t located in areas that make practical sense for many renters. Much of these developments are in areas rezoned by Mayor Bloomberg that were formally industrial centers that don’t have the typical infrastructure necessary for residential life – whether its readily accessible transit, schools and churches, or even simple bodegas.  That infrastructure might fill in eventually, but it doesn’t exist yet.

The affordable housing crisis is a national scandal. It exposes how poorly our institutions and policies have adapted to a connected, globalized economy.  Holding our leaders in the public and private sector accountable for these failures and finding new solutions to solve them should be what our media focuses on.  As 2016 has shown, our media is just as flat-footed as anything else.