Summer in Manhattan means a lot of things: Mister Softee trucks on every corner, giant cockroaches on subway platforms, and free movies in Bryant Park. It also means prime rental season in the residential real estate market.
For the past two years, renters have enjoyed plenty of perks: free rent, no-fee apartments, flexible move-in dates. Two recent articles, one in the Wall Street Journal, another in the New York Post, show with real numbers how the vacancy rate in Manhattan has tightened and that rents have gone up. The pieces are short, are mostly numbers and don't really tell us why. The why is what's important, because these changes aren't rooted in greedy landlords trying to take advantage of tenants. Behind all numbers is a story, logical reasons that seasoned real estate brokers know.
After all, shiny, glass and steel towers are popping up all over town. So why can't anyone find a place to live?
New College Grads Can't Convert Apartments Anymore: In the old days (as recently as two years ago) when new college grads needed to save a few bucks, they rented a one bedroom, put up a wall and converted it to two bedrooms. It was an easy way to live in a doorman building on the cheap. Then, in 2010, the Department of Buildings decided that these wall conversions were a fire hazard, and that they all needed to be taken down or changed with an approved wall -- a wall that is open on top and doesn't have a door. The structure doesn't inspire a lot of privacy.
This caused a huge hit in the share market. It's easy to find a $2500 one bedroom that may be big enough to convert, but if the landlord won't allow such a conversion, and many won't, then those two young tenants need to find a real two bedroom at that price point -- and that's no easy task. The bedrooms will likely be small, or different sizes, or you're looking at a fifth floor walk up.
One building in Murray Hill that was known as nothing more than a glorified dorm recently told any tenants with the illegal walls that unless they put up the approved walls -- at their own expense, naturally -- management wouldn't renew their leases. Now there are lots of empty, great one bedrooms available in a doorman building in the East 30s. Since the owner can attract more qualified tenants who don't need guarantors, the apartments are more expensive, by at least a few hundred dollars.
Good share apartments stay in social circles for years. I know of a very cute three-bedroom share apartment on Bethune Street in the West Village. I even lived there for a month when I was between places a few years ago. It's been rented by three University of Georgia sorority sisters since 2007. The original three girls who lived there have long since moved out -- some have even gotten married. Each time one leaves, the empty room is filled with another Alpha Omega Pi. Go Dawgs!
My point? The Gotham newbies have it a slightly more difficult than their buddies who came a few years ago. And so, new college grads may have to live at home and hope that something will open up -- or until they can afford a studio on their own. By the way, those start at $1500 a month.
Manhattan Is Co-op Country: Only the Fiscally Strong Survive: After a few years of renting, most young professionals want to buy a place. Part of it is status, but a larger part is that it makes fiscal sense: there are tax deductions to take advantage of, and often the monthly payment is less than what one would pay in rent.
In other parts of the country buying a first home is relatively easy: you cobble together a down payment of, maybe, 10%, get financing and off to the closing table you go. In Manhattan, most buildings are co-ops, and a 10% down payment won't even get you an application. Most buildings ask for at least 20% down, excellent credit, and at least a year's worth of maintenance and mortgage payments in the bank. Oh, and that persnickety co-op board has to meet you and make sure you're a good fit for the building. Parents can't always buy for children, and dings on your credit report will result in the co-op board taking money up front in escrow. Also: don't bring that dirty adjustable rate mortgage to a co-op. Most won't even look at your package if they smell one. It's fixed rate or forget it.
There's been a lot of economic nonsense in the past three years. Maybe young people haven't gotten the bonuses they expected, or maybe they were laid off from a job and floated for a bit. Either way, this is contributing largely to people staying put in their rental apartments until they save more for a down payment. True, unemployment in Manhattan is low compared to the rest of the country, but a job alone is not enough to make you a homeowner.
Rents Have Gone Up -- Considerably: My single gal apartment was a basement apartment with a window the size of a shoebox. When I left, after living there for five years, it was $1400. Today it is back on the market for $1950. That's an increase of 39%, and just over three years. I've written before about how renters who received incentives in the past -- free rent or no brokers fee -- are paying for it now in increased rents. Favors for one tenant have to be paid by another, which is a large reason why rents have gone up all across the city. Someone has to make up for those losses.