New York City, a global hub of culture and commerce, is grappling with a perplexing paradox. Despite a population that remains below pre-pandemic levels and an economic recovery lagging behind the rest of the nation, rents in Manhattan and Brooklyn have not only rebounded but have soared to unprecedented heights. This begs the critical question: Why Is Rent So High in a city that, by some metrics, is still finding its footing?
Even as other urban centers across the United States witness a stabilization or even a decrease in rental prices, New York City’s rental market defies broader trends. To understand this anomaly, we delve into the multifaceted reasons behind the sky-high cost of calling NYC home.
The Unprecedented Rent Surge in NYC
Before the world was upended by the pandemic, the average new lease for a Manhattan apartment was already a hefty $4,385, as reported by the Elliman Report, a widely recognized benchmark for Manhattan and Brooklyn rents. When the pandemic struck, triggering an exodus from the city, these prices initially dipped. Approximately a year later, the average rent had decreased by just over 15%, settling at $3,650.
However, this dip proved to be short-lived. Since then, new lease prices have embarked on a relentless climb. By June 2023, the average new lease in Manhattan had reached a staggering $5,470 per month. This represents an eye-watering 30% increase compared to pre-pandemic levels in February 2020.
Brooklyn has followed a similar trajectory, albeit less extreme. After experiencing a roughly 10% decrease from the February 2020 average of $3,442, Brooklyn’s average new rent now stands at $4,087. This figure is still a substantial 20% higher than before the pandemic.
Population Paradox: Fewer People, Higher Rents?
This rent surge is particularly puzzling when juxtaposed with population data. According to the U.S. Census, New York City experienced a population decrease of approximately 400,000 residents between June 2020 and June 2022. Manhattan’s population in June 2022 was roughly 80,000 lower than in 2020, and Brooklyn’s was down by as much as 130,000. While population numbers have likely seen some recovery in the past year, experts generally agree that the city’s population remains below pre-pandemic levels.
Furthermore, while New York City has nearly recovered all jobs lost during the pandemic, the national employment landscape has expanded by a more significant margin. Nationally, employment has jumped by about 3%, or 4 million jobs.
This divergence between fundamental indicators – population and overall economic recovery – and the escalating rental market raises critical questions. To shed light on why is rent so high, experts and data analysts point to a confluence of factors that have disrupted the normal dynamics of the housing market.
Multiple Factors Driving Up Rent Prices
There is no single, simple answer to why is rent so high in New York City. Instead, a complex interplay of factors is at work, creating a perfect storm in the rental market.
Among the primary drivers are the pandemic-induced disruptions themselves. The initial exodus from the city followed by a subsequent return created abnormal market fluctuations that ultimately favored landlords in setting prices. The rise of remote work, coupled with the influx of digital nomads choosing New York as their base, further intensified pressure on the city’s already constrained rental supply.
Just as rents appeared to be stabilizing in the fall of 2022, the Federal Reserve’s decision to combat inflation by raising interest rates introduced another layer of complexity. Higher interest rates deterred potential homebuyers, keeping them in the rental market and fueling further rent increases in 2023. Additionally, the proliferation of short-term rental platforms like Airbnb, combined with rent-regulated apartments kept vacant by landlords, effectively removes tens of thousands of units from the long-term rental market, exacerbating supply shortages.
The Pandemic Exodus and Return
A significant demographic shift occurs annually in New York City, with many young families departing as their children approach school age, seeking better educational opportunities or more spacious living environments in the suburbs. The pandemic accelerated this trend dramatically. Families with young children opted to leave the city much earlier than typical patterns would suggest.
Economist James Parrott’s analysis of census data from The New School supports this observation. His findings indicate a decrease in the number of workers aged 25 to 34 between early 2020 and late 2022, with a particularly pronounced drop among parents of children aged four and younger.
While this initial exodus led to increased apartment vacancies and a temporary dip in rents, the subsequent return to the city in 2021, 2022, and 2023 revealed a changed landscape. The usual influx of rental units from those moving to the suburbs did not materialize to the same extent. Many families who had been considering a move to less urban areas had already made that transition.
E.J. McMahon of the Empire Center also points to the surge in suburban home values during the pandemic. This surge incentivized older couples to sell their suburban homes, downsize within the suburbs, and acquire pied-à-terre apartments in the city, further reducing the available rental supply.
The Rise of Remote Work
The widespread adoption of remote work has also played a significant role in reshaping rental demand. Remote work has amplified a pre-existing trend towards smaller household sizes and a desire for more space per person.
Data from the Department of City Planning shows that the average household size in New York City decreased from 2.57 to 2.55 in the last decade. While seemingly small, this decline translates to a need to accommodate approximately 70,000 more individuals within the existing housing stock.
Comptroller Brad Lander highlights this trend of “more housing per household” as a contributing factor to rising rents post-pandemic. The desire for dedicated home office space has led some individuals and families who might have previously sought two-bedroom apartments to now seek three-bedroom units.
Furthermore, remote work has enabled many individuals, often termed “digital nomads,” to relocate to New York City even if their employment is based elsewhere. Jonathan Miller, president of Miller Samuel, notes that Google’s NYC headcount increased by over 1,000 in 2022 when the company requested employees to declare a home base. These individuals, often employed in high-paying sectors like finance and technology, are more likely to be able to afford higher rents.
Landlord Leverage and Market Speculation
Even if the overall population has not fully rebounded to pre-pandemic levels, these shifts in demand and supply dynamics have empowered landlords to increase rents.
Some analysts argue that landlords have strategically capitalized on “market churn” during a period of instability. Housing policy analyst Oksana Mironova at the Community Service Society suggests that while tenants may have benefited from “COVID deals” at the pandemic’s onset, landlords anticipated a rebound and planned to aggressively raise rents once the crisis subsided. This strategy has put tenants in a precarious position, forcing them to either accept substantial rent increases or re-enter a highly competitive rental market.
Mironova draws parallels to the rent surge that followed the 2008 financial crisis, arguing that periods of economic disruption often provide opportunities for investors and landlords to increase rents after acquiring properties during market downturns.
Comptroller Lander echoes this sentiment, acknowledging that real estate speculation likely contributes to the continued escalation of rents. He also points out that in supply-constrained housing markets like NYC, any significant market disruption, such as the pandemic-related population shifts, can drive up prices even without substantial changes in overall supply. The influx and efflux of residents during the pandemic created a larger pool of people actively seeking housing at any given time.
The 2021 Housing and Vacancy Survey, the most recent edition of a triennial study, attributed an elevated vacancy rate at the time of the survey to the large number of renters actively seeking new housing as people returned to the city.
Impact of Interest Rate Hikes
Just as the initial pandemic-related factors seemed to be waning, the Federal Reserve’s aggressive interest rate hikes to combat inflation introduced a new dynamic. These hikes have effectively doubled mortgage rates, significantly increasing monthly housing costs for potential buyers.
Jonathan Miller emphasizes that “high rates have played an outsized role in the recent increases by pushing would-be buyers into the rental market for affordability or cautionary reasons.” This influx of potential homebuyers into the rental market further intensifies competition and contributes to rising rents.
Vacant Rent-Stabilized Apartments
While increased demand from would-be homebuyers adds pressure to the rental market, a significant number of apartments are being withheld from the market altogether. Specifically, a substantial number of rent-stabilized apartments remain vacant.
Reports indicate that nearly 90,000 rent-stabilized apartments were vacant in 2021. While more recent, self-reported data from landlord registrations suggests a lower figure of approximately 40,000 vacant units, the number remains significant.
Comptroller Lander acknowledges that “There’s a meaningful number of [rent-stabilized] units that are being warehoused. This is well reported.” He identifies this as a likely contributing factor to the constrained rental supply.
Rachel Fiegler of Pinpointe Group points out another aspect of rent-stabilized apartments. Tenants in rent-regulated apartments, even at the higher end of the price spectrum, are incentivized to remain in place due to the benefits of rent stabilization. Furthermore, during the pandemic, many landlords offered preferential rents to attract new tenants. 2019 rent regulation reforms made these rent reductions permanent, creating an incentive for tenants who secured these deals to stay put, further limiting turnover and available units.
The Airbnb Effect
The proliferation of short-term rental platforms like Airbnb also contributes to the supply crunch in the long-term rental market. Data from Inside Airbnb indicates nearly 25,000 full apartments listed on the platform in New York City, representing an approximately 8% increase in the past year alone. Nearly half of these Airbnb listings are located in Manhattan, further concentrating the impact in the most expensive borough.
Sluggish Housing Supply
Compounding these demand-side and market-dynamic factors is a persistent issue of limited housing supply growth in New York City. New residential construction has slowed significantly.
Following the expiration of the 421-a tax abatement in June 2022, which previously incentivized rental apartment construction by offsetting high property taxes, the number of new residential building projects has plummeted.
The Real Estate Board of New York (REBNY) reports a sharp decline in building foundation filings. During the first five months of 2023, an average of fewer than 30 multifamily building filings were submitted citywide each month, compared to an average of 83 filings per month during the same period in 2022. Of the filings submitted through May 2023, only 11 were for projects of 100 apartments or more, and most of these are likely to be condominiums, not rentals.
This slowdown in construction exacerbates a long-standing trend of insufficient housing production relative to job growth in New York City. Between 2010 and 2018, while job numbers in NYC increased by 22%, the housing stock grew by only 4%. This disparity between job and housing growth was wider in New York City than in any other major city except San Francisco, according to the Citizens Budget Commission.
Mayor Eric Adams has emphasized the need for tax incentives to stimulate housing construction, echoing concerns from industry stakeholders like REBNY. REBNY president James Whelan stated, “In the absence of a housing production tool like 421-a, new rental housing starts have plummeted and the city’s housing supply crisis has worsened.”
Looking Ahead
While the confluence of these factors paints a challenging picture for renters in New York City, some experts suggest that there may be a glimmer of hope on the horizon. While rents may continue to reach new record highs during the traditionally strong summer months, a stabilization and potential decline may follow.
Hal Gavzie, executive vice president of residential leasing at Douglas Elliman, believes that “I do think at some point that these numbers have to come down. They are just unsustainable.” However, he cautions that predicting the precise timing of this market shift remains uncertain.
Ultimately, why is rent so high in New York City is a question with no single answer. It is the result of a complex interplay of pandemic-related disruptions, evolving work patterns, market dynamics, and long-standing supply constraints. Addressing this multifaceted challenge will require a comprehensive approach involving policy interventions, innovative housing solutions, and a continued monitoring of market trends.
