Comment by screye
20 hours ago
Some of it has to do with the FARE bill making broker fees illegal. That should account for a 5% of the increase.
NYC has negligible vacancy rates and airbnbs are already illegal. Sounds like a supply problem. The supply problem gets clearer when you realize how quickly the jersey side has grown. It's because NYC has no supply.
I have no proof for this, but lots of influencer types, nepo babies and people with remote jobs moved to NY during covid and didn't leave. NY Metro population never saw a covid dip, has been steadily growing and RTO mandates are probably causing suburbanites to consider moving back into the city. We are seeing price increases from a repressed real estate market that's finally making bank from the supply crunch.
Compare NYC metro area to SF metro area. NYC saw smaller covid drop, larger subsequent pct growth and a much much larger absolute growth rate. Rent control won't fix anything. They need to start approving market-rate housing at a mad rate. Austin is a great reference.
[1] https://www.macrotrends.net/global-metrics/cities/23083/new-...
[2] https://www.macrotrends.net/global-metrics/cities/23130/san-...
Just to piggyback some info onto the FARE Act that the NYC City Council passed because I think it's interesting when talking about the second-order effects of some regulations.
For those of you who aren't familiar with this Act, NYC has been an outlier in the US where the tenant would pay a broker fee to rent apartments that were listed by a broker. The odd thing about it has been that it's not the tenant who would historically "hire" the broker, but instead the landlord/owner. And the benefit to the landlord/owner is obvious: they didn't need to expend any resources/energy to market the property for lease and then once a tenant was found the tenant would take care of paying for the broker's efforts through a fee that would range from, say, 8% up to 15% or more of the annual lease rate (e.g., $3000 per month apartment minimum fee would be $3k and sometimes a multiple of that if the broker could get away with it). With the FARE Act this practice where the landlord hired the broker and the tenant pays the fee was banned. You may see where this is going...
For some reason, the NYC City Council thought (and still does think because you can't admit a potential mistake) that the landlord was going to now eat the broker's fee without raising the rent to offset that additional cost. So far? Landlords are not eating the fee and instead are raising the rents. And the worst of it is that the broker fee was always a one-time fee meaning that if the tenant stayed in place they wouldn't be paying the fee again upon lease renewal. Now? The tenant is paying the increased rent to offset the landlord having to pay the fee and that is now the baseline of all future rent increases.
Still early days for the FARE Act, but any reasonable person would've understood that landlords would not eat the broker fee and that this would cause an overnight increase in rents, which... it did (literally overnight once the Act was in effect).
This is all true, but removing the broker fees and replacing it with a rent hike is still better for the market overall, since the broker fees simply artificially dampen liquidity. You only paid them when you moved into a new place, but that meant that if you are stuck with a crappy landlord you might not move out because the marginal cost of moving anywhere else in NYC is much higher.
> For those of you who aren't familiar with this Act, NYC has been an outlier in the US where the tenant would pay a broker fee to rent apartments that were listed by a broker.
It might be unusual in US, but it is a standard thing in Russia: a tenant pays the fee and landlord pays nothing. I always thought it was the same everywhere. However, when selling the property then the seller pays the fee.
As for high prices, isn't it caused by the fact that everybody wants to live there but there is not enough properties for everyone? If the rent in place A is 3 times higher than in place B it means that people want to live in A and whoever lives in B is there only because they cannot afford living in A.
Interesting. Is it the case the landlord hires the broker in that situation? Like the landlord hires the broker, the broker lists it and then the tenant pays the broker? One thing that's still true in NYC is if the tenant hires the broker the tenant still pays the broker, but that's a tiny occurrence relative to the broader practice.
Totally true on high prices. I was only trying to point out that the goal of that FARE Act, or at least a major goal of it, was to keep tenants from having to pay junk broker fees, with the assumption that would lower the overall cost of housing. It might actually be doing the exact opposite, though still too early to tell (only went into effect in June).
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Thanks for adding context. On the balance, I think it's a good bill.
Like tariffs, all taxes are eventually paid by the customer. But landlords are more capable of applying price pressure on brokers than random renters. It incentivizes landlords to hand out longer leases, which gives renters more security and fewer avenues for eviction. Won't be surprised if a software company (like streeteasy) takes over the ops side of the brokering business and drives the per-sale price waay down. Seems like an obvious startup idea.
Appreciate the optimism and I think what you're saying could happen, and I hope it does, but the flip side is the landlords don't exert that pressure, they bake the fees into the rental rate, and so the new reality is a stepped-up market rate caused by the legislation. If the landlords can just pass the fee on as a rent increase there's not really an incentive for them to offer longer leases so it will all come down to whether the rental rate increase (if there is one long term) sticks. Then I feel like the only thing the FARE Act will have done is raise the baseline rent and therefore the overall cost of housing for tenants (some argue that it's also better to amortize the "fee" over the lease term instead of having to pay it up front, but if the net result is more cost to tenants that seems like a bum deal).
Re the startup idea, agree fully. Zumper sort of tried what you're describing on the lease side in NYC. I interacted with them around the time they launched that effort and thought it was a bit rough around the edges (when is it not when you try something new?). Not sure if they're still doing it or how the FARE Act would've impacted them because I don't quite remember how/if they were using the software/marketplace to drive down the broker fee or just trying to capture the fee as-is (I think the former but not sure).
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At least in Manhattan, no one will give you a contract for more than a year - they will want to renegotiate in a year and demand is high enough to not worry about having no tenants. In Europe multi-year contracts are somewhat typical, but never heard of that in NYC. Similarly, very few will do a contract for less than a year. So the one-time broker fee gets amortized over 12 months, but the net effect is a wealth transfer from long-term tenants to landlords (because they continue paying that increase in perpetuity).
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