Curbed’s Conspiracy Theory on New York City Rent Falls Short

(Illustration by Kevin Rebong for The Real Deal)

What if New York City’s skyrocketing rent growth over the past two years wasn’t due to renters returning en masse? What if landlords were putting units off the market to artificially raise rents?

A restrained story unfolded that theory in late January, raising concerns across real estate Twitter.

Author Andrew Lane argued that the evidence does not show that more people moved back than they did at the start of the pandemic and that landlords have reason to keep units empty.

The real deal delved into the claims. Here’s what we found.

The forgotten demographic

To test the theory that New York’s revival never happened, Lane cited migration records, specifically change-of-address forms filed with the United States Postal Service.

Lane found 209,500 more residents moved out of the city than into it during 2020, and the city never made up the difference, but actually continued to suffer losses. In 2022, the city lost nearly 98,000 residents, the same number as in 2019.

But this method misses international moves and people who fail to submit a change of address form. It also doesn’t take into account new family formation, such as when roommates split up and take their own places.

The writer noted these factors but failed to inspect the effect they may have had. Even in a normal year, the city comptroller wrote in an October report, “postal records historically show a net outflow, even as New York City’s population is growing.”

When accounting for international movers, Lane cites only one Census estimate that the city gained 33,818 such residents in 2019. He surmised that New York gained “probably less in 2020 and 2021 because of Covid-related travel bans.”

He did not mention that the travel bans ended in November 2021 for 33 countries, including parts of the European Union, the United Kingdom, China, Canada, Mexico, Brazil and India, and that New York brokers on the eve of the policy change reported the phones they were falling off the hook.

International movers were “historically an important source of new residents for New York City prior to Covid-related travel bans,” the comptroller noted in a November 2021 report, adding that lifting international travel restrictions “could release a new wave of residents.”

College rush

Similarly, postal records lose demand from students, who rarely submit change-of-address forms.

Ahead of the fall 2021 semester, New York universities made a push for in-person learning: Columbia in May, CUNY in July, NYU in August.

The pressure to move back to campus sparked “fierce competition” among college students hunting for apartments, the New York Post reported.

Lo and behold, that September is when Manhattan rentals began to appear. Asking prices rose annually for the first time since last summer, according to data compiled by appraiser Jonathan Miller for Douglas Elliman.

In October, profits reached 11 percent. And in November, when travel bans were lifted, rents rose 14 percent year-on-year. They haven’t been under double digits since.

Spring fever

Even before that, signs of increased demand were evident, as renters saw a rare chance to grab a bargain.

Manhattan’s median rent fell 15 percent in March 2021 and 22 percent in April from a year earlier, before Covid began to drive down rents.

Those deals drove leasing activity up — by 545 percent annually through April 2021. Miller had never seen higher growth or more leases signed since he began tracking metrics in 2008.

Leasing volumes continued to break records through July.

To Lane’s eye, however, New York in the spring of 2021 had little to offer future residents.

“New York was still beset by Covid-related troubles,” he wrote. “Tourism was greatly in decline … Crime was said to be on the rise … and outdoor dining had encouraged rats to live freely and openly among humans.”

“Did all the people who had apparently moved to escape these concerns really come back?” he asked.

Well, yes.

With the vaccines debuting, New Yorkers who had spent a year scared and cooped up — perhaps with roommates, romantic partners or increasingly impatient parents — were desperate for a reopened city and a return to culture. Despite the occasional rodent, outdoor dining was extremely popular.

Rents were still low, and some saw the deals as an opportunity to strike out on their own, creating new families unregistered from postal forms.

Housing pressures

If low prices drew a record number of renters to the market, the city’s sales market is likely to push some potential homeowners to remain renters, further pressuring rental supply.

Lane conceded only briefly that “maybe the Fed was discouraging home sales with higher interest rates, so more people were renting.” In fact, rising home prices and strong competition kept some potential buyers in the rental market long before the Fed raised mortgage rates.

“In fact, 2021 could be described as a historical anomaly,” Miller said. “The demand for housing came back again.

In the second quarter, the median home sale price in Manhattan hit $1.1 million, a two-year high. In the third, the number of homes sold in Manhattan had reached a 14-year record of 15 percent. Prices were 8.8 percent higher than two years ago.

Why warehouse?

After trying to show that New York’s remarkable comeback was fictional, Lane turned to the supply side for answers as to why rents went through the roof.

It sits in storage: when owners keep units off the market.

Lane noted that landlords of rent-stabilized units have been doing so since the passage of the rent law in 2019, but that those vacancies are “just one factor in New York’s rental affordability crisis.”

The 38,000 offline, rent-stabilized apartments make up just 1.6 percent of the city’s rental units. “The distribution of these units is probably not what drove Manhattan’s one-bedroom market prices to infinity,” Lane wrote.

Instead, Lane surmised, landlords are keeping market-rate units off the market to drive up prices because their loan agreements often require a minimum rent.

Lawyers on the ground say these claims don’t hold water.

“The way it works is you have to pay a market rent or the rent set forth in any government settlement agreement,” said Eric Orenstein, an attorney at Rosenberg & Estis who handles multifamily agreements. There is no minimum rent that landlords must pay, he said.

During a period of record low rents, such as the first year of Covid, the lawyer said it would make sense to keep the units off the market. And many owners did.

But in the past year, when rents rose to record levels, keeping the apartments would be a losing game, Orenstein said. Many tenants had not paid rent for months, leaving landlords at risk of missing mortgage payments and desperate for income.

Acknowledging the impossibility of his conspiracy theory, Lane posited an alternative: RealPage. The firm’s software recommends that owners pay more than they would otherwise. One RealPage executive even credited the algorithm for increasing rent nationwide.

The author acknowledged that only 1.8 percent of New York’s rental market uses the software, but speculated that those landlords could raise luxury rents enough to force some renters down to lower-priced units, driving up their prices.

As with rent-stabilized vacancies, however, the numbers are too small to place prices on the rise.

Ultimately, Lane seemed to admit that he failed to prove his case. “Look, it is possible that my suspicions are unfounded,” he wrote, “and all these buildings are full.”

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