Overdemand Invites Rent Growth
In NYC and everywhere else
The multifamily vacancy rate in NYC is 1.41%.
Dig deeper and you can notice a few differences based on how you segment the housing stock:
By price: When segmenting by price, the picture gets better or worse, depending on how it’s looked at. Apartments renting above $2,400 are 96.61% occupied. Apartments renting between $1,650 and $2,399 are 99.22% occupied. Only 0.39% of apartments renting at $1,100 per month are empty.
By geography: In the Bronx and Queens, the net rental vacancy rate was ~0.80%. In Brooklyn, the figure is 1.27% and in Manhattan, 2.33%.
By housing type: market rate housing had a vacancy rate of 1.84% versus rent stabilized housing’s 0.98%.
Low vacancy rates in NYC create fertile soil for rent growth, which I’ve talked about before. The same principle that predicts rent growth in NYC also says that Uber drivers in busy cities will make more money on late weekend nights than during quieter times. When demand is high prices go up. When demand is high and not being adequately met by supply, prices go up even more – across different kinds of markets too: housing, transportation, securities, and crypto coins to name a few.
Apartments renting between $1,650 and $2,399 are 99.22% occupied
The degree to which apartment demand has outpaced supply helps explain the scale of rent growth. According to NYC Housing and Vacancy Survey 2023 (NYCHVS 2023), housing development has grown at half the pace of job creation since the economic bounce back from the Great Recession in 2010.
During almost the same period, the median residential rent in popular areas like Williamsburg, Brooklyn increased by 94.2% from 2006 to 2022. Would rent growth in Williamsburg have been flatter if developers built more housing, across price points and in different neighborhoods during this period? I think it would have been.
One the other hand, where developers build more housing units than there is demand for, investors should expect rent growth to decline. According to Moody’s CRE Analytics, major markets like Austin, TX, Raleigh-Durham, and other cities have built more housing in the trailing 12 months from June 30, 2024 than there was demand for.
Building housing to perfectly meet the expected demand is hard and absorption sometimes lags the delivery of new units. But the reverse is also common where builders don’t produce enough housing to meet demand. It’s a delicate dance and looking at the ebbs and flows provides good insight into when rents might grow. The smaller the total existing housing stock, the more sensitive it is to excesses of demand or supply, which is why Raleigh takes the top spot.
Predictably, rents in Austin, Raleigh-Durham and the other ‘excess supply’ cities declined in the last 12 months. On the other hand, in the areas where Moody’s research says developers didn’t build enough to meet demand, rents went up.
It is interesting to point out in the Moody’s CRE research, analysts drew a distinction between excess supply and oversupply. According to economist Nick Villa, excess supply or demand is temporary and it refers to the time between when newly built housing units sit empty after being built and when they get rented. Oversupply or overdemand describes sustained and larger supply demand imbalances. According to this definition, New York City is an overdemand market, while New Haven, CT merely has excess demand right now.
Across cities and states, the data supports the principle that demand and supply imbalances, temporary or endemic to markets, contribute to rent growth. Right now and for the past 40 years, the NYC housing market is deeply entrenched in a supply demand imbalance. That is to say, the data suggests NYC will see sustained rent growth as a result.
It’s really that simple.
Low supply + high demand = Up and to the right.
I am bullish on NYC multifamily
Call me at 646 326 2220
Best Regards,
Romain Sinclair
Sources: NYC Housing and Vacancy Survey, Moody’s CRE
Don't forget that NYC has about 1 million rent stabilized apartments and there is no rent growth with those apartments. In the past 10 years inflation increased by 30.3 %, the total rental increases for rent stabilized apartments was 13.5 %.
Due to extremist politicians at city hall and Albany has caused the deterioration of rent stabilized properties. Soon there will be inner city slums like the 1970s, its already starting in the Bronx.
In a normal environment demand invites Rent Growth but not for 40% of the rental market in NYC.