For the first time since the Great Depression, apartment rents are dropping in much of New York City.
Real-estate professionals say rents have dropped at least 5 to 10 percent-and in some cases as much as 20 percent and more-in a variety of city neighborhoods during the last three years.
Rents on luxury apartments have dipped occasionally over the last half-century, but this is the first time that the number of apartments available for rent has begun to outstrip demand even in working-class and middle-class neighborhoods, according to real-estate brokers, landlords and other housing specialists.
Ever since World War II, when the city`s housing shortage began, a tight rental market and rising rents have been as central to New York`s fabric as traffic, noise and glitter. The decline in rents has produced fundamental changes in many of the unwritten rules and rituals that have made finding a decent apartment a distinctive ordeal in New York.
No longer do prospective tenants routinely find it necessary to scour obituaries to discover vacant apartments, or bribe doormen, superintendents or managing agents to gain first rights to a vacancy.
Nor do landlords automatically increase rents to the maximum allowed under the rent-stabilization law, as they have for decades. When renewing a lease now, landlords and tenants often negotiate a rent increase. Landlords also say that when an apartment becomes vacant, not only must they often forgo the rent increase that is allowed by law, but they also cannot attract a new tenant without offering a rent below the previous level.
In for a surprise
To people accustomed to the traditional New York housing market, in which landlords held most of the leverage, the new world of renting can be startling.
Thomas Lynch, an investment banker, is moving from Boston back to New York this week after spending seven years away. In the city he remembers, a good apartment was so hard to find that ”people actually paid off doormen to find out who had died in the building,” Lynch said.
When he began looking for an apartment two months ago, he said, he discovered immediately that things had changed. The first broker he visited took him into a small room, in which three of the four walls were covered with small filing cards with information on apartments that were available immediately. Because he was looking for an apartment seven or eight weeks before he intended to move in, the broker suggested that he postpone his search.
A few weeks later, Lynch looked at apartments for several days. ”I found it very easy to find a lot of apartments,” he said.
He selected a small one-bedroom apartment with a private garden in a building on East 64th Street, off Fifth Avenue. He will pay $1,450 a month. The owner first put it on the market at $2,500 a month, Lynch said.
Apartments in Lynch`s new neighborhood and on the Upper West Side have carried rents averaging about 10 percent lower than those for similar apartments in 1987, according to a survey by the Feathered Nest, a Manhattan real-estate brokerage.
Added incentives
Some Manhattan developers are so hard-pressed for tenants that they have begun to pay the real-estate broker`s fee, ranging from one month`s rent to 15 percent of the total first-year rent. New York renters have traditionally paid the broker`s fee.
The decline in rents does not mean that New York apartments are now a bargain, at least compared with most American cities. It also does not auger much relief for low-income New Yorkers, for whom the shortage of decent, inexpensive housing has long been most acute. Rents in poor neighborhoods have remained stable, housing specialists said.
But the overall decline does reflect a significant softening of the rental market, many owners and brokers say. The last time any New Yorkers experienced rent decreases was in the early 1970s, but then it was limited to only the most expensive apartments, real-estate professionals said.
If sustained, the changes in the rental market might lead to revisions in New York`s system of rent regulations. By law, rent control and rent stabilization remain in effect as long as the city`s overall vacancy rate is below 5 percent. If it goes above that figure, the regulations are lifted.
No one knows how much the overall vacancy rate has changed in the last three years, or, despite the decline in rents, whether it has changed at all. In the most recent city survey, released in 1988, the rate was 2.46 percent. The next survey will be next year, city housing officials said.
Squeezed out?
Some landlords, who have long sought a phaseout of rent control and rent stabilization, have begun citing the decline in rents to bolster their argument. They contend that some owners, squeezed by higher costs and falling rents, will be forced to abandon their buildings.
”The market is proving to be an excellent regulator,” said Richard Esposito, a partner in Prana Investments Inc., which owns and manages 18 buildings in Harlem.
Tenant groups have long contended that any relaxation of the rent regulations would most harm the poor and elderly, who already are paying disproportionately large shares of their income for housing. Tenants are certain to oppose any changes.
Rent stabilization covers 840,000 apartments, generally in buildings constructed between 1947 and 1974 and those built after 1974 with city tax abatements. Tenants in 140,000 more apartments are covered by separate rent-control rules if they have lived for at least 19 years in buildings constructed before 1947.
Purely economics
Richard LeFrak, president of the Lefrak Organization, a leading real-estate concern, said the reasons for the rent decline were clear: ”The laws of supply and demand are at work. It`s not that complicated.”
The faltering economy has diminished people`s willingness to pay high rents at the upper end, where the retrenchment on Wall Street has sharply altered spending habits, and at the middle of the market, in working-class and middle-class housing.
The rental oversupply is most pronounced at the high end. Two-bedroom apartments in rent-stabilized buildings without doormen on Manhattan`s Upper West Side are renting for an average of $1,750 a month, the Feathered Nest found, while similar apartments were renting for an average of $2,150 a month last year.
One-bedroom apartments in newer, unregulated buildings with doormen on the Upper East Side are renting for an average of $1,850 a month this year, according to the survey, while similar apartments rented for about $2,000 a month last year.
While a boon to consumers, the market shift could hurt some landlords. Rents are declining just as owners are being hit with large cost increases on everything from property taxes to water and sewer bills to heating oil. Many landlords predicted that the financial squeeze would force some owners to cut services and ultimately abandon their buildings.
