New York Rents Keep Rising: If You Own That Brownstone, You May Be Rich
Banks’ stringency on approving mortgages after 2008 shows the lack of new homebuyers and high rental demand.
If you’ve seen the movie The Big Short, you’ll remember the scene when Steve Carrell’s character goes to a Florida strip club to conduct “research” on the real estate market there. What he discovers, aside from the dollar bills in lithe ladies’ G-strings, is quite astounding. Strippers have been buying up real estate (one owns 5 condos) with no doc loans like they were at a watermelon sale in the Sahara. Of course, it was the crazy period pre-2008 when dead uncles with expired drivers’ licenses were able to buy houses. Well, according to data recently released by the Commerce Department, if you managed to hold on to your rental assets, you are now reaping the rewards like never before. For the strippers, it could mean a permanent goodbye to the pole and stilettos and for the dead uncles, a graveyard shin-dig. For everyone else, Jimmy McMilan was right, the rent is too damn high.
A record 4.4 percent of Americans’ total household receipts came from rental income in the first quarter of 2016, up from just 0.7 percent in 1986. To put it into context, it marks the kind of all time high not witnessed since Keith Richards was busted comatose in a Toronto hotel room in the late 1970’s. Actually, to be more precise, not since 1947 has American rental income been so robust.
What’s fascinating about the data is that it also shows how much home owners would make if they rented out the houses that they were presently living in, after accounting for expenses including mortgage interest and property taxes or insurance. For example, if you purchased your Crown Heights, Brooklyn brownstone twenty years ago and are still living in it, you might want to consider moving to the suburbs and renting it out, because recent data on streeteasy.com shows that a studio apartment that may have got $600 in rent two decades ago may now get as much as $1900/month.
Banks’ stringency on approving mortgages after 2008 has had something to do with the lack of new homebuyers and high rental demand, along with the record low interest rates, which have increased landlords’ profits.
“Some people are spending half of their income on rent, and that is just an unsustainable amount of money, especially for people who are older on a fixed income,” said Greg Kelman, CEO of real estate database and brokerage company, Redfin, on NPR earlier this year.
“What’s interesting to me about that is that the laws of supply and demand seem to be broken,” he added. “So rents and housing prices have been rising over the past three or four years, but inventory has been extremely low over that time. One of the big reasons is that the builders just haven’t had the confidence to really borrow a lot of money and break ground on a lot of developments. So you’ll see urban infill, 20 or 30 units being added in the center of the city. But folks haven’t been willing to go out to the edge of town for really large developments.”
Incredibly, part of the issue, according to Kelman, appears to be the lack of available labor to build new houses.
“So the National Association of Home Builders, one of their top legislative priorities is immigration reform because we just need more skilled labor from outside the country,” he said. “You’ll see security guards at building sites who aren’t really guarding the lumber. They’re guarding the labor. They’re preventing a recruiter from coming onto the site and taking the whole crew across the street to another place that’s being built for an extra two bucks an hour. So there’s a real challenge in finding skilled labor, and it’s one of the reasons we have high rents now”
With rents skyrocketing and housing in short supply, many renters, according a Pew Research Study, are resorting back the only solution left to them – moving back in with their parents.
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