People aren’t even renting these days

By Felix Salmon
July 10, 2009

After a decade of Manhattan apartment prices going up, it’s only reasonable to expect them to go down for a few more years at least. That’s one reason to rent rather than buy right now. Another is that renting is still substantially cheaper than buying. So the rental market should be quite hot, right? Not so much:

We just released our rental report for the second quarter and the results sounded vaguely familiar to the sales trends. Rental inventory is rising at a 28.8% clip. There was a 17.5% year over year decline in rental price per square foot and a 58.3% decline in the number of new rentals.

Part of the problem is that apartments which just can’t be sold are being rented out instead. (Think Tim Geithner.) As a result, rental inventory is rising fast, which is depressing rental prices.

But what explains the plunge in the number of rentals? It seems that in a down market, people are simply much less likely to move house than they are in an up market — and that goes for renters as well as buyers. Partly, I’m sure, the reason is the depressed job market: new jobs are a big reason for people to move. But can that explain a 60% decline in rentals even as there’s a sharp drop in sales as well?


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The decline in renters is going down significantly because people are moving in with family, like I did. I left my apartment in Tacoma, WA and moved in with my aunt after I lost my job. But also, apartments for rent are also going down because I would bet fewer that are available are being listed. No apartment complex wants to advertise that they are half empty, better to say they have two or three open.

Or maybe the apartment complexes are finally starting to renovate the various apartments because the demand is so low that is now profitable to renovate.

economic flight.

Posted by Bryan X | Report as abusive

People combine households as they lose jobs, duh. My son goes to school in Tucson (we live in California and thanks Arnie for forcing him to go out of state with your budget cuts…). Anyway, he was living with my sister-in-law and her husband and his grandparents, so three generation household. This fall he’s moving in with two friends, who each formerly had apartments of their own.

Younger son is still at home at community college — not much chance he’ll move out soon.

It’s not a surprise to see the total number of households collapsing as we all try to save some money somewhere.

Fewer pied a terres (or is that pieds a terre?) in downtown NYC? I dunno, maybe things have got so bad that Hamptons residents have to helicopter back to home base every single evening…what a drag.

Posted by otto | Report as abusive

I think Matt is spot on. Though of course I can’t find a link now, Calculated Risk has mentioned multiple times that there’s a historical trend of a reduction in the number of households during recessions. People move back in with their parents, families take in lodgers and even some people in rocky marriages find it more economically daunting to split up.

It definitely goes against common sense and the obvious supply/demand curve you’d expect as prices fall, but it seems CR expected it.

Manhattan is just too anomalous to try to extract trends. Huge numbers of apartment buyers and renters are foreign. Bad economies back home (eating into trust funds), plus no jobs here, probably stems the tide considerably. Americans transplanted from other cities make up the rest of the renting population (the old joke is that nobody is ever “from” Manhattan). Same story – NYC is perceived as expensive and there are no more jobs here than elsewhere.
I’d be curious to see the breakdown by apartment size. After 9/11, when everyone expected NYC would empty out, there was a huge rush to smaller apartments as people downgraded, but didn’t leave altogether. I wouldn’t be surprised to see the same behavior now. The difference is that the last 8 years has seen an absolute explosion in the number of units.

Posted by Rockfish | Report as abusive

Surveying the real estate and rental market here in San Francisco, and seeing the same trends, it looks like a large function of dropping prices is the ever increasing supply. A lot large new buildings, planned/begun during growth years have been hitting the market in the last two years. Additionally a number of buildings planned as condo units have been either converting or mixing in rental units.

Posted by libor | Report as abusive

Re: decline in number of rentals — this is a report from an apartment broker, based on the activity they’re seeing. In this market, people aren’t in such a rush to move, and generally avoid using brokers and paying their 15%+ fees. I don’t think we’ve seen any evidence that total number of new rentals in Manhattan has fallen by more than half.

Posted by Leonard | Report as abusive

Many commenters are spot on. The number of households is declining. One demographic trend over several decades was a decline in the number of people per household. If times are tough, the opposite is true. Taken cumulatively, this means it will be harder to clear the housing overhang than ever imagined. The number of people per household has gone from 3.3 50 years ago to 2.5 now. If that trend starts substantially reverses, look out below!

My sister-in-law and her husband have joined my family in our (thankfully largish) house, since he is having challenges in this tough job market. I’m sure that is happening all over America.

Posted by Dan | Report as abusive

Nicely written. From a perspective in a town that is not hurting like the rest of the country but is headed that direction, there needs to be a very stark reality check. Austin Tx we’ve been very lucky so far but all of the ingredients are now there for us to fall into the chasm with the rest of the world. Unfortunately the common theme around here is deny deny deny. Almost as if enough denial will simply stem the tide. A lot of people are already seeing the realities of property that is simply not worth half of what it cost them. And yet the name of the game continues to be “Denial”. And, as a few who got totally sidelined down here had previously mentioned, we are seeing an influx of workers coming from places up north on the gamble they can find work here. As the rest of the world watches the stock market increase and people claim an end to the recession the divide grows deeper and deeper. There are solutions. Plenty of them. But it’s very simply about to be too late. If my dollar is valuable to somebody, they will get it. If it is simply not buying enough especially for the value, nobody gets it. It’s a standoff and only a very few businesses have figured out how to respond. Renting property in Austin? There is still a substantial threshhold to overcome. People say it’s cheaper than the rest of the country but the fact is based on numbers that are heavily skewed. The numbers are dragged down heavily by the number of units being rented to undocumented families and workers as well as those that never left after Hurricane Katrina. Austin has such a high number that they are able to skew the average and make it look like a very affordable town. But if you live here and rent here the reality is such that the actual median income does not support the demand on renters. Factor in the number of people that are beginning to move here for the opportunity of work and we are on the verge of having a high demand on housing and not enough work to support it all. We are in trouble.

Posted by Joe | Report as abusive