Why are all the landlords so dispassionate and cranky? It’s because all the good landlords lost their business.
We were tenants in NYC for nine years. We met numerous landlords in those times. Except few, most of them were dispassionate towards tenants. Rents were very high. We saw many families struggling to keep a roof above their heads. They were one month away from becoming homeless because of the soaring rent.
So, why is NYC rent so high? NYC rent is high because of high property prices, higher property taxes, expensive home insurance premiums, high renovation cost, zoning laws, 1994 vacancy decontrol law, biased city regulations, and demand for apartments exceeds supply.
You have to think like an NYC landlord to figure out why rent is high here. In this article, we are going to explore all the reasons.
Higher Property Price:
NYC has five boroughs — Bronx, Manhattan, Queens, Brooklyn, and Staten Island. We lived in the Bronx for nine years. While Manhattan is the most expensive borough, the Bronx is the cheapest one.
Before moving out of NYC, we considered buying a house in the Bronx. However, after numerous calculations, we scrapped our plan.
A 2 apartment house in the Bronx costs a minimum of $700,000. The monthly payment for a 30-year mortgage at 3.92% APR with a 20% down payment is $2,648 minimum. This high monthly mortgage increases rent.
Higher Property tax:
Property tax is a shackle that enslaves a homeowner forever. Property tax makes you a renter in your own home. It’s because if you don’t pay taxes, the city or county will take your house, sell it and recoup all the tax you didn’t pay.
A $700,000 house in the Bronx has approximately $6,000 yearly property tax. Therefore, per month property tax is $500. Even if we exclude heating costs, water bills, electric and gas bills, a homeowner needs at least $3,148/month to cover house-related expenses in the Bronx. In Manhattan, Brooklyn, and Queens, this monthly expense would be more.
Though the NYC law has changed slightly, basement rental is still illegal without proper renovation and permission. The homeowner has two apartments for rent if the landlord decides to rent the basement illegally. (The owner might live in the 3rd apartment.) Therefore, as we can see, a landlord must charge $1600/month for an apartment to recoup these essential monthly costs.
Expensive Home Insurance:
Everyone wants to keep their investment safe. Therefore, homeowners carry home insurance. Due to high property values in NYC, the home insurance premium is high compared to other cities. For example, in the Bronx, a $700,000 house has a minimum of $245 monthly home insurance premium.
1994 Vacancy decontrol law:
In the 1990s, New York City was struggling. There were countless abandoned buildings by owners. There were numerous city foreclosed houses for nonpayment of property taxes. Landlords blamed city laws that did not allow them to increase rent for vacant properties.
Before 1994, NYC dictated rent. Therefore, the rent of a multimillion-dollar Manhattan apartment or a shabby apartment in the Bronx was almost the same.
Therefore, in 1994, NYC passed the vacancy decontrol law. This law allows a landlord to increase an apartment’s rent to market value after a renter moves out.
There were two arguments in support of this law. These are:
- Regardless of income, the rich and poor are paying almost the same rent. The rich are not paying their fair share of house rent. If vacancy deregulation passes, the landlord can increase the lease price for the rich living in a million-dollar apartment. This law will force wealthy renters to pay their fair share.
- If rents go up, it will incentivize developers to build more NYC houses, thus increasing economic growth. Landlords will be able to make a decent return on their investment.
However, decades later, landlords are now using this law to jack up apartment rents regardless of tenants’ income. That 1994 law may have helped NYC raise millions in taxes but at the expense of financially struggling people.
Strict rent stabilization law:
According to the rent stabilization law, an owner can increase rent at a 2% rate at two years interval. And for senior citizens, it’s 0% for life.
Therefore whenever an apartment becomes empty, landlords jack up the initial rent because of this rent-stabilization law.
City laws and high repair cost:
House repair is expensive in NYC. No other city in America extracts so much money from the construction industry through higher fees and fines than New York City.
This city has numerous laws regarding home repairs and liability insurance for every type of contractor. For example, the infamous “New York Scaffold Law.” This law imposes all liability on contractors and property owners. Absolute liability means that regardless of whatever anyone else does, the contractor and property owner are 100% liable for everything. As a result, contractors have to carry expensive liability insurance.
For various other reasons, house repair is costly in NYC compared to other cities.
A roof lasts 20 years, a furnace lasts 15 to 20 years, and a water heater lasts 6-8 years. A homeowner needs to set aside some money each month for these future expenses. Therefore, a landlord who buys a home as an investment must increase the rent to cover this.
NIMBY and Outdated Zoning Laws:
NYC has shortages of affordable housing. However, even if the city wants to build houses for low-income families, NIMBY comes up. NIMBY means “Not In My Backyard.” Residents vehemently oppose these projects. According to them, these low-cost housing in their neighborhood will drive down their property value and increase crime. Because of this opposition, the city can’t build enough affordable houses.
Moreover, NYC has outdated zoning rules which prevent the construction of high rise buildings in many neighborhoods. As there is no more vacant parcel in NYC, the apartment number is fixed, but the NYC population increases daily. Thus, high demand increases rent.
Demand drives up the rent:
The nation’s highest-taxed states and counties surround NYC. New Jersey and Connecticut are two states that have high property taxes. Nassau, Suffolk, and Westchester counties, too, have the USA’s highest property tax. For example, this $700,000 single-family house in Nassau County has a yearly $12,000 property tax, double than in the Bronx. As a result, rent in those places is also high. However, work opportunities are not comparable to NYC. Therefore, many people decide to buy a house or rent an apartment in NYC rather than living in those counties. It also increases the new york city population.
NYC is the place where you can make money. Especially for immigrants. There are two international airports — JFK and Newark — through which millions of people come to this city. There are also large, established immigrant communities here. Therefore, millions of immigrants are coming to this city each year.
There is no other city similar to NYC in terms of services and amenities.
Theaters, museums, bars, broadway shows, financial institutions, technology companies, tourist attractions, public transportation, airports, culture, etc., everything is available here.
All types of jobs are available. Even an immigrant can find work within a few days, which is not possible in other cities. For example, we knew a family in NYC. Due to the high living cost, they moved to Buffalo. Unfortunately, they could not manage a job in 5 months. Later, they moved back to NYC.
Some laws prevent non-New York City residents from getting city jobs. Therefore, to become a city employee, many people move into NYC. There are also laws that prevent a non-NYC resident from getting a taxi license. These types of statutes indirectly increase the city’s population.
It’s a fundamental law; demand increases prices.
Not only US developers but also foreign realtors are pouring money in NYC. They seek to profit from their investment. Therefore, if the rent is high to make someone homeless, they don’t care.
Laws biased toward tenants:
New York state and New York City have some of the strictest laws protecting tenants. These laws also make it harder to evict bad tenants. Therefore landlords want tenants who earn more and will not default on their rent. According to many landlords, high rent fends off bad tenants.
As we can see, there are numerous intertwined reasons for NYC’s high rent. However, there’s no shortcut method to make rent affordable.