With the average asking rent rising over $3,000, New Yorkers continue to wonder “Why is the rent so high?”. Business Insider Writer Josh Barro detailed several key reasons in an article titled “The 8 Reasons WHY New York Rents Are So Ridiculously High” to offer insight into the rising cost. He attributes factors such as limited space, high property taxes, and high constructions costs. Interestingly enough, #3 on his list is “Rent Control”. Here is an excerpt:
3. Rent stabilisation raises your rent if you’re not rent stabilised. While the average rent for available apartments in New York City is now over $3,000, the U.S. Census Bureau says renters in New York City were only paying a median of $1,125 in 2011. What gives?
The answer is, there are lots of cheap apartments in New York. You just can’t get one of them, because they’re rent stabilised, and tenants with great rent stabilised deals cling to their apartments until they die.
The Cato Institute produced some great charts on this back in 1997, but the same dynamics still hold in the market today. In cities without rent control, rents for available apartments form a normal distribution around the Census median rent. Here’s a chart of Philadelphia rents in 1997:
But in cities with rent control, most of the available housing stock exceeds the median rent. Here’s the New York chart from 1997:
Then as now, average advertised rents were about three times higher than average rents as measured by the Census Bureau. And when you look at data from the Furman centre at New York University, it’s not hard to see why.
In Manhattan below 96th Street, 35% of rent-stabilised apartments are occupied by a tenant who has lived there for more than 20 years. Less than 3% of market-rate tenants have been around that long.
Many of those rent-stabilised tenants would have moved if they had to pay market rent, whether within the city or to Florida; when they hold onto their great deals, they reduce supply available to new renters, and that drives up prices for everybody else.
(You can find the article in its entirety below)
Source: Business Insider Australia