Additional reporting by Suhail Bhat

New York City’s population remains well below its pre-pandemic level. Its economic recovery has been weaker than the rest of the country’s. Yet rents in Manhattan and Brooklyn continue to set records even as rental prices elsewhere in the country stabilize or even decline.

When the pandemic hit, the average new lease for an apartment in Manhattan had reached $4,385, according to the monthly Elliman Report, which is the benchmark for rents in Manhattan and Brooklyn. About a year later, following an exodus of people from the city, the average had declined by just over 15% to $3,650.

Since then new lease prices have marched ever higher. In June the average new lease was a whopping $5,470 monthly, an eye-popping 30% higher than in February 2020.

The story is similar if less extreme in Brooklyn, where the average new rent declined about 10% from the February 2020 level of $3,442 and now is at $4,087, or 20% higher than before the pandemic.

The gains have not been driven by an increase in population. According to the U.S. Census, the city as a whole shrank by some 400,000 people between June 2020 and June 2022 (though that number may overstate the population loss, according to the city comptroller). Manhattan’s population in June 2022 was about 80,000 people below the 2020 figure and Brooklyn as many as 130,000.

While it is likely population increased in the last 12 months, especially in Manhattan, experts say the population is still lower than before the pandemic.

And while the city has almost regained all the jobs lost in the pandemic, the nation has seen employment jump by 4 million, or about 3%.

What can explain this contradiction between fundamental indicators and the behavior of the rental market? THE CITY talked to leading experts and analyzed the data to shed some light on the sky-high cost of housing.

No single explanation accounts for the discrepancy. Instead, multiple factors are at play.

Among them: rents have risen so much in New York because both the exodus and return to the city disrupted normal patterns in a way that gave landlords the upper hand in setting prices. The work-from-home movement, and digital nomads who work remotely but chose New York as a home base, added to the pressure on New York’s rental supply.

Just when rents seemed to be leveling off in the fall of 2022, the Federal Reserve Board’s decision to begin raising interest rates to bring down inflation kept many potential buyers in the rental market, fueling the 2023 increases. Short-term lodging services like Airbnb, along with rent-regulated apartments left unoccupied by landlords, are keeping tens of thousands of units offline, crunching supply.

But there may be hope on the horizon. While one or more months of new record highs are possible during the traditionally strong summer market, rents should then stabilize and maybe even decline, experts posit.

“I do think at some point that these numbers have to come down. They are just unsustainable,” said Hal Gavzie, executive vice president of residential leasing at Douglas Elliman. However, he warns, “I have been saying that for six or eight months.”

Shifting Population

Every year a significant number of young couples leave the city when their children approach age 5, either for better schools or more space or both, says E.J. McMahon, who tracks population trends closely for the Albany-based think tank Empire Center. When the pandemic hit, couples with very young children abruptly accelerated their departure, leaving much earlier than the previous trend.

An analysis of census data by economist James Parrott of The New School supports that theory. He found a decline in the number of workers aged 25 to 34 between early 2020 and late 2022, with a particularly steep drop among parents of children 4 years old and younger.

New buildings rise over a J train station in Bushwick, June 27, 2023. Credit: Ben Fractenberg/THE CITY

While the immediate impact was a larger number of vacant apartments, depressing rents, when people began returning to the city in 2021, 2022 and this year, they found fewer units available because the usual supply of apartments for rent from people leaving for the suburbs did not come onto the market. Most parents who were inclined to leave for greener pastures had left.

McMahon also believes that the sharp increase in suburban home values in the pandemic caused many older couples to sell their homes, downsizing in the suburbs and acquiring pied-a-terre apartments in the city, further decreasing supply.

Remote Work

Remote work also increased the demand for larger apartments, accelerating a long-term trend.

In the last decade, the average household size in New York City declined from 2.57 to 2.55, according to the Department of City Planning, meaning that fewer people are using more space within a household. While that may seem like a small decline, it means 70,000 more people have to be accommodated in the existing housing stock.

For Comptroller Brad Lander, whose job is to maintain the city’s financial stability, this trend of “more housing per household” is partly why rents continue to rise coming out of the COVID-19 pandemic. 

“For example, some folks who would’ve wanted a two-bedroom want a three-bedroom because they want that third bedroom to work from home,” Lander said. He acknowledged that “there’s a lot of anecdotal evidence of this, but there isn’t yet much good real statistical survey.”

In addition to people seeking larger apartments to accommodate home office space, remote work allowed many others — often called digital nomads — to move to New York even if their jobs were elsewhere, notes Jonathan Miller, president of Miller Samuel, which prepares the Elliman Report. One well-known example: Google’s NYC headcount in 2022 jumped by more than 1,000 when it asked all its employees to declare a home base.

These people are likely to have been able to afford more in rents since the two strongest sectors during the recovery — finance and tech — also pay the highest salaries.

Emboldened Landlords

Even if the population has not recovered to pre-pandemic levels, these trends gave landlords the upper hand to raise rents.

Other analysts argue that landlords capitalized on “market churn” during an unstable time.

“I would not classify this as a mystery at all,” said housing policy analyst Oksana Mironova at the Community Service Society. “The primary underlying issue is the nature of a speculative housing market.”

Mironova suspects that while tenants received “COVID deals” at the onset of the pandemic, landlords anticipated jacking rents back up once the COVID crisis subsided, putting tenants in tight binds where they either had to accept a large rent increase or re-enter the housing market, now in competition with an influx of returning New Yorkers. 

For Mironova, this trend has historical precedence, and mirrors the rent surge the city witnessed coming out of the 2008 financial crisis. 

“Investors and landlords take the opportunity to raise rents during times of disaster,” after borrowing heavily to acquire properties during slumps in the market, she said. Then “they can raise the rents when the downturn is over.”

Lander agreed: “There is no doubt that some of that is happening,” he told THE CITY, echoing that real estate speculation may contribute to the continued rise in rents.

Residential buildings line East 110th Street, July 31, 2023. Credit: Ben Fractenberg/THE CITY

He also pointed out that rents in any city tend to rise when a supply-constrained housing market “gets shook up.” Theoretically, NYC may experience the same overall demand for housing today as it did prior to COVID-19, but with people leaving and coming back during the pandemic, the city has a larger share of people looking for housing at any given moment.

“Some economists believe that that can drive up prices even without significant shifts in overall supply,” Lander added.

The 2021 Housing and Vacancy Survey, the latest edition of a study conducted every three years, attributed an inflated vacancy rate at the time of the survey to the fact that “a large number of renters were seeking” new housing as people began to return to the city in the COVID pandemic. 

Just when those factors seemed to have run their course last year, the Federal Reserve began raising interest rates at a record pace. The campaign, designed to reduce inflation, has doubled mortgage rates from less than 3% to almost 7%, in effect doubling monthly interest costs.

“High rates have played an outsized role in the recent increases by pushing would-be buyers into the rental market for affordability or cautionary reasons,” Miller said.

Changed Rent Laws

While more prospective buyers are renting, apartment vacancies keep tens of thousands of units off the rental market.

THE CITY reported last year that nearly 90,000 rent-stabilized apartments were empty in 2021, while more recent data — albeit from self-reported landlord registrations — shrinks the number closer to 40,000 vacant units

“There’s a meaningful number of [rent-stabilized] units that are being warehoused. This is well reported,” said Lander. “The data there is imperfect, but it seems like that is likely a contributing factor as well.”

When people do live in rent-regulated apartments, even ones at the priciest end of the scale, they are likely to stay put, argues Rachel Fiegler, co-founder of real estate firm Pinpointe Group. 

During the worst of the COVID pandemic, Fiegler said, many landlords offered bargains to new tenants to lure them to sign leases. Under 2019 reforms to rent regulation, those rent reductions, known as preferential rents, reset the rent permanently to a lower level — giving those tenants a bargain too good to give up. 

“Everybody that took advantage of that — they’re not moving,” Fiegler said.

Short-Term Rentals

Inside Airbnb, which tracks short-term rental listings, identified nearly 25,000 full apartments offered on the dominant short-term rental platform, about a 8% increase in the last year alone. Nearly half of these Airbnbs are in Manhattan. 

Skimpy Supply

The supply of new housing in the city has become anemic.

The number of new residential buildings getting underway has fallen sharply in the year following the June 22 expiration of an abatement, known as 421-a, that offsets the typically high taxes on New York City rental apartments.

The Real Estate Board of New York (REBNY) reports that builders filed paperwork to lay foundations for fewer than 30 multifamily buildings citywide each month during the first five months of 2023, compared to an average of 83 filings per month during the first 5 months of 2022. 

Only 11 building foundation filings through May this year are for projects that will include 100 apartments or more — and most of them are likely to be condos, not rentals.

That trend builds on the sluggish building of record in the five boroughs in recent years. Between 2010 and 2018, while the number of jobs in New York City increased 22%, the housing stock increased only 4% — a wider gulf between job and housing growth than any city except San Francisco, according to the Citizens Budget Commission.

Mayor Eric Adams Thursday insisted that some sort of tax break will be needed to spur housing construction, as he announced the city had exceeded its goals for new or preserved affordable housing.

“In the absence of a housing production tool like 421-a, new rental housing starts have plummeted and the city’s housing supply crisis has worsened,” said REBNY president James Whelan. “There is a broad consensus that programs need to be put in place to spur rental housing production, but it will be up to the state legislature to decide whether or not to act to address the growing crisis.”