I know a lot of people who rent and recently overheard how difficult it is to find an apartment. This is anecdotal but they said that you needed to sign a multi-year lease and / or offer MORE than the requested rent to guarantee that you get one as soon as it is open.
The New York Times today had an article titled “The Lease is up, and now so is the Rent” describing the situation in New York City:
Across New York, rents have not only rebounded from the depths of two years ago, but are also surpassing the record high of 2007 during the real estate boom, according to figures from Citi Habitats, a large rental brokerage, and other surveys. That means a perennially frustrating process has become almost frenzied. Brokers say prospective renters need to come prepared to close a deal on the same day — ready to write a check for thousands of dollars to cover the first and last month’s rent, and the broker’s fee. For desirable apartments, forget about open houses — the best places are snapped up within a few days, or less, through private showings by brokers.
In the comments section on that post they mention what the article (typically) fails to do; New York’s problems are exacerbated by their ludicrous rent-control laws, which distorts developers’ behavior and forces some renters to subsidize their neighbors and creates a “shadow economy” of sublets.
In Chicago it is (comparatively) easy to build new rental stock to take advantage of the situation; in my River North area there are giant new rental only buildings going up everywhere. At this site where a bank used to be there is another hole for a 20+ story apartment building at 501 N Clark.
I remember back in an economics class in college a professor discussed the real estate boom in Arizona in the ’80s… he said that since the builders were all small, they didn’t know when to exit the market. Individually they weren’t large enough to have market intelligence (such as in an industry with a few large players, like chemicals) so they just kept overbuilding and doubling-down their chips until they were wiped out. Only a few were smart enough to take their cards off the table rather than try to chase the last win, only to fall short and get caught when the market tanked.
It will be interesting to see who will take the brunt of the collapse in the higher-end rental market that is likely to occur in a few years. Someone is financing these rental projects; while they are not as subject to failing as a similar condo project (since sales are binary while you can adjust rents in a falling economy) they are still risky and require lots of up front debt financing as well as being hostage to rising real estate taxes (especially in Chicago, where we are in dire financial straits). A lot of the banks that funded the condo buildings went under and were taken down by the FDIC; perhaps the banks that are financing these new buildings will take the brunt, too.
As these buildings get constructed downtown, expect the more marginal rental units in the outskirts to take a big hit later when the number of renters falters. I anticipate that the big buildings would cut rents rather than remain empty (since it is essentially a fixed-cost operation, like an airplane, so getting any tenant is better than letting it sit vacant), and then they would prove to be tough competition for the less-modern rental buildings. Watch and see it all unfold.
Cross posted at LITGM
The only development action in my city is high-end residential, too. I have trouble reconciling that with the bad economic statistics and the OWS stuff. People moving into urban downtowns have enough money to count as rich by most measures. Are these towers for the 1%?
Agreed that there doesn’t seem to be enough demand for this to work out well for everyone in the end. That didn’t stop us from building too many high end condos that sent all the banks into receivership. Once these towers are built, however, they have an infinite life (unless they get turned into condos, which would only happen if real estate values turned up significantly), so that is the real question in the post, who will get hurt after these things go sour.
Carl, I just returned home after walking several architectural sites in the city within OpenHouseNY annual event.
I am amazed how many of them turned out to be new hi0rise residential construction. I don’t recall in the years passed (I go walking the sites @OHNY 7th year in the row) that I’ve seen so many developments; whole stretches of the city are transformed beyond recognition.
Yesterday, among others, I’ve visited a converted office tower in Financial District (99John St. The guide showed us 2 apartments -one penthouse on 3 levels with private roof terrace and a 2-bdr apartment. The quality of construction craftsmanship is very low (I could have written up a 2-page punch list), the space planning is poor and the fixtures and doors are “contractor special” [Crane toilets, f.i.) And yet, the prices are -for a PH – a cool $2.750,000 and for a 2br – $1.275,000. And the building is 55% sold!
No, this city is definitely for sturdier people than me…
The 80’s were a GREAT time to rent. I was at university then and moved every summer to a cheaper, larger apartment closer to campus. Started in a tiny dorm-room-sized shoebox three miles from campus; ended up in an enormous two-story townhouse within walking distance, for half that rent. New units had sprung up all over town during that time.
Even though the official rate of inflation 2009-2022 is 0%, the price of gasoline is up 100-150% and the price of food is up 100%. Obviously the government is lying (for our own good) about inflation.
Inflation is caused by too much money chasing too few goods. $5 trillion in increased government spending without corresponding offsetting taxes creates massive inflation.
I had an acquaintance in Manhattan who was living in a 600SF apt with his family – I may be mistaken on this but I think it was 3 bedrooms – is this possible for 600SF?
But his rent – controlled – was less than $700. I’d notice his car’s windshield broken – he surmised the landlord trying to get him to move.
NY and Manhattan in particular – is a place onto its own.
Great place to visit but I couldn’t afford to live there.
In San Diego (my home town) a recent round of condo building ended up low income housing; so keep an eye out in Chicago and New York City for the same thing happening.
I don’t think these would ever convert they are tall high end buildings. I think what is more likely is that the less competitive buildings on the outskirts of town would turn “section 8” which is the Illinois term for low income housing when the bust occurs. I think second order effects are more likely.
Bill: no, it is not possible, 3bdrs in 600sq.ft. Unless the owners are leprechauns and live in 3 walk-in-closets. More likely, his 600sq.ft. apartment housed 3 people – and that is a bit tight already.
Your acquaintance must be living in a low-income housing apartment; there are two types established by the city: a whole building or several near by, where every apartment’ rent is in this range (approx 1/3-1/4th of the market rate of the neighborhood). They look like a vertical red-brick barracks and pretty quickly bring down the neighborhood, no matter the quality of the buildings/urbanscape around them. Second type – which, I understand, is more popular with city administration now – is to make the developer to set aside several dozens of apartments in his new condo building for low-income tenants who will pay 1/3 of the going rate and the city will pay the rest of it to the owner. I know somebody from my last workplace who lives in an apartment like that, in a brand new glass-wall contemporary condo building with concierge service, pool and a roof garden, and he pays $850 rent where the neighbors on his floor pay for the same type of apartment %2000-2300.
Amendment for Bill: more likely it is a 1-bedroom 600sq.ft. apartment that housed 3 people.
One more round of tax increases by the liar Pat Quinn and businesses will flee Chicago like the sinking rat trap Illinois is. Will the CME stay in Illinois? Chicago’s taxes, of course, are worse than the rest of the state.
Don’t forget the increasing violence and shootings in gun-controlled Chitown either.
I don’t see a good end for property in the city. These newer places might be ok for a bit, but if things don’t turn around in the economy…and I don’t see how Illinois can turn it around, much less Chicago, not with a state/city run by corruptocrats….these new buildings will look like the ghost town of overbuilt China
Tatyana – that did seem awfully small for 3 bedrooms! All I remember is a lot of vandalism happening to his car and he felt it was the landlord trying to get him to leave.
My uncle for 40 years lived in a 1920s apt in Santa Monica – paying a similar low rent – of course the place was a dump – lots of deferred maintenance…