More than four years into the pandemic, the verdict is in: Generation Z loves life in New York City. And that’s bad news for renters.
The pandemic drove generations of old and young away from central business districts. With the promise of remote work and fewer options for accessing restaurants, entertainment and other commercial spaces, 2 million Americans fled large urban counties between 2021 and 2022, according to a study by the Economic Innovation Group.
But some millennials and even more Gen Zers bucked that trend and returned to America’s largest cities, leading to the lowest vacancy rates in New York City since 1968, according to data released by the city on Thursday. The share of rental properties that were vacant and available plummeted to 1.4% in 2023, making it the worst housing crisis in Gotham in the last 50 years.
Between 2021 and 2022, more than 42% of people who moved to New York City were members of Generation Z and 39% were millennials, according to Census Bureau data. What’s more, major metropolitan areas overall, including New York City, are experiencing population losses among all generations, with Generation Z the big exception, a report from Today’s Homeowner shows.
“Younger generations certainly make up a significant portion of those returning to the city for its social, cultural and convenience appeal,” says Jason Bordainick, co-founder and managing partner of New York-based Hudson Valley Property Group. Fortune. “Whether working in the office or remotely, the appeal of urban living, especially in Manhattan, remains strong.”
To put things in perspective, housing experts consider a “healthy” or normal vacancy rate to be in the range of 5% to 10%. Higher vacancy rates tend to benefit renters more than homeowners. When vacancy rates are higher, it’s easier for people to find apartments, but that means landlords have to woo tenants with lower rents or other incentives.
The release of the latest vacancy numbers has alarmed New York City leaders, many of whom are calling for more housing, particularly affordable housing.
“The data is clear: the demand to live in our city is far outpacing our ability to build housing,” New York City Mayor Eric Adams said in a statement. “New Yorkers need our help and they need it now.”
Lower vacancy rates mean even higher rental costs
With a vacancy rate as low as New York City, it’s no surprise that rental costs are also through the roof. The average rent for a 700-square-foot apartment in New York City is more than $4,700, according to RentCafe, and only 1% of apartments cost less than $2,000 per month. By comparison, the average rent across the United States is just $1,700. Experts agree that the lack of housing supply only exacerbates rental costs.
“The biggest underlying factors that New York City has always struggled with in terms of housing production are the high cost of land and our extremely long development cycle,” says Danielle Ash, a real estate attorney at Adler & Stachenfeld. based in New York. Fortune. “We have a complex regulatory landscape that makes it difficult for developers to build quickly and efficiently, so the only way to stimulate development is to relax those restrictions, accelerate the pace of approvals and/or provide incentives to improve the finances of each project. . work.”
Low vacancy rates, high rental prices, and few affordable housing options have only exacerbated the city’s homeless problem. There has been a “massive influx of immigrants who desperately need housing that requires city resources,” Ash says. In total, the city needs hundreds of thousands of additional housing units to make up for its housing shortage. In September 2023, Adams unveiled an overhaul of New York City’s housing system that could usher in up to 100,000 new homes over the next 15 years.
But aside from city-based programs, it’s not as attractive for developers to build entirely new housing in New York City due to its high costs and strict regulations.
“In terms of creating more housing, developers need financial incentives because of the exorbitant costs associated with construction in New York,” says YuhTyng Patka, another New York-based real estate attorney at Adler & Stachenfeld. Fortune. “New York City is a highly regulated market and that comes at a high cost for property owners and developers.”
Beyond building more housing, rent control is also critical for people looking for affordable options. While many units in New York City have income-regulated rent, that is not enough to make city living accessible to everyone.
“The current situation highlights the pressing need to reevaluate recent rent regulations and controls,” says Bordainick. “Some of these measures have inadvertently discouraged investment in housing, exacerbating the shortage. “It is imperative to re-evaluate policies to ensure we are fully leveraging the private market to provide more capital investment in housing.”
Even with rents as high as in New York and greater competition even to find a unit, the city is still a promising place, although in many ways it is wildly different from living in other metropolitan areas across the country.
“New York has been and always will be a destination city for dreamers,” says Patka. “New York City will continue to have strong demand for housing for the foreseeable future, [but] lack of affordable housing [could] reject the talent that New York attracts, which makes it such a special city.”