In 1943, President Roosevelt signed into law the Emergency Price Control Act (EPCA), which marked the beginning of rent controls in New York City. New York law allows the rents on these homes to be raised by only a tiny percentage each year. Today, over one million such apartments, called rent-stabilized or rent-controlled apartments, are rented at rates that are based on 1943 prices, rather than today’s market forces.
Roughly speaking, as long as a NYC resident stays in a rent-controlled or rent-stabilized apartment, he or she will never have to pay the fair market rent. Since even the average studio in Manhattan with no amenities rents for $2,100, people who are enjoying the huge financial benefit of rent-controlled apartments, which are typically less than half-price, hold onto them like manna from Heaven.
So tenants spend their whole lives in the same apartment, and move their kids in before they die (since rent controls can be passed on to the second generation). The effect of all this is that there is an extraordinarily low number of vacant apartments available for people who want to move into New York or within New York. Today’s vacancy rate is a meager 0.5%.
This suppressed supply combined with the very high demand you’d expect for any world-class city like New York means that the few units that are available are priced artificially high, and the landlords can be extremely picky about who to put in them.
Landlords require that their new tenants meet very strict conditions. When people come to Manhattan for the first time, they will be shocked to find that they will have to prove annual income of at least 40 times the monthly rent. In other words, unless you earn $120,000 a year, don’t even bother applying for an average one-bed with no amenities – because you won’t be considered.
You won’t be considered - unless of course you have a rich mommy or daddy to act as Guarantor. But they had better be truly well-heeled, because they’ll need to show annual income of $280,000 a year to get their child into the same apartment.
These numbers need some context to show just how divisive this situation is: only 1.5% of households in the US earn a quarter of million dollars a year or more and would thus be able to act as guarantors on the lease for the their child’s one-bed apartment. And only about 3% of households earn $150,000 or more a year. (source: US Census Bureau 2005)…
In other words a good 97% of US citizens would not even be considered to rent a one-bed apartment in NYC based on their income. And the remaining 3% who are welcome are on bankers’ salaries and/or come from extraordinarily privileged families.
There is a cruel irony about this situation. New York’s rent stabilization laws, instituted originally to ensure that there was plenty of affordable housing in the city - prevent all but the richest from coming to NY to chase their American Dream. These laws-to-protect-the-less-privileged in fact do the opposite, ensuring that today’s bankers, Wall Street traders and controllers of capital in New York, come from the same families as yesterday’s.
One would expect that a landlord who wouldn’t accept someone because they earned, say, 35 rather than 40 times the rent, would at least be lenient were the applicant for the apartment able to put down six months’ rent in advance. But other broken New York rent laws, which are also misguided attempts at protecting tenants, grant excessive rights to sitting tenants in Manhattan, making it illegal for an owner to evict a renter from a New York apartment, except after a six-month court proceeding.
For this reason, landlords will not risk any situation in which a tenant may be in their property without an ongoing source of income – and it really doesn’t matter how much he or she has in the bank. Even if you come to Manhattan with a million dollars in your pocket, that won’t get you past the conditions on income: because the landlord will only count the interest that is generated by your money. At current rates, that might be 50,000 bucks’ interest on a million on deposit… or just enough to qualify you for a studio in Harlem.
Accordingly, in New York real estate, class matters more than perhaps anywhere else in the world - including my home country that is generally supposed to have invented class: in England, we haven’t yet started qualifying people economically before allowing them to rent a home.
There is surely something too paradoxical about this kind of decidedly anti-capitalistic elitism in the center of the city that is thought of as the global paragon of capitalism and full of opportunities for economic and social mobility.
True - anywhere people live and work, a wealthy family background helps with queue-jumping, but if you’re coming to New York, unless you or a parent can show two years of tax returns with a six figure income, you may as well turn around at the Holland Tunnel.
This is the irony of the economic engine of America. In terms used by many of the Wall Street analysts who can live here, the center of the American Dream has a huge barrier to entry. Unless you’ve already made it, New York won’t accept your application.
