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You Have To Earn $240K a Year to Afford a 3-Bedroom in Manhattan

By Amy Zimmer | May 11, 2017 9:51am
 This high-end new development on 180 Water Street in Lower Manhattan currently start at $2,566 a month for a studio.
This high-end new development on 180 Water Street in Lower Manhattan currently start at $2,566 a month for a studio.
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Douglas Elliman

MANHATTAN —  Yes, rents were down in Manhattan last month, but you still need to be in the top 10 percent — earning more than $172,000 a year — to rent most of the two- or three-bedroom units on the market.

The median monthly price for three-bedroom apartments dipped more than other types of units in April, down about 6 percent from the same time a year ago to $5,593 a month, according to a report released Thursday from Douglas Elliman.

Generally, landlords require tenants to earn 40 times the monthly rent — which translates into households paying about a third of their income on rent.

That means, to afford the median three-bedroom — which represents the midpoint of the market — you’d need to earn about $240,000 a year.

For a two-bedroom — where the median dropped 5 percent to $4,354 a month — you would need to earn more than $174,000 a year.

For a one-bedroom, where the median monthly price was $3,400, barely budging from a year ago, you would need to earn $136,000 annually.

The median for a studio was $2,575 a month, which was up nearly 2 percent from the same time last year and was the only type of unit to see an increase.

To rent an apartment at that price, you would need to earn $103,000 a year.

The median household income is $66,739, according to the most recent Census data available.

“The rents are high, but you’re seeing this slow grind as consumers are seeking out greater affordability,” Elliman report author Jonathan Miller said.

And while inventory at the upper end of the market in new developments is expanding, there’s only a static number of existing rentals in the bottom tier of the market, where there’s more competition — as evidenced by the rising studio prices.

“The rental market is soft,” Miller said, “but tell that to someone who is renting a studio.”

To bridge the divide between asking rents and what tenants can pay, landlords are increasingly relying on concessions, like a free month’s rent or paying the broker’s fee. 

The use of concessions in Manhattan nearly doubled from a year ago, the Elliman report found.

Concessions more than doubled in Brooklyn and tripled in Northwest Queens (which has a lot of new development and is the only part of the borough the report tracks).

The concessions are working to keep vacancy rates relatively low, Miller noted.

“Given that we still have a lot of supply coming on, I don’t see the use of concessions going away any time soon,” he said.

Although landlords base whether a tenant qualifies for the rent on the “face” price rather than the price taking into account the concessions like a free month, one of the concerns about the over-reliance on concessions, is that tenants might feel more squeezed to make the rent when the concessions run out.

Many tenants are signing one-year leases in buildings with concessions, perhaps an indication that they believe rents won’t be higher next year or that they’ll be able be able to find concessions elsewhere, Miller said.

“I feel that landlords currently know that tenants are much more informed than ever, and they aim to keep rent increases low to ensure tenants stay,” said Racquel Popovic, of Mirador Real Estate.  “For them, that is better than turning over the unit, facing many days or weeks on the market and then offering more incentives.”

Kobi Lahav, of Mdrn. Residential, said in the current market, he advises renters to negotiate with landlords to see if they can squeeze out another free month when signing a new lease.

"If the rent is $8,800 a month and you get two free months, it brings it closer to $7,000 and it can make it easier to digest for that person," he said, noting that clients looking for longer term rentals sometimes prefer to steer clear of big concessions, fearing the sticker shock of higher rent on top of no free month's rent upon lease renewal.

It’s hard on tenants to move a lot, said Stan Broekhoven of Keller Williams Tribeca.

“The reality is, landlords will get you in with the concessions, and if you want to move out after a year, you’re stuck with paying moving costs and paying a broker’s fee,” Broekhoven said. “Because it’s a hassle to move, most people will suck it up.”

Or maybe, they’ll go to the suburbs.

Areas in Westchester, Long Island and Connecticut are having a banner year in terms of sales, Miller said, as a lot of first-time buyers are leaving the city.

“You’re getting suburban housing booms,” Miller said.