By: Elizabeth A. HarrisNew York TimesMarch 27, 2009

According to the February Manhattan Rental Market Report, rents are down throughout Manhattan

The biggest drop was in studio apartments in doorman buildings, which have fallen 8.33 percent from the same time last year

Many people who signed leases in the bubble years are paying much more in rent than what their apartments would get today

So when their leases expire, some New Yorkers are trading up for better deals finding comparable places for less money or nicer apartments that do not come with a big rent increase

Georgia Kaporis, an associate broker at Citi Habitats says that renters are not willing to pay more because they can find better deals next door or down the block

Owners are even accepting renters with poor credit

In February, the average rent for a one-bedroom apartment in a non-doorman building was $2,632, according to the Real Estate Group. It was $3,395 for a one-bedroom in a doorman building.

Broker fees which could total 15% of the first years rent are being paid by some owners to attracts renters

According to Halstead Properties, out of 4,230 listings for apartments between Feb. 15 and March 15, 30% offered owner payment of the broker fee. Over the same period in 2008, only 8% offered that incentive

Whitney Pettyjohn and her 19-year-old sister, Chelsey, moved to Brooklyn last August

The best deal they could find in their price range was a two-bedroom in Bushwick with unreliable heat

Rent was $1700 a month When they looked again this year, they found

an apartment closer to the subway with more storage and character for the same price

“We’re one block from the subway,” Ms. Pettyjohn, 24, said. “It’s like living in a dream!”

Last year, Liz Sterling paid $1800 per month to live within walking distance from work

After moving in, she discovered the apartment had some quirks, including little sunlight, the smell of greasy meat from the restaurant below (Ms. Sterling does not eat meat) and an acupuncture parlor down the hall that stayed open very, very late and served a male clientele.

At the end of her lease, she inquired about a reduction and was denied, so she moved.

The one-bedroom she rented was listed for $2400, but was vacant for a while and the landlord agreed to a 2-year lease for $1700/month

The rental market is out of equilibrium As landlord face increasing vacancy rates

and less demand for apartments, rents are adjusting downward

Incentives are offered to attract tenants People are able to move because housing

costs relative to income are lower

h

c

L = u1 (c1, h) + D u2 (c2, h) +

1 (y - c1 - p1 h) +

2 (y - c2 - p2 h)

MUy1 (MRS1 – p1) = -MUy

2 (MRS2 – p2)

Housing and income are constant, but consumption changes because housing costs relative to income has decreased.

Point A shows the new consumption bundle from incentives, lower rent

A

y increase

Effects

Owners paid broker fees and other incentives act as a rent subsidy

People are downsizing their housing costs Even though income hasn’t changed and

moving costs are not zero, utility is higher for those who move

People are able to move to suit their preferences => Tiebout

Renters are in a better position to negotiate terms because of the Housing Bubble

Is this a sign that the housing market might be rebounding?

Are landlords able to lower rents due to expected capital gains?

Is = (i + t + d – g + e) changing too? How will the falling rents affect the supply

of housing? Are there other shocks that could be

causing the rent decline?