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Three Cents Worth: Manhattan v. Brooklyn Rental Smackdown

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[This week, real estate appraiser, Curbed graph guru, blogger, and podcaster Jonathan Miller does some rental 'rithmetic.]

We've been delivering the monthly rental news that vacancy is falling and rents are high, but I also thought I'd show the relationship between Manhattan and Brooklyn. Admittedly I am comparing all of Manhattan with what we call the North and Northwest regions of Brooklyn, but it's the trend I am after (the trend is your friend), plus I'm still working off my Thanksgiving spread.

I compared the monthly median rental price (face rent) for Manhattan (purple) and Brooklyn (teal) from January 2008 to October 2008 and simply trended the difference (pink).

After some crazy rent volatility immediately after Lehman in late 2008, both markets stabilized and then began to move up. With a spread of roughly $1,000 in 2008, it fell to approximately $500 in late 2010. Since then, the difference has remained steady as both markets saw similar gains in rents. If I had deeper data for South and East Brooklyn (working on it), it would likely show the same upward trend for the entire borough, just a wider spread.

Rents are rising in both boroughs (and across the US) because the credit crunch is a national phenomenon and it is keeping many would be buyers out of the purchase market despite record low mortgage rates and a supply that is relatively inelastic, creating a rental traffic jam.

In theory, if mortgage underwriting standards were to ease overnight to historic norms (a wildly distant/remote possibility, i.e. if pigs could fly, etc.), we'd see the biggest housing boom in US history all other things being equal (think if pigs could fly again) then I'd hate to be a REIT. Betting money says that credit will remain irrationally tight through at least 2015 as long as the Fed continues to work hard to keep interest rates low. Historically low interest rates are one of the reasons credit remains so tight, IMHO.

As far as the next few years goes, I think the spread between the boroughs will remain stable and we'll see rents continue to edge higher. Because current rental demand is primarily driven by tight credit, a meaningful increase of NYC employment will only place more upward pressure on rents.
· Matrix [matrix.millersamuel.com]
· Three Cents Worth archive [Curbed]