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Rents Skyrocket for Smaller Units, Up Nearly 10% in Brooklyn

Surprising to no one, New York City rentals are becoming more expensive and what that effect is having on the housing stock is interesting: as apartments priced below market-rate ("affordable housing"), and apartments priced way, way above market rate ("unaffordable housing") continue to do their thing, market analyzers are seeing that apartments priced in the mid-tier range are becoming more expensive. In December, inflated rents were mostly seen in smaller apartments—studios and one-bedrooms—which, in Manhattan, respectively rose around four-percent to a median cost of $2,427 and $3,291. Brooklyn saw a similar trend in Q4 with prices on smaller apartments inflating. In December, and this is year-over-year, Brooklyn one-bedrooms became nearly ten-percent more expensive, costing a median $2,725.

Douglas Elliman report compiler Jonathan Miller says that this trend likely has to do with prospective first-time buyers, usually perusing entry-level apartments rather than massive spreads fit for an oligarch, who are being denied mortgages. Post-recession lending is still really tight, and prospective homebuyers who are denied mortgages are forced back into the rental market and made to compete with the next wave of renters. The supply of apartments throughout the city is limited, and demand is higher than ever, which is driving prices on comparable smaller rentals up, up, up.

Why aren't larger Manhattan apartments getting as much love? Miller suspects that the weaker rental conditions have something to do with greater competition from Brooklyn and Queens (okay, Long Island City), where new development has mainly focused on rentals over condos. This trend might not be able to continue as month-over-month rents are beginning to level off. "We may be in some sort of high plateau," Miller speculates, adding that tight lending and employment growth is keeping pressure on rents. Meanwhile, Citi Habitats' data shows that Manhattan rents declined in general throughout the fourth quarter, and were down overall when compared to Q3, which is in part due to seasonality and cycles, but also to competition from other boroughs.

While median rental prices on smaller apartments in Queens are also up, it's not quite the same story. The Queens rental market is expanding, with inventory continuing to rise. Thirty percent of Queens inventory, limited in Elliman's research to the borough's northwest sector, are in developments built within the past few years. "Queens is the new Brooklyn," Miller says in an admittedly tired refrain. What he means is people being priced out of Brooklyn, no longer a proverbial Abu Dhabi but a destination, are turning to Queens as an alternative, and as such, median rents in the area will likely continue to rise.

To prove Brooklyn's destination status, here's this factoid: In Q4, Brooklyn's median rent was a mere $350 less than Manhattan's, with the difference in rents between the two boroughs remaining super tight between $200 and $500 throughout 2014. Let that sink in. Not doing it? Here's this: In 2008, the spread between the boroughs was about $1,100. Brooklyn remains the only borough to see housing prices exceed its pre-financial meltdown peak.

All that being said, 2014 was another banner year for sales throughout the city. Q4 sales prices in Brooklyn were higher year-over-year with an increase in average costs of a whopping ten percent, likely due to pricey outliers like neighborhood record-setting sales in Park Slope, Bed-Stuy, and Crown Heights. According to Corcoran (PDF!), the largest price changes are occurring in uncharted territory, if you will; neighborhoods like those south of Prospect Park where the average condo price-per-square-foot increased 36 percent, and in the Crown Heights, Bed-Stuy area, where it increased 64 percent in the fourth quarter alone. Like in 2012 and 2013 before it, the year-to-date median and average sales prices set new records.

Brooklyn sales slipped from last year, but that's not for lack of interest: there's less new inventory in the borough, and the people who have settled down recently are staying put. In Q4, Corcoran found (PDF!) that there was an influx of sales exceeding the $1 million mark—a testament to the borough's temperature?—with 21-percent of properties sold falling in the high-end market, up from 16-percent in Q3.

Sales prices in Queens remained stagnant, more or less, with median costs slipping a negligible 1.4 percent over the year. Year-over-year the borough triumphed in Q4, raking in a median price increase of a whopping 15.5 percent, from $372,700 to $430,475. Compared to Brooklyn's Q4 median sales price of $585,000, Queens is a pretty sweet deal.

What do the stats say? Here's the long and short of it: affordability remains a huge challenge for people living throughout the city. As prices are driven up, people continue to radiate eastward through Brooklyn and Queens in search of a good deal; that black rhino that, if it hasn't disappeared already, is likely on the verge of extinction.
· Rental Market Reports [Elliman]
· Brooklyn Sales Reports [Elliman]
· Queens Sales Reports [Elliman]
· Q4 Rental Market Report, Manhattan [Citi Habitats]
· Q4 Sales Report, Brooklyn (PDF!) [Corcoran]
· New Developments Push Manhattan Prices to New Records [Curbed]
· All Market Report coverage [Curbed]