Renters Love Small Apartments; Buyers Are Relegated To Them

This week, real estate appraiser, Curbed graph guru, blogger, newsletter writer, and columnist Jonathan Miller looks at the size of apartments on the market.

Since both the sale and rental markets in New York City continue to plot a parallel course—and that's upward—I thought I'd break down both markets by the number of bedrooms and see how they compare. Turns out the mismatch is quite pronounced at the extremes of each market.

Rental Mix ↑ : According to the data, studio and one-bedroom apartments make up a larger share of rental activity than those same types of apartments do for the sales market. If we were to see rental-to-condo conversions spring out of housing stock created in the 1990s and 2000s, we'd probably see even more studios and one-bedrooms enter the market. That would help temper the upward price pressure the resale market is currently experiencing.

Sales Mix ↑ : It's probably no surprise that the two-bedroom and 3+-bedroom apartments have a larger market share for sales than they do in the rental market. Once upon a time, when credit was normalized—say pre-2002—consumers renting in the studio/one-bedroom markets (which account for about 3/4 of all rentals) would organically move to the purchase market by trading up a step or two (i.e. a studio renter becomes a one-bedroom owner). What's most surprising to me about the trend indicated in the chart above has been the expansion of one-bedroom sales share and contraction of the two-bedroom sales share.

One of the byproducts of the co-op conversion frenzy of the 1980s was the introduction of many studios and one-bedrooms to the sales market. Much of the rental stock that made economic sense to convert in the 1980s has probably already been converted. We haven't seen much new sales product for smaller-sized apartments enter the market, and it seems like the only hope for greater affordability would be from units in condo conversions of buildings built in the 1990s and 2000s. But as landlords enjoy near-record rents and concerns about tax exposure (or so I'm told) when performing a conversion, don't expect to see much new activity going forward.

I hope I'm wrong.
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