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Renting in NYC is More Unaffordable Than Ever
The disparity between rent growth and wages has created a growing affordability gap for renters across the U.S.
Jordan B. & Han-Gwon Lung
May 09, 2024
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Good morning. Rent growth has outpaced wages in 44 of the 50 largest U.S. metro areas, widening the affordability gap for renters nationwide. Meanwhile, Brookfield Asset Management suffers its first quarterly profit decline after spinning out of Brookfield due to lower fee revenues.
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Market Snapshot
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UNAFFORDABLE
Renting is More Unaffordable Than Ever — Especially in New York City
The disparity between rent growth and wages has created a growing affordability gap for renters across the U.S., with rents outpacing wage growth in 44 of the 50 largest metro areas.
Rent > Wages: A recent analysis of rental and wage data from Zillow, StreetEasy, and the Bureau of Labor Statistics uncovered a growing gap between rent and wages. Leading the pack is NYC, with rents increasing 7x faster than wages over the past year due to heightened demand and low vacancy rates.
By the numbers: Big Apple rents shot up 8.6% last year, compared to just 1.2% wage growth. This 7.4% gap is the largest among the top 50 metro areas in the U.S. Since 2019, NYC rents have shot up 27.5%, over 2x the 11.2% wage growth in the same period. Cincinnati and Providence followed with rent hikes of 7.2%. In cities like Memphis, Boston, and Chicago, wage decreases made even smaller rent increases challenging.
Sunshine is setting: Florida's markets, including Miami, have been severely impacted by this disparity due to high migration rates since the pandemic, driving up rents by over 50%. Despite a slight wage increase in Miami, rent growth has outpaced wage gains, leaving many unable to afford housing.
Areas where wages outpace rents: In contrast, some areas saw wages growing faster than rents, giving renters some relief. San Jose led this trend, with wages rising 8.6 times faster than rents. San Francisco, Portland, and Austin even experienced rent declines amid steady wage growth. Houston saw the largest annual wage growth nationwide, contributing to significant population growth.
➥ THE TAKEAWAY
Big picture: The widening gap between rent and wage growth highlights a pressing affordability crisis for renters, particularly in high-demand markets like New York City and Florida. Although a few cities have achieved a more favorable balance between wages and rents, the national trend underscores construction in some cities can’t keep up with demand.
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✍️ Editor’s Picks
Rate cut ripples: Some good news, first. Mortgage rates dropped to 7.18%, breaking a streak of four consecutive gains, as purchase-loan applications rose 2%.
High-stakes hurdles: BREIT, Blackstone's private real estate fund with $114B in assets, faces renewed scrutiny over potentially inflated returns and questionable financial stability.
Innovative solutions: U.S. housing prices surged 6.4% in the past year, as many states aggressively implemented measures to tackle growing affordability challenges.
Mixed signals: Blackstone (BX) sees more signs of a real estate bottom, while Starwood (STWD) predicts more distress. But who’s right?
🏘️ MULTIFAMILY
Business betrayal: Alex Arguelles seeks $8M from Tzadik Management and CEO Adam Hendry after arbitration awarded him $8.9M.
Whatever it takes: Cypress Equity Investments aims to replace a former Honda dealership with a 288-unit apartment complex in Santa Monica, including 30 affordable units.
Preferred professions: According to a Realtor.com study, recent college grads think Austin, Bloomington, and Pittsburgh are some of the best places to live.
Data goldmine: Consumer data tracking for apartment marketing has evolved rapidly, offering unprecedented insights into migration trends and construction plans.
Long live Queens: Grubb Properties secured $214.5M for a high-rise project in Long Island City. The 26-story complex will have 417 units, including 124 affordable apartments.
Can’t shake ‘em: Divco West purchased a 214-unit property for $122M in Playa Vista—and the sale will be subject to the 5.5% ULA tax.
🏭 Industrial
Mega-acquisition: Faropoint buys a 220.4KSF industrial campus in Stone Mountain, GA, and already has 400+ warehouses totaling 20MSF across the country.
Gateway to profit: Nuveen Real Estate acquires two buildings totaling 371.2KSF in Plainfield, IN, part of its Gateway Business Park.
🏬 RETAIL
Boutique boom: Goyard is ready to open a boutique and offices at 699 Madison Avenue, relocating from East 63rd Street.
Waldorf rising: Construction is officially underway in Waldorf, MD, on a $115M project with 186 units and 120KSF of retail space, supporting 300 jobs.
Big, bold landing: Luxury brand Jacquemus will open its first U.S. store in SoHo, leasing 5KSF at $2M annually, boosting revenue to €200M.
🏢 OFFICE
Renewing WeWork: WeWork finalizes bankruptcy exit plan, reducing to 337 locations globally with $450M injection and revised lease agreements.
Open season: Downtown Nashville’s 3rd-biggest office building has been listed thanks in part to increasing investment activity over the last few months.
🏨 HOSPITALITY
Hotel loan drama: Sixty LES Hotel faces financial trouble with a $23M loan reported as non-performing, with Capstone Realty Group assisting the owners in negotiations.
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EARNINGS MISS
Brookfield Asset Management Sees Profits Drop on Lower Fees
Brookfield (BN) alumnus Brookfield Asset Management reported its first quarterly profit drop since its spin-off in 2022, blaming reduced fees in some key business segments.
By the numbers: Distributable earnings totaled $547M, or 34 cents a share, aligning with expectations but below last year’s $563M. Total fee revenue fell across three of BAM's five primary business lines, driven by lower fees from affiliates like Brookfield Renewable Partners and Brookfield Property Group. But the firm's fee-related earnings rose 1% YoY to $552M.
Shrugging it off: Despite lower profits, BAM raised $20B in Q1, with $10B already allocated across more than a dozen credit strategies. The company is aggressively expanding into the credit sector, which has already grown into its largest business arm in terms of fee-bearing capital and workforce.
Sights set high: Brookfield's dedicated credit arm, overseen by Craig Noble, aims to streamline all credit operations under a unified platform. The firm's fee-bearing assets reached $459B by Q1, a marginal YoY increase. With a goal of achieving $1T by 2028, Brookfield is actively pursuing partnerships and acquisitions to fortify its ‘creditworthiness.’
➥ THE TAKEAWAY
Powerful pivot: Brookfield Asset Management's Q1 profit slip has sped up the firm’s foray into the credit sector. By consolidating its credit activities and leveraging new billion-dollar partnerships with Castlelake LP and Oaktree Capital Management, Brookfield is hedging its bets and reducing risk to handle whatever 2H24 may bring.
📈 CHART OF THE DAY
According to JLL, The number of converted office buildings in the U.S. has absolutely skyrocketed since 2020, with 2023 office conversions doubling compared to the previous conversion peak in 2014. And while we’re only in 2Q24, Q1 numbers indicate the trend will only continue this year.
Specifically, nearly 90MSF of office space was ‘removed’ in Q1, outpacing new supply for the first time on record and reducing national office inventory by 1.3MSF. That’s around 11.5MSF more office space lost than the national average since 1994.
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