The cost of living in a 'ghost town': how the pandemic changed New York's real estate world
As soon as shelter-in-place orders were lifted, the city emptied out. Thousands of units were left vacant in Manhattan and Brooklyn, leaving many small brokerage firms and real estate agents out of business.
Number of vacant units
Data source: StreetEasy and Zillow
April 26, 2021
Sympathy is sometimes scarce for real estate agents in New York, a group whose relentless sales pitching and smooth talking is hated by everyone who’s ever tried to rent an apartment in the city. But the real estate industry is the biggest driver of New York City’s economy – generating more than half of the city’s total annual tax revenue every year. As floods of people ditched their expensive city apartments in the summer months of the deadly COVID-19 pandemic, rent prices fell sharply across Manhattan.
Between May and October 2020 – as soon as shelter-in-place restrictions were eased after a hellish two months – thousands of tenants vacated their apartments, ending their leases early or choosing not to renew them. Most offices and schools had transitioned to remote work, and there was no longer the need for young professionals and students to remain in the city.
This exodus of tenants from Manhattan shifted the housing market dramatically. According to data from popular listing sites StreetEasy and Zillow, the number of vacant apartments in Manhattan tripled from 2019 to 2020. In the summer peak of the pandemic, more than 70,000 units were empty in the city.
In a bid to cut their losses and attract new tenants, landlords and property owners began to offer attractive discounts on rent, including reduced – or no – broker’s fees, as well as a few free months on long-term leases. The more that people left the city, the more the rent fell.
As a result, the median price of rent in Manhattan reached levels not seen in more than a decade – approximately $2,700 for a medium-sized 2 bedroom apartment, a space that would have cost more than $4,000 only a few months prior on both StreetEasy and Zillow. Apartments in Soho, an area in lower Manhattan coveted for luxurious lofts and high-end penthouses, dropped almost a fifth in price.
Manhattan saw the highest drops in rent prices during the pandemic, while average rents in some of New York's boroughs increased
Hover to see the change in rent for each neighborhood.
However, in Brooklyn, Queens and the Bronx, the average cost of rent reduced far less dramatically, and in some areas even increased. David Legaz, the president of NYSAR, New York State Association of Realtors, attributed this disparity to two factors. First, a lot of the boroughs are relatively more affordable to begin with. Demographically, they tend to be occupied by families of color and longer-term tenants for whom the apartments are a permanent home, unlike the constant flux of young professionals and students in Manhattan.
Second, he hypothesized that since the boroughs were cheaper, the occupants would likely fall in lower income brackets. Many families here may work in professions that did not transition to remote environments, thus requiring people to remain in New York. He added that this disparity in rent prices greatly impacted real estate agencies, who rely on the high turnover and demand for housing usually found in Manhattan. The fallout from shifting rent prices has been particularly bad for younger, entry-level agents and brokers.
With most of their clientele gone in a span of weeks, many brokers found themselves unable to make any sales or close any rental leases. There are more than 40,000 brokers and agents licensed in the city, nearly all of whom operate in and serve neighborhoods in Manhattan.
All brokers earn money solely through commissions on sales or rentals. Their monthly income fluctuates a lot depending on the time of year, the kinds of clients they receive and the areas they are assigned to. In general, brokers’ commissions can be anywhere from 30 to 50 per cent of the fee, usually the equivalent of one month’s rent. It is a lucrative business for successful agents, with the median annual income hitting nearly $110,000. During the pandemic, however, with barely anyone looking to rent, many brokers were left without an income. Those who did not have savings, particularly brokers who had just begun working, struggled to stay financially afloat. Some small brokerage firms even had to be shuttered, since operational costs were simply too high without any business. Suddenly, thousands of agents were competing for a sliver of the clients they usually had – making the competition between them even more cutthroat than it already was.
The average annual salary of an established broker is around $100,000, but thousands of inexperienced brokers still make less than $15,000 yearly.
Hover to see average income brackets by percentile.
Data source: ZipRecruiter/ADP
“The insane competition between brokers is a reflection of the industry more so than any one brokerage,” said Hannah Yukon, a broker who got her license only 3 weeks before the pandemic began. During the pandemic, she actually had to pay $400 for each month she didn’t sign any contracts to the high-end boutique agency at which she worked. A common practice in real estate companies, when brokers don’t close enough deals, they owe their employers for the benefits and overhead costs they availed.
“Anyone who’s in the game is here to make it big, and more often than not, they do,” said Yukon, emphasizing that her colleagues were kind and generous as just people, yet “unapologetically ruthless” as professionals. “But this is the dream they peddle to kids like me, clueless and right out of college – promising millions of dollars in commissions without so much as a base salary for 60-hour work weeks.”
On the other hand, for small brokerage firms just starting out, operating a company poses its own challenges. Master Key, a real estate startup, tried for months to gain its footing, even before the onset of the pandemic. “It’s such, such, such a competitive industry that it’s extremely difficult to break into it,” said an employee who currently works there, on the condition of anonymity. “You’re competing with companies that have been in the game for 90, 100 years. Of course you can’t afford to pay insurance for people who are bringing in no revenue.”
Despite the challenges of the last year, the real estate market is steadily picking back up. Virtual showings are becoming more popular, and simultaneously pandemic restrictions are lifting around the city and more people are getting vaccinated. The discounts and price reductions have stimulated the housing industry, and units are gradually filling back up. “More people can now afford to live in Manhattan, and they’re jumping on this once-in-a-lifetime opportunity,” said Legaz, the NYSAR president. “That’s a great sign for brokers, landlords and tenants alike.”
View the data analysis for this story on GitHub