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When Vivi Armacaus graduated college in twenty twenty two, she decided to move from Indianapolis to New York City. She says she and her roommate to be were making good money in their first jobs out of school, but when they started actually touring apartments, they realized it wasn't going to get them very far in the New York City rental market. Still, they were willing to do anything to make it work.
We were like, Oh, let's see the one bedroom and let's try to fit to us in here week. Maybe let's add your boyfriend and so we can afford it as well.
To recap they went from looking for a two bedroom to a one bedroom. Then they added a boyfriend. Viv would live behind a flex wall.
The kid, you kind of like, would go into my room a little bit.
And I was like, oh, New York is one of the most expensive cities for renters in the world, up there with Singapore, Zurich, and Geneva. And even before she got there, Vivi he knew she was going to have to pay a lot.
I had reached up to my friends who had moved to New York City and asked how much money I should save up to move here, And they didn't tell me about this little broker fee thing.
In addition to those sky high rents, bidding wars, and disappointing fifth floor walk ups, there's another thing that makes the New York rental market uniquely challenging, this little broker fee thing. A broker is someone who acts like a concierge for people looking for apartments, sharing open listings, taking
them on tours, and helping with negotiations. They exist in most real estate markets, and usually they're hired by landlords, but in New York the broker system works a little differently. Renters often have to pay for these brokers, even when they don't use or even ask for their services.
The most shocking thing was that I did all work. They just showed up to open the door, and if anything, they sometimes even used a code to get into the apartment.
It was frustrating. VIVI had gone online, searched through apartment listings, found a place herself. She didn't need a broker to do any of that, but when she went to sign her lease, she, like so many New York City renters, had to pay this additional charge fifteen percent of her annual rent to a broker who services she didn't choose to use before even getting into rent itself. How much did you pay upfront to move into this apartment?
I'm like doing a little math on the side. I'm almost positive it was eight thousand dollars. I was like, broke broke when we moved to New York. I was like, I'm so, we just paid eight thousand dollars. It's basically ball I'm worth.
Viv's not the first person to be surprised and annoyed by New York City's broker fee system, which has plagued renters for decades, But last week New York City Council passed a new bill that aims to flip the model on its head. Today, on the show New York City's attempt to shift broker fees to landlords, how the real estate industry is reacting, and what it could mean for renters in one of the most expensive cities in the world.
This is the Big Tig Podcast. I'm Sarah Holder. The cost of living in New York City has been rising for decades.
New York City rents grew seven times faster than wages in the city last year, so that's one of the largest gaps in the country.
That's Paulina Cacerro. She covers residential real estate for Bloomberg.
If you look at new leases that were signed in October, the median rent in Manhattan was four two hundred and ninety five dollars, and in Brooklyn it's not that much cheaper as thirty six hundred, So you can imagine that this is one of the most expensive cities to live in in the world.
What is driving the increase in rents in New York City?
This is a complicated question. I think everyone wants to know why the rents are so damn high in New York City, But I think at its core it's an issue with an imbalance in supply and demand.
Over the past decade or so, New York City created eight hundred thousand jobs, but only enough housing for a quarter of those workers. But beyond the housing shortage, another reason the rental market is so hot is high interest rates.
The Federal Reserve increased interest rates at the fastest clip in decades, and people that had hoped to be able to buy a home, buy a condo, or buy a co op in New York City are stuck renting, So all these people that would have released more apartment inventory are staying in the rental market. So there's just been a lot of pressure on the demand side and supply has not been keeping up.
The same dynamics squeezing New York renters are playing out across the country. There's a national housing shortage to the tune of four and a half million homes. According to an analysis from Zillo. Over half of US renters are rent burdened, meaning they spend more than thirty percent of their income on rent, and the Cleveland Fed says rental inflation could take until twenty twenty six to cool down. But there are some things that make this problem particularly brutal in New York.
New York City's rental market is so quirky. I think anyone who has gone through the process will realize how cumbersome it is. There's a lot of requirements to rent in New York City. To even qualify to apply for some apartments, you have to make forty times the rent, and if you can't afford that, you need a guaranteur. But on top of that, you also have broker's fees.
Broker's fees that upfront charge for a real estate broker the tenants often have to pay when signing a lease. In New York, the charge can be up to fifteen percent of a tenant's annual rent.
Street Easy estimated that the average moving costs including broker's fees, that people pay before they even move into apartment is close to thirteen thousand dollars.
Real estate brokers can help make the apartment search easier, especially in cities with competitive markets. They post listings, set up apartment toursvet buildings, but the Internet has made it a lot easier for people to do a lot of this work themselves, so renters, especially renters on a budget, might choose to avoid working with a broker at all, but in two US cities, New York and Boston, they
may still have to pay one. Because even if it's the apartment landlord who hires the broker, tenants are often asked to foot the bill, and it's been that way as long as most residents and most brokers can remember.
Because there's so little inventory available, because people always want to move to New York because there are so many people here that keeps pushing rents up. And it's also the reason that we have the fee structure that we see today.
That's Anna Klencar, she's a broker with Sobeby's. She says she doesn't know exactly why New York's broker fee system has held on for so long, but she has some guesses.
My belief, both Boston and New York are very long established cities that have a very high proportion of renters. They have a lot of schools, a lot of students. The rental market has also been largely consolidated. There are more very very large landlords who own thousands of units, which further increases the imbalance of power.
I think it's just a function of New York City being a really competitive place. Bloomberg's Paulina Cceerro again, it's just become standard practice in New York that if you don't pay well, someone else is going to get the apartment over you. If you talk to the Real Estate Board of New York, they will tell you that the Burger's fee has always been negotiable. You can talk to the agent about whether you want to pay it or not. But realistically, when there are ten other people in line
who have applied for the same apartment. If you're not willing to pay the Burgers fees, they're going to go with someone else who is. So it kind of has become a pay to play market in New York with broker's fees, but a recent act has changed that.
A recent act introduced by New York City Council Member Chosa.
The first and only gen Z elected official in New York State.
Ose represents the thirty sixth district, made up of Bedsty and Northern Crown Heights. Last year, he moved out of his parents' house and entered the wild west of the New York City apartment search. It was terrible.
How am I as a member of the city council? Who I am making six figures? Why am I having this much trouble finding an apartment? Why is it so expensive?
One of his biggest pain points was that upfront broker fee. He too was confused why renters had to pay it, But he realized that on the City Council he could actually do something about it, so he introduced legislation called the Fairness and Apartment Rental Expenses Act, or the fair Act.
It would require that simply whoever hires a broke within the City of New York pays for the broker fee.
It's not the first time someone's tried to challenge the broker fee model in New York. A similar change was implemented briefly in twenty twenty before being rolled back after the Real Estate Board of New York or REBNEY, a real estate industry trade group, filed a lawsuit to overturn it. Osea himself first tried to overhaul the system over a year ago, and the legislation never made it to a vote, But last week, the Fair Act was approved by the City Council forty two to eight.
The main goal of this bill was to eliminate that upfront cost that New Yorkers find themselves paying to move into a new apartment and are already unaffordable housing market. Many New Yorkers do not have saving accounts. Many New Yorkers are living paycheck to paycheck. That upfront cost can really hold some people back, and eliminating that will allow for so many tenants to have more mobility in moving
around our city. When we ban forced broker fees in New York City, it will give and it's more bargaining power allow them to be more mobile and will allow them to decide on if they want to move out of their apartment if their landlord is charging more, which I believe will put a downward pressure on rent.
When we come back what the Fair Acts critics have to say about the legislation, there are big changes coming for how renters find housing and how real estate brokers get paid in New York City, and Council Member Chosa hopes these changes will make the apartment search cheaper for tenants and more transparent for everyone. But members of REBNEY, the local trade group representing brokers, landlords, and property managers,
have been vocal opponents of such legislation for years. They argue that shifting the responsibility of paying for the broker to whoever hires the broker could have some unintended consequences.
I think there's this assumption that the money comes out of the landlord's pocket.
It does not.
It gets baked into the rent and it's paid over time by the tenant. Sarah Salzburg is co founder and principal broker at Bohemia Realty Group, a brokerage firm that works with clients in New York City. She's a member of REBNEY and she says even if tenants might no longer be the ones paying brokers directly, they'll still be paying. She argues that landlords will just pass on those fees through rent increases. Instead of a one time fee, Sarah
says tenants could be paying more over multiple years. I asked us say about this.
First and foremost, forty seven percent of homes for tenants within New York City or rent stabilized, So due to rent stabilization laws, it would be illegal for landlords to bake the fee into those apartments. Two rents are set by market forces, not by what landlords can charge. If your landlord could increase your rent tomorrow, they would have done so yesterday.
But Sarah says she's also concerned that the Fair Act will make it harder to find an apartment at all, because she argues brokers will only list units they're being paid by a landlord to advertise. Bloomberg's Paulina Cacero says a lot of the fallout from the Fair Act will depend on how landlords choose to react, whether they keep hiring brokers, and how they choose to cover those costs.
Some of the experts, Paulina spoke to said rents could go up in the short term, but supporters of the legislation told her that if landlords try to make up for the cost by spreading it out across rents slightly over time, that's still better than keeping New Yorkers locked in their leases with prohibitive upfront moving costs.
I think that a lot of the housing advocates still supported the bill because it provides people more mobility, more options. I think a lot of people were stuck in not ideal housing situations just because the upfront costs of moving anywhere from ten to fifteen thousand dollars is astronomical, and that's really hard for a lot of people.
The bill has passed most of its political hurdles. The mayor still to sign it, but it has a veto proof majority from the City Council and it's set to take effect next year. Still, Redney, the real estate trade group, told us they'll quote continue to pursue all options to fight against this harmful legislation unquote. But not all brokers are resisting the change. Anna Klenkar, the broker from Sotheby's we heard from earlier, actually helped Council member Osay with the legislation.
No bill's perfect, but I think this is we've come pretty close. There's no actual benefit to a tenant pays situation. It only exists because of leverage. Is a lot of the work that you do when you list an apartment on the landlord side, it's for the landlord, so the landlord should be the one to pay for it.
And it also thinks it could help brokers shake the negative reputation they have among some tenants that they're getting paid to essentially unlock a door. She hopes this legislation will tip the scales that when renters don't feel obligated to pay for a broker service they didn't ask for, they'll feel better about hiring brokers when they actually want them, like Osay did.
My experience in finding a home was so difficult that I hire a broker myself, you know, And I think that shocks a lot of people because they think that I'm anti broker and pushing this bill. I'm not anti broker. I'm anti forcing people to pay for something they didn't hire.
Right.
I hired a broker who did a fabulous job in finding me an apartment. I believe individuals like him, will stay in business.
Vivi, the renter who came to New York City a couple of years ago, has moved since that first snug one bedroom. She says she's happy in her current place, but then I let her know that the Fair Act had been passed.
You'll see me. You'll probably see me move in this summer.
If so.
Thanks for listening to the Big Take from Bloomberg News. I'm Sarah Holder. This episode was produced by Julia Press. It was edited by Aaron Edwards and Christine Morris. It was mixed by Alex Huguiera and fact checked by Adrian A.
Tapia.
Naomi Shaven is our senior pretty, Elizabeth Ponso is our senior editor. Nicole giamster Bor is our executive producer. Sage Bauman is Bloomberg's head of Podcasts. Please follow and review The Big Take wherever you listen to podcasts. It helps new listeners find the show. We'll be back next week.