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CNBC reports that rents in Manhattan have reached an all-time high, and you know, I don't want to be the one saying, "I told you so." But I have to admit: a year and a month ago, I released a video called "Why the Rich Secretly Love Mondani for Mayor." Many people got angry with me for saying these things, because they said it was some kind of reverse psychology and stuff like that.
You don't like Mondani. I didn't say that. I just said it, and you can see it right here. It was only in the first minute of the video when I said that. It wasn't that difficult. So, I wrote that if you freeze rents or don't incentivize construction upwards, you can see the transcript right there. As a result, prices are rising.
So we expected that in Manhattan or Brooklyn, prices would go up because fewer people would buy real estate. Uh, fewer people will build facilities. This will ultimately lead to a smaller or limited supply . And here it is. Democratic policies that restrict supply have historically led to rising prices.
You see it in California. You see the opposite in Texas. And you would expect this to happen in Manhattan. And what a bloody surprise. Here we are . Rents in Manhattan have reached an all-time high. Here's what we know. Well, let's listen and, perhaps, hear what we know. Rents in Manhattan are breaking records as wealthy people prefer to rent rather than buy.
Robert Frank at the table this morning. This is pretty interesting nonsense. These are two more taxes, Peter Thier, you know, held up in litigation and then allowed to continue through appeals. This is a huge mess. Of course. More competition for rent, less supply. This is elementary economics. left.
It' record rents in Manhattan, but they continue to rise. Rents in Manhattan are reaching an all-time high, this time driven largely by the very wealthy. Median rent hit an all-time high of $5,000 a month in July, and the median rent is now over $6,000. I mean, that's a lot for most of the country, but just to clarify, $5,000 rent equates to a property value of about $1.1 million or $1.2 million.
In some parts of Manhattan, you can get as little as a one-bedroom apartment for that. In Brooklyn, you might get a "two-bit." Uh, you know, you don't live in very spacious conditions. You know, a lot of these studios, even in Manhattan, can cost 600, 700, 800 thousand dollars, and the rent for them will be somewhere around 3,500 bucks, right?
So, obviously, compared to the rest of the country, this is an extremely high rent. But I would n't say you're very rich because you pay $5,000 a month in rent in Manhattan. You're just trying to survive, man. less than 300 per month for an apartment. This is according to a Real Deal report by Jonathan Miller.
The biggest changes are occurring in the luxury rental segment, which is the top 10% of the rental market. So, prices have increased by 35% compared to last year. The median rent in the luxury segment is now approaching $14,000 per month, and we are even seeing a median in the luxury segment of $ 14,000.
I mean, this is a very high level. This, yes, this is getting a little expensive. And it's no wonder that wealthier people say, "Well, it doesn't matter , I just won't buy a house." Honestly, with current interest rates, this is a logical decision in any case . Six-figure rent . That's right, there were at least seven apartments this year that rented for over $100,000 per month.
which is fine, but overall, according to the statistics reported by the magazine and other sources, this is what we see. What's interesting is that even if people with a budget of $14,000 absorb the supply, you narrow the available rental housing for other levels as well, because now the person who rented for $10,000 and could afford to raise it to $13, 14, or 15,000 is facing a supply shortage .
So now they're forced to overpay for a property that cost 10 thousand, which is now worth maybe 11. The tenant who was paying 9 thousand is now paying 10. Well, you get the idea. Unfortunately, it's a domino effect. The bottom line is that it makes life more expensive for everyone. This makes owning a second home more expensive and less predictable, so some wealthy buyers will naturally reconsider whether to buy.
under 7%. about the luxury real estate market and how the rich react to the mayor. We see the show with just fueled demand. And on the supply side, there are these rent freezes for rent-regulated housing . So a million of the 2 million apartments in Manhattan are now " frozen." So, if you are a landlord who owns several buildings, and there are many of them, while the rent is frozen on one side, you will be raising it on the other.
So, we'll just see their growth. And, by the way, it is quite logical for wealthy people to have small housing, given the current cost of rent. This is exactly what we predicted last year. And again, I'm not trying to brag. The whole point here is to show what happens when you interfere with real estate policy in an attempt to increase affordability.
In fact, you achieve the opposite result. The way to increase housing affordability is very simple. We need to build more houses. You can build many houses in parts of Utah, Arizona , and around Austin, Texas. And if you have a lot of land, keep building houses and you will lower the average price for renting and buying.
You're holding back growth because you have policies like in Manhattan where they say, "Oh, we're not going to let you turn this century-old apartment into 16 units." We'll say you can only turn it into four apartments because of these obligations or something else, which is usually what happens. I'm missing some details.
But now the developer says: " Okay, let it be." "I'll just build four apartments and sell them as housing, instead of building 16 and adding two or three more floors." “Again , you are limiting supply with public policy, making rentals unaffordable. markets so they can compete with free supermarkets.
This is what I'm talking about... This has been happening for the last few days, and I've seen that there's a perception that they need help. That competitors of free supermarkets, supermarkets have n't even opened yet. but there is already talk that they will need help to be able to Well, there is discussion.
The discussion is mostly online, but we interviewed someone who is part of the administration, I think, to some extent, and there was a question for Mark about what will happen to the supermarkets that are next door to the Odyssey markets. These are items like cigarettes, alcohol, and lottery tickets that most shopkeepers charge a fee for, and they will not be sold at a fee.
So you knew all about it. I mean, I haven't heard about the recent subsidy debate, the side discussion here is about the grocery stores that Mondani is trying to open. This is a crazy business, and we should take a look at Albertsons stock, for example . Jim Cramer praised Albertsons yesterday. Maybe we should take a quick look at their financial statements.
I see you're hinting that this idea could really catch on and start to take over the country, because again, it comes down to giving things to people. Well, if you look at these rent prices, it becomes clear why many elected a socialist mayor . I mean, when the average apartment... Right, right. Rents are high, but if you continue to restrict supply, you are only making things worse.
That's the problem. This makes sense as a reaction: they say the rent is too high, we need to figure out how to lower it. Oh, we have a chat message here: "What's a way to lower prices in Manhattan if space is limited?" This is exactly what I just explained . We need to create the same or even better incentives to build more housing, instead of encouraging the construction of less .
You see more conversions of individual apartments into duplexes or quadruplexes than vertical construction of eight, 16, or 32 apartments . Because once you cross the four-apartment line, you run into crazy permitting issues in Manhattan. If they said, “We’re going to incentivize rent reductions. We will make building upwards easier.” You could build...
you could literally create an infinite supply in Manhattan. Unlimited offer. Because you can just keep building upwards. Manhattan is full of space for new towers. Of course, then the movement will go crazy, people won't want it and all that. I'm just making a final argument that much more can be built.
You saw it in Brooklyn. Brooklyn is getting a lot of conversions from single apartments to duplexes, quadruplexes. Why don't they build six, eight, 16 apartments? Permissions. It's the same process there. So, in any case , my main conclusion is this: the more liberal local policies are, the more likely it is that prices will rise over time, not fall.
Then look at a region like Austin, Texas, which has very conservative politics. There, prices have fallen by 25% from their peak, because conservative politics means: " Hey, free right to build." Quick, easy permissions. The permitting system is not a real barrier to construction, so in boom and bust cycles, supply overshoots, prices fall, and suddenly rents and prices drop by 25%, and people say, "Wow." " Hooray, everything has become more accessible." But existing owners think: "That's the problem, everything has become more affordable." Do you understand?
But it benefits, you know, people who usually... the irony is that a vote for a liberal politician is really a vote for higher prices and higher rents. Whereas a vote for a conservative politician is a vote for the free market, which usually corrects these price distortions. This is why I personally try to invest in real estate only where there are liberal politicians.
Because I actually believe they are a "put" option on the underlying real estate. Because they are constantly pushing prices up. It's a bit counterintuitive , because, you know, a lot of people say, "Yeah, but I don't want to live in a liberal neighborhood." Good. But this is a strategy. This is something worth thinking about.
Here's a comment in our community tab, which you can join absolutely free by downloading the Meet Kevin app in the Apple or Android App Store, and you can also participate in this discussion. Here's someone who watched me talk about rent and the rent problem in New York. And they mentioned here that they work as property managers in rent-controlled buildings.
And how difficult it is to be such a manager, because their housing department is extremely favorable to tenants. Especially after New York passed significant rent stabilization laws. And they're essentially saying, "Hey, these laws make it very difficult to bring housing to the rental market . It's much more profitable to sell it as condominiums or luxury private homes.
In essence, it 's better to focus on the elite segment, because developing housing for the budget segment is not profitable because the rents are too low ." So, it's probably because of rent stabilization laws. So this is actually a fairly common economic phenomenon. So if... first of all, we know from an economic perspective that when the government steps in and sets a price " ceiling" and says, "Hey, we're not going to let prices go above X for a certain size or area, etc." "Then as a result we get...this is it." Let's present it so we can see it.
The intersection of supply and demand is here, right? If we intervene and set a price "ceiling" , we create a shortage. We want more housing, so we have higher demand, but at this price we will only provide so many units. Because in practice, if we build a house and this is all the rental income we can get, let's say, it's 100 apartments.
And if we could set a higher price, we would develop or provide 200 units at the higher price, because it makes sense from a construction cost perspective . When the government intervenes and sets, say, an equilibrium price, where we have 150 units, right? When the government sets a price ceiling, we say, "Okay, fine." Then it makes no sense for us to build more at that price.
So we will build only 100 apartments. "But the market at such a lower price demands 200." So what do we have as a result? We have a deficit. Usually, a shortage manifests itself in rising prices, but you won't see prices rise for this cheap housing because it has regulated rents. So, this pressure doesn't go away.
This pressure, this price pressure is moving up the market. And then we see rents rising in the elite segment. And that's how you see the average rent eventually going up. So, economically, the deficit cannot be hidden. You have to build more. But, as this person says in the comments: "That's why new developments are at the rental level of elite condominiums, where people still can't afford such housing at lower prices." "Well, it makes sense, because developers are essentially saying, 'Look, we have to build in a way that either doesn't fall under rent control laws, or if we do, we have to sell at such a high price per square foot because we're using luxury furniture, finishes, kitchens and bathrooms to justify renting or selling at a level that will provide a return on investment.'" Otherwise, every developer, and that could be someone like you or me, right?
You borrow money and go develop real estate. You look at it, you crunch the numbers. You take out a piece of paper and say: " Okay." It will cost me a million dollars to build, plus the land, for a total of 1.5 million. If I can rent it for just three thousand, well, three thousand a month multiplied by 12—that's $36,000.
Minus the costs of property management and all the nonsense associated with it, let's say we'll subtract 30%, well, let's say 35%. That comes out to $25,000. If I can only make $25,000 on 1.5 million, that gives an effective return of 1.67%. Why would I build in New York and go through all this hassle for a 1.67% return?
I'd rather invest my money in Treasury bonds and get 4.5%. Or I'll just put them in a drawer. This doesn't make any sense. So, the more people like me do the math and say, "This doesn't make sense. This is ridiculous." Even fewer people are offering real estate. It's not like some big organization is saying, "We're going to be mean and build less." It's a collective decision of thousands of developers who say, "No, buddy.
I'd rather buy Treasury bonds. It doesn't make sense." So this is really interesting. But that's kind of the economic rationale for why this Manhattan failure is no surpris.
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