Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: When Vivi Armacaus graduated college in twenty twenty two, she
Speaker 2: decided to move from Indianapolis to New York City. She
Speaker 2: says she and her roommate to be were making good
Speaker 2: money in their first jobs out of school, but when
Speaker 2: they started actually touring apartments, they realized it wasn't going
Speaker 2: to get them very far in the New York City
Speaker 2: rental market. Still, they were willing to do anything to
Speaker 2: make it work.
Speaker 3: We were like, Oh, let's see the one bedroom and
Speaker 3: let's try to fit to us in here week. Maybe
Speaker 3: let's add your boyfriend and so we can afford it
Speaker 3: as well.
Speaker 2: To recap they went from looking for a two bedroom
Speaker 2: to a one bedroom. Then they added a boyfriend. Viv
Speaker 2: would live behind a flex wall.
Speaker 3: The kid, you kind of like, would go into my
Speaker 3: room a little bit.
Speaker 2: And I was like, oh, New York is one of
Speaker 2: the most expensive cities for renters in the world, up
Speaker 2: there with Singapore, Zurich, and Geneva. And even before she
Speaker 2: got there, Vivi he knew she was going to have
Speaker 2: to pay a lot.
Speaker 3: I had reached up to my friends who had moved
Speaker 3: to New York City and asked how much money I
Speaker 3: should save up to move here, And they didn't tell
Speaker 3: me about this little broker fee thing.
Speaker 2: In addition to those sky high rents, bidding wars, and
Speaker 2: disappointing fifth floor walk ups, there's another thing that makes
Speaker 2: the New York rental market uniquely challenging, this little broker
Speaker 2: fee thing. A broker is someone who acts like a
Speaker 2: concierge for people looking for apartments, sharing open listings, taking
Speaker 2: them on tours, and helping with negotiations. They exist in
Speaker 2: most real estate markets, and usually they're hired by landlords,
Speaker 2: but in New York the broker system works a little differently.
Speaker 2: Renters often have to pay for these brokers, even when
Speaker 2: they don't use or even ask for their services.
Speaker 3: The most shocking thing was that I did all work.
Speaker 3: They just showed up to open the door, and if anything,
Speaker 3: they sometimes even used a code to get into the apartment.
Speaker 2: It was frustrating. VIVI had gone online, searched through apartment listings,
Speaker 2: found a place herself. She didn't need a broker to
Speaker 2: do any of that, but when she went to sign
Speaker 2: her lease, she, like so many New York City renters,
Speaker 2: had to pay this additional charge fifteen percent of her
Speaker 2: annual rent to a broker who services she didn't choose
Speaker 2: to use before even getting into rent itself. How much
Speaker 2: did you pay upfront to move into this apartment?
Speaker 3: I'm like doing a little math on the side. I'm
Speaker 3: almost positive it was eight thousand dollars. I was like,
Speaker 3: broke broke when we moved to New York. I was like,
Speaker 3: I'm so, we just paid eight thousand dollars. It's basically
Speaker 3: ball I'm worth.
Speaker 2: Viv's not the first person to be surprised and annoyed
Speaker 2: by New York City's broker fee system, which has plagued
Speaker 2: renters for decades, But last week New York City Council
Speaker 2: passed a new bill that aims to flip the model
Speaker 2: on its head. Today, on the show New York City's
Speaker 2: attempt to shift broker fees to landlords, how the real
Speaker 2: estate industry is reacting, and what it could mean for
Speaker 2: renters in one of the most expensive cities in the world.
Speaker 2: This is the Big Tig Podcast. I'm Sarah Holder. The
Speaker 2: cost of living in New York City has been rising
Speaker 2: for decades.
Speaker 1: New York City rents grew seven times faster than wages
Speaker 1: in the city last year, so that's one of the
Speaker 1: largest gaps in the country.
Speaker 2: That's Paulina Cacerro. She covers residential real estate for Bloomberg.
Speaker 1: If you look at new leases that were signed in October,
Speaker 1: the median rent in Manhattan was four two hundred and
Speaker 1: ninety five dollars, and in Brooklyn it's not that much
Speaker 1: cheaper as thirty six hundred, So you can imagine that
Speaker 1: this is one of the most expensive cities to live
Speaker 1: in in the world.
Speaker 2: What is driving the increase in rents in New York City?
Speaker 1: This is a complicated question. I think everyone wants to
Speaker 1: know why the rents are so damn high in New
Speaker 1: York City, But I think at its core it's an
Speaker 1: issue with an imbalance in supply and demand.
Speaker 2: Over the past decade or so, New York City created
Speaker 2: eight hundred thousand jobs, but only enough housing for a
Speaker 2: quarter of those workers. But beyond the housing shortage, another
Speaker 2: reason the rental market is so hot is high interest rates.
Speaker 1: The Federal Reserve increased interest rates at the fastest clip
Speaker 1: in decades, and people that had hoped to be able
Speaker 1: to buy a home, buy a condo, or buy a
Speaker 1: co op in New York City are stuck renting, So
Speaker 1: all these people that would have released more apartment inventory
Speaker 1: are staying in the rental market. So there's just been
Speaker 1: a lot of pressure on the demand side and supply
Speaker 1: has not been keeping up.
Speaker 2: The same dynamics squeezing New York renters are playing out
Speaker 2: across the country. There's a national housing shortage to the
Speaker 2: tune of four and a half million homes. According to
Speaker 2: an analysis from Zillo. Over half of US renters are
Speaker 2: rent burdened, meaning they spend more than thirty percent of
Speaker 2: their income on rent, and the Cleveland Fed says rental
Speaker 2: inflation could take until twenty twenty six to cool down.
Speaker 2: But there are some things that make this problem particularly
Speaker 2: brutal in New York.
Speaker 1: New York City's rental market is so quirky. I think
Speaker 1: anyone who has gone through the process will realize how
Speaker 1: cumbersome it is. There's a lot of requirements to rent
Speaker 1: in New York City. To even qualify to apply for
Speaker 1: some apartments, you have to make forty times the rent,
Speaker 1: and if you can't afford that, you need a guaranteur.
Speaker 1: But on top of that, you also have broker's fees.
Speaker 2: Broker's fees that upfront charge for a real estate broker
Speaker 2: the tenants often have to pay when signing a lease.
Speaker 2: In New York, the charge can be up to fifteen
Speaker 2: percent of a tenant's annual rent.
Speaker 1: Street Easy estimated that the average moving costs including broker's fees,
Speaker 1: that people pay before they even move into apartment is
Speaker 1: close to thirteen thousand dollars.
Speaker 2: Real estate brokers can help make the apartment search easier,
Speaker 2: especially in cities with competitive markets. They post listings, set
Speaker 2: up apartment toursvet buildings, but the Internet has made it
Speaker 2: a lot easier for people to do a lot of
Speaker 2: this work themselves, so renters, especially renters on a budget,
Speaker 2: might choose to avoid working with a broker at all,
Speaker 2: but in two US cities, New York and Boston, they
Speaker 2: may still have to pay one. Because even if it's
Speaker 2: the apartment landlord who hires the broker, tenants are often
Speaker 2: asked to foot the bill, and it's been that way
Speaker 2: as long as most residents and most brokers can remember.
Speaker 4: Because there's so little inventory available, because people always want
Speaker 4: to move to New York because there are so many
Speaker 4: people here that keeps pushing rents up. And it's also
Speaker 4: the reason that we have the fee structure that we
Speaker 4: see today.
Speaker 2: That's Anna Klencar, she's a broker with Sobeby's. She says
Speaker 2: she doesn't know exactly why New York's broker fee system
Speaker 2: has held on for so long, but she has some guesses.
Speaker 4: My belief, both Boston and New York are very long
Speaker 4: established cities that have a very high proportion of renters.
Speaker 4: They have a lot of schools, a lot of students.
Speaker 4: The rental market has also been largely consolidated. There are
Speaker 4: more very very large landlords who own thousands of units,
Speaker 4: which further increases the imbalance of power.
Speaker 1: I think it's just a function of New York City
Speaker 1: being a really competitive place. Bloomberg's Paulina Cceerro again, it's
Speaker 1: just become standard practice in New York that if you
Speaker 1: don't pay well, someone else is going to get the
Speaker 1: apartment over you. If you talk to the Real Estate
Speaker 1: Board of New York, they will tell you that the
Speaker 1: Burger's fee has always been negotiable. You can talk to
Speaker 1: the agent about whether you want to pay it or not.
Speaker 1: But realistically, when there are ten other people in line
Speaker 1: who have applied for the same apartment. If you're not
Speaker 1: willing to pay the Burgers fees, they're going to go
Speaker 1: with someone else who is. So it kind of has
Speaker 1: become a pay to play market in New York with
Speaker 1: broker's fees, but a recent act has changed that.
Speaker 2: A recent act introduced by New York City Council Member Chosa.
Speaker 5: The first and only gen Z elected official in New
Speaker 5: York State.
Speaker 2: Ose represents the thirty sixth district, made up of Bedsty
Speaker 2: and Northern Crown Heights. Last year, he moved out of
Speaker 2: his parents' house and entered the wild west of the
Speaker 2: New York City apartment search. It was terrible.
Speaker 5: How am I as a member of the city council?
Speaker 5: Who I am making six figures? Why am I having
Speaker 5: this much trouble finding an apartment? Why is it so expensive?
Speaker 2: One of his biggest pain points was that upfront broker fee.
Speaker 2: He too was confused why renters had to pay it,
Speaker 2: But he realized that on the City Council he could
Speaker 2: actually do something about it, so he introduced legislation called
Speaker 2: the Fairness and Apartment Rental Expenses Act, or the fair Act.
Speaker 5: It would require that simply whoever hires a broke within
Speaker 5: the City of New York pays for the broker fee.
Speaker 2: It's not the first time someone's tried to challenge the
Speaker 2: broker fee model in New York. A similar change was
Speaker 2: implemented briefly in twenty twenty before being rolled back after
Speaker 2: the Real Estate Board of New York or REBNEY, a
Speaker 2: real estate industry trade group, filed a lawsuit to overturn it.
Speaker 2: Osea himself first tried to overhaul the system over a
Speaker 2: year ago, and the legislation never made it to a vote,
Speaker 2: But last week, the Fair Act was approved by the
Speaker 2: City Council forty two to eight.
Speaker 5: The main goal of this bill was to eliminate that
Speaker 5: upfront cost that New Yorkers find themselves paying to move
Speaker 5: into a new apartment and are already unaffordable housing market.
Speaker 5: Many New Yorkers do not have saving accounts. Many New
Speaker 5: Yorkers are living paycheck to paycheck. That upfront cost can
Speaker 5: really hold some people back, and eliminating that will allow
Speaker 5: for so many tenants to have more mobility in moving
Speaker 5: around our city. When we ban forced broker fees in
Speaker 5: New York City, it will give and it's more bargaining
Speaker 5: power allow them to be more mobile and will allow
Speaker 5: them to decide on if they want to move out
Speaker 5: of their apartment if their landlord is charging more, which
Speaker 5: I believe will put a downward pressure on rent.
Speaker 2: When we come back what the Fair Acts critics have
Speaker 2: to say about the legislation, there are big changes coming
Speaker 2: for how renters find housing and how real estate brokers
Speaker 2: get paid in New York City, and Council Member Chosa
Speaker 2: hopes these changes will make the apartment search cheaper for
Speaker 2: tenants and more transparent for everyone. But members of REBNEY,
Speaker 2: the local trade group representing brokers, landlords, and property managers,
Speaker 2: have been vocal opponents of such legislation for years. They
Speaker 2: argue that shifting the responsibility of paying for the broker
Speaker 2: to whoever hires the broker could have some unintended consequences.
Speaker 4: I think there's this assumption that the money comes out
Speaker 4: of the landlord's pocket.
Speaker 5: It does not.
Speaker 2: It gets baked into the rent and it's paid over
Speaker 2: time by the tenant. Sarah Salzburg is co founder and
Speaker 2: principal broker at Bohemia Realty Group, a brokerage firm that
Speaker 2: works with clients in New York City. She's a member
Speaker 2: of REBNEY and she says even if tenants might no
Speaker 2: longer be the ones paying brokers directly, they'll still be paying.
Speaker 2: She argues that landlords will just pass on those fees
Speaker 2: through rent increases. Instead of a one time fee, Sarah
Speaker 2: says tenants could be paying more over multiple years. I
Speaker 2: asked us say about this.
Speaker 5: First and foremost, forty seven percent of homes for tenants
Speaker 5: within New York City or rent stabilized, So due to
Speaker 5: rent stabilization laws, it would be illegal for landlords to
Speaker 5: bake the fee into those apartments. Two rents are set
Speaker 5: by market forces, not by what landlords can charge. If
Speaker 5: your landlord could increase your rent tomorrow, they would have
Speaker 5: done so yesterday.
Speaker 2: But Sarah says she's also concerned that the Fair Act
Speaker 2: will make it harder to find an apartment at all,
Speaker 2: because she argues brokers will only list units they're being
Speaker 2: paid by a landlord to advertise. Bloomberg's Paulina Cacero says
Speaker 2: a lot of the fallout from the Fair Act will
Speaker 2: depend on how landlords choose to react, whether they keep
Speaker 2: hiring brokers, and how they choose to cover those costs.
Speaker 2: Some of the experts, Paulina spoke to said rents could
Speaker 2: go up in the short term, but supporters of the
Speaker 2: legislation told her that if landlords try to make up
Speaker 2: for the cost by spreading it out across rents slightly
Speaker 2: over time, that's still better than keeping New Yorkers locked
Speaker 2: in their leases with prohibitive upfront moving costs.
Speaker 1: I think that a lot of the housing advocates still
Speaker 1: supported the bill because it provides people more mobility, more options.
Speaker 1: I think a lot of people were stuck in not
Speaker 1: ideal housing situations just because the upfront costs of moving
Speaker 1: anywhere from ten to fifteen thousand dollars is astronomical, and
Speaker 1: that's really hard for a lot of people.
Speaker 2: The bill has passed most of its political hurdles. The
Speaker 2: mayor still to sign it, but it has a veto
Speaker 2: proof majority from the City Council and it's set to
Speaker 2: take effect next year. Still, Redney, the real estate trade group,
Speaker 2: told us they'll quote continue to pursue all options to
Speaker 2: fight against this harmful legislation unquote. But not all brokers
Speaker 2: are resisting the change. Anna Klenkar, the broker from Sotheby's
Speaker 2: we heard from earlier, actually helped Council member Osay with
Speaker 2: the legislation.
Speaker 4: No bill's perfect, but I think this is we've come
Speaker 4: pretty close. There's no actual benefit to a tenant pays situation.
Speaker 4: It only exists because of leverage. Is a lot of
Speaker 4: the work that you do when you list an apartment
Speaker 4: on the landlord side, it's for the landlord, so the
Speaker 4: landlord should be the one to pay for it.
Speaker 2: And it also thinks it could help brokers shake the
Speaker 2: negative reputation they have among some tenants that they're getting
Speaker 2: paid to essentially unlock a door. She hopes this legislation
Speaker 2: will tip the scales that when renters don't feel obligated
Speaker 2: to pay for a broker service they didn't ask for,
Speaker 2: they'll feel better about hiring brokers when they actually want them,
Speaker 2: like Osay did.
Speaker 5: My experience in finding a home was so difficult that
Speaker 5: I hire a broker myself, you know, And I think
Speaker 5: that shocks a lot of people because they think that
Speaker 5: I'm anti broker and pushing this bill. I'm not anti broker.
Speaker 5: I'm anti forcing people to pay for something they didn't hire.
Speaker 3: Right.
Speaker 5: I hired a broker who did a fabulous job in
Speaker 5: finding me an apartment. I believe individuals like him, will
Speaker 5: stay in business.
Speaker 2: Vivi, the renter who came to New York City a
Speaker 2: couple of years ago, has moved since that first snug
Speaker 2: one bedroom. She says she's happy in her current place,
Speaker 2: but then I let her know that the Fair Act
Speaker 2: had been passed.
Speaker 3: You'll see me. You'll probably see me move in this summer.
Speaker 5: If so.
Speaker 2: Thanks for listening to the Big Take from Bloomberg News.
Speaker 2: I'm Sarah Holder. This episode was produced by Julia Press.
Speaker 2: It was edited by Aaron Edwards and Christine Morris. It
Speaker 2: was mixed by Alex Huguiera and fact checked by Adrian A.
Speaker 3: Tapia.
Speaker 2: Naomi Shaven is our senior pretty, Elizabeth Ponso is our
Speaker 2: senior editor. Nicole giamster Bor is our executive producer. Sage
Speaker 2: Bauman is Bloomberg's head of Podcasts. Please follow and review
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