All good things eventually come to an end, and unfortunately my time living on a boat is one of them. I’ve started looking for an apartment again, and it is horrible. In fact it was because I had such a difficult experience last time that I ended up moving onto the boat in the first place!
I think about renting an apartment a lot. Everyday I go into work, and write some code that is a small piece of a potential solution to this problem. But as with everything, I let myself zoom out and try to see the big picture. I know on a gut level that the process of renting an apartment in NYC is broken. Here’s why.
1. Brokers
Brokers are the absolute worst. They lie, deceive, only care about getting their commission, and are nothing more than a door opener. Unlike real estate agents, who at least work either for a buyer or seller, brokers work for themselves, and have their own agendas. They are a pure middle man and a classic showcase of the principal-agent dilemma. In a market as competitive as New York, there should be no need to hustle people into apartments. Every dollar spent on a broker, in my opinion, is a dollar wasted and a deadweight loss for society. Brokers need be completely disintermediated.
2. Listings Are A Hot Mess
They are often written in all capital letters, in an overly dramatic way using excessive punctuation. Apartment rental websites are flooded with bait-and-switch of apartments that only serve as lead generators for brokers. There is no real mechanism to take down stale listings without undergoing a very high-touch process (i.e.: calling landlords). Listings also lack basic information such as pictures, floor plans, and amenities. Finally, each listing has a slightly different format, depending on the landlord, aggregator website, or brokerage. Listings need to be complete, standardized, and updated in real time.
3. Information Asymmetry
There is also no way for prospective tenants of knowing certain kinds of information without an extraordinary amount of investigation. Who owns the building? Who is the landlord? How responsive is the landlord when things break? What are the other tenants like? How many units are in the building? How do people like living here? How noisy is the apartment? What are other people paying for similar apartments in the same building? In the same block? In the same neighborhood? When will units become available to rent a bit further in the future?
The dearth of information available to apartment renters is a stark contrast to the public records, transaction histories, and marketplace data that are easily accessible by both buyers and sellers of houses. All rental data (including the rent each unit in each building pays each month) needs to be made publically available in API format by the city government.
4. The Application Process Is A Black Box
Apartments have insane requirements and require an enormous amount of disclosure. However, it is a complete mystery why some applications are approved while others are rejected. Is it first come, first serve? Do they give favor to certain brokers’ clients in exchange for a small bribe? Do they reject candidates because of lack of rent history, mediocre credit, or low savings? Are there other people applying to this apartment? What percentage of people get accepted? What does the fee go towards? The application process needs to be standardized, secure, and transparent.
5. Marketplace Fragmentation
There is no single dominant marketplace where owners and renters can go to conduct business. Instead there are dozens of different channels where information about apartment availability is disseminated and consumed. There are aggregator websites like padmapper, paid search websites like nybits, individual apartment or management company websites, brokerage websites, and of course craigslist. Owners need to figure out how to get their listings out to many different places, and renters need to check multiple sites to find apartments. Both parties often miss out since it’s almost impossible to use all of the services available. There needs to be one marketplace to rule them all.
6. Insane and Boutique Contracts
No one reads the lease they sign but even if they did, it’s pointless since it’s an acquiescence, not a negotiation. Despite being virtually similar in their goal, there is no industry standard. Every lease is different, and there is almost surely language inserted into leases to try to deceive renters. Furthermore, contracts are often very long, full of fine print, and intentionally indecipherable. There are also very complicated and frankly unreasonable income requirements (40-50x rent). Sometimes you can have a guarantor, but they need to make 80x rent, and generally be from the tri-state area. This makes it very hard to rent an apartment, even if you can technically afford it. Contracts need to be standardized and easy to understand at a glance.
7. Too Much Is Still Offline
Over the last 20 years virtually every industry has moved online, and the result has been a consumer bonanza. Buying books, movies, shoes, clothes, kitchen supplies, and activities like banking and communications have all gone digital. Real estate and rentals are lagging in this transition. Yes, many listings are being digitized, but not in a machine readable form (think word documents faxed out to brokerages) or hopelessly stuck in data silos without interoperability. Most applications require you to still sign a hard copy. Virtually all require a physical check to put down a deposit and pay rent. These inefficiencies add up both in terms of cost and in terms of speed of transactions and thus diminish market liquidity. Everything must be made digital and interoperable.
8. Insecure Application Process
Brokers and landlords get access to all sorts of extremely sensitive data. Background checks, credit checks, social security numbers, bank account balances, bank account transactions, bank account numbers, and credit card information, just to name a few. What do they do with this data? What security measures are in place to prevent unauthorized use of this data? Brokers and landlords don’t have the best reputation to begin with, but no one should be handling this kind of data without taking proper security precautions. Security measures must be put into place to lock down this sensitive data and protect prospective and current tenants.
9. Hard Credit Checks
Every time I apply for an apartment, I get a hard credit check, which hurts my score and costs money. This is completely unnecessary. Landlords can get all the info they need without having to do this through a 'soft credit check' process, which I believe should be done by the prospective tentant themselves, as opposed to the landlord doing it on your behalf. In theory you can give a landlord this ‘soft’ credit report beforehand, obtained for free, and avoid this. I never have done it this way because it seems like it would be a strike against me in the application process. Soft credit checks must become the rule, not the exception.
10. The Rent Is Too Damn High
New York City has some of the most expensive real estate in the world, and it’s not because it’s the nicest. New Yorkers pay a fortune to live in a shoebox, and often the shoebox is dilapidated.
NYC has perhaps the strictest building codes, construction requirements, labor regulations, and cost of both materials and labor. This makes it extremely expensive to build, compared to other places such as Texas.
Whether consciously or not, decisions have also been made to enact restrictive building heights, narrow zoning rules, a slow and drawn out approval process, and high minimum parking requirements to name a few. These combine to create an anti-density and anti-gentrification environment, and thus have made it very hard to build new apartments.
Further complicating matters is the outrageous cost and complicated nature of building new infrastructure. There are many places that should be able to support new housing developments, but logistically can’t due to lack of subway access. Building subways in NYC costs $2 billion a mile - about 10x countries like Singapore. The current subways are packed, and so are the roads, so without new subway lines, it’s hard to justify a large increase in new housing. Perhaps eclipsing the impossibly large cost are the poisonous politics between New York and New Jersey that has made cross-Hudson subway access severely limited and spread across separate systems.
Finally, there is the elephant in the room: direct government intervention in the form of public housing and rent control. Over 60% of rental apartments are either rent controlled, rent stabilized, public housing, or section 8 housing[1]. That leaves less than 40% of apartments that can be charged ‘market rate’. This means that landlords have to make all their money off a small part of the market. This is how one person can pay a few hundred dollars a month for a 3 bedroom, while others pay $2500 for a studio in the same building or block.
New political decisions have to be made (or new politicians should be elected) at the local, state, and federal levels to encourage the development of new housing if we have even a glimmer of hope to decrease the cost of housing.
11. The Price Is Not The Price
It’s very hard to compare apples to apples when buying an apartment. The listed price can vary due to application fees, broker’s fees, unforeseen building fees, rent increases, and so on. Supermarkets often post a unit price on food items, so you know how much you are paying per ounce or per liter. There is no unit pricing in NYC apartments, and this makes it hard for prospective tenants to compare the prices of apartments they are looking to buy. These hidden fees add up to a lot, and the discrepancy between different types of list prices causes a lot of confusion in the market. There needs to be one standard metric of pricing that is all-inclusive and is the only permissible advertising rate.
12. The Rigidity of the 1 Year Lease
It seems that virtually every apartment requires a one year (or greater) lease. What’s the rationale for that? Is an 11 month lease any different than a 12 month or 13 month lease? It seems that there is a greater demand for more flexibility on lease terms than the market is supplying. Why can’t a person easily pay slightly more for a 6 month lease or slightly less for an 18 month lease for every apartment? Surely landlords have figured out the cost of turnover - it’s just a matter of amortizing it over a shorter or longer period. I don’t think this one size fits all lease length is working. Leases need to an explicit tradeoff of less money for more time commitment, with the freedom to choose your own lease length.
13. Can’t Rent Out Your Place
Many landlords do not allow tenants to participate in the sharing economy on sites such as Airbnb. New York Attorney General Eric Schneiderman is waging war on Airbnb as well - declaring it illegal. However, the entire concept of taking idle resources, such as an empty apartment while you're on vacation, and letting another person pay to use that is amazing. It harnesses the environmental ethos of reduce, reuse, recycle, and is a real economic benefit. While I understand the downsides of having the apartment next to you become a hotel with strange new guests every few days, surely there is a way to embrace the idea of the sharing economy in a way that is beneficial to all. Lawmakers, landlords, and Airbnb need to come to a new understanding and enable idle apartments to be rented out.
14. Can’t Try Before You Buy
Making a decision of where to live is a big one that will cost thousands of dollars, and leave you trapped for the next year if you don’t choose wisely. Zappos famously lets you return any shoes you buy for free if you don’t like them. Why can’t apartments set aside a unit that is rented out on Airbnb for prospective tenants to pay to stay in for a night or two? Surely the landlord would make the same amount of money, but in return they may get tenants who, having tried the place out, definitely want to live there and thus would stay for multiple years. Landlords should let prospective renters try a building out before they commit to a lease.
15. Lack Of Trust
It’s very hard to remove a troublesome or delinquent tenant, and lots of tenants have done serious damage and then leave town without a trace. Landlords have thus grown to not trust tenants, and this is probably why landlords ask for so much personal information when you apply for an apartment. Tenants also don’t trust landlords. Shady landlords who do things like turn off the heat in the winter, or never give back a security deposit check are all too common. Finally, nobody trusts brokers - all they do is lie. Trust is the glue the holds together markets. Without trust, it’s hard to engage in commerce without being over protective and defensive. This severe lack of trust towards each party can’t possibly be good for the rentals market. Trust needs to be restored to this market if it ever has a hope of working properly.