LI rentals rise as housing market sputters
Long Island's rental housing market is heating up.
Local homeowners and real estate investors are putting more houses up for rent as they wait for a hoped-for rise in sale prices, according to brokers and online real estate listings. In addition, developers are finding it easier to get financing to build apartment buildings than co-ops or condos.
The total number of rental units on Long Island rose by nearly 27 percent from 2008 to 2011, to 187,089, according to census data compiled by the Regional Plan Association, a not-for-profit organization in Manhattan. Craigslist, sublet.com and many local brokers say the supply of rentals has continued to increase strongly this summer.
Meanwhile, the supply of for-sale homes is dwindling. In August, there were 20,088 homes for sale, 15 percent fewer than a year earlier, according to the Multiple Listing Service of Long Island.
"The housing crisis created the rise of the rental," said Great Neck-based Wendy Sanders, who specializes in rentals for Prudential Douglas Elliman. "People's lack of ability to buy created a bigger rental market, and people's lack of ability to sell gave us merchandise to put on the market."
Affordable renting key
Long Island's shortage of rentals has long made it difficult for young adults to settle here and senior citizens to stay, real estate experts said. Affordable rental housing is needed "to keep our young people; they're obviously a critical part of the economy and the workforce," said Richard Guardino, executive dean of the Wilbur F. Breslin Center for Real Estate Studies at Hofstra University.
However, the new supply of rentals isn't sufficient to meet the demand. Long Island apartment buildings had a vacancy rate of 2.1 percent in the spring, one of the lowest in the nation and a drop from 3.6 percent in the second quarter of 2011, according to Carrollton, Texas-based RealPage Inc., which tracks apartment market trends.
The modest increase in rental housing "doesn't solve the fundamental problem in the market. The mix is still heavily skewed toward single-family homes," said Pearl Kamer, chief economist with the Long Island Association, the largest business organization here.
Plus, many of the new rentals do not come cheap.
The three- or four-bedroom waterfront houses that have hit the rental market since the 2008 financial crisis can fetch $3,000 to $8,000 a month, or even more, said Deborah Sande, of Daniel Gale Sotheby's International Realty in Huntington. "The sky's the limit," she said.
Jennifer Cino, 27, and her fiance, Kevin Reilly, pay $2,600 in rent and fees for their one-bedroom apartment plus two parking spaces and other amenities at the AvalonBay rental complex in Rockville Centre, where construction finished this summer.
Less expensive apartments elsewhere were all inconvenient or cramped, including one where they couldn't open the stove and the refrigerator at the same time, said Cino, a Rockville Centre math teacher.
It's a common complaint. Jim Hegmann and his wife would like to move out of their three-bedroom Hicksville ranch, rent it out and lease a modest apartment to cut costs. He feels confident he can find a family to rent his home for about $2,500, but the choices in his own $2,000 price range are "horrendous," said Hegmann, 68, who lost his job as a compliance officer at a bank in 2010. Some of the bedrooms were so small there would not have been room to navigate around the couple's medical equipment, he said.
Long Island's supply of rentals is unusually low for the region, experts say. Roughly one in five of Long Island's housing units are rentals, compared to about one in three in Westchester, southern Connecticut and northern New Jersey, according to the Rauch Foundation's Long Island Index, which publishes reports on local housing and other issues. "The amount is increasing, that is absolutely sure," said Ann Golob, director of the Long Island Index, but "we are still far below our suburban neighbors."
Renting vs. selling
With so few homes and so many eager renters, it can take just a few days to rent out a house in good condition, brokers say. By contrast, this spring it took more than four months, on average, to sell a home on Long Island, excluding the East End, according to a report by the appraiser Miller Samuel and the brokerage Prudential Douglas Elliman.
Still, handing over one's house keys to renters can be fraught with anxiety.
Beatrice Espinoza, 45, has been turning down renters for more than two years. A former secretary studying to become a nurse, Espinoza wants to rent out her four-bedroom home in Medford for $2,325 a month, sell her car and rent a studio in Queens to save money.
The rent would cover her $1,292 monthly mortgage plus the taxes, Espinoza said. However, she has rejected a dozen or so prospective renters, since they all flunked her background check.
"I love the home," she said. "I don't want to rent it out, but that's my only choice at the moment."
Espinoza owes about $425,000 on the home, which was recently appraised at $399,000. If she sold it now, she said, "I would literally walk away losing everything."
If prices rise in the next three to five years, perhaps she can sell and make a small profit, she said.
Even in affluent areas such as Dix Hills, some struggling homeowners have gone to the trouble and expense of breaking up their homes into "mother-daughter" units and getting permits from their towns, said John Breslin, a real estate attorney and landlord in Huntington.
Others resort to renting out basements, which can be illegal. State regulations forbid many below-grade units for health and safety reasons, Breslin said.
For some investors, buying and renting out homes has been a better investment than stocks or bonds. James Klingel owns four single-family rental homes, which he said give him an annual return of about 10 percent to 12 percent after expenses. "This is pretty much my kids' college fund," said Klingel, 48, who lives in Miller Place with his wife, 15-year-old daughter and 11-year-old son.
Major developers, too, are responding to the popularity of rentals. The Engel Burman Group, which operates about 1,000 assisted-living units, hopes to build at least 2,000 rentals on the Island within five years, said Steven Krieger, a principal with the builder.
Other builders have decided to switch from condominiums to rentals. A nearly complete 90-unit condo development in Valley Stream that went into foreclosure in 2011 was recently taken over by a Greek real estate investment fund that plans to convert it to rentals, according to Torchlight Investors, the Manhattan-based real estate investment manager that provided $25 million in loans for the deal last month. In addition, of the 860 housing units in Glen Cove's waterfront redevelopment, as much as 50 percent are expected to be rentals, compared with 21 percent in the 2009 plans, according to the developer, RXR-Glen Isle Partners. The switch was due to increased demand for rentals, according to a spokesman.
Lenders are more willing to finance rentals than for-sale units because rental demand is so high, said Mitchell Pally, chief executive of the Long Island Builders Institute, which represents developers.
However, community opposition has blocked many proposed rental complexes, and that is unlikely to change, real estate experts say.
Homeowners "are terrified of any change that they perceive as destroying their home values," Golob, of the Long Island Index, said. But rentals, she said, "don't have to look ugly. They can be beautiful, they can increase the value of our homes, they can increase our sense of community, our sense of place, and be gorgeous places to live."