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The Vicious Circle That Is Sending Rents Spiraling Higher
jones_supa writes: Skyrocketing rents and multiple roommates — these are the kinds of war stories you expect to hear in space-constrained cities such as New York and San Francisco. But the rental crunch has been steadily creeping inland from coastal cities and up the economic ladder. Bloomberg takes a look at the vicious cycle that keeps rents spiraling higher. People paying high rents have a harder time saving for a down payment, preventing tenants from exiting the rental market. Low vacancy rates let landlords raise rents still higher. Developers who know they can command high rents (and sales prices) are spurred to spend more to acquire developable land. Finally, higher land costs can force builders to target the higher end of the market. The interesting question is how long can this last before we reach a level that is not affordable to the majority of the demographic that is being serviced.
The interesting question is how long can this last before we reach a level that is not affordable to the majority of the demographic that is being serviced.
Care to guess what happens at that point? New construction doesn't sell, developers go bankrupt, new construction is sold at auction for lower prices. Then the new units available at lower prices push down prices of other housing, which makes purchase more affordable, which results in renters buying, which curbs rent prices.
No matter what part of the cycle you're in, no matter what part of the country, one thing can be counted to be constant: idiots proclaiming that the current trend is the new reality and will last forever!
Rent control makes it harder to make money offering an apartment for rent (or at least not as much as you can get by selling it out). So owners are incentivized to take housing off the rental market and sell it instead.
Sure, they try to make that harder too. But the owner can always kick tenants out to move in himself/herself. And so that's what's happening now. Owner kicks out tenants to occupy it. Then they later can sell it.
And they can even AirBNB it while "occupying" it.
http://lkml.org/lkml/2005/8/20/95
This reads like a common economic trope: A journalist (presumably not an economist) observes that A has a positive effect on B, and B has a positive effect back on A. They then proceed to assume that both A and B will "spiral out of control" into infinity, as if the only kind of effect is a proportional effect, and as if the only kind of feedback loop is a positive feedback loop.
Well as it turns out, there's a such a thing as a negative feedback loop. In fact, that's how markets work; there's this law called the law of declining marginal utility. In most cases, given the nature of geometric sums, there's a total, maximum amount of utility that a single good can ever give you, ever, no matter how much you buy.
Let's take a look at the author's argument:
People paying high rents are, presumably, living in an area with high demand, further suggesting that they have a much better ability to pay for housing than the average person as it is; they just choose to live in a high-rent place because it's more beneficial than an average city or neighberhood.
There's no special correlation between prices and liquidity; there's a better correlation between how "hot" or bubble-like a market is, though. Volume isn't the same as price.
This is a downward force on prices. See also, the Law of Supply: higher prices creates more supply, or at least forces people to use the resources more effectively. Software developers don't need a huge living area, at least not compared to (at the extreme end) farms. In contrast to farms, which can go pretty much anywhere there's halfway decent land. As a result, people (in expanding cities, for example) tend to buy out farms, not the other way around.
This may seem obvious, but knowing it explicitly is a crucial component of knowing how resources are efficiently allocated. It doesn't even matter how resources are initially allocated, if we mixed everything up and assuming low transaction costs (something not typically present in housing markets, though), then people will trade with each other back to the optimum allocations.
No, there's this thing called the law of supply and demand. Rates are set based on what the market as a whole is able to bear - where the supply and demand curves meet. And if San Francisco can find 50k buyers for 50k $10/sqft (or whatever) rentals, then that's the market price (a simplified argument, of course, but hopefully still an accurate one).
Wonder what the public key field is for?
Posting Anon because I am modding
5 cents for coffee? Hell, cigarettes were 50 cents a pack 35 years ago, now they are over $6 a pack.
Gas was 75 cents and is now $3 a gallon
Bullets used to cost $2 a box of 50. Now they are pushing $45 a box.
Did I cover all the important stuff? Gas, bullets, smokes, oh Beer! hell you used to get a 6pack for a $1.
It's life, money is worth less now that is was back then.
If they are renting them, they must not be getting higher than market rent - market rent is what something will rent for.
Why is there an "insightful" mod and why isn't it "-1"? If I wanted insight, I wouldn't be reading
I'd much rather have healthy people than a healthy market.
When the cost of everything is going up (the value of the dollar is going down), that's inflation.
When the cost of one specific thing is going up - that's not inflation.
This is how it happens:
It was not always so — the problem in NYC, for example, started during the WW2, when rent control was introduced as a temporary measure to protect families of servicemen from rent-increases. 70 years later, the program still exists and the rent-controlled units are subsidized by other tenants of the same building. Like lottery-winners, only participation in lottery is voluntary...
Before dismissing this post as "a troll", observe, that the problem is highest in the Left-controlled cities: San Francisco, NYC says TFA. I may add Boston based on personal experience... Meanwhile, in Houston, TX or Atlanta, GA, for example, the prices seem about half as much as in San Francisco, CA.
In Soviet Washington the swamp drains you.
Yes, that cool thing called quantitative easing. That is, printing money so as to facilitate increased government debt. The citizens get to go along for the ride. The purchasing power of incomes tends to look like an upside down logarithmic curve whereby the poorest lost the most and the wealthiest the least. Don't worry though, it's all going according to plan.
Two of my imaginary friends reproduced once
I love how the government recommends this, but then does absolutely nothing to make sure affordable housing actually exists for most people so that they can follow this advice.
The Internet has pretty much ruined everything from vacations to concerts to you name it. Find a nice restaurant you like? Some popular idiot posts it to a foodie group and now it's so crowded is not worth going to. Good vacation spot? Now the whole world competes with you for it and because of that it's not worth having anymore due to crowding.
"No one goes there any more. It's too crowded." - Yogi Berra
That's hippie socialist "market rent". These are the people that believe "market" is what a typical person can afford, not what the most capable available buyer is willing to pay. It's the same mindset that creates this idea that real estate developers in large cities should voluntarily make less so there will be affordable housing. The market is what the market is, so if the government wants to influence it, it has to actually own up to it and create some socialist policy. I honestly don't know how the hell we are supposed to create any kind of fairness in housing or what the hell public policy out to be, but what we have in free market economics with some occasional hand wringing about the poor is not getting us where we need to be. If they want to actually help the poor then maybe small units like 300 sqft is what we ought to subsidize. We may have to setup something more for the middle class to encourage construction in the 800-1200sqft range. In many areas the large single family home may not be the reality for the middle class in coming decades.
Are you high, or just don't understand how this works??
How is he "part of the problem" if he's sticking with affordable/normal rent for his tenants? He's actually helping them out... As stated he could get a lot more $$ per month, but doesn't. If he does sell, and family leaves... they will pay rent much higher elsewhere. Also, ya know, not everyone is qualified for a loan, so they may not be able to purchase the place even if they wanted to.
So in your mind, it's up to OP to be the benevolent gifter, and just give the house away to them for what he paid?? I see nothing wrong as using a second property as part of your investment portfolio. Of course I guess his other option is to just let his kid fall in to loads of debt from student loans instead... or maybe dad has to go on welfare in his older years cause he just "gave this house away" and has no retirement.
Don't be foolish and confuse citizens with a couple properties, alongside mega corporations and developers that horde property and multi-dwelling units.
This is nonsense. Property developers go to significant expense building apartment complexes. They go significant expense maintaining those apartment complexes. They are not monopolies: there are several property developers in any significant market.
All of this adds up to a market that should be pretty healthy if left alone. "BUT THEY HAVE SO MUCH MONEY" well yes, the successful ones do, and the unsuccessful ones go bankrupt, like in any business. The reason they have so much money is they're typically large corporations funded by a large number of shareholders: your screed is typical anti-corporate drivel except concentrated on the housing market instead of in general.
Going into debt to buy a house is a gamble. You're gambling that the value of your house will go up, or at least not go down. With anything else, that would be a really bad gamble, because things wear out which is why depreciation is a thing. It's not surprising poor people can't afford to take that gamble and that banks aren't willing to shoulder the risk to allow them to. And, while I do support more income redistribution in the US, I don't think, "everyone should be able to own a house" is a good standard. The US Basic Income should probably be high enough so everyone can afford a studio apartment, but not a house. We can't make people too comfortable on basic income, or we would do too much to decrease the incentive to work. Everything is a compromise.
vi ~/.emacs # I'm probably going to Hell for this.
That's like saying that slavery is the market wage because of truck systems and the like.
Slaves don't vote on their wages. But tenants, at least in the long run, do vote on their rents. In coastal cities, by big margins, they vote for higher rents. Last year in SF, 95% of all building permits were rejected. This "no growth" policy is broadly popular with voters. The high rents are simple supply and demand. With the supply constricted, you can either pay higher rents, or you can commute for 90 minutes from Tracy or Gilroy. If you don't like it, stop voting for it.
Slavery is an economic transaction coerced by government under threat of force. Therefore, its wage is not a "market wage".
Renting an apartment is a voluntary transaction for both parties. Therefore, the money that changes hands is a "market rent".
Small units don't need to be subsidized, they simply need to be permitted. Places like San Francisco have minimum size restrictions for apartments and condos, and they are in large part responsible for the astronomical housing prices.
Just do it on your own.... Rent a place that is below what you can comfortably pay, get a roommate etc. Bank the excess. It's call saving for a down payment. Problem is that most 20 somethings are not disciplined enough to keep from spending their nest egg on useless junk, cell phones, flashy cars and the like. Well that and huge unnecessary student loans...
"File to fit, pound to insert, paint to match" - Aircraft Maintenance 101
Just a suggestion, you should always raise the rent every year, even if it just a percent or two. The family there now will now have the expectation of the rent not going up, and it will make things really awkward when you do decide to raise the rent down the way.
but the H1-Bs have a pretty big impact here. They're guaranteed renters. There's no way to move into a house when you can't claim residency in the country.
As an H1-B who got a mortgage and bought a house, I can confidently state that this is just plain bullshit.
And yes, someone on an H1-B visa is a resident of the country. Just ask the IRS.
Good luck having healthy people in an unhealthy market.
You can't handle the truth.
Slavery is an economic transaction coerced by government under threat of force. [...] Renting an apartment is a voluntary transaction for both parties.
In those cities that have criminalized homelessness, such as through sit/lie laws, renting an apartment is also "an economic transaction coerced by government under threat of force."
Increasing prices when demand increases and supply doesn't is just a free market.
Is it a bubble? Maybe. But, almost every market has bubbles. In fact, the sweet corn market where I live has a bubble every damned year - supply peaks in spring/summer and everyone is selling corn cheap then, as sure as fall follows summer, local supply plummets and the price goes up (and I stop buying corn -- reducing demand).
If rents stay high, investment in rental property will rise and supply will increase if it's allowed to. In the Silicon Valley, that's exactly what is happening. All over the place existing structures (crummy strip malls for example) are being scraped and replaced with multistory apartment buildings (sometime w/retail on the first floor). Many of the few parcels of land that have been sitting with nothing on them for decades have had, or are currently having, multistory apartment buildings built on them. As these apartments come onto the market, rents will drop (or not rise as fast) compared to what they would have been if these new units hadn't been built. If it turns out that demand doesn't keep increasing or even declines (i.e., the Silicon Valley is no longer a magnet for tech workers), the rents will plummet. If rents drop much, the investors who built these apartments will likely be wiped out and the properties will be sold in bankruptcy to new investors for much lower prices and the new owners, with less debt, will be able to make money even with lower rents.
Of course this market doesn't work as smoothly in places like San Francisco which is surrounded by saltwater on three sides and city/county boundaries on the fourth side. Various government regulations and policies in SF also contribute to the problem. But, ultimately, it works out -- people just stop moving to the city or demand ever higher salaries to work in the city which tempers demand. Most people in the country don't live in a high priced city like SF and they get along quite nicely. I'd like to have a 200 foot yacht with maintenance, fuel, and slip included for $10/month -- but I can't find that so I do without.
Why is there an "insightful" mod and why isn't it "-1"? If I wanted insight, I wouldn't be reading
Because letting rich people chase poor people out of their homelands is totally not a problem at all, right?
Imagine if for some reason some impoverished third world country became really attractive to rich Americans, who went there and bought up all the land and pretty soon none of the poor natives can afford to live in their own country anymore. That's no problem, right? Fuck them, they're less powerful than us, that gives us the right to move in and push them out and if they can't compete, their loss and our gain. What difference does it make if the power and competition in question is economic rather than military?
-Forrest Cameranesi, Geek of all Trades
"I am Sam. Sam I am. I do not like trolls, flames, or spam."
The supply is being constricted by billionaire fuckholes buying up all the existing properties
No. The supply is being constricted by elected government planning commissions. Then the billionare FHs are buying up the tiny number of available building sites. That strategy would not work if there was a reasonable amount of property on the market. Without the NIMBYs and BANANAs, the BFHs would have little effect.
Imagine an agrarian society where all the land is divided up into huge plantations, and the only place that anyone can legally live or work (the land) is on one of them, and the only conditions under which anyone will allow you to live and work their land are the conditions under which slaves lived and worked.
You have the right to refuse that, if you're find with having nowhere to live and no way to survive. Basically, you're free to not be a slave, so long as you're OK with dying as a consequence. Not that anyone's going to actually kill you, just that you won't be able to survive unless you submit "voluntarily" to slavery.
That makes it totally not slavery anymore, right?
-Forrest Cameranesi, Geek of all Trades
"I am Sam. Sam I am. I do not like trolls, flames, or spam."
The additional luxury apartments create downward pressure on prices, not upward pressure. It's the demand for apartments in general that drives up the prices. If they weren't building the luxury apartments, the people who wanted those luxury apartments would likely just outbid less rich people for less luxurious apartments.
An interesting anagram of "BANACH TARSKI" is "BANACH TARSKI BANACH TARSKI"
Problem with coastal cities is most all the land is already being used
The solution is to go up. Even in Manhattan, much of the land is restricted to four stories. Most builders would prefer to go to 25 to 50 stories, allowing six to twelve times as many people to live on the same land. In SF, even most two story permits are rejected. The BANANAism makes sense for property owners, who see the value of their assets soar, but I don't understand why renters vote against their own interests.
God I'm sick of folks trying to fit the supply/demand crap they learned in High School into the real world. The problem is _real_ simple:
1. Real Wages have been falling for 40 years, to the point where wages for many jobs are what they were 20 years ago after 20 years of inflation. Outsourcing + lack of protectionism and free trade nonsense did this.
2. Capital has concentrated into the hands of a lucky few (the "1%" as they're called) and they have no incentive to build more houses when they're making obscene profits off the existing supply.
Said it before, say it again: Globalism _breaks_ capitalism. All your left with is oligarchy and kleptocracy.
Hi! I make Firefox Plug-ins. Check 'em out @ https://addons.mozilla.org/en-US/firefox/addon/youtube-mp3-podcaster/
Your world view is fundamentally incompatible with his.
He feels the world owes him something for existing.
Facts and logic inform you it doesn't.
If he were amenable to reason in the first place you wouldn't need to have the discussion.
The Wikipedia article "Coercion" defines coercion as "the practice of forcing another party to act in an involuntary manner by use of intimidation or threats or some other form of pressure or force." In cities that have criminalized homelessness, failure to own or rent an enclosed place in which to live lands a person in prison. How is threat of imprisonment not "intimidation or threats or some other form of pressure or force"? Or if you disagree with the definition, how do you prefer to define coercion?
I've been a tenant for many years. Then I finally bought my own apartment, and now I own a second apartment that I am renting out. The main reason I decided to buy an apartment was the constant increase in rent, year after year. At some point it just triggered my "fuck this shit" mode and I went all in, took a debt just to get out of this spiral.
So, at least for some people, the rent increase may backfire.
"The agriculture ministry is not in charge of Gundam" - Japanese ministry official.
I think the successes of that era were probably due to the abandonment of fascism for the free market you hate so much rather than the other way around, commiefriend.
It was EXACTLY in the 60's when there was a quasi-coup that forced Franco to adopt economic liberalization.
Fact is, their continued intervention in the market only held them back, and is a large part of the reason why Spain is a basket case today. Had they taken the path of freedom, they would have advanced as Germany and Britain did.
It sounds like you really don't understand capitalism very well. Investing in rental properties is little different from investing in shares in a corporation. You have risk and reward. There's more work in being a landlord, and somewhat less risk, but it's definitely not zero. Have you totally forgotten about the 2008 crash and all the real estate investors who lost their shirts there? You have to be a complete moron if you think that real estate is risk-free. And the way things are going now with rents spiraling higher, another crash could be looming, and again real estate investors could lose out.
I don't know where the hell you live that renting costs more than buying, that's simply not true
Then you've obviously never rented a house. Renting a house ALWAYS costs more; how else would your landlord pay the mortgage otherwise? Perhaps if he bought it when it was much cheaper, but even then usually rents go up to match current house valuations, regardless of what the sale price was. The only exception is if you get really lucky and your landlord doesn't feel like raising your rent and you've had it locked in for some time while house values have risen.
I want a free market economy without the distortions imposed by rent / interest / capitalism.
You can't build big projects without capital, and you can't borrow money without interest (who's going to loan money to you for free, unless it's a family member?). Your ideas make no sense, and I'm not going to toil away at trying to find your ramblings elsewhere. You sound little different from a Marxist: some nice-sounding words but no substance behind them and no actual ideas for a system which would work in practice.
You still need land to build so it's tear down a 10-20 story building and kick the renters out or buy up a lot of houses
It is not cost effective to tear down a 20 story building to build a 25 story building. But "buy up lots of houses"? Sure, it makes good economic sense to replace houses with high rise apartment buildings. That should be encouraged.
they'll build luxury condos and sell for half a million and up.
Uhh ... no. In NYC, SF, etc. a half million will not even buy an entry level studio apt.
But so what if they build luxury condos? It is still increasing the total stock of housing, and the people that move into those luxury condos would otherwise be competing down market. The reason builders currently focus on luxury apts is because of the constricted market. When they finally get a rare and valuable permit, they want to get the most they can out of it. If more building of housing was allowed, there would be new housing built for all levels demanded.
Free markets distribute capital according to how much people actually contribute to society.
Which is exactly why a market with rent and interest in it is not free. Rent and interest distribute capital according to who already has capital, not according to their contributions to society. That's why it's called "capitalism", because the prior capital distribution is shaping the market rather than the work of the people in the market.
Imagine a toy market consisting of only two people, who both do the same work and make the same money from that work. One of them has more capital than he's using, and the other doesn't have enough capital to use. The latter then has to borrow capital from the former, and pay the former for the privilege. Thus, though they both contribute exactly the same work, one of them accumulates more capital and the other loses it, only because the prior distribution of capital was different.
That is how rent breaks a free market and turns it into capitalism.
-Forrest Cameranesi, Geek of all Trades
"I am Sam. Sam I am. I do not like trolls, flames, or spam."
The solution is to go up. Even in Manhattan, much of the land is restricted to four stories. Most builders would prefer to go to 25 to 50 stories, allowing six to twelve times as many people to live on the same land
Not necessarily. 4 storey vs 25 to 50 storey is about ten-fold increase. So your "solution" is not a solution if the single storey roads to the place are not also replaced with 10 storey roads. They could be widened 10 times too, if there is space.
If building the 10-storey road is the government's responsibility, you are advocating socializing the external costs and privatizing the profits.
Bingo Dictionary - Pragmatist, n. A myopic idealist.
Maybe you should learn what communism is before calling anyone "commiefriend". (Which I have to say, is really repulsive. It's sort of like picking your nose over the internet.) I think you are discussing the difference between lasiez-faire ecomomics and regulated markets. Communism is a very great difference in scale from that. And it's never been tried on a national scale just as "free market" has never been tried because there are always economic biases that make it impossible. What there has been so far is socialism.
Bruce Perens.
And if "another place to live" isn't within practical commuting distance of your job or of any employer hiring in the field for which you have trained, too bad.
Sucks, but you made a bad career choice if you didn't consider this. I'm not insensitive to your plight, but in reality it was YOUR choice of careers which puts you in the spot you are in. It might be time to take responsibility for your part in this and start making choices to deal with it.
In reality, most people in your position just don't realize that it's not the location or their career choice that is the problem, if you like what you do and where you can do it, that's great! What the problem REALLY is in the majority of these cases is that you wish to live beyond your means. I've seen it time and again (and did it for awhile myself) where people choose to have that flashy new car, that wiz bang shiny new tech toy, the latest smart phone, a plush apartment in a desirable location etc. Then they complain (like I did) that I can never have "nice things" like a home because I cannot afford them.
The truth is, that you likely CAN afford "nice things" like a home if you really want it, but such choices are made though a thousand tiny choices you make each day. Do you *need* that $5 Starbucks over what your home coffee maker puts out for $1? Is it that important to dump $8 for lunch every day when you can bring your lunch from home for much less? How about that $1 bottle of water from the vending machine over the drinking fountain and a cup from home? Don't get me started on that car payment and cell phone bill. You see, the problem is you cannot afford them ALL, but in reality practically nobody else can either.
I discovered that the way to get MORE nice stuff, is to BUY LESS JUNK. Don't live on credit where you pay interest on credit cards but pay off your balance monthly. Watch for ways you can save even a dollar or two a day, bring your lunch, make your own coffee, make do with fewer clothes or that fancy sporting equipment upgrade. Shop around for everything, clip coupons, eat at home. Be self disciplined have a budget and stick to your goals. If you want that house, save for it...
"File to fit, pound to insert, paint to match" - Aircraft Maintenance 101