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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!
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?
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
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.
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 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.
Good luck having healthy people in an unhealthy market.
You can't handle the truth.
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.
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?
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
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