Here a scenario that can illuminate the unavoidable fact of supply and demand. - A building owner doubles his rents from $3000/month to $6000/month. What happ

Here a scenario that can illuminate the unavoidable fact of supply and demand. - A building owner doubles his rents from $3000/month to $6000/month. What happens? Everyone moves out. The high price eliminated Demand for that building. ANALYSIS: When the owner tried to jack up his rents too high, it created an excess supply of $6000/month units and not enough demand. What will happen to that owner? ANSWER: go out of business or increase Demand by lowering his asking rent. CRUX: owners only have 'pricing power' matching the strength of demand, they cannot just start 'greedily' raising rents. Now assume Zynga opens up shop in the neighborhood. Does demand increase for apartments? YES. There are hundreds of new renters. Building owners see they get 20 applications now for a vacancy instead of 5. They raise their asking rents to $3100 and people pay it due to lack of Supply of units. The owners cannot raise the rent unless Demand increases. But in San Francisco, which has become much more of a Tech hub over the past 20 years, Demand for apartments has increased. Supply hasn't kept up. INCREASE IN DEMAND = more applications for a vacant unit = HIGHER RENT because lack of supply means renters have few choices. Okay, now assume Zynga goes out of business. Does demand DEcrease for apartments in the neighborhood? YES. There are hundreds of fewer renters. Building owners see they get 5 applications now for a vacancy instead of 20. If they keep the rents at $3100 there is now an excess supply of expensive units. They must lower their asking rents or wait longer to fill a vacancy and lose money on an unrented unit. I own/operate rental properties. Supply and Demand is alive and well in the apartments realm on the Peninsula. During the worst parts of the recsssion we had 20% vacancy (normally it's between 3% to 5%). Demand for apartments dropped precipitously. Did we lower our rents? We had to. We entered a 'race to the bottom' competition with other rental property owners. THERE WAS AN EXCESS SUPPLY OF APARTMENTS in the 2008-09 recession. Rents dropped. Right now there is a lack of supply of units because Demand rose as the job market got healthy. Rents are higher. When Demand drops in the next few years in the next recession (due to layoffs, tech firms folding, etc.), will my firm have to lower our asking rents? OH BABY. Yes indeed. It hurts too. The argument 'Supply and Demand don't apply to housing' is patently false. During a recession, there's lower Demand for units (fewer people working; living in parent's basement or leave the area). RENTS DROP. During a healthy job market, there's higher demand for apartments (more people working -- move out of parent's basement; and new people get hired locally and move to the area). RENTS INCREASE. The argument that 'everyone must have an apartment in San Francisco, regardless, if they want one' is BOGUS. If you cannot afford to live there, that's YOUR FAULT. Not the city's fault. Not Zynga's fault. YOUR FAULT.