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Speculation shouldn't drive up the price of rent. If anything, it should drive rents down because more units will be built to satisfy speculators which will the

Speculation shouldn't drive up the price of rent. If anything, it should drive rents down because more units will be built to satisfy speculators which will then be contributed to the pool of available rental housing. We saw this during the housing bubble: rents were detached from the price of housing and stayed low. The problem here is that short term rental brings more revenue than long term rental. Before Airbnb you had to be a hotel to offer short term rental, so most landlords stayed out of that business and stuck to long term rental even though there's less revenue per unit. But with Airbnb you can take your units out of the long term rental pool and put them in the short term rental pool, and because regulation has been slow to catch up, you don't have to take on the regulatory burden of being a hotel to do so. Fewer units in the long term rental pool obviously, then, causes rents to go up. Given that Airbnb makes units more valuable (by converting them to short-term rental and increasing the expected cashflow), they would of course then be more attractive to investors and that is perhaps part of the increase in housing prices in Vancouver. But even in that case the causality is increased rental cashflow driving up prices, rather than vice versa.

maxxxxx 9y ago
In theory you are right but I think the problem is that a lot of property bought by investors stays empty so the rental supply goes down.
- usaar333 9y ago
  Is this that common of an issue? I find it hard to believe that someone buying a property to maximize their returns (an investor) fails to increase their returns by renting. (Though I could see people buying vacation homes, status homes, etc. doing this)
  - y4mi 9y ago
    Buying property as a foreign investor is mostly an attempt to store your money in a pretty stable product. If you were to let renters use that property and they don't take care of it properly, you'd have lost a lot of money. It's often just not worth the effort for these people.
    - seanmcdirmid 9y ago
      Depends on the property tax rate. That is definitely true in china where there is no property tax, but less true in the west given that high property taxes act to effectively deprecate your property yearly. If they sit on the property for 10 years and the rate is 1%, that is 10% gone, and it only gets worse as the property appreciates (well, outside of California). Property tax acts as a stick to put property to productive use rather than just sit on it, otherwise the USA property market might be as dysfunctional as china’s.
      - usaar333 9y ago
        Do China's 70 year land leases not function as an equivalent to a property tax?
        seanmcdirmid 9y ago
        Not really, because everyone assumes they will be easily and cheaply rolled over like they were done in Wenzhou a few years ago. It is expected that the Chinese government will eventually abandon the land lease system and replace it with a property tax one. But they won't do so until the current bubble pops.
    - michaelchisari 9y ago
      There's also the upkeep and management costs of being a landlord. If you're a foreign investor, you have no interest in that. So you can either outsource it to a third party, deeply cutting into your rental revenue (and also being on the hook for any repairs required)... Or you just sit and hold it. Maybe send in a cleaning and maintenance crew every once in a while to keep the dust at bay. Much less headache than renting.
      - mercer 9y ago
        On top of that there's some pretty stringent protection of renters which can cause major headaches down the road. Personally I'm inclined to be in favor of these protections, but I can also understand a wealthy investor wanting to take the hit of leaving the place empty to avoid these kinds of troubles.
  - nerfhammer 9y ago
    Well, if the regulations say you can never raise the rent or terminate the lease, why bother with that risk? http://kalw.org/post/growing-number-san-francisco-landlords-not-renting#stream/0 http://kalw.org/post/growing-number-san-francisco-landlords-... https://sf.curbed.com/2017/7/12/15961486/sf-tax-landlord-homes-apartments-vacant https://sf.curbed.com/2017/7/12/15961486/sf-tax-landlord-hom... https://www.theatlantic.com/business/archive/2011/05/empty-apartments-stupid-laws/238608/ https://www.theatlantic.com/business/archive/2011/05/empty-a...
  - nitwit005 9y ago
    If you Google "warehousing apartments", you'll see quite a few stories. Remember that renters can block your ability to convert the property to something else, as you can't instantly evict them, so the value of the property can be higher the more empty apartments there are. In cities where there are businesses on the bottom floors, and apartments above, they sometimes only rent out the business spaces, as they lack the same level of legal protection from short term evictions.
  - tialaramex 9y ago
    London literally charges money to people for leaving a residence empty. The intent was, foreign investors will now have a powerful incentive to lease out the property. Nope, overwhelmingly they just eat the extra cost.
dfee 9y ago
Your notion of “supply and demand” doesn’t allow for the predicates to the problem: new buildings are regulated through zoning and permits. While life might be simpler with your model, it doesn’t fit reality well. Here’s a decent analysis of the California situation with mismatched supply and demand and the headache that goes along with the state’s governance: http://www.latimes.com/business/la-fi-home-prices-20170725-story.html http://www.latimes.com/business/la-fi-home-prices-20170725-s...
- MRSallee 9y ago
  I'm not sure why you presented this as contradictory to the post you replied to. > High prices (demand) attracting speculation (supply) should drive down rents (prices) ... [but they're not] Should? Then why aren't they? > new buildings are regulated through zoning and permits.
  - tw04 9y ago
    Because it is contradictory. Sure, in a vacuum where there's infinite land available and no rules, supply would meet demand. In a vacuum Antarctica would be a great vacation destination with amazing views of the ocean. In reality Antarctica is freezing cold and difficult to get to. And in reality there is a shortage of places to build new housing at an affordable price in either location mentioned.
    - cgmg 9y ago
      Are you claiming most of that shortage is from physical constraints?
    - MRSallee 9y ago
      If you think that is contradictory to the original poster, you might think they said something I'm pretty sure they didn't.
- notatoad 9y ago
  >new buildings are regulated through zoning and permits. yes, and AirBnB has built a business off ignoring those pesky laws.
nathanvanfleet 9y ago
Speculation is not based on the market of people who want housing. Speculation is based on the price of housing going up consistently. Vancouver had the issue where many buildings were sold and kept completely empty. They were investment vehicles because the market was always going up. It wasn't to do with "how much you can make in rent" it was being able to invest large sums of money in a property.
tehlike 9y ago
The zoning and building regulations usually restrict supply side of the equation.

maxxxxx 9y ago

In theory you are right but I think the problem is that a lot of property bought by investors stays empty so the rental supply goes down.

usaar333 9y ago
Is this that common of an issue? I find it hard to believe that someone buying a property to maximize their returns (an investor) fails to increase their returns by renting. (Though I could see people buying vacation homes, status homes, etc. doing this)
- y4mi 9y ago
  Buying property as a foreign investor is mostly an attempt to store your money in a pretty stable product. If you were to let renters use that property and they don't take care of it properly, you'd have lost a lot of money. It's often just not worth the effort for these people.
  - seanmcdirmid 9y ago
    Depends on the property tax rate. That is definitely true in china where there is no property tax, but less true in the west given that high property taxes act to effectively deprecate your property yearly. If they sit on the property for 10 years and the rate is 1%, that is 10% gone, and it only gets worse as the property appreciates (well, outside of California). Property tax acts as a stick to put property to productive use rather than just sit on it, otherwise the USA property market might be as dysfunctional as china’s.
    - usaar333 9y ago
      Do China's 70 year land leases not function as an equivalent to a property tax?
      - seanmcdirmid 9y ago
        Not really, because everyone assumes they will be easily and cheaply rolled over like they were done in Wenzhou a few years ago. It is expected that the Chinese government will eventually abandon the land lease system and replace it with a property tax one. But they won't do so until the current bubble pops.
  - michaelchisari 9y ago
    There's also the upkeep and management costs of being a landlord. If you're a foreign investor, you have no interest in that. So you can either outsource it to a third party, deeply cutting into your rental revenue (and also being on the hook for any repairs required)... Or you just sit and hold it. Maybe send in a cleaning and maintenance crew every once in a while to keep the dust at bay. Much less headache than renting.
    - mercer 9y ago
      On top of that there's some pretty stringent protection of renters which can cause major headaches down the road. Personally I'm inclined to be in favor of these protections, but I can also understand a wealthy investor wanting to take the hit of leaving the place empty to avoid these kinds of troubles.
- nerfhammer 9y ago
  Well, if the regulations say you can never raise the rent or terminate the lease, why bother with that risk? http://kalw.org/post/growing-number-san-francisco-landlords-not-renting#stream/0 http://kalw.org/post/growing-number-san-francisco-landlords-... https://sf.curbed.com/2017/7/12/15961486/sf-tax-landlord-homes-apartments-vacant https://sf.curbed.com/2017/7/12/15961486/sf-tax-landlord-hom... https://www.theatlantic.com/business/archive/2011/05/empty-apartments-stupid-laws/238608/ https://www.theatlantic.com/business/archive/2011/05/empty-a...
- nitwit005 9y ago
  If you Google "warehousing apartments", you'll see quite a few stories. Remember that renters can block your ability to convert the property to something else, as you can't instantly evict them, so the value of the property can be higher the more empty apartments there are. In cities where there are businesses on the bottom floors, and apartments above, they sometimes only rent out the business spaces, as they lack the same level of legal protection from short term evictions.
- tialaramex 9y ago
  London literally charges money to people for leaving a residence empty. The intent was, foreign investors will now have a powerful incentive to lease out the property. Nope, overwhelmingly they just eat the extra cost.

dfee 9y ago

Your notion of “supply and demand” doesn’t allow for the predicates to the problem: new buildings are regulated through zoning and permits. While life might be simpler with your model, it doesn’t fit reality well. Here’s a decent analysis of the California situation with mismatched supply and demand and the headache that goes along with the state’s governance: http://www.latimes.com/business/la-fi-home-prices-20170725-story.html http://www.latimes.com/business/la-fi-home-prices-20170725-s...

MRSallee 9y ago
I'm not sure why you presented this as contradictory to the post you replied to. > High prices (demand) attracting speculation (supply) should drive down rents (prices) ... [but they're not] Should? Then why aren't they? > new buildings are regulated through zoning and permits.
- tw04 9y ago
  Because it is contradictory. Sure, in a vacuum where there's infinite land available and no rules, supply would meet demand. In a vacuum Antarctica would be a great vacation destination with amazing views of the ocean. In reality Antarctica is freezing cold and difficult to get to. And in reality there is a shortage of places to build new housing at an affordable price in either location mentioned.
  - cgmg 9y ago
    Are you claiming most of that shortage is from physical constraints?
  - MRSallee 9y ago
    If you think that is contradictory to the original poster, you might think they said something I'm pretty sure they didn't.
notatoad 9y ago
>new buildings are regulated through zoning and permits. yes, and AirBnB has built a business off ignoring those pesky laws.

nathanvanfleet 9y ago

Speculation is not based on the market of people who want housing. Speculation is based on the price of housing going up consistently. Vancouver had the issue where many buildings were sold and kept completely empty. They were investment vehicles because the market was always going up. It wasn't to do with "how much you can make in rent" it was being able to invest large sums of money in a property.

tehlike 9y ago

The zoning and building regulations usually restrict supply side of the equation.