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> Rents go up when people can afford higher rents. Only if supply is capped artificially, e.g. in major cities where it's almost impossible to build. > Consum

> Rents go up when people can afford higher rents. Only if supply is capped artificially, e.g. in major cities where it's almost impossible to build. > Consumers take out loans and save less when unemployment is low and they feel safe in their job prospects. Other reasons to take out loans: The wealth effect (currently fully in force), cheap loans (record low interest), easy loans (no risk assessment), outright stupid loans (US student loans) or loans that are necessary to make ends meet. All signs of a market overheating. > Chapter 11s were at the same level in 2011 -- were you predicting a recession then too? There was no reason to predict it when it had already just happened.

nwah1 8y ago
It goes up regardless of building restrictions in a booming economy, but restrictions can make it worse. This is called the Law of Rent. Land prices function like monopoly prices, and rise whenever the value obtainable from the location rises compared to the best available rent-free alternative. Seeing how there's usually no rent-free alternatives, prices tend towards the entire value obtainable from the location for an average consumer. For instance, the value of the location may be money and time saved on commuting. You'll generally find that the money and time you save on commuting about equals the higher land rents, netting out to no monetary benefit between the two options.
- zeroname 8y ago
  The Law of Rent is about the cost of leasing the land from the owner of the land. This is not the relationship between tenant and the owner of the real estate. It's not the tenant who is looking for maximum productivity from the land, it's the real estate owner renting out places to live. A tall tower housing more people paying individually lower rent is more productive than a small house housing a single affluent person. Unless building is restricted artificially, supply increases until demand is met fully, which leads to price competition and ultimately rents that are as low as they can be.
  - bostik 8y ago
    > supply increases until demand is met fully That is a very optimistic view. What I've seen in Finland and UK is pretty much the opposite of what you claim. In both countries the housing supply in growth centers is essentially controlled by a handful of huge developers. In an attempt to make the planning permission system more comprehensive, it has only turned out more complex and expensive to navigate. That means that only the largest operators can afford to work within it. In both countries we see developers deliberately restricting the speed with which new housing stock enters the market. In UK, the common pattern seems to be to sell a floor or two at a time, while the others are still supposedly under construction. In Finland, the developers literally shut down their sales and rather took a hit in maintenance costs than sell their available stock while the market was too slow. Your assumption therefore makes a crucial mistake - it stems from an assumption of perfect markets and unrestricted housing supply. In reality neither of those two hold true.
    - zeroname 8y ago
      > In an attempt to make the planning permission system more comprehensive, it has only turned out more complex and expensive to navigate. That means that only the largest operators can afford to work within it. That's exactly what I'm talking about when I say "artificial restrictions". Don't assume that the market players don't want these restrictions, it's easier to sit on past success than fighting for sustained success. Big players always profit (relatively) from regulation, it keeps down competition from below. > Your assumption therefore makes a crucial mistake - it stems from an assumption of perfect markets and unrestricted housing supply. In reality neither of those two hold true. Of course it's an idealization, I'm talking about what would happen to prices if these restrictions didn't exist. Housing supply doesn't have to be unlimited, demand could easily be met, we're far away from any physical limits. You really have to ask yourself, why does San Francisco not look a little bit more like Hong Kong? What would happen to minimum rents if a dozen of residential highrises could be built near the center?
  - nwah1 8y ago
    Rent rises with the productivity of locations, and density makes locations more productive in the aggregate. Agglomeration is the economic term for why that is. It may seem paradoxical to you, but supply and demand simply doesn't function the same way when it comes to land. The supply of land is fixed. That is why rents are more like monopoly pricing.
craftyguy 8y ago
> e.g. in major cities where it's almost impossible to build. If you define a major city as > 1mil, then nearly 10% of the US population falls into that category. That doesn't include cities, like Portland OR, which are notorious for artificially capping housing. So it's likely to be closer to 20-25% (or more) of the US population. 1. http://worldpopulationreview.com/us-cities/ http://worldpopulationreview.com/us-cities/

nwah1 8y ago

It goes up regardless of building restrictions in a booming economy, but restrictions can make it worse. This is called the Law of Rent. Land prices function like monopoly prices, and rise whenever the value obtainable from the location rises compared to the best available rent-free alternative. Seeing how there's usually no rent-free alternatives, prices tend towards the entire value obtainable from the location for an average consumer. For instance, the value of the location may be money and time saved on commuting. You'll generally find that the money and time you save on commuting about equals the higher land rents, netting out to no monetary benefit between the two options.

zeroname 8y ago
The Law of Rent is about the cost of leasing the land from the owner of the land. This is not the relationship between tenant and the owner of the real estate. It's not the tenant who is looking for maximum productivity from the land, it's the real estate owner renting out places to live. A tall tower housing more people paying individually lower rent is more productive than a small house housing a single affluent person. Unless building is restricted artificially, supply increases until demand is met fully, which leads to price competition and ultimately rents that are as low as they can be.
- bostik 8y ago
  > supply increases until demand is met fully That is a very optimistic view. What I've seen in Finland and UK is pretty much the opposite of what you claim. In both countries the housing supply in growth centers is essentially controlled by a handful of huge developers. In an attempt to make the planning permission system more comprehensive, it has only turned out more complex and expensive to navigate. That means that only the largest operators can afford to work within it. In both countries we see developers deliberately restricting the speed with which new housing stock enters the market. In UK, the common pattern seems to be to sell a floor or two at a time, while the others are still supposedly under construction. In Finland, the developers literally shut down their sales and rather took a hit in maintenance costs than sell their available stock while the market was too slow. Your assumption therefore makes a crucial mistake - it stems from an assumption of perfect markets and unrestricted housing supply. In reality neither of those two hold true.
  - zeroname 8y ago
    > In an attempt to make the planning permission system more comprehensive, it has only turned out more complex and expensive to navigate. That means that only the largest operators can afford to work within it. That's exactly what I'm talking about when I say "artificial restrictions". Don't assume that the market players don't want these restrictions, it's easier to sit on past success than fighting for sustained success. Big players always profit (relatively) from regulation, it keeps down competition from below. > Your assumption therefore makes a crucial mistake - it stems from an assumption of perfect markets and unrestricted housing supply. In reality neither of those two hold true. Of course it's an idealization, I'm talking about what would happen to prices if these restrictions didn't exist. Housing supply doesn't have to be unlimited, demand could easily be met, we're far away from any physical limits. You really have to ask yourself, why does San Francisco not look a little bit more like Hong Kong? What would happen to minimum rents if a dozen of residential highrises could be built near the center?
- nwah1 8y ago
  Rent rises with the productivity of locations, and density makes locations more productive in the aggregate. Agglomeration is the economic term for why that is. It may seem paradoxical to you, but supply and demand simply doesn't function the same way when it comes to land. The supply of land is fixed. That is why rents are more like monopoly pricing.

craftyguy 8y ago

> e.g. in major cities where it's almost impossible to build. If you define a major city as > 1mil, then nearly 10% of the US population falls into that category. That doesn't include cities, like Portland OR, which are notorious for artificially capping housing. So it's likely to be closer to 20-25% (or more) of the US population. 1. http://worldpopulationreview.com/us-cities/ http://worldpopulationreview.com/us-cities/