8 ms·

Why would the property owners rather have the units sit empty than rent them out at market rates?

by agent008t 8y ago

dubliner9039 8y ago
It's a very typical pattern in speculative finance
- nizmow 8y ago
  Also happens a lot in Sydney, for the same reasons.
- agent008t 8y ago
  It kind of makes sense if the apartment is more valuable as new than as having been rented out before. But I do not think that is the case in Dublin. Even if the apartment prices are rising rapidly and you plan to sell the apartment once the price goes up - why not also collect rental yield while you are waiting?
  - maxxxxx 8y ago
    Renting out something is a lot of work managing things. Much easier to keep it empty.
    - throwaway29319 8y ago
      Not only that, but every empty apartment contributes to pushing up the prices by being empty. Then, when the prices hit peak value in a decade or two the investors might sell and keeping the apartment empty was more effective than renting it.
      - iguy 8y ago
        But you can have an agency manage it for you, for about 10-15%, in any city. Keeping it empty long-term means leaving on the table an amount of money comparable to the mortgage. You could fill it and buy another one! If they both appreciate, all the better.
        maxxxxx 8y ago
        Aren't a lot of these real estate investments about safely parking money and not about chasing profit?
Yptur 8y ago
I think it is because the last to move makes the greatest profit. So people just wait to be the last wave of available apartments so they can hike the price up to whatever. Which leads to a bottleneck of sorts since nobody is willing to demand lower rent which would actually lead to people moving in...
- gtbcb 8y ago
  This doesn't make sense to me. I don't think apartment complexes or individual landlords (who generally aren't super sophisticated) are thinking this way. Also, I just don't think this logic is sound. An individual landlord (or apartment) isn't going to affect the market as a whole.
  - throwaway29319 8y ago
    Large investors (billionaires, hedge funds...) do this, and they are powerful enough to drive the market in most cities. Individual landlords usually seek rent.
- agent008t 8y ago
  Could they not increase the price in the following years if the market price goes up? An apartment sitting idle should be a disaster - the higher rent obtained in the following years would need to be significantly higher just to break even in terms of yield. I would've thought as full occupancy as possible at all times, i.e. renting out at market rates, would be the most profitable strategy.
  - Yptur 8y ago
    Thus speculation haha. Especially if you can pass laws in your favor or the like I think this is the train of thought most of them have. If it didn't bring some kind of profit why would they do it? The only reason to not rent it out is if they think they will make more profit by holding out. The alternative is that they just hate their own money and want to burn it so that's how I come to this conclusion. By process of elimination. Well it depends on where you are. Some places have different laws no idea about Dublin but some places protect renters from having the price spike up too quickly and have fixed rates once a contract is signed. Edit: I of course have a subjective opinion on this from my point of view and where I am from the laws are heavily in favor of tenants so it is next to impossible to throw people out or hike up the price once an apartment is rented out.
lucideer 8y ago
There's been plenty of papers published on this topic in far greater detail than I'd ever go into in a short HN comment, but the short answer is: property is a financial asset for owners, rather than a source of rent. This is largely about scale: these are large international owners, with significant property investments worldwide. If you search for "financialisation of property" or "financialisation of housing", you'll find quite a lot of research in this area (mostly paywalled :( ) but also quite a few elucidating articles.
- vinceguidry 8y ago
  The owners are so huge they can't be bothered to care about hundred dollar bills lying on the sidewalk.
  - agent008t 8y ago
    I suppose it does make some sense if we are talking about 'dirty' money trying to safeguard their wealth from some form of confiscation. So they don't care about the price tag, they just want to safeguard as much of their wealth in a jurisdiction with strong property rights. They are happy if they don't lose more than 90%. Still, it seems very irrational and thus unsustainable.
    - vinceguidry 8y ago
      Markets can stay irrational for a long time.
- barrkel 8y ago
  Seems like an exponential tax for domestic property not in use as domiciles could be a way out. Something tolerable the first year, but doubling every 6 months of vacancy without at least 6 months of occupation between.
KineticLensman 8y ago
Anecdotally, I live near a small UK town that has some empty commercial properties. I've been told that the landlords are London-based, and the rental rates reflect London rather than local pricing. Allegedly, the landlords are keen to show that all of the properties in their portfolios could in principle attract high rates, and that to let some out cheaper would dilute the brand as perceived by investors. Don't know how true this is, or whether it applies in Dublin, but it is one answer that I've heard when I asked the same question.
- iguy 8y ago
  Commercial property often has really long leases, like 10-20 years. So one reason it may sit empty is that an investor thinks a slump will be short & doesn't want to be tied to a low-rent tenant. (Or doesn't want to break up a large space for small tenants, to wait for a large one... or because they are thinking of knocking it down & building housing, etc.) I'm dubious that people in real-estate can't understand local prices, I mean within London there are vast differences by street-by-street. I'm also dubious that empty properties & claims about what they could rent for will fool many people.
  - KineticLensman 8y ago
    > I'm dubious that people in real-estate can't understand local prices IIUC, it's not that they don't understand local prices, they instead don't care. At this scale the landlord's focus is investors in the property portfolio, not people who might actually use the property.
    - iguy 8y ago
      I get that the CEO doesn't know everything, but why doesn't bigger scale just mean more people below that? There must be someone who knows about each property, in or outside the company... there are agencies who hustle to rent out student flats, every year. Why not here?
iguy 8y ago
I don't know, I agree that all the speculation about speculation sounds crazy to me -- the rent usually adds up to the cost of buying (via the interest rate, I mean) so not taking it is an "order 1" loss. One possible reason is rent control, can anyone comment? If what you risk is getting stuck for 30 years with a tenant paying last year's rent (and you think it will rise) then that could be serious money, of the sort which might make a rational landlord leave it empty.
- maleno 8y ago
  There is no way a landlord in Dublin can get stuck with a tenant for 30 years. Rent increases are capped/set at 4% a year. The length of a lease is meant to be six years, but a landlord can terminate a tenancy at practically any time using a number of exemptions/loopholes in the law – to let a family member use the property, selling the property, refurbishing the property, etc. The rent increase limits should apply between tenancies too, as the landlord is legally required to tell new tenants the rent of the previous rent if they ask, but it is up to the prospective tenant to enforce this. At a time when demand for rental properties has never been higher, landlords can easily choose the tenants that don't ask these kinds of questions. The root cause of high rents in Dublin is two-fold: competition for rental units is extremely high, which drives prices up; meanwhile rent is usually a function of the mortgage that exists on the property, which is determined by the price of the construction and/or the value of the land it's built on – and that's where you get massive amounts of speculation in Dublin. Land in Dublin is so expensive that it drives up the cost of everything else along the chain. Most of the vacant units in Dublin are old, and in terrible shape. They're largely owned by people who either don't have the resources (money/energy/time) to improve them so they meet minimum standards, or they're owned by people who know they can let them sit for five or ten or twenty years and sell them for a profit then. The site they're on is nearly always going to increase in value, regardless of the state of the property.
CydeWeys 8y ago
A lot of vacancy is simply that the unit hasn't been rented out yet, or is being renovated, or you're planning on selling it in the near future and you'd rather eat a few months of lost rent vs signing a minimum year-long lease which would hamper your future plans. A 3% vacancy rate is quite low.
everyone 8y ago
I know for a fact that Dublin in particular has been plagued by 'land barons' They buy as much land and property as possible in Dublin city, and then just leave it sit there. This lowers the supply of space in the city thus increasing the value of all their land, which enables them to get loans to buy even more land. I know a councillor who worked on a report which predicted, in the 70's, that because of Irish property laws it was possible that this could be happen, and the laws should be reformed. The laws were never reformed and it happened. https://issuu.com/conormccabe/docs/1974kennyreport https://issuu.com/conormccabe/docs/1974kennyreport

Why would the property owners rather have the units sit empty than rent them out at market rates?

dubliner9039 8y ago

It's a very typical pattern in speculative finance

nizmow 8y ago
Also happens a lot in Sydney, for the same reasons.
agent008t 8y ago
It kind of makes sense if the apartment is more valuable as new than as having been rented out before. But I do not think that is the case in Dublin. Even if the apartment prices are rising rapidly and you plan to sell the apartment once the price goes up - why not also collect rental yield while you are waiting?
- maxxxxx 8y ago
  Renting out something is a lot of work managing things. Much easier to keep it empty.
  - throwaway29319 8y ago
    Not only that, but every empty apartment contributes to pushing up the prices by being empty. Then, when the prices hit peak value in a decade or two the investors might sell and keeping the apartment empty was more effective than renting it.
    - iguy 8y ago
      But you can have an agency manage it for you, for about 10-15%, in any city. Keeping it empty long-term means leaving on the table an amount of money comparable to the mortgage. You could fill it and buy another one! If they both appreciate, all the better.
      - maxxxxx 8y ago
        Aren't a lot of these real estate investments about safely parking money and not about chasing profit?

Yptur 8y ago

I think it is because the last to move makes the greatest profit. So people just wait to be the last wave of available apartments so they can hike the price up to whatever. Which leads to a bottleneck of sorts since nobody is willing to demand lower rent which would actually lead to people moving in...

gtbcb 8y ago
This doesn't make sense to me. I don't think apartment complexes or individual landlords (who generally aren't super sophisticated) are thinking this way. Also, I just don't think this logic is sound. An individual landlord (or apartment) isn't going to affect the market as a whole.
- throwaway29319 8y ago
  Large investors (billionaires, hedge funds...) do this, and they are powerful enough to drive the market in most cities. Individual landlords usually seek rent.
agent008t 8y ago
Could they not increase the price in the following years if the market price goes up? An apartment sitting idle should be a disaster - the higher rent obtained in the following years would need to be significantly higher just to break even in terms of yield. I would've thought as full occupancy as possible at all times, i.e. renting out at market rates, would be the most profitable strategy.
- Yptur 8y ago
  Thus speculation haha. Especially if you can pass laws in your favor or the like I think this is the train of thought most of them have. If it didn't bring some kind of profit why would they do it? The only reason to not rent it out is if they think they will make more profit by holding out. The alternative is that they just hate their own money and want to burn it so that's how I come to this conclusion. By process of elimination. Well it depends on where you are. Some places have different laws no idea about Dublin but some places protect renters from having the price spike up too quickly and have fixed rates once a contract is signed. Edit: I of course have a subjective opinion on this from my point of view and where I am from the laws are heavily in favor of tenants so it is next to impossible to throw people out or hike up the price once an apartment is rented out.

lucideer 8y ago

There's been plenty of papers published on this topic in far greater detail than I'd ever go into in a short HN comment, but the short answer is: property is a financial asset for owners, rather than a source of rent. This is largely about scale: these are large international owners, with significant property investments worldwide. If you search for "financialisation of property" or "financialisation of housing", you'll find quite a lot of research in this area (mostly paywalled :( ) but also quite a few elucidating articles.

vinceguidry 8y ago
The owners are so huge they can't be bothered to care about hundred dollar bills lying on the sidewalk.
- agent008t 8y ago
  I suppose it does make some sense if we are talking about 'dirty' money trying to safeguard their wealth from some form of confiscation. So they don't care about the price tag, they just want to safeguard as much of their wealth in a jurisdiction with strong property rights. They are happy if they don't lose more than 90%. Still, it seems very irrational and thus unsustainable.
  - vinceguidry 8y ago
    Markets can stay irrational for a long time.
barrkel 8y ago
Seems like an exponential tax for domestic property not in use as domiciles could be a way out. Something tolerable the first year, but doubling every 6 months of vacancy without at least 6 months of occupation between.

KineticLensman 8y ago

Anecdotally, I live near a small UK town that has some empty commercial properties. I've been told that the landlords are London-based, and the rental rates reflect London rather than local pricing. Allegedly, the landlords are keen to show that all of the properties in their portfolios could in principle attract high rates, and that to let some out cheaper would dilute the brand as perceived by investors. Don't know how true this is, or whether it applies in Dublin, but it is one answer that I've heard when I asked the same question.

iguy 8y ago
Commercial property often has really long leases, like 10-20 years. So one reason it may sit empty is that an investor thinks a slump will be short & doesn't want to be tied to a low-rent tenant. (Or doesn't want to break up a large space for small tenants, to wait for a large one... or because they are thinking of knocking it down & building housing, etc.) I'm dubious that people in real-estate can't understand local prices, I mean within London there are vast differences by street-by-street. I'm also dubious that empty properties & claims about what they could rent for will fool many people.
- KineticLensman 8y ago
  > I'm dubious that people in real-estate can't understand local prices IIUC, it's not that they don't understand local prices, they instead don't care. At this scale the landlord's focus is investors in the property portfolio, not people who might actually use the property.
  - iguy 8y ago
    I get that the CEO doesn't know everything, but why doesn't bigger scale just mean more people below that? There must be someone who knows about each property, in or outside the company... there are agencies who hustle to rent out student flats, every year. Why not here?

iguy 8y ago

I don't know, I agree that all the speculation about speculation sounds crazy to me -- the rent usually adds up to the cost of buying (via the interest rate, I mean) so not taking it is an "order 1" loss. One possible reason is rent control, can anyone comment? If what you risk is getting stuck for 30 years with a tenant paying last year's rent (and you think it will rise) then that could be serious money, of the sort which might make a rational landlord leave it empty.

maleno 8y ago
There is no way a landlord in Dublin can get stuck with a tenant for 30 years. Rent increases are capped/set at 4% a year. The length of a lease is meant to be six years, but a landlord can terminate a tenancy at practically any time using a number of exemptions/loopholes in the law – to let a family member use the property, selling the property, refurbishing the property, etc. The rent increase limits should apply between tenancies too, as the landlord is legally required to tell new tenants the rent of the previous rent if they ask, but it is up to the prospective tenant to enforce this. At a time when demand for rental properties has never been higher, landlords can easily choose the tenants that don't ask these kinds of questions. The root cause of high rents in Dublin is two-fold: competition for rental units is extremely high, which drives prices up; meanwhile rent is usually a function of the mortgage that exists on the property, which is determined by the price of the construction and/or the value of the land it's built on – and that's where you get massive amounts of speculation in Dublin. Land in Dublin is so expensive that it drives up the cost of everything else along the chain. Most of the vacant units in Dublin are old, and in terrible shape. They're largely owned by people who either don't have the resources (money/energy/time) to improve them so they meet minimum standards, or they're owned by people who know they can let them sit for five or ten or twenty years and sell them for a profit then. The site they're on is nearly always going to increase in value, regardless of the state of the property.

CydeWeys 8y ago

A lot of vacancy is simply that the unit hasn't been rented out yet, or is being renovated, or you're planning on selling it in the near future and you'd rather eat a few months of lost rent vs signing a minimum year-long lease which would hamper your future plans. A 3% vacancy rate is quite low.

everyone 8y ago

I know for a fact that Dublin in particular has been plagued by 'land barons' They buy as much land and property as possible in Dublin city, and then just leave it sit there. This lowers the supply of space in the city thus increasing the value of all their land, which enables them to get loans to buy even more land. I know a councillor who worked on a report which predicted, in the 70's, that because of Irish property laws it was possible that this could be happen, and the laws should be reformed. The laws were never reformed and it happened. https://issuu.com/conormccabe/docs/1974kennyreport https://issuu.com/conormccabe/docs/1974kennyreport