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Keeping an apartment empty ... should be cripplingly expensive. It is? I mean, if you owned an apartment that could rent for $3000/mo, then keeping it empty is

Keeping an apartment empty ... should be cripplingly expensive. It is? I mean, if you owned an apartment that could rent for $3000/mo, then keeping it empty is a direct reduction of your income by $3000/mo. The problem seems to be that offering an apartment under a rent control regime creates an opportunity cost, so maybe the owner thinks it's worthwhile to "spend" $3k/mo to achieve a future return some other way.

amscanne 8y ago
This was one of the key points in the episode: rent control changes this. It's not about the landlords, it's about the tenants. If you've rented a rent-controlled apartment for a long time, even if it's huge (because you rented it when you had a large family), then it is not cripplingly expensive to hold on to it when your needs change. It is cheaper, in fact, for you to hold on to your 6 bedroom apartment, though you use just one room, than it would be to swap it for a one bedroom apartment because you'd lose the rent control price. (See the example of Nat Sherman.)
- njepa 8y ago
  In markets that rely on rent control as a mechanism for affordable housing, you can usually exchange rent controlled units.
- Plasmoid2000ad 8y ago
  Rent control doesn't have to work this way, for example right now in Ireland. Rent control is associated with the Unit, not with the tenant. If you move to another rent controlled Unit, there's very limited situations where the landlord can increase the rent beyond the limits. A big problem is probably once you've implemented rent control, changing the system later becomes increasingly more difficult the longer it's been in place... as someone is always going to lose out.
  - gnicholas 8y ago
    > Rent control is associated with the Unit, not with the tenant. If you move to another rent controlled Unit, there's very limited situations where the landlord can increase the rent beyond the limits. In a city with rent controls, however, finding another unit that is the right size and has rent control is not easy (because everyone is hanging onto their units — and in some cases illegally subletting them). This becomes a self-perpetuating cycle, where there is a decreased supply of available units, which makes it less likely that people in rent-controlled units will dare to venture out and look for another unit that is a better fit in terms of size/location/etc.
a-saleh 8y ago
Well, airbnb does change that equation. If your monthly rent in the city is between 500$-2000$/mo, but you could feasibly rent 100$-500$/day, you might opt for the second. This would take the property off the long-term rental market.
neilwilson 8y ago
" I mean, if you owned an apartment that could rent for $3000/mo, then keeping it empty is a direct reduction of your income by $3000/mo." That depends on the secondary capital effects of the reduction in supply. If you keep that and several other apartments empty in an area then you force up the rents and capital prices on the ones you do let out. Just like De Beers drip feeding diamonds onto the market, or the Saudis drip feeding oil.
- JamesBarney 8y ago
  This is just a description of a normal Monopoly which I think is pretty rare in housing because I never hear about it.
  - jplayer01 8y ago
    Don't need a monopoly if owners collectively behave this way, and they largely do (as we see in places like London or Berlin) because it ensures rising rent and thus increasing profit and property value.
    - enoch_r 8y ago
      This is a pretty classic prisoner's dilemma. Anyone who defects earns $3k more a month and has no appreciable affect on the rent for any other units they may own. Unless landlords are very unusually scrupulous, the resulting equilibrium won't look like a monopoly.
- chii 8y ago
  i dont think there is monopoly in the housing rental market for this to compare with de beers. It's more likely that the tenants could potentially damage the property and will require maintenance to the owner, and the rent isn't worth it vs the property's natural capital gain. Esp. if the property was rent controlled. Property prices (and thus rental prices) needs to float at a market rate - any artificial control will just distort it in such a way that it doesn't really make it more beneficial. If housing affordability is the issue, that's a matter of government policy problem (from zoning, to taxing capital gains too lax).
phailhaus 8y ago
> I mean, if you owned an apartment that could rent for $3000/mo, then keeping it empty is a direct reduction of your income by $3000/mo. Not realizing potential profit is not the same as losing money. If I own an apartment that costs $0 to maintain, then not renting out that apartment costs me nothing. It's not "cripplingly expensive" just because I _could_ rent it out for $3000/mo. It actually has zero impact on my income, and I could stay like that forever. The cost of keeping an apartment empty is only the amount it costs to maintain it.
- NowThenGoodBad 8y ago
  Thank you, this is one point people miss. The other is the value of the real estate and it's increase. Sure, you might not get that 36,000 a year but that is completely dwarfed by a 23% increase in the median home price, bringing it to $1.4 million[1]. You could rent for 10 years or just buy and sell it off a year or 2 later. So, while it is true that not renting would mean not getting that $3000 a month, it really comes out to chump change when you consider how the price of the property has rapidly risen.

amscanne 8y ago

This was one of the key points in the episode: rent control changes this. It's not about the landlords, it's about the tenants. If you've rented a rent-controlled apartment for a long time, even if it's huge (because you rented it when you had a large family), then it is not cripplingly expensive to hold on to it when your needs change. It is cheaper, in fact, for you to hold on to your 6 bedroom apartment, though you use just one room, than it would be to swap it for a one bedroom apartment because you'd lose the rent control price. (See the example of Nat Sherman.)

njepa 8y ago
In markets that rely on rent control as a mechanism for affordable housing, you can usually exchange rent controlled units.
Plasmoid2000ad 8y ago
Rent control doesn't have to work this way, for example right now in Ireland. Rent control is associated with the Unit, not with the tenant. If you move to another rent controlled Unit, there's very limited situations where the landlord can increase the rent beyond the limits. A big problem is probably once you've implemented rent control, changing the system later becomes increasingly more difficult the longer it's been in place... as someone is always going to lose out.
- gnicholas 8y ago
  > Rent control is associated with the Unit, not with the tenant. If you move to another rent controlled Unit, there's very limited situations where the landlord can increase the rent beyond the limits. In a city with rent controls, however, finding another unit that is the right size and has rent control is not easy (because everyone is hanging onto their units — and in some cases illegally subletting them). This becomes a self-perpetuating cycle, where there is a decreased supply of available units, which makes it less likely that people in rent-controlled units will dare to venture out and look for another unit that is a better fit in terms of size/location/etc.

a-saleh 8y ago

Well, airbnb does change that equation. If your monthly rent in the city is between 500$-2000$/mo, but you could feasibly rent 100$-500$/day, you might opt for the second. This would take the property off the long-term rental market.

neilwilson 8y ago

" I mean, if you owned an apartment that could rent for $3000/mo, then keeping it empty is a direct reduction of your income by $3000/mo." That depends on the secondary capital effects of the reduction in supply. If you keep that and several other apartments empty in an area then you force up the rents and capital prices on the ones you do let out. Just like De Beers drip feeding diamonds onto the market, or the Saudis drip feeding oil.

JamesBarney 8y ago
This is just a description of a normal Monopoly which I think is pretty rare in housing because I never hear about it.
- jplayer01 8y ago
  Don't need a monopoly if owners collectively behave this way, and they largely do (as we see in places like London or Berlin) because it ensures rising rent and thus increasing profit and property value.
  - enoch_r 8y ago
    This is a pretty classic prisoner's dilemma. Anyone who defects earns $3k more a month and has no appreciable affect on the rent for any other units they may own. Unless landlords are very unusually scrupulous, the resulting equilibrium won't look like a monopoly.
chii 8y ago
i dont think there is monopoly in the housing rental market for this to compare with de beers. It's more likely that the tenants could potentially damage the property and will require maintenance to the owner, and the rent isn't worth it vs the property's natural capital gain. Esp. if the property was rent controlled. Property prices (and thus rental prices) needs to float at a market rate - any artificial control will just distort it in such a way that it doesn't really make it more beneficial. If housing affordability is the issue, that's a matter of government policy problem (from zoning, to taxing capital gains too lax).

phailhaus 8y ago

> I mean, if you owned an apartment that could rent for $3000/mo, then keeping it empty is a direct reduction of your income by $3000/mo. Not realizing potential profit is not the same as losing money. If I own an apartment that costs $0 to maintain, then not renting out that apartment costs me nothing. It's not "cripplingly expensive" just because I _could_ rent it out for $3000/mo. It actually has zero impact on my income, and I could stay like that forever. The cost of keeping an apartment empty is only the amount it costs to maintain it.

NowThenGoodBad 8y ago
Thank you, this is one point people miss. The other is the value of the real estate and it's increase. Sure, you might not get that 36,000 a year but that is completely dwarfed by a 23% increase in the median home price, bringing it to $1.4 million[1]. You could rent for 10 years or just buy and sell it off a year or 2 later. So, while it is true that not renting would mean not getting that $3000 a month, it really comes out to chump change when you consider how the price of the property has rapidly risen.