4 ms·

Rents will have to come down or be waived. Almost by definition "rent" is simply extracting value from the productive economy through ownership. If the produc

Rents will have to come down or be waived. Almost by definition "rent" is simply extracting value from the productive economy through ownership. If the productive economy takes a dive or disappears, the amount you can extract must do likewise.

missedthecue 7y ago
>Almost by definition "rent" is simply extracting value from the productive economy through ownership. What? Do you define any profit margin as such? Housing rent is not the same thing as the term 'economic rent'. Housing is as much a liability as an asset. There is risk with owning it. Rent payments are compensation for said risk. All profit is just compensation for risk.
- peacefulhat 7y ago
  Then should rents go up? It is now much riskier to be a landlord, risk that is going uncompensated...
  - gruez 7y ago
    Theoretically yes, although the demand curve also comes into play. In a parallel universe where the risks of a pandemic/lockdown was known and taken seriously, you would definitely expect rents to be higher.
    - sv9 7y ago
      Maybe the landlords should've been more responsible and saved for a rainy day. Isn't that what the less-well-off are always told to do? Poor planning on their part shouldn't be the fault of renters.
      - SpicyLemonZest 7y ago
        I don't mean to be pithy, but rents are established by supply and demand, not by an analysis of who's at fault or a decision about whether some particular landlord needs more money.
      - dang 7y ago
        Would you please stop using HN for political battle? You've been doing it a lot, and it's not what this site is for. Also, while I have you, would you please stop creating accounts for every few comments you post? We ban accounts that do that as well. This is in the site guidelines: https://news.ycombinator.com/newsguidelines.html https://news.ycombinator.com/newsguidelines.html. You needn't use your real name, of course, but for HN to be a community, users need some identity for others to relate to. Otherwise we may as well have no usernames and no community, and that would be a different kind of forum. https://hn.algolia.com/?sort=byDate&dateRange=all&type=comment&storyText=false&prefix&page=0&query=by:dang%20community%20identity https://hn.algolia.com/?sort=byDate&dateRange=all&type=comme...
        effhn 7y ago
        Stop suppressing uncomfortable opinions.
        missedthecue 7y ago
        There's discourse between differing opinions and then there's spamming and rule breaking. One is encouraged. The other is something we could all do with less of.
        dang 7y ago
        I have no problem with that opinion. It's possible to express one's opinions thoughtfully and substantively, and as part of a wider pattern of using the site (i.e. not being on HN primarily for political battle). In other words, it's possible to follow the site guidelines. Plenty of users do that, on all sides of these issues. They don't run into problems with moderation.
        deleted 7y ago
        [deleted]
      - negzero7 7y ago
        This would be poor planning on the renter first. The obligation is on the renter to pay for the service (housing) they are using. The banks expect the mortgage holder to pay for borrowing money. If the renter can't pay they shouldn't get to stay. If the borrower can't pay they will lose the property. If the owner can't pay the taxes, they also lose the property.
    - missedthecue 7y ago
      Basically yes, but there are more things at play. For instance, if evictions are not being processed right now (or if there are very strong squatting laws in normal times) this distorts the price discovery of the market. Actual demand will have dropped, but the resulting free supply cannot also come online because people will be living rent free. You can't rent out a unit with someone living in it. Please note that this isn't to say tenant laws are a mistake, but they do raise the price of rent for everyone.
    - newshorts 7y ago
      Not really, you have to take into account a renter’s ability to pay. There’s an upper limit to what people can afford to spend on housing. Risk dictates a low percentage of the overall factor in pricing.
    - texasbigdata 7y ago
      I think you're confusing the risk of buying an asset with the day to day reality of operating in. In the current environment, asset value decreases and certain costs (prices charged) have decreased as the supply chain adapts to try to maintain break even volume. Maybe it's different across the board.
  - missedthecue 7y ago
    Price (in essentially all cases, particularly for commodity goods like housing) is based on supply and demand, not on the individual financial situation of the person selling the product. If demand for housing climbs noticeably, rates will follow, and vice versa (if supply of housing climbs, rates will plummet) The reason profit exists is that risk must be assumed to earn it.
  - deelowe 7y ago
    It can't go up. And, as a result, many landlords will lose their businesses. This is why it's a "risk." The risk of being a landlord is playing out right now and, as a result, many could stand to lose their business.
- Spooky23 7y ago
  Lol. Not at any scale. Once you own about a dozen units the principal risk is not getting over your head in debt.
  - missedthecue 7y ago
    So someone that purchased their units sans debt has no reason to charge rent?
    - pmorici 7y ago
      Even without debt to service there is are still property taxes to pay and the opportunity cost compared to investing that capital in something else like 30- year treasury bonds that pay ~1%
  - SpicyLemonZest 7y ago
    Have you talked to many landlords that own a dozen units? It's my understanding that owning so many units is hard, requiring you to either work full time or hire a property management company, and you incur a serious risk of massive costs from misbehaving tenants.
    - nradov 7y ago
      Every landlord who owns more than few units is fully aware of those realities.
    - Spooky23 7y ago
      Hard, sure you have to actually do something and hire people. It’s a pretty basic business. Watch the money going out, manage the tenants coming in.
      - SpicyLemonZest 7y ago
        You're right that it's not an uncharacteristically complicated business, but all businesses are hard! The idea that business owners sit there sipping whiskey, living an unburdened life like an aristocrat, is almost always false.
- aaomidi 7y ago
  And people like this is why I don't see a sustainable future for America and most of the world. We need to unlearn our current relationship with housing and change our view entirely.
- barrkel 7y ago
  Profit is not compensation for risk. Risk is a limiting factor in chasing after profits, sure, but you can take unprofitable risks, and if you have a particularly privileged position or information, you can make a profit with little to no risk. Hugh Grosvenor, 7th Duke of Westminster doesn't exactly take a lot of risk for his rents.
  - missedthecue 7y ago
    My point isn't that "all profit that ever occurs in this universe happens only because an equivalent level of risk was assumed". This isn't thermodynamics. My point is that profit as a concept exists because without it, there would be no reason to assume risk in the first place. Therefore, profit is compensation for risk.
    - barrkel 7y ago
      Under an ideal, efficient free market, profit exists to be squeezed out of existence. Profit incentivizes more supply, so that existing producers have their profit margin squeezed to zero. The mentality that you seem to have is more like a moral justification, or excuse, for profit. "X took risks, and got rewards, and it is therefore good and right", to paraphrase. But there's no direct causation between taking a risk and getting a reward; in fact many rewards come from being well connected, having the right background, skin colour, social bearing and milieu, and many other structural advantages, and taking risks without these advantages leads to big fat losses. Reducing the justification for profit to risk is a massive apology for the inequality in society which stems from far more than mere intolerance for risk. I don't think there's much difference in risk tolerance of young men right across the income distribution spectrum; you see it in boy racers, in the jousting on a Saturday night, in thrill seekers, in criminals, in all sorts. But only a few have the privileged position to be able to put significant capital at risk for reward, rather than their own bodies. Saying that it's justified that people profit from this, because of "risk", is just wrong, it's blinkered in a way which benefits the luckiest in our society.
    - effie 7y ago
      The idea about "all profit is due to risk" is a little one-dimensional. People/groups of people can profit for many reasons. For example, owner of a company can profit by selling or even bankrupting his company. There is often little to no risk connected to that. On the other hand, if somebody else takes on some substantial risk and invests in a company, he may not profit at all - if the owner makes it bankrupt.
- jahaja 7y ago
  Surely the risk motive for profit includes what's happening now?
void9ce3b53dddd 7y ago
It's going to have to start at the top since it's still trickle down. Good luck convincing people with money to help people who don't have money
pmorici 7y ago
I agree rents will probably come down, as they do in any economic down turn, but not because of some exploitative relationship between landlord and renter as you imply. It's all supply and demand. Lower economic activity translates to lower demand. I'd also say that to imply that a landlord doesn't provide a service is total nonsense. There are plenty of reasons why people and companies might prefer to rent instead of buy the least of which is that a tenant doesn't have a long term financial commitment or principal / property value risk. There are many companies that even take their wholly owned property and sell it so they can lease it back in a triple net leasing arrangement because it benefits them to not have capital locked up in real estate value.
Gibbon1 7y ago
The best thing to do is just put a moratorium on rents and debt for a couple of months. Semi related I read a detailed description what happened during the hyper inflation in Germany after WWI. A key thing is the inflation was not uniform. Food prices increased the most. And rents the least. At the end rents were effectively zero.
- HarryHirsch 7y ago
  At the end rents were effectively zero Well, yes. You always need food, but you don't need your own apartment when you can start couchsurfing. Real estate does degenerate fairly quickly when it's uninhabited. You could see a similar phenomenon after German reunification. There was much real estate with unclear title in the East, and students and squatters were actually tolerated - the owners and the city knew that with someone living in the premises the building would not deteriorate further.
  - Gibbon1 7y ago
    A lot of people don't really get the reality here. It's like the old saying if you owe the bank $100,000 and can't pay you have a problem. If you owe the bank $100,000,000 and can't pay the bank has a problem. For a landlord a tenant unable to pay the rent isn't a problem. If 30-50% can't it's is his problem. I understand you want to punish working class people for losing their jobs and being unable to pay rent. Fundamentally there will be chaos if it comes to that. First they don't have the money. Second they won't leave. Third the cops and the courts will do NOTHING about it.
TAForObvReasons 7y ago
Arguably we need a debt jubilee given the current state of affairs.
drawkbox 7y ago
If rent collection at the very top, above the landlord, above the management company, if they have to take the hit from this the most, there will be many less recessions. If the bank, credit cards and mortgage owners have payments suspended in recessions, there would be many less recessions. If the top of the chain, that is the elusive 'trickle down' source, felt the pain for recessions the most, there would be many less recessions. If 'too big to fail' banks and companies were immediately broken up on commencement of recessions, there would be many less recessions. Markets are efficient, they will hit targets, market regulations can be used to set targets that will keep the whole thing on the rails, remove the rails and the usual happens, more inequality and stagnation. We have to put the incentives in the right place. If the lower/middle always feel the pain with no consequence for the top or 'too big to fail' companies, then it will be a regular, repeating occurrence. That will create markets where companies get big enough to be 'too big to fail' and get bailouts, or essentially grow to 'bailout big'. No matter what you believe about economies, or markets, money only goes where other money is, and you can't keep taking from the spenders in a consumer economy. The constant rent-seeking, predatory, value extraction, wealth destroying events are going to break the lower/middle and public markets. Individuals, families and small business especially need support during these times, the longs that all value extractors extract from and the engine of America as well as the research and development labs of larger companies. Markets are garden, the in trouble lower/middle should be brought up and focused on, the massively growing top should be scaled back or harvested. Money trickles up and down and all around, but money only trickles where other money is found. America is mostly small businesses. SBA/Chamber of Commerce has 30.2 million for companies under 500 people. Lots are sole proprietors or very small < 5 people. 22 million of the small businesses in the United States are individually operated, meaning that they have no other employees other than the owner. 99.9% of businesses in the United States are small businesses, owing to the rather large threshold of 500 employees, or fewer. Small business is the engine of America. Small businesses comprise what share of the U.S. economy? Small businesses make up [1][2]: - 99.7 percent of U.S. employer firms, - 64 percent of net new private-sector jobs, - 49.2 percent of private-sector employment, - 42.9 percent of private-sector payroll, - 46 percent of private-sector output, - 43 percent of high-tech employment, - 98 percent of firms exporting goods, - 33 percent of exporting value. It is time to help the lower/middle and sole-proprietors and small business or America as we know it is much much different after this. About 8 trillion in 'stimulus', at a cost of 20k to every citizen, for that we got $1200 we haven't got yet and small businesses finding out how small of fish they a really are. This market is broken for lower/middle and people or small business. It is gangbusters for wealth and value extraction ops. The stimulus for individuals, families and small business is vaporware, time for some vaporwave as we fade away into the ether. Good luck wealth and big business with no one to skim from and no small business to use as research and development or suppliers. [1] https://www.sba.gov/sites/default/files/FAQ_Sept_2012.pdf https://www.sba.gov/sites/default/files/FAQ_Sept_2012.pdf [2] Source: U.S. Census Bureau, SUSB, CPS; International Trade Administration; Bureau of Labor Statistics, BED; Advocacy-funded research, Small Business GDP: Update 2002- 2010, www.sba.gov/advocacy/7540/42371.

missedthecue 7y ago

>Almost by definition "rent" is simply extracting value from the productive economy through ownership. What? Do you define any profit margin as such? Housing rent is not the same thing as the term 'economic rent'. Housing is as much a liability as an asset. There is risk with owning it. Rent payments are compensation for said risk. All profit is just compensation for risk.

peacefulhat 7y ago
Then should rents go up? It is now much riskier to be a landlord, risk that is going uncompensated...
- gruez 7y ago
  Theoretically yes, although the demand curve also comes into play. In a parallel universe where the risks of a pandemic/lockdown was known and taken seriously, you would definitely expect rents to be higher.
  - sv9 7y ago
    Maybe the landlords should've been more responsible and saved for a rainy day. Isn't that what the less-well-off are always told to do? Poor planning on their part shouldn't be the fault of renters.
    - SpicyLemonZest 7y ago
      I don't mean to be pithy, but rents are established by supply and demand, not by an analysis of who's at fault or a decision about whether some particular landlord needs more money.
    - dang 7y ago
      Would you please stop using HN for political battle? You've been doing it a lot, and it's not what this site is for. Also, while I have you, would you please stop creating accounts for every few comments you post? We ban accounts that do that as well. This is in the site guidelines: https://news.ycombinator.com/newsguidelines.html https://news.ycombinator.com/newsguidelines.html. You needn't use your real name, of course, but for HN to be a community, users need some identity for others to relate to. Otherwise we may as well have no usernames and no community, and that would be a different kind of forum. https://hn.algolia.com/?sort=byDate&dateRange=all&type=comment&storyText=false&prefix&page=0&query=by:dang%20community%20identity https://hn.algolia.com/?sort=byDate&dateRange=all&type=comme...
      - effhn 7y ago
        Stop suppressing uncomfortable opinions.
        missedthecue 7y ago
        There's discourse between differing opinions and then there's spamming and rule breaking. One is encouraged. The other is something we could all do with less of.
        dang 7y ago
        I have no problem with that opinion. It's possible to express one's opinions thoughtfully and substantively, and as part of a wider pattern of using the site (i.e. not being on HN primarily for political battle). In other words, it's possible to follow the site guidelines. Plenty of users do that, on all sides of these issues. They don't run into problems with moderation.
      - deleted 7y ago
        [deleted]
    - negzero7 7y ago
      This would be poor planning on the renter first. The obligation is on the renter to pay for the service (housing) they are using. The banks expect the mortgage holder to pay for borrowing money. If the renter can't pay they shouldn't get to stay. If the borrower can't pay they will lose the property. If the owner can't pay the taxes, they also lose the property.
  - missedthecue 7y ago
    Basically yes, but there are more things at play. For instance, if evictions are not being processed right now (or if there are very strong squatting laws in normal times) this distorts the price discovery of the market. Actual demand will have dropped, but the resulting free supply cannot also come online because people will be living rent free. You can't rent out a unit with someone living in it. Please note that this isn't to say tenant laws are a mistake, but they do raise the price of rent for everyone.
  - newshorts 7y ago
    Not really, you have to take into account a renter’s ability to pay. There’s an upper limit to what people can afford to spend on housing. Risk dictates a low percentage of the overall factor in pricing.
  - texasbigdata 7y ago
    I think you're confusing the risk of buying an asset with the day to day reality of operating in. In the current environment, asset value decreases and certain costs (prices charged) have decreased as the supply chain adapts to try to maintain break even volume. Maybe it's different across the board.
- missedthecue 7y ago
  Price (in essentially all cases, particularly for commodity goods like housing) is based on supply and demand, not on the individual financial situation of the person selling the product. If demand for housing climbs noticeably, rates will follow, and vice versa (if supply of housing climbs, rates will plummet) The reason profit exists is that risk must be assumed to earn it.
- deelowe 7y ago
  It can't go up. And, as a result, many landlords will lose their businesses. This is why it's a "risk." The risk of being a landlord is playing out right now and, as a result, many could stand to lose their business.
Spooky23 7y ago
Lol. Not at any scale. Once you own about a dozen units the principal risk is not getting over your head in debt.
- missedthecue 7y ago
  So someone that purchased their units sans debt has no reason to charge rent?
  - pmorici 7y ago
    Even without debt to service there is are still property taxes to pay and the opportunity cost compared to investing that capital in something else like 30- year treasury bonds that pay ~1%
- SpicyLemonZest 7y ago
  Have you talked to many landlords that own a dozen units? It's my understanding that owning so many units is hard, requiring you to either work full time or hire a property management company, and you incur a serious risk of massive costs from misbehaving tenants.
  - nradov 7y ago
    Every landlord who owns more than few units is fully aware of those realities.
  - Spooky23 7y ago
    Hard, sure you have to actually do something and hire people. It’s a pretty basic business. Watch the money going out, manage the tenants coming in.
    - SpicyLemonZest 7y ago
      You're right that it's not an uncharacteristically complicated business, but all businesses are hard! The idea that business owners sit there sipping whiskey, living an unburdened life like an aristocrat, is almost always false.
aaomidi 7y ago
And people like this is why I don't see a sustainable future for America and most of the world. We need to unlearn our current relationship with housing and change our view entirely.
barrkel 7y ago
Profit is not compensation for risk. Risk is a limiting factor in chasing after profits, sure, but you can take unprofitable risks, and if you have a particularly privileged position or information, you can make a profit with little to no risk. Hugh Grosvenor, 7th Duke of Westminster doesn't exactly take a lot of risk for his rents.
- missedthecue 7y ago
  My point isn't that "all profit that ever occurs in this universe happens only because an equivalent level of risk was assumed". This isn't thermodynamics. My point is that profit as a concept exists because without it, there would be no reason to assume risk in the first place. Therefore, profit is compensation for risk.
  - barrkel 7y ago
    Under an ideal, efficient free market, profit exists to be squeezed out of existence. Profit incentivizes more supply, so that existing producers have their profit margin squeezed to zero. The mentality that you seem to have is more like a moral justification, or excuse, for profit. "X took risks, and got rewards, and it is therefore good and right", to paraphrase. But there's no direct causation between taking a risk and getting a reward; in fact many rewards come from being well connected, having the right background, skin colour, social bearing and milieu, and many other structural advantages, and taking risks without these advantages leads to big fat losses. Reducing the justification for profit to risk is a massive apology for the inequality in society which stems from far more than mere intolerance for risk. I don't think there's much difference in risk tolerance of young men right across the income distribution spectrum; you see it in boy racers, in the jousting on a Saturday night, in thrill seekers, in criminals, in all sorts. But only a few have the privileged position to be able to put significant capital at risk for reward, rather than their own bodies. Saying that it's justified that people profit from this, because of "risk", is just wrong, it's blinkered in a way which benefits the luckiest in our society.
  - effie 7y ago
    The idea about "all profit is due to risk" is a little one-dimensional. People/groups of people can profit for many reasons. For example, owner of a company can profit by selling or even bankrupting his company. There is often little to no risk connected to that. On the other hand, if somebody else takes on some substantial risk and invests in a company, he may not profit at all - if the owner makes it bankrupt.
jahaja 7y ago
Surely the risk motive for profit includes what's happening now?

void9ce3b53dddd 7y ago

It's going to have to start at the top since it's still trickle down. Good luck convincing people with money to help people who don't have money

pmorici 7y ago

I agree rents will probably come down, as they do in any economic down turn, but not because of some exploitative relationship between landlord and renter as you imply. It's all supply and demand. Lower economic activity translates to lower demand. I'd also say that to imply that a landlord doesn't provide a service is total nonsense. There are plenty of reasons why people and companies might prefer to rent instead of buy the least of which is that a tenant doesn't have a long term financial commitment or principal / property value risk. There are many companies that even take their wholly owned property and sell it so they can lease it back in a triple net leasing arrangement because it benefits them to not have capital locked up in real estate value.

Gibbon1 7y ago

The best thing to do is just put a moratorium on rents and debt for a couple of months. Semi related I read a detailed description what happened during the hyper inflation in Germany after WWI. A key thing is the inflation was not uniform. Food prices increased the most. And rents the least. At the end rents were effectively zero.

HarryHirsch 7y ago
At the end rents were effectively zero Well, yes. You always need food, but you don't need your own apartment when you can start couchsurfing. Real estate does degenerate fairly quickly when it's uninhabited. You could see a similar phenomenon after German reunification. There was much real estate with unclear title in the East, and students and squatters were actually tolerated - the owners and the city knew that with someone living in the premises the building would not deteriorate further.
- Gibbon1 7y ago
  A lot of people don't really get the reality here. It's like the old saying if you owe the bank $100,000 and can't pay you have a problem. If you owe the bank $100,000,000 and can't pay the bank has a problem. For a landlord a tenant unable to pay the rent isn't a problem. If 30-50% can't it's is his problem. I understand you want to punish working class people for losing their jobs and being unable to pay rent. Fundamentally there will be chaos if it comes to that. First they don't have the money. Second they won't leave. Third the cops and the courts will do NOTHING about it.

TAForObvReasons 7y ago

Arguably we need a debt jubilee given the current state of affairs.

drawkbox 7y ago

If rent collection at the very top, above the landlord, above the management company, if they have to take the hit from this the most, there will be many less recessions. If the bank, credit cards and mortgage owners have payments suspended in recessions, there would be many less recessions. If the top of the chain, that is the elusive 'trickle down' source, felt the pain for recessions the most, there would be many less recessions. If 'too big to fail' banks and companies were immediately broken up on commencement of recessions, there would be many less recessions. Markets are efficient, they will hit targets, market regulations can be used to set targets that will keep the whole thing on the rails, remove the rails and the usual happens, more inequality and stagnation. We have to put the incentives in the right place. If the lower/middle always feel the pain with no consequence for the top or 'too big to fail' companies, then it will be a regular, repeating occurrence. That will create markets where companies get big enough to be 'too big to fail' and get bailouts, or essentially grow to 'bailout big'. No matter what you believe about economies, or markets, money only goes where other money is, and you can't keep taking from the spenders in a consumer economy. The constant rent-seeking, predatory, value extraction, wealth destroying events are going to break the lower/middle and public markets. Individuals, families and small business especially need support during these times, the longs that all value extractors extract from and the engine of America as well as the research and development labs of larger companies. Markets are garden, the in trouble lower/middle should be brought up and focused on, the massively growing top should be scaled back or harvested. Money trickles up and down and all around, but money only trickles where other money is found. America is mostly small businesses. SBA/Chamber of Commerce has 30.2 million for companies under 500 people. Lots are sole proprietors or very small < 5 people. 22 million of the small businesses in the United States are individually operated, meaning that they have no other employees other than the owner. 99.9% of businesses in the United States are small businesses, owing to the rather large threshold of 500 employees, or fewer. Small business is the engine of America. Small businesses comprise what share of the U.S. economy? Small businesses make up [1][2]: - 99.7 percent of U.S. employer firms, - 64 percent of net new private-sector jobs, - 49.2 percent of private-sector employment, - 42.9 percent of private-sector payroll, - 46 percent of private-sector output, - 43 percent of high-tech employment, - 98 percent of firms exporting goods, - 33 percent of exporting value. It is time to help the lower/middle and sole-proprietors and small business or America as we know it is much much different after this. About 8 trillion in 'stimulus', at a cost of 20k to every citizen, for that we got $1200 we haven't got yet and small businesses finding out how small of fish they a really are. This market is broken for lower/middle and people or small business. It is gangbusters for wealth and value extraction ops. The stimulus for individuals, families and small business is vaporware, time for some vaporwave as we fade away into the ether. Good luck wealth and big business with no one to skim from and no small business to use as research and development or suppliers. [1] https://www.sba.gov/sites/default/files/FAQ_Sept_2012.pdf https://www.sba.gov/sites/default/files/FAQ_Sept_2012.pdf [2] Source: U.S. Census Bureau, SUSB, CPS; International Trade Administration; Bureau of Labor Statistics, BED; Advocacy-funded research, Small Business GDP: Update 2002- 2010, www.sba.gov/advocacy/7540/42371.