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Please take an economics course at the earliest opportunity. Rental housing is a business. If the marginal return to capital of providing rental housing goes

Please take an economics course at the earliest opportunity. Rental housing is a business. If the marginal return to capital of providing rental housing goes up relative to other investments, then more capital will be invested in providing rental house, until equilibrium. Likewise, if the marginal return to capital of providing rental housing goes down, capital will be moved out of rental housing. If the risk of being a landlord is increased, then a small landlord has a bit of problem in that it will be hard to diversify their portfolio. They will need to enter into some kind of risk-transfer transaction. The simplest would be to purchase some kind of insurance that pays out in case of government-mandated rent moratorium. Insurance company actuaries would work out a reasonable premium, and that premium would be added to the rent required of tenants. All-in-all, that would be a reasonably orderly solution -- with the net effect of raising rents to cover the insurance premium. Of course, we can all imagine a world in which we have both rent control and government-mandated rent moratoriums. In which case, the return to capital in rental house goes down and the supply dries up. Which means instead of an orderly market, rental units are transferred based on non-monetary consideration. I don't see how this world is better for anybody.

dredmorbius 6y ago
In theory, yes. In practice, rising real estate prices even in the absence of rent or price controls has not seen corresponding increases in construction, the effect of which would be constant housing costs, adjusted forbinflation. The business of real estate is not to increase housing supply but to increase housing value as an asset class. And, given an inherently inelastic supply and rising demand, the best way to do this is by artificially constraining supply: keepin unnits off-market, limiting construction, density limmits, setbacks and separations, height limits, restrictions on multuple tenancies, and some aspects of building codes. This isn't new: When recently the mechanized industries, particularly in metal, entered the housing field with the production of “prefabricated houses”, they were met by the resistance of property holders, especially of the banks, who hold mortgages on about 58 percent of all 1933 value of all urban real estate, and who fear that an influx of cheap modern dwellings would subtract substantially from the market value of existing structures. These banks and loan companies have been unwilling to finance prefabricated houses except in rare exceptions and then on a limited basis. -- Bernhard J. Stern, "Resistances to the Adoption of Technological Innovations", 1937 https://archive.org/details/technologicaltre1937unitrich/page/39 https://archive.org/details/technologicaltre1937unitrich/pag...
- sologoub 6y ago
  Don’t know which state or country you are in, but here’s a good example where more construction definitely halted the rise of rents: http://www.ladowntownnews.com/development/much-ado-about-downtown-housing-vacancy/article_18af1292-aad7-11e7-b771-4bdf2fb7dbc3.html http://www.ladowntownnews.com/development/much-ado-about-dow... That’s a 2017 article. Now the fall is much greater because of COVID market shifts, but the rents really did slow or drop before in Downtown Los Angeles. Real estate in California’s two large metro areas (SF Bay and Greater LA) is a mess, largely thanks to regulation and NIMBYism. That’s not a normal market. Add to it Prop 13 that prevents property tax adjusting tax base to market value of housing, even for corporations and rentals, and you have the recipe for really constraint supply. As the result, prices remain high. Putting the burden on landlords will cause small-time landlords to exit and be either replaced by large corps that can afford the insurance-equivalent or the rentals will be sold to owner users and the people who have to rent will have even less supply to go around.
  - dredmorbius 6y ago
    "Regulation", "NIMBYism" and "not a normal market" (it is a typical market, for assets --- the confusion is thinking that housing/real estate behave as supply-elastic commodities) generally are behaviours resulting from the dynamics I've described. Of the various corrective measures, a land value tax (tax on the unimproved value of property) is likely the most widely known, understood, and accepted by economists. Other issues are more difficult to address (see e.g., Mancur Olsen's Logic of Collective Action), but also arise and create dysfunctions through economic logic giving rise to pathologies. A reading of Adam Smith's sections on prices of various economic products and services suggests a set of differentiable behaviours by types: 1. Commodity goods. 2. Labour wages and services. Extended to include pleasantness, skill, training, constancy, success probability, and trust. 3. Natural resources (developed further by Ricardo, Grey, and Hotelling, though still fundamentally flawed). 4. Returns to stock. 5. Rents: monopoly and network services. 6. Assets and money (to Smith: gold and silver). 7. Interest. 8. Public goods. 9. Taxes. Each has distinct behavious, much explained by later concepts of the marginalists and political theorists (class and power), though these are suggested by Smith. There's some likely consolidation of these (rents, assets, and interest, say). Commodity goods follow laws of supply and demand as commonly understood, but only where goods are undifferentiated (no "luxury" branding, monopoly, or lock-in effects). Many of the others, for confounding reasons, deviate markedly some or much of the time. Smith was largely addressing these failures under merchantilism and politically-influential monopolists and classes.
thebradbain 6y ago
> If the marginal return to capital of providing rental housing goes up relative to other investments, then more capital will be invested in providing rental house, until equilibrium. More capital may be invested, but not necessarily in "providing" rental housing. Housing, being dependent on location/land, is not a commodity. In fact, you'll often see the opposite: Home owners (investors in their own right) and even developers trying to inflate housing prices by restricting supply by exploiting zoning laws: it pays to be a home owner in a neighborhood where the minimum lot size is 1 acre (Atherton), or, say, a developer interested in building only luxury apartments in desirable areas (Solana Beach, which is a city in California with 0 low-income housing, or really anywhere along a CA Coast). The funny thing is, as home prices in major US cities become out of reach to the average American (as evidenced by the fact that many cities have higher renter rates than owner rates), a drop in property values could be a GOOD thing -- in that it could allow tenants to potentially own the dwelling they already live in which is currently out of reach.
acituan 6y ago
> Rental housing is a business. Housing is also a basic human need. Both can be true, but when markets fail, we risk failing basic human needs and all the associated costs to society. > Which means instead of an orderly market, rental units are transferred based on non-monetary consideration. I don't see how this world is better for anybody. I think you should consider economics courses from different schools. Absolute market normativity cannot solve every problem on earth, nor always form orderly markets by themselves. Governments are needed to intervene on these market failures and undertake other duties that cannot be properly market-ified. By your perspective non-monetary transfers or government intervention on basic medicine, food, water or law enforcement also wouldn’t make the world better for anybody. The answer to a socialist utopia is not a liberalist utopia, as neither can transcend the complexity of the problem at hand alone.
- andrewjl 6y ago
  Your general point IMO is sound, but orderly markets tend to have the almost magical property of making incentives legible. Non-market systems hide incentives under opaque covers and increase the potential for catastrophic failure. This doesn't mean that free unregulated markets are a solution to everything. But they're a great first step on a road of progressive [in a technical sense, not the commonly associated political sense of the word] refinement.
  - acituan 6y ago
    > almost magical property of making incentives legible. Perfect information symmetry is a precondition for the theoretical free market construct, but by no means a magical, inherent property to markets. In fact, there are many instances in which information flow has to be legislated in order to help the market operate; from nutrition labels on our food to real estate transactions in which information flow is necessitated, and for example making insider trading illegal in which information flow is prevented. > Non-market systems hide incentives under opaque covers and increase the potential for catastrophic failure. Market based systems can and have done this too. Most recent example is the 2008 crisis in which in the name of financial instrument innovation, toxic assets were blended under opaque covers and people bought them, leading to catastrophic failure. Information flow and markets are mostly unrelated. Think of the stock market; only information it can tell us is the current and historical price points, everything else has to come from side channels, which will never add up to telling if a stock will go up or not for sure.
cm2187 6y ago
And if you want to see the consequences of a legal framework hostile to landlordS, look at France. It has become extremely hard to rent a place as landlordS demand all sorts of guarantees. In fact I know foreign bankers who couldn’t find a place to rent when coming to Paris as they lacked the necessary references.
- jlokier 6y ago
  That's hardly a general effect of all landlord-constraining frameworks. It's certainly not a tenant-favouring framework. If the law said landlords could not require those kinds of references when advertising a tenancy, that would be a legal framework hostile to landlords without the reference problem you described. (Admittedly there would be unintended consequences. Maybe the reference problem would continue surreptitiously.)
throwaway189262 6y ago
> Likewise, if the marginal return to capital of providing rental housing goes down, capital will be moved out of rental housing. We would all do fine if long term rentals were replaced with purchase, and those that can't afford to purchase put in free government housing until they can. Rent dates back to kings that owned all the land and made commoners pay to live on it. I don't think it's right to profit off something so essential as the place you reside, it gives landlords near infinite leverage if tenants are too poor to move. I agree with above, somebody has to eat the losses, and it should be the entities speculating on investment properties, not the (usually poor) people renting single units in them
Craighead 6y ago
Why such a nasty dismissive comment? op is speaking to natural rights and you respond with "but the landlords!?"

dredmorbius 6y ago

In theory, yes. In practice, rising real estate prices even in the absence of rent or price controls has not seen corresponding increases in construction, the effect of which would be constant housing costs, adjusted forbinflation. The business of real estate is not to increase housing supply but to increase housing value as an asset class. And, given an inherently inelastic supply and rising demand, the best way to do this is by artificially constraining supply: keepin unnits off-market, limiting construction, density limmits, setbacks and separations, height limits, restrictions on multuple tenancies, and some aspects of building codes. This isn't new: When recently the mechanized industries, particularly in metal, entered the housing field with the production of “prefabricated houses”, they were met by the resistance of property holders, especially of the banks, who hold mortgages on about 58 percent of all 1933 value of all urban real estate, and who fear that an influx of cheap modern dwellings would subtract substantially from the market value of existing structures. These banks and loan companies have been unwilling to finance prefabricated houses except in rare exceptions and then on a limited basis. -- Bernhard J. Stern, "Resistances to the Adoption of Technological Innovations", 1937 https://archive.org/details/technologicaltre1937unitrich/page/39 https://archive.org/details/technologicaltre1937unitrich/pag...

sologoub 6y ago
Don’t know which state or country you are in, but here’s a good example where more construction definitely halted the rise of rents: http://www.ladowntownnews.com/development/much-ado-about-downtown-housing-vacancy/article_18af1292-aad7-11e7-b771-4bdf2fb7dbc3.html http://www.ladowntownnews.com/development/much-ado-about-dow... That’s a 2017 article. Now the fall is much greater because of COVID market shifts, but the rents really did slow or drop before in Downtown Los Angeles. Real estate in California’s two large metro areas (SF Bay and Greater LA) is a mess, largely thanks to regulation and NIMBYism. That’s not a normal market. Add to it Prop 13 that prevents property tax adjusting tax base to market value of housing, even for corporations and rentals, and you have the recipe for really constraint supply. As the result, prices remain high. Putting the burden on landlords will cause small-time landlords to exit and be either replaced by large corps that can afford the insurance-equivalent or the rentals will be sold to owner users and the people who have to rent will have even less supply to go around.
- dredmorbius 6y ago
  "Regulation", "NIMBYism" and "not a normal market" (it is a typical market, for assets --- the confusion is thinking that housing/real estate behave as supply-elastic commodities) generally are behaviours resulting from the dynamics I've described. Of the various corrective measures, a land value tax (tax on the unimproved value of property) is likely the most widely known, understood, and accepted by economists. Other issues are more difficult to address (see e.g., Mancur Olsen's Logic of Collective Action), but also arise and create dysfunctions through economic logic giving rise to pathologies. A reading of Adam Smith's sections on prices of various economic products and services suggests a set of differentiable behaviours by types: 1. Commodity goods. 2. Labour wages and services. Extended to include pleasantness, skill, training, constancy, success probability, and trust. 3. Natural resources (developed further by Ricardo, Grey, and Hotelling, though still fundamentally flawed). 4. Returns to stock. 5. Rents: monopoly and network services. 6. Assets and money (to Smith: gold and silver). 7. Interest. 8. Public goods. 9. Taxes. Each has distinct behavious, much explained by later concepts of the marginalists and political theorists (class and power), though these are suggested by Smith. There's some likely consolidation of these (rents, assets, and interest, say). Commodity goods follow laws of supply and demand as commonly understood, but only where goods are undifferentiated (no "luxury" branding, monopoly, or lock-in effects). Many of the others, for confounding reasons, deviate markedly some or much of the time. Smith was largely addressing these failures under merchantilism and politically-influential monopolists and classes.

thebradbain 6y ago

> If the marginal return to capital of providing rental housing goes up relative to other investments, then more capital will be invested in providing rental house, until equilibrium. More capital may be invested, but not necessarily in "providing" rental housing. Housing, being dependent on location/land, is not a commodity. In fact, you'll often see the opposite: Home owners (investors in their own right) and even developers trying to inflate housing prices by restricting supply by exploiting zoning laws: it pays to be a home owner in a neighborhood where the minimum lot size is 1 acre (Atherton), or, say, a developer interested in building only luxury apartments in desirable areas (Solana Beach, which is a city in California with 0 low-income housing, or really anywhere along a CA Coast). The funny thing is, as home prices in major US cities become out of reach to the average American (as evidenced by the fact that many cities have higher renter rates than owner rates), a drop in property values could be a GOOD thing -- in that it could allow tenants to potentially own the dwelling they already live in which is currently out of reach.

acituan 6y ago

> Rental housing is a business. Housing is also a basic human need. Both can be true, but when markets fail, we risk failing basic human needs and all the associated costs to society. > Which means instead of an orderly market, rental units are transferred based on non-monetary consideration. I don't see how this world is better for anybody. I think you should consider economics courses from different schools. Absolute market normativity cannot solve every problem on earth, nor always form orderly markets by themselves. Governments are needed to intervene on these market failures and undertake other duties that cannot be properly market-ified. By your perspective non-monetary transfers or government intervention on basic medicine, food, water or law enforcement also wouldn’t make the world better for anybody. The answer to a socialist utopia is not a liberalist utopia, as neither can transcend the complexity of the problem at hand alone.

andrewjl 6y ago
Your general point IMO is sound, but orderly markets tend to have the almost magical property of making incentives legible. Non-market systems hide incentives under opaque covers and increase the potential for catastrophic failure. This doesn't mean that free unregulated markets are a solution to everything. But they're a great first step on a road of progressive [in a technical sense, not the commonly associated political sense of the word] refinement.
- acituan 6y ago
  > almost magical property of making incentives legible. Perfect information symmetry is a precondition for the theoretical free market construct, but by no means a magical, inherent property to markets. In fact, there are many instances in which information flow has to be legislated in order to help the market operate; from nutrition labels on our food to real estate transactions in which information flow is necessitated, and for example making insider trading illegal in which information flow is prevented. > Non-market systems hide incentives under opaque covers and increase the potential for catastrophic failure. Market based systems can and have done this too. Most recent example is the 2008 crisis in which in the name of financial instrument innovation, toxic assets were blended under opaque covers and people bought them, leading to catastrophic failure. Information flow and markets are mostly unrelated. Think of the stock market; only information it can tell us is the current and historical price points, everything else has to come from side channels, which will never add up to telling if a stock will go up or not for sure.

cm2187 6y ago

And if you want to see the consequences of a legal framework hostile to landlordS, look at France. It has become extremely hard to rent a place as landlordS demand all sorts of guarantees. In fact I know foreign bankers who couldn’t find a place to rent when coming to Paris as they lacked the necessary references.

jlokier 6y ago
That's hardly a general effect of all landlord-constraining frameworks. It's certainly not a tenant-favouring framework. If the law said landlords could not require those kinds of references when advertising a tenancy, that would be a legal framework hostile to landlords without the reference problem you described. (Admittedly there would be unintended consequences. Maybe the reference problem would continue surreptitiously.)

throwaway189262 6y ago

> Likewise, if the marginal return to capital of providing rental housing goes down, capital will be moved out of rental housing. We would all do fine if long term rentals were replaced with purchase, and those that can't afford to purchase put in free government housing until they can. Rent dates back to kings that owned all the land and made commoners pay to live on it. I don't think it's right to profit off something so essential as the place you reside, it gives landlords near infinite leverage if tenants are too poor to move. I agree with above, somebody has to eat the losses, and it should be the entities speculating on investment properties, not the (usually poor) people renting single units in them

Craighead 6y ago

Why such a nasty dismissive comment? op is speaking to natural rights and you respond with "but the landlords!?"