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Which is pretty inevitable with our system of housing development. If you're a large property owner and you want to make more money, you have two options: A) B

Which is pretty inevitable with our system of housing development. If you're a large property owner and you want to make more money, you have two options: A) Build more housing, to create more units you can rent out. B) Don't build more housing, and use the reduced supply to raise the rent on your existing properties. Since option B has a lower risk and a higher return on investment, is it really surprising that most metro areas have a big housing shortage?

lotsofpulp 6y ago
Bringing new units online in a high demand market earns far more money than simply raising rents. It's not large property owners that are opposing new housing, it's existing small (usually single) property owners opposing new housing, usually so their way of life doesn't change due to changing demographics of newcomers, increased traffic, etc. and possibly to restrict supply and increase their property's value.
pdimitar 6y ago
Honest question: is choosing option B proven to lead to higher return on investment? Is there data showing it? Where I live periodically raising rent and evicting people to invite the higher-paying tenant has a limit that's reached pretty soon so maybe US dynamics escape me.
- Ericson2314 6y ago
  Maybe not, but pretty sure the wealth of an urban area is a superlinear function of density and size (super linear on both axes), so choices based on the marginal RoI to land barons will lead to suboptimal outcomes either way.
- asdff 6y ago
  In the U.S. there is no limit as long as you aren't a strong outlier relative to mean market rent. People in LA might pay like over half their income on rent, for example. For the working poor, they also typically can't finance a move to a cheaper apartment since they lack any savings, so they cram more people per bedroom or end up living in their car or on the street. It's a sad state of affairs and really hard for working people here. Sucked dry with nothing left to use to get out.
- ARandumGuy 6y ago
  I think it would be hard to prove it one way or the other. There are a lot of variables that go into profit for landlords and property owners, and building one property affects the possible rent on other properties. However, in a general sense, rent prices are affected by supply and demand, like most other things. Having a housing supply lower then the demand benefits landlords, as they can raise the price without making improvements, and they can more easily fill vacant units. If supply surpasses demand, then landlords are left with empty units they need to fill, and the prices go down. Obviously, this can only go so far. At a certain point, prices can get so high that few renters can pay for it, or the math becomes more favorable to build more housing. However, the overall incentive structure is for property owners to keep housing supply low, to increase the value of existing properties with minimal investment.
  - lotsofpulp 6y ago
    >However, the overall incentive structure is for property owners to keep housing supply low, to increase the value of existing properties with minimal investment. For single non commercial property owners. This would be news to the commercial real estate investors that keep trying to develop residential areas and apartment buildings. If you're in a city with high rents and land costs, see who is trying to build and who is trying to block. It's all public information.
    - asdff 6y ago
      This is actually a good environment for certain parties at play and this is why this status quo is upheld. The way this machine works in LA is that the city councilmember can unilaterally approve or dissaprove development in their district. Certain developers who can gain good favor with the councilmember can have their builds preferentially approved and red tape cut through for them. Commercial real estate investors then look to work with developers with a good relationship with city council. This sort of setup helps everyone on the inside (the councilmembers, the developers, and the investors), but hurts those on the outside (renters, people hoping to buy one day, real estate companies who haven't yet bought into the machine). However, since those on the inside control the reigns of power, and those on the outside desperately try to work their way into the inside rather than break the system down and build up something more equitable, nothing changes.
imtringued 6y ago
If you are a landlord that had option A you would take it, simply to outcompete all the other landlords.
colinmhayes 6y ago
There are far too many landlords for collusion on the scale you are imagining.
darksaints 6y ago
They choose A 100% of the time. No landlord has the ability to affect the market by purely limiting their own development. The market vacancy rate, which is the strongest, almost singular factor in housing prices, doesn't give a shit if you build 400 apartments or 20, it won't budge an inch. Only collective growth by the entire housing industry has the capability of budging vacancy rates. For an example, Greystar properties, the largest multifamily housing provider in the Seattle market, controls less than 1% of the multifamily housing stock. If they wanted to decrease the vacancy rate of Seattle enough to push prices up by 10%, they would have to exit the market completely. If you can't affect the market, because it is too competitive, your only recourse to increase profits is to build more. The force propping prices up is government and government alone. Nobody is voluntarily limiting their own development in order to push prices up.

lotsofpulp 6y ago

Bringing new units online in a high demand market earns far more money than simply raising rents. It's not large property owners that are opposing new housing, it's existing small (usually single) property owners opposing new housing, usually so their way of life doesn't change due to changing demographics of newcomers, increased traffic, etc. and possibly to restrict supply and increase their property's value.

pdimitar 6y ago

Honest question: is choosing option B proven to lead to higher return on investment? Is there data showing it? Where I live periodically raising rent and evicting people to invite the higher-paying tenant has a limit that's reached pretty soon so maybe US dynamics escape me.

Ericson2314 6y ago
Maybe not, but pretty sure the wealth of an urban area is a superlinear function of density and size (super linear on both axes), so choices based on the marginal RoI to land barons will lead to suboptimal outcomes either way.
asdff 6y ago
In the U.S. there is no limit as long as you aren't a strong outlier relative to mean market rent. People in LA might pay like over half their income on rent, for example. For the working poor, they also typically can't finance a move to a cheaper apartment since they lack any savings, so they cram more people per bedroom or end up living in their car or on the street. It's a sad state of affairs and really hard for working people here. Sucked dry with nothing left to use to get out.
ARandumGuy 6y ago
I think it would be hard to prove it one way or the other. There are a lot of variables that go into profit for landlords and property owners, and building one property affects the possible rent on other properties. However, in a general sense, rent prices are affected by supply and demand, like most other things. Having a housing supply lower then the demand benefits landlords, as they can raise the price without making improvements, and they can more easily fill vacant units. If supply surpasses demand, then landlords are left with empty units they need to fill, and the prices go down. Obviously, this can only go so far. At a certain point, prices can get so high that few renters can pay for it, or the math becomes more favorable to build more housing. However, the overall incentive structure is for property owners to keep housing supply low, to increase the value of existing properties with minimal investment.
- lotsofpulp 6y ago
  >However, the overall incentive structure is for property owners to keep housing supply low, to increase the value of existing properties with minimal investment. For single non commercial property owners. This would be news to the commercial real estate investors that keep trying to develop residential areas and apartment buildings. If you're in a city with high rents and land costs, see who is trying to build and who is trying to block. It's all public information.
  - asdff 6y ago
    This is actually a good environment for certain parties at play and this is why this status quo is upheld. The way this machine works in LA is that the city councilmember can unilaterally approve or dissaprove development in their district. Certain developers who can gain good favor with the councilmember can have their builds preferentially approved and red tape cut through for them. Commercial real estate investors then look to work with developers with a good relationship with city council. This sort of setup helps everyone on the inside (the councilmembers, the developers, and the investors), but hurts those on the outside (renters, people hoping to buy one day, real estate companies who haven't yet bought into the machine). However, since those on the inside control the reigns of power, and those on the outside desperately try to work their way into the inside rather than break the system down and build up something more equitable, nothing changes.

imtringued 6y ago

If you are a landlord that had option A you would take it, simply to outcompete all the other landlords.

colinmhayes 6y ago

There are far too many landlords for collusion on the scale you are imagining.

darksaints 6y ago

They choose A 100% of the time. No landlord has the ability to affect the market by purely limiting their own development. The market vacancy rate, which is the strongest, almost singular factor in housing prices, doesn't give a shit if you build 400 apartments or 20, it won't budge an inch. Only collective growth by the entire housing industry has the capability of budging vacancy rates. For an example, Greystar properties, the largest multifamily housing provider in the Seattle market, controls less than 1% of the multifamily housing stock. If they wanted to decrease the vacancy rate of Seattle enough to push prices up by 10%, they would have to exit the market completely. If you can't affect the market, because it is too competitive, your only recourse to increase profits is to build more. The force propping prices up is government and government alone. Nobody is voluntarily limiting their own development in order to push prices up.