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Now the question is will the landlords “trim the fat” as well and drop rents. The “2 months off” deals and the bankruptcies due to high vacancies popping up [1

Now the question is will the landlords “trim the fat” as well and drop rents. The “2 months off” deals and the bankruptcies due to high vacancies popping up [1] points to the answer being ‘No’. Which means this is a double drop for the residents of the bay. [1] https://www.globest.com/2023/08/22/default-imminent-on-384m-loan-for-nema-san-francisco-tower/?amp=1 https://www.globest.com/2023/08/22/default-imminent-on-384m-...

jeffbee 3y ago
Rents in Berkeley have come down more than 10% since 2019.
AnthonyMouse 3y ago
Individual landlords don't have market power. They'll lower the price when their alternative is that the unit stays empty indefinitely. That means when the supply goes up or the demand goes down. People moving out of the city could reduce demand, if a significant number of people actually do. But this is not a sharp drop and the growth rate is already back to being non-negative: https://www.macrotrends.net/cities/23130/san-francisco/population https://www.macrotrends.net/cities/23130/san-francisco/popul... Lower salaries could reduce demand in a different way. The better way is, of course, to increase supply.
- bugglebeetle 3y ago
  It’s funny how when it comes to housing, better way is always to do something that won’t have a meaningful impact on most people for many years or even decades.
  - spankalee 3y ago
    As opposed to things that don't work at all, like not building housing?
  - Buldak 3y ago
    A lot of things are like that (e.g. nuclear energy).
    - bugglebeetle 3y ago
      And are thus eclipsed by better, safer solutions like renewable energy.
      - AnthonyMouse 3y ago
        The US generates ~18% of its electricity from nuclear, ~13% from wind and solar and ~60% from fossil fuels. France generates ~68% of its electricity from nuclear, ~10% from wind and solar and ~8% from fossil fuels. We're trying to reduce the number for fossil fuels, one of these is actually working.
  - lmm 3y ago
    It took 70 years to create this mess, it's going to take 70 years to fully fix it.
  - AnthonyMouse 3y ago
    If you want to make it faster you could subsidize new construction. If you have more demand than supply, the only ways to make it otherwise are to reduce demand and increase supply. Methods of reducing demand are generally unpleasant. What alternatives do you imagine there even are? If you have a million families and 800,000 housing units, your choices are building 200,000 more housing units or something worse than that.
    - bugglebeetle 3y ago
      Banning corporate ownership of single family homes, including forced sale of existing portfolios, occupancy requirements, mandated development on state-owned landed, direct state construction vs. subsidies.
      - AnthonyMouse 3y ago
        > Banning corporate ownership of single family homes, including forced sale of existing portfolios Then corporate investors buy large buildings instead of single family homes (note that this is primarily what they do anyway), the prices for rentals in multi-unit buildings goes up (because it costs more to buy the property with more corporations bidding on it), the prices for single family home rentals goes up (because some of the landlords sell to occupants rather than smaller landlords so there are fewer rentals available) and what you've done is transfer some of the cost from more affluent prospective single family home buyers onto less affluent renters. > occupancy requirements They just convert unoccupied units to some other use or claim they're under construction, and if there is no exception for units under construction you've made construction more expensive and get less of it. It's also kind of weird because they're already losing thousands of dollars a month in rent if the unit is empty, and the higher rents are the more they lose, so isn't the market already providing the incentive you're trying to get here? There's a reason well over 90% of the units in high demand areas are already occupied. If you really want to increase occupancy then get rid of rent control -- it lowers that exact incentive to put the unit on the market which raises rents for all other units across the city, and has the same effect for new construction because of the risk (or certainty) that the building will be put under rent control in the future. > mandated development on state-owned landed The state often makes inefficient use of the land it owns, but it typically doesn't own that high a proportion of land in the city, especially if you're just going to use it to build more single family homes. Allowing a 100-unit building to be built where there is currently a single family home creates 99x more housing than converting some park to a single family home -- and then you lose the park. > direct state construction vs. subsidies Then the state uses government contractors who charge more and you get less construction for the same number of tax dollars. And also, this is just a different kind of construction subsidy. You're not getting out of needing to build more housing.
- reaperman 3y ago
  > Individual landlords don't have market power. The vast majority of rental units are owned by large companies, not individuals. Here in Texas all of the biggest landlord companies set rents to whatever the "YieldStar"[0] software tells them to. YieldStar is essentially used to outsource/whitewash pricing collusion. Personally I'd expect a large % of individual small landlords to be using property management firms to handle their listings/rent collection/maintenance/etc, and for those property management firms to be using something like YieldStar to set their prices. If not now, then definitely soon enough. 0: https://www.propublica.org/article/yieldstar-rent-increase-realpage-rent https://www.propublica.org/article/yieldstar-rent-increase-r...
  - neilv 3y ago
    A price-fixing company on home rentals, in this market and economy... I'd cheer on officials imprisoning all the execs and board members, seizing and dissolving the company, clawing back gains from investors, etc. And landlords who'd used this company to collude would be offered plea deals, in which they're wiped out financially, and permanently banned from investing in residential properties. Bonus: they can see what it's like to be an exploited renter. The resulting funds can partly compensate some of the renters who were harmed, including many of those impacted by the effect this collusion had on the larger market. Hopefully, that would double as a warning to any other startup founders who want to pull yet another "it's not illegal, if you call it an app" scheme. Justice fantasies aside, at least HN could condemn these awful companies and the people who make them; never celebrate them.
  - AnthonyMouse 3y ago
    > The vast majority of rental units are owned by large companies, not individuals. That's not actually true. The vast majority of rental units are owned by individuals or small and medium-sized companies. The largest apartment owner in the US has 115k apartment units, out of tens of millions: https://www.statista.com/statistics/603416/leading-apartment-owners-in-the-us-by-units-owned/ https://www.statista.com/statistics/603416/leading-apartment... > Here in Texas all of the biggest landlord companies set rents to whatever the "YieldStar"[0] software tells them to. YieldStar is essentially used to outsource/whitewash pricing collusion. Which doesn't actually work because they don't have market power. Any landlord who isn't an idiot would realize that they could set a slightly lower price and fill their empty units immediately, which is profitable as long as the discount is less than the loss of rent from leaving the unit empty until you can find a tenant at the higher price, which it would be if the software is suggesting rents above the market-clearing price. There huge numbers of landlords, they all have the incentive to fill their units quickly and they have no enforcement mechanism to punish anyone who charges a lower price to do it.
- Paul-Craft 3y ago
  > They'll lower the price when their alternative is that the unit stays empty indefinitely. That doesn't really square with how large multi-unit properties are valued, though. Once you get past 4 units in a building, you're into the world of commercial real estate. Commercial real estate is commonly valued based on a percentage of the projected (i.e. theoretical) cash flow the building would generate if all units therein were rented out. Notice how you don't have to actually rent out the units for this formula to work? If you have vacancies, you can just "project" that they'll be rented out at whatever your current asking price is. At this point, you might be saying to yourself something like "WTF, that's basically fraud, isn't it?" Well, it basically isn't, as long as you can convince at least one person (e.g. a banker or potential purchaser) that your projections are sound in order to either get a loan against any equity you have in the building, or to buy it outright, respectively. Just so you know I'm not making any of this up, here's a page that lays it all out for you: https://www.firstrepublic.com/insights-education/five-common-methods-to-value-a-commercial-property https://www.firstrepublic.com/insights-education/five-common... To bring it back to vacancies and rents, that's the reason you see buildings sitting with tons of vacancies and owners not dropping rents. It's also the reason you see those "N months free, then $R per month thereafter" deals (because $R is the value they get to "project" they'll be taking in every month, regardless of the fact that it cost N months' worth of rent to bring in a tenant. If you start lowering rents, then that fucks with your "projections," see. If you're like me when I first heard all this, you probably think this is insane at best, or shady at worst. And, yeah, it kinda is. But it also explains the phenomenon of units sitting vacant and bringing in $0/month when the landlord could just lower the rent and bring in $POSITIVE/month instead.
  - AnthonyMouse 3y ago
    > Commercial real estate is commonly valued based on a percentage of the projected (i.e. theoretical) cash flow the building would generate if all units therein were rented out. Of course it is. Apartment units have turnover and if you have a non-trivial number of them then at any given time you'll have some proportion which is on the market rather than already rented out. That doesn't mean the landlord wants the unit to be empty. They want to fill them as soon as possible because every month they're empty is a month of lost rent. Waiting a month or two or three to get a tenant at the market price could be worth it over offering a huge discount to fill the unit immediately. Holding out for even more by receiving no rent for years... isn't.

jeffbee 3y ago

Rents in Berkeley have come down more than 10% since 2019.

AnthonyMouse 3y ago

Individual landlords don't have market power. They'll lower the price when their alternative is that the unit stays empty indefinitely. That means when the supply goes up or the demand goes down. People moving out of the city could reduce demand, if a significant number of people actually do. But this is not a sharp drop and the growth rate is already back to being non-negative: https://www.macrotrends.net/cities/23130/san-francisco/population https://www.macrotrends.net/cities/23130/san-francisco/popul... Lower salaries could reduce demand in a different way. The better way is, of course, to increase supply.

bugglebeetle 3y ago
It’s funny how when it comes to housing, better way is always to do something that won’t have a meaningful impact on most people for many years or even decades.
- spankalee 3y ago
  As opposed to things that don't work at all, like not building housing?
- Buldak 3y ago
  A lot of things are like that (e.g. nuclear energy).
  - bugglebeetle 3y ago
    And are thus eclipsed by better, safer solutions like renewable energy.
    - AnthonyMouse 3y ago
      The US generates ~18% of its electricity from nuclear, ~13% from wind and solar and ~60% from fossil fuels. France generates ~68% of its electricity from nuclear, ~10% from wind and solar and ~8% from fossil fuels. We're trying to reduce the number for fossil fuels, one of these is actually working.
- lmm 3y ago
  It took 70 years to create this mess, it's going to take 70 years to fully fix it.
- AnthonyMouse 3y ago
  If you want to make it faster you could subsidize new construction. If you have more demand than supply, the only ways to make it otherwise are to reduce demand and increase supply. Methods of reducing demand are generally unpleasant. What alternatives do you imagine there even are? If you have a million families and 800,000 housing units, your choices are building 200,000 more housing units or something worse than that.
  - bugglebeetle 3y ago
    Banning corporate ownership of single family homes, including forced sale of existing portfolios, occupancy requirements, mandated development on state-owned landed, direct state construction vs. subsidies.
    - AnthonyMouse 3y ago
      > Banning corporate ownership of single family homes, including forced sale of existing portfolios Then corporate investors buy large buildings instead of single family homes (note that this is primarily what they do anyway), the prices for rentals in multi-unit buildings goes up (because it costs more to buy the property with more corporations bidding on it), the prices for single family home rentals goes up (because some of the landlords sell to occupants rather than smaller landlords so there are fewer rentals available) and what you've done is transfer some of the cost from more affluent prospective single family home buyers onto less affluent renters. > occupancy requirements They just convert unoccupied units to some other use or claim they're under construction, and if there is no exception for units under construction you've made construction more expensive and get less of it. It's also kind of weird because they're already losing thousands of dollars a month in rent if the unit is empty, and the higher rents are the more they lose, so isn't the market already providing the incentive you're trying to get here? There's a reason well over 90% of the units in high demand areas are already occupied. If you really want to increase occupancy then get rid of rent control -- it lowers that exact incentive to put the unit on the market which raises rents for all other units across the city, and has the same effect for new construction because of the risk (or certainty) that the building will be put under rent control in the future. > mandated development on state-owned landed The state often makes inefficient use of the land it owns, but it typically doesn't own that high a proportion of land in the city, especially if you're just going to use it to build more single family homes. Allowing a 100-unit building to be built where there is currently a single family home creates 99x more housing than converting some park to a single family home -- and then you lose the park. > direct state construction vs. subsidies Then the state uses government contractors who charge more and you get less construction for the same number of tax dollars. And also, this is just a different kind of construction subsidy. You're not getting out of needing to build more housing.
reaperman 3y ago
> Individual landlords don't have market power. The vast majority of rental units are owned by large companies, not individuals. Here in Texas all of the biggest landlord companies set rents to whatever the "YieldStar"[0] software tells them to. YieldStar is essentially used to outsource/whitewash pricing collusion. Personally I'd expect a large % of individual small landlords to be using property management firms to handle their listings/rent collection/maintenance/etc, and for those property management firms to be using something like YieldStar to set their prices. If not now, then definitely soon enough. 0: https://www.propublica.org/article/yieldstar-rent-increase-realpage-rent https://www.propublica.org/article/yieldstar-rent-increase-r...
- neilv 3y ago
  A price-fixing company on home rentals, in this market and economy... I'd cheer on officials imprisoning all the execs and board members, seizing and dissolving the company, clawing back gains from investors, etc. And landlords who'd used this company to collude would be offered plea deals, in which they're wiped out financially, and permanently banned from investing in residential properties. Bonus: they can see what it's like to be an exploited renter. The resulting funds can partly compensate some of the renters who were harmed, including many of those impacted by the effect this collusion had on the larger market. Hopefully, that would double as a warning to any other startup founders who want to pull yet another "it's not illegal, if you call it an app" scheme. Justice fantasies aside, at least HN could condemn these awful companies and the people who make them; never celebrate them.
- AnthonyMouse 3y ago
  > The vast majority of rental units are owned by large companies, not individuals. That's not actually true. The vast majority of rental units are owned by individuals or small and medium-sized companies. The largest apartment owner in the US has 115k apartment units, out of tens of millions: https://www.statista.com/statistics/603416/leading-apartment-owners-in-the-us-by-units-owned/ https://www.statista.com/statistics/603416/leading-apartment... > Here in Texas all of the biggest landlord companies set rents to whatever the "YieldStar"[0] software tells them to. YieldStar is essentially used to outsource/whitewash pricing collusion. Which doesn't actually work because they don't have market power. Any landlord who isn't an idiot would realize that they could set a slightly lower price and fill their empty units immediately, which is profitable as long as the discount is less than the loss of rent from leaving the unit empty until you can find a tenant at the higher price, which it would be if the software is suggesting rents above the market-clearing price. There huge numbers of landlords, they all have the incentive to fill their units quickly and they have no enforcement mechanism to punish anyone who charges a lower price to do it.
Paul-Craft 3y ago
> They'll lower the price when their alternative is that the unit stays empty indefinitely. That doesn't really square with how large multi-unit properties are valued, though. Once you get past 4 units in a building, you're into the world of commercial real estate. Commercial real estate is commonly valued based on a percentage of the projected (i.e. theoretical) cash flow the building would generate if all units therein were rented out. Notice how you don't have to actually rent out the units for this formula to work? If you have vacancies, you can just "project" that they'll be rented out at whatever your current asking price is. At this point, you might be saying to yourself something like "WTF, that's basically fraud, isn't it?" Well, it basically isn't, as long as you can convince at least one person (e.g. a banker or potential purchaser) that your projections are sound in order to either get a loan against any equity you have in the building, or to buy it outright, respectively. Just so you know I'm not making any of this up, here's a page that lays it all out for you: https://www.firstrepublic.com/insights-education/five-common-methods-to-value-a-commercial-property https://www.firstrepublic.com/insights-education/five-common... To bring it back to vacancies and rents, that's the reason you see buildings sitting with tons of vacancies and owners not dropping rents. It's also the reason you see those "N months free, then $R per month thereafter" deals (because $R is the value they get to "project" they'll be taking in every month, regardless of the fact that it cost N months' worth of rent to bring in a tenant. If you start lowering rents, then that fucks with your "projections," see. If you're like me when I first heard all this, you probably think this is insane at best, or shady at worst. And, yeah, it kinda is. But it also explains the phenomenon of units sitting vacant and bringing in $0/month when the landlord could just lower the rent and bring in $POSITIVE/month instead.
- AnthonyMouse 3y ago
  > Commercial real estate is commonly valued based on a percentage of the projected (i.e. theoretical) cash flow the building would generate if all units therein were rented out. Of course it is. Apartment units have turnover and if you have a non-trivial number of them then at any given time you'll have some proportion which is on the market rather than already rented out. That doesn't mean the landlord wants the unit to be empty. They want to fill them as soon as possible because every month they're empty is a month of lost rent. Waiting a month or two or three to get a tenant at the market price could be worth it over offering a huge discount to fill the unit immediately. Holding out for even more by receiving no rent for years... isn't.