4 ms·

If far more people were opting out, residential buildings would be empty, and rents would fall well below their pre-2020 level. The fact that rents are still h

If far more people were opting out, residential buildings would be empty, and rents would fall well below their pre-2020 level. The fact that rents are still higher than that is pretty good evidence that a large number of people continue to opt in.

hasty_pudding 3y ago
I think the fact that rents are still high is because of the general population crush in California, not just tech people.
xvector 3y ago
Not necessarily - you can increase rents further on the people that remain because perhaps you suspect that they are less likely or unable to move.
hnburnsy 3y ago
Inertia is a powerful thing.
DevKoala 3y ago
Actually there are tons of empty office buildings and residential units. It’s the same situation as in New York. Plenty of landlords can afford keeping their prices high hoping for the eventual bite. If they lower their prices further they do a bigger damage to their portfolio for years to come once you factor in rent control.
- UberFly 3y ago
  “In many cases rent control appears to be the most efficient technique presently known to destroy a city—except for bombing.” -Assar Lindbeck
  - Jotra7 3y ago
    [dead]
  - sologoub 3y ago
    The “damage” part is only real if one intends to refinance constantly and chase the highest multiple possible. The flip-side of rent control is high occupancy. If the building was properly capitalized and rented with a proper return in mind, rent control ensures you keep turning a profit year after year. Not sure about SF, but in many jurisdictions including utilities allows higher increases. Staying on top of these allowed increases and ensuring good budgeting makes a lot of rent controlled buildings a gold mine. EDIT: of course if you mess up, that mistake is now set in stone and backed by legal resource of your city, so it’s not risk free.
    - chii 3y ago
      > rent control ensures you keep turning a profit year after year this assumes the returns set out by the rent control is appropriate in all future situations. Even with the allowance for increases, there are still situations where such an increase is insufficient.
      - uoaei 3y ago
        If property owners want to turn their buildings into businesses, they need to be smart businesspeople and plan for those situations. If they fail then that's the market dynamics at play!
        sologoub 3y ago
        I think that comment is talking about evictions and rent increase moratoria we saw during COVID lockdowns. It was very close to a black swan event, at least for me. Now, reality has changed and landlords need to plan for the risk of not having income for several years. It’s not normal rent control/stabilization, so the long term effects are yet unclear. For now, leverage is risky, so new investment is going to be hard to come by.
      - sologoub 3y ago
        Yes, unfortunately we have seen examples recently with COVID where municipalities basically offloaded subsidizing rent to landlords by both prohibiting increases and evictions for non-payment. These policies are not part of what’s normally thought of as rent control or rent stabilization ordinances. Unfortunately, the proverbial cat is out of the bag and we will likely see repeats of such “subsidies”. It’s unclear how it will change the calculations long-term. Short-term, it has already driven the unlucky small landlords out of business and forced surviving to keep greater reserves. This increased reserves need will definitely hamper future development and probably will drive rents up even more due to lack of supply. Large corporate landlords tend to focus on the higher end of the market, but the shortage is in the more affordable price range…
- nolongerthere 3y ago
  Forget rent control, the way commercial real estate works, many banks give loans based on certain minimum rents being paid, if the landlord lowers the rent the bank can call the entire loan to be paid immediately.
  - lotsofpulp 3y ago
    If there is no rent, then there is a default too. You don’t get to pretend your property is worth $x per sq ft unless it is landing in the bank account. https://www.investopedia.com/terms/d/dscr.asp https://www.investopedia.com/terms/d/dscr.asp
    - chii 3y ago
      What the landlord does in this situation is paying out of pocket the expected interest payment to the bank, while deducting this as a cost from their other more profitable portfolios. They hope to ride out the lows.
      - roshin 3y ago
        In that case, the landlord could rent for a lower rent than the bank is okay with, and supplement the missing amount himself. That would be cheaper that leaving it empty and paying all the rent himself.
        Qwertious 3y ago
        That would require the landlord to report the rent as being higher than it actually is, which is fraud.
      - lotsofpulp 3y ago
        No, the lender or the servicing company will regularly request the P&L and check up on business. Paying out of pocket does not mean the debt covenants are satisfied.
mupuff1234 3y ago
Hasn't the population declined? Seems like people are opting out. The rent being higher feels more like collusion than actual demand. And if you dig into the data you'll also notice that there's "asking rent" and "effective rent" (rent after concessions)
ammanley 3y ago
Reminds me of the situation with AOL dialup, which I was surprised as heck to learn is a) still a thing and b) charges way more than I would have expected in areas where its otherwise not feasible to get high speed internet (easily). Could be similar to the situation here with people who can't leave/won't leave for personal or career reasons, and taking up the prices available.
- AlbertCory 3y ago
  I think "captive market" is the term you want. Same reason cable TV bills keep climbing to +$200/month, and newspaper delivery prices keep going up while the product keeps shrinking. Demand for some things is elastic only down to a point. That's the point where customers are hostages.
  - ammanley 3y ago
    Thank you, appreciate that, was looking to put a word to the term in my brainpan.
  - TheCoelacanth 3y ago
    Newspaper prices are more of a death spiral than a captive market. People stop getting papers delivered in favor of online news, so prices have to go up to cover fixed costs, pushing more people to stop getting papers delivered and so on.
    - AlbertCory 3y ago
      Interesting. What's the difference? I notice, walking around the 'hood, that some people still get the San Jose Mercury-News delivered. Why? I think they just have to get a morning paper, and if it's getting shittier by the year, well, so be it. You're right, lots of readers have already cancelled, but there's a core of readers who won't. The Merc can raise the price and they'll just pay it.
simplyluke 3y ago
Read the article. Rents are well below their pre-2020 level.
- Lamad1234 3y ago
  [dead]
- panarky 3y ago
  You're right. I didn't read the article, and assumed the opposite of its actual conclusions. Rents are way down from pre-2020 times. Which makes it even more fun to read the responses that argue rents will not drop even when demand declines.
antman 3y ago
Most probably landowners have cash in hand and don't need to lower the prices substantially even if half of the offices and houses stay empty

hasty_pudding 3y ago

I think the fact that rents are still high is because of the general population crush in California, not just tech people.

xvector 3y ago

Not necessarily - you can increase rents further on the people that remain because perhaps you suspect that they are less likely or unable to move.

hnburnsy 3y ago

Inertia is a powerful thing.

DevKoala 3y ago

Actually there are tons of empty office buildings and residential units. It’s the same situation as in New York. Plenty of landlords can afford keeping their prices high hoping for the eventual bite. If they lower their prices further they do a bigger damage to their portfolio for years to come once you factor in rent control.

UberFly 3y ago
“In many cases rent control appears to be the most efficient technique presently known to destroy a city—except for bombing.” -Assar Lindbeck
- Jotra7 3y ago
  [dead]
- sologoub 3y ago
  The “damage” part is only real if one intends to refinance constantly and chase the highest multiple possible. The flip-side of rent control is high occupancy. If the building was properly capitalized and rented with a proper return in mind, rent control ensures you keep turning a profit year after year. Not sure about SF, but in many jurisdictions including utilities allows higher increases. Staying on top of these allowed increases and ensuring good budgeting makes a lot of rent controlled buildings a gold mine. EDIT: of course if you mess up, that mistake is now set in stone and backed by legal resource of your city, so it’s not risk free.
  - chii 3y ago
    > rent control ensures you keep turning a profit year after year this assumes the returns set out by the rent control is appropriate in all future situations. Even with the allowance for increases, there are still situations where such an increase is insufficient.
    - uoaei 3y ago
      If property owners want to turn their buildings into businesses, they need to be smart businesspeople and plan for those situations. If they fail then that's the market dynamics at play!
      - sologoub 3y ago
        I think that comment is talking about evictions and rent increase moratoria we saw during COVID lockdowns. It was very close to a black swan event, at least for me. Now, reality has changed and landlords need to plan for the risk of not having income for several years. It’s not normal rent control/stabilization, so the long term effects are yet unclear. For now, leverage is risky, so new investment is going to be hard to come by.
    - sologoub 3y ago
      Yes, unfortunately we have seen examples recently with COVID where municipalities basically offloaded subsidizing rent to landlords by both prohibiting increases and evictions for non-payment. These policies are not part of what’s normally thought of as rent control or rent stabilization ordinances. Unfortunately, the proverbial cat is out of the bag and we will likely see repeats of such “subsidies”. It’s unclear how it will change the calculations long-term. Short-term, it has already driven the unlucky small landlords out of business and forced surviving to keep greater reserves. This increased reserves need will definitely hamper future development and probably will drive rents up even more due to lack of supply. Large corporate landlords tend to focus on the higher end of the market, but the shortage is in the more affordable price range…
nolongerthere 3y ago
Forget rent control, the way commercial real estate works, many banks give loans based on certain minimum rents being paid, if the landlord lowers the rent the bank can call the entire loan to be paid immediately.
- lotsofpulp 3y ago
  If there is no rent, then there is a default too. You don’t get to pretend your property is worth $x per sq ft unless it is landing in the bank account. https://www.investopedia.com/terms/d/dscr.asp https://www.investopedia.com/terms/d/dscr.asp
  - chii 3y ago
    What the landlord does in this situation is paying out of pocket the expected interest payment to the bank, while deducting this as a cost from their other more profitable portfolios. They hope to ride out the lows.
    - roshin 3y ago
      In that case, the landlord could rent for a lower rent than the bank is okay with, and supplement the missing amount himself. That would be cheaper that leaving it empty and paying all the rent himself.
      - Qwertious 3y ago
        That would require the landlord to report the rent as being higher than it actually is, which is fraud.
    - lotsofpulp 3y ago
      No, the lender or the servicing company will regularly request the P&L and check up on business. Paying out of pocket does not mean the debt covenants are satisfied.

mupuff1234 3y ago

Hasn't the population declined? Seems like people are opting out. The rent being higher feels more like collusion than actual demand. And if you dig into the data you'll also notice that there's "asking rent" and "effective rent" (rent after concessions)

ammanley 3y ago

Reminds me of the situation with AOL dialup, which I was surprised as heck to learn is a) still a thing and b) charges way more than I would have expected in areas where its otherwise not feasible to get high speed internet (easily). Could be similar to the situation here with people who can't leave/won't leave for personal or career reasons, and taking up the prices available.

AlbertCory 3y ago
I think "captive market" is the term you want. Same reason cable TV bills keep climbing to +$200/month, and newspaper delivery prices keep going up while the product keeps shrinking. Demand for some things is elastic only down to a point. That's the point where customers are hostages.
- ammanley 3y ago
  Thank you, appreciate that, was looking to put a word to the term in my brainpan.
- TheCoelacanth 3y ago
  Newspaper prices are more of a death spiral than a captive market. People stop getting papers delivered in favor of online news, so prices have to go up to cover fixed costs, pushing more people to stop getting papers delivered and so on.
  - AlbertCory 3y ago
    Interesting. What's the difference? I notice, walking around the 'hood, that some people still get the San Jose Mercury-News delivered. Why? I think they just have to get a morning paper, and if it's getting shittier by the year, well, so be it. You're right, lots of readers have already cancelled, but there's a core of readers who won't. The Merc can raise the price and they'll just pay it.

simplyluke 3y ago

Read the article. Rents are well below their pre-2020 level.

Lamad1234 3y ago
[dead]
panarky 3y ago
You're right. I didn't read the article, and assumed the opposite of its actual conclusions. Rents are way down from pre-2020 times. Which makes it even more fun to read the responses that argue rents will not drop even when demand declines.

antman 3y ago

Most probably landowners have cash in hand and don't need to lower the prices substantially even if half of the offices and houses stay empty