4 ms·

But rents are also high. High rents aren't caused by investors. Rents are caused by too many people wanting to live somewhere versus a small number of dwellings

But rents are also high. High rents aren't caused by investors. Rents are caused by too many people wanting to live somewhere versus a small number of dwellings. It's the pigeon hole principle, which you can't solve by reducing investors. Also, let's think about unintended consequences. A lot of housing starts happen only because of investor capital. Given the existence of a rental crisis, if you inadvertently reduce housing starts, it might backfire and put upwards pressure on rents. But yes, you are right that prices would go down with your proposal, all else equal. But it is not a full solution until you also have a way to increase the number of dwellings to solve the rental crisis.

scotty79 2y ago
Of course high rents are caused by the investors. After all, rents are huge part of the return on their investment and also huge factor in determining the asset price. Solution to rental crisis is the reduction of what percentage of people rent vs buy. With a flood of cheap properties on the market more people would consider buying. Also they'd need smaller mortgages so they could be easier to acquire.
- hackerlight 2y ago
  > After all, rents are huge part of the return on their investment and also huge factor in determining the asset price. Yes, rents are part of their ROI. That does not mean asset prices cause rents. Rents cause asset prices by impacting investment demand. Rents provide a soft bound on asset prices because investors demand a certain ROI, else they will allocate capital in other markets. We're getting the direction of causality mixed up. > Solution to rental crisis is the reduction of what percentage of people rent vs buy. No. If we have N renters competing for 0.8*N rental properties near their workplace, and we convert half of them into buyers, you're left with 0.5*N renters competing for 0.3*N properties. If anything you have made the problem worse for renters (although you have improved the situation for buyers).
  - scotty79 2y ago
    Higher rents inflate asset prices, but higher asset prices also inflate rents because buying becomes too expensive and rents can safely grow because people who can't buy must rent. Direction of causality goes both ways. It's positive feedback loop that's barely contrained by any reality. That's why it seems to run away towards infinity despite only small changes in supply and demand. There's no good solution to your example because there's simply too few properties. Some people will become homeless. The same number in each scenario. It hard to tell how much total rent will be transferred in each scenario because competition for rentals is harder in second one but 0.5N properties have zero rent.
    - deleted 2y ago
      [deleted]
    - hackerlight 2y ago
      This economic reasoning doesn't make sense to me. If a buyer can't buy because an investor priced them out, they'll become a renter (+1 demand), and that property will become a rental property (+1 supply). These things cancel out. You still haven't explained the imbalance (lack of rental properties versus number of renters) that causes rents to go up. However, the other poster brought up vacancies, which is a good point. That does give a plausible way that investors can cause rents to go up. But rents are going up even in places where vacancy rates are decreasing, so it's not the full picture. If you proposed a large vacancy tax as a way to remove this contribution to increasing rents, I'd support that. But the other stuff should not contribute to reducing rents, and it won't be close to a complete solution. Rents should remain high until you build. FWIW, I actually do support all your other proposals too, because reducing prices is good, I just don't think it will solve the rental crisis.
      - scotty79 2y ago
        There's inefficiency when property becomes a rental. As you noticed vacancy is one factor. There's also the rent itself that's aimed at extracting value from the person that needs a limited resource more than the investor. Vacancy tax would be great but it's way harder to track vacancy than ownership. And it wouldn't help with the rent. Money would still flow through this channel from people who get their income mainly from work to those who get their income mainly from capital. And there are so many channels through which this process happens that if we could limit this one a bit it would be something. Hoarding limited resorce that everybody needs is one of the societally worst things somebody can do with money. We'd be better off if that money was redirected to literally almost anything else.
arrosenberg 2y ago
High rents are being caused by investors, which is why plenty of stock is sitting vacant. When the developer or PE purchaser financed the building they did so based on an estimate of what the building can generate in revenue. If average rent drops to 70% of what the estimate had, then the loan goes completely underwater. However, if the landlord simply refuses to rent those units at the market rate, they can pretend that the forecast value is still legit since they don't have a market signal indicating otherwise. When the loan comes due, they can maintain this fiction and roll over to another loan. Thus rent stays high despite market forces - the landlord can't afford to rent it at the actual market price or they won't be able to roll the loan over when it pops and they are forced to bankruptcy. We have to unwind the low-interest financial ponzi schemes the Fed has propped up since 2007, otherwise there is a huge incentive not to fix the problem. Maintaining high interest for another 4 years will probably be enough to force the issue, since most commercial RE loans are pretty short.
- hackerlight 2y ago
  > High rents are being caused by investors, which is why plenty of stock is sitting vacant. Vacancies are a contributing factor, but why think it's the primary one, compared to a lack of housing? Rents are going up everywhere in the West, even in places where vacancy rates are decreasing such as Ireland. How can vacancy rates decrease while rents skyrocket?
  - arrosenberg 2y ago
    How should I know, provide some data to support that claim. Could be more people are cohabitating to meet the higher rents. Roommates are still better than homelessness, after all. There is a ton of evidence for financial shenanigans and only modest evidence of actual shortage. As with most things these days, its a problem is distribution and ownership model, not supply.
    - hackerlight 2y ago
      Net migration in Ireland is 2x the number of new dwellings. Similar thing going on in Canada, Australia and UK. Even if I believed you that there wasn't a shortage 3 years ago, there has to be a shortage now by the most elementary logic (pigeon hole principle). This combines with the trend towards increased urbanization, creating a relative shortage near major cities where the jobs are located, which, no coincidence, is also where there's the rental crisis. But you then point to vacancies as the explanation. Yet vacancy rate changes are inversely correlated to rent changes in some places. This proves that vacancies do not explain the increase in rents we've observed. What other reason can you offer to justify the connection between investors and rent, other than the vague "financial shenanigans"?

scotty79 2y ago

Of course high rents are caused by the investors. After all, rents are huge part of the return on their investment and also huge factor in determining the asset price. Solution to rental crisis is the reduction of what percentage of people rent vs buy. With a flood of cheap properties on the market more people would consider buying. Also they'd need smaller mortgages so they could be easier to acquire.

hackerlight 2y ago
> After all, rents are huge part of the return on their investment and also huge factor in determining the asset price. Yes, rents are part of their ROI. That does not mean asset prices cause rents. Rents cause asset prices by impacting investment demand. Rents provide a soft bound on asset prices because investors demand a certain ROI, else they will allocate capital in other markets. We're getting the direction of causality mixed up. > Solution to rental crisis is the reduction of what percentage of people rent vs buy. No. If we have N renters competing for 0.8*N rental properties near their workplace, and we convert half of them into buyers, you're left with 0.5*N renters competing for 0.3*N properties. If anything you have made the problem worse for renters (although you have improved the situation for buyers).
- scotty79 2y ago
  Higher rents inflate asset prices, but higher asset prices also inflate rents because buying becomes too expensive and rents can safely grow because people who can't buy must rent. Direction of causality goes both ways. It's positive feedback loop that's barely contrained by any reality. That's why it seems to run away towards infinity despite only small changes in supply and demand. There's no good solution to your example because there's simply too few properties. Some people will become homeless. The same number in each scenario. It hard to tell how much total rent will be transferred in each scenario because competition for rentals is harder in second one but 0.5N properties have zero rent.
  - deleted 2y ago
    [deleted]
  - hackerlight 2y ago
    This economic reasoning doesn't make sense to me. If a buyer can't buy because an investor priced them out, they'll become a renter (+1 demand), and that property will become a rental property (+1 supply). These things cancel out. You still haven't explained the imbalance (lack of rental properties versus number of renters) that causes rents to go up. However, the other poster brought up vacancies, which is a good point. That does give a plausible way that investors can cause rents to go up. But rents are going up even in places where vacancy rates are decreasing, so it's not the full picture. If you proposed a large vacancy tax as a way to remove this contribution to increasing rents, I'd support that. But the other stuff should not contribute to reducing rents, and it won't be close to a complete solution. Rents should remain high until you build. FWIW, I actually do support all your other proposals too, because reducing prices is good, I just don't think it will solve the rental crisis.
    - scotty79 2y ago
      There's inefficiency when property becomes a rental. As you noticed vacancy is one factor. There's also the rent itself that's aimed at extracting value from the person that needs a limited resource more than the investor. Vacancy tax would be great but it's way harder to track vacancy than ownership. And it wouldn't help with the rent. Money would still flow through this channel from people who get their income mainly from work to those who get their income mainly from capital. And there are so many channels through which this process happens that if we could limit this one a bit it would be something. Hoarding limited resorce that everybody needs is one of the societally worst things somebody can do with money. We'd be better off if that money was redirected to literally almost anything else.

arrosenberg 2y ago

High rents are being caused by investors, which is why plenty of stock is sitting vacant. When the developer or PE purchaser financed the building they did so based on an estimate of what the building can generate in revenue. If average rent drops to 70% of what the estimate had, then the loan goes completely underwater. However, if the landlord simply refuses to rent those units at the market rate, they can pretend that the forecast value is still legit since they don't have a market signal indicating otherwise. When the loan comes due, they can maintain this fiction and roll over to another loan. Thus rent stays high despite market forces - the landlord can't afford to rent it at the actual market price or they won't be able to roll the loan over when it pops and they are forced to bankruptcy. We have to unwind the low-interest financial ponzi schemes the Fed has propped up since 2007, otherwise there is a huge incentive not to fix the problem. Maintaining high interest for another 4 years will probably be enough to force the issue, since most commercial RE loans are pretty short.

hackerlight 2y ago
> High rents are being caused by investors, which is why plenty of stock is sitting vacant. Vacancies are a contributing factor, but why think it's the primary one, compared to a lack of housing? Rents are going up everywhere in the West, even in places where vacancy rates are decreasing such as Ireland. How can vacancy rates decrease while rents skyrocket?
- arrosenberg 2y ago
  How should I know, provide some data to support that claim. Could be more people are cohabitating to meet the higher rents. Roommates are still better than homelessness, after all. There is a ton of evidence for financial shenanigans and only modest evidence of actual shortage. As with most things these days, its a problem is distribution and ownership model, not supply.
  - hackerlight 2y ago
    Net migration in Ireland is 2x the number of new dwellings. Similar thing going on in Canada, Australia and UK. Even if I believed you that there wasn't a shortage 3 years ago, there has to be a shortage now by the most elementary logic (pigeon hole principle). This combines with the trend towards increased urbanization, creating a relative shortage near major cities where the jobs are located, which, no coincidence, is also where there's the rental crisis. But you then point to vacancies as the explanation. Yet vacancy rate changes are inversely correlated to rent changes in some places. This proves that vacancies do not explain the increase in rents we've observed. What other reason can you offer to justify the connection between investors and rent, other than the vague "financial shenanigans"?