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Just trying to entertain the thought... It would seem to me that more supply = more construction + more maintenance + more taxes = more costs. And these costs

by Rury 2y ago

Just trying to entertain the thought... It would seem to me that more supply = more construction + more maintenance + more taxes = more costs. And these costs must go somewhere. Obviously, they would fall under the landlords responsibility, but they probably would try to pass on these costs as much as possible. Now this is where it gets iffy... Vacancies don't earn revenue, and so obviously would be costly to landlords. If there is more supply than renters, landlords would be competing with each other for the renters (or risk having vacancy and the costs falling on them), so they would have to compete (such as by lowering rents) in order to attract the renters. Rents therefore decrease. However... Let's assume again that there is more supply than renters, but this time there is few landlords (for hyperbole one landlord). Competition for the renters is thus low, (in the case of one landlord - none), and so there is less need to lower rents to attract renters. In fact, in the case of one landlord, he can raise prices despite there being more apartment supply than renters, and have them pay for all the units, including the vacancies. Rents therefore increase, despite there being more supply.

AnthonyMouse 2y ago
> It would seem to me that more supply = more construction + more maintenance + more taxes = more costs. More total costs divided by more total units is just the same cost per unit, if not lower because of economies of scale. > Rents therefore increase, despite there being more supply. If there is a monopoly landlord then rents will be at the monopoly rent whether you increase supply or not. Even then increasing supply could lower rents, because the monopoly landlord could capture more rents by charging $9000/month on twice as many units than $10,000/month on half as many units, and can't charge $10,000/month on twice as many units because there aren't enough tenants who can afford that. Also, the premise here is that you're increasing supply. The monopoly landlord would have to outbid everybody else for the new supply or they'd lose their monopoly, and have to pay the monopoly price or else the new units would be cheaper than their existing ones. But then the construction companies would be receiving the monopoly price and become flush with cash to build even more housing until the monopoly landlord ran out of money. There is a reason landlords collude through zoning boards: It's otherwise quite easy for someone new to enter the market.
- Rury 2y ago
  > Also, the premise here is that you're increasing supply. The monopoly landlord would have to outbid everybody else for the new supply or they'd lose their monopoly, and have to pay the monopoly price or else the new units would be cheaper than their existing ones. But then the construction companies would be receiving the monopoly price and become flush with cash to build even more housing until the monopoly landlord ran out of money. All of which presumes the risk here is all on the monopoly landlord, when this isn't the case. Even disregarding zoning, construction companies have to compete for bidders, and the monopoly landlord may not have to compete with bidders. Additionally, if insufficient housing is really a problem because more people and businesses are moving into the neighborhood, then the monopoly landlord isn't likely to have problems running out of money. If that isn't the case, and there is sufficient housing (or renters are struggling to afford rent), then they have market advantage over new entrants to the market in the appropriate pricing of bids. This increases risk and pressures margins for new entrants, limiting their ability to compete, which puts risk onto construction companies in bids. In other words: it is quite possible the new entrants or construction companies fold before the monopoly landlord does. Again, it's all iffy, but, fact is, every new supply constructed comes with a cost, and it falls on someone, even if cost/unit goes down. The assumption that that cost won't fall on renters, isn't a certainty, nor is the assumption that renters will be the ones to benefit from a decreased cost/unit.
  - AnthonyMouse 2y ago
    > Even disregarding zoning, construction companies have to compete for bidders, and the monopoly landlord may not have to compete with bidders. What? The premise is that there is a monopoly landlord but it's possible for others to create housing, e.g. the landlord owns all of the existing rental properties but anybody can buy an empty lot or single-family home and build a multi-unit building there instead. Obviously if the monopoly landlord owns all of the land then you have a different problem, but that isn't even close to the case in any metro area in the US. (Though neither is anyone owning all of the rental properties for that matter.) > Additionally, if insufficient housing is really a problem because more people and businesses are moving into the neighborhood, then the monopoly landlord isn't likely to have problems running out of money. Won't they? Suppose it costs $200,000 to build a new housing unit, but because of the existing monopoly they sell for $1,000,000, whether it's to the monopolist to sustain their monopoly or to someone else who would break it. To sustain the monopoly the monopolist has to remain the high bidder. But now the construction company has a million dollars, and it still costs $200,000 to build a housing unit. So they build five new housing units, and now they have five million dollars. So they hire more guys and start training new apprentices because in the next round they're going to have 25 million dollars and build 125 new units which the landlord will still have to buy for a million dollars each. It doesn't matter how much money the landlord has, the landlord is going to run out of money, because now the construction company has its own R&D division dedicated to construction automation it's only five more rounds before the landlord is paying the entire US GDP to the construction company. > In other words: it is quite possible the new entrants or construction companies fold before the monopoly landlord does. It costs them $200,000 to build something the monopoly landlord has to buy from them for a million dollars, or someone else will buy it from them for $999,999 which then happens again and again and destroys the monopoly.

by Rury 2y ago

AnthonyMouse 2y ago

> It would seem to me that more supply = more construction + more maintenance + more taxes = more costs. More total costs divided by more total units is just the same cost per unit, if not lower because of economies of scale. > Rents therefore increase, despite there being more supply. If there is a monopoly landlord then rents will be at the monopoly rent whether you increase supply or not. Even then increasing supply could lower rents, because the monopoly landlord could capture more rents by charging $9000/month on twice as many units than $10,000/month on half as many units, and can't charge $10,000/month on twice as many units because there aren't enough tenants who can afford that. Also, the premise here is that you're increasing supply. The monopoly landlord would have to outbid everybody else for the new supply or they'd lose their monopoly, and have to pay the monopoly price or else the new units would be cheaper than their existing ones. But then the construction companies would be receiving the monopoly price and become flush with cash to build even more housing until the monopoly landlord ran out of money. There is a reason landlords collude through zoning boards: It's otherwise quite easy for someone new to enter the market.

Rury 2y ago
> Also, the premise here is that you're increasing supply. The monopoly landlord would have to outbid everybody else for the new supply or they'd lose their monopoly, and have to pay the monopoly price or else the new units would be cheaper than their existing ones. But then the construction companies would be receiving the monopoly price and become flush with cash to build even more housing until the monopoly landlord ran out of money. All of which presumes the risk here is all on the monopoly landlord, when this isn't the case. Even disregarding zoning, construction companies have to compete for bidders, and the monopoly landlord may not have to compete with bidders. Additionally, if insufficient housing is really a problem because more people and businesses are moving into the neighborhood, then the monopoly landlord isn't likely to have problems running out of money. If that isn't the case, and there is sufficient housing (or renters are struggling to afford rent), then they have market advantage over new entrants to the market in the appropriate pricing of bids. This increases risk and pressures margins for new entrants, limiting their ability to compete, which puts risk onto construction companies in bids. In other words: it is quite possible the new entrants or construction companies fold before the monopoly landlord does. Again, it's all iffy, but, fact is, every new supply constructed comes with a cost, and it falls on someone, even if cost/unit goes down. The assumption that that cost won't fall on renters, isn't a certainty, nor is the assumption that renters will be the ones to benefit from a decreased cost/unit.
- AnthonyMouse 2y ago
  > Even disregarding zoning, construction companies have to compete for bidders, and the monopoly landlord may not have to compete with bidders. What? The premise is that there is a monopoly landlord but it's possible for others to create housing, e.g. the landlord owns all of the existing rental properties but anybody can buy an empty lot or single-family home and build a multi-unit building there instead. Obviously if the monopoly landlord owns all of the land then you have a different problem, but that isn't even close to the case in any metro area in the US. (Though neither is anyone owning all of the rental properties for that matter.) > Additionally, if insufficient housing is really a problem because more people and businesses are moving into the neighborhood, then the monopoly landlord isn't likely to have problems running out of money. Won't they? Suppose it costs $200,000 to build a new housing unit, but because of the existing monopoly they sell for $1,000,000, whether it's to the monopolist to sustain their monopoly or to someone else who would break it. To sustain the monopoly the monopolist has to remain the high bidder. But now the construction company has a million dollars, and it still costs $200,000 to build a housing unit. So they build five new housing units, and now they have five million dollars. So they hire more guys and start training new apprentices because in the next round they're going to have 25 million dollars and build 125 new units which the landlord will still have to buy for a million dollars each. It doesn't matter how much money the landlord has, the landlord is going to run out of money, because now the construction company has its own R&D division dedicated to construction automation it's only five more rounds before the landlord is paying the entire US GDP to the construction company. > In other words: it is quite possible the new entrants or construction companies fold before the monopoly landlord does. It costs them $200,000 to build something the monopoly landlord has to buy from them for a million dollars, or someone else will buy it from them for $999,999 which then happens again and again and destroys the monopoly.