7 ms·

Do you want to invest tens of millions of dollars into building an apartment with zero expectations of making a return? If there's no profit to be made in build

Do you want to invest tens of millions of dollars into building an apartment with zero expectations of making a return? If there's no profit to be made in building housing, why would anyone want to build housing? This line of thinking is what leads to situations like San Francisco, where price controls on housing lead to few developers willing to build there. If it's proven that landlords colluded to fix prices, that should be addressed. But the reality is, prices are only going up in a select few metros. And it's because lots of people want to live in those areas, which leads to rising demand which has not been satisfied by new housing construction. People desperately want to believe that there's a silver bullet that will bring prices down without actually addressing the mismatch between supply and demand.

toomuchtodo 2y ago
Profits are fine, excessive profits at the cost of people who need housing are not. There is no silver bullet, but increasing supply along with strong regulation to protect renters is welcome vs them being cattle to be squeezed by for profit entities. Human rights are a thing, there is no right to profit. > The six largest publicly traded apartment companies in the U.S. — all of which are linked to an alleged rental price-fixing scandal — experienced profit increases during the first three months of the year, according to an analysis from left-leaning watchdog group Accountable US exclusively shared with The Hill. > In the analysis, the companies earned a combined $300 million in profit during the first quarter of the year, in part, due to rent increases. Lots of profit to squeeze out with regulation, based on the evidence. The Vienna model is a proven model if for profit enterprises walk away from housing. https://thehill.com/business/housing/4718252-large-apartment-companies-rental-fixing-scheme-profits-analysis/ https://thehill.com/business/housing/4718252-large-apartment... https://accountable.us/report-top-corporate-landlords-see-profits-soar-amid-rent-hikes-and-fees/ https://accountable.us/report-top-corporate-landlords-see-pr...
- itake 2y ago
  strong regulation increases costs (see all the permits and surveys required in SF). What are "excessive profits"? 10%? 15%? 25%? > experienced profit increases during the first three months of the year Does this even mean anything? This could mean their vacancy rate decreased and thus their business is more profitable. I don't see the issue with companies reducing vacancies and providing more housing to more people.
  - toomuchtodo 2y ago
    I cannot say, but experts can, and suggest to legislators and regulators implementation details. To operate a business in a jurisdiction is a privilege, not an entitlement.
    - itake 2y ago
      I'd love to see the data on this. Usually when you increase construction costs, via additional regulation, you're going to increase the price of rent/sale. What expert thinks increasing costs will lower prices?
      - toomuchtodo 2y ago
        It's the other way around. Regulation around pricing forces housing providers to provide housing within a constrained cost model (land + materials + labor + cost of capital + permitting/AHJ requirements [regulation]). If they cannot meet the market (or choose not to, for whatever reason), public housing is an option, with muni bonds issued to finance construction. This removes the profit component, which a for profit enterprise needs, but public housing does not.
        itake 2y ago
        where does the public housing come from? WA and CA can't seem to figure out how to build public housing. In WA, the best I've seen is the gov buying hotels and having the hotel sit empty for years [0]. If regulations make it impossible to build housing and public housing has the same regulations, who is paying that bill? The existing residents via sales and property taxes? you can google construction costs in sf. how does regulations reduce any of those numbers? [0] - https://www.kiro7.com/news/local/king-county-taxpayers-paying-roughly-330k-month-empty-hotel-renton/ZKZ7IE4QANDW3M2XUFJB55YBYU/ https://www.kiro7.com/news/local/king-county-taxpayers-payin...
        Manuel_D 2y ago
        Washington has at least done a better job than San Francisco. Seattle has built over twice (IIRC three) times as many homes per-capita than SF over the last decade, despite lower population. The fact that rent control is banned statewide has a big role to play there.
- Manuel_D 2y ago
  The phrase "protect renters" is often used as a dogwhistle for price controls. For example, rent control and affordable housing mandates that require a certain % of units to be rented at below market rates. Can you elaborate on what exactly you're referring to here?
  - toomuchtodo 2y ago
    This would be an unproductive use of time. It is very clear you are pro "no regulation" around housing (based on your thread comments, "just build more"), so a heated argument with the potential for the subthread to be detached by dang does none of us any good. I'm not here to change your belief system, and to attempt to do so would provide no meaningful impact to macro outcomes.
    - Manuel_D 2y ago
      All I'm asking you to do is list the specific laws or regulation you're referring to here when you write about the need to "protect renters". I don't know if we agree or disagree, because you haven't actually stated what your beliefs are. I definitely support regulations around housing: housind needs to be safe (fire exits, sprinklers, etc.). Landlords can't engage in deceptive practices, like putting up ads for one unit and giving the tenant a different one. Units should be promptly repaired. Landlords shouldn't discriminate on the basis of protected class. I could go on.
      - toomuchtodo 2y ago
        Dynamic price control of rents to prevent them from accelerating beyond what wages can support (existing tenants win vs potential new market entrants, them the breaks when supply is catching up to demand or cannot meet demand), tenant rights with strong local regulatory oversight, government incentives to encourage a diverse ecosystem of suppliers bringing new supply onto the market based on forecasted market demand (cost of capital, regulatory streamlining support, construction labor pipeline, etc), upzoning whenever possible to encourage density as much as reasonable. Supplier diversity is needed to prevent use of market power to restrict new supply coming online to hold rents higher than they otherwise would be (strong evidence homebuilders are doing this current state, restricting supply to juice profitability). The rest should be self explanatory. As you said, there is no silver bullet; it is various policy measures working in concert to attempt to arrive at a desired outcome. I am not anti profits, I am anti "gouge the human for basic needs for profits." TLDR Some profits? Okay. Too much profit? Not okay. People living in constant fear of not having a home? Not okay. Build, build, build. (am a landlord myself, do not raise rents unless actual costs go up, reduce rents when needed by tenants, keep my profits reasonable [~%6-%10], usually no more than $100/month/door)
- ZoomerCretin 2y ago
  [flagged]
  - toomuchtodo 2y ago
    I support price regulation when called for. Your hyperbole is...not congruent with reality, considering the incredible agriculture subsidies provided and automobile tariffs. https://www.theatlantic.com/ideas/archive/2024/08/economists-kamala-harris-price-gouging/679547/ https://www.theatlantic.com/ideas/archive/2024/08/economists... https://www.ncsl.org/financial-services/price-gouging-state-statutes https://www.ncsl.org/financial-services/price-gouging-state-... https://www.whitehouse.gov/briefing-room/statements-releases/2024/08/15/fact-sheet-biden-harris-administration-announces-new-lower-prices-for-first-ten-drugs-selected-for-medicare-price-negotiation-to-lower-costs-for-millions-of-americans/ https://www.whitehouse.gov/briefing-room/statements-releases... From a paid Matt Stoller BIG (https://thebignewsletter.com/ https://thebignewsletter.com/) piece on monopoly pricing: > Something real is going on. In individual markets, CEOs have been bragging publicly that they are restraining production to increase prices. Profit margins in the food industry jumped during Covid and haven’t come back down. Or take rent. There’s a company called RealPage that works with the biggest corporate landlords to hold apartments empty so they can increase prices, which jumped up 11% in 2022. There’s some evidence of conspiracy around pricing in virtually every industry. Turkey, poultry, and pork. Frozen french fries. PVC pipe. Anesthesiology. Oil. Ammunition. Pharmaceuticals. K-Pop. Credit bureaus and FICO, Verisign, industrial gasses, architectural software, locks, entertainment data. Homebuilders. Garden chemicals. Defense and aerospace. Ticketing. Estate Sales. Gaming. Drug wholesaling. Work ID information. Seeds and chemicals. Laws to crack down on this behavior has popular support, so I won't spend additional time defending the idea in this forum, as it is unnecessary. https://blueprint2024.com/polling/inflation-poll-06-25/ https://blueprint2024.com/polling/inflation-poll-06-25/ https://blueprint2024.com/wp-content/uploads/2024/06/Screenshot-2024-06-24-at-1.02.41-PM-884x1024.png https://blueprint2024.com/wp-content/uploads/2024/06/Screens... > The most popular policies are calling on all states to suspend taxes on groceries (68% selected), cracking down on overcharging by hospitals (66%), starting a congressional committee to hold hearings on and investigate price gouging and overcharging by corporations (63%), requiring public utilities to cut rates for electricity (63%), reducing the deficit by cutting spending (62%), and prosecuting price gougers (61%).
- SmartJerry 2y ago
  Excessive profits are actually the catalyst for competition. THe cycle of capitalism and free markets looks like this: earn excess profits -> people build more supply -> prices come down and excess profits dry up -> people stop building -> earn excess profits. When you fix the 'prices come down and excess profits dry up' all you get is people stop building.
  - medvezhenok 2y ago
    That works in a well functioning, liquid market. If there are barriers to entry for new competitors (like regulatory hurdles, or zoning), this free-market theory falls flat on its face.
    - nilsbunger 2y ago
      The free market theory still works with the barriers, it’s just that the “excess profits” have to get even higher before someone steps in to build.
deepsun 2y ago
> If there's no profit to be made in building housing, why would anyone want to build housing? To live in it.
- from-nibly 2y ago
  You want to live in an apartment complex by yourself?
  - failuser 2y ago
    You’ll need a construction cooperative. IDK if those can compete with large construction companies due to the economy of scale. The construction cooperatives were a staple of late Soviet and post-Soviet Russia, but were essentially outlawed later to make way for large construction business and mortgages-backed construction.
    - bluGill 2y ago
      I'm not against them, but they are not the right answer for everyone. They are great if you want to live in the same apartment for a few decades, but if you move they become tricky.
  - deepsun 2y ago
    It's called cooperative. If I'd like to live in apartment complex, I'd post an ad like "Buy an apartment in a future complex for a low price of X! Move in in only 2 years!". (Cost to build Y, number of apartments Z, X = Y/Z). And it's not something new. When price is lower than market, people do buy it.
- bluGill 2y ago
  What if I only want to live someplace for a couple years? Building a house that I want to live in for the next 40 years makes sense, but if you have no reason to think life will keep you in the one place for 40 years renting may be a better deal - let someone else take the risk of building a house and hoping someone comes to live in to.
jmole 2y ago
There is a lot more to San Francisco's housing crisis than price controls: lengthy permitting processes, environmental reviews, NIMBY community outreach, etc.
- mistrial9 2y ago
  San Francisco has always been a crooked city.. fleecing newbies is sport.. they have jokes and murals and parties around it and always have.. in the American era.. source: personal testimony by someone born and raised there around 1900
Carrok 2y ago
If price controls on housing exist in SF but not elsewhere, and this causes developers to not build there, then the issue is not that price controls exist in SF. The issue is that price controls do not exist elsewhere. Set the same price controls across the entire nation, suddenly there is no disincentive to not build in any one area.
- Quinner 2y ago
  Suddenly there's no incentive to build in all areas.
- margalabargala 2y ago
  You appear to be making an incorrect assumption that there is some consistent amount of housing which will be built each year, and the question is only how to distribute it among different localities. That's not the case. If you add the same price controls everywhere, then the same near-zero housing gets built everywhere. Construction companies will shut down, they will not continue paying people to build housing at a loss.
  - Carrok 2y ago
    You appear to be making an incorrect assumption that price controls must be so onerous that they will result in zero new housing being built.
    - RhodesianHunter 2y ago
      I'm not trying to be snarky, I'm genuinely curious. Have you ever read the economics literature on price controls?
      - Alupis 2y ago
        They have not... and unfortunately this viewpoint is shared by too many these days. Removing the profit-motive from the equation does not magically net increased benefits for everyone. It's usually the opposite in reality... landlords end up doing the absolute bare minimum because sinking a bunch of money into renovating the bathrooms or kitchen will not yield increased rent under these proposed policies. Or people looking to invest in housing/apartments for rental income decide it's ROI is far too low to be worth the hassle and risks... so less housing is built. This line of thinking looks at some minority of people living in slums, and assumes every rental owner is actually a slumlord. So, the solution is obviously to degrade the situation for everyone because some small minority of people have it rough...
BobbyJo 2y ago
I agree with most of what you said, and do think supply is ultimately the fix, however, we also have to acknowledge the extreme inelasticity of demand for housing, and the massive shoe leather cost, both of which leave consumers at a massive disadvantage in price discovery.
- Manuel_D 2y ago
  How are consumers at a disadvantage in price discovery? Hop on Zillow, craiglist, FB marketplace, etc. set your filters and sort by price.
  - BobbyJo 2y ago
    Price discovery as in the market converging on a price, not as in an individual seeing how much something would cost at present. https://en.m.wikipedia.org/wiki/Price_discovery https://en.m.wikipedia.org/wiki/Price_discovery Since the good has very inelastic demand, suppliers have an easier time influencing the market. Small changes in supply should cause big changes in price, in both directions. However, prices go higher much faster during high demand than they go lower during low demand.
raincom 2y ago
Realpage is involved in a vicious loop, not a virtuous loop. Even in the Bay Area, corporate landlords jack up rent like 10% every year, whereas small landlords are happy to raise rent by 3%. That's the difference due to algorithmic collusion set and controlled by RealPage.
- Manuel_D 2y ago
  How are the corporate landlords able to rent their units if the small landlords are selling equal quality units for substantially less? Wouldn't everyone just rent from the small landlords while the corporate apartments stay vacant? This is the hole in the price-fixing argument: price-fixing only works when everyone is onboard, otherwise the parties not involved in price fixing will gobble up the market share. I wouldn't be surprised if corporate-run apartments are more expensive. They're are usually renting much nicer buildings with amenities like air conditioning, parcel delivery rooms, gated parking, etc.
  - Carrok 2y ago
    > Wouldn't everyone just rent from the small landlords while the corporate apartments stay vacant? If there was enough supply, they absolutely would. > They're are usually renting much nicer buildings with amenities like air conditioning, parcel delivery rooms, gated parking, etc. It sure sounds like you've never rented. This is, in the vast majority of cases, not reality.
    - Manuel_D 2y ago
      Exactly: prices are rising because there isn't enough supply to satisfy demand. I have, in fact, rented in San Francisco. I rented from a small landlord in a building that had no A/C, no package room, no parking. I had to fix my refrigerator and shower mixer myself because she barely spoke English. But it was a cheap apartment! I also rented from a corporate landlord. It had a lot of amenities like a gym, a package room, and parking. But I paid a lot more for that apartment.
  - kelnos 2y ago
kelnos 2y ago
> This line of thinking is what leads to situations like San Francisco, where price controls on housing lead to few developers willing to build there. Not sure what "price controls" you're talking about, but the reason it's expensive to build in SF (which reduces the appeal for builders) is zoning, the byzantine planning process, the ability of local residents to effectively block or delay projects, and weaponized environmental review. > Do you want to invest tens of millions of dollars into building an apartment with zero expectations of making a return? Building housing doesn't need to be an investment opportunity. In a better world, I'm sure there would be plenty of people who would be happy to build housing with only enough profit to pay employees a comfortable wage. These sorts of people don't have the ability to break into the industry, though.
- Manuel_D 2y ago
  Policy restricting housing is indeed another factor impeding housing. The price controls I'm referring to are rent controls (which applies to ~70% of apartments in SF, and the threat of reintroducing rent controls looms) and affordable housing mandates. The affordable housing mandates require that a certain percentage of units are rented at set prices. Again, if housing isn't an investment opportunity, then why would anyone build new housing? Sometimes people get together and build co-ops. But those are rare, and it's only available to people with a lot of capital on-hand. Plus, it runs the risk of the project going over-budget.
  - asadotzler 2y ago
    Lots of businesses make less than stock market index returns. You can be a builder that doesn't want to beat the S&P and still support your family doing it. Not everything has to be about massive accumulation of wealth or "growth at all costs". Plenty of people are OK doing a day's work for a day's creature comforts and leaving it at that.
    - Manuel_D 2y ago
      Sure you can deliberately invest in a way that doesn't generate the best returns. You can be a philanthropist and build housing for free! But the vast majority of people are indeed looking to maximize returns.
biggoodwolf 2y ago
Like Manhattan? They've built a lot, and it's getting cheaper every year
- Manuel_D 2y ago
  Manhattan rents tanked during the pandemic, but rebounded pretty quickly after covid subsided. Supply and demand is such that prices may rise even if you build a lot of housing if there's even more people that want to live there. Big supply coupled with even bigger demand will still see prices rise.
dwallin 2y ago
This is not a binary situation. There are plenty of reasonable approaches that help limit abusive landlord behavior without damaging the prospect of profitable real estate development.
- Manuel_D 2y ago
  I wholeheartedly agree that landlords should not engage in abusive behavior: Landlords should not discriminate on the basis of protected class. They should keep units safe and up-to-code. They should not engage in deceptive practices like advertising one unit and selling a different one, or falsifying facts about the unit. But where I'm not going to agree is the notion that setting rent above a certain threshold is "abusive landlord behavior". If a landlord is setting the rent too high, the consequence should be that the unit stays vacant. If someone is willing to pay that rent, then evidently the rent wasn't too high.
  - dwallin 2y ago
    Except that there are significant switching costs. A person moving has to pay moving costs, might have to replace furniture that doesn't work for the new place, can affect your children's schools etc. This means the value of a unit to someone living there can often be significantly higher than the market rate. This can led to situations where the most profitable move for landlords is to take advantage of the discrepancy to regularly raise the rent for existing renters by more than the market, in attempt to maximize profit. Sure they might have to deal with the hassle of finding a new tenant every couple of years when someone gets priced out, but if it leads overall to slightly higher profits it's the winning capitalist move. The rentiers are ostensibly following the law, but the overall cost to the population and quality of life loss to renters can be significantly outsized compared to a sliver of additional profit for the rentiers. This is a great example of externalized costs in a free market and exactly where government should generally be attempting sensible regulation.
bdcravens 2y ago
> Do you want to invest tens of millions of dollars into building an apartment with zero expectations of making a return? No, but this doesn't change the fact that housing is a basic good like gasoline and insurance. Controls in those industries don't prevent companies from investing. Profit regulation doesn't mean no profit. > price controls on housing lead to few developers willing to build there Because there are alternate places without those controls. If housing were treated like the essential good that it is, there wouldn't be any ROI havens, and developers would adapt (or die if they can't accept reducing the typical ROI, which averages around 15%) > rising demand which has not been satisfied by new housing construction There's plenty of demand, just not for the houses that are being built. (That's not to say there aren't specific cities where there is no supply). Based on most affordability standards, many can't afford the typical rent or mortgage. If those prices can't come down, or income can't go up, then new types of much cheaper housing must be built.
- Manuel_D 2y ago
  Gasoline isn't subject to price controls, though! They were in the past, and the results were disastrous. This is what price-controls on gasoline look like: https://www.federalreservehistory.org/-/media/images/essays/oil-shock-of-1978-79/oil_shock_1978_79_1_720x450.jpg https://www.federalreservehistory.org/-/media/images/essays/... The way that the government influences gas prices is that they stockpile or release oil from the US strategic reserves. They don't regulate prices. They influence supply in order to influence prices. The analogy would be building public housing. I'm not sure what you mean by treating housing like an "essential good". Most essential goods aren't subject to price controls. There aren't price controls on food, for example. Most countries that set price controls on food experience famines (or the price controls are widely ignored and the black market becomes the normal market).
  - bdcravens 2y ago
    You can be prosecuted for price gouging of essential goods.
    - 2y ago
skeeter2020 2y ago
>> leads to rising demand which has not been satisfied by new housing construction we seem to accept this at face value, but there's lots of evidence that supply is not the only issue, or even the biggest. Example: in Toronto this year there's been over 220 large real estate projects go insolvent. There's clearly a limit on the demand side.
trilobyte 2y ago
So you would be ok with contractors who are building the houses (often as subcontractors) coordinating their prices for the work to maximize the cost to the developer?
- chgs 2y ago
  Sounds like a union
washadjeffmad 2y ago
You're missing that they didn't use this to build or expand housing, but to limit it. Just look at the occupancy rates. They colluded with property management companies to capture 80% of existing multi-family dwellings and raised rents to inflate hard asset values of PE owned properties nationwide. Just because this is the closest that homeowners have had to a bailout in their lifetimes doesn't mean they didn't profit even more. It was a scam.

toomuchtodo 2y ago

Profits are fine, excessive profits at the cost of people who need housing are not. There is no silver bullet, but increasing supply along with strong regulation to protect renters is welcome vs them being cattle to be squeezed by for profit entities. Human rights are a thing, there is no right to profit. > The six largest publicly traded apartment companies in the U.S. — all of which are linked to an alleged rental price-fixing scandal — experienced profit increases during the first three months of the year, according to an analysis from left-leaning watchdog group Accountable US exclusively shared with The Hill. > In the analysis, the companies earned a combined $300 million in profit during the first quarter of the year, in part, due to rent increases. Lots of profit to squeeze out with regulation, based on the evidence. The Vienna model is a proven model if for profit enterprises walk away from housing. https://thehill.com/business/housing/4718252-large-apartment-companies-rental-fixing-scheme-profits-analysis/ https://thehill.com/business/housing/4718252-large-apartment... https://accountable.us/report-top-corporate-landlords-see-profits-soar-amid-rent-hikes-and-fees/ https://accountable.us/report-top-corporate-landlords-see-pr...

itake 2y ago
strong regulation increases costs (see all the permits and surveys required in SF). What are "excessive profits"? 10%? 15%? 25%? > experienced profit increases during the first three months of the year Does this even mean anything? This could mean their vacancy rate decreased and thus their business is more profitable. I don't see the issue with companies reducing vacancies and providing more housing to more people.
- toomuchtodo 2y ago
  I cannot say, but experts can, and suggest to legislators and regulators implementation details. To operate a business in a jurisdiction is a privilege, not an entitlement.
  - itake 2y ago
    I'd love to see the data on this. Usually when you increase construction costs, via additional regulation, you're going to increase the price of rent/sale. What expert thinks increasing costs will lower prices?
    - toomuchtodo 2y ago
      It's the other way around. Regulation around pricing forces housing providers to provide housing within a constrained cost model (land + materials + labor + cost of capital + permitting/AHJ requirements [regulation]). If they cannot meet the market (or choose not to, for whatever reason), public housing is an option, with muni bonds issued to finance construction. This removes the profit component, which a for profit enterprise needs, but public housing does not.
      - itake 2y ago
        where does the public housing come from? WA and CA can't seem to figure out how to build public housing. In WA, the best I've seen is the gov buying hotels and having the hotel sit empty for years [0]. If regulations make it impossible to build housing and public housing has the same regulations, who is paying that bill? The existing residents via sales and property taxes? you can google construction costs in sf. how does regulations reduce any of those numbers? [0] - https://www.kiro7.com/news/local/king-county-taxpayers-paying-roughly-330k-month-empty-hotel-renton/ZKZ7IE4QANDW3M2XUFJB55YBYU/ https://www.kiro7.com/news/local/king-county-taxpayers-payin...
        Manuel_D 2y ago
        Washington has at least done a better job than San Francisco. Seattle has built over twice (IIRC three) times as many homes per-capita than SF over the last decade, despite lower population. The fact that rent control is banned statewide has a big role to play there.
Manuel_D 2y ago
The phrase "protect renters" is often used as a dogwhistle for price controls. For example, rent control and affordable housing mandates that require a certain % of units to be rented at below market rates. Can you elaborate on what exactly you're referring to here?
- toomuchtodo 2y ago
  This would be an unproductive use of time. It is very clear you are pro "no regulation" around housing (based on your thread comments, "just build more"), so a heated argument with the potential for the subthread to be detached by dang does none of us any good. I'm not here to change your belief system, and to attempt to do so would provide no meaningful impact to macro outcomes.
  - Manuel_D 2y ago
    All I'm asking you to do is list the specific laws or regulation you're referring to here when you write about the need to "protect renters". I don't know if we agree or disagree, because you haven't actually stated what your beliefs are. I definitely support regulations around housing: housind needs to be safe (fire exits, sprinklers, etc.). Landlords can't engage in deceptive practices, like putting up ads for one unit and giving the tenant a different one. Units should be promptly repaired. Landlords shouldn't discriminate on the basis of protected class. I could go on.
    - toomuchtodo 2y ago
      Dynamic price control of rents to prevent them from accelerating beyond what wages can support (existing tenants win vs potential new market entrants, them the breaks when supply is catching up to demand or cannot meet demand), tenant rights with strong local regulatory oversight, government incentives to encourage a diverse ecosystem of suppliers bringing new supply onto the market based on forecasted market demand (cost of capital, regulatory streamlining support, construction labor pipeline, etc), upzoning whenever possible to encourage density as much as reasonable. Supplier diversity is needed to prevent use of market power to restrict new supply coming online to hold rents higher than they otherwise would be (strong evidence homebuilders are doing this current state, restricting supply to juice profitability). The rest should be self explanatory. As you said, there is no silver bullet; it is various policy measures working in concert to attempt to arrive at a desired outcome. I am not anti profits, I am anti "gouge the human for basic needs for profits." TLDR Some profits? Okay. Too much profit? Not okay. People living in constant fear of not having a home? Not okay. Build, build, build. (am a landlord myself, do not raise rents unless actual costs go up, reduce rents when needed by tenants, keep my profits reasonable [~%6-%10], usually no more than $100/month/door)
ZoomerCretin 2y ago
[flagged]
- toomuchtodo 2y ago
  I support price regulation when called for. Your hyperbole is...not congruent with reality, considering the incredible agriculture subsidies provided and automobile tariffs. https://www.theatlantic.com/ideas/archive/2024/08/economists-kamala-harris-price-gouging/679547/ https://www.theatlantic.com/ideas/archive/2024/08/economists... https://www.ncsl.org/financial-services/price-gouging-state-statutes https://www.ncsl.org/financial-services/price-gouging-state-... https://www.whitehouse.gov/briefing-room/statements-releases/2024/08/15/fact-sheet-biden-harris-administration-announces-new-lower-prices-for-first-ten-drugs-selected-for-medicare-price-negotiation-to-lower-costs-for-millions-of-americans/ https://www.whitehouse.gov/briefing-room/statements-releases... From a paid Matt Stoller BIG (https://thebignewsletter.com/ https://thebignewsletter.com/) piece on monopoly pricing: > Something real is going on. In individual markets, CEOs have been bragging publicly that they are restraining production to increase prices. Profit margins in the food industry jumped during Covid and haven’t come back down. Or take rent. There’s a company called RealPage that works with the biggest corporate landlords to hold apartments empty so they can increase prices, which jumped up 11% in 2022. There’s some evidence of conspiracy around pricing in virtually every industry. Turkey, poultry, and pork. Frozen french fries. PVC pipe. Anesthesiology. Oil. Ammunition. Pharmaceuticals. K-Pop. Credit bureaus and FICO, Verisign, industrial gasses, architectural software, locks, entertainment data. Homebuilders. Garden chemicals. Defense and aerospace. Ticketing. Estate Sales. Gaming. Drug wholesaling. Work ID information. Seeds and chemicals. Laws to crack down on this behavior has popular support, so I won't spend additional time defending the idea in this forum, as it is unnecessary. https://blueprint2024.com/polling/inflation-poll-06-25/ https://blueprint2024.com/polling/inflation-poll-06-25/ https://blueprint2024.com/wp-content/uploads/2024/06/Screenshot-2024-06-24-at-1.02.41-PM-884x1024.png https://blueprint2024.com/wp-content/uploads/2024/06/Screens... > The most popular policies are calling on all states to suspend taxes on groceries (68% selected), cracking down on overcharging by hospitals (66%), starting a congressional committee to hold hearings on and investigate price gouging and overcharging by corporations (63%), requiring public utilities to cut rates for electricity (63%), reducing the deficit by cutting spending (62%), and prosecuting price gougers (61%).
SmartJerry 2y ago
Excessive profits are actually the catalyst for competition. THe cycle of capitalism and free markets looks like this: earn excess profits -> people build more supply -> prices come down and excess profits dry up -> people stop building -> earn excess profits. When you fix the 'prices come down and excess profits dry up' all you get is people stop building.
- medvezhenok 2y ago
  That works in a well functioning, liquid market. If there are barriers to entry for new competitors (like regulatory hurdles, or zoning), this free-market theory falls flat on its face.
  - nilsbunger 2y ago
    The free market theory still works with the barriers, it’s just that the “excess profits” have to get even higher before someone steps in to build.

deepsun 2y ago

> If there's no profit to be made in building housing, why would anyone want to build housing? To live in it.

from-nibly 2y ago
You want to live in an apartment complex by yourself?
- failuser 2y ago
  You’ll need a construction cooperative. IDK if those can compete with large construction companies due to the economy of scale. The construction cooperatives were a staple of late Soviet and post-Soviet Russia, but were essentially outlawed later to make way for large construction business and mortgages-backed construction.
  - bluGill 2y ago
    I'm not against them, but they are not the right answer for everyone. They are great if you want to live in the same apartment for a few decades, but if you move they become tricky.
- deepsun 2y ago
  It's called cooperative. If I'd like to live in apartment complex, I'd post an ad like "Buy an apartment in a future complex for a low price of X! Move in in only 2 years!". (Cost to build Y, number of apartments Z, X = Y/Z). And it's not something new. When price is lower than market, people do buy it.
bluGill 2y ago
What if I only want to live someplace for a couple years? Building a house that I want to live in for the next 40 years makes sense, but if you have no reason to think life will keep you in the one place for 40 years renting may be a better deal - let someone else take the risk of building a house and hoping someone comes to live in to.

jmole 2y ago

There is a lot more to San Francisco's housing crisis than price controls: lengthy permitting processes, environmental reviews, NIMBY community outreach, etc.

mistrial9 2y ago
San Francisco has always been a crooked city.. fleecing newbies is sport.. they have jokes and murals and parties around it and always have.. in the American era.. source: personal testimony by someone born and raised there around 1900

Carrok 2y ago

If price controls on housing exist in SF but not elsewhere, and this causes developers to not build there, then the issue is not that price controls exist in SF. The issue is that price controls do not exist elsewhere. Set the same price controls across the entire nation, suddenly there is no disincentive to not build in any one area.

Quinner 2y ago
Suddenly there's no incentive to build in all areas.
margalabargala 2y ago
You appear to be making an incorrect assumption that there is some consistent amount of housing which will be built each year, and the question is only how to distribute it among different localities. That's not the case. If you add the same price controls everywhere, then the same near-zero housing gets built everywhere. Construction companies will shut down, they will not continue paying people to build housing at a loss.
- Carrok 2y ago
  You appear to be making an incorrect assumption that price controls must be so onerous that they will result in zero new housing being built.
  - RhodesianHunter 2y ago
    I'm not trying to be snarky, I'm genuinely curious. Have you ever read the economics literature on price controls?
    - Alupis 2y ago
      They have not... and unfortunately this viewpoint is shared by too many these days. Removing the profit-motive from the equation does not magically net increased benefits for everyone. It's usually the opposite in reality... landlords end up doing the absolute bare minimum because sinking a bunch of money into renovating the bathrooms or kitchen will not yield increased rent under these proposed policies. Or people looking to invest in housing/apartments for rental income decide it's ROI is far too low to be worth the hassle and risks... so less housing is built. This line of thinking looks at some minority of people living in slums, and assumes every rental owner is actually a slumlord. So, the solution is obviously to degrade the situation for everyone because some small minority of people have it rough...

BobbyJo 2y ago

I agree with most of what you said, and do think supply is ultimately the fix, however, we also have to acknowledge the extreme inelasticity of demand for housing, and the massive shoe leather cost, both of which leave consumers at a massive disadvantage in price discovery.

Manuel_D 2y ago
How are consumers at a disadvantage in price discovery? Hop on Zillow, craiglist, FB marketplace, etc. set your filters and sort by price.
- BobbyJo 2y ago
  Price discovery as in the market converging on a price, not as in an individual seeing how much something would cost at present. https://en.m.wikipedia.org/wiki/Price_discovery https://en.m.wikipedia.org/wiki/Price_discovery Since the good has very inelastic demand, suppliers have an easier time influencing the market. Small changes in supply should cause big changes in price, in both directions. However, prices go higher much faster during high demand than they go lower during low demand.

raincom 2y ago

Realpage is involved in a vicious loop, not a virtuous loop. Even in the Bay Area, corporate landlords jack up rent like 10% every year, whereas small landlords are happy to raise rent by 3%. That's the difference due to algorithmic collusion set and controlled by RealPage.

Manuel_D 2y ago
How are the corporate landlords able to rent their units if the small landlords are selling equal quality units for substantially less? Wouldn't everyone just rent from the small landlords while the corporate apartments stay vacant? This is the hole in the price-fixing argument: price-fixing only works when everyone is onboard, otherwise the parties not involved in price fixing will gobble up the market share. I wouldn't be surprised if corporate-run apartments are more expensive. They're are usually renting much nicer buildings with amenities like air conditioning, parcel delivery rooms, gated parking, etc.
- Carrok 2y ago
  > Wouldn't everyone just rent from the small landlords while the corporate apartments stay vacant? If there was enough supply, they absolutely would. > They're are usually renting much nicer buildings with amenities like air conditioning, parcel delivery rooms, gated parking, etc. It sure sounds like you've never rented. This is, in the vast majority of cases, not reality.
  - Manuel_D 2y ago
    Exactly: prices are rising because there isn't enough supply to satisfy demand. I have, in fact, rented in San Francisco. I rented from a small landlord in a building that had no A/C, no package room, no parking. I had to fix my refrigerator and shower mixer myself because she barely spoke English. But it was a cheap apartment! I also rented from a corporate landlord. It had a lot of amenities like a gym, a package room, and parking. But I paid a lot more for that apartment.
- kelnos 2y ago

kelnos 2y ago

> This line of thinking is what leads to situations like San Francisco, where price controls on housing lead to few developers willing to build there. Not sure what "price controls" you're talking about, but the reason it's expensive to build in SF (which reduces the appeal for builders) is zoning, the byzantine planning process, the ability of local residents to effectively block or delay projects, and weaponized environmental review. > Do you want to invest tens of millions of dollars into building an apartment with zero expectations of making a return? Building housing doesn't need to be an investment opportunity. In a better world, I'm sure there would be plenty of people who would be happy to build housing with only enough profit to pay employees a comfortable wage. These sorts of people don't have the ability to break into the industry, though.

Manuel_D 2y ago
Policy restricting housing is indeed another factor impeding housing. The price controls I'm referring to are rent controls (which applies to ~70% of apartments in SF, and the threat of reintroducing rent controls looms) and affordable housing mandates. The affordable housing mandates require that a certain percentage of units are rented at set prices. Again, if housing isn't an investment opportunity, then why would anyone build new housing? Sometimes people get together and build co-ops. But those are rare, and it's only available to people with a lot of capital on-hand. Plus, it runs the risk of the project going over-budget.
- asadotzler 2y ago
  Lots of businesses make less than stock market index returns. You can be a builder that doesn't want to beat the S&P and still support your family doing it. Not everything has to be about massive accumulation of wealth or "growth at all costs". Plenty of people are OK doing a day's work for a day's creature comforts and leaving it at that.
  - Manuel_D 2y ago
    Sure you can deliberately invest in a way that doesn't generate the best returns. You can be a philanthropist and build housing for free! But the vast majority of people are indeed looking to maximize returns.

biggoodwolf 2y ago

Like Manhattan? They've built a lot, and it's getting cheaper every year

Manuel_D 2y ago
Manhattan rents tanked during the pandemic, but rebounded pretty quickly after covid subsided. Supply and demand is such that prices may rise even if you build a lot of housing if there's even more people that want to live there. Big supply coupled with even bigger demand will still see prices rise.

dwallin 2y ago

This is not a binary situation. There are plenty of reasonable approaches that help limit abusive landlord behavior without damaging the prospect of profitable real estate development.

Manuel_D 2y ago
I wholeheartedly agree that landlords should not engage in abusive behavior: Landlords should not discriminate on the basis of protected class. They should keep units safe and up-to-code. They should not engage in deceptive practices like advertising one unit and selling a different one, or falsifying facts about the unit. But where I'm not going to agree is the notion that setting rent above a certain threshold is "abusive landlord behavior". If a landlord is setting the rent too high, the consequence should be that the unit stays vacant. If someone is willing to pay that rent, then evidently the rent wasn't too high.
- dwallin 2y ago
  Except that there are significant switching costs. A person moving has to pay moving costs, might have to replace furniture that doesn't work for the new place, can affect your children's schools etc. This means the value of a unit to someone living there can often be significantly higher than the market rate. This can led to situations where the most profitable move for landlords is to take advantage of the discrepancy to regularly raise the rent for existing renters by more than the market, in attempt to maximize profit. Sure they might have to deal with the hassle of finding a new tenant every couple of years when someone gets priced out, but if it leads overall to slightly higher profits it's the winning capitalist move. The rentiers are ostensibly following the law, but the overall cost to the population and quality of life loss to renters can be significantly outsized compared to a sliver of additional profit for the rentiers. This is a great example of externalized costs in a free market and exactly where government should generally be attempting sensible regulation.

bdcravens 2y ago

> Do you want to invest tens of millions of dollars into building an apartment with zero expectations of making a return? No, but this doesn't change the fact that housing is a basic good like gasoline and insurance. Controls in those industries don't prevent companies from investing. Profit regulation doesn't mean no profit. > price controls on housing lead to few developers willing to build there Because there are alternate places without those controls. If housing were treated like the essential good that it is, there wouldn't be any ROI havens, and developers would adapt (or die if they can't accept reducing the typical ROI, which averages around 15%) > rising demand which has not been satisfied by new housing construction There's plenty of demand, just not for the houses that are being built. (That's not to say there aren't specific cities where there is no supply). Based on most affordability standards, many can't afford the typical rent or mortgage. If those prices can't come down, or income can't go up, then new types of much cheaper housing must be built.

Manuel_D 2y ago
Gasoline isn't subject to price controls, though! They were in the past, and the results were disastrous. This is what price-controls on gasoline look like: https://www.federalreservehistory.org/-/media/images/essays/oil-shock-of-1978-79/oil_shock_1978_79_1_720x450.jpg https://www.federalreservehistory.org/-/media/images/essays/... The way that the government influences gas prices is that they stockpile or release oil from the US strategic reserves. They don't regulate prices. They influence supply in order to influence prices. The analogy would be building public housing. I'm not sure what you mean by treating housing like an "essential good". Most essential goods aren't subject to price controls. There aren't price controls on food, for example. Most countries that set price controls on food experience famines (or the price controls are widely ignored and the black market becomes the normal market).
- bdcravens 2y ago
  You can be prosecuted for price gouging of essential goods.
  - 2y ago

skeeter2020 2y ago

>> leads to rising demand which has not been satisfied by new housing construction we seem to accept this at face value, but there's lots of evidence that supply is not the only issue, or even the biggest. Example: in Toronto this year there's been over 220 large real estate projects go insolvent. There's clearly a limit on the demand side.

trilobyte 2y ago

So you would be ok with contractors who are building the houses (often as subcontractors) coordinating their prices for the work to maximize the cost to the developer?

chgs 2y ago
Sounds like a union

washadjeffmad 2y ago

You're missing that they didn't use this to build or expand housing, but to limit it. Just look at the occupancy rates. They colluded with property management companies to capture 80% of existing multi-family dwellings and raised rents to inflate hard asset values of PE owned properties nationwide. Just because this is the closest that homeowners have had to a bailout in their lifetimes doesn't mean they didn't profit even more. It was a scam.