4 ms·

Because the law of unintended consequences is always at play in the public sector. In this case, the threat of too much regulation will kneecap the governments

by garciasn 11mo ago

Because the law of unintended consequences is always at play in the public sector. In this case, the threat of too much regulation will kneecap the governments ability to eliminate the cost structures that will end up happening because of the drive for increased revenue per sqft. The core reason SROs threaten larger spaces is that landlords can often extract more total rent from a single apartment by chopping it into pieces than by renting it as a whole. Hypothetically: A landlord rents a 1,000 sq. ft. 3-bedroom apartment to a family for $4,500/month. In order to extract more value, the landlord converts that same space into 4 separate SRO rooms with a shared kitchen. Even if they charge a "cheaper" rent of $1,500/room, the total rent roll becomes $6,000/month. The Result: the SRO format is more profitable ($6,000 vs. $4,500). If landlords can legally choose between the two, they will naturally favor creating SROs over family-sized units. Then there’s the potential for cannibalization of supply: If SROs become the most profitable way to use residential space, the market may see a "cannibalization" of family housing. Landlords of market-rate buildings may subdivide existing large apartments into SROs to capture the higher yield. Seeing this, developers then planning new buildings will design them with fewer large family units and more micro-units/SROs to maximize revenue. This reduces the supply of 2- and 3-bedroom apartments. If the supply of family units drops while the number of families needing them stays the same, the price for the remaining large units goes up. This will then potentially lead to increased land value as real estate prices are determined by the potential revenue a property can generate. If a plot of land can now legally host a high-yield SRO building (generating $100/sq. ft. in revenue), the value of that land rises. A developer who wants to build a standard family apartment building (generating only $60/sq. ft.) can no longer afford to buy that land because they will be outbid by the SRO developer. To compete, the family-building developer must raise their projected rents to justify the higher land price. This raises the "price floor" for everyone.

crazygringo 11mo ago
> The Result: the SRO format is more profitable ($6,000 vs. $4,500). If landlords can legally choose between the two, they will naturally favor creating SROs over family-sized units. Yes, this is the whole point! And the reason it's more profitable is that there is pent-up demand for them. There aren't enough of them. We want them to be more profitable, so more are built/converted. Here's the thing, though -- that's a temporary situation. As supply goes up, demand gets met. Once enough are built/converted, the price comes down, and an equilibrium is reached where a landlord will make the same profit whether it's a 3-bedroom or 4 SRO's. This means the market is now maximally efficient for both types of tenants. In a free market, the most efficient balance of apartment types will naturally come into being. By prohibiting smaller units, we prevent that balance and discriminate against people who can't afford a full-size studio with bathroom. So it's not cannibalization of family housing. It's just reducing the proportion of lots of other types of apartments a little bit -- including studios and one-bedrooms. Because this is desirable.
- garciasn 11mo ago
  Except the exact opposite thing is happening in the regular housing market. Small houses (e.g., townhomes) were intended to maximize land and reduce cost, except they’re now not even affordable. This will happen with these too.
  - crazygringo 11mo ago
    It's the same problem -- you need more. Zoning regulations continue to prevent enough new construction, and the conversion of large lots/units into smaller ones. I honestly don't know what you're proposing instead. But for some reason you're pessimistic about what all traditional economists agree on what is the solution -- remove more zoning regulations that constrict what can be built. It's literally just supply and demand. Prices come down when you increase supply to meet demand. Just because increasing supply a little bit doesn't work when demand is increasing even faster, doesn't mean the basic principle is falsified. It's just that you need to increase supply much, much more.
  - appreciatorBus 11mo ago
    I think you are assuming infinite demand. Demand for floor space in these places is very large, no doubt, but it is not infinite. If you don’t believe we can or should allow private landowners to build as much floor space as they want for everyone who wants to live in these places, then somehow you’re going to have to have a mechanism to control who is allowed to live there. What will it be and who will get to decide who is worthy?
- survirtual 11mo ago
  Except it isn't a free market. It is a heavily regulated market that favors corporations. The regulatory bodies have been corporate captured. In addition, the corporate bodies collude on things like rent, and have a near infinite runway to leave units empty. With the collusion of corporate entities setting prices, it raises the overall market prices of properties. As small-time landlords observe the markets, they naturally also raise their prices to increase prices. Additionally, because of corporate capture and collusion in other markets, prices broadly increase for owning property. This forces everyone who keeps rent lower to raise rents. The way to fix this is simple. Stop the corporate collusion by making laws that make it functionally impossible. This can be done by the following: - tax the hell out of corporate ownership of residential properties - an increasingly expensive multi-home tax. First home is tax free. Second has yearly taxes and those taxes exponentially increase for each additional home. - a vacant home tax. On top of any second home taxation, for homes besides your 1 home, there should be a vacant home tax. If a home does not have a resident in it, it should be taxed. That tax should be around what it would cost to rent the unit out. There are some other additional factors such as penalizing foreign non-resident owners, but this covers the bulk. Being a landlord should not be easily profitable. It should be a job that you work your ass off at. Then and only then will the free market begin to function and optimize.
appreciatorBus 11mo ago
You can only chop up a larger space for smaller spaces when there is more demand than there is supply. The point of building housing is to have more supply than demand, or at least as close as we can get to that point.

crazygringo 11mo ago

> The Result: the SRO format is more profitable ($6,000 vs. $4,500). If landlords can legally choose between the two, they will naturally favor creating SROs over family-sized units. Yes, this is the whole point! And the reason it's more profitable is that there is pent-up demand for them. There aren't enough of them. We want them to be more profitable, so more are built/converted. Here's the thing, though -- that's a temporary situation. As supply goes up, demand gets met. Once enough are built/converted, the price comes down, and an equilibrium is reached where a landlord will make the same profit whether it's a 3-bedroom or 4 SRO's. This means the market is now maximally efficient for both types of tenants. In a free market, the most efficient balance of apartment types will naturally come into being. By prohibiting smaller units, we prevent that balance and discriminate against people who can't afford a full-size studio with bathroom. So it's not cannibalization of family housing. It's just reducing the proportion of lots of other types of apartments a little bit -- including studios and one-bedrooms. Because this is desirable.

garciasn 11mo ago
Except the exact opposite thing is happening in the regular housing market. Small houses (e.g., townhomes) were intended to maximize land and reduce cost, except they’re now not even affordable. This will happen with these too.
- crazygringo 11mo ago
  It's the same problem -- you need more. Zoning regulations continue to prevent enough new construction, and the conversion of large lots/units into smaller ones. I honestly don't know what you're proposing instead. But for some reason you're pessimistic about what all traditional economists agree on what is the solution -- remove more zoning regulations that constrict what can be built. It's literally just supply and demand. Prices come down when you increase supply to meet demand. Just because increasing supply a little bit doesn't work when demand is increasing even faster, doesn't mean the basic principle is falsified. It's just that you need to increase supply much, much more.
- appreciatorBus 11mo ago
  I think you are assuming infinite demand. Demand for floor space in these places is very large, no doubt, but it is not infinite. If you don’t believe we can or should allow private landowners to build as much floor space as they want for everyone who wants to live in these places, then somehow you’re going to have to have a mechanism to control who is allowed to live there. What will it be and who will get to decide who is worthy?
survirtual 11mo ago
Except it isn't a free market. It is a heavily regulated market that favors corporations. The regulatory bodies have been corporate captured. In addition, the corporate bodies collude on things like rent, and have a near infinite runway to leave units empty. With the collusion of corporate entities setting prices, it raises the overall market prices of properties. As small-time landlords observe the markets, they naturally also raise their prices to increase prices. Additionally, because of corporate capture and collusion in other markets, prices broadly increase for owning property. This forces everyone who keeps rent lower to raise rents. The way to fix this is simple. Stop the corporate collusion by making laws that make it functionally impossible. This can be done by the following: - tax the hell out of corporate ownership of residential properties - an increasingly expensive multi-home tax. First home is tax free. Second has yearly taxes and those taxes exponentially increase for each additional home. - a vacant home tax. On top of any second home taxation, for homes besides your 1 home, there should be a vacant home tax. If a home does not have a resident in it, it should be taxed. That tax should be around what it would cost to rent the unit out. There are some other additional factors such as penalizing foreign non-resident owners, but this covers the bulk. Being a landlord should not be easily profitable. It should be a job that you work your ass off at. Then and only then will the free market begin to function and optimize.

appreciatorBus 11mo ago

You can only chop up a larger space for smaller spaces when there is more demand than there is supply. The point of building housing is to have more supply than demand, or at least as close as we can get to that point.