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This isn't black and white. Many landlords struggle because their tenants are paying below market rents. This is a particular problem in San Francisco, but al

This isn't black and white. Many landlords struggle because their tenants are paying below market rents. This is a particular problem in San Francisco, but also in other cities like NY. On the one hand, you can say, "Joe taxi driver can barely afford rent, what's wrong with him leasing out his room when he's out of town?" Then look at it from the landlord's point of view. They say, "I can't get a free market rent, because the law says that I can't evict Joe Taxi Driver. So I have to settle for less money, then he goes and rents the room out without paying me a dime." Then look at Jane NewToTown. Jane says, "I would like to pay market rate for Joe's place. I can't, but if I want to stay for a few nights I can pay the renter who gets below market rates, rather than the landlord." AirBnB isn't the cause of the problem - it exists because there is a problem that it being arbed.

sliverstorm 13y ago
I think what we are saying, essentially, is that Joe Taxi Driver is leveraging the fact that he cannot be evicted to engage in aggressive rent-seeking behavior.
- toufka 13y ago
  That would be a reasonable conclusion if time wasn't a factor. Imagine if Joe Taxi Driver moved in when he could afford rent, and then the price of housing tripled in two years. Now, Joe's new roommates expect to pay 3x what Joe's old roommates paid. Additionally, Joe has far less housing security - he cannot move, even if he get's a 50% increase on his taxi receipts, he still can no longer afford market-rate rent. It's unclear if Joe is now 'leveraging the fact that he cannot be evicted' because the cost of eviction is so high, and his 'aggressive rent-seeking behavior' is now merely an effort to make a little extra money on the moral hazard that has been dropped into his lap.
malandrew 13y ago
I call bs here, if landlords are struggling then they should get out of the business of being a landlord in a market with regulations that don't support their business model. There are more than enough people willing to buy a unit to move into it themselves. I'm 100% anti rent control myself, but to claim landlords are struggling is disingenuous. There is no rule out there that says that landlords have a right to their business model on their terms. I'm aware of several units in this city where the landlord grew up in a unit their parents purchased way back in the day, who then moved out of the city to the suburbs. They now profit handsomely because they self select for tenants that are likely to move out of the city or outgrow a unit.
- mathattack 13y ago
  If you put in laws that say owners can not profit from their buildings, but their renters can, then you will have chronic underinvestment in housing infrastructure as a consequence. You wind up feeding the problem you are trying to solve. This has happened in both San Francisco and New York City. I'm not saying cities should be an unzoned and unplanned free-for-all, but good intentions at the expense of capital have unintended consequences.
  - nitrogen 13y ago
    If the demand is high enough, someone will invest in infrastructure regardless of who profits from the existing stock.
    - mathattack 13y ago
      Right. But increasing the marginal cost of serving people, or decreasing the marginal revenue, means that you will build for less people than otherwise. To oversimplify the supply and demand curve... Let's say that there are 2 populations of people: - 100 people in Group 1 who can pay $500/month - 100 people in Group 2 who can pay $1000/month Let's say that something (rent control, regulation, taxes, whatever) takes away $300 per month of what you would collect in rent. Let's say that the cost of building an apartment building, amortized over time costs $400 per month. You could build 200 units, and everyone is happy. But with marginal costs higher than revenue for low income renters, you will probably just build the higher income housing. This is oversimplified, but is what's happening in essence in New York and San Francisco. The well intentioned rent controls and other regulations are pushing the cost of development so high that builders are either neglecting the bottom and middle of the market, or skimping as much as possible when they're forced to address it. We can argue that some of the regulation (no lead paint, etc) is good, but when you tilt the balance too far against the owners, then owners put their money elsewhere (stocks, bonds, etc.)

sliverstorm 13y ago

I think what we are saying, essentially, is that Joe Taxi Driver is leveraging the fact that he cannot be evicted to engage in aggressive rent-seeking behavior.

toufka 13y ago
That would be a reasonable conclusion if time wasn't a factor. Imagine if Joe Taxi Driver moved in when he could afford rent, and then the price of housing tripled in two years. Now, Joe's new roommates expect to pay 3x what Joe's old roommates paid. Additionally, Joe has far less housing security - he cannot move, even if he get's a 50% increase on his taxi receipts, he still can no longer afford market-rate rent. It's unclear if Joe is now 'leveraging the fact that he cannot be evicted' because the cost of eviction is so high, and his 'aggressive rent-seeking behavior' is now merely an effort to make a little extra money on the moral hazard that has been dropped into his lap.

malandrew 13y ago

I call bs here, if landlords are struggling then they should get out of the business of being a landlord in a market with regulations that don't support their business model. There are more than enough people willing to buy a unit to move into it themselves. I'm 100% anti rent control myself, but to claim landlords are struggling is disingenuous. There is no rule out there that says that landlords have a right to their business model on their terms. I'm aware of several units in this city where the landlord grew up in a unit their parents purchased way back in the day, who then moved out of the city to the suburbs. They now profit handsomely because they self select for tenants that are likely to move out of the city or outgrow a unit.

mathattack 13y ago
If you put in laws that say owners can not profit from their buildings, but their renters can, then you will have chronic underinvestment in housing infrastructure as a consequence. You wind up feeding the problem you are trying to solve. This has happened in both San Francisco and New York City. I'm not saying cities should be an unzoned and unplanned free-for-all, but good intentions at the expense of capital have unintended consequences.
- nitrogen 13y ago
  If the demand is high enough, someone will invest in infrastructure regardless of who profits from the existing stock.
  - mathattack 13y ago
    Right. But increasing the marginal cost of serving people, or decreasing the marginal revenue, means that you will build for less people than otherwise. To oversimplify the supply and demand curve... Let's say that there are 2 populations of people: - 100 people in Group 1 who can pay $500/month - 100 people in Group 2 who can pay $1000/month Let's say that something (rent control, regulation, taxes, whatever) takes away $300 per month of what you would collect in rent. Let's say that the cost of building an apartment building, amortized over time costs $400 per month. You could build 200 units, and everyone is happy. But with marginal costs higher than revenue for low income renters, you will probably just build the higher income housing. This is oversimplified, but is what's happening in essence in New York and San Francisco. The well intentioned rent controls and other regulations are pushing the cost of development so high that builders are either neglecting the bottom and middle of the market, or skimping as much as possible when they're forced to address it. We can argue that some of the regulation (no lead paint, etc) is good, but when you tilt the balance too far against the owners, then owners put their money elsewhere (stocks, bonds, etc.)