Comment by tptacek
2 days ago
It costs money to hold on to a unit of housing. Supply is increasing (that's the premise; nobody is proposing a one-time increase in supply). How does the investor profit?
2 days ago
It costs money to hold on to a unit of housing. Supply is increasing (that's the premise; nobody is proposing a one-time increase in supply). How does the investor profit?
The investor profits from the appreciation of the property - they may Airbnb in the meantime also. Especially, often the speculator will fix-up the property for a sale - and then the next buyer fixes it up as well. Eventually it be a vacation home or someone might even buy it but the entire process keep a lot of property off the rental market and that increases rents.
If a small number of landlords continue to control the supply (which I understand to also be part of the premise) then they can charge whatever rate allows them to profit. Housing is pretty inelastic and is a first order priority for most people, so they will pay the maximum they can afford if they have to. At least near me, most of the housing being created is owned by large corporations like the Irvine Company, it’s not individual owned.
I'm asking: how does a small number of landlords continue to "control the supply" of an ever-increasing supply of housing when each of their holdings is non-remunerative (and, in fact, incurs tax and maintenance costs). This seems like a pretty simple math problem, a bet that you would not take if it was laid out in front of you, but I'm waiting for someone to explain how that might not be the case.
Keep in mind: as soon as you concede that investor-owners are letting out properties, they are competing in the market: further supply of housing decreases their returns, because they compete with all other suppliers of housing, the high-order bit of which is existing owners. You have to make this math work with owners who deliberately keep their units vacant, or it doesn't even work as an idea.
I’m not arguing they’re keeping it vacant, that’s someone else in the thread.
I reject the notion that the units are not making money, and the notion that they are competing on price. We know corporate landlords engage in cartel behavior using price setting algorithms, and there is a deep well of tax-incentives for real estate (eg 1031s) that make it a more complex math problem than you are making it out to be.
How did Uber et al. offer services below cost until they'd driven out all competition? The property holdings are not these landlords' only source of income. Why would milk producers deliberately dump millions of gallons of milk (representing a commensurate amount of labor to both produce and then dispose of)? Because they've created an oversupply that threatens to destabilize the price.
The math works, it's just heinous.
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