Comment by gist | Hacker News Reader

Comment by gist | Hacker News Reader

Ok here we go again nobody is allowed to make any money and everything is unfair and capitalism is bad and so on.

In practice if an apartment makes money by way of this "kickback" it also offsets the rent that they have to charge the tenants of that building. Similar to airlines, assuming that if one charge is reduced or eliminated it won't show up in another area (baggage fees) or in the case of a building reduced maintenance or services doesn't take into account how real businesses operate. There is nothing wrong with a business making money and in fact a business that is profitable is also good for it's customers. A business that loses money is not. The "peanut gallery" (people who write blog posts and comment on this but don't actually even own their own business) aren't in a good position to know all the ins and outs.

That said, sure some businesses rip people off (if you want to call it that) but don't assume that is the default case.

Edit: Perhaps this attorney (at Harvard no less) could write an article about the 'legal tax' on society as a result of lack of competition in the legal market. The cost to consumers for that (since it's passed along in product costs) is almost certainly way greater than whatever the 'vig' is for higher priced cable television or internet service.

There's no incentive for that profit to be passed on as reduced rates for the tenants.

Competition.

Only a factor if there is a significant number of vacant properties that need to be filled with people, which is not the case in places like SF and NYC.

Then why don't landlords raise the price until there are? Seems inefficient.

1) They already are

2) If you're going Econ 101 on this, ever heard of elasticity or switching costs?

1. Then why isn't there competition yet? This points towards a more complex model being needed.

2. I mentioned stickiness in https://news.ycombinator.com/item?id=11989391. But it makes the analysis more complicated, and the comments I was responding to were not at that level. Remember, I started by responding to a comment saying "There's no incentive for that profit to be passed on as reduced rates for the tenants.", which is a simplistic model.

https://en.wikipedia.org/wiki/Spherical_cow

I'm not saying the simple model is correct, I'm saying that you need a model which accounts for the things the simple model has. You can account for more things, and I did, but without doing that you aren't justified in complaining.

Well if that is the case then the price they could charge would be infinite and they would simply keep raising it.

Even in a competitive market, specifically the ones you have mentioned, the rent charged is based on supply and demand and the competition. If not what prevents them from doubling the rent?

To be fair to the original point, one could argue that sticker price of rent is more sticky than the imputed cost, and so this is a sneaky way of raising rent that doesn't reduce demand as much.

But that's a more complicated case to make than "kickbacks therefore bad".

> so this is a sneaky way of raising rent that doesn't reduce demand as much.

You could say a similar thing about laundry room charges where there isn't any competition. And also no specific disclosure as well (unless you ask) therefore is that sneaky? What I am saying is non disclosure does not mean "sneaky".

But another point is this: If enough buildings are doing this, such that an article like the parent post is being written, it then becomes something that a careful apartment shopper should or would consider when pricing apartments "total cost of rental".

You know if you buy an expensive luxury car they don't specifically point out that you will have to pay fees to keep your warranty current (Porsche, Mercedes as two examples). So is that sneaky? After all BMW (as a high end competitor) includes all maintenance.

> Even in a competitive market, specifically the ones you have mentioned, the rent charged is based on supply and demand and the competition. If not what prevents them from doubling the rent?

Because doubling the rent would be enough to get the people to desperately search for someone else. But getting them move in and then slowly raising the rent is a common practice.

Sure there is competition in this market, but given that a) demand is much bigger than supply, b) switching costs for tenants are extremely high, and c) it's not a competition in which a landlord can actually get out of business (even if they cut their rates by half, it would still be profitable to rent out the apartments), the competitiveness matters very little, and landlords are in no hurry to fight against each other - they're more likely to cooperate instead. The prices aren't set on the level competition demands - they're limited to what people can afford at all.

Competition is based mostly on the headline rental rate, excluding tricks like this.

That's not enough to change anything. If everyone can get $X from kickbacks, then one person can afford to reduce their headline rate by $Y<$X, thus outperforming others until they reduce their price to the same equilibrium except $X of costs are now implicit.

You need some more complex notion of stickiness differing between imputed and sticker costs as I mentioned downthread for this to be harmful.

I almost entirely agree with you, but you have to tailor your writing to the people you're talking too. The HN audience mainly understands technology, not economics.

The real problem is that the landlords are exploiting the cost of information. It's costly for new tenants to educate themselves and factor in the costs of potential ISP/TV in addition to rent. Landlords are exploiting that cost to profit for themselves.

Is it nearly as big as a problem as everyone here is making it out to be? No. It's like 50-100$ a month compare to 1000-4000$ a month rent for most people. That's 1/80 to 1/10 the cost of the rent.

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