If I have a property and I decide to rent it, why would I rent it for anything less than the sum of my expenses plus a profit margin that will cover maintenance or repairs?
Why would anyone else? A rental property is just like any other business.
That's my blue-sky-point-of-view of the property market which doesn't reflect the reality, but I believe with enough people treating property as an investment rather than a personal need you end up in our current situation.
My personal view is that tax systems should compensate by being more expensive to own more properties than you need. (where to put a limit, I'm not sure)
I tried to sell my old house and despite being priced low just to get it sold, it sat on the market after we had already moved. We ended up deciding to see if we could rent it but weren’t sure how the process would go. In our area we didn’t see any home rentals listed except for a couple that were excessive (double what a mortgage would cost).
After months of not selling, we listed it for rent at a price I thought nobody would pay and it rented in 1 day, sight unseen. The renters insisted on paying a deposit as soon as possible because they didn’t want to lose the property.
For a first dip into the home rental market, I was shocked at how high the demand was.
Consider a landlord that stupidly overpays for a property. The market isn't going to cry about the landlord not being able to charge rent that covers their expenses.
Other people may want to rent their properties for less for multiple reasons, including that the sum of their expenses may be less than yours.
In any other business, it’s not necessarily the case that your revenue covers your costs. Unprofitable businesses exist (and may be even “expected” in cyclical sectors).
> Why would anyone else? A rental property is just like any other business.
You're absolutely right if your financial and strategical planning only sees up to the next quarter.
Also its future value may depend on how you're renting it currently. (Or even if your overcharging for rent and the property is empty because you are waiting for "the perfect tenant")
You're also assuming buying and selling property is frictionless.
If your equity is negative it might be better (or even be the only alternative) to rent it at a below mortgage cost to have fewer losses.
Is that what you are saying too? Because then there isn't much of an argument here :) I thought what you meant to say was that there is some factor other than financial that comes into play (or should come into play) when determining a rental price.
In a free market, homes would be very unlikely to appreciate in value. Indeed, they would be much more likely to depreciate as they degrade and fall technologically behind.
A route I (used to) fly frequently has two competing airlines, one of which raises the price towards the flight date even if they have free seats (they bank on you willing to pay a premium for a next-day unplanned flight), the other lowers the price towards the flight date if they still have free seats (they don't want to fly empty). The former does much better financially than the latter, although I cannot tell if that's the only reason.
But a house owner sells/rents out once in 5-10 years, and never to a repeat audience; So money is all that matters, signaling doesn't.
Note however that airline pricing is notoriously difficult. There is no single price at which an airline may be flown profitably. It is an astounding achievement that the industry functions at all.