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Comment by sdegutis | Hacker News Reader

What's wrong with legally limiting artificial price hikes to prevent people from abusing Demand > Supply for the sake of their greed?

[Edit] To clarify, they seem to be "artificial" price hikes because they don't in any way necessary to cover costs. People realize they can charge more and get more money, so they simply do. That's inherently avaricious and unethical. Sure, maybe prices work themselves out, so that price goes down when supply goes up, but this seems to only be because suppliers can no longer get away with a higher price, because their competition is now selling it at a lower price. So I think it's far more ethical for a government to limit those kind of price hikes, which mainly just hurt the consumer, than to allow these abuses to continue in the name of "freedom".

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You are using emotionally charged words ("artificial", "abuse", "greed"), which makes a bit hard to have a constructive argument, but let me try :).

One way to think about prices is as a signal. When greedy landlords raise prices, they send two signals: (1) To other landlords and wanna-be-landlords, saying it's an attractive market which would justify new construction or cleaning up your spare bedroom and putting it on the market, both increasing supply, and (2) to current and future renters, making it more economical for them to move elsewhere and thus save on their rent, thus reducing demand.

I just edited the comment to clarify what I meant by those words. And they should be used because they are accurate in this context. Although I did convert "greed" to "avarice" in my clarification since I think it's more accurate here.

remember, gentrification is typically used as a pejorative

good point in that it undermines constructive argument

Doesn't that discourage people from building more housing, which is what would actually bring the price down?

What's "artificial" about the price increases?

Why is greed so bad here? The problem isn’t greed it’s the demand in the face of the lack of supply.

Make other places more attractive or increase the supply available in this location.

> Why is greed so bad here? The problem isn’t greed it’s the demand in the face of the lack of supply.

Greed is bad in this situation because you can make more money of luxury apartments than those suitable for people who are somewhere between the poverty line and upper middle class. Hence new apartments in major cities tend to be more and more expensive to satisfy the demand of wealthier people. Greed is also bad when existing apartments are made much more expensive, thereby forcing senior citizens who have been living there for decades and who are barely able to afford the rent to basically leave town, family and friends.

Upper middle class are usually not homeless, right now they occupy some pool of apartments in cities anyway. By building more luxury apartments you encourage them to move, thus leaving their old apartment behind, either by putting it on sale, or renting it out.

Think of this like a domino effect: those earning $10M per year buy luxury residence, leaving their old house for those earning $1M, who in turn leave their own houses to those earning $500K, who leave their apartments for those earning $200k, and so on, and so on.

In the end everybody benefits from new housing being built, even if it's only luxury housing.

Also, increasing supply keeps prices down, thus decreasing profitability of buying houses as investment, causing larger share of apartments to be bought by people who actually plan to live in them.

EDIT: yes, this effect might not work as described if is limited to just one city, because there might be a lot of people wanting to move from elswhere. Or more precisely: it will work, eventually, but it would require much more housing to be built to meet the demand.

> Think of this like a domino effect: those earning $10M per year buy luxury residence, leaving their old house for those earning $1M, who in turn leave their own houses to those earning $500K, who leave their apartments for those earning $200k, and so on, and so on.

This assumes that a) rents don't increase for the new residents (which is false) and b) people only move within a city and there's no high demand from people outside to move into the city (which is false too).

I don't think they're going to move that easily. Rent has been going so much it is eating a larger income share than before for many of them too.

So what that leaves you with is disproportionate increase of demand and prices for smaller cheaper units.

Yes, this fits closer to reality. Most people want to spend as little as possible on rent for a situation that matches their needs. Just because fancier apartments become available at higher prices doesn't mean people will move into them from a cheaper place just because they can technically afford it. Plenty of people rent apartments below their "I can afford this" level in order to use that money elsewhere or save up for a future house.

Building luxury housing doesn't push prices lower on the bottom half of the housing spectrum, it just makes the top end higher. "Trickle down" housing takes way too long to be realized, while subsidized housing has a much stronger and immediate impact[0]

[0]https://www.urbandisplacement.org/sites/default/files/images...

Paul Krugman tries to help you understand:

https://www.nytimes.com/2000/06/07/opinion/reckonings-a-rent...

The market works this out "automatically" when supply is greater than demand. If there are too many dwelling units then landlords will compete with eachother for tenants by lowering prices relative to eachother.

In the meantime while we wait for this to happen, people will keep getting evicted due to rising rent. How long do we wait? When can we expect results?

Are you asking in the short term or the long term?

So basically creating an artificial demand stop is the solution to creating the "artificial" price increase?

The simplistic version of demand based economics do not take into account speculators who buy rental properties and do not rent them out to reduce supply and to help increase the price of the properties they are flipping.

Doesn't change that both are artificial.

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