31% Can’t Pay the Rent: ‘It’s Only Going to Get Worse’
nytimes.com
nytimes.com
If the headline had said 18%, the situation would have sounded bad to me, but apparently that's normal?
The difference here is that the percent of that 31% who really can't afford the rent -- not now, and not any time soon -- is probably closer to 100%.
In NZ rent is weekly, on no particular day (can be different for each tenant).
Yes, at least in all the markets I'm aware of. If someone moves in after in the middle of a month, you'll pro-rate the rent for that first fraction of a month so that everyone's back on the monthly cycle for the rest of the lease (typically 12 months, but in some markets there's a strong preference for a particular month and so the lease will be written to end after less than 12 months. Typically uni towns where you really want to lease to end on August 31st regardless of when it started).
To clarify the 15th: paychecks typically also always arrive bimonthy and on fixed days. So, people would fail to budget for the 1st but would be able to cover rent when their second bimonthly paycheck hit their account. As a land owner extracting rent from folks, I think it's more than fair that they get a ~10 day interest fee loan as needed. And even if I were an asshole, it wouldn't be in my economic interest to do anything about those sorts of 10 day delays.
But I sort of suspect a lot of the folks who couldn't afford rent on the 1st of April 2020 won't be able to afford rent on the 15th of April 2020 either...
Almost by definition "rent" is simply extracting value from the productive economy through ownership.
If the productive economy takes a dive or disappears, the amount you can extract must do likewise.
What? Do you define any profit margin as such? Housing rent is not the same thing as the term 'economic rent'. Housing is as much a liability as an asset. There is risk with owning it. Rent payments are compensation for said risk. All profit is just compensation for risk.
Please note that this isn't to say tenant laws are a mistake, but they do raise the price of rent for everyone.
In the current environment, asset value decreases and certain costs (prices charged) have decreased as the supply chain adapts to try to maintain break even volume.
Maybe it's different across the board.
If demand for housing climbs noticeably, rates will follow, and vice versa (if supply of housing climbs, rates will plummet)
The reason profit exists is that risk must be assumed to earn it.
It’s a pretty basic business. Watch the money going out, manage the tenants coming in.
I personally know way too many permutations of 'landlords' to feel comfortable judging them all in a similar way, but I'm still inclined to judge most of them negatively and harshly. Because in most cases, it's just so obvious how their owning and 'rentier' status is not a consequence of 'fairness' or even 'fair competition'.
My landlord got what he had because of his age. Most of my rentier friends have what they have because they inherited it. I'm okay with my landlord because he's disabled in some way and scraping by, but it's still weird that I pay for his entire mortgage + more just because he bought a house at the right time. I'd prefer a situation where I can choose to support him rather than feel, weirdly, as part of the precariat that he can kick out whenever he can benefit more from others paying his mortgage and more of his monthly expenses.
The only reason why he can't and won't do this is that legally there's a limit to how much rent he can ask me.
Anyways, point being, there's something fundamentally iffy about the fact that every single 'rentier' I know acquired this status through nepotism or timing, and not via whatever meritocratic measure one could conjure up.
In the real world, there are thousands of landlords that are just regular people and regular businesses that are not royalty. You can live anywhere you like.
My point is that profit as a concept exists because without it, there would be no reason to assume risk in the first place. Therefore, profit is compensation for risk.
The mentality that you seem to have is more like a moral justification, or excuse, for profit. "X took risks, and got rewards, and it is therefore good and right", to paraphrase. But there's no direct causation between taking a risk and getting a reward; in fact many rewards come from being well connected, having the right background, skin colour, social bearing and milieu, and many other structural advantages, and taking risks without these advantages leads to big fat losses.
Reducing the justification for profit to risk is a massive apology for the inequality in society which stems from far more than mere intolerance for risk. I don't think there's much difference in risk tolerance of young men right across the income distribution spectrum; you see it in boy racers, in the jousting on a Saturday night, in thrill seekers, in criminals, in all sorts. But only a few have the privileged position to be able to put significant capital at risk for reward, rather than their own bodies. Saying that it's justified that people profit from this, because of "risk", is just wrong, it's blinkered in a way which benefits the luckiest in our society.
That's not really how the entrepreneur thing is framed.
But isn't it a moral position then ?
Yes it is. The primary reason anyone takes on risk is because there is profit in it.
Risk is a limiting factor on chasing profit. The risk isn't the other side of a coin with profit. There are lots of different limiting factors on chasing profit; more supply may simply be unavailable, there may be barriers to entry, natural monopolies, regulation, etc. Risk (capital and human time) is one among many.
It's all supply and demand. Lower economic activity translates to lower demand. I'd also say that to imply that a landlord doesn't provide a service is total nonsense. There are plenty of reasons why people and companies might prefer to rent instead of buy the least of which is that a tenant doesn't have a long term financial commitment or principal / property value risk. There are many companies that even take their wholly owned property and sell it so they can lease it back in a triple net leasing arrangement because it benefits them to not have capital locked up in real estate value.
Semi related I read a detailed description what happened during the hyper inflation in Germany after WWI. A key thing is the inflation was not uniform. Food prices increased the most. And rents the least. At the end rents were effectively zero.
Well, yes. You always need food, but you don't need your own apartment when you can start couchsurfing. Real estate does degenerate fairly quickly when it's uninhabited. You could see a similar phenomenon after German reunification. There was much real estate with unclear title in the East, and students and squatters were actually tolerated - the owners and the city knew that with someone living in the premises the building would not deteriorate further.
For a landlord a tenant unable to pay the rent isn't a problem. If 30-50% can't it's is his problem.
I understand you want to punish working class people for losing their jobs and being unable to pay rent. Fundamentally there will be chaos if it comes to that. First they don't have the money. Second they won't leave. Third the cops and the courts will do NOTHING about it.
If the bank, credit cards and mortgage owners have payments suspended in recessions, there would be many less recessions.
If the top of the chain, that is the elusive 'trickle down' source, felt the pain for recessions the most, there would be many less recessions.
If 'too big to fail' banks and companies were immediately broken up on commencement of recessions, there would be many less recessions.
Markets are efficient, they will hit targets, market regulations can be used to set targets that will keep the whole thing on the rails, remove the rails and the usual happens, more inequality and stagnation.
We have to put the incentives in the right place. If the lower/middle always feel the pain with no consequence for the top or 'too big to fail' companies, then it will be a regular, repeating occurrence. That will create markets where companies get big enough to be 'too big to fail' and get bailouts, or essentially grow to 'bailout big'.
No matter what you believe about economies, or markets, money only goes where other money is, and you can't keep taking from the spenders in a consumer economy. The constant rent-seeking, predatory, value extraction, wealth destroying events are going to break the lower/middle and public markets. Individuals, families and small business especially need support during these times, the longs that all value extractors extract from and the engine of America as well as the research and development labs of larger companies.
Markets are garden, the in trouble lower/middle should be brought up and focused on, the massively growing top should be scaled back or harvested.
Money trickles up and down and all around, but money only trickles where other money is found.
America is mostly small businesses.
SBA/Chamber of Commerce has 30.2 million for companies under 500 people.
Lots are sole proprietors or very small < 5 people. 22 million of the small businesses in the United States are individually operated, meaning that they have no other employees other than the owner.
99.9% of businesses in the United States are small businesses, owing to the rather large threshold of 500 employees, or fewer.
Small business is the engine of America.
Small businesses comprise what share of the U.S. economy?
Small businesses make up [1][2]:
- 99.7 percent of U.S. employer firms,
- 64 percent of net new private-sector jobs,
- 49.2 percent of private-sector employment,
- 42.9 percent of private-sector payroll,
- 46 percent of private-sector output,
- 43 percent of high-tech employment,
- 98 percent of firms exporting goods,
- 33 percent of exporting value.
It is time to help the lower/middle and sole-proprietors and small business or America as we know it is much much different after this.
About 8 trillion in 'stimulus', at a cost of 20k to every citizen, for that we got $1200 we haven't got yet and small businesses finding out how small of fish they a really are.
This market is broken for lower/middle and people or small business. It is gangbusters for wealth and value extraction ops.
The stimulus for individuals, families and small business is vaporware, time for some vaporwave as we fade away into the ether.
Good luck wealth and big business with no one to skim from and no small business to use as research and development or suppliers.
[1] https://www.sba.gov/sites/default/files/FAQ_Sept_2012.pdf
[2] Source: U.S. Census Bureau, SUSB, CPS; International Trade Administration; Bureau of Labor Statistics, BED; Advocacy-funded research, Small Business GDP: Update 2002- 2010, www.sba.gov/advocacy/7540/42371.
I'm curious what the justification for this is. It seems like the kneejerk reaction toward any big/powerful entity (eg. "break up the tech companies!").
Well we do need more Teddy Roosevelts that threaten anti-trust. FDR was also from wealth and took on wealth in a way that made the most secure and trusted investable market for investors and workers ever and has lasted almost a century [1].
Microsoft, even the threat of one in the 90s led to Google, Apple, Amazon, Mozilla, etc to rise. Microsoft is also better for it.
However I don't think any company should be broken up until they start to abuse a monopoly or become a single point of failure for economic disasters or national security issue.
For instance right now banks and ISPs need to be broken up.
Clearly 'too big to fail' banks are a national security issue and lend to massive value extraction events and recessions as they gain.
Also, the local monopolies of ISPs have led to rent-seeking and less innovation.
Competition is a key of capitalism and fair markets. If you do not have competition you have stagnation and monopolies make progression and innovation lazy.
Here's a great quick point by Steve Jobs about product stagnation and the managers/business side [2] and how they can run amok if not controlled to allow value creation to continue, and how monopolies or problems that arise when only the business/managers are in charge.
Essentially when monopolies/oligopolies happen they stagnate and the product/engineer/creates lose power to the business/management side, value creation is killed for value extraction and stagnation happens always, it is basically a law of the universe at this point.
The alternative is to keep sticking it to the bottom, the lower/middle and the worker in consumer economies, the service in a service economy, the small business R&D absorbing failures and proving successes for large businesses, the long investors that are 'suckers' to investment banks, and the overall quality of life we all enjoy. Or you can take some from the top and incentivize them helping to make sure recessions are rare.
[1] https://rooseveltinstitute.org/how-fdr-took-forces-wealth-an...
I'm not too convinced whether a breakup would accomplish that. Smaller banks are less capitalized, and therefore be less able to absorb shocks than big banks. You can see that almost all the banks on the failed banks list[1] are small local banks (although this might also be because bank sizes follow a power distribution, it would be interesting if there was a bank failure rate that accounted for market cap). Also, what's preventing all the banks from engaging in the same risky behavior and all requiring a bail-out? If the government won't let AIG fail, would it let AIG01,AIG02,...,AIG99 fail?
[1] https://www.fdic.gov/bank/individual/failed/banklist.html
>Also, the local monopolies of ISPs have led to rent-seeking and less innovation.
The problem with ISPs aren't that they're big, it's that they hold monopolies over a geographic area limiting consumer choice. Breaking them up will do nothing, as each company post-breakup still hold a monopoly and therefore can continue to abuse consumers.
Tenant fails to pay rent because of economic hardship. Building owner get in a cash squeeze and can't pay vendors like plumber, snow clearing, landscaping, and eventually can't make loan payments.
Mortgage holders see a rise in troubled loans, eventually writing a large number of them off for large losses.
REITs take losses on investments they must write off.
Your own retirement plan or personal investment portfolio takes a hit because some portion of it is REITs.
Everything is interconnected. I see a lot of simplistic "landlords must suck it up" comments in this thread. Really, who is so naive as to think that the typical commercial property is not leveraged?
Your answer is for the rent payer, with no economy, to "suck it up".
If the top felt the pain of recessions more than the bottom, you can bet there would be less recessions where massive wealth value extraction happens. You have to align the market incentives right. Make the top feel the pain, at the bank level even, and you are gonna have better ratings agencies, better leverage ratios, and less pump and dump bubbles setup. Right now if the top always gains, even in pain, there will be more and more pain as they look for gains guaranteed.
If we truly are in a trickle down system, shouldn't emergency hits to the recession start at the top, the trickle source?
Money trickles up and down and all around, but money only trickles where other money is found.
You miss-read me. First of all, I did not suggest any answer. I suggested that people put more thoughtfulness into their analysis.
What I am saying is that there really is no one person to "suck it up". The furloughed school cafeteria worker is going to take a double hit because the public employee retirement system probably holds REITs.
Scapegoating landlords is the tactic of leftest South American dictators. Landlords are middlemen, earning a return on providing housing liquidity. They take on short-term risk in the form of their tenants potential inability to pay, and long-term risk in the form of long-term loans collateralized by their properties. The system doesn't work unless someone is willing to take on that risk profile. Stop scapegoating landlords.
Implicit in the criticism of landlords is that the majority of this long term loan is for an arbitrary asset valuation created by artificially low interest loans. Most of the cost of real estate is not in the building or upkeep itself, which is why everyone worries (or hopes) that real estate values will drop when the debt treadmill slows. Like NYC taxi medallions, it's an overfinancialized setup that taxes real production for the sake of the financial industry.
So yes, looking at the individual landlords they are indeed working to fill a market niche. But looking at the emergent system taken as a whole, it's preposterous.
If rent collection at the very top, above the landlord, above the management company, if they have to take the hit from this the most, there will be many less recessions. If the bank, credit cards and mortgage owners have payments suspended in recessions, there would be many less recessions.
If the top of the chain, that is the elusive 'trickle down' source, felt the pain for recessions the most, there would be many less recessions.
If 'too big to fail' banks and companies were immediately broken up on commencement of recessions, there would be many less recessions.
If you let the bottom just suck it up, extract all value and wealth from them while they take the hit and are the value creators and workers, then there will be many more recessions and incentives to go bigger every single time.
Stop incentivizing bigger and bigger recessions and companies that get 'bailout big' from 'too big to fail'.
It is only going to get worse if the top doesn't feel the pain, instead they gain with the current setup. This isn't a normal market, you can't put it on the bottom again. We shouldn't only care about the rent-seekers, they add little value and the assets still exist if they change. We should be focused on the value creators, workers and consumers, not just the value extractors and rent-seekers.
Incentives and regulations drive markets to targets, set the targets better, and take the target off the backs of the lower/middle class.
Markets are garden, they mostly just grow, but it takes some maintenance. The in trouble lower/middle should be brought up and focused on, the massively growing top should be scaled back or harvested regularly.
If you run any projects or have any game designs for markets, you know this is something that requires maintenance and balance, not inequality. Life is a free to play game, whales should provide most of the funds for a good game design for all.
More in this comment so I don't have to repeat it: https://news.ycombinator.com/item?id=22852799
I can afford to pay my rent. I have no problems doing so. However, if I were to learn that my rental management group were facing a large rent rebellion, that I believed that the rebels had legitimate complaints, and that the rental management group could survive the rebellion by evicting all of the rebels but only if I paid my rent, then I would consider not paying my rent.
Therefore, I can imagine a situation where I would not pay my rent despite being able to afford it, and be expressing solidarity by doing so.
I don't really care whether or not you're sympathetic right now to this particular cause, but you should consider the principles behind the actions that people are taking, and spend some time putting yourself in everybody else's shoes.
To paint landlords as rentiers who can easily afford to go without rent or with greatly reduced rent is wrong. It mischaracterizes the problem in a way that will lead to bad solutions.
If there is to be rent reductions or forgiveness, there must also be reductions, aid or forgiveness on mortgages, property taxes and utilities. Somebody needs to pay for these things. Yes, profits will be reduced, but losses cannot be sustained for as long as social distancing measures are expected to last.
[1] https://www.huduser.gov/portal/pdredge/pdr-edge-frm-asst-sec...
That said I agree there are many edge cases in this crisis and that, ideally, assistance should be given fairly liberally to all individuals who find themselves in tough situations.
I'm sure there's a moral framework where it's never acceptable to hurt someone else when you could sacrifice yourself instead, but I don't think that's a particularly common school of thought. More often people will weigh two potential harms to make a decision, like "I can't pay my rent, but property taxes and foreclosures have been suspended during the pandemic, so my landlord will likely suffer less harm than I would if I became homeless."
Finally, "can't pay the rent" doesn't necessarily mean silently fail to mail a check. It might mean talking to the landlord about a payment plan, or frankly telling them you have no money and can't even afford food for the week. Landlords are humans, just like grocers who might give food to a starving person
The difference in tenants is real. Equity residential tenants are higher end rentals in big to midsized cities with strong economies.
http://investors.equityapartments.com/file/Index?KeyFile=403...
Where I live, there is a huge service economy (restaurants, bars, gyms, etc.) and most of those service workers were laid off extremely fast, with very little savings to get through extended unemployment.
Corporate America will be culling the herd in a few weeks. Financial services are already purging.
wait, is that even legal? Aren't security deposits meant to be held in trust?
But that story checks out, as when the market crashed ~2008, the FED bailed underwater mortgage assets (such as these supposedly) off banks hands to avoid bank runs via QE. You can see that mortgage-backed securities still comprise a significant portion of the FED's balance sheet:
https://www.federalreserve.gov/releases/h41/current/h41.htm
https://www.federalreserve.gov/monetarypolicy/bst_fedsbalanc...
"Can't" indicates they are unable, whereas I suspect at least some are taking advantage of the current situation [1]. Any situation where it's possible to take advantage, you can almost guarantee that people will.
This is not the way forwards - not paying rent will have a large knock-on effect for landlords (which, despite some sentiment, isn't necessarily the 1%). The US government needs to provide money if they are going to demand that people stay at home and not work.
Ultimately they either bring the economy to a screaming halt (entirely) or trickle money to those unable to work in order to keep things going. In my opinion stalling the economy is a bad idea - it can cost a lot of time and money to get it going again.
[1] https://news.yahoo.com/rent-strike-idea-gaining-steam-170345...
Governments have a responsibility to all their citizens, not just stockholders.
Barring one of our largest financial partners (and largest creditors) would certainly have a devastating effect on our economy.
0: https://www.americanmanufacturing.org/blog/entry/congress-ex....
"You must sell."
"Okay, this 3br house is $10MM. It's not selling."
Eminent domain?
Are we going to do that for the huge swathes of vacant homes we already have, too?
That is sure to go down well.
If demand grows while supply stays constant, any 7th grader could tell you the consequences, but this basic fact seems to elude our elected officials.
https://www.weforum.org/agenda/2020/04/pandemic-economy-less...
Here’s my city. https://www.influenzaarchive.org/cities/city-albany.html#
NYC didn’t shut down, but had an active surveillance program to monitor the situation and act. That’s one of the real tragedies of the complete failure of the federal government. Their ineptitude will kill thousands and impoverish millions.