Rents for the rich are going down, rents for the poor are going up. Why? | Hacker News Reader

Rents for the rich are going down, rents for the poor are going up. Why?

washingtonpost.com

188 pointsece246 comments

While the article is interesting, there is one dynamic it missed: tech debt.

Starting around 1975, housing supply stopped keeping up with the growth of housing demand. It picked back up fifteen years later, around 1990: https://www.brookings.edu/research/the-goldilocks-problem-of...

(But that is on a national level: in the West, in comparison, housing growth hasn't been sufficient to house the new households formed at any time in the last 70 years and so the problems run deeper.)

Normally, cheap housing is housing that was expensive housing 30-100 years ago. Think of all of the post-war apartments in NYC, or the Boston multi-family houses built around the previous turn of the century.

Since many cities currently lack the recently-aging housing that would normally be filtering down market right now, the elasticity at the top is affecting housing too new for developers to be out of debt on, and thus we are unlikely to see it translate into lower prices on the low end until another 20-25 years pass and we get out of this housing doldrum.

(Not the West, though. Sorry San Francisco: you just have to build more places where people can live.)

> Since many cities currently lack the recently-aging housing that would normally be filtering down market right now

Huh.... in the UK house prices go up for older houses. You'd pay a premium to get an interwar house, or a 19th century house. Do people not like old houses in the US? They're usually better built, with more character, built on more land, in my experience.

Old houses in the US come with a lot of costs. They're usually poorly insulated, need to be brought up to code when renovations are performed, can have electrical and plumbing systems that need to be replaced in their entirety, and sometimes are just hard to insure in general (insurers can cancel your homeowners policy on any home in Florida over 40 years old at their discretion when your policy comes up for renewal). House has lead and asbestos? Remediation can be costly depending on your jurisdiction's requirements. This is less of a concern in highly desirable areas, as well to do buyers will buy for the land alone, demolish the property, and build new.

Disclosure: I renovate homes as a hobby, and occasionally demo those beyond repair. Most recent project was an older duplex in Naperville, IL torn down to replace with a modern three flat.

'Old' houses in the US are different than old houses in the UK. Old in the US usually means 1930s/40s/50s and the majority of that housing stock was poorly constructed leading to the problems that @toomuchtodo alluded to. In the few places where we truly have old houses (19th century) - the North East and central parts of some cities - they do, usually, command a premium.

Usually when I've seen 19th century homes for sale at premium prices, it's because they're of a desirable architecture in old-money neighborhoods and have been well maintained for their entire existence. I think it might be a bit of a survivorship bias.

Look at the HVAC system (typically boilers/hydronics of various vintages). If they're in good shape, it's likely the rest of the home as been similarly kept up, as that's one of the more expensive systems in such a home to keep in working order.

I think that's mainly only known to savvy people, other that perhaps general stuff about energy efficiency, which can go both ways in terms of gas versus electric or whatever. All things being equal in terms of cost, the average person still prefers the modern architecture of big kitchens, big windows, master bathrooms, walk-in closets, etc. It helps to sell your house if you add these things.

Is this the case outside of London?

Prices for older homes in more historic cities are high, even in the USA. But that's because commuting in Boston or DC is a fucking nightmare and most new development is occurring pretty far from the city centers. (though, not nearly to the degree of London)

When you get to places like Nashville, it's still possible to build a new home 15 minutes from downtown. Plus, fly-over cities tend to have satellite "office districts"* in the suburbs. So there's really no benefit to dealing with an older house, so, unless they are particularly charming, old homes come at relative discounts to new ones.

* Basically a town, usually off of a major highway, that is made up entirely of large office complexes designed for commuting by car from nearby suburbia.

It is the case everywhere in the UK. Old mill towns in the North, especially the Peak District, have housing made from granite, a lot of these were built during the height of the industrial revolution, they're absolute tanks compared to modern flat packs.

Erm, the characteristic stone in the Peak District is sandstone, but yes. My last house was built in the 1760s and I describe it as the heaviest object I have ever owned.

Yeah you're right, this is the characteristic rock: https://en.wikipedia.org/wiki/Gritstone

Aberdeen is somewhere in The North ;-)

> Is this the case outside of London?

My impression in the UK is buying a new house is something you do when you start out if you can't afford an old house yet.

Here are some considerations:

- Modern homes tend to have large kitchens, bathrooms, and bedrooms, and open common areas. People may prefer this over the misc-rooms approach that's more common in older places.

- Old homes in the US may not have 3-pronged outlets

- Old homes may have faucets that don't stick out far enough to get your hands under. Ones in the UK may have separate faucets for hot and cold. (Is the intent to fill the basin? Rapidly move your hands between the two?) You're more likely to have touchy shower temp controls

The intent is to fill the basin.

The intent is not to die of waterborne infection.

What's the risk of that? Never heard of that happening to anyone in my experience of living my whole life the USA with single faucet sinks.

Short video by Tom Scott on the subject for those interested.

https://youtu.be/HfHgUu_8KgA

tldw; Older homes in the UK had a water storage tank in the roof space that fed the water heating tank. This couldn't be classified as drinking water so wasn't allowed to be combined with the safe mains water that fed the cold tap. These days modern houses mostly use combi-boilers with no storage tank, so mostly both hot and cold are drinkable and it's not an issue. But preferences still lean towards the separate taps.

That may be a perk of having had an aristocratic ruling class, the first industrial revolution, and global empire (not being sarcastic- I'm a big Hidden Houses of Wales fan, would love to renovate an old castle). The UK was historically wealthy and has amazing old houses. In the US every decade has had significantly better housing stock with increasing standards of living, so its much less appealing to get an older house in 95% of the country. Especially anything 40s - 70s you get smallish rooms, low ceilings and questionable "vintage" building practices like I'm dealing with now (aluminum wiring, poor insulation, etc).

Polybutylene piping, asbestos and lead paint everywhere, ungrounded electrical outlets, leaky doors and windows...

Americans build shoddy wooden shacks that barely last a generation, you have to remember.

Non-American homes are all well built estates that last for a thousand years and need no improvements. Asia and Africa are full of particularly well built estates.

Seriously...All homes must be maintained or they will deteriorate.

America has ready access to a building material that many of these places don't: softwood. Softwood really just does not cut it if you're trying to build something that lasts hundreds to thousands of years. So they don't build for that.

Yeah and higher ceilings, bigger windows, nice wooden floors, ornate decorations etc. Turn of the century apartments are the nicest and most expensive.

I've heard that usually the price of the land goes up faster than the price of the building goes down.

But I guess if the building is unique or listed or has high enough build quality that it won't be knocked down in the foreseeable future, then maybe the building's price goes up to.

You've heard correct because the building is depreciating/deteriorating about as fast as it's nominal $ value is inflating, so it's about a wash and the nominal $ stays flat long term. But the land is scarce and appreciates along with inflation AND productive use of housing. (peoples' same inflation-adjusted consumption of housing ends up using less and less land, like condos, and so the land appreciates even faster than inflation until population growth stalls.)

A house in the US that's still standing from the period 1870 to 1950 probably:

- is balloon-framed

- has zero insulation

- might have knob and tube wiring kicking around

- probably has a dirt basement

- will be an absolute bitch to bring up to modern building codes if you want to do anything to it.

- has coats and coats of lead paint

- has asbestos everywhere

Things you're much more likely to get in a new house:

* Central A/C

* Fire safety (can't put a price on your family's safety)

* Attached garages

* High ceilings

* High capacity electrical circuits (Victorian homes weren't built for modern gadgets)

* Swimming pools

* More bathrooms

* Larger windows

* Better insulation

* Tighter seals to stop bugs and pests creeping in

* Better lighting

Most older properties in the UK have walls made of solid stone - which is pretty resilient in a fire.

Also, at least where I live, it hardly ever gets above 25C and if your house has thick solid stone walls the inside doesn't get too warm so no real need for AC either.

Edit: I'm 55 - I've never lived in a property that wasn't at least 100 years old and some were closer to 300 years old.

Edit: I would agree that heating in some older properties can be a challenge, but my parents told my that having to chip ice out of the bath before getting washed was character building.... ;-)

If the house even still exists and is in a desirable part of town in a desirable city, then yes it will certainly commend a premium. Though often as much for its location as for any other reason.

But consider also that in 1900, the population of the US was less than a quarter of what it is now, and also that the number of people per household is much less. Also, a lot (probably most) houses that existed in 1900 don't even exist any more. So in reality there are relatively few houses that old that are still available today.

People do pay a premium for older houses in the US, but only when they are located in a desirable location, which they often are.

Ab old house in the middle of nowhere, no matter how "well built" isn't going to command such a premium.

I assume this is because in the UK old houses don't have proper HVAC and neither do new ones. In the U.S., at least the new ones do.

Insufficient housing creates competition among workers and they do more work for less pay, as nobody wants to be an outsider. The number of building permits is set by city councils and those listen to the capital as the latter can choose where to create jobs.

> the latter can choose where to create jobs

Jobs such as "city councilman," for example.

> Starting around 1975

Guess what happened in October 1974: https://en.wikipedia.org/wiki/Equal_Credit_Opportunity_Act

Can you explain the significance of this correlation?

Have you ever seen people talk about how the 13th Amendment to the US Constitution outlaws slavery "except as a punishment for crime whereof the party shall have been duly convicted", leading to the modern prison-industrial complex that overwhelmingly targets black Americans with arrests for petty crimes and traps them in The System? https://sites.lib.jmu.edu/civic/2020/09/17/slaves-of-the-sta...

The ECOA makes it illegal for lenders to discriminate for home mortgage loans, which would lead to reduced racial segregation (following the Fair Housing Act of 1968), reduced discrimination against unmarried/divorced women, and many other nice things. The exception is that discrimination is still totally legal if the person just can't afford the home. As Atari once told me, Do The Math: https://fred.stlouisfed.org/series/OEHRENWBSHNO

Bonus points if we use the fear from the inevitable housing insecurity to make discriminated populations want to segregate themselves: https://books.google.com/ngrams/graph?content=gentrification...

> The exception is that discrimination is still totally legal if the person just can't afford the home.

It's also important to remember how this applies to school districts. If you exclude the poor from your neighborhood, you also exclude them from your school district. (This explains part of the otherwise unexpected opposition to school vouchers by college-educated affluent Democrats and the support for them by rural Republicans in bad school districts, when the vouchers would allow students to escape bad school districts.)

> As Atari once told me, Do The Math: https://fred.stlouisfed.org/series/OEHRENWBSHNO

Interestingly the steep curve on the graph is caused in large part by misguided policies claimed to increase home ownership (which is not really possible without increasing the housing supply). You can clearly see the "give mortgages to everybody regardless of whether they can afford it" policies leading up to the housing crisis, followed by the housing crisis, followed by more than a decade of near-zero interest rates inflating housing costs.

It looks like we had completely reinflated the housing bubble by 2016 and have only gone up from there, so that's... not ideal.

Though artificial housing scarcity is still a separate and real problem that compounds with this.

What's super disgusting is charging mothers who can't afford to live in your district but still wanted to give their child the best education she could, so she used her dad's address...

https://thehill.com/blogs/blog-briefing-room/news/434051-sto...

another example, not as 'clean', but they still charged enrolling her kid larceny...

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

> This explains part of the otherwise unexpected opposition to school vouchers by college-educated affluent Democrats and the support for them by rural Republicans in bad school districts, when the vouchers would allow students to escape bad school districts.

I'm aware of wealthy families wanting the voucher to throw toward private schools (they were never going to send their kids to public schools regardless). Wealthy families are of both political leanings.

Then there are the conservatives that dislike public schools because the teachers are in a union, or they believe teachers are liberals, or that they indoctrinate their kids into anit-Capitlist thinking, etc....

Really unfamiliar with the scenarios you paint.

> You can clearly see the "give mortgages to everybody regardless of whether they can afford it" policies

Or was it the de-leveraging of the banks, credit default swaps, derivatives and other shady practices by Wall Street?

> I'm aware of wealthy families wanting the voucher to throw toward private schools (they were never going to send their kids to public schools regardless).

The people rich enough to pay for private school tuition without any government subsidy have their own neighborhoods with their own school districts, where everyone else in the district is also that rich and sends their kids to private school and the property taxes are correspondingly less or spent on other things. They've already solved it for themselves.

The people who want school vouchers are the people who want to get into those schools but don't have the money to pay for it after the government takes it from them in property taxes and refuses to let them use it for anything other than sending their kids to a bad school district.

> Then there are the conservatives that dislike public schools because the teachers are in a union, or they believe teachers are liberals, or that they indoctrinate their kids into anit-Capitlist thinking, etc....

These are just specific examples of things that cause a school district to be low quality, e.g. when unions prevent bad teachers from being fired, and cause parents to want a way out of the broken system for their kids.

> Or was it the de-leveraging of the banks, credit default swaps, derivatives and other shady practices by Wall Street?

Recall that all of those things were justified on the basis of "increasing liquidity" etc., i.e. making it easier to own a home, and that their consequence was "give mortgages to everybody regardless of whether they can afford it" because if the bank was going to sell the mortgage to someone else as a derivative or use a CDS then they didn't care if the borrower could pay it back.

A book that goes deeper into this conversation is The Color of Money: Black Banks and the Racial Wealth Gap

Well worth the read, the story had a lot of nuances

https://www.goodreads.com/book/show/34758210

That raises a question. How do other impoverished groups escape the poverty trap more quickly? Historically Chinese and other immigrants's needs were served by their own official and unofficial institutions. What can be done to keep dollars within a community to grow wealth within?

I feel like it goes way beyond "impoverished" when the oppression and exploitation of free labor from a particular group is woven into hundreds of years of cultural DNA of the country, right from the very beginning written into the founding documents of South Carolina in the 1660s: https://avalon.law.yale.edu/17th_century/nc05.asp (section 110)

There are so many intersecting social issues too, like America's experiment with alcohol prohibition in the 1920s and anti-prostitution laws that to this day are endangering women, enabling trafficking, and being used as justification for ever-increasing surveillance. You can guess which types of "open minded" businesses back in the day tended to host jazz music and be more welcoming to blacks. Most people in San Francisco, for example, know of the Fillmore District but probably not of Terrific Street: https://en.wikipedia.org/wiki/Terrific_Street#Demise

Or the whole "Red Scare" McCarthyism thing, Hollywood codes, and anti-labor-union activities in the 20th century: https://isreview.org/issue/1/communist-party-and-black-liber...

I don't think this can be truly addressed without somehow dethroning and replacing the ruling egregore of America, but it is us and we are it.

I can't speak to cultural DNA. But I guess we could test it by looking at kids who at a young age moved to a different country and whether that cultural DNA sticks.

As I mentioned elsewhere, I think the media and entertainment have a hand in this and the establishment does not care --they want cheap labor. So on the one hand it's Fast Times at Ridgemont High, on the other we big tech and others want American kids to be dedicated to study like Chinese or Indian kids.

Movies and Media pretty much indoctrinate kids to be carefree and do what you want without consequences. (If media had no influence on people, people would not call for diversity in role models, etc)

> I think the media and entertainment have a hand in this and the establishment does not care

I agree, but I think the establishment does care quite a lot. That's what I was getting at when describing my personal view of the "establishment" as a kind of conscious entity, not exactly what I would call human, but conscious all the same. Like a corporation where harmful decisions end up being no particular individual's "fault" because every individual contributed but a sliver of the final thoughtform, individuals doing their best but who exist in a space where the scope of possibility is already narrowed for them in a way they might not even notice.

That's also why the US media industry and cultural exports are so important here. My personal view of a country is descriptive rather than prescriptive, that borders are implicit based on the speed that ideas can travel, and the US media-exported culture was the dominant one when global instant communication became possible. Makes me think about the esoteric outcomes of the copyright wars too. The big bad RIAA/MPAA get to be the boogeyman and absorb all of my nerd-hate-energy, but the outcome ensures that only current-generation media with establishment-approved themes makes it to our eyes and our ears.

That is a great question and one that the book speaks about. Some points to consider without going too deep:

- Italians and other European communities also faced with xenophobia and racism. Italians even founded 'the bank of Italy' (which is now BofA) because there were lack of institutions who financed and provided debt to them. Some laws have deliberately pushed to integrate white europeans to 'white american' society.

- Blacks had and still have to face systemic ('redlining' districts, 'G.I Bill, 'Civil Rights', etc) and unofficial racism. As a result, Black-owned banks typically face larger cost of debt, have larger liquidity requirements (small deposits and shorter withdraw periods) and more strict mortgage rules. We all know what happened.

PS: there is still a lot of poverty traps for other immigrants and minority groups. We are still far away from what needs to be done

Also of note are the Landsmanschaft and Jewish mutual aid societies, especially prevalent in early 20th century NYC. Contrary to stereotype many Jewish immigrants came here poor and Talmud encourages (requires?) an observant Jew who is able to lend money interest-free to help others get on their feet.

Not living in an environment where everything can be taken away from you through one bad interaction with say, a policeman helps. Having a stable family with positive role models, preferably one not torn apart by brushes with the justice system helps, too.

These kinds of problems get inherited from generation to generation, even if (a damn big if) the current generation were not directly subjected to any of the original racist cases thereof.

Agree...

I think unfortunately for multi-generational Americans there is a weird stigma when you come from certain backgrounds --some people escape them, but not most. Immigrants don't usually have this stigma and burden. They come for the opportunity which they believe comes with putting in hours or work and study. If you're second generation and greater, you assume many Americanisms like you're entitled to American things without the hard work. Immigrants are willing to sacrifice a generation so that the next might succeed. Quite a few of my HS cohort didn't have it in them to put in hard work. They wanted to hang out, play, skip school, go to the mall, smoke weed, get beer, etc. Kids of recent immigrants were not like that, by and large.

You hit a note with me about your American upbringing because I've had the same thoughts about mine but hadn't seen it hit it on the head like you have. American youth culture doesn't really value hard work and intellect. I know media like movies has a hand in this portrayal but I'm not sure it's really intentional like you allude to. I still wonder what it really is that some of us make it out into well paying careers while most of my HS cohort also mostly coasts on lackluster degrees and jobs. Race hasn't been any common thread in outcomes I've seen intra-high school, whereas the biggest differences seem to occur between high schools.

> American youth culture doesn't really value hard work and intellect.

They would be foolish to value those things when they can look around the world at large and see how success vs failure is pretty much some combination of luck and network/nepotism.

Kind of... 1st gen Americans retain the drive from their parents’ cultures and do better. But rivers flow downhill.

While I’m not advocating the Chinese entrance exam system, we’re the polar opposite where being lazy is cool. Look at all the youth drifting to LA dreaming of making it big. Some of that is going to YouTube/Instagram type platforms but it’s still a one in a million shot at glamorous success rather than steadfast hard work for a steady career (we do have physicians and lawyers and MBAs who resemble the steadfast attitude but it’s a small slice of society) we’re just not good at instilling this culture in our youth as well as other cultures do.

Will check out; thanks!

Please elaborate, I am deeply curious

https://news.ycombinator.com/item?id=26549294

> Starting around 1975, housing supply stopped keeping up with the growth of housing demand.

That correlates with the boomers entering the housing market.

Was going to say the same thing. Plus the Vietnam war had just ended.

If cheap housing is expensive housing built 30-100 years ago, we should have had decades and decades of delapidating housing stock left to go before hitting a shortage.

Not to mention your example of housing in Boston built at the turn of the 20th century. A laissez faire policy that makes the poor wait 120 years for housing is hardly any policy at all.

At least for San Francisco, the seeds of the current shortage started as early as 1912 with the establishment of the planning commission.

See this amazing twitter thread with images of historical news paper clippings.

https://twitter.com/enf/status/753435745272995840

Later on, in 1978, most of the city was down-zoned, and in the EIR (Environmental Impact Report) written at the time, it was clearly predicted that this would result in a supply shortage and increased prices. Unless the city made a point to increase density and development in the industrial parts of the city. That didn't really happy to the scale the EIR said was needed.

See: https://twitter.com/enf/status/775185946941591553?s=20

So here we are.

And many cities did, which is why the trend has been getting slowly worse.

I didn't talk about any "laissez faire" policy, and as far as I know no city in the US is pursuing a laissez faire policy. I also don't know why you think it is bad to have housing stock that lasts; having lived in a number of those turn of the century homes, they were better and cheaper than the "affordable" new apartment options. They were well-built luxury homes that are comfortable to live in, but didn't have the modern status symbols the new luxury apartments had. It isn't a universal thing, either; it was specifically because the luxury housing from the time was _nice_. I looked at cheap apartments in 1970s cement bunkers and always went back to living in a beautiful Victorian with vaulted ceilings, even if they were dustier & colder.

Affordable housing will always compromise on something, and personally I preferred finding roommates & buying space heaters to living in a shoebox.

As someone below noted, these dynamics vary dramatically by local. California, much less San Francisco, is a whole different kettle of fish. But because we stopped building housing for a while, we are at best going to face a period of catch-up, no matter what we do.

>I know no city in the US is pursuing a laissez faire policy

Well of course. The people who want laissez faire anything don't wind up living in the cities that have these problems. they self select to live in rural areas and the occasional rust belt dump where there is either no regulation or no enforcement.

The people who don't recoil at the thought of their property rights being violated wind up living in Boston, SF and their surrounding suburbs and vote for more of the same.

You mean the "West coast" when you say West?

It is a huge risk right now to take on someone that is poor as a renter because of the moratorium. It is completely unsurprising to me that landlords have priced this risk factor in.

Interestingly, if landlords were allowed to use larger security deposits, some would choose to do this instead of raising the monthly rent. My friend is looking to rent out an ADU, and the first idea was to have a sizable security deposit in order to filter applicants who fully intended on paying rent from those who would be more likely to use the eviction moratorium.

But apparently California tightened the rules around security deposits in 2020, which actually exacerbates this problem. Landlords used to be able to ask for up to two month’s rent as a security deposit, but now they can only ask for one month's rent.

This leads to upward pressure on rents, as landlords adjust the only lever they have left. I wonder if applicants can/do offer to prepay several month's rent, to signal that they are serious long-term tenants who have the ability and interest in paying rent (even if they legally could avoid payment).

That's horrible to hear, I was only able to get my first apartment in California since I could offer a double deposit.

Chicago on the other hand has fantastic housing supply and so many rules on security deposits, most buildings just don't do it. Access to housing permeates every aspect of a culture, people are significantly nicer when they can afford a place to live.

Has your friend been able to get out of California ?

Chicago does have a large supply of housing and land that can be converted into housing. This helps keep the cost of housing closer to the cost required to construct units.

In CA, the cost of a home has almost nothing to do with the input costs other than land. There are areas that could be built up (tons of land just west of 280), but which is protected by environmental laws or restrictions. Full development of this land would lead to traffic nightmares, for sure, but one could imagine that some of it could be developed as we move toward more efficient modes of transport.

San Francisco also has 26 skyscrapers to Chicago's 130. 80% of the Bay Area is zoned exclusive for single family, to Chicago's 41.1%.

It's not landscape and it's not rocket science: it's zoning. San Francisco could build up, letting people live closer to their work & be much better for the environment than encouraging sprawl, but chooses not to. Y'all decided to make housing expensive, so it is.

Zoning is absolutely a big part of this. Though I would expect SF to have fewer skyscrapers than Chicago even if it weren't for zoning differences, given the earthquake risk.

https://www.nytimes.com/interactive/2019/06/03/us/earthquake...

That's why there are so few skyscrapers in Tokyo, Taipei, etc

There's no reason why the bay area couldn't look like Tokyo today. Earthquake risks in both places.

doesn't it largely stem from Prop 13 which incentivizes all current land-owners to block any possibility of increasing density, at the expense of the rest of society?

It's interesting to me that such a universally easy sell as, "no new taxes" can result in such a distorted and, IMO, grotesque unintended consequence.

>block any possibility

It's even simpler than that. Had a conversation with a man who owns some tiny 60's vintage apartments on an ocean-view lot. He turns down market-rate offers from developers looking to put in family-size units because with his Prop. 13 tax tailwind, he makes out well enough despite the lower rents.

It doesn’t sound like Prop 13 is that influential for him. He’s turning down like millions for some reoccurring cash flow?

California Proposition 13 is about how limited the state government can charge on property tax (one percent)?and how much the appraisal can go up year after year.

Nothing to do with density, although there are numerous county and local laws on density zoning (which is not Prop 13)

Of course, it has been 1973 when this happened and I think only twice has the state government tried to changed it by “stealthily titled” proposition and failed.

What rules are you referring to regarding security deposits? Are they new? I have had only abusive experiences in Chicago (and, to be fair, Michigan and California) with security deposits.

<<The penalties that the RLTO imposes on landlords are often grossly disproportionate to the infractions, largely because the ordinance allows tenants to recover their reasonable attorneys' fees and court costs, even in legal proceedings brought to recover something as nominal as a $100 statutory penalty (and even if the penalized omission was utterly harmless). What’s more, dozens of Chicago lawyers specialize in representing tenants in these types of cases.>>

Anecdotally, landlords are moving/moved to having move-in fees over deposits due to the legal technicalities of handling them properly.

[0] https://www.domu.com/landlord-resources/apartment-lease-form...

In CA, only an abusive experience with a high security deposit. Tried to charge $800 for cleaning cobwebs off the exterior and roof of a house at move-out. The more of your money they have, the more of your money they will keep.

This comment is spot on. Rent premiums are often not greed, but just a risk premium and buffer-collection for a catch all of issues from future non-payment to other BS.

Prices are negotiated. Two parties must agree on the price. If there is a "greedy" landlord overcharging people there must also be a person "willing" to pay the overpriced rent. Of course there are cases of vacant properties but I don't think this is a problem for most rental markets.

> Prices are negotiated. Two parties must agree on the price.

Yeah, that's true of hostage negotiations too. The issue is one of choice and efficiency. Moving is a larger risk (via cost, opportunity, travel, etc) than changing rent or services performed, usually.

I'm pretty sure vacant properties are a problem in every market, it is just a matter of grayscales -- how many days do you keep units empty waiting for a creditworthy tenant. Perhaps the unit is empty 10 days, perhaps 15. Willingness to keep a unit empty is part of the negotiation -- a landlord is saying "I'd rather keep the unit empty for another couple of days than take a rent that wont adequately-compensate for the 4% chance i get nothing for 10months (i.e., eviction)"

Of course, even eviction timelines vary vastly from one jurisdiction to another

wow, that's not much in case the apartment is damaged.

Denmark allows for 3 months deposit plus 3 months rents upfront, so you have to be able to come up with 6 months rent total to get an apartment.

(market here is very hot, so rental apartments have no problem getting 6 months rent)

When you "quit" living in the apartment, you can use the 3 months prepaid rent, so you don't have to pay rent the last 3 months.

> 3 months deposit plus 3 months rents upfront

You need to come up with 6 month worth of rent to start renting? That's massive. It basically means most would need to borrow that money. Is that supposed to be a good thing?

I'm glad that illegal here, that's abusive. Personally I avoided any ad that required more than 2 month total upfront. Thankfully the local market allowed it. If I wanted to put a massive deposit I'd buy, not rent.

A lot of people have that on hand in Denmark or can get a loan from their bank. You also don't have to pay rent the last 1 to 3 months for your previous place, so it's not as bad as it sound.

People in USA live a lot more paycheck-to-paycheck than in the rest of the world.

I've lived in France and Spain, never the US, and giving so much upfront still seem massive to me.

For sure. Think about the damage that can be done to hardwood floors during move-out, for example. That's one easy way that a unit can be accidentally damaged, even by a tenant who is generally very careful.

Of course, you can still recover payment by suing, but that's obviously more difficult (especially if the former tenant has moved to another city/state).

Bangalore in India has 10 months rent as the usual deposit. Huge sink of money.

> exacerbates this problem

To clarify, the problem you're talking about is that it's risky to be a landlord, and maybe more so now than a few years ago.

> as landlords adjust the only lever they have left

At least some landlords also have the option of pulling the lever labeled "sell the unit".

This is me.

Low end 1 bedroom apartment, moratorium on eviction = suddenly no rent paid. Here in Australia there was significant $ from Government for those in such a position, including rental assistance. We got nothing. And I am not about to hound a person financially at the bottom who likely lost their job and had enough shit already.

But no point messing around with the lowest end market now that we can afford not to. Sell it.

Hmmm - I just paid 2 months deposit in 2021. Googling seems to say that is allowable.

"Effective January 1, 2020, landlords may not request a security deposit of more than one month’s rent for an unfurnished unit, and two month’s rent for a furnished unit, if the unit is rented to a service member."

The one month limit seems specific to service members.

Wow, confusing language in there. But NOLO makes it clear that the service member limitation relates to both clauses, not just the last one. [1] Good catch!

Seems the limit for non-service members is still 2 months, or 3 for furnished. Landlords can add 1/2 month for a water bed, curiously.

1: https://www.nolo.com/legal-encyclopedia/california-security-...

I knew a couple who had such awful credit they were not allowed to rent without paying the entire year's rent up front.

How is prepaying rent different from a larger security deposit?

Security deposits are legally the tenants funds held in escrow by the landlord until the end of the lease. They tend to be heavily regulated in tenant law, with stipulations on how large they can be, what can be deducted from the security deposit upon lease termination, how long after lease termination the landlord has to return the remainder of the deposit, whether they have to be held in an actual escrow account[1], etc.

Prepaid rent is just that - it's rent for some future period that the landlord is just receiving early, so doesn't come with all the legal strings attached[2]. The landlord recognizes the income when they receive it and it becomes their money to do what they want with at that point.

The nuance goes beyond just semantics, too. If a tenant files for bankruptcy, the security deposit the landlord is holding in escrow is considered an asset of the tenant's estate. Whereas prepaid rent is not, unless the contract was executed super recently and the judge determines it unfairly harmed other creditors and wants to claw it back.

[1] https://www.lawyers.com/legal-info/taxation/property-tax/adv...

[2] I'm sure this isn't a universal truth - in the US alone, tenant law tends to be an overlaid mishmash of federal, state, and local regulations. So I'm sure some places attach strings to it. But many if not most places do not.

It has a similar signaling effect, but someone could prepay 6 months rent and then just stop paying. With a security deposit, you have that as a buffer until the person leaves.

Perhaps the best way to accomplish this without having the landlord perpetually hang onto large amounts of tenant cash is to have a large deposit that slowly decreases over time, as trust increases. So perhaps it would be 5 or 6 months of deposit that is used to offset every 3rd month of rent during the first year.

The article does cite eviction moratorium effects, but from a different angle:

Landlords stuck with tenants who can’t pay may try to offset these losses by raising rents on everyone else. Rents in lower-end units tend to already be close to operating costs, Schuetz noted, so landlords may have slim profit margins.

Not only this, but there will be a eviction-moratorium risk premium that tenants will implicitly pay for years to come, to adjust for the added risk and to help keep a virtual buffer for future moratoriums.

There was an article a saw a few weeks ago about some guys based out of Oakland (maybe someone else can find it) who has accumulated 5 figures worth of rental debt. It talks about how he had just moved into an expensive place at the beginning of the pandemic, got laid off, then couldn’t pay for the whole year.

IIRC, he eventually moved, but still couldn’t pay rent and started accumulating even more rent debt there. I can’t imagine who would rent an apartment to that guy.

Five figures is $10,000. It only takes 2-3 months of rent to reach that in an expensive Oakland apartment.

I know the exact article you mentioned. The real story is actually more nuanced. The guy off course got laid off and could no longer afford the rent. But he racked up rent also because even if he moved earlier, his contract would have made him pay a ton of fines to even get out of it. So he decided to stay.

Yeah it’s not like it was really that much of his fault or anything (though I found it a bit fishy why he couldn’t get another job). Everyone’s mentality up until ~September was “oh just another month or two then everything will be back to normal”.

But my point is how could you expect landlords to rent to anyone without a very stable income? They could be out tens of thousands of dollars.

Well in this case, the landlord can simply allow the tenant to break the lease without such a harsh penalty, rather than playing this game which encourages people to use the law against them.

> though I found it a bit fishy why he couldn’t get another job

What line of work was he in? If he lost his job during the pandemic, is it possible there simply were very few jobs available that he was qualified for?

Product Manager

Implicitly though you're assuming that landlords have pricing power in this market.

The reason why they have pricing power is likely due to the moratorium.

People aren't being evicted so those units aren't going on the market, so supply of rentable units is being artificially suppressed.

When the moratorium expires then renters will be evicted and those units will go back on the market which should drive costs down for everyone else.

That, however, reduces their chance in getting tenants so it becomes a vicious self-feeding closed circuit process?

It's probably because of speculation. If there is a chance that the moratorium will end in July it's better to not have any tenants for a few months than bad ones you cannot evict and will trash your place. Also, unoccupied properties are always more valuable.

Is it really speculation if the government turns tenants into net negative customers?

Occupying a home reduces its value. Letting someone live somewhere "for free" (to them) is still worse to the owner of the house than leaving it vacant.

The more modern trend of businesses passing risk sort of flies in the face of the old rationale of business ownership taking on risk which justified the rewards of doing business.

Now you're just doing business wrong if you don't minimize risk or figure out how to shift and transfer risk away from yourself.

You try to minimize all risks, not only in business but in all aspects of life. That has always been the case. The caricature you presented has never existed.

It's crazy that we live in an economy where you have to pay just to live somewhere, but when the eviction moratorium ends, there's going to be a huge financial reckoning as there's no way anyone is paying all that back rent.

Biden is going to have to either bail out tenants or landlords and banks. I'll be taking bets on which one he does.

??? In what economy do most people not have to pay just to live somewhere?

Our highways are free for everyone to use and maintained using tax money. It's not inconceivable that housing could work the same way.

I grew up in an economy where it was. When I was born, we were living in a 4-people, 3-generational, ~500sqft 1.5 room flat (the large kitchen was subdivided to make a tiny bedroom); later, the govt decided that we deserve better and I ended up growing up in a 4-people, 2-generational, ~650sqft 2-room flat. I wonder what my parents, two engineers, would have been able to afford in the USA?

I think I had a very happy childhood but comparing these things kinda allows you to reflect. Interestingly, the low standards stick; when we bought a small 1100sqft house with my wife (in the USA), some of my friends back in Russia were like "oh, a big house, are you planning for kids?" ;)

I lived in a country where housing (at the time) was provided by the government. It's not as great as it might sound. Want to move? Do the paper work and wait for a few years. Want a bigger place? too bad. Not to mention single room for the whole family, shared kitchen and washrooms.

The quality of the housing is going to be proportional to the wealth of the country per capita. In the US, we simply allocate quality of housing based on ability to pay, so many people have incredibly bad housing conditions.

It doesn’t take very many years of communism to reduce the wealth of the country per capita until everyone has equally bad housing conditions.

Great point, we should continue to make people sleep on the street

Right, of course the only choices we have are government provides housing or everyone sleeps on the street. Not like we have any examples of any other system.

Gas taxes pay for roadways.

And so the reasoning goes: income taxes should pay for the general welfare, rather than the general hardship of various Middle Eastern countries.

Our highways are free because they're a public good (in the economics sense) and prone to monopoly pricing due to geographic constraints on competition.

While it isn't inconceivable that housing could be public, the same underlying economic rationale isn't there, and private housing works really well. You'd be solving a non-problem (or, to the extent that there is a problem, it's one that's easily addressed by simply increasing private housing stock) and risking a lot to do so.

> Our highways are free because they're a public good (in the economics sense) and prone to monopoly pricing due to geographic constraints on competition.

And homes are not? Certainly not at the same scale, but we are seeing the same problems with landlords that we see with monopolists.

Landlords are able to charge extremely high rents and there is not enough available/affordable land to build competition, especially in cities experiencing NIMBYism and gentrification.

> You'd be solving a non-problem (or, to the extent that there is a problem, it's one that's easily addressed by simply increasing private housing stock)

It's clearly a problem. That's why we're here talking about it in the first place. It's also clearly not "easily addressed", or that would have happened already. Sure, we need to remove barriers to increasing housing stock, but that isn't likely to be enough; especially in the short term.

Homes aren't a natural monopoly. Highways largely are.

  "there is not enough available/affordable land to build competition"

There definitely is in the large majority of places. The only city that can possibly say that honestly is Hong Kong, but even there they could go a bit more vertical and more dense if they needed.

  "It's also clearly not "easily addressed","

Whatever lobbying hurdles you need to overcome to reduce regulatory interference on increasing the housing stock, you're going to face those same hurdles (and then some) if we're talking about public housing. So it doesn't make sense to immediately go for the radical and untested solution when an easier and proven solution is waiting. If we build vertically and it doesn't work (which it will, but nevertheless) - only then does it make sense to consider something more radical and more difficult to push through.

Im just guessing there are several orders of magnitude greater quantity of housing rather than highways despite the apples and oranges difference.

Utopia

It's crazy that we live in an economy where all you have to do to live until 80 years is pay to live somewhere. We don't even have to hunt our own food.

Unlike food, land simply exists. That's why rents are so abhorrent. You are taxed by nobility simply because its theirs, not because they render any service. For food, you are paying because someone had to perform labor for you.

Land can be parceled out using any system people can devise. Rent is completely artificial. Strangely, the people that do nothing for you charge FAR more than the people who hunt for you.

An interesting metric to consider is how much would at-cost rent would be if land was free and only construction, repairs, and utilities needed to be paid for. If you run the numbers over the lifespan of a building, you'll be surprised.

Rents are not completely artificial, and you do get services for paying them. Part of it goes to paying property taxes to fund things like 911 services, local schools, libraries, public parks, sewers. Other part is for maintaining the property, things like roofs and furnaces eventually deteriorate and need to be replaced. Your landlord will replace those things for you, but it comes at a cost and it's called rent.

You could argue you don't get your moneys worth, but you do get services for them...

If you'd like you're welcome to lobby for the homestead act again. That would solve your lack of land without having to violate other peoples rights

The homestead act was part of westward expansion. The free "unclaimed" land (it was Native American land) provided a relief valve for the American system. When the poor became too uppity, the government would provide them with an escape valve of free land and adventure. When we finally reached California, that escape valve disappeared.

What you claim are rights, I dispute. The ability to control other people's living situation and extract rents is not a natural right. If anything, it's an abomination.

...either bail out tenants or landlords and banks.

Not quite. This crisis will be handled just like the last one. No tenants, homeowners, or landlords will be bailed out. That they go bankrupt and have their property repossessed is the whole point of the exercise. Big lenders will get the bailout on top of the collateral.

You're probably right. The banks are the ones the bet on.

> Rents for the poor are rising

Because of the economical impact of locking down the economy and giving money to everyone.

> Rents for the rich are plummeting

Because they don't need to live in expensive central hubs to get their high wages and there is less demand for their luxury flats.

Also, this lax definition of rich people is exactly how the richest 1% can stay hidden.

> get their high wages

Wages? What are you talking about, the working class?

Most of the people renting the expensive places talked about in this article are white collar workers.

Many rich people still earn a paycheck. YOu can be on payroll making 500k and have a stock portfolio worth 10mill, this is common for boomers who started investing in the 70s and 80s. A portfolio of that size will easily throw off 500k in dividends a year.

My point is that a large paycheck does not mean you are not paid wages. I get your point though, billionaires probably are not taking a salary.

>A portfolio of that size will easily throw off 500k in dividends a year.

Where are you "easily" getting 5% dividends? Are those mythical W2 boomers suddenly into sketchy crypto "funds"?

Vanguards "Dividend Growth" fund is yielding 1.71%. Total stock 1.33%

Their money is also, ironically enough, invested in real estate.

ATT 7% yield raised every year for the past 50 years.

Thanks! I was imagining an actively managed portfolio. There are very few set it and forget it hole in one investments.

This is not common for anyone, not even in SV.

common among the rich people whose mansions are not selling well or have taken price cuts to get them sold.

>You can be on payroll making 500k and have a stock portfolio worth 10mill, this is common for boomers who started investing in the 70s and 80s. A portfolio of that size will easily throw off 500k in dividends a year.

What is your definition of "common"? Less than 1% of people have savings of $10M at retirement age, surely more than 1% of people started investing in the 70s and 80s.

https://dqydj.com/retirement-savings-by-age/

> YOu can be on payroll making 500k and have a stock portfolio worth 10mill Or working on FAANGMULAT type of companies for the past many years.

Because by definition rich means “can buy house”, and poor means “no choice but to rent”.

What sort of rich person rents a house, except whilst between selling old and new?

It’s a strange question to ask .... who doesn’t see this as self evident?

I recently won the IPO lottery--went from nearly zero net wealth to a solid seven figure net wealth. I could buy a house in the bay area and give up > 50% of my cash for it, or I could give up 15-25% of my net wealth with a down payment on a a mortgage and pay (PITI) 110% or more of what I could pay in rent for a similar home.

Or I could continue renting and put that 15% - > 50% of my net worth in appreciating assets and income producing investments. Even better: I could move my family to a place where people aren't paying $2M for a home that's worth $250k.

The housing market here is suited best for people with absolutely no money sense at all, or those VHNWI and UHNWI who can buy into genuine investment grade real estate out here. It makes zero sense for the vast majority of people to buy here, especially people who more or less win a lottery with some options from a company that makes an exit. In almost every case their money would be put to better use renting here and investing elsewhere (assuming they're tied down here, e.g., due to work).

"The housing market here is suited best..."

Or people who've put down roots here. Some people value family, friends, and community more than economic maximization. The Bay Area has excellent schools, being nerdy makes you cool, immigrants and people with different skin colors are accepted, there are a wide variety of cultural attractions, the weather is always nice, and you can get out in nature quickly.

If I were still a single guy I probably would've moved back home after winning the stock option lottery, but my wife's family is all here, my friends are here, my kid won't get bullied for being nerdy, etc. That's really why people stay, and they pay a premium to do it.

All of the cultural items can be had by renting here, too, as my family does, and deploying the rest of the capital in ways that aren't financially illiterate. The decision to buy in the bay area, for the vast majority of people, is damaging to their financial health.

That was basically my reasoning when I first came here as well, and so I didn't buy. (Elsewhere in this subthread, I'm arguing exactly that point.)

The part that I didn't factor in was rents basically tripling while I was here, which apparently is not an uncommon occurrence in the Bay Area. In 2010 I was a genius for paying $1400/month in rent rather than $4000/month to buy a condo. In 2017, when rents were $4500/month but that condo payment would've still been $4000 (for a bigger place!) and the condo's value had gone up from $400K to $1M, I was less of a genius.

YMMV. I'm expecting very significant inflation and I've watched firsthand as a lot of my friends got priced out of the Bay Area, so I bought as a way to ensure that my kid will be able to stay in the same school district and remain near family. Time will tell whether that's a fiscally brilliant or fiscally idiotic decision.

> All of the cultural items can be had by renting here, too

I have a few older retired friends that thought this, then the area started gentrifying, prices went up and they've had to move out of the area they've lived in all there lives.

Purely economically motivated decisions are rare. We all have reasons beyond the financial to live wherever, including something as simple as our wife/husband wants to live there.

There is also an inertia bias. Life has to get pretty expensive for many people to want to undergo the hassle of moving cities / states, which includes leaving behind loved ones, and learning everything new (including leisure things like where you like to eat).

Going meta, NYC and California/The Bay Area make the bulk of their tax revenue from very few industries. The tipping point at which they lose a financially significant portion of their tax base, and the flow on affects of that for government workers and the multiplier downstream, has likely been reached.

> Or I could continue renting and put that 15% - > 50% of my net worth in appreciating assets and income producing investments.

Property is a leveraged investment (as well as the loan being a hedge against inflation, depending on the rate you negotiate - with a 7 figure NW you should never have to use market rate). Unless you're using a large amount of margin on these "appreciating assets", the appreciation should be compared at a 1:5 rate.

Be careful not to become one of those people who "win the lottery" and then lose it all in their hubris. I'd stop saying things like "people with absolutely no money sense at all" - for all we know, that's you.

Buying has costs too. Mortgages are an obvious example, but even if you could afford the house without debt the money could also have been invested in something that yields income like stocks or bonds. If the amount you'd receive in income from investing the house price can cover the rent of an equivalent house, it can make sense to rent as you come out ahead overall. It does not surprise me at all that rich people (who can take the time to shop around because they are not at risk of getting evicted) manage to get a better deal than someone who represents more credit risk for the landlord.

Of course pulling this type of thing off requires that you can find investments that will yield more than the rent price, which may not be easy to do in the long term as high yielding investments can often carry unforeseen risks. Also because a significant amount of people already know this, when renting is "cheap" enough compared to buying the demand for renting will increase and prices will rise. This means that the condition is unstable and will often disappear on its own.

Still, there are sometimes very valid monetary reasons to rent instead of buy. Then there are nonmonetary reasons to rent instead of buy that make sense even for quite rich people. If you're a NYC banker and you get seconded to London for 2 years to set up some new division, it is probably not worth the hassle to buy a house there.

I am with you. There is a huge lobby to make people buy houses. Not enough people question if it is a good investment. The opportunity cost to buy vs rent is huge.

Perhaps this is because land is over-valued.

"What sort of rich person rents a house, except whilst between selling old and new?"

There are quite a few techies who move to SF, work for the hot unicorn for 4 years, and live extremely cheaply. They don't buy housing because they don't intend to stay in SF (and besides, who wants to buy a house in SF?), but when they "retire" they've got a few million in stock options. They can buy a house, they just don't want to, because their living situation is temporary.

I suspect that a lot of the housing boom going on around the country now is because the rich techies in SF no longer have to stay in SF.

I don't really buy this. if you're going to be at a hot startup for 4 years and can easily afford a house the way the SF bay market has been for the past 2 decades is such that you would've made money in any 4 year period just buying and selling. covid might be the single exception.

I think the issue is more that sf people are rich for the country but not rich for the bay area so they just rent.

Opportunity cost. Housing in the Bay Area goes up an average of about 7%/year, roughly inline with the S&P 500. Google stock has increased 13x in the last 11 years, for an average annualized return of about 25%. If you were at AirBnB or Stripe your return is about 100x, making over 100%/year.

With leverage the computation gets a bit more complex, but basically you're paying 4.5% interest on 7% appreciation, and not needing to pay rent, so you may get 4-5% real returns. Lever up 5x with a 20% down payment and you get about 25% returns - competitive with Google, but in the same ballpark, and you've taken on the risk of foreclosure or being underwater if there's a housing bust (which happen periodically in the Bay Area and take prices down 10-40%).

The stock is a lot more liquid, you can take it anywhere, you can sell it whenever you want, you can move in with a girlfriend and keep it. If you haven't made a conscious decision to stay in the Bay Area, the stock performs much better.

>but basically you're paying 4.5% interest on 7% appreciation, and not needing to pay rent, so you may get 4-5% real returns.

And it's down to 2.5% interest or even lower for 30 year fixed for some people.

Low rates just mean you pay more to the seller for the asset, and financing costs less. If rates were 5%, you’d pay less for the asset but more in financing costs. The monthly payment probably wouldn’t change substantially. You’d have substantially higher price risk buying at low interest rates.

Sort of how a bond’s value moves inverse to yields.

I'm comparing it to historical returns over the last decade, though. Mortgage rates were about 4.5% in 2010, so that's the figure I'm using.

I honestly don't know what the next decade will bring. I would personally bet on high inflation, so that 2.5% mortgage rate will likely be a negative real interest rate. (Hence, I bought.) Stock returns may or may not equal the previous decade's, as well.

And you realistically have access to a 2x-3x lever on margin anyway.

Being long on a leveraged ETF is... possible... but unless you know what you are doing it is highly risky. No, the problem isn't the drift causing losses. When the price tanks 33% in a day on a 3x leveraged ETF you lose everything.

"Just" buying and selling also has a higher bar now than ever before -- Median sales prices are around $1.5M for peninsula / SF locations. Even on extremely generous tech salaries, it'll take some time to build up enough savings to get a loan.

I completely agree, my point though is if you are legit rich, even for the bay area, it makes no sense to ever rent. someone with a net worth upwards of 20M isn't going to save any money renting even if they stay a paltry 5 years (though covid and WFH might change things of course, but this pattern has held up decently for the past couple decades).

Or as explained above it doesn't make sense to buy since it is cheaper to rent.

from my experience, prior to covid, it really hasn't been if you're capable of buying.

look at the 2012 to 2016 period for example of rent vs purchase. if you just bought an average condo and sold it you basically could've ended up staying for free vs. renting.

You're neglecting to mention opportunity cost. That money could've been invested in stocks, crypto, etc. and you would've made out a lot better (and avoided the headaches that come with owning property)

And for the same cash commitment you could have bought 2 - 3 multifamily homes in sane real estate markets that produce $60k - $80k (or more!) net income (rents less management and taxes). You would have diversified your portfolio, lived "free" (i.e. the net is likely about the same as or more than total annual rent in a decent home in the bay area), appreciated somewhat, and positioned yourself for handsome tax deferrals or savings due to depreciation and other strategies.

Are you picking the bay area as an extreme example?

As an example if you invested in tech stocks only from 2012 to 2016 you would have had enough money to buy 3 condos.

Ones good at math and likely to move in a few years?

Buying a house has really high transaction costs. ~6% commission, plus more in fees and taxes. And then once you have the house, you've taken on all the maintenance and price risk. That can make sense if you're staying a long time and want the benefits of ownership. But plenty of people with high-flying jobs know that they may move soon enough that the math doesn't work out.

Personally, I could afford to buy a house, but I never have. I like the freedom, and I really like never having to worry about maintenance, taxes, renovations, and the like.

> Buying a house has really high transaction costs. ~6% commission, plus more in fees and taxes. And then once you have the house, you've taken on all the maintenance and price risk. That can make sense if you're staying a long time and want the benefits of ownership. But plenty of people with high-flying jobs know that they may move soon enough that the math doesn't work out.

Interestingly, most of the transaction costs hit you when you sell, not when you buy, which is one of the ways the US favors landlordism and sequentially acquiring more and more properties instead of just renting forever, or even just buying one primary residence and sticking with just one.

> Interestingly, most of the transaction costs hit you when you sell, not when you buy

When you buy, the seller is paying the transaction fees. Where do you think that money comes from? They get it from _you_ the buyer.

Exactly. I'm sure the hidden fees have some effect on people. But anybody who is thinking about buying now and possibly moving in a few years should be thinking about the round-trip costs.

That's a weird comment. Plenty of people are rich by your definition (could easily buy a house) but don't do it because it makes no sense financially. Most good investors are better off renting and getting higher returns in the stock market. Renting also allows you to move very quickly and you don't spend your time fixing things (i let my landlord handle it all)

You can't get the same leverage nearly as safely or as easily in the stock market, which is why so many people start to play landlord with second, third, etc, properties that they finance.

What changed in the last year is that people want a lot more space which is pulling them out of the "expensive apartment" market and into the "house" market, while also being less concerned about commute distance. So the expensive apartments fall in demand while the houses go through the roof, without effecting the lower end of the rental market at all.

Even with the leverage, it is in most cases still not a good investment. There are a lot of calculator out there that shows you the break even point between renting and buying.

You forget all the horrible fees that come with owning a place (HOA, maintenance, property taxes, 6% lost to agents at every transaction)

For me, those calculators tell me I'm better off buying if I'm gonna stay for at least 5-7 years. Which is... not a terribly long amount of time, honestly. If I'd made the buying decision 5 years ago, I would've actually been much better off by then, because my rent went up way more than predicted. So of course there's a lot of uncertainty there. Maybe purchase prices will crash soon. Or maybe we hit a new normal and individual homes or spacious townhomes never come back down in price, due to shifts in demand.

My rent means that there are tens of thousands of dollars a year that I'll never be able to invest in anything. So even if I had a better investment option than taking a 5x (or more!) leverage multiplier on a downpayment, it would still have to overcome a pretty big disadvantage right there to come out ahead in the long run.

I did this math recently for a real estate investment. We're in a pretty hot market, but not growing at anywhere near the pace of Atlanta or Austin. Suffice it to say that if the property appreciates at merely the inflation rate, it will have the same return as a typical index fund, with a better tax disposition.

Buying is a near perfectly good investment (sadly). Selling is almost the only way to lose money in real estate.

There's a high percentage of "rich" people in the Bay Area who rent because even a run-down, small, shitty house is $1mm+.

> What sort of rich person rents a house

One who doesn't want to bother with maintenance, insurance, taxes, etc. One who wants to leave whenever they feel like it, instead of having to go through months of a sale process.

In some markets, e.g. San Francisco, it does not make financial sense to buy and renting is a better option.

In the very short term, that can be true. If you intend to move in a year or two, sure.

Rents only ever go up, whereas a mortgage can only go down (in a refinance). A mortgage ends and so do the payments, but a renter will pay ever increasing rents forever. It gets particularly painful after retirement on a fixed income.

Things to consider!

There are probably also ways of justifying a rental through a business expense vs personal assets. I know a few businesses that pay for living expenses for some of their top level corporate staff under certain circumstances.

I've seen it done as a job perk for certain positions which seems like a way of indirectly increasing total comp without increasing taxable income. I'm not rich enough to know all the tax laws and loopholes around this area though.

What sort of rich person rents a house, except whilst between selling old and new?

Properly rich people do. The people for whom buying and leasing and renting a house is the background noise that the staff works out.

If a properly rich person wants to be able to live in London and Tokyo and Paris and New York and a bunch of other places, where they will just turn up depending on how they feel and what's going on in town that week, buying and leasing and renting are just noise (although being properly rich, it's usually not the kind of renting where an individual landlord is posted a cheque each month). If they want a new place somewhere, they get shown some and they just buy one. Or lease it. Rent it for six months. Whatever. Six figures for six months? Pocket change, talk to the staff. Often leasing or renting is easier and more convenient than buying. These are fairly inconsequential sums of money for these people; just whatever's easiest, the staff will handle it.

I did some work for a Russian feller in the global top 500 richest a while ago. He took us all to lunch. Drove a smart car (of the garage full of luxury cars, it was the one he liked to drive most - it was just the most convenient for him; if I was an economist, I might estimate the price he put on his personal convenience was six figures an hour, at which point buying a house somewhere is the more convenient option compared to having to get a floor in a hotel on arrival) and clipped a pillar driving out of his Swiss estate. Money for him below the level of tens of millions was just not something he bothered about. Rent? Own? For something like a luxury apartment in New York (not that he can travel to New York anymore, I understand) it would be like me spending time deciding whether to rent or own a movie.

What sort of rich person rents a house, except whilst between selling old and new?

These people you mention who only own one house because they can't afford more than one at a time; these are not the properly rich of whom I speak. Many properly rich people are unobtrusive and inconspicuous.

I have met people who find it incredible (even unbelievable) that rich people own houses that sit empty for long periods and that these rich people don't rent them out. These are rich people; they don't think like poor people. Not everything is a money-making investment, and if they decided to get into real-estate they don't mix the houses they live in with it.

> What sort of rich person rents a house, except whilst between selling old and new?

The kind that reads Robert Schiller and says “why would I want to concentrate my assets in a non productive asset class with high transactional costs?”

Some poor people just build houses slowly over several years in less than ideal places ofcourse. If the world decides to spit me out, I'll have a pretty big hiding hole.

What sort of rich person rents a house, except whilst between selling old and new?

Think apartments, not houses. Think young single people in tech making $100k+.

This reminds me of something a great-uncle once said: "If I was that rich I'd eat steak for every meal!"

Before reading the article, I would say because obviously the rich can, and are, fleeing population centers because of covid, while the poor mostly can't and aren't?

"With covid-19 largely shutting down the perks of city life, many tenants who had the means to leave did so. Higher-wage workers who were juggling remote work and virtual school sought out more space, often purchasing a house in the ’burbs."

Exactly.

It's not "rents for the rich" it's "rents for higher priced apartments" and it's basic supply & demand. This headline stokes unnecessary class conflict. WaPo should be ashamed.

I thought it was a well known problem that in the US class disparity (i.e. the gap between middle class and upper class) is increasing. The middle class is evaporating, becoming very rich or borderline poverty. Am I confused? WaPo isn't really saying anything new or controversial.

It's more like the middle class is bifurcating between upperish middle class and lower-middle class. In-demand tech workers, doctors, high-level admins/managers, etc. are getting higher and higher wages while other professions that used to be middle class as starting to stagnate and fall behind such as low-level office workers, journalists, teachers, mid-to-low level managers, etc. I wouldn't consider either group to really be upper class, but I guess there's always going to be differences in how people are sorted into those categories.

I think the issue is that the article is inflammatory click-bait because it makes it seems like rich people are getting a break while poor people are getting shafted. It's not until you've read through most the entire article that they finally get to the point, which is that 'rich' people are buying houses in the suburbs/exurbs now that they can work remotely. Unsurprisingly this means prices are spiking in those areas while rent for high-end apartments are shrinking as demand dries up. So rich people aren't really catching a break so much as exiting the rental market in major cities and redirecting their spending to the suburban housing market.

> I think the issue is that the article is inflammatory click-bait because it makes it seems like rich people are getting a break while poor people are getting shafted.

Why? Do you seriously think that is untrue? Go talk to some poor people. Hell, just talk to someone who is 18-29: there is a 52% chance they are stuck living with their parents[1]. We're definitely getting shafted over here.

[1] https://www.pewresearch.org/fact-tank/2020/09/04/a-majority-...

It's just supply and demand. The rich are leaving the cities for suburbs, so more of the higher end apartments are available. Which will lower those rents because there is low demand and high supply.

Meanwhile, there is a moratorium on evictions so cheaper apartments are not becoming available at a natural rate. So you have high demand and low supply, which will drive prices up.

Of course there are many other factors in play too. Such as zoning issues preventing new building, NIMBY preventing affordable housing being built, environmental restrictions preventing building in certain areas, etc. Plus the fact that developers will make much more money building luxury apartments than they will make building low income housing. Sometimes governments will offer tax rebates to builder of low income housing, but this then upsets a lot of the same people who want the low income housing to be built so it goes on and on.

> Meanwhile, there is a moratorium on evictions so cheaper apartments are not becoming available at a natural rate.

If there weren't a moratorium, then there would be a surge of homelessness. Is that somehow better?

The amount of available high-end apartments never mattered to the people who couldn't afford them. Where the rich people move has literally zero effect on that.

The fact that rich people are leaving "high-end" apartments vacant should demand that rent go down in those apartments. That's what would be happening if supply and demand actually had an effect. Instead, even with significantly fewer tenants, landlords are still able to charge obscene rates for their "high-end" apartments, leaving no supply for the growing population of poor.

So what part of this is inflammatory click-bait? The rich are getting a break (more housing opportunities at lower cost) while the poor are getting shafted (fewer housing opportunities at higher cost).

This isn't just about zoning and NIMBYism. The housing exists, and so do the people who can't afford it. Landlords are simply demanding a higher return than the poor can afford, without a care in the world about homelessness, just as every socialist in history predicted. This is a system of greed, and we desperately need it to change.

Who is renting higher priced apartments if not the rich?

Aren't most rich people living in their own houses? I'd imagine most higher priced apartment renters are middle class.

I think these days high priced apartments are only affordable by the wealthy, unless people are grouping together with multiple roommates, at which point it means they can't actually afford the apartment, so is it really middle class anymore?

If 4 22 year olds making 50k each share a $3,000 4bd 2ba rental "for the rich" I'd say they're middle class and can afford it.

4bd 2ba for $3k ain't happening in SF ;-)

Most places aren't SF

No, quite a lot of the rich live in rental property, at least part of the time. There are disadvantages to owning, even if you can afford it, and not everywhere you want to live may be for sale.

Across the street from me in a similar building to mine with condos instead of rentals, a studio goes for 1M.

Unless I'm set on living in NYC for the rest of my life I'm not buying real estate here.

I imagine most people apply the same logic

If higher priced apartments lower in price, doesn't that make it more affordable for more people? Isn't that a good thing?

It's better not to fulminate. If the market restricts access to housing for working class people, we can't just wave our hands and say "oh, well, markets". Chicago doesn't have rent control. The implication of the story is that the market is failing in Chicago, and that's a problem, whether or not it's the product of top-down policy or bottom-up market dynamics.

How is it the "market restricting access" if the rents went up because of the eviction moratorium? If that's the reason, then what you said is true in a trivial literal sense, but that's blaming the consequence (market pricing) instead of the real cause (government policy).

Likewise, if housing supply is restricted due to regulations, that's not the "market failing" - that's government policy guaranteeing that rents will be high for poor people.

The only way to make rents cheaper for all poor people is to incentivize massive construction of new apartments, or at least clear all regulatory hurdles to doing so and simply let the market do the rest for you. Flood the market with supply. The more supply, the cheaper rents will be, since demand is mostly stable.

Just doing what WaPo does best

right, and anyway the rich collect rent.

Those clicks won't click themselves!

There's nothing natural about housing markets. Across the developed world bougie homeowners have been using zoning regulations to restrict supply with immensely lucrative results. I would also like to see you tell someone experiencing housing precarity that these conversations are unnecessary, to their face.

I think affordable-level housing will always be competitive, and super-luxury stuff will be white elephant stuff that's subject to compromises.

It's kind of amazing that they raised the rent. Is it because people stopped paying rent and they tried to get it from other renters?

Landlords in big cities always raise rent because they can. They'd rather push a current tenant out than work with them, because with the high turnover they are sure to get a new tenant pretty soon at the higher price anyway. Its this sort of unscrupulous taking, of maximizing profit because its 'leaving money on the table' to not do so, is why we have rent control ordinances which work by capping the maximum yearly % increase in many of our big cities (although this cap is typically higher than the median wage increase so landlords still beat the economy with their investment and with rent control ordinances applied, despite some sentiments online about rent control).

>because with the high turnover they are sure to get a new tenant pretty soon at the higher price anyway

Only if coupled with insufficient construction of new housing.

Which is pretty inevitable with our system of housing development. If you're a large property owner and you want to make more money, you have two options:

A) Build more housing, to create more units you can rent out.

B) Don't build more housing, and use the reduced supply to raise the rent on your existing properties.

Since option B has a lower risk and a higher return on investment, is it really surprising that most metro areas have a big housing shortage?

Bringing new units online in a high demand market earns far more money than simply raising rents.

It's not large property owners that are opposing new housing, it's existing small (usually single) property owners opposing new housing, usually so their way of life doesn't change due to changing demographics of newcomers, increased traffic, etc. and possibly to restrict supply and increase their property's value.

They choose A 100% of the time. No landlord has the ability to affect the market by purely limiting their own development. The market vacancy rate, which is the strongest, almost singular factor in housing prices, doesn't give a shit if you build 400 apartments or 20, it won't budge an inch. Only collective growth by the entire housing industry has the capability of budging vacancy rates.

For an example, Greystar properties, the largest multifamily housing provider in the Seattle market, controls less than 1% of the multifamily housing stock. If they wanted to decrease the vacancy rate of Seattle enough to push prices up by 10%, they would have to exit the market completely.

If you can't affect the market, because it is too competitive, your only recourse to increase profits is to build more. The force propping prices up is government and government alone. Nobody is voluntarily limiting their own development in order to push prices up.

Honest question: is choosing option B proven to lead to higher return on investment? Is there data showing it?

Where I live periodically raising rent and evicting people to invite the higher-paying tenant has a limit that's reached pretty soon so maybe US dynamics escape me.

In the U.S. there is no limit as long as you aren't a strong outlier relative to mean market rent. People in LA might pay like over half their income on rent, for example. For the working poor, they also typically can't finance a move to a cheaper apartment since they lack any savings, so they cram more people per bedroom or end up living in their car or on the street. It's a sad state of affairs and really hard for working people here. Sucked dry with nothing left to use to get out.

I think it would be hard to prove it one way or the other. There are a lot of variables that go into profit for landlords and property owners, and building one property affects the possible rent on other properties.

However, in a general sense, rent prices are affected by supply and demand, like most other things. Having a housing supply lower then the demand benefits landlords, as they can raise the price without making improvements, and they can more easily fill vacant units. If supply surpasses demand, then landlords are left with empty units they need to fill, and the prices go down.

Obviously, this can only go so far. At a certain point, prices can get so high that few renters can pay for it, or the math becomes more favorable to build more housing. However, the overall incentive structure is for property owners to keep housing supply low, to increase the value of existing properties with minimal investment.

>However, the overall incentive structure is for property owners to keep housing supply low, to increase the value of existing properties with minimal investment.

For single non commercial property owners. This would be news to the commercial real estate investors that keep trying to develop residential areas and apartment buildings. If you're in a city with high rents and land costs, see who is trying to build and who is trying to block. It's all public information.

This is actually a good environment for certain parties at play and this is why this status quo is upheld. The way this machine works in LA is that the city councilmember can unilaterally approve or dissaprove development in their district. Certain developers who can gain good favor with the councilmember can have their builds preferentially approved and red tape cut through for them. Commercial real estate investors then look to work with developers with a good relationship with city council.

This sort of setup helps everyone on the inside (the councilmembers, the developers, and the investors), but hurts those on the outside (renters, people hoping to buy one day, real estate companies who haven't yet bought into the machine). However, since those on the inside control the reigns of power, and those on the outside desperately try to work their way into the inside rather than break the system down and build up something more equitable, nothing changes.

Your analysis is correct. Let's add one more factor:

At one point the prices become so high that people actually start getting out of the cities. That's what started happening in my country although it's going to be at least a decade until the consequences are felt (since the influx of people is still bigger than those who leave). But it did start happening.

Maybe not, but pretty sure the wealth of an urban area is a superlinear function of density and size (super linear on both axes), so choices based on the marginal RoI to land barons will lead to suboptimal outcomes either way.

If you are a landlord that had option A you would take it, simply to outcompete all the other landlords.

There are far too many landlords for collusion on the scale you are imagining.

Don't worry; they have laws to ensure that.

Who is "they"? The people active in the local community and sit on the zoning boards denying permits and variances to build?

> Its this sort of unscrupulous taking, of maximizing profit because its 'leaving money on the table' to not do so, is why we have rent control ordinances which work by capping the maximum yearly % increase in many of our big cities

No, the reason is because cities don't want to build more houses.

Is the landlord at fault that there are so many desperate people willing to pay absurd rent? The only reason the landlord gets to choose is because someone else gave them a better offer.

Often this is due to laws that limit annual rent increases. If landlords don't increase the rent by the allowed amount each year, it greatly increases the risk they will be unable to 'catch up' to market rates in the future.

Luxury housing is often not subject to these limitations, so landlords are forced to compete and respond to market dynamics.

Because it's easier to build housing for the rich than for the poor, due to things like zoning, building regulations, density regulations.

this kind of thing will never end until there's national zoning laws that override local ones. however something like that would be challenged probably up to the supreme court.

it's a tough hill to die on.

it's a never ending cycle -> if you're poor you're more likely to rent -> if you rent you're more likely to be affected by a recession -> if you're laid off others are also laid off -> landlord risk increases so rent increases commensurately -> repeat.

the only way to end this vicious cycle is to just buy your house as you're more insulated from rent increases and moratoriums are a bit more generous, but zoning laws...

http://archive.is/GrJPP

One likely explanation, Schuetz and others say, is that when the economic crisis hit, more people decided to move down the housing ladder to save money. There was already a shortage of affordable units, though. So, this surge in demand for lower-price-point homes ended up bidding those rents higher.

Housing experts say other factors may be at play, too. Some lower-income areas were gentrifying even before the pandemic, leading to higher rents.

https://archive.is/GrJPP

I believe this is almost deliberate misdirection of the authors, but maybe they believe what they write.

I'm fairly sure if you looked at a slightly longer timeframe, you'd see prices for all go up, and even more for the expensive units.

Just looking at the latest 12 months really does not paint a useful picture.

I expected the WaPo to do a better job, esp since I believe their point that low income renters are being unfairly squeezed is probably a valid one.

Shrinking market means prices move towards average

Pretty obvious here people. Supply and demand. There's more poor people looking for affordable housing than there is rich paying for extravagant rentals.

Well let's see; let's dump multiple trillions of dollars into the economy and give everyone who had no job, BEFORE the Rona, thousands of dollars for free, and then let's see what happens. I wonder what could possibly happen.

As a point of reference: where I'm at is rapidly gentrifying with phony, corporate clone office workers while hundreds of homeless people are living in tents visible outside next to the highway. There isn't enough affordable housing and the % set-asides are a joke because they're so few and far between.

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