Hacker News Reader

Comment by sudosysgen | Hacker News Reader

From the point of view of the greater economy it's not helpful to have people buy property (and thus increase property prices by creating demand) to just rent it back out.

It's only helpful if they are helping increase the quantity of housing or somehow providing some other kind of service.

Simply using rent to pay the mortgage is really not something that we as a people benefit from. It would be better for everyone if that immigrant in Queens invested their savings into something else that would provide value.

View on HN

This doesn't make any sense. A lot of people either don't want to buy due to their own personal circumstances or can't afford to buy. People buying places and renting out increases the supply of rentals, which makes it easier for those folks to rent.

There are a lot of ways to provide rentals that don't contribute to systemic risk, such as adding housing supply and renting that out or renting out a property you already own.

In the aggregate, there are more renters that want to buy but can't than people that want to rent but have to buy instead. No problem is being solved, and risk is added.

You're still not making any sense. How does this contribute to systemic risk? How does "adding housing supply" change anything with respect to systemic risk? And this person was renting out a place they already own.

This is all gibberish - economically, if a marginal landlord buying a property then renting out contributes to the increase in real estate price due to creating additional demand then they equally contribute to the decrease in rent by creating additional supply.

There are two issues in your reasoning.

First, you're assuming that they own the place outright. That wasn't the case for the immigrant in the top level comment.

Second, you're making the bizarre implicit assumption that the market for buying housing and renting it are fully independent, which couldn't be further from the truth. Increasing real estate prices contributes to an increase in demand for rent, as less people can afford to buy housing and must rent, until there are no more would-be homeowners that can't afford a house and must rent.

Those units are getting sold, one way or another. They're either getting sold to a landlord or a homeowner, so until there aren't enough units for rent for people that don't want to buy, and we are very far from that, it being sold a landlord means one less homeowner.

By the way, this is a huge issue in New York City - landlords that have a mortgage, like the one the OP had mentioned, can't afford to lower rents because that would break their mortgage agreements and force them to renegotiate it which they can't afford, so they would rather keep vacancies than rent at lower market rates.

Otherwise, if someone adds actual housing supply then it can be worth increased systemic risk. If they aren't, there is no upside to the downside.

Nothing you're saying makes any sense:

1. This isn't an example of systemic risk - I suggest you look up the phrase since you keep mentioning this.

2. Lowering rent has nothing to do with mortgage agreements - I have no idea what you'd think one has anything to do with the other. And no this isn't a huge issue in NYC. Sure, you're going to have a hard time refinancing an investment property that's not yielding much in rent, but you're going to have an even harder time if it's vacant. Rent is a price - most landlords are going to try to charge what they can given the market - this generally has nothing to do with how the property is financed.

3. If the markets for rentals and buying are related, that still doesn't change the fact that buying a place to rent out is demand-neutral in aggregate. Sure, there's one less housing unit to buy, but it also takes a renter out of the market. So if the markets are intertwined, then reduced rental demand -> reduced rent -> reduced housing price. The only thing that reduces demand for housing is moving out of the city.

Also, some concrete thoughts on the economics here:

1. Investors of this kind (those who buy relatively modest housing units to rent out) are far more sensitive about prices (because the price has to be justified by what they can charge in rent) than buyers who plan to live, who do not have a clear anchor. Therefore, they contribute to price stability - they will tend to buy in bad markets and sell in hot markets.

2. Transaction costs are extremely high in real estate and for most people that are able to choose between buying and renting, by far the most important factor isn't affordability but how long they plan to live in a give place. Actual home buyers tend to choose buying over renting precisely when prices are high and when they do so, they tend to buy larger and more expensive units than they would otherwise rent because they take into account future needs. This leads to increased demand as you turn marginal renters into homeowners.

3. People that are able to choose between renting and buying are typically well-off and making things slightly more affordable to entice them to buy isn't a social good.

4. People that are unable to afford buying units and are forced to rent are the poorer ones in comparison. These people benefit the most from a housing unit being turned into a rental because unlike the previous class, they do not have the flexibility to choose between renting and buying.

I’m a renter. I like being a renter. If nobody owned properties to rent who would I rent from?

There are a lot of people to rent from that don't use that money to directly pay their mortgage.

How does that relate to your assertion that people buying a place and renting it out do not add any value?

There are a lot of places to rent out that are already outright owned, and there are a lot of places where buildings can be built to be rented out, thus increasing supply.

People getting a mortgage and renting out the mortgage adds systemic risk without increasing supply, it doesn't provide any service that isn't provided otherwise.

If a building is built to be rented out, does the builder typically rent out the place? No, it will be someone who buys the building, typically with large amounts of borrowed money, who will then rent out the place. Builders build (often also with borrowed money) because they can then sell the building to someone who can buy. This is all part of the economy.

And you're certainly misusing the term "systemic risk" here - a small-time landlord borrowing money to buy a rental does not in any sense contribute to any kind of systemic risk. They are taking on personal risk in the hope of generating a return on their investment.

The case that was mentioned in the OP is of someone who is renting out only one floor that they bought.

Besides, the main cost in building in NYC is land prices - in the long term the builder isn't worse off by decreased land prices, and neither are renters, while people who want to buy a house are much ahead.

I have no idea what your point is.

You could make the same point for just about everything. Starting a restaurant doesn't help anyone because you're just buying food ingredients, labor and real estate and turning that input into food and anyone can do that so you're not increasing the supply of food. Investing money in the stock market certainly doesn't help anyone since you're just buying existing securities that were already issued. The economy as a whole is full of things that aren't that important independently that you could make a convoluted argument against, even those things often add up to a functioning economy with a robust system for price discovery.

In Vienna, you could rent from a city-owned enterprise.

Why does Vienna provide this service if it adds no value?

Vienna built a bunch of social housing under social-democratic rule to decrease rents, and unlike most other cities, they opened it to a relatively wide income bracket. The value added, if you want to call it that, is _less_ money is spent on rents in the city. Supposedly, a majority of units in Vienna still falls under social-housing restrictions, though I don't have the time to dig deeper now and so I can't tell you what proportion is directly owned by a public enterprise and what proportion is housing co-ops (a somewhat popular model in Europe).

Reply on news.ycombinator.com