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Comment by sandworm101 | Hacker News Reader

>> "Wilderotter starts his employees at $20 an hour."

That's the entire problem. Everything is tied to pay. The reality is that nobody can get good labor, let alone good skilled labor, at 20$/hour. If your business model can only work by paying minimal wages then your businese model has failed. Labor costs, wage expectations, have gone up. That is a good thing for employees. I have little sympathy for anyone who thinks they should be brought back down.

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The issue is that all the business models in Tahoe seem to be failing, you can't have a modern town without a coffee shop, but the business cant generate enough to pay a few year round employees to live in comuting distance. A town cant be completely served by the children of second home owners the entire year.

I don't disagree with you here. But we need to be explicit about the implications: whole sectors of the US economy have a "failed business model" by this standard. In particular, the US model of restaurants is fundamentally based on paying minimal wages to almost all employees.

A restaurants greatest costs aren't labor but rent. They pay huge amounts to landlords, amounts higher than the landlords mortgage costs. A restaurants low-wage employees then pay 50+% of their wages to other landlords to cover other mortgages. That's the real problem killing the business model: too many people shovelling too much money in exchange for permission to work/live at a particular location. A more normal situation would be where rents are again cheaper than mortgages, when rent represents less than 50% of expenses. Then the restaurant business model starts making sense.

This randomly selected but high-google-ranked page disagrees with you:

https://www.caminofinancial.com/restaurant-costs/

So does this one:

https://www.7shifts.com/blog/restaurant-costs/

and this one:

https://www.touchbistro.com/blog/restaurant-operating-costs/

And how much of the labor costs in fact goes to the rent paid by those workers? My point is that rents, payments to landlords, take little pieces out of everything.

But then your observation isn't really about restaurants at all, and is instead a general complaint that mixes various amounts of:

1) "the rent's too damn high"

2) too much renting going on, not enough <something else>

I'm not sure I disagree with either, but it doesn't seem that can explain the situation in restaurants, since it affects huge chunks of the population and the economy.

If landlords are charging significantly more then the mortgage costs, then what if the rent model was switched to an auction with a minimum set at the landlord mortgage costs plus some percentage on top? That way the landlord gets what they need and the pricing is not arbitrary, but at least fixed to some realistic measure.

Note: I’m not very familiar with the situation, just ideating.

Why should rent be higher than mortgage costs? Why should renters pay down principal, effectively purchasing the property for the landlord?

In the past, landlords owned property and rented it out. If there was a mortgage, rent covered the interest payments rather than principal (interest rates were once far higher than today) and rents were generally lower than mortgage costs. If rent is higher than mortgage costs, the renter would be better off purchasing the property. A landlord that is asking rents higher than their mortgage is simply leveraging their better credit rating, renting out an asset for higher than someone with similar credit could purchase it.

> In the past, landlords owned property and rented it out. If there was a mortgage, rent covered the interest payments rather than principal (interest rates were once far higher than today) and rents were generally lower than mortgage costs.

Got a citation for this claim?

During my 32 years living in the USA, and the 25 before that in the UK and elsewhere, I was never aware of rent working this way.

The difference between renting and owning was not so much the monthly payments, but:

* tenant has no financial or labor responsibility for repairs or capital improvements; landlord fully responsible.

* landlord collects all (if any) capital gains

* landlord pays insurance on building; tenant pays insurance on contents

* owner combines all above roles.

Comercial property. Tenants are regularly responsible for repairs, insurance and upgrades. Do you really think a landlord will pay to remodel a space to suit each new tenant, to covert it from one use to another? Landlords dont pay for new decor or new equipment. They rent out the space. For a typical restaurant everything from chairs and cieling tiles to ovens and insurance is the tenants responsability. That big sign out front of every business isnt biuld by the landlord.

In cases where rent exceeds the mortgage, I think the reasons would be to cover the cost of capital, risk, and operational expenses. In this case, the long term expected value of the property might be flat or growing at a lower than average rate so future expected gains can't be used to offset short term losses.

If this wasn't the case, in theory renters would just become buyers themselves.

Renters can’t become owners when multi billion investment firms are buying or own large percentages of the market. The market is incredibly distorted and inherently dysfunctional in its current state. Families should be living in housing they own our mortgage not paying someone else’s mortgage or profit to the investment class.

I think we agree that when rent exceeds the cost of a mortgage one of the possible root causes is the cost of capital is high for the renter. Whether the cost of capital should be the same across different populations (in this example - the renter and investment firms) is another question.

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