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Comment by joshuanapoli | Hacker News Reader

In this case, JPMorgan’s partnership is building new homes, not buying up existing ones. So it should work to reduce the cost of housing.

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> The first installment will include a purchase of 250 homes in three communities around the Atlanta metropolitan area.

> In this case, JPMorgan’s partnership is building new homes, not buying up existing ones. So it should work to reduce the cost of housing.

This is the most naive take. JP morgan is going to sqeeze as much profit as possible, why would they do anything to lower rents?

They won’t do it out of altruism, if the market forces them to lower rents, they will have to do that.

Everyone in this thread is acting as though anyone building new houses is Sauron and that any action will make house prices and rents always go up.

I think the problem is they'll have a highly concentrated group of units and can essentially price fix them. They won't be competing with themselves. And landlords love to raise prices when others do under the guise of "market rate". If you have a captive audience (e.g., surrounding a college), there's nothing renters can do about it other than move farther away.

Being single-family homes complicates the issue, too. We're not talking about high-density units, so the growing housing supply is fairly constrained. I don't see it being enough competition to lead to a pricing war. Meanwhile, it's taking away land that could have been used for home ownership, which will likely raise the value of other single-family homes in the area, movin home ownership even further out of reach for many.

I get that not everyone wants to own a home, but it's nice to have the option. If you're laying down roots, you can lock in a fixed-rate mortgage and have an asset. When renting from a megalandlord you're subject to the whims of quarterly earnings and your one year lease might not afford much protection. I think you're also discounting the cost and hassle of having to move when JP Morgan raises prices above the competition. It's very unlikely people will exit en masse, causing the landlord to adjust the rental price back down.

You might be fine with all of that, but ridiculing people because they're uneasy with the situation is not helping the discussion at all.

They'll lower rents in order to maximize profit. Number of units goes up, demand stays constant, the price will need to come down or they're stuck with empty units that generate negative profit.

Demand is not remaining constant. And it currently outstrips supply.

Demand would still be lower than if JP didn't build the houses.

That may be higher than today, but it is lower than an alternate future where we ban building houses.

When demand is greater than supply, then the limited supply goes to the highest bidder. Nothing wrong with that.

JP Morgan is building more housing though, which is always a good thing because it increases supply. Governments need to ensure that building more housing remains an accessible and profitable venture.

> why would they do anything to lower rents?

Why does anyone? To capture market from people who don’t.

JPMorgan can squeeze as much profit as possible AND lower rents.

Companies will extract as much profit as possible. But this isn’t always a bad thing as it can be quite profitable to service customers in a mutually beneficial way.

That doesn't mean they'll lower rents. Far better to have X% empty than lower rents X% for any value X.

I don’t think so. For an individual corporation that owns 4000 houses empty houses are really bad. Perhaps in the short term, they’ll try to hold a price, but will start discounting and adjusting down as homes stay empty.

This is pretty simple supply and demand and if you increase the supply, then prices will drop.

Total revenue remains constant as long as X=X. Without an increase in total revenue, there is no reason to incur the costs of renting out a unit.

So, if I have 4,000 units and I let 100 stay empty to raise rents 8%, I win.

Why not raise rents 8% and rent out all 4,000.

Rents aren’t chosen arbitrarily by the landlord. They can’t set to whatever they like, else they’d increase 100%.

This is different is a single landlord has a monopoly or there’s a cartel. But in a typical city there might be 500k units for rent. So if a landlord raises rent by 8% on their 4,000 units, then people will likely choose other units that didn’t go up.

Not to be dismissive, but this is basic econ101 and any intro text will have lots of examples and evidence of these principles at work.

Why would these two X's be the same? Lowering rent by X% doesn't mean you get X% more renters.

It's a trivial lower bound.

I mean, you could write it as "better to have X% units empty instead of lowering rents by Y%, given Y >= X + Z, where Z is positive number determined by several factors" if you like

My point is that that's not the choice they're faced with. If they lower the rent for an unit just a bit below market rate for an equivalent unit, shouldn't we expect all of their units to sell? In other words, isn't Z usually negative?

> If they lower the rent for an unit just a bit below market rate for an equivalent unit, shouldn't we expect all of their units to sell?

No, clearly not. Housing isn't a commodity and moving is a pain. If I offered you $10/month in a rent reduction (or off the mortgage if you own) to move across the street to an identical home, would you? How about saving $10/month in return for increasing your commute by 10 minutes a day?

Obviously, both of those become worth it at some level of savings. And decreasing rent by 0.05% to double the units occupied is worth it (probably). But there's a huge overlap in the middle where it's not clear what the effects will be, and that's where the real world is.

It's not a question of whether someone who is already settled would up and move at the drop of a hat, but whether someone who is already in the market for an apartment would choose to rent a cheaper equivalent unit.

It's definitely true that things are more complicated in the real world, but that fact doesn't have-wave us into "Z is non-negative" territory.

If Z is negative, it's certainly not worth taking the deal. My point was it wasn't worth JPM taking the deal for positive Zs (up to some value). If Z is zero or negative, it obviously isn't worth taking the deal.

That is, not only is Y=X a bad deal, but Y=X+Z is a bad deal for a good deal of positive Zs. Up to Zmax which is a positive value. For all values of Z < Zmax (including negative Zs) it's bad for JPM

> JP morgan is going to sqeeze as much profit as possible, why would they do anything to lower rents?

Thankfully everyone else who is currently in the rental business is NOT donig this already?

Speaking of naive, you fail to understand JPM will have to compete with the existing landlords or their units will remain empty.

The demand for housing outstrips supply. There will be no competition.

Then building new homes means that people who were previously homeless now get to rent. At exorbitant prices, yes, but most would say that is better than homelessness.

There already is. Look around and you won't see any 1 BRs listed for 1M/month rent.

Landlords might not want to maximize income by lowering rents since they might have to write down their property values and thus prefer "temporary" vacancies.

"This is the most naive take. Walmart is going to sqeeze as much profit as possible, why would they do anything to lower the price of consumer goods?"

milk and bread fluctuate between 2 and 4 dollars and have since I can remember.

housing never goes down. rent has steadily increased from 800 for a 3 bd in my area to 1500 in 6 years. (rural Utah).

this isn't apples and oranges comparison. rental markets aren't the same as consumer markets.

The point being lowering prices can sometimes maximize revenue.

And sure housing goes down, check out prices after 2008. Condos in Miami could be bought for $30,000. They couldn't give them away.

The highest a landlord lord can raise rents is all of a tenants disposable income.

After that there's diminishing returns. You are correct.

Because demand outweighs supply that's what tends to happen. The more people get paid, the more housing prices increase to capture that.

If supply was able to grow to meet demand, then that would put downward pressure on prices, but it isn't allowed to grow, and everyone other than the lord of the land suffers.

Still a finite supply of land though in metro areas with good economies. So even wth unlimited growth you would hit a wall at some point in these metro areas where jobs are plentiful.

But would at least buy a hundred years or so for other cities around the country to develop solid economies so I'm all for it.

In most metro areas, zoning is the limiter, not land. You could quickly double the housing supply if you allow townhomes, duplexes, and small apartment buildings in areas currently captive to single family homes.

It's popular opinion expressed here that single family zoning is the only thing limiting supply. I'm not sure it's correct. There's a limited amount of construction capacity in every given area. Limited amount of construction labor (construction workers, engineers, managers), construction equipment and materials. It's not easy to scale it up. Upzoning is not a panacea.

Then normal market forces take over - as demand for extra construction equipment and materials increases, people realise they can make money there, so supply increases. It takes time and certainty, but there's nothing inherently stopping people building more cranes or training more electricians.

If — and it's a big if because civil infrastructure is a lot more than just domiciles and a bit of tarmac to travel on — it were done right, the metro areas could expand. And many have, which is why we're increasingly urban as a species.

Sure, still technically finite, but even just at the Netherlands' population density, we could fit the world population into 1/10th of the world's land area, so it isn't a real constraint.

You can fit a hell of a lot of living space in 1 acre if you use it well. Decent mass transit also increases the effective space of the city from a job perspective

London density could easily be that of Westminster (the borough with large open areas such as Hyde Park, Green Park, St James Gardens, most of Regents Park etc -- imagine all London boroughs having that much public open space).

Westminster isn't even particularly dense, but that alone would allow an extra 6 million people to live in Greater London.

Go for Manhattan density and that's 3 times Westminster, allowing 45 million in Greater London.

> reduce the cost of housing

yes, because JP is investing in a depreciating asset, lmao.

So laws of supply and demand don’t work because “lmao”?

Edit: Folks blaming Capitalism, Sauron, etc., but none will open up a spare room vin their home for the homeless for free (due to "reasons"), lmao.

The laws of supply and demand only says that an increase in supply will decrease price if everything else remains the same. Since that isn't the reality in housing markets there is nothing in the laws of supply and demand saying prices can't increase more by building more than they otherwise would have.

Would it be possible to crowdfund housing projects? I have seen some examples in europe where you buy into a housing with your savings. Development is complete done through collective desires of the fund.

Nah, that is too much more work than blaming Capitalism lmao.

Not to be glib, but isn't that the role of government? Society crowd-funds projects with taxes. I appreciate that a smaller group could have finer control over decisions, but that might be a hard sell.

So, you are saying that increasing the supply of housing in this case actually would cause an increase in prices? How would that work?

I agree that there is no guarantee that building housing lowers prices, other causes (like increases in demand) may cause prices to go up (and the increased supply would lower the upward pressure). But I have a hard time to understand how increased supply would not have a downward effect on prices.

> But I have a hard time to understand how increased supply would not have a downward effect on prices.

We can build housing much more efficiently and cheaply than we could 60 years ago, yet it's never been harder to buy a house.

The law of supply and demand only works as expected when used in an extremely simplified model.

If you account for all the other real factors (corporate greed, governmental intervention, NIMBYsm) that are skimmed over by economists, it becomes clear that the law of supply and demand should never be used alone to forecast future economic conditions.

I don't think that you can build much cheaper than before, is like the cars, they have more or less the same price but have improved in many ways (efficiency for example). Anyway, the building cost is many times not the most important thing in the price of a house.

> they have more or less the same price but have improved in many ways (efficiency for example).

If that was true, buying a house today would be as easy as it was in the 60s. In fact it isn't.

Supply and demand still works, but only when we account for the artificially limited supply of buildable land and permits.

> But I have a hard time to understand how increased supply would not have a downward effect on prices.

It does, if that is the only thing that happens. If land owners or existing home owners willingness to sell, prospective renters or buyers willingness to buy, or any number of different things also change then those effects can overshadow an increase in supply. As they frequently do.

Starbucks keeps opening new locations but that doesn't say much to the effect that the price of a cup of coffee will decrease.

That basically says more supply can't CAUSE price increases.

Usable land is finite.

Right, but thankfully most people aren't interested in raw land area and more interested in livable space. If you bulldozed a few dozen houses and built an apartment building on top, you still increased the amount of people that could be housed there.

I'm on the 21st floor. This floorspace didn't come with the land.

We're not talking about iphones here, people need housing to survive.

The housing price could keep rising forever but the demand will always be high, it's not like people can just "give up on housing for this year".

Being a mega-landlord will also allow JPMorgan to influence the general market price.

So no, it's not really as easy as "the laws of supply and demand".

Edit: lol, never ever touch the dogmas of neoclassical economics on HN. Running into a church during mess and shouting profanity would get you a better reception.

Supply & demand are not some type of fundamental laws of the universe. They are always changing and based on greed.

If I produce 100 widgets and am perfectly happy selling them for $10 and barely think I'll sell 10 of them.. but then they are highly popular and everyone wants them, you might see me constantly increasing the price because people like them and want to buy them. But that is literally greed in action. I did the math that I would make a nice profit at $10. But now that rich people decide they will pay $50 for each one just because they have the money and don't care, the people that could only afford $10 are priced out. And now the price has been increased and only people with a lot of disposable income can afford it.

Yeah, look at that "supply & demand" in action. Greed and and an excuse of "but wut could I do, the curves I plotted forced me to increase my prices even though I could have left them alone!"

The above is exactly a ticketmaster type example. We let "the market" set the price because people are willing to pay more and more, but those are the small percentage with a lot of disposable income that then get to have all the fun while people sit back and say "no one has a right to go to the concert [except those that can afford to keep on paying more and more]".

Economics is literally based on the assumption and ACCEPTANCE that everyone is a greedy asshole like yourself.

You’re assuming there’s just one type of ‘widget.’

If you’ve cornered the market in ‘luxury’ widgets, someone else will make a ‘bargain’ widget and sell to those with less money.

Hotels are a good example. The luxury brands are competing for the wealthy. But, you don’t have to be a Ritz-Carlton to make money… indeed, you can often make more by selling rooms to the less wealthy (as there are more of them.) And, on it goes, all the way down to the Motel 6’s and the mom-and-pop motels.

Why would anyone think isolated acts of charity can solve endemic problems that are built in to a society? That's like saying the wealthy should send a check to the IRS if they want higher taxes. Toddler logic.

That's how most businesses work. Teslas building a new factory reduces the cost of EVs

Yet the EV prices keep increasing

Edit: Agreed @cloverich, it's possible I did miss the point. At the same time, automotive price increases seem disproportionately higher compared to other fungible goods. It's possible the supply chain and labor issues have hit this sector harder than e.g. farming. It'd be interesting to quantify what the differential would be without the capacity from new factories.

They would be increasing faster without the increased production, I think you might have mis interpreted their point.

Almost everyone has taken an econ101 class but it will not reduce the cost of housing. At all. When large corporate interests control this many resources they keep the price pinned. Simultaneously the cost of building new property has gone up especially now that the materials and the demand for housing is collectively understood. Add in inflation. The price of housing will never be reduced.

You have a contradiction, basic Econ tells us it will reduce prices.

https://www.sfchronicle.com/opinion/openforum/article/Yes-th...

https://www.investopedia.com/ask/answers/040215/how-does-law...

Edit: And downvoted, follow the Science^TM except Economics, in that case follow randos

Since I have taken Econ 101 and taught it, it’s worth pointing out that literally no one thinks this is how housing markets work.

You can draw a set of supply and demand curves which keep prices the same under a supply increase, but not bc “large corporate interests keep prices pinned.” More important is that that special case is not relevant to housing markets.

There is also relevant empirical work on this issue. Increase supply and prices will fall. I’d bet you a billion dollars on that outcome.

Not an expert here but one thing I've noticed is that large / corporate landlords prefer to let a property sit empty rather than reduce the rent as supply/demand theory would indicate. My understanding is that this is because there are special tax benefits like you can write off the loss to lower your tax burden. How does this factor in?

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