New Yorkers Never Came ‘Flooding Back.’ Why Did Rents Go Up So Much?
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If you want an effective but controversial solution, make it easier to evict people. With less risk of deadbeats, landlords would be more willing to open up supply and not hoard vacant units.
What I just said does not really matter because politicians will put forth failed policies like rent control or empty unit tax that does not help with the supply at all, BUT, it does help them to get votes at the expense of long term damage to the housing market. Singapore solved housing, New Zealand solved housing, both times by increasing supply.
And I can assure you that you weren't directly responding to GP's proposal. If your property tax was 1.5% per month for every month that the unit was unoccupied, you'd find renters ASAP. There's no way you'd leave a $500,000 property unoccupied for a year if it cost you $100,000 in taxes to do so.
Yes, we also need default YIMBY laws to make it easier to add new high-quality units. But in addition, we can immediately free up unutilized units with an empty-unit tax of 1.5% per month.
Separately, the enforcement cost of your idea makes it untenable. The law would have so many loopholes, it would be and stay toothless for decades. Even if we assume for the sake of argument that it actually worked and the rate of empty units went to nearly 0%, it would warp the real estate market so much it would eliminate all benefit: because there would be fewer people looking for apartments (because they are housed in the previous vacant units), fewer new buildings get built. After a decade prices would be back to where they are now except that now it would be more of a headache to find an apartment because the vacancy rate is 0%.
As mentioned, we also need to make it easier to build lots of new high-quality units.
Could be a good idea to use the vacancy tax to build.
But if that's our conversation then everybody needs to be prepared for the possible answer to be that the vacancy tax should be negative.
That would just increase the total financial risk of owning rental properties and you might decide that owning rental properties no longer gives you the best risk adjusted return on your investment capital, and sell. Thus decreasing the total number of rental apartments on the market and making harder to find places to rent (while making it easier for people with capital to buy). The people that are still willing to take this risk would have to raise rents to compensate.
If this is a good or bad outcome is left as an exercise to the reader.
This is hard to steel-man.
In this hypothetical, did you also tear down the apartment before you sold it? The neighborhood I grew up in had 250 homes. When my parents sold the house, the neighborhood didn't suddenly drop down to 249 homes! It didn't even lose net families, the new owners moved right in.
It doesn't matter if its put up for monthly rent or sold to a homeowner. As long as someone lives in it, it helps balance the city's supply-demand curve. If you'd rather sell than put someone in the unit, that would be an intended outcome. The rest of the city doesn't care if you continue owning it or if you're forced to sell it to someone else who feels they are capable of finding an occupant for the unit.
More generally, this is why currency is generally mildly inflationary. In a successful society, any stores of assets are generally put to use rather than passively hoarded. Inflation encourages those with large amounts of cash to reinvest it -- even if that's just by buying index funds, the money goes towards enterprises which can make better use of the money. In NYC, real estate assets are not inflationary enough to encourage overseas passive property owners to rent out the units. They're okay losing 20% of their money over a decade because it's small a hedge against their current government/currency collapsing.
Increased taxes would put pressure on passive property owners to hire a property manager who can manage to rent out the units for them.
This is where you and I disagree. Renters and buyers make up different demographics. Make renting hard and you get less mobility and/or higher rents. Fewer people will move to a city for short term opportunities and it will be slightly harder to hire people from 'out of town' since they'll either have to buy an apartment on basically day 1 or be forced rent a higher priced, lower quality apartment than what they could get in another city. The people who do move to the city will on average be the sort of people with more capital and who can easier make the necessary down payments. People who have a place will be less likely to move to a place the suits their current life situation better since the overall housing liquidity will decrease, meaning you'll get inefficient allocation of housing resources.
Changing the balance of rental opportunities changes the city. Not necessarily for either the better or the worse, but it is a change.
They both exist in one demographic we all live in - the need to have some sort of shelter to live in. So this is true to some degree, but the biggest monetary difference between $2000/month in rent vs a $2000/month mortgage is that unaffordable-to-most down-payment. And where is the tenant? After renting the same place for 15 years, vs paying a mortgage for 15 years, who's got equity built up and can sell, and who's been paying someone else's mortgage?
> have to buy an apartment on basically day 1
Maybe before AirBNB that gap was wider, but if you need a house somewhere for a week or three, it's a great option. Prior to that, corporations had short-term rentals they placed people in but these days it's easier to use AirBNB for that purpose. And it's accessible to way more people.
My underlying belief is that it's better for people to own things rather than rent. Eg buy a car instead of leasing it, because at the end of the loan period, you now own a thing. It is yours. Not everyone will share this belief, but the idea of PE firms owning the majority of housing, with most people renting shitty apartments, and money further concentrating at the top, is quite scary to me and paints a dystopian picture for the future.
The whole point is to screw you (not you personally, but you as in landlords) into making your property available
Or you will raise your prices to compensate for the extra costs and risks of being stuck with empty units.
Why wouldn't an empty unit tax help supply? Holding a unit empty would be more costly. It would provide a direct financial incentive to rent out the unit. By what reasoning would it not increase the supply of rental units on the market?
Now I could understand if you were to argue that other policies are better, but that's another argument all together. Also laws could be changes to make it easier to evict tenants while simultaneously putting empty unit taxes into place. They are independent policies.
Supply of what though? Housing units or rental units. Make owning rental units too expensive and risky and people will convert those units from rental to owned by simply selling them. Now while the total supply of housing hasn't changed (and might even have increased on the margin), there will be less supply of rental units on the market.
But then you’d also have less renters in your scenario because a renter became an owner. Less renters would mean a decrease in demand for rentals. The only situation which hurts buyers and renters is when the unit is left empty to artificially decrease supply.
It's not uncommon for over 50% of a NZ household's net income to be going on rent. People are renting tin sheds to live in because there's nothing else.[1]
New Zealand needs to solve housing.
1. Having said that, the average NZ house built in the 1960s through the 1990s is worse than most tin sheds to live in. Colder and moldier.
But also make it easier and quicker to evict for nonpayment.
I doubt many distant relatives are willing to commit federal and state felonies by fraudulently claiming they live somewhere they do not so that their relative can profit from holding onto a property.
Additionally, mobile networks have logs of your real time location just a subpoena away, so good luck fighting it.
This tax fraud scheme would open you to both state and federal audits.
This is tyrannical thinking and I see it a lot…
Remember that the housing market is a market. If you magically appear 20K units out of nowhere, prices will go down for a while until 20K units don't get built that would otherwise get built and prices then end up right where they would have if you didn't magically appear those units.
FWIW, even without my having any prior knowledge of the correct terminology here--which is apparently "warehousing"--it took about 10 seconds to find a bunch of references to what is going on using the search query "new york landlords keeping properties empty renters". I have provided a spattering of results from different kinds of sources.
https://jacobin.com/2022/10/new-york-city-landlords-affordab...
https://nypost.com/2022/10/20/nyc-landlords-holding-60k-rent...
https://www.fox5ny.com/news/nyc-warehousing-empty-apartments...
https://www.thecity.nyc/housing/2022/10/19/23411956/60000-re...
https://www.businessinsider.com/why-cant-find-affordable-nyc...
https://www.reddit.com/r/nyc/comments/ygnh7o/new_york_landlo... (discussion of the jacobin article)
How have you previously tried to find evidence and come up short? Can you list some of your failed attempts to research this?
I'm open to evidence that this happening, I'm just pointing out that I've seen dozens of people online make this claim and no one ever provides evidence to back it up. I don't have time to thoroughly read through all 6 of those articles, but I've skimmed through them and don't see evidence for the claim there either. The Jacobin and City articles just assert that it's true without citing any evidence. The Business Insider doesn't even try to make that claim, it immediately blames rent-control in the 4-6 paragraphs. The Fox5 article just says units are empty without trying to provide an explanation.
If there is a piece of the articles I missed, please point it out.
In any case, this question applies to any market involving artificial scarcity. Surely you don't think businesses have never tried to make their product artificially scarce in order to make higher margins?
Of course, like I said to the other comment. I'm open to hearing contrary evidence (if it comes from actual economists and not journalists).
The tax benefits of owning property far exceed any other asset. Once the local market has been consolidated into a small group, anytime that happens you get price fixing through collusion even if they don't plan it all ahead of time as some conspiracy. Its done just by looking at the prices others are charging and charging the same or higher.
With loans that cost almost nothing to service, and extra tax benefits that they can offset other losses. There is nothing preventing this sector from being driven exponentially higher by bad actors.
They can just hold onto the properties and let them go fallow with no incentive to rent. This effect is worsened because new housing is so hard to build (or has been made hard).
If you want to fix this, legislatures need to taper or remove some tax benefits, as you assume positions in ever larger portions of the market. Further incentivize cash flow over price fixing by setting, and set ever higher tax brackets and windfall taxes on profits and further limitations on REIT vehicles.
When the RE crash hit 2008, banks simply held onto assets instead of full foreclosure sales in many cases (other then OneWest which had guarantees of value from Fed but only if they had above a certain amount in losses which incentivized foreclosures for their own extreme profit).
Many properties at that time from other banks were simply being abandoned (and accruing damage as a result, water leaks, mold, no remediation since no one reports it). Instead of foreclosure sales and offering the properties for what they were worth at the time on the market those held onto those abandoned properties for years.
Pre-foreclosure RE inspections to determine if winterization was needed or document other damage so it could be covered by insurance were not uncommon and boomed during that time, but a very small percentage of those properties were actually fully foreclosed on until prices recovered towards late 2013, with one exception, OneWest bank.
Week-to-week those foreclosure inspection requests were often repeat properties in every area, when you stop getting the requests its usually foreclosed on and that rarely happened until 2012-2013 and by rare I mean single digit changes in the percentages of the total inspections for the area each week. It was not uncommon to have 150 or more inspections for an area each day.
I worked in that industry for a time. It was pretty despicable, and a dangerous job because people were crazy even though we had a legal right to take pictures of the property.
I was shot at once, drug related squatters were a big problem. One place was swarmed by squatters, and one of the inspectors car was lifted and put on its side with him inside it and PD being dispatched, one of those properties we had to call the local PD and have them send out the bomb squad as the previous owner had left what we found out later turned out 'thankfully' to be just an empty pipe. It was capped off on both ends with wires running from the house electric (which was off) through a hole drilled into it and was attached to the inside of the garage door.
Just absolutely crazy stuff, and I'm glad I don't work in that sector anymore. No line of work is potentially worth your life, and we were not paid hazard pay. Only slightly above minimum wage for the time.
Taxes should be used to assure that assets get deployed toward productive gains. For the same reason that a nation doesn't want a deflationary currency -- capital should be deployed, not hoarded. Real estate holdings are moderately deflationary these days. Doing nothing with your real estate is often profitable. That's an actual problem that taxes can address.