Well, cartels aren't capitalism.
Capitalism would be someone coming in and realizing the prices are inflated and undercut the rent prices while still being profitable.
Capitalism would be someone coming in and realizing the prices are inflated and undercut the rent prices while still being profitable.
That number has climbed faster than inflation for some time and is the largest driver of increased multifamily development costs.
Want cheaper housing? Make it easier to build housing.
"""One night, on my way home from work, I pushed the wrong elevator button and got out on the floor below mine without realizing it. My key wouldn’t fit the lock to what I had assumed was my door, so I turned the knob and stepped, to my astonishment, into a completely empty, totally untouched one-bedroom. I turned around and beelined to the elevator, worried that I’d get busted for trespassing, when I noticed strips of masking tape covering the door frames on all of the other (presumably empty) apartments on the floor.
This was how I became aware of “warehousing,” the practice by which landlords keep unrented apartments off the market to create artificial scarcity. Building owners have always done this, especially in new constructions with lots of virgin inventory, because why give renters the upper hand if they don’t have to?
But they really started doing it during the pandemic. On a 2022 episode of the real-estate-industry podcast Talking Manhattan, Gary Malin, COO of the Corcoran Group, made a surprising claim: “At one point during the downturn, the vacancy rate in the city was close to 25 percent,” he said. “You had owners who were sitting on hundreds if not thousands of empty apartments.”"""
If there are extremely wealthy entities that can afford to soak up enough supply to meaningfully impact market prices, making it easier to build new housing is likely part of the equation, but it may not be the silver bullet. I don't know how many units are held unoccupied, but as someone from Detroit, I'd advise against letting supply get too far ahead of demand (Context: a major housing surplus developed in Detroit as the population dropped from ~2M in 1960 to ~0.6M today, and this surplus destroyed the value of homeowner's equity and lead to abandonment, blight, and massive arson rates).
Now that demand has returned, and vacancy rates have plunged to their normal sub-5% level, rents in the city have hurtled back to their 2020 prices or even higher. [2]
This is exactly what economics would predict of a market system with constrained supply. Demand is almost never as elastic as we recently experienced, and this only serves as further evidence of nonexistent undersupply being the primary cause of high prices. Not "warehousing" or hoarding of vacant housing that already exists somewhere.
[1] https://www.zumper.com/rent-research/new-york-ny
[2] https://www.nyc.gov/site/hpd/news/023-22/hpd-releases-initia...
"""Look, it’s possible that my suspicions are baseless and all of these buildings are full. Maybe their tenants really did come flooding back to New York last year. Maybe some are former couples who broke up during the pandemic and needed twice as many apartments and others are remote workers from Milwaukee or Akron evading city taxes by claiming residency in their old states. Maybe they came without any furniture so they didn’t have to hire movers. Maybe they’re homeschooling their kids, taking Ubers instead of the subway, avoiding restaurants, and abstaining from all other activities that would expose them to public data collectors. Weirder things have happened here. But if you meet any of these people, give them a change-of-address form for me. They’re probably missing some good mail."""
One of the central points of the main article (exemplified by the opening sentences quoted below) is that demand hasn't returned.
"""I was impressed by most of this article in Curbed, which did some actual reporting on the discrepancy between landlords saying rents in New York City were surging "because people came flooding back" and the fact that, according to all data, people did not actually come flooding back. The reporting goes to impressive shoe-leather lengths -- the author even contacts the New York City Water Board for clarification on how much waste they processed in 2021!"""
What we have is a complete lack of top-down management to allocate it efficiently.
If we combined Soviet economics and modern Big Data, we could solve this easily-- mandate that economic engines are sited where housing gluts exist, and assign out housing to optimize things like average commute length.
I think I spotted the challenge.
Problems in real-estate are almost always government created IMHO and not "capitalism".
The government enforces capitalism laws (rather than socialist or chartalist) so how do you distinguish?
If competition is unrestricted, cartels are unstable structures. It only takes one member unwilling to join cartel to ruin them. That's why drug cartels are killing each other and smaller competitors.
There are exceptions, but that's where antitrust laws come in.
It only takes one member in an enviroment protected from all other actions of the cartel to ruin them.
If all economic actors only interacted in the marketplace itself, then, yes, cartels are unstable. But businesses are not spherical cows in a vacuum.
In practice, cartels can exert all sorts of forces to insulate themselves. While most don't go to the extreme of drug cartels which you should note are quite adept at maintaining their stability, they can still to plenty without resorting to violence. Off the top of my head:
* Economies of scale, barriers of entry, and other Econ 101 stuff that privilege large entrenched actors over upstarts.
* Threatening to stop giving contracts to builders if they work with the competitor.
* Threat of social sanctions since many of the people who run these businesses all know each other and play together. Pretty awkward to break up a cartel at 10am and then go to your regularly scheduled golf game with its owners at 4pm.
* Buying smaller competitors outright before they defect.
All of those already exist without cartels.
> Threatening to stop giving contracts to builders if they work with the competitor
This assumes that pool of builders is somehow limited, but if that's the case, builders have leverage. How exactly do you see this conversation going?
- If you work for our competitor, we won't give you any contracts!
- But he can just hire other builders.
- He can't, you're the only builders in the area.
- Oh. Well then, how about we go work for both you and your competitor, and you have to pay us more. What are you going to do, we're the only builders in the area.
> Threat of social sanctions since many of the people who run these businesses all know each other and play together
There's potentially billions of dollars to chase, but what's stopping you is that this will piss of your golf buddies. Right.
> Buying smaller competitors outright before they defect
You can't just assume you can buy any company. Why don't drug cartels just "buy" each other? Surely it's preferable to non-stop murdering.
Well, sure, but in an environment with a cartel, they will privilege the cartel over other actors in the system.
> This assumes that pool of builders is somehow limited
And it is. It's limited to the builders who operate within the geographic area the cartel operates in.
In general, you're just dismissing these very practical criticisms with more "idealized market theory" that only works when it doesn't have to take real frictions into account, or by just saying what boils down to "nuh-uh".
They can't really though, at least not anytime soon -- the cycle itself gives the cartel more capital. If they buy units as they come onto the market, they hold the equity in those units, which they can instantly mortgage out to get more capital, which they can spend on more units, which they can instantly mortgage out to get more capital. This is especially true when interest rates are low, (the lower rates are, the cheaper this cycle is to continue -- at interest rates below the real inflation rate, they effectively get given free money to do this)
And yes, it exposes them to the risk that eventually this bubble could pop, but it could take many years (decades even?) before that happens.
It requires power to prevent voluntary transactions and that comes in lots of flavors.
My point is you are distinguishing between government and capitalism - capitalism is an attribute of the government and power structure. The people with capital are the ones preventing the transactions (to their own benefit of course).
I don't think that is a common formulation of the idea of "capitalism".
But who buys the government?
[1] https://livebaltimore.com/neighborhoods/madison-eastend/
https://www.zillow.com/homedetails/2011-E-Lafayette-Ave-Balt...
I see some 'houses' in the area that you're looking at for $130k, built in WWII and likely have heating bills high enough to bankrupt the wealthy unless the place is ripped apart and modern insulation is put in.
Large back tax bill, lack of city services (e.g. if live in Springwells, good luck getting a reasonable response time from Detroit PD if you're being burgled) and an unsafe transit situation are the most common ones I can think of.
The houses are cheap for a reason. Its not as though Detroit is filled with provincial oafs that don't know what they're selling.
Prices are set on the margin, you need a few landlords to start to feel capital pressure to drop rents.
Yeah, I can't imagine there would be any unintended consequences to that.
In what world does raising the cost of providing housing cause landlords to reduce rents? More likely it causes landlords to stop renting. See the consequences of the rent control regulations in NYC, for example.
Low availability keeps prices high with no need to worry about things like quality. There is therefore no incentive to build to increase supply. When a market is this dysfunctional, state intervention is the only way forward. Build publicly owned housing and rent it affordably.
This probably won’t happen either, because so many in government are also landlords.
Edit: Wow, so many downvotes for advocating public housing.
So far, they've use the latter option, and that's most likely because the first one is hard: if the cartel controls the market and keeps the prices high, new investors have no incentive to join, they'll make more money if they don't.
And your No True Scotsman example is typically heard in reference to communism in USSR/China.
I'll choose my billionaires over famine any day.
If this effect isn't intuitive to you, consider what happens when the market for something is completely removed from government involvement, like the global market for cocaine. Or a market that develops in the absence of any kind of centralized authority, like Somalia.
That's what happens to every market unless a state intervenes. The invisible hand of the market trends towards long term warlord/mafia type arrangements unless the public is organized enough to stop it.
The global market for cocaine is highly regulated by very violent men with guns.
It is for that reason that drug consumers favor legalization but drug suppliers oppose it.
The interesting part is who those men with guns are accountable to.
Cartels are very much capitalist, because they create more profits for everyone involved. The more parties you get involved, the better it is for all of them, and the worse is it for any competitors who do not join.
Cartels certainly aren't free markets. To keep those you need policy which keeps them that way.
The problem with using 'capitalism' in discussions like this is that there isn't a precise definition of it. To some people it simply means private ownership of the means of production, to others in includes free trade, to others (and to my thinking, the most precise, but YMMV) its about the separation of management and ownership and tradable claims on the firm.
Power tends to accumulate when government actions restrict voluntary trade that would have otherwise proceeded. That is a characteristic of governments not of "capitalism", IMHO.