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Comment by whimsicalism | Hacker News Reader

I disagree that this is a major driver of housing costs. And why can't they lower their prices?

Debt.

A person might not be able to lower prices because they owe more than the house will sell for. I can't imagine that is broadly the case in this market, unless the house was just bought.

A corporation is even less likely to lower prices if they own lots of properties. If they lower the price of one, their loss may be multiplied by the number of comparable holdings.

I imagine that it might affect borrowing for highly leveraged real estate investors. If you are securing loans on asset values and they drop in perceived value, lenders might get nervous and call loans in.

In other words the solution is some serious level of sustained inflation.

Theoretically, that'll make the debt easier to pay, given enough time.

However, there are levels of debt-to-income that prevent the borrower from getting that time (insolvency exists).

I am hoping policy-makers have a more sophisticated approach than 'money printers go brrr'. Economies like price stability. Deflation and inflation can be destructive in the extreme.

> And why can't they lower their prices?

The properties are valued based on the advertised rental rates and if property values fall, they can have significant down stream effects on financing like banks requiring the property owner to put up more collateral next time they need a loan, whether it's to build more housing somewhere else or pay for maintenance that has large upfront costs.

> And why can't they lower their prices?

Because if you bought an over-inflated peak-market house you're stuck with that mortgage rate.

There's people paying $1,500 - $2,000 monthly on mortgages for average homes. To rent it out, it's not sufficient (for a variety of reasons) to simply collect the mortgage payment, meaning you have to charge even more to stay afloat.

If the market cools, and people no longer are willing to pay $2,5000 a month in rent on average homes, then the home owner is in a pickle... try to re-fi, if possible, offload the home, or ride the storm out (if financially feasible).

"Hold it empty" is not a better way to "ride the storm out" than to rent it at lower cost. The solution to losing money isn't losing even more money even faster.

This is absolutely dependent on the market. It makes sense to hold an empty property in cities that make it incredibly hard to remove tenants without cause.

The vast, vast majority of rental properties have a much lower cost basis than if you were to buy it yourself today. Many landlords could rent it for much less than your mortgage payment on the same property and still turn a profit.

> The vast, vast majority of rental properties have a much lower cost basis than if you were to buy it yourself today

Anything to quote here for this? I'm inclined to believe you are probably right, but an awful lot of real estate has changed hands in the past 5ish years... all of which is hugely inflated above actual property values in a normal market.

Lots of people with FOMO bought into houses way above their weight, and thought the rental market was a "game" anyone can play.

I mean, it's the choice between paying your full mortgage and partially defraying it. I am not sure what changes economically once you are net negative with the mortgage - it still makes marginal sense to rent it out

I suspect two things:

1) Actively looking for that right renter willing to pay a premium for a particular property/part of town.

2) There's probably tax benefits to the lost income and mortgage expenses while looking for a renter.

I’d say it’s because the pricing is algorithmic based off of demographic and personal data. Similar to hotels, it can be more profitable to keep some empty in order to reduce supply and price up the others.

> it can be more profitable to keep some empty in order to reduce supply and price up the others.

You mean if you own a massive complex, which is the vast minority of housing - and also not what was mostly accused of being bought up by individuals or firms for speculation.

If you're talking smaller units, landlords are effectively price takers and it is pretty much never profitable to keep empty and price up everything else unless you are anticipating immediate increase in prices.

None of this is a major driver of housing prices either way.

I’d say based upon the overall profitability and scale of single family corporate landlords like American homes for rent that commercial interests have great influence over pricing. Smaller landlords are then able to price similarly. It makes little sense for them to have houses be empty and lose money, but this is often the case. However, the focal point is the drivers of pricing and I don’t see any evidence in your argument as to why I am wrong.

> I don’t see any evidence in your argument as to why I am wrong.

Basic economics on how prices work? The fact that obviously everybody is a price-taker in most home markets?

Your theory is for some sort of massive coordinated action that would reap massive profits to anybody for defecting from. It's game-theoretically impossible but I need to provide the evidence? There are some landlord pricing tools that should absolutely be subject to anti-trust enforcement, but this is again: an extremely small current in modern rental/housing markets.

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