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Comment by AnthonyMouse | Hacker News Reader

Individual landlords don't have market power. They'll lower the price when their alternative is that the unit stays empty indefinitely. That means when the supply goes up or the demand goes down.

People moving out of the city could reduce demand, if a significant number of people actually do. But this is not a sharp drop and the growth rate is already back to being non-negative:

https://www.macrotrends.net/cities/23130/san-francisco/popul...

Lower salaries could reduce demand in a different way.

The better way is, of course, to increase supply.

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> Individual landlords don't have market power.

The vast majority of rental units are owned by large companies, not individuals. Here in Texas all of the biggest landlord companies set rents to whatever the "YieldStar"[0] software tells them to. YieldStar is essentially used to outsource/whitewash pricing collusion.

Personally I'd expect a large % of individual small landlords to be using property management firms to handle their listings/rent collection/maintenance/etc, and for those property management firms to be using something like YieldStar to set their prices. If not now, then definitely soon enough.

0: https://www.propublica.org/article/yieldstar-rent-increase-r...

A price-fixing company on home rentals, in this market and economy... I'd cheer on officials imprisoning all the execs and board members, seizing and dissolving the company, clawing back gains from investors, etc.

And landlords who'd used this company to collude would be offered plea deals, in which they're wiped out financially, and permanently banned from investing in residential properties. Bonus: they can see what it's like to be an exploited renter.

The resulting funds can partly compensate some of the renters who were harmed, including many of those impacted by the effect this collusion had on the larger market.

Hopefully, that would double as a warning to any other startup founders who want to pull yet another "it's not illegal, if you call it an app" scheme.

Justice fantasies aside, at least HN could condemn these awful companies and the people who make them; never celebrate them.

> The vast majority of rental units are owned by large companies, not individuals.

That's not actually true. The vast majority of rental units are owned by individuals or small and medium-sized companies. The largest apartment owner in the US has 115k apartment units, out of tens of millions:

https://www.statista.com/statistics/603416/leading-apartment...

> Here in Texas all of the biggest landlord companies set rents to whatever the "YieldStar"[0] software tells them to. YieldStar is essentially used to outsource/whitewash pricing collusion.

Which doesn't actually work because they don't have market power. Any landlord who isn't an idiot would realize that they could set a slightly lower price and fill their empty units immediately, which is profitable as long as the discount is less than the loss of rent from leaving the unit empty until you can find a tenant at the higher price, which it would be if the software is suggesting rents above the market-clearing price.

There huge numbers of landlords, they all have the incentive to fill their units quickly and they have no enforcement mechanism to punish anyone who charges a lower price to do it.

Most landlords use property managers. In some markets most property managers are using YieldStar. They don't have market power across the entire US, but in some cities they have enough of the market to have pricing power.

Only about half of landlords use property managers and less than all of those use YieldStar. If it's suggesting above-market rents that leave more units vacant then anyone who did would be at a competitive disadvantage against anyone who didn't, and then who would use them?

This doesn't imply that no one uses them, it implies that it's not an effective mechanism for price fixing. Because it has no enforcement mechanism; nothing to stop any individual landlord from charging a lower price to fill their unit faster to their own private advantage.

It's just a computer doing the things landlords have always done -- looking at the existing state of the market to figure out how much to ask.

When the occupancy rate is high across the market, purposely withholding units by using higher than market-rate prices across a large enough percentage of the market artificially inflates the prices. "Large enough" doesn't need to be anywhere near a majority of the market to impact the entire market. There's no competitive advantage to using a lower rate, because the unit is likely to get rented either way.

You cannot look at the entire US. You have to look market by market. It's not price fixing across the entire US, but it's absolutely price fixing in particular markets.

> They'll lower the price when their alternative is that the unit stays empty indefinitely.

That doesn't really square with how large multi-unit properties are valued, though. Once you get past 4 units in a building, you're into the world of commercial real estate. Commercial real estate is commonly valued based on a percentage of the projected (i.e. theoretical) cash flow the building would generate if all units therein were rented out.

Notice how you don't have to actually rent out the units for this formula to work? If you have vacancies, you can just "project" that they'll be rented out at whatever your current asking price is.

At this point, you might be saying to yourself something like "WTF, that's basically fraud, isn't it?" Well, it basically isn't, as long as you can convince at least one person (e.g. a banker or potential purchaser) that your projections are sound in order to either get a loan against any equity you have in the building, or to buy it outright, respectively.

Just so you know I'm not making any of this up, here's a page that lays it all out for you: https://www.firstrepublic.com/insights-education/five-common...

To bring it back to vacancies and rents, that's the reason you see buildings sitting with tons of vacancies and owners not dropping rents. It's also the reason you see those "N months free, then $R per month thereafter" deals (because $R is the value they get to "project" they'll be taking in every month, regardless of the fact that it cost N months' worth of rent to bring in a tenant. If you start lowering rents, then that fucks with your "projections," see.

If you're like me when I first heard all this, you probably think this is insane at best, or shady at worst. And, yeah, it kinda is. But it also explains the phenomenon of units sitting vacant and bringing in $0/month when the landlord could just lower the rent and bring in $POSITIVE/month instead.

> Commercial real estate is commonly valued based on a percentage of the projected (i.e. theoretical) cash flow the building would generate if all units therein were rented out.

Of course it is. Apartment units have turnover and if you have a non-trivial number of them then at any given time you'll have some proportion which is on the market rather than already rented out.

That doesn't mean the landlord wants the unit to be empty. They want to fill them as soon as possible because every month they're empty is a month of lost rent.

Waiting a month or two or three to get a tenant at the market price could be worth it over offering a huge discount to fill the unit immediately. Holding out for even more by receiving no rent for years... isn't.

I mean, then they bring out the 2-month deals. I used to live in a luxury 25+ story apartment tower in Seattle area in 2010, with a big pool, full size gym and everything. It was... less than full, so I paid like $1.1k for a large 1br with views, after you account for first 2 months free (not accounting for free parking, normally that was extra too). IIRC they extended the deal too until 2012 when the building started to fill up and they didn't need it anymore.

I think the only reasons they need to resort to such gimmicks instead of just dropping rent are the above accounting considerations and limits on rent hikes (not extending the deal increases the rent without increasing the rent)... the end result is still low rent thanks to market forces.

It’s funny how when it comes to housing, better way is always to do something that won’t have a meaningful impact on most people for many years or even decades.

As opposed to things that don't work at all, like not building housing?

A lot of things are like that (e.g. nuclear energy).

And are thus eclipsed by better, safer solutions like renewable energy.

The US generates ~18% of its electricity from nuclear, ~13% from wind and solar and ~60% from fossil fuels. France generates ~68% of its electricity from nuclear, ~10% from wind and solar and ~8% from fossil fuels.

We're trying to reduce the number for fossil fuels, one of these is actually working.

It took 70 years to create this mess, it's going to take 70 years to fully fix it.

If you want to make it faster you could subsidize new construction.

If you have more demand than supply, the only ways to make it otherwise are to reduce demand and increase supply. Methods of reducing demand are generally unpleasant.

What alternatives do you imagine there even are? If you have a million families and 800,000 housing units, your choices are building 200,000 more housing units or something worse than that.

Banning corporate ownership of single family homes, including forced sale of existing portfolios, occupancy requirements, mandated development on state-owned landed, direct state construction vs. subsidies.

> Banning corporate ownership of single family homes, including forced sale of existing portfolios

Then corporate investors buy large buildings instead of single family homes (note that this is primarily what they do anyway), the prices for rentals in multi-unit buildings goes up (because it costs more to buy the property with more corporations bidding on it), the prices for single family home rentals goes up (because some of the landlords sell to occupants rather than smaller landlords so there are fewer rentals available) and what you've done is transfer some of the cost from more affluent prospective single family home buyers onto less affluent renters.

> occupancy requirements

They just convert unoccupied units to some other use or claim they're under construction, and if there is no exception for units under construction you've made construction more expensive and get less of it.

It's also kind of weird because they're already losing thousands of dollars a month in rent if the unit is empty, and the higher rents are the more they lose, so isn't the market already providing the incentive you're trying to get here? There's a reason well over 90% of the units in high demand areas are already occupied.

If you really want to increase occupancy then get rid of rent control -- it lowers that exact incentive to put the unit on the market which raises rents for all other units across the city, and has the same effect for new construction because of the risk (or certainty) that the building will be put under rent control in the future.

> mandated development on state-owned landed

The state often makes inefficient use of the land it owns, but it typically doesn't own that high a proportion of land in the city, especially if you're just going to use it to build more single family homes. Allowing a 100-unit building to be built where there is currently a single family home creates 99x more housing than converting some park to a single family home -- and then you lose the park.

> direct state construction vs. subsidies

Then the state uses government contractors who charge more and you get less construction for the same number of tax dollars.

And also, this is just a different kind of construction subsidy. You're not getting out of needing to build more housing.

I tried for a moment to engage with this, but it’s frankly a bunch of contrived arguments about why no other world is possible. It also cherry picks from what I wrote when the defense of the status quo conflicts with different aspects of my comment (e.g. why would direct state construction be single family homes vs multiunit buildings? Nowhere did I indicate that you don’t have to build more housing?) Even the most extreme market fundamentalist would acknowledge that within the basic principles of supply and demand, flooding the market with a fire sale of the properties currently in the possession of corporate investors would cause prices to go down.

> why would direct state construction be single family homes vs multiunit buildings?

You suggested the use of state land as a means to increase supply. If it's an alternative to zoning reform then the zoning still prohibits anything other than single family homes. If you do the zoning reform so that it's possible to build multi-unit buildings then why would you need the relatively modest amount of state land? Anyone could just turn existing private single family homes into multi-unit buildings.

> Even the most extreme market fundamentalist would acknowledge that within the basic principles of supply and demand, flooding the market with a fire sale of the properties currently in the possession of corporate investors would cause prices to go down.

It would cause single family home prices to go down, not rents -- you would be removing units from the rental market because some would be bought by occupants instead of smaller landlords.

It's also not obvious that the home prices would go down much either, because the rents would be going up, which would cause those homes to have a better return than they do now for any investors still eligible to buy them.

And at bottom it just isn't increasing the number of housing units.

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