Hacker News Reader

Comment by paxys | Hacker News Reader

Exact same experience in New York. I toured a building which had dozens of units sitting empty. I found one I liked and tried to negotiate, because the asking price was too high, and the leasing agent simply went "sorry the numbers come out of our software and I'm not allowed to charge any less".

The whole "efficient markets" theory goes for a toss when large corporate landlords representing a disproportionate share of the market are all able and willing to just sit on empty units and take temporary losses while prices steadily go up.

View on HN

> The whole "efficient markets" theory goes for a toss when large corporate landlords representing a disproportionate share of the market are all able and willing to just sit on empty units and take temporary losses while prices steadily go

A sufficiently high property tax would fix incentives very quickly.

Property tax in NY is very high. Don't understand your logic.

Obviously not high enough if the ROI for empty housing is more than occupied housing.

There should be a higher tax on unoccupied units, and they shouldn't be able to write down the unit as a loss (I don't know if this is even possible, a whole building but they shouldn't be able to structure their revenue like that).

Or too high, compelling landlords to hold out for a higher bidder on rent to cover the cost of the taxes. Once you accept a tenant, you are effetely stuck with them, so one has to be careful to choose wisely.

Imagine a hypothetical scenario where tax is $1,000 per month, the cost of hosting a tenant is $500 per month, and prevailing rents are $1,500. –– You can accept a tenant right away and break even. Or you can wait a couple of years until someone agrees to pay $2,000 per month. Which do you choose? Spend $18,000 to wait and then make $120,000 in the following 20 years, or spend nothing now and make $0 in the following 20 years?

On the flip side, if the tax were only $500 per month then you could accept the tenant willing to pay $1,500 right away.

That scenario does not make any sense, given that it ignores the option of selling the property, and there is no guarantee someone will pay you $2k in 2 years. Why not wait 5 years for $5k?

You have your cash flow now, and your potential customers now. If it is a money losing money proposition, you can sell. If you want to bet on prices in the future, you can, but the higher the property taxes, the worse that bet is, and the less likely it is to be made.

> that it ignores the option of selling the property

While it does not speak to selling, it doesn't ignore it. It is factored in.

> Why not wait 5 years for $5k?

Well? Don't leave us hanging.

> If it is a money losing money proposition, you can sell.

And then what? Maybe in recent months the tide has started to turn, but over the past 10+ years interest rates were effectively 0 for a reason: Nobody had any idea what to do with money. Interest rates are a product of supply and demand like everything else. Real estate is the last resort where money goes when all other ideas have been exhausted. If real estate is what you are invested in, you got there by not having better ideas.

> Well? Don't leave us hanging.

Wait 100 years for $100k…it is meant to show why your scenario makes no sense.

> And then what?

And then someone who does want to do something productive with the property purchases it. Such as a homeowner, to live in.

> but over the past 10+ years interest rates were effectively 0 for a reason: Nobody had any idea what to do with money.

This is getting off topic, but interest rate and monetary and fiscal policy is a political thing. At least one person (me) has an idea of what to do with money. Providing kids with healthy meals at school would be a start.

> Wait 100 years for $100k…it is meant to show why your scenario makes no sense.

If you have something to show, I'm interested. Why hold out on us?

> And then someone who does want to do something productive with the property purchases it.

And now the former property owner has nothing. What's the point of them going to all the trouble? I am sure they would rather use that time to post on HN, like you and I have the luxury to.

> but interest rate and monetary and fiscal policy is a political thing.

Interest rates are adjusted in accordance with certain political goals, yes, but they are adjusted in response to behaviour. Rates were lowered because people weren't looking for money, not that people stopped looking for money because interest rates were low. Basic supply and demand.

> At least one person (me) has an idea of what to do with money. Providing kids with healthy meals at school would be a start.

And if you invest wisely, you'll have even more money to help with that! So, we're back to trying to figure out what to invest in. Any ideas?

> While it does not speak to selling, it doesn't ignore it. It is factored in.

I'm being dense; how have you factored that in?

I agree that a higher tax will might not resolve the situation. I also think that a lower tax would not, either. First, some math:

((years_rent * months * rent) - (years_hosting * months * hosting)) - (years_tax * months * tax)

The cost of renting immediately at $1,5000/mo and $1,000/mo tax:

((20 * 12 * 1500) - (20 * 12 * 500)) - (20 * 12 * 1000) = $0

The cost of renting immediately at $1,5000/mo and $500/mo tax:

((20 * 12 * 1500) - (20 * 12 * 500)) - (20 * 12 * 1000) = $120,000

The cost of losing 2 of the 20 years while speculating for a $2,000/mo renter and $1,000/mo tax:

((18 * 12 * 2000) - (18 * 12 * 500)) - (20 * 12 * 1000) = $84,000

The cost of losing 2 of the 20 years while speculating for a $2,000/mo renter and $5,000/mo tax:

((18 * 12 * 2000) - (18 * 12 * 500)) - (20 * 12 * 500) = $204,000

This shows that a lower tax is more profitable. The case where profit is <=$0 exists, but the the speculation also generally increases profit if we're just ignoring the part about it being speculation (with risk of never filling a spot or not having cash flow). A solution might be to lower taxes, but the incentive to speculate is still present (would you rather $84,000 or $204,000?). A better solution would be to punish the speculation directly. A variable tax rate where the unoccupied unit is taxed higher might accomplish this.

They may not be sufficiently high.

All that will happen is smaller players will be forced out and folks like Essex will be able to stay in longer.

The same thing happens in new "luxury" buildings in LA. Poorly constructed, barely occupied, but resets the rent in the neighborhood and can afford to be at 50% occupancy for 2 years+ until folks capitulate.

The optimal duration to hold out in hopes of getting a renter who will pay the asked price is not zero. The main contributor to rising prices is politicians helping prevent development.

And then the next day, they lower the price 20% because the software said to do it only hours after a customer was willing to lease it for a negotiated 10% discount. The coordination of the human and software workflows is atrocious, based on what I observed when leasing a house from a big landlord/investment firm.

The roles of human leasing agents has to have changed greatly at these companies; my guess is they are more administrative now, with much less interaction with the tenants.

What share of apartments in NYC are actually managed by corporate landlords? It actually seems like one of those markets where they are the minority.

> As of October 2022, according to New York real estate data tracker JustFix, landlords with ten or fewer units own only 13.2 percent of the city’s total stock and only 1.2 percent of all rent-stabilized apartments. By contrast, the top 5 percent of New York City landlords control nearly 65 percent of units and 87 percent of rent-stabilized ones. Staggeringly, the top 0.3 percent of landlords, whose portfolios exceed one thousand units, hoard almost 44 percent of the city’s rental units, and a whopping 56 percent of those protected by rent-stabilization.

https://thebaffler.com/latest/pity-the-landlord-dulik

I guess I distinguish between large landlords and “corporate landlords”.

When I think of corporate landlords I think of publicly traded apartment managers like Avalon. Those exist in NYC but it’s not the most common type of rental at all.

I wouldn't be so sure. I lived in an old pre-war building that was owned (and changed ownership between) property management/private equity companies.

If anything, the large buildings in nyc call for corporate landowners instead of every day people renting second homes.

That’s not the same as say renting an Avalon apartment. When I think corporate manager I think of the publicly traded rental companies like Avalon and Equity Residential.

Why is this meaningfully different? In both cases you are dealing with a corporation. In both cases that corporation is using whatever software to set rents. The inflection point is between "I can work with my landlord as an individual person" and "there is some fucking management company sitting between me and any sort of thing I need to get done." That inflection point is long before you have 10,000 doors.

the company who owned my apartment, Rose Associates, used the software in TFA. I got the "sorry software says no" response from the leasing agent.

So... I don't think they're as different as you think.

Wouldn't have to be "corporate landlords". Realpage and the others (Yardi, MRI, Entrata, Appfolio) also have single-family modules or software products. It's not all just multi-family.

Hell, I think Realpage actually has several different single-family software titles (they tend to do lots of acquisitions).

This isn't 1982, no one wants to manage this crap on paper, or in some craptastic Excel spreadsheet.

In my experience close to 100% have brokers and large property management companies handling at least the leasing process, so the end result is the same.

It's mostly luxury rental buildings but it's enough to create distortion.

Reply on news.ycombinator.com