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Comment by everforward | Hacker News Reader

I think you’re presuming elastic supply, where you can make up the lost profit from undercutting by selling more units.

Real estate supply isn’t very elastic, and demand already outpaces supply. Your units will likely get rented, as long as you aren’t in the top 0.1% of prices.

Therefore your incentive is to maximize profit per unit since you can’t move more units. Your incentive is to also join in on price fixing, because it’s the only way to make more money.

Supply outpacing demand would cause this to dissolve, as landlords actually have to compete for tenants and the highest priced landlords have empty apartments.

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For the landlord units is elastic. If you have many units you can always not rent out a few, in fact you should always have a few units that you are remodeling and thus cannot rent out.

In general as a large landlord should have around 10% of units not rented, if you have more than that rented you should raise your rates until people go elsewhere thus bringing you down to 10%, while if you have less than 10% lower your rates until people start renting from you. Different landlords have different numbers, but 10% is a good starting place. 100 units at $900/month = 90,000, 90 units at $1000/month = $90,000, but you have a few units free in case someone desperate is willing to pay $1100/month (and of course you can remodel one of those empty units thus making it more desirable)

Just a note on vacancy targets, I worked for a MF REIT (~33k units) and pre-YieldStar their average target occupancy was around 97% for properties. After YieldStar was implemented the average dropped to more like 95%. As far as I'm aware, the other large managers also targeted the mid-to-high 90s.

Supply was probably a poor term because it’s overloaded; I probably should have said stock. They cannot easily scale their stock of housing, so they can’t make up for lower profit with volume the way a grocery store or something might.

90% is actually quite healthy. If all housing was always full, there is no slack in the system. We should always have some overcapacity in the housing market, just like we do for hospital beds, food, water, etc. If you're always buying the last loaf of bread at the grocery store, that means others don't get bread when they want to buy it.

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