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Comment by tptacek | Hacker News Reader

You haven't actually worked this example out. Try it. The wealthy buy the extra supply; they now compete with all the existing supply for tenants. What happens next?

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Collusion using online management services to fix prices across a region.

I think Washington State is working on legislation around rental services due to this already being a problem in the Seattle area.

“Extra supply” is added to the portfolio containing housing they’ve already purchased. They own part of “existing supply” too.

I live in Seattle, and this is a scapegoat. it's another way to point a finger at anything but massive restrictions on supply. The easiest solution to collusion to keep prices high is to let lots of other people build and compete down price. In Washington, most new construction happens on a very small number of parcels, because that's the only place we allow it.

Nobody concerned about rent price fixing thinks that we don't also need to build more housing here. This is just another part of the problem. Are you defending the practice?

I think it simply doesn't matter. The only reason it could have any impact at all is in an incredibly constrained market. Unconstrain the market and they just won't be able to; it wouldn't work.

Also - I don't think it actually affects prices. It's just that they've gotten good at seeking price equilibrium.

“Yes” would’ve been a sufficient answer.

And yet action gets taken about the rent price fixing, but not about actually encouraging more building.

Seattle upzoned huge chunks of the city, allowed ADUs (now two adus are permitted on all lots), and removed single family zoning. All within the past five years.

Last year, Seattle built 20% more houses than the highest of any of the previous ten years. (~13k units) And this year we're 11% above last year, so far.

What about that is not "actually encouraging more building"? I'd say your data might need revising.

It's honestly not that much. I know it looks good when comparing to recent years, but it doesn't look as good when you look at regional numbers (the city limits don't matter much in a housing market) - and the number of ADUs you can build in the entire city in a year is lower than some single new apartment buildings. We aren't keeping up with demand, much less drawing down the likely hundreds of thousands (seriously) of units we need to allow.

That's a different goal post. Seattle is doing things to encourage building housing. Full stop. Which refutes the claim made.

Whether Seattle is building enough housing, or whether the region is doing enough to encourage housing development are separate claims.

Housing is a depreciating asset. Even if you're trying to continuously corner the market, you'll be losing money in the long run if you're not actually renting the units for more than you're buying them for.

If supply can be built to meet demand, trying to corner the market to achieve monopoly rents will fail in the long run.

Land isn't. And the house is depreciating, but not the value of having a rental at that location. My house is worth four times what I bought it for a decade ago. The house itself is depreciating, and because I rent a portion of it, I can claim that depreciation, but the value of the property is going up.

> Housing is a depreciating asset.

It ought to be, but that is not how America works

Collusion on housing only works when there is a shortage. As soon as the shortage ends units go unfilled and landlords defect. Collusion works in industries where supply can change in the short run, tough to do that in real estate. Real estate elasticity is so high though that small collusion can work, but only if there is already a shortage. Yet, again the solution is just build more.

There are too many competing landlords to form a functional cartel.

Why this collusion doesn’t happen in Austin where rents are falling 2 years in a row?

Depends on how many tenants there are: is is a buyers' or sellers' market?

Whether it's a buyer or seller's market depends on supply!

If the wealthy buy up existing limited housing supply and there are many tenants looking for housing, then they can continue to raise rents, no?

The premise here is investors that just continually buy up all the supply, even as supply continues to increase, in the hopes that some day housing, the single largest asset class in the United States, will reach the limit of all possible supply? You don't feel like this is "spherical cow" calculating? The amount of investor-owned housing in most metro markets is a rounding error, and the amount of vacant investor-owned housing is smaller than that.

The logic you're using here depends on deliberate vacancy; as soon as you concede that investors let out properties, you force them to compete in the market for housing with all the other supply.

Yeah except it almost always gravitates to a cartel, almost always, because that is how people work, even when piloting corporate machines.

I'm speculating here, but I'm guessing you haven't been month to month rent in a while..

EDIT: you seemed to have tried to redirect the question to this "always buy up more land as an appreciating asset", when both can be true. "Buying that land is an appreciating asset (we haven't made much more I'm aware)" and that "forming an asymmetrical power relationship with the renters improves owners life" are mutually beneficial activities

I'm trying to track this argument through this thread but I feel like something has gotten lost here, is there someone arguing against increasing the housing supply? Like, did someone upthread say something like "no, I think we should not build more houses"?

Or is the argument that merely building more houses isn't sufficient?

(Also presumably you could build an infinite amount of houses, but the land itself is somewhat of a fixed supply...)

> is there someone arguing against increasing the housing supply?

Yes. The central thesis of the blog post is that increasing the housing supply solves the housing price issues.

And other people in this thread are going: "Uhh, well actually, have you considered that this is the fault of wealthy investors, and/or collusion or something"?

Anything to distract from the extremely simply and obvious idea that building more housing causes prices to fall.

Housing returns have constantly lagged behind equities in the US. In the long run it’s almost always preferable to hold stocks as most of your investments in the US.

Again, that means the answer is to stop limiting how much housing is built.

If - hypothetically - I had a ton of money and buying another house or two or fifteen wasn't a big deal, wouldn't there be a clear-ish signal that I should stop my demand for more housing lest too much supply screw with my income? I would also have an incentive to deploy some of my resources/capital to making sure that the supply of housing is juuuuuuust right for my extractive needs.

Thats what I'm trying to figure out myself, which bank is going to give out loans on a depreciating asset. Funding will dry up as supply increases.

It is all fine as long as repayments on principal are faster than depreciation. Might mean larger down payments or shorter durations. As long as you can reasonably expect collateral to stay above principal math does work out in my mind.

Car loans have been a thing. And they attach to depreciating asset.

Their point is that an increased housing supply should shift it to a buyer's market - it's not just how many tenants there are but how many housing units vs how many tennants.

A lot of the supply will become second or third homes for the affluent, or short term rentals, not residentially leased property.

That's already the case with a lot of properties in highly desirable locales whether high demand cities or holiday destinations.

Yeah, Neither you nor the parent have worked the forces out to describe what's happening now.

What's happening now is the wealth and the middle are buying houses and apartments not for rental income but for appreciation. This motive is what stands in the way of new home building in any given area. This is why rents rise beyond an area can sustain at all - rents are set to maintain the ostensible value of a property - selling an empty property is fine, even encouraged.

The situation is visible everywhere.

There's just no evidence to support this. Appreciation is nowhere near as cost-effective as putting that same money in the stock market.

>What happens next?

We'd revert to the state that applied for most of human history: 99% of humans will be serfs renting from 1% hereditary landlords. We'll have shown the American mid-century home-owning middle-class phenomena to be an historical anomoly. Average living standards will plummet and equity barons will never have lived so well. Any short-term rental rate drops will quickly be erased by a combination of growing population and well-known market manipulation, in particular further wealth consolidation.

Mere millionaires think they are safe; they are not. We live in a world that has a ~10 OOM wealth scale; being at level 7 does very little to protect you from 8s 9s and 10s, just as 2s are powerless to 4s and above. To a 10 a 7 may as well be a New Dehli beggar.

I was thinking more along the lines of a simple math problem and less along the lines of an outline for a dystopian novel. Like, show the work.

If capital returns 5% and the economy grows at 1%, where does the extra wealth come from? Spoiler: it's a transfer from the poorest to the wealthiest. Asset classes include stocks, bonds, real-estate, art, and metals. So if artists make more art, will this make art ownership more accessible to the average person? Or will it be a small transient soon erased by the monumental financial forces pulling all assets into the ownership and control of a tiny few? That art that your grandparents bought for $500 is now work $100k; you have student debt and high rent, so of course you sell it. The house your parents bought for $18k is worth $1M and they need end-of-life care, and you're own kids are expensive, so of course you sell it. The movement is irrestable.

tptacek is asking how investors buying properties to rent them out, which clearly leads to increased rental supply, then somehow supposedly leads to higher, not lower, rents.

Increased rental supply at the cost of decreased home ownership.

There is already price manipulation with rental properties. If a cartel is in control of enough of the supply they can set their prices as high as the market can afford. There is already a nationwide shortage of affordable housing in desirable places with jobs and the idea ITT is that it will only get worse as the investment class are the only people that can afford desirable property.

> they can set their prices as high as the market can afford.

which is the correct price - because you dont need a cartel to set the price at as high as the market can afford; each individual landlord chooses to price their rental at the highest profit they can, with the lowest chance of a vacancy.

A cartel makes it possible to set the price _higher_ than the market can afford. Which is why a cartel is illegal.

Recognizing your frustration with reality's failure to adhere to the academic: the fact is that rent rates for corporate-owned units generally don't go down. At least, not in recent history. In the rare cases where cartel behavior doesn't work to cement rates, and owners have to respond somehow to market conditions in order to avoid cash-flow disruption, they will offer "specials" that lower the out-of-pocket cost, but not the on-paper rental rate, for a unit. Your oft-found "1 month free"-type deals (that are actually a monthly bill credit for the initial lease term). Upon renewal, your increase is based on that paper rate, not what you were actually paying.

Recent history has been corporate rents not decreasing amid tight supply, the question being asked repeatedly (and repeatedly not answered) in this thread is “how exactly would landlords continue seeking high rents if housing were no longer scarce?” The only answer so far has been “by buying up the supply and renting it out” which completely ignores the obvious fact that renting out housing may reduce the supply of purchasable properties, but increases the supply of rental properties. There is no reason to assume collusion among a set of landlords would be enough to keep rental prices high if supply is no longer tight. So how exactly would landlords continue seeking be able to keep prices high if supply continues to increase?

Not a direct response but just a follow up question. I'm curious how much surplus supply folks think there needs to be in such a scenario. We've seen that landlords are willing to hold units vacant in order to keep their property values up and avoid renting out at a lower price. At what point does thw math say that should collapse? 10% vacancy? 15%? 30%?

> “how exactly would landlords continue seeking high rents if housing were no longer scarce?”

I think land lords wont lease out at marker rate due to that would lower the book value of the house which would make the banks call in loans.

Like, bank and land lords have some sort of understanding which in practice is some sort of price fixing and market collusion via proxy.

Nice points. And of course your first reply in this thread is anlredy light grayed. Classic Hacker News

Can you at very least try to answer the comment you're replying to?

They leave it empty (that actually happens a lot, especially with foreign investors) or convert it to their 100th AirBnB.

Empty properties barely exist as a percentage of total housing supply in high cost of living areas in the US. You’re looking at no more than a few tenths of of a percentage point of NYC’s more than 4 million units.

> a few tenths of a percentage point of NYC

Feb 2024 (last year there's data, I think) was a record low and it was 1.4% empty, according to NYC[1].

But I don't really know the methodology, and according to other nyc gov data it's surprising, since we still haven't recovered our population from COVID[2].

The first statistic (housing pressure) is based on population growth, but the NYC population statistics suggest still meaningful population loss since 2020.

I have seen articles in the past that suggest that apartment vacancy rates in NYC are self-reported and misleading at best, but I don't really understand how that would work and I can't find any sources on that now.

It's also my understanding that some classes of landlords can mark empty apartments as income losses, basically or partially making up for the loss of revenue in tax rebates. But that's also not something I understand well, just something I have seen asserted.

[1]: https://www.nyc.gov/site/hpd/news/007-24/new-york-city-s-vac... [2]: https://s-media.nyc.gov/agencies/dcp/assets/files/pdf/data-t...

1.4% vacancy in a housing market is extraordinarily low. Remember: there is structurally always some material amount of vacancy, because people vacate housing units well before new people move into them. This, by the way, is a stat whose interpretation you can just look up. Real estate people use it as a benchmark.

Yeah I know it's among the lowest in the world, it's still an ~order of magnitude higher than a few tenths of a percent, which would be shocking for the reasons you mention.

My point though was just that I've seen arguments that these numbers can be manipulated, and the city's own data doesn't make sense by itself: either the 1.4% number is wrong or the slowly recovering population estimate is wrong. Especially considering the 60,000 housing units (representing 2% growth) created.

I was replying to this claim

> They leave it empty (that actually happens a lot, especially with foreign investors

Not talking about rental vacancy.

Vacancy doesn’t mean units held empty as either a parking place for cash or held off the market. Vacancy happens when you’re painting and repairing between rentals. Vacancy happens when there’s a renovation. Things like that are normal and not nefarious. Have 1.4% vacancy rate means there is essentially no usable housing for rent.

I was talking about the myth that there are tons of apartments held by rich people who don’t use them for anything.

Do you have any actual data on the rate of unoccupied properties that are not recently or soon to be available to rent in any major US markets? It seems like kind of hard data to find from my brief perusing around. I'm very interested in seeing some reliable data on this.

I had thought such units would have been included in the housing vacancy statistics, but apparently they are not.

I haven’t spent much time looking at any place other than New York. But there’s census data, tax data, and a lot of public records. The number of empty units is small. The total is probably close to 40k, but that’s a fuzzy number and moving target. That includes regular vacant units.

https://gothamist.com/news/how-many-nyc-apartments-are-vacan...

My understanding is that vacancy means available units for rent. So, plausibly, if you say 50 of the 100 units in your building aren't available for rent because you say they're being painted then they don't contribute to the vacancy of your building.

That's almost the exact opposite of your definition, but I agree that a 1.4% vacancy rate means there's almost nothing available for rent.

I'm having trouble finding an official definition from a source that reports them, but my definition matches things that I can find online, eg https://www.brickunderground.com/rent/vacancy-rate-what-does...

Examining empty ownership as a percentage of overall housing in America, which has tens of millions of units, is not a very helpful way of categorizing a highly localized and locally felt phenomenon.

The real effect of this type of ownership is that it distorts the high end of the market and the effects ripple downstream. They force cash to move elsewhere in search of housing, which inflates those markets, so then those who could afford those markets move elsewhere, etc.

Despite all of the data that gets lobbed around on this topic, we don’t seem to have a very good mental model for how small changes in one segment of the market explode into the others and cascade dramatically.

It’s just not very meaningful to examine this as a percentage of units.

> Examining empty ownership as a percentage of overall housing in America, which has tens of millions of units, is not a very helpful way of categorizing a highly localized and locally felt phenomenon.

That’s why I specified NYC. There’s actually very good economic work on how the housing market is segmented and how demand and supply spill over. There’s some good studies from the NYU’s Furman Center on the topic.

> It’s just not very meaningful to examine this as a percentage of units.

Warehoused condos make up a small fraction of high cost housing in NYC and exist almost solely in a handful of blocks in Manhattan. They have virtually no effect on the broader luxury market, and take up very little land as they are mostly crammed into a small number of buildings.

Yes, we get it, they buy the unit and leave it empty. What happens next.

The total housing supply remains static - the number of owners goes down and the tenants increase, so the S/D curve for housing stays the same. Then the wealthy consolidate the supply into smaller, more powerful groups who drive up rents via monopolist and cartel behavior (eg RealPage).

It costs money to hold on to a unit of housing. Supply is increasing (that's the premise; nobody is proposing a one-time increase in supply). How does the investor profit?

If a small number of landlords continue to control the supply (which I understand to also be part of the premise) then they can charge whatever rate allows them to profit. Housing is pretty inelastic and is a first order priority for most people, so they will pay the maximum they can afford if they have to. At least near me, most of the housing being created is owned by large corporations like the Irvine Company, it’s not individual owned.

I'm asking: how does a small number of landlords continue to "control the supply" of an ever-increasing supply of housing when each of their holdings is non-remunerative (and, in fact, incurs tax and maintenance costs). This seems like a pretty simple math problem, a bet that you would not take if it was laid out in front of you, but I'm waiting for someone to explain how that might not be the case.

Keep in mind: as soon as you concede that investor-owners are letting out properties, they are competing in the market: further supply of housing decreases their returns, because they compete with all other suppliers of housing, the high-order bit of which is existing owners. You have to make this math work with owners who deliberately keep their units vacant, or it doesn't even work as an idea.

I’m not arguing they’re keeping it vacant, that’s someone else in the thread.

I reject the notion that the units are not making money, and the notion that they are competing on price. We know corporate landlords engage in cartel behavior using price setting algorithms, and there is a deep well of tax-incentives for real estate (eg 1031s) that make it a more complex math problem than you are making it out to be.

How did Uber et al. offer services below cost until they'd driven out all competition? The property holdings are not these landlords' only source of income. Why would milk producers deliberately dump millions of gallons of milk (representing a commensurate amount of labor to both produce and then dispose of)? Because they've created an oversupply that threatens to destabilize the price.

The math works, it's just heinous.

I never understand why people think Uber is some kind of mic drop. I don't like Uber as a company, but Uber is vastly better than the system it replaced. It this a generational thing? Are the people casting Uber as archvillains just too young to remember not being able to get a cab at 9PM, or having their cabs kick them out halfway to their destination because they decided to go on a break?

I think it's largely revulsion that Uber ignored regulations, with the revulsion mostly coming from the types of people outraged by things like Newsom's recent CEQA reform.

They support these sorts of stifling rules and believe that skirting or changing those rules is a right-wing ultra-capitalist attack on the public good, despite the situation actually being the exact opposite.

I think it's less the ignored regulations (I'm also happy with the CEQA reforms), and more that they engaged in predatory pricing schemes to stifle competition. This has resulted in a duopoly that engages in politicking to lock in their position and suppress labor rights (e.g. Prop 22).

That does seem to be a right-wing capitalist attack on the public good? Like, do we still believe in markets, or are we just cool with mega-corporations setting prices and wages?

"Uber" was not the mic drop; "[Company] can use 'losing money today on one venture' as a business tactic, in search of higher future profits, if it has another source of cash to cover its losses," was, at least in the sense that it directly answered your question as to how a business losing money on one front could continue to operate. The company doesn't matter; loss-leading is not rare or unknown.

The investor profits from the appreciation of the property - they may Airbnb in the meantime also. Especially, often the speculator will fix-up the property for a sale - and then the next buyer fixes it up as well. Eventually it be a vacation home or someone might even buy it but the entire process keep a lot of property off the rental market and that increases rents.

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