Comment by garciasn | Hacker News Reader

Comment by garciasn | Hacker News Reader

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Because the law of unintended consequences is always at play in the public sector. In this case, the threat of too much regulation will kneecap the governments ability to eliminate the cost structures that will end up happening because of the drive for increased revenue per sqft.

The core reason SROs threaten larger spaces is that landlords can often extract more total rent from a single apartment by chopping it into pieces than by renting it as a whole.

Hypothetically: A landlord rents a 1,000 sq. ft. 3-bedroom apartment to a family for $4,500/month.

In order to extract more value, the landlord converts that same space into 4 separate SRO rooms with a shared kitchen. Even if they charge a "cheaper" rent of $1,500/room, the total rent roll becomes $6,000/month.

The Result: the SRO format is more profitable ($6,000 vs. $4,500). If landlords can legally choose between the two, they will naturally favor creating SROs over family-sized units.

Then there’s the potential for cannibalization of supply:

If SROs become the most profitable way to use residential space, the market may see a "cannibalization" of family housing.

Landlords of market-rate buildings may subdivide existing large apartments into SROs to capture the higher yield.

Seeing this, developers then planning new buildings will design them with fewer large family units and more micro-units/SROs to maximize revenue.

This reduces the supply of 2- and 3-bedroom apartments. If the supply of family units drops while the number of families needing them stays the same, the price for the remaining large units goes up.

This will then potentially lead to increased land value as real estate prices are determined by the potential revenue a property can generate.

If a plot of land can now legally host a high-yield SRO building (generating $100/sq. ft. in revenue), the value of that land rises.

A developer who wants to build a standard family apartment building (generating only $60/sq. ft.) can no longer afford to buy that land because they will be outbid by the SRO developer.

To compete, the family-building developer must raise their projected rents to justify the higher land price. This raises the "price floor" for everyone.

> The Result: the SRO format is more profitable ($6,000 vs. $4,500). If landlords can legally choose between the two, they will naturally favor creating SROs over family-sized units.

Yes, this is the whole point! And the reason it's more profitable is that there is pent-up demand for them. There aren't enough of them. We want them to be more profitable, so more are built/converted.

Here's the thing, though -- that's a temporary situation. As supply goes up, demand gets met. Once enough are built/converted, the price comes down, and an equilibrium is reached where a landlord will make the same profit whether it's a 3-bedroom or 4 SRO's. This means the market is now maximally efficient for both types of tenants.

In a free market, the most efficient balance of apartment types will naturally come into being. By prohibiting smaller units, we prevent that balance and discriminate against people who can't afford a full-size studio with bathroom.

So it's not cannibalization of family housing. It's just reducing the proportion of lots of other types of apartments a little bit -- including studios and one-bedrooms. Because this is desirable.

Except the exact opposite thing is happening in the regular housing market. Small houses (e.g., townhomes) were intended to maximize land and reduce cost, except they’re now not even affordable.

This will happen with these too.

It's the same problem -- you need more. Zoning regulations continue to prevent enough new construction, and the conversion of large lots/units into smaller ones.

I honestly don't know what you're proposing instead. But for some reason you're pessimistic about what all traditional economists agree on what is the solution -- remove more zoning regulations that constrict what can be built.

It's literally just supply and demand. Prices come down when you increase supply to meet demand. Just because increasing supply a little bit doesn't work when demand is increasing even faster, doesn't mean the basic principle is falsified. It's just that you need to increase supply much, much more.

I think you are assuming infinite demand.

Demand for floor space in these places is very large, no doubt, but it is not infinite.

If you don’t believe we can or should allow private landowners to build as much floor space as they want for everyone who wants to live in these places, then somehow you’re going to have to have a mechanism to control who is allowed to live there. What will it be and who will get to decide who is worthy?

Except it isn't a free market. It is a heavily regulated market that favors corporations. The regulatory bodies have been corporate captured. In addition, the corporate bodies collude on things like rent, and have a near infinite runway to leave units empty.

With the collusion of corporate entities setting prices, it raises the overall market prices of properties. As small-time landlords observe the markets, they naturally also raise their prices to increase prices.

Additionally, because of corporate capture and collusion in other markets, prices broadly increase for owning property. This forces everyone who keeps rent lower to raise rents.

The way to fix this is simple. Stop the corporate collusion by making laws that make it functionally impossible.

This can be done by the following:

- tax the hell out of corporate ownership of residential properties

- an increasingly expensive multi-home tax. First home is tax free. Second has yearly taxes and those taxes exponentially increase for each additional home.

- a vacant home tax. On top of any second home taxation, for homes besides your 1 home, there should be a vacant home tax. If a home does not have a resident in it, it should be taxed. That tax should be around what it would cost to rent the unit out.

There are some other additional factors such as penalizing foreign non-resident owners, but this covers the bulk.

Being a landlord should not be easily profitable. It should be a job that you work your ass off at.

Then and only then will the free market begin to function and optimize.

None of this is true.

Collusion on rent is a relatively new phenomenon around RealPage and is being banned. Meanwhile, regulations like rent stabilization in NYC benefit existing tenants, not landlords.

And the taxes you describe having nothing to do with collusion. Collusion is fought using anti-collusion laws. What could possibly lead you to believe that multi-home taxes would reduce corporate collusion?

Yes, obviously RealPage should be banned everywhere. But corporate capture is not the underlying economic issue at all behind high prices. Lack of supply is.

Anti-collusion laws are ineffective. Legislation that targets easier to enforce vectors with desirable side effects makes more sense.

Whether my theory on what is occurring is true or not, the proposed solution would solve it along with countless other issues, while have very little downside for anyone but a tiny group of lazy parasites.

I don't know where you're getting your ideas. None of what you say is true. You're taking some kind of bizarre ideological stance ("tiny group of lazy parasites"?) that isn't supported by any kind of evidence. You can look up the great success of many anti-collusion laws, and your solution would be economically harmful and inefficient in a large number of ways. All I can say is, I think you need to study economics more. Landlords provide a valuable service (making rental properties available to people who prefer to rent rather than buy), and they're not making extraordinary profits relative to other industries. Remember that as demand goes up, so too does the price they have to pay to acquire their properties, and therefore the mortgages they are paying to banks. If landlords made extraordinary profits relative to other businesses or investments, everybody would be rushing to become a landlord. But they aren't, because it's hard work and involves significant financial risk.

If people able to live in a home they own harms the economy, sign me up.

Houses are not investment instruments. They are spaces where people can freely exist as they are. A domain that they have full dominion in to authentically explore who they are, who they want to become, and what they want to share with others. A place to raise a family, to rest without a mask, and to be safe as they are.

Notice how I didn't mention economics at all?

Just because you have a house / houses doesn't mean others don't. Do you have any idea what it feels like to be homeless? I dare you to try it. Do you have any idea what it feels like to be a renter under the thumb of a landlord with no hope of ever having your own home?

My "policies" originate from empathy for real people. The majority of people, actually. It does not give a single shit about economics only benefiting the rich.

But that said, if you give most people the ability to have a true home, the economy will explode in activity. Instead of spending money on rent, people would spend on goods and services. They'd be happier, so they would spend money on having fun.

Making housing affordable is a no brainer.

The nice thing is, we already know what the alternative is. The economy is collapsing right now, in no small part due to the housing crisis that has been going on for a long time.

Since my policies won't be occurring now or ever, let's both sit back and enjoy the lack of these policies, and see how wonderful a world that is.

I think your attitude (landlords are the problem; we must make life harder for landlords) is a big reason housing is so expensive because it creates a situation in which not enough people with money or access to credit want to become landlords.

You say that the landlord industry has captured its regulators, but you give no example of any action or ruling by an regulator that benefits landlords at the expense of tenants.

Housing is expensive because of greedy landlords gobbling up all the property and turning warm homes into cold revenue sources.

Landlords should be an exception, not the standard.

This belief is probably causing the housing crisis.

You can only chop up a larger space for smaller spaces when there is more demand than there is supply. The point of building housing is to have more supply than demand, or at least as close as we can get to that point.

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