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Comment by estearum | Hacker News Reader

Nope.

Rents cannot (at meaningful scale) exceed local productivity, or else there will be widespread vacancies and landlords will reduce their rents.

Rents cannot (at meaningful scale) fall below local productivity, or else landlords will simply raise their rents.

Go talk to a landlord about how they site prices.

Step 1. Look up income of your target demographic

Step 2. Eat 30% of their income

Can you show me a place with high local productivity and low rent?

Can you show me a place with high rent and low local productivity (that's not e.g. a vacation destination for people with high productivity elsewhere)?

You can certainly artificially suppress prices with rent control. But that just gets fed back into the system in the form of reduced supply, so it ends up raising rents on the non-controlled housing stock anyway.

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Assume you have an area with a certain productivity and rent. Population and housing are growing at a certain rate.

Now make a law that makes construction cheaper. Or make a law that makes construction more expensive. What happens to rent and mortgages, even though productivity hasn't changed at all?

Productivity (or, rather, wealth) of the occupants is a very strong factor, but it is still just one of multiple factors.

You think you can make a law that sets the price of housing above local wages and stays there?

No, you actually cannot do this in any lasting way.

The price of land would fall to the level required to make it construction viable again. Or the city would be abandoned, which is not generally the outcome since cities have so much shared capital investment that cannot be moved elsewhere.

> Can you show me a place with high local productivity and low rent?

Put the following prompt into your favourite AI and enjoy the reading:

"How do rents relate to productivity in the area? How does Vienna compare to San Francisco?"

Vienna? World famous for publicly-funded housing construction?

Try this one: "Create a simple analysis approximating how much higher rents would be in Vienna if not for the aggressive public subsidization of supply"

In any case, Vienna has a good system! But it's not that it avoids high productivity → high rent, it's that it splits rent into subsidy costs and rent.

In other words, the amount of subsidy + rent required will grow with local productivity.

My point is: Your post reeked by defeatist 'nothing can be done against market forces'.

Yes, it can be done, and if we want to have a reasonable future, it should be done.

So you were responding to an assumption that's not actually in my comment?

Vienna's solution is fine but has escalating costs and isn't necessary. Land Value Tax is better.

I would love to move to Vienna. Really, I’d sell my house and go right now if I could.

I can’t. Immigration and language barriers alone would prevent (even though I have family there).

My point is just that Vienna doesn’t have to deal with tons of people constantly showing up.

> Rents cannot (at meaningful scale) exceed local productivity

Manipulating the real estate market via direct economic manipulation, collusion, or regulatory capture is so common that the entire concept of manipulating the market to earn higher profits is called https://en.wikipedia.org/wiki/Rent-seeking.

It's not just that it can, it's that it does so often it's taught in Econ 101. That you don't know this implies you have never taken an economics class or that you forgot what you were taught, and in the meantime certainly have not spent any real effort in learning about economic theory. I think you read a lot of Ayn Rand and right wing libertarian popular books about the free market and how it's perfect. Stop posting confident nonsense.

No, what's happening here is you misunderstood the quoted text, silly.

The claim is not that rents are always at their optimal or most efficient level - they're not! The claim is that you cannot (at meaningful scale) charge people who earn $1,000/month in income $2,000/month in rent to live in a place. They will have to move.

Did you take any arithmetic classes?

And any case, you should stop mind-reading. You're bad at it. I'm not a Randian nor a right-winger nor a libertarian nor free-market idealist.

Lets say I own 50 properties and I want to charge $2000 a month, and right now I can't because the people willing to rent my properties only make $1000 a month. I can bribe politicians to not allow any new construction of properties which rent between $2000 and $4000 per month. Then I wait 10 years. Now I can charge $2000 a month because I'm not renting to the people that made $1000 a month 10 years ago, I'm renting to the people who have $2000 a month to pay for rent but can't find any other units. This is called rent-seeking. You should read about it.

Your mistake was thinking that I, the corrupt landlord who pays bribes, cares about a macro analysis of every all the properties, or that some analysis about the current distribution of incomes and possible rents will stop me from doing exactly what you say is impossible. I don't own every property in the city, especially the ones that aren't built because I capture zoning, so arguments about average GDP and average rent and whatever else do not stop me. Your analysis is useless.

> Then I wait 10 years [for local productivity to increase, and then I can charge higher prices]

This is the only feature that's relevant. If productivity goes up, you can charge more. If it does not, you cannot.

You may do some corruption or some zoning or some whatever else you want, but at the end of the day, if productivity goes up you can charge more and if it does not you cannot charge more.

Hope that clarifies!

No, this is a stupid strawman.

Productivity is per-capita. Generally estimated via GDP per-capita.

At year 0 we have 500 people who want $2000 a month homes. In year 10 we have 750 people who want $2000 a month homes. Without changing the income distribution or economic output per person at all (and thus not changing productivity at all by definition) simple population increase will increase demand at every level, and now we have 250 additional people willing to pay $2000 but no increase in apartments formerly high enough quality to demand $2000, pushing $2000 rents down market. In the meantime there were 1000 people able to pay $1000 and now there are 1500 people able to pay $1000. They are likely to be forced out of their current neighborhood, so while they could only afford $1000 before, they will change their behavior and pack more people in by having multiple roommates or converting common spaces or dens into bedrooms. They still pay $1000 but the space formerly rented for $1000 may cost significantly more.

Population increase often happens as a result of more jobs being available. More jobs does not imply an increase in productivity.

Honestly you keep saying productivity, I think you mean total economic output normalized to housing available within a reasonable commute radius or something similar to that. In fact for the same economic output, lower productivity can cause higher rents because you can have more people employed who are forced to pay a higher fraction of their income for housing. Higher productivity at the same total economic output would cause houses to be abandoned as people have to leave to find work. This is less stark than it sounds because of service jobs, but it would still happen.

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