> Rent is a function of supply and demand, not a landlord's costs
Of course it does. The landlord's costs factor into the supply made available by landlords.
> When landlords' costs drop, do they drop the rent in response?
Competition says they do.
Of course it does. The landlord's costs factor into the supply made available by landlords.
> When landlords' costs drop, do they drop the rent in response?
Competition says they do.
A landlord is usually in a different position. If their personal costs drop (eg, they paid off their mortgage) but the market price stays the same, how do they benefit by reducing the price they offer? Only by reducing the time it takes to rent out, which isn't a significant factor in exactly case when tenants would most like rents to go down - when prices are high because of demand.
The details of these mechanisms matter. Market can be out of equilibrium for a long time; maybe indefinitely.
Arbitrage forces say otherwise.