It's not good. It's better than awful. What a horrible way to decide how to structure society. Landlords are parasites that expect their tenants to pay >100% of their mortgage costs every month or they'll be heartlessly ejected into the street.
There’s a bit of a difference here, in that the landlord is also coming out the other side with an appreciating asset, not pure costs and the consumer coming out of the transaction with the asset.
The landlord gets 100% of the appreciation as well as 100% of the equity being built by the mortgage payments while the tenants are forced to pay for everything except the initial investment. It's extremely unfair and hurts the most vulnerable people in society.
Sorry but this is an ignorant take of someone who I presume does not own property. I would have thought similar until we bought a house. Some costs that a renter never thinks about: property taxes, home insurance, flood insurance, leaky roofs, flooded basements, mold remediation, HVAC system replacements, the list goes on. If you think a landlord buys a house and never has to put another dollar in, you are on crack.
If you are a landlord you face plenty of other risks - time between tennants, you incur all the expenses and none of the revenue. Ditto if your renter stops paying and it takes you months or years to evict them. Or your tennant does damage to your property that their security deposit doesn't come close to covering.
On top of all that, there are real risks of asset decline. Just because that hasn't happened recently in most places doesn't mean it won't happen. I can name 5 plausible scenarios under which my house ends up never being worth what I paid for it.
It seems to me that you and others claiming that being a landlord is free money just have zero idea of what it actually takes.
I don't understand how anyone can view this as unfair. It's as basic as basic economics gets. It is obviously the case that downstream consumers of goods and services pay more than upstream suppliers. The initial investment is an enormous risk for the landlord, not something to just shrug off.
I guess if you view housing as somehow exempt from market dynamics, then this view holds water. I'm sympathetic to that view, honestly.
Housing market dynamics are strongly influenced by federal policy and the National Association of Realtors is one of the biggest spending lobbyist groups in the country so I would say that by design the housing market is unique and I believe that landlords are abusing that situation, intentionally or not, in a way that harms vulnerable people.
Many markets are strongly influenced by federal policy and have enormous lobbying groups, and capitalism by its nature harms vulnerable people. I don't see what makes housing unique in this sense.
The restaurant isn't disassembled when you leave, when you eat a meal at a establishment you pay for the upkeep of a building that will grow in value over time and yet receive no upside. If you take an Uber, you pay the auto loan of the person driving you. I guess a pure service like housecleaning doesn't leave behind a productive asset, although the business itself is one.
Obviously you get a hard product when you get a meal. You get someone's labour when you ride and Uber and consume gas and car.
When you rent, you basically are buying someone else a house. You don't get any service in many cases, as the landlord can contract our 100% of maintenance and repair and still make massive amounts of money.
When you eat at a restaurant you are in the very same way also buying them a restaurant. That food will only satiate you for a few hours and eventually you will have to eat again, having nothing to show for the service. In the same way you can rent a house from someone, have shelter from the elements for a time and once that business has concluded have nothing to show for it.
I don't' advise eating out too much or renting long term if you can avoid it. I also don't advise living in a major city. You can more easily take the first two pieces of advice if you take the third first.
No, you're absolutely not buying them a restaurant. They are fundamentally making money because they provide labour in exchange for it.
A landlord is not providing labour. They are acting as a middle-man between you and the bank. They provide no service to society. A restaurant is, as they provide cooked food. One is a zero-sum game, the other is actually producing something.
Your advice is frankly shit on the societal level. There is no way for everyone to avoid long-term rentals unless we do things you are opposed to. Equally it's impossible for everyone to avoid living in big cities, the entire economy would collapse. It's senseless to punish people for doing things that are necessary for our common prosperity and interests, such as living in major cities.
‘ A landlord is not providing labour.’ All built structures undergo entropic decay so maintenance would count as labour being done in both cases, the apartment and the restaurant using the textbook definition. These costs would be packaged into the rent and the price of meals.
Plenty of landlords subcontract maintenance, actually. There is landlording, and there is maintenance, some landlords do both, many do no maintenance themselves.
So through market calculation we can deduce that maintenance is only a small part of rent, the majority of rent is derived from being a middleman with the bank.
This is not the case for a restaurant, you'll find that all of the value in takeout comes from the labour and the capital necessary to make that labour efficient.
Would any landlord sign an agreement stating that you would do all the maintenance and then allow you to live there for free? Of course not.
That's not what work done in lieu of rent means. Work done in lieu of rent will only replace part of rent. For example I might get annoyed that repairs aren't getting done and offer to do them instead of paying on month of rent as part of a yearly lease, but no one will allow you to only do maintenance and never pay rent.
Show me someone who, on the open markets, offers to allow you to live in a property in exchange for nothing else.
>no one will allow you to only do maintenance and never pay rent.
> Show me someone who, on the open markets, offers to allow you to live in a property in exchange for nothing else.
Property caretaker
A property caretaker is a person, group, or organization that cares for real estate for trade or financial compensation, and sometimes as a barter for rent-free living accommodations.[0]
That's only the "happy path" (for the landlord) story. I had a coworker who enterprisingly rented his old apartment to someone, who ended up squatting and forcing him into an expensive and drawn-out litigation. The tenant absolutely abused him and the California law which favors tenants quite strongly. He was a young guy in his 20's, not rich, and that woman really hurt him.
And of course there are other risks too; can you imagine being an entity that owns lots of commercial for-lease real-estate right now?! They must be scrambling to stop the bleeding, since Covid has sent demand into the earth.
My point is that being a landlord is not without risk, and it's not always an "I do nothing and make money by leveraging your fear of homelessness" situation (although, granted, this is the ideal state landlord's seek, which is itself kinda gross).
Around here, it's nigh impossible to get a place. Social housing has waiting lists for over a decade, private renting is more expensive than a mortgage, and buying a house requires you to overbid. There are (plenty) stories of folks overbidding 50k€ and still not getting the house.
If you can afford to buy a house, buy it, divide into subunits, charge 80% of mortgage to each of the 5 subunits.
Anyway, that's what tge housing market looks like here. So I'm guessing your experience is from elsewhere.
Perhaps you missed the word "commercial" - which means renting to businesses, rather than individuals. Covid has increased WFH a lot and many small businesses are going virtual, and even larger businesses are scaling back their physical offices. This has the net effect of driving down demand for office space.
It's a bit confusing since you discuss commercial properties between two paragraphs discussing housing rentals. It isn't specifically clear that your comment about low demand only applies to commercial properties.
> My point is that being a landlord is not without risk, and it's not always an "I do nothing and make money by leveraging your fear of homelessness" situation (although, granted, this is the ideal state landlord's seek, which is itself kinda gross).
Yep, that's the problem, at least in the US. Ideally we'd reduce risk on both sides. Rent control wouldn't have to hurt this - your tenant's rent doesn't go up much, but your mortgage isn't going up much either.
It's not like small landlords are in position to redevelop and increase density anyway, so I'm skeptical of arguments about housing stock if you limit the upside (and downside!) of small private landlording.
It's often pitched as the most productive investment strategy for the middle to lower-upper class. Get one property, leverage it into a second, leverage more rents into a third, etc. Even in tenant-friendly states! Yet it's literally just rent-seeking and landlords riding along a wave of demand that they help create (by leveraging their properties and rent to acquire more) to squeeze higher and higher rents out of people is not particularly economically productive overall.
Covid is the first real blip I can remember that's hit those landlords so hard, but the truth is many of these people are over-leveraged and were in a precarious position to start with given the risk. Let's say there were no eviction bans: they could evict all these folks not paying their rent, and ... try to rent out the units to the people that got evicted by other landlords? Because they couldn't afford the old market rate in the first place? Doesn't that just depress the rental market even more?
> That's not the economic definition of rent seeking.
It is. In fact, the general economic concept of rent and rent-seeking are generalizations of the inherent features of real property rents, which are the source of the name.
(EDIT: Fixed egregious touch keyboard vomit, clarified “land” to “real property”.)
If you want to collect land rents you would buy assets that are mostly land, e.g. empty lots, or even single family houses, not apartment blocks where you're paying more for the building than the land.
Just FYI, it looks like you might have a typo in your post. I usually enjoy your posts and think they're well thought out, so I felt the need to point this out.
> Demand for owning, yes. But for renting they create supply, not demand, in effect helping lower rents.
No supply is created by person A buying a rental building from person B. Person A paying a higher purchase price does nothing good to the rents charged in that building.
Yes, there is no lobbying or current manipulation of the government, but for small landlords it's often just a game of "I want to take advantage of population increasing over time to make more money over time" coupled with "I want to take advantage of other people improving the economy so that I can charge higher rents as incomes increase." Neither of those are productive, and the latter is hard to avoid calling parasitic. They don't have the ability to redevelop into higher density, or often even do much to change the condition of the property. So you get small mom-and-pop rentals in SF or similar places that charge far higher prices for far shittier units compared to those put on the market from larger developers or management companies in, say, Marietta, GA.
But if someone buys a house and rents it out instead of living in it, that creates rental supply.
In a free market, pushing up prices of apartment buildings would also cause more apartment buildings to be built. Of course many places like SF are not a free market because NIMBYs block most construction, which keeps supply down and prices up.
Rental supply is an idiotic concept. You are increasing rental supply by diminishing owned housing supply. You're not doing anything for housing supply, which is the only thing that matters.
And no, pushing up the prices of rents don't incentivize building. Building rentals is meh compared to just buying existing housing supply. While house prices are increasing, so will rental prices commensurately, because renting and buying a house are not isolated and independent choices.
In reality, there is no increase in construction, because the increase in housing demand is no different from someone buying a house, and the increase in property costs that follows it doesn't change anything.
> You are increasing rental supply by diminishing owned housing supply. You're not doing anything for housing supply, which is the only thing that matters.
They're two separate markets. Increasing rental supply does drive down rents.
If in one location, rents are very low but house prices are very high, then landlords would have incentive to take properties off the rental market in that location and sell them, perhaps using the proceeds to buy investments elsewhere.
They are absolutely not two separate markets. You can buy one and sell it as the other, and you can decide to sell the same housing unit as a rental or outright. It's the same market. There is no separation between the two.
Increasing owned housing supply decreases property costs. Decreasing property costs reduce the costs of renting, and they also make buying a house more competitive than renting, which is why increasing housing supply, not rental supply, drives down rent.
Beyond that, increasing rental supply alone will not decrease rent. It's perfectly viable for rents to increase despite more rental units if the alternative of buying a house got more expensive. See the recent increase in rents as property prices increased, despite no change in rental supply.
They've still gotta live somewhere. Overall housing supply has not been increased.
I actually think this case is worse for the overall economy than the rental building scenario!
Perpetual rentership is more economically precarious and less stable than ownership. But here we have the folks with assets and income sufficient to purchase properties buying up additional ones to pull ownership further out of reach for more people. So yay, we've converted a property that someone might've otherwise purchased as an asset to yet another rental.
I also don't agree with your claim that in a free market this would cause (much more rapid) increased construction in most cities, given current attitudes about small-landlordship. You can't build there without tearing something else down first, and small landlords are not often going about replacing ten unit buildings with twenty unit buildings! That requires a different level of capital. In SoCal can see this in neighborhoods in places where the current zoning allows, say, 5 story buildings, but those new five story buildings are still sparsely scattered amongst old two-story buildings that are simply too attractive to keep (the dream people are pitched that makes them become small landlords isn't "sell everything eventually to a developer, it's "passive income".) Small landlords made a lot of fuss about earthquake retrofitting, a much smaller expense than "kick out all my current income-generating tenants and rebuild it all." It's been much easier for developers to convert old low-density commercial or industrial property, since the market is more fluid there (and often with much more slack in it, in large cities).
I similarly don't expect a high number of single family lots to turn into four-plexes in the next fifteen years now that CA has changed zoning on them. It's definitely different at four units than two - where duplexes aren't selling for any more than SFH currently, since the qualitative demand for a true single family home is just that much higher - but I don't think it's enough different for a significant number of people to want to cash out or try to play developer.
(NIMBY's exist everywhere, too - acting like they're unique to big expensive cities is self-defeating. The way lower-cost-of-living cities have maintained those costs is a combination of less demand and more land to expand into. If you can build your new mega apartment complex on empty land, you don't have to convince those small-time landlords or property owners to sell all their separate buildings! Dallas County didn't increase in population much more rapidly than SF County because of rapid increases in density - just look at the Dallas city population vs the burbs.)
