Amount spent by private renters is approaching parity with mortgage payments • Hacker News Board

Re: Amount spent by private renters is approaching parity with mortgage payments

#31

Post by roel_v » Mon, Jun 18, 2018, 11:00 AM UTC

raverbashing wrote: post #25

roel_v wrote: post #20

Earlier quoted context omitted.

Let's say I look 10 years into the future. How does that change anything?

How much can real estate appreciate in 10 years again? (though it can definitely depreciate, but depends on its current situation). Also its future value may depend on how you're renting it currently. (Or even if your overcharging for rent and the property is empty because you are waiting for "the perfect tenant") You're also assuming buying and selling property is frictionless. If your equity is negative it might be…

Wait, I'm not sure what you're arguing here. The GP said that houses rent for expenses plus profit. I can't quite tell if he meant to delineate that to strictly rental income, but I understood it as meaning 'a land lord prices his property (the rent of a property, of course) so that he will make back his expenses, plus a profit, over the expected ownership time span'. So that includes things like expected appreciation, any tax benefits etc.

Is that what you are saying too? Because then there isn't much of an argument here :) I thought what you meant to say was that there is some factor other than financial that comes into play (or should come into play) when determining a rental price.

Re: Amount spent by private renters is approaching parity with mortgage payments

#32

Post by jstanley » Mon, Jun 18, 2018, 11:05 AM UTC

J-dawg wrote: post #27

The UK has a problem with housing supply, which will take time to fix. But what needs to happen urgently (and could happen virtually overnight if politicians wanted it to) is that renting needs to be made slightly less awful. Renting a home is no longer something that people do for a few years while they're young. Many will be doing it for life, and the rules need to change accordingly. Some ideas: - A total ban on a…

> A total ban on any agent's fees being charged to the tenant

I got around this by negotiating directly with the landlord to renew the tenancy without involving the agent. Just because the agent sends you a letter saying you owe them £90 doesn't make it true, they actually have very little power.

Re: Amount spent by private renters is approaching parity with mortgage payments

#33

Post by kgwgk » Mon, Jun 18, 2018, 11:06 AM UTC

brightball wrote: post #16

alex_duf wrote: post #7

Earlier quoted context omitted.

> In a free market, rent will always be higher than cost of a property. If it were less, the property is an unprofitable investment and should be divested. That's assuming you finance your property with debt and let someone else pay for your debt. If you either happen to own a property you don't use, or own the property you live in, it makes perfect sense. You're describing everything that's wrong about the property…

I’m not sure that’s anything other than math. If I have a property and I decide to rent it, why would I rent it for anything less than the sum of my expenses plus a profit margin that will cover maintenance or repairs? Why would anyone else? A rental property is just like any other business.

The price is fixed by supply and demand. If you don’t want to rent it for anything less than X, what are you going to do if you don’t find anyone willing to pay that much?

Other people may want to rent their properties for less for multiple reasons, including that the sum of their expenses may be less than yours.

In any other business, it’s not necessarily the case that your revenue covers your costs. Unprofitable businesses exist (and may be even “expected” in cyclical sectors).

Re: Amount spent by private renters is approaching parity with mortgage payments

#34

Post by oceanswave » Mon, Jun 18, 2018, 11:07 AM UTC

brightball wrote: post #16

alex_duf wrote: post #7

Earlier quoted context omitted.

> In a free market, rent will always be higher than cost of a property. If it were less, the property is an unprofitable investment and should be divested. That's assuming you finance your property with debt and let someone else pay for your debt. If you either happen to own a property you don't use, or own the property you live in, it makes perfect sense. You're describing everything that's wrong about the property…

I’m not sure that’s anything other than math. If I have a property and I decide to rent it, why would I rent it for anything less than the sum of my expenses plus a profit margin that will cover maintenance or repairs? Why would anyone else? A rental property is just like any other business.

Should an airline let a seat fly empty, or accept a price that’s less than the cost plus profit of the seat?

Re: Amount spent by private renters is approaching parity with mortgage payments

#35

Post by brightball » Mon, Jun 18, 2018, 11:11 AM UTC

alex_duf wrote: post #22

brightball wrote: post #16

Earlier quoted context omitted.

I’m not sure that’s anything other than math. If I have a property and I decide to rent it, why would I rent it for anything less than the sum of my expenses plus a profit margin that will cover maintenance or repairs? Why would anyone else? A rental property is just like any other business.

That's absolutely correct, my point was that once you've done the math - and assuming you are still paying a mortgage - it should give you a rent high enough such that no-one would agree to take it, unless you are willing to keep paying for part of it. It would therefore push the owner to either sell or stay in their property. That's my blue-sky-point-of-view of the property market which doesn't reflect the reality,…

The rent is higher but people will still take it for a lot of reasons. Inability to get approved for a mortgage, not wanting to deal with the sales process if you expect to move around a lot, etc.

I tried to sell my old house and despite being priced low just to get it sold, it sat on the market after we had already moved. We ended up deciding to see if we could rent it but weren’t sure how the process would go. In our area we didn’t see any home rentals listed except for a couple that were excessive (double what a mortgage would cost).

After months of not selling, we listed it for rent at a price I thought nobody would pay and it rented in 1 day, sight unseen. The renters insisted on paying a deposit as soon as possible because they didn’t want to lose the property.

For a first dip into the home rental market, I was shocked at how high the demand was.

Re: Amount spent by private renters is approaching parity with mortgage payments

#36

Post by pjc50 » Mon, Jun 18, 2018, 11:12 AM UTC

J-dawg wrote: post #27

The UK has a problem with housing supply, which will take time to fix. But what needs to happen urgently (and could happen virtually overnight if politicians wanted it to) is that renting needs to be made slightly less awful. Renting a home is no longer something that people do for a few years while they're young. Many will be doing it for life, and the rules need to change accordingly. Some ideas: - A total ban on a…

In other words, roll back the Thatcherite "assured shorthold tenancy".

The Scottish tenancy reform already changed the ability to evict to one of a list of specified reasons: https://rentingscotland.org/landlords/eviction-grounds-for-t...

Re: Amount spent by private renters is approaching parity with mortgage payments

#37

Post by beagle3 » Mon, Jun 18, 2018, 11:14 AM UTC

alex_duf wrote: post #7

abtinf wrote: post #2

In a free market, rent will always be higher than cost of a property. If it were less, the property is an unprofitable investment and should be divested. This article drops critical context. 10 years ago, one of the earliest and most potent warning signs of the coming collapse was the extreme disparity between rents and mortgages. Home prices skyrocketed while rents remained relatively flat. And just a couple years b…

> In a free market, rent will always be higher than cost of a property. If it were less, the property is an unprofitable investment and should be divested. That's assuming you finance your property with debt and let someone else pay for your debt. If you either happen to own a property you don't use, or own the property you live in, it makes perfect sense. You're describing everything that's wrong about the property…

> That's assuming you finance your property with debt and let someone else pay for your debt. If you either happen to own a property you don't use, or own the property you live in, it makes perfect sense.

If you happen to own a property, but not use it, then you can either:

a) rent it out, or

b) sell it, and invest your proceeds according to your preferred risk/reward preferences.

In an efficient free market, for similar risk you get similar reward; So, if the reward for real-estate is 3% with essentially no risk, you're generally able to get the same thing by selling and putting the money in bank / low risk stock portfolio.

Alternatively, if you can't get 3% in other places, everyone will look to buy houses and rent them out (as an investment) in order to get those 3%. That's why the risk/reward profile equalizes across asset classes.

What GP was describing is basic math and economics. The existing state of ownership only matters in the sense that changing it introduces economic friction (ownership deduction, property transfer taxes, title transfer, realtor and lawyer fees, etc). Other than that, it's just math.

Re: Amount spent by private renters is approaching parity with mortgage payments

#38

Post by beagle3 » Mon, Jun 18, 2018, 11:20 AM UTC

oceanswave wrote: post #34

brightball wrote: post #16

Earlier quoted context omitted.

I’m not sure that’s anything other than math. If I have a property and I decide to rent it, why would I rent it for anything less than the sum of my expenses plus a profit margin that will cover maintenance or repairs? Why would anyone else? A rental property is just like any other business.

Should an airline let a seat fly empty, or accept a price that’s less than the cost plus profit of the seat?

That's a slightly different game, because the SAME airline sells hundreds (usually thousands) of seats per day, and there's a lot of signaling involved.

A route I (used to) fly frequently has two competing airlines, one of which raises the price towards the flight date even if they have free seats (they bank on you willing to pay a premium for a next-day unplanned flight), the other lowers the price towards the flight date if they still have free seats (they don't want to fly empty). The former does much better financially than the latter, although I cannot tell if that's the only reason.

But a house owner sells/rents out once in 5-10 years, and never to a repeat audience; So money is all that matters, signaling doesn't.

Re: Amount spent by private renters is approaching parity with mortgage payments

#39

Post by CalRobert » Mon, Jun 18, 2018, 11:21 AM UTC

J-dawg wrote: post #27

The UK has a problem with housing supply, which will take time to fix. But what needs to happen urgently (and could happen virtually overnight if politicians wanted it to) is that renting needs to be made slightly less awful. Renting a home is no longer something that people do for a few years while they're young. Many will be doing it for life, and the rules need to change accordingly. Some ideas: - A total ban on a…

Eh, for what it's worth it seems like making life terrible for landlords is a good way to convince the there's no point bothering with tenants, and thereby reduce the housing supply.

We've tried that in Ireland - I'm the beneficiary of Rent Pressure Zones in Dublin and I think they're incredibly dumb; if you want more housing don't try your hardest to convince all the people thinking "hmm, should we rent Grandma's unit that's been vacant in Rialto since she died 10 years ago" that it's a terrible idea!

Re: Amount spent by private renters is approaching parity with mortgage payments

#40

Post by majewsky » Mon, Jun 18, 2018, 11:23 AM UTC

J-dawg wrote: post #29

turblety wrote: post #23

Earlier quoted context omitted.

> people are having to spend far too much of their income on it [rent], which is setting us up for all sorts of societal problems in the future. I wonder what the long term effects of this will be. When no one has any savings and no house when they retire, and all of a sudden have to live on a very small pension (which if the trends [1] are anything to go by may all collapse) what are people going to do? [1] https://…

Exactly. I expect a lot of people will decide to move to a cheaper part of the EU where their meagre pension will go further. Hey wait a minute...

This is happening right now. I don't have any statistics, but I've seen TV reports (i.e., anecdata) about German retirees moving to Romania or Bulgaria. The biggest issue for them is that they only know German, and the locals in their age class only know their own native tongue. Maybe when people from my generation need to do the same in the future, it will be easier for them because English fluency is/will be more widespread by then.

EDIT: Would be interesting to see how this might affect the economy at large when this gets widespread. There already are quite significant transfers of purchase power across borders within the EU, e.g. (IIRC) the main income source in the Republic of Kosovo is family members working in richer parts of the EU and sending money home. Retirees who receive their pensions from the rich countries, but spend it in the poor countries where they relocate to, would serve as another force in the same direction.