American landlords derive more profit from renters in low-income neighborhoods • Hacker News Board

Re: American landlords derive more profit from renters in low-income neighborhoods

#121

Post by pytester » Sat, Mar 23, 2019, 6:50 PM UTC

zaroth wrote: post #94

mhuffman wrote: post #85

Earlier quoted context omitted.

This exactly! Also upkeep. Replacing a cheap shingle roof vs a metal or Spanish tile roof are night and day in costs. Plumbing is cheaper in a cheap small house with simple layout vs. Sprawling multi-level house. Size of grounds (and expected level care) to maintain are different. It goes on and on, but the gist is that the total net on a cheap house (ie. houses in cheap areas) is going to be more for the same level…

TFA also makes another good point but somehow makes it sound evil; In low-cost cities, landlord profit rates rise steeply alongside neighborhood poverty. But in expensive cities, the reverse is true. In expensive cities, landlords make money through appreciation and gentrification (which is bad enough for the poor). In lower-cost, more economically hard-hit cities, they make it on the backs of the poor. If the home v…

>of course the rent will have to be higher to provide the necessary return on capital

Rent is set by supply and demand. There's no law - economic or otherwise - saying that it is necessary for landlords or anybody else to yield a return on capital.

In reality if the value of a home is falling or flat landlords do often try to raise rents in order to recoup losses and sometimes this leads to even greater losses as tenants leave and it goes unrented. It's a psychological trap caused by a feeling of entitlement to profit.

This "nightmare" has kind of faded in to distant memory as most governments around the world have decided to provide indirect wealth transfers to property owners via QE and low interest rates. In the last 10 years even an idiot could probably have made capital gains in most housing markets thanks to the government assistance lavished on them.

>Rental units that appreciate fast enough are just held vacant in some markets, so much so that Vancouver had to abundantly tax it to try to stop it.

Vancouver is as much about foreign money trying to find a home as it is about capital investments. A Chinese investor is often okay with a depreciation in capital provided they have A) assurances that their capital is not at risk of confiscation by the Chinese state and B) that they have a place to run away to in case some shit goes down in China.

The headache of renting out the apartment along with the instinctive desire to own something "brand new and untouched" means that they often leave these gold bar proxies/emergency safe houses empty.

Re: American landlords derive more profit from renters in low-income neighborhoods

#122

Post by RugnirViking » Sat, Mar 23, 2019, 7:02 PM UTC

closeparen wrote: post #83

glup wrote: post #64

Earlier quoted context omitted.

Of course they have an agenda, but I think it's much less nefarious than some think -- it's that they think housing insecurity is a major problem in the United States with knock-on effects in education, health, and household wellbeing. Of course it is a complex issue on how to address this — what mixture of regulation and free market solutions best serves people -- and I think the authors land in a position that is m…

Attributing the situations in Evicted to inequality or differences in household wealth is pretty off base. It's Milwaukee, not San Francisco. Competition from wealthier households has minimal to zero weight as a factor in the price of low-end housing. Rather, a bunch of people have incomes that are below or precariously close to the carrying and maintenance costs on the cheapest possible shelter. You can tell that th…

so let me get this straight: We are saying that there are some people who are doing okay in one place, and in another place, they have poverty.

And this is not inequality?

Honestly though, its been far more clear to me living and working in a country with much better income inequality how much the state of some places having rampant poverty and other places in the same country having massive profits. It seems like a cliché to say, but how is it that in the country with the highest average salary in the world there is so much poverty?

It's because there is a much sharper distribution: the wealthy few make far far more in america than they ever do in europe, but everybody else is better off.

The sharpness of this curve is what indecates inequality to me. I'm sure there are all sorts of fancy ways economists have quantified this, along with economic mobility (also shockingly low in the supposed land where anyone can make it)

Re: American landlords derive more profit from renters in low-income neighborhoods

#123

Post by skookumchuck » Sat, Mar 23, 2019, 7:04 PM UTC

zaroth wrote: post #82

It’s a well known fact that as property value rises the yield on rental income decreases. A $180k townhouse can rent for $1600/mo but a $1.8m McMansion isn’t going to rent for $16,000/mo. The economics of this has to do with marginal utility mainly and nothing to do with exploitation . There’s also the calculation of fixed rental costs which derive a larger portion of the monthly payment the lower the payment gets. I…

It's the same as Henry Ford making a fortune selling Model Ts when car manufacturers for the rich went bust left and right.

Re: American landlords derive more profit from renters in low-income neighborhoods

#124

Post by JamesBarney » Sat, Mar 23, 2019, 7:21 PM UTC

Retric wrote: post #120

JamesBarney wrote: post #112

Earlier quoted context omitted.

I think a lot of this is also landlords make up a smaller percentage of the market as you go up in price and when you get to a 1.8 million dollar home the rent will never justify costs to a landlord. Two facts cause this. The first is it's always a better deal to live in a property than rent it out.(100% occupancy, no expenses to find tenants, no evictions, etc). Plus there are non-financial reasons people prefer to…

Buying and selling a home has huge transaction fees which destroy this argument. Worse, economy of scale still applies with apartment complexes paying less for the same services than condo owners.

Transactions fees don't destroy the economics of supply and demand.

Re: American landlords derive more profit from renters in low-income neighborhoods

#125

Post by nickpsecurity » Sat, Mar 23, 2019, 7:23 PM UTC

zaroth wrote: post #82

It’s a well known fact that as property value rises the yield on rental income decreases. A $180k townhouse can rent for $1600/mo but a $1.8m McMansion isn’t going to rent for $16,000/mo. The economics of this has to do with marginal utility mainly and nothing to do with exploitation . There’s also the calculation of fixed rental costs which derive a larger portion of the monthly payment the lower the payment gets. I…

Almost all the low-income rentals, esp trailers, down here in Mid-South have predatory or apathetic landlords. The rent is already high for what they offer, there's surprise fee's/fines for petty stuff, people dont get their deposit back for stuff that was already there, renters cant afford lawsuits, and we're told how bad evictions are on our credit report.

Almost every bad operator I knew from over a decade ago is still in business with bigger lots than before. So, this is a factor.

Re: American landlords derive more profit from renters in low-income neighborhoods

#126

Post by everybodyknows » Sat, Mar 23, 2019, 7:32 PM UTC

mruts wrote: post #26

This is such a ridiculous article. Of course landlords are going to charge a premium in poor neighborhoods, because their risk is higher. They need to match the market's risk adjusted returns, so they need a higher return to balance out the higher risk (volatility) and match the market's Sharpe ratio. This isn't "exploitation" this is an efficient market that is working as it should. Moreover, there is a reason landl…

> ... risk is higher. They need to match the market's risk adjusted returns, so they need a higher return to balance out the higher risk.

Risk of what? The greater fall in property values in the 2008 crash proved higher capital risk, and low-income tenants may be more likely to damage the building -- but the two kinds of risk lie on opposite ends of the scales of time and space.

> ... the higher the value of your rental, the more taxes you will pay.

Not so for most in California, where Prop. 13 limits property tax increases to 2%/year.

Re: American landlords derive more profit from renters in low-income neighborhoods

#127

Post by pmiller2 » Sat, Mar 23, 2019, 7:38 PM UTC

mhuffman wrote: post #101

zaroth wrote: post #94

Earlier quoted context omitted.

TFA also makes another good point but somehow makes it sound evil; In low-cost cities, landlord profit rates rise steeply alongside neighborhood poverty. But in expensive cities, the reverse is true. In expensive cities, landlords make money through appreciation and gentrification (which is bad enough for the poor). In lower-cost, more economically hard-hit cities, they make it on the backs of the poor. If the home v…

There is a sense it this new socio-political climate that we live in, that people should not invest to actually make money, but only use what money they have to make other people's lives easier or better. I am not saying that this is a terrible goal, but it is wildly unrealistic for people that are not billionaires. Sadly, however, this ends up in accusations of exploitation, both because of these (imo unreasonable)…

> wildly unrealistic for people that are not billionaires.

Bullshit. Someone with an invested net worth of $10M exclusive of home value can generate an income of $300k using a conservative safe withdrawal rate of 3%. Anyone making $300k as an individual with a paid off home has more than enough money to be comfortable anywhere in the country, with no real need to invest further. $10M net worth is a large, but not absurd amount, but even if my numbers were somehow off by an order of magnitude, we’re far from billionaire territory.

Re: American landlords derive more profit from renters in low-income neighborhoods

#128

Post by pmiller2 » Sat, Mar 23, 2019, 7:42 PM UTC

JamesBarney wrote: post #112

zaroth wrote: post #82

It’s a well known fact that as property value rises the yield on rental income decreases. A $180k townhouse can rent for $1600/mo but a $1.8m McMansion isn’t going to rent for $16,000/mo. The economics of this has to do with marginal utility mainly and nothing to do with exploitation . There’s also the calculation of fixed rental costs which derive a larger portion of the monthly payment the lower the payment gets. I…

I think a lot of this is also landlords make up a smaller percentage of the market as you go up in price and when you get to a 1.8 million dollar home the rent will never justify costs to a landlord. Two facts cause this. The first is it's always a better deal to live in a property than rent it out.(100% occupancy, no expenses to find tenants, no evictions, etc). Plus there are non-financial reasons people prefer to…

You don’t even have to go that far to make the argument. As a landlord, I would vastly prefer to be renting out 10 homes worth $180k (preferably in different markets) than one worth 10x as much just to diversify a little and avoid capital concentration issues.

Re: American landlords derive more profit from renters in low-income neighborhoods

#129

Post by mruts » Sat, Mar 23, 2019, 7:55 PM UTC

everybodyknows wrote: post #126

mruts wrote: post #26

This is such a ridiculous article. Of course landlords are going to charge a premium in poor neighborhoods, because their risk is higher. They need to match the market's risk adjusted returns, so they need a higher return to balance out the higher risk (volatility) and match the market's Sharpe ratio. This isn't "exploitation" this is an efficient market that is working as it should. Moreover, there is a reason landl…

> ... risk is higher. They need to match the market's risk adjusted returns, so they need a higher return to balance out the higher risk. Risk of what? The greater fall in property values in the 2008 crash proved higher capital risk, and low-income tenants may be more likely to damage the building -- but the two kinds of risk lie on opposite ends of the scales of time and space. > ... the higher the value of your ren…

Risk means a higher standard deviation of returns, also known as volatility.

But you’re right to bring up the exposure landlords have to the real estate market. It’s unclear to me whether low valued properties or high values ones have more beta to the market. If I had to guess, I would venture that lower valued properties are actually less correlated with the market.

Re: American landlords derive more profit from renters in low-income neighborhoods

#130

Post by FireBeyond » Sat, Mar 23, 2019, 7:56 PM UTC

pytester wrote: post #121

zaroth wrote: post #94

Earlier quoted context omitted.

TFA also makes another good point but somehow makes it sound evil; In low-cost cities, landlord profit rates rise steeply alongside neighborhood poverty. But in expensive cities, the reverse is true. In expensive cities, landlords make money through appreciation and gentrification (which is bad enough for the poor). In lower-cost, more economically hard-hit cities, they make it on the backs of the poor. If the home v…

>of course the rent will have to be higher to provide the necessary return on capital Rent is set by supply and demand. There's no law - economic or otherwise - saying that it is necessary for landlords or anybody else to yield a return on capital. In reality if the value of a home is falling or flat landlords do often try to raise rents in order to recoup losses and sometimes this leads to even greater losses as ten…

> it is necessary for landlords or anybody else to yield a return on capital.

In my town there is a proposal afoot called The Missing Middle,to improve availability of medium density / multi family dwellings.

A vocal group is furious. Furor that the economic impact study showed that their current and predicted home values over the next ten years is expected to decrease from an 11% year over year increase, to a 7% year over year increase (still).

The very definition of feeling entitled to profits.