Earlier quoted context omitted.
> The rent itself however is controlled by supply and demand No, it's not. Folks have got to stop using simplistic remedial high school economics classes to explain complex social problems. They just aren't that simple. During the 2008 financial implosion, a single investment company called Blackstone Group went on a buying spree around the US. As of this time last year, they owned, through a subsidiary company, full…
> They are more than happy to let some percentage of their properties remain empty rather than decreasing rental prices, because they can claim the lost rents -- at the prices they set -- as taxable deductions. How is it that a tax deduction can offset the opportunity cost of leaving a property vacant? Or does it only offset the cost of what the unit would actually rent for at rates that naturally clear the supply/de…
I can't comprehensively answer this, because I'm not in the business and those that are, are tight-lipped about it. But it's definitely a contributing factor to high rates of empty storefronts [1]:
“If these landlords have deep pockets and large property portfolios, it may make more financial sense to claim a tax loss on vacant property than to rent at a non-optimal value.”
I'm assuming here that if this is a model that works in the commercial property investment market, it probably works in the residential property investment market too, as long as the investor has deep enough pockets and a long-enough financial strategy. Smaller, short-term residential property owners -- the individual landlord or small-time property management company -- probably wouldn't get as much of an advantage out of this.
> Or does it only offset the cost of what the unit would actually rent for at rates that naturally clear the supply/demand curve?
I dunno. I think we can make some educated guesses here.
If you own 1,000 single-family dwellings in a high-demand metropolitan area, like Sacramento, you've probably paid for those properties with cash or with foreign investment capital. There's no mortgage payment on it, so your costs for letting it sit empty are relatively low.
So let's say you maintain a 90% occupancy rate at rents that are significantly higher than they would be if you were forced by some regulation to maintain closer to 100%. Instead of rents varying from $2000/mo to $2700/mo for 100% of your properties, you ask for $2800/mo for 90% of your properties, and then your well-heeled mustache-twirling tax advisers find ways to write down the remaining 10% at as close to a $2800/mo loss each as possible. Hey, if anybody complains, you can just blame "the market".
> Could a vacancy tax fix this?
Some people think so, but I haven't seen a deep enough investigative piece to be certain. That's mostly what I wish for: a thorough investigation into this aspect of the housing problem that leads to some smart strategies for fixing it.
Population growth alone just doesn't explain the massive increase in cost of housing.
[1]: https://nypost.com/2018/03/30/de-blasio-eyes-vacancy-tax-for...