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Rents for the rich are going down, rents for the poor are going up. Why?

washingtonpost.com

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Re: Rents for the rich are going down, rents for the poor are going up. Why?

#41

Post by mikeyouse »

endisneigh wrote: post #29
nostrademons wrote: post #24

Earlier quoted context omitted.

"What sort of rich person rents a house, except whilst between selling old and new?" There are quite a few techies who move to SF, work for the hot unicorn for 4 years, and live extremely cheaply. They don't buy housing because they don't intend to stay in SF (and besides, who wants to buy a house in SF?), but when they "retire" they've got a few million in stock options. They can buy a house, they just don't want to…

I don't really buy this. if you're going to be at a hot startup for 4 years and can easily afford a house the way the SF bay market has been for the past 2 decades is such that you would've made money in any 4 year period just buying and selling. covid might be the single exception. I think the issue is more that sf people are rich for the country but not rich for the bay area so they just rent.

"Just" buying and selling also has a higher bar now than ever before -- Median sales prices are around $1.5M for peninsula / SF locations. Even on extremely generous tech salaries, it'll take some time to build up enough savings to get a loan.

Re: Rents for the rich are going down, rents for the poor are going up. Why?

#42

Post by asdff »

pdimitar wrote: post #27
ARandumGuy wrote: post #16

Earlier quoted context omitted.

Which is pretty inevitable with our system of housing development. If you're a large property owner and you want to make more money, you have two options: A) Build more housing, to create more units you can rent out. B) Don't build more housing, and use the reduced supply to raise the rent on your existing properties. Since option B has a lower risk and a higher return on investment, is it really surprising that most…

Honest question: is choosing option B proven to lead to higher return on investment? Is there data showing it? Where I live periodically raising rent and evicting people to invite the higher-paying tenant has a limit that's reached pretty soon so maybe US dynamics escape me.

In the U.S. there is no limit as long as you aren't a strong outlier relative to mean market rent. People in LA might pay like over half their income on rent, for example. For the working poor, they also typically can't finance a move to a cheaper apartment since they lack any savings, so they cram more people per bedroom or end up living in their car or on the street. It's a sad state of affairs and really hard for working people here. Sucked dry with nothing left to use to get out.

Re: Rents for the rich are going down, rents for the poor are going up. Why?

#43

Post by endisneigh »

rainyMammoth wrote: post #32
endisneigh wrote: post #29

Earlier quoted context omitted.

I don't really buy this. if you're going to be at a hot startup for 4 years and can easily afford a house the way the SF bay market has been for the past 2 decades is such that you would've made money in any 4 year period just buying and selling. covid might be the single exception. I think the issue is more that sf people are rich for the country but not rich for the bay area so they just rent.

Or as explained above it doesn't make sense to buy since it is cheaper to rent.

from my experience, prior to covid, it really hasn't been if you're capable of buying.

look at the 2012 to 2016 period for example of rent vs purchase. if you just bought an average condo and sold it you basically could've ended up staying for free vs. renting.

Re: Rents for the rich are going down, rents for the poor are going up. Why?

#44

Post by endisneigh »

mikeyouse wrote: post #41
endisneigh wrote: post #29

Earlier quoted context omitted.

I don't really buy this. if you're going to be at a hot startup for 4 years and can easily afford a house the way the SF bay market has been for the past 2 decades is such that you would've made money in any 4 year period just buying and selling. covid might be the single exception. I think the issue is more that sf people are rich for the country but not rich for the bay area so they just rent.

"Just" buying and selling also has a higher bar now than ever before -- Median sales prices are around $1.5M for peninsula / SF locations. Even on extremely generous tech salaries, it'll take some time to build up enough savings to get a loan.

I completely agree, my point though is if you are legit rich, even for the bay area, it makes no sense to ever rent. someone with a net worth upwards of 20M isn't going to save any money renting even if they stay a paltry 5 years (though covid and WFH might change things of course, but this pattern has held up decently for the past couple decades).

Re: Rents for the rich are going down, rents for the poor are going up. Why?

#45

Post by nostrademons »

endisneigh wrote: post #29
nostrademons wrote: post #24

Earlier quoted context omitted.

"What sort of rich person rents a house, except whilst between selling old and new?" There are quite a few techies who move to SF, work for the hot unicorn for 4 years, and live extremely cheaply. They don't buy housing because they don't intend to stay in SF (and besides, who wants to buy a house in SF?), but when they "retire" they've got a few million in stock options. They can buy a house, they just don't want to…

I don't really buy this. if you're going to be at a hot startup for 4 years and can easily afford a house the way the SF bay market has been for the past 2 decades is such that you would've made money in any 4 year period just buying and selling. covid might be the single exception. I think the issue is more that sf people are rich for the country but not rich for the bay area so they just rent.

Opportunity cost. Housing in the Bay Area goes up an average of about 7%/year, roughly inline with the S&P 500. Google stock has increased 13x in the last 11 years, for an average annualized return of about 25%. If you were at AirBnB or Stripe your return is about 100x, making over 100%/year.

With leverage the computation gets a bit more complex, but basically you're paying 4.5% interest on 7% appreciation, and not needing to pay rent, so you may get 4-5% real returns. Lever up 5x with a 20% down payment and you get about 25% returns - competitive with Google, but in the same ballpark, and you've taken on the risk of foreclosure or being underwater if there's a housing bust (which happen periodically in the Bay Area and take prices down 10-40%).

The stock is a lot more liquid, you can take it anywhere, you can sell it whenever you want, you can move in with a girlfriend and keep it. If you haven't made a conscious decision to stay in the Bay Area, the stock performs much better.

Re: Rents for the rich are going down, rents for the poor are going up. Why?

#46

Post by warent »

rogerdickey wrote: post #13

It's not "rents for the rich" it's "rents for higher priced apartments" and it's basic supply & demand. This headline stokes unnecessary class conflict. WaPo should be ashamed.

I thought it was a well known problem that in the US class disparity (i.e. the gap between middle class and upper class) is increasing. The middle class is evaporating, becoming very rich or borderline poverty. Am I confused? WaPo isn't really saying anything new or controversial.

Re: Rents for the rich are going down, rents for the poor are going up. Why?

#47

Post by rainyMammoth »

endisneigh wrote: post #43
rainyMammoth wrote: post #32

Earlier quoted context omitted.

Or as explained above it doesn't make sense to buy since it is cheaper to rent.

from my experience, prior to covid, it really hasn't been if you're capable of buying. look at the 2012 to 2016 period for example of rent vs purchase. if you just bought an average condo and sold it you basically could've ended up staying for free vs. renting.

Are you picking the bay area as an extreme example?

As an example if you invested in tech stocks only from 2012 to 2016 you would have had enough money to buy 3 condos.

Re: Rents for the rich are going down, rents for the poor are going up. Why?

#48

Post by warent »

powersnail wrote: post #40
jakelazaroff wrote: post #22

Earlier quoted context omitted.

Who is renting higher priced apartments if not the rich?

Aren't most rich people living in their own houses? I'd imagine most higher priced apartment renters are middle class.

I think these days high priced apartments are only affordable by the wealthy, unless people are grouping together with multiple roommates, at which point it means they can't actually afford the apartment, so is it really middle class anymore?

Re: Rents for the rich are going down, rents for the poor are going up. Why?

#49

Post by rainyMammoth »

majormajor wrote: post #36
rainyMammoth wrote: post #31

Earlier quoted context omitted.

That's a weird comment. Plenty of people are rich by your definition (could easily buy a house) but don't do it because it makes no sense financially. Most good investors are better off renting and getting higher returns in the stock market. Renting also allows you to move very quickly and you don't spend your time fixing things (i let my landlord handle it all)

You can't get the same leverage nearly as safely or as easily in the stock market, which is why so many people start to play landlord with second, third, etc, properties that they finance. What changed in the last year is that people want a lot more space which is pulling them out of the "expensive apartment" market and into the "house" market, while also being less concerned about commute distance. So the expensive…

Even with the leverage, it is in most cases still not a good investment. There are a lot of calculator out there that shows you the break even point between renting and buying.

You forget all the horrible fees that come with owning a place (HOA, maintenance, property taxes, 6% lost to agents at every transaction)

Re: Rents for the rich are going down, rents for the poor are going up. Why?

#50

Post by foepys »

pdimitar wrote: post #23
outside1234 wrote: post #5

It is a huge risk right now to take on someone that is poor as a renter because of the moratorium. It is completely unsurprising to me that landlords have priced this risk factor in.

That, however, reduces their chance in getting tenants so it becomes a vicious self-feeding closed circuit process?

It's probably because of speculation. If there is a chance that the moratorium will end in July it's better to not have any tenants for a few months than bad ones you cannot evict and will trash your place. Also, unoccupied properties are always more valuable.
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