I still hold out hope for a Yglesias deep dove on Japanese real estate and zoning. Specifically greater Tokyo where the population hasn't crashed.
Maybe a digression into what might happen in the medium term. with the country increasing becoming a choice destination for Chinese ex-pats (as per a recent WSJ article).
I liked this article generally, but I did want to note the incongruous mention of multiple axe-throwing places in DC. I live in a small town in Idaho (30,000 people) and there are multiple axe-throwing places here.
DC having multiple places to throw axes is not evidence of DC being large enough to satisfy even relatively niche interests; rather, axe-throwing places (like soda shops, or Crumbl) are just relatively recently-established trends in commercial consumption which have propagated from the Mormon corridor to other parts of the country. The evidence is that there was latent demand for axe-throwing as a consumption service, and that demand is now slowly being met.
Let me steelman the view that new construction raises rents for a minute.
It's certainly possible that new construction in a city makes it a more attractive place for relatively wealthy individuals from other places to move to. And that network effects (wealthy professionals attract other ppl like them and emoyers) in turn mean that rents go up. But, it could be that instead of actually generating more wealth you are really just stealing it from someplace else (wherever these wealthy professionals are moving from).
So you could have a worldview like this:
We want to make life better for the poor ppl here. More building will attract more wealth but then those new residents will actually vote to decrease taxes and services to the poor and the end result is worse for the poor.
---
But the thing is that on this view somewhere is benefiting. Maybe it's not your city but someplace is getting cheaper housing and that's presumably beneficial. But if you focus on purely local consequences you could believe that the poor are generally worse off where the wealthy ppl move to.
A touchy question. Are people poor because of lack of opportunity or inability to take advantage of opportunities?
Probably some of both. The first group will benefit from a community upgrade, but the second will be displaced. Attacking “stubborn” poverty means rehabilitating individuals, not localities.
The cycle in my hometown was that building new housing and amenities increased demand...which led to tearing down lower-end housing in the area and replacing it with nicer but less-dense housing. As a result, the construction of new housing still led to a net decrease in the housing in the immediate area.
I'm seeing some vitriol in these comments that I think may come from conflating two kinds of NIMBY activists. My personal, emotional viewpoint is:
NIMBY activists who own homes and are scared of having to deal with more traffic or people they don't recognize -- screw them.
NIMBY activists who maybe don't even own; they're just renting and are scared that they're going to get legally or illegally thrown out of their place and have their neighborhood both metaphorically and literally torn apart -- if we can't find ways to achieve growth without throwing them under the bus, maybe we don't deserve really nice cities.
"I’m often struck by the fact that New York is more expensive than Boston or D.C. (this is true whether you look at the central city or the whole metro area)"
The NY Times just told us that the Boston metro area is more expensive than the NYC metro area:
I love that YIMBYs are getting big victories in the big cities but my concern is that they sometimes focus too much energy on big cities and not enough where it seems that NIMBYs still hold a lot of clout: the suburbs. I would love a piece from you (if you haven’t written one already) about how we should be fighting against NIMBYism in Non-Urban environments as well.
If you want to live and raise a family in the big city then more power to you but most people will eventually want to buy a home in the suburbs where they can have a backyard and where schools tend to be better (more or less the case depending on the city).
There’s some activists (not you) where it does come across as that their main motivation for their YIMBYism is that big rents personally inconvenience them and occasionally tweet derogatory things about suburban sprawl and Breezewood PA. In other words, once they solve the problem of NIMBYism in the big urban environments their work os done. They won’t care about the housing crisis if it doesn’t personally affect them.
> There’s some activists (not you) where it does come across as that their main motivation for their YIMBYism is that big rents personally inconvenience them and occasionally tweet derogatory things about suburban sprawl and Breezewood PA. In other words, once they solve the problem of NIMBYism in the big urban environments their work os done. They won’t care about the housing crisis if it doesn’t personally affect them.
Most people care the most about where they live and things that affect them. That's just how it goes. I also think if we continue to see victories for urbanism in city centers, even more NIMBYs will flee to suburbs and this is going to get worse instead of better.
California YIMBYs working on the Housing Elements of suburban jurisdictions say hi. Hello from Palo Alto, Berkeley, San Mateo, Huntington Beach, Redondo Beach, Santa Monica, and jurisdictions all across the state, from YIMBYs working ordinance by ordinance to upzone and reduce onerous approval and permitting processes.
But don't ignore the decimation of affordable housing when growth requires off- site infrastructure improvements. Thousands of homes torn down for the Chicago expressways. You're lucky if you're talking about underground expansion of rail, but otherwise... Plus, when growth requires siting of "dirty" business to satisfy the population, where is it most likely to be located? Look at the attempted relocation of a metal shredding concern when gentrification put too much heat on it and the value of its land grew exponentially.
Does society ever remain static? Change seems to create opportunity for inequality to take place. When we deplete the animals we eat and hunt (speaking as a Neanderthal) I'm forced to invade on others hunting grounds or move the whole clan. Or start tilling soil that may take water from others downstream.
It's a tough issue, as I am not sure what growth is, either. Is consolidation of companies requiring a centralized facility and abandonment of others for cost reduction growth?
Did inequality precede racism? Racism is another building block for inequality.
I’ve been curious about the parking theory of nimbyism for a while. If people are worried about competition for scarce parking spaces from new residents, why don’t we see more energy for building more parking garages, alongside privatization of incumbent street parking. To me, parking is only scarce because we’ve made it scarce. Idk, something like a wraparound yimbyism for housing and parking.
Renovating and flipping one suburban house causes its price to rise because it comparatively more desirable than the unrenovated houses next to it. But if all houses in a suburban neighborhood are renovated at once then prices stay similar because there is no comparative desirability. The same thing applies in urban neighborhoods, except if more units are added then prices may even drop, like what happens when more suburban houses are built.
I always figured that the construction/rent relationship was a statistical artifact: when a 50-unit older building gets a new 100-unit "luxury" neighbor in the adjacent empty lot, mean and median rents on the block have gone up even if the old building stays level.
i think the one thing that left NIMYism may get right is that the externalities of gentrification are borne disproportionally by the poor. By way of example, in Matt's post, it appears that the existing supermarket went to hell while the new one was being built. a rational decision on the part of the supermarket owner, but the existing residents suffered through the crappy supermarket while the new residents got the nice new one. Lots of things in the local neighborhood decline when major infrastructure projects are going on.
I was taken to understand that the activist theory of gentrification was basically correct as far as shuffling people around within metro populations. Similar to the fashion industry, big developers operate long term strategies about which neighborhoods are going to be “in” next season, and some of the neighborhoods targeted for this were previously poor. And even though this doesn’t raise aggregate rents, because other neighborhoods go “out,” it disrupts people’s lives in a way that you could reasonably want to stop.
But a left-wing politics formed in response to this effect has been a catastrophically poor fit for situations where the overall metro economy is growing & people are moving to the region for work. Building to meet increased demand is a different thing from building to stir the pot.
I’ve been seeing a few articles about the AirBnB apocalypse. Apparently due to the surge in demand during covid a lot of people bought vacation homes and condos to rent on AirBnB, Vrbo, etc. The were getting top dollar for say 20 nights a month. But now, due to people preferring hotels for various reason, oversupply, etc. rates and occupancy have plunged and people are losing their shirts.
The article mentioned people who are still able to succeed and they talked about the need for good design, the value of repeat guests. One made note of the coffee and wine people liked and made a point of having it stocked when they checked in.
The public seems to have the view that landlords have all the power. They think, “I can just buy something and charge whatever I want for rent.” But that’s totally not how it works.
For whatever reason people have a hard time seeing the real estate market work in the same way as the vehicle, laptop, laundry detergent, stock, etc. market.
The real estate market works the same way as the used car market, with the same “lemon” problem. Sellers have all the information about quality and upkeep, and buyers have very little, so it incentivizes sleaziness and hiding things that are broken until after the purchase. There is no reliable way to get an excellent used car or an excellent landlord, you just hope for something good enough, and usually get it.
I've had good landlords and bad landlords -- our current landlord has for the most part been very good, responsive to our concerns and also certainly put in a lot of renovation work before we moved in. Nevertheless, *even granting that he's a good landlord,* the median and modal amount of days per month that he interacts with the property we rent is zero (which is, to be clear, fine by us).
We don't have to pretend that being a landlord is literally zero work to acknowledge that there's a reason that supracompetitive profits from mere ownership of capital are termed "rents."
For what it's worth, I think you're pretty wrong on the cost/work/paperwork time involved in owning a rental unit (at the mom & pop level) vs actual profit margin which is typically negative for at least a few years after a purchase.
But you also forgot about depreciation of rental property (which argues in your favor about long-term profitability)
Except that, in the context of residential or commercial rentals, even if the landlord does literally zero work the vast majority of months, it's the landlord who bears the risk of the building being damaged, destroyed, left vacant for some prolonged period, etc., and that's setting aside the question of whether the building is already fully paid for. (I would reason that supracompetitive profits from mere ownership of capital are termed "rents" comes from late 18th Century/early 19th Century *agricultural* landlords, who indeed operated in a largely passive, extremely low risk capacity.)
"It's the landlord who bears the risk of the building being damaged, destroyed, left vacant for some prolonged period, etc.,"
Surely we expect the cost of insurance provision and a vacancy buffer to be priced into rents just as mortgage costs are, no?
The real risks faced by the landlord are basically insufficient or inaccurate vetting of tenants resulting in the innumerable problems that having a bad tenant can cause, or else competition from additional comparable housing units driving market rental rates below the cost of mortgage + insurance.
But in contexts where the latter risk is very unlikely to materialize in the medium term (i.e., basically all large coastal metros) that's not really asking the landlord to bear much risk, and as someone who strives to be a good tenant (plus the fact that vetting is basically a one-time process) the fact that the landlord has to screen bad tenants does have implications for what policies I support but it's not really the landlord providing me personally with much in the way of a service (i.e., something I would be willing to pay for) so much as just them paying information costs that I'm not responsible for creating.
(Not sure about the agricultural rents issue, would have to brush up on economic history, although I'm not sure there's even a tangible point of disagreement there tbh.)
"Surely we expect the cost of insurance provision and a vacancy buffer to be priced into rents just as mortgage costs are, no?"
Yes, and? Those are still expenses associated with risks that the landlord has.
"The real risks faced by the landlord are basically insufficient or inaccurate vetting of tenants resulting in the innumerable problems that having a bad tenant can cause,"
Yes, which necessarily requires landlords to charge rents over what the day-to-day operating costs are.
You also omit that landlords need to recondition units, replace appliances, make repairs not covered by insurance, etc.
The point is that your landlord is effectively just acting like a bank. They invest a large amount of money up front to acquire X and then re-sell the time-limited rights to use X. This assumes financial risk, but doesn't involve any time consuming labor, which makes it very scalable. In most cases, the landlord has a larger bank behind them backing the property, but at a lower risk level.
"Those are still expenses associated with risks that the landlord has."
The point is that these aren't risks that are uniquely borne by landlords nor are they risks that landlords have any comparative advantage in bearing (owner-occupied housing also has insurance), and moreover we agree the landlords aren't even bearing the monetary costs of them since it's passed through in rent, so there's relatively negligible value-add by the fact that a landlord is the ultimate beneficiary (but not the ultimate payor) for insurance, and we agree that the insurance exists precisely to mitigate risks. So with respect to insurable costs the landlord just isn't bearing that much risk in the first place, so it seems odd to claim that they should entitled to any kind of significant risk premium.
I agree that landlords will rationally charge above the day to day operating costs of a property, and that good landlords will do some level of replacement, repairs, etc. I'm not claiming that being a landlord is *literally* zero work nor that it involves zero risk (hell, I consider it enough of a PITA that I'm not particularly interested in being one myself), my point is just that when you (1) amortize out appliance replacement, reconditioning and repairs over the term of a lease, (2) compare the expense of such repairs to value of equity gained by having someone else cover a mortgage and the tendency of housing to appreciate in price, and (3) compare a $1000 dishwasher every....ten? fifteen years? to the cost of a unit in the mid hundreds of thousands to millions of dollars (and with monthly rent on the order of several thousand dollars minimum in coastal markets), these interventions by a landlord are basically rounding errors compared to the capital gains of landlording, all while the actual amount of labor probably averages very generously to something like one workweek a year.
I'm probably on net one of the more pro-landlord folks on this board, and I recognize that my landlord, in addition to being good about general landlording obligations, also provides me the service of not requiring the massive transaction costs associated with relocating from/to owner-occupied housing, but while "landlords don't do anything" is obviously not *literally* true, it's nevertheless *approximately true* even just as a matter of labor expenditure on the property, and the comparison of the cost of labor and capital inputs relative to capital gains and asset value makes that look even more lopsided.
I don't think this makes landlords as a class or my landlord in particular evil any more than I think owners of dividend stocks receiving a distribution of profits are evil, but I also think that "landlords don't do anything" seems like a much better approximation of the day to day activities of my landlords vis a vis the properties I've rented than "landlords do an amount of work commensurate with a full-time job in order to cover the costs of real estate ownership in the way that owner-occupiers generally do."
Ok, Matt. You are surely correct that investment and improvement of quality of life are good no matter their impact on pricing. But unless you have secretly become an unfeeling Randian libertarian, you must care about what comes next, which is making sure less-wealthy people actually have access to the improved quality of life. It doesn’t reliably or efficiently trickle down the way Reagan and his acolytes loved to tell people. So why didn’t you even mention that problem or cool wonkish policy ideas to fix it? How do we improve quality of life and then actually make it accessible to overworked, underpaid masses? They need the amenities far more than information economy workers who work from home. They deserve to come home to serious comfort and affordable good food and recreation. It’s almost 2023 and we are still one of the wealthiest societies on earth despite falling behind a bit. What happened to the Matt Yglesias who made the boring, wonkish case for Bernie Sanders? Where is the Matt who once seemed interested in reducing misery among the poor and taking the edge off the downgrades suffered by the middle class?
But it doesn't make sense to hold the housing supply hostage to achieve those benefits.
Matt even addressed this in the article: building does improve the quality of life for everyone, and furthermore provides tax revenue to plug the holes where those improvements are least efficient and more uneven.
Can you elaborate on your complaint a bit more? Subway stations benefit everyone around them, with lower income people benefiting even more. New parks or grocery stores are accessible to everyone. Obviously increased housing prices hurt lower income people, but we know Matt's solution to that (build more housing).
“It doesn’t reliably or efficiently trickle down the way Reagan and his acolytes loved to tell people”
Reagan never made such a claim - that was a calumny invented by Reagan’s critics.
But never mind all that! There’s a review in the Wall Street Journal today of the new book ‘The Myth of American Inequality’ that includes this,
“Average living standards have improved dramatically. Real income of the bottom quintile, the authors write, grew more than 681% from 1967 to 2017. The percentage of people living in poverty fell from 32% in 1947 to 15% in 1967 to only 1.1% in 2017.”
You're both correct, because this is talking about _relative_ poverty. If we wanted to, we could set the poverty level to the same one it was at in 1960 and make the poverty rate basically 0.
hmm. Hadn't heard of the book before, but I have little trust for Phil Gramm vs the census numbers... Census does publish the supplemental number post-transfers that's down at 7.8%. Though I agree that directionally things have been getting better since umm The Great Depression and WWII ended (quite the timeslice to pick, starting from 1947!)
Gramm is a smart guy - one of the smartest to serve in Congress. He has a doctorate in economics and was a college professor before entering politics. He knows his stuff.
Do places that put a lot of weight on those concerns offer a better quality of life for those at the bottom? I don’t believe they do as it relates to housing.
If the concern, while noble in intent, fails to provide relief to those at the bottom - is that concern misplaced?
I still hold out hope for a Yglesias deep dove on Japanese real estate and zoning. Specifically greater Tokyo where the population hasn't crashed.
Maybe a digression into what might happen in the medium term. with the country increasing becoming a choice destination for Chinese ex-pats (as per a recent WSJ article).
I liked this article generally, but I did want to note the incongruous mention of multiple axe-throwing places in DC. I live in a small town in Idaho (30,000 people) and there are multiple axe-throwing places here.
DC having multiple places to throw axes is not evidence of DC being large enough to satisfy even relatively niche interests; rather, axe-throwing places (like soda shops, or Crumbl) are just relatively recently-established trends in commercial consumption which have propagated from the Mormon corridor to other parts of the country. The evidence is that there was latent demand for axe-throwing as a consumption service, and that demand is now slowly being met.
Let me steelman the view that new construction raises rents for a minute.
It's certainly possible that new construction in a city makes it a more attractive place for relatively wealthy individuals from other places to move to. And that network effects (wealthy professionals attract other ppl like them and emoyers) in turn mean that rents go up. But, it could be that instead of actually generating more wealth you are really just stealing it from someplace else (wherever these wealthy professionals are moving from).
So you could have a worldview like this:
We want to make life better for the poor ppl here. More building will attract more wealth but then those new residents will actually vote to decrease taxes and services to the poor and the end result is worse for the poor.
---
But the thing is that on this view somewhere is benefiting. Maybe it's not your city but someplace is getting cheaper housing and that's presumably beneficial. But if you focus on purely local consequences you could believe that the poor are generally worse off where the wealthy ppl move to.
A touchy question. Are people poor because of lack of opportunity or inability to take advantage of opportunities?
Probably some of both. The first group will benefit from a community upgrade, but the second will be displaced. Attacking “stubborn” poverty means rehabilitating individuals, not localities.
The cycle in my hometown was that building new housing and amenities increased demand...which led to tearing down lower-end housing in the area and replacing it with nicer but less-dense housing. As a result, the construction of new housing still led to a net decrease in the housing in the immediate area.
I'm seeing some vitriol in these comments that I think may come from conflating two kinds of NIMBY activists. My personal, emotional viewpoint is:
NIMBY activists who own homes and are scared of having to deal with more traffic or people they don't recognize -- screw them.
NIMBY activists who maybe don't even own; they're just renting and are scared that they're going to get legally or illegally thrown out of their place and have their neighborhood both metaphorically and literally torn apart -- if we can't find ways to achieve growth without throwing them under the bus, maybe we don't deserve really nice cities.
"I’m often struck by the fact that New York is more expensive than Boston or D.C. (this is true whether you look at the central city or the whole metro area)"
The NY Times just told us that the Boston metro area is more expensive than the NYC metro area:
https://www.nytimes.com/2022/12/22/realestate/home-buying-income-interest-rates.html
Is this a different yardstick?
I love that YIMBYs are getting big victories in the big cities but my concern is that they sometimes focus too much energy on big cities and not enough where it seems that NIMBYs still hold a lot of clout: the suburbs. I would love a piece from you (if you haven’t written one already) about how we should be fighting against NIMBYism in Non-Urban environments as well.
If you want to live and raise a family in the big city then more power to you but most people will eventually want to buy a home in the suburbs where they can have a backyard and where schools tend to be better (more or less the case depending on the city).
There’s some activists (not you) where it does come across as that their main motivation for their YIMBYism is that big rents personally inconvenience them and occasionally tweet derogatory things about suburban sprawl and Breezewood PA. In other words, once they solve the problem of NIMBYism in the big urban environments their work os done. They won’t care about the housing crisis if it doesn’t personally affect them.
> There’s some activists (not you) where it does come across as that their main motivation for their YIMBYism is that big rents personally inconvenience them and occasionally tweet derogatory things about suburban sprawl and Breezewood PA. In other words, once they solve the problem of NIMBYism in the big urban environments their work os done. They won’t care about the housing crisis if it doesn’t personally affect them.
Most people care the most about where they live and things that affect them. That's just how it goes. I also think if we continue to see victories for urbanism in city centers, even more NIMBYs will flee to suburbs and this is going to get worse instead of better.
California YIMBYs working on the Housing Elements of suburban jurisdictions say hi. Hello from Palo Alto, Berkeley, San Mateo, Huntington Beach, Redondo Beach, Santa Monica, and jurisdictions all across the state, from YIMBYs working ordinance by ordinance to upzone and reduce onerous approval and permitting processes.
But don't ignore the decimation of affordable housing when growth requires off- site infrastructure improvements. Thousands of homes torn down for the Chicago expressways. You're lucky if you're talking about underground expansion of rail, but otherwise... Plus, when growth requires siting of "dirty" business to satisfy the population, where is it most likely to be located? Look at the attempted relocation of a metal shredding concern when gentrification put too much heat on it and the value of its land grew exponentially.
Isn’t this an objection to inequality and not growth? You can have environmental racism in a static society too
Does society ever remain static? Change seems to create opportunity for inequality to take place. When we deplete the animals we eat and hunt (speaking as a Neanderthal) I'm forced to invade on others hunting grounds or move the whole clan. Or start tilling soil that may take water from others downstream.
It's a tough issue, as I am not sure what growth is, either. Is consolidation of companies requiring a centralized facility and abandonment of others for cost reduction growth?
Did inequality precede racism? Racism is another building block for inequality.
I’ve been curious about the parking theory of nimbyism for a while. If people are worried about competition for scarce parking spaces from new residents, why don’t we see more energy for building more parking garages, alongside privatization of incumbent street parking. To me, parking is only scarce because we’ve made it scarce. Idk, something like a wraparound yimbyism for housing and parking.
Street parking is free while garage parking is a few $100/month.
But, now that you mention it, building a “free” to residents municipal garage to remove objections might actually work.
Renovating and flipping one suburban house causes its price to rise because it comparatively more desirable than the unrenovated houses next to it. But if all houses in a suburban neighborhood are renovated at once then prices stay similar because there is no comparative desirability. The same thing applies in urban neighborhoods, except if more units are added then prices may even drop, like what happens when more suburban houses are built.
I always figured that the construction/rent relationship was a statistical artifact: when a 50-unit older building gets a new 100-unit "luxury" neighbor in the adjacent empty lot, mean and median rents on the block have gone up even if the old building stays level.
i think the one thing that left NIMYism may get right is that the externalities of gentrification are borne disproportionally by the poor. By way of example, in Matt's post, it appears that the existing supermarket went to hell while the new one was being built. a rational decision on the part of the supermarket owner, but the existing residents suffered through the crappy supermarket while the new residents got the nice new one. Lots of things in the local neighborhood decline when major infrastructure projects are going on.
I was taken to understand that the activist theory of gentrification was basically correct as far as shuffling people around within metro populations. Similar to the fashion industry, big developers operate long term strategies about which neighborhoods are going to be “in” next season, and some of the neighborhoods targeted for this were previously poor. And even though this doesn’t raise aggregate rents, because other neighborhoods go “out,” it disrupts people’s lives in a way that you could reasonably want to stop.
But a left-wing politics formed in response to this effect has been a catastrophically poor fit for situations where the overall metro economy is growing & people are moving to the region for work. Building to meet increased demand is a different thing from building to stir the pot.
I’ve been seeing a few articles about the AirBnB apocalypse. Apparently due to the surge in demand during covid a lot of people bought vacation homes and condos to rent on AirBnB, Vrbo, etc. The were getting top dollar for say 20 nights a month. But now, due to people preferring hotels for various reason, oversupply, etc. rates and occupancy have plunged and people are losing their shirts.
The article mentioned people who are still able to succeed and they talked about the need for good design, the value of repeat guests. One made note of the coffee and wine people liked and made a point of having it stocked when they checked in.
The public seems to have the view that landlords have all the power. They think, “I can just buy something and charge whatever I want for rent.” But that’s totally not how it works.
For whatever reason people have a hard time seeing the real estate market work in the same way as the vehicle, laptop, laundry detergent, stock, etc. market.
The real estate market works the same way as the used car market, with the same “lemon” problem. Sellers have all the information about quality and upkeep, and buyers have very little, so it incentivizes sleaziness and hiding things that are broken until after the purchase. There is no reliable way to get an excellent used car or an excellent landlord, you just hope for something good enough, and usually get it.
"The public seems to have the view that landlords have all the power."
See also the routine claim in progressive on-line spaces that, "Landlords don't do anything."
I've had good landlords and bad landlords -- our current landlord has for the most part been very good, responsive to our concerns and also certainly put in a lot of renovation work before we moved in. Nevertheless, *even granting that he's a good landlord,* the median and modal amount of days per month that he interacts with the property we rent is zero (which is, to be clear, fine by us).
We don't have to pretend that being a landlord is literally zero work to acknowledge that there's a reason that supracompetitive profits from mere ownership of capital are termed "rents."
For what it's worth, I think you're pretty wrong on the cost/work/paperwork time involved in owning a rental unit (at the mom & pop level) vs actual profit margin which is typically negative for at least a few years after a purchase.
But you also forgot about depreciation of rental property (which argues in your favor about long-term profitability)
Except that, in the context of residential or commercial rentals, even if the landlord does literally zero work the vast majority of months, it's the landlord who bears the risk of the building being damaged, destroyed, left vacant for some prolonged period, etc., and that's setting aside the question of whether the building is already fully paid for. (I would reason that supracompetitive profits from mere ownership of capital are termed "rents" comes from late 18th Century/early 19th Century *agricultural* landlords, who indeed operated in a largely passive, extremely low risk capacity.)
"It's the landlord who bears the risk of the building being damaged, destroyed, left vacant for some prolonged period, etc.,"
Surely we expect the cost of insurance provision and a vacancy buffer to be priced into rents just as mortgage costs are, no?
The real risks faced by the landlord are basically insufficient or inaccurate vetting of tenants resulting in the innumerable problems that having a bad tenant can cause, or else competition from additional comparable housing units driving market rental rates below the cost of mortgage + insurance.
But in contexts where the latter risk is very unlikely to materialize in the medium term (i.e., basically all large coastal metros) that's not really asking the landlord to bear much risk, and as someone who strives to be a good tenant (plus the fact that vetting is basically a one-time process) the fact that the landlord has to screen bad tenants does have implications for what policies I support but it's not really the landlord providing me personally with much in the way of a service (i.e., something I would be willing to pay for) so much as just them paying information costs that I'm not responsible for creating.
(Not sure about the agricultural rents issue, would have to brush up on economic history, although I'm not sure there's even a tangible point of disagreement there tbh.)
"Surely we expect the cost of insurance provision and a vacancy buffer to be priced into rents just as mortgage costs are, no?"
Yes, and? Those are still expenses associated with risks that the landlord has.
"The real risks faced by the landlord are basically insufficient or inaccurate vetting of tenants resulting in the innumerable problems that having a bad tenant can cause,"
Yes, which necessarily requires landlords to charge rents over what the day-to-day operating costs are.
You also omit that landlords need to recondition units, replace appliances, make repairs not covered by insurance, etc.
The point is that your landlord is effectively just acting like a bank. They invest a large amount of money up front to acquire X and then re-sell the time-limited rights to use X. This assumes financial risk, but doesn't involve any time consuming labor, which makes it very scalable. In most cases, the landlord has a larger bank behind them backing the property, but at a lower risk level.
"Those are still expenses associated with risks that the landlord has."
The point is that these aren't risks that are uniquely borne by landlords nor are they risks that landlords have any comparative advantage in bearing (owner-occupied housing also has insurance), and moreover we agree the landlords aren't even bearing the monetary costs of them since it's passed through in rent, so there's relatively negligible value-add by the fact that a landlord is the ultimate beneficiary (but not the ultimate payor) for insurance, and we agree that the insurance exists precisely to mitigate risks. So with respect to insurable costs the landlord just isn't bearing that much risk in the first place, so it seems odd to claim that they should entitled to any kind of significant risk premium.
I agree that landlords will rationally charge above the day to day operating costs of a property, and that good landlords will do some level of replacement, repairs, etc. I'm not claiming that being a landlord is *literally* zero work nor that it involves zero risk (hell, I consider it enough of a PITA that I'm not particularly interested in being one myself), my point is just that when you (1) amortize out appliance replacement, reconditioning and repairs over the term of a lease, (2) compare the expense of such repairs to value of equity gained by having someone else cover a mortgage and the tendency of housing to appreciate in price, and (3) compare a $1000 dishwasher every....ten? fifteen years? to the cost of a unit in the mid hundreds of thousands to millions of dollars (and with monthly rent on the order of several thousand dollars minimum in coastal markets), these interventions by a landlord are basically rounding errors compared to the capital gains of landlording, all while the actual amount of labor probably averages very generously to something like one workweek a year.
I'm probably on net one of the more pro-landlord folks on this board, and I recognize that my landlord, in addition to being good about general landlording obligations, also provides me the service of not requiring the massive transaction costs associated with relocating from/to owner-occupied housing, but while "landlords don't do anything" is obviously not *literally* true, it's nevertheless *approximately true* even just as a matter of labor expenditure on the property, and the comparison of the cost of labor and capital inputs relative to capital gains and asset value makes that look even more lopsided.
I don't think this makes landlords as a class or my landlord in particular evil any more than I think owners of dividend stocks receiving a distribution of profits are evil, but I also think that "landlords don't do anything" seems like a much better approximation of the day to day activities of my landlords vis a vis the properties I've rented than "landlords do an amount of work commensurate with a full-time job in order to cover the costs of real estate ownership in the way that owner-occupiers generally do."
Ok, Matt. You are surely correct that investment and improvement of quality of life are good no matter their impact on pricing. But unless you have secretly become an unfeeling Randian libertarian, you must care about what comes next, which is making sure less-wealthy people actually have access to the improved quality of life. It doesn’t reliably or efficiently trickle down the way Reagan and his acolytes loved to tell people. So why didn’t you even mention that problem or cool wonkish policy ideas to fix it? How do we improve quality of life and then actually make it accessible to overworked, underpaid masses? They need the amenities far more than information economy workers who work from home. They deserve to come home to serious comfort and affordable good food and recreation. It’s almost 2023 and we are still one of the wealthiest societies on earth despite falling behind a bit. What happened to the Matt Yglesias who made the boring, wonkish case for Bernie Sanders? Where is the Matt who once seemed interested in reducing misery among the poor and taking the edge off the downgrades suffered by the middle class?
But it doesn't make sense to hold the housing supply hostage to achieve those benefits.
Matt even addressed this in the article: building does improve the quality of life for everyone, and furthermore provides tax revenue to plug the holes where those improvements are least efficient and more uneven.
Can you elaborate on your complaint a bit more? Subway stations benefit everyone around them, with lower income people benefiting even more. New parks or grocery stores are accessible to everyone. Obviously increased housing prices hurt lower income people, but we know Matt's solution to that (build more housing).
“It doesn’t reliably or efficiently trickle down the way Reagan and his acolytes loved to tell people”
Reagan never made such a claim - that was a calumny invented by Reagan’s critics.
But never mind all that! There’s a review in the Wall Street Journal today of the new book ‘The Myth of American Inequality’ that includes this,
“Average living standards have improved dramatically. Real income of the bottom quintile, the authors write, grew more than 681% from 1967 to 2017. The percentage of people living in poverty fell from 32% in 1947 to 15% in 1967 to only 1.1% in 2017.”
apologies if I'm missing a joke of some sort, but "1.1%" is not a correct number - maybe dropped a decimal by accident? I get a number more like 11.6%
https://www.census.gov/newsroom/stories/poverty-awareness-month.html#:~:text=Official%20Poverty%20Measure,and%20Table%20A%2D1).
You're both correct, because this is talking about _relative_ poverty. If we wanted to, we could set the poverty level to the same one it was at in 1960 and make the poverty rate basically 0.
I haven’t read the book, but my understanding is that those figures account for non-cash income; Census and other official statistics do not.
hmm. Hadn't heard of the book before, but I have little trust for Phil Gramm vs the census numbers... Census does publish the supplemental number post-transfers that's down at 7.8%. Though I agree that directionally things have been getting better since umm The Great Depression and WWII ended (quite the timeslice to pick, starting from 1947!)
https://www.census.gov/library/stories/2022/09/government-assistance-lifts-millions-out-of-poverty.html
Gramm is a smart guy - one of the smartest to serve in Congress. He has a doctorate in economics and was a college professor before entering politics. He knows his stuff.
Do places that put a lot of weight on those concerns offer a better quality of life for those at the bottom? I don’t believe they do as it relates to housing.
If the concern, while noble in intent, fails to provide relief to those at the bottom - is that concern misplaced?
Hear hear! Very disappointing post.