A major argument for why landlords should make money is that they provide risk smoothing. They take on risk and the renter pays a premium (like insurance) for that risk. But that means that some landlords have to lose. The idea that landlords should never lose money breaks the entire arrangement. If that is the case then there should be absolutely zero risk premium and renters should just be paying for the cost of maintenance (often skimped badly by landlords) and the marginal opportunity cost of having either a mortgage or having equity tied up in the property (often much lower than the nominal rent).
Landlords often retreat at this point and just say "well we are charging what the market rate is" and leave behind any pretense that this is a fair economic transaction. In that case, landlords can get fucked, in my opinion. A system that buys up a scarce and necessary resource and then sells it back at prices disconnected from the actual value provided by landlords is unethical.
Who said anything about expectation? I'm not saying that landlords need to lose money in expectation. I am saying that some landlords need to lose money if they are indeed charging a risk premium. Same way we expect insurance companies to make money on average but lose money on some individual policies.
My point is that complaining about rare cases where landlords lose money because they cannot evict a tenant who isn't paying at the drop of a hat is simply ridiculous. It is like complaining that an insurance company occasionally has to pay out for their policies.
I think a problem with this approach is you rid yourself of all small landlords and move towards corporate owned housing. Only those with a large portfolio of homes can afford the statistical averages you’re talking about.
That's not really true. Individual people make all sorts of investments that in expectation grow but still carry risk. A system where renters pay risk premiums to landlords is a fine marketplace. A system where landlords insist on carrying minimal risk while also using risk as an argument for extracting money from their renters is garbage.
The truth is that the price of rent is utterly disconnected from the value of a landlord's labor plus the various premiums you'd pay for risk smoothing, lower transaction overhead, and opportunity cost. Landlords simply charge whatever they can get away with and we should all laugh at attempts by landlords to justify their rent through any argument other than "fuck you, pay me." After all, I've never heard of a landlord reducing the rent when they finish paying off their mortgage.
Once we at least have this shared understanding we can start having a real conversation about the merits and costs of the system we have today, rather than this fake conversation about how landlords are so nice for paying for that new roof.
It’s not about carrying minimum risk. When you carry more risk, you expect a larger return - you increase the rent. Which hurts the people you are trying to help
Is your pay based on market rate for your services? Do you voluntarily make less money than you can?
> It’s not about carrying minimum risk. When you carry more risk, you expect a larger return - you increase the rent. Which hurts the people you are trying to help
I don't believe that rents would actually go down meaningfully if states adopted laws enabling evictions within two weeks. As you say, rent is actually based on market rate and is entirely disconnected from the expenses landlords pay. All of these discussions about landlord expenses are non sequiturs that just hide the real discussion.
> Is your pay based on market rate for your services? Do you voluntarily make less money than you can?
I am performing labor rather than gating access to a scarce and necessary resource. The social damage of charging for labor is not the same as the social damage of charging for housing.
> Your job is enabled by someone at some point taking a financial risk to start the company you are working at.
That's true. The founders of my employer are mega-billionaires though. I'm not worried about them.
> Your pay is also more than likely built on the back of the less privileged.
That's also true. Capitalism is fundamentally unjust. I donate a huge amount of money to anti-poverty charities annually to help mitigate this.
> What’s the alternative?
I am not certain. But we can't even have this conversation until people stop talking about landlords like they are engaged in some essential charity for renters.
Would it be preferable for an individual to build a single family home on the land than a corporation build multi unit housing? Which does more to increase housing supply?
Higher profit risks mean that I’m going to charge more. If it doesn’t make sense for me to invest in real estate, why not invest in something else? How does that help reduce housing costs?
If the regulations change, all landlords that have any business acumen are going to address that by raising rent. The entire market is going to change.
Exactly, that's the entire point. If landlords are less willing to invest in property the housing price will drop, making it easier for people to buy the house themselves.
People don't want a landlord, they want a home. For many people the landlord is currently a necessary evil they'd rather get rid of.
The market conditions as they exist today with the known expenses has established an equilibrium. When expenses go up or risks go up across the market, the market adjusts.
The supply of land is fixed. If we're talking about the US then most of what you pay for when you buy is the land.
The current setup hasn't exactly been great at generating new housing. Juicing speculation increases nimbyism just as much as it increases developer interest.
That is not true in most of the US. Yes the supply of land is fixed. But there is plenty of air. Who is going to make the investment to build up? Individuals buying land and building SFHs is not going to help as much as building multi unit housing.
There is also plenty of affordable land in the US in flyover country.
Huh? Save for a small number of cities most of the nation is sprawling suburbia. 70% of Americans live in single family homes.
Most of what you pay for here is the land. And this is becoming ever more important because of agglomeration effects in the modern world.
> Build up
Ok you're switching gears a bit here but I'll entertain anyway. If you want to build up the right solution is a Land Value Tax. Landlords of course hate this idea.
> Most of what you pay for here is the land. And this is becoming ever more important because of agglomeration effects in the modern world
This is also not true. With an investment property you can depreciate the value of the building. But not land. It would reduce the tax incentives greatly if that were true.
I’ve owned five properties in my life and the house “improvements” is always more valuable.
Out of those five, two were new builds I had built from the ground up as primary residence. You can see the value of the unimproved land and compare it to the values of the houses built on top of it.
The other three were investment properties where I could only depreciate “the improvements” - the amount attributed to the house
In “sprawling suburbia”, builders can buy land cheaply and build hundreds of homes.
> Ok you're switching gears a bit here but I'll entertain anyway. If you want to build up the right solution is a Land Value Tax. Landlords of course hate this idea.
You realize any increase in cost is passed on to the tenants. How does that help affordable housing?
That statista link is maybe the wrong one? I don't see anything in there stating that the majority of Americans live in apartments.
> You realize any increase in cost is passed on to the tenants. How does that help affordable housing?
This is 100% totally wrong. The concept you're reaching for is called tax incidence. In the case of Land Value Tax it's fully the burden of the landowner.
You won’t be able to infinitely increase your rent (renters can only afford so much), and other landlords with more tolerance for risk may not raise rents as much (or at all). Some landlords will exit the market which will lower the price of housing and transition some renters into owners.
How will it lower the cost of housing by decreasing supply? Not everyone wants to or should buy a house. A house ties you down to one location makes mobility a lot harder when you want to change jobs and goes up your capital.
