Comment by ProfessorLayton 8 hours ago
The market will dictate lower prices if there's excess inventory. If landlords are hoarding units and keeping them empty instead of lowering rental prices, that indicates a lack of available inventory.
> The second option's cost to landlords is largely defined by accounting/tax rules
The cost is having empty properties, which require insurance, maintenance costs, property taxes, likely mortgages of their own to pay, all of which cost money and which are by far the biggest costs to letting things sit unused.
And the fact in this case is there simply isn’t all these mythical properties sitting unused; simply look at current housing and rental stats.
I'm not talking about repricing specifically? I'm talking about how differently the housing market would behave if there was enough housing to go around.
Landlords have a 3rd option: They can sell the unit, because their unit no longer commands high prices due to housing supply meeting demand, and their capital is best used elsewhere.
If they are underwater and cannot sell above break-even, their bank will eventually do it for them.
As a commercial property, both their loan and sale price are contingent on the rental price.
So again, a disincentive to ever decrease rent (and thus demonstrate the market is softer and therefore you property is worth less).
Versus claiming it still commands higher rent (and is temporarily unrented) and thus more valuable.
What you're saying is true because the market is severely distorted, and a very large part of that is due to zoning restrictions. Zoning restrictions are severely constraining supply, and enabling those with capital to hoard property as an investment vehicle, rather than use it to buy a basic necessity. This scarcity allows landlords to keep a property empty rather than sell or rent at a lower rate, which would not be possible if buyers/renters had ample choice.
Not all rental properties are bought using a commercial loan, many are simply conventional loans where the owner decided to rent out their property rather than sell it. At least in the US, properties purchased with conventional loans can be rented out after the owner has lived in them after a few years. No commercial loan required.
The tax/accounting schemes you mentioned earlier would simply distort the market further without addressing the root problem: There's not enough housing for people that want it. Relaxing zoning rules would allow more housing to be built, and if there was enough of it, it would cease to be an "investment" rather than what they were built to be in the first place: Homes.
As a concrete example, I live in the SFBAY which has an extreme housing shortage. Yet my house is built on an unnecessarily big lot (required via zoning) and any structure built on it cannot be more than 27 feet tall. These are the kinds of rules that are severely distorting the market. I can't build a fourplex on the lot if I wanted to even if I have the space for it, and the demand is there. My next best option is to rent it out for way more than I otherwise could if there was a bunch more housing (Selling isn't really an option either because my mortgage rate is lower than what I could get in a HYSA; I'm basically being paid to borrow an appreciating asset).
That's not how repricing works.
If a landlord is unable to rent a unit at a desired price, because the rental market has moved lower, then they have two options.
They can decrease the price.
Or they can not offer the unit for rent (or continue listing it at the higher price).
The second option's cost to landlords is largely defined by accounting/tax rules, in regards to how painful the vacancy will be to them.
Thus, vacancy can be made more or less painful by changing accounting/tax rules.