Almost by definition "rent" is simply extracting value from the productive economy through ownership.
If the productive economy takes a dive or disappears, the amount you can extract must do likewise.
It's all supply and demand. Lower economic activity translates to lower demand. I'd also say that to imply that a landlord doesn't provide a service is total nonsense. There are plenty of reasons why people and companies might prefer to rent instead of buy the least of which is that a tenant doesn't have a long term financial commitment or principal / property value risk. There are many companies that even take their wholly owned property and sell it so they can lease it back in a triple net leasing arrangement because it benefits them to not have capital locked up in real estate value.
What? Do you define any profit margin as such? Housing rent is not the same thing as the term 'economic rent'. Housing is as much a liability as an asset. There is risk with owning it. Rent payments are compensation for said risk. All profit is just compensation for risk.
If the bank, credit cards and mortgage owners have payments suspended in recessions, there would be many less recessions.
If the top of the chain, that is the elusive 'trickle down' source, felt the pain for recessions the most, there would be many less recessions.
If 'too big to fail' banks and companies were immediately broken up on commencement of recessions, there would be many less recessions.
Markets are efficient, they will hit targets, market regulations can be used to set targets that will keep the whole thing on the rails, remove the rails and the usual happens, more inequality and stagnation.
We have to put the incentives in the right place. If the lower/middle always feel the pain with no consequence for the top or 'too big to fail' companies, then it will be a regular, repeating occurrence. That will create markets where companies get big enough to be 'too big to fail' and get bailouts, or essentially grow to 'bailout big'.
No matter what you believe about economies, or markets, money only goes where other money is, and you can't keep taking from the spenders in a consumer economy. The constant rent-seeking, predatory, value extraction, wealth destroying events are going to break the lower/middle and public markets. Individuals, families and small business especially need support during these times, the longs that all value extractors extract from and the engine of America as well as the research and development labs of larger companies.
Markets are garden, the in trouble lower/middle should be brought up and focused on, the massively growing top should be scaled back or harvested.
Money trickles up and down and all around, but money only trickles where other money is found.
America is mostly small businesses.
SBA/Chamber of Commerce has 30.2 million for companies under 500 people.
Lots are sole proprietors or very small < 5 people. 22 million of the small businesses in the United States are individually operated, meaning that they have no other employees other than the owner.
99.9% of businesses in the United States are small businesses, owing to the rather large threshold of 500 employees, or fewer.
Small business is the engine of America.
Small businesses comprise what share of the U.S. economy?
Small businesses make up [1][2]:
- 99.7 percent of U.S. employer firms,
- 64 percent of net new private-sector jobs,
- 49.2 percent of private-sector employment,
- 42.9 percent of private-sector payroll,
- 46 percent of private-sector output,
- 43 percent of high-tech employment,
- 98 percent of firms exporting goods,
- 33 percent of exporting value.
It is time to help the lower/middle and sole-proprietors and small business or America as we know it is much much different after this.
About 8 trillion in 'stimulus', at a cost of 20k to every citizen, for that we got $1200 we haven't got yet and small businesses finding out how small of fish they a really are.
This market is broken for lower/middle and people or small business. It is gangbusters for wealth and value extraction ops.
The stimulus for individuals, families and small business is vaporware, time for some vaporwave as we fade away into the ether.
Good luck wealth and big business with no one to skim from and no small business to use as research and development or suppliers.
[1] https://www.sba.gov/sites/default/files/FAQ_Sept_2012.pdf
[2] Source: U.S. Census Bureau, SUSB, CPS; International Trade Administration; Bureau of Labor Statistics, BED; Advocacy-funded research, Small Business GDP: Update 2002- 2010, www.sba.gov/advocacy/7540/42371.
I'm curious what the justification for this is. It seems like the kneejerk reaction toward any big/powerful entity (eg. "break up the tech companies!").
Semi related I read a detailed description what happened during the hyper inflation in Germany after WWI. A key thing is the inflation was not uniform. Food prices increased the most. And rents the least. At the end rents were effectively zero.
Well, yes. You always need food, but you don't need your own apartment when you can start couchsurfing. Real estate does degenerate fairly quickly when it's uninhabited. You could see a similar phenomenon after German reunification. There was much real estate with unclear title in the East, and students and squatters were actually tolerated - the owners and the city knew that with someone living in the premises the building would not deteriorate further.
"Can't" indicates they are unable, whereas I suspect at least some are taking advantage of the current situation [1]. Any situation where it's possible to take advantage, you can almost guarantee that people will.
This is not the way forwards - not paying rent will have a large knock-on effect for landlords (which, despite some sentiment, isn't necessarily the 1%). The US government needs to provide money if they are going to demand that people stay at home and not work.
Ultimately they either bring the economy to a screaming halt (entirely) or trickle money to those unable to work in order to keep things going. In my opinion stalling the economy is a bad idea - it can cost a lot of time and money to get it going again.
[1] https://news.yahoo.com/rent-strike-idea-gaining-steam-170345...
"You must sell."
"Okay, this 3br house is $10MM. It's not selling."
Eminent domain?
Are we going to do that for the huge swathes of vacant homes we already have, too?
If demand grows while supply stays constant, any 7th grader could tell you the consequences, but this basic fact seems to elude our elected officials.
Barring one of our largest financial partners (and largest creditors) would certainly have a devastating effect on our economy.
0: https://www.americanmanufacturing.org/blog/entry/congress-ex....
https://www.weforum.org/agenda/2020/04/pandemic-economy-less...
Governments have a responsibility to all their citizens, not just stockholders.
I'm sure there's a moral framework where it's never acceptable to hurt someone else when you could sacrifice yourself instead, but I don't think that's a particularly common school of thought. More often people will weigh two potential harms to make a decision, like "I can't pay my rent, but property taxes and foreclosures have been suspended during the pandemic, so my landlord will likely suffer less harm than I would if I became homeless."
Finally, "can't pay the rent" doesn't necessarily mean silently fail to mail a check. It might mean talking to the landlord about a payment plan, or frankly telling them you have no money and can't even afford food for the week. Landlords are humans, just like grocers who might give food to a starving person
To paint landlords as rentiers who can easily afford to go without rent or with greatly reduced rent is wrong. It mischaracterizes the problem in a way that will lead to bad solutions.
If there is to be rent reductions or forgiveness, there must also be reductions, aid or forgiveness on mortgages, property taxes and utilities. Somebody needs to pay for these things. Yes, profits will be reduced, but losses cannot be sustained for as long as social distancing measures are expected to last.
[1] https://www.huduser.gov/portal/pdredge/pdr-edge-frm-asst-sec...
If the headline had said 18%, the situation would have sounded bad to me, but apparently that's normal?
The difference here is that the percent of that 31% who really can't afford the rent -- not now, and not any time soon -- is probably closer to 100%.
In NZ rent is weekly, on no particular day (can be different for each tenant).
The difference in tenants is real. Equity residential tenants are higher end rentals in big to midsized cities with strong economies.
http://investors.equityapartments.com/file/Index?KeyFile=403...
Where I live, there is a huge service economy (restaurants, bars, gyms, etc.) and most of those service workers were laid off extremely fast, with very little savings to get through extended unemployment.
Corporate America will be culling the herd in a few weeks. Financial services are already purging.
Tenant fails to pay rent because of economic hardship. Building owner get in a cash squeeze and can't pay vendors like plumber, snow clearing, landscaping, and eventually can't make loan payments.
Mortgage holders see a rise in troubled loans, eventually writing a large number of them off for large losses.
REITs take losses on investments they must write off.
Your own retirement plan or personal investment portfolio takes a hit because some portion of it is REITs.
Everything is interconnected. I see a lot of simplistic "landlords must suck it up" comments in this thread. Really, who is so naive as to think that the typical commercial property is not leveraged?
Your answer is for the rent payer, with no economy, to "suck it up".
If the top felt the pain of recessions more than the bottom, you can bet there would be less recessions where massive wealth value extraction happens. You have to align the market incentives right. Make the top feel the pain, at the bank level even, and you are gonna have better ratings agencies, better leverage ratios, and less pump and dump bubbles setup. Right now if the top always gains, even in pain, there will be more and more pain as they look for gains guaranteed.
If we truly are in a trickle down system, shouldn't emergency hits to the recession start at the top, the trickle source?
Money trickles up and down and all around, but money only trickles where other money is found.
You miss-read me. First of all, I did not suggest any answer. I suggested that people put more thoughtfulness into their analysis.
What I am saying is that there really is no one person to "suck it up". The furloughed school cafeteria worker is going to take a double hit because the public employee retirement system probably holds REITs.
Scapegoating landlords is the tactic of leftest South American dictators. Landlords are middlemen, earning a return on providing housing liquidity. They take on short-term risk in the form of their tenants potential inability to pay, and long-term risk in the form of long-term loans collateralized by their properties. The system doesn't work unless someone is willing to take on that risk profile. Stop scapegoating landlords.
But that story checks out, as when the market crashed ~2008, the FED bailed underwater mortgage assets (such as these supposedly) off banks hands to avoid bank runs via QE. You can see that mortgage-backed securities still comprise a significant portion of the FED's balance sheet:
https://www.federalreserve.gov/releases/h41/current/h41.htm
https://www.federalreserve.gov/monetarypolicy/bst_fedsbalanc...
wait, is that even legal? Aren't security deposits meant to be held in trust?
