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0 pointsAnthonyMouse2y ago0 comments

> It would seem to me that more supply = more construction + more maintenance + more taxes = more costs.

More total costs divided by more total units is just the same cost per unit, if not lower because of economies of scale.

> Rents therefore increase, despite there being more supply.

If there is a monopoly landlord then rents will be at the monopoly rent whether you increase supply or not. Even then increasing supply could lower rents, because the monopoly landlord could capture more rents by charging $9000/month on twice as many units than $10,000/month on half as many units, and can't charge $10,000/month on twice as many units because there aren't enough tenants who can afford that.

Also, the premise here is that you're increasing supply. The monopoly landlord would have to outbid everybody else for the new supply or they'd lose their monopoly, and have to pay the monopoly price or else the new units would be cheaper than their existing ones. But then the construction companies would be receiving the monopoly price and become flush with cash to build even more housing until the monopoly landlord ran out of money.

There is a reason landlords collude through zoning boards: It's otherwise quite easy for someone new to enter the market.

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Rury2y ago· 2 in thread

> Also, the premise here is that you're increasing supply. The monopoly landlord would have to outbid everybody else for the new supply or they'd lose their monopoly, and have to pay the monopoly price or else the new units would be cheaper than their existing ones. But then the construction companies would be receiving the monopoly price and become flush with cash to build even more housing until the monopoly landlord ran out of money.

All of which presumes the risk here is all on the monopoly landlord, when this isn't the case. Even disregarding zoning, construction companies have to compete for bidders, and the monopoly landlord may not have to compete with bidders. Additionally, if insufficient housing is really a problem because more people and businesses are moving into the neighborhood, then the monopoly landlord isn't likely to have problems running out of money. If that isn't the case, and there is sufficient housing (or renters are struggling to afford rent), then they have market advantage over new entrants to the market in the appropriate pricing of bids. This increases risk and pressures margins for new entrants, limiting their ability to compete, which puts risk onto construction companies in bids. In other words: it is quite possible the new entrants or construction companies fold before the monopoly landlord does.

Again, it's all iffy, but, fact is, every new supply constructed comes with a cost, and it falls on someone, even if cost/unit goes down. The assumption that that cost won't fall on renters, isn't a certainty, nor is the assumption that renters will be the ones to benefit from a decreased cost/unit.

AnthonyMouseOP2y ago

> Even disregarding zoning, construction companies have to compete for bidders, and the monopoly landlord may not have to compete with bidders.

What?

The premise is that there is a monopoly landlord but it's possible for others to create housing, e.g. the landlord owns all of the existing rental properties but anybody can buy an empty lot or single-family home and build a multi-unit building there instead.

Obviously if the monopoly landlord owns all of the land then you have a different problem, but that isn't even close to the case in any metro area in the US. (Though neither is anyone owning all of the rental properties for that matter.)

> Additionally, if insufficient housing is really a problem because more people and businesses are moving into the neighborhood, then the monopoly landlord isn't likely to have problems running out of money.

Won't they?

Suppose it costs $200,000 to build a new housing unit, but because of the existing monopoly they sell for $1,000,000, whether it's to the monopolist to sustain their monopoly or to someone else who would break it. To sustain the monopoly the monopolist has to remain the high bidder.

But now the construction company has a million dollars, and it still costs $200,000 to build a housing unit. So they build five new housing units, and now they have five million dollars. So they hire more guys and start training new apprentices because in the next round they're going to have 25 million dollars and build 125 new units which the landlord will still have to buy for a million dollars each.

It doesn't matter how much money the landlord has, the landlord is going to run out of money, because now the construction company has its own R&D division dedicated to construction automation it's only five more rounds before the landlord is paying the entire US GDP to the construction company.

> In other words: it is quite possible the new entrants or construction companies fold before the monopoly landlord does.

It costs them $200,000 to build something the monopoly landlord has to buy from them for a million dollars, or someone else will buy it from them for $999,999 which then happens again and again and destroys the monopoly.

Rury2y ago

> but anybody can buy an empty lot or single-family home and build a multi-unit building there instead

Anybody can buy and build? Yeah... only if they have the funds for it!

That's what you're ignoring: running out of funds isn't just a possibility for the monopoly landlord, it's possible for new entrants to the market, as well as the construction companies. The new entrants and construction companies are facing that risk, just as the monopoly landlord is.

For example, a new entrant to the market may have to go into debt to fund his bid or construction in order to compete with the landlord. The monopoly landlord on the other hand, might not have debt and instead has large capital reserves. Depending on the circumstances, it is even possible for the new entrant needing to rent ABOVE what the monopoly landlord already does to just to break even on costs that the monopoly landlord doesn't have (e.g. because of debt, and/or they overbid for the risk in the market, higher land costs, and other reasons). If done in a market where there is already more supply than renters, it would be a very risky venture for the new entrant.

And again, it's also entirely possible that there are 0 bidders showing up to compete with the monopoly landlord (due to shear lack of other participants willing to step in to compete). In which case, the monopoly landlord doesn't have just a monopoly on rents, but bids, and the construction companies would have tough time running the monopoly landlord out of business, no matter how much they build.

> It costs them $200,000 to build something the monopoly landlord has to buy from them for a million dollars, or someone else will buy it from them for $999,999 which then happens again and again and destroys the monopoly

Look... we can make a bunch of "what if" scenarios, but the scenario you made doesn't necessarily have to be the case (nor any of my examples). But, you had inquired about:

    >> You cannot realistically build enough so that the rents decrease.

    >I'm curious what makes you think this.

All I need is one possible example to demonstrate how that can be.

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