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Comment by carom | Hacker News Reader

>Then landlords will increase the rent by 800~900 bucks.

Landlords don't set rents, they are price takers. Now if everyone gets more money and wants to live closer to work, then yes, prices will go up to meet increased demand.

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In major tech hubs, find the median salary of a single worker (eg seattle $100k). Divide by four ($25k), that’s roughly the cost of a one bedroom apartment (~$2k/month). Adjust for neighborhood and amenities.

They know their market. They know the max price they can set and fill easily.

https://www.seattletimes.com/seattle-news/data/seattle-media...

https://www.zillow.com/rental-manager/market-trends/seattle-...

I don't think people think about rental pricing from first principles. In general, they look around, see what everyone else is charging, maybe nudge it up a bit, and charge that. If they don't get any tenants, they lower the rate until someone leases the apartment.

I don’t think it’s necessary to be aware of those principles to participate in them.

Small landlords may do that… but how does “everyone else” price?

If you set price to low, you’re leaving money on the table, price too high and you won’t find a tenant. Price high (but not too high), it may take longer to find a tenant (more lost rent), price low and you’ll get lower income tenants (who will be more likely to miss rent, because they’re less likely to be non-salary workers). The rents will “naturally” trend to a rate that is affordable but budget-filling of the desirable demographic -in a big city that’s well paid office workers who move a lot.

Landlords and homeowners compete between themselves for real estate near where jobs are, since there's a limited supply. This causes the market price to purchase a property to adjust to the cost of capital that is equivalent to the value gained by living there. This has a natural upper bound. The market rent is the cost of capital to purchase a property plus some margin to account for the cost of doing business. For example, if moving to an area will increase my salary by X, there's little point in me moving there if my rent will go up by more than X. The same goes for my mortgage payment. Even if I had the cash and could buy mortgage-free, it wouldn't be worth it because I could make more by investing the cash somewhere else.

If UBI is indeed universal and you'll get it regardless of where you live, then the value of "living there" will go down proportionally, because the value of living elsewhere will go up, relatively speaking. Another way of looking at this is that demand to living in expensive areas will go down because it'll be (proportionally) less necessary to live where the jobs are.

> demand to living in expensive areas will go down because it'll be (proportionally) less necessary to live where the jobs are.

Expensive areas are expensive not only because of jobs but for many other reasons, mainly related to entertainment. Even with UBI, NYC will remain far more attractive than middle America because of a better {dating, restaurants, bars, museums, ...} scene.

Yet in Redmond, which has a median income almost 40% higher than Seattle [1], apartments are cheaper. There's no price-fixing by landlords based on incomes, it's supply and demand. There's less desire to live in Redmond, so an equally sized unit is cheaper despite higher incomes.

1. https://www.google.com/search?q=seattle+median+income&rlz=1C... https://www.google.com/search?q=redmond+wa+median+income&rlz...

> There's no price-fixing by landlords based on incomes, it's supply and demand.

Sorta yea. Realistically traditional Econ 101 concepts don’t always apply to housing. Supply is limited and can’t be increased as much as demand because building housing is quite hard and conversely demand is capped at the household income of people who will live there (eg Medina vs Renton are entirely different markets). Generally, people pay ~25% of their household income on housing (once they leave being low-income). Therefore prices will trend to that value for the given demographics. Because people can out bid each other on purchasing or landlords will charge higher rent prices knowing someone will pay it.

Redmond is wealthier than seattle (as a rich suburb), and I bet the median cost-to-acquire-housing in Redmond is greater than seattle even if the cost of a “750sqft 1br with parking” is cheaper. Being a family town with a good school, people probably want multi bedroom housing, and probably want a yard etc. So people who will live alone with a one bedroom is different from most of Redmond.

Was their point really about rent?

Rent absolutely will go up regardless the exact mechanism, but rent and the specific mechanism by which rent rates are set, is just a detail and silly to focus on.

It's just a stand-in for a concept. Replace "rent" with "cost of living".

Their stated point was that the money will be re-absorbed by the same people it was meant to combat, by countless mechanisms.

If the money is meant to empower people currently too disadvantaged, it mostly won't, because the entities in control of things that resulted in some people being squeezed too hard, will still be in control of the same things, and the net result will be that the extra money becomes a no-op number shuffle.

When people spend their money, the money goes to the sellers. But this is hardly a no-op. Yes, when people have more money to spend that's good for the merchants who cater to them, but it's also good for the shoppers because they can buy more stuff. Having spending power means that the merchants are working for you. You can't get that without money.

It's rather weird that people can convince themselves that having more money to spend won't make any difference.

More money does not define more spending power.

It's more complicated than this. There is rent control and rent stabilization, for example. I'm sure my landlord would LOVE to raise my rent to twice what I'm paying, but they're not legally allowed to. Yes it's weird and anti-free-market and unfair to people that didn't get in early and all that. But that's how it goes! UBI would not raise rent on rent stabilized apartments in NYC.

That just means you are paying below market rent. There is someone willing to pay twice your rent to live where you do.

Rent control creates a first mover advantage where the incumbents have a good deal and everyone else suffers. Whether this is fair depends on your beliefs, but I would rather have healthy turn over to give more people an opportunity to experience an area.

> There is someone willing to pay twice your rent to live where you do.

And as much as that is permitted to happen, the devastation to society increases.

We presently have people entering homelessness with money in the bank. It's unlikely we've hit the possible upper limit on our broad housing catastrophe - but wherever that limit is, we certainly know how to reach it.

If what people say is true and that there is a housing shortage, then yes, landlords will basically extract maximum available cash out of their local market.

For an example of why rent would go up you can look at rent near military bases and the BAH rates.

Where do you get that number from?

This is not true. In a theoretical market it may be true but in a real world market it just is not. People don’t make rational decisions. Prices don’t reflect what “should”happen. Landlords increase rent because they can. No shade on landlords - because they are encouraged in the US to do so. But to pretend like this wont happen is naive.

If I set rent to 3k a month for a old 600 sqft apartment no one will move in. If someone is paying 1.8k for that and I raise the rent to 3k they will move.

Landlords increase the rent to the maximum that people are willing to pay. You can dress up a unit and maybe get a little more but no one will pay you 5k a month for a 600 sqft unit last updated in the 80s. If they will then you have a housing shortage and you need to let landlords and builders build.

> If I set rent to 3k a month for a old 600 sqft apartment no one will move in.

543 sqft condo, $2901/mo. ~10 seconds to find.

https://homefinder.com/property/547922513/Makati-San-Jose-CA...

> you have a housing shortage and you need to let landlords and builders build.

That existing homeowners have a counterproductive influence over housing starts is one of the factors that needs to be addressed - absolutely.

> Landlords increase the rent to the maximum that people are willing to pay.

Yes, and?

And, if you institute a UBI of $1000/month, the maximum that people are willing (and able) to pay suddenly increases by around $1000/month. And since landlords are mostly not complete idiots, they will recognize this and increase rents by approximately $1000/month.

Which was the point of the poster you originally replied to.

The only way that won't happen is if another, cheaper, alternative exists (like buying a place to live instead of renting). Except that, wouldn't you know it, people selling houses have also realized that they can raise prices by the amount equivalent to a $1000/month increase in mortgage payments.

>if you institute a UBI of $1000/month, the maximum that people are willing (and able) to pay suddenly increases by around $1000/month

Most people are not willing to spend all of their excess money on rent. It will increase demand in desirable areas but landlords do not get to just raise rents because they want more money.

Your cause and effect are mixed up. Home owners don't do a calculation macro conditions and interest rates when setting a price. They look at comps, list, then go "wow, we got 3 bids over asking". They accept the highest one. The next sellers see their sale and set prices accordingly.

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