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Comment by nmridul | Hacker News Reader

>> 2. How does overfilling properties lead to rising prices? If anything, it would serve to keep prices lower.

When one family rents a 2 bedroom flat, they may be able to afford say 1K (husband and wife working). But when the same flat is rented to 4 singles, they might be able to afford 2000. Each person's share is just 500. So when the landlord asks them 1200, they would happily pay for it as the effective rent per person is only 300.

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What you are saying is that the primary driver of price is ability to pay. This is basically a claim that the market isn't competitive at all. That's a fairly strong thing to say, as even a vastly under-supplied market can be competitive.

I don't understand how prices in a vastly under-supplied free market will not rise until they reach the maximum price buyers are willing to pay.

"Willingness to pay" is different from "ability to pay" -- your willingness to pay will be greatly affected by the price of competitors or neighboring markets, for example.

What competitors? What neighbouring markets?

Right, if there's no competitors or neighbouring markets, then you have a monopoly situation, and the sole seller (or cartel) are free to set prices as high as people are able to pay. But just because there is a shortage doesn't mean there's a monopoly.

If it's what people see, it's what people see. I've definitely seen effects like that in real-estate markets.

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