This is just the start. Landlords would be smart to work with tenants to share some of the loss and renegotiate temporary adjustments to keep at least some revenue coming in because the heady days of high demand for rental units is likely behind us for a while.
It'll be worse in downtown areas. I've heard from multiple firms that are looking at downsizing their expensive office space and continuing to allow employees to work from home. if a person doesn't have to work downtown they will often choose not to live there either.
COVID is going to change the face of urban real estate. So if you have a tenant, they're gold and do what you can to keep them.
Unfortunately, as part of the unfolding of the post 2008 recession, a lot of rentals shifted from individual or smaller landlords to larger corporate landlords whom take a much more impersonal approach to making it through the depression. To some degree, to the extent they can take out holdover loans and let rentals sit empty, they will do just that - irregardless of the social utility of compromise.
This is the pernicious dynamic. For Large landlords, certainly but also generally, you have a situation where property appreciation becomes more important than rental income, so evicting people and getting nothing becomes a better outcome than lowering rent.
Edit: Also note this appreciation driven dynamic is something of a product of QE - printing money. As the treasury dumps money into markets, anything of apparently reliable value, "money-like", becomes more valuable - commodities and land being examples but the "best" companies also. This appreciation process becomes more important than the ordinary use of the object in the case of land (empty mansions in London being the prime example but we may wind-up with many more if the approach continues).
Was a renter in 2008 and you are spot on. Same situation in the Bay area as well as NY/CT. It was insane that rents started to go up during that time. People basically walked away from their houses and started to rent. It was weird. Also, the "corporatization" of housing scared me a bit. Consider the area in downtown Mountain View. Rent was under 2K around 2008. The corporate landlords did minor renovations (fancy gyms, granite counters, maybe a redo of flooring) - they then did fancy websites and sold a lifestyle. Totally focused on the high-paying tech jobs. I used to live in a complex with families and non-techies. All that evaporated as rent shot up to 3.5-4K for the exact same units.
As a renter I honestly do not mind the corporatization.
When I’ve looked for apartments in the past I’ve seen almost no difference in rents (as advertised on Craigslist, apartments.com, Zillow) between large corporate landlords and small time landlords, except for very high end luxury apartments I’m not in the market for.
Yet I’ve heard countless horror stories about unresponsive/malicious small time landlords and very few about large landlords. To the contrary, while renting from large corporations I’ve found that my service requests are addressed very quickly, there’s almost always someone in the property management team I can talk to about anything, and everything operates smoothly.
Perhaps the “mom and pop” landlords only advertise via word of mouth but every time I’ve looked for apartments I’ve come away thinking that renting from those same large, faux-luxury (as opposed to unrenovated since 1985 for the same price) corporate landlords are the best deal when renting in expensive areas.
There's more variance with small-time landlords. With a corporate overlord you know exactly what you're getting: they are going to be firm about sticking you to the exact terms of your lease and will raise your rent by the maximum possible each year, but you can also expect any maintenance issues to be taken care of quickly and they aren't going to feud with or retaliate against you. With a mom & pop you might get someone really nice who never raises your rent, understands if you're a couple days late, and takes pretty good care of the place; but you might also get someone who is completely unresponsive, violates a bunch of tenant laws figuring you don't have the resources to call them on it, and nickle & dimes you on your deposit.
I've rented apartments from giant corporations 4-5 times, and every single time I got screwed on the deposit on the way out. Presumably because they ran the numbers, and knew that they were better off nickel-and-diming people every time since most of their tenants wouldn't have the time or energy to drag them to small claims court.
There's also no way to negotiate with a person who has any actual power. You can talk to polite mooks all you want, but they can't actually change anything. You're guaranteed to get the maximum legally allowable rent increase every year and a huge pain in the ass battle for your deposit every time you move out.
True, though tenants in corporate owned single family housing all tell me it's closer towards the worst landlords. The corporations won't harass you, but they essentially don't want to do anything. You just get an expensive "as-is" house, which can be okay if it's in decent shape.
Specifically I was referring to large apartment buildings owned by corporations. Have never lived in a corporate owned SFH nor did I know that it was common. In my experience these large apartment buildings are quite proactive about getting anything fixed - likely because they have a team of people dedicated to doing that full time or at least contract it out, and just chalk it up to the cost of doing business.
Ah, makes sense. I didn’t factor in the possibility that a small landlord might not raise rents (though I assume it’s less of a factor in SF given rent control).
I move around a lot so rents getting raised aren’t as important to me.
Corporate landlords are rational and reasonable negotiators who will readily respond to market signals. Small landlords are a crapshoot; you might get one who just prefers an empty unit over lower rents. You can easily see this from craigslist data right now. Large buildings are lowering rent faster than small buildings and single-family houses.
This is true. I have known people who were more happy to have a house empty for months on end waiting for a tenants at a higher price rather then taking a tenant now for a lower price (~$200 price difference). They made the decision emotionally based on, "my house is worth so much" instead of looking at what would be in their best interest. Also some of the higher paying tenants I have seen not take good care of property.
I just accepted a lower price with a tenant because it helps them and was way better then them leaving and trying to find a tenant now.
This is really true. People talk about rents dropping in SF, but if you dig, it's really the large apartment complexes that are professionally managed. The same apartments that tends to be more expensive.
A good friend just moved to a 1-bed in SF last weekend. Small building (6 units). Rent was $2,200 per month, which is about the same as what it was last year. And they looked at a lot of units. They definitely noticed rents softening as they could knock $100 off most rents with little effort.
This is more about the specific financials of the property and the portfolio of the owner, for both small and large owners. Many small owners are, like, funding their grandkids trust funds and a few lost payments are not worth the trouble. Large owners may have occupancy covenants, or, conversely, may have appraisals that have to be maintained.
My personal experience is small owners are "reasonable" and open to building a relationship and large owners could give an eff, but mileage varies. Cheers.
I wonder if that explains my current place. There was a recent ownership change and right before that the owners cut down the shade trees for the house. There's no air conditioning so back in April it was already getting too hot to stay indoors. The lease renewal is in June so when the new, corporate management company asked us if we wanted to stay and that they were generously not going to raise rent, we asked they either lower the rent or figure out a cooling situation. They balked so we walked and they didn't flinch at all. They were honestly surprised we weren't going to take such a deal.
In California for example, due to state-wide rent control, it's very dangerous for a landlord to lower rents. I would rather offer 6 months free rent than lock into permanent nonadjustable lower rent situation.
I don't disagree, but it's important to remember that when rent control is proposed, it's because some people are very desperate. It would behoove us to suggest viable alternatives every time it's proposed and we shoot it down.
After my father died, my mother rented out the lower floor of her home. I think your definition of desperate is unfair it it includes only tenants. Not all "landlords" are taking on the headache of renting out units because they are professional landlords -- many are similarly disparate, have mortgage payments, property tax, repairs, utilities, etc.
I'd be in more favor of rent control if it would also freeze property taxes, electrician bills, utility costs. It is turtles all the day down.
Most places with rent control also have similar limits on property tax increases. In fact, I think most places have limits on property tax increases because property taxes are largely just some number pulled out of the ass of some bureaucrat.
Utilities across the US also have regulated rates.
Yeah, lots of the problems with rent control are related to it being an unfair disadvantage to some (usually not all) landlords and they have expenses as well.
But again: the reason rent control is passed is because enough people with significant political leverage were hurting. We need to be able to show them a better alternative if we don't want the pain of rent control's (un?)intended consequences to linger.
The real alternative is more housing development plus treating housing as a social good rather than an investment, but that's a long-term goal, it's not gonna happen overnight.
The government could build affordable housing and rent it out at a reasonable price. "Council houses" as they are called in the UK are built very well. They are often ugly, but I'm sure that these days they can be built well, cheaply and made to look OK.
The government could start by removing hurdles to build. The amount of hassle one has to go through in California in order to build housing is staggering.
When I visited a friend in England I accidentally stayed at a council estate that someone put up on AirBNB illegally. While it wasn't a slum, it definitely wasn't "just OK". I suspect the reason why that particular unit didn't look like a slum is because the owners were renting it out and doing their best to keep it nice. Not a single bit of that place was built well. Maybe it was cheap. Looked OK from the outside but inside it was like some background location for a movie that's about to experience an apocalypse.
What was specifically wrong? Structural issues or cosmetic. A private house from 1960 that hasn't been renovated since, unless carefully maintained will also look shit on the inside. Look at property that is auctioned in the UK, for example.
I got the impression that council estates are newer than that. However, the floors in the general areas (stairs, lobby, halls) were not cared for. The portal from the hall to the unit had a weird, rough tear in the floor right along the door jamb. I noticed once I crossed it that the unit was a half centimeter lower than the hallway. The fixtures (lights, plumbing, switches) were absolute penny quality. Very little hot water (which seemed dire since tea is so popular). The bathtub was on top of a cabinet, which I thought was really weird and unsafe. It didn't seem like an aftermarket thing- it looked like the tub was built like that.
0/10 would not use AirBNB again. Sleep on a friend's couch or floor, or shell out the money for a hotel. Or use a hostel if money is tight.
The vast majority of council houses in the U.K. are owned by private landlords who rent to the council.
No one wants to live in Social housing projects in the U.K. and for a good reason they are all rubbish, the U.K. has had some of the worst designed and built social blocks in the world many of them were demolished within 1-2 decades.
Stuffing poor people into high density housing is a horrible idea every study shows that spreading them out is not only cheaper but also much more beneficial to them.
1. Not all social housing is high rise or high density. Look outside of the cities for example - new towns. Lessons can be learned this time.
2. Much of the social housing was sold off in the 80's I think, the trick is to keep government ownership of it, not sell it for a pittance and let private landlords profit from price increases.
Outside of the cities these are still high density, just instead of a 30 stories block those are 3-4 stories blocks in the burbs.
Concentrating poor and vulnerable people isn't a good strategy they do better when they are surrounded by the better off, having 2 low income families on a street would produce a much better outcome and shoving 200 of them.
Social housing in the UK is complex, at some point nearly 80% of the people lived in social housing, it wasn't for low income families but rather for nearly anyone but the most affluent which often held titles and on the other spectrum the most remote and rural communities.
Social housing was seen as a means to bring workers into the cities during the industrialization of the UK.
Today despite the fact that anyone is still eligible outside of political corruption which ironically nearly exclusively plagues Labour councillors, MP's and party officials which somehow jump to the front of the queue despite earning well above the mean council housing is seen as a solution for the working poor.
Councils already offer rent assistance, have council properties which are used to temporary house vulnerable people, building more of those won't help just look what happens when you have council flats in new build projects, drugs, anti social behaviour and damage to properties simply due to the high concentration of these individuals.
So while having 20-30% social flats in a new build project might seem like a good idea the only thing that it causes is a huge backlash from the regular tenants due to this behaviour and nearly always they end up winning.
I don't think it exemplifies why rent control is bad. 6 months free is 50% off annualized. It's just a very simple, easy-to-execute strategy for keeping the rent on paper high.
excuse me, but dangerous for who exactly? You mean your future returns on investments will be lower on your rental property? How exactly is that dangerous? Is someone's life in danger? If anything, lower rents allow more people to afford housing, making it less dangerous.
Let me guess, you have huge problem with the homeless situation, but are unwilling to consider lowering rents? Is that right?
Yep. My landlord did this with me. My rent is still the same amount but we created an additional 'discount' agreement on top of the original lease to lower it by a substantial amount.
If a lot of landlords start exploiting that loophole, I wouldn't be surprised if the law were revised to be based on the average rent over a year, or something similar.
They wouldn't have to change it, because that is factored in. The law states:
"In determining the lowest gross rental amount pursuant to this section, any rent discounts, incentives, concessions, or credits offered by the owner of such unit of residential real property and accepted by the tenant shall be excluded."
So if your rent is $3k/month, and the landlord gives you 3 months rent-free, your rent according to AB 1482 is still $3k.
I think the only effect of that would be to prevent landlords from giving free months of rent - better to lose a tenant than permanently have lower rents which may not be sustainable.
The obvious fix would be to make it like tax evasion (illegal) vs. avoidance (rational behaviour with a morally questionable extreme) - viz. to a large degree the line is up for interpretation, coming down to the spirit of the law and the motivation behind what was done.
At the same time maybe it's time for landlords who have been sitting in armchairs swimming in cash to start giving back to the people who haven't been able to afford to live here?
Particularly in California -- it makes no sense for landlords to pay artificially low property taxes. Prop 13 should be reformed so you pay property taxes on the market rate of the property if you're renting it out.
> it makes no sense for landlords to pay artificially low property taxes
The core problem is Prop 13, not that Prop 13 doesn't exclude for-profit properties. There are a ton of property/owner classes that should absolutely not get the Prop 13 discount. Malcolm Gladwell did an episode on why golf courses (specifically member-owned courses) in California are massive misallocations due to Prop 13.
While I agree that property taxes could come down if Prop 13 was eliminated, I highly doubt that would ever happen. The gov't could never turn down a new pot of money.
Not sure why this was downvoted. The reality in SF and many other locations is that supply has been artificially limited and landlords who bought years ago have been making enormous profits. I don't know that I'd describe it as "giving back" but there is a market recalibration that is justifiable and I won't lose too much sleep worrying about landlords in SF who make 30% less than they do now.
Landlord aren’t the ones imposing the artificial limitations though. It’s the same group who created the rules that would punish a landlord for temporarily lowering rent.
But they aren’t the part of the problem that is accountable for it. In a democracy you should expect that everybody will be appealing to the government to protect their own interests. The NIMBYs quite obviously do this. But it’s the local governments that implement the NIMBY-protecting policies. The local governments are the ones accountable to the people, not the NIMBYs. I imagine the delinquent politicians are quite happy when people point the finger at landlords instead of them.
I want to agree but I’m not sure landlords are exactly to blame for high rent. There are many people and players involved-like the willingness of people to pay so much of their income to housing. Part of why you can’t find a better deal is everyone else willing to take the higher price.
I think it's only faulty because it's incomplete, but the demand side is a real factor. There are tons of discussions here and elsewhere trying to figure out how to "recreate Silicon Valley elsewhere" (which would theoretically spread the demand across a much larger area).
Another end is making it more difficult to flip real estate as a career. But that’s at the buy instead of rent demand side-but they’re totally related and affect each other.
No times been better than post-covid for a desire to branch SV outward. My two cents would be looking at how to employ the people outside SV. Like is it noise about quality of their education or abilities? Not being able to interact with them locally?
I had this thought recently to make a programming “agency”. How to structure an organization that actually works on a programming task comparably to how a 1-3 person team would, but regardless of program complexity. Wonder if this and hiring people to WFH are compatible.
If that were the end of it, I'd agree. Except for the massive amounts of NIMBYism strangling the market by preventing new supply from entering the market to meet the demand.
You’ve got it backwards when it comes to residential real estate. More people become renters during a recession. Vacancies reduced dramatically after 2008.
Why the downvote? Because there are a few people who downvote anything negative for landlords on this board, and as we can see from the replies to this story, there are many landlords on hacker news.
Well. 1st one to the door (selling artificially inflated assets) does not guarantee success.
I'm sure many/most landlords are still rooted in reality and are still using the infamous investing formula of "where there are losers, there are winners" (aka buy low, sell high).
In some places, like Oakland and Tahoe, rent seems to be going up. But in San Francisco it is going down. Probably all as a result of people fleeing San Francisco to nearby places with a cheaper rent per square foot.
Mix shift. Oakland has just gone through a major wave of new construction. New apartments command higher rents. This does not necessarily imply a movement of people.
New construction (supply) brings down prices overall but rental market reports only include inventory turning over right now, which is biased toward new, empty, and more expensive buildings. These two facts are not conflicting.
All new construction in the bay is usually high priced luxury since that’s where developers make the most return. Thus new units aren’t cheaper.
What I’ve heard is that’s either supposed to free up other older apartments or we’re supposed to wait 30 years for the new luxury apartments to become old and cheaper.
I think we need rules about constructing diversified units, not exclusively luxury ones but proportional numbers of basic, medium and luxury.
Are that many people really moving away? I understand the logic, but it's a major life decision, so I'm surprised if it's happening so rapidly in response to covid. I've heard of people leaving the city temporarily, but assumed many of them were maintaining their apartments.
I would have guessed the lower rents were more about money drying up, and landlords being desperate to hang onto any tenant who can pay.
Anecdotally, I know two professionals in their late twenties who used to live in New York City, but moved home to be with their family during quarantine. Their leases are up in September, and neither one seem likely to renew, since their jobs can be done remotely and their offices are planning on maintaining the status quo for the forseeable future, past the point when many people usually sign leases. I don't have data that this is a larger trend, but I don't see anything particularly unique about those two individual' s situations that would make a similar approach untenable or unappealing to many other people.
We're in a similar situation in our household. Our jobs are remote until (at least) 2021/1/1. Our lease is up in December, instead of June/July (unfortunately for us!).
In our case, instead of moving away, we'd be pouncing on the way-below-baseline price, high-quality rentals that have been popping up for the last couple months.
The market's totally inverted. It used to be that if deals like these appeared, they'd be snapped up within 48 hours or less. Nowadays, they linger for days and even weeks in some cases.
To clarify, I've been tracking 1-2BR apartments in the Clinton Hill-Brooklyn Heights-Park Slope-Carrol Gardens quadrangle. I've heard that other neighborhoods are popping in the other direction, but I don't follow them as avidly.
This crisis is terrible in many ways, but it's also a perfect opportunity to find your long-term rental "forever-apartment", if your lease is up.
It’s June. I don’t know about SF but in NYC most leases expire in June or July.
A lot of companies aren’t ending WFH till 2021 or fall. Plenty of young people are not renewing their lease and staying with their family outside the city or state.
My building had has four tenants move out in the past week - one a family.
They’ll probably be back and rent again but by then rents will have dropped.
You're right; the immediate response is driven by cash flow. The situation im talking about is likely a year or more away as many commercial firms are in longterm leases.
I'm just saying that its definitely on the horizon given the conversations I'm having, even if evidence at the moment is scant.
Google 'white flight' for historical precedent. It remains to be seen if it will happen again, but it is certainly possible. I know I'm ready to leave the Bay Area for someplace boring.
If there is deflation in the housing market, then marginal mortgage holders will walk away and become renters. That will swell the ranks of renters and drive up rents.
In many metro areas owner occupied real estate is overpriced relative to rents. When this imbalance corrects rents will rise, as before the correction owner occupants were subsidizing renters by overpaying for property even though renting made more sense.
Leases are typically for a fixed period, so it's really the integral of these charts that matters - how many people are currently in a rental.
I suspect that number is still a long way below normal, because lots of people are moving in with friends or family (students, young professionals, etc.).
My experience in London is the ratio of people looking for a house to houses advertised is the lowest I've ever seen in 10 years.
It'll be worse in downtown areas. I've heard from multiple firms that are looking at downsizing their expensive office space and continuing to allow employees to work from home. if a person doesn't have to work downtown they will often choose not to live there either.
COVID is going to change the face of urban real estate. So if you have a tenant, they're gold and do what you can to keep them.