patrick.net

This uncouples prevailing rents from the normal supply-demand expectations, due to “landlords” pricing based not on rational rental business terms but instead on “needs” and other psychological stuff.

C'mon, Randy, since when does landlords' need's-based pricing have ANYTHING to do with what the market will bear? I can understand how artifically contrained supply (hippy-NIMBYism) pushes up rents in some areas, but they can't just arbitrarily dictate rents cartel-style. You still need a willing and able buyer, right?

Or, are you advocating one of those conspiracy theories you are so quick to mock ;-) ?

Rent for West Valley SFHs has been increasing just by scanning the craigslist. There used to be more SFHs available for 2xxx, now mostly are 3,000 and up. However, the stock improved as well, originally you get a crappy SFH with run-down interior and a lawn short of maintenance. Now you see a lot more "completely updated", "granite counter-top", "new swimming pool" offerings at 3,500 range. It seems to me that these are the flippers trying to get some cashflow as they wait for the next big fool.

Long-time landlords have little if any incentive to update the house. I have a neighbor renting from the landlord who bought his house for $40K decades ago. The landlord didn't replace the roof until it leaks and some of the tenant's furniture got destroyed. The roof was originally wood shake entirely covered with grown moss. Now the landlord installed the cheapest composition shingle. Other than that, the landlord did minimal, and the interior of the house looks like a flashback to the 50s, only that the image is much more aged. I doubt if any long-time landlord would invest in "granite countertop" or "landscaped garden" just for the rental income.

There is a landlord-pricing going on, and the market will bear it. However this only applies to certain prime neighborhoods, particularly those with good schools and very limited apartment stock.

If you are bubble sitting, or do not have enough cash to buy a home you want in a nice area with terms that you are comfortable with, what do you do? You rent. Because there are fewer buyers, these buyers turn into renters, in the same area. Most of the potential buyers targeting better areas have kids, so they are relatively confined in choice of neighborhood.

If you want to rent in Saratoga, and most of the houses are going at 3,500, so 3,500 is what you will pay.

For the record, here is the news article from the last thread that sparked the rental rate discussion. I don't think anyone will disagree that the fat lady is singing in most RE markets across the country. Her voice is echoing in the outer hills and dales of the Bay Area, but has yet to resound fully in SF. In fairness, Socketsite.com is claiming a couple of condo projects have been converted to rentals. A positive sign, no doubt, but they are definitely not renting for peanuts. Meanwhile, TICs are still going strong (there are even some for sale across the Bay in my hood) ...
http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2007/01/18/BUG20NKD101.DTL&hw=real+estate&sn=021&sc=197
As the lull in the housing market drags on, the rental market remains strong. Prices are being pushed up by a scarcity of apartments and an increasing number of people who are waiting to buy homes because price growth has flattened, according to Christopher Thornberg, an economist at the Beacon Economics consulting firm.

In San Francisco, rents rose 8.5 percent to $1,879 for a one-bedroom apartment. RealFacts bases its data on buildings with 50 or more apartments, which excludes many units in cities like San Francisco, where almost 40 percent of the rental buildings have fewer than five units.

Rent in Mountain View really has gone up. Sunnyvale too. :(

But again, it was super low before.

Is anybody going to do anything about the millions of dollars these realtor organizations are spending on advertising to "encourage" fense sitters that now is "really a good time" to buy a home? Has anybody thought of a counter-campaign effort? In fact, I would be willing to donate a few hard-earned dollars of mine, if I knew that such a campaign was being organized.

This is a very timely thread topic, as rents are 'about to rise' particularly in NSW. There's a whole swag of related stories here:

Rent crisis grips outer suburbs as rates bite

As interest rates rose, Ms Brownhill said, a growing number of foreclosures on investment property loans was exposing many tenants to eviction at short notice.

The president of the Real Estate Institute of NSW, Cristine Castle, said most investment properties were owned by small investors who were struggling with land tax bills and mounting interest repayments.

"It's those frugal 'mum and dad' investors who do the majority of the work," Ms Castle said.

etc

Frugal mum and dad investors doing most of the 'work'. Ha

The whole system of housing allocation is really rotten. It's easy to imagine better, fairer ways of proceeding outside of the feudal mindset that would make housing affordable for everyone...

HARM

I certainly don't intend to mock any of those other theories (well, except for the gold-conspiracy-theories). This area is unique, but not for its "primeness". It is mostly a confluence of geographic constraints, traffic problems, and about the worst NIMBYism you can imagine, complicating the traffic. Literally, moving one exit N or S on the 101 can mean 20-30 minutes to your commute on some days of the week. And it only gets worse.

We cannot move; not until such time as someone perfects transporter technology. Trust me, I'd much rather be down on the mid-Peninsula. I rather liked Belmont. Fewer trustefarian assholes there.

athena,

I love the drum set, it really completes the house.

Apparently there is a two hour delay on 101 north through Santa Rosa because all four lanes are closed due to some giant accident and fire. One of our friends called us on his way up and told us to go the back way.

rent isnt based on demand for a huge number of apartments. it is based on human emotion. stupid landlords will demand high rent even though they are losing money. FB will demand 30% above market rent because that is what they need to survive. supply and demand in the classroom isnt real life.

anon,

While real life never *exactly* mimics economic models or theories, the last time I checked, rents were still largely determined by supply (LLs) AND demand (willing & able renters).

Landlords (God, I *hate* that word --are we living in feudal Europe?) and floppers can "demand" whatever wishing rent they desire, it makes no difference. If they cannot find an able AND willing renter, they won't get it. No one is putting a gun to anyone's head, so I highly doubt that the rents every LL gets can possibly be "30% above market". In effect, whatever they end up getting IS the "market rate" for that property at that moment.

Some LLs with highly desirable properties and locations, or places with strong NIMBY laws will get more. Some will get less. Some will find really stupid renters and successfully use FUD tactics, others may run up against tougher negotiators and settle for less. Others may withdraw the listing and just keep the place vacant ("phantom inventory"). But to my knowledge, the basic principle of supply and demand is still with us.

And Bap33 is right. There is no HELOC, cash-out refi or neg-am for renters. You must pay for rent with earned money (or savings). This, plus stagnant real wages, will largely limit rent increases in most areas to the rate of inflation.

Didn't I read somewhere that if a flipper goes south, you can refuse to pay rent as they go through foreclosure -- maybe squat in the place rent free for a while? Sounds like an opportunity for some creative person to live in a brand new 3000 sq ft home exurban subdivision very cheaply.

O.C. rent hikes shrink on larger apartments

'One can speculate that part of this rent-hike dichotomy can be linked to sluggish homes sales that pushed some property owners to rent out their unsold investments.That, in turn, could have boosted competition for dwellers of larger rental residences and pressued rents. '

As FAB suggested earlier, getting rent hikes to "stick" is easier said than done. Even though our rent "skyrocketed" from $850 to $865 I tend to view this as a "policy premium increase" against being @ss deep upside down in a depreciating asset. Again, of all the things I lay awake nights fretting about..... ever spiraling rents just isn't one of them.

In typical fashion (right or wrong) before I buy something I try to put myself as much as possible in the "sellers place". Golly gosh Mr. DinOR I realize that Craigslist is absolutely awash with homes/apts. that are nicer and cheaper than mine but I made a really dumb mistake and was hoping you could find it in your heart to bail me out?

As this flopper effect gains more mainstream acceptance it is going to be increasingly difficult for these @ssclowns to find a patsy to take their place on the chopping block. Look DUDE, you're NOT a LL! LL's pay their dues, take their lumps and learn their lessons. And you think you're going to freaking waltz right in and break even (or maybe even show some pos. c/f) on your first "experiment"? I don't think so. A lot of people that are a helluva lot smarter AND tougher than you have utterly failed with a much more thought out business plan than you have! You have heard of a "business plan" haven't you?

Oh and "hint" for Mr. @ssclown:

(You make your money on the "buy")

Since you grossly and obviously overpaid for your specuvestment don't look for a B/E* any time soon. You financially illiterate m@ther f@cker.

*Break Even

Please refer to Barron's Business Guides Dictionary of Business Terms

You lame @ss m@ther f@cker!

There's a lot of griping here about the rampant NIMBY/anti-development nature of the Bay Area.

Would Houston/Texas be a libertarian's dream?

http://news.yahoo.com/s/nm/20070119/lf_nm/bush_environment_dc

18 lane freeways! Housing developments everywhere! No mass transit! Wow!

anon Says:

> there are websites with pricing from 2000-2007 for 307
> apartment complexes in SF - mostly the larger corporate
> type. almost every apartment shows a huge drop from
> 2000 to 2003 but going back up for 2005 and dropping
> for 2006 or 2007.

Keep in mind that most of the rents reported on most web sites are the “asking rents” and are often much different from the “actual rents”. As a real estate lender I get to see audited financial statements for all kinds of real estate and on average the “actual” rent per unit for apartment properties is about 25% lower than the “asking” rents. For hotel properties the “asking” rent (AKA the “rack rate”) is on average double the “actual” rent (AKA the Revenue Per Available Room or “RevPar”).

In San Francisco (and other cities with rent control) there is a crazy disconnect between “asking” and “actual” rents. In San Francisco there is a lot of pressure to push the “initial rent” as high as possible since rent control limits any increases down the road. A unit that rents for $3,000 a month with the first two months free has an “actual rent” for the first year of $2,500 a month. Parkmerced is in hot water for their most recent game to skirt rent control:
http://xpress.sfsu.edu/archives/news/007115.html
With all that said, I would still be interested in the link to the URL with the SF rent history.

P.S. How about picking a new name (say “anon renter”) so we can tell the difference between you and the other that post as “anon”…

Wood River,

Thank you. What I find interesting is the 900% increase in people who can not have security clearance because they are so indebted the government fears someone can buy them off into doing something (espionage? turning their back at a security gate?). That and the dramatic increase in the payday lenders. The Mustangs, cell phones and spendthrift wives would go a long way in explaining that, but why is that type of problem so much more prevalent now? And I don't think it's just the military, not when I see my husband's support staff secretaries carrying Hermes bags that they bought with their credit card. Something has changed where now everyone feels entitled to luxury goods. It seems to be at all age groups and income levels.

Athena,

Very sad story, but in the Press Democrat write up it appears that many young men rushed and tried to help, and were able to get one child out of the car and resue crews got another woman out.
http://www1.pressdemocrat.com/apps/pbcs.dll/article?AID=/20070120/NEWS/701200305/1033/NEWS01

People drive like absolute idiots on 101. I have actually called CHP on a few very dangerous drivers. It's almost always young men driving like they are in a video game or an oblivious young woman on a cell phone.

SFWoman says: Something has changed where now everyone feels entitled to luxury goods. It seems to be at all age groups and income levels.

Television. Shows like MTV that are awash in bling. I believe that advertising has improved massively over the years, allowing companies to better sway the public into buying unnecessary products. But most importantly, credit cards have become very accessible, partly because people are horrible at math and finance.

It all has a very "end of the Roman empire" feel to it. Our culture has more money than it knows what to do with, is obsessed with beauty and luxury, and has lost sight of the original core values that got us here in the first place. But Republics tend to go that way over a long period of time--give the people anything they want, and eventually they will start wanting stupid things.

HARM

I agree that supply & demand ultimately govern markets, but there are a couple important catches in real life:

* Supply and demand like nearly everyone had in college or high school is for theoretical, perfect markets. Real estate and rental markets are very far from perfect markets. Landlords benefit from "economic rent" which is the region of the graph between where price should be and where it is because the supplier has market power over the buyer.

* Supply and demand really describe the constraints, not the prevailing price. So you can say "rent cannot go higher than X", but you can't say "rent should be X".

* Rental markets suffer information asymmetry. I contend that internet cragislists don't help this, net outcomes. Because, for all the added information a renter gains from the internet, so does a landlord gain in potential selection bias. Witness FAB's comments about "skip lists" and "black lists". The same communication that works for buyers works for sellers, who are a smaller more economically rational group.

* Rental markets suffer from non-substitutability. It is very difficult to quantify in dollars rental alternatives. Not just "intangibles", but very tangible things like location, traffic patterns, landlord quality are all factors making the rental market not a simple supply & demand curve.

* Finally, housing as a general need is a special class; that's why rental stock and housing stock are special asset classes. The reason being that, in our market system, these are not discretionary options but mandatory requirements. Such asset classes can only be measured by ASKing price and SETTLEMENT price. Remember, settlement prices are historical information, not current information. BID prices are never directly observable. Therefore you can *never* have an efficient market of these assets.

My impression of Central Coast rents is that they fit Robert Cote's idea of chaotic. On the one hand, many of the local craigslist ads sound very supplicating (like those described early in this thread by Muggy), and I see ads (espeically for homes in North and South county) that clearly have been placed by FBs trying to ask a lot to cover the mortgage. On the other hand, we recently have had some very significant raises come into effect (or soon-to-come-into-effect) at the state hospital and the local prison. As these are two of the big employers in this small, rural county, this should have an inflationary effect, and support higher rents. Meanwhile, the anticipated CalPoly Mustange Village will remove a lot of college students from the renting population (at least in the short term, until enrollments increase), decreasing demand. So there are a lot of conflicting forces coming into play right now, all in a place where seller's are being forced to lower prices to make a sale. Chaos indeed. We have a lease through mid-summer, so we'll see what happens then.

I can definitely see rents in some isolated pockets of wealth/good schools going up. A good proportion of (relatively) rich people got that way by behaving like economically rational creatures - $5,000/month rent still beats $10,000/month PITI + almost inevitably catching the falling knife. They can also afford to pay much more in rent than the current market. The synergy of deep pockets and rational minds make these areas quite different from the rest of the market (at least for a while).

However, I do think these isolated pockets will be outlier. I don't think rents overall will be going anywhere fast.

Hiding in the Bronx,

Rents can, and often have in the past, gone up during periods of economic contraction and even falling real wages. This is a stagflationary effect.

Rents can be pushed up by many things other than demand. Demand is not discretionary as many keep saying. Demand for rentals is in reality very non-elastic over short-term time periods. Over years, demand can shrink as people leave an area. But over months demand doesn't change much at all.

Rents are affected heavily by cost inflation factors. Those are pushed through to renters over time, as contracts reset, forcing renters to experience a decrease in standard of living if their real wages have not kept pace.

Not only can this happen, but it has been the rule not the exception for all but 4-5 of the past 25 some odd years. True, rent can never exceed 100% of total real wages. But I believe that's a far way off. There's still lots of standard of living that can be pilfered from American families yet to go.

I think HOAs are a good deal for homeowners in non-luxury SFH and townhouses, especially if the development was built out before 2001. They prevent your neighbor from running truck farms in their front yard and make sure everybody gets trash pickup.

Condo HOA/boards and "luxury" properties are another story. And condotels!@#$$@#!?@????

Randy,

I just don't see where the money for higher rents would come from, especially when I see new inventory coming on the market (people renting out a part of or all of their underwater houses to make end meet). I see a lot of retrenchment in the years ahead to make up for the crazy credit bubble of 2000-2006, that'll hit everything including people's ability to pay for rent.

Randy,

I think you're underestimating the role of downward substitution. The person with a big rent hit could move to a smaller place, seek a roommate, move further out, rent a room or move back with parents.

If anything, most Americans are overhoused. If rent goes up, downgrading housing will be less painful (and more efficient - since that is often accompanied by lower utility costs) than giving up other things.

San Francisco,

Thanks for the article. I read a lot of comments by people like her in 2005 and 2006 ("I live in great rent controlled apartment...but I want to own...") in the Washington Post. At the time, I was torn between feeling sorry for their eventual predicament and worrying about people in responsible positions with so little math literacy/economic sense.

I still feel that way, but now it's served up with a big pinch of schadenfreude.

Hiding,

"a nice pre-war rent stabilized one-bedroom near metro-north. (Yah, the oversupply is that bad, rent stabilized apartments are sitting on the market"

Really? NYTimes Real Estate gave me an impression that New York's rental market is crazy tight right now.

San Francisco Posted:

The SF Chronicle Carol Lloyd Surreal Estate column that started with:

> Affordable housing provided one woman an
> opportunity, but she was unprepared for the reality

Let’s review how “lucky” Barbara Hernandez was to get a BMR unit in SF.

She was renting a 1,100-square-foot flat in the Mission District under rent control for $800 per month (with the rent going up about $5-10 a year under rent control). It said that she was renting out the second room in the apartment after her son moved out and if you figure that the average rent in the Mission is about $600 her total cost to live in SF was about $250 (rent + ½ of phone, gas, elect. & cable).

But (as the article said) “she had always harbored a dream of someday owning her own place.”…

Now she “owns” a 450-square-foot studio (AKA Large Closet with a kitchen and bath) and owes the bank $209,700 with an $800 per month payment so the loan is defiantly IO and probably Neg Am (a 30 year fully am loan at 6% would have a payment of $1,257 per month). Add on the $355 per month current HOA dues and she is paying $1,155 per month.

Next year she will have to pay the new HOA dues of $630 per month + a $4,000 assessment + $2,700 in late fees if she catches up by the end of 2,007 (and makes a deal to avoid any more late fees) she will be paying over $2,000 a month (when you include phone, gas, elect. & cable) or about 8 times more than she was paying for a much bigger place.

Odds are the banks are not going to be real excited about Neg. Am IO loans when she is looking for a new loan when her current

The NYT times quite often doesn’t really reflect what’s actually going on in the city. It probably is tight if you are looking for an apartment overlooking central park or in a trendy area of the village.

I've been thinking about moving back to NY metro. However, I've never actually lived there on my own, having grown up in Long Island.

A few friends of mine have moved there and they report crazy rents - even in Flushing and LIC.

What the heck? When I was a kid, the only people in LIC after dark were hookers!

Even Park Slope (where a few of my other friends live) is pretty expensive.

What's reasonable there?

Actually, Hiding in the Bronx - could you email me? My email address is burbed @ burbed.com

Keep in mind that the average reader of Patrick.net is *not* the average renter. I strongly suspect we are a subgroup that is far more willing to substitute or restructure, given economic changes. We are here talking about economic things, after all.

But, by and large the renter population is very inelastic. I would welcome any research evidence to the contrary (discounting college-towns, which are more elastic).

Things are not binary. It's not like Joe Renter is sitting there saying, "damn, I can't afford this rent increase because I have $0 discretionary available to allocate." For psychological/mental-accounting reasons Joe Renter says "I have my job, just got a raise (without realizing it is smaller than inflation), and I can't find anything similar nearby, so I guess I'll just shop at Walmart a little more often. Anyways, moving is an expensive pain in the ass".

The moral is, it is *not* an efficient market. People are not rational economic autonotoms. Oh, and the data over the past three decades also supports an ever-increasing portion of real income allocated towards housing, for both renters and home owners alike.

Randy H Says:

> Rents in S Marin for SFH’s have increased substantially
> in the past 2 years. And, there’s definitely more supply.
> In 2005 you could fit all the 4BR SFH’s for rent south of
> Sir Francis Drake on one Craigslist screen without scrolling.
> Now there are dozens.
I appreciate all the analysis that Randy does but it is important to remember that the SFH rental market is not an “efficient market”. Most SFH rentals are owned by Mom & Pop landlords (or brothers and sisters who took over the management of the homes after “Mom & Pop” got too old to do it themselves or died). When I was a kid the typical “market research” of most landlords before running an ad was to look in the IJ and see what other 3x2s were renting for in Gerstle Park (or Examiner to see what 3x2s around Lake Street or the Times to see what 3x2s between El Camino and the railroad tracks were going for). Today Craig’s List has replaced the papers but the 2 minutes of “market research” to scan the competing ads is about the same.

I’m betting that if I ran half a dozen fake SFH ads on Craig’s List at $500 above the other ads in a specific area other asking prices would rise. For anyone looking to rent a SFH remember that the “monthly rent” is just part of the decision for a typical group of kids or a Mom & Pop renting a place. People that have other jobs and only have a rental home or two hate it when a tenant moves out and more often than not will have the place empty and lose 2-3 full months rent.

I’m not telling anyone to lie, but if you can convince a typical SFH landlord that you are going to stay for a long time and not be a pain in the ass you can usually get a great deal on the rent. I still keep in touch with the guy that owned my first rental home and listed him as a reference (without putting the dates I rented from him) when I applied to rent my current place (after selling my home on the Peninsula). My current landlord was impressed that a retired University Professor remembered a tenant from over 25 years ago and was really impressed that I fixed everything that broke, offered to fill out a deposit slip and put the rent directly in to his bank on the first of every month and helped the guy get paying tenants in to take my place the day after I moved out.

FAB,

Do you think it would work in the opposite direction, if everybody here put a couple of ersatz CL listings at $500 less on the rental board? It might be an interesting experiment.

wb SQT!

Hiding in the Bronx Says:
To be honest, I think all this talk about skyrocketing rents is just people who’ve screwed their own lives up with foolish borrowing and spending habits wishing ill on the rest of us.

Agreed. The SMH article imples the same, altho from the other side, coming from the equivalent of the NAR.

If rents go up appreciably, it will feed into the inflationary spiral, as wages are pegged (at least here) to annual CPI, which includes rent in the 'basket of goods'. Notably it doesn't include mortgages. Unless they decide to take rents out as well to 'relieve pressure' on the CPI, which would be a particularly base move. You're then looking at stagflation, lack of international competitiveness, devaluation of the currency, etc.

It's hilarious to watch the politicians who crowed over 'healthy' GDP figures (half comprised of housing bubble loans) 3 years ago now looking at 4% and 5% inflation (and more?) and wondering what happened.

Thanks for the info, Wood River. A lot of service men here like to buy V8 supercars and drink away the pay or keep the trophy girlfriend happy or whatever, and wonder what hit them when they 'retire' from the forces and have to get a real job in the real world at lower pay and no generous food and accommodation subsidy, etc. The smart ones squirrel away their money, and some [gasp!] even buy investment properties...

Barbara Hernandez would be well advised to cut her losses and get another rent-controlled apartment...

My current landlord was impressed that a retired University Professor remembered a tenant from over 25 years ago and was really impressed that I fixed everything that broke, offered to fill out a deposit slip and put the rent directly in to his bank on the first of every month and helped the guy get paying tenants in to take my place the day after I moved out.

I agree with everything FAB said in the above response. I am *only* talking about South Marin, which has a unique problem of having very few non-mom&pop rentals outside of a tiny part of Mill Valley and Marin City. So this is a very skewed, and extremely inefficient market. (Not to mention one which pisses me off).

Echoing FAB's experience, after selling our Peninsula home to rent in 2005 we faced the same issue of a reference. We used our 2nd landlords from Chicago -- Bob and Jude -- from whom we rented a beautiful duplex near the El on West Fletcher for some years. Our current landlord was also impressed that landlords from 15 years ago remembered us and were willing to write a personal reference, which included how we fixed stuff on our own and helped to diagnose problems and arrange maintenance contractors for them. (And interestingly, when I contacted them in 2005 for the reference Jude offered to sell us their home in Deerfield and owner finance it for us ... lol).

Hiding,

Wow! I don't trust NYT's lifestyle section (or anything else, for that matter, except A.O. Scott's film reviews, which is my kind of subjectivity, haha) as an objective source, though I'm surprised their reporting stray so far from the real situation in their own city.

eburbed,

As I understand it, Park Slope is now very fashionable and nearly as expensive as prime Manhattan areas.

Randy,

Thanks for pointing out the fallacies of my argument. Rationality is probably too much to expect for 90% of all homo sapiens.

(Ditto college Econ 101 that I'm constantly railing on. I was talking to my boyfriend just now and he said his rather demanding alma mater did not require an intro econ class to graduate. I'm very surprised that he never took a formal economics class.)

DS,

Good point, though I fear that any new rent control apartment will be reset at much higher prices. Ms. Hernandez is truly stuck between a rock and a hard place.

That's one thing that people who give up rent control apartments for "ownership" fail to fully consider. Their rent control status is actually worth a substantial amount of money and bet their jump to "ownership" made their former landlord very very happy.