Housing Exploitation

[wwmiv]

An intriguing article in CityLab about some recent research:

How Poor Americans Get Exploited by Their Landlords
American landlords derive more profit from renters in low-income neighborhoods, researchers Matthew Desmond and Nathan Wilmers find.
Richard Florida
https://www.citylab.com/equity/2019/03/h...erty-desmond-inequality-research/585265/

It is a mistake, Desmond and Wilmers argue, to see slums as a byproduct of the modern city, rundown areas that occur by accident. Instead, they contend that the slum has long been a “prime moneymaker” for those who profit from land scarcity, racial segregation, and deferred maintenance. “If labor exploitation is understood to be getting paid less than the market value of what one produces,” they write, “we can extend this definition to the housing market by operationalizing exploitation as being overcharged relative to the market value of what one purchases, paying more for less.”

They define housing exploitation as the amount of rent paid relative to the market value of that housing, and measure this exploitation as the ratio of annual rents from rental housing units over their combined property value. The level of exploitation rises as the ratio of rent to property value grows. (The study methodology accounts for the costs of upkeep and maintenance.) Desmond and Wilmers make use of two key sources of data: a large-scale national survey of rental properties, and a detailed set of surveys of renters and rental properties in Milwaukee.

Ultimately, they find consistent evidence that the poor, and especially the minority poor, experience the highest rates of housing exploitation. In their most basic formulations, they find that renters in high-poverty neighborhoods experience levels of exploitation that are more than double those of renters in neighborhoods with lower levels of poverty. Neighborhoods with a poverty rate of less than 15 percent have an exploitation rate of 10 percent—meaning that rents cover 10 percent of the actual cost of that housing. (In other words, the actual cost of that rental housing can be paid off in 10 years.) But in high-poverty neighborhoods, those where 50 to 60 percent of residents live in poverty, the exploitation rate is 25 percent, meaning that 25 percent of the value of the property is paid back in a single year of rent.

Discuss.

[mhays]

...All based on the questionable premise that property value is a good basis for setting rents. There's a relationship between the two of course, but it's indirect at best.

Rents are set by what people will pay.

[1Boston]

Originally Posted by mhays

...All based on the questionable premise that property value is a good basis for setting rents. There's a relationship between the two of course, but it's indirect at best.

Rents are set by what people will pay.

But rent is so inelastic from a demand perspective because housing is such a basic necessity that if the rent goes up people will sacrifice other things just to pay upwards of 80% of income on rent, therefore easily exploitable.

[mhays]

So you're saying it's pretty elastic.

Let's say most people pay 20-60% of their takehome, ideally at the low end but with many toward the high end if they're young, single, and carless.

Another variable is by type. Someone might want a big place, but they'll take a small one if that's what they can afford.

And roommates or living with parents.

Yes, very elastic.

Affordability is a big, important, complex issue that needs a variety of solutions. Just not buying the original article.

[aaron38]

The largest factor that allows for exploitation of a thing is scarcity. The number one driver of housing scarcity is zoning restrictions. The number one driver of zoning restrictions are politicians who pretend to care about the poor and affordable housing.
I can’t believe that they honestly don’t know what they’re doing.

[mhays]

Absolutely right. They're on the side of property owners, not anyone trying to rent or buy. New buyers in theory get some of that benefit if they hold on long enough, but renters get no benefit.

Allowing supply can be infill. It doesn't need to be sprawl.

[memph]

Not sure how they account for maintenance, but I think it's safe to say that maintenance costs will be a higher percentage of a landlord's expenses for low income rentals than high income rentals. There's the stereotype that low income tenants are more careless and therefore incur higher costs, but even if those are false stereotypes, there's no reason to believe that maintenance costs would be higher for higher income tenants.

Property taxes are also often a higher percentage of a landlord's expenses in cash strapped cities with low property values.

There's also the case of communities with a more speculative market, usually these are in desirable areas with restrictions on sprawl/pressure for intensification or tear-downs, where people are willing to pay a lot for a home because even though they won't be able to make much from renting it out, they'll be able to make money off property appreciation (ex Toronto, but presumably also similar US markets like the Bay Area of Seattle).

[mhays]

On maintenance, it depends. Higher-priced places tend to be better maintained, and they have more expensive stuff that needs to be maintained. Not just finishes but also stuff like a washer and dryer in every unit, more amenities, and so on. Low-cost places are often poorly maintained.

With property taxes, agreed, expensive cities tend to have lower percentages, because of course that's all that's needed to support a decent level of services.

[memph]

Originally Posted by mhays

On maintenance, it depends. Higher-priced places tend to be better maintained, and they have more expensive stuff that needs to be maintained. Not just finishes but also stuff like a washer and dryer in every unit, more amenities, and so on. Low-cost places are often poorly maintained.

With property taxes, agreed, expensive cities tend to have lower percentages, because of course that's all that's needed to support a decent level of services.

I suppose part of it depends on the neighbourhood dynamics.

In a low income neighbourhood of Seattle, there's still going to be an effort to fix things that need to be fixed, because the real estate market is still healthy enough that you'll be able to sell the house.

In areas that have issues with $5k-$30k homes, a landlord might decide that it's only worth it to do band-aid fixes but basically operate on the assumption that the house will be abandoned eventually, so basically as soon as they're faced with a major maintenance expense, that's the end of it. So they save money on maintenance year to year but lose money on property values.

I think the tendency of low income neighbourhoods to decline further and high income neighbourhoods to become more expensive definitely needs to be taken into account. A landlord in a wealthy area might be willing to take a loss on rent vs mortgage/property taxes in exchange for an increase in property values while in a low income area it would be the opposite dynamic.

[mhays]

Generally, yes. Seattle doesn't have rent control, so there's some incentive to maintain. And rents can go pretty high if the place is decent, so improvements and maintenance probably pay off.

In lower-rent cites and rent-controlled units, there's far less reason to maintain.

Also, even in expensive cities, many property owners don't like to spend, and might not even pay enough attention to have a plan at all.

[Pedestrian]

Originally Posted by mhays

...All based on the questionable premise that property value is a good basis for setting rents. There's a relationship between the two of course, but it's indirect at best.

Rents are set by what people will pay.

And so what are we to make of such as these:




Both: https://www.businessinsider.com/smallest...ving-room-is-treated-as-communal-space-2

[Via Chicago]

[mhays]

That bunk bed example sounds expensive as a long-term renter, but it's basically priced (and built) like a youth hostel at $30/night. I'd guess it's 1/4 what a hotel room would go for at monthly rates in central SF.

[JManc]

If I just landed a job in SF and it was a pretty decent job (enough to afford paying for SF on my own) and just needed a place to crash temporarily, the 'bunk bed' deal wouldn't be a bad way to go for a few weeks.

[the urban politician]

Originally Posted by aaron38

The largest factor that allows for exploitation of a thing is scarcity. The number one driver of housing scarcity is zoning restrictions. The number one driver of zoning restrictions are politicians who pretend to care about the poor and affordable housing.
I can’t believe that they honestly don’t know what they’re doing.

This

[Pedestrian]

Originally Posted by JManc

If I just landed a job in SF and it was a pretty decent job (enough to afford paying for SF on my own) and just needed a place to crash temporarily, the 'bunk bed' deal wouldn't be a bad way to go for a few weeks.

Presumably if you were moving from some distance, even fresh out of college you'd have some personal possessions. Where do you put them in that arrangement? Nearly all college dorms, even in the 60s when I was in college and dorms were more spartan, had more room than that and certainly more storage space for clothes, luggage and so on.

There does appear to be an armoire in the room but for 4 people? I also assume there's a group working space somewhere else in the house. But I'd worry about so much from where to put stuff to how to keep it safe (from both prying eyes and sticky fingers).

[Pedestrian]

OK, well then:

Illegal “Hacker House” Reveals Severity of San Francisco’s Housing Woes
24 Sep 2016 10:50am, by David Cassel

David Garczynski dreamed of “high paychecks in companies that prized work-life balance.” Instead the 20-something coder found himself living with 12 overworked programmers and coding students, all packed into two rooms in an illegal Airbnb . . . .

The Airbnb listing — with several 5-star ratings — described other amenities like a gym, a roof deck, and an outdoor hot tub — and all for just $1,200 a month.

But while the listing specified a room shared with four people, Garczynski discovered two rooms housing 12 other people. “There were six people packed into my bedroom alone — seven, if you included the guy who lived in the closet,” which the Airbnb listing described as a “private room,” costing an extra $200 a month.

Garczynski described his quarters as a “shadowed cave,” one with just one window, one weak lamp, suitcases cluttering the floor, and three bunk beds. “I was fortunate enough to score a bottom bunk,” he wrote.

. . . Garczynski had to stand on the sidewalk outside this luxury high-rise until somebody else left the building, and then slip through the door before it closed. The 13 roommates all shared one key to the door of their apartment, which was left on top of an ‘EXIT’ sign.

But the most interesting details is that every single person living there was a programmer. “I came to San Francisco to change my life. I found a tribe of depressed workaholics living on top of one another,” read the subhead on Garczynski’s article.

Garczynski himself was attending a 12-week coding school, a 15-hour-a-day “boot camp,” with 10-hour days on the weekend. And for inspiration, he could look at the professional programmers — some with Ivy League degrees — living in the other bunk beds around him, putting in 10-12 hour days at work, only to return to the cramped apartment to code some more.

. . . the guy living in that closet actually worked for Pinterest. He’d been living in his $1,400-a-month closet for the last 16 months. He slept on a mattress on the floor…

He gave up on programming — and moved out.

https://thenewstack.io/hacker-house-blues-shows-horrific-changes-san-francisco/

[subterranean]

And then you've got people like one of my best friends, who's a programmer for a major health insurance company, making six figures, working remotely in Traverse City in a house that is paid off, and can afford to travel the world frequently.

[JManc]

Originally Posted by Pedestrian

Presumably if you were moving from some distance, even fresh out of college you'd have some personal possessions. Where do you put them in that arrangement? Nearly all college dorms, even in the 60s when I was in college and dorms were more spartan, had more room than that and certainly more storage space for clothes, luggage and so on.

I don't know but to me, it would be an attractive option in a brand new city; affordable, less intimating and less commitment.

[Steely Dan]

Originally Posted by JManc

I don't know but to me, it would be an attractive option in a brand new city; affordable, less intimating and less commitment.

if you're in brand new city by yourself, it might also be a decent way to make some immediate social contacts in your new town.