Imperialism is Capitalism

[KrazyHorse]

a) They don't have to sit down and write down numbers. Most people have a pretty good intuitive feel for things.

b) So? I'm a ****ing physicist. This is the type of **** I do without even thinking.

[snoopy369]

KH, kid is not entirely wrong here. Rents are generally increased by property companies a small amount each year ($25-$50 indeed) because of exactly that: transaction costs. The real cost to moving for most people is over $500; consider that moving companies charge a few thousand to move a family of 3, for example (who would typically be renting in the neighborhod of $1500/mo). $2000 if you hire movers means the real cost should be around there (market determining cost) - let's say $1500 (a month's rent). That means around $125 per month in moving costs. So if you increase rent each year by $50, the family will tend not to move out, unless rents around the area DECREASE by over $50. Eventually the increases will be too much more than the surrounding area, and you will move, of course, but that will take years, several years in which the landlord gets more than fair value for the apartment - often significantly over fair value. When the apartment is re-rented out, it will of course be re-rented for the fair value (hundreds lower).

[Kidlicious]

Originally posted by KrazyHorse
a) They don't have to sit down and write down numbers. Most people have a pretty good intuitive feel for things.

b) So? I'm a ****ing physicist. This is the type of **** I do without even thinking.

Well going back to "my theory" I'm not claiming that they can charge whatever they want. I'm just saying they can charge more than they otherwise would be able to. For example rent, people wouldn't be able to even collect rent if everyone owned a house.

[KrazyHorse]

Originally posted by snoopy369
KH, kid is not entirely wrong here. Rents are generally increased by property companies a small amount each year ($25-$50 indeed) because of exactly that: transaction costs. The real cost to moving for most people is over $500; consider that moving companies charge a few thousand to move a family of 3, for example (who would typically be renting in the neighborhod of $1500/mo).

Uh, snoopy: pay attention. They can't continue to raise rents to an increasing level above prevailing rents because the transaction costs DO NOT CONTINUE TO INCREASE WITHOUT BOUND.

In fact, if (as most people are) you're in a situation where you plan to stay in the same general area for a long time then the transaction cost of moving needs to be amortized over a longer period of time, so represents a LOWER monthly addition.

[KrazyHorse]

Rent increases generally represent two things:

1) Increases in prevailing rents throughout the area
2) An attempt of the landlord to capture an increasing percentage of the transaction cost involved in moving. However, this attempt is generally bounded above by 100%.

[KrazyHorse]

Snoopy, you're making a giant mistake here: you're assuming that the landlord will be able to capture THE ENTIRE TRANSACTION COST OF MOVING within a single year, and then can continue to capture this same amount year after year.

No rational renter would allow this to happen.

[KrazyHorse]

You're also assuming that tenants are too stupid to realise that the landlord tends to lose money when they move. In reality, most tenants manage to hold the landlord to prevailing rents fairly well. Especially because the landlord's loss is not as firmly bounded as the tenant's is; the landlord is generally not certain how long it will take to find a new tenant, nor how much they'll be able to get in rent.

[Arrian]

I rented an apartment from 1999 to 2002 or 2003. My rent, IIRC, went from $465/month to $545/month in that span. I never bothered to complain about increases, of course, because I considered that sort of rent for a 2-bedroom apartment 10 minutes from work pretty damn good.

Yay anecdotes!

-Arrian

[KrazyHorse]

The important thing is not the size of your monthly rent, but how it moved relative to the prevailing rents for a similar apartment in your area...

[KrazyHorse]

You might also want to note that sometimes landlords are not sure about what the prevailing rents are. They use rent increases as a discovery mechanism to figure that out. If they overstep the limit then a lot of their tenants decide to move out, so the landlord gives them a break on the increase/reduces further increases.

The fact is, such "monopoly rents" (rents in the macro sense) are not particularly important. They are nice to capture (if you're a producer) but are pretty easy to avoid (if you're a consumer).

I change my car insurance every year or so, I always look at craigslist apartment postings when my lease is about to come up, I buy non-name brand products/switch brands constantly, etc.

Kid, stop whining and get less lazy.

[Kidlicious]

KH,

Prevailing rent is just an average I think. The fact that rents vary significantly means that people are paying more than they would under theoretical conditions of perfect competition. What exactly is your argument here?

[Arrian]

Originally posted by KrazyHorse
The important thing is not the size of your monthly rent, but how it moved relative to the prevailing rents for a similar apartment in your area...

Of course.

When I moved in, the rent was the cheapest I had seen, and the apartment was superior to several others I'd seen.

When I moved out, the rent was still quite a bit cheaper than other apartments I'd looked at 3 years prior.

But I've no idea what the overall trend in the area was. Just sharing an anecdote - nothing more.

-Arrian

[KrazyHorse]

Originally posted by Kidicious
KH,

Prevailing rent is just an average I think. The fact that rents vary significantly means that people are paying more than they would under theoretical conditions of perfect competition

No, it means that some people place greater value on their time/annoyance than others do.

I find it amusing that you ask me what my argument is when I've laid it out clearly. I've shown that in the case of housing rentals the transaction costs to a tenant in moving are only a small percentage of the base costs. This means that the landlord can at most capture a rent which is a small percentage higher than the equilibrium price given no transaction costs.

In other words, you're whining about a quite minor effect.

Dufus.

[KrazyHorse]

Originally posted by Arrian


Of course.

When I moved in, the rent was the cheapest I had seen, and the apartment was superior to several others I'd seen.

When I moved out, the rent was still quite a bit cheaper than other apartments I'd looked at 3 years prior.

But I've no idea what the overall trend in the area was. Just sharing an anecdote - nothing more.

-Arrian

Not arguing with you. Just making things clear.

[snoopy369]

Originally posted by KrazyHorse
Snoopy, you're making a giant mistake here: you're assuming that the landlord will be able to capture THE ENTIRE TRANSACTION COST OF MOVING within a single year, and then can continue to capture this same amount year after year.

No rational renter would allow this to happen.

1. Few rational renters are able to calculate the transaction cost directly, nor think in those terms. Hence "allow that to happen" is meaningless here.

2. I'm saying that the landlord can, in theory, raise the rent anywhere up to the point where (rent in a new place) + (cost of moving) = 0.01 + (cost of new rent). They don't typically do this all in one year, certainly. They do it $50 at a time - making the individual year decision harder, and also making it less likely for the individual to realize the entire increase. (You don't necessarily always know the precise current rent value of apartments in your area, so a small increase each year will not necessarily look like a large increase over net). You are assuming perfect information, which is a gross fallacy.

My rent, for example, is $850. Rent for the vacant apartment across the hall is $775, equal to what my rent was initially 5 years ago. I'm aware of that, and still do not choose to move (though I certainly will mention this when the lease comes up for renewal if they try to raise it again). It's worth $75/mo to me not to have to move all my stuff (though I have a lot of stuff, probably close to a metric ton of books for example).