[AnimalMuppet]

Sure, if they own outright, rather than having borrowed money to buy the apartment complexes, and if they don't have to pay maintenance, insurance, landscaping, and so on.

It's not just free money. They're making money, sure, but considerably less than your calculation.

[jeffbee]

Not sure how much you know about the SF market. We only get glimpses, but it gives you an idea of how much wealth these landlords capture.

The building at the corner of Fillmore and Waller was bought for $1.05 million, 20 years ago. It has 6 retail storefronts and 18 apartments upstairs. Just one of the retail doors rent for $10000/month, or it did before this rent strangled the tenant:

https://hoodline.com/2020/04/cafe-du-soleil-shutters-after-1...

The building is assessed for $1.4m, so the taxes are around $15000/year (which the tenants pay under NNN terms) but the gross is probably well over $50000/month. And there's no landscaping, obviously.

These people are absolutely stacking cash. They are just parasites.

[jedberg]

> They are just parasites.

They are providing a service. You arrive in a new city with no money. Where will you live? The landlord is assuming the risk of owning and maintaining the building and all you have to do it put in a deposit.

The main reason they are "parasites" is prop 13. Without that, their building would be assessed at a reasonable level, and most of their profits would be property tax payments.

If you live in California, make sure to vote yes on the two partial repeals of Prop 13 this November:

https://ballotpedia.org/California_Property_Tax_Transfers_an...

https://ballotpedia.org/California_Property_Tax_Transfers,_E...

[oa335]

Landlords may provide services, but they primarily extract economic rent, essentially profiting from their their monopoly on that particular piece of land.

https://en.m.wikipedia.org/wiki/Economic_rent

[perl4ever]

How can they profit from the unproduced value of the land when they had to buy it? It seems to me that you're assuming landlords owned the land since before high property values in SF or wherever were a thing. It seems unlikely this situation accounts for much of the real estate.

[AnimalMuppet]

Is anyone going to put up a building when they don't have a monopoly on the piece of land on which it sits?

[imtringued]

That monopoly is guaranteed by your local government. Go talk to them if you don't like this.

[neilparikh]

They are providing a service in the act of owning and maintaining the building.

What service are they providing in their role as a landowner? Land (in the sense of it being in a specific location) doesn't require any maintenance or risk. It's also not like they created the land.

The majority of rent in SF comes from the land value, so this is the more relevant part to consider.

[jedberg]

They are effectively providing credit to the renter, who can't afford to purchase the land.

[neilparikh]

But the only reason the land is expensive is because it can draw this indefinite rent stream!

If you couldn't draw a rent from just owning land, the purchase price would go to essentially zero.

[imtringued]

The reason why land is expensive is because there is high demand for it. Landlords can't set prices arbitrarily. Every tenant has voluntarily agreed to the rent they pay.

[perl4ever]

How is this relevant except for a hypothetical person who owned land since before there was a city? That person would indeed be profiting unjustly from value created by others, but that doesn't seem like real life. What am I missing?

[jedberg]

The land is still a scarce resource. What do you propose, that the government own all land? Let the property owners just own the buildings?

We tried that before, it was called feudalism. It's where the King owned all the land and the peasants were allowed a small piece of land to work and enjoy the fruits of their labor.

That system didn't work very well.

[tomcam]

If you make anywhere near an average IT salary in the USA there are a billion or so people in the world who would feel that you were absolutely stacking cash, and are a parasite.

[neilparikh]

In the case of the salaried employee, you're earning as a direct result of you doing productive work. You can argue that the pay is too high, the but the fact you have to put in work to earn it means it is at least not parasitic.

In the case of a landowner, they need to put in no such work. They didn't create the land. All of the rent comes from the fact that they have a monopoly on a scarce good that cannot be produced further, and one that everyone needs. See Adam Smith [0] and David Ricardo analysis on rent for more on this (the Ricardo's law of rent is a really neat concept).

Now the fact that land and buildings are rented together complicates this a little bit, but this definitively applies to the rent that comes from the land.

Simply claiming two actions are equivalent because they both lead to lots of money is not a useful mental model. How you earn your money matters.

[0] - "The rent of land, therefore, considered as the price paid for the use of the land, is naturally a monopoly price. It is not at all proportioned to what the landlord may have laid out upon the improvement of the land, or to what he can afford to take; but to what the farmer can afford to give." — Wealth of Nations, Book I, Chapter XI

[refurb]

We should probably eliminate interest too then?

I mean, if I loan someone a million at 6%, I'm doing no work and collecting $60k a year!

Oh yeah, it's called risk. Similar to a landlord, the returns are in no way guaranteed.

Let me introduce you to some landlords who went bankrupt in 2008.

[neilparikh]

Comparing land to capital misses some important differences, that economists have recognized.

Land is a scarce resource with a fixed supply. If I want to rent land in SF, I don't too many options. And the demand is increasing, since everyone needs land to exist, and the population (at least in cities) is increasing. This gives the landlords a monopoly (see the law of rent: https://en.wikipedia.org/wiki/Law_of_rent). In the case of loans, if I don't like your rate, I can simply go to a different lender.

Secondly, can you point out what we lose if the landlords doesn't exist?

If lending doesn't exist, there's businesses that would have started, but can not anymore, since they may not have enough capital to get off the ground.

If landlords don't exists, the land is still there, and we lost nothing, since land can't be created or destroyed.

> Let me introduce you to some landlords who went bankrupt in 2008.

My point is not that being a landlord has no risk. Rather, I'm saying that the returns from land do not come at all from the value that the landlord provides, which is not the case for lending, or other productive activities.

[refurb]

If landlords don't exists, the land is still there, and we lost nothing, since land can't be created or destroyed.

If landlords don't exist, people couldn't have a place to live unless they could purchase themselves. I think landlords are great - I can get a nice place to live and have none of the risk the landlord does. Property prices go down? I don't care. House burns down? I don't care. If I want to pick up and leave in a year? Great, here's notice. No real estate fees, paperwork, etc.

I think landlords offer a fantastic service.

[imtringued]

>Secondly, can you point out what we lose if the landlords doesn't exist?

You now need a $1.4 million loan to live in an apartment.

[perl4ever]

>In the case of a landowner, they need to put in no such work. They didn't create the land

I don't understand. If you buy a hamburger, you didn't create the hamburger. What does that have to do with whether you earned the money to buy it?

[mapgrep]

Awfully convenient reasoning for engineers. Making half a million dollars a year optimizing the invasion of people’s privacy, for a company that dodges taxes, after four years of government subsidized education is real work and if you get rich in a liquidity event you earned it; assembling $1 million twenty years ago when people were fleeing SF, spending two decades maintaining marketing renting servicing paying taxes on and chasing rents on the property in the meantime, keeping up with and complying with city and state regulations — that’s always just parasitism and if the city you chose turns into a boomtown it’s good luck you have not earned.

Not a fan of landlords as a rule but you are slicing your analyses of privilege way too thin.

[neilparikh]

> spending two decades maintaining marketing renting servicing paying taxes on and chasing rents on the property in the meantime, keeping up with and complying with city and state regulation

Literally none of that matters in deciding who profits from land and who doesn't, and that's my entire point. The landowners in SF who didn't put this work in were still able to capture the rising value, and those in Detroit who did put all these effort in, didn't get anything to show for it.

Land doesn't rise in value because the landowner put in effort to raise the land value. The community and the government increased the value through building a city people wanted to move to (through building public transit, art scenes etc.). Why should the landowner capture that wealth?

Also, your tax point is moot, because California caps property taxes at essentially the level you bought the property at, so all the gains are free.

> the city you chose turns into a boomtown it’s good luck you have not earned

Yes, this is exactly my point.

Let me give you concrete scenario of where the current system breaks down. Let's say I own an apartment building on the edge of town, and the city decides to build a new transit line to the community. Rents in my apartment building will go up; let's say by $100. Renters are willing to pay an extra $100 because they value living near a transit line more than the being far from one. But why should that extra $100 go to my pockets, while the government has trouble even paying for transit system? It's not like I was the one who built transit system, it was funded by the income taxes of the people who work there, and then built by the government.

I guess my question to you is, why are we so attached to this system? As I pointed out, almost all economists agree that land rents "not at all proportioned to what the landlord may have laid out upon the improvement of the land". So why do we want to push forward a system where the reward is completely uncorrelated by the value you provide? Isn't that antithetical to capitalism?

Edit: To address your points about engineers, I'm not claiming that engineers do "real work" or "if you get rich in a liquidity event you earned it". I'm simply stating the reality of the fact that engineers actually produce something (code), while landlords don't (what could they even produce, more land???). If my landlord didn't buy the land I live 20 years ago, it would still be there, no worse for wear.

[perl4ever]

>Land doesn't rise in value because the landowner put in effort to raise the land value

Let's have some perspective - that's why there are property taxes. Now, maybe the property taxes are too low, but the fundamental issue is recognized by society and the mechanism exists to balance things.

[kamaal]

>>They didn't create the land. All of the rent comes from the fact that they have a monopoly on a scarce good that cannot be produced further, and one that everyone needs.

If we go by your logic, we must also ban reading books, exercise, good relationships etc.

Pretty much any investment including things like education work very similar to land investments. There are only fixed college seats, is it fair to everyone?

Firstly start with understanding you can't give any thing to any one they don't want to earn. At the same time you can't stop people from going after these things and earning them.

[empath75]

> the but the fact you have to put in work to earn it means it is at least not parasitic.

I mean, most of us are just typing and talking. It’s not exactly laying bricks.

[neilparikh]

Yes, that's why I said "You can argue that the pay is too high". But it's still "labour", in the socioeconomic sense.

[titanomachy]

How could the building you describe be assessed at only 1.4 million? In my city, a single condo that rents for $4k/mo would be assessed higher than that.

[jeffbee]

I'm so glad you asked. In 1978 Californians passes Proposition 13, written for and sponsored by the Los Angeles Apartment Owners' Association, which says that property assessments may not increase by more than 2% per year or CPI, whichever is less. Property tax rates may not exceed 1% of assessed value. So the max theoretical assessment of a building bought for 1.05 million twenty years ago is 1.56 million.

[titanomachy]

Ah, right. I've heard reference to this before. Very unfortunate.

[tverbeure]

Prop 13?

[imtringued]

I don't understand how you can call providing dense housing being a parasite. The parasites are people with frozen property taxes who refuse to sell their land so that it can be used to build denser housing. After all the problem with the housing market is that there are not enough units for everyone so only the highest bidders can successfully rent an apartment.

[ryanwaggoner]

Rule of thumb estimate for operating expenses for multi family is 50% (doesn’t include mortgage), and that doesn’t differ much just because rents are high. That means almost everything on your expenses column is more expensive as well.

Don’t get me wrong, real estate is a great investment, just not quite that great.

[tartoran]

There are parasites everywhere there’s some cash flow. We need laws to tame these

[imtringued]

You eliminate parasitic behavior by increasing competition in an industry.

[refurb]

Maybe rent control? That seems to have worked really well!

[austhrow743]

Laws created the problem. We need less laws not more.

[tartoran]

It could be fewer laws, sure, whatever solves the problem, but something that doesn’t have legal loopholes

[apta]

What do you propose? Take away their property?

[neilparikh]

You tax all the rent they earn due to holding the land [0], since all the reasons rent is high in SF are not due to contributions by the landowner (ie. the community put in effort to make SF desirable, yet the landowner gets all that value).

See https://en.wikipedia.org/wiki/Land_value_tax and https://en.wikipedia.org/wiki/Georgism

[0] - But let them keep all the rent from the building, since they built it with their own capital and labour.

[rcpt]

Take away Prop 13.

[proverbialbunny]

Maybe do what Singapore does.

I'm sure there are other good models too.

[apta]

What do they do?

[neilparikh]

Singapore owns all the land, and then they lease it out at 99-year terms. So an individual can own property for their whole lifetime (and then a little bit more, perhaps to pass onto their children), but the can't pass it forever.

The problem they recognized was if they had indefinite landownership, and they could pass it onto their descendants, given that they're a small island nation, within a few years, all the land would be owned.

After that, future generations would have no more land to buy, and those who are lucky enough to be born to landed family would be able to charge rent those who didn't have the privilege to be born to a family with property.

[mensetmanusman]

Poor reasoning, if the land has value, some would sell and convert to cash for other investments. Tax policy can fix this.

[proverbialbunny]

@neilparikh's comment was not what I was referring to.

Singapore has government substantiated condos that are quite good. You have to be a citizen to get the benefits, but if you can benefit from it, someone working min wage can buy a decent place to live.

[refurb]

Sure, they might be raking in now, after 20 years.

And that $1.05M invested 20 yeas ago in the stock market? They would have doubled their money with none of the headache.

[bradlys]

I'm pretty sure the building is worth much more than $2m. With 18 apartments, it has to be at least $5m.

Heck, the crappy apartment complex I lived in in the peninsula that was built in the 1960s was worth close to $9m and it only had like 8 small apartments.

[refurb]

I'm pretty sure the building is worth much more than $2m.

Assuming all the units are under rent control, it might not be worth much more than $2M.

A good example is my place in SF. 3 unit building in a very desirable neighborhood. If the place was empty? It would likely fetch $5M based on square footage.

With 3 tenants who have been there 10 years and have rent control? My realtor tells me they base it on cap rate and with only $7000 in rent being collected, the landlord would be lucky to $1.5M for it.

[jeffbee]

That's a pretty dumb example. With those figures they could pay each tenant half a million to GTFO and still clear two million.

[refurb]

Rent control saved me $300,000 over 7 years. If I wanted to stay in SF for the rest of my life, you think I’d move out for $500,000? The lifetime value of rent control is more than $500,000.

[jimmaswell]

Lots of landlords don't pay any of those things.

[AnimalMuppet]

Lots of landlords don't insure their buildings? Lots of landlords don't pay for maintenance on their buildings? I call baloney.

[iaw]

Anecdotal experience: I rented an apartment where the bathroom was literally rotting away on itself. The landlord would do cosmetic fixes only as the walls sagged and warped.

The incentive wasn't there for her to make a large capital expenditure on maintenance because the land appreciation was what she was banking on and rental demand was such that she could always rent the apartment.

While this example is extreme I've seen similar deferred maintenance behaviors repeated over and over again by the most successful (read: largest portfolio holding) landlords.

[neilparikh]

The costs you mentioned are associated with the building itself. However, in a city like SF, much of the rent is driven by land value, which has no such holding costs [0]. So they still have a lot of "free" income coming in, as owners of a government granted monopoly in perpetuity (sounds a lot like feudalism...).

[0] - Except property taxes, but CA caps their increase, so if you've owned the property for a while now, the tax isn't in line with the rent you can charge.

[ajzinsbwbs]

https://en.m.wikipedia.org/wiki/NNN_lease

[jeffbee]

How do people not know this? Commercial landlords seriously have no risk. Taxes and insurance are passed straight through to tenants and the bank is carrying the capital risk.

[jedberg]

Their risk is when they can't find a tenant or a tenant quits mid-lease. Then they owe the bank from their pocket. Commercial real estate is much more susceptible to the economy. Bad economy or good, people need a place to live. But in a bad economy, businesses just close up, declare bankruptcy, and leave.

[analyte123]

When "they" owe the bank in a bad economy, "they" is a disposable corporate entity, not a normal person who might have to suffer consequences for their reckless behavior with debt. The actual people involved spent the last decade stuffing their pockets with rents and setting up asset protection strategies.

[jimmaswell]

My parents' landlord doesn't. Not sure on insurance but I doubt it. No involvement beyond working on the heater once or twice.