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Short-term housing is different, if you lower rates below a certain threshold you are competing with local motels but you are offering a residential space governed by a different set of laws. In other words, low-cost short-term housing attracts people that can book a stay for one month that will continue to occupy the space and stop paying until the eviction is processed. Eviction is a 3 to 6 month process in most counties in California, and it typically costs $10k-$15k. That was before the pandemic, evictions were completely suspended since. Short-term housing / corporate housing does not require proof of income, credit check, etc. That would create a barrier of entry that would deter the majority of the clients; they would flock to the first available Airbnb. These travelers are typically staying for a couple of months and don't want to go through the hassle of lease approvals, agreements, credit checks, etc. Many of them are foreign and unable to provide the documentation necessary for a typical lease agreement. You do make a valid point, however. Rent should be driven down as the market dictates. For long-term rentals (your typical 1 or 2 year lease agreement with the building) there is another reason why rent does not drop significantly: most of the large rental buildings are owned by banks. There are clauses where if the rent per unit drops under a certain amount, the interest rates increase. There are several other clauses that disincentivize rent decreases. In addition, not every investor in a real estate investment trust has the same terms. When things go south (rent drops, operating costs increase, rate of evictions increases), investors that hold a fraction of the REIT will be the ones taking that loss, while institutional investors that provided the majority of the loan are protected. Thus it's in the interest of the more powerful investors or lenders to keep the rent where it is, and let the smaller investors take the loss. We as property managers, whether long term or short term, can only fluctuate the rent within a certain margin. It's easy to oversimplify as "why can't you just drop the price", but there are bigger players that hold the cards, and they decide what the rent is, and if units are to remain vacant, who will be taking that loss. And it's the new guy that just entered an REIT with a mere $100k. |