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by laughing_man 25 days ago
I don't think that fairy's $100 would have any effect on rents. People would save it or use it to buy consumer junk.

Landlords don't set the market price for rents. They can refuse all they want but if nobody will rent the place for what they're asking, they'll have to lower the price. If the supply hasn't changed, and the demand hasn't change, the price won't change.
1 comments
skew-aberration 24 days ago
In both of my examples, demand has increased, per the definition used in economics. Demand is not 'the number of people who want to live in this area', it is more like 'the number of people who will rent a house in this area at a given price', it is a function/curve and not a single number - the demand at a price of last week's rent + $100 has just skyrocketed.

Let's assume all 100M renters in the US put their fairy money in the S&P 500, and then one landlord raises the rent. The family moves down the street. Now other local landlords follow - some people leave town, move in with family, etc, but others now agree to pay up. Next every single landlord asks for $100/week more - after all, their tenants can afford to pay. What happens? What is stopping them?

Why are rents high in Silicon Valley? Because you can earn a lot there. If you could earn $100/week more without working, why wouldn't rents go up? What about $10000/week? The market rates are not set by landlords but they are set by the earning capacity of the tenants.

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laughing_man 22 days ago
Just because there's more money available doesn't mean people are willing to spend more on a particular item. There are always substitute goods -- in the SF Bay area you can commute from the East Bay, for example.

Beyond that, rents can reach a point were people are not willing to take jobs in a given area, which will relieve the pressure. I just don't think your contention giving everyone more money necessarily means they'll spend it all on rent. Why do you assume people don't already have money they could spend on rent if the wanted to?

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skew-aberration 21 days ago
East Bay is a good example - that is indeed how the upper bound on rents is set, typically. You can move to a smaller apartment, or commute from further out (my original comment).

It doesn't work for everyone - some will be worse off if they either a) move (lower wages - small town retail vs in the city) or b) commute (costs will be too high - fuel, working shorter hours), or c) they already live in the cheapest accommodation

Such people obviously exist - they live 'paycheck to paycheck' and make up a large minority of the population. They do not have money they could spend on more rent! In fact, they rely on welfare for necessities like food and medical care and yes even rent https://home.treasury.gov/policy-issues/coronavirus/assistan...

Now everyone gets their $100/week. The bottom 1%, with few accommodation options, accept paying higher rents. This means the people slightly closer to the city can't move further out, without paying the extra $100/week. Following this chain, eventually people in East Bay mostly accept the $100/week increase, and hence so do the people in SF. This isn't exact - the new equilibrium might not be quite X + 100, but history shows it will be very close.

What if the fairy took $100/week? Now landlords must decrease rents in the outer areas as people can't pay, and hence the rent decrease also propagates to the inner suburbs, else people would take advantage and move further out. These inner suburbs residents get the discount even though they had more than $100 week spare in the first place.

This argument is straight out of classical economics

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