In their op-ed, Igor Tregub and Marian Wolfe, members of Berkeley’s Housing Advisory Commission, assert that “developers of market-rate housing use these higher rents so that their projects ‘pencil out,’ making the probability of more affordable rents unlikely, at least in the near-term.”
The authors falsely suggest that future rents are determined by past lending decisions, implying that the rent on a unit will not be lowered because the unit has been leveraged with the assumption of a high rent.
First, that assertion puts the cart before the horse. The finance decision is not the cause of high rents — it is the consequence. Financiers are reacting to their risk-adjusted expectations of what the future market will bear. When prices do crash for exogenous reasons and leave some properties over-leveraged, it is true that landlords will tend to cut back on maintenance and otherwise disinvest before allowing rents to fall, but this is a self-limiting process that can not continue for very long. If the authors wish to be serious about housing policy, they need a better explanation of rent prices than “developers need to make their projects ‘pencil out.’ “
Similarly, the authors offer that “additional explanations for the lack of affordable student housing … owners purposely leave units vacant.”
Well, not quite. It is true that the size of housing unit supply varies over time because units may go unused, or used for some purpose other than housing services (such other purposes as, for example, short-term lodging). Each landlord’s optimal vacancy rate, however, is determined by the complex interplay of how long it takes to fill an expensive unit, compared to how quickly it would be filled if market rate asking rents were lower. For this reason, it is not uncommon to see vacancy rates increase when asking rents are steadily rising — overall, the landlords are still getting a larger net income even though the vacancy rate is larger.
I will leave it to students to decide if they believe the authors that the Regents of the University of California and the UC Berkeley administration are really on their side and will be persuaded by students’ lobbying. If the past decades of worsening housing conditions for students aren’t evidence enough against that idea, nothing I say could change that.
Have students considered militant rent strikes? Socially owned housing?
Thomas Lord is a commissioner of the Housing Advisory Commission of the city of Berkeley.