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Yeah I would imagine this would lead to slightly reduced property prices and increased rent prices as the market adjusts.
They were already renting, and when someone sells that pushes the property value down.
Right, but if landlords are exiting the market that probably means they are selling to someone who wants to live there, meaning rental properties are going off the market. Which is good for first time homebuyers but bad for renters. Either that or this is just landlords consolidating which which wont make much of a difference either way.
When someone decides to sell a good because market conditions have changed, the price of the good goes down.
Rental prices are proportional to overall housing prices. In general, more homeowners is correlated with lower rents. Renters are also removed from the market.
Yes i agree with that part
That is correlation without causation. When there isn't enough housing, rent and property prices will both be high. However, if properties get taken off the rental market and are put up for sale instead, with no changes to population or overall housing supply, that is going to drive up rental prices. There will be fewer people renting, by necessity, but the people who want or need to rent will not change by as much, creating an imbalance between supply and demand that will drive up rental prices.
Not to mention another thing we haven't touched on which is why landlords are leaving in the first place. Those who remain in the now-less-profitable environment may try to raise rent to compensate.
Why would demand not change by as much as supply, if both a buyer and a seller have been removed from the rental market? It's like landlords being forced to sell to tenants at a reduced price.
Because having your rental unit taken away from you does not remove you from the rental market. You might consider leaving the rental market and buying property if housing prices collapse, but outside of that most people are going to have to look around for a new rental unit in a now tighter market.
It does remove another renter, though. The market would only be tighter if they reduced supply by more than demand.
How does being evicted remove a renter from the rental market?
The new homeowner is the renter removed from the market, not the previous renter.
That's a big assumption that the new homeowner was a previous renter and not just someone cohabiting or buying an additional home.
Not when we're looking at large groups of people - there's no reason to think the average number of occupants per home would change.
I didnt mention anything about the average number of occupants per home. What i did say was that, if 100 homes go from being rented to being sold, not all 100 homes will go to previous renters, for the reasons I mentioned above. Doesn't that make sense?
If the average number of occupants isn't changing, then cohabitation and second houses are irrelevant to this discussion.
To whom is the apartment being sold?
Perhaps you can find some statistics to back up your general point? If you're right, then we should see the opposite correlation - higher homeownership with higher rents.
The average number of occupants doesn't change because everyone will still be living somewhere (excluding homelessness but we can ignore that). However, that does not mean cohabitation and second houses are irrelevant.
Both of these scenarios are excluded from your example above. As a consequence of them, some renters will have to start cohabiting (or become homeless). The fact that there are more people who want to rent their (own) place then there are rental units will drive up rental prices.
https://pubs.aeaweb.org/doi/pdfplus/10.1257/aer.20181289
Here you go.
That's an interesting comparison, thanks! I'll think about this.
Cheers
The first time buyer was previously renting though, so the renter could go there. Total number of people and houses hasn't changed in this simplified example.
Right but a lot of renters cannot or do not want to buy property. Thus, rental units leaving the market creates a supply demand imbalance in the rent market, driving up prices (and driving down property prices, for the inverse reason)
Plenty of renters do want to buy and house prices coming down would allow that for some of them. If no one buys it and the landlord wants to sell, all they can do is lower the price until someone does buy it.
Right. We are in agreement that this should cause some reduction in property prices.
But not all renters are able to buy property. Here's an extreme example - lets say 99.9% of landlords are forced to sell their rental homes. There are now just 100 units left in all of London.
There are 10000 students who need a temporary place to stay, and another 10000 people that have bad credit and cant get a mortgage. What will happen to rental prices?
Then who will buy those properties? If we have 100 houses for 100 groups of people, mixed renting and owning. Then 20 landlords sell. Who are they selling to if no one can afford it?
They have to reduce the price until someone can.
Yes, again, I agree with you that the landlords will have to reduce their prices because there will be a temporary housing glut. Although, they might just let them sit unused off the market until prices recover.
But the houses will get sold. There's a housing shortage everywhere.
Yes, in your scenario, assuming that all the houses must be sold and nobody is allowed to buy a second home (which would happen in the real world as the prices drop) and nobody becomes homeless (which would also happen), all those houses would go to previous renters. The remaining renters are those who are in the most financially weak situation - even as property prices drop and rental prices go up they still couldn't afford to buy before the market stabilized. In this market there is now going to be pressure driving down the prices of homes and driving up the price of rentals.
Empty houses contribute more tax in some parts of the country where councils have been given permission to raise taxes on empty properties. IIRC it is up to 4x the normal rate.
Similar things could easily be rolled out where its a problem. Especially given that we already have working examples in the UK. Though its more about holiday homes, the same applies.