It makes them money because if you pay attention, apartment prices almost never fall nowadays. They always gradually go up. In a market where supply is constantly being added to meet demand, you would expect costs to go down in cities where people are leaving. For example, NYC's population has remained relatively static or even gone down, but the rent prices sharply go up, far more than inflation.
Keep in mind the majority of the value is in the property too, not the amount made from rent. They can effectively sit on the property and still grow value, then withhold apartments in order to either force legislative changes or force rent to go up. The loss of value from leaving those apartments empty is less than the gain in value from being able to raise rent, which results in perverse incentives.
COVID was an outlier for the obvious reason, during which it dropped by <0.1%/year, and is already back up to the high water mark.
Meanwhile the city has added less than that amount of net housing with the obvious result.
The housing market is also in a very weird state right now, because the fed raised interest rates, which long-term lowers housing prices by making it harder to borrow for a mortgage. But because the lesson people took from 2008 was to get a fixed-rate mortgage, now most existing owners have below-market mortgage rates and can't move without taking out a new mortgage at the higher rate, so they stay put, which means there is no inventory on the market and anyone trying to buy has to be desperate enough to outbid anyone else for the scarce inventory. But that can't last forever because eventually people will either be forced to move for any of the usual reasons or will have paid off enough of their existing mortgage for this to be less relevant -- or interest rates will go back down. Which, counter-intuitively, could actually lower housing prices by increasing inventory, especially because by then there would be pent-up demand for sellers to be able to move.
There is also some uncertainty in the stock market -- it had pretty much been on a bull run since right after the crash in 2008 until COVID but post-COVID has been a rollercoaster -- so you have a lot of investors looking to diversify and buying up real estate. Which they might be stupid to do because housing prices are crazy -- look at this graph and realize that 2007 was a massive housing bubble:
> Keep in mind the majority of the value is in the property too, not the amount made from rent.
They still get that whether they rent it out or not. It's like saying well, I could get a 9% return from this investment, but if I refuse to rent it out then I'd still get a 5% return, so let me do that and set the rest of this money on fire for no personal benefit.
> then withhold apartments in order to either force legislative changes or force rent to go up.
But this is the part that makes no sense. To be profitable, you not renting out a subset of your units would have to make the rents on the other units (i.e. rents city-wide) go up by more than the entire amount of the rent on the units you withheld. How are they going to do that? The largest real estate investor in NYC owns far less than 1% of the real estate.
For that to make sense would require some enormous disadvantage to actually renting out those units, like rent control or laws that make it hard to evict destructive or non-paying tenants. Because that would make renting the units a significant risk to your investment, since a buyer wouldn't pay full price for a building full of tenants paying below-market rent or trashing the building who can't be removed.
But then the cause of the rent-increasing behavior is the inept laws that increase the cost of providing rental units by so much that it's not even profitable to do it when they're already built, and the solution is to remove the laws creating the perverse incentives.
Self-serving politicians like to take offense when investors respond in predictable ways to toxic laws, but umbrage doesn't lower the rent.
It has nothing to do with inept laws. It has everything to do with the corrupt behavior of often large companies that own all of these rental units.
Like I get the feeling you don't rent. When I was living in Austin, my apartment rent shot up over 30%, in an area on the outskirts of Austin near nothing. It's nice to think that this problem could be solved by simply dumping supply on the market, but even in areas where that's being done or where there isn't significant demand rent is skyrocketing. And even when supply is dropped, it's bought up by said large corporations and investment groups that price fix it anyways.
It's occurring throughout the entire US regardless of local laws, though some areas are gouged even further. We know large landlords collude on this sort of thing to the point there's an actual term for it called warehousing [1]
> When I was living in Austin, my apartment rent shot up over 30%, in an area on the outskirts of Austin near nothing.
Austin's population has been increasing by ~4% annually for decades, which is high. Construction responds to that but it has a lead time. And Austin has zoning restrictions, but notice that it also has lower rents than cities that have more.
> It's nice to think that this problem could be solved by simply dumping supply on the market, but even in areas where that's being done or where there isn't significant demand rent is skyrocketing.
Can you name any US city where the amount of net housing growth exceeded the amount of population growth over the last 30 years?
> And even when supply is dropped, it's bought up by said large corporations and investment groups that price fix it anyways.
Most of them are buying it to rent it out, which adds supply to the market. The problem, regardless of who the buyer is, is that they're not building enough pretty much anywhere.
> "They're sort of not advertising their full inventory," Walkup said, "simply because they don't want to overwhelm the idea of what the supply currently is."
That's something else entirely -- they have a bunch of empty apartments and they wait to put some on the market until they fill the others, because why pay to advertise multiple units when they're all about the same? They're effectively all still on the market because as soon as anyone actually rents one they start advertising another one.
What you should be asking is, why don't they lower the prices some so they can rent them all out quickly and get some rent instead of none?
But that is the bad laws. If there is a short-term reduction in demand for urban apartments because of COVID, normally the incentive would be to lower the rents to whatever it takes to fill the units and then raise it again if the demand recovers. But if you have rent control or similar, once they rent it out they'd be stuck getting the short-term lower prices for decades to come, so they'd rather stick it out until they can find a tenant at a higher price.
Get rid of the bad laws and that incentive goes away.
But you still need to allow more housing to be built, because otherwise the rents would go back up as soon as COVID is over and people start moving back into cities.
Urban landlords don't have any kind of market power outside of control over zoning boards -- there are too many of them and none of them own a high enough proportion of the units to make a dent. Which is why they capture zoning boards to prevent supply from increasing to satisfy demand.
Keep in mind the majority of the value is in the property too, not the amount made from rent. They can effectively sit on the property and still grow value, then withhold apartments in order to either force legislative changes or force rent to go up. The loss of value from leaving those apartments empty is less than the gain in value from being able to raise rent, which results in perverse incentives.