alt Hacker NewsWhy would they drive up the rents in larger spaces? At least part of the demand in larger spaces is from roommates who would prefer to live alone, some of them might decamp for options like these, or studios and one bedroom apartments, etc., if they are available.
As with all types of housing, there is no one type of housing that solves the problem. Whether we live under capitalism or socialism, the only way we solve housing is when everyone who wants to live in New York, can, everyone who wants to live in Kansas, can, everyone who wants to live in Fort Myers, can.
With markets, a shortage results in high prices and rates. Without markets a shortage results in long waitlists. There’s no way out, without quantity.
If we want people to live in large indoor spaces, and not SROs, we can’t get there in 99% of our land use regime is focussed on limiting the total amount of floor space that is allowed to exist within a given area. Legalizing SROs is insufficient, but necessary, just like legalizing larger apartment buildings in more places, abolishing single-family zoning, etc.
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Well said. The only 2 ways out of a housing crisis are to:
- turn the place into a hellhole nobody wants to live it
- build more
There’s no other option.
Because the law of unintended consequences is always at play in the public sector. In this case, the threat of too much regulation will kneecap the governments ability to eliminate the cost structures that will end up happening because of the drive for increased revenue per sqft.
The core reason SROs threaten larger spaces is that landlords can often extract more total rent from a single apartment by chopping it into pieces than by renting it as a whole.
Hypothetically: A landlord rents a 1,000 sq. ft. 3-bedroom apartment to a family for $4,500/month.
In order to extract more value, the landlord converts that same space into 4 separate SRO rooms with a shared kitchen. Even if they charge a "cheaper" rent of $1,500/room, the total rent roll becomes $6,000/month.
The Result: the SRO format is more profitable ($6,000 vs. $4,500). If landlords can legally choose between the two, they will naturally favor creating SROs over family-sized units.
Then there’s the potential for cannibalization of supply:
If SROs become the most profitable way to use residential space, the market may see a "cannibalization" of family housing.
Landlords of market-rate buildings may subdivide existing large apartments into SROs to capture the higher yield.
Seeing this, developers then planning new buildings will design them with fewer large family units and more micro-units/SROs to maximize revenue.
This reduces the supply of 2- and 3-bedroom apartments. If the supply of family units drops while the number of families needing them stays the same, the price for the remaining large units goes up.
This will then potentially lead to increased land value as real estate prices are determined by the potential revenue a property can generate.
If a plot of land can now legally host a high-yield SRO building (generating $100/sq. ft. in revenue), the value of that land rises.
A developer who wants to build a standard family apartment building (generating only $60/sq. ft.) can no longer afford to buy that land because they will be outbid by the SRO developer.
To compete, the family-building developer must raise their projected rents to justify the higher land price. This raises the "price floor" for everyone.