Why Increasing Minimum Wage is Meaningless

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Everything you said went against the whole concept of how inflation is calculated. Inflation is how much people pay for goods and nothing more. The price of goods have to go up for inflation to go up.

The government have little to do with inflation and they might intentionally refuse increases in minimum wage to try and put the breaks on inflation. There are reasons for and against increasing minimum wage.

There are a lot of reasons for rent and property price increases too. It's a global first world problem but I think much of it is to do with the tenant's and house buyers themselves.

Landlords use inflation as an excuse for greed.

It's not the gov that is keeping wages low, it's businesses. There is no law telling them how much to pay their employers, only minimum wage so businesses use it.

https://www.forbes.com/sites/joshbersin ... anagement/

https://www.axios.com/wages-inflation-e ... 93576.html

You know, I've often critiqued Ayn Rand for her brutal writing style and need to beat the reader over the head with her points for hundreds of pages at a time, but this thread is making me think maybe she had her reasons.

Another stupid thing landlords do (here) is use their purchase price and mortgage costs as justification for rent prices.

Example: I just paid $2M for those house, mortgage on $1.6M is $6,500/mo, so since I need to get a return on the whole thing rent is $9,000.

Umm, no one Fing cares how much you paid for it - if the maximum price the rental market will bare is $6000/mo then that’s all you can collect in rent.

Far too often I read comments like “Well, the mortgage is this and as an investor I have to make X return so rent should be Y.”

Umm, no. That’s not how any of this works. Rent will always only be what the market will bare and if you overpaid then you overpaid and can’t get positive cash flow out of this property.

FAR too many people here view real estate as an ever appreciating investment and one that they can guaranteed make money from via increasing rents.

Hoping some economists are right and we’re in for a national real estate price crash in our most overheated markets so that working class people can afford to buy homes again.

Nobody is immune to inflation. It's been going in since the creation of state currency.

Within reason, a landlord should raise their rent. Keeping rent the same for the entire duration of a tenancy isn't realistic. What if a tenant stayed in the same house for 40 years?

Now do wages.

The same applies to those that complain about why rent is too high in an area. There is always someone out there who can pay an amount of rent to sustain the market price. If the asking amount for rent is really too high, it will stay unrented until either the market goes up to match it or the price goes down to match the market. You might get lucky and find an undervalued rent price compared to the market, but those are typically rare to see. The owner is losing potential rent money on those, which they may need for other bills.

They do but again rent is subject to market forces. A tenant has the option to move to another property if the rent is hiked once their lease expires. The landlord knows this so it's not in their interest to lose a tenant, particularly if they look after the property.

Above minimum, sure, market is what the market is.. but there's Also a valid reason MOST advanced economies on the planet have minimum wage laws to prevent exploitation/slavery etc and minimum wages in Canada & especially the USA have not kept up with what they were originally intended to be.

People may be willing to work for the lowest wage in an economy, but when that floor is fixed by colluding corporations & officially set by governments, often people are left with no choice but to work for just-barely-survive wages if they don't have other options available to them for a variety of reasons.

I'm a fan of higher minimum wages that enable people to provide for themselves on a full time income. I'm also a fan of trades and unions.

I'm not a fan of the kleptocrat ruling class colluding with government to set wages ridiculous low and keep many people as ~almost slaves while they get rich off their labour.

Also a fan of uprisings that result in oppressed masses sticking it to their rich overlords!

But it is too high and there are government policies that can help manage it. Our government policies allow for property developers to get rich selling to foreign investors instead of houses that are built being used as homes for people to live in. We've over built the quantity of housing required by ~20% by one economist's measures, and more recently there's been a decline in population of the city.. yet prices and rents continue to spiral upwards beyond the stratosphere.

Sure, they ARE market force of supply and demand.. but the rules of the market are set by government in collusion with property developers so the whole game has been rigged and people are rightfully upset that rents are ~impossibly expensive.

I'm talking about government programs paying for housing. And before you say that the tax burden is too much for tax payers, I'll remind you that social programs are a tiny part of the budget compared to military spending.
And yes, there are people who are homeless for a reason - - poor pay for work, unemployment based on stingy business people wanting to as few people as possible to work as long as they can, and of course mental illnesses among the poor figure in as Ronny Raygun had closed all the asylum's and kicked the patients out to the street.

Given that the purchase price of an apartment building is determined, in part, by what fair rents in the area are, what they paid for the property actually has a lot to do with what they should be charging in rent. Although, if area rents are 6,000 and your landlord claims he needs to get 9.000, then someone either made a math error or is misstating their case.

Someone noted above how other landlords will pressure others to raise rents, and I assume that has to do with how circular the valuation is. There is a lot of incentive to create the market, rather than just be at the mercy of it.

It is common for rental properties to have negative cash flow when first built. The valuation inherently assumes some inflation in the rents. For obvious reasons, there is only so long any investor can manage to keep up a negative cash flow, so they will be under pressure to get the rents up as quickly as possible. It does neither the owner nor the renters any good if the owner has to default on the property because he can't sustain the negative cash flow.

But it is also deceiving when landlords claim they don't make a profit. It is normal for rental properties to go through an extended period of time during which cash flow is positive, but paper profits are negative, and the reason is the depreciation they can deduct on the building. Reality is, however, that the combined building and land value is likely increasing, while the owner gets to take those depreciation deductions. It depends, though; in highly speculative markets real estate prices are often using a skewed formula that isn't sustainable when market conditions change.

But, anyway, that is all somewhat irrelevant to this thread. I just really enjoy the real estate industry, albeit the rental market less so (there are a lot of sleazy landlords; or maybe being a landlord turns people into sleazes?).

Personally, I think how much responsibility a landlord has towards tenants should vary by the size of the property. The owner of a single family home or duplex is downright screwed if a tenant is not paying the rent, because not only is the owner losing rental income, but also having to go out of pocket every month on taxes, maintenance, and mortgage interest. The owner could well end up in foreclosure, with everyone losing. An apartment building with 30 units should be able to float one renter who is struggling for a little bit, and probably, on a moral level, should do so. But I hear horror stories: some tenants really are out to take advantage of their landlords, and feel not only do they have a human right to housing (which I personally tend to feel should be true, even if it actually isn't) but to THIS housing, even when they CHOOSE not to pay, and CHOOSE not to be good neighbors (which I personally feel is NOT true: to get someone else's best, people should be giving their own best). Apartment managers seem to lose their faith in humanity at an astonishing rate, so there is something to consider there. It all comes down to balance, as most things do, recognizing the rights and responsibilities on both sides, all of which is nearly possible to write into law in a truly fair way, but I still am for trying.

On the residential ownership side, prices will crash as interest rates rise, but the combination has no winning side in it. The price crash harms sellers while the interest rate increases mean no net benefit for buyers who need mortgages.

Last edited by DW_a_mom on 19 Jan 2022, 9:47 pm, edited 1 time in total.

Here's a different tangent for the conversation: should we be allowing foreign investors to buy our land and real estate at the pace they do? We currently have laws that literally encourage it, and I consider that a problem. Citizens of countries like China and Singapore own an astonishing amount of our real estate. Eventually they won't have to go to war to take over; they'll just have to claim the advantages of ownership. We're just letting it happen. Why? Because, short term, it allows some US owners to cash out at a bigger profit? I happily work with foreign owners of US real estate (from a professional standpoint, its a fun change of pace, and declining to wouldn't fix anything), but the whole concept sits uneasy. Without a doubt, it drives rents up, and exacerbates our housing crunch issues.

I think there is a good amount of "I wish this was the way things were" in the thread. Doesn't mean they don't all know somewhere deep down that some ideas just aren't functional.

But speaking generally, not to this audience in particular, there also tends to be a certain amount of denial in people, not understanding the level to which their own choices and / or issues do get in the way of what they should be able to achieve. If I had no personal issues, I'd have so much more than I do, and while I can dream of a magic pill that might take those issues away, I remain grateful for the tools, skills, understanding and (I have to admit) socioeconomic privilege I have that allow me to have a nice enough life as I am.

The problem with some of the conservative thought, however, is that it can start from the assumption that some classes SHOULD be the natural leaders, and that it is their right and just position, thereby rendering the idea of actually providing a level playing field an anathema. I get tired of the self-serving arguments that insist the field isn't level when all one has to do is walk it to know it isn't. I live with both feet in different enough worlds to see first hand the difference, and I'm tired of schools of though devoted to gaslighting those who struggle.

As I have been a landlord some 10 years ago (caution: It's very stressful) I can vouch that your return on your investment will only appreciate when your hold on the investment exceeds a certain threshold.

That threshold is contingent on
1. Time holding the property (you need minimum 10 years before seeing satisfactory profit)
2. zoning (high demand areas appreciate much faster)
3. price (more expensive the property the investment you need as an initial outlay but the greater the margins of return)

Where a lot of landlords make mistakes are
1. They don't hold onto their property long enough to pay off all the other initial expenses and allow sufficient growth to give a adequate return (property investment is the opposite of a get rich quick scheme)
2. They buy new properties in cheap zones (not so desirable areas). The attraction is lower outlay but the problem here is the land appreciation is low/slow so the amount saved in the initial outlay is whittled away by interest rates > annual growth