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Old 11-05-2012, 05:44 PM
 
Location: Austin, TX!!!!
3,765 posts, read 8,153,977 times
Reputation: 1760

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Quote:
Originally Posted by OpenD View Post
Sure, but you missed the point. The handful of garage apartments in the neighborhood were cheap when they were few and far between, and they were cheaper than average apartment rentals in the city because they were typically smaller and funkier and didn't have the amenities of apartment complexes.

Once the area got flipped, however, the rents did too, and they went from below-market in the citywide sense to above-market in the city-wide sense.

Sure, if all the HEBs and Randalls and WalMarts are selling Gala apples for $1.25 a pound and Whole Foods is selling the same apples for $2 a pound, then the market price AT Whole Foods is $2, sure, but the city-wide comparison price is $1.25. That's what I was talking about, the comparison to the overall rental market.
I didn't miss the point. I get that prices rose. However, that is just the result of that neighborhood becoming more popular. In no universe do prices get higher when supply increases but demand does not. It doesn't matter that supply increased, what matters is that demand far exceeded supply and that drove up prices.

My point was that you were incorrectly assessing market price for that area. The market price for that area rose over time, apartments were not renting for "above market price." Real estate is not fungible like other goods. That's why real estate is the one area of law where courts will often enforce specific performance when a contract dispute arises. So drawing an analogy to apples doesn't really work in this context. Part of the product included when selling real estate is the LOCATION and the is a big driver of the price.
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Old 11-05-2012, 06:30 PM
 
Location: Volcano
12,971 posts, read 25,009,533 times
Reputation: 10651
Quote:
Originally Posted by Jennibc View Post
So drawing an analogy to apples doesn't really work in this context.
It absolutely does, because the consumer is not concerned about market theory, the consumer is concerned about price. And they make price comparisons based on the average market.

Remember, I was responding to a post supporting the buildout of secondary housing units in a stable neighborhood because "who wouldn't want a cute, cheap garage apartment?" But that thinking is an illusion, because the practical result of the buildout is NOT more cheap apartments, but more expensive apartments. And increased strain on the infrastructure.

Quote:
Part of the product included when selling real estate is the LOCATION and the is a big driver of the price.
Yep. And in this case the location is still in exactly the same place, but the rents are close to 50% higher than they were 5 years ago. The difference is mostly marketing.
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Old 11-05-2012, 06:55 PM
 
Location: Austin, TX!!!!
3,765 posts, read 8,153,977 times
Reputation: 1760
Quote:
Originally Posted by OpenD View Post
It absolutely does, because the consumer is not concerned about market theory, the consumer is concerned about price. And they make price comparisons based on the average market.

Remember, I was responding to a post supporting the buildout of secondary housing units in a stable neighborhood because "who wouldn't want a cute, cheap garage apartment?" But that thinking is an illusion, because the practical result of the buildout is NOT more cheap apartments, but more expensive apartments. And increased strain on the infrastructure.



Yep. And in this case the location is still in exactly the same place, but the rents are close to 50% higher than they were 5 years ago. The difference is mostly marketing.
Okay, I give up. It appears in your view, basic principles of microeconomics don't apply to real estate. You are wrong, but there isn't any point in my continuing to argue it.

At any rate, I was initially addressing your assertion that the apartments were going for above "market price" which is an economic term. You are using the term incorrectly. That's what I was pointing out.

Okay, just one last point (so I lied, I am continuing to argue it!)The change in rent has nothing to do with marketing and everything to do with people that want to live there being able to and willing to pay 50% more in rent than they were five years ago. Landlords will charge was the market will bear and in this case it can bear a 50% rent increase.

Last edited by Jennibc; 11-05-2012 at 07:05 PM..
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Old 11-05-2012, 07:00 PM
 
Location: SW Austin & Wimberley
6,208 posts, read 16,055,181 times
Reputation: 5289
Quote:
Originally Posted by OpenD View Post
It absolutely does, because the consumer is not concerned about market theory, the consumer is concerned about price. And they make price comparisons based on the average market.

Remember, I was responding to a post supporting the buildout of secondary housing units in a stable neighborhood because "who wouldn't want a cute, cheap garage apartment?" But that thinking is an illusion, because the practical result of the buildout is NOT more cheap apartments, but more expensive apartments. And increased strain on the infrastructure.



Yep. And in this case the location is still in exactly the same place, but the rents are close to 50% higher than they were 5 years ago. The difference is mostly marketing.
You're overthinking it. I've owned, leased and managed rentals in Austin for over 20 years. I've seen what the market does and rented to thousands of renters. It's supply and demand, plain and simple. No analogies needed.

Location drives demand. Close in neighborhoods continuously increase in demand in Austin. That's not going to abate, ever.

Supply can't be increased at a construction cost that would saturate the market and drive down rent prices. Go ahead and price out a "granny flat" atop a garage, including all the hassle of dealing with the city of Austin's abysmally incompetent permitting and code departments. These people are real morons. Sorry. They are simply not top shelve professionals, but borderline government idiots. Don't take my word for it, go on down there and ask about getting a permit to build a garage apartment, or adding a guest room/efficiency with kitchenette and bath on to your existing home. Report back in a year or two with what you learn about how things work at our city permitting department.

So, "increasing supply" is an interesting discussion theory, but it's not an actual possibility given the regulator constraints and actual costs.

Steve
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Old 11-05-2012, 07:09 PM
 
Location: SW Austin & Wimberley
6,208 posts, read 16,055,181 times
Reputation: 5289
Quote:
Originally Posted by Jennibc View Post
Okay, I give up. It appears in your view, basic principles of microeconomics don't apply to real estate. You are wrong, but there isn't any point in my continuing to argue it.

At any rate, I was initially addressing your assertion that the apartments were going for above "market price" which is an economic term. You are using the term incorrectly. That's what I was pointing out.

Okay, just one last point (so I lied, I am continuing to argue it!)The change in rent has nothing to do with marketing and everything to do with people that want to live there being able to and willing to pay 50% more in rent than they were five years ago. Landlords will charge was the market will bear and in this case it can bear a 50% rent increase.
Agreed. This is correct.

Except rents are not up 50% in 5 years. Austin rents in 2011 were the same as in 2001. That's how far and long rents fell following the dot com bust and tech bubble. The past year, we saw our house rents rise 5% to 8% roughly. Though I still own homes in LEander that are rented for less than I rented them for in 1999.

I have one garage apartment in Hyde Park rented for $750/mo. That's about what it would have rented for in year 2000. If that tenant moves, I'll probably be able to fetch $995 if it's during the summer, $895 if fall/winter.

Steve
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Old 11-06-2012, 12:22 AM
 
Location: Volcano
12,971 posts, read 25,009,533 times
Reputation: 10651
Quote:
Originally Posted by Jennibc View Post
The change in rent has nothing to do with marketing and everything to do with people that want to live there being able to and willing to pay 50% more in rent than they were five years ago. Landlords will charge was the market will bear and in this case it can bear a 50% rent increase.
Here's another gap between the theoretical and the applied. Homeowners with a "garage apartment" to rent behind their own residence don't charge "what the market will bear". That's a real estate investor's concept. Instead, they charge what seems fair and reasonable. When there were only a few of them around, those rents typically ran below the average market rates, because after all, they didn't have the amenities of nice apartment buildings, etc. Truth be known, some of them weren't even blessed by a building permit. And when you live in the house up front, there's a high priority on not having any hassles from the tenant living in the garage.

And to rent one of those places, you pretty much had to know someone who was moving out, or walk around the neighborhood until you saw a small, discreet "For Rent" sign, because nobody advertised. It was hard to find a place there.

It was what could be called a stable market.

Then when it became the thing to do, as a feisty elderly neighbor of mine who had owned her house since the 50s put it, to "prostitute one's back yard," the market was destabilized and then changed quite quickly.

Many of the front houses are rentals now, the brand new two story "garage" in back with the studio downstairs and the 1 BR up cost more to construct than the entire property was worth 5 years ago, the property is managed and marketed with fliers and ads, and THEY jack up the rates because they have to in order to cover all the fees AND still achieve the desired ROI for the non-resident owner, and, and, and... it's an entirely different world now. The neighborhood has changed in many significant ways.

Quote:
Originally Posted by austin-steve View Post
Agreed. This is correct. Except rents are not up 50% in 5 years.
Not on average, no. But in that area many of them are.

Here's my point... without even getting into whether the changes are good or bad when you open up R-1 neighborhoods to multi-residences , my central point is that they are not trivial changes to make. It takes some careful consideration of a lot of complex factors, with an eye to what experience has to teach, to decide whether it is appropriate or not for a given neighborhood.
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Old 11-06-2012, 06:35 AM
 
Location: SW Austin & Wimberley
6,208 posts, read 16,055,181 times
Reputation: 5289
Quote:
Originally Posted by OpenD View Post
Here's another gap between the theoretical and the applied. Homeowners with a "garage apartment" to rent behind their own residence don't charge "what the market will bear". That's a real estate investor's concept. Instead, they charge what seems fair and reasonable.
I think you have a distorted view of reality and a mistaken notion of people. Owners of garage apartments, past and present, charge market rents, often higher than market, and are able to obtain it, because many, stupidly, don't run credit or background checks and are too liberal about pets, so they attract people who can't otherwise rent from a professional company.

You seem to think there are a bunch of Ward and June Cleaver types, meeting people in the grassy front lawn, inviting them in for lemonaid, and saying "you seem like a very nice young man Eddie. We're going to rent to our garage apartment to you for a below-market rate".

I've dealt with a lot of central Austin property owners. They are just as financially ambitious as the rest of us. There isn't an altruistic bent.

With regard to rents rising 50% in 5 years in parts of Austin, show me your data. Show me the duplex or garage apartment in Hyde Park that rented for $1,000 in 2007 and that now rents for $1,500 today. Maybe with a complete overhaul and upgrade, but not unchanged.

I do think the idea of a housing cluster of some sort with modest, affordable units for rent and/or purchase could work if done properly. I don't think the city of Austin is capable of doing so though. Is Mueller "affordable"?

Steve
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