Why are landlords obsessed with getting market rents?

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Sister Sara

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What is the obsession with achieving 'market rent'?

I do not understand. You let at a certain price in 2014 and presumably you were happy with that? That was 11yrs ago so what mortgage repayments you are liable for (if any) are, maybe 1/3 less the market rate of mortgages than they are now for the same property?

You sound like a good landlord, someone who is providing accommodation to others who need it and they are paying you rent. You are obtaining the capital appreciation on the property also.

This sounds like a good news story. This is how landlord/tenant leases should operate. Well done!
 
odyssey06 said:
Cost of living in 2025 is significantly higher than 2014. Are you still paying the same for fuel, services, groceries and other bills? Nope.
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True, but surely the rent isn't set on the basis of the cost of living of landlord?
I mean, the tenant also has to pay for increases in fuel, services, groceries and other bills? Yes!
On top of that, the tenant must pay higher rent to alleviate the cost of living expenses for the landlord?

None of that makes sense. The cost of maintaining and servicing the property predominately lies in mortgage repayments, service charges, fixtures and fittings, repairs to the property.

Whether the landlord shops in M&S or Lidl for their groceries has no bearing on rent.
 
Sister Sara said:
I do not understand. You let at a certain price in 2014 and presumably you were happy with that? That was 11yrs ago so what mortgage repayments you are liable for (if any) are, maybe 1/3 less the market rate of mortgages than they are now for the same property?
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On that logic rent should never increase. I rented in the late 80s for £10 a week. My landlord was presumably perfectly happy with that rent back then so he should be charging that rent today. His mortgage payments are presumably non-existent at this stage as well.

Everything increases in price over time. The gas and electricity companies were perfectly happy to supply me with far cheaper gas and electricity in 2014, so they should be happy with the same rate today?

It seems to be an iron rule that rents can never increase, while everything else can!
 
Greenbook said:
On that logic rent should never increase.
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I'm not suggesting that.

What I'm asking is what is the obsession with achieving 'market' rents.

ie. Landlord A charges €1,000 per month, Landlord B next door, providing quality fixtures and fittings, charges €1,200. Average market price €1,100

Landlord increases rent to €1,100 to achieve market rent, only to discover that by doing so the market rate has now increased to €1,150 as a consequence.
Landlord B, realising the market rate has gone up and knowing she provides quality fixtures and fittings, knows that she can charge 9% over the market rate. Her rent price increases to €1,253 etc

Neither landlord's cost of living has increased anymore than the other. The increase in the cost of living of the tenant, most certainly, has now increased!

One thing is for sure, the obsession with achieving market rents will ensure that both landlords can comfortably shop in M&S while their tenants may start to consider foodbanks!

Please do not take that as a slur against your good self. I'm sure you are well-intended in your comments. But applying 'market prices' or 'market rents' to rental housing (homes) is inherently contradictory to the establishment of civilised societies.
 
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Sister Sara said:
What I'm asking is what is the obsession with achieving 'market' rents.
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What's your obsession (presumably) in achieving market wages? Or your grocers obsession with achieving market prices for the fruit and veg they sell you.

The reality in any transaction.....is the buyer seeks the lowest price possible and the seller seeks the highest price possible.....free market prices set the equilibrium between these two desires....mediated by supply and demand....in a world where tenants get below market rents or your employer pays you below market wages....a transfer is occuring....a transfer of value from one party at the expense of the other.....market rents and market prices are fair prices where no excess value is being captured by either side.
 
Firstly, many small landlords, and it was certainly the way I operated in the past (to my cost) was to agree a rent with a tenant when they took the lease, stick to that and when the tenant left, re-let at the going rate. I suspect that most small landlords previously operated on that basis. During the recession, my tenants asked for rent cuts. Some may have done so due to financial hardship, others because they knew they could. Once the recession ended, I started to increase my rents again. So you do as a landlord gauge what you are charging against the market, it doesn't mean you are obsessed with getting top dollar in all circumstances. Also, in the past I would have given a reduction in the rent to a reliable tenant if they asked generally as part of the negotiations when they first rented the property. That rent would be below MV, but I would have thought the tenant was a good bet.

Secondly, absolutely every business does this. You are buying your groceries in M&S or lidl etc. They are making profits which go to the shareholders. They will maximise those profits as much as they can to the shareholders benefit even though they are selling something vital. How many people struggle with food bills these days? The shareholders in Tesco certainly don't.

If you need repairs to your house, you will pay the builder an extortionate amount of money these days - he is making a large profit because he can (I worked in the building industry in the past, I know what the costs are and I am astonished at what is being charged).

Many landlords because we have long term relations with our tenants and it is a relationship which needs co-operation on both sides go easy on our tenants regarding rent. A reliable tenant is better than an awful one who pays top dollar. Compare that to the builder who will fleece you because he will never see you again.

The rents must increase because otherwise as an investment it makes no sense (keep in mind any rental will need a major overhall every 10 years or so and money must be put aside for that also), yet landlords are treated as uniquely evil for this.
 
Sister Sara said:
surely the rent isn't set on the basis of the cost of living of landlord?
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Surely what?
The landlord may have purchased the property in order to generate an income to fund their retirement, or just as the basis for a small landlord business.
Why are they unable to make adjustments to the use of their own property in respect of cost of living increases, whether in regard to property upkeep or general cost of living?

Your post makes an erroneous assumption that a property to rent is only done on the basis of paying off a mortgage. It is then silent as to how the landlord can ever derive a benefit from this asset if trapped into a below market rent.

It provides no logical or reasonable basis as to why anyone would become a landlord.

Framing that as an "obsession" or contrary to civilised society is completely without foundation and does nothing to achieve an understanding of real life decisions, choices, constraints.
 
Thanks @letitroll, I appreciate that sentiment which endorses my view.

Excess value is being captured by, in the scenario of landlords chasing 'market prices', from tenants.
Important to acknowledge that from an individual perspective this is perfectly normal.

That is why we have government - to intervene when market rents and market prices are not fair and undue value is considered to be captured by one side over the other.

For example, when property prices were collapsing during the financial crisis, the government stepped in to provide liquidity to banks, bondholders, subsequently feeding into the return of asset provides within a decade.

Now we have government stepping in to try induce increased investment in rental property while protecting tenants. From what I have read so far, a big fat 'F'.

There is no determinable 'fair value' at any given time, but there can be consensus amongst market participants of whether excess value is being extracted by one side or the other.

The current debate over record high rents v lack of investment for new rental properties is what it is, a market failure - the failure to provide accommodation of reasonable quality for a not insignificant portion of the population, despite charging BMW prices for 2nd hand Ford Escorts.
 
Dr Strangelove said:
Because landlording is a business, not a charity.
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I appreciate the replies folks and acknowledge the sentiments.

This one stands out for me. Landlording is a business, for sure.

The business of maximising profit? There is no such business. Maximising profits is the consequence, outcome, or aim, of engaging in business.

The business of 'landlording', is in engaging in the provision of housing, shelter, for people. To survive as a business it must be on the basis of being able to provide reasonable accommodation on a sustainable, affordable and secure basis for the tenants, occupants.
Failure to do so, is poor 'landlording'.

If tenants are in fear of rent of excessive rent increases, eviction etc, this is very poor landlording.
If landlords are in fear of losing out on profits because they cannot maximise to 'market' rents, that is also poor landlording.

I would respectively ask anyone who disagrees with this and who is a landlord to exit the market and allow good landlords, who understand what the business is about, to enter the market.
 
Sister Sara said:
Excess value is being captured by, in the scenario of landlords chasing 'market prices', from tenants.
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I think you've completely misunderstood - when market rents/prices are charged neither the buyer or the seller is capturing any excess value. It is fair and equal because it reflects supply & demand dynamics in the market place and both tenant and landlord agree to a price of their own choosing.

Excess value is captured in this instance, by tenants, getting to access below market rents because of RPZ rules....it represents a transfer of value from the landlord to the tenant.

Like if the Government tomorrow decided that people called Sara we're to receive €5,000 euros less in wages per year from their employer...this would represent a transfer of value from Sara's to employers.
 
Sister Sara said:
That is why we have government - to intervene when market rents and market prices are not fair and undue value is considered to be captured by one side over the other.
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Yep this is the standard socialist diatribe - and it leads over time to less rental supply in the first instance (which we have seen since 2016) and then less housing overall in the second instance (ditto).

Like a fruit and veg grocer forced to sell his stock below market prices. Would you expect in 12 months time to see more or less fruit and veg grocers on the high street......the answer is obvious....and thats where we are with housing.
 
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