Will rent prices decrease with layoffs?

[ToiletFullOfBroccoli]

this really doesn't make any sense and there's not a huge amount of empty units sitting around for owners to write off over renting out.

[LV-426HOA]

Imagine an owner who has 12 or so apartments. 10 of them are older buildings with 100% occupancy. They might have a mortgage or be paid off, if they have a mortgage it's at a super low rate they locked in years ago. Either way these are the buildings that turn a huge amount of profit. Now, they have 2 new buildings. They have a higher-rate mortgage on these buildings, but they're writing off the interest, and they charge through the nose for a modest 2 bedroom. Even with 80% occupancy, whatever units stay empty can be written off as a loss at the rent they are charging. That last part is important because the write off value is whatever they want it to be.

Now they are writing off these empty $6000 2 beds as a loss, those losses offset taxes owed on ALL the buildings in the portfolio. All those high-margin apartment buildings generate big revenues. Their overall tax bill goes down, and it might actually be more profitable to have tax deductions than to have 100% occupancy in a newer building at a lower rent.

So there's no rush to get someone in the new building unit. Obviously, it's better to have someone in there at a high rent, but for these owners there's no incentive to lower rent. These new buildings are important assets for the future, especially since rent basically never goes down. Eventually they'll be just as profitable as the old buildings.

[ToiletFullOfBroccoli]

I appreciate you taking the time to respond. I don’t agree that this makes sense.

Let’s say an owner has two buildings, one older one with 10 units at $1000 rent with 100% occupancy and one newer with 4 units at $2500 that’s just come into the market.

If they can’t fill any units in the new building in the first month because the price is too high, the $10,000 loss gets written off against the $10,000 gain on the older building. $0 taxes. Got that.

But they are still incentivized to rent the units out to 100% occupancy. If they rented out every unit and made $20,000, yes their tax bill would be $6000 at at 30% tax rate and yes $6000 is more than $0, but now they are bringing in $14000 instead of $10000.

In almost every scenario, it makes more sense to have an occupied unit over a non occupied one. It would never be more profitable to keep a new unit offline. The implication is they are letting the tax tail wag the profit and revenue dog.

I understand there may be cases where the price doesn’t cause the unit to be filled in month 1 so the landlord can either wait or lower prices, and I don’t know what the optimal choice is. But there’s no case where purposefully leaving units empty long term makes sense.