patrick.net

klarek says

What the landlord pays has nothing to do with what the renter pays. My landlord could own the house outright and pay $0 in property taxes, or he could be paying double in his PITI than my rent costs, plus large property taxes, and it has no impact on me. The rental market in the aggregate is satisfied with supply and demand, not the desires of landlords.

That's not completely true. Whenever I've discussed this with other people, they tend to focus on two extremes:

1) the renter is directly paying the landlord's costs, e.g. taxes, mortgage, etc. + a reasonable profit
2) the landlord's costs cannot get perfectly absorbed by rent, such that if property tax went up by 40% next year, the landlord could not raise rents by that amount to make up for it, so the renter's costs have nothing to do with the landlord's costs

The reality is somewhere in the middle. Most input variables into landlord costs do not change very much from year to year, so it's closer to #1 than #2, but still somewhere in the middle. Renters mostly do pay property tax.

corntrollio says

Renters mostly do pay property tax.

While theory and practice often diverge, theory says:

"A tax upon ground-rents would not raise the rents of houses. It would fall altogether upon the owner of the ground-rent, who acts always as a monopolist, and exacts the greatest rent which can be got for the use of his ground. "

Adam Smith, The Wealth of Nation, Book V, Chapter 2, Article I

corntrollio says

Whenever I’ve discussed this with other people, they tend to focus on two extremes:

1) the renter is directly paying the landlord’s costs, e.g. taxes, mortgage, etc. + a reasonable profit
2) the landlord’s costs cannot get perfectly absorbed by rent, such that if property tax went up by 40% next year, the landlord could not raise rents by that amount to make up for it, so the renter’s costs have nothing to do with the landlord’s costs

The reality is somewhere in the middle.

My point is that the landlord's net monthly rental cashflow is irrelevant. The rental market sets the rental prices: supply and demand. If my landlord were trying to rent his house out at the amount he's paying per month, the house would be empty. On the same token, if someone who owns a house outright were generous enough to rent it "below market", covering only the property taxes and maintenance, people would be fighting to get in there, and other vacant rentals would have to compete.

So the notion of a landlord passing the bill onto the tenant is a misnomer. The tenant is paying for use of the house, regardless of the financial situation of the owner, and shaped by the aggregate market of supply and demand. The owner in turn is paying to keep the house in livable condition, paying the local ordinance the taxes he owes, and the loan that he may or may not have taken to buy the house. Typically, investors ought to know what the rental rate is before buying a place. As we saw during the bubble, this is frequently not the case. Regardless, he isn't likely to have any luck in passing that burden to a renter who would be foolish enough to overpay for the rent on that house rather than an equivalent across the street at half the rental price. Owners may get to choose which applicant occupies their house, but they don't get to choose what the market is willing to pay.

klarek says

Typically, investors ought to know what the rental rate is before buying a place. As we saw during the bubble, this is frequently not the case. Regardless, he isn’t likely to have any luck in passing that burden to a renter who would be foolish enough to overpay for the rent on that house rather than an equivalent across the street at half the rental price.

But that's only true for stupid property investors who can't calculate return. The smart thing to do in the scenario you're describing is to sell the property.

For example, a smart property investor wouldn't buy a residential property for investment in large parts of the Bay Area because renting is much cheaper than buying in those parts, and you can't get a great return anyway.

A smart property investor would instead buy a residential property for investment where they get a good return on equity. Smart property investors usually try to get a real return from their properties, so usually the rent is the cost of having the property + profit. The landlord's monthly rental cashflow is only irrelevant for people who shouldn't be "investing" in the first place.

Troy says

While theory and practice often diverge, theory says:

As you said, theory and practice often diverge. Quoting Adam Smith doesn't mean much here. Trying to compare the rental market in the 1700s to the rental market today doesn't really work.

I have been fence sitting as the prices in my area never really fell, but instead have just been flat for a while. However, things look worse and worse every month. I see a lot houses that are still on the market from 2 or 3 years ago. Yesterday, I just learned that the house I am living in is being foreclosed on. The house is owned by the builder, who couldn't sell it. About 20 of my neighbors are in the same boat.