Eric Stoller's blog

| higher education consulting |

Rents rising in Cedar Rapids

11 comments



Some owners of rental properties in Cedar Rapids, Iowa are citing supply and demand as a rationale for raising rental prices. Disgusting. The soul of capitalism is revealed within the midst of a tragic situation. Cedar Rapids, Iowa flood survivors’ need for housing is turned into the “market’s demand”. Heinous.

A post-flood housing shortage in Cedar Rapids is driving up rent for everyone as displaced families look for places to live.

Some 3,900 homes in town were damaged by the flood. Many continue to be uninhabitable. In Iowa City and Coralville, about 800 homes were evacuated.

Josh Pierce and his wife and three children had been looking for a house to rent for about a month. They’ve outgrown their small apartment in northeast Cedar Rapids, where they’ve lived for about a year.

A home at 938 38th St. SE caught their eye and on June 9, the Monday before the flood, it was listed at $645 per month by Equity Realtors, a company owned by Bob Miell.

A week later, the same house was listed online at $845 per month. Pierce called Miell’s office.

“‘Supply and demand’ — that’s all they said,” Pierce said.

Miell did not respond to requests for an interview.

I would hope that this type of activity falls within the rubrics of Iowa’s price-gouging policies…

Iowa’s anti-price-gouging rule is in effect in every county where there is a disaster declaration, including Linn, the state Attorney General’s Office says.

“There’s no bright line that automatically defines it,” said Bob Brammer, spokesman for the Iowa Attorney General’s Office.

Price increases after a natural disaster are not necessarily price-gouging, he points out. But when a landlord or business owner doubles or triples a price, that’s when the attorney general’s office really begins to pay attention, Brammer said.

Keith Smith is a scumbag. On one hand he is stating that his priority is to get people into homes and then on the other, he has no trouble with saying that “supply and demand” justifies rental increases. If Keith Smith, as the president of Landlords of Linn County, sets the tone for Linn County landlords, then I hope that the Iowa Attorney Generals Office is intensely watching rental prices in Cedar Rapids.

It would have been refreshing to have Smith say something along the lines that personally he would not raise rents and take from people who have already had a lot taken from them… I guess that’s too much to ask.

Keith Smith, president of Landlords of Linn County, said his first priority is getting flood victims — particularly low-income residents — into homes.

Chances are good that more landlords will eventually raise rents, because their property is more valuable now than it was before the flood, he said.

“There’s more demand than supply, and prices go up,” he said. “Personally, I know I can raise my rent and get what I’m raising, because the market’s demanding it right now.”

via the Cedar Rapids Gazette

Written by Eric Stoller

June 22nd, 2008 at 5:38 pm

  • Pingback: Iowa flood roundup » Eric Stoller’s Blog()

  • http://www.gwinnettbuzz.com FinanceBuzz

    I want to preface my comments by saying that my remarks that follow are in no way an effort to take my usual stand in opposition of you, Eric. I know this is a very personal issue to you being that that Iowa is home. I feel for all the people who have been impacted by the floods. My position has been the same with hurricanes where “price-gouging” has come into play as well.

    However, I cannot support anti-price-gouging laws. Supply and demand does not stop because a disaster has occurred. In fact, I would submit that government interference will only prolong the housing shortage. First, consider that the shortage in rental housing will result in price increases whether it is initiated by a landlord or by a potential renter. If a landlord advertises a rental property at a “normal” price, there is a real change that he will have several willing renters there to attempt to outbid one another. Result – higher rental rate because many landlords faced with such a situation will not turn turn away the excess income. Some will and they are noble individuals. Furthermore, I doubt there will many rental properties sitting unoccupied because of price increases. Whether prices stay the same or not, some people will not be able to get into a home because of the shortage. Now, having said all that, ideally, in such a scenario, people would set aside their profit motivations for a period of time, but that is not likely to occur. Thus, in light of that, your argument on the motivations of some people would hold some water. The second effect is more effective and, in the longer run, a stronger rational for not interfering with the free market.

    In the longer term, increased rents will allow the market to return equilibrium faster. Other property owners whose property has been damaged by the flood , have to rehabilitate their properties. Because contractors have likely been impacted as well.and construction materials may be in short supply due to an atypical spike in demand, prices will have upward pressure due to the same mechanisms as housing. This is where the heinousness of government meddling starts to hurt the citizens. You can say what you will about the “soul of capitalism” but Adam Smith recognized that those working in their self-interest ultimately benefit society. When contractors see the demand for work in the impacted area, there will be interest in offering their services. Some will act out of benevolence but others may seek outsized profits. If price-gouging laws discourage those interested in profits, the impacted citizens will have less supply of labor and will delayed returning to their homes as compared to if they were allowed to pay higher prices. If the price-gouging laws are too tightly enforced, even those acting out of benevolence may not be allowed to recover their likely higher costs to service the impacted area. Regardless of scenario, there remains insufficient supply of labor to meet the spike in demand and people will remain out of their homes. The thing is though that the more competition that the high pricing opportunity attracts naturally begins to decrease the high prices as supply of labor and materials increase. If the government leaves the market alone and allows those who are willing to pay the high prices for services and material, then eventually everyone will likely benefit from better access to services and get to return home. True, an influx of outsider supply at a higher cost structure likely means a higher equilibrium price (which should not be price-gouging in the strictest definition) but I think many people would be willing to pay some premium to return home. A similar argument could be made for the overall supply of rental property with landlords having or not having an incentive to take more costly measures to quickly return their supply to the market in hopes of a profit.

    Yes, price-gouging sounds cold and callous. Sure, people should sacrifice at least some of their profits to help others. But reality is that not all will do that and the government interferes with the free market pricing mechanism, the eventual losers are those impacted by a disaster.

  • http://rhetoricalwasteland.blogspot.com Dennis

    So…. profits are more important than people?

    Just trying to be clear =)

  • http://www.gwinnettbuzz.com FinanceBuzz

    Nice try but that was never a question I addressed. The profit motive is reality and it is not inherently bad. When people seek profits they wind provided needed products and services and society benefits.

    “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.”

    -Adam Smith

  • http://ericstoller.com/blog/ Eric Stoller

    @ Derek Brian Cook / FinanceBuzz:

    What happens to people who can’t afford the increased rent after they were displaced?

    Your argument wreaks of classism. “[P]eople would be willing to pay some premium to return home”. Are you out of your fucking mind? People without funds and whose job has been destroyed cannot in the near future pay more. Your impressive economics thesis does not talk at all about people without jobs, without money, who need housing. People need housing right now. Not after rich people pay to have everything re-built, but right now.

    A landlord that profits at the expense of a flood survivor is disgusting. People are displaced and you think that they should be happy paying more money because it’s what the fucking economics textbooks say?

    Unbelievable.

  • http://www.gwinnettbuzz.com FinanceBuzz

    So do you care to show where the economics suggesting that not interfering will help alleviate the problem faster is wrong? Rather than doing that, you go off on borderline personal insults. Fine, you don’t like someone making a profit. That is your privilege. But ask that family who has a roof over their head if they care that someone made a dime or whether they would still rather be in a hotel 75 miles from home?

    People need housing right now. Not after rich people pay to have everything re-built, but right now.

    And where are they going to live if things are not rebuilt? Where is that immediate housing going to come from? Rich people AND poor people have probably lost their homes. You are acting as if someone has money, they are not entitled to have a place to live. In your opinion, should poor people get preferential treatment for housing? You call me classist but you are the one that, again, seems to be trying to separate, subdivide and label. I am talking about economic theory and how the market can most rapidly remedy this disaster while you are more worried about social fingerpointing.

    What happens to people who can’t afford the increased rent after they were displaced?

    There are more people needing housing than there is housing. Not everyone is going to get a place to stay. In some socialist utopia perhaps we would suspend the free market and simply auction off slots which is paid for by the government. I am NOT suggesting that just because someone has more money they deserve a roof over their head anymore than anyone else. But that is simply the reality. And if the government keeps its nose out of things rather than distorting the market, theoretically normalcy should return faster. Now what part that part of my “thesis” is so inherently bad for people? If you could set aside your agenda for two minutes and really read what I wrote, you will see it supports helping people faster even if…oh my goodness…someone earns a profit in the process.

    Today, I heard the Democrats in Congress wanted to create a FEDERAL LAW against gas price-gouging. From where I stand, they are playing politically motivated games that playing off the economic ignorance of Americans. Perhaps you are not as politically motivated and really are a true idealist. Normally, many of the points you push here, if pursued, would be mildly annoying to deal with. Some are laughable and some actually make me think. But this time, unless you have a strong ECONOMIC argument in this time of crisis to make, your desire to put social engineering and your agenda over sound rational thinking that did not have a hint of animosity toward anyone. I find potentially playing with people’s lives for an agenda far more disgusting than someone making a profit.

  • http://rhetoricalwasteland.blogspot.com Dennis

    “However, I cannot support anti-price-gouging laws.”

    Price-gouging laws are clearly designed to prevent people from making obscene profits off others in times of need.

    Opposing them is, in that case, putting profits above people. Whether or not you said it outright is irrelevant; you said something that requires profits to be valued more than people’s needs in order to be true. Preventing price-gouging is not forcing people to rent or sell something at a loss; it is asking them to restrict themselves from taking advantage of people in need.

    Were it up to me, yes, the government would sure as hell step in in this situation and build some houses – then it would give them to families with little wealth, perhaps even providing some property tax breaks, so those people had some equity to work with. That would go a long way towards revitalizing the area economically as well as working against class stratification.

    The so-called free market clearly values money over people, as the accumulation of wealth is the entire point of the market system. It seems fair that at least some of the time, people should take precedence.

    I’m with Eric on this one: If following your particular brand of economic theory means creating hardships for people, then we should jettison the theory.

    After all, the market is a social construction. It only works because we all agree to live by its rules (or are forced by others to abide by them). The free market and profit motive have not always existed, nor do they exist everywhere. Because of this, it’s not something in human nature that determines the market or its rules, but something we learn to do and teach our children to do.

    If it’s not human nature, the rules are, to some extent arbitrary.

    If they are arbitrary, we can break or suspend them in times of need.

    Like now.

  • http://www.gwinnettbuzz.com FinanceBuzz

    Were it up to me, yes, the government would sure as hell step in in this situation and build some houses – then it would give them to families with little wealth

    If following your particular brand of economic theory means creating hardships for people, then we should jettison the theory.

    I interpret this as support for a socialist approach. Government assistance is one thing and more aligned with a liberal political philosophy even within a capitalist system. However, to “jettison” capitalism, spanks of socialism. I just think it is important we are clear at the outset of remarks of the context in which you apparently view the economics of this situation.

    Price-gouging laws are clearly designed to prevent people from making obscene profits off others in times of need.

    Opposing them is, in that case, putting profits above people. Whether or not you said it outright is irrelevant; you said something that requires profits to be valued more than people’s needs in order to be true.

    This is simply NOT the point I was making. Did you read what I wrote? If so, try rereading it. What was the entire crux of my entire point? That allowing the free market to operate ultimately helps PEOPLE. Where did I take the position that I did not care about what happens to the people affected by a disaster and that I only cared about making a profit? My entire point was about helping people. Now, if you want to disagree with the method, go ahead, but don’t mischaracterize what I said to fit your socialistic views.

    The so-called free market clearly values money over people, as the accumulation of wealth is the entire point of the market system. It seems fair that at least some of the time, people should take precedence.

    Fine, let’s stipulate that a tenet of capitalism is the accumlation of wealth. How does that contradict the point I made? In fact, the whole concept as outlined by Adam Smith was that the pursuit of this self-interest ultimately has the side effect of helping people. Are you opposed to people being helped if the intentions of those providing may not have been entirely selfless? What is more important, that people that need help get it or that someone dare not make a profit. I think the former is more important. If someone does or does not make money in the process is secondary.

    Let’s illustrate with an example how government interference can help those that the help the most.

    Fred and his family have been put out of their home due to flooding in Cedar Rapids. Because of the number of displaced families the only place they can find to stay is 50 miles away in a rundown roadside motel. Even if Fred could do the repairwork himself, materials are in short supply in Cedar Rapids. Stores and the supply chain there are just not normally faced with a large percentage of residents needing basic building supplies all at once. Fred is not a rich man, but his prime motivation is to get his family back home.

    Carl is sitting several hundred miles away in Chicago lounging in his recliner watching the news coverage of the damage in Iowa. An idea hits him. Those folks need building supplies. There is a bunch of supplies in Chicago. “What if I rent a Penske truck, load it up with plywood, sheetrock, and other construction materials and head to Cedar Rapids. I bet I can get those suckers to pay two or three times what I pay for it down at Home Depot!” Consumed with greed and not caring if he rips off the good folks of Cedar Rapids, Carl goes shoping, loads up his rented trucks and heads down to Iowa.

    Now when he gets there one of three scenarios might occur.

    1. Carl shows up pulls in a dry area of town and sets up shop in a parking lot. Soon words spreads around town that a guy has sheetrock and plywood for sale. A crowd rapidly gathers around Carl’s truck. Some are taken aback at the prices, some cannot afford those prices. However, some people don’t care if they are getting ripped – they want to get home and they will manage to pull the funds together. Paying triple prices beats the motor hotel! Soon, Carl has sold off his materials at a huge profit and promises to be back the next day with more. Some folks go home with needed supplies to begin working on their homes. Others could not get anything but they are no worse off than they were before.

    2. Carl pulls into Cedar Rapids and find a parking lot where he can set up shop. As he is doing so, another truck pulls in across the lot and Carl soons realizes that the other truck has building supplies as well! Great! So much for cornering the market. Several other guys looking to make a quick buck come into town and pretty soon, Carl begins to realize that he has to drop his prices or be stuck with a bunch of unsold building materials and a big gas bill for the round trip drive. Over the coming days some “business men” drop out and don’t come back and eventually the the price settles higher than normal due to the higher cost of trucking stuff in but lower than would have been the case had a guy like Carl cornered the market.

    3. Carl is getting ready to head to Home Depot to stock up, when he hears a report on Fox News that makes he stop and watch the report. The Iowa governor has instituted price gouging laws. Oh great! There goes my quick buck. I am not going to go to all the hassle to buy supplies, load up and drive all the way to Iowa to make a couple of hundred bucks. Forget it. What time do the Cubs play?

    In scenarios 1 and 2, the residents of Cedar Rapids gain access to supplies they desperately need even though, in some cases, they may well be getting ripped off. However, at the end of the day, they have the supplies and that is the most important thing to them. They can start their home repairs. In scenario 3, no one bothers to go to the hassle. Sure relief supplies will pour in because America is a giving nation. Churches from across the Midwest will help, but sadly it won’t help more than a few. In light of this reality (and admittedly this is a simplified analysis), what do you think is more important? That a greedy guy that Carl is stopped from taking advantage of the residents of Cedar Rapids or the fact hat some of those residents can move into their home sooner because they got access to needed supplies? What would you tell Frank if he asked you why you stopped Carl from selling him the stuff? “Denis, I don’t care what the price is! I want to go home! And thanks to you trying to keep Carl from taking advantage of me, as kind hearted as that is, I don’t have the stuff I need to repair my house. I really don’t care if Carl makes a stack of money. I am just glad he brought the stuff down my neighbor and I needed!”

    You are entitled to your agenda. But please tell what is more important – profits or people? I say people and if someone makes a profit while people get help, then so be it.

    After all, the market is a social construction. It only works because we all agree to live by its rules (or are forced by others to abide by them). The free market and profit motive have not always existed, nor do they exist everywhere. Because of this, it’s not something in human nature that determines the market or its rules, but something we learn to do and teach our children to do.

    If it’s not human nature, the rules are, to some extent arbitrary.

    Have you ever watched a little kid take a toy back from a sibling or friend while hollering “Mine!” Do you think most parents are teaching their kids to be selfish? Most parents I am have run into have to teach their kids to share. Selfishness is part of our human nature. Not saying it is right, but it is a part of our nature that we have to overcome.

  • Alex Remy

    (Re: comments)…Phew–good luck with this one, Eric.

    As far as the price-gouging goes, it’s just depressing. Having grown up in an upper class family and spent my entire adult life in the lower, I can tell you right now, the rich will manage. Plane tickets to a nearby city, living in a hotel until their housing situation is sorted…trust me, they’ll get through this just fine.

    I sincerely hope Iowa’s poor get the support they need to survive this crisis, despite the “let’s kick you while you’re down” capitalists.

  • http://ericstoller.com/blog/ Eric Stoller

    @Derek Brian Cook / FinanceBuzz – I wouldn’t exactly call them “borderline.”

    @Alex – Thanks for commenting.

  • lobosolo

    i agree that the price gouging laws hurt more then they help. i live in cedar rapids and immidiately after the water went down , we had a shortage of de-humidifiers. my dad lives about 2 hours away in IL and had suggested that i could buy some dehumidifiers at his local sears and maybe sell them to people in need. but i decided not to as it was not worth my time and money and i didn’t want to have any run in with the law. in the end, most of the local stores got more dehumidifiers after a couple weeks but those people who wanted the products were denied because the politicians wanted a feel good issue.

%d bloggers like this: