Real estate
Rent in Microlandia is hedonic. That is the word urban economists use for prices that reflect the bundled attributes of a unit (location, size, quality) rather than a single posted number. Every residential building inherits an area median rent that is set by its neighborhood quality. That median is then scaled by the building’s own quality class:
- Basic units charge 75% of the area median.
- Standard units charge the median.
- Premium units charge 150% of the median.
So a premium townhouse in a desirable area can charge significantly more than a basic unit two blocks away, even though both face the same property market. This is the lever that lets you build neighborhoods with an intentional income mix. A premium-only district will skew older and wealthier, and it will price out half of the immigration pool at the door. A row of basic units will pull in young workers and recent arrivals, with the trade-off that they generate less rent revenue per unit.
Two parameters that keep the model honest
The compression floor prevents rent in a struggling area from collapsing in step with neighborhood quality. Even in the worst districts, landlords still charge a substantial fraction of the area median because tenants have few alternatives. In Milwaukee, for example, tenth-percentile rents were about 80% of the median in spite of much worse conditions. The floor on this page captures that effect.
The tax pass-through rate governs how property tax flows to renters. A portion of any property-tax increase shows up as a higher asking rent, with the rest absorbed by the landlord. Raising property tax to fund services is therefore partly a tax on tenants too, not a free lever. The default rate is calibrated against Carroll and Yinger’s classic property-tax incidence work.
Your levers
Your room to maneuver here is in the mix, not in the formulas. Build a portfolio across the three quality tiers and you broaden who can move in, who stays once neighborhood quality shifts, and how property tax changes ripple through the rental market. Build all-premium and the affordability gate (see Immigration) starves your vacancies of applicants. Build all-basic and you end up with no upper-income tax base to fund anything else.
Parameters
Building quality multiplier
How much building quality affects rent. Basic housing charges 75% of the area median rent, standard housing charges the full median, and premium housing charges 150%. Higher-quality buildings attract wealthier tenants and generate more rental income for their owners.
| Key | Value |
|---|---|
| BASIC | 0.75 |
| STANDARD | 1 |
| PREMIUM | 1.5 |
Source: Rosen 1974 — Hedonic Prices and Implicit Markets
Compression floor
0.7
Minimum rent as a fraction of area median rent. Even in the worst neighborhoods, rent doesn’t drop proportionally — landlords still charge nearly as much because tenants have few alternatives. In Milwaukee, 10th-percentile rent was ~80% of median despite far worse conditions.
Source: Desmond & Shollenberger 2015 — Forced Displacement From Rental Housing
Natural vacancy rate
0.07
Equilibrium residential vacancy rate (V) at which landlords are indifferent to raising or lowering asking rent. Above V the market is loose — landlords compete for tenants and rents fall; below V* the market is tight and rents drift up to the hedonic target. The Rosen-Smith adjustment process is ΔR/R = λ(V* − V), so V is the signal and λ is the speed. We use 7% as a single representative midpoint of the 5–8% range typical for US metros in the empirical literature; a future pass could differentiate V* by quality tier (basic markets clear tighter, premium markets tolerate higher vacancy). The kink point on the vacancy→rent discount curve in calculateHedonicRent is set from this number — previously hard-coded at 50% vacancy, which let buildings sit 30–40% empty without any downward rent pressure.
Source: Rosen & Smith 1983 — The Price-Adjustment Process for Rental Housing and the Natural Vacancy Rate
Tax pass through rate
0.7
Fraction of property tax that landlords pass through to tenants via higher rent. When the city raises the property tax, landlords absorb some of the cost but shift most of it to renters. At 0.7, a 10% property tax adds ~7% to asking rent.