Real estate
Rent in Microlandia is hedonic: the economists’ word for a price assembled from a unit’s bundled attributes (location, size, quality) rather than one posted number. But the figure on the lease is set by no one. It is the outcome of a quiet monthly negotiation between a landlord testing how high they can ask and a tenant who is free to walk away.
Here is the loop. Every unit carries a target rent, the most its landlord could hope for. Four things set it, multiplied together:
- Market price. The going rate your market has already settled on, and the one factor you never set by hand. Every other term scales up from it.
- Quality. The build tier, and a wide one: a basic unit asks 75% of that price, a standard unit the full price, a premium unit a full 150%.
- Neighborhood. How desirable the surrounding blocks are, worth about 0.8× in a rough district and up to 1.2× in a prized one. A nearby landmark’s standing folds in here, nudging it higher.
- Tax. The slice of your property tax the landlord passes straight to the tenant, so part of every tax you raise comes back as a higher asking rent.
The landlord asks near that target, then watches the door.
- A full building tells the landlord they asked too little, and greed is quick: the asking rent climbs toward the target fast.
- A vacant unit bleeds money, but a greedy landlord is stubborn about cutting. The asking rent sags only slowly, holding out for a richer tenant before it finally gives.
Vacancy is the signal, and a greedy landlord reads it with a thumb on the scale: fast to raise when full, slow to cut when empty. So rents climb quickly and fall reluctantly, the downward-sticky pattern of real markets. (Economists call the adjustment the Rosen-Smith process; the natural vacancy rate below is the balance it settles toward.)
The market price is the quiet hero of the whole system: one citywide number, the median of what tenants actually pay once each building’s own quality, neighborhood, and tax are factored back out, so a mansion and a studio contribute on equal footing. Every unit’s target then scales back up from that shared base. (Median is the middle value, not the average.)
Quality, and the floor beneath it
That quality spread is your sharpest tool for an intentional income mix. A premium townhouse in a prized district can command several times what a basic unit two blocks over does. Tilt a district premium and it ages older and wealthier; line a street with basic units and you draw young workers and fresh arrivals, at less rent per unit. (Jane Jacobs argued a healthy block needs the whole range living shoulder to shoulder; a district built for a single income tends to fail in a single way.)
However empty it gets, a unit will not cut its asking rent beneath a hard floor set by what the building cost to put up: roughly the rent that, fully leased, repays its construction over twenty years, lifted a little further to cover the property tax it owes. A costly tower therefore holds a higher floor than a plain walk-up two blocks over. Real landlords do not give the place away, and tenants in a thin market have nowhere better to go, so even the roughest districts hold a genuine rent.
The one rule both sides live by
A lease is signed only when the tenant can truly afford it, and it is the same test whether you read it as a sensible renter or a cautious landlord:
Two years of rent in the bank and the landlord stops asking questions; short of that, you show three times the rent coming in every month. This single gate (you will meet it again under Immigration) is the market’s brake. It is why an all-premium district quietly starves its own vacancies of applicants, and why income tax reaches all the way into housing: the gate counts take-home pay, so taxing your citizens to the bone leaves only the savings-rich able to sign. Set income tax to 100% and you have engineered a housing crisis on purpose.
A tenant priced out of every unit does not simply wait it out. One with a profession packs up and leaves the city, naming the rent on the way out; one without a profession has nowhere to go and slips into homelessness. The rents you allow are, quietly, a sorting machine for who your city is for.
And once the lease is signed, the rent is nearly frozen. The springing asking rents on empty units never touch a sitting tenant; the only rise they ever see is a modest bump on their lease anniversary, and only while their building is completely full. A single vacancy anywhere in it strips the landlord of that leverage and cancels the raise for everyone under the roof, so pricing one tenant out quietly protects the rest. The bump is small and uneven, up to 3% a year and on average about half that, and the rent-control policy lets you cap it tighter still, all the way down to a hard freeze.
Shops and factories rent too
Commercial space obeys the very same market price × quality × neighborhood rule, with no special industrial markup bolted on. What changes is who signs the lease. A company is judged on capital, not salary: a founder needs roughly three months of rent and payroll in the bank to take a space, and businesses shop hard for the cheapest unit that fits, so an oversupplied strip competes its own rents down. (Starve a factory of power or a farm of water and it falls off the market altogether, though that is a matter for the grid, not the rent roll.)
Your levers
Your room to move is in the mix and the tax dials, never in the formulas themselves. Spread your buildings across the three quality tiers to widen who can move in and who survives when a neighborhood shifts. Lean on property tax and watch a share of it resurface as higher asking rents. Above all, mind the income tax, because it decides who clears the gate at all. The parameters below are the conversion factors beneath all of it: how hard quality bends the market price, how low a vacant unit will stoop, how fast vacancy moves the price, and how much of your property tax your tenants quietly cover for you.
Parameters
Building quality multiplier
How much build quality bends the rent. Basic housing asks 75% of the market price, standard asks the full price, and premium asks 150%, so a premium unit and a basic one on the same street can be priced worlds apart. Higher quality both commands more rent and draws wealthier tenants, which is your lever for an intentional income mix.
| Key | Value |
|---|---|
| Basic | 0.75 |
| Standard | 1 |
| Premium | 1.5 |
Source: Rosen 1974 — Hedonic Prices and Implicit Markets
Natural vacancy rate
0.07
The vacancy rate where a landlord stops adjusting rent, the break-even between a market loose enough to push rents down and one tight enough to pull them up. Below 7% the city is full and asking rents drift toward their target; above it landlords compete for tenants and rents fall. Seven percent is the midpoint of the 5% to 8% range typical of US metros, and it sets how empty a unit must get before its asking rent gives way.
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. The tax lands on a building’s assessed value, about 1.2× its annual rent, so at 0.7 a 10% property tax adds ~8.4% (10% × 1.2 × 0.7) to asking rent.
Source: Carroll & Yinger 1994 — Who Bears the Property Tax?
Annual rent increase rate
0.03
The most a sitting tenant’s rent can rise in a year, and only in a fully occupied building. On the lease anniversary the landlord rolls a random raise between zero and this ceiling, so hikes average about half of it; a single vacancy removes the leverage and cancels the raise, which keeps the climb self-limiting. Enacting rent control caps the ceiling to your chosen 0% to 2%, where 0 is an outright freeze.
⚠️ Source pending