> Rent is a function of supply and demand, not a landlord's costs
Of course it does. The landlord's costs factor into the supply made available by landlords.
> When landlords' costs drop, do they drop the rent in response?
Competition says they do.
> Rent is a function of supply and demand, not a landlord's costs
Of course it does. The landlord's costs factor into the supply made available by landlords.
> When landlords' costs drop, do they drop the rent in response?
Competition says they do.
Competition is not one thing. For a producer of widgets, competition means that there is immense instantaneous leverage if you can reduce the price, because buyers will switch to you, increasing your market share until your competitor can match - if they can.
A landlord is usually in a different position. If their personal costs drop (eg, they paid off their mortgage) but the market price stays the same, how do they benefit by reducing the price they offer? Only by reducing the time it takes to rent out, which isn't a significant factor in exactly case when tenants would most like rents to go down - when prices are high because of demand.
The details of these mechanisms matter. Market can be out of equilibrium for a long time; maybe indefinitely.