Depending on the jurisdiction, letting go of a tenant--or dealing with a problem tenant--can eat up months, if not years, of expected profits. Two ends of a spectrum: India, with squatter rights, versus most American cities, with speedy courts and contract law.
Tenants can also be surprisingly good at destroying your property and they have a surprisingly large amount of legal rights.
Two landlords in particular didn't know about things like escrow account and interest laws for security deposits, contact information posting for vacant landlords, who's responsible for things like snow removal and smoke detector maintenance. I left those units in good condition (thankfully for them!) but nearly sued twice and, in one case, received triple damages on my security deposit.
One landlord said "To keep costs low, tenants generally organize snow shoveling" I said "Oh, sorry, I didn't realize we were breaking the law here."
There are some states with very few tenant rights where landlords can get away with a lot. California and Massachusetts are not those states. It's a very serious part time job that requires a lot more than just owning a property.
He got his comeuppance.
A $1.5M home should rent for at least $4.2k (P/R ratio of 30). That's $50k a year, smaller than the appreciation of $90k but still very significant. The only reason I see to not at least hire a rental management company to do the renting for you is if you are subject to rent control and fear not being able to evict the tenant/raise their rents.
The reason I have a lower rent figure is that rents haven't gone up as quickly, as much of the new construction has been focused on rental stock.
Anyway, according to zillow last 2 years is 7% average - and since depth of recession 8 years ago, 8.6%. 12.8% is likely a statistical abnormality. (Of note 10 year average is 5% vs. ~8.5% for SP-500 index funds)
Rents have varied over time. I'd say the rent on a place like this would be $3k a month in 2009, and maybe $4k now. This is harder to estimate. Also, rent control is different for SFH than for apartments - in this case, I'll assume rent control is in place [1].
So, lost rent is 3k a month for 8 years, $288,000. Ok, that's some serious lost money.
Gain in equity is $800,000. If your tenant make is hard to see and realize that gain, it really might make sense to leave it vacant.
I have seen houses in SF sell for vastly below market due to existing tenants, with powerful rights (there are certain protected classes of tenant). There's a lot of room between 300k and 800k.
It's not so simple, of course. It's expensive to be a landlord, and time consuming, and that income is taxed. So the loss of renting actually isn't $288,000, it's lower. Also, the house may be enjoyable as a pied a Terre. Think of it as any investment - you park your money somewhere, hope it will grown. Owning this house is no different from owning gold, or stock. You buy it, you hope it will appreciate. Buying and not renting could make sense as a mildly risk-averse approach - you give up some yields in exchange for the lower risk of not having a tenant. .
At the same time, cash flow is tough. Many people simply can't afford to pay the mortgage for 8 years without that rental income. And they figure, eh, eventually the tenant will leave, and then they can sell.
But overall? Yeah, I can see how it's economically rational to buy a place to speculate and simply leave it vacant[2]. Or, alternatively, rent only to extremely trusted people (family members or others treated as such).
[1] I'm cherry picking dates and rent control policy to show the best case scenario for not renting a place out.
[2] I believe this is harmful. Pointing out that something is economically rational (and in this case, perfectly legal) does not mean I endorse it!
Basically if you have a lot of money, the marginal extra income isn't worth the headache.
There are lots of vacant properties: people happy to just watch the home value go up without dealing with renters...