UN report lays bare the waste of treating homes as commodities
theguardian.com
theguardian.com
"In such markets, the value of housing is no longer based on its social use. Properties are equally valuable regardless of whether they are vacant or occupied, so there is no pressure to ensure properties are lived in. They are built with the intention of lying empty and accumulating value, while at the same time, homelessness remains a persistent problem."
A home lying empty has a negative return (due to maintenance and operating costs, still have to water lawns, repair weather damage, etc). A home being rented has a higher return. There is simply no reason from an investors perspective to leave a home empty unless you can't find a renter who will cover their costs, or you are trying to sell it.
It's people like the author of this study that created the housing bubble in the US. They pushed to lower lending requirements, and pushed to have the US Government assume more risk so more easy money was available for housing purchases. With Fannie Mae and Freddie Mac, the US hasn't had a free market in housing for 70 years.
And worse, Fannie Mae and Freddie Mac are integrally connected to both political parties, offering huge payouts to retiring politicians or their friends in return for their support. Google the ex-DNC chairman who made $100M+ as chairman of Fannie Mae's board.
Right now the four bed house next door to me in San Francisco is empty, and has been empty for the past three years - it's worth $4 million, and is owned by a family based in mainland China. On one occasion a representative of theirs stopped me in the street and asked if my home was for sale (fortunately for me my landlord decided it wasn't).
And when I lived in London I saw equally empty properties - new build flats worth millions of pounds completely deserted.
> A home lying empty has a negative return (due to maintenance and operating costs, still have to water lawns, repair weather damage, etc).
Not if the value of the home increases greater than the negative pressures...which it very much has been in many cities.
> A home being rented has a higher return. There is simply no reason from an investors perspective to leave a home empty unless you can't find a renter who will cover their costs
Tenants have their own problems. They have rights, homes are harder to liquidate with a tenant in, and you may decide it's just not worth the hassle. If you're expecting the property value to increase 50% over the next few years the income a tenant would be providing you is a relative pittance.
But again, you get the appreciation whether you rent or not. It's in an investors best interest to rent, as long as they don't have to give up control of the property doing so.
However, in Melbourne, it's estimated (from water usage analysis) that 20% (1) of investor owned properties are vacant (4.8 per cent of greater Melbourne's total housing stock and 18.9 per cent of all investor-owned housing stock).
So I don't believe the 'restrictive rental regulations' are primarily to blame.
Anecdotally, the inner-city 2 bedroom house (worth around A$1.5M) behind where I live has been unoccupied ever since I moved in ten years ago! I'm as baffled as you that people do this!
(1) http://www.afr.com/real-estate/almost-20pc-of-melbournes-inv...
the only reason this has recently slowed down is because fincen has started cracking down on such purchases.
btw this also happened after 2008 crash when banks forclosed a lot of properties but wernt selling any so they ended up holding onto them for long periods. some counties had to pass measures on similar lines. long term markets are efficient, short term not much so.
Maybe it depends on WHERE the property is. Your perspective doesn't ring true with e.g. a flat in a major city (London for example). No lawns to take care of our weather damage to deal with. Really very little to zero maintenance. Rent it and you have lots of laws to comply with, agencies to deal with, appliances and furniture to install, and when things break you pay for them. Also, renters are going to create a lot of wear and tear and their deposit is unlikely to cover it (and with laws around deposits every penny needs to be accounted for which isn't easy with general wear and tear).
I make 95%th percentile income. I live in a 95th percentile house deep in the burbs. I'm in a lifestyle where a 95th percentile urban apartment is completely uninteresting to me, my numerous neighbors agree. To maximize return all condo construction downtown has been ultra luxury out of my income range, but for the sake of argument, we'll claim its affordable by a mere 95th percenter, but if I don't want to live there, it doesn't matter if there is available rental property nor does it matter if there's 5, 10, or 15 condo towers at the same price currently under construction.
There's enough of a local pyramid of incomes such that most of my fellow 95%ers are already living in the burbs and no amount of urban construction will get us downtown. So there are a lot of empty condos downtown, kind of like 2007 all over again but for a different reason.
Building something to a specific rental cost, does not obligate people to live in it, or earn enough money to pay for it.
Its like the classic micro vs macro economic effect of education argument. On a micro scale all individuals benefit from more education it always raises an individuals quality of life. On a macro scale requiring education in excess of the job reqs merely ties up labor and capital in unproductive activity, it lowers everyone's quality of life. What government policy should be, perhaps to bulldoze the schools, should naturally be the opposite of parental individual advice, to attend college. Likewise on an individual case basis constructing the most expensive possible condo is always financially most individually rewarding, yet the same act on a city wide basis the result is horrible and awful.
I could build a nice condo for a SV google employee to live in, at SV google salary. The 2000 mile commute means its useless. The point isn't the commute itself, the point is if you don't build what people want, it doesn't matter if an abstract mathematical number implies the rent should be perfect, they're just not going to rent.
There is a side issue that census figures seem to imply there's 5-10 million people in or above my household income percentile so lets call it 3 million families for the sake of argument. Lets say there's 6 million residences at or above my percentile of income. Lets say all urban condo construction to the level of 1 million residences per year is at a floor of my income (actually higher than my income, plenty of places I can't afford). If there's only 3 million families at my level of wealth across the entire country, and 6 million residences in the form of recently constructed condos and mcmansions and real homes too, there's simply gonna be a lot of empty real estate and more every year.
As long as the banks are willing to fund it, more will be constructed. The fed will manipulate things to keep it affordable to keep employment high.
I'm not necessarily offended. I my dads generation Detroit made cars engineered to rust and fall apart in two years, which was incredibly environmentally wasteful, while their houses were constructed to last centuries. My generation makes residences no one can afford to live in that take only a decade to fall apart whereas our cars are engineered to operate longer than the house are designed to stand. I'm sure there are abandoned mcmansions that are unlivable today that are younger than my wifes car which stubbornly refuses to break.
https://news.ycombinator.com/item?id=14239444
You are operating under the assumption that people are buying these properties for the sake of long term investment. That is the classical model of real estate investment, its no longer what is occuring at scale.
And yet there are thousands of empty flats within a three mile radius of me now in a large European city. They are monopoly counters my friend.
http://vancouver.ca/home-property-development/empty-homes-ta...
I think expensive housing is the biggest problem of our generation globally.
Sydney in particular is heavily affected, in the 5 years to Dec 2016 house prices in Sydney rose 70%, wages 13%. A month ago HuffPo reported that the median house price in Sydney was AUD 805k, and the median wage is AUD 80k; a 10 time multiplier. These days in Sydney if you haven't been able to afford a deposit / mortgage on a house before you are 40 you'll never be able to afford one.
Cases where homes are vacant are far more likely to be former residents who moved for one reason or another but still want to keep their house. Usually they want to stay in their own home when they make frequent visits. Sometimes they plan to move back and don't want the hassle of renters in their personal home.
I for example may be forced to take an out of state job, but I'm never selling the home my children grew up in unless I'm forced to. So I may rent it, or not, depending upon how long I think we will be out of state.
Taxing people to force them to rent isn't going to solve much, and is offensive. The real problem is zoning, NIMBYism, and things like that. You want cheaper rents, zone to build more housing, and deal with the greater congestion you brought to your town.
All that does is apply the label "foolish" to all the people who buy up property and leave it empty. It seems they don't care about being labelled foolish by the likes of the HN community; they still do it.
Perhaps they have different motivations or perspectives on this.
The best real estate investors who make the real money over the long haul buy properties where the net rents (after maintenance costs) pay for the purchase costs. Then appreciation is simply gravy.
And yet they do it, and in doing so are driving up home prices in many markets across the globe... which is the core thesis of this article.
Your style of argumentation, where you state what people should do, and use that as the basis for ignoring the actual facts, is incredibly ineffective.
I understand you have an idealized model of the way capitalism and real estate work.
That idealized model does not, in fact, align with reality.
In reality, real estate speculation is in fact a real thing, that happens in real places all over the world. So long as demand causes prices to rise significantly faster than those assets depreciate, this type of speculation will happen. Your personal value judgments regarding people engaged in such speculation don't, in fact, cause those people to not exist.
But in areas without those laws, no one is going to give up an additional income stream that will increase their returns substantially.
Even further, I personally think that people should be disincentivized from renting their homes as well (though not in a way that would just be passed to the renter, ie tax). I live in a college town that suffers from extremely low inventory because housing values keep going up and there's never a shortage of people willing to rent so nobody sells anything, they just keep it and pay a property management company to rent it out.
I do think it would make sense to attempt to decrease transaction costs in order to increase market liquidity and efficiency. Unfortunately, there are some hard physical minimum costs in there that are pretty significant (evaluation, moving, legal stuff). But perhaps realtor premiums could be reduced.
To actually get prices to come down, you need to increase supply. We're not getting any more land, but there's clearly plenty of space, at least in the US. But cities are popular right now and it's hard to imagine that changing soon. As far as housing stock, upzoning/increased density can contribute to supply and lower prices.
Maybe the investor doesn't want to deal with having to do maintenance on the property, having to learn the local regulations on letting properties or renter's rights, deal with issues with unruly renters, etc. If there really were no reason for investors to leave homes empty, than why is that precisely what many investors do?
Are you a libertarian, by any chance?
But this doesn't happen. Why? Because the people commoditizing homes want to protect their investment. The scarcer housing is, the more money they make. It's an incredibly perverse system. It hurts the poor especially. Even the middle class ends up losing most of their income to it. It leads cities to stagnate instead of grow.
The NIMBYs in every city want tight land use controls to restrict the construction of new housing that would impact the value of their homes. The renters want tons of regulations demanding things from landlords the renters can't get by contract.
In NY or SF renting a home means giving a renter a massive amount of control over it. Evicting them when their lease expires and you want to sell or move back can be a nightmare. So the rental regulations are keeping homes off the market.
1. A building's minimum height is dictated by the demand in the area; your existing building can stay, but if you want to bulldoze and rebuild as a developer, you must build up if the local real estate demand dictates so (I don't have enough experience to determine how you'd calculate demand, perhaps trailing rents for the last 24 months?).
2. Renters rights remain in place, with the government providing subsidies and relocation assistance when necessary (funded by a special property tax on non-owner occupied units).
An equilibrium can be reached, but the idea of "property rights" will need to change a bit, with the understanding that a healthy neighborhood is more important to society than you having full control of your property (which is already the case, considering zoning laws and what not).
Lower density zoning eventually ends up hurting mass transportation networks, incentivizing cars and leading to urban sprawl... which just spreads the problem over a wider area with more autonomous political representatives.
Land and labor. The dense townhouse-style constructions have significant non-land cost. Anecdote from a tiny lot Seattle: 17% of our house "value" is land; the rest is all labor and materials.
If you build up, the cost of land gets distributed over many more people. Instead the cost per unit approaches the cost of construction cost of building one more story. You don't even need super high rises to vastly increase the available housing. Even a small increase in housing would drive rent down a lot.
That being said that will always be the case and most cities find a way to deal with this though with growing pains.
Even the people that want to preserve the city suffer. When they kicked out because they can't afford the absurd rent.
Thought it was going to be about how cookie-cutter apartment buildings tend to have nice fixtures but thin walls & inefficient heating/cooling.
The title of the original article is malformed. The problem of the empty homes is that they aren't treated as commodities. Commodities are synonymous with low margin and exchangeability with like kind. If homes were seen like normal depreciating commodities, and less like the special snowflake, all legislation must cause them to rise in price gifts to the capital class, they'd be less of a problem.
Thus, homes if actually treated like commodities should exhibit less of the problems the empty homes in this article describes. Artificially cheap/government subsidized credit for home purchase has distorted the housing market, as it has now also done to education. I hope the next bubble they blow up is in healthcare.
The UN has a bizarre and archaic document management system that it is difficult to link to (and to search, for that matter).
This might be more of a hard-sell than basic income though.
The idea is to tax based on the //potential// value of the area to society, so that realizing that value to society is incentivezed. I suspect a real application of this would examine the difference in value to society and apply more 'incentive' (tax proportionally more of the missing value) the further from actual value to society a piece of land is.
I'd expect that such a policy would result in a lot of cultural churn, and homogenizing of communities to the point of losing any sort of interesting historical character. How can you have history, when everything is being bought up and redeveloped every (x) years because the previous owners can no longer afford the taxes on the "improved value". Everyone becomes the victims of everyone's success.
Sorry but your property values and neighbourhood appearance shouldnt be winning out against people literally being unable to live inside cities because they have comitted the crime of being too poor.
I think there's a lot of secondary effects tied up in your statement that would not necessarily unravel the way you would wish them to. Ad absurdum, I don't see how it results in anything other than assigned, identical housing.
Because, even at a fundamental level, someone will always be willing to pay for something more than the bare minimum. And as long as that is true, there will be stratification. And that stratification will price individuals out of an area.
This needs to change, and I'm sorry if it means some property owners get huffy about actual affordable housing getting constructed.
So the investment is actually in the location, not in the house itself.
Which is a good idea. For a bunch of reasons cities will continue to grow, and bigger cities will grow faster. So if you have a multi-decade view, buying location in any major cities is a sound idea.
In the Eastern-European country from where I'm from the cities' population has actually decreased after 1990, the demographic crisis is a real thing (the country's population as a whole has decreased by 17-20% after 1990). I see this phenomenon extending to the rest of Europe in the next 20-30 years.
This chart shows clear increases in most major cities of Europe: https://media.boingboing.net/wp-content/uploads/2015/06/euro...
Interesting question!
Intuitively, I'd say that the answer is "yes". The birth vs mortality rate is also a huge factor, of course, as in Bucharest people tend to die more compared to kids being born here. Until we joined the EU that was counter-balanced by the countryside people coming to Bucharest (so much so that in the early 1980s the communist regime instituted some draconian rules against that, pretty similar to the Hukou system now in effect in China), but after our EU accession those countryside people saw that the salaries in Spain or Italy were higher compared to those from Bucharest, plus cost-of-living was pretty much the same if not lower, so they took the logical decision and migrated to those countries instead.
Right now Bucharest is feeding off smaller cities from Southern and Eastern Romania. I've made a heatmap showing that phenomenon in here: http://4.bp.blogspot.com/-tbQVpiC4CuI/UX7rUriCEBI/AAAAAAAAAk... ("hotter" points represent places where people lived before coming to Bucharest), based on FB-profile data I parsed a couple of years ago; of course, there's nothing scientific-like in that map, I just found it interesting. This strategy is not sustainable on the long-term.
Which implies that these homes aren't actually being added to supply. Why are investors choosing to forgo rental income? There are lots of potential answers to the question, and answering them might magically fix the problem.
https://en.wikipedia.org/wiki/Decline_of_the_Glass%E2%80%93S...
1. The risky return-focused investment money is still going into housing, despite the 2008 great recession. ("It can't happen twice, right?")
2. A significant portion of that wealth is actually from "non-gambler" savings, and "should" be more conservatively held.
3. Glass-Steagall would help do that, with the side-effect of making housing more broadly affordable for people who need the direct utility of the house.
Oh well, "shikata ga nai", as they say in Japan. Can't be helped.
Funny how the talk always turns to human rights when Peter sets his sights on something he is lacking, which Paul happens to have.
If housing is a right, then even if you're not a real estate speculator but an earnest home owner, some assholes out there believe that they have a right to what is yours.
Want to relocate somewhere temporarily to work? Hey, "your" home is empty: rent it to some trash that will destroy it, or pay up!
Yes I understand there is an issue that many homes go unoccupied in some areas but I cannot tell from the article how long between owner uses does it qualify for this designation?
Now I can agree if the unit is never occupied, however if they visit a few weeks out of the year then I don't see an issue. It is no different than owning a second or third home anywhere else.
Radical, yes, but I don't believe that there is any other viable solution left, including "unoccupied taxes" - because when the tax over a year is lower than expected value gain, investors just pay the fine instead of complying.
No one is sitting around waiting for property to appreciate when they could sit around and collect rents waiting for property to appreciate.
There's a solution for this, too: lower the rent to market prices.
> or the cost of repairs to make a place rentable isn't worth the rents it would generate
Well... as a landlord you're supposed to provide for continuous maintenance, and if you have cut corners on this out of greed (like it's common in Germany, just google for "Vonovia Skandal"), it's your fault. And there's always the possibility to tear down and rebuild.
> No one is sitting around waiting for property to appreciate when they could sit around and collect rents waiting for property to appreciate.
You haven't heard of London, I assume? Quote from https://www.theguardian.com/commentisfree/2016/may/04/london... :
> Key to this is tackling buy-to-leave investing, a growing and unwelcome practice. The model is simple, buy a property, leave it empty – in the knowledge that investors do not then need to comply with regulations covering the rented housing market – and sell it on for a profit.
And rents are enough to pay for maintenance, which you have to pay for whether you rent or not. Just try re-selling an uninhabitable investment home.
And you need to be a more critical reader. The guardian article is full of red flags. It "claims" 57k vacant homes in London, where there are 8.5M households. So less than 7%. How many do you think should be vacant, considering that homes are vacant when for sale, when waiting to find a renter, and when waiting for the owners to move back if they worked out of country for a few years?
Secondly the paragraph on "buy-to-leave" investing indicates that rental regulations are so absurdly onerous that it is keeping properties off the market. Reforming them is the real solution.
Dealing with renters in that equation dosent make any sense, because the returns will be tiny, even with sky high rents like $3000 a month on say an $800k property appreciating 20% every year (a real situation in many cities). The presence of renters will ensure you cant sell it when you want to, and instead have to deal with them, an insane hassle for a foreign investor.
Compounding this is the fact that much of this property investment is being driven by wealthy (and to a huge degree corrupt) chinese looking to funnel money out of china, before the CCP can take it from them. Real estate is one of the few foreign investments allowed by the CCP. Tie this in further to the investor class visas many countries have, where you get the equivilent of a green card if you invest X millions of dollars. In these circumstances people dont care much about returns, or even taking somewhat of a haircut on their investments, because its better to have some + a get out of jail free card as a resident of another nation, than be stuck in china in jail, with no assets at all.
Your continued incredulity that these properties arnt being rented out dosent change the reality of the situation, a massive percentage of them are not, and are built specificly to NEVER be rented.
Such declarations should not justify extraordinary action if you don't have a clear plan for how you are going to get away from the emergency. They are a tool of political trickery to avoid regular checks and balances of democratic policies.
For comparison, France declared a "national emergency" in November 2015, and has then extended it repeatedly, and now France lives in a perpetual "state of emergency".
If you need to keep extending the state of emergency, you should admit that the "emergency" is actually your normal state of affairs.
If you have a problem in housing, with a really substantial part of your housing stock empty, your rental market isn't working. Don't blame evil capitalists for it; blame the rules of the market you created with legislation. For instance, unreasonable tenant protections at the expense of the owner.
Most often this is, however, just a diversion. Empty housing is not the real problem; the problem is lack of building permits and zoning in areas of population growth, and generally meddling with the market.
Beware of "dead simple solutions"; silver bullets offered as solutions to complex problems are usually bogus.
I agree with this, therefore the trigger for a "housing emergency" should be something that can be measured in qualified facts (e.g. ratio of migration influx vs build of housing stock, queue length for welfare housing).
> If you have a problem in housing, with a really substantial part of your housing stock empty, your rental market isn't working. Don't blame evil capitalists for it; blame the rules of the market you created with legislation. For instance, unreasonable tenant protections at the expense of the owner.
Housing is a human right. Tenant protections are not unreasonable, they're often enough the only thing preventing capitalism from its worst excesses. The countless stories I have read alone on HN how in America people are kicked out of their homes just because the landlord wants to have more money should be proof of why tenant protections are needed.
> Empty housing is not the real problem
It is. Empty housing causes entire zones going dead - look at London. Wherever a large number of "investment housing" appears, the small shops etc. have to close because there are no customers.
> the problem is lack of building permits and zoning in areas of population growth, and generally meddling with the market.
I highly doubt the problems in Berlin, London or Munich are related to a lack of building permits or population growth. It's just that it fetches more money for real estate developers to build luxury apartments instead of affordable housing, therefore the solution is more zoning, not less.
https://www.theguardian.com/uk-news/2016/oct/12/london-popul...
If housing is a human right, who is responsible for protecting this right? If I decide to sit on a couch all day and not get a job, does a private property owner or the government still have to provide housing for me? If I become homeless, who or what entity is depriving me of the right to housing? If I am entitled to housing, am I entitled to housing anywhere I want or in any city I want?
>it fetches more money for real estate developers to build luxury apartments instead of affordable housing
Perhaps this is a signal that it's more economically productive for the rich to live in cities than for the poor to live in cities.
> If I decide to sit on a couch all day and not get a job, does a private property owner or the government still have to provide housing for me?
In Germany (and other civilized countries), the government actually has to do so.
> If I become homeless, who or what entity is depriving me of the right to housing?
The government must provide you with adequate housing by law (again, in Germany). That it often fails to do so without consequences is the sad reality.
> If I am entitled to housing, am I entitled to housing anywhere I want or in any city I want?
In Germany, housing is the responsibility of the city where you live in (which includes sometimes paying motels to house people). I'm a bit unsure about the details on what happens when you relocate, though, and the core problem is many of the homeless do not really trust authority or do not like that many of the help-homelessnes-programs enforce crap like no-alcohol policies - thankfully there are first programs under evaluation which follow the policy "housing first, remainder second".
> Perhaps this is a signal that it's more economically productive for the rich to live in cities than for the poor to live in cities.
F..k this mindset. Or wait, just let it happen and let the rich rot away in a city where no one else lives and they can't buy anything, eat anything or where there are no cops, firefighters or schools because the staff cannot find any place to live (hint, in some areas of Germany this already is a problem, and I remember having seen some reports on HN that this is also valid for the US and London).
Cities are there for the entire population, not just rich foreign investor .... wanting to make a quick buck.
How much of this is vacant vs AirBnB units? In heavily regulated markets a lot of owners will under-report that they're being used for AirBnB.
Yeah and Apple has $250,000,000,000 in the bank and at the same time.... Welcome to inequality in home ownership, stock ownership, money in the bank, education, crime rates etc etc.