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Comment by beebmam | Hacker News Reader

In large cities across the US (and probably most of the world), there is some very large scale foreign speculation in the housing market going on. This is leading to rising rents and rising home prices.

In Seattle, for example, many (newly) wealthy Chinese people are buying houses purely for investment purposes. I know some of them. One of them has purchased 10 houses, and lives in only one of them (when they are in the states). They've made millions on just this speculation.

In the short term, this means housing prices are absurd. In the long term, when these houses are no longer appreciating in value at such large scales, we can expect a crash in the housing market. Which will likely mean something similar to the housing crisis of 2008.

The Seattle city council has wanted to pass a law that would make it visible to the public which houses were being bought by foreign investors, but it was deemed illegal.

https://www.seattletimes.com/seattle-news/politics/proposed-...

To me, this is absurd. This is a human rights issue (homelessness is growing by a large amount). This is also a national security issue; this speculation cannot happen forever, and when it ends, I forsee an awful crash.

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I sincerely doubt foreign purchases are the main driver of rent increase, and no study has ever demonstrated as much. The anti-foreigner mindset is extremely dangerous.

Rising rents are almost entirely because of local restrictions on creating more housing. The beneficiaries of restricted supply are existing owners and landlords.

It's not anti-foreigner, it's anti-speculation. It's easy to see that home purchase prices are well beyond what any reasonable family would want to pay, and yet the prices keep rising. The problem isn't that it's foreign money coming in, it's that there's so much of it.

Well it's either greedy, scheming tech workers or greedy, scheming Chinese speculators. Isn't there a pattern here? The problem simply must be caused by powerful, scheming outsiders. Despite lack of evidence, as this comment is a great example, defying the claim of lack of such by GP as if it simply hadn't been heard.

A lot of it is greedy, scheming local slumlords, to be honest.

If we abolished Prop 13 statewide, did some minor up-zoning throughout the Bay Area (and had more mixed use zones), made new housing easier to construct (less drawn out process for people to block development, etc.), reduced parking requirements, worked on improving public transit, and taxed unlived-in buildings [or better, switched toward land-value taxes], did more planning at a regional rather than municipal level, we could take a lot of incremental bites out of the housing quagmire.

Unfortunately most of those are politically infeasible.

Yes, I think the largest property owner in the US is Blackstone, a private equity firm that bought the property at the downturn.

From a strictly economic perspective they are helping increase demand when it was low and increase supply later on. They got rewarded for that.

How does owning a property increase it's supply? I'm not an economist, but I think you have got to build houses to make more of them.

If the zoning laws werent there, they would be building new buildings(like they currently do in china. Hence the term ghost cities) instead of investing in overpriced existing stock.

That's not always the case. In places like SF, the only way to build is up, which is expensive, requires alot of capital, and is risky by itself even if you don't have NIMBY people fighting it. In this case, Monopoly has it exactly right as far as the costs and values of putting a new hotel on Boardwalk vs. putting 4 hotels on Mediterranean Ave.

What data do you have that building a high rise in San Francisco is financially risky? To the contrary cities like San Francisco is a gold mine for rent seeking as there is such a pent up demand for housing after many decades of under building and the rents are so high that building a high rise is unlikely to carry much risk at all compared to other asset classes.

> the only way to build is up, which is expensive, requires a lot of capital, and is risky by itself

inherently more risky than building up in any other city, like NY or HK?

And low interest rates. There is a complex dynamic between the decision to buy vs rent and a prolonged low interest rate can lead to expectations of rising housing prices, which lead to a boom cycle.

perhaps not directly, but you have to have some debt to back all the us t-bills that you are printing to make your int'l balance of payments seem credible and prevent the dollar from collapsing..

see also: freddie mac / high tuition / yadda

The real estate market is not like most other markets in that the turnover of "inventory" is very low. Any speculation, foreign or otherwise, can have a huge effect on the price. On top of that, you can't just create a new livable house or apartment out of thin air, so it takes time for the supply to catch up to demand even setting aside zoning and other considerations. Conversely, if everyone tries to leave a single market at the same time, the price can also drop very quickly relative to what they paid for it.

Rent is a strict substitute for buying property so the rental prices in most cases track the real estate prices fairly closely. In fact, rental prices tend to change much faster than property as rent can be raised every year while a mortgage doesn't necessarily change once the sale has been finalized.

Here are some recent new articles dealing with this issue.

http://www.independent.co.uk/news/new-zealand-foreigners-buy...

https://www.washingtonpost.com/realestate/wealthy-chinese-bu...

https://www.forbes.com/sites/sarahsu/2016/10/31/chinese-inve...

And here's an article talking about a study done in Vancouver indicating these activities are driving rent prices too high:

https://beta.theglobeandmail.com/news/british-columbia/out-o...

Making assumptions about people because they say something that doesn't fit your world view is just as dangerous as xenophobia itself.

>Rising rents are almost entirely because of local restrictions on creating more housing.

If those restrictions are a constant, then foreign purchases can still play a huge role in pent up demand.

Plus, there are limits to how much you can (and want to) built. You don't want to cover every inch of land with buildings, or grow into sprawling third-world style megacities...

This is bad but much more significant is restrictive zoning laws.

I live in downtown chicago where rents are reasonable and skyscrapers for living at everywhere.

Meanwhile, you gotta move heaven and earth to build high density housing in some cities like SF. Even suburbs will fight 4 story apartment buildings. It's not rocket science.

Let the foreigners invest in building more of them. When the crash happens, the locals get to buy them back on the cheap.

What shouldn't happen is foreigners investing in sitting stock as a bank to store funds....zoning laws are like NIMBY on steroids with a long history of racism and classicism.

That's what really is what we should be angry about.

Chicago is also shrinking in population. Supply and demand and all that.

Most of that is the poorer side. Due to violence in poorer neighborhoods, less blue collar work, and ironically higher rents in some poorer "hip" neighborhoods.

Many high rises under construction here....they aren't building them for tax breaks.

Do you have a reference for "reasonable" rents in Chicago or can you break that down at all?

I'm genuinely curious. Coming from Vancouver where rents compared to salaries are considered beyond insane, what I found on Chicago's craigslist seem to be comparable. That is, accounting for exchange rate but not salaries.

I meant compared to San Francisco and New York.

Then again, canadian salaries are lower and exchange rates are a factor.

Ok that makes sense from what I've heard. Have spent a small amount of time in Chicago and generally like the place.

Rent prices in Chicago are half of SF, according to crowdsourced data from Numbeo's cost of living calculator.

https://www.numbeo.com/cost-of-living/compare_cities.jsp?cou...

Oh okay. Ya that sounds about given what I've heard and what other commenters have said about SF.

I had found 1 room shared by bunkbed airbnb's for ~$1500/mo in SF, in a shitty location but forget where specifically about a year ago; and that was pretty cheap for near the heart, afaict

$1900/mo got me a 2-story townhouse in chicago just south of the south loop; maybe 15 min by train to the heart of the city, 20 min walk to chinatown

Had 3 proper bedrooms and an attic, so with 3 roomates it was more like $450/mo

Funny, I had an airbnb(I hosted) in nashville's downtown that made that rate look dirt cheap.

Reason?

Outdated zoning laws and hotels were slow to catch up with the tourist industry.

It was crazy watching my nearby competitors(the major hotels) adjust prices like the stock market.....

$1800 a night for the last suite at the sheraton up from $250-500 normally. Bonoroo and Country Music festival held the same week is what I called "Second christmas".

Why did you sell or stop hosting?

I moved.... Plus the hotels caught up as did the housing shortage.

2 massive hotels went up downtown and another third is coming online soon.

Sank my new years and March madness profits.... It was a good run.

That's insane.

At least in downtown areas, Seattle is infamous for having some of the least restrictive zoning laws in the country. I was advised not to pay any premium for a condo with a nice view, for example, because there is almost no such thing as a "protected view" in the city, unless you're physically situated such that no theoretical future building project could obstruct it.

While this might be accurate of downtown, you've lost the forest for the trees. Seattle absolutely has protected views for many of the single family houses. If they expire, it's on 30-40 year time horizons. Most of the city's land is single family housing (often with large minimum lot size).

If you want to know what Seattle is actually infamous for: https://en.wikipedia.org/wiki/Seattle_process

These are the same issue. If housing is regulated as a commodity then there will be plenty for consumers and prices will tend to be low and stable. If housing is regulated as a premium product with limited supplies and implicit links to schools and other critical resources then available units will dwindle, prices will rise without rational bounds, and we see the rise of people without homes along with homes without people.

> To me, this is absurd. This is a human rights issue (homelessness is growing by a large amount). This is also a national security issue; this speculation cannot happen forever. Our economy will very likely crash when this speculation is no longer profitable.

This is my biggest concern with wanting to dip my families toes into their first home purchase. We lived in Seattle last few years and the market is stupid, we recently moved to Bay area and this market is even more silly. (I know we pick some great places for first time home buyer but careers and education take you where they take you, that's another discussion.)

Yep, your career really does take you where it takes you. I'm in the same boat.

I've lived here for 5 years and have been saving, was getting pretty close to being able to afford a house, and the last year or so has seen such a huge increase in home prices and a decrease in availability that I've given up hope.

The funny thing is, if you grit your teeth and bought recently or even now, it's possible you could retire on the capital gains in <<< 10 years.

Or you could be bankrupt.

Either one seems equally possible to me.

Well, only if you were willing to move to a much, much cheaper area to realize those gains.

Not necessarily, if your house is going up $10k per month you could live on HELOCs. Easily possible in the last decade or so in Vancouver.

I'm not sure why it matters if the buyer is foreign or American. You would get the same issue if an investor from Texas decided to buy 10 houses and live in 1.

The key issue here is that there's housing that's unoccupied, even under lots of demand. The fix for that is to tax or ban unoccupied housing, not ban foreign housing.

The fix is to stop printing so much money it's basically free to borrow. These people aren't buying houses with their own money - it's all OPM.

>if an investor from Texas decided to buy 10 houses and live in 1

An investor from Texas can simply open a Vanguard account. The theoretical mechanism for Chinese speculation is that real estate is the path of least regulatory resistance compared to stock markets, etc. under Chinese law.

Nothing to do with regulatory resistance. Chinese culture generally views the stock market as gambling in a way that US culture does not. Real estate is a safe investment. It is also protected against seizure by the Chinese government.

We saw this before with Japan, it didn't end well.

If you think the states property markets are crazy, well, the Chinese ones are crazier by an order of magnitude. It's no wonder that many wealthy Chinese see the states (or other countries) as a safer bet. The upside is that rents in china are still reasonable (so that 7 million yuan apartment is only renting for 10k RMB/month).

However, the same was true with Japan, and when their asset bubble crashed, it took many foreign markets with it (taking about a decade to recover, heck, even California, especially California, suffered).

I think a similar thing would have happened in the US during the Great Recession of 2007, however, the US government was willing to back all of the banks who were holding underwater mortgages. Had the government not done this, the banks would have been forced to unload property at fire-sale prices.

10 years later in major metropolitan areas, property prices are even higher than they were in 2007. Most likely the Federal government would pursue another bailout during a housing "collapse".

Are you sure that it's foreign buyers?

While it has been true in the Vancouver market, I read an article recently mentioning otherwise for Seattle: http://www.sightline.org/2017/07/05/stop-blaming-foreign-hom...

This is an excellent article. It does an excellent job of analyzing the problem.

The core issue is real estate as investment regardless of where it's coming from. Right now the most visible are overseas Chinese people with money buying property, but REITs have been picking up rental property for ages, and there are also PEREs (private equity real estate firms).

If governments are to serve their people, then they should curtail this speculation. Of course in America, corporations are people.

In English common law corporations are people, hence the name. They are a synthetic "body" for business purposes. This isn't a new concept created by Citizens United.

It's usually better to say that they have "legal personality". They're not people, but like people, or charities, incorporated associations etc, they have an attribute that gives them legal existence a court will recognise.

What Citizens United established was that free speech applied to legal personality generally, not humans in particular. Folk forget that this includes organisations they like, as well as the many they don't. It's easy to dislike the situation (as I do), but trickier to explain how to define a way out of it.

Build sufficient housing and they won't see it as a sure-thing investment anymore. They're betting that local politics will never allow this to happen.

You're right, and they're right. It would take a monumental shift in politics for local governments to give up their ability to buy favor with local residents through land use code.

Very true. A friend in Seattle tells me that Seattle locals are buying second and third homes as investments, a new way of becoming rich through leverage.

Disagree. It costs much more to build a house or apartment than it did 50 years ago. This is primarily because of changes in city requirement to make the houses safer.

I recently had a house burn down in a neighborhood with numerous $150k houses. Cost to rebuild a similar structure was over $200k. I got three bids and every contractor told me the cost was much higher than nearby existing properties because legally, the house would need to be built with different materials and different building requirements.

Or maybe because local wages have also risen due to local housing price increase. The workers also need to pay their mortgages.

> I recently had a house burn down in a neighborhood with numerous $150k houses. Cost to rebuild a similar structure was over $200k

My home insurance company made this very clear when I started a policy with them - they discussed the price of the house (e.g. in tax roll estimates of "land improvement") vs their estimated replacement cost. Even with new requirements though, no one talks about the productivity improvements in construction - from faster to put up materials, to the abundance of various tools .. is it really regulations or a form of cost disease...

The population growth in Seattle each year exceeds the growth in housing supply required to house them, despite the level of new construction in Seattle. This has been the case for some time and will continue for the foreseeable future. There are not many cities that could absorb ~2% population growth year after year.

Even absent any non-resident speculators, the demand is still going to significantly exceed supply such that the prices increase given that housing is not growing at the rate of population. Foreign speculators may or may not make it worse but they aren't the primary cause of price increases; simple supply and demand is sufficient to explain it.

It's easy to jump on the bandwagon and blame foreign investors. But aren't locals voting as fast and as hard as they possibly can to prevent development of the new housing we need? And aren't locals making tons on real estate speculation, too, or are you saying there's some great secret that only the Chinese know here?

>To me, this is absurd. This is a human rights issue (homelessness is growing by a large amount).

The US has traditionally put free markets above human rights.

(In lip service, that is -- the US had plenty of protective taxes and tariffs early on).

Here's NZ's proposed (extreme) response to the foreign buyer problem: http://www.bbc.com/news/business-41745129

Seems more sane than extreme. I think it's a pretty reasonable policy given real estate speculation trends in the last few years. It seems reasonable for countries should have strong policies for protecting domestic housing stock, whether those are outright bans or massive taxes.

"To me, this is absurd. This is a human rights issue (homelessness is growing by a large amount)."

Homelessness is a mental health issue. Nobody is homeless because of foreign speculators.

Yes, people are indeed incentivized to relocate to housing markets that Chinese people have never heard of like, for instance, Tacoma.

If those people spent half their time working and saving (like their parents did) as they spent bitching about their basic human right to live in a walkable neighborhood with artisanal foodstuffs they would then have a nice down payment when the inevitable crash comes to the hot housing market in question.

What about people who have lived in neighborhoods for decades, but were since evicted (i.e. their SRO was converted to luxury whatever)? Sure they may be near the economic fringe, but the poor will always be with us. How can we enable the poor to participate in the rich economy that cities create? Or should cities become only playgrounds for the upper middle class and wealthy?

Mental health is one reason why people are homeless but it's not the only one.

The reasons you're bringing up are strawmen at best. The people who are homeless or on the brink of homelessness are not complaining about artisanal food stuffs.

In Oakland, a family of 4 has been living in a single family home for 15 years. This year, after new owners purchased the property, the rent went up 100% in one year. Needless to say, they are facing a housing crisis where they will be homeless.

If you want to understand the severity of the situation, I suggest just literally googling "homelessness housing crisis bay area" and read all the both qualitative and quantitive reporting done on the issue.

Here's a brief stat overview to refute your claim that it's a "mental issue" primarily: http://www.socialsolutions.com/blog/2016-homelessness-statis...

"If you want to understand the severity of the situation, I suggest just literally googling "homelessness housing crisis bay area" and read all the both qualitative and quantitive reporting done on the issue."

As a resident of the bay area I assure you that I read about this topic every single day - and consume a wide range of reporting and editorial.[1]

"... the rent went up 100% in one year. Needless to say, they are facing a housing crisis where they will be homeless."

That's not obvious at all. Certainly that's a very difficult situation and I suppose it is technically true that they will indeed be homeless as they physically move their bodies to their new home ... but there is nothing at all new or noteworthy about people making rational economic decisions about what they can and cannot afford - and voting with their feet for new locales.

The only thing that's new (and this is something I encounter more and more frequently, especially in the bay area) is the idea that not only is housing a basic human right but housing in an arbitrary location without any consideration of ones actual economic status is a basic human right. This is, I am afraid, absurd.

I am open-minded about the notion of housing as a human right. I completely reject the notion of housing wherever one most prefers[2] as a basic human right (or any kind of right whatsoever).

[1] 48 Hills, for example.

[2] Where you grew up, where you raised your kids, where the cool restaurants are, where the artists are at ... etc.

It's not "housing where one most prefers" in this instance, it's "housing where you're already lived for years, and where your children go to school".

Honestly, counting on being able to rent a single family home for an extended period of time is insane. That they were able to live there for over a decade makes them an outlier. Most single family homes are owned by individuals. Individuals and/or their heirs often need liquidity, so rental houses are way more likely to change hands than apartment buildings.

Who said they were counting on it? The point is that this is a problem that could be ameliorated by simple regulations. In NYC, for example, it would not be possible to increase someone's rent by 100%.

The notion of "a fundamental right to housing" isn't about "where cool restaurants are." It's a starting point and a framework for how you solve the problem. There are complications that we definitely have to figure out (including where etc) but the conversation always comes back to the strawman of "well it's just not fair to buyers, and those people need to make better economic decisions."

If a person is paying $1000 a month, and sees a 2% increase every year and can afford it, but then can't afford a 100% increase in one year, are you saying they made bad economic decisions? OR that they should have anticipated the housing market to shift so drastically?

Of course not, because, as you said, it is absurd to not consider ones actual economic status.

Wrt to the newly homeless who have been evicted - i think it is convenient to chalk this up to market economics, but the truth is that zoning, housing, and rental laws have created an environment where you are seeing mass displacement of people. You may say "well that's the market" but you might feel different if it was you and yours. It also trivializes the value those people bring to their communities, and the lag effect in economic production their displacement will invariably produce. Longer commutes = less productivity (http://www.cityam.com/265145/heres-just-much-impact-long-com...).

I don't disagree that you need to consider economic status, but in that vein, it's worth considering that housing laws help us define the values we want in a community and sometimes those are not always economic.

At the end of the day, there is pretty conclusive evidence that building more affordable housing is good for cities.

> I am open-minded about the notion of housing as a human right. I completely reject the notion of housing wherever one most prefers[2] as a basic human right (or any kind of right whatsoever).

I won't make the overly broad claim that nobody ever demands housing in popular districts, but I don't think this reflects the reality of many housing decisions; usually it's about convenience; convenient commute to work, convenient access to schools and hospitals, convenient shopping for necessities (food, etc), convenient utilities. I know that some people get a thrill out of living in hip areas (my brother lived in a popular section of Chicago for years and paid outrageous prices for a hole in the wall), but more often than naught people just want a convenient location with the ability to perform their daily tasks without undue stress.

Living abroad, it's possible for me to have an hour commute because the public transportation is reliable and cheap and there are ample options for shopping at virtually every transit stop. This was not the case when I was in the US and my car was destroyed by a drunk driver; having lived in Tacoma, I enjoyed their transit system, but it was not convenient, as missing your bus even slightly after peak hours meant a 45 minute wait in the rain just for an hour commute and then another 15-30 minutes walking.

The cost of living in the US isn't just reflected in the rental price on the apartment or the cost of the house/condo; it's also with how livable the area actually is and what you need to live well in an area.

My experience is that typically this is what people are frustrated with and concerned about, not so much having fantastic apartment or homes at the coolest place. Bringing up such a concern just seems like focusing on an edge case and diluting the main concerns when it comes to difficulties with housing. I was lucky enough that the worst rent increases I had were to the tune of $30 every other year - that was as simple as deciding not to get takeout once or twice a month when I may otherwise had done so. This was in Tacoma in a relatively stable part of the city; but as Tacoma continues to try and shake off it's former reputation, many of the neighborhoods at the time were being bought up and rebuilt, and I had friends who lived near such areas whose rent shot up much more, and what was a place where they could live rapidly became beyond their means and they had to seek new housing. It's easy (relatively) to move when you have even a small amount of financial freedom, but when you are restricted financially, adjusting to rapidly increasing rental prices is very difficult. It has long reaching effects and leaves an already trouble part of the population without options as they are forced to move further and further away from the things they depend on into situations which aren't good for their situation.

If homelessness goes up 10% in a year, are you saying that means the incidence of mental illness somehow went up 10% in that year?

It probably was the case 5 years ago that most homeless people in the US has some kind of mental problem. These people were almost all men and you would see them sleeping on the sidewalks or parks with almost nothing in the way of possessions. Now, at least in Oakland, there are tents everywhere. From single ones trying not to get noticed to tent cities with 10-50 tents all in one area. Many of these people have a piles of possessions and some still have jobs. Maybe not quite on the scale of Hoovervilles in the Great Depression, but getting there.

I'm confused... Are you saying homelessness can't be a mental health issue because they now have tents? Or because they have possessions?

Not at all. I even stated directly that in the recent past most homeless people had mental health issues. Now added to this first group are people that just can't afford the rent and have been evicted or pushed onto the street.

I truly have no idea what the situation actually is, but here is an, IMO, plausible explanation: policing practices around homelessness have changed as a result of changing attitudes toward the homeless (toward increasing acceptance) and this has created an environment in which the homeless are now able to accumulate possessions and erect semi-permanent shelters. Another, plausible scenario (again, IMO): if certain liberal cities have a reputation for being relatively accepting toward the homeless, there may be a simultaneous net migration of homeless from less accepting parts of the country to these cities.

When the crash comes they are probably too busy using those savings to stay afloat after losing jobs.

You'd be an idiot to invest unless your in a super stable job or confident you can find another quick in a recession.

I've been in a similar situation and thank god for Airbnb.

Yup. Totally because people aren't hard workers. Nothing at all to do with the fact that wages have been stagnant at best over the last 30 years, and housing prices have ballooned.

>basic human right to live in a walkable neighborhood

Somehow we have a societal consensus that it's your basic human right to live in a quiet neighborhood free of traffic, shadows, or other humans. It's good to see some push in the opposite direction.

>In Seattle, for example, many (newly) wealthy Chinese people are buying houses purely for investment purposes.

Same thing in Los Angeles (the entire county) and Irvine.

I own in OC. I remember when I bought, it felt like I was dodging between all-cash offers for a lot of places. It was difficult to find somewhere move in ready that was within my budget and didn't have an over-listing all-cash offer on it already (and this was years ago).

Foreign investment is not the root cause of a growing population being drawn to city centers with limited land.

Exactly - it is a symptom of the different regulations in the different city centers.

Eh.. I saw it more as a symptom of humans breeding. Human population has always been bound by some constraint, and now it seems that shelter is more of a limiting factor than food supply, in western countries at least.

That, and a cultural shift toward wanting to live in cities, even though many of these financially struggling millennials would do just fine financially in more distant suburbs.

It's restrictive zoning laws. Home and property owners have a zeal for politics unmatched when it comes to keeping values up.

The movement away from cities had a lot of reasons that have been solved(jobs came back, riots, red lining, less pollution, less crime) so I'd say the cultural shift was justified to return.

Commuting sucks too.

High density zoning is only a short term solution, and it seems with current policy enactment speed, technology (and especially building regulations), demand will always outpace supply for the foreseeable future.

Naw, take a look at nashville which was expanding insanely fast in population. Rent rose 25% in a low CoL city.

They had a housing shortage for the past few years and removed a lot of restrictions. Recently they actually overbuilt despite a shortage of skilled construction workers.

You can build hella fast when the demand is there and the government wants buildings fast. We're talking skyscrapers in 12-14 months.

10% (of assessed value) yearly tax on homes not occupied by someone for more than 50% of the year.

Korean housing prices are also heavily influenced by Chinese investors.

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