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Comment by vkou | Hacker News Reader

> The value landlords provide is the assumption of risk. The premium you pay to rent is in exchange for vastly limiting your exposure to said risk.

In hot housing markets, the value they provide is having access to the capital necessary to own property.

A 30 year old hairdresser in Seattle isn't renting because they don't want to deal with risk - they are renting because they can't save up a $XY,000 downpayment, and tie their entire salary into interest payments.

Mind you, the capital requirements for property ownership are pretty insane, and our low interest rates really don't help matters any (Home prices have ballooned, in part, thanks to them.)

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Hot housing markets are extremely high risk high reward investments.

Buying NYC real estate for example, it is practically impossible to use a traditional "buy and hold" strategy and have the rents cover the cost of investment (typically rent covers more like 50% of operating costs in NYC). You pretty much only make money in NYC REI via speculation (ie the property goes up in value) not from paying down the mortgage with rents.

The solution to high pricing is to increase supply of housing. Mind you _this_ is an area where landlords do have high rent-seeking behavior in the political sense. Landlords are incentivized to push for increased regulation that limits new development whenever possible. As much as I hate to use him as an example due to his "lightning rod effect," Trump, for example would see his net worth plummet if NYC development regulations were relaxed.

> The solution to high pricing is to increase supply of housing.

... for a given amount of money. However, money is easier to create than houses.

Last I heard, NYC is literally running out of pavement space for pedestrians, let alone vehicles, and increasing the supply of housing still hasn't brought prices down.

NYC has tons of regulations that _drastically_ limit the supply of new housing. New supply hasn't even come close to keeping up with new growth. New supply is a drop in the bucket.

https://www.nytimes.com/interactive/2016/05/19/upshot/forty-...

> Last I heard, NYC is literally running out of pavement space for pedestrians, let alone vehicles

That's news to me, as someone who lives and works in the two busiest and most crowded neighborhoods in the city

> and increasing the supply of housing still hasn't brought prices down.

Yes, but that's because of the way new housing has been constructed (skewed towards luxury buildings, which are purchased by foreign speculators as ways to park money essentially tax-free). That means that many of these new units that are constructed don't actually increase the supply of housing, because speculative purchasers tend not to rent out the units (it's not worth it, given their goals).

> (NYC running out of space for pedestrians) is news to me, as someone who lives and works in the two busiest and most crowded neighborhoods in the city

I assume that's a reference to this - https://www.nytimes.com/2016/07/01/nyregion/new-york-city-ov...

It is not. Brooklyn, Queens and Bronx are littered two story houses.

> A 30 year old hairdresser in Seattle isn't renting because they don't want to deal with risk - they are renting because they can't save up a $XY,000 downpayment, and tie their entire salary into interest payments.

If you're talking about cities like Seattle, the reason that a 30-year-old hairdresser would have a difficult time purchasing a place is because prices have been pushed absurdly high due to two factors:

a) a housing shortage (primarily in the SF Bay Area, but Seattle has similar problems, and the SF housing problems spill over into other nearby cities)

b) speculative purchasing by foreign entities

The second point is less relevant Seattle than it is to nearby Vancouver - and nowhere is it more true than in New York City - but it still has a huge inflationary impact on property values in a way that doesn't benefit any local residents at all (the properties are used as places to park money by people who don't live there, and may never even have visited the US).

I'm starting to think it is less about foreign investments, like a few other comments have noted, and more about changes at the top end of the middle class.

Along with the large amounts of growth, wages in the upper middle class have really increased a lot. If you look at tech workers, it was pretty common to see average tech employees pulling in $75k-$150k a decade ago; today employees at a similar level and set of skills are pulling $200-350k. As a result, there's a ton of money in the high end available to purchase housing in the area.

Saving for a down payment is a challenge, but less so if it's relatively easy to tuck away an extra $100k a year. This is likely available to a tech earner but not the Seattle hair dresser, unless they have also increased their asking rates for a haircut the last few years.

The zoning laws keep it that way.

In a truly fair market, the new tech class buys newer, larger homes or apartments while the hair dresser buys their old starter home or bachelor pad.

Were 30 year old hairdressers ever able to afford a home inside a major metro area? I'm sure one could have afforded a home in Seattle 40 years ago, but the Seattle metro area wasn't even among America's top 20 largest metros until the 70's.
The problem with the assumption that something is wrong with Seattle's housing market is that people's perceptions of what Seattle "is" haven't changed to reflect the fact that Seattle today is as large as Chicago was in 1930. No one expects a hairdresser to be able to have been able to afford property within Chicago's city center at any point in modern history. That's because everyone alive has always known Chicago to be a massive metropolis whereas many long term residents of Seattle still remember a time when the city was an also-ran in terms of size and economic prosperity. Just think of all the towns that were absorbed into what is now called Chicagoland.
People who live as far as 85 miles away from downtown Chicago (Kentland Indiana is part of the Chicago MSA) still consider themselves to live "in" Chicago and they are even included as such in Chicago's Metropolitan Statistical Area. People's perceptions of what constitutes "Seattle" need to change to reflect the current reality of the city's size and influence.

Source: http://peakbagger.com/PBGeog/histmetropop.aspx

Sure, probably. The hairdresser who cut my hair when I was a child managed to buy a home in the Chicago metro area about 20 years ago. Maybe she had another source of income but I don't think so.

The same applies to a 30 year old doctor in Vancouver, and I would imagine other Canadian cities soon enough.

what if the hairdresser wants to move in with a roommate? or gets married? or has kids? Or open a new shop somewhere else? There are many reasons why someone may not want to own their property, and have to deal with transacting it.

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