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Comment by LarryDarrell | Hacker News Reader

The thing I've noticed is that in my area all the modest neighborhoods (2 bed, 1 bath, sub $200k) are being bought up by landlords. This leads to a neighborhood of renters, which is a lot different than a neighborhood of owners. The Havers can buy a lot more houses than the Have-Nots and I'm left wondering what the price of single family homes would be if renting them was illegal and they were all placed on the market.

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Yes. That's a "private equity" thing.[1] Blackrock can borrow at lower rates than homeowners. So they can buy up houses and rent them out at a profit. Plus they can keep raising the rent. And they outsource maintenance.

[1] https://www.theatlantic.com/technology/archive/2019/02/singl...

The agency cost of any landlord is much larger than the savings in capital cost. For example, for a tenant there is an incentive to complain over the smallest problem instead of fixing himself or just living with the problem. Management agents charge a fortune to deal with these issues.

This is something I think about as well. In my Midwestern city, some neighborhoods seem to be 60%+ landlord owned and always increasing. For every home sale to a young couple or first time owner it seems like another house is purchased in cash by some mid-size wanna-be property baron or a mega real estate conglomerate that already owns 200+ homes in the city.

It definitely feels like we're moving towards a system of feudal property barons extracting rent from people who are quickly being priced out of the means to own their own home.

It's another example of the high cost of being poor. The rent on my town home is several thousand more per year than what a mortgage (5% down), taxes, HOA fee, PMI, and home insurance would be.

Think of it instead as a player closer to the money printing machine that is the fractional reserve banking system. This is the inflation the Fed created directly, and these institutions probably are thinking: 'housing prices only go up, so the duration of my borrowing doesn't matter, borrow short term buy long term, it's all gravy!' If you're over 30 and feel like you've heard this story before, you have....

Several thousand more per year doesn't sound too far off: if you own, you're responsible for home repairs: roof, HVAC, electrical, plumbing, appliances, siding, painting, etc.

I budget $2,000 a year for repairs on a modest-sized home; most years it's under $1,000, but HVAC and roof are infrequent and fairly expensive.

Even if we say that the owner is spending those several thousand dollars on maintenance that just means they're cash flow neutral. They are still making thousands through increased equity and appreciation.

Well, yeah, except 2008 kinda put a dent in that.

Only if you were forced to liquidate before the rebound. Even if you bought at the absolute peak in ~2008 you'd still be way ahead today.

Not if you live in Phoenix[1], Miami[2], Las Vegas[3], Chicago[4] or a host of other US cities.

[1]https://fred.stlouisfed.org/series/PHXRNSA [2]https://fred.stlouisfed.org/series/MIXRNSA [3]https://fred.stlouisfed.org/series/LVXRNSA [4]https://fred.stlouisfed.org/series/CHXRCNSA

You're not accounting for equity changes. Even if you lost 20% of your house value you've paid down more of your mortgage than that.

On a typical 30 year mortgage you haven’t paid much principle in the first 5-10 years. So if you’re still down 10% (as some of those cities are), you could still be in the red.

For a 4% loan you pay off 10% of the mortgage in the first 5 years and 22% after 10 years.

I'm in my first mortgage, 30 years on ~$200k, almost nothing down. Starting to look at selling next year, which will be year 10.

If it sold for the price I bought it, I'd walk with at least $40k of equity after closing costs. But it's also increased in value about $60k.

And I'll have maybe $10k in maintenance and fix up costs over that decade.

It depends on the neighborhood and unfortunately the racial and the economic makeup of the neighborhood.

https://www.forbes.com/sites/forbesleadershipforum/2012/12/1...

Anecdotally speaking, I bought a house in a new minority subdivision in 2003 brand new build. The value went up by about $40K by 2008, crashed to $40K less than I bought it, and today it’s still worth $4K less than I bought it in 2003. It’s still a nice neighborhood so it hasn’t gone “downhill”.

Being the numbers oriented, unemotional person that I am, I did a strategic default in 2012 realizing that I could be eligible for an FHA 3.5% down loan in 3 years after the foreclosure, applied and received a loan exactly three years later and had a house built in a new subdivision in a predominantly White neighborhood. The value of the house has gone up $70K in 3 years and a house with basically the same floor plan is being sold for $70K more than mine was 3 years ago. .

And to hopefully stave off some of the expected replies:

- No the world shouldn’t work like that. But to paraphrase Buffett, “the world can stay racist longer than I can stay solvent”.

- No I’m not racist and it’s not that “I don’t want to be around Black people”. I am Black.

- Yes I know “White Flight” is a real phenomenon. But there is also a well studied “tipping point” when that occurs. I don’t see that tipping point happening.

If you live in your house instead of paying transaction costs to sell, lower property value just means lower property taxes and a more prosocial working class neighbors.

What it put a dent in was the expectation that real estate prices only went in one direction. (Of course, the popping of several previous real estate bubbles should have dented that before 2008, but....)

A townhouse in the western Chicago suburbs I bought in 2006 for $280k and walked away from in 2012 finally sold to the next owner this year for $208k. It will still be another decade or two (if ever, depending on the rate at which property taxes rise to offset Illinois pension obligations) before it appreciates back to what I paid.

The landlord makes the down payment and the landlord takes the risk.

Landlords absolutely incorporate home repair costs into rent. I'm shocked at the number of people who assume that landlords just eat the cost of maintenance. Just because you aren't forking over the money directly to the repairman doesn't mean you aren't paying.

We really need some stronger regulation on renting.

I'd like something along the lines of federal rent control. Limit the rent that can be charged to reduce the profitability of buying up house after house. This would be unpopular with the current owners of homes as it would lower property values, but over time they would remain much more stable.

i agree with your sentiment, but i don't think that rent control is a federal concern. we need to hold our state legislators accountable here. living in CA frustrates me in that regard, because we cannot pass a single f'ing bill about housing affordability generally, even though democrats have a super-majority and every politician and news outlet talks a big game on the topic. i'm ready to vote against every incumbent at this point.

in any case, part of the solution is to equalize the capital gains tax with income tax rates and have the capital gains tax escalate with the number of homes owned (but keep a small tax advantage for long-term owners of a primary lived-in home). and get rid of 1031 exchanges for investment property, which greatly advantage large capital holders over the average citizen.

There are too many loopholes with holding property. You can create and diversify among enough companies and eventually you won't have to pay tax at all.

No politician will vote for this because they know where their bread is buttered. It would be suicide as they would find out when they lose every large donor. I doubt we'll ever get people into office that would vote for anything to disadvantage property holders.

Even if you vote it in through a referendum, I expect a judge will crush it through some weaselly interpretation of the constitution or other precedent. California in particular has had several major referendums reversed by the courts. Will of the oligarchy, not that of the people.

Why federal? The federal government has no authority to do so. Housing is literally, more than any other market, an intra state matter, and the feds cannot regulate intra state trade.

Then we need to fix that. No state will pass legislation along these lines because it will put them at an economic disadvantage to every state that doesn't.

I mean, and if a country does that it puts them at an economic disadvantage to every country that doesn't?

I can't seem to reply to your other comment so I do so here.

It is entirely different to move your company or business to another country vs another state. Most people are not going to expatriate and most companies wouldn't gain much from doing so. Property is already much cheaper in Mexico, but you don't see anybody with a high-skill workforce moving there.

Much simpler would be to raise property taxes to a reasonable level and redistribute that via a citizens' dividend /UBI. That gives you free market efficiency with no rent-seeking non-local owners sucking away the wealth, only reasonable fees for management and liquidity services.

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