Buying property and renting it out is expected to yield returns. There's nothing wrong with that. It actually increases access to housing by allowing people who can't afford to buy property to still live somewhere in the meantime. The problem is when you're not just buying a $200,000 house whose value tracks inflation and renting it out, but buying a $200,000 house as the value quintuples and all of that money goes to the landlord while the tenant's rent quintuples as well.
Nonsense. We can build 100 story buildings but there is nowhere in the world you can find a hundred square miles covered in nothing but 100 story buildings.
> Plus the rich can just buy any new supply quickly and we are back to the same.
So the rich are going to buy the new supply and do what with it? If they rent it out, supply still goes up. They have to compete with each other for tenants. If they don't, wow -- huge profit opportunity building hundred story buildings and selling them to rich idiots who are willing to pay top dollar for something they get no returns from. Do that until they run out of money.
The idea that the rich get no profit from sitting on buildings is wrong.
[1] https://www.brickunderground.com/rent/why-landlords-leave-ap...
This is fine, then you don't need as many hotels and can convert those those to permanent housing. It's not as if there is unlimited demand for short term rentals.
> or they sit on the property and grow their investment over time because of how limited land is in metro areas.
Which only works because construction is not actually happening, so sitting on the properties is profitable because the value appreciates over time. Build enough that values at least stop increasing and that stops being profitable.
Notice also that your article is talking about a vacancy rate of 3.45%. If you increased the housing supply by 50%, do you really think they're going to buy all of it and let it sit vacant?
And the best actual reason the article lists for why landlords do this is that their building is rent-controlled and they correspondingly want to convert it to condos and sell it, because that's more profitable, but first they need to get rid of the existing tenants, which implies not replacing them when they leave/die. So the reason the building is half empty for decades is the economic implications of rent control, not some plot by landlords to lose money.
Property grows in value because of its proximity to other things of value, not because of the amount of it on the market. If you were to expand the size of NYC to encompass the entirety of New York, housing inside of NYC is going to be vastly more valuable than housing located on the edges of the state.
No amount of construction you do is going to devalue that property, and often you can't build upwards because of the rich property owners (see: NIMBY) choosing to use their financial leverage and property ownership to deny that.
This is not an either/or situation, both of these impact the price of property!
Calling inadequate supply a reason for high prices "just an assumption" is not borne out by any actual analysis of any market, anywhere, at any point in time.
It's not just rich property owners that prevent building up, what you are engaging in here is just as much a reason that we can not provide housing for people, and why there is overcrowding in so many parts of the world.
This is extremely illogical, because they can do this with existing supply, and do do this with existing supply. You even point out that it's a problem because of existing land.
So saying that we shouldn't increase housing because of this, when it only has the potential to reduce this, is absolutely nonsensical. Refusing to act by building more will in fact make the problem you describe worse!
Of course, urban design is a field in its own right so I can’t weight up the pros and cons of each option. Public transport? Zoning? Other?
That said, I agree with you: there can’t possibly be no solution to the housing shortages when there is so much land between different cities.
It's like complaining people who buy stocks are bidding up the prices. While true, there is no vitriol against stockholders vs real estate owners.
One could even argue that buying real estate does more for the economy than buying stocks - you are liquidating a developer to build more properties, and banks to give loans. Buying stocks... I guess drives up the stock price, allowing the company to borrow more money?
You see less vitriol against shareholders bidding up stock prices b/c buying a fixed amount of stock isn't a necessity -- lots of people just don't do it. But everyone needs housing.
To make a different comparison, in the 2007 food crisis, when poor harvests combined with sudden enthusiasm for making ethanol from corn helped drive up food prices around the world, there was some quite legitimate vitriol. You might think the high prices help produce more grain next year (analogous to your developers). I don't think that's actually true, I'm not sure -- but even if it were, it did little to help people during the crisis.
I'm not sure of the solution though. Would the problem be worse if, say, people were limited to just one residence? Where would a rental supply come from?
You're starting with the concept of an asset class. Surely the concept of a home is more foundational than that, and should get prior consideration?
I don't know of a single bullet to address the concept that the necessities of life are subject to the whims of the market, but some suggestions:
- Have high vacancy taxes, with an actual inspection and enforcement mechanism. Strongly discourage buying and holding empty property (esp where renting it will "lower" its value).
- Structure taxes associated with the sale of a property be inversely proportional to the time time since the last sale. If you try to flip a property in a year, you should pay an exorbitant. If you hold onto your house for 20 years, and sell when you want to move to Arizona, you can pay something more modest.
- Create a space for not-for-profit housing foundations, land trusts, etc. Help fund these with the proceeds from the suggestions above.
- Build nice public housing for the middle class, without stigma. A majority of Singapore lives in public housing, with flats sold for 99-year leases. Because every one does it, it's not looked down on, and residents have some political clout.
- Label every house with data about what they pay in property tax, how much of a benefit they get from things like the mortgage interest deduction, and what any rental property is charging their tenants. - Teach children to shame rent-seeking behavior instead of shaming people for their bodies.
- Give tenants a small deduction on their rent. When they report their rent, the IRS can easily tell if the landlords are under-reporting their income.
...only such taxes will bite landlords every time they have a legitimate vacancy between tenants.
> Structure taxes associated with the sale of a property be inversely proportional to the time time since the last sale.
... Only now people cannot afford to sell a recently purchased home to care for an unexpectedly ill relative in another state. Or take a new job opportunity. Or afford to move to follow their heart. Etc.
> Create a space for not-for-profit housing foundations, land trusts, etc.
...only now the trusts are competing with landlords with entirely different tax structures and perverse incentives to create bureaucratic nonsense because they don't compete in the fully free market.
> Build nice public housing for the middle class, without stigma.
...only now no one wants to build this because they're taxed when the new properties are vacant per your earlier proposal. And now the public is likely on the hook for losses.
> Label every house with data about what they pay in property tax, how much of a benefit they get from things like the mortgage interest deduction, and what any rental property is charging their tenants.
...only now people's financial privacy is wildly violated.
> Teach children to shame rent-seeking behavior instead of shaming people for their bodies.
... Only now, really? Really? Like in the schools we should teach people that providing a way for others to have a roof over their heads at considerable business risk is shameful? The ones that are presently being paid zero rent without recourse due to local edicts?
> Give tenants a small deduction on their rent.
... Only now you're trusting people to not inflate their reported rent to gain illicit tax breaks.
Any other unintended consequences worth spit balling?
People have been saying that for decades but we seem unable to achieve it. Meanwhile the proportion of people in rented accommodation has been increasing and the proportion of home owners has been falling.
Perviously landlords in the UK were getting a tax advantage that home owners didn't have access to. This seems to be slowly shifting.
Buying property and renting it out is expected to yield returns. There's nothing wrong with that.
Actually I think there is something wrong with that. Personally I won't use my easy access to capital to deny the younger generation the ability to buy a house in the way I was able to.
If no one can make money renting properties, where will this supply of rental properties come from?
(This is a joke. Unfortunately, the joke is on NYCHA residents, and on those priced out of apartments.)
The UK had a pretty good housing situation that was developed after the end of the second world war. It was disassembled by Thatcher.
Allow densification, abolish green belts, reduce the friction and cost of obtaining planning permission, etc.
The solution is simple, but it’s not politically viable when a majority of the population have a vested interest in property prices remaining high.
In theory this shouldn't happen in local areas where the tenants outnumber the homeowners, but then some jackass invented rent control for those areas, thereby giving the existing tenants an interest in maintaining the status quo and once again screwing over new tenants and prospective homeowners.
Tenants are incentivized to vote for rent control (for obvious reasons), and rent control has the unintended consequence of restricting supply — on average developers construct less housing in markets with rent controls than those without, relative to the demand.
https://www.ethnicity-facts-figures.service.gov.uk/housing/o...
That’s because for decades, we’ve also been destroying low volatility, decent paying jobs via outsourcing and automation and concentrating high paying secure employment into fewer regions.
The people who have been saying that for decades have been right. The problem isn't that it doesn't work, it's that we haven't done it.
> Meanwhile the proportion of people in rented accommodation has been increasing and the proportion of home owners has been falling.
Not meanwhile, because of. Demand has been growing faster than supply for decades.
> Actually I think there is something wrong with that. Personally I won't use my easy access to capital to deny the younger generation the ability to buy a house in the way I was able to.
But that's not what's doing that. The only way you could get someone to rent who otherwise would have been able to buy is by offering them a better deal. You can't just outbid them because without supply constraints, higher prices would result in more construction, and then that person would have a new house built instead of having to outbid you on the existing stock.
Meanwhile there are are still people who need somewhere to live and can't afford a down payment yet.
Meanwhile there are are still people who need somewhere to live and can't afford a down payment yet.
Nobody said there isn't, there will always be people for whom renting makes sense. But right now there are a lot of people where they would much rather buy the property they are in than rent it.
This isn't the problem until the zoning prohibits tall buildings.
> as well as a planning system and a cabal of builders banking land.
The planning system is the problem. Reforming it is the solution.
> But right now there are a lot of people where they would much rather buy the property they are in than rent it.
So what's stopping them? High prices as a result of supply constraints, right?
While you're right that there is a finite amount of land, we haven't even come close to reaching the practical limit of how much housing we can construct on that land: https://marginalrevolution.com/marginalrevolution/2016/08/la...
The solution is to ban short term leasing in cities, increase taxes on sales of property within a certain timeframe and increase taxes on owners who have a property with nobody registered to live in it.
Basically you don't want people buying property to flip it quickly, to hoard it or to have a holiday home. You only want buyers who'll live in the property and/or rent it long term.
Land, on the other hand, is severely underused. Zoning changes could easily triple the housing supply in American cities. That's a lot better than 5-10%.
High end estimates of AirBnB apartments are about 4% of units in the most popular neighborhoods -- Times Square, the East Village, Williamsburg. Drift out to Park Slope and you can see 2%, maybe.
House hoarding? Very few people pay a mortgage for empty space when they can get a tenant to pay the mortgage instead. The real house hoarding is the high end luxury market with $20 million penthouses, where renters were never in the picture.
We don't need to free up 4-5% more units in the most popular neighborhoods. It'll help a little, yes? It's just that it's such pathetically small thinking.
Why don't we have a plan to build 50% more units citywide, and make housing actually affordable? Hell, it's New York. Build us 100% more apartments. Put real price reductions on the table. Do what it takes to chop rental prices in half.
I'm not sure what you mean by "increase housing supply": there are many ways to do this, some simple, some complex and challenging.
If you simply mean "build more houses" (this is the most common answer I see), that comes from an oversimplified view of the the market.
Too much for a HN comment but some variables to consider:
- financialisation of residential property affects vacancy rates (and by extension market supply). When selling and renting aren't the only two options for extracting value from residential property, the equation becomes a lot more complex.
- tourism is another obvious one: while tourism is economically nice, it's not a stable source (see current crisis) and overtourism negatively impacts many aspects of society, housing supply being just one of them. Building more housing without accompanying measures means slightly more AirBnB, further overtourism and accompanying negatives.
- urban planning. A lot of supply problems are regional, and caaused largely by poorly planned distribution of services, and places of work. Building more in one area will lead to an oversupply in another area where infrastructural change could simply relocate demand.
Yes, this means more infrastructure. Unfortunately, this does mean actually spending money on that infrastructure, instead of spending it on incompetence and/or corruption, and I fully admit this may be impossible. ($4.5 billion for three new stops on Second Avenue? That's 9x the cost of the Golden Gate Bridge. Yes, adjusted for inflation.)
I get that you believe building more houses will solve the issue, but I can't see where you've said why you think that or why I'm wrong here.
No, it won't solve it because it's a simplistic one-dimensional answer to a complex multifaceted economic problem. I've listed some of these complexities.
Would building housing be a component of some successful solution: highly likely. But it wouldn't even make up the majority of such a solution.
If 700,000 of Manhattan's residents could find a 2BR in Brooklyn for $1000/mo, with a reliable 15-20 minute commute in to work, in a neighborhood not wreaked with crime ... do you think no one would take it? Do you think that landlords could keep getting away with $3000/mo for a shoebox studio apartment in the East Village that's falling apart? When cheap substitutes become available, the price of a good falls.
Clear from this opener you've not read either of my comments. At no point do I contradict or argue against the laws of supply and demand
I'm merely pointing out that (a) building houses has limited impact on supply without accompanying measures and (b) building houses increases demand in particular circumstances.
The combination of these two (less impact on supply and an increase in demand) make this measure only a small component of what's needed.
> Do you think that landlords could keep getting away with $3000/mo [...] When cheap substitutes become available, the price of a good falls.
Your last line is confusing as you say "cheap" and "price of good falls": how can one lead to the other, they're both the same thing? This is the cart before the horse? The market sets the prices of the "cheap subsitute" so it will only become cheap according to the laws of supply and demand. i.e. only if supply approaches/matches/exceeds demand.
I'm not arguing supply and demand doesn't apply (that's ridiculous), I'm just arguing your idea won't increase supply as much as you believe, and won't leave demand static.
One of the things that drives me nuts about my town is (1) 90% of new, non-SFH development is rental, (2) new, non-SFH development is only in the upper price ranges, & (3) renovations are actively converting low range SFH stock into higher priced stock.
I understand this is good for the city (tax revenue+, especially via SFH up-valuing, given that school demand will be unchanged), but it paints a pretty grim "in 10 years" picture.
As a landlord myself (hobbyist), it's 100% unfair that someone is paying me wages they earn, because they don't have other good options.
People should, at minimum, be able to realistically earn equity in their own homes. Full stop.
Looking holistically at the entire chain: ownable, dense, affordable housing needs to be created.
To do so, cities should use their leverage to reprioritize builders' incentives: decrease the permitting (and anything else) burden for such stock, and mandate ratios of own:rent and affordable:unaffordable for projects (it'd be fine to create and trade credits!).
You're a private landlord, but not for the money? I don't think I've heard of that before. What do you get out of it instead? You actually enjoy the process?
I haven't been a landlord, but I worked for one doing the things he would have had to do if he couldn't afford to pay me to do it. Repair, maintenance, sales, evictions. I can't imagine doing that stuff for pleasure, but it takes all kinds.
It's a hobby that interests me to learn about, but not one I'd say I currently enjoy, past the learning.
I strictly rent to <= 2 degrees of separation from friends / family, which helps with evictions. And am currently renting to a newly married couple in their 20s, as it makes me happy to rent more stable housing than they could otherwise afford.
The problem isn't the builders, it's the citizens of the city/town that are trying to keep people out, and limit supply. I'm that environment, the only builders that can exist at all are the ones trying to extract maximum dollars, and those who try to experiment with more affordable building types are locked out of the process. The process is selecting for exactly what you claim to not want.
Your market may vary, but I can say there are different tensions in mine. Understand there are very different reasons in SF, NYC, etc.
We have less direct, homeowner-led, NIMBY resistance to increasing density.
Affordable, small, dense housing here could be built, but if you're a builder... there are more rewarding options.
I look at builders and investors as rational actors (in aggregate). They're not going to turn down an opportunity to make more money.
So the onus should be on the ex-builder/investor portions of the process to realign the market so that affordable, ownable starter-home housing stock is the optimal self-interested choice for builders and investors.
Simply mandating affordable housing is a joke -- it never gets built in economically impactful quantities.
Get creative! Maybe just say "Any permits for properties above this price range automatically have +6 months of wait time added."
And, personally, I see dense rental developments as just a more efficient way to transfer wealth from workers to capital.
Say what you want about bank mortgages, but it's a competitive market, and the homeowner gets to keep equity (or, let's be honest: inflate away their debt while their home's current-money-value keeps pace).
I guess the way I look at the entire system is that you'd be hard pressed to come up with a financial reason to develop high-density, affordable homeowner-owned homes, if you have the options to build higher end or rentals. And that means anyone doing the former is going to be outbid on property by anyone doing the latter.
I'd be wary of lionizing home ownership as capitalism done right, as it has led to many of California's problems. For example, rental versus condos is a weird issue here. Million-dollar home owners here deride owned-condos, at half the cost of their detached homes, as "luxury condos" only for the super wealthy as they try to block them. They see themselves as working class, but because of the incredible appreciation of property values, and their regulatory capture which has prevented building any more housing, they have become the capitalists just like the multifamily rental building owners. (And in fact many are owners of both, because buying real estate in the 60s-70s in California has been the easiest form of capitalistic gains that I know of... protected tax status, regulatory driven shortages, etc...)
We place all sorts of restrictions on new housing, but I think we should transfer all of those to existing housing as well. If somebody is against luxury condos in their neighborhood, then all remodels should have to go through just as rigorous a process. Perhaps income caps on those purchasing existing property, just as are demanded in newly built property. Otherwise, by restricting just new property in this way, we are systematically locking our younger people and immigrants from the system that provided so much wealth to the Boomers.
I'm curious if there's anywhere world-wide that's tried land swaps on a large scale. Maybe Japan?
In the sense of "I give you my house + lot (and my neighbors do), you give me back X units in the more dense development you replace them with."
I read on an article here that China does something similar, but that was more geared around transit right of ways and farmland, vs increasing density in low density urban areas.
As you pointed out, California seems like it needs a carrot and a stick. A carrot, to financially incentivize existing homeowners to be part of the solution. And a stick, to discourage the worst tendencies of sit-on-it-forever.
My old landlord was a civil engineer who went into business buying multi-family homes in Los Angeles with his brother-in-law maybe 30 years ago. They now own close to 30 buildings, maybe around 120 units total.
I'm not unhappy that he's been successful. What's annoying is that this success is not replicatable by other generations. There's no way two people who make less than $100,000 are going to buy a single multi-million dollar residence, let along leverage that process 20 times over.
In the post-war period governments have continuously pursued policies to keep the returns to housing as an investment high and low-risk. This includes buildings restrictions and zoning laws to cap supply, subsidized and guaranteed mortgages, price supports during downturns and a plethora of favorable tax treatments. That's made residential property produce returns at or near public equities with much lower drawdowns.
The problem is that it's propped up housing prices far above the levels you'd see in a free market. And herein lies the dilemma. New generations buy housing expecting similar wealth-building returns as previous generations. Yet if any of the artificial supports were removed, prices would not only stagnate but significantly contract. The economy has become heavily adapted to the maxim that real estate prices never fall. We're simply not equipped to handle a 25% decline in housing prices, without causing downstream distress, default and panic. Witness the 2008 crisis.
So the government keeps pumping more and more support, particularly every time a recession rolls around. Which distorts housing prices even further, which in turn makes the market even more fragile. Price to income ratios get stretched even further, at which point the only solution is to make credit looser and interest rates lower. Yet that pushes the average homeowner to be even more leveraged and less equipped to handle any rough patches in the market.
The only real solution I see is a protracted soft-landing, where the housing market is gradually deflated over two or three decades. We should be aiming for housing prices to stay fixed in nominal returns, so people stop using their home as an investment vehicle. Mortgages, tax policy, and particularly building/zoning restrictions should be steadily moved in the direction of cheaper housing and more renting over home ownership.
In particular, during recessions policymakers should let home prices fall by 10-15% and not recover. It's a good level that creates pain for the property investor, without pushing mortgages underwater. This will start to acclimate consumers to the idea that housing is not a risk-free investment.
I scoured the net and did not find much additional information and even tried to call a Realtor I know to see if the red-flags in commercial RE are the ripple to follow post-covid and if the downward pressure on residential home prices by residential conversions is on the horizon.
The jury is still out (not enough data), but that may end up being a bright spot of the new normal(word soup) if millions of new units become available over the next 12-24 months.
Somewhere along the line house-owners became endless cash-cows for bankers and got political support. I guess an asset-owning class is deemed a more stable reliable voter in this scenario. Renters are just so many fish in the sea.
Moreover, politicians advocated house ownership as a solution to an economy's woes. The mortgage-holders are tied in to life-long jobs (when jobs were for life) and continue plowing money into their asset endlessly. Kinda like buying the latest fashion of car year-after-year in a consumer driven economy, where just getting from A-to-B is no longer the real objective.
Now we are seeing a younger (wiser) generation who saw their parent's treadmill for what it truly was and are rejecting that path by opting for tiny homes or mobility etc.
You also have to consider that the UK was formerly feudal, so they never had the same culture of individual ownership as America does.
Not OP, but they don't say that. At least what I interpreted was, people with spare money bought properties to rent them, and then have more spare money to keep buying that ultimately results in unaffordable housing as the double whammy of 1. Costs to buy a house keeps creeping up, whilst 2. The wealth transfer from renters to landlords continues at an unsustainable clip.
All around London there are bucolic villages and one of the most extreme property value bubbles is in the San Francisco bay area which is largely reserved for extremely inefficient and wasteful single family homes.
In any case, it's not a coincidence that rent is worth 25-45% of median income almost everywhere.
In any case, it would not be enough. See, for example, Hong Kong. Despite incredibly high density, rent still ended up stabilizing at 35-55% of income.
Building housing doesn't mean people are born to fill the new housing. Everybody has to live somewhere! So the choice is to build out in sprawl, on green/brown fields. We did that. It turns out that suburbs are economically unsustainable because they require too much infrastructure per capita. Each person requires more roads, more pipes, more sewage lines... whereas cities are economically sustainable, because the per-person infrastructure costs are much lower, because the same pipe is far more efficient, and there's far less roads needed per person when they aren't sprawled out and people are able to walk to their destinations.
We are so far from becoming HK that it's not really a relevant comparison. We force additional housing costs where we don't need to by artificially restricting supply. If we continue to do that, the housing price imbalance will get even further out of whack.
The only people who lose under these conditions of housing austerity are those with less wealth, as it always is with austerity policies. Those who are striving to improve their situation won't get a chance to move to an area of higher economic opportunity because when prices are high, nobody can even make it in to the city. This has an enormous opportunity cost both for the individuals who can't live in the city of their choice, and for society that excludes that social interaction and economic activity. It has tremendous effects of increasing wealth inequality too.
i’m not super-sympathetic to the plight of most landlords, but that’s too vindictive and counter-productive.
i’d rather have an escalating tax on number of units owned, with a sweet spot where landlords can make enough to be professional (have good tools and service providers), but discourage an overbearing imbalance of power over large numbers of other humans. i’d intuitively guess the sweet spot is probably in the range of 4-20 units, or 1 building with however many units, in high density zones.
The estate agent I’m using takes x% of the rent each month (plus costs for any actual work) to do all that stuff for me. So I guess the number should be ~1?
Why don't you try being a landlord and see how easy it is.
Put another way, if it was easy money everyone would be doing it ... and yet, people find other places to put their money in.
>Hoping to stop being a landlord fairly soon
Too easy?
Not exactly, but it feels kind of vampiric. I bought the house with sitting tenants a few years ago without really wanting to be a landlord, and they're still there (strictly speaking the people they sublet to are still there). They're apparently planning to move out soon but obviously everything's on hold for the moment.
That's not what I said. It is not uncommon for people to claim X is easy or easy-money, when it actually isn't.
>Let me complain about telemarketers, shady supplement makers or aggressive Internet advertises
You can complain, and I'll probably agree. But if you come out and say that you make EASY money running a telemarketer operation, I'll call bull on that.