The result is that for every house thats sold, there isn't just someone who wants it as a living space, but also 5 people who want it as an investment. So 5 people outbid each other, the highest bidder gets it, and then the sucker who wanted to live there but couldn't afford to buy it ends up renting it.
The problem (at least where I live) is absolutely not that there's too little housing. The problem is that a lot of people want to make money from the real estate market, which drives up prices.
Also, because these investors really really want to make a profit, they'll rather let an appartment sit empty than charge lower rent. The appartement I live in was empty for a year because nobody wanted to pay the high rent. (I was able to negotiate a bit, but it's still pretty high)
Pretending that the people who use the real estate market as investment don't profit off the working class who can barely afford housing is laughable.
I would argue that it is low interest rates AND low supply. If supply was sufficient then renters would just rent the houses which were purchased, possibly at a discount.
This means that someone buying it to rent out can get a loan for significantly more than someone looking to purchase, making it much easier to outbid them.
Not true. The people (or companies) winning the bidding war for these properties are paying cash. Normals don't have $900K cash laying around to buy a property originally listed at 550K.
This is not necessarily true. In Los Angeles, for example, the price-to-rent ratio is about 38, i.e. if you pay $1000 / month in rent for a place, buying a comparable place would cost you about $450,000 (38 * 12 * 1000). There are a lot of people who could afford to pay $12,000 / year for housing, but could not afford the down payment on a $450,000 mortgage.
For that matter, the interest payments alone mean that renting is cheaper than buying -- 3% interest on a $450,000 loan alone is already $13,500 / year, and that's before taking into account that you also have to pay property taxes (another $3,500 / year), maintenance (probably another couple thousand a year), and principle on the mortgage (about another $9,000 / year).
In less inflated housing markets, it is generally true that the cost of rent is similar to the cost of a mortgage, but that is definitely not true in all markets.
If you want the profit, then hold the risk.
If you want the freedom of mobility, then rent.
Feel free to expand upon the argument of real estate as a "little risk" investment.
>Renters are stuck by leases
Leases are on average, an order of magnitude shorter than mortgage loans. Less exposure, less risk. Your leverage is to walk away after a year.
offset by property taxes? Maintenance? Inflation eroding the value of the equity. Time/cost of managing the property. Potentially depreciating property values, depending on area?
I've been a landlord. It's a money sink. Tenants brought in cats (against the lease) that peed all over, making the residence smell unbearable. Had to completely rip out carpet, reseal the floors to get the smell out. Ripped out stair case railings.
It's far from "little risk". It was a time and money sink.
The area itself did not appreciate in value. So after all said and done, definitely lost money.
I'm glad to be done.
I didn't "walk away" like the renters could. I fixed the house, the damage that the renters caused, I assumed the very liabilities that the renters get to punt on. Their leverage in the deal worked in their favor that time. They get to just move on.
How is any of that different then a renter where the landlord sells the home, raises the rent (they can do that every year or so), refuses to fix something (or takes forever to find the "best" price), or just starts doing some other crazy stuff? The risk seems pretty similar to me.
No different and probably more easily explained then an eviction. Try renting anywhere with an eviction. The risk is largely the same.
The idea that you think someone could lose large amounts of money and not have it impact them personally or that there isn't personal fallout perplexes me. This feels like that episode of Seinfeld..
Kramer: It's a write off for them.
Jerry: How is it a write off?
Kramer: They just write it off.
Jerry: Write it off of what?
Kramer: They just write it off!
Jerry: You don't even know what a write off is, do you?
Kramer: No. Do you?
Jerry: No I don't
All my experience is in the midwest, where there are essentially no renter protections.
Landlords hold all the risk. There's risk of devaluation, risk of renters destroying property, risk of unexpectedly high maintenance costs, risk of insurance/taxes going up more than planned. If anything bad happens to the property, the renter can just walk away, the owner is stuck with it.
I'm not a landlord, sometimes look into it but every time conclude that the risks are far too high for what minimal profit it might bring. So I stick to index funds.
Yes, landlords have risk. My original point was that renters shoulder the same and more risk.
Less time and monetary exposure.
Renters incur less risk.
The renter is more likely to carry the financial fallout longer, because they have no assets backing their risk.
Something like a 2x or 3x multiplier on property taxes or something, especially in densely populated areas, and especially in areas where there is rampant housing insecurity. The tax needs to be greater than the potential gamble of waiting for occupants. This should be both for residential and commercial use real estate.
*facetious
You don’t get taxed on improvements to the land, you get taxed on the value of the land (ie based on the value of the surrounding land... a vacant lot—or a lot being “renovated”—pays the ~same tax per acre as a 3 story apartment building next door instead of an order of magnitude less).
https://ballotpedia.org/California_Proposition_15,_Tax_on_Co...
Monthly council tax will double for properties that do not have occupants. This is due to my area having over 10% of houses being bought as holiday homes or investments that stay empty for most of the year.
We have too much retail space in America and too little housing, but zoning has often made it impossible to repurpose the land.
Maybe where you live. NYC and SF are special in that they have very powerful people working to reduce the construction of new housing. This is obviously what needs to get fixed first in those markets, but it isn't a relatable problem in most of the US.
> The reality is that the most expensive housing markets are also the ones with the least vacant.
This is a basic supply and demand observation, and does not preclude the existence of people who allow their properties to sit vacant for long periods of time.
Looks to me like in NYC the vacancy rate is up to 6% (from a previous steady 2-3%) while housing insecurity is increasing.
https://www.cnbc.com/2020/10/08/empty-rental-apartments-in-m...
https://cccnewyork.org/press-and-media/family-homelessness-i...
To my eyes this seems like a tragically dumb problem with several really obvious solutions.
Construction companies that build residences are clearly creating value for society, so they should be allowed to make some kind of profit. Real estate agencies that buy property from construction companies are doing a very bad thing by renting them as "luxury" housing to people who otherwise have no choice since their livelihood is tied to an urban area.
Why not put a cap on the profit that can be made from a residence? Something like 5x construction costs, plus ongoing costs of maintenance. Suddenly, the "luxury" housing market is no longer suffocating all the affordable housing out of town since the property owner can't expect to rake in the piles of money every month.
Many buildings are "luxury" in that they cost 15% more to build but then ask for 50% higher rent. It's not hard to find buildings that were once "luxury" but are now kinda gross since the veneer has peeled off. But there's not enough competition in housing to force the rent lower.
What gets people fed up is the seemingly universal constant of rents raising 10% every year despite no additional investment.
So if you have house A that you live in, whose tax bill is $10K, and house B that's empty, whose tax bill is $7K, then your total tax should be $17K.
If you additionally have house C that is also empty, whose tax bill is $8K, then your total tax should be $10K + ($7K + $8K) x 2 = $40K.
If you additionally have house D that is also empty, whose tax bill is $5K, then your total tax should be $10K + ($7K + $8K + $5K) x 3 = $70K.
This would strongly incentivize against this activity of having one person or entity simply hoovering up homes and treating them like bars of gold.
You won't solve sh*t. Just like the other gazillion times new taxes were introduced to solve something.
Well, I mean, unless your goal is to make the poor even poorer.
Once you moved in, increases in rent used to be regulated. Now a landlord can charge whatever they want after the initial period and if you can't afford it you have to leave.
Landlords used to have to maintain and fix the property. While they still do in theory, in practise they often just threaten one of the two options above to anyone who wants a repair done.
That's not very smart. So the current tenant leaves, and then what? Good luck finding someone else to rent the property at the original price without fixing the issue…
It's a pity if a flat is empty for a year, but that in itself also does not cause a shortage. After all, it was rented out after a year.
The market is supposed to deliver the flat to the person who needs it most. In that case, apparently it was you. Without the speculator, somebody would have rented it for a very low price long ago, and you would not have been able to live there at all. So maybe the market worked.
If the market worked, you'd see people building multi-family units everywhere until supply caught up with demand, and then you'd see a huge crater in prices as people who took a bath on real estate speculation were overrun with the resulting supply glut. This doesn't happen, for a host of various reasons. Governments want housing to be simultaneously affordable and an investment, which is impossible. Hence most cities wind up building a sort of shadow immigration system, through rent control, selective property tax moratoriums, and so on. People who have lived in a city all their life enjoy lower rents, subsidized by people who just moved in and have to buy at market rate.
There are other factors, of course. Just speculation does not really seem to be a major one.
Maybe if I put down one million and borrow another 300k, I can get a low mortgage. But I also lost one million.
$70k-150k up-front isn't easy to save up for even above-average earners (remember, these are average home prices, not luxury homes), so anyone earning average or below is forced into either renting forever, or moving to another town.
Do you really think that’s a factor? That the wealthy say “My family has all bedrooms they need, so I’m done investing in real estate?” PE firms buy up entire communities and repackage their mortgages into investment products. Foreign investors will buy property regardless of location and never step foot in it if it’s in a more stable country than theirs. Real estate investing is not about finding a place to live for the wealthy.
Something like 60% of US people own a home. 30% even own their home completely outright, with no mortgage.
Obviously 30%, let alone 60%, of the population cannot be considered 'upper class', and 'middle class' is probably even a stretch.
The home ownership rate seems broadly stable since the 60s to me, with gentle ups and downs with the economy, so as well as saying home ownership is an upper-class or middle-class thing not being true it's also not the case that 'it wasn't always like this'.
https://en.wikipedia.org/wiki/Home-ownership_in_the_United_S...
Huh? Why can't 30% (or 60%, for that matter) of the population be middle class?
Wikipedia [1]:
> The American middle class is a social class in the United States.[1][2] While the concept is typically ambiguous in popular opinion and common language use,[3] contemporary social scientists have put forward several ostensibly congruent theories on the American middle class. Depending on the class model used, the middle class constitutes anywhere from 25% to 66% of households.
But anyway even if you don't agree with that, the original claim was that they were 'upper class'! Which is obviously ludicrous. You do not need to be an elite to own a house - drive down almost any suburban street in American you'll see people who own houses.
This goes back to the above post regarding the ambiguity around defining class. The traditional definition that I’m aware of uses quintiles, so “upper middle class” is defined as being within the top 20% (minus the top 1%-5% reserved for upper class). With this definition, the upper middle class will always be 15-19% of the population, on a sliding scale of income. This threshold comes out to about $87k/yr. at the individual level currently, I think.
But then people redefine that meaning. There was an article recently on HN saying the middle class is shrinking because more people are moving into upper middle class. They defined it based on absolute (as opposed to relative) income. But if you dig deeper into the research methodologies they normalized income so that a person making $58k/yr is equivalent to $100k if they are single. Magically, the threshold for upper middle class on an individual basis is reduced by 33%. (To be fair, they had reasons for this like the way poverty is defined by the government to factor in the number of people in a household).
I have a couple problems with this. 1) research indicates people are single, longer without kids because they feel less financially secure. It’s hard to square being single as a reason to be vaulted into upper middle class in that context 2) out of curiosity I took the average expenses for a mortgage, utilities, taxes etc. and tried to balance that against the $58k definition of upper middle class. In that case, if you have the average student loan debt you can’t afford the “average” American lifestyle even on an upper middle class income.
The point of all this being, we need to be careful about how we define economic class.
“If you torture numbers enough, they’ll confess to anything. “
Which tells me that they likely bought their house over 30 years ago. Which tells me that they have been largely unaffected by the complaint you are responding to.
Who do you think owns the homes all around you, and in all the suburban streets around the city? Normal people like you. There aren't hundreds of elites living on every US street, clearly. They're just normal people who saved up over a few years or got a little helper money from their parents.
Real estate is worse than crypto when it comes to speculation.I realized this myself when my property doubled in value in less than 2 years.
Regardless, at current (historically quite low) interest rates, a typical software engineer's salary will qualify you for a very large mortgage.
You'd be surprised. At 30, I saw many of my friends go from thinking they'll never afford a home to each buying one over just a few years.
Low interest rates aren't helping most people, they're hurting by pushing up house prices. Only those with significant capital for a deposit benefit.
Most people buy as a couple, so this is achievable.
Once you're in the market, it's easier to STAY in the market. If house prices go up, you'll have to pay more to move to a new house but this is an easier pill to swallow because your current house has increased in value.
No it hasn’t.
In fact it’s up since 1990! And about where it was as far back as 1970. It seems relatively stable to me?
If owning a place to live is too expensive, it follows by logic that renting is cheaper than buying. Otherwise for the price of the rent, people could get a loan to buy.
So it really doesn't seem obvious that this is an issue of rich vs poor.
Invitation homes owns over 10k homes https://www.google.com/amp/s/www.newsweek.com/us-largest-pro...
In 2015, about 1/3 of vancouver homes bought were to Chinese nationals as investments https://www.fortunebuilders.com/one-third-of-vancouvers-real...
In the UK there was a trend for Baby Boomers to buy up one or two (or more) properties and rent them out as a "nice little side income" etc in addition to their pensions at a time when savings interest rates were low, so there was no point saving (since returns were awful) and property loans were cheap. You even got a tax break on the loan interest!
These people are not mega-rich - just middle-class anybodies. I don't blame them - why leave large sums of money from your pension in the bank where you'll earn 0.05-0.5% interest a year, when you can spend it to buy a property that you can rent out for 5% yeild and benefit from property value increases if/when you need to sell.
The laws have changed a bit now to make it less attractive (no more tax breaks on loan interest, and more tax on "additional" properties you buy beyond your own personal home), and there is anecdotal evidence that "amateur" landlords are exiting the market in droves. Even so it has stoked the market considerably over a good decade or more, and so prices for even very modest "starter" properties (think 1 bed flats, small houses etc) are relatively unobtainable for the average person on the street or first-time buyer.
There's literal mansion districts in my major city, where not only is building an apartment illegal, but even building a small detached house is illegal. How on earth did that happen??