Should housing be a primary vehicle for investment and the de facto way of making money? Or should it serve as a necessity and basic aspect of life?
We are way off that good median today, so either prices have to fall or incomes have to go up.
However the causes of this can not be simply explained away by "people buying dozens of apartments and houses just to rent them" the reality is far more complicated than that. even if you put a ban or cap on the number of rentals a person / company could have it would not solve the housing issue, and likely make it worse.
Source? I have heard many boomers talk about how the advice was to pay no more than 4x income. Obviously highly unlikely in this day and age.
When you consider inflation and interest rate decreases, owning a home today is essentially the same as it was 40 years ago in most markets. There are some outliers but overall the inflation adjusted monthly payment isn’t that different. It’s just that a bigger part of that payment is going to principal rather than interest.
The biggest issue is the outdated idea of putting 20% down. As interest rates fall, down payment percentages should fall. And although you can put less down you end up paying PMI which should be adjusted down too.
I 100% disagree, what is badly outdated is the idea that someone can actually afford 2x income home at 15% interest. Doing that would mean likely the inability to have an emergency fund, or save for retirement.
The metrics banks use today to determine "affordability" put people in terrible situations. the focus is on the monthly payment level not the over all debt load. Which IMO is a mistake. the classic Mortgage payment of 30% gross income is WAY to high IMO.
I don’t think this is a recent phenomenon though. I’ve heard stories from my parents from 40 years ago and it’s similar. One that sticks out is when rates fell to 12% they were assured they’d never see rates like that again - time to lock in. And of course the banker was right as rates just slowly made their way down over the following 30 years.
So anyone that says “rates can’t stay this low” are just joining the chorus from way back when.
and a time when the fed is literally printing money and giving it away for 0% interest to institutions with the sole purpose of driving up costs so consumer confidence does not collapse...
I will not say rates cant not stay this low, but doing so is highly irresponsible and will cause massive problems in the 10 year time frame.. The longer the fed keep the money printing brrrrrring the worse off we are all going to be very soon
Would end up with a win-win situation for existing and future home buyers as opposed to a situation where rates go up but inflation does not which would crust millions of existing home owners and probably lead to regime change, making it political unviable.
Orchestrating this is the difficult part as it couldn't happen over night. But rather as inflation begins to take hold and we see increases in wages, interest rates rise slowly enough to let the housing market avoid collapse.
Situations like this are not always bad... This generally will lead to more Home Improvement, and people investing in their homes making them better then dumping them on the market. I find that personally to be better for society instead of letting whole neighborhoods die due to people letting properties run down then moving when the maintenance gets to expensive.
Also inflation does not always track wages. Especially for the middle class. We are seeing that right now in some sectors, where skilled labor rates are more or less flat for the last few years (when adjusted for current inflation may even be dropping) however unskilled labor has seen pretty significant gains recently.
Buy up some land in multiple states to build a "campground" that has Yurts for office space (work from home), plenty of places to pitch your own tent, showers, bathrooms, etc... it'd be somewhat less comfortable than 'normal life' but in the end if rental units sit vacant long enough it'll drive prices down, no?
- A decade of near-zero interest rates
- A lack of investment opportunities: real estate usually has a below average ROI but there is nothing else to invest in nowadays (look at startup valuations to understand how desperate investors have become)
- Too much money printed worldwide (again, look at startup valuations)
- The desire to park money earned (or stolen) in developing countries in a Western country that hypocritically turns a blind eye on money origin because banks, construction industry, and legislators (who own real estate en masse) all are interested in heating up the market as much as possible (looking at you, Canada)
What makes it worse, is that all stakeholders are now locked up in this situation. Increasing interest rates is not possible because it will bankrupt millions of families with mortgage. Western countries are in the late industrial cycle, so creating new investment opportunities is problematic until a new industrial cycle begins. In this situation central banks have no choice but to print money and lie about inflation as long as possible because there is no way this whole situation can be resolved without money losing value.
Both people and systems are complex and not boiled down to binaries. Thanks for getting to know me a bit more!
I just can’t shake the perception that the more power there is in local, bottoms up, grassroots democracy, the less housing (and transit, and everything else) there will be. Seems like we only got what we have because communities weren’t empowered enough, back then, to hold back capital.
It was disgusting to see. I asked him if this doesn't bother him (he was already wealthy, he didn't need this extra money) and he looked at me as if I had two horns. Most of the projects he was buying and selling, was outside the range of almost the entire local population, except the rich. It was a fun game for him.
I know it is an unpopular opinion around here, but rentiers are a cancer. Housing should be a basic right. Rich people can buy and play in the art market (or super yachts or whatever) for bajillion dollars for all I care, but not basic necessities like land, water etc.
Prices are too high because there aren't enough units being built, not because folks speculate on new developments.
The rentiers are who do nothing yet they earn extra profit due to market failures. (Usually mandated monopolies or emergent oligopoly markets, see ISPs in the US.)
I agree that the end result of only luxury units being built is disgusting. And I think that's absolutely not an unpopular opinion. But it's this way because society, voters, representatives, local governments, etc.. are stuck in a very suboptimal configuration.
I agree that it should be a basic right.
You asked why it is morally bad. It is morally bad because the prices are artificially inflated. This guy I told you about, he can sit on these empty properties for 5, 10, 20 years if he chooses to, because he doesn't need the money.
So not only people like him inflate the prices, they also let properties sit empty.
None of this is illegal, of course. One can argue it is just business, that is also true. But that doesn't make it ethical or moral. Real estate prices in cities like Bangalore are absurd, thanks to people like him. It is happening in Canada, Australia etc too. Chinese people "parking" their money in NYC, Toronto etc housing markets (it is just one example, I am not picking on Chinese, just to be clear)
... it's microeconomics. It's real estate. One of the most liquid of markets, one of the most well studied of economic fields. One of the most common example in microecon. Literally econ 101, no oversimplification, no simplification.
Sure, we can add other aspects, like vacancy. (Just as there's a natural rate of unemployment, there's a natural rate of vacancy. And if property taxes are too low, then this rate is too high.)
Also it's possible to tax vacant units. As some cities in Canada do.
> This guy I told you about, he can sit on these empty properties for 5, 10, 20 years if he chooses to, because he doesn't need the money.
What's the problem with that? He basically subsidized the construction. That's equivalent to a direct zero interest loan to the developers.
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Yes, we all know that since the market has a tendency to remain irrational longer than one anticipates it's rarely a good idea to bet against very visible trends. Especially if those trends directly emerge from very visibly bad politics.
In this sense I think buying real estate and letting it sit empty is questionable. But, like I said, it's still funding development. High prices still incentivize development. We know how these things go. We know how irrational people are. (How we regularly fail to elect competent governments.) At some point it's impossible to paper over this. Like you said, basic housing should be provided, not something to fight tooth and nail for. But for some reason it's not happening. (And it's not like we don't know how. Soviet high-rise blocs are all over Europe and they are pretty okay, yet somehow the 'projects' in the US failed spectacularly. [And of course we know why they failed.]) And it's hard [but not impossible!] to hold people accountable for looking out for themselves in this crazy world (by using their existing capital to invest into housing).
I'm the exact opposite. All these emotional people don't make sense.
From my perspective there is a whole bunch of emotional people that wants expensive housing and they complain when someone else i.e. landlords benefit from the thing they wanted. I can't stand the double standard.
The problem has never been properties. Just think about how illogical it is for a house to go up in value even though it is a depreciating asset. It's the land that is going up in value. Expensive land needs expensive rents.
Why is land expensive? Because of all land owners, not just the ones that are renting dozen apartments on land that could at most fit 2 single family homes. Yes, the average home owner is rent seeking just as much as that landlord with 12 apartments is doing.
The worst part is those home owners don't actually want their windfall because they want to live in their home. They do not want the liability of increasing property taxes as their land goes up in value. They'll vote for tax freezes and lower taxes which obviously makes it easier for homeowners and landlords to earn money at the expense of other people.
You know, if there were no owner occupiers and everyone was renting then people would just vote for increased property taxes on landowners to make land a liablity which lowers its value.
We have short circuited the market equilibrium.
The real way to make money here would be in building new houses. It is somewhat odd to me how this point never comes up. At least where I am, there is absolutely no shortage of land that could have new houses built but there is so much red tape it is not a good investment. This is especially true when we juice the stock market constantly to create a much better alternate investment.
Of course, any real problem in the world is multivariate but we like to dimensionality reduce everything to a single variable.
Hedge funds buying single family homes is bullshit. Not building enough new homes while giving everyone money borrowed from the future and rules to promote home buying has obvious consequences on price and supply though.
I've been thinking about it ever since, particularly that money usually flows between these 3. The exponential growth required for compound interest to work is only possible in a shortage. Stocks in companies follow a contract-expand business cycle. Governments grow linearly at best. But property has been increasing exponentially due to an increasing population.
I fear the day when companies realise that they'll make more money by starting a war, which would devastate governments and property. Many people of a similar age are getting married and buying houses, but I don't know feel that the future is stable enough to make either of those decisions. The kind of house I'd want now as a single guy is different to a house that would be suitable for kids (in the right school zone), or a house for retirement. I think the only safe investment is philanthropy: give it all away, and if I'm still alive, hope that some of those people I help now will be able to support me in my old age after economic, political, and environmental disasters strike.
And you can give it away to someone with a promise that they give it back in the future or give you something that they produce, rather than going through philanthropy and hoping things work out. That’s why investments exist.
The stock market (after IPOs and issuances) is all speculation and detached from reality of day to day operations (except for buy backs, dividends, the stock is only worth what someone will pay for it - and some companies don’t pay dividends…).
Compound interest doesn't need exponential growth. That money is not destroyed when you repay the loan, it's just the profit margin of the banks. If interest rates are above what can be repaid they will have to be lowered until they can be repaid. The 0% lower bound is good enough. It's when people withhold deposits and never use them to pay for anything (you know as dictated by the responsible citizen always earning more than he spends) that you need endless growth because debts must grow fast enough that past debts can be repaid even at 0% interest.
>I fear the day when companies realise that they'll make more money by starting a war, which would devastate governments and property.
Well, the problem is that it's true. The broken window fallacy isn't about doing something smart it's about doing something smarter than what is being done today.
You don't have to own a house to have housing. Home ownership is, not a basic aspect of human life, sadly for many people.
But there is a limit to this idea, and housing is heavily regulated anywhere. Investment banks buying up houses, built for individuals, are just wrong on so many levels.
If I recall it was a "tax" 1% of the property value every month after the first 12 of vacancy
I can't imagine that going into effect and rent/house prices _not_ going down
https://www.cbc.ca/news/canada/photos/canada-real-estate-pri...
It’s half that in the US.
https://www2.gov.bc.ca/gov/content/taxes/speculation-vacancy...
Absolutely depressing. The bit that weirded me out most was the post boxes. They were quite big, but about half of them were overflowing, which had to have been the result of a few years of accumulation at least.
If the buying price was 40-50% lower, I could save up for a deposit in a year or two, but the crazy house prices here in Australia are not getting any better at all. It also feels morally wrong to be investing at the cost of someone being able to afford a roof over their heads, so maybe renting it is for me.
Of course, the city also is going to be hosting the Olympics in a while, so that solidifies my moving away plans!
The reason I was told was:1) with crappy equity markets property is a safer investment, 2) not many questions about where the money comes from, 3) very low or non-existent property taxes (costs nothing to hold) and 4) as these countries get wealthier demand for housing only goes up.
But I don't think the distinction is meaningful, higher new build prices would drag up existing home prices.
Housing in Sydney is becoming a self fulfilling prophecy. The more people spend on it the more it’s value increases hence attracting more investors who drive prices up.
In order for this to stop the majority of the public will need to find this whole situation unacceptable.
I find it absurd that citizens from countries that disallow Australians to buy property can buy residential property here in Sydney. Apparently helping foreign citizens to avoid taxation/capital controls while propping up the construction/banking sector is more important than looking after the average citizens best interests.
One way for it to stop is for owner-occupiers to stop fetishizing a single family home on a 1/4 acre section and tolerate living in a high density apartment like most people in big cities everywhere else in the world.
I am not demonising these people. I am just merely saying that the Australian government, the banking industry and Australian society at large believe that it’s more important that a citizen/non-citizen can lease a residential property than it is for an average citizen and wage earner to be able to purchase a property to live in.
I find it funny that at the beginning of the pandemic when people were buying up all the available toilet paper to sell at a markup they were “selfish” but somehow doing the same with shelter is not.
Where is the direction of causality? I don’t know any first time home buyer that wants to be paying the maximum they can afford given bank lending standards. They are doing so because otherwise they cannot buy a house.
Unlike the vast majority of other human endeavors, land actually is a zero sum game, at least until we are a space-faring species.
* Within the Solar System the amount of land available on bodies with not-crushing-gravity is limited to a few times the Earth surface. This includes hospitable bodies like Venus, Titan or the Moon. The entire area of Mars is slightly smaller than Earth's land area, with climate conditions significantly worse than Antarctica. Sobering map: https://brilliantmaps.com/solar-system-surface
* Inter-stellar travel is subject to prohibitive time and energy costs. Physically speaking there is no way for Alpha Centaurians to visit their Earth properties on a regular basis, or vice-versa. This renders the whole concept of 'property owned by foreign stellar body inhabitants' moot.
Around 17% of the Netherlands is reclaimed from the sea or lakes. The largest project (the Flevopolder [1]) was 240,000 acres, reclaimed in the 1950s and 1960s. Most of the land is still just meadows/grasslands (it has 2 towns with less than 350k inhabitants in total).
Meanwhile, in Amsterdam (less than 30min away by car or train) house prices keep increasing by 10%+ YoY. It seems that lack of physical land is not the main limiting factor.
In theory, yes, in reality the largest single residential purchase in the country was $35m and splashed all over the front page of newspapers.
It took them 5 years later to realise it was an illegal purchase by a foreigner after he had a different dispute with the tax office.
If that sale slips through what hope do you actually have for any others?
Once they are a resident they can purchase whatever property they wish just like an Australian Citizen.
You can buy citizenship or residency anywhere and get the perks, but that has nothing to do with the point I was making here. The point is that laws are useless until they are enforced.
Given it's a basic human right, I feel we shouldn't allow housing to be an investment.
I am not sure there should be regulation to prevent people from doing that, as it represents personal choice and preferences.
Do you mean that people are expected to buy additional houses to make money from, after retirement? I don’t think that’s ever been the case.
I don’t know what traditionally means to you, but this is not a historical norm if you went back 50 years.
The obvious answer is to just have 100% capital gains taxes on land and let people deduct inflation.
Investing in housing can decrease housing availability especially if investors are using it for short term rentals.
This is not the case in some prominent housing markets (London & NYC come to mind). There are owners who purchase the properties as a way to store wealth in the US. These dwellings frequently sit empty most of the time.
https://en.wikipedia.org/wiki/Squatting_in_the_Netherlands
I learned about it after a trip to OT301 with some friends from the CouchSurfing meetup in Amsterdam in 2013. Apparently the law has changed though, and now people are being criminally charged for squatting empty buildings.
If investing in housing is a good way to make money, it is an incentive to build more housing.
Even foreign money could be good. If foreigners pour lots of money into your housing market, you could build lots of cheap houses and sell it to them for lots of money, for example. (not saying you should, just saying foreign investment in housing is not automatically a net loss).