So investors buy the homes then rent them out? What’s the problem?
In some asian markets investors buy homes then sit on them unused for years. That’s a problem.
In some asian markets investors buy homes then sit on them unused for years. That’s a problem.
I myself, for example, live in a city where owning the place I live in is just barely getting in reach for me, although I am in the top 30% income bracket of my country. I therefore have to put my savings into the stock market, which is at an all time high. Maybe even a bubble.
It is frustrating to see any income gain that I make being absorbed by the housing market. I work hard while others get unspeakably rich just by owning stuff.
Simply put, the balance is off.
This is the problem in a nutshell! It’s impossible for houses to continue to be great “wealth building” vehicles and for them be affordable. Politicians have prioritized the former and that’s how we got where we are.
If we want affordable housing for people to live in they can’t also be the universal investment vehicle. Those two objectives are in direct contradiction.
One of the reasons is that people insist on living and working in some of the wealthiest and most expensive cities in the world.
I live a cheap town and my commute to work in the 2nd biggest city in my country is just 25 minutes.
Of course, it is a pendulum, and it is possible people’s perception swings too far towards the small town and the big city and back and forth.
In the US, it is easier than ever. Open a free account online at a number of brokerages, and buy some broad market low cost equity index ETF.
The problem is government subsidies for real estate. Get rid of federal taxpayer guaranteed mortgages (Fannie Mae, Freddie Mac, ginnie mae). Get rid of 1031 exchanges. Let the markets set the interest rate and do its own risk calculations.
See similar price distortions due to federal taxpayer guaranteed student loans.
All of this is unlikely, however, since the US and many other societies have baked in burgeoning economic growth for decades to come in their previous decades’ spending. Therefore, to avoid defaulting on these assumptions, the societies will keep inflating currency to keep the ruse going as long as possible.
Because when the economy tanks and you lose your job, you have to sell your stocks at the low point to make rent. When you own your house, losing your job still sucks, but at least you still have a home. Thats also the reason why the low interest rates, although nice for homebuyers, also aren't a great levy of the situation: I have to pay back the credit for my house over 40 years, I have the same risk of losing everything in a downturn. You can't make the credit payment and are forced to sell your home at the market low.
Maybe I'm just traumatized. When I left school, 2008 economy crash was in full swing, two years after leaving Uni and in my first job, Corona happened.
On the topic of price distortions through government influenced loan rates: I think what you say makes sense.
> Because when the economy tanks and you lose your job, you have to sell your stocks at the low point to make rent.
You should have an emergency fund so that you do not have to sell at the low point. I try to keep at least 24 months of expenses.
In the US, the government also offers a federal taxpayer subsidy in the form of lending people money with no money down or 5% down or some ridiculous scheme advertised as helping lower income people. On the contrary, this simply increases home prices and over leverages them since they will barely make monthly payments and any hiccup will derail them.
Owning has lower risk than renting, but you have to buy to own and when you can't buy outright, then there is a phase where you are still exposed to a risk of losing your home.
And keeping 24 months of expense is a good idea, but if I want to buy a house, I want to put down as much as possible. 24 months of expenses is about 80% of my savings. And the majority of people do not have any kind of savings at all.
I am 100% equities for any funds I do not need in the next few years. Index fund ETFs are the real TIPS, Treasury Inflation-Protected Securities.
When you own outright your main house and have paid effectively no rent or mortgage payments for decades, that surplus income makes buying a second investment property, even at today's prices, relatively easy. The extra money and demand entering the market pushes prices up.
Then the renting tenants have to pay an ever increasing share of their income in rent. They never build up capital, and so can never afford to buy anywhere.
This is a societal problem - home ownership means stability (to have children), commitment to an area, a willingness to invest time into improving it. When you can be cast on to the streets with a few months notice at your landlords whim, you have none of that.
House prices rise, rent increases, common folk are struggling, investors are getting rich without doing anything.
It's just meh all over.
There is suburbs for that.
At best, this sounds an argument to hold people back. At worse, it sound like an argument to push people down.
AirBnB investors just highlight the symptoms.
Contrast that to people who have lived in places with large property managers. The rent increase is automatic, even with better renters than I. I have heard substantiated stories of rent doubling. Now those renters may have been bad apples and the property manager may have been using it as a tool for eviction, but that is still a problem. It is a problem since it is used a means to bypass tenant protections. Those protections are necessary to provide housing stability.
My apologies for the rant. In principle, I have nothing against investment. That said: the excessive greed of some investors, the ones that effectively push people down or out to achieve ... well, I don't know what some people are trying to achieve beyond a certain point ... is turning me away from that principle.
In the context of housing, investment may look like a renovation to improve desirability or replacing a small number of units with a larger number of units. In contrast, trading would involve maintaining the status quo in hopes that the desirability of a neighbourhood or relative scarcity would increase the value of a property.
That being said, I don't know how you would create a system of investment that doesn't create an environment for speculative trading. In would be difficult to encourage the former without a means of selling off the investment at a later date. Reducing the frequency of trading wouldn't help in the case of housing since those are long term investments to start with.
Remove the government subsidies and guarantees and improve price transparency.