Zillow has listed 93% of the hundreds of Phoenix homes it owns at a loss | Hacker News Reader

Zillow has listed 93% of the hundreds of Phoenix homes it owns at a loss

businessinsider.com

139 pointspezzana231 comments

I suspect that the problem boils down to the following:

1) Zillow made a financial/ML model which would predict the sell price of a home in N months.

2) Zillow leveraged dirt cheap mortgage rates + VC money to outbid other sellers to be able to sell the home in N months

3) Zillow drove property developers and house flippers out of the market.

4) The homes Zillow is looking to sell within N months don't have the "improvements" to justify the increased price.

5) The Zillow financial model turns out to have been biased on historic trends.

As others have noted Zillow makes money on more than just the price delta, they are also deploying capital to acquire more of the market to collect fees from. They are also theoretically able to benefit from appreciating prices being much much higher than interest costs in 2021.

The con of all of this is that it's a rent seeking business model entering markets that are already full to the brim with rent seekers. If Zillow acquires enough of the "float" in the market they can effectively set prices to be whatever the demand will bear. Surprisingly housing is so constrained at this point that in a major city like Boston you could purchase all outstanding homes for <200 Million dollars.

This isn’t really how this business works, nor why Zillow failed operationally to price correctly. To everyone at Opendoor when Zillow started to scale, this was a long time coming

> Surprisingly housing is so constrained at this point that in a major city like Boston you could purchase all outstanding homes for <200 Million dollars.

And then do what?

Raise the rent

If someone's business plan was to buy all the houses, then my business plan would be to aquire/build houses, and sell to that person at enormous markups.

Yup. Buying all the houses is possible in a constrained market, but Phoenix is unconstrained, and transportation allows us to substitute constrained for unconstrained locations.

That would be, more or less, exactly what they want, because the artificial scarcity begins dictating prices. You might try to sell to them, but they're not obligated to buy from you; they could simply point to the properties you're offering at enormous markup to unload some of the property they own at an enormous markup. And if they did buy from you at an enormous markup, they can point to those purchases as "comps" for the purposes of valuing their portfolio.

This actually happens in the art world; there's a guy who goes out of his way to overpay for Warhol paintings, because a) he can corner a finite market and b) when a Warhol painting sells for a record amount, the value of his entire collection goes up even if he's the buyer.

Until no one wants to buy a Warhol at the price he is seeking. There is no guarantee that this will work indefinitely, just like houses in Boston becoming undesirable at a certain price point.

It is possible that Boston houses are underpriced, but it is also possible people will start looking elsewhere. Probably have to dig into income trends and more data rather than just “Boston has limited housing, so it will always be rentable/sellable at a higher price”.

Well, the other side of the financial engineering project is that he can donate a Warhol to a museum and get a tax write-off for the value of the painting--a value that is likely set primarily by his actions.

Not something you can do with a house, I grant you. You'd more likely end up in a bubble situation where property just churns through the hands of investors until the bubble pops and someone is left holding the bag.

> but they're not obligated to buy from you

Hence attempting to buy all the houses is an impractical business plan, unless, of course, it becomes possible as a side effect of government mismanagement.

The Warhol example is fundamentally different, as Warhol isn't painting any more.

Why not both? That's the f'ed up future that's already begun: the builders are also the landlords.

Sell them again now that you’ve pumped the market?

If it was that easy, what is stopping other cash rich entities? There are clearly large risks and liabilities associated with this maneuver.

What makes you think they’re stopped? This is why Zillow doesn’t have to buy the whole market, all they need to do is buy enough for other investors to start piling on.

And then? They trade houses between each other while paying property taxes and paying for security and upkeep of the houses?

Real estate is not a secret business, and it is not like there is a massive population of buyers ready and able to pay top dollar. There are already many local players arbitraging real estate at any given time.

It would be one thing if it was free or cheap to hold onto houses indefinitely, but not only is physical security a problem, but politically it is a minefield too.

Two problems emerge:

1) Housing is a leveraged asset and can't fall substantially without a lot of individuals, banks, and institutions going bust. Historic government interventions serve as a hedge against this.

2) If housing is expensive enough then individuals can't afford to sell their own home. If buying a new smaller home requires 2x the equity of my existing home then I probably can't reasonably move. This means that new homes are less likely to be offered for sale.

It's clearly an unstable set of incentives, but it could be unstable for a very long time. My suspicion is that the only way for housing to exit its current cycle is a protracted period of high inflation in wages/goods/services which makes individuals more able to pay and depresses the financial returns on housing.

1) does not apply since Zillow is not going to be buying the houses with taxpayer funded mortgages from FannieMae or such

2) it is true that people may not be able to afford to move, but people will keep dying and their houses will keep opening up.

But the biggest thing is developed (buildings) real estate is very expensive to just hold empty, so there is incentive to keep it moving.

I am not talking about foreign millionaire and billionaire apartments in tier 1 cities, those are obviously bought and sold under a different set of constraints and goals. But your general purpose houses in 99% of communities across the US need to be lived in and property taxes paid.

I do agree with you that housing prices will not go substantially down nominally. Politically, all voters like to see their position improve, which means land and public stock market prices need to go up. But that does not mean Zillow will earn any decent risk adjusted return on buying and selling suburban tract built houses at scale.

>The Zillow financial model turns out to have been biased on historic trends.

Accordingly and importantly I suspect it didn't take into account its own impact on the market

No far end echo canceling.

Ah, so the Hunt brothers and their wild silver ride in the 1980's.

"The con of all of this . . . " - I see what you did there

We recently worked with our past realtor and she confirmed that Opendoor and the like have stopped actually fixing homes. Just buy and flip as is.

There's not really much reason to put anything into them. The market moved so incredibly fast this past year there wasn't any motivation to do so.

We have a property that three years ago was worth no more than $550k, we managed to sell it recently (get it under contract) in 2 days for nearly $900k with a few obvious fix-em-up issues -- including all cash offers. If the house had been in great shape our realtor believes we could have moved it for around a million easily.

The jump in price occurred almost entirely in the past year.

Yeah, it's just dumb. Only winners in this market will be those who own property as an investment. First time home buying is quickly becoming a pipe dream.

In areas with less than great job markets, housing has not really exploded in value.

Which hey, they have less than great job markets. But there are lots of small to medium employers with solid jobs in most of those markets.

That's why WFH is such a game changer, especially if you have a tech job.

This doesn’t necessarily mean housing is more affordable. If incomes are 1/4th SF and housing is 1/4th the price of SF then housing is still utterly out of reach for most people.

I mean, I live in an area like that and for the jobs I'm talking about, housing is affordable. Median household income here is about 70% of the national median, there's decent houses available for $125k (and nicer stuff available as you go up from there).

If the goal is to acquire a sufficient percentage of the float, why is Zillow unloading these houses at a loss?

You have to pay for upkeep...electricity, gas, landscaping, local taxes, etc while you own the home. It also ties up capital for future purchases. They don't want to do that indefinitely as it would eat all the profit. They've probably done the calculation, realized that losing 1% (or whatever) is better than keeping the house on the books and making a small profit on the sale, but being negative after all the money they have to spend on ownership.

I hesitate to use such a negative word like “con” to describe what also seems like a potentially smart investment. At the individual level, many people buy assets with the intent to get something back from it - either use of that asset or appreciation in its value or whatever else. Whether it is Zillow buying up houses or a large number of individuals, isn’t the impact roughly the same because it creates equivalent scarcity? I get that Zillow can make unilateral decisions on pricing but I’m asking if there is some theoretical support for the notion that even a decentralized buying spree will lead to the same outcomes, but on a different time scale.

Another question that comes to mind is whether there should be some threshold (percentage) of ownership in a given area subjects a given organization to anti-trust regulation. This isn’t a present reality of anti-trust laws but I wonder if such a framework will limit larger, more powerful organizations while still giving individuals the freedom to transact.

A final thought that crosses my mind is whether this is an actual problem. If the price goes up too high, then buyers shouldn’t buy them. There are numerous cities and towns across the country with cheap housing and cheap land. No one is entitled to buy housing at a given price point at whatever location they want. People need to respond to the pricing signal and look elsewhere if some place like Phoenix is too expensive. Otherwise, their continued purchasing simply suggests that the price is not too high.

> There are numerous cities and towns across the country with cheap housing and cheap land.

But nearly none with jobs to afford it.

> VC money

Zillow is a publicly traded company and has been since July 2011. I don't know how they raised capital before then, but regardless they're well past the VC stage.

This is a great point, Zillow has a P/E of ~170 and an ROE of 2.9%. It’s not inaccurate to say that directly lending money to individual buyers is a better deal for investors.

I read that they've had trouble finding resources (people, materials) to fix up the houses for a flip.

Zillow is the brokerage and they take fees when they buy the home from their users and depending on how they sell it they often take fees on that side of the transaction too. So when you see that Zillow "bought" a home at $500,000, the seller actually gets closer to $450,000 on average. They of course want the $500k price tag to hit the MLS records though, since it supports the endlessly appreciating housing market narrative.

It's not as simple as a buy-low sell-high home flipping strategy.

> "Altogether, Zillow Offers fees can add up to as much as 22% of your home’s sale price — much more than you’d pay while selling on the open market."

[1] https://www.realestatewitch.com/zillow-instant-offers/

That's basically all real estate agents, and if someone selling their home to zillow only pays 10% total (since sellers typically pay agents for both sides of the transaction) that isn't a bad deal for the home seller at all.

Edit: I misremembered commission costs. 10% on the sale of a house is rather high unless the seller is covering additional costs as well.

I understand that, I'm not suggesting it's a scam or anything (though typically in the US a home seller pays 3% to the buyers agent and 3% to the sellers agent). I'm saying when Bloomberg exclaims "Zillow is selling homes at a loss!" they're missing the point of the strategy. As long as the price they sell for still exceeds the fees they take, it's a profitable move.

Also many of these transactions do not involve traditional brokerages whatsoever. People sell their homes directly to Zillow and other people buy the homes directly from Zillow.

3%? 6%?

My last house sale in the U.K. was 0.5% of the sale price to the estate agent (the buyer doesn’t pay anything). Legal fees on my side for selling and buying were another 0.5%, and a little for a survey. Total cost to sell and buy well under 1.5%.

Why do you get for that 6%?

6% has been the norm in the US for a long time. It is absurdly high and is why opportunities like iBuying exist.

In the UK, there is no wiggle room for such ventures, but as the transactional costs in the US is steep, the market was ripe for disruption. You can usually expect your total transaction costs to be 8-10%, so there is a lot of margin in there for Zillow/Opendoor to operate as the only intermediary (buyer & seller agent, lender, stager, etc).

Can confirm that 6% is the norm and average cut the agents take in the US. Typically 3% for seller's agent and 3% for buyer's agent. The entire commission is paid by the seller so the buyer never sees this, though technically those fees are baked into the final price they pay for the house. RedFin and others are trying to disrupt this model but made very little inroads so far.

At a minimum, the real estate agent manages coordination. Good agents are familiar with the local ordinances and can save you time and hassle (a city I once lived in insisted that homes had to have a city inspector go through prior to listing, and neither I nor my agent knew until we found out from a buyer's agent).

Great agents will organize staging, professional photos (some companies put up "3d" walkthroughs on their websites), open houses, advertising, recommend investing in remodelling to list at higher prices (or when to pass on those things depending on the local market).

Sometimes, paying an agent more than makes up for the cost by getting a better sale price. Other times, it is kinda pointless.

(If you didnt know, seller customarily pays for both agents as well in the US).

That was what the traditional agent told me a few months ago. I asked how much he sold an identical house next door to me 2 months earlier, he didn’t know. He wanted an obscene 1.5%.

Turns out it was for 3% less than I got with my online broker which cost half what he wanted (and did professional photos, I didn’t want the 3D walkthrough for £99 extra, we don’t do open houses in the U.K.

10 percent is insane, most sellers with an agent pay 4-6 percent

And honestly the cheapest way to get it done is a sign in your yard, a flat fee broker to get it on the MLS and a lawyer to finalize the sale

Zillow and agents are not doing Jack shit to earn the commission they get

after obtaining a junior real estate credential in California, my irreverent twenty-something colleague told me with no equivocation "a trained monkey could sell these houses"

In a hot market, totally. Get out in the sticks or a smaller town in normal or slow days, and good agents will do a fair bit of legwork to sell a house.

It's been so long since we've had a real down market. People are going to be shocked when it happens again.

Down markets are all over in more rural places.

For about ten more minutes.

In a hot market, selling without an agent is easy. In a normal market, they can help quite a bit.

On the flip side, buying with an agent is handy in a hot market, because they can help you get bids in by having access to sellers realtors and knowing in advance when a home is coming on the market.

That said, my last purchase definitely didn't need the involvement of a realtor at all.

(You're totally right that I misremembered the 10% number, btw).

I've sold two houses in normal markets without an agent doing what the above poster mentioned. I talked to a handful of seller agents and none could articulate any value over just doing a flat-fee MLS listing. Some were completely unwilling to come down to 4 or 5% commission and typically the ones who insisted on 6% also insisted on listing the house below market value.

I was more than happy to plop down a couple hundred to list on MLS and pay the buyer agent a 2% commission. We had a pretty boilerplate purchase agreement and then the title company handled the rest.

Personal story, I sold my home in Austin in July of this year. I was going to sell it myself but instead found a 1% broker. It was listed at $525k and I would have taken $495k. Because I don't negotiate for a living and because $495k is a lot in comparison to what I paid, _anyone_ could have easily talked me down from $525k. But because they called the broker instead of me the property sold for $547k. The broker also encouraged me to offer only 2.5% to the buyer agent instead of the 3% that is typical.

So yes, if you can keep your cool, keep your mouth shut, forget how much you already profited, and have a bit of greed in you, then sell it yourself. Otherwise outsource this job and pay as little as you can for it.

Its not just in hot markets. That is myth

Things my agent did:

* hire and manage a staging company

* hire and manage a photographer

* print and distribute printouts

* hire and manage cleaner, landscaper, other various people to get the house ready and appealing

* use personal network to get the word out to other agents

I could have done most of this on my own, but I'd be cold calling random contracters. My agent had relationships, got the work done fast and at good price. Also I'm convinced all their work added at least 20% to final selling price. Maybe more.

When I sold my last house, about seven years ago, we got a free consultation from Redfin. "Should we fix anything or stage it?" we asked. "Meh, don't bother, just put it up for $250K and we can sell it."

Just to be sure, we consulted the realtor who had helped us buy our new house, and she convinced us to do maybe $15K of remodels on the kitchen and bathroom (for which she sourced the contractors) then told us how to stage it and put some little shrubberies up front, etc. Final selling price was $350K.

To me, that's the difference between places like Redfin or Zillow vs. an agent.

Staging is actually counterproductive

Anyone can take pictures

Most people already have the printout via some website

The network connections is a myth. If it's on MLS everyone that counts is already seeing it

Anyone can push a shutter button. Very few people can take pictures that really sell a unique property. If you're listing a cookie-cutter 2 bedroom urban condo then pictures don't matter much because buyers pretty much already know what they're getting. If you're listing a rural luxury property with acreage and a view then good pictures matter a lot.

Same thing with staging. It's counterproductive for some properties and almost essential for others. You have to know the local market and target buyers.

If you actually paid 20 percent for that I have a bridge to sell you

They are not saying they paid 20% fees for that. They are saying the agent boosted the sale price by 20%, more than paying for the agent's fee.

The "disrupt" mantra endorsed by Softbank et. al. has grown extremely old. Housing prices in my area have inflated 25% in the past year - one year - and real estate companies like Zillow immediately buying up everything on the market is a primary contributor.

This isn't disrupting an industry, this is disrupting people's lives, and for what? What good is supposed to come from Zillow (et. al.) oligopolizing the housing market, and driving up prices like this?

"You will own nothing and you'll be happy"

seems to make sense. Power and money consolidates to the top.

Agree 100%. My opinion on this president, congress, governor, and local government(so, not partisan) hinges completely on whether they do anything to curb this. I don't care if it started under X, they inherited the problem and have done nothing to even attempt to fix it, which is maddening.

Prices in my area are up 75ish % since 2018. Rent prices about 50.

Home prices and rents are up because of low interest rates and nimbys who block new construction. Corporations buying homes have literally nothing to do with it. If they buy homes to flip they have no net impact on home prices (because they buy and sell in equal quantities). If they buy homes to rent out they exert downward pressure on rents, so they are not responsible for rising rents.

The reason why the government has done nothing to fix it is because

1. The median voter is a homeowner and WANTS homes to be unaffordable so their investment goes up.

2. The median non-homeowner does not understand basic supply and demand and does not understand that the lack of housing is the main driver of high home prices, so they complain about red herrings like Zillow buying up houses instead of pushing the government loosen zoning restrictions on multifamily housing.

You fall into the latter category, which means YOU are part of the problem. You complain about the government not doing anything to fix the housing problem but people like you are literally the reason why it doesn't get fixed.

Personal attacks and accusations of ignorance are not welcome here. The average renter doesn't understand supply and demand? Really?

Zillow isn't the only big buyer of homes, and not all buyers are doing it to flip. The problem is renting in general. I would welcome regulations that bar any institution or individual from owning more than a handful of rental properties, and some kind of incentive for mortgage lenders to de-emphasize down-payments in lending.

Hell, I'd like to hear a great debate on the ethics of renting-without-equity, period. Perhaps all residential units should offer equity in the living space over time, even apartments. Eliminate the renter class altogether by bringing everyone into the ownership class.

> The average renter doesn't understand supply and demand?

You don't understand that making operating rentals harder and more expensive will cause rents to go up. So yes, there is a very large group of people who don't understand supply and demand and you are part of that group.

> Hell, I'd like to hear a great debate on the ethics of renting-without-equity, period.

If you force people to receive $500 in equity for every moment they rent, then rents will go up by $500 / month. This is bad for the people who cannot afford to pay that $500, or for people who would rather invest that $500 in the stock market or whatever. If you wave the regulatory wand and demand that X must happen, then what you are really demanding is that everyone must pay for X, whether or not they want to. Not that everybody will magically get X for free.

> If you force people to receive $500 in equity for every moment they rent, then rents will go up by $500 / month.

There are options other than forcing people to receive equity. e.g. A public-ownership rental option: https://www.theatlantic.com/ideas/archive/2021/03/why-its-be...

> The average renter doesn't understand supply and demand?

Given the quality of debate and/or fantastical thinking that I see in a lot of online forums, I'd be forced to wager that a pretty wide swath of people who debate rent (or other economic) topics online appear to not understand supply and demand. Whether or not renters on average do or do not, I can't say.

They might not understand supply&demand and economics but they understand violence and that's all they need to.

The burden of the proof is on Zillow, they are the multibillion behemoth

The burden of proof for what? That they’re the highest/best bidder for a house (or are the bidder that gives the most certainty or otherwise most appealing to the seller)? I trust the seller to make that determination.

Highest bid means nothing, moratoriums on institutional ownership of housing units are not a new concept.

If enough angry people are energized then the highest bid from Zillow or BlackRock or BlackStone...won't mean anything.

Matter of fact it can be reversed.

Public opinion is the ultimate free market and it works via the allocation of love and hatred by the populace.

Landlords gets a lot of hate as it is, think when the landlord is a multi-billion dollar company.

I enjoy all the comments that are so positive that housing prices only go up. Clearly, they didn't own a home in 2008 :-)

For all those who want the government to step in and reduce housing prices via regulation, consider that same government has interfered with the health care industry and the education industry for the last 50 years attempting to lower prices. The consequences are the opposite.

Here’s a different take that’s trying to be a bit more generous to the OP.

The goal isn’t necessarily about reducing home prices, it’s about increasing home ownership. Those shouldn’t be conflated.

So if that same context was applied to evaluating education, it has worked as the overall educational attainment has increased. Whether the cost is worth that increase can certainly be debated.

From the comments I'm reading, many just want a progressive tax applied to investment properties. I don't see a downside to that.

On the margin, that’s likely to reduce the supply of rental properties at a given price. Whether that’s good or bad on balance is an open question, because renting is clearly advantageous for many people, while ownership better for others.

I assumed it would not apply to multi-unit properties but only to single-family houses.

Around here (Cambridge, MA [and Somerville]), a very typical rental is in a 3-family, sometimes a 2 or 4 family. It’s fairy unusual to be able to rent a single-family here (there aren’t very many available for rent).

> Hell, I'd like to hear a great debate on the ethics of renting-without-equity, period.

My niece, at 18, was thrilled to move into her own place. She prioritized having her own space as a mark of independence and adulthood despite it being more economical to live at home. Renting-without-equity let her do this because she did not have to pay to build equity in a space. Instead, she could build "equity" in herself as an adult.

Every regulation, restriction, and string-attached pushes out someone at the margin. So, yeah, while some approaches look ethical what is not seen is those people on the fringe who lose something as a consequence of those "ethics".

Going purely fiscal, for many years I personally rented so that I could invest my capital in risks other than real estate because those risks better aligned with my personal needs.

I’m not an economist but it feels to me like more most be going on. Capital is flowing into real estate because the people investing feel that they don’t have better places to put it. The fed is struggling to get capital into the places that would lift employment, like new buildings, infrastructure, new business formation, and instead a lot of that money is going to bid things up

That just falls under interest rates. Yields are down in every asset class because of the low rate environment.

I still am not seeing enough commentary about how we are currently at more-or-less peak Boomer retirement. There are a metric shit-ton(ne) of people who owned a "family home" for long enough to own it outright, have the seen the price climb, and are selling out and moving on.

But Paul Davis, First of His Name, you cry, that means someone is still buying those ex-Boomer family homes!

Why yes, yes it does. But those retiring boomers, in great numbers and armed with (relative) boatloads of cash, are moving to places that they would not have settled in before reaching this stage of life. 20-30 years ago, their money would have sloshed around inside the places they already lived, as they perhaps needed 1 more or 1 less bedroom. [0]

But now, they are on the move. Bend, Santa Fe, Bellingham, Ithaca ... many, many communities seeing huge influxes of cash buyers that would not have happened before.

I'm sure there are many other forces at work in today's crazy residential real estate market, some of them possibly larger/more important. But I think that this time period, right in the middle of the Boomer retirement wave, is also affected by this too.

Disclaimer: I resemble the above remarks.

[0] EDIT: also, as noted by others here, some of the buyers of those homes are not in any way "other people buying family homes" but investment/financial service corporations.

Speak for yourself, please.

I sold my home in 2019. At the time there was already a frenzy, multiple bidders, buying on day one. Just like today. The guy who bought my house went 30% over asking. I wasn't willing to be rushed, so just sold and didn't buy. I'm in no hurry to buy - I've been enjoying traveling the country. But I don't enjoy the gouging I've been taking on rent, admittedly.

Secondly, there are no zoning problems where I live. The problem is exactly Blackrock buying tens of homes per week. That and migration.

A progressive property tax, or other limits on investment homes would alleviate the problems I've seen firsthand.

> I sold my home in 2019. At the time there was already a frenzy, multiple bidders, buying on day one. Just like today. The guy who bought my house went 30% over asking. I wasn't willing to be rushed, so just sold and didn't buy.

Cool story, but what does that have to do the root causes of rising home prices? What exactly are you trying to argue here?

> or other limits on investment homes

Limits on investment homes makes renting more expensive, the same way limiting the production of cars would make cars more expensive. You are literally advocating shifting the supply curve further to the right. Every post you make further proves my point about people not understanding basic supply and demand.

Why is this so hard to understand?

Let's try a small example.

In a city there are ten houses. Five are vacant, let's call them new construction.

Five people are moving to the area.

Everything sounds good, right?

Blackrock buys 3 of the homes. Now 5 people have to fight over 2 houses. This drives housing price up as they bid with each other.

The remaining 3 losers are forced to rent. Blackrock can now charge more money because a) house prices went up, and b) there are no other places to live.

To be clear, this is talking about what's happening in -my- area. And based off your Nimbyism comments, I can assure you that it's not the same as your area.

Blackrock isn't the only player in the market. If their rental prices are "too high" other rental properties will be listed for less.

The problem is single-family homes being bought by investors to rent in the first place. People want to buy, but even low interest rates allowing my bank to offer me cheap money can't out-compete a large investor that has more more assets that allow them access to even more cheap money.

I get that no one has a God given right to home ownership, but we've made a deal with the devil where home equity and housing appreciation are major stores of wealth for the middle class. Letting the investor class corner this market feels like kicking out the ladder for anyone not already on it.

Lots of people prefer renting. They may be in the area for only a short term. They may be unwilling to make the financial commitment necessary. They may be uninterested in the work and hassle of owning (like mowing the lawn, cleaning the roof, etc.). They may not want to deal with all the hassles and stress when selling.

Yeah, that's great and all, but there aren't enough houses for the people who want to buy. The fact that some people like to rent doesn't change anything about what I said.

> there aren't enough houses for the people who want to buy.

That's true of every item on the free market. It's why markets exist.

Note that air is essential to life, but nobody is selling air. There's no marketplace for free software, either.

Lots of markets are well supplied and have prices that more or less follow costs.

And then there's businesses that do sell bottled air and people that do contract work or paid support on free software.

> then there's businesses that do sell bottled air

They're selling compressed air. That's added value.

> and people that do contract work or paid support on free software

They're being paid for a service, not the software.

But hey, I'm an enterprising man. Send me $100 and I'll send you a package with air in it and instructions for downloading free software.

Sorry, I'm dipping out of this conversation because I don't like arguing...but this is a troll position.

Would you feel the same way if you or your SO had some awful disease, and someone was buying all the medication and selling it at a price out of your reach? 'Sorry honey, we can't afford medicine, that's the market working lol.'

And before the argument starts 'well, someone else would just make more...' that takes a lot of lead time, like houses do. And by then, aforementioned medicine buyer has made enough profit to buy even more.

I mean, it happened with TP or all things. There was enough for everyone, until people got greedy with it. Happens with gasoline yearly.

Seems people with houses don't care because it's good for them. Hell, I made a lot of money in all of this even.

Please understand I'm not arguing from a position of need. I don't need a house, and if I did, I'd just buy one.

I'm arguing for people like my brother, who worked hard their whole life and keep getting priced out by asshole investors.

In summary, I only ask you attempt to look at problems from a lens different than the one people like you and I currently look at things. It's easier when you know and love people affected, admittedly.

The thing about shortages is they are caused by anti-gouging laws.

> Would you feel the same way if you or your SO had some awful disease, and someone was buying all the medication and selling it at a price out of your reach?

What is your proposed mechanism for deciding who gets it and who doesn't?

>Note that air is essential to life

There are some items that are essential enough where society has determined the market is not the appropriate mechanism to manage supply and demand. Not how we regulate clean air/water supply rather than leave it up to the market and how citizens in some areas have rejected claims by corporations to market previously free resources.

There are some who would say housing falls into this "essential" category and thus should not be entirely a free-market (I'm not sure I'm one of them, but think it's important to acknowledge the position in good faith).

Then we need to build more housing to meet demand.

> but we've made a deal with the devil where home equity and housing appreciation are major stores of wealth for the middle class. Letting the investor class corner this market feels like kicking out the ladder for anyone not already on it.

But it's not the "investor class" that's cornering the market, it's current homeowners. Housing prices are going up due to a limited supply, something that many current homeowners actively fight for

> But it's not the "investor class" that's cornering the market, it's current homeowners.

It can be both. One keeps supply from entering the market, the other buys out the supply that does enter the market.

Long term, yes, we need to build more houses. Americans should also probably adjust their expectations and zoning laws to expect less detached single-family houses. We also probably need to stop treating residential property as an investment, however we go about doing that.

Your scenario is that of a monopoly. Monopolies don't happen in a free market. They happen when the government outlaws competition.

The usual way the government accomplishes this in the housing market is by making it difficult or impossible to build more housing.

>Monopolies don't happen in a free market. They happen when the government outlaws competition.

This is true for a subset of regulated monopolies, but there is also the concept of a natural monopoly which does not require any governmental intervention

Name one!

The most obvious historical example is Standard Oil, but many would consider social media companies to be natural monopolies in the current context. Here, read up for yourself.

https://www.investopedia.com/terms/n/natural_monopoly.asp

SO never had a monopoly. Ironically, throughout the long anti-trust trial, SO's market share kept sliding. SO was never convicted of having a monopoly, it was convicted of certain business practices.

> many would consider

I don't. Many of the current top ones replaced the previous top ones. Not many even remember AOL.

I mean, they essentially operated 9 of every 10 refineries. That was enough for both the NJ and US courts to deem them a monopoly (yes, they used those words).[1]

And since a monopoly is just “certain business practices” that unfairly constrain competition, your definition seems to be a difference without a distinction.

[1] Standard Oil Co. of New Jersey v. United States, 221 U.S. 1 (1911)

SO's market share declined substantially throughout the trial. How does that fit your thesis?

See "Titan" by Chernow.

If you agree that more risk tends to push prices lower with all else being equal, I don’t see that being indicative of evidence considering investors would presumably be pricing in regulation risk.

But in any event the price at trial is not necessarily indicative of unfair anti-competitive business practices. The trial was not necessarily about the current practices at the time of the trial, but broke the business practices into three distinct periods dating back to 1870.

Why did SO's "natural monopoly" keep sliding away from them throughout the trial period?

I don’t think you’re tracking. There’s no guarantee a natural monopoly will remain in place forever or reuse we’d still be working by whale blubber light. What happened to the business during the trial is not necessarily relevant to the trial ruling.

I think a better question for you to ask yourself is “why did the court determine they were acting in a monopolistic manner?”

I’d suggest reading the previously referenced court ruling to get your answer.

If you want to call SO a "natural monopoly", the evidence does not support that conclusion. Nor did the trial conclude SO was a monopoly. That's my point here.

Rockefeller was convicted of being rich. That's the bottom line.

Except multiple courts disagree with your conclusion and found Standard Oil guilty of anti-competitive price fixing. Meaning they found evidence to the contrary of your point.

Here is a part of the majority court decision written by Chief Justice White:

"constituted a combination in violation of the first section and an attempt to create a monopoly or to monopolize"

See the word "attempt". That changes everything. They were not convicted of having a monopoly.

Uh, no. Feel free to read the actual referenced judicial opinion rather than cherry-picking to suit your conclusion. That was the word used in the charge. Here's more of it:

>"entered into agreements with, various persons, firms, corporations, and limited partnerships engaged in purchasing, shipping, refining, and selling petroleum and its products among the various states, for the purpose of fixing the price of crude and refined oil and the products thereof, limiting the production thereof, and controlling the transportation therein, and thereby restraining trade and commerce among the several states, and monopolizing the said commerce"

If actual price-fixing to monopolize commerce isn't part of your unique definition of a monopoly, I don't know what else to tell you. It's pretty hard to price fix without a monopoly, but as we already discussed they were able to do so because they controlled over 90% of refineries at the time. (And before you jump in again - erroneously - about their price during the trial, this monopoly charge was related to actions decades earlier). But it's pretty obvious from your relentless rules-lawyering/wordsmithing that either you aren't responding in good faith or don't actually have the ability/willingness to read evidence objectively.

Cognitive dissonance is a hell of a drug.

This article[1] from Brookings says,

>> At the time of the divestiture, the oil industry was becoming competitive because it was moving into Kansas, Oklahoma, Texas, Louisiana and California—states where Standard Oil didn’t have much power. The price of petroleum was actually falling in the years before the case, because these new fields were pumping so much crude. The breakup had no measurable effect on oil production, crude-oil prices or refined-product prices.

(The article does say that antitrust actions were necessary to make cigarettes affordable, though.)

For a rather less charitable take, [2] from the "Competitive Enterprise Institute" says,

>> Standard Oil Co. of New Jersey v. United States had a defendant that was cutting prices while increasing output. The case also lacked evidence of either predatory pricing or consumer harm.

After this quick bullet-point summary, there's more content below with references to other academic sources, page 2 is pretty interesting.

> many would consider social media companies to be natural monopolies in the current context

They have positive returns to scale, but even this phrasing ("social media companies") deflates the argument -- Facebook competes with Twitter competes with TikTok competes with Reddit competes with Youtube etc. They're big enough to exert market power, but

- Some of them seem to dislike using that power (to the horror of authoritarians in many governments who want to co-opt it), and

- If they abuse that power to the detriment of users (raising prices too high, banning enough communities) users will go elsewhere.

1: https://www.brookings.edu/opinions/if-it-aint-broke-dont-bre...

2: https://assets.realclear.com/files/2021/01/1755_antitrust.pd...

For just about any ruling, I’m sure you’ll find dissenting opinions. The only opinion that matters in the end is the court’s and they concluded it was a monopoly.

For the record, with my limited understanding I don’t think “social media companies” are monopolies because they do not run afoul of general consumer prices because their products are typically free. They may deserve to be regulated under a different framework, but they don’t seem to fit the anti-trust paradigm. I brought them up because others, including the authors of the link I provided, consider them natural monopolies

> The only opinion that matters in the end is the court’s and they concluded it was a monopoly.

I guess I'm less convinced of judicial infallibility, but I'll grant you it anyway. Mostly I don't think the important question here is the legal standard (which is of course what the court is interested in) than the question of whether the law is achieving its intent. If the law says that a company that is lowering prices and losing market share is a monopoly that should be broken up, the law isn't really reflecting mainstream thought about antitrust -- that market concentration is self-perpetuating and harms consumers.

Oh I’m not claiming they are infallible, my point is that in a pragmatic sense theirs is the opinion that matters.

Here’s why I think you’re previous comment misses the mark: the court ruling was not about whether the company was monopolistic at the time of divestment (1911), the ruling was against business practices that occurred previously, dating back to 1870. It’s possible those practices were unfairly anti-competitive while also no longer creating a monopoly decades later due to other factors.

> If the law says that a company that is lowering prices and losing market share is a monopoly

Gates was convicted of giving away Explorer for free. Nobody managed to show that harmed consumers.

Like Rockefeller, Bill Gates was convicted of being rich.

You have an interesting way of rewording court decisions to fit your narrative.

Here's what MSFT was actually taken to trial for:

"monopoly position in the market for operating systems designed to run on Intel-compatible personal computers ("PCs"). Specifically, the plaintiffs contend that Microsoft violated § 2 of the Sherman Act by engaging in a series of exclusionary, anticompetitive, and predatory acts to maintain its monopoly power. "

Not "for Gates being rich." Now, his wealth may have put the spotlight on him, but that doesn't negate the court decision on his actions. I can lament that the only reason I was pulled over was because I drive a red Ferrari, but that doesn't mean that my speeding wasn't illegal.

The entire case hinged on Windows including Explorer for free.

> red Ferrari

Selective enforcement is a real thing, and why the offense written on the ticket is not always the real offense.

SO was never convicted of being a monopoly.

Again, read the actual court decision on the case rather than draw your own conclusion. They were found guilty of unreasonable restriction of trade, which is to say guilty of monopolistic behavior.

"was in restraint of trade and amounted to the creation of an unlawful monopoly."

Monopolistic behavior is not the same as having a monopoly.

Land in desirable locations.

You can't create more land in the middle of San Francisco, so the land-owners of the land in the middle of San Francisco have a natural monopoly on the land in the middle of San Francisco.

> Land in desirable locations.

"Desirable" locations is a completely subjective term.

> You can't create more land in the middle of San Francisco

Yes, you can. We call them skyscrapers.

> "Desirable" locations is a completely subjective term.

Alright, use "valuable" then. Value is derived from people's desire to purchase the land, which means valuable land is equivalent to desirable land.

> Yes, you can. We call them skyscrapers.

Skyscrapers aren't land.

I'm not entirely sure you're conversing in good faith but I'll do my best to assume you are. Land is a natural monopoly, and the most classic of all. For example, the land surrounding Central Park in New York City is of limited supply. If you want land which borders, say, the west side of Central Park, then there is even less land available.

If someone owns all of the land that borders the west side of Central Park, then no one else can use that land unless they are permitted to by the owner. This means that the owner has a natural monopoly over all land that borders the west side of Central Park. You cannot create more land that borders the west side of Central Park.

Now, if you wanted to live in a house or apartment that borders the west side of Central Park, your only option is to negotiate with the land-owner. They may sell you the land, or rent the land to you (or rent you an apartment or house on that land). If living on the west side of Central Park is something desirable to you, then the land-owner can charge you the absolute maximum price you are willing to pay for living there. You have no alternative, except to not pay at all. If you are willing to pay $1000 a week to live on the west side of Central Park, the land-owner can charge $1000 a week. It is entirely independent of the labour and costs of the land-owner, and entirely based on your willingness to pay.

Blackrock bought the 3 houses because they believe they will make money on them. If that's true, then even if you remove Blackrock, then someone will fight to buy the house because of the positive return on investment.

Any solution requires that buying an existing house is no longer directly profitable. However, as originally posted, that goes against the goal of having houses increase in value, a goal which too many voters share.

Put simply, to make houses affordable, you have to drop (or stabilize) prices. If prices are now stable, then your Blackrock problem just goes away.

There are a few ideas that preference individuals over Blackrock (rules about how many houses you can own, tax rules that preference primary residences, etc...). Some of these can help, but still, if prices keep going up, then new residents won't be able to buy, and you still have the same disaster.

EDIT: I am partial to a ludicrous capital gains tax on property (like 70%). However, it's possible that will harm liquidity, so who knows!

Is a progressive property tax going to stem migration?

The person who doesn't own a home is hardly at fault for being frustrated that the prices of homes are increasing to an absurd degree.

In fact, that sounds like misplaced blame when in the exact same post you mention these things:

1. The median voter is a homeowner

2. The homeowner wants the price of their house to increase

3. Therefore it is in their interest to keep housing unaffordable

4. Therefore they continue voting for the people who facilitate it, and don't vote for the people who want to change it.

5. All because their house is not a home, but an investment

In your mind, a person who is fed up of being priced out of a place to live is part of the problem? It doesn't stack up.

>All because their house is not a home, but an investment

At least in the US, home equity is the largest single asset class for most people.[1] I agree with most is what you said, but it seems fairly predictable that people would try to protect the biggest egg inn their nest. Whether or not it’s good policy to combine supporting that is another matter.

[1] https://www.census.gov/library/stories/2020/11/gaps-in-wealt...

I think #2 is wht needs to be addressed.

If you're just happily living in a house you own, it's nice that the theoretical price is going up, but it's of limited actual benefit to you. It only has a real impact when you sell - and only has a benefit if the house you want to buy has appreciated less than the one you're selling to pay for it.

Houses falling in value is bad - people are trapped where they are by negative equity, which creates inefficiencies (can't move to a better paying job, as can't sell the house you're in).

The only thing I think is universally bad about house prices rising (along with low interest rates) is that it allows people to re-mortgage their homes (or choose not to pay down capital), to buy another home to rent as an investment (either directly, or through an investment). This creates a feedback loop, creating a class of owners and trapped renters.

I'd have thought the solution here would be a healthy dose of taxation on rental income.

I think Blackrock and other asset owners buy the houses and rent them out through management companies. Thru which they can materially impact rent costs in a given area.

Imagine being on a sinking life raft, pointing out where the hole is, and then getting told "it's okay, we just need more buckets to bail the water."

The whole world isn't San Francisco. Where I live in Australia, there is no physical lack of roofs to house everybody who wants one. Our "shortage" is entirely political and can be legislated away overnight if the will were there. The problem is and always has been rooted in the words "investment property."

Yeah, every measure brought in here to ostensibly “make housing more affordable” has, surprise surprise, done the exact opposite. Its almost like the people introducing these measures all own a lot of investment properties.

I agree the cause can be made to go away overnight. However the impact of doing the wrong thing could be disastrous.

In Australia we have a housing bubble, but the problem is woven very deep. Our tax system favours property investments. Our top tax rate (45%) kicks in at extremely low levels of income compared to globally ($180,000 AUD which is around $135,000 USD). The system provides all kinds of tax deductions to investment property owners, and ways of making paper losses to offset income tax.

Much of our economic activity is banking, retail and construction. Much of which is fuelled by the churn in property with ever increasing prices. This economic cycle kept Australia out of recession until Covid hit. Now that the average house is over $500,000 AUD, we have large swaths of the younger population leveraged to their eyeballs in debt at a 2% interest rate. If housing prices fall or interest rates rise there will be a collapse, and a good chance of an extended recession we have avoided.

The best case is they slowly the market down, we have a moderate rate of inflation which allows the real value of houses to drop. At the same time reduce the tax benefits to property investment.

Unfortunately this won't happen. The political class knows that the median voter is a home owner, and its in their interests for housing prices to keep rising. They are just hoping that it can keep going until after they are finished. Totally not jaded about not being able to afford a house in my late 30s due to being wiped out in the 2008 GFC and then starting a family.

There's more to it, like migration of between 100k and 300k a year, to flatten the curve on the retirement wave and ratio of workers to non-workers, but also to keep the housing construction market going.

In Perth, when the government grants were being handed out, at some stage there was hardly a single property less than 400k, now in some of the less desireable areas you can get detatched houses down to as low as 200k.

Just this week, the bank stress test on mortgage lending increases from 2.5% to 3% tolerance to rate increase, lessening the amount that can be borrowed.

It's all over the place, but as y say the tax system has created the concept where a dwelling is an investment and it skews the whole market.

Renting looks pretty attractive at times, but the nature of tenancy agreements in Australia is 6 to 12 months terms with invasive property inspections on a regular basis, nothing like the european model with 10 year terms and decorate at will.

This also drives a desire for home ownership for families as if they don't want to pay for private schools then there is competition to get into suburbs with the better government schools, and even without this they want sme long term certainty such that if they move suburbs they won't have to change childrens schools.

Thank you both for replying with so many salient data points that underline how fucked things have gotten.

Immigration is an interesting variable. I'm an immigrant myself, but I'm also coming to question the wisdom of shipping in a cheeky hundred thousand people every year. It does seem like a bid to keep a scam economy running more than anything else. The supposed dearth of skilled employees is most likely another politically manufactured "shortage."

There really is a dearth of skilled people. The US has no trade school system and our educational system produces remarkably unskilled and incompetent people. We would not be able to survive without grabbing most of the world's skilled workers.

Of course, there's no reason why we should mistreat the native population and then depend on foreigners for everything from auto repair and electricians to tech workers and scientists. We should actually care about our domestic population and about our own working class.

But if you are a business and you want to hire a skilled worker, you do really rely on the foreign labor market quite a bit.

What’s your opinion on the theory that reliance on foreign skilled labor is a mechanism for deliberately depressing skilled wages?

Well, by definition increasing supply causes a decrease in price. You could also say that homebuilders are a mechanism for deliberately depressing the price of houses.

But that tautology is not very illuminating. If you look at skilled wages in the U.S., they are really high. Compare them to Europe. They are high enough that skilled workers all over the world come here - the U.S. outbids the entire planet for skilled workers, which tells me more about our inability to produce skilled workers domestically rather than anything else.

It's like we've turned our back on our school system, abandoning it to ineffective utopians that are busy cancelling advanced placement courses while insisting that it's unfair to track people into trade schools, and instead we just import workers from countries with more functional educational and trade school systems.

Go to any top-tier graduate program in STEM, and the majority of grad students, post-docs, and professors have been born overseas. Take a look at how little an American college graduate knows compared to a German college graduate in the same major. Just a huge competency gap for the average graduate. Now compare what a "college prep" high school graduate knows in the U.S. with what a graduate of a gymnasium knows in Europe. Enormous difference. Go and look at the local auto mechanics, electricians, carpenters in your area and count how many have been born overseas. Because where would you learn those skills as an American? You have to get lucky, there is no system in place to route students towards learning these skills, they have to pick them up on their own, after going through high school -- where they learn virtually nothing -- and at their own expense.

I don't really have an opinion on the topic but I think the general argument is that the appropriate comparison would be domestic, not abroad. Meaning, the system is used to depress wages compared to the wages of a domestic worker. Wages matter in a relative sense, or employers in Manhattan could pay the same as those in Oklahoma. In the absolute sense, many, many American wages (skilled and unskilled) would be considered high.

I think part of the argument (and where your home building analogy may not be quite appropriate past the superficial level) is that much of the work is done using U.S. tax dollars, meaning Americans are funding a system that simultaneously depresses their own wages.

>Go and look at the local auto mechanics, electricians, carpenters in your area and count how many have been born overseas. Because where would you learn those skills as an American?

I've been lucky enough to be able to live multiple culturally distinct areas in the U.S. and found this to be very different depending on location. In some areas, like the Rust Belt, that have a history of blue-collar work, I don't know that I saw many non-native workers in the skilled trades (albeit there was probably still a higher percentage in the unskilled labor market). These areas also have a larger union presence and with that comes apprenticeship programs where they aren't forced to learn those skills at their own expense; in fact, they're paid to do so. Other areas that have a larger immigrant population, I'd concede your point that most of the skilled trades were immigrants but they didn't seem to have the same systems in place. It's possible your conclusions might be an artifact of sampling bias. But I would also agree that, culturally, blue-collar career tracks may be disparaged in the U.S. to the point where fewer Americans are willing to pursue them.

> the U.S. outbids the entire planet for skilled workers, which tells me more about our inability to produce skilled workers domestically rather than anything else.

Are you saying that the US is the only country that can’t produce enough skilled workers and everyone else overproduces?

To me it means the opposite: demand is so large here that it has outstripped local supply

> Our top tax rate (45%) kicks in at extremely low levels of income compared to globally ($180,000 AUD which is around $135,000 USD).

Huh? That's not that low. In the Netherlands the highest bracket, 49.5%, kicks in at ~€68k EUR (~$78k USD).

> Our "shortage" is entirely political and can be legislated away overnight if the will were there.

What is the cause of the shortage? What legislation would make the problem go away overnight?

> Home prices and rents are up because of low interest rates and nimbys who block new construction. Corporations buying homes have literally nothing to do with it.

TIL that pouring a truckload of gasoline on a brushfire has nothing to do with why the forest is currently burning out of control.

TIL that the ownership structure of an asset purchaser is responsible for controlling asset prices rather than fundamentals like interest rates and rates of return. I guess Blackrock is responsible for high stock prices, too.

Iirc the reconciliation bill getting worked out right now has a good chunk of money to develop more housing

It's not money that's the problem, otherwise San Francisco would've solved everything by now. It's NIMBY legislation that limits buildings to 4-6 floors instead of 50. We could literally have 10x density if zoning laws allowed for it.

I being a prat and suggest all this can be fixed by old fashioned wage inflation and the government underwriting a buttload of multifamily construction.

It's been dropped down the memory hole but that's what the Truman Administration did after WWII. But with single family homes.

What good is additional housing if Zillow just buys it up to resell at higher prices?

Isn't the whole point of this article that Zillow is stopping homes at a loss? At some point, it won't be worthwhile for Zillow to do that.

To be fair, housing in places without institutional investors have also shot up a lot, so it’s hard to know whether that’s their effect of just the pent-up demand due to the pandemic linked to people having more money to throw on housing after a year or not going/vacationing out.

Rural places shot up? Where? I haven’t seen it.

All over southern/central NH and VT definitely shot up in the last 1.5 years.

To couch this for the US assets, 2020 M2 money supply shot up 30%, a historically significant amount. I'm still waiting to see if the "gains" in stocks/housing since 2020 is really a gain or the immediate result of price inflation due to money printing. Or "quantitative easing".

The M2 inclusions changed in May 2020: https://gonzoecon.com/2021/04/m1-and-m2-have-changed/

From your article, M1 inclusions changed in May 2020, to include Savings & other Checkable deposits which were previously in M2. M1 is now effectively the same as M2 and is no longer reported independently.

To my knowledge, there have been no significant changes to the definition of M2 in 2020. The increase there is real. The M2 definition change mentioned in the article was on Jan 1, 1973.

Ok. Thanks for correction. Teaches me to not to discuss complex topics online while trick-or-treating. I’ll read it more carefully next time/later.

To be honest, those definitions are looking pretty arbitrary. I read the other day[1] (from an academic economist, though perhaps not a mainstream one?),

>> The government, Fed and Treasury, basically printed up about $5 trillion of new cash and treasury debt -- these are largely perfect substitutes so the composition doesn't really matter.

I take this to mean, "interest rates are around zero, and the debt is going to be rolled over when it comes due." An I guess Treasury mostly issues short-term debt, and the Fed is holding short-term rates down, so if we assume new debt issuance has ~no interest-rate impact, fiscal effects seem to have more relevance to inflation than monetary ones:

- Monetary interventions mostly trade "money-like" things for other "money-like" things, both sides denominated in dollars. Maybe the actual dollars involved are "created", but the bonds bought are effectively retired, so no real net effect.

- Fiscal interventions involve creation of "money like" things and trading them for goods and services, bidding up prices.

Interest rate markets look like they're expecting some give in the short term, so maybe this will stop being quite as true, but it looks like those markets aren't predicting anything like "normalisation" over the longer term.

1: https://johnhcochrane.blogspot.com/2021/10/transitory-inflat...

As the other commenter mentioned M2 supply is up, but a lot of that is actually due to a change in how it is calculated. But m2 supply is up. That being said, low interest rates probably has a lot more to do with prices going up.

Your definition of rural may not meet the official one. We're up 20% here in a rural area of TN.

All of the southern half of Ontario has shot up dramatically.

Just piling in with the other examples, North Carolina has seen a huge surge.

All along the east coast of Australia as well.

In southwest Montana where I live. Neighbors sold their house to move into a camper parked on a relative's land where they plan to ride out the construction material supply chain restrictions then build another house. This is one of four similar stories from people I know directly.

The entire state of idaho

Rural Nova Scotia: https://www.saltwire.com/atlantic-canada/business/rural-ns-o...

> Housing prices in my area have inflated 25% in the past year - one year - and real estate companies like Zillow immediately buying up everything on the market is a primary contributor.

No it isn't. Real estate companies buying up homes literally rounds to 0% of the market. Reflexively blaming everything on evil big corporations is an intellectually lazy copout.

Housing prices are up because of nimby politics that prevent new construction and collapsing interest rates. Zillow is a trivial insignificant minnow has absolutely no impact on broader market.

Even if Zillow were large enough to move the market, all they are doing is flipping houses, not hoarding them, so they have zero net impact on supply and demand (every buy is paired with a sell).

IMHO blaming the price increases in nimbyism is equally lazy. There are plenty of places in the US with no shortage of land and no harsh zoning restrictions that are still seeing huge increases in housing prices. I think your second factor plays a much larger role. Interest rates are well below where they should be and the government will buy up just about any conforming mortgage. The cost of raw materials plays a role as well, but smaller.

Every HN discussion about home prices attracts a vocal group of people blaming everything on NIMBYism (regardless of jurisdiction) and lecturing about supply and demand. It seems inconceivable to them that converting single-family homes to long-term rentals or AirBnB pads also reduces supply and pushes home values up.

A large portion of homes are being bought and listed as rental properties. And whilst the overwhelming majority are purchased by individual investors, a non-negligible amount is via LLCs, LLPs, and corporations.

This has the same effect of complete removal from the supply-side as the home is no longer considered part of the 'for-sale' pool.

This leads to artificially inflated prices for homes that are actually for sale, since rental properties are removed from that pool.

>And whilst the overwhelming majority are purchased by individual investors, a non-negligible amount is via LLCs, LLPs, and corporations.

Most of those LLCs and LLPs will be smaller investors. I would not think of buying a rental an not using an LLC - even if it would be for just one rental. I'm not sure the kind of entity that owns a property matters all that much. For $150 plus a little extra paperwork, a LLC really does de-risk the rental business.

> real estate companies like Zillow immediately buying up everything on the market is a primary contributor.

No such corporate buyers exist in my market, but prices have gone up a similar amount. The cause of recent price increases is likely far more complicated.

If Zillow or a similar company is able to disrupt the realtor and mortgage industry, there is potential for massive savings for both buyers and sellers. Right now middle men skim close to 10% off each transaction.

> far more complicated.

Or far simpler: not enough homes to satisfy demand.

> Right now middle men skim close to 10% off each transaction.

It’s 5% at the most in most markets right now, with lost of options for even lower commission or flat rate listings.

That only covers the agent commissions. The mortgage industry also charges substantial fees with little to no benefit for the buyer. Origination fees, lenders title insurance, appraisals, etc...

> Housing prices in my area have inflated 25% in the past year - one year - and real estate companies like Zillow immediately buying up everything on the market is a primary contributor.

Did anything else notable happen in the last year that could have contributed? What city is this?

> real estate companies like Zillow immediately buying up everything on the market is a primary contributor

I’m not at all sure that Zillow buying a few hundred homes out of the many thousands of listings was a primary contributor.

Phoenix has historically had huge booms when people start to leave California, and many other markets without any Zillow purchases at all are experiencing huge growth.

>I’m not at all sure that Zillow buying a few hundred homes out of the many thousands of listings was a primary contributor.

Zillow is currently looking to offload seven thousand homes in my area, not a few hundred.

The good? Shareholder profits, what else?

The quicker we can reach the tipping point of inequality, the better. I have no faith that anything will fundamentally change until things get bad enough that it explodes.

I hope we get to the point where the top 10% of individuals own 95% of wealth/assets in the next decade.

Why do you think that will be a tipping point? What do you think will happen once the purported “explosion” happens? And why do you think it will be better than the status quo?

That's an absurdly callous worldview and there's a 100 percent chance you would hate getting what you're asking for.

I presume the sellers are happy that they have been paid the inflated prices; and if Zillow eventually lists the houses at a loss then it comes out as effectively as paying a subsidy to local homeowners.

A lot of supply is off the market because people do not want strangers traipsing through their house during a pandemic. Also, there have been eviction and foreclosure moratoriums that have restricted supply. These factors will all ease over the coming year.

> What good is supposed to come from Zillow (et. al.) oligopolizing the housing market

The same good that is supposed to come from essentially every action by a for-profit corporation. How you get there through monopolization/oligopolization is pretty obvious.

Having a hard time reconciling the headline about “selling at a loss” with the words “driving up prices.”. Which is it?

I think their doing to homes what Zales did to Diamonds... there's supposedly more diamonds than anyone could imagine using, in warehouses owned by Zales, w/ the only purpose of the warehouses is to ensure diamond supplies are very thin, so the prices of Diamonds remain high...

Housing market seems to be following the same trend.

While this behaviour by corporations (eg: Zillow buying and flipping, or Blackstone buying and renting out houses [0]) is inflating housing prices across the country, I don't see them stopping anytime soon even in the face of temporary losses (in the case of Zillow here). As a corporation they can withstand this, triage the situation internally and get smarter about flipping in the future.

Personally I feel that this only makes housing more unaffordable in the long run for most people and only policy level intervention by the government is going to stem such actions in the future.

Obviously real estate/housing is seen as a good investment because it's one of the few asset classes available to average/retail investors where they can access leverage in a massive way to build up a portfolio of housing assets over time so if any legislation about this is even considered, it'll probably face a lot of opposition even from people it won't possibly affect (because that's what happens these days + FUD).

I guess I don't really see any meaningful changes in the near future that'll make housing affordable for the masses (at least in some of the most desirable real estate markets, can't talk about rural markets as I don't know enough). For more context, I live in Toronto and unless I settle for owning a condo or housing in the suburbs, owning a house in the city is pretty much a no go for me and most of my peers.

[0] https://www.wsj.com/articles/blackstone-bets-6-billion-on-bu...

I think the danger is when they assume that making money will only require some simple tweaks, happy to sell at a loss in the meantime and then at some point in the future realize that actually the whole things was a capital fueled house of cards. I think one could argue that something like this has happened with Uber and Lyft (though perhaps covid + inflation has more to do with those price increases)

I've seen Zillow in interviews claim that they are actually physically improving the homes before selling. And they sell for basically what they bought for it intentionally, so they're not actually inflating prices.

They're improving homes, helping sellers get out of homes faster, and not raising the prices.

This isn't like those home flippers on TV who buy a house for $70K, put $20K into it, and sell it for $200K. The story you're commenting on says they sell 90%+ for less than they paid.

This isn't a simple "Zillow buying homes must be bad". More analysis required.

I'm generally against taxes on stuff that is not vastly limited (buildable area in a good location is very limited compared to other stuff), but progressive tax here would solve a lot of problems (eg, 0% on your first property and primary residence, 1% yearly on your second one, 2% on third, ...). This would basically make owning more than two or three properties very expensive, and owning hundreds or thousands of properties impossible.

How do you suggest multi-family housing or single family suburban infill housing gets built affordably?

You can never go below cost... that's a nonissue. But we have shitty houses, worth $100k in labour and materials going for millions+, due to sheer unavailability of housing.

Housing is something people need to live, not an investment option.

Also, USA has a problem with building large apartment buildings, where even overcrowded places like san francisco still build single family houses, instead of 5, 10+ story apartment buildings everywhere.

These are zoning and policy issues, not tax or incentive issues.

Progressive tax applies only to single-family homes.

It doesn't have to. You can still build an apartment highrise, and sell the apartments and make profit... and the owners, if it's their only realestate, still get taxed at minimum rate.

It doesn't work like that. Please see an accountant to advise you on this, because if this is really what you think -- e.g. that the profits of developers or even owner-developers are not taxed -- then you are in for a world of hurt if you get audited. Only the unit you are living in is allotted special cap gains privileges. Not other units, even if those units are built on property that used to be a SFH. Tax treatment for developing residential real estate is a complex beast.

I'm not an american.

here you can build a multi apartment building, sell each apartment as a separate unit to different people, and the common property (hallways, grass around the building, etc.) is divided between the apartment owners (and they pay whatever amount for taking care of that). After all the apartments are sold, the investment firm owes nothing there anymore. Of course they pay VAT, their profits are taxed, etc, when selling the apartments, but after that, they have nothing to do with that property anymore.

What I was talking about was basic property tax, which should be higher for each property (house, apartment,...) you own. This would make owning many properties very expensive, and force people to sell.

> Of course they pay VAT, their profits are taxed, etc, when selling the apartments, but after that, they have nothing to do with that property anymore.

Well, that's what you'd expect, no? After they sell the units, then whoever owns the units pays property tax on them.

Or do you want to pay property taxes on a unit you no longer own?

No, i'd like property tax thats (near) zero for your first property/house/apartment, and then rising for each next one. This would make hoarding properties impossible, and using properties as investment (atleast if we're talking more than one) very expensive.

I was just saying that my idea is not problematic with multi apartment buildings, because once the apartments are sold, the owner doesn't have to pay property tax anymore.

The Netherlands just implemented an 8% property transfer tax for investors in the housing market. This seems to have discouraged a lot of investors from buying up homes in the past year compared to previous years. Still there are massive shortages on the housing market though.

"Personally I feel that this only makes housing more unaffordable in the long run for most people"

In the long run, housing prices are determined by supply and demand. Supply (housing stock) is increased when prices are high (as developers can make money). And supply stays flat when prices are low (but developers don't destroy the existing homes).

If this short term trading by Zillow etc. is causing market prices to be high at the moment, you'd expect that to increase long term supply. So future prices would be lower than they would be without Zillow.

FTA:

“If the company were to sell all of its Phoenix homes right now at their list prices, it would lose $6.3 million dollars.”

Over 224 homes, we’re not exactly talking about a huge loss here. Sure, profit is better than loss, but 6mil to learn some lessons in building out a new division in a company isn’t all that bad in the grand scheme of things.

I don't think people are worried about the corporation's loss, much the opposite, they're worried that its a big fish that creates inflated pricing, ex. given the data you shared, it overshot $30,000/house.

$30,000 is less than what they charge per transactions, meaning they made money, and are playing musical chairs with numbers.

The supply and demand chart of real estate has gotten weird lately.

Tech has generated unbelievable wealth, government is racking up debt to perpetuate this endless cycle of asset inflation, while Airbnb further defined rent-seeking all leading to rapid asset consolidation of 'real-world assets'.

I don't have any idea what the answer is, but some of the asset classes are really stressing the idea of how a market can function with constrained liquidity and unlimited appetite. One non-obvious example but tangentially demonstrative to my point is Shibu Inu coin. With 80% of the 'Coin' being either burned or controled by insiders, and use of highly leveraged instruments(100-1000x) has lead to constrained liquidity and have sent it on an absolute surge. Granted, this example falls flat because as soon as the insiders attempt to cash out on their scheme, it all comes crashing down. But the real estate market is different because we are talking about a necessity, not some autistic cybernaught dystopia coin. Constrained liquidity on a necessity that also has very long lead times and regulatory bottle necks is going to lead to a revolution.

With 20% APR's on house prices, my generation will never be able to own a home in a city. Every metric imaginable seems to point to some asymptote in the late 2040's. Every generation seems to be living in the most interesting of times, but I truly believe my generation is going to be facing something bigger.

https://archive.md/dylwy

So at what point are we as a society going to acknowledge that affordable housing is basic human right and push for legislation to ban this kind of behavior?

We are well on our way to another massive housing crisis and I am not confident at all that we will recover from it.

It’s been clear for a while that the US government does not serve the people, maybe this will be the straw that breaks the peoples back.

Listing != Sale price

Couldn't this also be a ploy to drive demand? "Look at all those in-expensive houses on the market!"

Homes that are not bought to live in should be taxed in a fundamentally different manner.

They are, in a sense. You do not receive the capital gains tax exemption if you do not reside in the house for something like 2 of the last 5 years before the sale. You also pay a different tax level if the sale occurs within a year.

I'm not sure how a 1031 exchange impacts these companies though. They're probably reinvesting the money in other real estate.

In most markets (ie. not right now in a huge run-up), house flippers are generally good for a neighborhood. They buy run down, neglected, and under-market houses, fix them up to at-market condition, then sell them.

Oh, and they pay taxes on the profits.

If you choose to penalize this behavior, not only will it not occur in average and down markets, you’d lose out on the capital gains tax revenue that’s currently collected.

"Oh, and they pay taxes on the profits."

do they? or do they just keep doing 1031 exchanges, and doing cash-out refinances now and then to use the money?

According to IRS 1031(a)(1) a property that isn't held for investment does not qualify for 1031 exchange. A pure flip on real estate is held for sale and therefore does not qualify for 1031 exchange.

I personally know someone who did this up to a $30m home in ft. Lauderdale that they cashed out recently and paid effectively no taxes on.

The system is completely broken.

> They buy run down, neglected, and under-market houses, fix them up to at-market condition, then sell them.

How is that better than fixing it up without the buying and selling in-between?

These people fix up houses to look good, while using the cheapest labor and materials possible to maximize profit - taking advantage of the fact that most people don't know that the shitty 'fix-up' will fall apart 3 years later.

That's not good for anyone except the people engaging in this dirty business.

It's like arguing that the good old buy failing business, cut expenses, do some short-term shenanigans to appear/be profitable at the expense of longterm sustainability and re-sell is good. It isn't good, it's short term profiteering at the cost of long term disaster someone else has to clean up.

> How is that better than fixing it up without the buying and selling in-between?

The previous owner that neglected it obviously isn't going to fix it. The prospective owner that may buy it it it's fixed likely can't manage a mortgage on a property they're fixing, the costs to fix it, and the cost of living somewhere else. But it's often easier to make major changes if the building isn't occupied during the process.

You certainly have a point with respect to some/many of the changes being superficial, but even with superficial changes, that can be hard to manage with an occupied home.

House flippers are notorious for cosmetic upgrades that maximize their profit, not upgrades that maximize quality.

They already are. Mortgage interest deduction is only for the home you live in. Rental properties deduct depreciation, and there are huge differences in treatment of capital gains when you sell the property.

See

* https://www.irs.gov/newsroom/know-the-tax-facts-about-rentin...

* https://www.millionacres.com/taxes/capital-gains/how-capital...

Tax treatment is completely different for rental and owner-occupied properties -- you really need to get an accountant if you own rental property because it's quite complex. Most homeowners don't need an accountant if they are just wage earners who own their own home.

Homestead exemption! But the homestead exemption has not been raised for inflation.

Their stated reason for not buying more houses for the rest of this year is that they ran out of people who can fix the houses up before flipping them. https://slate.com/technology/2021/10/ibuying-zillow-purchase... So maybe they could sell these houses for more money if they just had the workers available to increase the value of the houses.

It’s interesting to me how often Zillow gets mentioned for their ibuying business when iirc they are like the 4th largest ibuyer and way way behind #1 and #2.

..which are?

"the three biggest iBuyers — Opendoor, Offerpad and Zillow Offers"

From a bit of research.

We sold our house earlier this year. Out of curiosity we asked Zillow for a quote. To our surprise their quote was very competitive. The one downside is they required us to pay $3000 for repairs, but this was in a market where home inspections were being waived and asking the seller to do repairs was out of the question. The surprising thing was every 2 weeks after that they gave us a new quote that was 5% higher. They did that 3 times. We ended up not using them.

This really sounds like a PR piece for Zillow

Sometimes you're up, sometimes you're down!

Here we go.

Not really if there isn’t a ton of unsecured leverage.

Assuming that's what you mean, In 2008 Morgan Stanley was leveraged 46:1, meaning for every million dollars they had, they were speculating with $46,000,000 they didnt have. All on the price of CDOs, which nobody knew were based on the continued payments of individual mortgage holders who were barely making the payments introductory rates. Actually most were even the subprime borrowers, the system was so fragile that it imploded by a mere 7% of them not paying.

Remains to be seen where the hidden leverage is this time. Its always hidden leverage, but rarely the same hidden leverage.

So “this time is always different” in the sense that there’s a different reason for the crash.

If Zillow is not overleveraged and is instead just burning treasury dollars, they just have a portfolio that declines 20%, which isnt a big deal if you arent leveraged.

given interest rates are at a historic low, i would be shocked if they are using actual cash to buy these houses. presumably they are buying with mortgages?

or the corporate entity has borrowed funds at the super low interest rates for general purposes which it uses for this purpose

cursory google search shows $1.1bn in bonds issued that way

as well as a more recent $450bn which is actually collateralized by the properties they've already bought, already in their portfolio

not even 1:1 leverage, and a far cry from the 46:1 leverage seen on the institutional side in 2008

https://aimgroup.com/2019/09/05/zillow-issues-1-1b-in-debt-a...

https://www.bloomberg.com/news/articles/2021-08-03/zillow-45...

Maybe they relied on their own piece of shit Zestimate tool

They would have been better off pricing based on a dartboard

Reply on news.ycombinator.com