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Comment by drnonsense42 | Hacker News Reader

I disagree strongly with this sentiment. Clearly Zillow is not going to buy all the houses in America and turn us into serfs overnight - that is an absurd strawman. What? Zillow is far from the only actor here trying to enter this space. It's quite ridiculous to claim, as you are, that industrial-scale home speculation is doomed to fail since there are boom and bust cycles and therefore we don't need to worry. That's ridiculous. We really don't have any direct, past precedent for this type of situation. It is rational to be concerned here. The fact that Zillow failed on their initial attempt does not imply that this can't work - it just means they're one of the first making a serious attempt and, unsurprisingly, they got overzealous and it didn't work on the first try! Quant firms for the stock market in the early 90s did not work overnight even though the market was much more inefficient than it is now. It takes time for groups of highly qualified and very smart people to figure this stuff out - but, they will.

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> We really don't have any direct, past precedent for this type of situation

Yeah, we do. Massive housing speculation in the mid-2000s.

> The fact that Zillow failed on their initial attempt does not imply that this can't work

I'm reminded of Gamestop here. Around the time $GME first spiked and then fell you saw lots of people trying to encourage everyone to hold. What this ignored is that someone would be left holding the bag and the long interest holders knew it so it was a question of not being left holding the bag.

This is classic Prisoner's Dilemma, basic human nature (ie to act in self interest) and exactly why markets work long term.

The boom and bust cycle reflects basic human psychology of fear and greed.

Asset bubbles aren't new. Attempting to corner or even just manipulating markets isn't new. Ultimately these things always revert to mean. Sometimes you can predict the reason. Often you can't.

I personally favour fairly radical and progressive real estate reform. This includes (much) higher property taxes for non-resident owners, treating owners as tax residents and thus taxing their income, ending special treatment for real estate assets in asset reporting and withholding taxes at source on real estate income.

Cities should be for those that live in them, first and foremost. Having landlords is fine as long as those landlords themselves are residents of the same city. Residential property shouldn't be for investment funds or oligarchs hiding money from governments.

Concentrating on the likes of Zillow however is largely unnecessary and a diversion. The focus should be on the game not the players.

But I also firmly believe that the prisoner's dilemma and human psychology will limit the impact of institutional real estate buying just as in any other market.

Real estate speculation has likely been around for thousands of years; it’s certainly not new. But, do you see any difference between A. individuals in the mid-2000s speculating on real estate based on individual whims and taking out mortgages they should not and B. large corporations with access to massive datasets previously unavailable, teams of PhDs trained to work on this, equipped with game-changing modeling capabilities that were computationally infeasible until the past decade, along with access to massive amounts of capital? In my opinion, the former case seems less of a concern than the latter.

Also, maybe I’m dense but I’m not able to see any relevancy to GME at all.

those hedge funds don't have access to enough money to move the market that much

$2.6 billion is chump change to a medium-sized city with a few hundred thousand residents, much less the US at large

We just need to remove zoning restrictions so that market forces can bring houses back down to being an affordable, depreciating asset.

https://www.worksinprogress.co/issue/the-housing-theory-of-e...

> $2.6 billion is chump change

For the entire US yes. For new york city, that's just under ~3% of total sales. Given how fundamentally illiquid residential housing market is, thats more than enough to push prices up/down as the player sees fit.

I bet it's even an even bigger part of the pie if you exclude $10m+ homes. My hunch is that the middle and low end of the market is more attractive because they are easier to rent.

Someone in a related thread here on HN yesterday said that at some recent point in time, US$200M would have bought every piece of residential real estate for sale in Boston (proper). Didn't try to verify if that was true.

I agree that 2.6b is chump change relative to the US housing market. In fact, it’s not a large hedge fund, regardless of what they’re trading. I think the real concern here is if this model proves to be profitable and that 3b increases by several orders of magnitude across a much larger set of firms and funds. I’m not saying that will happen, but that is an alarming potentiality.

A sounds like it would lead to increased chances of people overpaying and overextending themselves, and B sounds like it would lead to more accurate pricing.

That’s one of the talking points parroted by HFT firm representatives defending their business. There’s a lot of research on it as well. I bet successful real estate firms will use that same argument. I personally have a hard time believing this will benefit the average consumer buying a home.

You are right that the pricing is more accurate. But it is more accurate for a company trying to increase their own revenue, not someone trying to own and occupy a house (most Americans, based on home ownership rates). The calculations used are entirely different and so is the capital available. In the world without this type of behavior, that pricing difference could be captured by an actual homeowner over the life of their mortgage.

It's another thing we are seeing "optimized" right in front of us. Meanwhile, housing, education, and healthcare get more expensive for actual humans.

> But it is more accurate for a company trying to increase their own revenue, not someone trying to own and occupy a house (most Americans, based on home ownership rates).

Also for the house seller (prior to the company), who is getting paid a more accurate, higher price.

And a price is accurate all the same for buyer and seller, since there exists a range with the minimum price the seller wants to receive and a maximum price the buyer wants to pay. The smaller this range, the more accurate the price.

With more data and more accurate projections, it may be possible for current owners to capture more of the gain that may have happened down the road.

I agree B) isn't being employed by only malicious companies. We're talking about a huge market and tons of competition. It would take a lot of effort to keep honest companies from making money also bringing prices down if there was artificial price inflation.

I've definitely not studied the market extensively, but it seems rather intuitive to me that if you artificially give everyone access to the best loans in any market, you'll see prices continue to inflate until everyone in the housing market is educated and capable on benefiting from the subsidized loans.

Scenario B and A are more similar than you acknowledge. Both are fueled by low cost capital driving prices to unsustainable levels. Scenario B will be a problem too if/when interest rates rise and companies have insufficient cash flow from rents to pay the new debt service. In fact, scenario B may result in a deeper crash, since selling will be swift and by many actors at the same time since they are using similar valuation models. Scenario A was predominately driven by actual homeowners whom are more reluctant to sell in a down market.

> companies have insufficient cash flow from rents to pay the new debt service.

If they are pouring their own capital into purchases, why would there be any debt? Are the entities (companies) in scenario B actually borrowing money?

Given the current interest rate market, I think it's safe to assume they are borrowing money to purchase homes. They aren't taking out individual mortgages but I would be shocked to learn that they aren't borrowing millions through other forms of financing and then paying "cash" for homes.

Also not leveraging purchases would be considered financial management malpractice unfortunately and likely result in a hostile takeover of the company or at the least a change in management. This is a major reason companies get into trouble with debt during times of increased interest rates; proper unwinding of debt and sale of assets near the top is key when playing with leverage.

I had the impression that this was happening because they had excess cash and nowhere particularly interesting to put it. Why would you borrow if you have cash sitting around and expectations of a good-to-crazy rate of return?

Why use your own money when you can use other people's money? Apple, MSFT, Google, etc. All these companies have massive piles of cash on hand yet continue to finance operations.

Irrespective of that, I agree that even if Zillow fails here, it doesn't bode well for the future of the RE market.

> But I also firmly believe that the prisoner's dilemma and human psychology will limit the impact of institutional real estate buying just as in any other market.

Possibly. Real estate is different than most other markets for a few reasons. Favorable tax treatment, sheer market size, high barriers to entry, and being at the bottom of the hierarchy of needs.

I'm worried if this isn't the inevitable path of concentrated wealth accumulation. Stocks have grown too over-valued? Move to housing, a gigantic market that people require to survive.

> Stocks have grown too over-valued? Move to housing, a gigantic market that people require to survive.

This is kinda what happened in the 00's housing bubble. Tech crashed and people looked at housing as the next big investment. It feels like we just have groups of people going from bubble to bubble.

Like the other responder, I don't think the 00s and this cycle have much to do with each other. 00s was lots of people who couldn't afford a home being provided mortgages by banks, and it falling.

This is presumably a number of well-financed institutions buying up property to hold or rent.

Now, perhaps you're correct that it isn't as bad as it seemed, since Zillow is selling the homes rather than getting into the rental business, but even the header of the article says they are seeking "institutional investors".

I also agree that cities should be for those who live in them, and that land is a different type of asset from most others (again, like another responder mentioned).

The more I type the more I think we're on the same page, but you seem to think everyone is focused "just on Zillow" while I am thinking more about the long-term opportunities for trillion-dollar megafunds to gain a monopoly on living space and destroying the ability of families to own property in America's cities.

Exactly! It’s different this time. Fundamentals are strong. Old rules don’t apply.

Just like the last bubble.

Nobody is saying (I think!) that the fundamentals are strong, or that old rules don't apply.

What's being suggested is that the influx of large scale corporate purchasing in the residential real estate market is different, and that because of the old rules, this could be a problem.

To say there are different causes for concern is not the same as saying there is no concern.

This is radically different than the 2000s bubble.

also GME is over $200 currently, when it was $10 a year ago

> also GME is over $200 currently, when it was $10 a year ago

And they got there by running a sustainable and profitable business? No, they got there because Reddit decided to play their own little game of pump&dump.

Which is yet another blatant example of how decoupled the stock market is from the actual real world economy.

> little game of pump&dump

Actually the game was buy and hold ( diamond hands ), and only because they saw an enormous amount of shorts outstanding, so much so that a squeeze was all but guaranteed.

> Around the time $GME first spiked and then fell you saw lots of people trying to encourage everyone to hold.

Everyone who got into $GME after the first spike knows that the value will tank some time, they are in it simply for the lulz - to this day, short sellers are accumulating losses, and given how long the price has stood up way over anything supported by fundamentals there must have been dozens of billions of dollars in value lost for them.

Obviously some are in $GME in the vain-ish hope of a second short squeeze event... but that's just gambling.

> Having landlords is fine as long as those landlords themselves are residents of the same city.

I suspect this would simply lead to property owners having a nominal “registered agent” in the city as the “owner” but all control and profit flows to the real owners.

Moreover, think about blighted cities. If a company is willing to come in to such a city and build some really nice affordable apartments that would improve the city for everyone, it seems like an undue burden to force them to live in that city as well. Your proposal could lead to shitty places to live staying shitty for a long time.

> Ultimately these things always revert to mean.

Yeah, until they don't...

https://www.wsj.com/articles/if-you-sell-a-house-these-days-...

Zillow is far from they only one. PE emerged as one of the largest buyers of foreclosed houses and distressed sales.

> We really don't have any direct, past precedent for this type of situation.

Unfortunately we do have precedent. Through all of history almost no one owed their own home. It was by extraordinary government intervention in the 20th century through loan programs, incentives and building, and impediments to speculation, that made it uniquely happen in our era.

As the government steps back from continuous intervention favoring individual home ownership and low to nonprofit housing, the more profitable rental economy will re assert itself: it is always more profitable to own a property to rent out then to live in it and the market will reflect that if left to itself.

Price fluctuations (eg 2008) do not change the fact that land price increases have far outpaced wages for decades. So yes, it is rational to be very concerned.

And note that Zillow is not selling these 7k properties to would be homeowners but to investors.

> Quant firms for the stock market in the early 90s

False equivalence. The real estate business which Zillow failed is massively capital intensive, whereas figuring out a quant strategy is not necessarily so. In other words, it is very possible to go out of business before a business model is worked out (assuming there is an undiscovered, workable business model).

Investors will not endlessly fund money losers, and Zillow is a huge money loser from both a income and cash flow perspective–a trend that predated their entry into the iBuyer space. Now you might say, the investor appetite for money losing Zillow is bottomless, just look at asset class X, which is totally unproven and yet has insane valuations. To which I would reply, "That is true until it isn't." One common characteristic of all financial bubbles is that its participants claim "this time is different."

Supposing iBuyers do become a significant force in the SFH market, so what? Large companies already participate directly in housing in a massive way. Who do you think built all of these apartments? Also, don't YIMBY's want to eliminate SFH anyway?

> Also, don't YIMBY's want to eliminate SFH anyway?

No, only the zoning designation, meaning that if you want, you can build a SFH. Or a 4-plex. Or maybe a corner store.

Like they have in Houston. So you get scenes like the ones in this article: https://www.chron.com/news/houston-texas/houston/article/Wei...

Yes, and housing is massively more affordable than elsewhere. And there's less homelessness, because people can more easily afford homes.

Not to say that it's necessarily a model to follow: there's a lot of sprawl involved. Just saying that "abundant housing has some real benefits".

> and housing is massively more affordable than elsewhere.

Compared to NYC and SF? Sure. Compared to everywhere else, no:

https://kinder.rice.edu/urbanedge/2020/06/23/rents-and-home-...

https://www.houstonchronicle.com/news/houston-texas/houston/...

But then that's just saying you'll find more affordable housing in cities that people don't want to live in, which would then go along with your point.

> Not to say that it's necessarily a model to follow: there's a lot of sprawl involved. Just saying that "abundant housing has some real benefits".

I've heard it isn't a nice place, but I've never been before so can't judge.

Everywhere is struggling with housing right now, because nowhere has built enough since the great recession - and some places like California have probably been underbuilding for decades.

Median prices are still pretty low there, though: https://www.realtor.com/realestateandhomes-search/Houston_TX...

It does not strike me as a particularly attractive place to live - but I'm not a big city person, and prefer more mountains/nature. Its population has sure been growing, though, indicating that someone wants to live there.

> Everywhere is struggling with housing right now, because nowhere has built enough since the great recession

That was my original point in another thread (under building during the great recession + an exodus of building talent).

> It does not strike me as a particularly attractive place to live - but I'm not a big city person, and prefer more mountains/nature. Its population has sure been growing, though, indicating that someone wants to live there.

Houston is growing at half the rate of Seattle, at least in the last 10 years (10% vs. 20% growth). Those cities growing the fastest seem to have the most pressure put on their housing markets, which makes sense.

Demand certainly contributes to rising prices if supply lags. Houston does a much better job than other places of adding supply, and part of that is their 'zoning-lite' approach.

I don't know. If Houston is the poster child for the zoning-lite approach, a lot of people won't be interested in going in that direction. Or to say, if zoning creates a problem with affordability and the lack of zoning creates a problem quality of life, it doesn't sound like getting rid of zoning is a no brainer.

I'm not really sure where that article gets its data, but the actual price of homes in Houston is low despite a lot of people moving there and the economy thriving. Seems relevant.

> Quant firms for the stock market in the early 90s did not work overnight even though the market was much more inefficient than it is now. It takes time for groups of highly qualified and very smart people to figure this stuff out - but, they will.

This example works against you. Quant firms did succeed but they did not corner the stock market nor are they cause for concern. There is a long history of firms that failed to corner a market or become a monopoly. True natural monopolies are extremely rare and don't typically last very long.

You can't squeeze more money than the market is willing to pay. If private equity tries to corner the housing market, more people would decide to live with their roommates and family while developers will happily sell them overpriced homes and they pay property taxes.

more people would decide to live with their roommates and family

And we made fun of Soviet Russia, where people would live with roommates and family because their government was so dysfunctional that it couldn't even arrange shelter for its citizens, a basic necessity for life.

U.S. has a 65% home ownership rate.

Not everyone can afford a Bentley or a condo in Manhattan. That is not some terrible injustice that needs to be fixed. Living within your means and buying a place where you can afford to live is also an alternate approach. Or you can moan about capitalism and how unfair life is.

The price for housing has gone up substantially in the last 20 years, housing takes up a greater share of peoples incomes than it did in the past, and there is no reason for it.

We wouldn't tolerate the price of food going up by the same percentage.

We tolerate it in housing because the asset appreciates.

If food costs went up substantially, but you could eat the food and then resell it for more than you paid for it (and sometimes a lot more than just inflation-linked increases), I suspect we'd tolerate that too.

Now we are getting somewhere. The owner class tolerates housing price increases because they think they are getting a good deal (but it's just inflation, if the price of necessary goods goes up, that's inflation), and the renter class gets fleeced. It's not a recipe for long-term stability when 2/3 of the population band together to oppress the remaining 1/3, all this with government support.

It's also concerning that housing is a government-supported investment, it's an unproductive asset. That's not how you encourage progress and development. Even if you just have a field you can grow crops but no such luck with housing.

(Maybe there's change on the horizon, a collegue who lives somewhere in the Rust Belt complained that her 25-year old daughter can't move out. She has a regular job, but the rents have become so high that she cannot afford an apartment on her salary. So there's hope that civil unrest will be averted.)

> The price for housing has gone up substantially in the last 20 years

This is the result of supply and demand. How does demand for housing increase? Falling mortgage, downpayment assistance programs, government guaranteed loans. That increases demand.

And housing is also larger than 20 years ago.

> We wouldn't tolerate the price of food going up by the same percentage.

This is just silly. It is not something you "tolerate" it's something you cause.

Food prices also rise when demand increases.

The public has 100% control over demand as they are the ones bidding up the house prices! Now they do not have 100% control over supply. But house prices have not risen because of a decline in supply.

How does demand for housing increase? Falling mortgage, downpayment assistance programs, government guaranteed loans.

Also growing population and people moving to areas where the jobs are. Most recently: pandemic refugees from NYC and California settling in adjacent areas. When demand changes for a good with inelastic supply you see large excursions in price.

And housing is also larger than 20 years ago.

That's a problem right there. Everyone needs a roof over the head. Some people would like a palace. There is not enough entry-level housing being built to keep up with demand, meanwhile the existing stock has reached the end of its serviceable life. There's a good chunk of 70's construction which has deteriorated to a point that it needs rebuilding. The shortage at the low end causes high rents for those who can least afford it.

Food prices also rise when demand increases.

Food prices mostly rise in response to missing supply, either because the harvest fails and the government can't secure imports or because of political upheavals. Either way, it's a political problem, food riots are what starts revolutions. and food price instability is a hallmark of banana republics.

> Also growing population and people moving to areas where the jobs are. Most recently: pandemic refugees from NYC and California settling in adjacent areas. When demand changes for a good with inelastic supply you see large excursions in price.

Right, when there is a disruption. Say there is an increase in jobs in city A and wages rise by 10%. Say there is a decrease in jobs in city B and wages decrease by 10%.

Now what must happen is some kind of population transfer from B to A. We also know that rents will rise in A and fall in B.

But how does this happen? Via evictions in B as people can no longer afford the existing rents and move out. That adds to the rental supply in B as landlords struggle to find tenants, which causes rents to fall. Similarly in A, there is a bidding war for apartments and rents rise. This is how the market adjusts to the new reality of jobs and wages in both cities.

Now covid had lots of these disruptions. Entire job markets were shutdown, others thrived.

So what happens when the government puts a freeze on evictions in both A and B. Then everything is frozen except for the handful of new construction in A and B, so you get massive price spikes and rent too high in city A as well as rents being too high by not adjusting downward in city B.

The effect of this is that prices are always much higher than the market clearing price, which is what this paper demonstrates.

This is also what happens when you try to make economic interventions based on sentimental intuition -- "it's not fair that you should be evicted if you are laid off" -- often the exact opposite of what you want ends up happening, as housing becomes too expensive for everyone. What has to happen is that people must live in the housing they can afford. Attempting to live in housing that they can't afford always causes excessively high prices for the majority.

economic interventions based on sentimental intuition -- "it's not fair that you should be evicted if you are laid off"

We pay people unemployment compensation because the knock-on effects from someone taking the next-best job are serious, and it's immensely difficult to recover from an eviction. There's volumes of research on that. The "sentimentality" has vast economic benefits.

> We pay people unemployment compensation because the knock-on effects from someone taking the next-best job are serious

We have unemployment insurance not because of sentimentality, but because insurance is economically useful. A person cannot insure themselves from loss of wage income, so paying some overhead to have the government do it makes sense.

Freezing evictions does not make sense. We do not freeze layoffs, for example, in our unemployment insurance program. We let employers make the layoffs they need and then have an insurance pool that the laid off can draw from.

A proposal to have rental insurance that you contribute to and can then draw from for temporary eviction assitance might be a good idea -- it depends very much on how it's implemented.

One of these has economic benefits but the other does not. Both are sentimental in nature, but that is not a sufficient condition to adopt a policy -- actual economic outcomes has to be the deciding factor.

Let them buy overpriced useless houses, if they buy too many we'll vote them out or we'll take the homes back by force.

Everything is a balance and the only way to make money long term is to be undeniably useful to a majority of people.

Anything below that bar will die down in shame, infamy or violence.

"we'll take the ... back by force" Why are so many people so quick to suggest that a nationwide situation will be resolved by force. No one is going to take back hundreds of homes by force. That amount of force would be absolutely crushed by state sanctioned violence. Even if you could, what are you going to do with the thousands of homes you have now claimed? Who decides who gets to live there? What about the renters already living there? America is in an awkward position right now and the constant larping of using force to resolve issues is not helping.

What does “vote them out” mean in this context?

> What does “vote them out” mean in this context?

I suppose it could mean voting in people to write a law that makes it exceedingly unattractive for institutional investors to buy single family homes. You could probably even do such a thing "neutrally" since people really only need one home and if you own more than two you're almost certainly investing in some way. Apply some onerous tax on each unit owned above 100, and all these investors will flee the market.

Edit: IIRC, the companies that buy up all these single family homes are large corporations. I'm pretty sure you could write a law like I described that they wouldn't try to use some cheeky corporate shell game to try to bypass (e.g. in their tax filings require them to declare how many single family homes they're the beneficiary owner of, regardless of any intermediary shell companies/special purpose entities, and tax them for that). Require the auditors to sign off of on the number. If they lie, everyone's subject to even more onerous civil and criminal penalties (e.g. blow them up like Enron). Large corporations will stretch the law as far as they can, but it's rare for them to deliberately venture into fraud and other kinds of illegality (for the pedants out there, note I said rare not never). The systemic issues can be solved if they're made to comply, even if some relatively small fish still don't

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