Investors bought a record share of U.S. homes in 2021
washingtonpost.com
washingtonpost.com
As it stands, mortgage rates being below the rate of inflation make housing a very attractive investment.
The sources of mortgage subsidy that I am aware of are secondary market purchases:
* Federal reserve mortgage purchases
* Fannie Mae/Freddie Mac mortgage purchases
Cost of living calculation between Dallas and Houston says costs are roughly 15% different (as apples to apples a city I can identify to isolate zoning effects). So definitely some effect and a good lever to pull (in addition to others I am sure.)
I agree that zoning reform is part of the issue, I think zoning reform combined with other tweaks would go a long way.
I think that multiple issues cause these problem, we have runaway negative feedback loops in multiple areas, the problems has evolved organically over time so I doubt any one factor is enough to resolve the issue (as nice as that would be.)
I'm not making the assertion that zoning is the sole issue so I don't need to defend it but I figured I could take a quick look and bring some numbers into the mix so we have some numerical grounding for conversation and exploring the problem.
I'm not familiar with the ordinances in Dallas, but I think this may not be as much of an apples to apples comparison as you imagine if the thesis of that comparison is that "Houston has no zoning".
You have to find an actual free city to do the comparison.
It is illegal to build in Houston properties that would be legal in Japan or Europe.
I think this is a "Yes, and..." situation
My plan to cheap housing
1) Unfuck Zoning. Be like Texas.
2) Unfuck building codes. Person signs their own death warrant? Let them live in a yurt or a the kind of shack people keep their garden tools in. There's a county east of Tucson like this, guess what, people no ded.
3) End all subsidies and government involvement in mortgages. Best way for skyrocketing price is for government to guarantee loans in a way a relatively free market would not.
4) Permit fees dropped for building housing. Cost of evaluating permits should drop without zoning or building codes. Only examine development to make sure it doesn't cause imminent harm to those outside the property line.
Japan is the model I'd like to see: inclusionary zoning. A small number of zones that allow for maximum use.
The entire housing industry is designed around lending. If policies are make that screw with the status quo, the industry is going to collapse then reform around the new one, and that could take decades.
We have regulations for a reason. When you blindly get rid of all of them, history repeats itself. We find ourselves looking to solve the same problems. It wasn't that long ago in the USA when entire cities would burn to the ground because a cow kicked over a lantern because lack of building codes meant buildings weren't built with safety in mind.
2) Unfuck building codes.
I think it could be greatly simplified by holding the building owner/manager criminally liable for defects that lead to major injury or death, and civilly liable for smaller defects.
There's no reason for the government to have an opinion about what type of concrete you're using or how many feet of wire you're using. They should be policing outcomes, not hiring and sending inspectors all over. If a building collapses, the people who own it and the people who built it should go to jail.
And insurance companies can come after the owners for the smaller problems.
Inevitably when these become government programs, they simply throw money at the problem without addressing fundamental supply and demand issues and accomplish very little except drive up prices. Then, when investors see prices going up and to the left, they rationally throw money at it in a way to make even more money, which drives up prices even more.
There’s so many charts like https://ritholtz.com/wp-content/uploads/2018/02/pricechanges... that clearly show the trend. It’s insane.
There’s a really good book I recommend called “Systems Bible” [https://www.amazon.com/Systems-Bible-Beginners-Guide-Large/d...] that beautifully articulates this phenomenon in a way that applies to government policy, software systems, management, org structures, or any complex system of people or machines.
You may enjoy this article [0]. To quote from it:
> In the past fifty years, education costs have doubled, college costs have dectupled, health insurance costs have dectupled, subway costs have at least dectupled, and housing costs have increased by about fifty percent. US health care costs about four times as much as equivalent health care in other First World countries; US subways cost about eight times as much as equivalent subways in other First World countries.
Of course adjusting for inflation.
Thank you for the book recommendation.
[0] https://slatestarcodex.com/2017/02/09/considerations-on-cost...
The obvious fix is a nationwide property tax that doesn’t apply to primary residences, but again it’s hard to say what that would do.
Why do you say this?
There have been numerous bills introduced at the local, state, and federal levels which specifically aim to address housing affordability. Seriously, just type in "affordable housing bill" into your favorite search engine and look at all the articles coming up from the past six months.
My local city council has affordable housing on the agenda for several of the committee meetings.
Most limited company buy to let mortgages in the UK are underwritten by a directors personal guarantee. It's just a technicality compared to a personal mortgage and so only shakes out the laziest of landlords
That said I would support a hard progressive tax on non-primary residence homes. It should really hurt for them to own multiple homes.
Further the value of property would decrease, but the cost of empty properties would increase. That would put downward pressure on rental costs.
I think you are confusing home loans (which are subsidized) and business loans which are not subsidized).
Fannie Mae/Freddie Mac loans are only on 1 primary home and 1 secondary home for individuals. These loans are limited and really don't work in high property value states. You should google the difference between "conforming" and "non conforming" loans.
You might be thinking of the mortgage deduction on the income tax. Trump already did this. This only hurt young people in high property value states.
Business real estate loans are more expensive because they are not subsidized. However, businesses do pay taxes only on earnings (income-expenses). Loan payments are expenses that reduce the earnings. Good luck on getting rid of business expenses. Yang proposed changing the tax law because of this.
All this means your proposal would have a very limited impact. It would only hurt individuals who live in an expensive property where the homeowner has mostly paid off their mortgage (old people) and used the principal to buy a rental (up to 750k).
I understand these policies work differently in expensive markets. But as per this article, investors are targeting rentals in less expensive markets.
[1] https://www.quickenloans.com/learn/conforming-loan-limits
[2] https://sf.freddiemac.com/working-with-us/origination-underw...
The neighborhood supported the increase in value, but gets nothing in return.
So what is the Fed's motivation to raise interest rates to curb inflation in this case?
No state is incentivized to make zoning more lenient. Therefore it falls on the federal government, who lack the authority.
The only thing they can do is something similar to what they do with the highways and threaten to take away funds unless all plots of land can be zoned for up to 4-family houses (FHA limit).
Potentially quadrupling the amount of housing will do it.
This is all the result of corruption. City councilmembers in cities across this country found themselves in the position of kingmaker. Decades of entrenchment of the political class saw this role refined, distilled, and now it's practically impossible to remove the layers and layers of ossified process that has corrupted anything we do. This is why housing is not being built, why construction costs on projects are so high, why timetables of doing anything at all are decades out, and why the FBI indicts major local politicians for corruption every year. Decades and decades of systemic corruption that has not ever been rooted out has led us to this current broken state.
I would love to see a federal regulation stating that any housing construction permit that isn't reviewed within ten business days is automatically approved.
These investors aren't the ones making the prices higher (or they weren't initially, at least); they're responding to conditions that were already making prices higher, which makes their investment more attractive.
But you don't have to take my word for it; it's literally what they say in their prospectuses:
https://mobile.twitter.com/mattyglesias/status/1482762838074...
Everybody has their favorite group that's easy to hate in this space -- it's the vacant investment properties, or the foreign investors, or the REITs, or the rich people with vacation homes -- but those are tiny factors relative to the main driver of this, which is your typical one-house-occupying all-American homeowner who opposes any new housing in their neighborhood.
As soon as the prospect of housing appreciation disappears so will the investors. But then we’ll have sad stories about people being underwater on their mortgages.
Yet this is exactly what is happening in California via SB9 (though admittedly with significant local opposition):
https://www.mercurynews.com/2021/09/16/gov-newsom-abolishes-...
Ironically, single family zoning as a tool was invented in California.
https://www.mass.gov/info-details/multi-family-zoning-requir...
In short, it's a good idea but needs more teeth.
Zoning is largely a local issue. And zoning is talked about a lot at local council meetings. The problem is people have very strong opinions when it comes to how the place they live will change. It's trivial to get a sizable contingent of people to oppose zoning permits.
There's a huge argument going on a few towns down from me as to whether a 100yo, vacant building in disrepair should be torn down to make room for a community center. One would think this is something obvious that would go unchallenged by locals, but nope.
Making zoning a state issue would probably help a lot, but it would piss off home owners. Even early champions of the change are going to hate it when their neighbor's houses get torn down so that a casino or something can be built in their place.
Given the current situation in many state governments, this would have huge ramifications. You might live in a mid-size city and have the wingnut state government refuse to let you build any more homo-muslim-crack housing anywhere in the city center. Or the rural/exurb dominated state house will only let you build a unit in downtown if it comes with 3 parking spots large enough for lifted Ford F350s.
Personally, I live in the South in a city where local politics are dominated by the suburbs and it's bad enough already. "Not enough parking downtown" because you might have to walk 3 blocks to the nearest street parking lot, so of course more lots must be subsidized. Huge portions of downtown taken up by 6-lane corridors impossible for pedestrians to cross so that suburbanites can zoom through at 50 MPH. And that's set up by people who live and work 20 minutes away! Imagine the situation if zoning and city planning was primarily determined by car dealership scions who will never come here in their lives.
Even the strongest critics of the status quo don't think we should eliminate all zoning, so that you'd be able to put a casino on a residential street. What we believe is that you should able to build more residences (and maybe a corner store) on residential streets.
You can replace an old warehouse in the USA with SFHs. The major difference is the area will have to be rezoned completely before construction starts and the public will get their chance to voice their opinions. This allows everyone to agree on what else may be built on this land before houses go up. Will it be mixed use? Residential only? Are multi-tenant buildings allowed?
Then there's the big issue of who controls zoning? Should it be at the state or local level? Both have their positives and negatives.
Zoning reform is a solution to get out of this mess, but zoning is not the only cause of this problem. If you look at the last 10 years of housing construction in this country, and you compare it to the previous 50 years, you see that we have simply not been building enough housing:
https://fred.stlouisfed.org/series/HOUST
If a nation spends 10 years not building enough housing, high prices are what happen. If you add low 2020 interest rates to the mix, the effect on housing prices are explosive in the short term.
All states are actually incentivized to increase their supply of housing, because an increasing population allows them to eventually gain greater representation in Congress relative to states with less growth. States like California, New York, and Illinois are losing out to states like Texas, Florida, and North Carolina.
Why? Because investors would have more and more houses sitting empty. That would force a change fairly soon... wouldn't it?
Why not? Wouldn't it encourage more people to move to the state and increase income tax / sales tax / property tax revenue?
- Agent sizes us up (I dress down on purpose), says something to the effect of "You know this house will probably sell for even more than (already high) asking".
- Agent just sits around playing with her phone. No shits given.
- Agent sizes us up, realizes we're just window shopping/taking our time, "mansplains" to us "you know how this works, right? 24 hours from now there will be multiple offers and it will be gone"
The other unfortunate thing right now is that loan rates are (finally) spiking. Like > 4% for 30 year fixed. I wish we bought before the winter... And even worse if this keeps up the housing prices will crash just when we bought high. Oh well.
I think a lot of 'secondary' markets could take a hit. These are places that the main appeal is their current relative affordability or proximity to a more-desirable area. I think buyers that are priced out of 'desirable' areas today are effectively settling for these secondary areas, which is raising those prices. I feel like those will be the first areas to take a hit. How big that hit will be, I certainly can't say. It could be as little as a reduced rate of property appreciation, or it could be as large as a 20% hit.
Friends in the DC region aren't worried as this has been an ongoing trend for quite a long time (they have enough equity that a dip won't matter much). Friends in Southern California would probably say the same thing. But in Phoenix, I already hear some questions as to whether this will come tumbling down in a year or two.
Myself, bought a place (not a city and not quite the 'burbs) last year and I'm still curious about my local market so I still constantly check the real estate sites/apps just to see how things are moving in my area. Would suspect I'm not alone in doing this.
Outside of finance and government there isn't a large sector in most cities. Most businesses are in cheaper, suburban office parks. So beyond the social and cultural aspects there aren't that many advantages to city living, IMO.
Why do the sellers care if you're buying with cash or a mortgage?
When I bought my last house (newly built), on the DAY OF closing, 2 hours before the closing appointment, my mortgage officer calls me to tell me I'd need to bring another $5000-ish (due to a reason I've blocked from my mind). He told me my builder would bring a check for an equivalent amount made out to me, but to make the accounting/financial all legal, we couldn't just "zero each other out". The money had to clear from both accounts. (I wish I could remember exactly the circumstances). And, this money couldn't just be a check but had to be a cashier's check that was guaranteed. It couldn't be cash, either, because it had to be from an account that the underwriters had reviewed and done money laundering screening for.
Due to the logistics of that day, I had to go through herculean efforts to get that cashier's check made. I usually bank with online-only banks, and thank god that I had a local bank with just enough balance to make it all work... And that's for someone who is lucky enough to be able to bring that extra money and to be able to take the day off of work to make happen. I imagine many others wouldn't be as lucky.
That closing could've been easily pushed off a couple days had this surprise made us unable to close that day.
Sellers like not dealing with this, so they prefer cash offers.
A bank says they will lend 75% LTV, you are preapproved for a $2M house, so will bring $500K to the table and bank will provide $1.5M you think.
But wait, the appraisal comes back for $1.6M instead of the $2M you bid. Bank says no problem, we will lend 75% LTV or $1.2M. Now you have to find (within days) $300K. And you can't borrow it because that will mess up underwriting on your current loan.
Or you buy a car before closing. Whamo - your DTI is toast.
Or you have someone open a CC in your name. Whamo - no closing.
Anyone who needs to finance a car really shouldn't be buying a house, but I guess this is where America is
I don't know much about the US house buying process, but from what I've read about it it sounds insane. Fees everywhere, two realtors involved etc.
might be others but that’s what i inferred last time we lost out.
I’m in the market for a place now and recently lost to an all cash bidder. Turns out they were using [0]. I was already pre-approved through a conventional lender, but all-cash seems to be the new norm.
If you're starting a job in a new town in March, it's not a great option, but if you're looking months ahead of your preferred move date, why not?
where do you start? what grounds for evicition? Unpaid rent? You've already agreed that rent is zero...
Why would a REIT/Private Equity not care about this? Because their goal is to rent the property in any case. Professional landlords already have this in their risk models.
Trespass; at the expiration of the lease period, without an agreement (which can be inferred from acceptance of rent after the expiration, so don't do that) the tenants become trespassers.
> Unpaid rent?
That or other lease violations are typically only needed as the basis when the tenant has a current rental agreement. (Either in writing or inferred from acceptance of rent by the landlord.)
But, yes, the potential of having to deal with the process isn't something that should be ignored (nor are all the positive obligations on landlords.)
The idea of rent-free occupancy wasn't even a thing two years ago. It's just sellers taking advantage of the current market where a lot of the buyers have no intention of living in the house and so a few months of rent-free occupancy make absolutely no difference as long as they get to buy the house.
No, for a house. If I'm spending $600,000-$700,000 on a house, paying $600,000 + three months rent is still on the lower end of that range. It's just a different structure, not more money.
$10k on the base offer or $10k in "free rent" is $10k either way.
China has essentially realized they're in a demographic crisis so they've enacted the following policies:
- Stopped their speculative debt fueled housing bubble, this I hope makes it affordable for their citizens to own homes, without prices skyrocketing.
- Stopped for profit educational institutions, this is so that education and specifically tutoring aren't exclusively for the rich.
I think they're enacting policies for childcare as well.
Given in the US investors are buying up property, and costs of both education and childcare are skyrocketing. I don't see how the US won't avoid a demographics crisis as well.
The US can't mandate its industry to follow a similar approach, but can't the government provide stimulus or some other Manhattan Project type drive to encourage entrepreneurship and companies to start and resolve these underlying issues?
I mainly wanted to highlight a market driven approach that works with the other industries in the US as opposed to a government directed one. Albeit the government provides stimulus of some type to kick start it, like how NASA drove the privatization of Space and now we have lots of launch vehicles via different companies.
In the US these kinds of internal migration controls violate the Equal Protection clause, so they are mostly a pipe dream. Like anywhere, the US has a lot of places not worth living in, but the people from those places are all able to compete for spots in the cities, so those spots will necessarily be competitive.
Rather than spending money subsidizing the poor in these competitive places, it's better and cheaper imho, to add/create a good place to be in a currently bad place.
We have thousands upon thousands of towns sustained by the local military installation, prison, defense plant, research lab, state university, etc. Even some mid-sized metro areas where the economy is mostly Medicare. Usually it is more of a life support thing. They're too small to be desirable. On those occasions when they do take off and become desirable (defense spending made Silicon Valley!) they quickly become competitive.
Rather than trying to manufacture and maintain dozens of places on this knife's edge Goldilocks window for postwar sprawl (that may or may not exist), we could instead choose a building and transportation architecture that provides a high quality of life at reasonable cost over a wider range of population levels.
China and other nations realize that there is more money and happiness in the long term view, so they're either pivoting or have pivoted. I'm afraid we just don't have the gumption / community oriented view to do that here in the USA. Folks want "freedom", even if that freedom means degrading into massive poverty / wage slavery. I don't blame them particularly, our education system massively touts the successes of USA above all.
Have they actually done this? Last I checked the cost to buy a home as a multiple of average income was far higher in China than it is in the US.
China is going to have a massive housing correction - a la Japan.
https://www.numbeo.com/property-investment/rankings_by_count...
Big businesses/very wealthy can access very low rates by 1. pledging collateral and borrowing-> buy assets-> pushes asset prices up-> collateral worth more-> back to step 1.
With houses they know the average person(who is a homeowner) will fight tooth and nail to keep prices high. Especially people who have bought recently. The higher prices are the more incentive people have to keep them high as it becomes a greater % of their net worth. Tyranny of the majority.
Feels like in Canada we are basically seeing the emergence of some sort of neo-serfdom where the majority of young people(and older renters) who don't have significant family support are spending so much on rent they will never be able to own and year after year rent takes up a greater and greater amount of their salary. It's not at all uncommon to hear about people living in hallways or many people to a room in the GTA/GVA.
But investors, particularly institutions, think in terms of return on capital. The very important distinction is that the part of the mortgage payment going towards principal does not constitute a cost from a corporate accounting standpoint. Rather, principal payment goes on the balance sheet as accumulated equity in the property.
In other words retail is sensitive to total mortgage cost, whereas institutions are only sensitive to the interest component. As interest rates fall to zero, principal grows to nearly 100% of the mortgage payment. Even at todays rates principal constitutes about a third of the mortgage payment from day one, giving institutions nearly 50% more buying power. (Particularly in low property tax states like California.)
Besides raising rates, the only real option is to underwrite increasingly longer duration mortgages. When interest rates fall, extending the mortgage duration makes principal fall proportionately. Hence why many countries in the low rate macro environment have moved to 50 year mortgages to avoid systematically disadvantaging retail.
I'm currently trying to buy a different house, my older sister just bought a different farm, we both have had a horrible experience. My sister had multiple properties where her bid was beat out by someone offering $100k+ over ask, all-cash, mostly REITs and other types of corporate investors. This wasn't even in a city (farm obviously). I'm trying to find both a house and a place to rent, because my realtor/broker has advised me that I need to rent for at least a few months while I sell my existing house so I can buy with no contingencies, or I'll never get under contract. I finally found a proper spot for us to rent, was supposed to be available April 1st and was accepting leases starting March 15th according to the listing. Was just informed yesterday that the owner has already got it under application and has four other renters waiting in the wings.
This market is ridiculous if you actually need a place to live, and it's not even a matter of income. I'm in the top 1% of earners overall in the US, and I can't even close the deal on a place to live. I've had my current house for a bit over ten years, and it makes me almost want to give up and not move, although I must for family reasons. When I look into it, most of the properties being swept under me (and others) aren't even being bought by people, they're being bought by REITs or other investment vehicles, mostly by foreign money. You've also got companies like OpenDoor and Zillow scooping even high-earners trying to buy a place to live.
In some places that may be true, but I was able to get a home last January on a single relatively moderate-high tech salary, I have a friend that signed for a home on a single person decent salary as well near me, and my next door neighbors again single relatively decent tech salary just bought a new home elsewhere.
You may be right about places in like LA or Toronto or NYC, but to generalize that everywhere is a little absurd. I know that the market I fled in UT was that way, and things are getting pricier here in the neighborhood that I am living in, but we are definitely in the middle of a crazy bubble right now; however it won't last forever, things are going to pop eventually. There are good affordable places to live even if they aren't in CA. Much of the Midwest is great, I think part of the bump we are seeing is rise of remote work exacerbated an already existing bubble brought about by government subsidization as it allowed tech salaries to be redistributed geographically.
I do agree that part of the problem is large investment firms purchasing housing as an investment and an article the other day on here pointed out how they are able to take advantage of government subsidies to purchase more homes, but a bubble can't last forever it will pop, and I feel like the popping is going to come soon.
The US needs to make a policy decision: are houses investments or a way to nurture and grow the lower and middle class?
If it's the former, they can use tax policies to encourage the desired behavior. Tax every residential home (single family or condominium) at 10-30% of its total value per year, regardless of who owns it. Give a complete write off for your first home. Maybe give a partial write off for your second home. Make owners bear the cost of appraisals, and if appraisals aren't available, tax them at the most expensive 90th percentile.
But of course maybe the US decides homes are investments. Great for the wealthy, but the lower and middle classes are really going to get hurt. Birth rates will slip even further.
Do you actually have any evidence this is true in "most" markets? It seems like only in a few markets around highly-desirable cities is this true. Farms don't sound like they're going to be representative of the types of housing that most people are looking for.
I'm 45 minutes south of Seattle and I purchased a large house with a backyard, recent-ish construction, no contingencies waived, for less than what a 500sqft loft is going for in Seattle.
My friends who are double income but not tech are trying to buy a home now. Same experience as you. Cash offers always arrive and beat them.
I don't know how this ends but it's not going to be tenable for many folks to "live" in the USA as it stands.
Zillow’s home-buying program called “Zillow Offers” has been shut down. They overpaid and had $400 million losses in 3 months
https://www.nytimes.com/2021/11/02/business/zillow-q3-earnin...
It's ridiculous trying to buy a house now is like it's buying from the Louis Vuitton store or trying to get into a fancy club - especially when the "thing" is a normal-ass house in the suburbs.
In the highest demand cities. Move somewhere that is either 1) Building a crap ton or 2) in lower demand
You must be in an abnormally hot market. That sounds pretty awful.
I don't get how people are still buying houses at these prices. Are they paying beyond their means? Wiping out their savings? Or what?
This really isn't bad, consider Toronto, Canada where house that's over 100 years old (tear downs) cost well over 1 million and increase in value by over $2000 a week, yeah you heard that right.
There are houses outside the city (almost anywhere in Southern Ontario)that were anywhere from 200k -400k pre pandemic that are now approaching 1-2 million. I have seen 50 year old 1200 sq/ft Condos in Toronto go from 300k pre pandemic to now 800k. I believe by the end of this year the average price of a house in Toronto Canada will be approaching 1.5 million plus and is probably on a trajectory of 3-5 million in the next 5-10 years. Before you say it can't keep going, it's been on this path for the last 15 years and is showing no sign of letting up.
Governments are bankrupt and can't raise interest rates meaningfully ever again.
* Plenty of places in the Midwest (Arkansas and Kansas, for example) are depopulating. Affordable real estate exists there - https://www.arkansasonline.com/news/2021/oct/08/populations-...
* Mobile homes seem a not-great-but-doable alternative. Still money to be made, particularly if they have a "tiny home" vibe.
* Multi-generational mortgages. Again not great, but not everyone has access to $1-2MM.
> The Post analyzed Zip code-level data provided by Redfin. Redfin defined investors as buyers whose name included the keywords “LLC,” “Inc,” “Corp” or “Homes,” or whose ownership code includes the keywords “association,” “corporate trustee,” “company,” “joint venture” or “corporate trust.” (For our analysis, Redfin excluded the buyer keyword “Trusts” from its analysis to be more conservative in its findings, since some families own their homes through trusts.) Redfin included the 40 most populous metros where counties disclose sales prices. Redfin’s metro boundaries are either Metropolitan Statistical Areas or metropolitan divisions, depending on the metro.
The Post excluded Zip codes with fewer than 10 sales in 2021 from the maps, and those with fewer than 25 sales from the race and income analyses.
Race and income data is from the U.S. Census Bureau.
> Real estate investors can be large corporations, local companies or wealthy individuals, and they generally don’t live in the properties they are buying. Some look to flip homes to new buyers, while others rent them out.
The methodology described above does not catch individuals buying houses to rent out.
I actually like the methodology, because I think residential housing capture by corporations is an important (and negative) feature. But the article text makes it sound as if they are also describing people choosing to buy a single rental property, and I suspect that even though this may have negative effects on the housing market, it should likely be considered differently from the purchases made by entities caught by Redfin's methodology as described.
It massively reduces headaches for your descendants upon death but AFAIK it makes no difference in terms of taxes.
Anyone who has a little bit of assets (a single house is enough) would be a fool to not have a living trust.
It's when surplus savings is invested in ways that cause active harm to real people, communities, and productive businesses.
The pollution term comes in because this investment often flows from somewhere else. In the case of RE a lot of it is flight capital and money laundering. Money is being haphazardly parked somewhere that is not only non-productive but actively anti-productive. The people doing it don't care because they don't live there or are too rich to be affected, just like with many other kinds of pollution.
It would be fun to try to model these things to estimate the magnitude of economic damage resulting from fiscal pollution.
If you own two homes, and you rent one out as a source of income, but all of a sudden that tenant doesn't want to pay, you have a problem. If you own a portfolio of 100 homes, and half the tenants don't want to pay odds are you can just sit on your appreciating assets until you sell it anyway.
What's even scarier is many of these units are going to remain un occupied forever. If you buy a house, and it goes up in value $50,000 per year, it might be easier to leave it vacant. The only solution is much easier zoning, and laxer building requirements.
For example, in LA apartments are mandated to have a parking space per unit. This can easily make the apartment cost 30 to 40% more to build. So the only apartments getting built start at $3,500.
I'm hoping this does eventually spur some change, it's getting too hard for working class people
It's like, if having one fewer stairwell was so tragically unsafe, why are we not demolishing all of our single stairwell apartments across the country and starting over? Why let them live in such unsafe conditions? That's because they aren't tragically unsafe. Local leaders have just parroted a handful of rare events to justify adding yet another layer of process to development, another cost, another factor that makes it just a bit less financially safe to build an apartment as a developer, much less a small business landlord.
It all adds up. It's a death by a thousand cuts. If we the public fixate on just the one thing that the media presents on it, we allow those who benefit from the status quo to divert attention from the entire set of systematic issues that has to be fully appreciated in order to be fixed.
Amen, something like my first apartment,a $600 place where you didn't have a stove, didn't have a parking space and definitely didn't have a balcony, would be illegal to build.
I strongly suspect this is to drive poorer people out of certain neighborhoods. I saw a fantastic Reddit post once we're a building architect outlined all the stupid reasons. You can't build affordable housing in LA. Fighting years and years of legal challenges, having to have a minimum amount of outdoor space for each unit or whatever . Whatever .
Are any cities in America building compact transit friendly living space? I really want to travel more and see how other countries do it.
I can’t wait to get out of this situation because I hate it and feel like I have no control over my property but the government incentivized them to not pay rent.
For now, I am also incentivized to not put them out on the street and deal with all that if I think I am ultimately going to get a fat check from the state. I expect this is not going to end well for anyone.
I have a friend, and I use the term loosely, who foolishly purchased a house to rent out despite having to go into massive debt to do so. We're talking credit card debt because he couldn't afford to refurbish the building.
If a single tenant has a bad month, he's having a bad month.
I'd rather invest in anything else.
I actually think standalone single-family homes are kind of outdated. I want the freedom to live without a car, In an urban setting. Nothing like being able to walk to your local bar, Walk to the supermarket, and then take a train to a concert.
The eviction moratorium didn't take anything from landlords, which is why the courts allowed it. They simply had to wait for payment and couldn't evict. The tenants still owed rent.
The alternative was potentially having roving bands of millions of angry, newly homeless people violently overthrowing the government, in which case landlords would be in an even worse predicament.
> I can’t wait to get out of this situation because I hate it and feel like I have no control over my property but the government incentivized them to not pay rent.
You can seriously look at housing prices and think to yourself that now is a good time to short the housing market?
Crazy how long it took the courts to overturn that. The eviction moratorium was imposed by the CDC, keep in mind. So the CDC has authority over private rental stock now?
It's something you'd see from the CCP in China
Changes to the tax code are a better fix. Investment properties (non-primary residences) should be taxed more heavily; unoccupied properties even more so.
Recurring land value taxes would prevent people from hoarding property as an appreciating asset without putting it to productive use.
There is an awful lot of people, myself included, that don't feel vacant land is 'unproductive'. We still need trees, and places for animals to live. I for one don't want to see all available land developed.
This is a really good perspective!
I’ve been mentioning to people to remember that their local landlords - their neighbors and existing corporations - are just as responsible for gentrification when raising rents and asks to the highest possible rate their market will tolerate. They always had the option to do so but didnt take the gamble, they still dont have to, so there is an opportunity to point fingers at them more than the out of towners signing or moving in. Pressure might actually work for the landlords since they have a local network, compared to the out of towners who often times have nothing to do with what price is offered to them[0]. The landlords didnt have to raise but the speed at which they all are really could be related to trying to have an investment property during a time when their municipality was not a market based economy.
[0](Although there are also many people buying/renting way over the asking price, as well. Most landlords are just jumping on the bandwagon, hoping to see if the market applies to them too.)
Single family residential REIT as a category should not exist. Caps on landlord ownership should be enacted.
Like medical and food, shelter is a fundamental human need and it is very dangerous to introduce a profit motive without very substantial government regulation. The rate of investor ownership is getting uncomfortably close to feudalism, at least in areas and categories and price points of homes.
We need more low cost apartments and condominiums that are close to jobs. Low wage workers are being expelled from urban areas because they cannot pay rent, and are forced between living in slum like urban conditions or paying high costs to commute from distant affordable areas. Corporate ownership of housing won't solve their issues, solve zoning issues, or increase housing starts.
edit: "off-limits" to the extent homebuilders could make a profit and lenders could make a profit, but not excessively.
Where? I'd like to show it to people.
This is undoubtedly true, and hurts potential first-time-buyers in those neighborhoods, but at the same time it benefits existing homeowners in undervalued neighborhoods by increasing the value of their homes.
Having predominantly black neighborhoods cost less than comparable neighborhoods that are not predominantly black is probably not, on balance, a good thing.
Predominantly renter class people will not benefit from housing value increases. Their landlords will, though.
The only places where you don't see this happening are also places where you can't get a proper broadband Internet connection, which makes it a nonstarter for even remote workers. So, really, no. My sister had this issue buying a farm in Eastern Colorado (which is not even considered a desirable area) more than an hour away from Denver, as a simple personal example.
Prices everywhere are relatively high, relative is important. You might have your remote gig, enjoy it. You are of the few. Most people are finding their remote gigs are turning into hybrid gigs; the old guard doesn't care you are efficient at home. So now you are beholden to local jobs anyhow even if 50% of it takes place on zoom and 100% could easily be done as well. If you want to take advantage of midwestern home prices, now you are being paid at midwestern salaries and competing with midwestern doctors and lawyers and business executives like you did in the bay area. The octave has shifted by an order of magnitude, but its the same song you are playing. The same lack of supply. You might even net out worse considering the tax structure especially on property in different places means your costs might go up as real estate continues to go up, and your salary generally does not tumble up 10-20% per year to help you afford those reassessments, and there are few places you can laterally jump ship to and find higher pay in the much smaller midwest (which is why educated midwesterners flee to places like the coasts for their jobs anyway; its cheaper on paper but its often not in practice).
Tell me you're not in California without telling me you're not in California
Sort of true, except it is far more than 30-40 minutes away. You'll have to commute at least ~4-5 hours from the bay area to get into affordable territory.
This has not been true since COVID.
Even at the peak of 2006 era lax underwriting standards only 70% of households were owner occupied. It’s a utopian but naive dream that if somehow we just tax renting enough everyone will magically become a homeowner.
There will always be a segment of the population that needs to rent. Rent taxes will massively drive up their living expenses, and have an at best marginal increase to home ownership rates.
The problem is not the finance stuff, it's the lack of supply and the crunch will not reverse until the US learns how to build abundant housing. It'll either break quicker than anybody thought possible or last for another generation. Who knows.
Regardless, artificially taking the REITs out of the equation won't fix the problem. The reason they're buying is that housing is a good investment. The way you fix that is by making housing a boring, low return investment.
This is key. Home prices in the US are kept artificially high by zoning laws. I can maybe imagine NYC to have high prices, but I can't imagine a city like Austin,Tx to have home prices triple every year.
Its insanity triggered by the Fed.
The Fed should be reigned in by having them not participate in the mortgage market
The market is not working.
There have been big improvements in the following areas, and I'm excited to see them develop further:
1) Solar power and battery technology
2) Water filtering technology
3) Satellite internet
4) Geothermal heating /cooling
5) Insulation
I believe further improvements in these areas will drastically decrease people's reluctance to move out to the country.
If you sell stock and buy another stock, you have to pay capital gains. If you sell real estate and buy other real estate, you don't. This is dumb.
At some point, it becomes far more profitable to build a housing development or luxury apartments than regular affordable apartments. Some places have zoning that limits new construction but even if they didn’t, all you’d get is housing built to chase the highest profit, single family homes, luxury apartments, and 55+ apartments, instead of affordable apartments.
The low income people I know all commute an hour or more into the metro areas because of their car allowing it.
This is, big picture, the death throes of a dying society, where the wealth has been stolen from future generations so much that there is no stronger incentive to produce and build for the laborers required to sustain a general economy, but rather it is most profitable to simply bleed off some wealth from the holders of it instead with ostentatiousness and luxury. Everyone is just trying to steal a piece from each other for themselves like in crypto instead of creating value.
But now it's not just even about your house. Now your 401k might be tied into one of these investment firms that flip houses. So trying to convince a retiring boomer that not only will his house be worth less, but also his retirement fund might dip? Not gonna happen.
My main hope is that WFH tech gets so good that living near a city is no longer a competitive advantage.
Whether said Boomer can be convinced or not will soon be immaterial.
Membership form: https://docs.google.com/forms/d/e/1FAIpQLSdDTgY0TDZ5wz73_3Wf...
For example 50 story skyscrapers are actually slightly cheaper per square foot than 10 story buildings on a per square foot basis. Without artificial restrictions on density, the cost of housing is essentially invariant to the cost of raw land.
Maybe if we allow homes to be investments (to spur development of homes in locations and of a certain design/quality as demanded by the market), then the government should be required to provide a basic home for every single person that requests one.
We can't keep talking about how great capitalism is when it turns most of the "lower class" population into sickly renters.
Ban institutional investors from the single family housing market.
We need massive zoning reform, cut back on NIMBY enabling policies, and massively reduced mortgage financing. People hate on them, but 5+1 housing can enable large walkable cities, which are much better for the environment and allow people to build roots in their community through property ownership, families, and long term residency.
Its buying a second house that makes your position long.
It'd be great if Gordon Gecko were the boogyman but the fact is that Mom and Pop petite bourgeoisie are the ones responsible for the disaster we're facing.
Clearly that's not true. A lot of people bought homes on the desire to live in them and for their children to have a stable place to grow up.
Investor means someone who bought the house strictly as a means to make money with no other motivation. Like buying a share of stock.
Most individual homebuyers don't view it that way.
They claimed they were helping the middle and lower classes with all of that money printing, but what they really did is send a 600$ check and then push those classes further into wage slavery. We are watching the looting of the american citizen in real time, communism/collectivism is once again the wolf in sheeps clothing.
There is no free lunch.
Last thing, theres an equation in finance, I forget it, but roughly:
Cost to borrow money (for an institutional investor) and buy a home with that money, is generating a positive return. As long as that is true, they will continue purchasing homes at a rapid rate. This is a monetary issue, money should not be available to buy homes like this. This is incompetence and negligence from the financial elite governing our nation.
If the US returned to a 1950s style tax system or enacted very high wealth taxes this problem could be avoided, but the forces arrayed against you for proposing such reforms would mean political suicide for anyone who does it.
Which makes me think that the problem will get worse until some sort of structural break occurs (at which point, as with 2008, it'll probably get worse at an accelerated rate with a cure worse than the disease).
House prices have certainly risen substantially in the last few years [1]. But if the FED is to blame, why has the same thing happened in the UK [2], Germany [3] and Australia [4] ?
[1] https://fred.stlouisfed.org/series/QUSR628BIS
[2] https://fred.stlouisfed.org/series/QGBN628BIS
It's time to break up the mergers.
We’ve had over a decade of cheap money creating asset price inflation and exacerbating inequality, not to mention the total collapse of the home building for several years and the exodus of qualified talent from that period drained much needed supply from the market.
All of this happening while the largest generation since the baby boom entered prime home buying age.
This has been a 15 year trend. It didn’t start yesterday and it won’t end for a long time.
What do you want the Fed to do? If they make money more expensive then mortgages become less affordable and housing prices slump, but if they make money easier to get then housing prices go up. Meanwhile, the Fed's mandates are maximum employment at sustainable inflation - not home ownership. The cost of housing has been dominated by local and state regulations for quite some time, it's not something the Fed can or should fix.
What that means is that last year you could have bought a $300k home for $15k in cash and pay around $2k in mortgage/taxes/insurance. The real problems are that there were so few $300k homes and the vast majority of Americans don't have $15k for a downpayment. The Fed can't fix those problems.
If you want to point a finger, point it at municipalities and who don't care about home ownership rates. They could make holding single family homes as long term investment properties unaffordable tomorrow, but choose not to. They could encourage new home construction, but they don't.
(side note, "Fed" is not an acronym, it's an abbreviation for the Federal Reserve)
It is not strictly a monetary problem but you are close. It is a allocation of money problem.
When the FED increases supply of money and/or lowers interest rates, people think that this will help the poorest get on the debt and get themselves going.
But reality is that it is the rich (and institutions) that have assets good enough for collateralization. Which means that in a low interest rate environment the rich (and institutions) can borrow MUCH MORE than the poor, more easily.
It plays out very simply. Banks literally salivate at lending to the rich in a low interest rate environment because the counterparty risk is super low. Just take the free money. With poor people the counterparty risk does not disappear with low interest rates.
Over decades, the rich (or institutions) keep getting richer with the same mechanism.
It's a misallocation. When the FED reduces rates, the rate reduction should not allow the rich to borrow at lower rates. The inequality is spiraling out of control at this point.
Wrong.
This was a deliberate and planned response to protect their true stake holders from the liquidity crunch that COVID lockdowns almost unleashed. Asset owners. For all intents and purposes it worked extremelly well.
https://www.barrons.com/articles/blackrock-is-biggest-benefi...
https://www.forbes.com/sites/sergeiklebnikov/2022/02/11/two-...
https://www.forbes.com/sites/moneyshow/2020/02/25/moral-haza...
Nothing incompetent about it. This is moral hazard in action and has been the bull case for some time now. Fundamentals don't matter anymore because anytime the market gets rickety its been a safe bet that either the Fed will swoop in with more QE and low interest rates or the federal government will issue more bailouts.
Risk is socialized while gains are privatized.
Really the most concerning aspect is that the cost to build new housing has drastically gone up. We are at an all time housing deficit. I don’t see how that corrects itself unless we get to the point where building a new house is cheaper than buying an existing house.
I live in LA and I think about this a lot when I see the only homes for sale here going for $3-4+ million. How much longer can this continue?
The horror here is that we have artificially limited house building and at the same time encouraged the population to treat it as an asset class.
We treat residential real estate like crypto-bros treat their NFTs.
This is uncontrolled capitalism imo. When the rich have such buying power that they own governments, as they do now, you can't really call it communism now can you? The government is just an arm of the rich now, and nothing will change until that is brought into check. Getting rid of government wouldn't stop the rich either.
Hopefully the recent data will force the rich bastards who run the fed to stop putting themselves and their elite compatriots first and finally slow down inflation and asset prices but given their history that seems like wishful thinking.
that is one possibility, the other is that their intent is different than what one would expect, it's pretty much impossible to tell which is it.
consider the war on drugs, an utter failure if one believes that it's actually intended to diminish drug use. however given it only recently begun slowing down, without real signs of stopping, I cannot help but consider the possibility that the actual intentions behind it have been a great success but then that means the american government has intentionally caused terrible evil towards most of latin america.
this is why I consider the possibility that it might not be incompetence in this case either
Higher prices are more than offset by lower mortgage costs. Money got cheaper faster than housing got more expensive. Most people who are not rich are buying money with a house kicker in 30 years, so the cost of money is the important factor.
You think that $400b is a lot to "print"? Billionaires increased their wealth 10-fold in the same time, let alone the millionaires that have made a fortune from 10 years of rocketing stock market growth and leverage availability.
Famously the FED “takes fiscal policy as it arrives at their doorstep”
You should re-evaluate some of the connections you’re making, because you have good thoughts, but your villains are the wrong Ones.
It's hard to take this kind of rhetoric seriously, given that investors are the ones fomenting inequality here. There's no point in speculating on real estate/house value in a society where everyone is guaranteed a home -- where would the demand be?
Yes. The use of capital to purchase large scale investments causing negative ripple effects on society is communism. The system that famously loves and allows for private capital.
This was a move by the Trump administration, was it not? And especially the "no ability to track" part of the handout to big business.
Authoritarian communism certainly is, no disagreement there. But in America, everything left of the GQP is branded as "communism" these days, including stuff that is considered a basic part of the system in Europe like public, affordable healthcare.
If Americans were able to debate the successes of European policy - and that includes even part of what the former GDR did, like providing access to childcare for mothers so they could work, or provide access to safe abortions - on face value, without resorting to "but that's communism!!!", your life would be so much better.
Huh? What you see here is capitalism in action.
Young people just need to cancel their Netflix, stop buying Starbucks, iPhones and pull themselves up by their bootstraps! /s
https://www.bloomberg.com/news/articles/2022-02-16/blackston...
Blackstone Inc. is buying apartment owner Preferred Apartment Communities Inc. The deal includes more than 40 rental apartment properties including 12,000 units in states including Florida, Tennessee and Georgia. Preferred Apartment also owns 54 grocery-anchored shopping centers.
I'd read empty spaces in slow shopping malls were being converted into rentals. Wonder if these guys are part of that.
You can’t just fuck an entire generation so transparently & unabashedly in a nation where anybody can buy a rifle capable of striking 2km+ away & mental healthcare (& all healthcare, lol) is a raging dumpster fire.
Somebody(s) gonna snap sooner or later.