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Comment by chmod600 | Hacker News Reader

I motice that you left out real estate from your analysis.

RE is interesting because it's both an asset as well as something you can use. So if there's general inflation, it's got both upward pressure (because it's an alternative to rent from a consumer standpoint) and downward pressure (because bonds are an alternative to RE from an investment standpoint).

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Here’s an interesting analysis of shortage: https://constructionphysics.substack.com/p/is-there-a-housin...

I like the comment: “I think one of the problems in this discussion is that the word ‘shortage’ doesn't have a clear meaning. If gas is $6 a gallon, should we say there is a shortage of gas? If I get stuck in traffic on the way to work, can I say there is a shortage of roads? If I have to park 4 blocks away from my apartment, is there a shortage of parking?”

And a one-sided view on why your home is not an investment: https://jlcollinsnh.com/2013/05/29/why-your-house-is-a-terri...

RE is at massive peak levels already though that buyers cannot shell out those prices, esp as mortgage prices go up.

Government is doing everything it can to prop up the assets of voters. MBS bailouts haven't stopped, Biden housing plan is all about subsidizing buyers, mortgage forbearance is as much as ever.

Will it work idk but if there's one thing the state is scared of it's voting boomer homeowners.

Worst part is the utterly absurd shortage means RE is never going to meaningfully dip for any period of time without serious structural reforms. The focus on interest rates as the main RE driver is almost completely cope and I wish I could believe it.

Low-rate mortgages certainly aren't helping, but they're "not helping" in the same way that hucking an armload of kindling into an already-raging house fire is "not helping".

I'm cautiously optimistic that societal unrest from this will eventually forcibly neuter local zoning controls but short of that we're just going to keep subsidizing demand and kicking the can down the road as if people don't need places to live.

Local zoning codes change on the order of decades. That will take a long time to play out.

In theory a state could force cities to allow more development?

New Zealand had a bi-partisan agreement at the national level to prevent city council level restrictions, which is going to have a massive impact on the number of apartments built. https://www.stuff.co.nz/national/politics/300433304/labour-n...

New rules that mean that property owners have a mostly automatic consent, if you build within the limitations. Councils and neighbours are mostly prevented from blocking development. There are rules/constraints on height, setbacks, shadowing (recession planes) etcetera, however the restrictions are not ridiculous.

Similarly, after the Christchurch earthquake (which caused a loss of about 5% of the housing stock), the government stepped in to force the local councils to allow more new development. https://www.mbie.govt.nz/dmsdocument/1088-housing-pressures-...

I would say NZ is fairly similar to Oregon if you want to compare size, population etcetera against the US. Although looks like NZ has more population in major cities than Oregon (Greater Auckland population 1.5M, cf Portland 650k). https://en.wikipedia.org/wiki/List_of_cities_in_New_Zealand

I agree that local zoning is a problem, but I've seen a trend to try to turn it into the wild west. I'm not sure people building duplexes in R1 is really a solution. It seems like we need more medium density in commercial areas (e.g. four stories of apartments on top of one floor of commercial).

That could bring down rents and improve quality of life, and improve the suburbs as well. If you drive by a poorly-maintained house in the suburbs, that's probably someone who would live in medium density if it were available.

The problem is that everyone has their own oppinion on the matter, and will block anyone from trying out any other opinion.

At some point, you just need to build. If some ideas don’t pan out… then people will move, investors will lose. At present, even in densely populated Boston, any type of housing will command a high rate.

There’s a housing emergency in most places people want to live. If society wanted to have moderate solutions, they should have tried these conservative solutions before crisis point.

It’s like saying pouring water on a house fire is too extreme, maybe try an ABC extinguisher instead. The time for half measures is long past. If NIMBY home owners don’t like that there’s an apartment in their neighborhood, they can choke.

I've heard the idea to zone for one level above the average in an area, to avoid the wild west situation. Doubtful that would fly with some very rich single family neighbourhoods near cities, but perhaps it's too late for the gradual re-zoning and a more blunt approach is necessary.

Aside... where the heck is tech in building housing faster? Where's the prefab and automated assembly? Too many building regulations? Entrenched interests? Incredibly hard problem for large scale engineering?

This sub stack has some great coverage of those questions:

https://constructionphysics.substack.com/p/why-its-hard-to-i...

Here's a tech companies few I know of:

-www.botbuilt.com - (W21) -Canvas -Built -AutoVol -https://www.diamondage3d.com/ -Entekra -Promise Robotics -Icon -Rent my backyard (YC)

The only reason there is a shortage is because money has been so cheap.

Just watch, in a few years things will have changed quite a bit.

The more desirable areas will still have demand of course, but what counts as desirable is shifting.

RE is highly leveraged (people borrow money to buy it), meaning that it gets hit hard by rising interest rates.

New buying gets hit hard. In the US, fixed rate 30 year mortgages mean that a lot of existing owners are isolated from rates (albeit not from market price devaluations).

I mean that real estate prices get hit hard. The consequences of that may vary depending on where you are, what you've borrowed, and what you own.

Granted!

I just wanted to call out that must-sell (2008, falling market prices, unaffordable adjustable high-rate mortgages, low inflation) is different than can-hold (falling market prices, affordable recent low-rate mortgages, high inflation).

If you've got a fixed-rate mortgage at 3%, there are worse forms of debt...

And the must-sell, can-hold (and I'd add must-hold, where you can afford what you have but any buy+sell would be result in an untenable downgrade) statuses have a big impact on prevailing prices .. since you don't get the fire sell busts outside of must-sell

It's outside the US too, but holy moly is it dirt cheap in the US, averages not even 4% [1]. When I looked last year RBC showed like 8% (now 9.75%[2]) for 25 years fixed in Canada; tougher choice against 5 year terms than down South.

1: https://policyadvice.net/insurance/insights/mortgage-statist...

2: https://www.ratehub.ca/best-mortgage-rates/25-year/fixed

> holy moly is it dirt cheap in the US, averages not even 4%

That's out of date, its above 5% now: https://fred.stlouisfed.org/series/MORTGAGE30US/

Don't forget CA Prop 13 [1]

Boomers all over Silicon Valley are still paying 1976 tax rates on their properties worth $2m+ now. Disneyland is a huge beneficiary[2], but ANY efforts to reform Prop 13, even just for commercial, are met with "slippery slope" arguments from the same boomer homeowners (and PR campaigns funded by real estate groups that benefit from it).

1: https://en.wikipedia.org/wiki/1978_California_Proposition_13

2: https://www.curbed.com/2020/10/prop-15-california-property-t...

> Boomers all over Silicon Valley are still paying 1976 tax rates on their properties worth $2m+ now

Prop 13 limited tax increases to 2% a year, not zero. No one is paying 1976 rates.

They're paying (at most) 2.5x what they paid in 1976 (1.02 ^ (2022-1976)). In the grand scheme of things, that's not far off from 1976 rates, given that many properties have appreciated 10-20x.

Real estate is interesting. The issue is will you be able to make enough rent to actually get a return. I think at this point that's still the case over a 30 year period, but I'm not quite sure what that'll look like in time.

Aside from the leverage issues other point out in RE, you have to consider the political risk.

How safe do you feel that a piece of paper saying that plot of land is yours will hold up when there's a raging mob threatening politicians to do something about homelessness/housing prices/AirBnB/Asset managers holding all the properties?

The political risk in the West is at Emerging Markets levels. We've seen G7 nations de-bank their citizens extra-judicially, seize assets and remove licenses, remove freedom of movement, create an entire second-class of citizenship, lock up people for committing no crimes. This is normal. No one is protesting. The media agrees as does Hollywood.

If I had anything beyond my one property in which I reside I'd actually be pretty scared. This stuff happens in Emerging Markets all the time: the government tells anyone with more than one property to pick one to keep. All foreign property owners have their property forfeit or taxed to the point where they are forced to sell.

These actions are not out of the realm of possibility in the West any more, especially with the current leaders. There will be no tears shed for the poor landlords and property owners who can only keep their principal residence.

What do you mean by create an entire second class of citizenship ? (Genuine question)

Are you referring to things like "key workers" (I personally hate this idea)

Landlords have been protected by governments for as long as governments existed.

There are exceptions like what Mao Ze Dung did.

https://www.nytimes.com/1976/04/12/archives/housing-abandonm...

Sounds like a lot of FUD, the politicians won’t do anything like that because free stuff very easily causes divisive policies. What will happen, and is happening, is that more luxury housing is being built and less code ( regulations ) implemented. So the result is more inventory, which puts pressure on housing. Also there’s a LOT of vacant homes which have high carrying costs; eventually those owners will get margin called and have to either rent them out or sell them, which will put even more pressure. So I agree with the ends of your thesis, but not the means.

The entire reason that leveraging up real estate 5x is a widely accepted practice is that you can't get margin called as long as you keep making payments. Reg T margin will margin call you if you go under 25-50% equity, but mortgages will never margin call you.

I meant "margin called" figuratively, not literally. Essentially investors will start seeing negative cap rates and either demand redemptions or will start liquidating their RE portfolios, which isn't a real margin call, but "margin call" is a convenient term for what's happening.

Also, carrying costs of vacant properties are high. I'm predicting large writedowns of RE, and especially commercial RE in the coming 5 years.

I really hope you're wrong. I can't actually disagree with you.

Seriously? You think things are going to get so bad the government seizes real estate en masse? That's not going to fly in the U.S. for one second.

When the AOC wing of the left starts gaining real power in the coming decades, you bet.

This is absolute nonsense. Ocasio-Cortez is not far off of a bog-standard social democrat and she would be at best boring almost anywhere else in the industrialized West. (Maybe not "making majority policy", but not controversial.)

>there's a raging mob threatening politicians to do something about homelessness/housing prices/AirBnB/Asset managers holding all the properties

It's not just a mob, it's a raging mob.

I can’t tell you how much I hope they crack down on people owning multiple houses. It’s just criminal. Not only do they own two houses but instead of renting it at market rate they put it on Airbnb an inflated price three or four fold.

The truth is under capitalism everyone cannot be a Capitalist. Please, I need you to think deeply about that last sentence. It’s not as simplistic as it sounds.

Until we treat housing as a cost and not an investment none of this will end.

I look forward to this. Atm there are benefits to owning multiple houses... [alef] [bet]

[Alef] https://www.realtor.com/advice/finance/second-home-tax-benef...

[Bet] https://homeguides.sfgate.com/tax-deduction-multiple-homes-m...

Why do they do this? Why do they just keep pulling on the benefits to people that already have enough?

They own the politicians. Its our fault. Turnout in primaries are very low, people don't even know their representatives. Its hard enough with all the tactics used to suppress candidates/prevent voting but until this changes then policy won't change.

As per some recent estimates SF commercial vacancy is over 2M sqft - this roughly translates to 2000 full apartments - more if we build dorm-rooms. We have a similar situation in other parts of CA. Is there any reason why we cannot solve homelessness by re-zoning these to temporarily to house them? Post COVID, people returning to office will be fewer. In addition if there is a recession, there will be fewer companies as well.

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