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Comment by chasebank | Hacker News Reader

I'm not sure what to make of it but my little sister lives in Boise, ID, and has 3 AirBNB units. She goes to 'RE investor meetups' regularly and told me that the gist of the message is to take full HELOCs out and roll over into more property. She says she has the least # of units and everyone there has a minimum of 10s of units and a handful of people have hundreds, all purchased the same way. I have to imagine this doesn't end well but who knows.

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I understand the economic incentives in place, but as someone stuck on the rental train right now, it's so infuriating to hear these stories. All I want is to buy a house someplace I actually want to live and start building equity instead of burning money on rent. And this class of investors is ruining housing prices with insane price competition based on insane AirBnB revenue.

I can only hope that multiple home ownership and AirBnB's externalized costs get regulated and taxed out of existence. There are a lot of young people with much less money than us tech workers who are barely scraping by and will never be able to own their own home or even afford starting a family if these trends continue.

When there are millions of Americans who literally can't afford rent living on the street or in their cars, owning even a single "investment property" or vacation home or AirBnB is repugnant.

> multiple home ownership

There will always be the need for landlords in some circumstances. Not everyone wants to own a home and sometimes life dictates the need for flexibility. Where do you draw the line? I'm not sure what to think of it, but the idea of owning investments isn't going to dissolve any time soon and physical assets (homes) are one investment vehicle.

Coming from a person who has rented for a long time, currently owns one home and does not rent.

Agreed. But we could remove some of the economic incentive for investment properties and short-term rentals. No reason they should benefit so much from inflation AND rent. Drawing that line is a difficult one, but I think it's clear that right now there are way too many incentives towards rent-seeking to the point where it's actually hurting folks who don't rent-seek.

In California the problem is mostly that over time if you've held property it's become insanely cheap to be a landlord. Prop 13 applies to every parcel in the state. Even Florida tackles this more sensibly. A person's primary residence can get a homestead exemption and that's it.

John Paul Stevens on Prop 13[1]:

In comments from the bench, Blackmun called California’s tax system “distasteful, unwise and not likely to be copied by others.”

Justice John Paul Stevens, the lone dissenter, called the state’s longtime homeowners “squires” who voted themselves “a tremendous windfall” at the expense of young people and new residents.

“Simply put,” he said, “those who invested in California real estate in the 1970s are among the most fortunate capitalists in the world.”

[1] https://www.latimes.com/archives/la-xpm-1992-06-19-mn-704-st...

Prop 13 has basically turned California into a very expensive capitalistic approximations of feudal Europe. At least the weather is nice.

Have there been any attempts to modify Prop 13 to a homestead exemption over time? It seems like it should be relatively straight forward to start narrowing it down bit by bit.

The most recent election a proposition failed to remove commercial properties from the protection.

As frumper says, there was a recent attempt to remove Prop 13 for commercial properties, but it narrowly failed because the argument was that the reform movement was coming for homeowners next.

Yes, but AirBnB units are not that. The prices are an order of magnitude higher than prevailing monthly rates, if they're even available on a long-term basis. And yes, short term, furnished rentals probably also have a place in the market. But it's a small place. The vast majority of people need a location that's stable on an annual+ basis and whose price has a reasonable relationship to local wages.

The problem I ran into when I lived in Chicago was there were quite a few renter protections built into the city statutes. So landlords were quite weary of renting to someone like me with bad credit and rental history, as eviction could be burdensome. AirBnB allowed long term residents like me to actually get a place to stay by side-stepping renter protections and allowing a landlord to take a chance on a bad apple. Without AirBnB I would have been homeless.

I think you would have been even better off with the cheap halfway houses that used to exist in American cities in the early 20th century. AirBnBs are so expensive I'm not sure they really fill the economic gap you're talking about -- very, very few people who can afford to stay in an AirBnB long-term also have poor credit and rental history.

How can they be better off in something that doesn’t exist in our reality ?

Source: currently looking into extended stay Airbnb for family member with no credit history

Yes the place I stayed was a crammed together house of people that can only be described as a slightly upgrade over a crack house on the South side. It was in the hood with people selling loose squares on the corner. My presence was only tolerated in the area because I had "business" in the area as a paying tenant to a known member of the neighborhood.

There's no way in hell this was some place that pleasant white upper class families were staying on vacation or something. The people that rented it were happy to have market penetration to people who weren't in the neighborhood to cause problems, and most of the "tenants" were working class people who had one foot in the hood and one foot working their way up in legitimate jobs closer to the loop.

AirBnB IS the new halfway house.

Wasn’t this the original purpose of airbnb ?

A platform to bring people with extra rooms together with those looking for a place

That's fair, and as I said they have a place, but I think we can agree it's not a majority case.

> There will always be the need for landlords in some circumstances.

Landlords do not need to be private individuals :)

> but the idea of owning investments isn't going to dissolve any time soon and physical assets (homes) are one investment vehicle.

Singapore, a country that scores higher in the Capitalism Index than the US, has no private landlords and all land is goverment owned. You buy your house from the goverment for non market rates, and if you wanna sell it or move elsewhere, you sell it for the price at that point.

It is no longer an investment, and people have more space, smaller rents and an easier way to go through the housing ladder (from starter home -> family home -> retirement home) than in almost any US metro.

Another alternative is Vienna. The Austrian capital has ton of communally owned houses. This means everyone in the block, owns the whole block, therefore the prices are not market prices but fair prices. Despite this houses representing only 40% of the total market, by having a non market offering of housing prices, this cools down market prices and they have some of the most affordable private owned houses in European capitals.

A third alternative is UK 1950's scheme of council housing. A percentage of every new build is done by the goverment and they allocate those houses with reduced rents to its owners. The differece with the modern "social housing" is that is not a block in the ghetto for poor people, but a mixture of houses for everyone in the council to apply. For example The Barbican, a now iconic buulding, was built by the council for high skill workers, lawyers, CEOs etc (with an average rent that would be too high for minimum wage renters). Despite this target audience, they froze rent for 5 years to help families grow and settle into those homes.

There are a million better ways to supply housing than private landlords and letting companies buy entire blocks as investment vehicles.

Thank you for sharing this. I was not aware of the way these countries operated, it's a very interested way to manage this.

Well, the problem is easily solved by just amplifying the amount of places built. Unlock some massive economic and human benefits.

Everyone has one pet peeve or the other that is predicated on a false belief: that the amount of housing is limited.

If Airbnb people will buy everything, you could build one million units vertically and sell them for $750k each and you would have almost a trillion dollars to build homes for others. Just farm those people for money.

This is the classic fallacy of assuming that the current market allocation is be the best market allocation.

Oh? What will happen when we build our million units that would make this impossible?

I might have misread your post somewhat. My point was that just because the AirBnB happen to have the highest willingness-to-pay (mostly due to budget set constriants, not their preferences) doesn't mean that they're the most deserving from a social or moral perspective.

> All I want is to buy a house someplace I actually want to live and start building equity instead of burning money on rent.

You and everyone else, pal.

See, you’re looking in places you can’t afford. Move somewhere you can afford. Sure it won’t be as “cool”. But millions of people live in those uncool places and do just fine.

Well, no, not everyone else. Many people are owning homes for the purpose of renting them out, for example.

You are or should be mad at city governments that use legal means to restrict the housing supply, not at people who own multiple properties: https://www.theatlantic.com/ideas/archive/2022/11/us-housing...

The solution is abundance not scarcity.

I think it’s reasonable to be upset at both the people who implement bad policies and the people who intentionally profit from those bad policies at others’ expense.

> I think it’s reasonable to be upset at both the people who implement bad policies and the people who intentionally profit from those bad policies at others’ expense.

It's not who profits from bad economic policy but who pushes for it. It's not always the same set of people.

You can partition the people in many different ways. I think it's reasonable to be upset with all of them.

> I think it's reasonable to be upset with all of them

That's unreasonable to be polite... don't hate people wanting to save some money, humans were always selfish first and I havent seen this changed, anywhere, ever.

Change the system if you hate it so much, don't hate the little man for using means legally available to him. Just don't think you would be above the others if you were the owner/investor, folks that want change are often just the last ones coming to the party

> That's unreasonable to be polite.

It is not. It's the defacto stance of most people (to be upset at multiple groups), regardless of the specific reasoning. Everyone I've ever talked to (40+ years), has a lifetime of people they passionately disagree with. This isn't just democracy, it's humanity.

It’s both. And making it too easy to overextend oneself making for a bigger crash.

Easy money == can multiply consumption == eventual consumption of all supply == eventual starvation of options == competition for options (rapid price increases) == eventual topping out at a higher equilibrium == trying to get easier money, etc.

The cheaper the money, the more options get ‘consumed’.

Making more options works, to a point, but people find a way to leverage if they can to consume those too.

Eventually, the ability to leverage more ends. Often this causes a corresponding crash, as a lot of the drive to go higher is driven by the trajectory of ever increasing prices. When the trajectory changes, the math inverts, and now it becomes scary risky to buy instead of scary risky NOT to.

I have this (totally unprofessional and mostly unverified) theory about liquidity in general: that it's a conduit and amplifier for many things, but chief amongst them is exploitation.

Highly liquid markets mean that value of one kind can be translated into value of another kind easily. Every time money changes hands, there's an almost unavoidable difference in the pricing each party does for the transaction (an example is the company of migrant workers offering to mow your lawn; each dollar is likely worth more to them than to you, so you can play with the margins to save a buck and they'll probably still take it). This leads to an asymmetry that creates an imbalanced power dynamic.

Put another way, liquidity allows the projection of this power imbalance. For each dollar you have, you can externalize so much of your costs. This is something you almost don't have to decide to do; because markets represent aggregated pricing power, you can take advantage of it simply by buying goods or services.

If you aggregate this projection over a large and highly liquid market, what you have is a massive shifting of externalized costs from the haves to the have nots. Insert picture of a fish eating a fish eating a fish here.

From this perspective, it seems as though the system as a whole is given to a collapsing instability, from first principles. I believe that what we've seen in terms of periodic financial crisis is an expression of this system being propped up by the actors at the "heavy end", despite it's inherent tendency towards catastrophic failure.

Which is why I'm always a little curious when folks start talking about credit collapsing like it would be the worst thing in the world - a global cooling of liquidity could very well be the thing that saves us, by cajoling the system into playing fair at scale.

Huh?

Have you ever lived through a recession before?

The have nots are the ones that suffer the worst.

The have nots don’t have anything to lose by definition, so a recession, particularly a deflationary one, hurts the haves more.

Not really. The ‘have not’s’ go from having an under the table job that lets them eat decent and have a roof over their head (even if they don’t own it), to homelessness or death. Or someone already homeless to just be, well, dead, as more predators are coming out and support options dry up.

The have’s can generally insulate somewhat against the worst case scenario - even bankruptcy for instance will protect a primary residence, car, and other things necessary to work and earn income.

The more you have, the more you can prevent the worst outcomes, and the more you can leverage what you have to take advantage of favorable long term conditions because you don’t have a gun against your head.

They haves by definition may lose more net worth in absolute terms (someone with $10 in the bank can’t lose $10 million by definition), but that doesn’t mean they’re at the most risk of the biggest real losses. Things like marriages, health, life, wealth (in a life altering way), etc.

Even if musk loses 10’s of billions, he’ll still be wealthier than all but a small handful of people in the world for instance, and won’t likely have any meaningful change in his day to day or long term circumstances.

I've lived through two. I was working as a roofer through one and a bartender in the next, and honest, didn't notice much of a difference other than middle class folks freaking out about their mortgages and wall street screaming for the government to bail them out.

I am willing to bet this next one will be no different. Also, almost by definition, a recession is a depression that almost happened but didn't. Had we allowed the larger banks to fail and large-cap liquidity to cool, we wouldn't be back in this place with banks playing cowboy with people's deposits.

Those are the same people. People holding properties have capital, thus more political power than the average Joe. Which they then use to influence city governments.

Many of my childhood friends have given up on the idea of ever owning a home, which is really tragic. Home ownership is a key driver of upward economic mobility, so the fact that a larger proportion of the most recent generation is locked out of this option is troubling for society generally. The wealth gap is only increasing.

I think landlords provide a necessary service in many circumstances, but these should be carved out in a way that separates them from speculative real estate investing. I think I agree with the idea that individuals that own more that 2 homes should be heavily taxed as a disincentive.

We also need major efforts to increase housing supply. I'm not seeing this in cities like SF or NY, but whenever I visit family in Texas or Indiana, it seems like they're building as fast as they can.

> Many of my childhood friends have given up on the idea of ever owning a home, which is really tragic. Home ownership is a key driver of upward economic mobility

Can housing be affordable and a “key driver of upward economic mobility” at the same time? I guess if housing prices are flat at least you are getting equity for your money.

This. Home ownership should not be a driver of upward mobility. It's great for a lot of reasons, but buying a house is not supposed to be a profitable investment in general, unless you want exactly the situation that we have now.

But who rents all those AirBnb's? Are there so many rich vacationers? This exponential growth can't go on forever.

One hot take -- If the fed loses appetite or ability to continue increasing interest rates, I think those carrying large amounts of debt on hard assets are going to look like geniuses in the face of runaway inflation.

Real estate investors and even regular old homeowners have always looked liked geniuses for exactly this reason. When the dollar loses value every year, loans are cheap, mortgages are subsidized and largely purchased by the government, and the supply of new housing is constrained, the absolute smartest investment to make is in real estate.

Seems like a housing price crash and AirBnB regulation would make them look a little bit less like geniuses, no? A lot of people have a hard time spending >$500k on very basic or even dilapidated homes across the USA. I'd enjoy seeing the speculators left holding the bag on massive losses if those prices return to normal AND they lose their main revenue stream.

> Seems like a housing price crash and AirBnB regulation would make them look a little bit less like geniuses, no?

Idk, I know of a ton of RE investors who would love prices to go down, precisely so that they can pick up more properties. And even if the town you're operating in outright bans AirBnBs, there are ways to pivot into other short-term rentals like furnished 3-month rentals for traveling nurse.

Yes this is what my banker friend told me when he bought his house last year. The inflation will be a much greater discount to any premium he paid over asking.

i wonder when redfin will start kicking themselves for abandoning their home buying spree

> If the fed loses appetite or ability to continue increasing interest rates

How does the Fed lose the ability to increase (or decrease) interest rates? I was under the impression that (ignoring the consequences of doing so), they can set them as they please.

> (ignoring the consequences of doing so)

There it is!

The Fed chair is appointed by the President. He or she may decided it is better for their re-election to have rates go down and appoint someone who agrees, or they my pressure the Fed chair accordingly.

The Board of Governors is appointed by the President, and Governors can be dismissed by the President. If your increase is summarily reversed by the apparatchik board that replaces you, can you still be said to be capable of raising rates?

No offense to your sister, but I really wish profits from REIT or folks with multiple rentals were taxed 90+%, or at least progressively increase rate with each additional rental beyond.

Here's the thing, they're not profiting much at all, if any. The whole group believes RE can only go up, so when the value of the home increases, they yank out all the equity and dump it into another property. AirBNB just keeps them afloat.

And a bunch of people doing that means that the property prices keep going up. Nice self-reinforcing cycle - while it works. Once it fails, though, there's going to be panic selling as all those people get wiped out.

> take full HELOCs out and roll over into more property

This is a leveraged bet on that region’s tourism. The local government approving a single large hotel would likely crater the market.

Or interest rates increasing faster than Airbnb price elasticity.

A whole bunch of these Airbnb based re “investors” also don’t account for home prices going down in there models so will likely get very underwater very fast.

I’m surprised it hasn’t happened yet and think this spring real estate season will be very enlightening.

> don’t account for home prices going down in there models so will likely get very underwater very fast

If their cash flows remain positive, that’s just an accounting curiosity. The core bet is on tourism cash flows to Airbnbs in that area exceeding the cost of financing the properties.

I suppose HELOCs can’t get margin called so that’s probably right.

Aren't HELOCs traditionally variable rates? If so, they'd also be betting on interest rates not hovering up that cash flow as rates increase.

> they'd also be betting on interest rates not hovering up that cash flow as rates increase

Correct. Though that isn't exposure to home prices going down per se.

> This is a leveraged bet on that region’s tourism

Not based on tourism. The region is Boise ID. This is a leveraged bet based on immigration patterns. The number of people moving to ID has been massive, over the last 5 years.

Blackrock owns a ton of rental property in the USA and I remember some report they put out when interest rates hit 6% that they were still bullish on the property market.

Their explanation was that since 2008 housing has been built in the USA at half the rate needed to house everyone. Our population is still growing, and there are fewer units per person every year. Additionally, the interest rate makes construction loans more trouble the same way it makes buying an existing property more trouble, so there isn't any relief in sight.

If thats true, and it is coming from blackrock, then it could still be reasonable to buy more property.

My take is similar.

There is transient supply constraint as people on the margin won't move either due to higher rates.

Blackrock is not buying individual houses. Are you confusing them with Blackstone, who did own a unit that bought and rented single family homes?

Blackstone is/was a division of BlackRock that got spun off as a separate entity.

Not according to Wikipedia

https://en.wikipedia.org/wiki/Blackstone_Inc.

https://simple.wikipedia.org/wiki/The_Blackstone_Group

Blackstone was never a division of Blackrock

Thank you for the correction, I don't know the subject well enough to keep the names straight!

Here's a clip of the filing I'm referring to https://twitter.com/quantian1/status/1595502336205639681

If you have the cash to acquire properties now, high interest rates are great for you because it runs off some buyers and depresses prices somewhat. You can expect to refinance them in the future.

The downside is the spread on those mortgages is so huge precisely bc of refinance expectation

If you bought property in the late 1970s, you had to wait until the 1990s to get a lower rate.

When dealing with inflation, sometimes when rates go up, they stay there for an extended period.

It works until it doesn't, but when it doesn't, it's disaster. When disaster hits, the buck usually gets passed. (Private profits, public losses)

AirBNB has really compounded the problem - another reason houses are being treated as purely an investment by people who don't live in them. Even worse they are off the rental market.

The interest on my BOA HELOC is about 8% now, not sure how borrowing at that rate makes any sense unless rental yield is about 10% and up ( which is insane!)

Had a former coworker who was buying an apartment a month. Basically putting all profits into the mortgage for the next one. Seemed like she was printing money but I always wondered what would happen if the airbnb market slows down.

oh boy here we go again...

It mostly ends with Blackstone buying them all at a discount.

Idaho has been and continues to be an insanely hot market

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