I am excited and optimistic that we appear to be applying economic principles to housing! Now that we're getting rid of centralized price controls / collusion, next can we do supply/demand?
They say they want dense, walkable, core neighborhoods but when people actually try to build denser housing it's like pulling teeth.
There actually is some building happening but the demand is so far ahead of the supply that it's not nearly enough.
Hah, in my town, the developers and officials are all best friends, posts all over Facebook, going to each other's kids soccer and football games, going on vacation together, going out fishing together...
There are a lot of places, particularly the high demand places, where the cost of acquiring the houses in the first place is the hang up. Everyone is certain they can get half a mil minimum. That drives costs considerably when you need 1/2 a block, or a full block for high density development. It's not easy. You could even have to end up giving the current land owners some preferential share of the finished development. Which, of course, means there's less profit for other potential partners at the end.
People ask, why are apartments so expensive? In high demand areas, that's a big part of the reason. Land acquisition costs were so high that it precludes building anything that can offer that <USD3000 a month price tag. (And to be honest, that's not even all that affordable really. But it illustrates how the numbers on a lot of these new developments work out.)
Usually the municipality or the state has to step in with some kind of break in order to make the numbers work out. And that's when we get to the step you're talking about where the state or the municipality demands this or that or the other. But the politicians have to demand something for the break, or it's seen as just having handed over taxpayer money to their buddies in construction. ie - corruption.
So from beginning to end, it's a tough problem.
EDIT:
It seems before I even finished typing my message, sibling messages appeared illustrating the point I was making in the last paragraph. There is no way in today's environment of completely broken down professionalism and trust, that a politician can give a concession without getting something for his/her community that s/he can use as justification for the concession. Otherwise, people, rightly or wrongly, just see it as handing free money to a politician's friends.
"The median time for securing approval to build in San Francisco is 627 days" [1]. Land-development loans cost between 8 and 12% [2]. The financing cost alone of that delay thus adds 15 to 20% to the cost of any housing in San Francisco. At the median.
Add the risk of not getting approved and the cost of the lawyers and lobbyists and I wouldn't be surprised if these officials bump real estate costs by 50%.
[1] https://www.sfchronicle.com/opinion/openforum/article/sf-hou...
[2] https://eyeonhousing.org/2023/05/rates-on-development-and-co...
Combine with upzoning and it would really stimulate the housing market in short order without subsidy.
Land, being largely finite - especially when you start considering how communities make land more valuable etc - shouldn't be treated as a manufactured good. A land value tax is the only way to bring market incentives to real estate, because otherwise there is no pressure on owners to sell or otherwise make more productive use of land. Our current policies from local to state to federal, all incentivize holding land regardless of its utility.
These neighbourhoods can be served by light rail / street cars allowing more distant travel via rapid public transit, further reducing the need for cars. Look at a lot of the older neighbourhoods in big cities such as Riverdale in Toronto [1] to see what streetcar suburbs look like.
https://www.thesling.org/are-hedge-funds-and-private-equity-...
The goal should be ownership for folks who want it, not a nation of renters.
I like it but that seems like a system VERY susceptible to abuse.
It's not really your home if you are obliged to sell it after x years.
The traditional societal compact with private property is that the property is yours for as long as you choose to keep it. (Providing you pay the taxes covering the costs to provide municipal services to your property.)
This kind of changes that, and I'm not sure it would stand up to constitutional scrutiny?
Unless I'm misunderstanding the proposal, this would change that practice. You would be told how much you could rent the property for, as well as the date you would need to sell the property. (Which, I'm guessing, would be based on the rent amount?) So a radical change from before in terms of private property rights.
When I was saving for my first house I lived in a crappy little 1 bedroom apartment for a few years so that I could get a down payment together. I had the income to afford renting a larger apartment or a house in a nicer area but I would not have been able to save anything.
Have you paid attention to the percentage of wages required for a unit nationally? In your area?
Roommates.
Median household county in my area is about $55,000 a year. The median price of a house is $450,000. Assuming two people, the 50th percentile wage is equivalent of $14/hour. (This as an eyeball looks pretty close to a median wage.) Fair market rent for a 2 bedroom apartment (40th percentile) is 1500, or 32% of income.
If you let everyone get their own bedroom? For a below median two bedroom apartment, they will barely be able to afford the place.
A 4 bedroom place is $2500, so you're going to get about 100 dollar discount, but that all gets wiped out if one of your roommates leaves and you can't find a replacement. The more people sharing a space, the more risk there is.
It's tougher out there right now if you're not on an engineer's wage.
Oh totally agree. Just pointing out that a straight comparison of wages to home prices doesn't dictate unaffordability.
What's frustrating is when (as appears to be obnoxiously common in the UK) affordability requirements for mortgages mean someone "can't afford" to buy even when their mortgage payments would be less than their current rent. While the landlord probably has an interest-only mortgage and doesn't pay tax on their mortgage payments.
Here's a thought: tax landlords based on their self-assessed property value, but make it so that the tenant has the right to buy the property for that amount.
You have to change the structure of the market so they no longer see these investments as profitable.
One way local areas do this is by "homestead tax exemption" which reduces property taxes if you live in your own home, but this is binary and punishes small landlords equally as big ones.
My town is experimenting with allowing this exemption if anybody claims the address as their primary residence, whether it is the owner or not. The main purpose is to cut down on people keeping vacation homes, but it should also make things more expensive for flippers and speculators.
Small landlords are no better than big ones if they’re keeping properties empty.
Housing is not a free market by any stretch of the imagination, so if you just move one lever you don't always get the response you would in a true free market.
Once an area reaches a certain % of landlords (no idea the actual %, but it's low), it leads to a general decline of the neighborhood. These landlords are buying starter homes (apartments and houses) whether they are PE companies or individual landlords, driving up the cost of "cheap" housing.
Now you might say those bans aren't 100% effective, but why do they need to be 100% to be justifiable?
[0]: https://d18rn0p25nwr6d.cloudfront.net/CIK-0001687229/a154763..., "“We operate in markets with strong demand drivers, high barriers to entry, and high rent growth potential, primarily in the Western United States, Florida, and the Southeast United States.”
[1]: https://www.sec.gov/Archives/edgar/data/1562401/000119312513..., "The continuing development of apartment buildings and condominium units in many of our target markets increases the supply of housing and exacerbates competition for tenants."
SFHs should be expensive and considered a luxury. At least in a desirable urban/suburban location.
We could/should/must provide more housing in those desirable areas, but it likely should be a mix of high-rise, mid-rise, small apartment units (which could be owner-occupied or rentals), duplexes and triplexes, and row-homes/townhomes.
I realize this is a spicy take, but we've really got to get away from this thing where we advantage passive income for wealthy landowners. It didn't work out well for society in enlightenment-era France, it didn't work out well in Victorian England, it didn't work out well in Tsarist Russia, and I'm not convinced that removing birthright qualifications and primogeniture makes all that much more equitable in the modern USA than it did in any of those periods that we tend to look back on as being indefensibly elitist.
I only know this because I have been preparing to rent my primary residence to see if it's more economical to sell today or hold and sell later, while renting. The answer is the latter, but in terms of real cash I will be in the red for about 2 years until the (very small) difference in mortage + insurance + taxes + upkeep and the rent will be profitable. And even then, it's maybe $150/month.
All told it's a slightly better investment than S&P 500 index funds, but resistant to downturns. But it's not a real source of passive income, you don't get your cash out for years.
This is incredibly bad for society. Investing in businesses that hire people and make goods and services should never be disadvantaged relative to hoarding a plot of land, and it is the folly of the anglosphere that we've allowed land hoarders to siphon so much money from people doing actually productive things.
If you're spending $X in rent and have $Y in cash, whether or not it's better for you personally to put that money into equities, treasuries, or real estate depends almost entirely on the current interest rate.
So while to me personally, it makes more financial sense to rent the property, the same could not be said of anyone that would purchase or rent the property today.
The market rates for housing, either for sales or rent, is pretty much the same when looked at as a monthly payment. The only question is whether or not one has $Y in cash for a downpayment and if they will come out on top if they use that money for a mortgage instead of putting it into the stock market. Owning your home is not always better than renting, it depends entirely on your situation and the current market.
Most of us are a couple events of bad luck away from homelessness. Mon-and-pop landlords included.
>The owner of a vacant lot in a thriving city must still pay a tax and would rationally perceive the property as a financial liability, encouraging them to put the land to use in order to cover the tax. LVT removes financial incentives to hold unused land solely for price appreciation, making more land available for productive uses. Land value tax creates an incentive to convert these sites to more intensive private uses or into public purposes.
The entire purpose of a land value tax is to encourage the productive use of land, which boils down to either building stuff on it to make it more productive or selling it to someone else so they can largely do the same.
Otherwise it is a simple tax burden to hold. While extremely wealthy individuals may choose to do this, its unlikely that businesses (like PE firms) are going to let their tax obligations stack over time and hold empty land / buildings etc. Same goes for individuals who are taxed at wildly different rates (like in California with Prop 13) simply based on time of sale
In 1978 they passed a ballot initiative[0] that locks in property tax rates until a home is sold or renovated. This was further amended[1] to allow generational transfers of those rates. The end result is an extreme disincentive to sell land and a class of homeowners with favorable tax treatment who want the state to be coated in amber. Any market intervention is useless without addressing the harms caused by the current property tax regime and the people who benefit from it.
[0] https://en.wikipedia.org/wiki/1978_California_Proposition_13
[1] https://en.wikipedia.org/wiki/1978_California_Proposition_13...
Arguably, the reason we don't already have this is because a large contingent of the voting public has been conditioned to believe that if the government does something well, it's communism, so the government should do anything well.
Just because the US made some poor decisions (e.g obviously cramming 100% poor people into vertical concentration camps doesn't work, you need to have mixed incomes to have a healthy community) in its rollout of public housing many decades ago doesn't mean it's an unworkable idea. Singapore and Vienna are two examples demonstrating this point.
It's not like public housing has gone completely extinct in the US. Chicago is working on a couple of mixed-income projects, and if they succeed at creating safe units where people who have a choice might like to live, presumably that will boost the popularity of public housing. But given the historical track record, I'm not holding my breath.
Part of the problem, I should note, is that the "100% poor people" thing is very much a live issue. Many American advocates of public housing continue to argue that housing developments _should_ contain 100% poor people, arguing that mixed-income developments are gentrification and/or a handout to developers. In San Francisco, for example, both locals and government officials routinely insist (https://missionlocal.org/2022/06/plaza-east-residents-demand...) that mixed-income projects don't make sense because the market rate units could instead be given to a poor person.
Haha, yeah let's exclude SF from any cities we're going to use as examples of good planners, unless we're talking about "How to slowly convert a city into a giant museum." 99% of the city's purist concern trolling is purely to prevent development, not about doing it equitably. Indeed, any city that's setting unrealistic development goals in the name of equity is likely doing it as an excuse to block development/solicit bribes/transfer wealth to existing property owners.
The American housing market does not seem to have much speculation right now. Houses actually provide utility around equal to what they cost here, theres just a big enough wealth disparity combined with not enough housing that a huge number of people cant afford that price.
The American market has lots of speculation. Many landlords are just in it for the appreciation given that they can’t even make a mortgage payment with rent, I know of multiple homes in my (Seattle) neighborhood owned by Chinese investors that are barely lived in.
There are unsold units because the price went crazy due to speculation. Empty housing is one of the main indicators of a real estate bubble. American vacancy rate has slowly crept up but is still extremely low outside of manhattan. Americans tend not to believe housing will appreciate faster than the stock market, so housing speculation is limited, although of course not unheard of. We'd need LVT for that.
As for the USA, yes it isn’t as bad here yet. But it’s getting there.
In any case, most cities in the US have obvious supply side issues with housing. It doesn't matter who builds it, we need more supply. Why shouldn't it be the government?
Can we build enough housing in SF, Seattle, LA, SD to satisfy demand? Keep in mind that as soon as housing is affordable in these cities, even more people will move to them...so how much is enough?
>give me a dossier on BlackRock's holdings in real estate, go into detail on their holdings in residential, get as much real financial from their filings and reports. Give me a markdown table and an instaml/instaql schema for the data model
* Blackrock would like a word
https://i.imgur.com/PLwQ6sa.png
https://i.imgur.com/1oAdbdC.png
https://i.imgur.com/nH0Vzf8.png
Fund TotalAssets ResidentialAssets #units
BRGIF $14.8B $10.3B 43,000+ units
BREIT $12.2B $6.5B 25,000+ units
BREIT II $8.5B $4.8B 18,000+ unitsSame DNA:
>>he business that would become BlackRock started under the umbrella of Schwarzman’s firm in 1988. “They used to be called Blackstone Financial,” Schwarzman said. “We started in business together. We put up the initial capital.” Schwarzman started Blackstone three years earlier in 1985.
>>When Fink decided to branch out on his own, he needed a new name for his asset management operation, Schwarzman said. “Larry and I were sitting down and he said, ‘What do you think sort of about having a family name with “black” in it.’”
Thanks for the input though - I am working on figuring out how to document all these entanglements - there are a lot of others also attempting to do so, if you have any links to such, I appreciate real data that I can trust (I am mapping out The Oligarchs, their entanglements, and what/who they are/actually own.)
That... seems like a drop in the bucket in terms of housing supply?
Also these are basically fake numbers.
Unit could be an entire complex with hundreds of actual apartments.
---
EDIT:
They dont own any direct units, apparently, but they own a large percentage of the companies, developers, funds that do.
It a far more nuanced issue and hard to get a true understanding of, as money is the grout that fits everything together - its hard to see how it all works.
If their ownership is a drop in the bucket on a national level, then what you're proposing would only make sense if they're heavily concentrated in a few cities. Is there evidence this is happening?
>Unit could be an entire complex with hundreds of actual apartments.
Dividing the total asset value by the number of units gets you around 300k, which seems in the price range for a single family home. That doesn't entirely rule out what you're describing is happening, but if it is the effect must be low.
I prefer to think of it this way. I like my markets free as in GPL, not free as in BSD. That is, I want the market itself to be free with limitations on the participants that keep them from taking it for themselves.
> punishing vacancies with taxation
Outside of tourist spots, this will hurt more than it will help. Most RE investors lose money on vacancies (it's literally a line item in their expenses) and work hard not to have them. They definitely do not make more money by artificially limiting supply that way. I assume you're targeting rich folks who own multiple homes (and do not rent them)? They're what - less than 5% of all vacancies? Perhaps less than 1% in many cities?
Almost everyone I know who purchases houses/apartments to rent them would get out of the business if vacancies were taxed - they operate these properties on a narrow margin - most of their "profit" is due to depreciation benefits and gaining equity from the payments the renters are making (and in a minority of cases, property value growth).
It may sound like if they sell, that's a good thing (more people can buy their offloaded property), but a lot of houses would also go out of circulation, because these people often buy distressed homes that banks won't give a loan on - and they renovate them, bring them up to code, etc.
I suppose if you could tax vacancies only for those that are not trying to rent them - sure. I'm on board.
> promoting construction with tax breaks
There are plenty of these, although it varies from location to location. But it's a pretty common RE investment strategy to go for these, as the tax savings can be very significant. People pool their money for a down payment on a construction loan (be it for an apartment complex or office building), build it, and are required to hold it for a number of years to get the tax breaks.
Of late, the push has been in the other direction - states/cities are removing some of these tax breaks - not sure why - perhaps they weren't as effective as they thought?
> and removing the demand by severely limiting rent seeking real estate investors.
There are ways to do this that may not be popular. The main one would be to remove fixed interest mortgages. Most developed countries don't have them - that's why plenty of foreigners buy in the US market.
Another is to allow property taxes to track actual property values (i.e. remove the cap on increase in property taxes). You can imagine how unpopular this will be for SF residents.
Remove tax benefits like bonus depreciation or accelerated depreciation.
Remove tax benefits that allow one to count RE losses against their W-2 income (it's tricky to do it, but possible for AirBnB investors).
Basically, just remove most tax benefits :-) The majority of RE investors get in it for tax benefits, not appreciation, and not that much even for cash flow (cash flow is fairly pathetic in most cases - getting $200/mo is considered good).
There could easily be exemptions to a vacancy tax to allow for, or even encourage, renovating a home.
> Almost everyone I know who purchases houses/apartments to rent them would get out of the business if vacancies were taxed
Yes, you've successfully articulated the point. In an actual free market where supply can be added easily with minimal headache, buying an asset to rent it back is perfectly fine. In something like the housing marketing, buying a home specifically to rent it out is bad whether it's one unit or one thousand because supply is already artificially constrained. The end of that line is BlackRock buying up thousands of homes and materially hurting Americans. The fact that some random person with a few million in inheritance can make money in the interim is irrelevant.
> but a lot of houses would also go out of circulation, because these people often buy distressed homes that banks won't give a loan on - and they renovate them, bring them up to code, etc.
It's pretty easily to exclude vacant homes with open permits that are actively being renovated or with 203(k) loans, or to provide revenue-neutral tax breaks. This is a legitimate criticism but it means you address the criticism, it doesn't mean the original goal is bad or impossible.
> There are ways to do this that may not be popular. The main one would be to remove fixed interest mortgages.
We should definitely remove fixed-interest mortgages for non-owner occupied purchases.
>Yes, you've successfully articulated the point.
And the goal. Why raise taxes on vacancies? To push out owners whose primary goal is to leach out a few percentage points above loans they can get or to sit on property while it appreciates in value (while harvesting tax benefits on the depreciation of the structures they maintain to a minimum because _margins_)
There just shouldn't be a class of people whose business is harvesting tax benefits and arbitrage of trust by banks.
Just as with single payer health care: While it works very well in other countries, people in the US will insist it will fail here. :-)
I don't know anything arguing that adjustable-rate mortgages will "fail" in the US (we have them already), especially focused specifically toward/against non-owner occupied properties, just that it would negatively affect them and they don't want to do it.
Plenty of landlords would rather a unit in a building go empty for longer than compromise on rent in a way that weakens their negotiating position with the other units. (Also, with lenders.)
The argument for taxing vacancies is city taxes are often set on the assumption of occupancy. A vacant unit doesn't contain a tax-paying worker. The vacancy tax adjusts for that.
> Remove tax benefits like bonus depreciation or accelerated depreciation
Agree.
Also important for commercial vacancies. The rent is too high, costs for commercial goods and services (and especially food and entertainment) is inflated by inflated rent so restaurants and consumer businesses can't stay open because they can't afford to pay the rent and lower prices to attract customers at the same time. And yet a huge proportion of the commercial space is just empty.
A vacancy tax makes up for that missing tax revenue from a running business and also just raises the quality of life for the people of your city by giving them opportunities for things to do and lowering the bar for entry into running a business.
Yep, I watched my last apartment (which I left partially because the rent went up to an unreasonable price) sit vacant for several months and laughed at how he could have made much more money if he compromised slightly on rent (which he seems to eventually given in to, so his greed only served to lose him money and not get the price he wanted).
In my experience: A tiny minority (for housing - not sure about commercial). This is one of those cases where selection bias applies. As most landlords really hate vacancies, the ones you do see are the tiny few that don't. And because they let them be vacant for months, it adds to the selection bias. They perhaps own most/all of the property, so the vacancy cost is miniscule (only property tax).
I do know the bulk of landlords are fussy about the type of consumer they get (e.g. decent credit rating, etc), and will allow for longer vacancies to get them - the rationale being that a bad occupant costs more than the vacancy charge - especially in tenant friendly states like California (extremely expensive to evict).
Keep in mind - the bulk of them don't own the properties outright - they are paying a loan. In a place like where I live, they may need to pay $2000/mo on a property that they rent out for $2300/mo. That $300/mo is a very slim-to-nonexistent profit margin once you account for costs. If it goes vacant for a month, they are losing over 6 months of net revenue. When you factor in the costs, it may well be closer than a year's worth of gain. The property doesn't appreciate much here, so they're not gaining in that fashion. Now when an eviction takes 4 months to execute, you can do the math on how they may prefer a 1 month vacancy to a bad tenant.
Really: Get rid of fixed interest mortgages and you'll discourage rent seeking behavior. Most are playing the long game: They'll accept a net loss of, say, $100-200/mo because they know their costs are (relatively) fixed, and in, say, 5 years the rents will have gone up enough to break even or yield a small profit. Keep it up for the next 30 years and they've made good money (and had a tenant pay for all the equity).
If you want to discourage rent seeking, discourage the main incentive: The cheap loan.
Of landlords altogether, sure. Counting by unit in high-demand locations, unclear.
> property doesn't appreciate much here
You're describing a stable housing market. Those aren't where RealPage is accused of making mischief.
The "laws of supply and demand" are not empirical laws of physics. They are general principles with well-known exceptions and flaws of their own. You should lay off the microdosing.
Game theory is mathematics, not science. You can derive the basics of supply and demand from game theory.
Economics is a soft science. But so is history and, I'd argue, a good deal of computer science.
You can derive supply and demand from game theory once you make some assumptions about preferences, costs, rationality of players, etc., all of which are non-mathematical, mostly empirical concepts.
If a vendor anywhere in the world has more stock than their customers want, the price goes down. If more people want it than the vendor can provide, the price goes up. If there's more food than animals that want to eat it, animals eat their fill and the rest rots. If there are more animals than food, each spends increasing effort developing strategies to get more than their neighbors.
Now, if someone claims they can prove that demand increasing by X results in prices increasing by exactly Y, I'm with you. There are too many variables to make that predictable. But the basic idea behind it? That's pretty fundamental.