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Comment by sytelus | Hacker News Reader

This is just not London, it's happening in almost every major city. There is a massive real estate investment movement in progress where wealthy and giant investing funds are dumping bucket loads of money to buy up properties in popular areas. These then gets put back on market with extra-ordinary rents (typically 5% annual of purchase price). I think the hope is that even if property stays without renters for even half a year, its returns when combined with appreciation would exceed other "safe" investments. It's not unnatural anymore to go in high demand areas of city in night just to find empty apartments all over. I shudder to imagine how next real estate crash would look like...

If you walk through Knightsbridge in the evening, at a time when people in well-adjusted cities might be having dinner with their families and friends, or at least watching TV with their kids, you will see a wall of black, punctuated by the odd square of illumination.

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> These then gets put back on market with extra-ordinary rents (typically 5% annual of purchase price).

Why do you think this rent is extraordinary? Unless you meant that it is extraordinary as a result of extraordinary purchase prices. As a proportion of purchase prices, these rentals are nothing special. Rental prices will lie within a relatively narrow band near the cost of maintaining a mortgage for the simple reason that if they get much higher, people can finance more property purchases and hope to gain on price growth, and if they get much lower, a substantial proportion of investors lose the ability to leverage and so the returns won't be attractive.

> If you walk through Knightsbridge in the evening, at a time when people in well-adjusted cities might be having dinner with their families and friends, or at least watching TV with their kids, you will see a wall of black, punctuated by the odd square of illumination.

Try walking around the wealthiest area of any city, and the patterns will be very different from "normal" areas: Flats will be larger, and someone at home does not necessarily mean the building will look very lit; more people have second homes, or travel a lot, or work late, and so an inhabited flat may still have people at home more rarely. You can easily find rich areas that look almost black even when most houses are occupied.

I don't know if Knightsbridge is an aberration, but I do know London in general does not in fact have a lot of empty properties in proportion to its size/population. I don't have a source handy, but the last time I looked at the stats it was small. More importantly, the vast majority was empty for other reasons than uninterested absentee landlords.

"Extraordinary rent" is, to me, when the property in a high-demand place is vacant for prolonged periods of time, due to the price. Probably occupancy figures are available somewhere publicly; if so, this statement can be checked against reality.

Properties are almost never left empty due to "extraordinary rent". Landlords that want to rent out typically lowers their rent demands until they fill the property. Rents at ~5% of the purchase price is, with current mortgage rates, in any case a perfectly competitive rate.

"Writing for The Independent, the former Olympics Minister pledged to tackle the "scandal" of London's 22,000 empty homes, saying they could house 55,000 people - about half the 114,000 Londoners living in temporary accommodation such as bed and breakfast." (Jan 2015)

http://www.independent.co.uk/news/uk/politics/tessa-jowell-i...

22,000 empty homes in a city of 8.5 million is exceedingly low. Using their own calculation of 2.4 people per home, and assuming this holds for the entire population, that is 0.6% of the housing mass.

Consider the many reasons why properties will lay empty, such as for example:

* Owner dies; handling the estate can sometimes take a year.

* Refurbishment can drag out; it's not unusual for large scale building refurbishments to take a year or two.

* Uncertainty over developments; e.g. near me a building of flats stood empty for 2 years or so because it was slated for demolition to make way for new developments that is finally now underway.

When you factor this in, 0.6% minus the "acceptable" reasons simply doesn't leave much room left for any large number of homes to have been left empty for no good reason.

The real scandal is not that there are 22,000 empty homes, but that consecutive governments have left councils in a state that means they don't have the available council flats to find longer term homes for those they are legally required to assist with housing for. They are in temporary housing not because housing can't be found, but because doing so means spending over the "wrong" budgets, and spending too much to replenish council housing that was sold off cheaply starting with Thatcher and that now would cost a fortune to replace because you'd be competing with quite wealthy people willing to stretch far to avoid being displaced further out of the centre of town.

it's happening in almost every major city

Agreed. Here, for example, is an excellent article about these effects in Portland, Oregon: http://www.invw.org/cash

Widespread building restrictions limiting supply and huge subsidies for those holding financial assets ("QE") together with low yields caused by near-zero interest rates fueling demand will do that. (How it will end I can't imagine. I'm amazed at how calmly people are taking it, and at the kind of countermeasures they propose (usually rent control or other foot shots.))

QE is just a handout for private individuals who sell government bonds on the second-hand market; it doesn't really have anything to do with real estate.

But yeah, near-zero interest rates right now and borrowing costs being tax-deductible contribute to housing bubbles.

Yes, I'm not sure why we let landlords expense mortgage interest but not home owners (in the UK) but it would be a good idea to get rid of this loophole.

What gets me is that the problem is very easy to solve. Bring in property tax brackets, increase the top rate.

> with extra-ordinary rents (typically 5% annual of purchase price

5% is not extra-ordinary, 5% is low. 10% is average and more than that is high.

After paying for property tax and maintenance, anything under 10% is not really worth it unless rent is just a side effect and you are really hoping for appreciation.

That might be true for the US, but it certainly is not for most of Europe. I guess that difference has at least something to do with differences in fiscal regime.

I dare you to find me real estate with a 10% gross yield in Belgium for example...

It's the same in the UK, banks won't even look at you if your projected yield isn't at least 6%. The fact buy-to-let mortgages have this requirement for mum and pop landlords means that even if you have the liquid assets (large hedge funds, investors, mega-rich) you might as well extract the 6% minimum yield. Result: astronomical rental costs growth in London, gotta feed the system somehow!

> I dare you to find me real estate with a 10% gross yield in Belgium for example...

Does Belgium have no property tax? That's the only way such low rents could work.

Taxation is very low compared to other taxation in Belgium: http://www.globalpropertyguide.com/Europe/Belgium/Tax-Pages

Round trip transaction cost is sky high though. My experience is that the 21.10% estimated here is a gross underestimate: http://www.globalpropertyguide.com/Europe/Belgium/roundtrip-...

What many people don't get is this is global asset inflation due to the enormous amounts of money created by central banks worldwide. The term "currency war" has been used to describe it and like any war the poor and working classes bear the burden.

My solution is to protect my family as much as possible while trying to generate enough wealth entrepreneurialy to have a seat at the table.

My solution is to protect my family as much as possible

How do you exactly do it? If you are not yet home owner, it looks like your rents would go up to a point where you are paying 10% of the property price a year. That means in 10 years you will look back and see you sunk all your money in rent while you could have walked out owning it. But at the same time it won't be prudent to buy it right now because you just can't tell how and when current bubble will end. So either way, you don't have good option when wealthy investors are coming together to squeeze you out of a fair home ownership.

Are there penalties for invading those kinds of homes in the UK? Where I used to live (a city of ~100K in Israel) there are probably 500-1000 properties on and around the marina owned by foreign nationals that are conspicuously empty for 9 months of the year, I considered squatting in one of those but if I'm discovered I'd be liable for the something like 3 times the rent for the period I lived there.

Presumably if the penalty for squatting unattended apartments were lower, the owners might be more motivated to find occupants.

Apparently, squatting has recently (2012) been made into a criminal offence in England, meaning a criminal record if convicted, so... not worth it.

Squatting used to be a ~fairly~ normal thing in England, going by impressions from my youth, but this could have been media fear-mongering the middle class with tales of home-invaders, after reading that Wikipedia article[1]. It's a shame that it's a criminal offence now, considering the housing shortfall and rising inequality in the UK.

However, these specific properties/flats would be very difficult to squat anyway, as the buildings are presumably guarded by doormen and at least a few sets of high-security doors.

[1]: https://en.wikipedia.org/wiki/Squatting_in_England_and_Wales

Yeah, aided by Daily Mail fear mongering about someone who came back from a vacation to find his house occupied by squatters that left their readers afraid the same would happen to their homes. The fact that it was an empty rental property he'd left unlet and that squatting in homes with occupants was already illegal went conveniently unmentioned.

Couldn't this be solved by passing city ordinances, and state taxes on vacant properties, non-primary houses, and un-rented apartment spaces?

Without any way to counter balance out speculation, land hording, and gentrification/displacement of urban areas, syndicates of real-estate investors would just buy up everything in sight, turn it into luxury condos/lofts and set the price at a rate determined to be some minimum of %75 of the target populations' average income..

> Couldn't this be solved by passing city ordinances, and state taxes on vacant properties, non-primary houses, and un-rented apartment spaces?

Why restrict these taxes only to unused spaces? If you do so, you'll have to get around people only nominally using the spaces.

> Without any way to counter balance out speculation, land hording, and gentrification/displacement of urban areas, syndicates of real-estate investors would just buy up everything in sight, turn it into luxury condos/lofts and set the price at a rate determined to be some minimum of %75 of the target populations' average income..

If only making money was so easy..

Keeping a large number of properties empty is extremely disruptive to transit planners. They have to puzzle through the situation where homes next to the subway aren't using the subway.

>Why restrict these taxes only to unused spaces?

To create an incentive for unused spaces to be used, instead of horded.

>If you do so, you'll have to get around people only nominally using the spaces.

Who could pull that off? Someone who owns 4 houses?.. 10 apartment units?

How would the legal system tell apart used from unused spaces? How would you make that distinction hard to game for someone with expensive lawyers and resources.

Doesn't it already cost money to leave an apartment vacant (opportunity costs)? How would taxes fundamentally change that?

It would make the cost higher. When you increase the cost of something, fewer people do it.

Real-estate as ~The Ultimate Investment~ sitting in hedge fund portfolios with the motive of maximum financial extradition of the local population could easily eat the cost of empty units at the gain of forcibly starving out available living space in urban areas.

A tax crafted in such a way to disincentive hording and speculation would push empty homes and apartments into actual use as living spaces instead of financial siphons.

I still don't get it - how are they making money if they don't rent or sell those housing units?

I get that they speculate on rising prices. But that is still a speculation, so it can go wrong.

And by driving away people, they are probably devaluing their property.

The purpose is to put to use housing units. Not speculative financial devices.

Hording real estate in urban areas inflates prices via intentional limitation on supply.

I get that, and it's an age old accusation against speculation. But it's really not so simple, because limiting the supply also has costs and it might ultimately fail (it usually does).

Do you have any numbers that show the speculation is really what is driving the prices? I doubt that some vacant flat here or there has a significant impact on prices.

If a street was completely vacant, prices would probably go down because it would be unattractive to live there.

for london, no. not really

London has a chronic lack of affordable housing, and there is no new supply. Worse there is no social renting housing being built either.

The UK already has taxes on vacant properties — they're just (obviously) not high enough to stop what's happening in London, where the growth in value far exceeds the taxes.

Which taxes are these? Last I checked, the only taxes on property were:

a) stamp duty - sometimes historically avoided by owning property though a cooperation, which is then sold instead of the property directly.

b) council tax - avoided by keeping the property empty of funiture.

I don't believe it is the case that keeping a property empty of furniture absolves the owner of have to pay council tax: [[https://en.wikipedia.org/wiki/Council_Tax#Exemptions]]

Apparently it's a 6 months exemption. I could have sworn there was no time limit on the west lothian council page, but I'm probably wrong.

5% of purchase is a perfectly cromulent rent. Outside cities, that number goes up, not down.

The next real estate crash will be very interesting. It's not gonna be the whatever estate saddled with an unpayable mortgage, or banks saddled with a a ton of unknown/questionable mortgages... correct me if I'm wrong, but it will be a lot of rich people, especially foreigners who will get hosed.

This is only a problem when one wants to sell up. If there is some sort of economic crisis that precipitates a collapse in the housing market it's very likely anything else the super rich could've parked their money in instead would also be FUBAR too.

Whats interesting in this regard is societies relationship to housing and what it is. Is it an investment or is it a basic human right to have a house over your head?

I live in Australia, and there are a lot of "rich" people who made a money off property, just flipping regular houses in our insane market.

All the components of a medium house are reasonably cheap. But then market value comes into play you you add thousands to a sale price. I think the real issue is that a house (basic human need) is being used like any other financial tool. There should be restrictions on the types of investment that uses residential property, to protect people and to allow them to live where they work.

But good luck controlling capitalism, last GFC started because of houses. But nothings really has changed.

Just to add in the Australian context people see property as a way to get rich. the idea of starting business or generating wealth via new ideas, services, technology is sadly not as prevalent as other places.

> Is it an investment or is it a basic human right to have a house over your head?

Muammar al-Gaddafi had an interesting take on this particular issue: page 51 of The Green Book (http://openanthropology.org/libya/gaddafi-green-book.pdf). Newlyweds were given enough money to build a house.

The problem in Australia is that they don't build up.

Restrictions on who can invest only bar the people who can't hire a clever lawyer to get around the restrictions.

>correct me if I'm wrong, but it will be a lot of rich people, especially foreigners who will get hosed.

Wealthy investors always seem to find a way to foist the losses off on to somebody else.

See what happened to Greece's loans for just one example. They ended up owned by Eurozone governments but they didn't start out that way.

My office near Columbus Circle in NYC looks directly at One57, the 75-story condo tower whose apartments are setting price records up to $100 million (and which will shortly be dwarfed by newer taller pricier towers).

No matter how late I work, not one window lights up.

It's not that those apartments aren't being rented, they usually are. It's those apartments aren't being lived in.

It might take a crash for London to become livable again. There is also probably a threshold where London stops being attractive to money compared to the competition from other locations, because it has priced out the service economy.

BRExit is the most likely scenario as if the UK leaves the EU then any advantage of being in London disappears and so the money will leave.

This of course assumes the EU economy survives GRExit in any fit state to continue to attract investment.

A crash may delay trends from happening, but a change in the basic characteristics is necessary to change it for good. See San Francisco's gentrification, stopped by the 2001 crash but still going on strong.

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