Yield-chasing investors are snapping up single-family homes, driving up prices | Hacker News Reader

Yield-chasing investors are snapping up single-family homes, driving up prices

wsj.com

42 pointsundefined116 comments

This will turn out badly. Corporate landlords won't be able to lobby quite so fiercely against new construction, upzoning and rent controls. Otoh, their cost of capital is lower, and they are more efficient managers than individual homeowners, so this might be a more efficient way of providing housing.

One useful thing though is that corporate owners dont need to sell, so transaction and mtg taxes will be lower over the long term

>Otoh, their cost of capital is lower

According to [1], the average rate (or prime rate?) right now is 3.18% for a 30 year mortgage. OTOH, rate for 30 year "High Quality Market Corporate Bond" is 3.38%.

> and they are more efficient managers than individual homeowners, so this might be a more efficient way of providing housing.

They might be more efficient at being landlords, but that doesn't exactly translate into higher efficiency when it comes to providing housing. Owning a house and doing the repairs yourself is probably much cheaper than hiring someone to do it, not to mention you save all the taxes on the imputed rent.

[1] http://www.freddiemac.com/pmms/

> that doesn't exactly translate into higher efficiency when it comes to providing housing.

why doesn't it?

If a corporation can, with the same amount of capital as an individual, produce more units of housing, then isn't that a desirable result?

Also, regarding owning a house being cheaper - it really depends on the savings from taxes. If you own, you lose the opportunity cost of the locked-up capital in the asset, which might be high.

But of course, there are non-financial concerns with buying vs renting. The higher income earner is more likely to want to buy, as their taxes would be more efficient that way. And the guarantee that you cannot get kicked out, unlike renters, is a good plus.

The big real estate holding groups are probably getting way less than 3%. How much is burkshire paying for 10 year bonds? Less than the us government?

>The big real estate holding groups are probably getting way less than 3%.

But how much? The 30-year treasury rate is currently 2.35%. That's lower than the mortgage rate I quoted earlier, but there isn't much wiggle room either.

>How much is burkshire paying for 10 year bonds? Less than the us government?

Why on earth a corporate bond have less yield than a government bond? US government bonds are literally the safest investment instruments available.

> Corporate landlords won't be able to lobby quite so fiercely against new construction, upzoning and rent controls.

This sounds like a good thing to me. Why will it turn out badly?

The ones most affected by the changes (tenants affected by zone changes) have no skin in the game. As soon as situations turn sour, they move, they dont fight. Why establish roots anywhere, why call a community your home if its owned by a corporation?

> why call a community your home if its owned by a corporation?

community is more than just where you live. Why can't your community be the group you do leisure activity with? Why can't you have a digital community? Why can't your community be spread out geographically, and meet up in public places for community activities?

Why call a community your home if it was built by a corporation?

Why call a community your home if it was built by you but with tools made by a corporation?

Economic specialization is a thing.

> and they are more efficient managers than individual homeowners, so this might be a more efficient way of providing housing.

Call me skeptical, but I don't think the average person would share in the benefit of that efficiency.

I’ve moved every 12-18 months for the past 10 years and rented everywhere. I’m one datapoint but apartments/property managers have been way better than private owners. The private owners always seem to be figuring out for the first time how to repair anything, always trying to save money, and have always tried to hold my deposit illegally. I’m pretty sure when these landlords talk to each other about “having someone else pay your mortgage” they also swap strategies and excuses to keep the security deposits. Corporate landlords otoh have their own repair people, processes to get repairs done, and have always been reasonable about returning my deposit. Lately I’ve been avoiding renting directly from owners.

From someone who grew up with parents that owned a hand full of rental houses and did all repair work themselves (quite competently, father is a tradesman anyway) : I am not at all surprised that individual owners tend to keep deposits at a higher rate. I don't think there's anything illegal about it : without fail, every single renter we have ever had has incurred damage to the house well beyond the security deposit. When a company owns a ton of properties, they have economies of scale- all the properties have interchangeable hardware, cabinets, etc they likely have suppliers for materials that give them more competitive rates for bulk purchases, they have workers who will do the repair work for minimum wage (whereas a single owner probably values their time in the range of 50/hr)

It makes a lot of sense, but I understand your frustration. Still not nearly as frustrating as hauling trailers full of other peoples trash and dog shit out of your own house and then having to repair thousands of dollars worth of damage to cabinets, drywall, carpet, and paint.

I think their main advantage is in lease enforcement. Big REITs spend way more on repairs and they charge more, simply because they can. A small landlord has no recourse and will get wiped out by damage and eviction costs. Bad tenants know this, and they know how to use fair housing law to get what they want. Owning rental property is a great way to spend your life on other people’s problems.

I live in Houston (which is where the article takes place). We don’t have rent controls. In fact, I’m not aware of any in the state of Texas. If there are any they are minuscule.

...and reducing yields. Ultimately, it’s self-correcting.

> driving up prices

... and property taxes.

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