Investors bought a record share of U.S. homes in 2021
washingtonpost.com
washingtonpost.com
As it stands, mortgage rates being below the rate of inflation make housing a very attractive investment.
The sources of mortgage subsidy that I am aware of are secondary market purchases:
* Federal reserve mortgage purchases
* Fannie Mae/Freddie Mac mortgage purchases
The obvious fix is a nationwide property tax that doesn’t apply to primary residences, but again it’s hard to say what that would do.
Why do you say this?
There have been numerous bills introduced at the local, state, and federal levels which specifically aim to address housing affordability. Seriously, just type in "affordable housing bill" into your favorite search engine and look at all the articles coming up from the past six months.
My local city council has affordable housing on the agenda for several of the committee meetings.
In my area/state they've dropped most of the zoning restrictions for locating apartments and ADUs. So you can add an ADU (a small dwelling that can be rented out), but that takes capital that most residential homeowners don't have. Add to this the fear that by building an ADU your property tax will likely go up very substantially and there aren't a lot of takers.
tl;dr Most affordable housing efforts are currently aimed at people who make poverty level incomes (and that's great). I don't see much locally aimed at providing housing that's affordable to folks in the middle. And as rents rise, more and more folks in the middle are not able to afford housing.
If anything current affordable housing initiatives just make things worse by discouraging new development. Building 10,000 new apartments is strictly better than building 5,000 apartments even if you designate 30% of them to be affordable. The ideal solution is to designate minimum density, so for every acre of land you must have at least X homes.
That said I would support a hard progressive tax on non-primary residence homes. It should really hurt for them to own multiple homes.
Further the value of property would decrease, but the cost of empty properties would increase. That would put downward pressure on rental costs.
Most limited company buy to let mortgages in the UK are underwritten by a directors personal guarantee. It's just a technicality compared to a personal mortgage and so only shakes out the laziest of landlords
Worse it doesn’t actually help. The incentives are there to develop land it’s only local zoning that prevents it.
My plan to cheap housing
1) Unfuck Zoning. Be like Texas.
2) Unfuck building codes. Person signs their own death warrant? Let them live in a yurt or a the kind of shack people keep their garden tools in. There's a county east of Tucson like this, guess what, people no ded.
3) End all subsidies and government involvement in mortgages. Best way for skyrocketing price is for government to guarantee loans in a way a relatively free market would not.
4) Permit fees dropped for building housing. Cost of evaluating permits should drop without zoning or building codes. Only examine development to make sure it doesn't cause imminent harm to those outside the property line.
2) Unfuck building codes.
I think it could be greatly simplified by holding the building owner/manager criminally liable for defects that lead to major injury or death, and civilly liable for smaller defects.
There's no reason for the government to have an opinion about what type of concrete you're using or how many feet of wire you're using. They should be policing outcomes, not hiring and sending inspectors all over. If a building collapses, the people who own it and the people who built it should go to jail.
And insurance companies can come after the owners for the smaller problems.
How is "let the building collapse then send the owner to jail" an improvement over "don't let the building collapse"?
Why would we get rid of building codes, but then still jail people who don't follow the old building codes that we just got rid of. All this would accomplish is sending well-meaning people to jail, just because they didn't know their house had a serious problem, because we got rid of the building codes.
I am so confused by your rational.
Not sure such a way exists...
I think your idea would be great, but there would be turmoil while the liability hot potato is thrown around until the industry figures out where that lands (probably some form of "malpractice insurance" on builders would become a thing, with higher premiums on those who suck more, eventually forcing them to be better or quit entirely).
The entire housing industry is designed around lending. If policies are make that screw with the status quo, the industry is going to collapse then reform around the new one, and that could take decades.
We have regulations for a reason. When you blindly get rid of all of them, history repeats itself. We find ourselves looking to solve the same problems. It wasn't that long ago in the USA when entire cities would burn to the ground because a cow kicked over a lantern because lack of building codes meant buildings weren't built with safety in mind.
Aight, so if I'm the lender for myself let me nix them. If they're for some third party lender, let the lender and lendee solve that through private market rather than government. Surely someone can be trained to inspect a house.
> [ mention of Great Chicago Fire ]
The classic "make hundreds millions of people work for decades to afford a house, costing tens of millions of lifespans of work so we can save 300 people once a century from the great Chicago Fire". The calculus there is way way way off.
I'll take my chances.
>It wasn't that long ago
It wasn't that long ago housing was far more affordable.
> because a cow kicked over a lantern because lack of building codes
You've fallen victim to a big tale, like santa clause. No one knows the cause of that fire. We do know that many of the conditions were completely unsubject government, such as a windy dry spell.
>We have regulations for a reason
They're there for good reasons, unfortunately the worst tyrannies and misdeeds happen at the gunpoint of those who purport to be acting for the common good. Building codes in practice are as much about taking your life away as they are as preserving it.
Japan is the model I'd like to see: inclusionary zoning. A small number of zones that allow for maximum use.
https://nebula.app/videos/not-just-bikes-the-houses-that-can...
A clip about Houston zoning specifically is in the "Why City Design is Important (and Why I hate Houston)" video at 12:30.
https://nebula.app/videos/not-just-bikes-why-city-design-is-...
Cost of living calculation between Dallas and Houston says costs are roughly 15% different (as apples to apples a city I can identify to isolate zoning effects). So definitely some effect and a good lever to pull (in addition to others I am sure.)
I agree that zoning reform is part of the issue, I think zoning reform combined with other tweaks would go a long way.
I think that multiple issues cause these problem, we have runaway negative feedback loops in multiple areas, the problems has evolved organically over time so I doubt any one factor is enough to resolve the issue (as nice as that would be.)
I'm not making the assertion that zoning is the sole issue so I don't need to defend it but I figured I could take a quick look and bring some numbers into the mix so we have some numerical grounding for conversation and exploring the problem.
It is illegal to build in Houston properties that would be legal in Japan or Europe.
I've looked (links below) and have done more querying than a comment thread like this probably warrants but wasn't able to find your assertion articulated anywhere.
Neither Japan or Houston are unconstrained free-markets without land use control so I'm doing my best to roughly/quickly tease out zonings isolated impact on affordability. Neither locations have 0 laws so they are close to apples to apples and since we're just doing relative comparison I'd rather keep things data driven. Houston has deed restriction but that is a simple free-market/libertarian private contract solution. Does Japan ban deed restrictions? Both japan and houston have historical zones
I've linked these two jstore articles as well as a more digestible video.
https://www.jstor.org/stable/724839 https://www.jstor.org/stable/30238667 https://japanpropertycentral.com/real-estate-faq/building-re... https://www.planetizen.com/news/2021/04/113144-watch-debunki...
I'm not familiar with the ordinances in Dallas, but I think this may not be as much of an apples to apples comparison as you imagine if the thesis of that comparison is that "Houston has no zoning".
You have to find an actual free city to do the comparison.
Houston does rely on a lot on developers being able to put "deed restrictions" in place, which seems like their free-market/libertarian/state enforced private contracts solution.
I'm not familiar with Japan but their property laws are not unregulated so I think it's worth sussing that out so people can properly back their assertions with arguments and maybe we can derive a defendable % cost impact from zoning laws.
Anecdotal, but Greater Houston differs from DFW as it's more blue collar and DFW tends to be fairly white collar/corp focused. Ironically, Houston also has much more wealth. So what this means is DFW feels like it IS middle class with some lower, some upper, and a few Mark Cuban's. Houston has a whole neighborhood of Mark Cuban's, you see lower income everywhere, and it's kind of unclear where the middle is. In the exurbs? Is exurb A a middle, upper middle, etc. it's not clear where those lines get drawn. Dallas in particular is more segregated on income (which is correlated with.. you know) with the southern part of town being almost exclusively lower income. Houston is more integrated in this regard, there are pockets of wealthy areas surrounded by lower income areas and the folks interact with each other.
I actually don't hear a ton about the big money buying here in Dallas (Zillow, etc). It's just people that sold their west coast house for $2M+ and move here cash rich. I see a lot of mid-lifers so school district & distance to office is the biggest draw for which areas are seeing the largest price gains.
Dallas itself is competing with it's suburbs, Plano/Frisco etc. The development you see was planned 2+ decades ago and really only a surprise to folks that don't keep up (most people, I know, but I tend to keep up with this stuff and like to buy and hold land ahead of development). Bishop Arts for example has been a 3 decade overnight success, similar story with other areas you mentioned. Many of those areas I felt like they took way longer than they should have to get developed, and it's because all money goes north to the burbs. Uptown is about as far south as most money is willing to go. Design District, Deep Ellum, Cedars are proximity plays after Uptown got kind of expensive.
I don't really do much nightlife stuff. But about 10-15 years ago, Uptown was like the young professional/college kid place to be. Many of those folks moved to the burbs after a certain age. But many stayed. Now the prices are high, it seems like it's more full of those same folks that never married, never had kids, etc and just happen to be 10-15 years older. I think it still has the reputation but realistically, younger crowds (<30 or so) don't seem to spend much time there anymore in favor of Deep Ellum, etc.
The only areas free of zoning that I know of are slums, shanty towns, and favelas.
I think this is a "Yes, and..." situation
The neighborhood supported the increase in value, but gets nothing in return.
I think you are confusing home loans (which are subsidized) and business loans which are not subsidized).
Fannie Mae/Freddie Mac loans are only on 1 primary home and 1 secondary home for individuals. These loans are limited and really don't work in high property value states. You should google the difference between "conforming" and "non conforming" loans.
You might be thinking of the mortgage deduction on the income tax. Trump already did this. This only hurt young people in high property value states.
Business real estate loans are more expensive because they are not subsidized. However, businesses do pay taxes only on earnings (income-expenses). Loan payments are expenses that reduce the earnings. Good luck on getting rid of business expenses. Yang proposed changing the tax law because of this.
All this means your proposal would have a very limited impact. It would only hurt individuals who live in an expensive property where the homeowner has mostly paid off their mortgage (old people) and used the principal to buy a rental (up to 750k).
I understand these policies work differently in expensive markets. But as per this article, investors are targeting rentals in less expensive markets.
[1] https://www.quickenloans.com/learn/conforming-loan-limits
[2] https://sf.freddiemac.com/working-with-us/origination-underw...
So what is the Fed's motivation to raise interest rates to curb inflation in this case?
Inevitably when these become government programs, they simply throw money at the problem without addressing fundamental supply and demand issues and accomplish very little except drive up prices. Then, when investors see prices going up and to the left, they rationally throw money at it in a way to make even more money, which drives up prices even more.
There’s so many charts like https://ritholtz.com/wp-content/uploads/2018/02/pricechanges... that clearly show the trend. It’s insane.
There’s a really good book I recommend called “Systems Bible” [https://www.amazon.com/Systems-Bible-Beginners-Guide-Large/d...] that beautifully articulates this phenomenon in a way that applies to government policy, software systems, management, org structures, or any complex system of people or machines.
You may enjoy this article [0]. To quote from it:
> In the past fifty years, education costs have doubled, college costs have dectupled, health insurance costs have dectupled, subway costs have at least dectupled, and housing costs have increased by about fifty percent. US health care costs about four times as much as equivalent health care in other First World countries; US subways cost about eight times as much as equivalent subways in other First World countries.
Of course adjusting for inflation.
Thank you for the book recommendation.
[0] https://slatestarcodex.com/2017/02/09/considerations-on-cost...
No state is incentivized to make zoning more lenient. Therefore it falls on the federal government, who lack the authority.
The only thing they can do is something similar to what they do with the highways and threaten to take away funds unless all plots of land can be zoned for up to 4-family houses (FHA limit).
Potentially quadrupling the amount of housing will do it.
Yet this is exactly what is happening in California via SB9 (though admittedly with significant local opposition):
https://www.mercurynews.com/2021/09/16/gov-newsom-abolishes-...
Ironically, single family zoning as a tool was invented in California.
Zoning reform is a solution to get out of this mess, but zoning is not the only cause of this problem. If you look at the last 10 years of housing construction in this country, and you compare it to the previous 50 years, you see that we have simply not been building enough housing:
https://fred.stlouisfed.org/series/HOUST
If a nation spends 10 years not building enough housing, high prices are what happen. If you add low 2020 interest rates to the mix, the effect on housing prices are explosive in the short term.
https://www.mass.gov/info-details/multi-family-zoning-requir...
In short, it's a good idea but needs more teeth.
All states are actually incentivized to increase their supply of housing, because an increasing population allows them to eventually gain greater representation in Congress relative to states with less growth. States like California, New York, and Illinois are losing out to states like Texas, Florida, and North Carolina.
Why not? Wouldn't it encourage more people to move to the state and increase income tax / sales tax / property tax revenue?
These investors aren't the ones making the prices higher (or they weren't initially, at least); they're responding to conditions that were already making prices higher, which makes their investment more attractive.
But you don't have to take my word for it; it's literally what they say in their prospectuses:
https://mobile.twitter.com/mattyglesias/status/1482762838074...
Everybody has their favorite group that's easy to hate in this space -- it's the vacant investment properties, or the foreign investors, or the REITs, or the rich people with vacation homes -- but those are tiny factors relative to the main driver of this, which is your typical one-house-occupying all-American homeowner who opposes any new housing in their neighborhood.
As soon as the prospect of housing appreciation disappears so will the investors. But then we’ll have sad stories about people being underwater on their mortgages.
Zoning is largely a local issue. And zoning is talked about a lot at local council meetings. The problem is people have very strong opinions when it comes to how the place they live will change. It's trivial to get a sizable contingent of people to oppose zoning permits.
There's a huge argument going on a few towns down from me as to whether a 100yo, vacant building in disrepair should be torn down to make room for a community center. One would think this is something obvious that would go unchallenged by locals, but nope.
Making zoning a state issue would probably help a lot, but it would piss off home owners. Even early champions of the change are going to hate it when their neighbor's houses get torn down so that a casino or something can be built in their place.
Even the strongest critics of the status quo don't think we should eliminate all zoning, so that you'd be able to put a casino on a residential street. What we believe is that you should able to build more residences (and maybe a corner store) on residential streets.
You can replace an old warehouse in the USA with SFHs. The major difference is the area will have to be rezoned completely before construction starts and the public will get their chance to voice their opinions. This allows everyone to agree on what else may be built on this land before houses go up. Will it be mixed use? Residential only? Are multi-tenant buildings allowed?
Then there's the big issue of who controls zoning? Should it be at the state or local level? Both have their positives and negatives.
Given the current situation in many state governments, this would have huge ramifications. You might live in a mid-size city and have the wingnut state government refuse to let you build any more homo-muslim-crack housing anywhere in the city center. Or the rural/exurb dominated state house will only let you build a unit in downtown if it comes with 3 parking spots large enough for lifted Ford F350s.
Personally, I live in the South in a city where local politics are dominated by the suburbs and it's bad enough already. "Not enough parking downtown" because you might have to walk 3 blocks to the nearest street parking lot, so of course more lots must be subsidized. Huge portions of downtown taken up by 6-lane corridors impossible for pedestrians to cross so that suburbanites can zoom through at 50 MPH. And that's set up by people who live and work 20 minutes away! Imagine the situation if zoning and city planning was primarily determined by car dealership scions who will never come here in their lives.
This is all the result of corruption. City councilmembers in cities across this country found themselves in the position of kingmaker. Decades of entrenchment of the political class saw this role refined, distilled, and now it's practically impossible to remove the layers and layers of ossified process that has corrupted anything we do. This is why housing is not being built, why construction costs on projects are so high, why timetables of doing anything at all are decades out, and why the FBI indicts major local politicians for corruption every year. Decades and decades of systemic corruption that has not ever been rooted out has led us to this current broken state.
I would love to see a federal regulation stating that any housing construction permit that isn't reviewed within ten business days is automatically approved.
Why? Because investors would have more and more houses sitting empty. That would force a change fairly soon... wouldn't it?
- Agent sizes us up (I dress down on purpose), says something to the effect of "You know this house will probably sell for even more than (already high) asking".
- Agent just sits around playing with her phone. No shits given.
- Agent sizes us up, realizes we're just window shopping/taking our time, "mansplains" to us "you know how this works, right? 24 hours from now there will be multiple offers and it will be gone"
The other unfortunate thing right now is that loan rates are (finally) spiking. Like > 4% for 30 year fixed. I wish we bought before the winter... And even worse if this keeps up the housing prices will crash just when we bought high. Oh well.
If you're starting a job in a new town in March, it's not a great option, but if you're looking months ahead of your preferred move date, why not?
$10k on the base offer or $10k in "free rent" is $10k either way.
Where I am, I'm seriously considering down payments in the hundreds of thousands. Should houses be that expensive? No, I personally believe we should build so much housing that it tanks the market. But the reality for people trying to buy a house here (Austin TX), +$10k to the down payment is insignificant compared to the price variation between home A and home B.
The idea of rent-free occupancy wasn't even a thing two years ago. It's just sellers taking advantage of the current market where a lot of the buyers have no intention of living in the house and so a few months of rent-free occupancy make absolutely no difference as long as they get to buy the house.
No, for a house. If I'm spending $600,000-$700,000 on a house, paying $600,000 + three months rent is still on the lower end of that range. It's just a different structure, not more money.
where do you start? what grounds for evicition? Unpaid rent? You've already agreed that rent is zero...
Why would a REIT/Private Equity not care about this? Because their goal is to rent the property in any case. Professional landlords already have this in their risk models.
Trespass; at the expiration of the lease period, without an agreement (which can be inferred from acceptance of rent after the expiration, so don't do that) the tenants become trespassers.
> Unpaid rent?
That or other lease violations are typically only needed as the basis when the tenant has a current rental agreement. (Either in writing or inferred from acceptance of rent by the landlord.)
But, yes, the potential of having to deal with the process isn't something that should be ignored (nor are all the positive obligations on landlords.)
Outside of finance and government there isn't a large sector in most cities. Most businesses are in cheaper, suburban office parks. So beyond the social and cultural aspects there aren't that many advantages to city living, IMO.
Friends in the DC region aren't worried as this has been an ongoing trend for quite a long time (they have enough equity that a dip won't matter much). Friends in Southern California would probably say the same thing. But in Phoenix, I already hear some questions as to whether this will come tumbling down in a year or two.
Myself, bought a place (not a city and not quite the 'burbs) last year and I'm still curious about my local market so I still constantly check the real estate sites/apps just to see how things are moving in my area. Would suspect I'm not alone in doing this.
I think a lot of 'secondary' markets could take a hit. These are places that the main appeal is their current relative affordability or proximity to a more-desirable area. I think buyers that are priced out of 'desirable' areas today are effectively settling for these secondary areas, which is raising those prices. I feel like those will be the first areas to take a hit. How big that hit will be, I certainly can't say. It could be as little as a reduced rate of property appreciation, or it could be as large as a 20% hit.
Why do the sellers care if you're buying with cash or a mortgage?
I don't know much about the US house buying process, but from what I've read about it it sounds insane. Fees everywhere, two realtors involved etc.
might be others but that’s what i inferred last time we lost out.
When I bought my last house (newly built), on the DAY OF closing, 2 hours before the closing appointment, my mortgage officer calls me to tell me I'd need to bring another $5000-ish (due to a reason I've blocked from my mind). He told me my builder would bring a check for an equivalent amount made out to me, but to make the accounting/financial all legal, we couldn't just "zero each other out". The money had to clear from both accounts. (I wish I could remember exactly the circumstances). And, this money couldn't just be a check but had to be a cashier's check that was guaranteed. It couldn't be cash, either, because it had to be from an account that the underwriters had reviewed and done money laundering screening for.
Due to the logistics of that day, I had to go through herculean efforts to get that cashier's check made. I usually bank with online-only banks, and thank god that I had a local bank with just enough balance to make it all work... And that's for someone who is lucky enough to be able to bring that extra money and to be able to take the day off of work to make happen. I imagine many others wouldn't be as lucky.
That closing could've been easily pushed off a couple days had this surprise made us unable to close that day.
Sellers like not dealing with this, so they prefer cash offers.
A bank says they will lend 75% LTV, you are preapproved for a $2M house, so will bring $500K to the table and bank will provide $1.5M you think.
But wait, the appraisal comes back for $1.6M instead of the $2M you bid. Bank says no problem, we will lend 75% LTV or $1.2M. Now you have to find (within days) $300K. And you can't borrow it because that will mess up underwriting on your current loan.
Or you buy a car before closing. Whamo - your DTI is toast.
Or you have someone open a CC in your name. Whamo - no closing.
Anyone who needs to finance a car really shouldn't be buying a house, but I guess this is where America is
I’m in the market for a place now and recently lost to an all cash bidder. Turns out they were using [0]. I was already pre-approved through a conventional lender, but all-cash seems to be the new norm.
China has essentially realized they're in a demographic crisis so they've enacted the following policies:
- Stopped their speculative debt fueled housing bubble, this I hope makes it affordable for their citizens to own homes, without prices skyrocketing.
- Stopped for profit educational institutions, this is so that education and specifically tutoring aren't exclusively for the rich.
I think they're enacting policies for childcare as well.
Given in the US investors are buying up property, and costs of both education and childcare are skyrocketing. I don't see how the US won't avoid a demographics crisis as well.
The US can't mandate its industry to follow a similar approach, but can't the government provide stimulus or some other Manhattan Project type drive to encourage entrepreneurship and companies to start and resolve these underlying issues?
Have they actually done this? Last I checked the cost to buy a home as a multiple of average income was far higher in China than it is in the US.
China is going to have a massive housing correction - a la Japan.
I mainly wanted to highlight a market driven approach that works with the other industries in the US as opposed to a government directed one. Albeit the government provides stimulus of some type to kick start it, like how NASA drove the privatization of Space and now we have lots of launch vehicles via different companies.
In the US these kinds of internal migration controls violate the Equal Protection clause, so they are mostly a pipe dream. Like anywhere, the US has a lot of places not worth living in, but the people from those places are all able to compete for spots in the cities, so those spots will necessarily be competitive.
Rather than spending money subsidizing the poor in these competitive places, it's better and cheaper imho, to add/create a good place to be in a currently bad place.
We have thousands upon thousands of towns sustained by the local military installation, prison, defense plant, research lab, state university, etc. Even some mid-sized metro areas where the economy is mostly Medicare. Usually it is more of a life support thing. They're too small to be desirable. On those occasions when they do take off and become desirable (defense spending made Silicon Valley!) they quickly become competitive.
Rather than trying to manufacture and maintain dozens of places on this knife's edge Goldilocks window for postwar sprawl (that may or may not exist), we could instead choose a building and transportation architecture that provides a high quality of life at reasonable cost over a wider range of population levels.
China and other nations realize that there is more money and happiness in the long term view, so they're either pivoting or have pivoted. I'm afraid we just don't have the gumption / community oriented view to do that here in the USA. Folks want "freedom", even if that freedom means degrading into massive poverty / wage slavery. I don't blame them particularly, our education system massively touts the successes of USA above all.
https://www.numbeo.com/property-investment/rankings_by_count...
Big businesses/very wealthy can access very low rates by 1. pledging collateral and borrowing-> buy assets-> pushes asset prices up-> collateral worth more-> back to step 1.
With houses they know the average person(who is a homeowner) will fight tooth and nail to keep prices high. Especially people who have bought recently. The higher prices are the more incentive people have to keep them high as it becomes a greater % of their net worth. Tyranny of the majority.
Feels like in Canada we are basically seeing the emergence of some sort of neo-serfdom where the majority of young people(and older renters) who don't have significant family support are spending so much on rent they will never be able to own and year after year rent takes up a greater and greater amount of their salary. It's not at all uncommon to hear about people living in hallways or many people to a room in the GTA/GVA.
But investors, particularly institutions, think in terms of return on capital. The very important distinction is that the part of the mortgage payment going towards principal does not constitute a cost from a corporate accounting standpoint. Rather, principal payment goes on the balance sheet as accumulated equity in the property.
In other words retail is sensitive to total mortgage cost, whereas institutions are only sensitive to the interest component. As interest rates fall to zero, principal grows to nearly 100% of the mortgage payment. Even at todays rates principal constitutes about a third of the mortgage payment from day one, giving institutions nearly 50% more buying power. (Particularly in low property tax states like California.)
Besides raising rates, the only real option is to underwrite increasingly longer duration mortgages. When interest rates fall, extending the mortgage duration makes principal fall proportionately. Hence why many countries in the low rate macro environment have moved to 50 year mortgages to avoid systematically disadvantaging retail.
I'm currently trying to buy a different house, my older sister just bought a different farm, we both have had a horrible experience. My sister had multiple properties where her bid was beat out by someone offering $100k+ over ask, all-cash, mostly REITs and other types of corporate investors. This wasn't even in a city (farm obviously). I'm trying to find both a house and a place to rent, because my realtor/broker has advised me that I need to rent for at least a few months while I sell my existing house so I can buy with no contingencies, or I'll never get under contract. I finally found a proper spot for us to rent, was supposed to be available April 1st and was accepting leases starting March 15th according to the listing. Was just informed yesterday that the owner has already got it under application and has four other renters waiting in the wings.
This market is ridiculous if you actually need a place to live, and it's not even a matter of income. I'm in the top 1% of earners overall in the US, and I can't even close the deal on a place to live. I've had my current house for a bit over ten years, and it makes me almost want to give up and not move, although I must for family reasons. When I look into it, most of the properties being swept under me (and others) aren't even being bought by people, they're being bought by REITs or other investment vehicles, mostly by foreign money. You've also got companies like OpenDoor and Zillow scooping even high-earners trying to buy a place to live.
My friends who are double income but not tech are trying to buy a home now. Same experience as you. Cash offers always arrive and beat them.
I don't know how this ends but it's not going to be tenable for many folks to "live" in the USA as it stands.
https://old.reddit.com/user/DMAS1638/submitted/
Where you see winters homes are generally even in worse shape. Basements are leaking and eroding your foundation. Roofs are leaking and rotting your studs. Poor insulation is costing you a lot more money than in California. Chances are your water mains and sewer situation, both from your parcel as well as the municipal lines on the street, are all approaching end of life. Right as climate change brings heavier rains and flooding that stresses infrastructure where there isn't money as it is to maintain it even for old climate projections.
I have a 5 page document of bullet points making simple asks/requirements for a new home build, and most of them are focused on safety, reliability, and efficiency, and none of them would be done by default by any builder in the US, most are required by law in Europe. It's kind of nuts.
* Foundation footings set to bedrock and insulated above the freeze line
* Exterior walls framed in 2x6 or 2x8 studs w/ a preference for non-bridging stud products like t-studs
* Exterior continuous insulation
* Kitchen range hood needs to be externally ventilated with proper make-up air system
* Using an ERV (Energy Recovery Ventilator) with filtered intakes for doing fresh air distribution within the home
* No use of plastic flooring products (e.g. linoleum, vinyl, carpet, LVP, LVT, et al) which off-gas and spread plasticizers within the indoor envelope
* Consider use of alternative methods of framing vs stick framing, like using ICF (Insulated Concrete Forms)
* Natural gas on-demand hot water heaters w/ electric instant hot systems close to tap for showers
* Roof trusses and decking properly constructed to account for the weight of solar panels on the south-facing slope
* Split electrical paneling for high voltage (230V+) and low voltage (120V) circuits
* Post-meter paneling for breaking out to circuit panels w/ a space for setting up a transfer switch to support future grid-tied solar with battery backup
* All electric appliances w/ the exception of on-demand water heater and sealed gas fireplace, this provides a pathway for higher energy efficiency / lower carbon emissions by using solar
* All cabinet work should be hung using french cleats for durability
* Exterior door frames should be installed fully to the studs (e.g. use 3-4" long screws)
* Interior doors should be solid core
* All interior walls should contain sound-rated insulation to reduce noise pollution and improve climate zoning
* All interior walls should be boarded with sound-sealant and noise rated drywall-type products
* Subfloors should be insulated and there should be sound/thermal insulation underlayment below the flooring
* The final construction prior to drywall should be able to achieve a blower door test score of ACH50 1.5 or lower with the make-up air and flue vents closed.
Not all of these things would be required by code currently in Europe, but they're all good ideas for durability, efficiency, or safety. This is obviously with the intent to use rooftop solar power as well. If I do build a custom house, it'll be built to the Passivhaus standard.
Our biggest challenge was finding contractors willing to execute to plan. My wife and I ended up doing a lot of work ourselves especially around insulation details and HVAC systems.
He has featured other builders and home owners who also have websites or channels, and there I've found more information. There was one chap in central Canada that built a ~5k sqft house that only needed around 1600W to heat in the winter in subzero temperatures. That's the type of energy efficiency we need in new home construction if we're ever going to make a dent in climate change.
I will agree, however, that in much of the Midwest and Northeast it's more common to see single-panel installations. Separating the panels is important for safety, though, and it also allows better circuit routing when running the electrical.
Residential power around here is delivered as 240V split phase. Meaning, the service entrance load center has a bus bar for each leg, and the neutral is 120V from either leg. So you can have 240V circuit breaker that spans both legs, or a 120V that uses one in combination with the neutral.
How does the arrangement you're describing work? I tried searching for 120V-only load centers, but wasn't really finding anything. Or, did you mean bridge together the two legs on a traditional load center and use it as a subpanel of the service entrance?
Personally, I think having the 240V circuit panel outside is dumb, and the amount of times I've seen my or other folks breakers fail due to weathering is pretty much the reason why. How I've seen this done on new builds where care was taken is that both panels are brought indoors and the only thing outside is a split out to a subpanel specifically for the A/C / heat pump unit. Everything else comes indoors, there is a smaller panel setup for 240V and a subpanel for 120V circuits.
Obviously as the power entering the home is 240V split phase, you must break out a subpanel for 120V only if that's your intention.
We are on air sourced heat pumps. I think the US is really behind in thinking about creative geothermal like borehole heat pumps which act as a thermal battery (pump heat into ground in summer, extract it in winter.) They work but I can't imagine they are the best solution in my climate zone.
Also, for energy usage is seems appliances could use innovation. Why am I not recapturing the heat from my clothes dryer? Why do I have a separate refrigerator (heats house) and water heater (cools house) inside my house?
We tried a heat pump water heater but it was a total fail, as it is equivalent to putting an air conditioner inside your house. We had it in the ground floor of our walkout, which even in summer never breaks 70 degrees. Kids were complaining and actually turning the heat on...
Not knocking it, but is this normal for single family home construction? Is it possible with reasonable cost? Is it primarily for an earthquake-prone region? The idea is cool, but I thought only skyscrapers went down to bedrock.
But yes, it's fairly common to do this if you care about structural integrity over the long term. In areas with soil type that support it, it's more common to do simple slab foundations without footings, but in most of the US footings are used and the foundation is built as part of a crawl space or basement. Sometimes excavation for a basement is deep enough to get below frost line, or to bedrock itself, it depends greatly on the region.
"Reasonable cost" is kind of a subjective thing, but I'd say starting with a a good foundation is a bare minimum of requirements for what would end up qualifying as "constructed properly", so at least as far as I'm concerned this is an absolute requirement.
In some areas, it's not actually necessary to drive piles to bedrock to get similar stability, instead piles are driven to refusal at a calculated depth based on the expected foundation load. In the regions I'm planning to build though, bedrock is nearer to the surface (or in some cases exposed above the surface as an outcropping), which means that the proper way to do things is to drive piles to bedrock.
I am not a structural engineer, and I don't know what is necessary where you live, my list was made for my specific purposes and shared because it was asked, it's not an argument in favor of any specific structural techniques, you should speak to a structural engineer in your area.
> * Exterior door frames should be installed fully to the studs (e.g. use 3-4" long screws)
I'm almost scared to ask... how else would you install an exterior door?
These well sealed houses actually have /better/ indoor air quality than a typical house designed for cross-flow from open windows. The reason is that they use powered ventilation that essentially runs all the time, so you have constant fresh air entering the house and stale air leaving, and you have specifically designed and planned exhaust points. The bonus to it is that it's much more energy efficient because the ventilation can be done using energy recovery ventilators (ERVs) which equalize the temperature between indoor and outdoor air +/- 3F, greatly reducing the cost to maintain a set temperature indoors while getting fresh air from outside, and the air can be filtered through MERV16 / HEPA filtration, reducing dirt and allergen ingress.
If done properly, the absolute best indoor air quality is found in Passivhaus construction.
edited to add: the people who are really screwed are the people who need to work in a given location where housing prices are absurdly high and the housing stock is truly garbage. Silicon Valley and such.
Upthread somewhere I said my budget was $1.25M and I was having trouble finding houses that are even bordering on acceptable. I don't expect a house to exactly match my wants if it's not custom built for me, which is exactly why I'm resigned to likely needing to custom build (and surprised by how cheap it is compared to buying, when it used to be a luxury). The issue I have, and most people have, is that low-grade cookie cutter homes are MASSIVELY overpriced relative to their actual value as a place to live. Nobody in their right mind would be happy paying $850k+ for a KB Homes "starter home" in a suburb that cost less than $60k in materials to construct and was built to the absolute minimum standards they could get away with.
Seems to me that, if current trends continue, home ownership will basically become extinct; everyone will become renters. Home ownership will take the same path as music over the last 20 years, where we used to "own" music (CDs), now we just "rent" music through streaming services like Spotify. But that's just my 2-cents. I'm curious about others' thoughts.
The real analogy is furniture rentals for low income people. Paying 10x what something is worth for low quality alternatives and an inability to escape a cycle of being stuck renting when people want to buy.
I was coming from a perspective of ownership erosion, precipitated through the continuous encroachment of corporate rent-seeking behavior (because that leads to consistently growing revenue streams).
They'll just get sold and transferred to another large REIT and the house will never hit the market.
The housing market isn't going to crash. I foresee something like Australia happening: the prices just continue to go up, for decades.
Yes, this seems to be the trend. In fact, it's not just home ownership that is now more commonly being rented, even the cloths on people's backs is up for rent. Between the rent-seeking behavior happening globally and the gig economy, it's hard to feel optimistic about the future. There's of course that famous prediction from the World Economic Forum: https://www.independent.co.uk/money/why-you-ll-own-nothing-b...
I'd love to be proven wrong, but as you say, the rent-seeking is too damn high. I live in the US at the moment, but definitely looking to leave to somewhere with an actual social safety net / infrastructure.
Nowhere is perfect, but damn if the USA isn't moving backwards. I imagine the top plan to just hide in their fortresses / go overseas if it goes to hell (as the dystopian fiction tried to foretell).
So on the one hand you've unaffordable homes/apartments, and on the other automation coming at full speed.
So much uncertainty and insecurity. I'm sure civil unrest is coming.
The Instagram accounts with the $90k tricked-out sprinter vans are a vanishingly small fraction of that.
The “bubble” you’re describing is California’s homelessness crisis.
This really isn't bad, consider Toronto, Canada where house that's over 100 years old (tear downs) cost well over 1 million and increase in value by over $2000 a week, yeah you heard that right.
There are houses outside the city (almost anywhere in Southern Ontario)that were anywhere from 200k -400k pre pandemic that are now approaching 1-2 million. I have seen 50 year old 1200 sq/ft Condos in Toronto go from 300k pre pandemic to now 800k. I believe by the end of this year the average price of a house in Toronto Canada will be approaching 1.5 million plus and is probably on a trajectory of 3-5 million in the next 5-10 years. Before you say it can't keep going, it's been on this path for the last 15 years and is showing no sign of letting up.
Governments are bankrupt and can't raise interest rates meaningfully ever again.
By comparison, a GTA home with a sale price of 1.5M regularly sells for 1.5-1.6. But last year it would have only cost 1.2M (not joking, I've been watching that market for about 3 years). In Toronto, real estate is religion. It's how a significant fraction of the population accrues wealth. And owning a home is held as the highest ideal.
Also I agree, I would never waive an inspection.. but right now that's congruent with saying "I never want to buy a home".
Usually what happens is a seller sets the house up for viewings which are so packed you only get 15 minutes. Then they take offers 2-3 days from the initial listing date, where you will compete with at least 10 other offers (usually a lot more) in a blind bid. There is not room for conditions like a home inspection and home inspectors are actually going out of business because of it.
Wow, that is truly ridiculous. I guess as the saying goes, "it can always be worse". I'm glad I'm not trying to buy in GTA, at least. This is not a tenable and sustainable situation though, at some point people will be fed up enough it'll cause the break down of societies.
How much of that is completely self-imposed with out of control immigration quotas and a lax policy on foreing money laundering? [0]
The US needs to make a policy decision: are houses investments or a way to nurture and grow the lower and middle class?
If it's the former, they can use tax policies to encourage the desired behavior. Tax every residential home (single family or condominium) at 10-30% of its total value per year, regardless of who owns it. Give a complete write off for your first home. Maybe give a partial write off for your second home. Make owners bear the cost of appraisals, and if appraisals aren't available, tax them at the most expensive 90th percentile.
But of course maybe the US decides homes are investments. Great for the wealthy, but the lower and middle classes are really going to get hurt. Birth rates will slip even further.
They have. By not deciding, they have decided. It would be incredibly harmful to reverse course now. Typical US policy is to get backed into a corner until doing the right & obvious thing is incredibly difficult and practically impossible.
They already have. home buyer loans are backed by the government. You can write off loan interest. Investors pay taxes on income from the investment (net rent and capital gains) ...
Also just like in education space the more the government subsidizes the pricing, the more it gets inflated. So more incentives will just lead to more demand and higher prices.
What we really need is more supply and elasticity. More houses, and more people willing to say "F--- this I'm moving to CheapTown"
Which only matters if you somehow go above the crazy high $25k standard deduction.
I am fairly well off and have kids and student loan debt to write off interest on as well, but I've never broke $19k in write offs.
So, unless you have a business or something, the interest write off is kinda useless.
Ish...
2500 in property tax (house is >100yrs old), and 3.125% interest on a loan w/$285k left on the mortgage.
> 10k for state taxes
Are you saying you can write off your state taxes?
People keep saying this, but I haven't seen any real evidence of that. In education or personal home ownership. Do you have any studies that actually show any causation, or is this all correlation?
In some places that may be true, but I was able to get a home last January on a single relatively moderate-high tech salary, I have a friend that signed for a home on a single person decent salary as well near me, and my next door neighbors again single relatively decent tech salary just bought a new home elsewhere.
You may be right about places in like LA or Toronto or NYC, but to generalize that everywhere is a little absurd. I know that the market I fled in UT was that way, and things are getting pricier here in the neighborhood that I am living in, but we are definitely in the middle of a crazy bubble right now; however it won't last forever, things are going to pop eventually. There are good affordable places to live even if they aren't in CA. Much of the Midwest is great, I think part of the bump we are seeing is rise of remote work exacerbated an already existing bubble brought about by government subsidization as it allowed tech salaries to be redistributed geographically.
I do agree that part of the problem is large investment firms purchasing housing as an investment and an article the other day on here pointed out how they are able to take advantage of government subsidies to purchase more homes, but a bubble can't last forever it will pop, and I feel like the popping is going to come soon.
Do you actually have any evidence this is true in "most" markets? It seems like only in a few markets around highly-desirable cities is this true. Farms don't sound like they're going to be representative of the types of housing that most people are looking for.
I'm 45 minutes south of Seattle and I purchased a large house with a backyard, recent-ish construction, no contingencies waived, for less than what a 500sqft loft is going for in Seattle.
I put farm in quotes because they are intentionally mining the land of all long term fertility - not a problem as it won't be farmed in a few years anyway, but if you intended to farm for more than 10 years then proper care for the land will ensure better profits of the wrong run.
There's a reason Bill Gates is the nation's biggest farmer.
I study the RE market in several places that I am connected to every day - I watch houses come on the market, and are under deposit within days. I feel really bad for young people looking to buy their first place (including my kids) - they can't pay cash, and they are on a budget - they have almost zero real options other than to continue to rent and wait for a RE crash. IMO, it's coming, but who knows when.
The only reason there are any decently priced houses where I am is that a lot of them are over 100 years old and some of the school systems are so bad even our current asset bubble can't make families want to live there. (So no point in buying to rent out for twice the mortgage because no family is paying 2000/mo for a house in a school district with a math proficiency rate of 15%.)
Now image you missed out on ten houses you wanted to buy before this one, and are exhausted by all the effort.
In the highest demand cities. Move somewhere that is either 1) Building a crap ton or 2) in lower demand
My gut tells me people will then complain that the housing market in places like this are not worth buying into as houses are only increasing at the cost of inflation.
Everywhere in Canada but Vancouver/Victoria have -20C in winter.
> the economy is heavily reliant on one industry (oil)
This is the real issue.
But it only happens for a couple days a year in Southern Ontario, even less common near a Great Lake
Granted its been nearly a decade since I've been there, maybe covid broke it. But 17th ave, Stephen ave mall, kananaskis, banff, breweries, river bike paths, reasonable food scene (for it's size and not being on an ocean), go to Edmonton for the weekend (it's only a 3hr drive, or a short flight), sylvan lake day trip, lots of conventions/shows on the stampede grounds... THE STAMPEDE!
What is it you're looking for it doesnt have? (or what has change since I've been there?? )
The common complaint I saw at r/Vancouver and r/personalfinancecanada was that the food scene was lacking compared to those cities, and the conservative/redneckness of the city/province.
Really encourage you to go. It's beautiful, and if you like hiking/mountains you have a "playground in your backyard". After moving to the bay area I was so spoilt and couldnt believe people would drive 3-8 hours (traffic) to Lake Tahoe, when I was used to 1.5 hours and sleeping in my own bed that night.
Many of those who moved to that HCOL area did likewise--which probably contributes to it being a HCOL.
Not saying it's trivial but many people in the US move for all sorts of reasons including people who strictly speaking weren't "forced" to.
[1]: and when there is such a case people often play arbitrage or other economic games to close the gap quickly.
let me translate..
"Quit your job and leave behind everyone you love"
as an immigrant to the US, i can share that it has been hard to do "leave behind everyone you love", but also I met new people I love as well.
It's ridiculous trying to buy a house now is like it's buying from the Louis Vuitton store or trying to get into a fancy club - especially when the "thing" is a normal-ass house in the suburbs.
* Plenty of places in the Midwest (Arkansas and Kansas, for example) are depopulating. Affordable real estate exists there - https://www.arkansasonline.com/news/2021/oct/08/populations-...
* Mobile homes seem a not-great-but-doable alternative. Still money to be made, particularly if they have a "tiny home" vibe.
* Multi-generational mortgages. Again not great, but not everyone has access to $1-2MM.
This sounds like literal debt slavery. I'm not sure this is even legal in the United States, and if it is, it shouldn't be. This is a type of financing that cannot be described in any other terms than being predatorily usurious.
I imagine you are getting downvoted because other users believe that you are proposing these as viable options. Mobile homes are not constructed to even the horrid minimal building codes that a free-standing structure must meet, so don't even remotely qualify as "efficient, reliable, and safe", and I've already said my piece about multi-generational mortgages.
So, why not the Midwest? I actually grew up in the Midwest and have nothing against it, in point of fact. I think a lot more people should move to the Midwest and that it has a lot to offer. For me, particularly, I am moving locations for family reasons, so the location I move to isn't so much my choice. If I had my choice, I'd actually really enjoy some places in the Midwest, in fact one of my favorite cities is KCMO and I also really enjoy parts of Arkansas. The reality though, is even in the Midwest the places that are actually nice to live and have real broadband Internet service cost quite a bit, maybe not $1M, but at least $450-500k for a decent house.
I don't get how people are still buying houses at these prices. Are they paying beyond their means? Wiping out their savings? Or what?
You must be in an abnormally hot market. That sounds pretty awful.
Zillow’s home-buying program called “Zillow Offers” has been shut down. They overpaid and had $400 million losses in 3 months
https://www.nytimes.com/2021/11/02/business/zillow-q3-earnin...
> The Post analyzed Zip code-level data provided by Redfin. Redfin defined investors as buyers whose name included the keywords “LLC,” “Inc,” “Corp” or “Homes,” or whose ownership code includes the keywords “association,” “corporate trustee,” “company,” “joint venture” or “corporate trust.” (For our analysis, Redfin excluded the buyer keyword “Trusts” from its analysis to be more conservative in its findings, since some families own their homes through trusts.) Redfin included the 40 most populous metros where counties disclose sales prices. Redfin’s metro boundaries are either Metropolitan Statistical Areas or metropolitan divisions, depending on the metro.
The Post excluded Zip codes with fewer than 10 sales in 2021 from the maps, and those with fewer than 25 sales from the race and income analyses.
Race and income data is from the U.S. Census Bureau.
It massively reduces headaches for your descendants upon death but AFAIK it makes no difference in terms of taxes.
Anyone who has a little bit of assets (a single house is enough) would be a fool to not have a living trust.
Apparently there are some potential tax optimization options as well, but I don’t know how that really benefits my particular case. (It’s definitely why we did it.)
Here’s more info:
https://www.scscourt.org/self_help/probate/medical/living_tr...
> Real estate investors can be large corporations, local companies or wealthy individuals, and they generally don’t live in the properties they are buying. Some look to flip homes to new buyers, while others rent them out.
The methodology described above does not catch individuals buying houses to rent out.
I actually like the methodology, because I think residential housing capture by corporations is an important (and negative) feature. But the article text makes it sound as if they are also describing people choosing to buy a single rental property, and I suspect that even though this may have negative effects on the housing market, it should likely be considered differently from the purchases made by entities caught by Redfin's methodology as described.
It's when surplus savings is invested in ways that cause active harm to real people, communities, and productive businesses.
The pollution term comes in because this investment often flows from somewhere else. In the case of RE a lot of it is flight capital and money laundering. Money is being haphazardly parked somewhere that is not only non-productive but actively anti-productive. The people doing it don't care because they don't live there or are too rich to be affected, just like with many other kinds of pollution.
It would be fun to try to model these things to estimate the magnitude of economic damage resulting from fiscal pollution.
If you own two homes, and you rent one out as a source of income, but all of a sudden that tenant doesn't want to pay, you have a problem. If you own a portfolio of 100 homes, and half the tenants don't want to pay odds are you can just sit on your appreciating assets until you sell it anyway.
What's even scarier is many of these units are going to remain un occupied forever. If you buy a house, and it goes up in value $50,000 per year, it might be easier to leave it vacant. The only solution is much easier zoning, and laxer building requirements.
For example, in LA apartments are mandated to have a parking space per unit. This can easily make the apartment cost 30 to 40% more to build. So the only apartments getting built start at $3,500.
I'm hoping this does eventually spur some change, it's getting too hard for working class people
This is a really good perspective!
I’ve been mentioning to people to remember that their local landlords - their neighbors and existing corporations - are just as responsible for gentrification when raising rents and asks to the highest possible rate their market will tolerate. They always had the option to do so but didnt take the gamble, they still dont have to, so there is an opportunity to point fingers at them more than the out of towners signing or moving in. Pressure might actually work for the landlords since they have a local network, compared to the out of towners who often times have nothing to do with what price is offered to them[0]. The landlords didnt have to raise but the speed at which they all are really could be related to trying to have an investment property during a time when their municipality was not a market based economy.
[0](Although there are also many people buying/renting way over the asking price, as well. Most landlords are just jumping on the bandwagon, hoping to see if the market applies to them too.)
I can’t wait to get out of this situation because I hate it and feel like I have no control over my property but the government incentivized them to not pay rent.
For now, I am also incentivized to not put them out on the street and deal with all that if I think I am ultimately going to get a fat check from the state. I expect this is not going to end well for anyone.
I have a friend, and I use the term loosely, who foolishly purchased a house to rent out despite having to go into massive debt to do so. We're talking credit card debt because he couldn't afford to refurbish the building.
If a single tenant has a bad month, he's having a bad month.
I'd rather invest in anything else.
I actually think standalone single-family homes are kind of outdated. I want the freedom to live without a car, In an urban setting. Nothing like being able to walk to your local bar, Walk to the supermarket, and then take a train to a concert.
The eviction moratorium didn't take anything from landlords, which is why the courts allowed it. They simply had to wait for payment and couldn't evict. The tenants still owed rent.
The alternative was potentially having roving bands of millions of angry, newly homeless people violently overthrowing the government, in which case landlords would be in an even worse predicament.
> I can’t wait to get out of this situation because I hate it and feel like I have no control over my property but the government incentivized them to not pay rent.
You can seriously look at housing prices and think to yourself that now is a good time to short the housing market?
Crazy how long it took the courts to overturn that. The eviction moratorium was imposed by the CDC, keep in mind. So the CDC has authority over private rental stock now?
It's something you'd see from the CCP in China
It's like, if having one fewer stairwell was so tragically unsafe, why are we not demolishing all of our single stairwell apartments across the country and starting over? Why let them live in such unsafe conditions? That's because they aren't tragically unsafe. Local leaders have just parroted a handful of rare events to justify adding yet another layer of process to development, another cost, another factor that makes it just a bit less financially safe to build an apartment as a developer, much less a small business landlord.
It all adds up. It's a death by a thousand cuts. If we the public fixate on just the one thing that the media presents on it, we allow those who benefit from the status quo to divert attention from the entire set of systematic issues that has to be fully appreciated in order to be fixed.
Amen, something like my first apartment,a $600 place where you didn't have a stove, didn't have a parking space and definitely didn't have a balcony, would be illegal to build.
I strongly suspect this is to drive poorer people out of certain neighborhoods. I saw a fantastic Reddit post once we're a building architect outlined all the stupid reasons. You can't build affordable housing in LA. Fighting years and years of legal challenges, having to have a minimum amount of outdoor space for each unit or whatever . Whatever .
Are any cities in America building compact transit friendly living space? I really want to travel more and see how other countries do it.
Changes to the tax code are a better fix. Investment properties (non-primary residences) should be taxed more heavily; unoccupied properties even more so.
Recurring land value taxes would prevent people from hoarding property as an appreciating asset without putting it to productive use.
There is an awful lot of people, myself included, that don't feel vacant land is 'unproductive'. We still need trees, and places for animals to live. I for one don't want to see all available land developed.
Single family residential REIT as a category should not exist. Caps on landlord ownership should be enacted.
Like medical and food, shelter is a fundamental human need and it is very dangerous to introduce a profit motive without very substantial government regulation. The rate of investor ownership is getting uncomfortably close to feudalism, at least in areas and categories and price points of homes.
We need more low cost apartments and condominiums that are close to jobs. Low wage workers are being expelled from urban areas because they cannot pay rent, and are forced between living in slum like urban conditions or paying high costs to commute from distant affordable areas. Corporate ownership of housing won't solve their issues, solve zoning issues, or increase housing starts.
edit: "off-limits" to the extent homebuilders could make a profit and lenders could make a profit, but not excessively.
Additionally this does not make any positive impact on the construction of new housing.
Where? I'd like to show it to people.
This is undoubtedly true, and hurts potential first-time-buyers in those neighborhoods, but at the same time it benefits existing homeowners in undervalued neighborhoods by increasing the value of their homes.
Having predominantly black neighborhoods cost less than comparable neighborhoods that are not predominantly black is probably not, on balance, a good thing.
Predominantly renter class people will not benefit from housing value increases. Their landlords will, though.
Tell me you're not in California without telling me you're not in California
The only places where you don't see this happening are also places where you can't get a proper broadband Internet connection, which makes it a nonstarter for even remote workers. So, really, no. My sister had this issue buying a farm in Eastern Colorado (which is not even considered a desirable area) more than an hour away from Denver, as a simple personal example.
Maybe, but not all markets equally, and not all market segments equally. I bought my townhouse in 2015 and Zillow says it's now worth 8.6% more than I paid for it.
I don't know the numbers but a buddy of mine who bought a 1-bedroom condo in 2008, and then ended up starting a family, has been renting it out for years since he's underwater on it. I would have thought the past year would have gotten him to the point where he can finally break even and get rid of it, but apparently not.
I think this has always been the case, but especially in COVID times, single family homes seem to be outgaining townhouses, which are outgaining apartment-style condos.
Prices everywhere are relatively high, relative is important. You might have your remote gig, enjoy it. You are of the few. Most people are finding their remote gigs are turning into hybrid gigs; the old guard doesn't care you are efficient at home. So now you are beholden to local jobs anyhow even if 50% of it takes place on zoom and 100% could easily be done as well. If you want to take advantage of midwestern home prices, now you are being paid at midwestern salaries and competing with midwestern doctors and lawyers and business executives like you did in the bay area. The octave has shifted by an order of magnitude, but its the same song you are playing. The same lack of supply. You might even net out worse considering the tax structure especially on property in different places means your costs might go up as real estate continues to go up, and your salary generally does not tumble up 10-20% per year to help you afford those reassessments, and there are few places you can laterally jump ship to and find higher pay in the much smaller midwest (which is why educated midwesterners flee to places like the coasts for their jobs anyway; its cheaper on paper but its often not in practice).
This has not been true since COVID.
Sort of true, except it is far more than 30-40 minutes away. You'll have to commute at least ~4-5 hours from the bay area to get into affordable territory.
Even at the peak of 2006 era lax underwriting standards only 70% of households were owner occupied. It’s a utopian but naive dream that if somehow we just tax renting enough everyone will magically become a homeowner.
There will always be a segment of the population that needs to rent. Rent taxes will massively drive up their living expenses, and have an at best marginal increase to home ownership rates.
Coincidentally, increasing rental turnover is a great way to discourage small-time landlords as a vacancy for 1-2 months can often wipe out any hope of profit or even just covering the mortgage for the year. Most small time investors would see buying a rental property as a money losing investment.
Also, why would everyone want to be a homeowner all the time? Renting is preferable for many at different stages of life. 70% is probably the most it should be.
The problem is not the finance stuff, it's the lack of supply and the crunch will not reverse until the US learns how to build abundant housing. It'll either break quicker than anybody thought possible or last for another generation. Who knows.
Regardless, artificially taking the REITs out of the equation won't fix the problem. The reason they're buying is that housing is a good investment. The way you fix that is by making housing a boring, low return investment.
This is key. Home prices in the US are kept artificially high by zoning laws. I can maybe imagine NYC to have high prices, but I can't imagine a city like Austin,Tx to have home prices triple every year.
Its insanity triggered by the Fed.
The Fed should be reigned in by having them not participate in the mortgage market
The market is not working.
There have been big improvements in the following areas, and I'm excited to see them develop further:
1) Solar power and battery technology
2) Water filtering technology
3) Satellite internet
4) Geothermal heating /cooling
5) Insulation
I believe further improvements in these areas will drastically decrease people's reluctance to move out to the country.
1)Doctors/pediatricians/dentists etc.
2)Emergency veterinarian (for those late night "what the hell is going on with my dog" moments)
3)More than 3 lousy restaurants
I'm sure there are many more, but these are the ones that were the biggest shock to our family!
If you sell stock and buy another stock, you have to pay capital gains. If you sell real estate and buy other real estate, you don't. This is dumb.
At some point, it becomes far more profitable to build a housing development or luxury apartments than regular affordable apartments. Some places have zoning that limits new construction but even if they didn’t, all you’d get is housing built to chase the highest profit, single family homes, luxury apartments, and 55+ apartments, instead of affordable apartments.
The low income people I know all commute an hour or more into the metro areas because of their car allowing it.
This is, big picture, the death throes of a dying society, where the wealth has been stolen from future generations so much that there is no stronger incentive to produce and build for the laborers required to sustain a general economy, but rather it is most profitable to simply bleed off some wealth from the holders of it instead with ostentatiousness and luxury. Everyone is just trying to steal a piece from each other for themselves like in crypto instead of creating value.
But now it's not just even about your house. Now your 401k might be tied into one of these investment firms that flip houses. So trying to convince a retiring boomer that not only will his house be worth less, but also his retirement fund might dip? Not gonna happen.
My main hope is that WFH tech gets so good that living near a city is no longer a competitive advantage.
And I wasn't just looking in the heart of gentrified neighborhoods either (didn't even bother with Canton/Fells/Hampden/Fed Hill/etc). I was shopping for over a year back in 2017, and even when I found a place in need of some work, a little ways out past the recent renovated flips and dual-income-large-dog-owners, I'd still get beaten by cash offers, even if I put in my offer the day it went on the market.
Those "decent spot, but haven't been updated in a while" places are prime picking for flippers and rental property owners, whereas in the past those were how you got a deal and "bought up" into a halfway decent area without mortgaging your life away.
We picked up a 2 bdrm/1.5 bath for ~190k in 2019. We're within walking/biking distance to a ton of cool restaurants and things to do.
Whether said Boomer can be convinced or not will soon be immaterial.
I wouldn't be surprised if in 10 years they pass laws to take us back to only letting land-owning citizens vote. Anything to keep themselves in power.
Membership form: https://docs.google.com/forms/d/e/1FAIpQLSdDTgY0TDZ5wz73_3Wf...
For example 50 story skyscrapers are actually slightly cheaper per square foot than 10 story buildings on a per square foot basis. Without artificial restrictions on density, the cost of housing is essentially invariant to the cost of raw land.
Maybe if we allow homes to be investments (to spur development of homes in locations and of a certain design/quality as demanded by the market), then the government should be required to provide a basic home for every single person that requests one.
We can't keep talking about how great capitalism is when it turns most of the "lower class" population into sickly renters.
There is nothing to do with Crony Capitalism in this discussion.
>Does it make it crony capitalism?
No one said it did?
Ban institutional investors from the single family housing market.
It's completely ignoring the massive wealth drain on the average American. There's an enormous opportunity cost.
Realistically, we're in a place where significant prices increases (which has happened, obviously ) and a significant price drop would both have a significant economic impact. Both groups (home owners, and renters) are large. And while a chunk of people that own homes are investors, there are a ton of people that own their home and pretty much depend on selling and capturing the equity in the future for either their next house or retirement. Many of those people are just middle class folks, well into the fat part of the bell curve. Obviously on the flip side, more expensive homes makes it more difficult for new homeowners to buy in, and break out of the renting cycle, build equity, build wealth, etc, etc, and that's also bad. Just wanted to point out the flip side of it.
I get that this seems like an unpopular observation on HN. But still, any significant price reset on real estate in the US would cause a LOT of people to lose a huge amount of their net worth. And if they recently bought their first home, they will then be massively underwater with all of the negatives that brings.
It's pretty easy to say that only investors are going to lose, without appreciating that you're advocating for destroying more than half the population in order to provide a better future for the remainder. Think of a better plan.
It absolutely wouldn't because first time buyers would still be competing with investors, except the investors would be able to buy properties in cash with no need to spend time arranging mortgages, and with guarantees that they won't need to drop out of the sale because it'd happen so fast, which would be very appealing to sellers. Plus, investors would still be able to outbid private buyers no matter even if prices are lower. Everything about selling a house favors selling to an investor (apart from morality maybe).
At this point a house price crash without legislation to block corporate investment in housing stock would likely see a massive shift of ownership from individuals to corporations.
Genuine value of a property often raises.
For example access to a new train station.
Access to a school that starts performing better.
Features that people want where the supply is going down.
The goal of increasing supply is to lower returns to such a point that they remain attractive to first-time buyers but are suboptimal for the institutional investor.
Cars are an expensive depreciating asset, and the car economy works just fine.
Oregon did it at the state level in 2019 with HB2001.
https://www.usatoday.com/in-depth/news/nation/2021/04/14/zon...
2. There’s a limit to how much housing can be built in an area, but no limit to the leveraged purchasing power of an investor.
If you look at high density property markets around the world such as several Asian cities and NYC, I think it’s clear that more construction alone can’t stop price increases due to speculation.
NYC is a good example of my original point; NYC barely builds any housing in a proportion to their existing housing stock, and they aren't even that dense outside of Manhattan!
By limiting investors you'd likely slow down an individual's appreciation on housing as an investment, but I can't imagine it would disappear entirely.
Not really effectively. There are two big problems.
The most fundamental is: If you have a good return on your house (outstrips inflation by a decent amount) and wages stay flat (actually it's been worse than that recently) - who do you think is going to be your buyer 20,30 years on?
The other: You can't effectively keep rich people and institutions out if the ROI is good enough. If their money doesn't have a better place to go, it will end up here some how.
I agree - I personally never thought of my house as an investment, doesn't really do me any good that it went up in value unless I plan on selling it - and then I just need to plow the money into something equally inflated value since I will still need a place to live. Maybe when I die and my kids benefit, but what my house is 'worth' doesn't mean much to me while I am alive.
Housing is scarce and kept scarce by owners through NIMBY legislation.
That scarcity drives prices up.
Plus 30yr fixed rate interest in the US makes it a decent leveraged bet and has weird market effects in addition to that.
We need massive zoning reform, cut back on NIMBY enabling policies, and massively reduced mortgage financing. People hate on them, but 5+1 housing can enable large walkable cities, which are much better for the environment and allow people to build roots in their community through property ownership, families, and long term residency.
I think this is true, but is missing some nuance that changes the equation. The conversation is /and should be/ about the fact that buying w/ a mortgage means that the payments you make every month create equity (ownership percentage) and have an end date where you fully and outrightly own the property you live in. Rent is a situation where the payment never ends, you never gain any ownership or equity, and you will never own the property no longer how long you rent. Classifying this as an "investment" is true, even if home values don't outpace inflation, because its an equity asset you can later sell and recoup your equity.
But that conversation is not remotely the same thing as foreign investors using Western real estate to launder money they smuggled out of corrupt dictatorial regimes and Wall Street colluding with each other to buy up housing stock in a rent-seeking bid to extract as many pennies as possible, even if it puts working citizens on the streets.
I think making the false equivalence between them does a disservice to home buyers. While it is absolutely true that resident home buyers should value a property primarily /as a place to live/, their understanding of the economics of renting vs buying does not make them part of the problem. The problem is systemic and starts with allowing foreign corporations or foreign-directed corporations to buy real estate and the existence of REITs.
Its buying a second house that makes your position long.
It'd be great if Gordon Gecko were the boogyman but the fact is that Mom and Pop petite bourgeoisie are the ones responsible for the disaster we're facing.
Clearly that's not true. A lot of people bought homes on the desire to live in them and for their children to have a stable place to grow up.
Investor means someone who bought the house strictly as a means to make money with no other motivation. Like buying a share of stock.
Most individual homebuyers don't view it that way.
They claimed they were helping the middle and lower classes with all of that money printing, but what they really did is send a 600$ check and then push those classes further into wage slavery. We are watching the looting of the american citizen in real time, communism/collectivism is once again the wolf in sheeps clothing.
There is no free lunch.
Last thing, theres an equation in finance, I forget it, but roughly:
Cost to borrow money (for an institutional investor) and buy a home with that money, is generating a positive return. As long as that is true, they will continue purchasing homes at a rapid rate. This is a monetary issue, money should not be available to buy homes like this. This is incompetence and negligence from the financial elite governing our nation.
Really the most concerning aspect is that the cost to build new housing has drastically gone up. We are at an all time housing deficit. I don’t see how that corrects itself unless we get to the point where building a new house is cheaper than buying an existing house.
Basically, from a finance perspective:
Cost to borrow money (for an institutional investor) and buy a house with that money generates a return. Meaning they can buy these homes up all day long and make a profit.
Because of these facts, I don't see this trend of investors gobbling up SFHs to be sustainable. I suspect most of them are in this for a quick buck, and will quickly dump these homes the minute it becomes obvious that this was a dumb idea.
Any idea why? This is a life plan for my wife and I, we're currently looking for the right spot of land (~10 acres) and then we hope to start building in ~5 years after significant saving and planning.
We're in the initial stages of planning out our floor plan/etc, and costs are high, but we haven't really noticed a huge difference between building and buying. .. but i suppose we also aren't far enough long that we're getting real price estimates either.
While the post is worth a read, the TLDR is that there are multiple issues, each of which could seemingly independently be the source of the increase.
If the US returned to a 1950s style tax system or enacted very high wealth taxes this problem could be avoided, but the forces arrayed against you for proposing such reforms would mean political suicide for anyone who does it.
Which makes me think that the problem will get worse until some sort of structural break occurs (at which point, as with 2008, it'll probably get worse at an accelerated rate with a cure worse than the disease).
The net effect would be the same. It doesnt restructure everybody's relationship to capital it just restructures the form in which capital gets hoarded and deployed.
A high interest rate with high wealth inequality just means that the wealthy suck wealth from the middle classes by lending out money instead of renting out property.
Either way you're still getting screwed it's just the delivery method that changes.
Monetary policy was necessary. Only lower interest rates for the poor, not for the wealthy or for institutions with assets.
This includes tech exploitation of 'users' who can't kick the tech habits from their life because they are designed to be addictive or essential.
Let's introduce some facts.
1. The inflation-adjusted cost in $/square-foot of a house in the United States remains unchanged from the 1970s according to BLS data. Wages kept pace with inflation (but not productivity). Okay, so why are houses more expensive then? [1]
2. New homes have on average twice the square footage that they did in the 1970s and this is particularly felt outside of urban areas. This is due to zoning rules, setback rules, minimum size rules, etc.
3. Since the 1970s, major metros have significantly restricted new development. San Francisco built less than half the homes needed to sustain the increase in demand over the same period. [3] This is managed through punitive zoning rules and obstinate city councils.
Houses in places people want to be became way more expensive because supply was not allowed to grow to meet demand. Houses outside of these urban areas are now twice as big. Housing is expensive because Americans believe housing should be an investment first - and the goal of an investment is to become less affordable over time.
You cannot have something be both a good investment and affordable. You must pick a lane.
We know it's not what's happening in housing because Japan has basically the same monetary policy, and the same low interest rates - and has tripled their M2 money supply since 1990. But their CPI and their cost of housing remain dead-ass flat for thirty years. Because they have federal zoning rules that allow supply to meet demand. Look at this graph. [2]
Your cause is noble but you're pointed in the wrong direction, Quixote.
> We are watching the looting of the american citizen in real time, communism/collectivism is once again the wolf in sheeps clothing.
We in this case is not the Fed (properly capitalized this way btw) it's city councils. And that's not communism, if anything it's feudalism.
[1] https://fee.org/articles/new-homes-today-have-twice-the-squa...
[2] https://fred.stlouisfed.org/series/JPNCPIHOUQINMEI
[3] https://en.wikipedia.org/wiki/San_Francisco_housing_shortage
The ones that stand out as having the most liberal zoning rules see the lowest increases in housing prices.
It's very true if you are lucky (or smart, depending on who you ask) with the location it can be an incredible investment. But there are many neighborhoods where houses barely increase or even decrease in value as well (relative to inflation).
If you compare it to the S&P 500 over the past 2 decades as well it probably fares far worse.
I understand in certain markets if one is diligent they can be quite profitable as a real estate investor. That is not what I am talking about - I mean the median U.S. home. That's not quite as strong of a case for investment. I'd suggest most buy a home for lifestyle first, and maybe at best a forced savings account second.
But huge congrats to those living in areas which have seen incredible growth! Just understand it's not the norm.
Now what happened this past year is rather peculiar and it's going to be interesting to see how that unfolds.
This isn't actually relevant because mortgage interest, minus tax credits, is well below inflation. The base case on a 30 year fixed is that you end up ahead just by having the loan.
> That is not what I am talking about - I mean the median U.S. home. That's not quite as strong of a case for investment. I'd suggest most buy a home for lifestyle first, and maybe at best a forced savings account second.
I'm not sure there is a "median US home" because it's super multi-modal. There's an urban homes, suburban homes and exurban/rural homes. Each will have a different risk/reward profile.
> Now what happened this past year is rather peculiar and it's going to be interesting to see how that unfolds.
Indeed.
By the way, all this is to say, I also do not think that buying a home a guaranteed win by any stretch. You have maintenance/upkeep costs, insurance costs, potentially HOA dues. You lose a lot of flexibility. And potentially most importantly, you lose out on the opportunity cost associated with your down payment. Plus, you have a lot more risk if the market moves against you. Returns are never guaranteed even if you're in a historically appreciating market.
There's some great calculators that cover all this to tell you if you should rent or own - and in my early 20s, the calculator rightly said I should not own, even though I was in an appreciating area. [1]
[1] https://www.nytimes.com/interactive/2014/upshot/buy-rent-cal...
> People dont understand, when you make the interest rate on money so low, people can borrow billions and throw it into new assets, running the cost up on those assets.
People understand that very well: it's the fundamental reason for lowering interest rates, to encourage economic activity. Sometimes you need more economic activity, sometimes you need less.
It’ll revert to the mean. Even if it’s greater than g due to an exceptional investor like Warren Buffet, eventually his heirs will take over, and they are likely not as good as he is. It is profoundly hard and unusual to keep a family rich for many generations.
The reversion to mean will probably happen as a result of a violent structural break, though, not as a gradual reversal.
This means economic or political crisis. And, the same people who were made so fantastically rich from r > g will likely be the ones deciding what to do about it.
It's not like governments will wake up from their stupor and implement a basic income. Whatever happens (fascism, war, financial crisis), it'll likely make us wish for the good old days of right here and now.
I'm almost more afraid of the structural break than I am the inexorable rise of wealth inequality.
Thomas Piketty would like to have a word with you.
https://en.wikipedia.org/wiki/Capital_in_the_Twenty-First_Ce...
https://marginalrevolution.com/marginalrevolution/2014/05/wh...
Your link is somebody arguing that perhaps the data doesnt look so bad if you squint at it in the right light.
It's not a refutation. it's not even a rebuttal. It's basically disapproving FUD - "oh well if you pretend the 2008 housing bubble never happened things dont look quite so bad...". Um, ok?
There's even a little plea at the end for the reader to "understand that this is all very complicated and hard to understand". How scientific.
Of course, it is quite complicated sometimes and when he tries to break it down himself he gets himself in knots trying to defend inequality: https://www.nakedcapitalism.com/2012/11/desperate-effort-by-...
Subsequently empirical research has found that Piketty's conclusions are extremely sensitive to the way he slices the historical data and the modeling parameters. At best that's evidence of an incompetent econometrician who doesn't understand the tools enough to perform the required robustness checks. At worse, it's evidence of data snooping to shoehorn the the results into a pre-determined hypothesis.
But you don't have to take my word for it. The IMF itself performed an exhaustive robustness check and found that Piketty's conclusions simply don't hold up:
With government intervention, this can last for as long as the government lasts.
Governments are subject to math, even if it takes a while for the numbers to add up to a problem.
But it can last for a really long time, and if something lasts for more than your lifetime, do you really care that it's finite.
Inequality doesnt really have an inbuilt limit as such and we are still a way off people owning entire countries, which wouldnt be without historical precedent.
2. A wealth tax would be hard / impossible to implement.
What do you think property taxes are?
I agree it would be really hard to tax all forms of wealth. But I'm fine with rich people hiding their wealth in artwork or stamps or whatever to save it from taxation. Keeps the money out of useful assets like stocks and houses.
How does stock have utility anything like housing?
If you are purely an investor then the utility of equities vs. real estate is the same -- it is an investment.
(There is debate on this point; I personally find the side arguing that such a tax would not be barred as needing to use fairly tortured lines of reasoning to arrive at their conclusion.) If you can’t pass a wealth tax federally, then whatever state wanted to compete on having a low/zero wealth tax would find plenty of wealthy takers as residents.
Property taxes are a common type of use tax.
The net effect was the same. Putting an effective cap on income throttles wealth inequality growth.
>A wealth tax would be hard / impossible to implement
It absolutely would be. Any political effort to do so would be sabotaged every step of the way by institutions dedicated to protecting enormous agglomerations of private wealth.
Moreover, closer it got to the finish line the more willing American oligarchs would be to flirt with political violence and ally with and organize the underlying, disorganized currents of fascism in order to keep their wealth.
This is a path we've been along before, almost 100 years ago.
However, the US middle class was more willing to organize and fight to protect its interests back then. There were actual communists among them and the US government was legitimately afraid enough to kowtow to their demands every so often. Not any more.
It’s also operationally almost impossible to implement, as what counts as ‘wealth’ is highly ambiguous, and in most cases valuing it even in the best situation is nearly impossible. In a taxation situation even more so because it isn’t changing control between disinterested parties, so there is no one who has the time to really look at and form their own opinion and holding anyone accountable to it on a short timeframe.
A lot of the trump real estate scandals are from him (supposedly) manipulating real estate appraisals for favorable loan and tax purposes, and that is for something with relatively easy/straightforward/understood valuation and an army of appraisers.
Private equity? Partnerships in ongoing concerns? Controlling vs non-controlling interests in various things? Trusts?
There are so many valid ways to look at, account for, and structure these - and they all have wildly different values, levers to change those values, and short or long term valuations and cash flows. If you own a controlling interest in a large business, but don’t sell anything and don’t have income from it (you reinvest it in the business), that may or may not be a lot of wealth. If the business tanks without it, was the business worth anything? Or was it worth something and then it was another factor that killed it? If the business is producing a lot of cash and the owner pulls it out, that is clear measurable income and easy to quantity.
To the point if you threw 5 independent evaluators at any of them you’re probably going to get 7 different actual numbers, all meaningfully different, and all of which could be argued are legitimate.
If the wealth tax goes after real estate, folks just won’t put their name on it directly and voila, good luck.
This is also despite those alleged shenanigans being hamhanded and pretty obviously done and by probably the most well know and controversial ‘wealthy person’ in current society, enforcement still not only didn’t work, it still hasn’t actually been enforced. And is surrounded by massive controversy and legal BS and will probably drag on for another decade.
It’s like pointing to OJ Simpson’s murder trial as an example of swift and non-controversial justice that supports your legal policy?
Therefore, a wealth tax would either raise money or discourage a form a fraud. It's a win either way.
So you had a strong incentive to increase salaries, hire more workers, invest in more machinery, diversify, etc. simply because getting more cash out of a business wasn't worth it
Unfortunately they focused on increasing executive salaries and forgot about the rest.
The "impossible to do" is a common excuse for people just not wanting to do something.
The common excuse is that the ultra wealthy aren't actually cash wealthy. They have all their wealth in investments that are rarely if ever actually realized. People throw their hands up in the air and say we can't tax unrealized wealth. But how do wealthy people get cash? They borrow millions, hundreds of millions, or even billions against their unrealized wealth. So limit or tax their borrowing of this money such that it forces the realization of wealth, which would be taxed, or they are taxed on what they borrow, respectively.
Interesting idea. We sort of already do this, we apply property taxes based on the value of the property as pegged at purchase (re-assessed over time). We could exempt loans on collateral already subject to property (or other value-based) taxes, but could then put a wealth tax on any other asset used as collateral for a loan at the collateral value agreed on by the lender.
If you do not recognize unrealized losses, it strongly biases investment toward low-risk rent-seeking investments because the expected return is much higher than long-term high-risk investments under this tax regime. Startups, biotech, etc become unattractive as a place to put money because the financials don't make sense relative to rent-seeking and investment is not a charity. Paying taxes on non-liquid assets is a massive risk for average people, greatly reducing the practical investment opportunities available to them.
If you do properly recognize unrealized losses, it creates a scalable new mechanism for tax avoidance that would reduce tax revenues. Not only are valuations strictly notional and effectively fictional for many assets, but intangibles are often entangled in asset values that can't be accounted for in a sane way (e.g. the act of transferring an asset can greatly reduce its value ipso facto). These intrinsic logical inconsistencies allow almost any tax story to be constructed using assets.
While no government wants to deal with the consequences of broadly recognizing unrealized losses, they also don't want to incentivize all investment to go into low-risk rent-seeking endeavors like real estate instead of long-term high-risk investments in technology and innovation. It is a damned if you do, damned if you don't, so governments generally opt out of this type of tax altogether.
The wealth inequality problem in the U.S. is INSANE. If the U.S. had a population of just 10,000,000, literally 12 people would have as much wealth as the bottom 60%, i.e., 6,000,000 people, combined. And yet, here we are talking about how "impossible" it is to simply tax wealthy people.
These systems were made by humans. They can be fixed. Wealth inequality and taxation of the wealthy are not laws of nature that can't be changed.
This is the standard excuse for stopping any thoughts of changes in the US. Let's not even think about improvements because they are impossible anyway. A sane health care system is impossible, doing something about rising wealth inequality isn't possible, reducing opioid deaths is impossible. The only things that seem possible are things to move even more money into the hands of wealthy people. I still remember how in 2008 Congress quickly was able to produce 750 billion when the banks and the banker's money was threatened.
Even in city, land isn't that expensive outside the coasts. It's building up to code, while being restricted into what your zoning locks in, while maintaining all the permits and paying year after year of property tax.
No. Just like the student loan crisis, when you make borrowing money really easy it drives prices up. Home prices vary inversely with interest rates. Student tuition well that's even worse because the risk to the bank is zero (because the government is backing those loans).
Unfortunately some people think they can spend their way out of problems without making worse problems - I'm looking at congress here.
As they say, when you're in a hole the first thing you need to do is STOP DIGGING. For personal finance this involves cutting up credit cards so you can't go further into debt. For the loans they need to stop talking about the government paying them off (or some of them) and STOP guaranteeing them - then we can talk about the people who are already fucked. For everything else we need the Fed to increase interest rates to a good 3 percent or so. Yeah that will tank the economy short term, but I say so what it's already going to crash lets get through the pain and straighten things out.
Of course it does. However, the net result of lowering interest rates is just that the middle class pays through the nose for assets (housing) instead of for money (debt service).
The parasite sucks the same money from a different location.
Wealth inequality with high interest rates and with low interest rates are two sides of a very similar coin.
The only real fix is to tax the rich.
This is unrelated to housing, but you have the order backwards. Prices went up, and students took out loans to pay them. The root cause of the increases in higher ed tuition is dis-investment in higher education by state legislatures, not increases in expenditures by colleges. Given that most colleges are state-run or non-profits, they can't just increase prices and dump the proceeds into profits; they have to spend the money they bring in, and I have yet to see any evidence that universities are spending 100% more (or any large number that scales with the recent increases in tuition) on a real per-full-time-student-equivalent basis.
https://fivethirtyeight.com/features/fancy-dorms-arent-the-m...
The school I went to in the 90's has been on a massive building spree the last 20 years. Many large new buildings. The number of students has nearly doubled in the same time so it's not a complete waste. They even built a new clock tower with funding from some rich donor.
However, it probably wouldnt be the most effective way of extracting that wealth. A lot of families would try to restructure their holdings to convert income into unrealized capital gains and try to wait a few decades until the tax could be brought down again.
"
It's also a culture thing. Companies used to accept some level of social responsibility outside of making money. The shareholder value over everything else since the 80s broke social contracts and made it ok for wealthy people to only look after themselves.
I think we have to get back to a place where it's shameful for companies to lay off people while making record profits and paying bonuses to execs.
Now this argument wouldn't apply if it was possible for the average person to borrow money directly from the central bank at the same near-zero interest rate the banks pay, but that isn't the case.
Any time you take out a mortgage (at well below inflation by the way) you are obtaining new money "from the printer." The same is true any time you take out a loan.
This whole cantillon effect business is trotted out and flogged each time we mention economics on here but as far as I can tell, nobody has ever even attempted to quantify the impact of the cantillon effect.
> If I counterfeit a billion dollars and go out and spend it all, I've got more stuff and everyone else is a little bit poorer. If the central bank prints a bunch of money and lends it to its buddies in the finance industry for near-zero interest rates, they get more stuff and everyone else gets a little poorer.
This isn't actually true. Japan tripled its M2 money supply since 1990 but both CPI and housing CPI remain dead-ass flat. This model is way too simplistic. Which is why it was thrown out alongside the rest of Austrian economics.
Things that seem intuitive aren't always right.
> An 18th century French banker and philosopher named Richard Cantillon noticed an early version of this phenomenon in a book he wrote called ‘An Essay on Economic Theory.’ His basic theory was that who benefits when the state prints a bunch of money is based on the institutional setup of that state. In the 18th century, this meant that the closer you were to the king and the wealthy, the more you benefitted, and the further away you were, the more you were harmed. Money, in other words, is not neutral. This general observation, that money printing has distributional consequences that operate through the price system, is known as the “Cantillon Effect.” [1]
1: https://mattstoller.substack.com/p/the-cantillon-effect-why-...
This is an incredibly basic, fundamental fact, and your omission of it in your analysis is telling.
Debt at 3% against an asset will on average net 4% return just due to 7% inflation
So massively leveraging against a home is extremely beneficial as it is the closest the poor and middle class can get to taking advantage of our monetary system.
So, it's not about the poor being debtors or holding currency, but that their debt is at higher rates, in smaller amounts, and typically acquired for everyday needs instead of assets.
I mean, I'm willing to entertain the possibility that they are, but despite that claim's popularity in these threads, that claim can't be the reason for it.
If there was no inflation, there would be no inherent profit from taking out a large loan.
From my comment above the math is 7% inflation minus 3% interest rate equals 4% profit just from taking the loan.
That's the problem.
It's not just that the poor can't start a business or buy an asset, it's that debt itself is incentivized, and those that are wealthy get the best access to that debt.
Our current monetary system then exacerbates that as the lower the interest rate, the higher the inflation.
Thus the looser the monetary policy, the greater the incentive to take out debt, the less the poor and middle class have access to debt.
Further, this all compounds into inflated asset prices for basic needs like housing.
Only if you are a spherical cow that intends to live forever.
Most people value money now more than money later. Money now lets you buy things you need, today. If you expect your earning power to increase (which happens for most people without inflation to one respect or another), but you need the asset today (a car to get to work, a house to live in), you'd still want to borrow money.
> It's not just that the poor can't start a business or buy an asset, it's that debt itself is incentivized, and those that are wealthy get the best access to that debt.
Yes, that's one major driving factor for inequality.
> Our current monetary system then exacerbates that as the lower the interest rate, the higher the inflation.
Okay, that's a far more persuasive argument than 'Bob's $500 savings account lost 2% of its value this year.' And it does hold true for asset inflation, as asset prices take a few years to normalize to, say, a P/E ~inversely proportional to the prime interest rate.
But once they do normalize, why do you expect asset price inflation to continue?
For sure, but you'd be met with market rates that tame your desire for money now. Buying a car on credit is a lot less tempting at 20% interest than 4%. Right now used car prices are going up and it's easy to get low interest financing.
Used cars are not supposed to go up in value. It's madness.
> But once they do normalize, why do you expect asset price inflation to continue?
I expect asset prices to continue to inflate as long as we continue with our current monetary policies.
I expect us to continue with our current monetary polices because the US would be unable to service its debts in about decade otherwise.
That's due to a demand spike and supply shortage. Blame bitcoin and video games and people not wanting to take public transit in the middle of a global pandemic. It's not because of monetary policy, or because Scrooge McDuck borrowed a trillion dollars for free to buy up a bunch of used cars, or because GOOGL doubled in value in two years.
> I expect asset prices to continue to inflate as long as we continue with our current monetary policies.
Why? If it didn't make sense to invest money at a P/E ratio of X at a Y%-for-you interest rate, why would you invest money at a P/E ratio worse than ~2X, at a Y/2%-for-you interest rate?
I get that the process of going from X to ~2X is painful, but why wouldn't it stop there?
There are two problems... first is, that "back then" you could build (almost) whatever, wherever, and people built stuff, now with NIMBY-ism and regulations, you can't anymore.
The second problem (the larger one) is, that what was once a thing you bought, because you needed one, and sold, because you moved somewhere else, is now an investment... noone invests in cars, in pasta, nor in pretty much anything that degrades with time.... somehow the housing market got so bubbled up, that it's worth it to buy a house, and instead of prices going down as it ages, the prices actually go up. Limiting investments or limiting number of houses a person can own, would solve a lot of those problems.
The more the Fed distorts normal market signals, like interest rates, the less efficiently capital is allocated, and so the wealth distribution morphs from one that roughly represents human skill at allocating capital to an extremely top-heavy skewed chart that rewards incumbents.
Exactly! Thank you.
Simple explanations are usually far more useful than ideological and narrative driven ones.
Of if consumers bought 1950 style houses there would be no problem, since they're incredibly cheap.
Massive increases in the stuff people want in a house over the past half century have driven prices more than anything. Triple or quadruple the area, expect triple or quadruple the inflation adjusted cost. And that is the majority of the cost increase.
It's time to break up the mergers.
Primarily on corporate balance sheets, paid to investors via dividends, buybacks etc. Of course also used to hire new workers and so on.
The point being handing somebody money in a one time transfer only helps them in the immediate term but the inflationary impacts actually harm them longer term.
I would venture to guess most of the stimulus money ended up in pockets of already wealthy asset holders at the end of the day.
Companies and people are greedy all the time, that's the fundamental basis of capitalism. Capitalism is an acceptance of this and regulations to shape around actors working in their own self interest.
Are companies more greedy now than they were in 2019? No
An opt in moralism based economy will never work and has been tried and failed many times.
That wasn't a claim.
> Companies and people are greedy all the time, that's the fundamental basis of capitalism.
Oversimplification.
> An opt in moralism based economy will never work and has been tried and failed many times.
This wasn't suggested.
Your comment is vapid, in case you're wondering.
And if my comment is vapid, yours seems a tier below. You've said nothing other than a personal attack.
In the 70s they tried price controls to curb "corporate greed" and it led to mass shortages.
How about use some brainpower to refute something I've said rather than insult? Do you have any critical thought?
> Clearly the comment above is suggesting corporate greed is partly contributing to cost pressures.
Inflation is not related to greed, regardless if you want to say that astrology influences your lottery results. So no. You can be frustrated about it all you like. Good luck with that.
What it comes down to, is really which inflation numbers you believe, as the numbers really run the gamut as well as their causes if you really dig into the reports and the details. If inflation only looks high due to used cars being wildly expensive these days due to the chip shortage vs inflation causing cheap staple goods to increase in price, then that'll change your conclusion of inflation's effects.
Still, if we want a stimulus to go places other than corporations and CEOs then we need to dramatically rework how the economy works, including food distribution, and de-corporatization and strict limits on CEO pay.
This whole inflationary disaster could have been avoided while still pursuing a compassionate policy response. There was no logical thinking in the level of fiscal handouts done.
Larry Summers did a presentation in Feb 2021 before the ARP was even passed predicting why it would cause inflation, due to the stimulus far exceeding lost wages.
You can find it on YouTube, but he empirically walks through why the magnitude of the package was a bad idea
The PPP had its own set of problems and was widely abused.
https://www.richmondfed.org/publications/research/economic_b...
Also the fed printed tooooons of money besides the $600. The $600 is the only bit that ended up directly in citizen's hands.
"Corporation X is raising prices 10% due to inflation."
headline next quarter:
"Corporation X announces 10% profit margin growth despite inflation pressures."
This is happening every day now. Corporate profits are at record highs across the economy. It's hard to take them seriously when they are crying about workers demanding raises and increases in raw materials when they are posting the largest profit margins in history.
https://www.reuters.com/business/investors-watch-us-companie...
My local pizzeria had their best 2 years ever during the pandemic, yet they still raised their prices this year due to labor and supply cost. I can't really fault them for not wanting to lose a bunch of money this year to somehow make up for that.
Not if there’s a supply shortage. If there is a supply shortage then that necessarily means that some people will be priced out without corresponding downward price movement.
10 people, 5 houses, the market-clearing price is the 5th highest price any of the people are willing to pay. Remove the 5 people on the low end and that’s still the market-clearing price.
The equilibriating force of price increases causing demand to drop causing downward price pressure only keeps prices in equilibrium around the market-clearing price. Supply shortages shift the supply curve and cause the market-clearing price itself to move. The equilibriating force that should address this is that increased prices should incentivize new supply to be created from sources that were previously uneconomical, but the supply shortage exists because of legal restrictions that distort the market.
1.1 housing units per household. Same as year 2000. But you're right that local areas could have worse ratios.
Famously the FED “takes fiscal policy as it arrives at their doorstep”
You should re-evaluate some of the connections you’re making, because you have good thoughts, but your villains are the wrong Ones.
This is uncontrolled capitalism imo. When the rich have such buying power that they own governments, as they do now, you can't really call it communism now can you? The government is just an arm of the rich now, and nothing will change until that is brought into check. Getting rid of government wouldn't stop the rich either.
I don't know what in the eyes of cop is supposed to be communist about the current US social structure. I see (from the outside) modern feudalism and a social structure that, despite a simulation of democracy, is closer to European industrialization and its industrial barons and their working precariat than to a modern, democratic and fair society.
In the US, anything you think is bad is "communism/Marxism" if you're on the political right, and "unrestrained capitalism" if you're on the political left. Don't fall into the trap of thinking there's any logic behind any of this.
The solution is balance. I'm a capitalist, but unrestrained capitalism is difficult to impossible. Unrestricted government or capitalism will fail in both cases imo.
You think that $400b is a lot to "print"? Billionaires increased their wealth 10-fold in the same time, let alone the millionaires that have made a fortune from 10 years of rocketing stock market growth and leverage availability.
We’ve had over a decade of cheap money creating asset price inflation and exacerbating inequality, not to mention the total collapse of the home building for several years and the exodus of qualified talent from that period drained much needed supply from the market.
All of this happening while the largest generation since the baby boom entered prime home buying age.
This has been a 15 year trend. It didn’t start yesterday and it won’t end for a long time.
Fiscal policy should be used to address economic gaps, not distortion through monetary policy. Of course, very hard to achieve alignment and consensus in the US political system.
Despite the inflation, it's pretty clear the recovery after 2008 could have been much more rapid with greater fiscal injections.
The Fed should be an algorithm IMO. Way too politically influenced.
In a lot of ways, the feds hands are tied by the political dysfunction in our political branches. They’re just putzing along, trying to plug the holes in a leaky ship.
I mean the Fed didn't even flinch at all in 2021 as all asset valuations reached bubble territory. Real estate appreciated faster than anytime in history. This becomes a real liability down the line if normalization of policy is ever needed. Bubbles can be disastrous to the economy longer term.
They removed the moral hazard of risk taking for the past decade or so.
The policy response to 2008 has shown that next to nothing is going to happen on the fiscal side (though this did change in response to COVID, hopefully this is a positive sign), so the fed has been backed into a corner without a whole lot of room to run.
When a major swing happens, if they do nothing, then it’s “the fed let a recession happen!!!”
Instead they addressed the acute crisis, and continued the same policy for 2 years with no change.
What they should have done was 6 months or so after peak covid panic, start to normalize interest rates and QE. They also didn't consider at all the velocity of the economy and just looked at point in time employment numbers to drive their policy thinking.
It was clear the job market was already overheated at 5% unemployment, for example, due to the historical number of job openings and increasing pace of those job openings, plus record high quits rate. Plus retail sales/inflation.
It's not so much that the Fed’s “hands are tied” preventing them from monetary policy they should, as a central bank, take. Rather, Congress just isn't taking fiscal policy actions that they, as the government outside of the central bank, should take, and (in some cases, especially on the Right) blaming the Fed for for their own nonfeasance.
I suspect Jerome Powell will be looked back on as a disaster. That Biden renominated him out of deference to the political norms that were broken to get him in place is a massive black mark on his record.
“Markets” you are discussing aren't part of the Fed dual (actually, triple) mandate, and are of only intermediate, instrumental relevance.
> Fiscal policy should be used to address economic gaps,
Yeah, but Congress has been basically asleep at the switch on fiscal policy for a long time, and to the effect their failures effect the things that are part of the Fed mandate, it is legally the Fed’s job to act via monetary policy, whether or not fiscal rather than monetary policy is the better choice.
If they didn't care about markets, they would have ended QE abruptly, and started raising rates months ago. They only avoided doing this to prevent a market selloff. Every rational thinking person thinks it's absurd for them to be buying MBS when housing is appreciating at record levels amid an inflationary environment.
They spend a lot of time talking about market expectations, market levels in their notes.
They also have a price stability mandate that they've ignored for over a year.
I didn't say that, though.
I contextualized the role of those prices as intermediate and instrumental rather than ultimate goals (and, as such, they are targeted for what, in consideration of other circumstances, they appear to indicate about the things that are mandate goals.)
So if your supposition is correct, they should engineer a decline in the market and real estate to achieve their price stability mandate.
Yet everything they do is dragging their feet to support asset prices. So I agree with your assessment in theory, but don't see them living or acting by that logic.
They could have ended QE overnight in January, for example. Why not?
They continue to pursue low volatility when the times of today warrant higher volatility and less risk taking/speculation.
Probably because no one has confidence enough in any model of the effects of such a large change to base policy on it short of a much more glaring problem than any the Fed is actually facing. The combination of unwinding QE over the period between the last meeting and mid-March and the predicted 25-50 basis point rate hike in mid-March is actually the Fed pumping the brakes on the economy really hard.
The obvious reason they didn't do it is because they knew markets would decline 5-10% on the surprise. Which would actually aid them by curbing risk taking/speculation, raising the cost of borrowing.
I do think Powell is motivated by his reappointment, so that's also playing into his inaction. It's just backfired at this point.
We are clearly entering a wage price spiral. Wages rose an annualized 9% last month. To suggest even a 50 bp hike would put us anywhere close to aggressive tightening is just not true. The traditional thinking is that interest rates must exceed rate of inflation to be in a tightening policy regime.
The Fed pushed job market past the natural rate of unemployment, and now the only way out is a hiking induced recession.
Yet instead of trying to cut off this possibility early, they'll slowly plod along until it's inevitable. There was probably a chance to short circuit the spiral a few months ago.
Young people just need to cancel their Netflix, stop buying Starbucks, iPhones and pull themselves up by their bootstraps! /s
It is not strictly a monetary problem but you are close. It is a allocation of money problem.
When the FED increases supply of money and/or lowers interest rates, people think that this will help the poorest get on the debt and get themselves going.
But reality is that it is the rich (and institutions) that have assets good enough for collateralization. Which means that in a low interest rate environment the rich (and institutions) can borrow MUCH MORE than the poor, more easily.
It plays out very simply. Banks literally salivate at lending to the rich in a low interest rate environment because the counterparty risk is super low. Just take the free money. With poor people the counterparty risk does not disappear with low interest rates.
Over decades, the rich (or institutions) keep getting richer with the same mechanism.
It's a misallocation. When the FED reduces rates, the rate reduction should not allow the rich to borrow at lower rates. The inequality is spiraling out of control at this point.
It's hard to take this kind of rhetoric seriously, given that investors are the ones fomenting inequality here. There's no point in speculating on real estate/house value in a society where everyone is guaranteed a home -- where would the demand be?
House prices have certainly risen substantially in the last few years [1]. But if the FED is to blame, why has the same thing happened in the UK [2], Germany [3] and Australia [4] ?
[1] https://fred.stlouisfed.org/series/QUSR628BIS
[2] https://fred.stlouisfed.org/series/QGBN628BIS
They've also been more aggressive about taxing real estate investment (they leaned their lesson in the 80s) and their zoning laws aren't captured by local busybodies.
More housing units per person. Also Japan did not have a lot of nimby mentality blocking new housing, to my knowledge
Lower rates offsets the price reduction to a certain extent.
The Kansai region has an increasing population and real estate prices are still in decline or stable.
Also Japan did not have a lot of nimby mentality blocking new housing, to my knowledge
Yes, they did - prior to 2001 when the national government took zoning authority away from municipalities.
https://fred.stlouisfed.org/series/QJPN628BIS
If a growing region is declining, I would expect building to be outpacing growth, or a cultural trend away from wanting to own (reduction in demand for purchasing despite growing population)
For example, UK has at most $87B of foreign currency reserves, a fraction of which is USD. [1]
UK has 9.2T in privately owned homes [2]. So reserve currency can back at best a tiny, likely sub percent, of all home loan amounts.
And, this is the kicker, the UK does not hold reserve currency to loan to anyone. It's an assert they hold at the national level.
So cost increases there (and other countries listed above) are not the result of US being a reserve currency. Don't make up wild claims.
[1] https://assets.publishing.service.gov.uk/government/uploads/...
[2] https://www.mansionglobal.com/articles/u-k-home-values-have-...
Does artificially created demand in the US allow more consumption of commodities which inflates the price of home building in other countries?
Do artificially inflated US asset prices produce a wealth effect in other countries if people in those countries hold those assets?
I'm not sure what UK reserve holdings have to do with my comment but I don't know, I'm just some guy on the internet.
Your first comment started with "The USD is the world's reserve currency".
Do you know what reserve currency means?
> A reserve currency is a large quantity of currency maintained by central banks and other major financial institutions to prepare for investments, transactions, and international debt obligations, or to influence their domestic exchange rate. A large percentage of commodities, such as gold and oil, are priced in the reserve currency, causing other countries to hold this currency to pay for these goods.
So I don't know, maybe I was focusing on how commodities are priced in the USD. Have a great day!
When people make stuff up they feel is related, but do not check if it is actually relevant or possible, or even really understand the terms, then double down, it derails the discussion. It's not "in the spirit" of the discussion.
>So I don't know, maybe I was focusing on how commodities are priced in the USD.
Which foreign housing markets price their houses in USD? You replied to a comment about houses in UK, Germany, and Australia, none of which do.
Did you notice not a one of the many reasons a country holds a reserve currency is to make loans for local housing stock be more available? No? Read it again.
Pick a country, like I did the UK. Show the size of their USD holdings relative to their housing stock loans. Tell me again how such absolutely tiny ratios are relevant to the availability of loans. I showed one case where the relative sizes of the numbers makes it absolutely silly to claim their related. But since you made the first claim, and it on face value seems completely nonsense, then you provide some correlation or peer reviewed paper or whatever you think makes availability of loans in the foreign countries the OP mentioned tied to the face that USD is a reserve currency, and not more to simply local or global economic conditions, unrelated to the fact that USD is (but one) of reserve currencies.
I get you're likely Dunning Krueger and know nothing about finance or central banking or how housing markets work. Or you could admit you don't know and didn't know there is a relation or not and you simply threw two terms you knew little about, then when called on it, got upset.
But go ahead, and show me the link you claimed to start this with. Good luck.
What do you want the Fed to do? If they make money more expensive then mortgages become less affordable and housing prices slump, but if they make money easier to get then housing prices go up. Meanwhile, the Fed's mandates are maximum employment at sustainable inflation - not home ownership. The cost of housing has been dominated by local and state regulations for quite some time, it's not something the Fed can or should fix.
What that means is that last year you could have bought a $300k home for $15k in cash and pay around $2k in mortgage/taxes/insurance. The real problems are that there were so few $300k homes and the vast majority of Americans don't have $15k for a downpayment. The Fed can't fix those problems.
If you want to point a finger, point it at municipalities and who don't care about home ownership rates. They could make holding single family homes as long term investment properties unaffordable tomorrow, but choose not to. They could encourage new home construction, but they don't.
(side note, "Fed" is not an acronym, it's an abbreviation for the Federal Reserve)
I had to scroll distressingly far to see this post. The record set was going from ~13% investor bought to ~15%. It's a marginal change. Prices sky rocketed because, as you noted, (1) it was/is one of the best financial environments for home buying ever and (2) Covid accelerated timelines for home buying.
The problem is that half of Americans don't have more than a thousand dollars in the bank, and we need to focus less on the sheer cost of homes (when homes were incredibly affordable) and more on why Americans can't save for down payments.
How do I find these loans? My partner and I are looking to buy our first home soon and have been agonizing over whether or not to go for a lower down payment % at the cost of higher monthly payments, or a higher down payment % at the cost of not being able to afford much for our area (where 500k is about the minimum for a house)
But I'm not a financial advisor so don't listen to me, I'm just some dude on the internet. Those loans are gone, since interest rates are continuing to climb and that trend will continue for years.
Huh? What you see here is capitalism in action.
It's been clear to Fed observers that they've pursued a policy driven with asset pricing front of mind.
Authoritarian communism certainly is, no disagreement there. But in America, everything left of the GQP is branded as "communism" these days, including stuff that is considered a basic part of the system in Europe like public, affordable healthcare.
If Americans were able to debate the successes of European policy - and that includes even part of what the former GDR did, like providing access to childcare for mothers so they could work, or provide access to safe abortions - on face value, without resorting to "but that's communism!!!", your life would be so much better.
Please either quantify the Cantillon effect or find a new scapegoat.
The issue is zoning.
I live in LA and I think about this a lot when I see the only homes for sale here going for $3-4+ million. How much longer can this continue?
On the other hand I know that we are overtaxing the world's resources and short of some massive changes in our system many middle class folks in the western world are going to see a drop in their quality of life as globalization continues and our living standards average out with those of people in developing nations.
No one is coming for existing single-family homes -- they can peacefully co-exist alongside properties that house 5x the amount of people.
Those things are scalable -- LA's light rail network is one of the biggest in the country and it's incredible efficient. Over a million people (of a city of 4 million) use LA Metro on a daily basis.
There's no reason LA's fundamental character as a city would change if we allowed duplexes in already dense neighborhoods or as much BRT as possible. But instead we've prioritized voices like the Bel-Air Homeowners Association or some NIMBY idiots in Santa Monica to make policy decisions and are stuck with environmental review on projects that demolish, say, 4 parking spots to build 40 affordable housing units.
In other words it will no longer be the same LA, but rather LAtropolis .. so gp is right about the physical limits.
Hopefully the recent data will force the rich bastards who run the fed to stop putting themselves and their elite compatriots first and finally slow down inflation and asset prices but given their history that seems like wishful thinking.
that is one possibility, the other is that their intent is different than what one would expect, it's pretty much impossible to tell which is it.
consider the war on drugs, an utter failure if one believes that it's actually intended to diminish drug use. however given it only recently begun slowing down, without real signs of stopping, I cannot help but consider the possibility that the actual intentions behind it have been a great success but then that means the american government has intentionally caused terrible evil towards most of latin america.
this is why I consider the possibility that it might not be incompetence in this case either
The horror here is that we have artificially limited house building and at the same time encouraged the population to treat it as an asset class.
We treat residential real estate like crypto-bros treat their NFTs.
California (and all states) need to build massive amounts of housing (any kind! public, social, market-rate, affordable -- it doesn't matter just do all of it at once) to address the immediate demand while we also work on destroying the concept of housing as an asset and not a guaranteed right.
This was a move by the Trump administration, was it not? And especially the "no ability to track" part of the handout to big business.
Higher prices are more than offset by lower mortgage costs. Money got cheaper faster than housing got more expensive. Most people who are not rich are buying money with a house kicker in 30 years, so the cost of money is the important factor.
Affordability will be just about record lows at 5%. Inflation adjusted home prices have already surpassed the 2000s peak, and are a few std deviations above historical norms.
If inflation doesn't abate, we can expect 6% mortgages in the near future.
Thanks!
But here's home price relative to median income, which is at a record. Then apply logic that mortgage rates are 4.1% now and likely to be 5% soon.
https://www.longtermtrends.net/home-price-median-annual-inco...
2000s affordability was still worse at the peak, but will shift quickly if mortgage rates continue to rise.
Anyway, will edit when I find
^ is the source most in the industry use for the current rate. It tends to be the most up to date
https://www.builderonline.com/money/mortgage-finance/heres-w...
This is because of maths and the inverse effects of downward and upward shifts.
- If you borrow $100 at 5% your interest is $5pa, which matches your discretionary repayment ability.
- Rates drop to 3% and you can afford to borrow $167 at 3% for the same $5pa. This is a 2% or 40% of total drop.
- New buyer buys in at cost of $167.
- To make it somewhat realistic lets say inflation comes along and income rises, now you have $6pa repayment ability.
- With a larger $167 loan, your $6 repayment can afford a rate rise to only 3.55%, this is a .55% rise or 18% total increase.
.
So while the rates dropped 2%, a rise of more than .5% bankrupts all the new buyers. The government is sensitive to this because many people just bought together at the new prices and low rates, and it becomes untenable when large amount of the population lose their homes at once.
The same dynamic applies to business loans, government balance sheets.
US is an outlier with 30 year fixed loans, the rest of the world basically does loans on variable rates or fixed for maybe 5 years a time.
They are mostly held low right now due to belief that CPI spike is transitory.
You're right that once rates rise sufficiently, it creates recession risk, which then puts downward pressure on rates. But we can likely get to 3% on the 10y and 5% mortgages before hitting that ceiling.
Keep in mind how sharply rates rose in the 70s. Though at the time debt burdens were not very high, for sure. But persistently high inflation will lead to a similar effect.
We are seeing strong signs of a wage price spiral starting to form in the data
Wrong.
This was a deliberate and planned response to protect their true stake holders from the liquidity crunch that COVID lockdowns almost unleashed. Asset owners. For all intents and purposes it worked extremelly well.
https://www.barrons.com/articles/blackrock-is-biggest-benefi...
https://www.forbes.com/sites/sergeiklebnikov/2022/02/11/two-...
https://www.forbes.com/sites/moneyshow/2020/02/25/moral-haza...
Nothing incompetent about it. This is moral hazard in action and has been the bull case for some time now. Fundamentals don't matter anymore because anytime the market gets rickety its been a safe bet that either the Fed will swoop in with more QE and low interest rates or the federal government will issue more bailouts.
Risk is socialized while gains are privatized.
Yes. The use of capital to purchase large scale investments causing negative ripple effects on society is communism. The system that famously loves and allows for private capital.
https://www.bloomberg.com/news/articles/2022-02-16/blackston...
Blackstone Inc. is buying apartment owner Preferred Apartment Communities Inc. The deal includes more than 40 rental apartment properties including 12,000 units in states including Florida, Tennessee and Georgia. Preferred Apartment also owns 54 grocery-anchored shopping centers.
I'd read empty spaces in slow shopping malls were being converted into rentals. Wonder if these guys are part of that.
You can’t just fuck an entire generation so transparently & unabashedly in a nation where anybody can buy a rifle capable of striking 2km+ away & mental healthcare (& all healthcare, lol) is a raging dumpster fire.
Somebody(s) gonna snap sooner or later.