6 ms·

the renter pays more than And why is this a problem? The landlord takes on administrative hassle, and -- more importantly -- risk, for example - Can't rent ou

by mafribe 10y ago

the renter pays more than And why is this a problem? The landlord takes on administrative hassle, and -- more importantly -- risk, for example - Can't rent out the property. - Property needs to undergo repair. - Tenants don't pay rent, destroy the property. - Liquidity risk: property is not as easy to sell as many other goods, in case of emergency. All of the above happen with a certain probability and that needs to be priced in. The last one is rarely a problem but the others are major considerations. And I have not even mentioned transaction costs for buying/selling a property, not to mention taxation. For these reasons, property typically doesn't have a good ROI, vis-a-vis e.g. investing in shares. A lot of property investors are naive, and would be better off investing in a passive index fund. So in many cases tenants get a good deal. In my experience buy-to-let is lucrative primarily when - Landlord has multiple properties, Economies of scale kicks in. - Landlord has relevant skills (plumber, electrician, or ... tax expert, lawyer) so he can get some jobs that need to be done substantially below market price. - Is physically close to the property, so can visit/check easily. - Has unusually low cost of capital (lower than bank-based mortgages). Ideally more than one of those. only thing separating The landlord has already proven financial stability, while the tenant typically hasn't. Many tenants tend to be young, e.g. students who are by-and-large not yet ready to take on the major responsibility of buying and maintaining a house. My heuristic for when you are ready to buy a property: > 10 years in a stable job, enough savings to put up 1/3 of the price up-front. After-tax income high enough so the mortgage can easily be paid. Good timing for a mortgage when you pay it off a bit before you stop earning (i.e. before retirement). Given a 25 year payment schedule and retirement at 65, age 35-40 would be a great time to get a mortage. Plenty of countries do quite well with mostly-rent based system. German Chancellor Merkel rents, for example.

Nursie 10y ago
Those with a good financial record thus get to crowd out the market and push up prices for those without the record (and mortgage). >>For these reasons, property typically doesn't have a good ROI, vis-a-vis e.g. investing in shares. Have you seen the UK property market recently? This seems a bizarre assertion given market patterns over the last 15-20 years.
- mafribe 10y ago
  crowd out the market Which market? To a pretty good approximation, most people live in exactly one property. If they own more, they rent out the surplus. (Please don't What-About-XYZ me with exceptional cases like billionaires who own multiple properties and let them stand empty. Yes, that happens, but is marginal.) So the owner/renter fraction doesn't as such directly change the amount of available property. push up prices Rental prices are largely determined by two three things: (1) salary levels of the tenants, (2) what fraction of their salary tenants are willing to spend on their dwelling, and (3) supply/demand of housing. I doubt (1, 2) have changed all that much. The main problem in London is (3) because a lot more people moved to London that new housing was built. Neither have all that much to do with buying vs renting.
  - Nursie 10y ago
    >> So the owner/renter fraction doesn't as such directly change the amount of available property. It changes the prices of properties. When existing owners have much easier access to cheap credit than potential owner-occupiers, they compete with these folks and push prices up. There is more demand to purchase. Not more demand for properties to live in, but more demand to purchase. First time and young buyers get priced out. >> Rental prices I wasn't talking about rental prices, I was talking about purchase prices. The result is that instead of younger people paying a mortgage and gaining an asset over time, they are doing that for someone else.
    - mafribe 10y ago
      young buyers get priced out It's good that younger people can't easily buy property. They have a substantially higher risk of financial irresponsibility. As dwellings are pretty much the biggest financial investment we make in our lifetimes, care is warrented. Dwellings should be purchased only by those who are very likely to be able to afford this -- even in the event of unplanned and costly life events like illness, children, the dwelling needing costly and unexpected repair etc. That's why stable job with good career prospects, married with children, being able to afford substantial deposit, being older, are good heuristics for who should by property. Giving a mortgage to everyone encourages financial rectlessness, which lead to the financial crisis of 2007–2008.
rwmj 10y ago
> - Can't rent out the property. > - Property needs to undergo repair. > - Tenants don't pay rent, destroy the property. > - Liquidity risk: property is not as easy to sell as many other goods, in case of emergency. I think only the last one is a real problem. If you buy your own house, then you are your own tenant and your interests align with yourself. You won't destroy the property or leave it empty. Liquidity is going to be a real risk in the coming negative equity / house price crash however. People forget that not only do house prices go down, but houses become difficult to sell at any acceptable price.
- mafribe 10y ago
  buy your own house But we were discussing buy-to-let? The question was: is buy-to-let cruel exploitation of the tenant or not.
  - rwmj 10y ago
    I thought we were discussing the difference between renting a house from a BTL landlord vs buying your own house.
marcosdumay 10y ago
> And why is this a problem? The one huge issue is that the (richer) buyer costs are normally subsidized by the (poorer) renter by government transfers and regulations that force prices up. Remove the government mangling the sector, and I fully agree, there's no problem at all.
_benedict 10y ago
Because it can lead to a market where the price of the goods is much higher, meaning a greater portion of their wealth has to go to housing than would otherwise (on top of receiving no ownership stake) To illustrate, let's say there are no buy-to-let landlords. Let's also assume the majority have a strong preference to purchase a property over renting (a potentially "better") one (which they do in the UK). Currently (esp. with the presence of cheap credit), individuals are constrained not by their monthly outgoings (as they would be with rent) but with the amount of leverage the bank will permit them (i.e. their existing capital). This means the market stabilises at a lower monthly ongoing than it would do if there were no capital constraints. Thus, once buy-to-let landlords with significantly more capital participate, individuals can be "priced" out of the purchase market they would otherwise participate in. They are instead forced to participate in a rental market that has no capital requirements. Thus, the prices are no longer constrained and can rise. This can quite reasonably be seen as an unpleasant situation for everyone currently with limited capital - as they are further prevented from obtaining more capital, by both having less disposable income and not receiving the capital they would have from ownership of their property.
- mafribe 10y ago
  What you are arguing for is zero deposit mortgages. They are a terrible idea, because they encourage irresponsible risk taking in two ways: - People who are not stable enough to be able to carry a mortgage until it's paid off suddenly can buy dwellings. - It fuels speculation: just get a dwelling in a desirable area, wait for a year and flip it. Indeed this was what caused the financial crisis of 2007–2008. Do you want to go back to this? Asking for ~ 1/3 of the dwelling's price as deposit is a good (and time-tested) heuristic for filtering out those who have a substantially high probability of being financially irresponsible. prevented from obtaining more capital Typically owners of buy-to-let do not acquire more capital while paying off the property. They only do so after the 2nd mortgage is paid off, which is typially when they retire.
  - sobani 10y ago
    In the Netherlands zero deposit mortgages for your primary home are the default. While there have been shenanigans in the past, up to so called 'career mortgages', where the mortgage amount was based on your career potential, nowadays the lending norms are pretty strict. I guess it helps there is a 2% tax on the total sum when buying a house, so flipping becomes even less attractive. At least I've never heard anyone about flipping, that is a foreign concept to us. According to a graph[0] I found housing prices dropped 15-25% between 2008 and 2013. But I feel this was caused by the financial crisis, not the other way around. Yes, a lot of mortgages went under water, but there is simple fix for that: don't move. Requiring 1/3 down payment seems like it wouldn't allow anyone to buy a home. That would basically require you to 'pay' the mortgage twice, once as rent and once as savings, for about 10 years. Using the average income of €35K, which leads to a max mortgage of €154K, you suggest not living in a home worth over €77K?? I'm not even sure those exist. [0] https://www.berekenhet.nl/nieuws/prijsontwikkeling-huizenprijzen.html https://www.berekenhet.nl/nieuws/prijsontwikkeling-huizenpri... (the lines are different types of homes)
Spooky23 10y ago
A: It's always a bad deal for the renter.

by mafribe 10y ago

Nursie 10y ago

Those with a good financial record thus get to crowd out the market and push up prices for those without the record (and mortgage). >>For these reasons, property typically doesn't have a good ROI, vis-a-vis e.g. investing in shares. Have you seen the UK property market recently? This seems a bizarre assertion given market patterns over the last 15-20 years.

mafribe 10y ago
crowd out the market Which market? To a pretty good approximation, most people live in exactly one property. If they own more, they rent out the surplus. (Please don't What-About-XYZ me with exceptional cases like billionaires who own multiple properties and let them stand empty. Yes, that happens, but is marginal.) So the owner/renter fraction doesn't as such directly change the amount of available property. push up prices Rental prices are largely determined by two three things: (1) salary levels of the tenants, (2) what fraction of their salary tenants are willing to spend on their dwelling, and (3) supply/demand of housing. I doubt (1, 2) have changed all that much. The main problem in London is (3) because a lot more people moved to London that new housing was built. Neither have all that much to do with buying vs renting.
- Nursie 10y ago
  >> So the owner/renter fraction doesn't as such directly change the amount of available property. It changes the prices of properties. When existing owners have much easier access to cheap credit than potential owner-occupiers, they compete with these folks and push prices up. There is more demand to purchase. Not more demand for properties to live in, but more demand to purchase. First time and young buyers get priced out. >> Rental prices I wasn't talking about rental prices, I was talking about purchase prices. The result is that instead of younger people paying a mortgage and gaining an asset over time, they are doing that for someone else.
  - mafribe 10y ago
    young buyers get priced out It's good that younger people can't easily buy property. They have a substantially higher risk of financial irresponsibility. As dwellings are pretty much the biggest financial investment we make in our lifetimes, care is warrented. Dwellings should be purchased only by those who are very likely to be able to afford this -- even in the event of unplanned and costly life events like illness, children, the dwelling needing costly and unexpected repair etc. That's why stable job with good career prospects, married with children, being able to afford substantial deposit, being older, are good heuristics for who should by property. Giving a mortgage to everyone encourages financial rectlessness, which lead to the financial crisis of 2007–2008.

rwmj 10y ago

> - Can't rent out the property. > - Property needs to undergo repair. > - Tenants don't pay rent, destroy the property. > - Liquidity risk: property is not as easy to sell as many other goods, in case of emergency. I think only the last one is a real problem. If you buy your own house, then you are your own tenant and your interests align with yourself. You won't destroy the property or leave it empty. Liquidity is going to be a real risk in the coming negative equity / house price crash however. People forget that not only do house prices go down, but houses become difficult to sell at any acceptable price.

mafribe 10y ago
buy your own house But we were discussing buy-to-let? The question was: is buy-to-let cruel exploitation of the tenant or not.
- rwmj 10y ago
  I thought we were discussing the difference between renting a house from a BTL landlord vs buying your own house.

marcosdumay 10y ago

> And why is this a problem? The one huge issue is that the (richer) buyer costs are normally subsidized by the (poorer) renter by government transfers and regulations that force prices up. Remove the government mangling the sector, and I fully agree, there's no problem at all.

_benedict 10y ago

Because it can lead to a market where the price of the goods is much higher, meaning a greater portion of their wealth has to go to housing than would otherwise (on top of receiving no ownership stake) To illustrate, let's say there are no buy-to-let landlords. Let's also assume the majority have a strong preference to purchase a property over renting (a potentially "better") one (which they do in the UK). Currently (esp. with the presence of cheap credit), individuals are constrained not by their monthly outgoings (as they would be with rent) but with the amount of leverage the bank will permit them (i.e. their existing capital). This means the market stabilises at a lower monthly ongoing than it would do if there were no capital constraints. Thus, once buy-to-let landlords with significantly more capital participate, individuals can be "priced" out of the purchase market they would otherwise participate in. They are instead forced to participate in a rental market that has no capital requirements. Thus, the prices are no longer constrained and can rise. This can quite reasonably be seen as an unpleasant situation for everyone currently with limited capital - as they are further prevented from obtaining more capital, by both having less disposable income and not receiving the capital they would have from ownership of their property.

mafribe 10y ago
What you are arguing for is zero deposit mortgages. They are a terrible idea, because they encourage irresponsible risk taking in two ways: - People who are not stable enough to be able to carry a mortgage until it's paid off suddenly can buy dwellings. - It fuels speculation: just get a dwelling in a desirable area, wait for a year and flip it. Indeed this was what caused the financial crisis of 2007–2008. Do you want to go back to this? Asking for ~ 1/3 of the dwelling's price as deposit is a good (and time-tested) heuristic for filtering out those who have a substantially high probability of being financially irresponsible. prevented from obtaining more capital Typically owners of buy-to-let do not acquire more capital while paying off the property. They only do so after the 2nd mortgage is paid off, which is typially when they retire.
- sobani 10y ago
  In the Netherlands zero deposit mortgages for your primary home are the default. While there have been shenanigans in the past, up to so called 'career mortgages', where the mortgage amount was based on your career potential, nowadays the lending norms are pretty strict. I guess it helps there is a 2% tax on the total sum when buying a house, so flipping becomes even less attractive. At least I've never heard anyone about flipping, that is a foreign concept to us. According to a graph[0] I found housing prices dropped 15-25% between 2008 and 2013. But I feel this was caused by the financial crisis, not the other way around. Yes, a lot of mortgages went under water, but there is simple fix for that: don't move. Requiring 1/3 down payment seems like it wouldn't allow anyone to buy a home. That would basically require you to 'pay' the mortgage twice, once as rent and once as savings, for about 10 years. Using the average income of €35K, which leads to a max mortgage of €154K, you suggest not living in a home worth over €77K?? I'm not even sure those exist. [0] https://www.berekenhet.nl/nieuws/prijsontwikkeling-huizenprijzen.html https://www.berekenhet.nl/nieuws/prijsontwikkeling-huizenpri... (the lines are different types of homes)

Spooky23 10y ago

A: It's always a bad deal for the renter.