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I don’t understand how the behavior described in the post raises rents. Clearly demand from investors would raise sale prices, but why would renters pay more t

• stubish 8y ago
  As sale prices go up, more people can no longer afford to buy but still need somewhere to live, causing the rent market to become more competitive, and the rents go up because owners charge what the market can bare. Which in turn justifies investors paying even higher prices, so it spirals up, until it plateaus when not enough people can actually afford to pay the rent. And if the behavior described in the post is real, it goes even higher because a decent investment return is not the goal.
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  • sjjshzvuiajhz 8y ago
    >more people can no longer afford to buy but still need somewhere to live, causing the rent market to become more competitive It seems like you are double counting here. If high prices result in units becoming investor-owned and rented out instead of owner-occcupied, that means the rental supply is larger, so the foiled-owner-occupiers shouldn’t be crowding out more renters. To put it simply, we are fitting the same number of humans in the same number of buildings here, and just changing whether the person who lives there is the owner. > and the rents go up because owners charge what the market can bare Landlords always charge what the market can bear, how does the sale price of the unit move that number (other than the double counting argument above)?
    • killjoywashere 8y ago
      Let's take a pass on the dingbat apartments and look at the single-family-home-wingdings, which can also be stuffed into REITs. The corrupt REIT doesn't care if it buys 1 or 10 houses, so long as they are bought. The local owners cheer the purchase even if the house sits empty. Anyone who wants to buy into that market has to make more money. So they negotiate salary. The companies then pay more in salary. Corporate profits are at an all-time high, so it's hard to justify not paying the salary, especially in the face of housing costs. So now the would-be owner who finds themselves stuffed out of a remarkably expensive housing market (it increased significantly between the interview and the start date) moves into the rental market, which, while high, is nothing compared to the first few years of home ownership. Someone who could afford a house in the local market can afford the rent, particularly if they make the painful decision to forgo pets, or (as in our case) give their pets to their parents. "For a couple years, we'll be back".
    • michaelt 8y ago
      At least in London, I have heard it claimed [1] that foreign investors buy properties and leave them vacant, as London's rising house prices represent a sufficient return on investment and remove the inconvenience and risk of dealing with tenants. Of course, it's hard to measure this stuff precisely, because given the current attitudes, if you were doing that the last thing you'd do is report yourself to the government. [1] https://www.theguardian.com/society/2017/aug/01/names-of-wealthy-empty-home-owners-in-grenfell-borough-revealed https://www.theguardian.com/society/2017/aug/01/names-of-wea...
      • C1sc0cat 8y ago
        I thought it was a way of moving your cash (whether it is legit or not) outside your country. To stop your home government expropriating your money and also as a bolt hole if the peasants revolt and start hanging people from lampposts.
      • Mindwipe 8y ago
        Yeah, that is certainly the reasoning that pushing prices up is based on in London. Another angle is that more expensive properties are more efficient, so the bubble of foreign investment in property has lead to a rise in the construction of hyper-premium properties which the market does not especially demand, and a lack of construction of mid-range or lower tier housing, pushing the prices up in those sectors.
  • AnthonyMouse 8y ago
    Not only that, some of the people who prefer to buy rather than rent and can afford the higher prices may buy other properties that would otherwise have been rented out, reducing the supply of available rental properties and thereby raising rents. Rents are essentially always proportional to real estate prices, otherwise there would be an arbitrage opportunity one way or the other. Meanwhile the way a normal market responds to high rents is by building more rental properties, because when rents are high doing so is profitable. But that requires buying existing land and constructing new housing on it. If the existing land is owned by people who are neither developing it further nor selling it, that can't happen. Which is particularly problematic in places with restrictive zoning, because they could be sitting on the specific properties that are zoned for higher density than what they're currently built to -- and those are exactly the properties you would want to buy if you were an oligarch speculating on real estate.
    • sjjshzvuiajhz 8y ago
      > Rents are essentially always proportional to real estate prices, otherwise there would be an arbitrage opportunity one way or the other. This is empirically false. There is an incredible range in the price-rent ratio across different real estate markets - from 50 in Hong Kong to 5 in Detroit.
      • AnthonyMouse 8y ago
        The proportion is different, because different areas have different borrowing costs, risks, regulatory environments, etc. The proportionality is always there -- if you make it more expensive to buy property than it used to be in the same place, rents will go up. Because the landlord has to pay the mortgage on the building. If you double the mortgage payment, what happens to the rent?
        • pcr0 8y ago
          Not always. If interest rates go up, house prices go down but rents go up. The opposite is also true if interest rates go down.
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• sudoaza 8y ago
  It's called monopoly, there is no infinite offer "people will spend whatever it takes to get a roof over their heads. Cities are not infinitely sprawlable, so it's possible to corner the market on places to live in them. Eventually, the parasites will devour the hosts and leave the cities empty shells (ahem, Venice), but by then the money-launderers have sold up and moved on."
  • sjjshzvuiajhz 8y ago
    Are you saying the old landlords were just being nice, changing less than they could, and the new oligarchs are suddenly charging market rate?
    • Retric 8y ago
      No, oligarchy provides market power similar to that of a monopoly. Also, if you’re renting 100 properties letting 20% sit idle might be with it. I’d your renting 1-2 properties then you don’t have the fine grained control.
      • sjjshzvuiajhz 8y ago
        See my response to child comment - this is a story about the landlords diversifying globally, not merging together.
        • Retric 8y ago
          Not nessisarily relevant if the same management companies are running these rentals for large numbers of investors. “25 money laundry clients, all with about $3 million (after you & your washing cut) they need to invest. $75 mil? Let’s buy 6 dingbats and put them in an REIT. Which hires a management team” This means that specific team is managing property for a hypothetical group of 25 people. The second part “If the REIT buys a building for an inflated price, and they’re getting clean money monthly? They can just sit on it until someone legit comes along, having convinced a bank to make them a very large mortgage on an inflated price.” In other words they don’t care that much about cash flows the way somone leveraged to the hilt would. That said these numbers completely ignore leverage, that 75 million investment could easily own 200+ million in property.
• tomp 8y ago
  2 reasons: - increased demand: wealthy/corrupt foreigners outbid (pay more) local buyers, so more locals are renting instead of buying - lowered supply: if your main motivation is money-laundering and/or long-term stability (e.g. the rich Chinese/Saudi buying property in a democratic, stable, non-corrupt country like the UK), chances are they won't be renting it (the income is negligible), it might just sit empty
• aristophenes 8y ago
  Yes. Really bad article, I don’t understand how people can handle the cognitive dissonance. If anything, the situation described would reduce rents for your average consumer because the increased building sale prices makes it more profitable to build more buildings, increasing the supply of apartments. Basically foreign oil money supporting jobs and subsidizing rents. And as the article actually states, it doesn’t make sense for them to buy single family homes, so they aren’t even inflating the market for people who want to own their own home instead of renting. The only potential drawback is the situation where investors buy property as an investment only, not for income, and consider tenants will decrease the value of the property, so they keep it vacant. I hear this happens in China. But it is expressly not the case as described in the article.
  • boombust 8y ago
    This is a clear example of someone quoting theoretical economic arguments as if they were as rigorous as mathematical proofs (and believing the gospel that they are preaching just because the logic is, on the surface, sound). It takes years for buildings to be built. There are a ton of regulations that exist around construction and refurbishment in most cities (for good reason). Demand increases in any part of a market will have knock on effects on other parts of that market if supply is static (if buyers are priced out of one area they move onto other areas, increasing the demand and therefore price level). Basically, the way the world behaves cannot be quoted out of a textbook. This is economic thinking at its worst. Where I live, London, the rental market has gone absolutely mad in the past 20 years. While there is no single reason for it, it is no coincidence that this has been happening in the money laundering capital of the world, a favourite destination for oligarchs as our governments have turned a blind eye to their dirty money in the pursuit of foreign investment.
    • aristophenes 8y ago
      Please explain how the data provided by the article relates to higher rents. Just because rents are high and oligarchs are buying properties in order to collect rent, it does not follow that rents are high because of that foreign investment. It only makes sense that they are related if they are not renting them out. Which may be the actual case, but was not what was described in the article.
• drugme 8y ago
  Clearly demand from investors would raise sale prices, but why would renters pay more to rent in buildings owned by shady oligarchs? You don't have to specifically live in these buildings to be affected by the influx of all that cash in the local market.
  • sjjshzvuiajhz 8y ago
    How does that cash end up in somebody’s rent check? Presumably the people selling to the oligarchs are not renters? If the cash was able to get to renters via some kind of trickle-down effect, we’d all be happy with the resulting economic prosperity and then the resulting rent increases would unfortunately capture some of those gains. Increases in rent caused by increases in income aren’t going to exceed the increases in income, that violates causality. It’s only a problem if rent goes up first and renter incomes don’t increase to make up for it.
    • drugme 8y ago
      There's no "trickle-down" effect. It's a trickle-up effect in terms of (1) rents necessarily raising in reaction to the dwindling supply and (2) the ensuing speculation bubble in "hot" neighborhoods. Both of which royally screw over long-term tenants living on flat incomes -- i.e. "the middle class".
      • sjjshzvuiajhz 8y ago
        What do you mean by dwindling supply, we are talking about investors buying properties and renting them out. That doesn’t decrease supply in the rental market.
        • drugme 8y ago
          The thing is - quite often they aren't renting them out; but simply holding them as "assets". Or when they do rent them out - they tend to raise the rent. Which is why the supply of affordable apartments tends to "dwindle".
• colanderman 8y ago
  I think there's an implicit assumption that housing stock is sufficient to house the population, and that landlords compete with each other. So rents generally trend downward, and track the costs of owning and maintaining a residence. When those costs balloon (because of a glut of buyers with cash to launder), so does the prevailing rent which legitimate purchasers of real estate need to charge to recoup costs and make a profit. If on the other hand housing stock is insufficient, rent will simply track demand and this effect will be masked.