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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 rent

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.

deleted 8y ago
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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.
    - YorkshireSeason 8y ago
      rise in the construction of hyper-premium properties which the market does not especially demand, If you look at the parts of London with extreme building activity over the last few years (Nine Elms, Battersea Power Stn, Docklands, Aldgate, Old Street, Stratford, Kings X), you'll find that almost everything falls into the studio, 1-bedroom or 2-bedroom range. There has also been a lot of development of commercial student accomodations, see e.g. [1]. Pretty much the antithesis of "leaving things empty". [1] https://www.theguardian.com/education/2018/may/27/revealed-developers-cashing-in-privatisation-uk-student-housing https://www.theguardian.com/education/2018/may/27/revealed-d...
- shubb 8y ago
  I've been thinking about this lately because I want to rent out my flat and move abroad. It turns out that, if I take into account my mortage, building charges, and expected empty time between tenants the minimum I can charge for rent is... actually kind of similar to the market rent. It would seem like there is a floor to London rents, and it is related to the mortage payment, which is related to the value. If the value was 50% lower, then landlords renting at the current level would be undercut.
  - dragandj 8y ago
    I understand why you think that is the minimum. But, let's say that your mortgage is 100, building charges 10, and expected empty time cost another ten, 120 in total. How is charging 0 (not being able to rent it because no one is willing to match your minimum) better than, say, renting it for 110? I assume that you already own the property, so you have no choice of directing that mortgage to other investment opportunities.
  - motohagiography 8y ago
    Do you pay income tax on the rental income as well? This would add about %30-45 to your mortgage payment breakeven as well, no? If your mortgage payment is $1000/mo, you need that in after-tax dollars in addition to gap months and maintenance. This pushes rents up for single property landlords in the top marginal rate, or am I missing something.
    - jnwatson 8y ago
      You only pay income tax on your net profit (in the US at least).
      - motohagiography 8y ago
        Net expenses, but the equity in the property seems like income (as you can tell iana landlord). Income taxes likely contribute a significant percentage of the difference between mortgage payments an rent prices. For a REIT, this is different, but for an individual owner renting out a second property and paying income taxes on the rent income, would this not create a significant difference?
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.
deleted 8y ago
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deleted 8y ago

[deleted]

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.
  - YorkshireSeason 8y ago
    rise in the construction of hyper-premium properties which the market does not especially demand, If you look at the parts of London with extreme building activity over the last few years (Nine Elms, Battersea Power Stn, Docklands, Aldgate, Old Street, Stratford, Kings X), you'll find that almost everything falls into the studio, 1-bedroom or 2-bedroom range. There has also been a lot of development of commercial student accomodations, see e.g. [1]. Pretty much the antithesis of "leaving things empty". [1] https://www.theguardian.com/education/2018/may/27/revealed-developers-cashing-in-privatisation-uk-student-housing https://www.theguardian.com/education/2018/may/27/revealed-d...
shubb 8y ago
I've been thinking about this lately because I want to rent out my flat and move abroad. It turns out that, if I take into account my mortage, building charges, and expected empty time between tenants the minimum I can charge for rent is... actually kind of similar to the market rent. It would seem like there is a floor to London rents, and it is related to the mortage payment, which is related to the value. If the value was 50% lower, then landlords renting at the current level would be undercut.
- dragandj 8y ago
  I understand why you think that is the minimum. But, let's say that your mortgage is 100, building charges 10, and expected empty time cost another ten, 120 in total. How is charging 0 (not being able to rent it because no one is willing to match your minimum) better than, say, renting it for 110? I assume that you already own the property, so you have no choice of directing that mortgage to other investment opportunities.
- motohagiography 8y ago
  Do you pay income tax on the rental income as well? This would add about %30-45 to your mortgage payment breakeven as well, no? If your mortgage payment is $1000/mo, you need that in after-tax dollars in addition to gap months and maintenance. This pushes rents up for single property landlords in the top marginal rate, or am I missing something.
  - jnwatson 8y ago
    You only pay income tax on your net profit (in the US at least).
    - motohagiography 8y ago
      Net expenses, but the equity in the property seems like income (as you can tell iana landlord). Income taxes likely contribute a significant percentage of the difference between mortgage payments an rent prices. For a REIT, this is different, but for an individual owner renting out a second property and paying income taxes on the rent income, would this not create a significant difference?

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.

deleted 8y ago

[deleted]