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Former real estate finance professional, here. If you were hoping this was a sign of the real estate market falling and perhaps its your chance to get a bargai

Former real estate finance professional, here. If you were hoping this was a sign of the real estate market falling and perhaps its your chance to get a bargain, think again. > The company is seeking roughly $2.8 billion for the houses, which are being pitched to institutional investors, according to people familiar with the matter. Institutional investors (Blackstone, Blackrock, Colony, et al) will be being in bulk, in cash, and at a steep discount before they even hit the market. Zillow's loss will be the institutional investor's gain. Of course, they will happily rent to you since that is the the plan all along - own all the assets, and every generation after X gets to rent [1]. I wish this would anger people more, but enough home owners will benefit from this dynamic - it will likely keep home prices elevated for longer, and set up an ugly conflict between those who do not have (and aspire to have) homes and those who currently own homes. [1] https://www.ocregister.com/2021/09/30/in-a-hot-market-companies-compete-with-would-be-homeowners/ https://www.ocregister.com/2021/09/30/in-a-hot-market-compan...

cwkoss 5y ago
Every person or corporation that owns more than one residential dwelling should pay increased property taxes based on the number of residential dwellings they own. This is an easy problem to legislate away, our politicians are just too cowardly to decommodify housing.
- MrKristopher 5y ago
  In California this would be framed as a repeal of Prop 13. Not sure why you think that is easy to legislate away.
- JeremyNT 5y ago
  That's a good stick, yep. They could also add in a carrot, to reduce capital gains on sale of non-primary residences. There are too many incentives currently to hoard properties like the damn monopoly man, so you need to start clawing away at them. Taxing the eventual sale just encourages people to not ever sell, so tax them for hoarding directly.
- shiohime 5y ago
  There are probably easy loopholes to get around your suggestion. Just form another LLC and purchase the property under that LLC instead of you as an individual, then each entity owns only one property, so they get the standard tax rate instead of what you are proposing. Of course this would be a giant pain of a workaround to scale, but for the non-mega corporations it'd probably work. I'm sure that the huge corporations owning large swaths of residential properties would figure out scaleable loopholes.
  - lostapathy 5y ago
    Just tie the "first home" tax exemption back to a person by making business entities a pass-through to the registered agent (or some other single officer). i.e., an LLC can't claim the exemption, but the agent can pass their exemption through the LLC to a property.
- itsoktocry 5y ago
  >our politicians are just too cowardly to decommodify housing I'll be 90% or more own multiple houses.
  - adrianmonk 5y ago
    Make it 5 houses per person (10 for married couples), then. Plenty of families out there own rental houses as an investment, which I think is a good thing. It allows people an alternative to investments like the stock market if they aren't into that, and it gives a path to turn labor into wealth through DIY maintenance, repairs, and improvements. Plus it allows individuals to better manage situations like parents dying and leaving them a house that they may not want to sell immediately.
- dgfitz 5y ago
  You don't think that cost would just get passed along to the renter?
  - gifnamething 5y ago
    No, there's competition from landlords who own fewer properties
    - candiodari 5y ago
      Won't that just mean less investment in new housing, so over time less housing stock, resulting in (delayed) price rises and more people excluded from the housing market. I mean in general the only possible solution is more housing ... which would mean 1) zoning up neighborhoods 2) make it financially interesting to convert properties and make them denser
- sethammons 5y ago
  This is an interesting idea! Some graduated tax rate for the number of dwellings + properties that way a second home or small time landlord can own say a dozen properties before the marginal taxes take too much of the marginal profits. What efficiencies are we giving up in this model?
  - mistermann 5y ago
    This has a dependency on the government actually enforcing the law though, in Canada when it comes to real estate, it has been well demonstrated that they will not. Hopefully for the US it is different.
- throw123123123 5y ago
  Why tax, just make it illegal? Isn't that what you really want to achieve?
DarkmSparks 5y ago
I think you are mistakenly assuming they will be successful selling 7000 houses for $400,000 each. In a world where the likes of blackrock are up to their eyeballs in bad Chinese real estate deals already that seems unlikely.
amznthrwaway 5y ago
Institutional Investors make up less than a percent of the single family home buying market. It’s ridiculous to believe that they’ll monopolize housing and we’ll all be forced to rent. I know that’s a very very stupid conspiracy theory though, mostly based on a single essay where somebody was postulating possible futures, and they considered a future where people preferred renting.
BuckRogers 5y ago
I'm a 39 year renter flush with cash from 15 years of a professional job while living in austerity for the entire time. Soliciting free advice. You sound bullish so I wanted to share five risks in the short term that have been on my mind lately: 1) Evictions now allowed in 43 states after a pandemic moratorium on them. My state allowed them October 3rd. Supply. 2) A China conflict at any point. Disruption. 3) Taxes going up on the wealthy. Disruption. 4) Rates going up to counter inflation. I want this one since I have cash and don't care if rates are 2% or 20%. While I do want the free loan (2%), I prefer the market to crash. Disruption. 5) Vaccine mandate job losses. Supply. Given this, I've been extremely hesitant lately. So I've been trying to hold off until January for my purchase to see how correct I am, or not, on these risks impacting the market. I don't see the point in waiting years as rent drains about $18,000 a year and you have to balance that with home ownership costs. Even with repairs, I don't mind slightly overpaying if it means getting out of rent slavery. I'm also buying a home that I can nearly buy outright. I'm determined to never lose a home due to job loss, tired of working for someone else, so a 30-year mortgage isn't happening under any circumstance. 15-year only. The one way I've been trying to protect myself is at least seeking a 15% discount off market rate for any home that I do purchase. I see that happening in my city enough that I'm confident. Eats into the 40% buffer from 2019, so I'm still at significant risk but does take some bite off in the event of a market catastrophe. Any thoughts are welcome. Definitely would appreciate it. Whether the answer is: buy now, or, buy in 15 years. I'll try to integrate them into my view and choices.
- hnbalsamicw 5y ago
  same situ as you almost exactly :)
- traceddd 5y ago
  Personally I went through a lot of the same considerations and the indecision and flip flopping got quite tiring. Eventually I just simplified things. Living in a property you own gives so much more for your money compared to what one could afford at the same level renting. And on a long enough timeline crashes have had minimal impact. Many of those disruptions would affect the financial markets too so unless you’re extremely conservative leaving the money in stocks is not very safe either. I’m not renting for another 5 to 15 years with a small place and a nosey landlord jacking up rent regularly. So I bought.
lvs 5y ago
I'd like to see an analysis of how much institutional speculation is contributing to the market pricing exuberance in housing...
- ineedasername 5y ago
  At least a little of it institution-driven: https://www.marketplace.org/2021/04/13/institutional-investors-are-stiff-competition-homebuyers/ https://www.marketplace.org/2021/04/13/institutional-investo...
- gruez 5y ago
  https://www.vox.com/22524829/wall-street-housing-market-blackrock-bubble https://www.vox.com/22524829/wall-street-housing-market-blac...
mikysco 5y ago
Aren't all these homes required to be listed on the MLS before being sold? My understanding is a home (at least in California) can't be sold unless publicly listed for X days on the MLS.
- PaulDavisThe1st 5y ago
  Absolutely untrue elsewhere. I sold two houses in PA without them ever appearing on the MLS, which is a privately run, privately owned database. It might also be untrue in CA, but I can't comment on that.
- tiffanyh 5y ago
  "Pocket listing". https://en.wikipedia.org/wiki/Pocket_listing https://en.wikipedia.org/wiki/Pocket_listing
- ramesh31 5y ago
  Sure, but they aren't required to accept any offers. And the odds of a private buyer making a better all cash zero contingency offer than an institutional investor is pretty slim.
- kyleblarson 5y ago
  I bought a condo in Seattle from a friend with zero MLS involvement. We agreed on a price, found a purchase and sale agreement online, hired a title company. Took about a week.
- topkai22 5y ago
  I don't think that is true. I know of intra-family sales where that definitely didn't happen and a quick search found nothing. There may be some internal rules among Realtors (who own the MLS- it isn't a public service) that require that, but a law declaring that would be dictating paying for a given private organizations product, which sounds problematic.
- game_the0ry 5y ago
  Not necessarily true, and certainly not true if you are selling the entity (usually LLC) that owns the portfolio of properties.
the-pigeon 5y ago
This would be easy to fix with legislative that makes property taxes much higher for investment home properties. I don't think I've ever heard of a politician even talking about that though.
- webinvest 5y ago
  Yes, they could double or triple the current homestead exemption.
- sokoloff 5y ago
  Many places have a (small) rebate for owner-occupied real estate. Cambridge, MA is one; I get a break for living in my house as a primary residence. Edit to add: I looked up the exemption calculation. It excludes up to $432,666 from the assessed value. Multiply that exclusion by the rate of 0.00585 ($5.85 per $1K per year) and the exclusion reduces a homeowner's taxes by $2,531.10/yr.
- ep103 5y ago
  They are generally called non-primary residency taxes, and they're definitely a thing, and definitely getting more publicity, and most definitely need to become much stronger and more widespread.
  - sjs382 5y ago
    In LA and TX at least, you get a "homestead exemption" on property taxes on your primary residence.
  - munk-a 5y ago
    We have these in BC - they were adopted in response to overseas real estate investment (and other factors) driving the Vancouver housing market insane. Canada also has a number of programs that make property purchase for new homeowners more affordable by waving some taxes and allowing interest free borrowing from your retirement fund. So the fight to keep housing affordable for everyone is a difficult one. One of the issues is that when these sorts of policies initially roll out you tend to see a contradictory effect of sudden spiking in prices as a lot of people who were on the fence suddenly decide to add to the housing market demand - but over time these policies tend to settle in a place where thing are more affordable. The other issue is that the renewal period for first time home owner benefits is quite long, so if you are exiting a long term relationship or trying to pick yourself up after bankruptcy you can be forced to enter the market as if you were a well established asset holder.
nojito 5y ago
>at a steep discount before they even hit the market This isn't really true. They are paying above market rates and have been for the past 18 months or so.
- t-writescode 5y ago
  Isn't the easiest way to make market rates higher is to, en masse, over-pay to force everyone into thinking that the house is worth more, Thinking Fast and Slow style?
  - nojito 5y ago
    They aren't in the market to flip in the short term though. They genuinely believe that these assets will appreciate in the coming years.
    - t-writescode 5y ago
      Well, if they believe that, then they're almost certainly right there, too. * New construction isn't going up fast enough, so the housing supply will decrease and * the number of people that want to buy a home increases as long as the total population of an area increase. Bundle that with * fewer people getting married, and you need more houses per person than before, and that further reduces the housing supply; AND, further that with the reality that * houses are seen as an investment vehicle, so anything that reduces the value of a house rather than increases it causes people to recoil back because that's literally their retirement in there (see Australia's housing situation, for example) Housing prices can only go up without the entire financial system changing. It's a very, very good bet as long as major things don't change.
trident5000 5y ago
Thats not how you look at this. If this were a strong market signal they would be selling to Blackrock at a profit and not a loss. The exchange value is down not up. There were equal buyers matched to sellers in 2008 as well when the market was cratering (not that we are in 2008).
- k3oni 5y ago
  They paid above market for these houses in cash in order to get them and we don't know how much above market, only they and their AI know, that's what's causing them all the fuss now.
  - trident5000 5y ago
    Right so even with AI technology and directly owning much of the housing data in the US, they still couldnt make a profit. Any time you buy a house to flip it you are paying a premium in hopes to make a greater premium. Instead they are making a loss. Thats not a good market signal.
    - k3oni 5y ago
      From what i've read about all their investment regarding this issue, many of the homes they purchased also needed extra investment/rehab. I think they tried their hand at automation/ai purchasing as they had a lot of data but something fell really short of expectations. What Z did is a bit outside of the current market norms so i wouldn't really use it as a market signal, i'm looking at it more as their idea/system just fell short. But at the same time i was expecting the housing market to go lower into the start of this year, boy was i wrong as the market dynamics changed fast.
      - trident5000 5y ago
        Sure that makes sense, they thought they could power through not putting in the sweat equity and they were wrong. Thats definitely a reality.
- 5y ago
gonehome 5y ago
This framing feels backwards to me - I thought the reason institutional investors see it as a valuable asset is because of NIMBYs constraining supply for them via local policy and obstruction. The institutional investors are a symptom of that policy, but the NIMBYs (and incentives that exist for existing owners like prop13) are the cause. Real Estate scaling supply to meet demand is in direct conflict with old properties increasing in value forever. You can't really have both and we're stuck a valley of bad incentives that favor existing owners. If we let people build housing to meet demand it would fix it, but existing owners are motivated to leverage enormous amounts of equity (and local political power) to stop any new building in order to keep property scarcity high. Their explanations beyond that are all just motivated reasoning rationalizations. Hopefully stuff like RHNA will force local municipalities to act. I can empathize somewhat with someone who spent $3M on a crappy house being afraid of being under water from increased supply, but I have no empathy for someone who bought a $300k house 30yrs ago that's now worth millions acting to obstruct new construction.
- dionidium 5y ago
  The investors themselves agree with you. Here's one such company's SEC filing: > We have selected markets that we believe will experience strong population, household formation and employment growth and exhibit constrained levels of new home construction. Source: https://www.sec.gov/Archives/edgar/data/1687229/000119312517029042/d260125d424b4.htm https://www.sec.gov/Archives/edgar/data/1687229/000119312517...
  - gonehome 5y ago
    Yeah I can’t fault the investors really, they’re just observing the world and making a bet because of the reality that is - they’re not the ones creating it. Meanwhile the NIMBYs that are creating it blame everyone else and play victim.
- onlyrealcuzzo 5y ago
  OP's comment makes sense if you assume BlackRock is going to continue gobbling up properties at current prices & rates - but is there any evidence to support that? If BlackRock doesn't continue to gobble up homes at current prices & rates - then his argument falls apart. Does anyone have evidence that BlackRock is STILL buying properties en masse?
_3u10 5y ago
The people could always fix this by removing zoning bylaws, or moving somewhere with less restrictive bylaws, but it’s much easier to blame billionaires than their own voting preferences.
shmatt 5y ago
This article may not be a sign, but a different[1] article is a pretty decent sign Zillow is also selling individual homes, not just this package. In their main algorithmic buying market of Phoenix they're selling individual homes, 93% of whom they payed more for than the new current listing price (and they usually do renovations before listing) So Zillow VCs are essentially paying people to take a discount on houses in those markets. pretty sweet [1] https://www.businessinsider.com/zillow-offers-ibuyer-sell-phoenix-homes-at-a-loss-2021-10 https://www.businessinsider.com/zillow-offers-ibuyer-sell-ph...
- crate_barre 5y ago
  Losing money is pretty sweet?
  - gretch 5y ago
    Not for Zillow but for everyone else, yeah it’s value transfer from VCs to the he average person. Same thing with Uber/Lyft/dash/movie pass. For years the general population received rich VC subsidized services. Pretty sweet
  - ganeshkrishnan 5y ago
    Yes. You make up for it in volumes.
citilife 5y ago
I'm a bit more optimistic. Only something like 2% of the U.S. is urban. https://www.visualcapitalist.com/america-land-use/ https://www.visualcapitalist.com/america-land-use/ If it became problematic that people didn't own homes, but wanted to, they could easily just open land for building. They may own all the land around cities and all the corporations move there. There by making "corporate cities", but at the end of the day, people can create their own thing like they did in the past.
- djmips 5y ago
  That's way optimistic. There's lots of other reasons to be in cities besides jobs.
  - JKCalhoun 5y ago
    I don't know. Living in a "bedroom community" often has all the benefits of the city without the downsides. Usually cheaper, less traffic, can still pop into the city for restaurants, shopping, entertainment when it suits you.
frankfrankfrank 5y ago
I agree. I wish people understood more of what these "institutional investors" are doing. The Fed has essentially trapped us in a system where the likes of blackrock get access to essentially free Fed printing press money right of the rollers that they then use to buy up real assets at inflated prices, which only drives up the inflation that thereby also drives up the value of previous purchases at near zero rate interest. If you follow that logic to the final conclusion, you will find that these "institutional investors" only have incentive to not only buy up all the assets they can at near zero interest, but that doing so is a kind of self-perpetuating profit machine as inflation creates profits for them. Yes, this is IMMENSELY dangerous. Oh, and I did not mention that if it's not in collusion, the Fed has the tiger by the tail and is paralyzed with fear to such a degree that it simply cannot let go so as to at least have a chance of getting away in time, rather than the guaranteed demise of holding on to the tail and then eventually only getting ever more tired and the chance of survival crashing exponentially.
- ok123456 5y ago
  Mao was right.
- delfinom 5y ago
  This is the end game of the baby boomers and economy really. Collectively everyone is hoarding onto property for their nest egg, investment funds get piles of their money from 401ks and pensions as well to invest into areas like real estate. A large chunk of retirement is now predicated on maintaining or increasing property values. The fed is now so fucked it can't even raise rates without immediately causing property value declines as mortgages decrease. There really is no solution and we are in for horrific pain eventually. It's simply a question of how long they can stall it.
  - adam_arthur 5y ago
    The solution is simple. Raise rates and let asset prices normalize, regardless of the consequences. There will be pain in the short term, but you're creating opportunity for future generations. Policy right now is all about pulling prosperity from the future into the present. IE higher valuation multiples today enrich current asset holders, but leave little growth for future asset holders It used to be that the Fed was not too focused on asset valuations, and actually drove policy on the basis of their mandates. Unfortunately they're too cowardly to do that anymore. It may be partly due to the short term focused political system in the US. China actually is explicitly acting to reduce property values to make homes more affordable for its people. Of course this triggered all sorts of second order effects like the evergrande situation. We will see if they follow through all the way, but so far they aren't backing down, despite what looks like an imminent systemic implosion of the property sector. Sometimes people lose when they invest. That's how it's supposed to work. Removing that element creates mass amounts of moral hazard, which will end badly on its own at some point.
dionidium 5y ago
I'll be the YIMBY broken record here. These institutional investors are suddenly interested in housing because decades of artificial constraints on new construction have created a situation where prices are rising quickly as demand outpaces supply. Don't believe me? Here's the SEC filing from one such investor: > We have selected locations with strong demand drivers, high barriers to entry and high rent-growth potential. Understand that "high barriers to entry" is referring to legal regimes that limit new housing. Later, they say: > We have selected markets that we believe will experience strong population, household formation and employment growth and exhibit constrained levels of new home construction. These companies aren't driving up prices. They're reacting to high prices. That's what's making these markets attractive. Source: https://www.sec.gov/Archives/edgar/data/1687229/000119312517029042/d260125d424b4.htm https://www.sec.gov/Archives/edgar/data/1687229/000119312517...
- greendude29 5y ago
  There is a global surge in housing prices. There are cities like Vancouver and Toronto where there has construction of 1000s of units has accelerated for decades, but the same crises exists. Are you sure you aren't just thinking within the box of the United States?
  - dionidium 5y ago
    I don't accept the premise. Vancouver sure looks a lot different than it did 30 years ago, right? Well, certainly the peninsula/downtown does, but most of the city is still zoned for single-family housing: http://www.datalabto.ca/wp-content/uploads/2019/07/thumb_nail_1-01.png http://www.datalabto.ca/wp-content/uploads/2019/07/thumb_nai... Even Vancouver isn't building anywhere near what the demand would support. If people were allowed to build more housing in Vancouver, then they would. [0] In general, people's intuition on this stuff isn't great, for a few different reasons: 1. Status quo bias. Any change tends to look like a lot of change. This is the, "I can see three cranes from where I'm standing, so we must be in a construction boom" fallacy. 2. Illusion that concentrated change indicates widespread change. People see a lot of development in one part of town and discount that such development is prohibited in 98% of the city. (This one definitely applies to Vancouver.) 3. Failure to account for proportionality. If somebody hears that a city added 5000 units, they'll probably think that's a lot. But is it? What if we're talking about a metro area with 10 million people? It's nothing. Big numbers can end up being small numbers when the scale is large enough. 3. Failure to account for growth in demand/population. We build fewer houses than we did 100 years ago, but we also have many times as many people! So even a static supply is bad, because you have to at least build enough to keep up with growth. And since some cities have seen a sustained surge in demand for the last 2 or 3 decades without enough construction, even seemingly large amounts of recent development might mean that you're still way behind. [0] I'm aware that Vancouver has made some progress on this. I think they're going to start allowing more duplexes and more housing near SkyTrain stops. I don't follow Vancouver that closely, so I'll just note that I'm aware it's changing.
itsoktocry 5y ago
>they will happily rent to you since that is the the plan all along - own all the assets, and every generation after X gets to rent Maybe if there wasn't the NA obsession with "home ownership" none of this would matter. Part of what is driving home prices are people with FOMO paying any price. Why?
- tata71 5y ago
  Lack of understanding of markets.
- JKCalhoun 5y ago
  Interesting, calling an investment strategy "FOMO". More likely, people flush with cash see inflation eroding it, think the stock market is already too high.
- gr1zzlybe4r 5y ago
  In the US specifically, home ownership has been the primary way that many people have "built" wealth in the 20th and 21st centuries. It also gives you the ability to participate as a citizen in many more ways than a renter, as you have influence over local public policy in many more concrete ways. Lastly, it's hard to overstate to a non-American how much owning a home is seen as a central part of American identity. It's almost like part of "growing up" in a way. I say this in a tone of trying to explain haha, please don't perceive this as being pedantic.
subsubzero 5y ago
100% agree. Institutional investors are setting themselves up to be landed barons that will seek perpetual rent from working people who can no longer afford housing as the supply has shrunk and housing prices skyrocket. Oh and if these institutions fail they get bailed out by govt(they are too big to fail!). Imagine if these 7000 houses were offered to buyers, this would allow so many families opportunities to homeownership, this whole scenario makes me mad as hell and I hope this practice will be banned in the future.
- MrKristopher 5y ago
  What would you ban?
  - rozap 5y ago
    No ban, just huge property taxes for non-primary residences.
    - deleted 5y ago
      [deleted]
    - nkozyra 5y ago
      Doesn't this just trickle down to the renter, who has few alternative housing options?
      - donkeyd 5y ago
        This guy gets it.
      - caterama 5y ago
        Costs trickle-down... Profits don't.
        nkozyra 5y ago
        > Costs trickle-down... Profits don't. Well, we're talking about costs. That's why I asked.
vasilipupkin 5y ago
Blackstone, Blackrock - just buy their stock then, they are publicly traded
- mwambua 5y ago
  ... And hope that whatever gains I get make me feel better about not being able to afford a home?
donkeyd 5y ago
> I wish this would anger people more It is... But what are you going to do about it? Especially in the US, big business owns the politicians who can do something about it. And prop 22 shows that even if the public gets to decide, big business manages to control public opinion to their benefit. I believe this is only going to get worse for the next couple of decades. Something major would have to happen for this to change.
- pc86 5y ago
  So wait. Either big business owns the politicians and so nothing gets done, or people vote but they're too stupid to do it in their own interests because of big business? This sounds like the typical "the election was fair as long as I won" trope. Have you considered that maybe your opinion is just in the minority?
  - donkeyd 5y ago
    I see what you're getting at, but Brexit is objectively shit for the majority of people, yet the majority voted for it. There are plenty more examples like it.
  - Supermancho 5y ago
    > Either big business owns the politicians and so nothing gets done, or people vote but they're too stupid to do it in their own interests because of big business. > This sounds like the typical "the election was fair as long as I won" trope. How's that? It does not sound like anything but modern American politics. Not to say it's 100% true, but it's largely true on the West Coast USA for the last 40 years...as I can only speak to what I've seen. It's a legitimate surprise when grassroots efforts are not coopted with riders/judicial nullification or drowned by propaganda.
commandlinefan 5y ago
> home owners will benefit It's going to hurt home owners, too - when the valuation of the house goes up, so do the taxes. It won't be long before the tax burden is so high, the only option homeowners will have is to sell (and then pay even more taxes on the gains on the house sale) and rent it back from Blackrock.
- scrumbledober 5y ago
  Not in California. See Prop 13
rconti 5y ago
Home ownership is not necessarily the unalloyed good that the American Dream (and tax policy) make it out to be. That said, I'm not arguing for this specific rental model, either.
dan_quixote 5y ago
I say this as someone who has gained significant wealth from personal real estate - Tax it more. It's crazy to incentivize personal real estate as an investment.

cwkoss 5y ago

Every person or corporation that owns more than one residential dwelling should pay increased property taxes based on the number of residential dwellings they own. This is an easy problem to legislate away, our politicians are just too cowardly to decommodify housing.

MrKristopher 5y ago
In California this would be framed as a repeal of Prop 13. Not sure why you think that is easy to legislate away.
JeremyNT 5y ago
That's a good stick, yep. They could also add in a carrot, to reduce capital gains on sale of non-primary residences. There are too many incentives currently to hoard properties like the damn monopoly man, so you need to start clawing away at them. Taxing the eventual sale just encourages people to not ever sell, so tax them for hoarding directly.
shiohime 5y ago
There are probably easy loopholes to get around your suggestion. Just form another LLC and purchase the property under that LLC instead of you as an individual, then each entity owns only one property, so they get the standard tax rate instead of what you are proposing. Of course this would be a giant pain of a workaround to scale, but for the non-mega corporations it'd probably work. I'm sure that the huge corporations owning large swaths of residential properties would figure out scaleable loopholes.
- lostapathy 5y ago
  Just tie the "first home" tax exemption back to a person by making business entities a pass-through to the registered agent (or some other single officer). i.e., an LLC can't claim the exemption, but the agent can pass their exemption through the LLC to a property.
itsoktocry 5y ago
>our politicians are just too cowardly to decommodify housing I'll be 90% or more own multiple houses.
- adrianmonk 5y ago
  Make it 5 houses per person (10 for married couples), then. Plenty of families out there own rental houses as an investment, which I think is a good thing. It allows people an alternative to investments like the stock market if they aren't into that, and it gives a path to turn labor into wealth through DIY maintenance, repairs, and improvements. Plus it allows individuals to better manage situations like parents dying and leaving them a house that they may not want to sell immediately.
dgfitz 5y ago
You don't think that cost would just get passed along to the renter?
- gifnamething 5y ago
  No, there's competition from landlords who own fewer properties
  - candiodari 5y ago
    Won't that just mean less investment in new housing, so over time less housing stock, resulting in (delayed) price rises and more people excluded from the housing market. I mean in general the only possible solution is more housing ... which would mean 1) zoning up neighborhoods 2) make it financially interesting to convert properties and make them denser
sethammons 5y ago
This is an interesting idea! Some graduated tax rate for the number of dwellings + properties that way a second home or small time landlord can own say a dozen properties before the marginal taxes take too much of the marginal profits. What efficiencies are we giving up in this model?
- mistermann 5y ago
  This has a dependency on the government actually enforcing the law though, in Canada when it comes to real estate, it has been well demonstrated that they will not. Hopefully for the US it is different.
throw123123123 5y ago
Why tax, just make it illegal? Isn't that what you really want to achieve?

DarkmSparks 5y ago

I think you are mistakenly assuming they will be successful selling 7000 houses for $400,000 each. In a world where the likes of blackrock are up to their eyeballs in bad Chinese real estate deals already that seems unlikely.

amznthrwaway 5y ago

Institutional Investors make up less than a percent of the single family home buying market. It’s ridiculous to believe that they’ll monopolize housing and we’ll all be forced to rent. I know that’s a very very stupid conspiracy theory though, mostly based on a single essay where somebody was postulating possible futures, and they considered a future where people preferred renting.

BuckRogers 5y ago

I'm a 39 year renter flush with cash from 15 years of a professional job while living in austerity for the entire time. Soliciting free advice. You sound bullish so I wanted to share five risks in the short term that have been on my mind lately: 1) Evictions now allowed in 43 states after a pandemic moratorium on them. My state allowed them October 3rd. Supply. 2) A China conflict at any point. Disruption. 3) Taxes going up on the wealthy. Disruption. 4) Rates going up to counter inflation. I want this one since I have cash and don't care if rates are 2% or 20%. While I do want the free loan (2%), I prefer the market to crash. Disruption. 5) Vaccine mandate job losses. Supply. Given this, I've been extremely hesitant lately. So I've been trying to hold off until January for my purchase to see how correct I am, or not, on these risks impacting the market. I don't see the point in waiting years as rent drains about $18,000 a year and you have to balance that with home ownership costs. Even with repairs, I don't mind slightly overpaying if it means getting out of rent slavery. I'm also buying a home that I can nearly buy outright. I'm determined to never lose a home due to job loss, tired of working for someone else, so a 30-year mortgage isn't happening under any circumstance. 15-year only. The one way I've been trying to protect myself is at least seeking a 15% discount off market rate for any home that I do purchase. I see that happening in my city enough that I'm confident. Eats into the 40% buffer from 2019, so I'm still at significant risk but does take some bite off in the event of a market catastrophe. Any thoughts are welcome. Definitely would appreciate it. Whether the answer is: buy now, or, buy in 15 years. I'll try to integrate them into my view and choices.

hnbalsamicw 5y ago
same situ as you almost exactly :)
traceddd 5y ago
Personally I went through a lot of the same considerations and the indecision and flip flopping got quite tiring. Eventually I just simplified things. Living in a property you own gives so much more for your money compared to what one could afford at the same level renting. And on a long enough timeline crashes have had minimal impact. Many of those disruptions would affect the financial markets too so unless you’re extremely conservative leaving the money in stocks is not very safe either. I’m not renting for another 5 to 15 years with a small place and a nosey landlord jacking up rent regularly. So I bought.

lvs 5y ago

I'd like to see an analysis of how much institutional speculation is contributing to the market pricing exuberance in housing...

ineedasername 5y ago
At least a little of it institution-driven: https://www.marketplace.org/2021/04/13/institutional-investors-are-stiff-competition-homebuyers/ https://www.marketplace.org/2021/04/13/institutional-investo...
gruez 5y ago
https://www.vox.com/22524829/wall-street-housing-market-blackrock-bubble https://www.vox.com/22524829/wall-street-housing-market-blac...

mikysco 5y ago

Aren't all these homes required to be listed on the MLS before being sold? My understanding is a home (at least in California) can't be sold unless publicly listed for X days on the MLS.

PaulDavisThe1st 5y ago
Absolutely untrue elsewhere. I sold two houses in PA without them ever appearing on the MLS, which is a privately run, privately owned database. It might also be untrue in CA, but I can't comment on that.
tiffanyh 5y ago
"Pocket listing". https://en.wikipedia.org/wiki/Pocket_listing https://en.wikipedia.org/wiki/Pocket_listing
ramesh31 5y ago
Sure, but they aren't required to accept any offers. And the odds of a private buyer making a better all cash zero contingency offer than an institutional investor is pretty slim.
kyleblarson 5y ago
I bought a condo in Seattle from a friend with zero MLS involvement. We agreed on a price, found a purchase and sale agreement online, hired a title company. Took about a week.
topkai22 5y ago
I don't think that is true. I know of intra-family sales where that definitely didn't happen and a quick search found nothing. There may be some internal rules among Realtors (who own the MLS- it isn't a public service) that require that, but a law declaring that would be dictating paying for a given private organizations product, which sounds problematic.
game_the0ry 5y ago
Not necessarily true, and certainly not true if you are selling the entity (usually LLC) that owns the portfolio of properties.

the-pigeon 5y ago

This would be easy to fix with legislative that makes property taxes much higher for investment home properties. I don't think I've ever heard of a politician even talking about that though.

webinvest 5y ago
Yes, they could double or triple the current homestead exemption.
sokoloff 5y ago
Many places have a (small) rebate for owner-occupied real estate. Cambridge, MA is one; I get a break for living in my house as a primary residence. Edit to add: I looked up the exemption calculation. It excludes up to $432,666 from the assessed value. Multiply that exclusion by the rate of 0.00585 ($5.85 per $1K per year) and the exclusion reduces a homeowner's taxes by $2,531.10/yr.
ep103 5y ago
They are generally called non-primary residency taxes, and they're definitely a thing, and definitely getting more publicity, and most definitely need to become much stronger and more widespread.
- sjs382 5y ago
  In LA and TX at least, you get a "homestead exemption" on property taxes on your primary residence.
- munk-a 5y ago
  We have these in BC - they were adopted in response to overseas real estate investment (and other factors) driving the Vancouver housing market insane. Canada also has a number of programs that make property purchase for new homeowners more affordable by waving some taxes and allowing interest free borrowing from your retirement fund. So the fight to keep housing affordable for everyone is a difficult one. One of the issues is that when these sorts of policies initially roll out you tend to see a contradictory effect of sudden spiking in prices as a lot of people who were on the fence suddenly decide to add to the housing market demand - but over time these policies tend to settle in a place where thing are more affordable. The other issue is that the renewal period for first time home owner benefits is quite long, so if you are exiting a long term relationship or trying to pick yourself up after bankruptcy you can be forced to enter the market as if you were a well established asset holder.

nojito 5y ago

>at a steep discount before they even hit the market This isn't really true. They are paying above market rates and have been for the past 18 months or so.

t-writescode 5y ago
Isn't the easiest way to make market rates higher is to, en masse, over-pay to force everyone into thinking that the house is worth more, Thinking Fast and Slow style?
- nojito 5y ago
  They aren't in the market to flip in the short term though. They genuinely believe that these assets will appreciate in the coming years.
  - t-writescode 5y ago
    Well, if they believe that, then they're almost certainly right there, too. * New construction isn't going up fast enough, so the housing supply will decrease and * the number of people that want to buy a home increases as long as the total population of an area increase. Bundle that with * fewer people getting married, and you need more houses per person than before, and that further reduces the housing supply; AND, further that with the reality that * houses are seen as an investment vehicle, so anything that reduces the value of a house rather than increases it causes people to recoil back because that's literally their retirement in there (see Australia's housing situation, for example) Housing prices can only go up without the entire financial system changing. It's a very, very good bet as long as major things don't change.

trident5000 5y ago

Thats not how you look at this. If this were a strong market signal they would be selling to Blackrock at a profit and not a loss. The exchange value is down not up. There were equal buyers matched to sellers in 2008 as well when the market was cratering (not that we are in 2008).

k3oni 5y ago
They paid above market for these houses in cash in order to get them and we don't know how much above market, only they and their AI know, that's what's causing them all the fuss now.
- trident5000 5y ago
  Right so even with AI technology and directly owning much of the housing data in the US, they still couldnt make a profit. Any time you buy a house to flip it you are paying a premium in hopes to make a greater premium. Instead they are making a loss. Thats not a good market signal.
  - k3oni 5y ago
    From what i've read about all their investment regarding this issue, many of the homes they purchased also needed extra investment/rehab. I think they tried their hand at automation/ai purchasing as they had a lot of data but something fell really short of expectations. What Z did is a bit outside of the current market norms so i wouldn't really use it as a market signal, i'm looking at it more as their idea/system just fell short. But at the same time i was expecting the housing market to go lower into the start of this year, boy was i wrong as the market dynamics changed fast.
    - trident5000 5y ago
      Sure that makes sense, they thought they could power through not putting in the sweat equity and they were wrong. Thats definitely a reality.
5y ago

gonehome 5y ago

This framing feels backwards to me - I thought the reason institutional investors see it as a valuable asset is because of NIMBYs constraining supply for them via local policy and obstruction. The institutional investors are a symptom of that policy, but the NIMBYs (and incentives that exist for existing owners like prop13) are the cause. Real Estate scaling supply to meet demand is in direct conflict with old properties increasing in value forever. You can't really have both and we're stuck a valley of bad incentives that favor existing owners. If we let people build housing to meet demand it would fix it, but existing owners are motivated to leverage enormous amounts of equity (and local political power) to stop any new building in order to keep property scarcity high. Their explanations beyond that are all just motivated reasoning rationalizations. Hopefully stuff like RHNA will force local municipalities to act. I can empathize somewhat with someone who spent $3M on a crappy house being afraid of being under water from increased supply, but I have no empathy for someone who bought a $300k house 30yrs ago that's now worth millions acting to obstruct new construction.

dionidium 5y ago
The investors themselves agree with you. Here's one such company's SEC filing: > We have selected markets that we believe will experience strong population, household formation and employment growth and exhibit constrained levels of new home construction. Source: https://www.sec.gov/Archives/edgar/data/1687229/000119312517029042/d260125d424b4.htm https://www.sec.gov/Archives/edgar/data/1687229/000119312517...
- gonehome 5y ago
  Yeah I can’t fault the investors really, they’re just observing the world and making a bet because of the reality that is - they’re not the ones creating it. Meanwhile the NIMBYs that are creating it blame everyone else and play victim.
onlyrealcuzzo 5y ago
OP's comment makes sense if you assume BlackRock is going to continue gobbling up properties at current prices & rates - but is there any evidence to support that? If BlackRock doesn't continue to gobble up homes at current prices & rates - then his argument falls apart. Does anyone have evidence that BlackRock is STILL buying properties en masse?

_3u10 5y ago

The people could always fix this by removing zoning bylaws, or moving somewhere with less restrictive bylaws, but it’s much easier to blame billionaires than their own voting preferences.

shmatt 5y ago

This article may not be a sign, but a different[1] article is a pretty decent sign Zillow is also selling individual homes, not just this package. In their main algorithmic buying market of Phoenix they're selling individual homes, 93% of whom they payed more for than the new current listing price (and they usually do renovations before listing) So Zillow VCs are essentially paying people to take a discount on houses in those markets. pretty sweet [1] https://www.businessinsider.com/zillow-offers-ibuyer-sell-phoenix-homes-at-a-loss-2021-10 https://www.businessinsider.com/zillow-offers-ibuyer-sell-ph...

crate_barre 5y ago
Losing money is pretty sweet?
- gretch 5y ago
  Not for Zillow but for everyone else, yeah it’s value transfer from VCs to the he average person. Same thing with Uber/Lyft/dash/movie pass. For years the general population received rich VC subsidized services. Pretty sweet
- ganeshkrishnan 5y ago
  Yes. You make up for it in volumes.

citilife 5y ago

I'm a bit more optimistic. Only something like 2% of the U.S. is urban. https://www.visualcapitalist.com/america-land-use/ https://www.visualcapitalist.com/america-land-use/ If it became problematic that people didn't own homes, but wanted to, they could easily just open land for building. They may own all the land around cities and all the corporations move there. There by making "corporate cities", but at the end of the day, people can create their own thing like they did in the past.

djmips 5y ago
That's way optimistic. There's lots of other reasons to be in cities besides jobs.
- JKCalhoun 5y ago
  I don't know. Living in a "bedroom community" often has all the benefits of the city without the downsides. Usually cheaper, less traffic, can still pop into the city for restaurants, shopping, entertainment when it suits you.

frankfrankfrank 5y ago

I agree. I wish people understood more of what these "institutional investors" are doing. The Fed has essentially trapped us in a system where the likes of blackrock get access to essentially free Fed printing press money right of the rollers that they then use to buy up real assets at inflated prices, which only drives up the inflation that thereby also drives up the value of previous purchases at near zero rate interest. If you follow that logic to the final conclusion, you will find that these "institutional investors" only have incentive to not only buy up all the assets they can at near zero interest, but that doing so is a kind of self-perpetuating profit machine as inflation creates profits for them. Yes, this is IMMENSELY dangerous. Oh, and I did not mention that if it's not in collusion, the Fed has the tiger by the tail and is paralyzed with fear to such a degree that it simply cannot let go so as to at least have a chance of getting away in time, rather than the guaranteed demise of holding on to the tail and then eventually only getting ever more tired and the chance of survival crashing exponentially.

ok123456 5y ago
Mao was right.
delfinom 5y ago
This is the end game of the baby boomers and economy really. Collectively everyone is hoarding onto property for their nest egg, investment funds get piles of their money from 401ks and pensions as well to invest into areas like real estate. A large chunk of retirement is now predicated on maintaining or increasing property values. The fed is now so fucked it can't even raise rates without immediately causing property value declines as mortgages decrease. There really is no solution and we are in for horrific pain eventually. It's simply a question of how long they can stall it.
- adam_arthur 5y ago
  The solution is simple. Raise rates and let asset prices normalize, regardless of the consequences. There will be pain in the short term, but you're creating opportunity for future generations. Policy right now is all about pulling prosperity from the future into the present. IE higher valuation multiples today enrich current asset holders, but leave little growth for future asset holders It used to be that the Fed was not too focused on asset valuations, and actually drove policy on the basis of their mandates. Unfortunately they're too cowardly to do that anymore. It may be partly due to the short term focused political system in the US. China actually is explicitly acting to reduce property values to make homes more affordable for its people. Of course this triggered all sorts of second order effects like the evergrande situation. We will see if they follow through all the way, but so far they aren't backing down, despite what looks like an imminent systemic implosion of the property sector. Sometimes people lose when they invest. That's how it's supposed to work. Removing that element creates mass amounts of moral hazard, which will end badly on its own at some point.

dionidium 5y ago

I'll be the YIMBY broken record here. These institutional investors are suddenly interested in housing because decades of artificial constraints on new construction have created a situation where prices are rising quickly as demand outpaces supply. Don't believe me? Here's the SEC filing from one such investor: > We have selected locations with strong demand drivers, high barriers to entry and high rent-growth potential. Understand that "high barriers to entry" is referring to legal regimes that limit new housing. Later, they say: > We have selected markets that we believe will experience strong population, household formation and employment growth and exhibit constrained levels of new home construction. These companies aren't driving up prices. They're reacting to high prices. That's what's making these markets attractive. Source: https://www.sec.gov/Archives/edgar/data/1687229/000119312517029042/d260125d424b4.htm https://www.sec.gov/Archives/edgar/data/1687229/000119312517...

greendude29 5y ago
There is a global surge in housing prices. There are cities like Vancouver and Toronto where there has construction of 1000s of units has accelerated for decades, but the same crises exists. Are you sure you aren't just thinking within the box of the United States?
- dionidium 5y ago
  I don't accept the premise. Vancouver sure looks a lot different than it did 30 years ago, right? Well, certainly the peninsula/downtown does, but most of the city is still zoned for single-family housing: http://www.datalabto.ca/wp-content/uploads/2019/07/thumb_nail_1-01.png http://www.datalabto.ca/wp-content/uploads/2019/07/thumb_nai... Even Vancouver isn't building anywhere near what the demand would support. If people were allowed to build more housing in Vancouver, then they would. [0] In general, people's intuition on this stuff isn't great, for a few different reasons: 1. Status quo bias. Any change tends to look like a lot of change. This is the, "I can see three cranes from where I'm standing, so we must be in a construction boom" fallacy. 2. Illusion that concentrated change indicates widespread change. People see a lot of development in one part of town and discount that such development is prohibited in 98% of the city. (This one definitely applies to Vancouver.) 3. Failure to account for proportionality. If somebody hears that a city added 5000 units, they'll probably think that's a lot. But is it? What if we're talking about a metro area with 10 million people? It's nothing. Big numbers can end up being small numbers when the scale is large enough. 3. Failure to account for growth in demand/population. We build fewer houses than we did 100 years ago, but we also have many times as many people! So even a static supply is bad, because you have to at least build enough to keep up with growth. And since some cities have seen a sustained surge in demand for the last 2 or 3 decades without enough construction, even seemingly large amounts of recent development might mean that you're still way behind. [0] I'm aware that Vancouver has made some progress on this. I think they're going to start allowing more duplexes and more housing near SkyTrain stops. I don't follow Vancouver that closely, so I'll just note that I'm aware it's changing.

itsoktocry 5y ago

>they will happily rent to you since that is the the plan all along - own all the assets, and every generation after X gets to rent Maybe if there wasn't the NA obsession with "home ownership" none of this would matter. Part of what is driving home prices are people with FOMO paying any price. Why?

tata71 5y ago
Lack of understanding of markets.
JKCalhoun 5y ago
Interesting, calling an investment strategy "FOMO". More likely, people flush with cash see inflation eroding it, think the stock market is already too high.
gr1zzlybe4r 5y ago
In the US specifically, home ownership has been the primary way that many people have "built" wealth in the 20th and 21st centuries. It also gives you the ability to participate as a citizen in many more ways than a renter, as you have influence over local public policy in many more concrete ways. Lastly, it's hard to overstate to a non-American how much owning a home is seen as a central part of American identity. It's almost like part of "growing up" in a way. I say this in a tone of trying to explain haha, please don't perceive this as being pedantic.

subsubzero 5y ago

100% agree. Institutional investors are setting themselves up to be landed barons that will seek perpetual rent from working people who can no longer afford housing as the supply has shrunk and housing prices skyrocket. Oh and if these institutions fail they get bailed out by govt(they are too big to fail!). Imagine if these 7000 houses were offered to buyers, this would allow so many families opportunities to homeownership, this whole scenario makes me mad as hell and I hope this practice will be banned in the future.

MrKristopher 5y ago
What would you ban?
- rozap 5y ago
  No ban, just huge property taxes for non-primary residences.
  - deleted 5y ago
    [deleted]
  - nkozyra 5y ago
    Doesn't this just trickle down to the renter, who has few alternative housing options?
    - donkeyd 5y ago
      This guy gets it.
    - caterama 5y ago
      Costs trickle-down... Profits don't.
      - nkozyra 5y ago
        > Costs trickle-down... Profits don't. Well, we're talking about costs. That's why I asked.

vasilipupkin 5y ago

Blackstone, Blackrock - just buy their stock then, they are publicly traded

mwambua 5y ago
... And hope that whatever gains I get make me feel better about not being able to afford a home?

donkeyd 5y ago

> I wish this would anger people more It is... But what are you going to do about it? Especially in the US, big business owns the politicians who can do something about it. And prop 22 shows that even if the public gets to decide, big business manages to control public opinion to their benefit. I believe this is only going to get worse for the next couple of decades. Something major would have to happen for this to change.

pc86 5y ago
So wait. Either big business owns the politicians and so nothing gets done, or people vote but they're too stupid to do it in their own interests because of big business? This sounds like the typical "the election was fair as long as I won" trope. Have you considered that maybe your opinion is just in the minority?
- donkeyd 5y ago
  I see what you're getting at, but Brexit is objectively shit for the majority of people, yet the majority voted for it. There are plenty more examples like it.
- Supermancho 5y ago
  > Either big business owns the politicians and so nothing gets done, or people vote but they're too stupid to do it in their own interests because of big business. > This sounds like the typical "the election was fair as long as I won" trope. How's that? It does not sound like anything but modern American politics. Not to say it's 100% true, but it's largely true on the West Coast USA for the last 40 years...as I can only speak to what I've seen. It's a legitimate surprise when grassroots efforts are not coopted with riders/judicial nullification or drowned by propaganda.

commandlinefan 5y ago

> home owners will benefit It's going to hurt home owners, too - when the valuation of the house goes up, so do the taxes. It won't be long before the tax burden is so high, the only option homeowners will have is to sell (and then pay even more taxes on the gains on the house sale) and rent it back from Blackrock.

scrumbledober 5y ago
Not in California. See Prop 13

rconti 5y ago

Home ownership is not necessarily the unalloyed good that the American Dream (and tax policy) make it out to be. That said, I'm not arguing for this specific rental model, either.

dan_quixote 5y ago

I say this as someone who has gained significant wealth from personal real estate - Tax it more. It's crazy to incentivize personal real estate as an investment.