5 ms·

The role of investors in the economy is ultimately to finance new development. It's easy to see how this works when an investor is the first owner. If it weren

by eaxix 5y ago

The role of investors in the economy is ultimately to finance new development. It's easy to see how this works when an investor is the first owner. If it weren't for the initial investor with the required capital and/or credit to make the purchase, the housing likely wouldn't have been built in the first place. Now you may ask, what is the role of investors who buy up older properties? They provide valuable liquidity to the market, which provides an incentive for the initial investors to invest. Both investors and regular homeowners alike prefer to own a property that they can easily sell on short notice if needed. Without investors buying up "second-hand" properties, it would be harder to sell a property making homes a less attractive investment. Fewer people would buy new properties, resulting in less new housing being built. All of this extra development spurred by investment money pouring in leads to lower rents for everyone since rents are pure supply/demand. If you build more, rents will go down.

jowsie 5y ago
This simply isn't true in the UK. You can't drive 5 miles without seeing some giant new sprawl of new build housing, yet rent is increasing year on year.
- eaxix 5y ago
  Then perhaps building even more is what's needed to keep up with the demand. If you keep building at a fast enough pace, then at some point, there will be more housing units than prospective renters, landlords start having trouble finding tenants, and that's when prices will inevitably fall. If demand is rising, then housing needs to be built at an even faster rate. Rising demand can be very hard to keep up with, and I believe that's what we're experiencing right now. I don't live in the UK, so I'm not too familiar with the specifics there, but what seems to be happening worldwide is that young people are flocking to cities. I'm fairly young myself and I don't know anyone my age who would like to live in a small town in the middle of nowhere - everyone I know was either born in a larger city or moved to one. In the past, if you were born in a small town, maybe there was a factory nearby and you'd end up working there. Only a few would move out. These days the factory has most likely closed, and the jobs were shipped off to China. Even if, by some miracle, it happened to still be open, most young people wouldn't want to work there anyway. Young people tend to be more educated and want jobs where they can make use of their education. These jobs tend to be located in big cities. There are only two ways out of this mess: The first one is to satisfy the demand -- that means building more, a lot more. No Western country is currently building enough. The demand is so huge that the only way to satisfy it would be very high-density housing. I'm talking 30+ stories apartment buildings everywhere like you see in East Asia. This would have to be accompanied by enough public transport because at that population density, you'd need super wide highways everywhere to support people driving cars. I don't think allowing such construction is politically feasible, however, as it would completely change the character of existing cities. The other one is to embrace remote work and revitalize small towns. Remote work is not enough since people still demand the amenities cities provide. These are lacking precisely because so many young people have left, causing a negative feedback loop. We need trendy cafes and restaurants, we need WeWork locations, and for young families, we need high-quality school/preschool/daycare. If small towns "gentrify" with such amenities causing young remote-workers to start moving there, this may significantly ease the demand pressure on city housing. The best solution is probably a combination of the above two.
- kubb 5y ago
  Not just the UK, but virtually everywhere in the developed world. New apartments are being built because it's more and more profitable to do so. It's more profitable, because the property prices are increasing. The property prices are increasing because rent is increasing. It takes tremendous mental gymnastics not to realise it. The way to lower the rent is to make renting less profitable (eg. by taxing it higher), limit any homeowner support (eg. tax breaks on mortgage) only to the first residential property and control the mortgage amount that can be provided by banks. Ideally someone who's buying property to live in should be paying 20%+ less than someone who's buying it to rent.
pbhjpbhj 5y ago
I think you're locked into a Capitalist view there. What you say amounts to "without rich people to pay every time they do some work poor people wouldn't be able to build houses". I don't buy it. I think it's perfectly possible to organise society without the driving force being "how can we as a society benefit this tiny cadre of super-rich people without pissing-off everyone else enough that they revolt". Of course you need to wrest control from the people who can buy "mind control", and vote to allow corruption from the ruling party (cf UK parliament yesterday). >All of this extra development spurred by investment money pouring in leads to lower rents for everyone // The more we give to the rich the cheaper everything will be for us plebs, yeah, you're going to have to spend a bit more on your PR to press that idea home.
- mrep 5y ago
  Who are you suggesting to build houses for rent then? The government? I would love some examples of where that actually went well.
  - necovek 5y ago
    Check out home ownership rates: https://en.m.wikipedia.org/wiki/List_of_countries_by_home_ownership_rate https://en.m.wikipedia.org/wiki/List_of_countries_by_home_ow... Countries ranking at the top have had a few decades of government provided homes (communist countries). Now, they are not the most prosperous countries in the world, but my theory is that it's exactly because there is not as big a pressure to work just to have a roof over your head. Which is why foreigners frequently comment on the easygoing attitude and carelessness they see in people.
kubb 5y ago
Supply and demand is the simplistic view of economy taught to middle schoolers, it's disappointing that people use it for reasoning about the world after completing that level of education.
White_Wolf 5y ago
The role of investors in the economy is ultimately to finance new development. ===> False. The role of investors is to make money. If you build more, rents will go down. ===> In theory True. In practice self builds lower the pricing. The barriers set by bureaucracy for the sake of bureaucracy are the problem and they cause property prices to go up. EDIT: Restrictions set by bureaucracy is what creates artificial scarcity(think diamonds market) "They provide valuable liquidity to the market" ===> False. It's long term value storage and/or speculation. The same properties would be bought by new families if they were closer to a realistic price. You'd get the same if not more cash movement if it would be affordable. By affordable I mean: A young couple with minimum wage should be able to pay it off in 10-15 years with no problems. Not in 35-50. As a sidenote(IMHO): Ideally, property ownership should be limited to 1/+18 year old to prevent/reduce speculations. Maybe 2 if we're talking about adding a holiday home(yeah. I know it's a strech). Companies should not be alowed to own residential properties unless they are a developer. In that case, they can own the newly developed properties for up to ?5? years.
- eaxix 5y ago
  > The role of investors in the economy is ultimately to finance new development. ===> False. The role of investors is to make money. No. The market pays investors if they managed to allocate capital well, and takes away their money if they happened to misallocate it. The investors take on a risk of loosing their money if their investment goes bad. This is how capitalism is so successful. Investors who make good decisions grow richer and that allows them make more good decisions on how to allocate capital, creating a positive feedback loop. Investors who make bad decisions go broke and that prevents them from misallocating any more capital. > If you build more, rents will go down. ===> In theory True. In practice self builds lower the pricing. The barriers set by bureaucracy for the sake of bureaucracy are the problem and they cause property prices to go up. EDIT: Restrictions set by bureaucracy is what creates artificial scarcity(think diamonds market) I'm all for small government and cutting down on bureaucracy. > As a sidenote(IMHO): Ideally, property ownership should be limited to 1/+18 year old to prevent/reduce speculations. Maybe 2 if we're talking about adding a holiday home(yeah. I know it's a strech). Companies should not be alowed to own residential properties unless they are a developer. In that case, they can own the newly developed properties for up to ?5? years. That's exactly the kind of regulation that prevents efficient capital allocation and leads to increased pricing.

by eaxix 5y ago

jowsie 5y ago

This simply isn't true in the UK. You can't drive 5 miles without seeing some giant new sprawl of new build housing, yet rent is increasing year on year.

eaxix 5y ago
Then perhaps building even more is what's needed to keep up with the demand. If you keep building at a fast enough pace, then at some point, there will be more housing units than prospective renters, landlords start having trouble finding tenants, and that's when prices will inevitably fall. If demand is rising, then housing needs to be built at an even faster rate. Rising demand can be very hard to keep up with, and I believe that's what we're experiencing right now. I don't live in the UK, so I'm not too familiar with the specifics there, but what seems to be happening worldwide is that young people are flocking to cities. I'm fairly young myself and I don't know anyone my age who would like to live in a small town in the middle of nowhere - everyone I know was either born in a larger city or moved to one. In the past, if you were born in a small town, maybe there was a factory nearby and you'd end up working there. Only a few would move out. These days the factory has most likely closed, and the jobs were shipped off to China. Even if, by some miracle, it happened to still be open, most young people wouldn't want to work there anyway. Young people tend to be more educated and want jobs where they can make use of their education. These jobs tend to be located in big cities. There are only two ways out of this mess: The first one is to satisfy the demand -- that means building more, a lot more. No Western country is currently building enough. The demand is so huge that the only way to satisfy it would be very high-density housing. I'm talking 30+ stories apartment buildings everywhere like you see in East Asia. This would have to be accompanied by enough public transport because at that population density, you'd need super wide highways everywhere to support people driving cars. I don't think allowing such construction is politically feasible, however, as it would completely change the character of existing cities. The other one is to embrace remote work and revitalize small towns. Remote work is not enough since people still demand the amenities cities provide. These are lacking precisely because so many young people have left, causing a negative feedback loop. We need trendy cafes and restaurants, we need WeWork locations, and for young families, we need high-quality school/preschool/daycare. If small towns "gentrify" with such amenities causing young remote-workers to start moving there, this may significantly ease the demand pressure on city housing. The best solution is probably a combination of the above two.
kubb 5y ago
Not just the UK, but virtually everywhere in the developed world. New apartments are being built because it's more and more profitable to do so. It's more profitable, because the property prices are increasing. The property prices are increasing because rent is increasing. It takes tremendous mental gymnastics not to realise it. The way to lower the rent is to make renting less profitable (eg. by taxing it higher), limit any homeowner support (eg. tax breaks on mortgage) only to the first residential property and control the mortgage amount that can be provided by banks. Ideally someone who's buying property to live in should be paying 20%+ less than someone who's buying it to rent.

pbhjpbhj 5y ago

I think you're locked into a Capitalist view there. What you say amounts to "without rich people to pay every time they do some work poor people wouldn't be able to build houses". I don't buy it. I think it's perfectly possible to organise society without the driving force being "how can we as a society benefit this tiny cadre of super-rich people without pissing-off everyone else enough that they revolt". Of course you need to wrest control from the people who can buy "mind control", and vote to allow corruption from the ruling party (cf UK parliament yesterday). >All of this extra development spurred by investment money pouring in leads to lower rents for everyone // The more we give to the rich the cheaper everything will be for us plebs, yeah, you're going to have to spend a bit more on your PR to press that idea home.

mrep 5y ago
Who are you suggesting to build houses for rent then? The government? I would love some examples of where that actually went well.
- necovek 5y ago
  Check out home ownership rates: https://en.m.wikipedia.org/wiki/List_of_countries_by_home_ownership_rate https://en.m.wikipedia.org/wiki/List_of_countries_by_home_ow... Countries ranking at the top have had a few decades of government provided homes (communist countries). Now, they are not the most prosperous countries in the world, but my theory is that it's exactly because there is not as big a pressure to work just to have a roof over your head. Which is why foreigners frequently comment on the easygoing attitude and carelessness they see in people.

kubb 5y ago

Supply and demand is the simplistic view of economy taught to middle schoolers, it's disappointing that people use it for reasoning about the world after completing that level of education.

White_Wolf 5y ago

The role of investors in the economy is ultimately to finance new development. ===> False. The role of investors is to make money. If you build more, rents will go down. ===> In theory True. In practice self builds lower the pricing. The barriers set by bureaucracy for the sake of bureaucracy are the problem and they cause property prices to go up. EDIT: Restrictions set by bureaucracy is what creates artificial scarcity(think diamonds market) "They provide valuable liquidity to the market" ===> False. It's long term value storage and/or speculation. The same properties would be bought by new families if they were closer to a realistic price. You'd get the same if not more cash movement if it would be affordable. By affordable I mean: A young couple with minimum wage should be able to pay it off in 10-15 years with no problems. Not in 35-50. As a sidenote(IMHO): Ideally, property ownership should be limited to 1/+18 year old to prevent/reduce speculations. Maybe 2 if we're talking about adding a holiday home(yeah. I know it's a strech). Companies should not be alowed to own residential properties unless they are a developer. In that case, they can own the newly developed properties for up to ?5? years.

eaxix 5y ago
> The role of investors in the economy is ultimately to finance new development. ===> False. The role of investors is to make money. No. The market pays investors if they managed to allocate capital well, and takes away their money if they happened to misallocate it. The investors take on a risk of loosing their money if their investment goes bad. This is how capitalism is so successful. Investors who make good decisions grow richer and that allows them make more good decisions on how to allocate capital, creating a positive feedback loop. Investors who make bad decisions go broke and that prevents them from misallocating any more capital. > If you build more, rents will go down. ===> In theory True. In practice self builds lower the pricing. The barriers set by bureaucracy for the sake of bureaucracy are the problem and they cause property prices to go up. EDIT: Restrictions set by bureaucracy is what creates artificial scarcity(think diamonds market) I'm all for small government and cutting down on bureaucracy. > As a sidenote(IMHO): Ideally, property ownership should be limited to 1/+18 year old to prevent/reduce speculations. Maybe 2 if we're talking about adding a holiday home(yeah. I know it's a strech). Companies should not be alowed to own residential properties unless they are a developer. In that case, they can own the newly developed properties for up to ?5? years. That's exactly the kind of regulation that prevents efficient capital allocation and leads to increased pricing.