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Investors bought a record share of U.S. homes in 2021

• causi 5y ago
  Land is a finite natural resource. Owning more homes than you can live in should get exponentially more expensive the more you purchase. Imagine if we sold chunks of the sea or of the sky off like we sell chunks of land.
  • dcolkitt 5y ago
    The cost of raw land may get exponentially more expensive, but the cost of higher density building is at most marginally higher than low density building. For example 50 story skyscrapers are actually slightly cheaper per square foot than 10 story buildings on a per square foot basis. Without artificial restrictions on density, the cost of housing is essentially invariant to the cost of raw land.
  • googlryas 5y ago
    Does this same argument hold true for farming? Should large farms become increasingly more expensive for people to own, because they are growing more food than they need for themselves?
    • causi 5y ago
      Absolutely. Break up the giant farming companies that've destroyed family farms in the US.
• micromacrofoot 5y ago
  If the US wants meaningful housing reform they need to severely limit corporate real estate investment.
  • rhino369 5y ago
    First we need to realize that rising home "value" just means rising prices. Our policy is to essentially make housing more expensive since pre-existing home owners benefit.
    • rootusrootus 5y ago
      It's also probably too late to really do anything about it, other than try to slow it down. A price crash would help people who want to buy their first home, but it would bring also fair amount of economic devastation along for the ride.
      • chordalkeyboard 5y ago
        not really, a price correction would just reset prices to where they belong.
        • adamsmith143 5y ago
          And put countless people into upside down mortgages as well as give investors/corporations an even bigger incentive to grab properties at a premium discount.
      • brink 5y ago
        Unaffordable homes _is_ economic devastation. How are new generations supposed to prosper when they cannot afford a place to live?
        • swagasaurus-rex 5y ago
          It's like saying affordable healthcare is economic devastation because insurance companies and hospitals will lose profits. It's completely ignoring the massive wealth drain on the average American. There's an enormous opportunity cost.
          • fancifalmanima 5y ago
  • ethagknight 5y ago
    Homestead tax abatements are common. Owner-occupant's primary residence gets a big RE tax break, second homes and investment properties pay full freight. That works pretty well.
    • gregwebs 5y ago
      My homestead deduction is a few hundred dollars a year while I pay thousands on property taxes every month. Rental properties are still eligible for all kinds of tax write-offs. I think the bigger issue is that the government is there to support the mortgage of those buying multiple properties. The low mortgage rate relative to high inflation rate is the underlying financial that makes the housing market a very attractive investment right now. Taking away government subsidies for low mortgage rates for investors would radically alter the market.
      • abofh 5y ago
        This, when I lived in my apartment, I'd save 300$/year on 10k of property taxes. When I rented it, I got a 30k/yr deduction for depreciation - between that and rent, it basically pays for itself right out of the gate as long as I have the income to use the deductions.
        • wing-_-nuts 5y ago
          Don't you have to pay back that depreciation when you sell unless you enter some kind of complicated 1030 agreement?
          • _rtld_global_ro 5y ago
            You can use 1031 exchange to avoid that.
    • micromacrofoot 5y ago
      I live in one of these areas and I can tell you that it's not working well enough. Investment properties still dominate the market. New buildings go up with vacant investment units. Investors pay cash over asking price for existing housing.
  • bpodgursky 5y ago
    No, we just need to build more housing.
    • colpabar 5y ago
      We do need more housing, but what’s stopping these same investors from buying it all up?
      • zwieback 5y ago
        They are only buying it up because prices are rising so fast. More housing would mean more stable home prices, which makes the sector less attractive to investors.
        • mikeg8 5y ago
          No, they’re buying them up because rates are so low it costs them little to borrow/buy.
          • bpodgursky 5y ago
            They wouldn't be buying houses if houses weren't an appreciating asset. Let's change that.
            • cannonpalms 5y ago
              Just to be clear, we shouldn't throw the baby out with the bathwater. Houses can and should be appreciating assets. However, their rate of return shouldn't be as astronomical as they are at present. In inflationary environments, money will always flock to real estate. That shouldn't change. The goal of increasing supply is to lower returns to such a point that they remain attractive to first-time buyers but are suboptimal for the institutional investor.
              • oldsecondhand 5y ago
  • iancmceachern 5y ago
    And I've heard this on HN before - we cannot simultaneously have affordable housing and look at housing as an investment.
    • micromacrofoot 5y ago
      Can't housing still be an investment for owner-occupants while investment companies are disincentivized from buying every available property in competitive housing markets? By limiting investors you'd likely slow down an individual's appreciation on housing as an investment, but I can't imagine it would disappear entirely.
      • ska 5y ago
        > Can't housing still be an investment for owner-occupants while investment companies are disincentivized from buying every available property in competitive housing markets? Not really effectively. There are two big problems. The most fundamental is: If you have a good return on your house (outstrips inflation by a decent amount) and wages stay flat (actually it's been worse than that recently) - who do you think is going to be your buyer 20,30 years on? The other: You can't effectively keep rich people and institutions out if the ROI is good enough. If their money doesn't have a better place to go, it will end up here some how.
• hourislate 5y ago
  In an effort to preserve capital, money is finding it's way into RE. What better hedge against Inflation and as a bonus it pays dividends(rent) while you sit on it. Blackstone has been on a tear lately. https://www.bloomberg.com/news/articles/2022-02-16/blackstone-to-acquire-preferred-apartment-in-5-8-billion-deal https://www.bloomberg.com/news/articles/2022-02-16/blackston... Blackstone Inc. is buying apartment owner Preferred Apartment Communities Inc. The deal includes more than 40 rental apartment properties including 12,000 units in states including Florida, Tennessee and Georgia. Preferred Apartment also owns 54 grocery-anchored shopping centers.
  • soperj 5y ago
    It's only a hedge now because interest rates haven't risen.
  • ourmandave 5y ago
    Preferred Apartment also owns 54 grocery-anchored shopping centers. I'd read empty spaces in slow shopping malls were being converted into rentals. Wonder if these guys are part of that.
• danso 5y ago
  FWIW, the methodology note at the bottom of the interactive: > The Post analyzed Zip code-level data provided by Redfin. Redfin defined investors as buyers whose name included the keywords “LLC,” “Inc,” “Corp” or “Homes,” or whose ownership code includes the keywords “association,” “corporate trustee,” “company,” “joint venture” or “corporate trust.” (For our analysis, Redfin excluded the buyer keyword “Trusts” from its analysis to be more conservative in its findings, since some families own their homes through trusts.) Redfin included the 40 most populous metros where counties disclose sales prices. Redfin’s metro boundaries are either Metropolitan Statistical Areas or metropolitan divisions, depending on the metro. The Post excluded Zip codes with fewer than 10 sales in 2021 from the maps, and those with fewer than 25 sales from the race and income analyses. Race and income data is from the U.S. Census Bureau.
  • jeffbee 5y ago
    "Some families" interesting language. In Berkeley, where I have comprehensive data on the subject, about 13000 parcels are held by family trusts, in a city with only 29000 parcels. Everybody uses them because it's the best way to scam Prop. 13.
    • TomVDB 5y ago
      We have our house in trust not because of some prop 13 reason but simply because putting your major assets in a living trust is the right thing to do avoid probate. It massively reduces headaches for your descendants upon death but AFAIK it makes no difference in terms of taxes. Anyone who has a little bit of assets (a single house is enough) would be a fool to not have a living trust.
      • PaulDavisThe1st 5y ago
        What precisely is it that you think is gained ?
        • count 5y ago
          There's an entire financial structure the trust provides with a bunch of benefits. No probate, no will/estate issues, it's not counted as an asset for disability determinations, etc.
• jeffbee 5y ago
  No, investors bought 100% of U.S. homes in 2021. The entire housing economy is structured around expected zero-risk capital gains. Every buyer is an investor.
  • zwieback 5y ago
    I get what you're saying and you're right but that's overstating it. There's no expectation of zero-risk gains. By definition that doesn't exist.
    • jeffbee 5y ago
      Of course, but the government will do absolutely everything in its power to make homevoters whole, including, if they get the chance, inflating the entire economy to catch up with bloated home prices, thereby devaluing the savings of people who don't own their homes.
    • thatjoeoverthr 5y ago
      You could say that by definition there’s no zero-risk capital gains, but that doesn’t mean that people don’t expect it.
  • m348e912 5y ago
    You're not entirely wrong, but some people just want a house and are less interested in the investment aspect.
    • ejb999 5y ago
      >>You're not entirely wrong, but some people just want a house and are less interested in the investment aspect. I agree - I personally never thought of my house as an investment, doesn't really do me any good that it went up in value unless I plan on selling it - and then I just need to plow the money into something equally inflated value since I will still need a place to live. Maybe when I die and my kids benefit, but what my house is 'worth' doesn't mean much to me while I am alive.
  • 5y ago
• api 5y ago
  I thought of a term a while back for this kind of investment: "fiscal pollution." It's when surplus savings is invested in ways that cause active harm to real people, communities, and productive businesses. The pollution term comes in because this investment often flows from somewhere else. In the case of RE a lot of it is flight capital and money laundering. Money is being haphazardly parked somewhere that is not only non-productive but actively anti-productive. The people doing it don't care because they don't live there or are too rich to be affected, just like with many other kinds of pollution.
  • deleted 5y ago
    [deleted]
  • thatcat 5y ago
    I like the reference to the negative externalities from environmental pollution in that term. It would be fun to try to model these things to estimate the magnitude of economic damage resulting from fiscal pollution.
    • convolvatron 5y ago
      that seems impossible by definition? we're talking about factors that the market doesn't account for (externalities), which can't have a value because they aren't traded. what units are you going to use for magnitude?
• ldjkfkdsjnv 5y ago
  The FED ruined young peoples ability to afford a home. This will have ripple effects across the next generation. Much harder to start a family, and if you do, you have a long road of hard work and stringent saving. They claimed they were helping the middle and lower classes with all of that money printing, but what they really did is send a 600$ check and then push those classes further into wage slavery. We are watching the looting of the american citizen in real time, communism/collectivism is once again the wolf in sheeps clothing. There is no free lunch. Last thing, theres an equation in finance, I forget it, but roughly: Cost to borrow money (for an institutional investor) and buy a home with that money, is generating a positive return. As long as that is true, they will continue purchasing homes at a rapid rate. This is a monetary issue, money should not be available to buy homes like this. This is incompetence and negligence from the financial elite governing our nation.
  • bushbaba 5y ago
    Nah the next president will just start offering government backed 100 year mortgages with 0 down. Really the most concerning aspect is that the cost to build new housing has drastically gone up. We are at an all time housing deficit. I don’t see how that corrects itself unless we get to the point where building a new house is cheaper than buying an existing house.
    • ldjkfkdsjnv 5y ago
      Nah its a monetary problem. Basically, from a finance perspective: Cost to borrow money (for an institutional investor) and buy a house with that money generates a return. Meaning they can buy these homes up all day long and make a profit.
      • mywittyname 5y ago
        Single family home are poor long term investments for institutions, outside of maybe California. Prices tend to follow inflation while property taxes and maintenance eat growth. States without income taxes tends to make up revenue through higher property taxes. Because of these facts, I don't see this trend of investors gobbling up SFHs to be sustainable. I suspect most of them are in this for a quick buck, and will quickly dump these homes the minute it becomes obvious that this was a dumb idea.
• jklinger410 5y ago
  Much like health care, residential real estate is a market that should not exist in many ways. I respect buying and selling a house between two owners as a transaction, but without proper regulation the United States could be (in some ways already is) a bunch of empty buildings owned by proxy, with residents sleeping in the streets. We can't keep talking about how great capitalism is when it turns most of the "lower class" population into sickly renters.
  • kansface 5y ago
    Where does capitalism even enter the picture in the residential real estate market?
    • adamsmith143 5y ago
      When corporations are built around buying and renting out residential homes?
      • slaw 5y ago
        Does it make it crony capitalism? Money is made thanks to cheap money from FED and NIMBY from local governments. https://en.wikipedia.org/wiki/Crony_capitalism https://en.wikipedia.org/wiki/Crony_capitalism
        • jklinger410 5y ago
          I don't know what you guys are talking about? Residential real estate should not be in the "free market." It should be heavily regulated (aka controlled) in who can own American homes, what their value is, etc. There is nothing to do with Crony Capitalism in this discussion.
        • adamsmith143 5y ago
          >>Where does capitalism even enter the picture in the residential real estate market? >Does it make it crony capitalism? No one said it did?
• gregwebs 5y ago
  This isn't discussed much, but I think homes would become noticeably more affordable for families just by having the government stop subsidizing the mortgages of investment properties (e.g. only one mortgage subsidy is available for each family). This isn't even getting into tax write offs which are too complicated for me to understand the consequences of changing. As it stands, mortgage rates being below the rate of inflation make housing a very attractive investment. The sources of mortgage subsidy that I am aware of are secondary market purchases: * Federal reserve mortgage purchases * Fannie Mae/Freddie Mac mortgage purchases A big portion of quantitative easing by the Federal Reserve is buying billions of mortgages every month. The Fed is trying to start unwinding this now, but they have had trillions of mortgages on their books since the GFC.
  • Retric 5y ago
    That would require a much larger change to the tax code as currently interest on business loans are tax deductible. I suspect changing this would be a good idea, but it’s a huge change. The obvious fix is a nationwide property tax that doesn’t apply to primary residences, but again it’s hard to say what that would do.
    • UncleOxidant 5y ago
      Somehow there need to be less incentives for investors/hedgefunds to buy up homes and more help for people who need housing and are increasingly priced out of the market. Housing affordability is a serious crisis right now and neither political party seems to be recognizing it. The party that makes this a priority and actually addresses the underlying problems could do well, but neither of them are taking it as seriously as it needs to be taken.
      • mywittyname 5y ago
        > Housing affordability is a serious crisis right now and neither political party seems to be recognizing it. Why do you say this? There have been numerous bills introduced at the local, state, and federal levels which specifically aim to address housing affordability. Seriously, just type in "affordable housing bill" into your favorite search engine and look at all the articles coming up from the past six months. My local city council has affordable housing on the agenda for several of the committee meetings.
• classichasclass 5y ago
  We're in the housing hunt right now and we're losing to all-cash offers and ridiculous terms (like months of rent-free to the previous occupany: those sort of terms don't come from someone looking for a new place to live). We even lost on two offers where we were the high bid. We have pre-approval, solid financing and were willing to even waive the appraisal. It's not enough.
  • frankbreetz 5y ago
    What kind of mortgage allows you to waive the appraisal? Seems a little negligent for the bank. How can they finance something if they don't know how much it is worth?
    • ska 5y ago
      Short answer is they let you take the risk on it, not them.
    • classichasclass 5y ago
      No, you waive the appraisal contingency; the bank still does their own appraisal. If the property appraises low, you pay the difference. In this market, we kept some reserve for that eventuality to make the application competitive. The sellers want a buying frenzy and that's what's happening, so many properties don't appraise since those values are usually calculated on historical sales.
    • alex504 5y ago
      The bank will only cover what it is appraised at. You have to split the difference with cash. Some banks might be willing to give you different terms (higher apr, more down) but that is generally how it works in my experience.
  • ddavis 5y ago
    Also on the housing hunt and have had the same experience. It's really disheartening to tell someone I'm going to give you exactly what you are asking for and have that transaction, that seems so easy without any kind of counter-offer back and forth, fall apart... multiple times. An article like this definitely brings out a little anger.
• advisedwang 5y ago
  https://archive.fo/IcLge https://archive.fo/IcLge
• AdmiralAsshat 5y ago
  Maybe I'm cynical, but as someone who has been struggling to buy a home for 10 years, I think we're fucked. NIMBYism was already a brick wall with trying to convince people to allow more houses to be built, because no one will voluntarily agree to something that will cause their house to drop in value. But now it's not just even about your house. Now your 401k might be tied into one of these investment firms that flip houses. So trying to convince a retiring boomer that not only will his house be worth less, but also his retirement fund might dip? Not gonna happen.
  • csee 5y ago
    I am just as cynical that this problem can be resolved, there are too many voters actively voting against housing affordability; mostly homeowners but also a subset of the left who hate property developers and the concrete jungle aesthetic. My main hope is that WFH tech gets so good that living near a city is no longer a competitive advantage.
    • torton 5y ago
      A big city location might cease being an advantage for work, but culture/social/dating life is richer in a city and I don't anticipate that materially changing (unless the Metaverse comes along much sooner and better than one would expect)
      • csee 5y ago
        Point taken, but a 1 hour train ride into the city twice a week for social purposes is more manageable. Doing that every working day is the killer.
  • throwaway6734 5y ago
    Move somewhere where there's a lot of housing. I live in Baltimore and there are plenty of sub 200k homes in non-terrible neighborhoods (relatively speaking)
    • 5y ago
• endisneigh 5y ago
  Housing will never be relatively cheap until it’s easier to build a house. It will never be easier to build a house until zoning is more lenient. No state is incentivized to make zoning more lenient. Therefore it falls on the federal government, who lack the authority. The only thing they can do is something similar to what they do with the highways and threaten to take away funds unless all plots of land can be zoned for up to 4-family houses (FHA limit). Potentially quadrupling the amount of housing will do it.
  • danans 5y ago
    > No state is incentivized to make zoning more lenient. Yet this is exactly what is happening in California via SB9 (though admittedly with significant local opposition): https://www.mercurynews.com/2021/09/16/gov-newsom-abolishes-single-family-zoning-in-california/amp/ https://www.mercurynews.com/2021/09/16/gov-newsom-abolishes-... Ironically, single family zoning as a tool was invented in California.
  • andrewmutz 5y ago
    I agree completely. While its fun to place the blame for high prices on the investors, in reality the high prices are for the same reason that we see high prices of everything else: there is a shortage. Zoning reform is a solution to get out of this mess, but zoning is not the only cause of this problem. If you look at the last 10 years of housing construction in this country, and you compare it to the previous 50 years, you see that we have simply not been building enough housing: https://fred.stlouisfed.org/series/HOUST https://fred.stlouisfed.org/series/HOUST If a nation spends 10 years not building enough housing, high prices are what happen. If you add low 2020 interest rates to the mix, the effect on housing prices are explosive in the short term.
  • namlem 5y ago
    Zoning laws are determined at the municipal level. It's local government that is the problem. State governments have actually started pushing reforms thankfully.
    • ngngngng 5y ago
• nimos 5y ago
  Seems like there has been pretty heavy asset inflation across the board for the past ~decade and investors are desperate for returns. I mean it seems to make sense, the ultra cheap money isn't really available to most people. Most people's marginal rate is probably a credit card at 20+%. Big businesses/very wealthy can access very low rates by 1. pledging collateral and borrowing-> buy assets-> pushes asset prices up-> collateral worth more-> back to step 1. With houses they know the average person(who is a homeowner) will fight tooth and nail to keep prices high. Especially people who have bought recently. The higher prices are the more incentive people have to keep them high as it becomes a greater % of their net worth. Tyranny of the majority. Feels like in Canada we are basically seeing the emergence of some sort of neo-serfdom where the majority of young people(and older renters) who don't have significant family support are spending so much on rent they will never be able to own and year after year rent takes up a greater and greater amount of their salary. It's not at all uncommon to hear about people living in hallways or many people to a room in the GTA/GVA.
• WYepQ4dNnG 5y ago
  Lowering interests rates only favors investors, speculators and banks. Definitely not the average Joe. Yeah FED definitely screwed up a lot of people, transferring more wealth in the hands of wealthy people.
• filereaper 5y ago
  I wanted to highlight the alternative approach take by China. I don't agree with what their government, does but its useful to see what they're doing. China has essentially realized they're in a demographic crisis so they've enacted the following policies: - Stopped their speculative debt fueled housing bubble, this I hope makes it affordable for their citizens to own homes, without prices skyrocketing. - Stopped for profit educational institutions, this is so that education and specifically tutoring aren't exclusively for the rich. I think they're enacting policies for childcare as well. Given in the US investors are buying up property, and costs of both education and childcare are skyrocketing. I don't see how the US won't avoid a demographics crisis as well. The US can't mandate its industry to follow a similar approach, but can't the government provide stimulus or some other Manhattan Project type drive to encourage entrepreneurship and companies to start and resolve these underlying issues?
  • khuey 5y ago
    > Stopped their speculative debt fueled housing bubble Have they actually done this? Last I checked the cost to buy a home as a multiple of average income was far higher in China than it is in the US.
    • refurb 5y ago
      Indeed. Even cities like SF and NYC look down right affordable compared to Shanghai if you compared wages. China is going to have a massive housing correction - a la Japan.
  • namlem 5y ago
    Why look to China when we can look to Japan? They had the worst housing bubble in world history, now housing is affordable. All thanks to a streamlined national zoning code that took power out of the hands of local government. There are twelve nuisance levels and you can build anything that falls below the maximum allowed nuisance level for a lot, no community approval process necessary.
    • filereaper 5y ago
• thrwy_918 5y ago
  >“We know historically that places where minorities live are undervalued or lower priced,” Redfin’s Sheharyar Bokhari said. That, he said, makes them more attractive to investors, driving up prices for residents. This is undoubtedly true, and hurts potential first-time-buyers in those neighborhoods, but at the same time it benefits existing homeowners in undervalued neighborhoods by increasing the value of their homes. Having predominantly black neighborhoods cost less than comparable neighborhoods that are not predominantly black is probably not, on balance, a good thing.
  • jandrese 5y ago
    The caveat is that in many of those neighborhoods the units are rentals, so the people living in the house don't see any of the gains from the property value. They only see their rent increase as the value of the land goes up.
    • oh_sigh 5y ago
      The caveat to the caveat is that property value doesn't always go up, and there are benefits to not owning your primary residence. If property value goes down, it is better to be a renter, because you just end up with cheaper rent instead of an underwater mortgage, or you can decide to just exit the neighborhood if things get too bad.
      • jandrese 5y ago
        That said, property values tend to go up over time. While there are cases of it going down in most places the trend is upward. If you are betting on them going down you are usually going to lose the bet. Renting is usually a bad bet.
        • oh_sigh 5y ago
          That really depends on your local area and your needs. If you decided to keep renting in Vancouver instead of buying in 2002...yeah, you made a mistake. If you decided to keep renting in Detroit instead of buying in 2002 - you have come out quite ahead. Also, even if property values tend to go up over time, that doesn't mean that homeowners can bridge the gap of maintaining ownership in down periods. If you bought in 2006, you might find yourself underwater on your mortgage 3 years later, with stagnating or declining wages and threats of unemployment, and forced to sell, even if you believed the market would rebound eventually.
• mensetmanusman 5y ago
  There should probably be massive taxes on homes not used for living in by investors if America cares about quality of life for young families.
• RedXIII 5y ago
  Reading the comments here will make you realize that Americans have exactly the society they want.
  • ejb999 5y ago
    That and also makes you realize why no problems get fixed - nobody can a) agree its a problem worth fixing, or b) agree who is to blame or c) agree on how to fix it.
• pgodzin 5y ago
  Blackrock made it's rationale public and explicit -- as long as the supply of new homes remains low and building new homes continues to be difficult, then the expected value of properties in places people want to live will continue to go up. Build more housing and their investment returns fall.
  • hnaccy 5y ago
    >Blackrock made it's rationale public and explicit Where? I'd like to show it to people.
  • uejfiweun 5y ago
    I'm not exactly sure what we can do here to counter this, when the government is completely controlled by rich assholes who just want to see their already paid off homes go up in value.
• s5300 5y ago
  Suicide rates amongst under 40 & (IMO) high profile murders are gonna soar in the coming decades. You can’t just fuck an entire generation so transparently & unabashedly in a nation where anybody can buy a rifle capable of striking 2km+ away & mental healthcare (& all healthcare, lol) is a raging dumpster fire. Somebody(s) gonna snap sooner or later.
• deleted 5y ago
  [deleted]
• rednerrus 5y ago
  We need to incentivize companies paying dividends again.
• humanwhosits 5y ago
  Just make it illegal for corporations to purchase single-family-homes
• anonAndOn 5y ago
  Some cities levy a tax on rental properties. If the city wants to encourage home owners instead of home renters, just levy a rental tax and/or property tax that makes it cheaper to own a single family home than to rent or leave vacant. REITs and their ilk will cut their losses and move on.
  • dcolkitt 5y ago
    A tax on renting is a tax on low income people (who disproportionately rent rather than own) to the benefit of upper-middle class home owners. Even at the peak of 2006 era lax underwriting standards only 70% of households were owner occupied. It’s a utopian but naive dream that if somehow we just tax renting enough everyone will magically become a homeowner. There will always be a segment of the population that needs to rent. Rent taxes will massively drive up their living expenses, and have an at best marginal increase to home ownership rates.
    • anonAndOn 5y ago
      Taxes can be a profitable way to encourage the results you want to see. If you want to encourage SFH ownership, make it more expensive to rent a SFH than to own. Coincidentally, increasing rental turnover is a great way to discourage small-time landlords as a vacancy for 1-2 months can often wipe out any hope of profit or even just covering the mortgage for the year. Most small time investors would see buying a rental property as a money losing investment. Also, why would everyone want to be a homeowner all the time? Renting is preferable for many at different stages of life. 70% is probably the most it should be.
• dcolkitt 5y ago
  This is largely an artifact of low rates. Most retail thinks in terms of cash flow: what can I afford to buy (relative to rent) based on monthly cost. This includes mortgage (both principal and interest), insurance and taxes. But investors, particularly institutions, think in terms of return on capital. The very important distinction is that the part of the mortgage payment going towards principal does not constitute a cost from a corporate accounting standpoint. Rather, principal payment goes on the balance sheet as accumulated equity in the property. In other words retail is sensitive to total mortgage cost, whereas institutions are only sensitive to the interest component. As interest rates fall to zero, principal grows to nearly 100% of the mortgage payment. Even at todays rates principal constitutes about a third of the mortgage payment from day one, giving institutions nearly 50% more buying power. (Particularly in low property tax states like California.) Besides raising rates, the only real option is to underwrite increasingly longer duration mortgages. When interest rates fall, extending the mortgage duration makes principal fall proportionately. Hence why many countries in the low rate macro environment have moved to 50 year mortgages to avoid systematically disadvantaging retail.
• paxys 5y ago
  The American housing crisis is really a "housing in top 7-10 metro areas" crisis. There is no shortage of cheap land and houses just 30-40 minutes away from where you really want to be. Maybe the real solution is to continue making remote work the default so people aren't tied to an arbitrary radius from an office building in their home search?
  • rcpt 5y ago
    > cheap land and houses just 30-40 minutes away Tell me you're not in California without telling me you're not in California
  • tristor 5y ago
    I thought this too until I tried to move. It's not true. It's in pretty much every state and city in the US. Even my house price more than doubled in ten years, and I'm currently residing in one of the lowest cost of living cities in the US. The only places where you don't see this happening are also places where you can't get a proper broadband Internet connection, which makes it a nonstarter for even remote workers. So, really, no. My sister had this issue buying a farm in Eastern Colorado (which is not even considered a desirable area) more than an hour away from Denver, as a simple personal example.
  • dionidium 5y ago
    The current uptick in prices is affecting all markets. I bought an unremarkable bungalow in South St. Louis for $72k in 2016 and sold it for $135k in 2020. Zillow says it's worth $150k now. That's still a relatively cheap house, but the houses that were $150k in 2016 are now $250k. These are big jumps for an unfashionable neighborhood in a Midwestern market.
    • lastofthemojito 5y ago
      > The current uptick in prices is affecting all markets Maybe, but not all markets equally, and not all market segments equally. I bought my townhouse in 2015 and Zillow says it's now worth 8.6% more than I paid for it. I don't know the numbers but a buddy of mine who bought a 1-bedroom condo in 2008, and then ended up starting a family, has been renting it out for years since he's underwater on it. I would have thought the past year would have gotten him to the point where he can finally break even and get rid of it, but apparently not. I think this has always been the case, but especially in COVID times, single family homes seem to be outgaining townhouses, which are outgaining apartment-style condos.
• stickfigure 5y ago
  When are we going to talk about the absurd tax favorability of real estate investment? The 1031 exchange. If you sell stock and buy another stock, you have to pay capital gains. If you sell real estate and buy other real estate, you don't. This is dumb.
  • rcpt 5y ago
    $500k capital gains exemptions I have no idea why. And the mortgage interest deduction flat out should not exist
• partiallypro 5y ago
  I make pretty good money, well above median income in Nashville and can't afford a home in the area unless it's a very rough area. Some home prices in the area are up 5x+ in just 10 years. The returns have been insane between Nashville, Huntsville and Atlanta. Rents are creeping up too, I honestly don't get how people that make less than me are able to live at all and have any money left for retirement or emergencies. Obviously a dual income stream helps couples (I'm on a single income) but it's still crazy.
• partiallypro 5y ago
  One problem with this is that it is a new large, entrenched interest that will be against new home builds and zoning because it's competition to their bottom line. That's a huge problem.
• tristor 5y ago
  It's become basically impossible to buy a house as a normal person, even on a higher tech salary. In most markets around the US now, the expectation is that buyers will waive inspection requirements, make an offer as all-cash (e.g. pre-approved financing), with no contingencies (e.g. not based on sale of their previous home). I'm currently trying to buy a different house, my older sister just bought a different farm, we both have had a horrible experience. My sister had multiple properties where her bid was beat out by someone offering $100k+ over ask, all-cash, mostly REITs and other types of corporate investors. This wasn't even in a city (farm obviously). I'm trying to find both a house and a place to rent, because my realtor/broker has advised me that I need to rent for at least a few months while I sell my existing house so I can buy with no contingencies, or I'll never get under contract. I finally found a proper spot for us to rent, was supposed to be available April 1st and was accepting leases starting March 15th according to the listing. Was just informed yesterday that the owner has already got it under application and has four other renters waiting in the wings. This market is ridiculous if you actually need a place to live, and it's not even a matter of income. I'm in the top 1% of earners overall in the US, and I can't even close the deal on a place to live. I've had my current house for a bit over ten years, and it makes me almost want to give up and not move, although I must for family reasons. When I look into it, most of the properties being swept under me (and others) aren't even being bought by people, they're being bought by REITs or other investment vehicles, mostly by foreign money. You've also got companies like OpenDoor and Zillow scooping even high-earners trying to buy a place to live.
  • diob 5y ago
    For real. I bought my first house a few years ago. If I hadn't, I'd be fucked. My friends who are double income but not tech are trying to buy a home now. Same experience as you. Cash offers always arrive and beat them. I don't know how this ends but it's not going to be tenable for many folks to "live" in the USA as it stands.
    • tristor 5y ago
      It's also creating a situation where the actual quality/value of properties for price is completely out of whack. There are large swaths of the country where low-grade cookie cutter houses in the suburbs that are legitimately worth maybe $350k at the current inflation rate are asking for $850k+ and generally selling $100k+ over ask. I have a $1.25M budget for a house and I can't find anything that's not a trash heap I can afford, and I'm not even looking in a coastal area, this isn't the legendary market in California, this is in the middle of the US.
• gurumeditations 5y ago
  Jobs are concentrating in metro areas and so that’s where housing is concentrating. Costs going up in a growing metro economy creates a cycle where more lucrative jobs are attracted and thus more expensive housings are built. At some point, it becomes far more profitable to build a housing development or luxury apartments than regular affordable apartments. Some places have zoning that limits new construction but even if they didn’t, all you’d get is housing built to chase the highest profit, single family homes, luxury apartments, and 55+ apartments, instead of affordable apartments. The low income people I know all commute an hour or more into the metro areas because of their car allowing it. This is, big picture, the death throes of a dying society, where the wealth has been stolen from future generations so much that there is no stronger incentive to produce and build for the laborers required to sustain a general economy, but rather it is most profitable to simply bleed off some wealth from the holders of it instead with ostentatiousness and luxury. Everyone is just trying to steal a piece from each other for themselves like in crypto instead of creating value.
• 999900000999 5y ago
  This is what happens when you have year long rent moratoriums. Smaller landlords who used to just rent out their vacation homes are getting out of the market. If you own two homes, and you rent one out as a source of income, but all of a sudden that tenant doesn't want to pay, you have a problem. If you own a portfolio of 100 homes, and half the tenants don't want to pay odds are you can just sit on your appreciating assets until you sell it anyway. What's even scarier is many of these units are going to remain un occupied forever. If you buy a house, and it goes up in value $50,000 per year, it might be easier to leave it vacant. The only solution is much easier zoning, and laxer building requirements. For example, in LA apartments are mandated to have a parking space per unit. This can easily make the apartment cost 30 to 40% more to build. So the only apartments getting built start at $3,500. I'm hoping this does eventually spur some change, it's getting too hard for working class people
  • vmception 5y ago
    > Smaller landlords who used to just rent out their vacation homes are getting out of the market. This is a really good perspective! I’ve been mentioning to people to remember that their local landlords - their neighbors and existing corporations - are just as responsible for gentrification when raising rents and asks to the highest possible rate their market will tolerate. They always had the option to do so but didnt take the gamble, they still dont have to, so there is an opportunity to point fingers at them more than the out of towners signing or moving in. Pressure might actually work for the landlords since they have a local network, compared to the out of towners who often times have nothing to do with what price is offered to them[0]. The landlords didnt have to raise but the speed at which they all are really could be related to trying to have an investment property during a time when their municipality was not a market based economy. [0](Although there are also many people buying/renting way over the asking price, as well. Most landlords are just jumping on the bandwagon, hoping to see if the market applies to them too.)
  • luxuryballs 5y ago
    Yeah I still can’t believe they did that, basically allowing someone to occupy your property and there’s nothing you can do about it. At least the state I was in paid me for all the outstanding rent, but this kind of thing is also increasing prices because I know that the tenants had money and were still spending it, just not to pay their rent. I still haven’t been able to get a rent check and they are planning on submitting it all to housing relief again. I increased the rent to match the market (still very low for a single family home, 3 figures) and I expect the government is going to pay me. I can’t wait to get out of this situation because I hate it and feel like I have no control over my property but the government incentivized them to not pay rent. For now, I am also incentivized to not put them out on the street and deal with all that if I think I am ultimately going to get a fat check from the state. I expect this is not going to end well for anyone.
• throwaway5752 5y ago
  This ought to be made illegal, and soon. Single family residential REIT as a category should not exist. Caps on landlord ownership should be enacted. Like medical and food, shelter is a fundamental human need and it is very dangerous to introduce a profit motive without very substantial government regulation. The rate of investor ownership is getting uncomfortably close to feudalism, at least in areas and categories and price points of homes.
  • 0xJRS 5y ago
    The problem with hard restrictions like a cap on land ownership is that they would just find a way to circumvent the limit. The best approach is to incentivize them in another direction.
    • throwaway5752 5y ago
      That class of objection is defeatist. Selling unregulated pharmaceuticals is illegal because of the harm is causes. While people may break the law, they at least face consequences and groups that pursue that business are criminal by definition, and face much lower access to capital markets and ability to cause harm.
  • flavius29663 5y ago
    why are you furious on REIT? They are pouring money into housing, at at time when we need more housing. It's not a problem. The problem is that we're not building enough. And a big part of that is zoning
    • throwaway5752 5y ago
      Because they are buying up stocks of that limited housing and holding onto it for rental income and capital gains. Previously, that had been off-limits as part of a generational wealth building process for regular families. Now more houses will be rentals and that money will compound capital for investors. By definition that further concentrates wealth. We need more low cost apartments and condominiums that are close to jobs. Low wage workers are being expelled from urban areas because they cannot pay rent, and are forced between living in slum like urban conditions or paying high costs to commute from distant affordable areas. Corporate ownership of housing won't solve their issues, solve zoning issues, or increase housing starts. edit: "off-limits" to the extent homebuilders could make a profit and lenders could make a profit, but not excessively.
• victor106 5y ago
  > In the hearing, Democrats as well as Republicans on the committee, led by Sen. Patrick J. Toomey (Pa.), raised concerns about an underlying problem: the stringent zoning rules in many cities that prevent more homes from being built. This is key. Home prices in the US are kept artificially high by zoning laws. I can maybe imagine NYC to have high prices, but I can't imagine a city like Austin,Tx to have home prices triple every year. Its insanity triggered by the Fed. The Fed should be reigned in by having them not participate in the mortgage market
  • aeyes 5y ago
    Even NYC makes no sense at all. A lot of properties have been sitting empty for many years asking for ridiculous rent/leases which nobody is willing to pay. But instead of lowering the asking price, the owners just leave them sitting empty. It's like they aren't even trying to rent them out anymore because they make more money waiting for the value to go up. The market is not working.
    • ngngngng 5y ago
      I was recently looking at apartments in NYC since I've always wanted to live there for a year or two at least. One of the things that shocked me was how many had $5000+ monthly fees on top of the rent. Basic apartments would have reasonable rent and become completely impossible to afford with the extra fees.
• lvl100 5y ago
  When I drove across the country in my early 20s what struck me the most was that we have nearly unlimited undeveloped land. I believe we are close to a tipping point in this country, with WFH becoming even more widely accepted, and push for more energy efficient homes, that we will see significant single home developments across rural areas over the next decade. Whether that benefits homebuyers or developers/corporations will be up to regulations and incentives.
  • CapmCrackaWaka 5y ago
    I would like to believe this is true, because it's where I want to be in 10 years. I would love nothing more than to sell my house in the city and build a custom house in the country, especially since you can get most luxuries these days even if you're in the middle of nowhere. There have been big improvements in the following areas, and I'm excited to see them develop further: 1) Solar power and battery technology 2) Water filtering technology 3) Satellite internet 4) Geothermal heating /cooling 5) Insulation I believe further improvements in these areas will drastically decrease people's reluctance to move out to the country.
    • j2bax 5y ago
      Having recently relocated from a fairly populated region to a fairly rural area... A few things to add to your list that some people might not think about until they need it: 1)Doctors/pediatricians/dentists etc. 2)Emergency veterinarian (for those late night "what the hell is going on with my dog" moments) 3)More than 3 lousy restaurants I'm sure there are many more, but these are the ones that were the biggest shock to our family!
      • hackerfromthefu 5y ago
        4)Social activities and dating pool for people not in a family unit
• weeksie 5y ago
  Well investors also bought a record share in 2020, 2019, 2018, etc. . . . The problem is not the finance stuff, it's the lack of supply and the crunch will not reverse until the US learns how to build abundant housing. It'll either break quicker than anybody thought possible or last for another generation. Who knows. Regardless, artificially taking the REITs out of the equation won't fix the problem. The reason they're buying is that housing is a good investment. The way you fix that is by making housing a boring, low return investment.
  • babelfish 5y ago
    Or, since housing is a basic human need and not meant to be an investment, legislate against investment companies holding housing
    • weeksie 5y ago
      Won't make a dent in the prices, but you could certainly spend political capital passing legislation like that.
      • babelfish 5y ago
        Why not? If you cut out 15% (OP) of the demand, the price of the supply should fall
    • oh_sigh 5y ago
      Food is a basic human need - do we all need to go back to subsistence agriculture, or can we defer some of that work to corporations?
      • babelfish 5y ago
        No, but the country could certainly stand to do more to prevent farm consolidation by legislating against larger farms acquiring smaller ones. https://www.ucsusa.org/resources/bigger-farms-bigger-problems https://www.ucsusa.org/resources/bigger-farms-bigger-problem...
• cmauniada 5y ago
  I think the only advantage someone in this industry has is remote work. Live somewhere that real estate is cheap, but get paid above the average salary.
• alwaysdoit 5y ago
  Commercial property tax rates (incl rental) should be higher than residential. All things being equal, it would be preferable for someone to own the house they live in, rather than pay rent to another party indefinitely for exclusive access, and our tax code should incentivize in that direction.
• irrational 5y ago
  Do we actually know who these investors are? How many are foreign individuals and entities working through shell companies?
• acchow 5y ago
  Homes are not like a normal product because people NEED SOMEWHERE TO LIVE. Maybe if we allow homes to be investments (to spur development of homes in locations and of a certain design/quality as demanded by the market), then the government should be required to provide a basic home for every single person that requests one.
• narrator 5y ago
  If you don't want an investor to buy your house, just look at the letters sent in with the offers. Pick the best one and sell to them if they match the high bid. Investors won't even bother writing a letter.
• game_the0ry 5y ago
  Institutional investors should never have been allowed to invest in the housing market. Ban institutional investors from the single family housing market.
• Nelkins 5y ago
  If you want to help solve this problem and you live in NYC, consider joining Open New York, a housing supply advocacy group! Membership form: https://docs.google.com/forms/d/e/1FAIpQLSdDTgY0TDZ5wz73_3Wf-h-p_qWGRG2iKD2esP2DkN6id-3W9Q/viewform https://docs.google.com/forms/d/e/1FAIpQLSdDTgY0TDZ5wz73_3Wf... Slack: https://slack.opennewyork.city https://slack.opennewyork.city
• KETpXDDzR 5y ago
  https://web.archive.org/web/20220218092254/https://www.washingtonpost.com/business/interactive/2022/housing-market-investors/ https://web.archive.org/web/20220218092254/https://www.washi...