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I think the common perception that investors make housing unaffordable is wrong. Investors want rent-paying tenants and have an incentive to build, maintain, an
by Bostonian 3y ago
I think the common perception that investors make housing unaffordable is wrong. Investors want rent-paying tenants and have an incentive to build, maintain, and upgrade housing. Here is the abstract of a recent working paper "The Impact of Institutional Investors on Homeownership and Neighborhood Access" https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4554831 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4554831
'I estimate a demand system to study the effects of institutional investors’ conversion of large fractions of owner-occupied housing into rentals in the suburbs of US cities. I find the purchases and subsequent conversions of houses resulted in a tradeoff between homeowners and renters. Institutional investors decreased the housing available for owner-occupancy by 30% of the homes they converted, and their demand shock raised the price of housing in a census PUMA by 7.4pp per 1pp of housing they purchased. Higher prices made it harder for people to buy homes. However, the institutional investors increased the supply of homes available for renter occupancy by 69% of the houses they converted, and lowered rents by 2.3pp per 1pp of housing they purchased. The increase in the supply of rental housing allowed the financially constrained to move into neighborhoods that previously had few rental units. The people who moved into institutional investor-owned homes had lower incomes, a lower likelihood of having a bachelor’s degree, were more likely to be white, came from areas with worse historic economic mobility, and came from areas with lower school test scores than others who moved into the same census tracts. The findings suggest that institutional investors made it harder for people to purchase homes, but easier for renters to access neighborhoods that previously had few rentals.'
- sys32768 3y agoMost of the investment houses in my area are used as vacation rentals for half the year, so they're only for rent at market price to tenants about six months out of the year.
- gloryjulio 3y agoThe resolution is simple, crack down hard on short term rentals and empty homes , ensure that only long term rentals or the owners who actually live in the house are allowed. or u have to pay a huge monthly tax or fine Then the next step is to build like a crazy. The only way to cull the demand is to actually meet the demand. Just make the investment as unappealing as possible. Whether these can be put into practice, that's another story
- fiddlerwoaroof 3y agoI wonder how demographics play into this: if the median current homeowner (primary residence) age is close enough to the median age people die or go into assisted living facilities, then we might see market conditions change drastically in various parts of the country.
- creer 3y agoAlso that you cannot have both that and the tourism industry that this area - presumably - partly lives from. You might say "but hotels" but these short term rentals are being rented because they are wanted.
- gloryjulio 3y agoHotel is just more regulated short termed rental, which is exactly what we should be doing - regulate the short rentals home more, make it economically inappealling. The tourists can pay for the hotels
- candiodari 3y agoThen no more tourists. No-one wants that.
- gloryjulio 3y agoWhy raising the price for the tourism to the match the actual cost would mean no tourism? If they can't afford the travel cost there, maybe go somewhere else cheaper? The only reason short rentals are cheaper was that they are getting around the regulations AND they sacrifices the local population and push up the prices of the real estate and rentals. Or do you mean tourism was invented after Airbnb? huh?
- xnx 3y agoProperties that pay taxes, but don't use many city services seems like a great deal for people who do live there.
- nerdponx 3y agoNot if they can't afford their own rent. if you actually look at housing inflation vs. wage growth, the real story is that people are getting substantially poorer over time. A little bit of extra tax revenue to their town or city isn't going to offset that. But yes, it's nice when someone is contributing to your living space but doesn't actually live there. Localized example: my building neighbor is away ~50% of the time and it's amazing. I get all the benefits of a multi-unit building with a dedicated landlord, but my day-to-day life is a lot like living in a single-family detached house.
- xnx 3y agoIt's a very complex issue. Housing inflation v. wage growth charts often don't account for houses being much bigger and better than the used to be and more people wanting to live in fewer areas. Housing would probably be cheap if we chose to live in the same types of remote areas we did 60 years ago.
- nerdponx 3y agoAs far as I know (please correct me if I'm wrong), you can look at price per square foot and see the same story. Prices of 100-year-old 1400-sqft homes are going up too, faster than consumer prices and faster than wages. > more people wanting to live in fewer areas > Housing would probably be cheap if we chose to live in the same types of remote areas we did 60 years ago As far as I know, people wanting to live in remote areas was a relatively short-lived phenomenon in American history, facilitated by a number of economic and political factors that are not repeatable. My personal belief is that improving mass transit (think: Netherlands) is the best and most sustainable way to mitigate the current crisis, especially in the Boston area.
- 3y ago
- ramesh31 3y ago>The findings suggest that institutional investors made it harder for people to purchase homes, but easier for renters to access neighborhoods that previously had few rentals. "You'll own nothing and you'll be happy" This is indeed the intended outcome.
- RangerScience 3y agoSounds amazing for a population of stoic monks (own nothing = have no responsibilities, ties, etc), and absolutely terrible for community building (minimum requirement for a community is space to have it in).
- deleted 3y ago[deleted]
- ponector 3y ago1. Get homes. 2. Rent them to people. 3. Increase rent to the point where people can barely afford it. 4. Investors will be happy to get good returns. But what about neighborhood? People who lived there for decades and now forced to move? Market doesn't care. Nobody cares if there is a profit for shareholders or/and banks.
- rngname22 3y ago"Investors want rent-paying tenants" https://en.wikipedia.org/wiki/Rent-seeking https://en.wikipedia.org/wiki/Rent-seeking
- nickff 3y agoInvesting in a home and leasing it out is not actually 'economic rent-seeking' (which is what your linked article is about). Look at the first example given there: >"Successful capture of regulatory agencies (if any) to gain a coercive monopoly can result in advantages for rent-seekers in a market while imposing disadvantages on their uncorrupt competitors. This is one of many possible forms of rent-seeking behavior."
- Bostonian 3y agoThe term "rent-seeking" as used by economists has nothing to do with being a landlord.
- Hipoint 3y agoDavid Ricardo may disagree.
- spencerflem 3y agoIt has more to do than just being a landlord, but 'rent' is very plainly, 'rent'
- light_hue_1 3y agoRent-seeking very much does have to do with being a landlord to economists. It was the example that gave rise to the idea. It's right there at the top of the wikipedia page... Rent-seeking is when a landlord doesn't make serious improvements, but merely sits on the land as titleholder and gets money for it. That's exactly what's happening here. Investors buy houses. Drive up prices astronomically. And make money from them. Oh, and they also use software tools to coordinate driving those prices up. They even have the regulatory capture part down, where zoning has created a massive housing shortage to keep prices going up.
- 3y ago
- Finnucane 3y agoAt least in my Cambridge neighborhood, all of the properties that have been touched by investors and developers are being turned into very, very expensive condos. Or biotech labs. You'd think we had enough of those already, but no.
- dcgudeman 3y ago"You'd think we had enough of those already, but no.". The market determines when "we have had enough" not some arbitrary limit imposed by a current resident.
- fnimick 3y agoIt's hardly a free market - it would certainly be more profitable to build a midrise with 20+ less expensive units rather than one expensive unit on a given lot - but zoning restrictions mean it can't happen.
- light_hue_1 3y agoWhat market? Developers are tripping over themselves to build housing in Cambridge/Somerville. But zoning gets in the way all the time. For example, Somerville was going to get a new development in Davis Square. And the developer jumped through all the hoops. The city literally changed the zoning map so that they could only build labs and no housing.
- 3y ago
- sickofparadox 3y agoI think the very wealthy buying houses they don't need to make yet more money is bad and should be discouraged. Buying a duplex and living in half of it is one thing, but people (that are not the very wealthy) should be able to afford a house that they own personally if they play by the rules.
- Bostonian 3y agoI personally don't want the headaches of being a landlord, but I have invested in apartment real-estate investment trusts (REITs). Such REITs do build housing, and I think that without them, housing costs would be even higher.
- fnimick 3y agoDo you advocate for policies that restrict home construction / increase prices, since that will improve your return on investment?
- creer 3y agoIt's debatable whether such policies do what you say. Land on which you can build more and more freely is more valuable than land that you can't do anything with.
- hooverd 3y agoSmall landlords can vary wildly, but in my experience, big landlords inexorably gravitate towards slumlord behavior to their tenants.
- troupe 3y agoThe only reason it is profitable is because the cost of buying an existing home is often less than the cost of building additional housing. If you want to discourage people buying houses to rent them out, the best thing to do is make it easier to create more homes. Prices only stay high when the demand is higher than supply. Too often people want to try to control the market rather than dealing with the reason a particular way to participate in the market is profitable. The underlying issue is that we need more homes.
- rymiel 3y ago"Licking the boot tastes very good, actually"
- standardUser 3y ago> Investors want rent-paying tenants Fine, then let's mandate this by law.
- Symmetry 3y agoThat's not a problem. The fraction of unoccupied units in the Boston area is tiny compared to places with more affordable housing.
- standardUser 3y agoHere in NY, where housing is more expensive than Boston, we are drowning in uninhabited "investment properties". With a proper vacancy tax we could instead be referring to them as "homes".
- creer 3y agoIsn't that certain to increase costs (i.e. prices) for everyone?
- wredue 3y agoDude. Investors literally directly state: “Your future is renting, not owning”. They don’t want build incentive. They don’t want anyone to own a home at all. If they had their way, they would regulate away your ability to own a home in an instant (and I fully expect that this will come to pass should we continue to move further and further right wing as a society).
- soulbadguy 3y agoI don't think the paper you mentioned is a argument for "investors make housing unaffordable is wrong". The TL;DR of that paper is that investors made buying home harder but renting easier. Doesn't mean that this a good trade-off in the neighborhood and the section of the population concerned. It also doesn't follow that this way of doing it the most efficient way of doing (or even is an efficient way of doing it). If i am reading this correctly, they raised the price of houses more than they reduce the price of rent. and it seems that the authors only looked at the houses that they actually converted for rent, not the total amount of houses purchased. Second, they seems to be mainly targeting suburbs instead of high density areas. It's unclear to me that the same capital deployed to either build or buy high density building wouldn't be a far more effective and less disruptive way to increase housing availability. But the main point about the impact of investor is two fold : First they have access to system of credit/lower interest rate than regular buyer do not thus driving the price up, and even more importantly we have in this country a lot of easement around housing that are design because we believe that stable housing (as in buying , not renting ) provide positive externalities that aren't captured by the market. Investor are simply perverting those incentives by using houses as speculation assets.
- creer 3y agoIn many markets there is a gross lack of housing overall. It makes sense that owners paying attention will raise BOTH house prices and rents. There is not enough for sale AND there is not enough for rent. A larger investor can be BOTH more patient when selling and renting AND more realistic when adjustments need to be made. Unfortunately in american systems, there is one delyaing effect: property companies seem to be able to borrow based on the nominal rent for their units - even if they can't find renters at that rate. (Which is why you often see "months free" rather than lower rent). This can delay market pricing changes by quite a bit - at least if you are not ready to move often.
- soulbadguy 3y ago> In many markets there is a gross lack of housing overall. It makes sense that owners paying attention will raise BOTH house prices and rents. There is not enough for sale AND there is not enough for rent. A larger investor can be BOTH more patient when selling and renting AND more realistic when adjustments need to be made. I am not sure i understand the point you are making here. If there is not enough houses to sale, and not enough to rent. Then inefficiently converting one to the other doesn't sound like a win. Also, i think this is really market based. I am not sure that the mainly complaint for suburbs was the lack of rental unit. Most likely it was from the lack of buying opportunity.