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> If any freshly built housing is bought up by landlords who can afford to outbid ordinary people, then adding supply doesn't alleviate the problem. Can you ex

• Etheryte 2y ago
  The problem arises when you have long periods of either zero or near zero interest rates and no policy guardrails to regulate the market. The implausible scenario has played out in many cities in Europe, sometimes even to the extent that companies aggregating landlords started to build their own real estate that would never be sold, only let, because they ran out of real estate they wanted to buy. This left behind only low quality or poor condition housing, but at extremely high prices because everything else is gone from the market. The issue here is essentially a cash flows problem, once you're a landlord that has a sizeable portfolio of real estate, you can use that as collateral and offload the extra expense to renters. In a healthy market, renters can turn around and buy their own homes if the rent gets too high. Where this doesn't work is if housing is too expensive for the average buyer so they're forced to rent, come hell or high water. The Netherlands is a good example of this. While the problem has a lot more nuance and historical context to it, the state of affairs is the Dutch are short somewhere between 300k and 400k homes while two people earning the median wage can not afford an average home because the price is too high to obtain a mortgage. Meanwhile nearly all rental homes are owned either by companies or whale land lords. Rereading my comment now I'm not sure if I was able to convey what I mean well enough, sorry about that. I'm happy to answer any questions should you have them.
  • tome 2y ago
    What I don't understand is that you say "the Dutch are short somewhere between 300k and 400k homes" when you previously said "Simply adding supply doesn't really address the underlying problem if you don't look at the rest of the context. If any freshly built housing is bought up by landlords who can afford to outbid ordinary people, then adding supply doesn't alleviate the problem". What does it mean to be "short of 300k" homes if not "adding supply of 300k homes will address the problem"?
    • Etheryte 2y ago
      In this specific example it means the Dutch have built a considerable amount of homes in the past few years, but the number of homes the supply is short has increased, not decreased. Simply adding more houses alone is clearly not going to solve the problem.
      • tome 2y ago
        I don't think I understand why not ... Presumably there has been a lot of immigration to the Netherlands in the same time. Naturally building needs to keep pace with immigration, so (300k + net migration) homes sounds like it should resolve the problem. If not, why not?
        • Etheryte 2y ago
          There are two key points you might be missing here. One is affordability. Landlords buying up housing to let pushes the prices up for everyone. In the Netherlands this has reached a point where two people living together and both earning the national median wage cannot get a mortgage for an average price home because they don't meet the minimum income requirement. This in turn means they're effectively forced to rent, barring outside intervention such as social housing programs etc, which creates more cash flows to landlords. The other issue is time. Building new housing takes time and even though new housing enters the market, companies and landlords with large portfolios have ample time to build up capital to buy it. They can afford to bid considerably more than starters who are buying their first home. To maybe exemplify what I mean, the last time I rented a home in the Netherlands, my landlord was a family estate that owned hundreds of apartments. At Dutch prices this means they can afford to put in a down payment for a mortgage for a number of newly built homes every single month, and they aren't even a big player in the local housing market.
          • tome 2y ago
            Thanks, I take the point that housing is expensive and two people pooling their median wage can't afford an average price home, and in the meantime they're paying rent to landlords. I also take the point that whilst paying rent to landlords, those landlords are increasing their wealth and this contributes to them being able to buy more homes. What I don't get is how you can conclude: > If any freshly built housing is bought up by landlords who can afford to outbid ordinary people, then adding supply doesn't alleviate the problem. Assuming house building is economically viable (and if it's not all bets are off anyway) then isn't it equally plausible that building masses of housing means that 1. There will be simply too many new houses for landlords to buy them anyway. Their capital isn't unlimited! And, 2. House prices will drop, forcing landlords who are holding housing for the appreciation will exist the market, further putting prices down.