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It's the land, stupid: How the homebuilder cartel drives high housing prices

140 points by nth_degree 2y ago

mikece 2y ago
Cornering the market, or a sufficiently large portion of it, doesn't necessarily drive prices higher. Demand plus cheap credit (and Wall Street shenanigans) are at least as much to blame.
- JumpCrisscross 2y ago
  > Demand plus cheap credit (and Wall Street shenanigans) This is unfalsifiable voodoo. It can be used to describe practically any economic phenomenon.
- the_gastropod 2y ago
  Interest rates tripled in the past few years, and home prices continued their upward march throughout most of the U.S. Do you mean something else by "cheap credit"?
  - sroussey 2y ago
    Tripled from a hundred year low. Kinda normal to mildly low still. Prices are up since people did 30yr mortgages at obscenely low rates, and don’t sell/move in order to keep them. That group will eventually rotate out. Ironically, somewhat lower rates will cause a housing price decline.
- sirspacey 2y ago
  Unless you are willing to hold the asset at 40% occupancy without changing prices because preserving the on paper value is more important than profiting from rent. Then you get New York City.
- dan-robertson 2y ago
  This is maybe a stupid question, but if credit is cheap, shouldn’t it be easier to finance a housebuilding operation? In the very low interest rates from say 2008-2020, I think we saw less housebuilding in the United States than before.
JumpCrisscross 2y ago
Have there been serious attempts at describing how a Georgist land tax would appraise the value of the land?
- kaibee 2y ago
  Yes, its pretty straight forward and there are many countries who already do it. https://www.astralcodexten.com/p/does-georgism-work-part-3-can-unimproved?utm_source=url https://www.astralcodexten.com/p/does-georgism-work-part-3-c...
smallmancontrov 2y ago
The mistake made by Georgism is to assume that rent extraction is a bug. It's not. The economy is literally owned by rich people -- that's what capitalism is -- so rich peoples' opinion is the one that counts, and rich people want to get paid for being rich. Rent extraction is a feature not a bug. Georgism will never see political success due to this misunderstanding of political economy.
xnx 2y ago
No shortage of land in the US, but everyone wants to live in the same few places (for good reason), and those places have a lot of restrictions on what can be built where. It's satisfying to blame a big bad "them" for this, but the problem is "us". We all want our properties to increase in value so we collectively conspire to suppress supply that would make our properties less valuable.
- deleted 2y ago
  [deleted]
- netbioserror 2y ago
  Land and homes also make for excellent inflation hedges; thus, property owners become advocates for money printing and suppressed interest rates.
- lapcat 2y ago
  > No shortage of land in the US, but everyone wants to live in the same few places It's not enough to have land, though. The land needs access to water and electricity, not to mention roads, or it's a nonstarter, especially if you want to build a bunch of homes on the land. And the new homeowners will need access to food and supplies, i.e., stores. You need an entire community.
  - kaibee 2y ago
    The neat thing about capitalism is that stores will be built to serve the community if there's a market for it. We don't need to centrally plan the whole community up front. We do need zoning laws that ALLOW those stores to be built though.
    - toomuchtodo 2y ago
      This is not borne out by the evidence. https://www.ruralhealthinfo.org/topics/food-and-hunger https://www.ruralhealthinfo.org/topics/food-and-hunger https://www.propublica.org/article/food-desert-grocery-store-cairo-illinois https://www.propublica.org/article/food-desert-grocery-store...
dachworker 2y ago
So basically, if you're an individual, or a contractor who reinvests their earnings into the housing market, you face two challenges: getting competitive financing, and finding a plot of land to build on. Question: is finance screwing up capitalism? Real estate is supposed to be one of the most competitive and dynamic markets. If you can turn even this very simple and basic market into a quasi-monopoly, then there is something fundamentally wrong with the whole economy. And it seems all fingers point to Wall Street.
- lotsofpulp 2y ago
  Real estate is not competitive nor dynamic because of the disproportionately low property (specifically land value) tax that property owners pay relative to the utility they get from society (police/military and courts to protect their land as well as myriad other policies that ensure a stable society). Simply hoarding land should not be profitable, and yet it is one of the most profitable businesses because of subsidies (too low property taxes, 1031 exchange, various “farming” and other exemptions).
- kjkjadksj 2y ago
  You don’t have to be the sole investor. Say you can afford to invest $10k. You could try and find a 2k plot to put a 8k garden shed on. Or you can put that 10k in a REIT and get a gain.
23B1 2y ago
Absent from this article: - Financing requirements & anticompetitive lending practices - Municipal/state building codes and the regulatory capture thereof - NIMBYism and activist urban planners - The tyranny of the commute
crooked-v 2y ago
Overconsolidating is bad, but the article's chain of logic falls apart for me because it doesn't actually make any connection to indicate that these companies wouldn't make even more money by building more homes, while ignoring that local permitting and approval process have gotten ever more pricey and complicated over even just the past two decades. For the extreme example, take a look at San Francisco, which has approved a grand total of 16 housing units so far this year (https://www.newsweek.com/san-francisco-only-agreed-build-16-homes-this-year-1907831 https://www.newsweek.com/san-francisco-only-agreed-build-16-...). Only a tiny margin of ultra-high-price housing can even be sustainable, let alone profitable, in that environment.
- kaibee 2y ago
  > because it doesn't actually make any connection to indicate that these companies wouldn't make even more money by building more homes, I think it comes down to risk, effort, and available labor/resources. If it costs them nothing to hold the land and build only when they're very sure that the building will be profitable, then that's what they'll do. But once they have the whole construction side working on projects... if there's capital left over... why not buy up more land in the mean time? It makes it harder for your competition to build while you work through your backlog and it costs you basically nothing.
nnf 2y ago
> tax the land of lot developers so they don’t hold land off the market. This is something I dealt with a few years ago. There were a few acreage lots (5-15 acres) my partner and I were considering buying and building a house on, and all of them had been in the $200k range a year or two before but had been bought by land speculators (in some cases by the same person). Prices went from ~$200k to ~$750k, which we weren't interested in. Most of them sold. One of the larger lots was around $350k and is still for sale, now for almost $2 million. I don't think developers should be forced to sell land just because I want to buy it, but the taxes they pay on their empty lots is extremely low. I checked on a couple of the ~$750k lots, and the taxes were something like $115 per year. At that rate, it costs the developer/speculator basically nothing to hold onto it while prices rise. If lots like this were taxed at, say, 20x the current rate for lots that are near areas that are being built up and are ready to be bought, then there would be a stronger incentive for the owners to sell to people who are ready to build and start paying property taxes. It seems like such an increase would benefit everyone except the speculators.
- lotsofpulp 2y ago
  > It seems like such an increase would benefit everyone except the speculators. Correct, a simple power law tax formula on unimproved/vacant land that forever increases the cost to hold onto land near and in the middle of population centers would do wonders.
  - kaibee 2y ago
    Really we just need a Land Value Tax. https://www.investopedia.com/terms/l/land-value-tax.asp https://www.investopedia.com/terms/l/land-value-tax.asp
- theoreticalmal 2y ago
  This seems a lot like a tax on unrealized gains. You’re taxing something that might have value in the future, rather than it’s actual value now.
  - lotsofpulp 2y ago
tigen 2y ago
This paragraph looks wrong. "In 2005, when D.R. Horton sold a record number of homes, it made $1.47 billion. In 2023, when it built roughly half as many, its profit was a little over three times as high, or $4.7 billion. " It did not build half as many homes, it was 82917 homes in 2023 vs. 51172 in 2005. Also, the profit number should be corrected for inflation when comparing across almost 2 decades.
- mulmen 2y ago
  1.47 billion 2005 dollars is 2.29 billion 2023 dollars. Profit per house in 2023 dollars: $44,751.04 in 2005 $56,683.19 in 2023
  - biomcgary 2y ago
    Thanks for doing this calculation! It would be interesting to know if the average square footage of houses built by the company has changed. If they have increased by 25%, the profit per square foot would be roughly unchanged.
    - mulmen 2y ago
      Maybe. I’m not a domain expert so I’m not sure that’s a meaningful metric, especially at this scale. But in general I think anyone would be happy if their business improved units sold and per unit profit. Naively I’d expect an inverse relationship.
    - 1659447091 2y ago
      D.R.Horton home sizes have remained mostly consistent for the past 20+ years that I am aware of* * My family worked with home builder marketing departments, and I use to enjoy seeing home & price progression in the area over the years (D.R. Horton has been and is, mostly 1200-2200sqft with a few going past that on either end). One of my many issues with this article is making the mass production builder into a bad guy. D.R. Horton IS the "Starter Home" builder, few other builders can compete for that market because the cost and time it takes to build. It's why local small builders tend to build higher quality homes, they only have the resources (money for permits, legal etc and manpower) for a few houses a year. If the profit on a home is $55k with all the marketing and construction bulk prices DRHorton gets, whats that profit for the 2-4 homes a year local builder this guy wants to replace them with? Probably not much to want to keep doing the job; always on the verge of financial collapse if 2008 happens again (many small home builders disappeared and did not come back. I dont think many people want that kind of risk to start up again). If we wait for small local builders to build homes we would be in a far worse situation than we are now. I had the opportunity to talk, in length, to the owner/CEO of a mid-sized builder who had to sell the remaining lots from one of three communities because he couldn't keep the prices within: both a price that they would sell and price to make a profit (or break-even); the shortage of construction workers and regulatory delays and cost were a large drain on resources. It had nothing to do with having land or needing to buy land, he already had, it was simply taking too long to get through the building process. Not sure if home builders are still doing it, but many in the area were working together to try and get high-school students into construction apprenticeship/vocation programs to make up for the shortage.
tamimio 2y ago
Fun fact: About 89% of Canada's land area (8,886,356 km² or 3,431,041 sq mi) is Crown land: 41% is federal Crown land and 48% is provincial Crown land. The remaining 11% is privately owned. For example, 92% of Quebec, 87% of Ontario, 95% of Newfoundland and Labrador, and 94% of the land in British Columbia are Crown land. So when you “buy” land, you actually become a tenant to the Crown. If you don’t pay the property taxes, “your” property can be registered for sale. The laws around properties in Canada are extremely complicated and stupid. A friend of mine, after building their house and wanting to connect the sewer to the municipal one, was required to pay more than $50k! After 2 years, they ended up having a septic tank instead. Unfortunately, there’s no hope to fix the housing issue in a democratic way because the majority of the voters are landlords. The only possible solution is like Japan (where houses are depreciated assets) by having centralized control over housing, zoning, permits, and everything to maintain a flat price. Other than that, the future is grim for young people or anyone who doesn’t already own a house. I remember a year ago I saw a mortgage here in Canada of 70 years, so if you bought a house at 30, you will become a Crown tenant by 100! (1) https://en.m.wikipedia.org/wiki/Crown_land https://en.m.wikipedia.org/wiki/Crown_land
- b112 2y ago
  Wildly inaccurate. No one owns crown land, if you buy land, that's "privately owned" If you don't pay property tax, eg you are in arrears, your land is seized and sold to pay your debt. Again, that has nothing to do with crown land.
- aorloff 2y ago
  If you don't pay property taxes for long enough (usually 5 years) in the US, typically your property will be auctioned off at a county tax sale (assuming your lender hasn't paid the taxes and foreclosed first).
delichon 2y ago
Nearly 40% of the United States is public land, supported by taxpayers and managed by federal, state, or local governments. -- https://headwaterseconomics.org/public-lands/protected-lands/public-land-ownership-in-the-us/ Allocating a few more percentage points of that for housing could have a large effect on prices.
- warkdarrior 2y ago
  Yes, and nobody wants to live there.
  - delichon 2y ago
    Look at a digital U.S. map with a private / public land overlay and zoom in on the satellite images. It quickly becomes clear that people will live wherever they are allowed to. Sometimes the population stays low and sometimes bare desert turns into the Las Vegas metropolitan area.
    - jjav 2y ago
      > It quickly becomes clear that people will live wherever they are allowed to. Doesn't seem to be true. You can buy land in e.g. Nevada for less than $1000 per acre, but it sits empty because approximately nobody wants to live in the middle of the desert.
- theoreticalmal 2y ago
  Probably any land the federal government would be okay selling to developers is also land that no developers would have the capital or physical ability to improve to the point of being valuable. Most of Nevada is federal land. Almost no one wants to live on it.
  - sroussey 2y ago
    The major of Los Vegas says otherwise. https://www.reviewjournal.com/opinion/commentary-government-must-release-more-clark-county-land-for-productive-purposes-3060926/amp/ https://www.reviewjournal.com/opinion/commentary-government-...
treis 2y ago
>And I realized that to call these businesses “homebuilders” is misleading. It’s striking how little of their business has to do with, well, building. For instance, here’s D.R. Horton in 2023: “Substantially all of our land development and home construction work is performed by subcontractors.” Here’s Lennar in 2023: “We use independent subcontractors for most aspects of land development and home construction.” I suspect most of the other big guys would say something similar. These aren’t builders, they are financiers that borrow cheaper than real developers and use that cheap credit to speculate in land, hiring contractors to do the work. They are, in other words, middlemen. This is pretty far out there. They are the general contractor and have substantial value add to the project. Most of the rest of the article is misunderstandings like that.
- schlauerfox 2y ago
  Don't forget the Lennar tax they impose permanently on the land deed (runs with the land) they sell you you pay each transfer. https://labusinessjournal.com/news/lennar-forces-donation-on-homebuyers/ https://labusinessjournal.com/news/lennar-forces-donation-on...
  - burnte 2y ago
    Never heard of this, and I'm glad I know now. I'm putting this right under HOAs as things to avoid at all costs.
- vundercind 2y ago
  The structure of neighborhoods I’ve seen pop up in the last couple decades (maybe also earlier, I dunno) is that of a neighborhood developer who farms out the work of building the houses to (usually) a few select other firms, which do the actual GC work and sell the houses, having bought the lots they’re building on from the owner of the neighborhood. The neighborhood developer is mostly in land speculation, they don’t GC the building of houses. IDK if such outfits bill themselves as “home builders” in some contexts, but it wouldn’t surprise me.
  - allturtles 2y ago
Aurornis 2y ago
I don't find this article very compelling. The core argument comes from a single 2018 paper from a single author who used IV regressions to claim that increased consolidation of homebuilders is consistent with a reduced amount of new construction. The argument in this article is that small homebuilders got caught in the credit crunch and had to flip their lots to the mega builders, who maintained access to capital and credit that the small players didn't have. So now the big players are hoarding land and not building on it to control the market. I can believe that a credit crunch has cooled the construction market. Nothing about that would be surprising. I have a harder time believing that the major home builders have bought up so much land that nobody else can build anything, leaving them to control the market price of houses by artificially limiting supply. Anecdotally, the most expensive housing markets are in cities where most of the buildable land has already been used by something. This is where these supposed land-hoarding mega builders would have the least influence. In my experience there are a lot of affordable houses being built in smaller cities and in the outskirts of major cities, but the demand just isn't there. More people want to live in dense and desirable locations and they're willing to pay a premium for it.
lapcat 2y ago
One of the worst aspect of these big home builders is that they impose homeowners associations on all of their new homes. It's difficult to find new homes free of HOAs.
- pdonis 2y ago
  I think this is at least partly driven by the locality (city or county) wanting more property taxes from the new homes. In a city near me, there have been five new subdivisions approved in the past few years, all of which have not only HOAs but CDDs, which are basically extra property taxes (ostensibly to fund the building of more amenities in these communities like pools and community centers) that get split between the developer and the city/county until the community is fully built out, and then the city continues to collect them for an additional period that, I believe, is something like 30 years. The city/county required the HOA/CDD setup as a condition for the subdivisions to be developed.
gist 2y ago
Can't afford 'high' prices? Work harder spend less time on play or leisure pursuits. Realize maybe you should have studied harder in high school or picked a career based on earnings rather than 'what you enjoyed'. While this doesn't cover all situations for sure it does cover many 'whiners' who wish things were just easier for them 'because they should be and that's why'. Not everyone can 'win' and the people who try harder often win more. And of course don't forget 'luck'. It plays a large part as well. And guess what? Many of those people who win actually worked harder and weren't born or inherited and are from disadvantaged groups. Nobody wants to think that. Everyone thinks the other person has an edge 'and if I just had that edge things would be fine for me'. (My father came to this country with nothing. My mother grew up and her father died back when there was no social safety net. All the children went to work. And yes because of that and in addition to my personal hard work and attention to school things are better for me for sure.) We have a DR Horton home. It's really nice and well built. They deserve to make money.
xt00 2y ago
If the companies that are holding land are able to maintain steady profits with minimal competition, then the logical approach is to say we should incentivize them to build on the land, make improvements etc now to ideally decrease the value of the existing land to make it more affordable to people. So could you essentially say "if you own more than 20 properties that are not owner occupied, you have to pay a tax.. but if you sell the house, you get some large chunk of the tax money back".. something that should encourage the big builders to build something and to sell it -- not to build and potentially rent it out -- which is in many cases the most expensive type of house to rent.
- JackYoustra 2y ago
  Changing financing doesn't actually change underlying affordability. If your distinction is "rent vs own" and you ban doing it primarily you're either going to have pretty miserable housing outcomes or essentially shadow mortgages. As well as push things to subletting or force people to stay in one place for most of their life.
iambateman 2y ago
Housing can’t be both a good investment AND affordable. As a kid, I was told that my house was a good investment and the houses rise in value overtime. Now, I own two houses which of both appreciated by about 9% per year for a decade. We agree there is a problem. But I doubt the premise that land hoarding is the key issue. It seems to me that everyone wants to live in a 3,500 square foot detached house near the city. But only so much of that exists. At least one major reason is that neighborhoods actively fight the installation of semi-dense housing because it would “ruin the character of the neighborhood.” This gets encoded in zoning. The people who have most power over local zoning regulations are neighborhood boards, not home builders.
- vundercind 2y ago
  Poorer kids tend to be harder to teach. School “quality” largely measures how easy-to-teach the kids are. School quality plays a huge role in home value. That and related factors (likelihood to commit crimes of the sort that affect home values, say) are a lot of why communities try to keep affordable housing away. High prices are your buy-in to good schools if you can’t afford good private schools. Once you’ve bought in at a price inflated by school quality, you definitely don’t want to see that slip or there goes all the money you spent (maybe literally all of it—I’ve seen premiums for “good” versus “just ok” districts near one another that are well into the levels of mortgage down payments—20%, 30%)
BenFranklin100 2y ago
This Matt Stoller guy paints a misleading picture of the dynamics of what is to be in the industry. I grew up in the housing industry as the son of a homebuilder. Not to date myself, but I wrote what was probably one of the first cost accounting spreadsheets on the nascent PC of the day using VisiCalc. The spreadsheet took into account all costs associated with building a starter single family home, including land acquisition, financing, municipal fees, material, and labor costs, I.e. everything one one need to run a successful business as a home builder. I know this industry intimately. Yes, Stoller is correct it’s harder to be a small (i.e. 10-20 homes per year) home builder than it was 40 years ago. But it’s not due to some conspiracy. It’s because the local zoning has become much more arcane and the red tape so Byzantine that the little guys have been effectively pushed out. For instance, you need a full time staff person to negotiate with your local ZBA (Zoning Board Association) to get permission to get something built. Beyond the direct costs, the delays and uncertainties are killer as they eat into your profits. (The gross margin is slim, somewhere between 10-20% on a home for a small time builder. I know - I wrote the damn spreadsheet that calculated it.) As a consequence of all these regulations, only the big builders can afford to absorb and amortize these costs over tens to hundreds of homes. Of course, this also means the big guys still need a fatter profit to to deal with zoning hurdles, long time frames, uncertainties, and what have you, thus margins need to be higher on average even for them. This is what is going on. Not some monopolistic conspiracy. I looked Stoller up. Here’s the Wiki: https://en.wikipedia.org/wiki/Matt_Stoller https://en.wikipedia.org/wiki/Matt_Stoller His gig is railing against monopolies. The housing industry is just another nail for his one-size fits all monopolistic hammer explanations. The real culprit here actually is a cartel ironically. But this cartel is made up of homeowners who flex their power through local zoning codes that make it near impossible to build new homes, especially apartments. TLDR: In other words, the YIMBYs are right: the problem is zoning restrictions on new supply. Reform zoning and small time home builders will be back with a gusto.
- kjkjadksj 2y ago
  Right after the war my grandfather and his brothers built probably 8 homes as a little business before finding other work. They did it all themselves. The plans, the building, wiring, plumbing, everything. Part of the issue is that the big guys have pushed out players like this. But another part of the issue is the onerous code process in place today. Could you even get a few guys together to build a home without having a certified electrician or engineer? And even if you could, does the present generation of able bodied workers even have the knowhow as my grandparents generation? The guy would spend all the time I waste on TV or the internet working out projects and plans until the day he passed practically. Seems present generations are a bit distracted by the digital world to pick up so many useful analog skills.
jmyeet 2y ago
So you see a problem like this and your reaction generally falls into one of three buckets: 1. There is no problem. This is working as intended. Everything is fine; 2. There are a few bad apples on an otherwise good and functioning system; or 3. The entire system is fundamentally broken. To blame the "homebuilder cartel" sounds very much like (2) to me. My view is that the entire system is broken and it goes back to enclosures and private property borne from capitalism and liberalism, respectively. Liberalism is the deification of individualism, implicitly rejecting any sort of collectivism. A key pillar is the idea of private property, that is the ability to acquire and maintain a state-backed exclusive use of land well beyond your personal needs. Capitalism is really the evolution of feudalism and the origins were in England with the Enclosure Acts [1]. These transformed land use for grazing by all to people having exclusive use thereof. You might hear as a counterargument things like "the tragedy of the commons". Interestingly, this term originated in 1968, some 350+ years later. I bring this up because when I see people hoarding land and people voting out of narrow short-term self-interest to restrict supply and reduce housing in order to increase housing costs, I don't necessarily see that as a failure of government or the fault of a few bad actors. I see it as inevitable given our economic system. So much of history can be viewed as simply a land grab. I don't expect our economic system to change anytime soon but the governmentr can do a lot to alleviate this. At a minimum: 1. Ban single-family house zoning in urban areas. Multi-family units should be legal anywhere within city limits; 2. Stop subsidizing suburban expansion to the degree we do by building roads to a ridiculous degree; 3. Build public transit infrastructure. For the successfully-propagandized Americans who will fight this because "it'll raise our taxes", people on trains will make it faster and more convenient for you to drive. Literally everyone benefits. 4. Punitive taxes on non-prrimary residences (ie investment properties, second/vacation homes); and 5. Get rid of tax breaks for home buying. I have zero confidence any of this will happen. [1]: https://www.thecollector.com/what-were-the-enclosure-acts/ https://www.thecollector.com/what-were-the-enclosure-acts/
daft_pink 2y ago
I’m just not sure about this article. To me, it seems like these large homebuilders can only efficiently operate in tract housing so if you want to live in the middle of nowhere and have total uncertainty regarding the quality of the neighborhood that you live in and quality of the schools, etc because they just built it and pay through the nose for a brand new home, you can buy into tract housing, but I think many people want to live in established neighborhoods, where newly built homes are custom built and they mostly aren’t built by these new companies or they have to build large condos or apartments, because that’s the only way to efficiently add large numbers of units. High housing prices are the result of the fact that most people purchase used homes, because the risk of purchasing a used home in an established neighborhood is simply lower and there just aren’t that many used homes, because people want to live in established neighborhoods.
anon291 2y ago
We need to make it so that most neighborhoods are developed by homebuyers rather than large conglomerates. My 1920s streetcar suburb was platted by the original farmer/owner and then sold off in lots. Today, this would be illegal / cost-prohibitive. It also leads to nicer / more varied neighborhoods where people actually own their land. Instead of yet another branded neighborhood where everything looks the same and the HOA board thinks too highly of themselves
- tootie 2y ago
  That's a pretty good formula for unsustainable sprawl.
  - anon291 2y ago
    Except.. that is not what happened when we actually did that. If anything, the neighborhoods are denser, and more walkable.
quantified 2y ago
Having a stable, rather than growing, population would go along way to reducing the price of housing. Competition would be much reduced.
- kjkjadksj 2y ago
  Population growth has slowed substantially in high demand cities. Honestly when looking at historical charts, prices were better when cities grew hand over fist. There was enough development to meet growth and also prevent much price growth beyond what wages could afford. Today there is little growth, and prices have surged as a result of that limited supply being bid up.
  - quantified 2y ago
    If we froze the population level and all the people try to move to the same place, it'll bid up the prices. But growing the total supply of humans only causes additional pressure.

140 points by nth_degree 2y ago

Cornering the market, or a sufficiently large portion of it, doesn't necessarily drive prices higher. Demand plus cheap credit (and Wall Street shenanigans) are at least as much to blame.

JumpCrisscross 2y ago
> Demand plus cheap credit (and Wall Street shenanigans) This is unfalsifiable voodoo. It can be used to describe practically any economic phenomenon.
the_gastropod 2y ago
Interest rates tripled in the past few years, and home prices continued their upward march throughout most of the U.S. Do you mean something else by "cheap credit"?
- sroussey 2y ago
  Tripled from a hundred year low. Kinda normal to mildly low still. Prices are up since people did 30yr mortgages at obscenely low rates, and don’t sell/move in order to keep them. That group will eventually rotate out. Ironically, somewhat lower rates will cause a housing price decline.
sirspacey 2y ago
Unless you are willing to hold the asset at 40% occupancy without changing prices because preserving the on paper value is more important than profiting from rent. Then you get New York City.
dan-robertson 2y ago
This is maybe a stupid question, but if credit is cheap, shouldn’t it be easier to finance a housebuilding operation? In the very low interest rates from say 2008-2020, I think we saw less housebuilding in the United States than before.

JumpCrisscross 2y ago

Have there been serious attempts at describing how a Georgist land tax would appraise the value of the land?

kaibee 2y ago
Yes, its pretty straight forward and there are many countries who already do it. https://www.astralcodexten.com/p/does-georgism-work-part-3-can-unimproved?utm_source=url https://www.astralcodexten.com/p/does-georgism-work-part-3-c...

smallmancontrov 2y ago

The mistake made by Georgism is to assume that rent extraction is a bug. It's not. The economy is literally owned by rich people -- that's what capitalism is -- so rich peoples' opinion is the one that counts, and rich people want to get paid for being rich. Rent extraction is a feature not a bug. Georgism will never see political success due to this misunderstanding of political economy.

xnx 2y ago

No shortage of land in the US, but everyone wants to live in the same few places (for good reason), and those places have a lot of restrictions on what can be built where. It's satisfying to blame a big bad "them" for this, but the problem is "us". We all want our properties to increase in value so we collectively conspire to suppress supply that would make our properties less valuable.

deleted 2y ago
[deleted]
netbioserror 2y ago
Land and homes also make for excellent inflation hedges; thus, property owners become advocates for money printing and suppressed interest rates.
lapcat 2y ago
> No shortage of land in the US, but everyone wants to live in the same few places It's not enough to have land, though. The land needs access to water and electricity, not to mention roads, or it's a nonstarter, especially if you want to build a bunch of homes on the land. And the new homeowners will need access to food and supplies, i.e., stores. You need an entire community.
- kaibee 2y ago
  The neat thing about capitalism is that stores will be built to serve the community if there's a market for it. We don't need to centrally plan the whole community up front. We do need zoning laws that ALLOW those stores to be built though.
  - toomuchtodo 2y ago
    This is not borne out by the evidence. https://www.ruralhealthinfo.org/topics/food-and-hunger https://www.ruralhealthinfo.org/topics/food-and-hunger https://www.propublica.org/article/food-desert-grocery-store-cairo-illinois https://www.propublica.org/article/food-desert-grocery-store...

dachworker 2y ago

So basically, if you're an individual, or a contractor who reinvests their earnings into the housing market, you face two challenges: getting competitive financing, and finding a plot of land to build on. Question: is finance screwing up capitalism? Real estate is supposed to be one of the most competitive and dynamic markets. If you can turn even this very simple and basic market into a quasi-monopoly, then there is something fundamentally wrong with the whole economy. And it seems all fingers point to Wall Street.

lotsofpulp 2y ago
Real estate is not competitive nor dynamic because of the disproportionately low property (specifically land value) tax that property owners pay relative to the utility they get from society (police/military and courts to protect their land as well as myriad other policies that ensure a stable society). Simply hoarding land should not be profitable, and yet it is one of the most profitable businesses because of subsidies (too low property taxes, 1031 exchange, various “farming” and other exemptions).
kjkjadksj 2y ago
You don’t have to be the sole investor. Say you can afford to invest $10k. You could try and find a 2k plot to put a 8k garden shed on. Or you can put that 10k in a REIT and get a gain.

23B1 2y ago

Absent from this article: - Financing requirements & anticompetitive lending practices - Municipal/state building codes and the regulatory capture thereof - NIMBYism and activist urban planners - The tyranny of the commute

crooked-v 2y ago

Overconsolidating is bad, but the article's chain of logic falls apart for me because it doesn't actually make any connection to indicate that these companies wouldn't make even more money by building more homes, while ignoring that local permitting and approval process have gotten ever more pricey and complicated over even just the past two decades. For the extreme example, take a look at San Francisco, which has approved a grand total of 16 housing units so far this year (https://www.newsweek.com/san-francisco-only-agreed-build-16-homes-this-year-1907831 https://www.newsweek.com/san-francisco-only-agreed-build-16-...). Only a tiny margin of ultra-high-price housing can even be sustainable, let alone profitable, in that environment.

kaibee 2y ago
> because it doesn't actually make any connection to indicate that these companies wouldn't make even more money by building more homes, I think it comes down to risk, effort, and available labor/resources. If it costs them nothing to hold the land and build only when they're very sure that the building will be profitable, then that's what they'll do. But once they have the whole construction side working on projects... if there's capital left over... why not buy up more land in the mean time? It makes it harder for your competition to build while you work through your backlog and it costs you basically nothing.

nnf 2y ago

> tax the land of lot developers so they don’t hold land off the market. This is something I dealt with a few years ago. There were a few acreage lots (5-15 acres) my partner and I were considering buying and building a house on, and all of them had been in the $200k range a year or two before but had been bought by land speculators (in some cases by the same person). Prices went from ~$200k to ~$750k, which we weren't interested in. Most of them sold. One of the larger lots was around $350k and is still for sale, now for almost $2 million. I don't think developers should be forced to sell land just because I want to buy it, but the taxes they pay on their empty lots is extremely low. I checked on a couple of the ~$750k lots, and the taxes were something like $115 per year. At that rate, it costs the developer/speculator basically nothing to hold onto it while prices rise. If lots like this were taxed at, say, 20x the current rate for lots that are near areas that are being built up and are ready to be bought, then there would be a stronger incentive for the owners to sell to people who are ready to build and start paying property taxes. It seems like such an increase would benefit everyone except the speculators.

lotsofpulp 2y ago
> It seems like such an increase would benefit everyone except the speculators. Correct, a simple power law tax formula on unimproved/vacant land that forever increases the cost to hold onto land near and in the middle of population centers would do wonders.
- kaibee 2y ago
  Really we just need a Land Value Tax. https://www.investopedia.com/terms/l/land-value-tax.asp https://www.investopedia.com/terms/l/land-value-tax.asp
theoreticalmal 2y ago
This seems a lot like a tax on unrealized gains. You’re taxing something that might have value in the future, rather than it’s actual value now.
- lotsofpulp 2y ago

tigen 2y ago

This paragraph looks wrong. "In 2005, when D.R. Horton sold a record number of homes, it made $1.47 billion. In 2023, when it built roughly half as many, its profit was a little over three times as high, or $4.7 billion. " It did not build half as many homes, it was 82917 homes in 2023 vs. 51172 in 2005. Also, the profit number should be corrected for inflation when comparing across almost 2 decades.

mulmen 2y ago
1.47 billion 2005 dollars is 2.29 billion 2023 dollars. Profit per house in 2023 dollars: $44,751.04 in 2005 $56,683.19 in 2023
- biomcgary 2y ago
  Thanks for doing this calculation! It would be interesting to know if the average square footage of houses built by the company has changed. If they have increased by 25%, the profit per square foot would be roughly unchanged.
  - mulmen 2y ago
    Maybe. I’m not a domain expert so I’m not sure that’s a meaningful metric, especially at this scale. But in general I think anyone would be happy if their business improved units sold and per unit profit. Naively I’d expect an inverse relationship.
  - 1659447091 2y ago
    D.R.Horton home sizes have remained mostly consistent for the past 20+ years that I am aware of* * My family worked with home builder marketing departments, and I use to enjoy seeing home & price progression in the area over the years (D.R. Horton has been and is, mostly 1200-2200sqft with a few going past that on either end). One of my many issues with this article is making the mass production builder into a bad guy. D.R. Horton IS the "Starter Home" builder, few other builders can compete for that market because the cost and time it takes to build. It's why local small builders tend to build higher quality homes, they only have the resources (money for permits, legal etc and manpower) for a few houses a year. If the profit on a home is $55k with all the marketing and construction bulk prices DRHorton gets, whats that profit for the 2-4 homes a year local builder this guy wants to replace them with? Probably not much to want to keep doing the job; always on the verge of financial collapse if 2008 happens again (many small home builders disappeared and did not come back. I dont think many people want that kind of risk to start up again). If we wait for small local builders to build homes we would be in a far worse situation than we are now. I had the opportunity to talk, in length, to the owner/CEO of a mid-sized builder who had to sell the remaining lots from one of three communities because he couldn't keep the prices within: both a price that they would sell and price to make a profit (or break-even); the shortage of construction workers and regulatory delays and cost were a large drain on resources. It had nothing to do with having land or needing to buy land, he already had, it was simply taking too long to get through the building process. Not sure if home builders are still doing it, but many in the area were working together to try and get high-school students into construction apprenticeship/vocation programs to make up for the shortage.

tamimio 2y ago

Fun fact: About 89% of Canada's land area (8,886,356 km² or 3,431,041 sq mi) is Crown land: 41% is federal Crown land and 48% is provincial Crown land. The remaining 11% is privately owned. For example, 92% of Quebec, 87% of Ontario, 95% of Newfoundland and Labrador, and 94% of the land in British Columbia are Crown land. So when you “buy” land, you actually become a tenant to the Crown. If you don’t pay the property taxes, “your” property can be registered for sale. The laws around properties in Canada are extremely complicated and stupid. A friend of mine, after building their house and wanting to connect the sewer to the municipal one, was required to pay more than $50k! After 2 years, they ended up having a septic tank instead. Unfortunately, there’s no hope to fix the housing issue in a democratic way because the majority of the voters are landlords. The only possible solution is like Japan (where houses are depreciated assets) by having centralized control over housing, zoning, permits, and everything to maintain a flat price. Other than that, the future is grim for young people or anyone who doesn’t already own a house. I remember a year ago I saw a mortgage here in Canada of 70 years, so if you bought a house at 30, you will become a Crown tenant by 100! (1) https://en.m.wikipedia.org/wiki/Crown_land https://en.m.wikipedia.org/wiki/Crown_land

b112 2y ago
Wildly inaccurate. No one owns crown land, if you buy land, that's "privately owned" If you don't pay property tax, eg you are in arrears, your land is seized and sold to pay your debt. Again, that has nothing to do with crown land.
aorloff 2y ago
If you don't pay property taxes for long enough (usually 5 years) in the US, typically your property will be auctioned off at a county tax sale (assuming your lender hasn't paid the taxes and foreclosed first).

delichon 2y ago

Nearly 40% of the United States is public land, supported by taxpayers and managed by federal, state, or local governments. -- https://headwaterseconomics.org/public-lands/protected-lands/public-land-ownership-in-the-us/ Allocating a few more percentage points of that for housing could have a large effect on prices.

warkdarrior 2y ago
Yes, and nobody wants to live there.
- delichon 2y ago
  Look at a digital U.S. map with a private / public land overlay and zoom in on the satellite images. It quickly becomes clear that people will live wherever they are allowed to. Sometimes the population stays low and sometimes bare desert turns into the Las Vegas metropolitan area.
  - jjav 2y ago
    > It quickly becomes clear that people will live wherever they are allowed to. Doesn't seem to be true. You can buy land in e.g. Nevada for less than $1000 per acre, but it sits empty because approximately nobody wants to live in the middle of the desert.
theoreticalmal 2y ago
Probably any land the federal government would be okay selling to developers is also land that no developers would have the capital or physical ability to improve to the point of being valuable. Most of Nevada is federal land. Almost no one wants to live on it.
- sroussey 2y ago
  The major of Los Vegas says otherwise. https://www.reviewjournal.com/opinion/commentary-government-must-release-more-clark-county-land-for-productive-purposes-3060926/amp/ https://www.reviewjournal.com/opinion/commentary-government-...

treis 2y ago

>And I realized that to call these businesses “homebuilders” is misleading. It’s striking how little of their business has to do with, well, building. For instance, here’s D.R. Horton in 2023: “Substantially all of our land development and home construction work is performed by subcontractors.” Here’s Lennar in 2023: “We use independent subcontractors for most aspects of land development and home construction.” I suspect most of the other big guys would say something similar. These aren’t builders, they are financiers that borrow cheaper than real developers and use that cheap credit to speculate in land, hiring contractors to do the work. They are, in other words, middlemen. This is pretty far out there. They are the general contractor and have substantial value add to the project. Most of the rest of the article is misunderstandings like that.

schlauerfox 2y ago
Don't forget the Lennar tax they impose permanently on the land deed (runs with the land) they sell you you pay each transfer. https://labusinessjournal.com/news/lennar-forces-donation-on-homebuyers/ https://labusinessjournal.com/news/lennar-forces-donation-on...
- burnte 2y ago
  Never heard of this, and I'm glad I know now. I'm putting this right under HOAs as things to avoid at all costs.
vundercind 2y ago
The structure of neighborhoods I’ve seen pop up in the last couple decades (maybe also earlier, I dunno) is that of a neighborhood developer who farms out the work of building the houses to (usually) a few select other firms, which do the actual GC work and sell the houses, having bought the lots they’re building on from the owner of the neighborhood. The neighborhood developer is mostly in land speculation, they don’t GC the building of houses. IDK if such outfits bill themselves as “home builders” in some contexts, but it wouldn’t surprise me.
- allturtles 2y ago

Aurornis 2y ago

I don't find this article very compelling. The core argument comes from a single 2018 paper from a single author who used IV regressions to claim that increased consolidation of homebuilders is consistent with a reduced amount of new construction. The argument in this article is that small homebuilders got caught in the credit crunch and had to flip their lots to the mega builders, who maintained access to capital and credit that the small players didn't have. So now the big players are hoarding land and not building on it to control the market. I can believe that a credit crunch has cooled the construction market. Nothing about that would be surprising. I have a harder time believing that the major home builders have bought up so much land that nobody else can build anything, leaving them to control the market price of houses by artificially limiting supply. Anecdotally, the most expensive housing markets are in cities where most of the buildable land has already been used by something. This is where these supposed land-hoarding mega builders would have the least influence. In my experience there are a lot of affordable houses being built in smaller cities and in the outskirts of major cities, but the demand just isn't there. More people want to live in dense and desirable locations and they're willing to pay a premium for it.

lapcat 2y ago

One of the worst aspect of these big home builders is that they impose homeowners associations on all of their new homes. It's difficult to find new homes free of HOAs.

pdonis 2y ago
I think this is at least partly driven by the locality (city or county) wanting more property taxes from the new homes. In a city near me, there have been five new subdivisions approved in the past few years, all of which have not only HOAs but CDDs, which are basically extra property taxes (ostensibly to fund the building of more amenities in these communities like pools and community centers) that get split between the developer and the city/county until the community is fully built out, and then the city continues to collect them for an additional period that, I believe, is something like 30 years. The city/county required the HOA/CDD setup as a condition for the subdivisions to be developed.

gist 2y ago

Can't afford 'high' prices? Work harder spend less time on play or leisure pursuits. Realize maybe you should have studied harder in high school or picked a career based on earnings rather than 'what you enjoyed'. While this doesn't cover all situations for sure it does cover many 'whiners' who wish things were just easier for them 'because they should be and that's why'. Not everyone can 'win' and the people who try harder often win more. And of course don't forget 'luck'. It plays a large part as well. And guess what? Many of those people who win actually worked harder and weren't born or inherited and are from disadvantaged groups. Nobody wants to think that. Everyone thinks the other person has an edge 'and if I just had that edge things would be fine for me'. (My father came to this country with nothing. My mother grew up and her father died back when there was no social safety net. All the children went to work. And yes because of that and in addition to my personal hard work and attention to school things are better for me for sure.) We have a DR Horton home. It's really nice and well built. They deserve to make money.

xt00 2y ago

If the companies that are holding land are able to maintain steady profits with minimal competition, then the logical approach is to say we should incentivize them to build on the land, make improvements etc now to ideally decrease the value of the existing land to make it more affordable to people. So could you essentially say "if you own more than 20 properties that are not owner occupied, you have to pay a tax.. but if you sell the house, you get some large chunk of the tax money back".. something that should encourage the big builders to build something and to sell it -- not to build and potentially rent it out -- which is in many cases the most expensive type of house to rent.

JackYoustra 2y ago
Changing financing doesn't actually change underlying affordability. If your distinction is "rent vs own" and you ban doing it primarily you're either going to have pretty miserable housing outcomes or essentially shadow mortgages. As well as push things to subletting or force people to stay in one place for most of their life.

iambateman 2y ago

Housing can’t be both a good investment AND affordable. As a kid, I was told that my house was a good investment and the houses rise in value overtime. Now, I own two houses which of both appreciated by about 9% per year for a decade. We agree there is a problem. But I doubt the premise that land hoarding is the key issue. It seems to me that everyone wants to live in a 3,500 square foot detached house near the city. But only so much of that exists. At least one major reason is that neighborhoods actively fight the installation of semi-dense housing because it would “ruin the character of the neighborhood.” This gets encoded in zoning. The people who have most power over local zoning regulations are neighborhood boards, not home builders.

vundercind 2y ago
Poorer kids tend to be harder to teach. School “quality” largely measures how easy-to-teach the kids are. School quality plays a huge role in home value. That and related factors (likelihood to commit crimes of the sort that affect home values, say) are a lot of why communities try to keep affordable housing away. High prices are your buy-in to good schools if you can’t afford good private schools. Once you’ve bought in at a price inflated by school quality, you definitely don’t want to see that slip or there goes all the money you spent (maybe literally all of it—I’ve seen premiums for “good” versus “just ok” districts near one another that are well into the levels of mortgage down payments—20%, 30%)

BenFranklin100 2y ago

This Matt Stoller guy paints a misleading picture of the dynamics of what is to be in the industry. I grew up in the housing industry as the son of a homebuilder. Not to date myself, but I wrote what was probably one of the first cost accounting spreadsheets on the nascent PC of the day using VisiCalc. The spreadsheet took into account all costs associated with building a starter single family home, including land acquisition, financing, municipal fees, material, and labor costs, I.e. everything one one need to run a successful business as a home builder. I know this industry intimately. Yes, Stoller is correct it’s harder to be a small (i.e. 10-20 homes per year) home builder than it was 40 years ago. But it’s not due to some conspiracy. It’s because the local zoning has become much more arcane and the red tape so Byzantine that the little guys have been effectively pushed out. For instance, you need a full time staff person to negotiate with your local ZBA (Zoning Board Association) to get permission to get something built. Beyond the direct costs, the delays and uncertainties are killer as they eat into your profits. (The gross margin is slim, somewhere between 10-20% on a home for a small time builder. I know - I wrote the damn spreadsheet that calculated it.) As a consequence of all these regulations, only the big builders can afford to absorb and amortize these costs over tens to hundreds of homes. Of course, this also means the big guys still need a fatter profit to to deal with zoning hurdles, long time frames, uncertainties, and what have you, thus margins need to be higher on average even for them. This is what is going on. Not some monopolistic conspiracy. I looked Stoller up. Here’s the Wiki: https://en.wikipedia.org/wiki/Matt_Stoller https://en.wikipedia.org/wiki/Matt_Stoller His gig is railing against monopolies. The housing industry is just another nail for his one-size fits all monopolistic hammer explanations. The real culprit here actually is a cartel ironically. But this cartel is made up of homeowners who flex their power through local zoning codes that make it near impossible to build new homes, especially apartments. TLDR: In other words, the YIMBYs are right: the problem is zoning restrictions on new supply. Reform zoning and small time home builders will be back with a gusto.

kjkjadksj 2y ago
Right after the war my grandfather and his brothers built probably 8 homes as a little business before finding other work. They did it all themselves. The plans, the building, wiring, plumbing, everything. Part of the issue is that the big guys have pushed out players like this. But another part of the issue is the onerous code process in place today. Could you even get a few guys together to build a home without having a certified electrician or engineer? And even if you could, does the present generation of able bodied workers even have the knowhow as my grandparents generation? The guy would spend all the time I waste on TV or the internet working out projects and plans until the day he passed practically. Seems present generations are a bit distracted by the digital world to pick up so many useful analog skills.

jmyeet 2y ago

So you see a problem like this and your reaction generally falls into one of three buckets: 1. There is no problem. This is working as intended. Everything is fine; 2. There are a few bad apples on an otherwise good and functioning system; or 3. The entire system is fundamentally broken. To blame the "homebuilder cartel" sounds very much like (2) to me. My view is that the entire system is broken and it goes back to enclosures and private property borne from capitalism and liberalism, respectively. Liberalism is the deification of individualism, implicitly rejecting any sort of collectivism. A key pillar is the idea of private property, that is the ability to acquire and maintain a state-backed exclusive use of land well beyond your personal needs. Capitalism is really the evolution of feudalism and the origins were in England with the Enclosure Acts [1]. These transformed land use for grazing by all to people having exclusive use thereof. You might hear as a counterargument things like "the tragedy of the commons". Interestingly, this term originated in 1968, some 350+ years later. I bring this up because when I see people hoarding land and people voting out of narrow short-term self-interest to restrict supply and reduce housing in order to increase housing costs, I don't necessarily see that as a failure of government or the fault of a few bad actors. I see it as inevitable given our economic system. So much of history can be viewed as simply a land grab. I don't expect our economic system to change anytime soon but the governmentr can do a lot to alleviate this. At a minimum: 1. Ban single-family house zoning in urban areas. Multi-family units should be legal anywhere within city limits; 2. Stop subsidizing suburban expansion to the degree we do by building roads to a ridiculous degree; 3. Build public transit infrastructure. For the successfully-propagandized Americans who will fight this because "it'll raise our taxes", people on trains will make it faster and more convenient for you to drive. Literally everyone benefits. 4. Punitive taxes on non-prrimary residences (ie investment properties, second/vacation homes); and 5. Get rid of tax breaks for home buying. I have zero confidence any of this will happen. [1]: https://www.thecollector.com/what-were-the-enclosure-acts/ https://www.thecollector.com/what-were-the-enclosure-acts/

daft_pink 2y ago

I’m just not sure about this article. To me, it seems like these large homebuilders can only efficiently operate in tract housing so if you want to live in the middle of nowhere and have total uncertainty regarding the quality of the neighborhood that you live in and quality of the schools, etc because they just built it and pay through the nose for a brand new home, you can buy into tract housing, but I think many people want to live in established neighborhoods, where newly built homes are custom built and they mostly aren’t built by these new companies or they have to build large condos or apartments, because that’s the only way to efficiently add large numbers of units. High housing prices are the result of the fact that most people purchase used homes, because the risk of purchasing a used home in an established neighborhood is simply lower and there just aren’t that many used homes, because people want to live in established neighborhoods.

anon291 2y ago

We need to make it so that most neighborhoods are developed by homebuyers rather than large conglomerates. My 1920s streetcar suburb was platted by the original farmer/owner and then sold off in lots. Today, this would be illegal / cost-prohibitive. It also leads to nicer / more varied neighborhoods where people actually own their land. Instead of yet another branded neighborhood where everything looks the same and the HOA board thinks too highly of themselves

tootie 2y ago
That's a pretty good formula for unsustainable sprawl.
- anon291 2y ago
  Except.. that is not what happened when we actually did that. If anything, the neighborhoods are denser, and more walkable.

quantified 2y ago

Having a stable, rather than growing, population would go along way to reducing the price of housing. Competition would be much reduced.

kjkjadksj 2y ago
Population growth has slowed substantially in high demand cities. Honestly when looking at historical charts, prices were better when cities grew hand over fist. There was enough development to meet growth and also prevent much price growth beyond what wages could afford. Today there is little growth, and prices have surged as a result of that limited supply being bid up.
- quantified 2y ago
  If we froze the population level and all the people try to move to the same place, it'll bid up the prices. But growing the total supply of humans only causes additional pressure.