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My very much European country has been building like crazy for the past two decades. Real estate still shot up in lockstep with the rest of the world because yo

by Tade0 2y ago

My very much European country has been building like crazy for the past two decades. Real estate still shot up in lockstep with the rest of the world because you can't and you won't build faster than people who see homes chiefly as an investment buy property. It got to a point where construction isn't even really providing housing, because the units are unusable for regular people. There's an apartment block of just studios in my neighborhood which are not up to code (too small) but were grandfathered in as construction started before it changed. The change was enacted so that developers would stop making such useless buildings. China built enough to house its entire population twice over. Didn't help them keep housing affordable just how the price of gold goes up and down despite a steady increase in supply. We're well past the point where naive supply and demand is effective. There's infinite, induced demand.

trinix912 2y ago
The catch here is that the people who first get to buy that property usually already have tons of money and just use it as an investment, either to resell, rent it out, or use it for AirBnB & such. Solving that problem isn't very straightforward. Where I live, for example, the government has been debating taxing non-first properties up to 50% (the yearly real-estate tax). The idea of the proponents is to make it so unaffordable to own more than one property that people would stop buying it as an investment or sell off existing ones. But the issue is that the people who already own that estate (or have the money for more) would still be better off by just raising the rent to cover the increased tax instead of selling it. So it once again fails those who end up paying the rent. The only real solution seems to be government-funded developments with restrictions put in place on who can buy them, rent them out, etc. But to do that the government has to afford it somehow. They also need to put size minimums in place, otherwise we end up with the same just studios situation, which seems to be a thing with a lot of public-funded developments (perhaps because then the politicians can claim they "built X flats"?).
kortilla 2y ago
If those buildings are “useless”, how is the developer going to make money on it? That doesn’t pass a basic smell test. Your example about China is pretty bad. They moved most of their population into cities over the past 50 years by massively building housing and making it affordable to their middle class. Young people struggling to afford their own place in a tier 1 city in China is not evidence of it failing, it’s evidence of tenants being picky. China’s housing has also had several bust cycles where the prices came down. Government intervention and bailouts prevented it from being as obvious, but supply and demand most certainly work.
- roughly 2y ago
  > If those buildings are “useless”, how is the developer going to make money on it? That doesn’t pass a basic smell test. By selling them to someone else who intends to sell them to someone else, just like every other commodity on the market. Real estate as an investment is less a bet on rents and more a bet on land value.
  - actionfromafar 2y ago
    Which is why we need a land value tax.
  - kortilla 2y ago
    That’s some stupid shit. Nobody will pay money for it that can’t be supported by rent prices to float the mortgage. Think through stuff more before you post this.
    - roughly 2y ago
      If they expect the rate of return to exceed what they could get elsewhere, of course they will. Depending on what the investor expects to happen to land pricing, the math can pencil out just fine on letting an asset sit until someone's willing to pay enough for it. There's no deeper story here - invest X on the assumption it turns into Y, where Y is sufficiently larger than X to make it worthwhile. The fact that it's housing, as opposed to bonds, futures, paintings, crypto, whatever, is an interesting fact, but not really one that's relevant from a finance standpoint.
- Tade0 2y ago
  > That doesn’t pass a basic smell test. How do people make money on crypto? Just sell it to another sucker. I've seen listings titled "Sale! Ten studio apartments!" - someone was literally selling all of them in one go. Among the upper middle class around here it has become fashionable to have real estate investments - interestingly since recently also in Spain - because it's seen as a safe bet and, gradually, the default. As for China: over 70% of household wealth there is tied to real estate. Compare that to the US, where it's less than half of that and even if you assume pension funds pour all their money into real estate, it's still less. All those busts didn't decrease prices long term. Someone holding on to their housecoin through these cycles would still stand to gain.
Dylan16807 2y ago
> There's an apartment block of just studios in my neighborhood which are not up to code (too small) but were grandfathered in as construction started before it changed. The change was enacted so that developers would stop making such useless buildings. Apartments are expensive. Small apartments are great. How many square meters are you calling "too small"?
dumbledoren 2y ago
> Real estate still shot up in lockstep with the rest of the world because you can't and you won't build faster than people who see homes chiefly as an investment buy property. Yep. There is no way Europe can cope with the real estate bloat introduced by the American money escaping the US investment market because of the 'less than optimal' returns there. We are just ending up with gigantic bloat because the American investors are bringing in their bloated cash and parking it on European housing. Doing a quick arbitration at the cost of pushing Europeans to homelessness - not unlike what they did to the Americans in the US.
1propionyl 2y ago
> Real estate still shot up in lockstep with the rest of the world because you can't and you won't build faster than people who see homes chiefly as an investment buy property. Excellent put. The bitter pill underneath that though, would seem to be that we may need to reconsider to what extent real estate should be assumed to be an investment that always appreciates in value. Reconciling that with families very reasonably expecting to be able to build or maintain wealth through their largest lifetime purchases is... never going to be a pleasant discussion.

by Tade0 2y ago

trinix912 2y ago

The catch here is that the people who first get to buy that property usually already have tons of money and just use it as an investment, either to resell, rent it out, or use it for AirBnB & such. Solving that problem isn't very straightforward. Where I live, for example, the government has been debating taxing non-first properties up to 50% (the yearly real-estate tax). The idea of the proponents is to make it so unaffordable to own more than one property that people would stop buying it as an investment or sell off existing ones. But the issue is that the people who already own that estate (or have the money for more) would still be better off by just raising the rent to cover the increased tax instead of selling it. So it once again fails those who end up paying the rent. The only real solution seems to be government-funded developments with restrictions put in place on who can buy them, rent them out, etc. But to do that the government has to afford it somehow. They also need to put size minimums in place, otherwise we end up with the same just studios situation, which seems to be a thing with a lot of public-funded developments (perhaps because then the politicians can claim they "built X flats"?).

kortilla 2y ago

If those buildings are “useless”, how is the developer going to make money on it? That doesn’t pass a basic smell test. Your example about China is pretty bad. They moved most of their population into cities over the past 50 years by massively building housing and making it affordable to their middle class. Young people struggling to afford their own place in a tier 1 city in China is not evidence of it failing, it’s evidence of tenants being picky. China’s housing has also had several bust cycles where the prices came down. Government intervention and bailouts prevented it from being as obvious, but supply and demand most certainly work.

roughly 2y ago
> If those buildings are “useless”, how is the developer going to make money on it? That doesn’t pass a basic smell test. By selling them to someone else who intends to sell them to someone else, just like every other commodity on the market. Real estate as an investment is less a bet on rents and more a bet on land value.
- actionfromafar 2y ago
  Which is why we need a land value tax.
- kortilla 2y ago
  That’s some stupid shit. Nobody will pay money for it that can’t be supported by rent prices to float the mortgage. Think through stuff more before you post this.
  - roughly 2y ago
    If they expect the rate of return to exceed what they could get elsewhere, of course they will. Depending on what the investor expects to happen to land pricing, the math can pencil out just fine on letting an asset sit until someone's willing to pay enough for it. There's no deeper story here - invest X on the assumption it turns into Y, where Y is sufficiently larger than X to make it worthwhile. The fact that it's housing, as opposed to bonds, futures, paintings, crypto, whatever, is an interesting fact, but not really one that's relevant from a finance standpoint.
Tade0 2y ago
> That doesn’t pass a basic smell test. How do people make money on crypto? Just sell it to another sucker. I've seen listings titled "Sale! Ten studio apartments!" - someone was literally selling all of them in one go. Among the upper middle class around here it has become fashionable to have real estate investments - interestingly since recently also in Spain - because it's seen as a safe bet and, gradually, the default. As for China: over 70% of household wealth there is tied to real estate. Compare that to the US, where it's less than half of that and even if you assume pension funds pour all their money into real estate, it's still less. All those busts didn't decrease prices long term. Someone holding on to their housecoin through these cycles would still stand to gain.

Dylan16807 2y ago

> There's an apartment block of just studios in my neighborhood which are not up to code (too small) but were grandfathered in as construction started before it changed. The change was enacted so that developers would stop making such useless buildings. Apartments are expensive. Small apartments are great. How many square meters are you calling "too small"?

dumbledoren 2y ago

> Real estate still shot up in lockstep with the rest of the world because you can't and you won't build faster than people who see homes chiefly as an investment buy property. Yep. There is no way Europe can cope with the real estate bloat introduced by the American money escaping the US investment market because of the 'less than optimal' returns there. We are just ending up with gigantic bloat because the American investors are bringing in their bloated cash and parking it on European housing. Doing a quick arbitration at the cost of pushing Europeans to homelessness - not unlike what they did to the Americans in the US.

1propionyl 2y ago

> Real estate still shot up in lockstep with the rest of the world because you can't and you won't build faster than people who see homes chiefly as an investment buy property. Excellent put. The bitter pill underneath that though, would seem to be that we may need to reconsider to what extent real estate should be assumed to be an investment that always appreciates in value. Reconciling that with families very reasonably expecting to be able to build or maintain wealth through their largest lifetime purchases is... never going to be a pleasant discussion.