5 ms·

You're telling a just-so story, and you can tell because there isn't a simple schematic 1-2-3 story you can make from this about how these people exert control

by tptacek 10mo ago

You're telling a just-so story, and you can tell because there isn't a simple schematic 1-2-3 story you can make from this about how these people exert control over home prices. Words mean things; wielding scarcity requires you to control enough inventory to manipulate scarcity, and REITs and corporate buyers empirically don't. I get why people like telling stories like this: it suggests there's a single boogeyman that can be dispelled to solve the affordability problem without painstakingly goring people's oxes state-by-state and municipality-by-municipality. But it's a fantasy. If you can tell this story in simple step-by-step form, you will. I think you could tell a story about how a large corporate buyer clears out all the marginal buyers for some thin market like an individual subdivision or tranche of new construction housing in the Sun Belt. But I don't think you can tell a realistic story for them being "a huge driving force in setting and manipulating prices" across the whole market. I look forward to seeing your attempt, though.

observationist 10mo ago
I don't mean to convey that it's intentional. There's no conspiracy of cigar smoking financiers in tuxedos smoking cigars in dark rooms. It's just like the Carlin observation - there doesn't have to be a big conspiracy. They just know what's good for them. They behave accordingly. The do things that they can, and because those things are relatively new, it's a type of information asymmetry and policy / good intentions / competence arbitrage that we haven't had to cope with before. You might end up banning certain types of institutional participation in the housing market, because there's no way to protect against the negative consequences that doesn't have even worse consequences for either the participants or the population at large. It'll probably have to be arbitrary, and the cost will be a bunch of firms no longer get the opportunity to make a bunch of money by leveraging their resources in that way. And we see the influence and impact constantly, with outlandish asking prices being immediately met by institutions that have decided they want a particular property in a particular region. Or house prices being set to an outlandish level with no reduction in price over months and months on the market, because they can afford to sit and wait for the market to change. And if they can afford to do that, then all of a sudden they've got an incentive to drive prices up in that region, because local and state governments, banks, and realtors tend to use the same basic rubric to evaluate price. If a lower valued area sees home prices go up, properties in the higher valued area will be raised accordingly. There's no secret quant voodoo, it's just using a level of liquidity and staying power not accessible to non-institutional homeowners. Supply and demand normally influence pricing feedback at much more granular levels which benefits individuals, and our policy and regulation and evaluation models are largely built around those assumptions. Without the negative feedback driving prices down, bad things happen for consumers, good things happen for those who already have lots of money and property.
- johncolanduoni 10mo ago
  How do I distinguish the world where institutional investors are meaningfully contributing to high housing prices and the world where they aren’t? Is there some metric you’ve seen that substantiates the mechanism? For example, are they only 1% of holders but 50% of trading volume or something? Because if I saw a house 15% below market where I live, I would buy it (to live in). I don’t imagine I’m the only one. Institutional investors can’t stop me from doing that if it’s offered - can they stop the seller from offering that?
  - tptacek 10mo ago
    You could be 50% of trading volume just by trading a small number of properties back and forth constantly! That doesn't mean anything.
    - mikem170 10mo ago
      I don't get how that hasn't had an effect on prices. There's not enough houses on the market (zoning, and people want to keep their low-rate mortgages), there's people worried they can't afford houses (prices inflated faster than wages, rates went up), and a large amount of housing transactions (someone quoted 29% of starter homes) are being paid for by institutional investors (who can pay cash). Wouldn't these institutional investors buying houses be "marginal consumers", kind of like the marginal producers who set the price of inelastic commodities such as oil? Seems like 29% of transactions is even more than marginal. I assume that sellers would need to come down in price to what non-institutional buyers could afford if institutional buyers were removed from the equation. As an aside, I'd rather see supply increased, but maybe demographics over the next decade or two will fix that problem anyways.
    - johncolanduoni 10mo ago
      Manipulating markets by controlling liquidity while not holding a large percentage of the overall stock is a thing. The fact that you could juice trading volume by doing something stupid for no reason doesn’t make it a useless statistic for evaluating what is going on in a market (unless you’re alleging that institutional investors would do this, and I can’t see the motive). This isn’t some shitcoin whose creators are faking trading volume to appear on the leaderboards - it’s houses with deeds. To be clear, I don’t think institutional real state investment is a substantial part of the reason housing prices are so high. I’m just trying to push whatever argument they were thinking of toward something quantifiable.
ctoth 10mo ago
Ownership share is a stock. Prices get set by flow - transactions. Housing is a thin market; maybe 5-6% of homes change hands in a given year. Price discovery happens at that transaction layer. Institutional investors own ~3% of single-family rentals nationally. But per CoreLogic they're 29% of purchases in the starter home tier. That's the market where we first-time buyers actually compete. In some metros it's more concentrated. Atlanta: ~30% of single-family rentals corporate-owned. Charlotte neighborhoods in 2022: 50%!!! of sales to institutional buyers. So for your 1-2-3... maybe something like? 1. Institutional buyers concentrate in starter homes where they're 29% of transactions, not 3% of stock 2. Target metros/neighborhoods go higher still 3. Real estate uses comps-based pricing - their winning bids propagate to surrounding valuations The mechanism isn't inventory control, it's just a buyer with a different utility function (rental yield vs owner-occupancy) systematically outbidding price-sensitive first-time buyers. In a thick market that gets arbitraged away. In a thin market with sparse comps, each transaction is a price-setting event. The St. Louis Fed found institutional presence specifically increases price-to-income ratios in the bottom tier. If you're evil corporate Landlordman You don't need to affect the whole market. You just need to cut off the bottom rung of the ladder. Is this Trump move the right one? No frickin idea! But I do think we need to reckon with what's actually happening to first-time homebuyers. I bought a place in Englewood Co last year and ... it was pretty rough.
- tptacek 10mo ago
  Whoah, hold up, your (3) is doing a lot more work than you think it is. Comps matter but they don't literally break the market: * They impact listing prices but not necessarily clearing prices. * They assume all the sellers, who are not corporate investors, can mechanically anchor off those inflated comps, without factoring in buyer budgets and carrying costs. Real estate is slower than most financial products, but it's still an actual market. You can't just buy a tiny fraction of the inventory at an inflated price and assume the whole rest of the market will follow you.
  - bruce511 10mo ago
    I'll add one more data point to the thread; The timing and pricing of investor selling is different to residents selling. Residents sell (mostly) for reasons other than profit. They might be moving up, or moving away, or whatever. There's some pressure to "get it done" so they can move on. They can't really afford to "time" the market. For investors there's much more "buy in the down, sell in the up". Except that it's been going up for a while, so there's no motivation to sell at all. It would be uncommon for them to accept a loss. Even unoccupied it's (mostly) better to hold rather than sell at a loss. As mentioned elsewhere, overall market penetration by investors differs wildly by market, and segment. So 3% overall might sound low, but 20% of a dwelling type in a specific market is plenty to alter market forces. I say this as someone who has owned property as an individual, and also worked in a business that invested in property.
brightball 10mo ago
About 2 miles from my house, a housing development recently went up. No homes for sale. Rent only. Stuff like that is becoming a big problem.
- tptacek 10mo ago
  Why? Why should I care what the balance of rental and owner-occupied is? Owned is not strictly better than rented!
  - Eddy_Viscosity2 10mo ago
    And neither is rented strictly better than owned. You would care if you wanted to own but couldn't.
    - tptacek 10mo ago
      I agree, in the same way I'd care the other direction if I wanted to rent, which is why I don't understand the concern about inventory shifting to rentals.
      - epistasis 10mo ago
        In my experience, there are a lot of people who don't consider renters as people that deserve consideration in governmental decision making. So if rental supply becomes available, it doesn't matter, not only because the person doesn't want to rent, but more so because renters are not considered permanent citizens of the local city and therefore they don't matter. This is a recurring theme k see among both right wing and left wing people when it comes to looking at single family homes.
        tptacek 10mo ago
        Yes, it's a real problem. A surprising number of politically-well-connected people in my muni believe that renters don't even pay property tax.
rambojohnson 10mo ago
you’re treating narrative completeness as a prerequisite for legitimacy. that makes any systemic issue unfalsifiable unless someone can account for every market, municipality, and incentive simultaneously. this is an impossible burden of proof. requiring a perfectly schematic, end-to-end causal story before acknowledging harm is a convenient way to dismiss any structural concern. pointing out that housing markets are complex doesn’t invalidate localized, repeatable effects or concentrated power. that just raises the bar of explanation until lived outcomes are dismissed as “just-so stories”, which matches the tone of your condescension.
- tptacek 10mo ago
  I'm treating narrative coherence as a requirement, not completeness.
  - hiQloIQ 10mo ago
    If narrative coherence is your expectation the only satisfactory resolution is not dig into and normalize the contractual minutiae of the legacy finance system but flush the finance industry and the politically coddled mess it created. There is no narrative coherence to be found demanding the living honor social debts, contracts of history; yes children believe these successes you never witnessed happened! That surely cannot be used for ill gains. This smells more like self selection bias. You have been successful and thus prefer care be taken tidying up systemic issues created by our ledger. Am a Thomas Jefferson fan when it comes to generational churn; the only constant political rule should be to rewrite things every couple decades or the living end up ruled by fiat decree of the dead.
    - tptacek 10mo ago
      These are words. "normalize the contractual minutiae of the legacy finance system"? Is there a forum where that persuades?
      - krageon 10mo ago
phkahler 10mo ago
>> You're telling a just-so story, and you can tell because there isn't a simple schematic 1-2-3 story you can make from this about how these people exert control over home prices. We don't need to explain how they do it. We KNOW private equity is expecting to make profit from their investment in residential real estate. That profit ultimately comes from people in houses, making them less affordable.
- skeeter2020 10mo ago
  >> We don't need to explain how they do it We most certainly do. PE owns pools of rental housing; this is a fundamentally different model from speculation. While both impact the selling price they do it in completely different ways, and if institutional investors own a tiny fraction of the total stock, they're not having a huge impact on the supply side which would potentially drive up prices. You're supposed "logic" seems comparable to magic.
_3u10 10mo ago
Exactly, everyone is for affordability but no one wants their primary residency to be worth 50% less in 5 years. Housing affordability is inherently unpopular with voters.
- WalterBright 10mo ago
  If it cut my taxes 50%, I would, as I have no intention of selling it.

by tptacek 10mo ago

observationist 10mo ago

I don't mean to convey that it's intentional. There's no conspiracy of cigar smoking financiers in tuxedos smoking cigars in dark rooms. It's just like the Carlin observation - there doesn't have to be a big conspiracy. They just know what's good for them. They behave accordingly. The do things that they can, and because those things are relatively new, it's a type of information asymmetry and policy / good intentions / competence arbitrage that we haven't had to cope with before. You might end up banning certain types of institutional participation in the housing market, because there's no way to protect against the negative consequences that doesn't have even worse consequences for either the participants or the population at large. It'll probably have to be arbitrary, and the cost will be a bunch of firms no longer get the opportunity to make a bunch of money by leveraging their resources in that way. And we see the influence and impact constantly, with outlandish asking prices being immediately met by institutions that have decided they want a particular property in a particular region. Or house prices being set to an outlandish level with no reduction in price over months and months on the market, because they can afford to sit and wait for the market to change. And if they can afford to do that, then all of a sudden they've got an incentive to drive prices up in that region, because local and state governments, banks, and realtors tend to use the same basic rubric to evaluate price. If a lower valued area sees home prices go up, properties in the higher valued area will be raised accordingly. There's no secret quant voodoo, it's just using a level of liquidity and staying power not accessible to non-institutional homeowners. Supply and demand normally influence pricing feedback at much more granular levels which benefits individuals, and our policy and regulation and evaluation models are largely built around those assumptions. Without the negative feedback driving prices down, bad things happen for consumers, good things happen for those who already have lots of money and property.

johncolanduoni 10mo ago
How do I distinguish the world where institutional investors are meaningfully contributing to high housing prices and the world where they aren’t? Is there some metric you’ve seen that substantiates the mechanism? For example, are they only 1% of holders but 50% of trading volume or something? Because if I saw a house 15% below market where I live, I would buy it (to live in). I don’t imagine I’m the only one. Institutional investors can’t stop me from doing that if it’s offered - can they stop the seller from offering that?
- tptacek 10mo ago
  You could be 50% of trading volume just by trading a small number of properties back and forth constantly! That doesn't mean anything.
  - mikem170 10mo ago
    I don't get how that hasn't had an effect on prices. There's not enough houses on the market (zoning, and people want to keep their low-rate mortgages), there's people worried they can't afford houses (prices inflated faster than wages, rates went up), and a large amount of housing transactions (someone quoted 29% of starter homes) are being paid for by institutional investors (who can pay cash). Wouldn't these institutional investors buying houses be "marginal consumers", kind of like the marginal producers who set the price of inelastic commodities such as oil? Seems like 29% of transactions is even more than marginal. I assume that sellers would need to come down in price to what non-institutional buyers could afford if institutional buyers were removed from the equation. As an aside, I'd rather see supply increased, but maybe demographics over the next decade or two will fix that problem anyways.
  - johncolanduoni 10mo ago
    Manipulating markets by controlling liquidity while not holding a large percentage of the overall stock is a thing. The fact that you could juice trading volume by doing something stupid for no reason doesn’t make it a useless statistic for evaluating what is going on in a market (unless you’re alleging that institutional investors would do this, and I can’t see the motive). This isn’t some shitcoin whose creators are faking trading volume to appear on the leaderboards - it’s houses with deeds. To be clear, I don’t think institutional real state investment is a substantial part of the reason housing prices are so high. I’m just trying to push whatever argument they were thinking of toward something quantifiable.

ctoth 10mo ago

Ownership share is a stock. Prices get set by flow - transactions. Housing is a thin market; maybe 5-6% of homes change hands in a given year. Price discovery happens at that transaction layer. Institutional investors own ~3% of single-family rentals nationally. But per CoreLogic they're 29% of purchases in the starter home tier. That's the market where we first-time buyers actually compete. In some metros it's more concentrated. Atlanta: ~30% of single-family rentals corporate-owned. Charlotte neighborhoods in 2022: 50%!!! of sales to institutional buyers. So for your 1-2-3... maybe something like? 1. Institutional buyers concentrate in starter homes where they're 29% of transactions, not 3% of stock 2. Target metros/neighborhoods go higher still 3. Real estate uses comps-based pricing - their winning bids propagate to surrounding valuations The mechanism isn't inventory control, it's just a buyer with a different utility function (rental yield vs owner-occupancy) systematically outbidding price-sensitive first-time buyers. In a thick market that gets arbitraged away. In a thin market with sparse comps, each transaction is a price-setting event. The St. Louis Fed found institutional presence specifically increases price-to-income ratios in the bottom tier. If you're evil corporate Landlordman You don't need to affect the whole market. You just need to cut off the bottom rung of the ladder. Is this Trump move the right one? No frickin idea! But I do think we need to reckon with what's actually happening to first-time homebuyers. I bought a place in Englewood Co last year and ... it was pretty rough.

tptacek 10mo ago
Whoah, hold up, your (3) is doing a lot more work than you think it is. Comps matter but they don't literally break the market: * They impact listing prices but not necessarily clearing prices. * They assume all the sellers, who are not corporate investors, can mechanically anchor off those inflated comps, without factoring in buyer budgets and carrying costs. Real estate is slower than most financial products, but it's still an actual market. You can't just buy a tiny fraction of the inventory at an inflated price and assume the whole rest of the market will follow you.
- bruce511 10mo ago
  I'll add one more data point to the thread; The timing and pricing of investor selling is different to residents selling. Residents sell (mostly) for reasons other than profit. They might be moving up, or moving away, or whatever. There's some pressure to "get it done" so they can move on. They can't really afford to "time" the market. For investors there's much more "buy in the down, sell in the up". Except that it's been going up for a while, so there's no motivation to sell at all. It would be uncommon for them to accept a loss. Even unoccupied it's (mostly) better to hold rather than sell at a loss. As mentioned elsewhere, overall market penetration by investors differs wildly by market, and segment. So 3% overall might sound low, but 20% of a dwelling type in a specific market is plenty to alter market forces. I say this as someone who has owned property as an individual, and also worked in a business that invested in property.

brightball 10mo ago

About 2 miles from my house, a housing development recently went up. No homes for sale. Rent only. Stuff like that is becoming a big problem.

tptacek 10mo ago
Why? Why should I care what the balance of rental and owner-occupied is? Owned is not strictly better than rented!
- Eddy_Viscosity2 10mo ago
  And neither is rented strictly better than owned. You would care if you wanted to own but couldn't.
  - tptacek 10mo ago
    I agree, in the same way I'd care the other direction if I wanted to rent, which is why I don't understand the concern about inventory shifting to rentals.
    - epistasis 10mo ago
      In my experience, there are a lot of people who don't consider renters as people that deserve consideration in governmental decision making. So if rental supply becomes available, it doesn't matter, not only because the person doesn't want to rent, but more so because renters are not considered permanent citizens of the local city and therefore they don't matter. This is a recurring theme k see among both right wing and left wing people when it comes to looking at single family homes.
      - tptacek 10mo ago
        Yes, it's a real problem. A surprising number of politically-well-connected people in my muni believe that renters don't even pay property tax.

rambojohnson 10mo ago

you’re treating narrative completeness as a prerequisite for legitimacy. that makes any systemic issue unfalsifiable unless someone can account for every market, municipality, and incentive simultaneously. this is an impossible burden of proof. requiring a perfectly schematic, end-to-end causal story before acknowledging harm is a convenient way to dismiss any structural concern. pointing out that housing markets are complex doesn’t invalidate localized, repeatable effects or concentrated power. that just raises the bar of explanation until lived outcomes are dismissed as “just-so stories”, which matches the tone of your condescension.

tptacek 10mo ago
I'm treating narrative coherence as a requirement, not completeness.
- hiQloIQ 10mo ago
  If narrative coherence is your expectation the only satisfactory resolution is not dig into and normalize the contractual minutiae of the legacy finance system but flush the finance industry and the politically coddled mess it created. There is no narrative coherence to be found demanding the living honor social debts, contracts of history; yes children believe these successes you never witnessed happened! That surely cannot be used for ill gains. This smells more like self selection bias. You have been successful and thus prefer care be taken tidying up systemic issues created by our ledger. Am a Thomas Jefferson fan when it comes to generational churn; the only constant political rule should be to rewrite things every couple decades or the living end up ruled by fiat decree of the dead.
  - tptacek 10mo ago
    These are words. "normalize the contractual minutiae of the legacy finance system"? Is there a forum where that persuades?
    - krageon 10mo ago

phkahler 10mo ago

>> You're telling a just-so story, and you can tell because there isn't a simple schematic 1-2-3 story you can make from this about how these people exert control over home prices. We don't need to explain how they do it. We KNOW private equity is expecting to make profit from their investment in residential real estate. That profit ultimately comes from people in houses, making them less affordable.

skeeter2020 10mo ago
>> We don't need to explain how they do it We most certainly do. PE owns pools of rental housing; this is a fundamentally different model from speculation. While both impact the selling price they do it in completely different ways, and if institutional investors own a tiny fraction of the total stock, they're not having a huge impact on the supply side which would potentially drive up prices. You're supposed "logic" seems comparable to magic.

_3u10 10mo ago

Exactly, everyone is for affordability but no one wants their primary residency to be worth 50% less in 5 years. Housing affordability is inherently unpopular with voters.

WalterBright 10mo ago
If it cut my taxes 50%, I would, as I have no intention of selling it.