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Consider this sentence: "That inability is mushrooming, driven by increasing rents across much of the country and wages that aren’t going anywhere." One has t

Consider this sentence: "That inability is mushrooming, driven by increasing rents across much of the country and wages that aren’t going anywhere." One has to wonder: where is the money coming from that drives up these rents, if wages are stagnant? The issue is supply and demand. Why has supply decreased? Part of the answer is the housing bust, which followed the housing boom (irrational exuberance was counter balanced by irrational pessimism): http://www.calculatedriskblog.com/2013/09/ny-times-on-shortage-of-buildable-lots.html http://www.calculatedriskblog.com/2013/09/ny-times-on-shorta... As it says there: "The latest land rush is in full swing, as developers realize that they have failed to feed the zoning, permitting and mapping pipeline, which can take months or years to turn raw fields into buildable lots." The other side of the supply and demand issue is the increase of foreign demand. Some of the money comes in the form of foreign money that speculates in the American real estate: http://www.nytimes.com/2011/07/07/nyregion/more-apartments-are-empty-yet-rented-or-owned-census-finds.html?pagewanted=all http://www.nytimes.com/2011/07/07/nyregion/more-apartments-a... As it says there: "But some Manhattan neighborhoods are assuming that vacant feeling the year round, because the people who own or rent apartments there actually live somewhere else most of the time. " A combination of housing bust and foreign speculation in USA real estate leads to a situation where rents go up even when wages are stagnant or falling. ----------- A possible explanation of the international forces at work is offered here: http://krugman.blogs.nytimes.com/2013/09/26/trade-and-secular-stagnation/ http://krugman.blogs.nytimes.com/2013/09/26/trade-and-secula... This was interesting to me: "So the causation could run the other way, with deregulation and rising leverage pulling in foreign capital, keeping the dollar overvalued, and producing persistent deficits."

yetanotherphd 13y ago
I don't think any complex macroeconomic explanation is needed for the issue described in the article (and the vacancy rate in NYC is very low). It's simply local income inequality. NYC has a much larger number of rich people, and only a limited supply of housing. This drives up the cost of housing, especially in Manhattan.
- tomkarlo 13y ago
  That's true of Manhattan but much less so for other boroughs. And rich people still tend to occupy only one unit. Foreign buyers remove units from the pool entirely while contributing less to the local service economy, mad there have been large new luxury buildings where most of the units lack full time residents. That's unhealthy for the city. Most of Manhattan got too pricey for working class families a decade or more ago (unless hey have rent control.) it's a much bigger crisis that large portions of the other boroughs might head that way.
  - yetanotherphd 13y ago
    While foreign buyers who leave apartments unoccupied is an interesting phenomenon, it's also a very bad way to "invest" an more of a quirk of the ultra-rich. I also doubt that numerically it is a big contribution to the demand for housing. In spite of what you said about rich people only occupying one unit, there is always going to be some elasticity in where people live, and the demand for housing can also grow as more high paying jobs are created. From what I have seen, price rises in the other boroughs is mainly driven by people with high incomes who either can't afford Manhattan (but are still fairly wealthy) or choose not to live in Manhattan.
    - tomkarlo 13y ago
      From an NYT article a few years back, the estimate for Manhattan was that 30% of new condo sales (admittedly a minority versus coops in NY) were foreign buyers. That would still be a material share of overall sales. In an already tight market that's a huge number of sales not tied to local income growth.
      - yetanotherphd 13y ago
        Merely having a foreign buyer doesn't imply that the apartment will remain empty. And if the apartment is rented, it doesn't really make a difference if the owner is foreign or not. So the real issue is how many apartments are being left vacant by the owners, or only used rarely by the owners.
aliston 13y ago
It's not just foreign money. Private equity firms, wealthy speculators and cheap Fed money are a big part of it as well.
- legutierr 13y ago
  Might not a solution to both problems be high property taxes for unoccupied housing? If you are buying purely to park your cash, and effectively take those units off the market, some strong disincentive should exist.
  - thaumasiotes 13y ago
    The disincentive is the money that renting out your units would bring in. If they're so worthless (to everyone else) that they wouldn't rent for a noticeable amount, who cares if they're taken off the market?
    - lmm 13y ago
      The combined income of 50 families is probably not noticeable to an oil oligarch.
  - tomkarlo 13y ago
    The housing isn't vacant because it's not occupied. It's vacant because the owners have their primary residence elsewhere. Or have several homes. London has neighborhoods where full time residency runs around 30% as well, leading to "ghost towns" - supposedly much of that is Russian or eastern euro money being kept outside of their home countries less as an investment than a value store. I have a friend who is about to close on a condo in LA - all cash - and already owns homes in Asia and New York. She views them as investments but having paid cash she has no interest in renting them out.
    - legutierr 13y ago
      I wouldn't consider these investment properties occupied. And in fact, that's the point of my suggestion. Excess liquidity accumulated by the upper echelons of society is spurring this "housing crisis". Society has an interest in dis-incentivizing the kind of property-hoarding that you describe. In addition to wanting to keep housing affordable for workers in cities and elsewhere, cities should be scared witless by the thought of "ghost towns" and neighborhoods with 30% residency. Cities are not collections of streets and buildings, they are made up of the people that reside in them, and without people, the economy of a city will collapse.
akgerber 13y ago
Much of the demand increase is domestic: as crime and pollution have decreased in American cities, and the downsides of auto-oriented suburbs have made them unappealing to many, there are a lot more Americans looking to move into urban housing, and to stay in it beyond their 20s. New York City is one of the safest big cities, has very high wages, and very slow production of new housing due to a lack of buildable land and zoning that makes it difficult to replace small buildings with larger ones in many areas. These factors lead to very high demand with little new supply to meet it.
- lkrubner 13y ago
  This does not describe an increase in demand: "as crime and pollution have decreased in American cities, and the downsides of auto-oriented suburbs have made them unappealing to many, there are a lot more Americans looking to move into urban housing" You describe a change in preferences, from one form of housing to another form of housing. All other things being equal, this does not lead to an increase in demand. If 1 person moves from the suburbs to the cities then there is 1 more person demanding urban housing and 1 less person demanding suburban housing. Total demand does not increase in this scenario.
  - PilateDeGuerre 13y ago
    Total demand in metropolises has increased. This rise in localized demand has priced out the poor and working classes and has resulted in a rise in overall homelessness. TFA points out that relocation isn't always a rational economic choice for people priced out of these metropolises and that they turn to other measures such as doubling up on housing or spending an imprudent 50%+ of their wages on rents. This places these people in an extremely precarious position financially and increases their chances of homelessness.
  - gaadd33 13y ago
    But I don't think people are arguing that total demand has skyrocketed, as I'm sure there are plenty of cheap and affordable houses in places such as Flint and other rust belt cities. The problem is the locations with jobs have seen an increase in demand without an increase in supply and those same locations are the ones that are attractive to foreign investors and immigrants. So you end up with all the demand in a few concentrated areas vs spread equally around the country.
joe_the_user 13y ago
One has to wonder: where is the money coming from that drives up these rents, if wages are stagnant? The issue is supply and demand. One factor is that an item in constant demand but having limited supply is a great store of value - people buy to keep their money safe regardless of whether they have use for it or even whether the thing yields a reasonable profit. And once that store of value starts to rise more in price, that just accelerates the trend. It is speculation but not random speculation. Land will always be part of people's wealth, the price of land reflects how wealth different groups have. Land prices go up in response to the rise of the ultra-wealthy but if the ultra-wealthy aren't going away, those price rises are justified (by some logics at least). And as they said, the source isn't foreign as such, it is extremely-wealthy-as-such. Essentially a product of the extreme concentration of wealth world-wide.
e12e 13y ago
> One has to wonder: where is the money coming from that drives up these rents, if wages are stagnant? The issue is supply and demand. I think housing is a typical example of a market that probably benefits from regulation -- a family without a place to live can't simply choose not to pay rent, or try to get a mortage to buy a house -- while (most) sellers have a much stronger position. I seem to recall private debt is very high in the US, especially in medium to low income brackets -- so I'm guessing the money comes from credit? Which may or may not lead to another swath of bad loans.

yetanotherphd 13y ago

I don't think any complex macroeconomic explanation is needed for the issue described in the article (and the vacancy rate in NYC is very low). It's simply local income inequality. NYC has a much larger number of rich people, and only a limited supply of housing. This drives up the cost of housing, especially in Manhattan.

tomkarlo 13y ago
That's true of Manhattan but much less so for other boroughs. And rich people still tend to occupy only one unit. Foreign buyers remove units from the pool entirely while contributing less to the local service economy, mad there have been large new luxury buildings where most of the units lack full time residents. That's unhealthy for the city. Most of Manhattan got too pricey for working class families a decade or more ago (unless hey have rent control.) it's a much bigger crisis that large portions of the other boroughs might head that way.
- yetanotherphd 13y ago
  While foreign buyers who leave apartments unoccupied is an interesting phenomenon, it's also a very bad way to "invest" an more of a quirk of the ultra-rich. I also doubt that numerically it is a big contribution to the demand for housing. In spite of what you said about rich people only occupying one unit, there is always going to be some elasticity in where people live, and the demand for housing can also grow as more high paying jobs are created. From what I have seen, price rises in the other boroughs is mainly driven by people with high incomes who either can't afford Manhattan (but are still fairly wealthy) or choose not to live in Manhattan.
  - tomkarlo 13y ago
    From an NYT article a few years back, the estimate for Manhattan was that 30% of new condo sales (admittedly a minority versus coops in NY) were foreign buyers. That would still be a material share of overall sales. In an already tight market that's a huge number of sales not tied to local income growth.
    - yetanotherphd 13y ago
      Merely having a foreign buyer doesn't imply that the apartment will remain empty. And if the apartment is rented, it doesn't really make a difference if the owner is foreign or not. So the real issue is how many apartments are being left vacant by the owners, or only used rarely by the owners.

aliston 13y ago

It's not just foreign money. Private equity firms, wealthy speculators and cheap Fed money are a big part of it as well.

legutierr 13y ago
Might not a solution to both problems be high property taxes for unoccupied housing? If you are buying purely to park your cash, and effectively take those units off the market, some strong disincentive should exist.
- thaumasiotes 13y ago
  The disincentive is the money that renting out your units would bring in. If they're so worthless (to everyone else) that they wouldn't rent for a noticeable amount, who cares if they're taken off the market?
  - lmm 13y ago
    The combined income of 50 families is probably not noticeable to an oil oligarch.
- tomkarlo 13y ago
  The housing isn't vacant because it's not occupied. It's vacant because the owners have their primary residence elsewhere. Or have several homes. London has neighborhoods where full time residency runs around 30% as well, leading to "ghost towns" - supposedly much of that is Russian or eastern euro money being kept outside of their home countries less as an investment than a value store. I have a friend who is about to close on a condo in LA - all cash - and already owns homes in Asia and New York. She views them as investments but having paid cash she has no interest in renting them out.
  - legutierr 13y ago
    I wouldn't consider these investment properties occupied. And in fact, that's the point of my suggestion. Excess liquidity accumulated by the upper echelons of society is spurring this "housing crisis". Society has an interest in dis-incentivizing the kind of property-hoarding that you describe. In addition to wanting to keep housing affordable for workers in cities and elsewhere, cities should be scared witless by the thought of "ghost towns" and neighborhoods with 30% residency. Cities are not collections of streets and buildings, they are made up of the people that reside in them, and without people, the economy of a city will collapse.

akgerber 13y ago

Much of the demand increase is domestic: as crime and pollution have decreased in American cities, and the downsides of auto-oriented suburbs have made them unappealing to many, there are a lot more Americans looking to move into urban housing, and to stay in it beyond their 20s. New York City is one of the safest big cities, has very high wages, and very slow production of new housing due to a lack of buildable land and zoning that makes it difficult to replace small buildings with larger ones in many areas. These factors lead to very high demand with little new supply to meet it.

lkrubner 13y ago
This does not describe an increase in demand: "as crime and pollution have decreased in American cities, and the downsides of auto-oriented suburbs have made them unappealing to many, there are a lot more Americans looking to move into urban housing" You describe a change in preferences, from one form of housing to another form of housing. All other things being equal, this does not lead to an increase in demand. If 1 person moves from the suburbs to the cities then there is 1 more person demanding urban housing and 1 less person demanding suburban housing. Total demand does not increase in this scenario.
- PilateDeGuerre 13y ago
  Total demand in metropolises has increased. This rise in localized demand has priced out the poor and working classes and has resulted in a rise in overall homelessness. TFA points out that relocation isn't always a rational economic choice for people priced out of these metropolises and that they turn to other measures such as doubling up on housing or spending an imprudent 50%+ of their wages on rents. This places these people in an extremely precarious position financially and increases their chances of homelessness.
- gaadd33 13y ago
  But I don't think people are arguing that total demand has skyrocketed, as I'm sure there are plenty of cheap and affordable houses in places such as Flint and other rust belt cities. The problem is the locations with jobs have seen an increase in demand without an increase in supply and those same locations are the ones that are attractive to foreign investors and immigrants. So you end up with all the demand in a few concentrated areas vs spread equally around the country.

joe_the_user 13y ago

One has to wonder: where is the money coming from that drives up these rents, if wages are stagnant? The issue is supply and demand. One factor is that an item in constant demand but having limited supply is a great store of value - people buy to keep their money safe regardless of whether they have use for it or even whether the thing yields a reasonable profit. And once that store of value starts to rise more in price, that just accelerates the trend. It is speculation but not random speculation. Land will always be part of people's wealth, the price of land reflects how wealth different groups have. Land prices go up in response to the rise of the ultra-wealthy but if the ultra-wealthy aren't going away, those price rises are justified (by some logics at least). And as they said, the source isn't foreign as such, it is extremely-wealthy-as-such. Essentially a product of the extreme concentration of wealth world-wide.

e12e 13y ago

> One has to wonder: where is the money coming from that drives up these rents, if wages are stagnant? The issue is supply and demand. I think housing is a typical example of a market that probably benefits from regulation -- a family without a place to live can't simply choose not to pay rent, or try to get a mortage to buy a house -- while (most) sellers have a much stronger position. I seem to recall private debt is very high in the US, especially in medium to low income brackets -- so I'm guessing the money comes from credit? Which may or may not lead to another swath of bad loans.