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With due respect, you haven't seen this happening nor been in one. I'm coming from India where Real Estate prices have grown exponentially in the last decade.

With due respect, you haven't seen this happening nor been in one. I'm coming from India where Real Estate prices have grown exponentially in the last decade. When rents are high, the Real Estate market goes up, not down. Since everybody thinks that they can recoup all building prices through rents, I've seen many of my friends buying homes at exorbitant prices and letting them for rent again to exorbitant prices. New buildings are being built dime and dozen because rents are there to support them. People are no longer buying home to live, they're buying homes so that they can rent it out, because rent prices are high. A whole slew of new buildings are being built because they can rely on exorbitantly high rents. Its a vicious cycle. Higher rent leads to more buildings being built. Once rents are high, it increases the costs of all goods: Hotels need to start charging more to cover rents, so do all grocery shops and everything else. Real Estate is one of the fundamental reasons behind creating the modern urban poor and homeless. When you control rent prices, you stop buildings from being built for sake of letting out. Instead, buildings get built to really live. Like it or not, 40k inhabitants are coming in to live, rented or not. Controlling rents will allow for a sustained development. Otherwise, new buildings will shoot up as a business opportunity based on this 40k, and that will screw up everything else. As somebody deeply affected by the ever-increasing rent prices, I believe Germany is doing the practically right thing.

ChuckMcM 11y ago
You might be surprised at what I've seen :-). The situation you describe : New buildings are being built dime and dozen because rents are there to support them. People are no longer buying home to live, they're buying homes so that they can rent it out, because rent prices are high. A whole slew of new buildings are being built because they can rely on exorbitantly high rents. Describes what most economists think of as inflation, not a social justice issue per se. Typically the limiter on this will be the supply of capital, and with zero percent interest rates there is very little limit. The way that works is someone borrows money X at 0.5% annual interest to buy a house which provides 3 - 5% of X annually. They borrowed at .5% and their return is 3 - 5% giving them 2.5 - 4.5% of "yield" for large sums people will do that for only 1 or 2 % yield. That is how markets allocate capital. The housing market has limits on how fast or far it can grow. I'm very familiar with both the SF Bay Area markets which were over constrained, and the Las Vegas NV area markets which were largely unconstrained. Mortgage crisis aside, houses in the Bay area tend to increase because of contraints on new construction, and houses in Las Vegas tended to decrease because there were always new houses coming on the market so you had to "discount" the value of the house to get a buyer who would otherwise buy a new house. In housing markets there is a tension between rent prices and mortgage prices. The cost of a mortgage results in a monthly payment X and rent costs Y. When Y > X people start buying places rather than rent them because not only is the cost lower per month, but when they transact out of the house or condo they often get some additional "equity" that has built up as a function of them paying down the mortgage and/or appreciation of the asset. This however is unsupported : Real Estate is one of the fundamental reasons behind creating the modern urban poor and homeless. Modern urban poor and homeless are a function of wage disparity. Understand that a place has a relatively fixed amount [1] of housing, it also has a available various jobs near by. Those jobs pay a wage and a fraction of that wage is available to the landlords in the area as rent. It is impossible to raise the rents above the available wage fraction, people simply won't rent your space. This is why a house in Holland Michigan can only sell for $109,000 when the exact same house in San Francisco can sell for $1.5M. In Holland you are doing great if your job pays $60,000 a year, in San Francisco there are jobs that pay $200,000 a year. So you take the amount of money being paid out to workers, and take the fraction of that people are willing to spend on housing. And you get the total available rent/mortgage dollars in a region[2]. That pool is fixed, but it isn't evenly distributed. So tech workers will bring home big pay checks and wait staff much smaller pay checks. And when the number of available spots runs out (priced out by the market dynamics like "close to work" or "good view") they are gone, and pressure is applied to create new spaces or try to capture more of that value by raising rents. > As somebody deeply affected by the ever-increasing > rent prices, I believe Germany is doing the > practically right thing. Can you share why you haven't switched over to owning from renting ? I am guessing that you must have looked into it, what are mortgage rates and median house prices where you live? No need to be specific about your location just sort of the market parameters that are keeping rents going up. [1] It changes due to new building and old buildings being destroyed but much less quickly than the job opportunities change. [2] We'll leave out places like New York or London where billionaires buy apartments but don't live there.
- rdsubhas 11y ago
  >> Can you share why you haven't switched over to owning from renting? Yes, because you need a minimum X% upfront payment and all kinds of eligibility to purchase a house. For renters and people who can't afford that upfront cost (you can't take a loan to take another loan), they are left in a perpetual rental cycle. The others who are able to break out of that cycle once, go on to build more and more houses. So one group of people dream of living in their own house, whereas others build many and rent it out for half the rent. If you've seen the latest infographic about how being born rich gives you a golden spoon, and becoming rich is not about "working hard", you'll understand how these rental policies screw up people here. And people also factor in the "rise of rental prices", so as long as you have money, you can buy a home loan now and bank on rental prices increasing soon. In around 4-5 years the rents would have increased enough to cover the mortgage, and then its time to start shopping for a new building. Property becomes gold here partly because of the increasing rent prices. Even if you lose some money in mortage in the short term, anyways you also own the property which is increasing in value. So even people leaving a city will still retain their home and let it out for rent, rather than selling it back into the system. Buy buy buy, never sell unless you're in a financial emergency. Home Loans are also different here. We have fixed rates (9.75-11%) and longer tenures. >> Modern urban poor and homeless are a function of wage disparity. No, its a function of wage rise. Doesn't matter how much you get paid, but as long as your salary rises the same as rental price rise, you can retain your home. If not, you lose your home, as simple as that. You can't leave the city because there are not much jobs anywhere else. So you have to stay, but if you can't retain your home it will take you on a trip closer and closer to the slums until you realize one day that you're in it. Food is mostly government subsidized, so people can even manage the food. But housing is making a killing here. So when it comes to inflation, housing plays the biggest part and not food or transport. I can't give you fancy numbers though.
  - ChuckMcM 11y ago
    I see, so how long has this -- you can buy a home loan now and bank on rental prices increasing soon. In around 4-5 years the rents would have increased enough to cover the mortgage, and then its time to start shopping for a new building. -- been going on? 5 years? 10 years? 75 years? There was an interesting article in Bloomberg about Mumbai in 2012 (http://www.bloomberg.com/bw/articles/2012-07-05/mumbais-boom-turns-renters-into-millionaires http://www.bloomberg.com/bw/articles/2012-07-05/mumbais-boom...) with the rent control there causing huge market imbalances as India lifts millions of people out of poverty into the middle classes. It reads similarly to situations in Shanghai and Chengdu as a people's wages have risen faster than the housing market could keep up. The reason I ask about how long it has gone on is that the situation you describe always ends up correcting at some point, (here in the US we called it the housing bubble), and when it does all the people who were betting on the ever increasing rents find themselves going bankrupt because rents cannot increase any further, and that puts them into a financial emergency where they sell, which depresses prices of houses, which results in other speculators also falling out of the market, and you get a really huge recession with lots of people going broke and a bunch of supporting industries (construction, remodelling, furniture, etc) being carried along as well.

ChuckMcM 11y ago

You might be surprised at what I've seen :-). The situation you describe : New buildings are being built dime and dozen because rents are there to support them. People are no longer buying home to live, they're buying homes so that they can rent it out, because rent prices are high. A whole slew of new buildings are being built because they can rely on exorbitantly high rents. Describes what most economists think of as inflation, not a social justice issue per se. Typically the limiter on this will be the supply of capital, and with zero percent interest rates there is very little limit. The way that works is someone borrows money X at 0.5% annual interest to buy a house which provides 3 - 5% of X annually. They borrowed at .5% and their return is 3 - 5% giving them 2.5 - 4.5% of "yield" for large sums people will do that for only 1 or 2 % yield. That is how markets allocate capital. The housing market has limits on how fast or far it can grow. I'm very familiar with both the SF Bay Area markets which were over constrained, and the Las Vegas NV area markets which were largely unconstrained. Mortgage crisis aside, houses in the Bay area tend to increase because of contraints on new construction, and houses in Las Vegas tended to decrease because there were always new houses coming on the market so you had to "discount" the value of the house to get a buyer who would otherwise buy a new house. In housing markets there is a tension between rent prices and mortgage prices. The cost of a mortgage results in a monthly payment X and rent costs Y. When Y > X people start buying places rather than rent them because not only is the cost lower per month, but when they transact out of the house or condo they often get some additional "equity" that has built up as a function of them paying down the mortgage and/or appreciation of the asset. This however is unsupported : Real Estate is one of the fundamental reasons behind creating the modern urban poor and homeless. Modern urban poor and homeless are a function of wage disparity. Understand that a place has a relatively fixed amount [1] of housing, it also has a available various jobs near by. Those jobs pay a wage and a fraction of that wage is available to the landlords in the area as rent. It is impossible to raise the rents above the available wage fraction, people simply won't rent your space. This is why a house in Holland Michigan can only sell for $109,000 when the exact same house in San Francisco can sell for $1.5M. In Holland you are doing great if your job pays $60,000 a year, in San Francisco there are jobs that pay $200,000 a year. So you take the amount of money being paid out to workers, and take the fraction of that people are willing to spend on housing. And you get the total available rent/mortgage dollars in a region[2]. That pool is fixed, but it isn't evenly distributed. So tech workers will bring home big pay checks and wait staff much smaller pay checks. And when the number of available spots runs out (priced out by the market dynamics like "close to work" or "good view") they are gone, and pressure is applied to create new spaces or try to capture more of that value by raising rents. > As somebody deeply affected by the ever-increasing > rent prices, I believe Germany is doing the > practically right thing. Can you share why you haven't switched over to owning from renting ? I am guessing that you must have looked into it, what are mortgage rates and median house prices where you live? No need to be specific about your location just sort of the market parameters that are keeping rents going up. [1] It changes due to new building and old buildings being destroyed but much less quickly than the job opportunities change. [2] We'll leave out places like New York or London where billionaires buy apartments but don't live there.

rdsubhas 11y ago
>> Can you share why you haven't switched over to owning from renting? Yes, because you need a minimum X% upfront payment and all kinds of eligibility to purchase a house. For renters and people who can't afford that upfront cost (you can't take a loan to take another loan), they are left in a perpetual rental cycle. The others who are able to break out of that cycle once, go on to build more and more houses. So one group of people dream of living in their own house, whereas others build many and rent it out for half the rent. If you've seen the latest infographic about how being born rich gives you a golden spoon, and becoming rich is not about "working hard", you'll understand how these rental policies screw up people here. And people also factor in the "rise of rental prices", so as long as you have money, you can buy a home loan now and bank on rental prices increasing soon. In around 4-5 years the rents would have increased enough to cover the mortgage, and then its time to start shopping for a new building. Property becomes gold here partly because of the increasing rent prices. Even if you lose some money in mortage in the short term, anyways you also own the property which is increasing in value. So even people leaving a city will still retain their home and let it out for rent, rather than selling it back into the system. Buy buy buy, never sell unless you're in a financial emergency. Home Loans are also different here. We have fixed rates (9.75-11%) and longer tenures. >> Modern urban poor and homeless are a function of wage disparity. No, its a function of wage rise. Doesn't matter how much you get paid, but as long as your salary rises the same as rental price rise, you can retain your home. If not, you lose your home, as simple as that. You can't leave the city because there are not much jobs anywhere else. So you have to stay, but if you can't retain your home it will take you on a trip closer and closer to the slums until you realize one day that you're in it. Food is mostly government subsidized, so people can even manage the food. But housing is making a killing here. So when it comes to inflation, housing plays the biggest part and not food or transport. I can't give you fancy numbers though.
- ChuckMcM 11y ago
  I see, so how long has this -- you can buy a home loan now and bank on rental prices increasing soon. In around 4-5 years the rents would have increased enough to cover the mortgage, and then its time to start shopping for a new building. -- been going on? 5 years? 10 years? 75 years? There was an interesting article in Bloomberg about Mumbai in 2012 (http://www.bloomberg.com/bw/articles/2012-07-05/mumbais-boom-turns-renters-into-millionaires http://www.bloomberg.com/bw/articles/2012-07-05/mumbais-boom...) with the rent control there causing huge market imbalances as India lifts millions of people out of poverty into the middle classes. It reads similarly to situations in Shanghai and Chengdu as a people's wages have risen faster than the housing market could keep up. The reason I ask about how long it has gone on is that the situation you describe always ends up correcting at some point, (here in the US we called it the housing bubble), and when it does all the people who were betting on the ever increasing rents find themselves going bankrupt because rents cannot increase any further, and that puts them into a financial emergency where they sell, which depresses prices of houses, which results in other speculators also falling out of the market, and you get a really huge recession with lots of people going broke and a bunch of supporting industries (construction, remodelling, furniture, etc) being carried along as well.