9 ms·

This is just not London, it's happening in almost every major city. There is a massive real estate investment movement in progress where wealthy and giant inves

by sytelus 11y ago

This is just not London, it's happening in almost every major city. There is a massive real estate investment movement in progress where wealthy and giant investing funds are dumping bucket loads of money to buy up properties in popular areas. These then gets put back on market with extra-ordinary rents (typically 5% annual of purchase price). I think the hope is that even if property stays without renters for even half a year, its returns when combined with appreciation would exceed other "safe" investments. It's not unnatural anymore to go in high demand areas of city in night just to find empty apartments all over. I shudder to imagine how next real estate crash would look like... If you walk through Knightsbridge in the evening, at a time when people in well-adjusted cities might be having dinner with their families and friends, or at least watching TV with their kids, you will see a wall of black, punctuated by the odd square of illumination.

elektromekatron 11y ago
It might take a crash for London to become livable again. There is also probably a threshold where London stops being attractive to money compared to the competition from other locations, because it has priced out the service economy.
- spiralpolitik 11y ago
  BRExit is the most likely scenario as if the UK leaves the EU then any advantage of being in London disappears and so the money will leave. This of course assumes the EU economy survives GRExit in any fit state to continue to attract investment.
- frandroid 11y ago
  A crash may delay trends from happening, but a change in the basic characteristics is necessary to change it for good. See San Francisco's gentrification, stopped by the 2001 crash but still going on strong.
pliny 11y ago
Are there penalties for invading those kinds of homes in the UK? Where I used to live (a city of ~100K in Israel) there are probably 500-1000 properties on and around the marina owned by foreign nationals that are conspicuously empty for 9 months of the year, I considered squatting in one of those but if I'm discovered I'd be liable for the something like 3 times the rent for the period I lived there. Presumably if the penalty for squatting unattended apartments were lower, the owners might be more motivated to find occupants.
- jeffbr13 11y ago
  Apparently, squatting has recently (2012) been made into a criminal offence in England, meaning a criminal record if convicted, so... not worth it. Squatting used to be a ~fairly~ normal thing in England, going by impressions from my youth, but this could have been media fear-mongering the middle class with tales of home-invaders, after reading that Wikipedia article[1]. It's a shame that it's a criminal offence now, considering the housing shortfall and rising inequality in the UK. However, these specific properties/flats would be very difficult to squat anyway, as the buildings are presumably guarded by doormen and at least a few sets of high-security doors. [1]: https://en.wikipedia.org/wiki/Squatting_in_England_and_Wales https://en.wikipedia.org/wiki/Squatting_in_England_and_Wales
  - makomk 11y ago
    Yeah, aided by Daily Mail fear mongering about someone who came back from a vacation to find his house occupied by squatters that left their readers afraid the same would happen to their homes. The fact that it was an empty rental property he'd left unlet and that squatting in homes with occupants was already illegal went conveniently unmentioned.
vidarh 11y ago
> These then gets put back on market with extra-ordinary rents (typically 5% annual of purchase price). Why do you think this rent is extraordinary? Unless you meant that it is extraordinary as a result of extraordinary purchase prices. As a proportion of purchase prices, these rentals are nothing special. Rental prices will lie within a relatively narrow band near the cost of maintaining a mortgage for the simple reason that if they get much higher, people can finance more property purchases and hope to gain on price growth, and if they get much lower, a substantial proportion of investors lose the ability to leverage and so the returns won't be attractive. > If you walk through Knightsbridge in the evening, at a time when people in well-adjusted cities might be having dinner with their families and friends, or at least watching TV with their kids, you will see a wall of black, punctuated by the odd square of illumination. Try walking around the wealthiest area of any city, and the patterns will be very different from "normal" areas: Flats will be larger, and someone at home does not necessarily mean the building will look very lit; more people have second homes, or travel a lot, or work late, and so an inhabited flat may still have people at home more rarely. You can easily find rich areas that look almost black even when most houses are occupied. I don't know if Knightsbridge is an aberration, but I do know London in general does not in fact have a lot of empty properties in proportion to its size/population. I don't have a source handy, but the last time I looked at the stats it was small. More importantly, the vast majority was empty for other reasons than uninterested absentee landlords.
- nine_k 11y ago
  "Extraordinary rent" is, to me, when the property in a high-demand place is vacant for prolonged periods of time, due to the price. Probably occupancy figures are available somewhere publicly; if so, this statement can be checked against reality.
  - vidarh 11y ago
    Properties are almost never left empty due to "extraordinary rent". Landlords that want to rent out typically lowers their rent demands until they fill the property. Rents at ~5% of the purchase price is, with current mortgage rates, in any case a perfectly competitive rate.
meatysnapper 11y ago
The next real estate crash will be very interesting. It's not gonna be the whatever estate saddled with an unpayable mortgage, or banks saddled with a a ton of unknown/questionable mortgages... correct me if I'm wrong, but it will be a lot of rich people, especially foreigners who will get hosed.
- sjtgraham 11y ago
  This is only a problem when one wants to sell up. If there is some sort of economic crisis that precipitates a collapse in the housing market it's very likely anything else the super rich could've parked their money in instead would also be FUBAR too.
  - gonzo41 11y ago
    Whats interesting in this regard is societies relationship to housing and what it is. Is it an investment or is it a basic human right to have a house over your head? I live in Australia, and there are a lot of "rich" people who made a money off property, just flipping regular houses in our insane market. All the components of a medium house are reasonably cheap. But then market value comes into play you you add thousands to a sale price. I think the real issue is that a house (basic human need) is being used like any other financial tool. There should be restrictions on the types of investment that uses residential property, to protect people and to allow them to live where they work. But good luck controlling capitalism, last GFC started because of houses. But nothings really has changed. Just to add in the Australian context people see property as a way to get rich. the idea of starting business or generating wealth via new ideas, services, technology is sadly not as prevalent as other places.
    - jrbancel 11y ago
      > Is it an investment or is it a basic human right to have a house over your head? Muammar al-Gaddafi had an interesting take on this particular issue: page 51 of The Green Book (http://openanthropology.org/libya/gaddafi-green-book.pdf http://openanthropology.org/libya/gaddafi-green-book.pdf). Newlyweds were given enough money to build a house.
cynicalkane 11y ago
5% of purchase is a perfectly cromulent rent. Outside cities, that number goes up, not down.
gammarator 11y ago
it's happening in almost every major city Agreed. Here, for example, is an excellent article about these effects in Portland, Oregon: http://www.invw.org/cash http://www.invw.org/cash
- _yosefk 11y ago
  Widespread building restrictions limiting supply and huge subsidies for those holding financial assets ("QE") together with low yields caused by near-zero interest rates fueling demand will do that. (How it will end I can't imagine. I'm amazed at how calmly people are taking it, and at the kind of countermeasures they propose (usually rent control or other foot shots.))
  - tormeh 11y ago
    QE is just a handout for private individuals who sell government bonds on the second-hand market; it doesn't really have anything to do with real estate. But yeah, near-zero interest rates right now and borrowing costs being tax-deductible contribute to housing bubbles.
    - tonyedgecombe 11y ago
      Yes, I'm not sure why we let landlords expense mortgage interest but not home owners (in the UK) but it would be a good idea to get rid of this loophole.
  - wmil 11y ago
    What gets me is that the problem is very easy to solve. Bring in property tax brackets, increase the top rate.
nosuchthing 11y ago
Couldn't this be solved by passing city ordinances, and state taxes on vacant properties, non-primary houses, and un-rented apartment spaces? Without any way to counter balance out speculation, land hording, and gentrification/displacement of urban areas, syndicates of real-estate investors would just buy up everything in sight, turn it into luxury condos/lofts and set the price at a rate determined to be some minimum of %75 of the target populations' average income..
- eru 11y ago
  > Couldn't this be solved by passing city ordinances, and state taxes on vacant properties, non-primary houses, and un-rented apartment spaces? Why restrict these taxes only to unused spaces? If you do so, you'll have to get around people only nominally using the spaces. > Without any way to counter balance out speculation, land hording, and gentrification/displacement of urban areas, syndicates of real-estate investors would just buy up everything in sight, turn it into luxury condos/lofts and set the price at a rate determined to be some minimum of %75 of the target populations' average income.. If only making money was so easy..
  - wmil 11y ago
    Keeping a large number of properties empty is extremely disruptive to transit planners. They have to puzzle through the situation where homes next to the subway aren't using the subway.
  - nosuchthing 11y ago
    >Why restrict these taxes only to unused spaces? To create an incentive for unused spaces to be used, instead of horded. >If you do so, you'll have to get around people only nominally using the spaces. Who could pull that off? Someone who owns 4 houses?.. 10 apartment units?
    - eru 11y ago
      How would the legal system tell apart used from unused spaces? How would you make that distinction hard to game for someone with expensive lawyers and resources.
ars 11y ago
> with extra-ordinary rents (typically 5% annual of purchase price 5% is not extra-ordinary, 5% is low. 10% is average and more than that is high. After paying for property tax and maintenance, anything under 10% is not really worth it unless rent is just a side effect and you are really hoping for appreciation.
- markvdb 11y ago
  That might be true for the US, but it certainly is not for most of Europe. I guess that difference has at least something to do with differences in fiscal regime. I dare you to find me real estate with a 10% gross yield in Belgium for example...
  - mutatio 11y ago
    It's the same in the UK, banks won't even look at you if your projected yield isn't at least 6%. The fact buy-to-let mortgages have this requirement for mum and pop landlords means that even if you have the liquid assets (large hedge funds, investors, mega-rich) you might as well extract the 6% minimum yield. Result: astronomical rental costs growth in London, gotta feed the system somehow!
  - ars 11y ago
    > I dare you to find me real estate with a 10% gross yield in Belgium for example... Does Belgium have no property tax? That's the only way such low rents could work.
    - markvdb 11y ago
      Taxation is very low compared to other taxation in Belgium: http://www.globalpropertyguide.com/Europe/Belgium/Tax-Pages http://www.globalpropertyguide.com/Europe/Belgium/Tax-Pages Round trip transaction cost is sky high though. My experience is that the 21.10% estimated here is a gross underestimate: http://www.globalpropertyguide.com/Europe/Belgium/roundtrip-cost http://www.globalpropertyguide.com/Europe/Belgium/roundtrip-...
icu 11y ago
What many people don't get is this is global asset inflation due to the enormous amounts of money created by central banks worldwide. The term "currency war" has been used to describe it and like any war the poor and working classes bear the burden. My solution is to protect my family as much as possible while trying to generate enough wealth entrepreneurialy to have a seat at the table.
- sytelus 11y ago
  My solution is to protect my family as much as possible How do you exactly do it? If you are not yet home owner, it looks like your rents would go up to a point where you are paying 10% of the property price a year. That means in 10 years you will look back and see you sunk all your money in rent while you could have walked out owning it. But at the same time it won't be prudent to buy it right now because you just can't tell how and when current bubble will end. So either way, you don't have good option when wealthy investors are coming together to squeeze you out of a fair home ownership.
dalore 11y ago
It's not that those apartments aren't being rented, they usually are. It's those apartments aren't being lived in.
nicwolff 11y ago
My office near Columbus Circle in NYC looks directly at One57, the 75-story condo tower whose apartments are setting price records up to $100 million (and which will shortly be dwarfed by newer taller pricier towers). No matter how late I work, not one window lights up.

by sytelus 11y ago

elektromekatron 11y ago

It might take a crash for London to become livable again. There is also probably a threshold where London stops being attractive to money compared to the competition from other locations, because it has priced out the service economy.

spiralpolitik 11y ago
BRExit is the most likely scenario as if the UK leaves the EU then any advantage of being in London disappears and so the money will leave. This of course assumes the EU economy survives GRExit in any fit state to continue to attract investment.
frandroid 11y ago
A crash may delay trends from happening, but a change in the basic characteristics is necessary to change it for good. See San Francisco's gentrification, stopped by the 2001 crash but still going on strong.

pliny 11y ago

Are there penalties for invading those kinds of homes in the UK? Where I used to live (a city of ~100K in Israel) there are probably 500-1000 properties on and around the marina owned by foreign nationals that are conspicuously empty for 9 months of the year, I considered squatting in one of those but if I'm discovered I'd be liable for the something like 3 times the rent for the period I lived there. Presumably if the penalty for squatting unattended apartments were lower, the owners might be more motivated to find occupants.

jeffbr13 11y ago
Apparently, squatting has recently (2012) been made into a criminal offence in England, meaning a criminal record if convicted, so... not worth it. Squatting used to be a ~fairly~ normal thing in England, going by impressions from my youth, but this could have been media fear-mongering the middle class with tales of home-invaders, after reading that Wikipedia article[1]. It's a shame that it's a criminal offence now, considering the housing shortfall and rising inequality in the UK. However, these specific properties/flats would be very difficult to squat anyway, as the buildings are presumably guarded by doormen and at least a few sets of high-security doors. [1]: https://en.wikipedia.org/wiki/Squatting_in_England_and_Wales https://en.wikipedia.org/wiki/Squatting_in_England_and_Wales
- makomk 11y ago
  Yeah, aided by Daily Mail fear mongering about someone who came back from a vacation to find his house occupied by squatters that left their readers afraid the same would happen to their homes. The fact that it was an empty rental property he'd left unlet and that squatting in homes with occupants was already illegal went conveniently unmentioned.

vidarh 11y ago

> These then gets put back on market with extra-ordinary rents (typically 5% annual of purchase price). Why do you think this rent is extraordinary? Unless you meant that it is extraordinary as a result of extraordinary purchase prices. As a proportion of purchase prices, these rentals are nothing special. Rental prices will lie within a relatively narrow band near the cost of maintaining a mortgage for the simple reason that if they get much higher, people can finance more property purchases and hope to gain on price growth, and if they get much lower, a substantial proportion of investors lose the ability to leverage and so the returns won't be attractive. > If you walk through Knightsbridge in the evening, at a time when people in well-adjusted cities might be having dinner with their families and friends, or at least watching TV with their kids, you will see a wall of black, punctuated by the odd square of illumination. Try walking around the wealthiest area of any city, and the patterns will be very different from "normal" areas: Flats will be larger, and someone at home does not necessarily mean the building will look very lit; more people have second homes, or travel a lot, or work late, and so an inhabited flat may still have people at home more rarely. You can easily find rich areas that look almost black even when most houses are occupied. I don't know if Knightsbridge is an aberration, but I do know London in general does not in fact have a lot of empty properties in proportion to its size/population. I don't have a source handy, but the last time I looked at the stats it was small. More importantly, the vast majority was empty for other reasons than uninterested absentee landlords.

nine_k 11y ago
"Extraordinary rent" is, to me, when the property in a high-demand place is vacant for prolonged periods of time, due to the price. Probably occupancy figures are available somewhere publicly; if so, this statement can be checked against reality.
- vidarh 11y ago
  Properties are almost never left empty due to "extraordinary rent". Landlords that want to rent out typically lowers their rent demands until they fill the property. Rents at ~5% of the purchase price is, with current mortgage rates, in any case a perfectly competitive rate.

meatysnapper 11y ago

The next real estate crash will be very interesting. It's not gonna be the whatever estate saddled with an unpayable mortgage, or banks saddled with a a ton of unknown/questionable mortgages... correct me if I'm wrong, but it will be a lot of rich people, especially foreigners who will get hosed.

sjtgraham 11y ago
This is only a problem when one wants to sell up. If there is some sort of economic crisis that precipitates a collapse in the housing market it's very likely anything else the super rich could've parked their money in instead would also be FUBAR too.
- gonzo41 11y ago
  Whats interesting in this regard is societies relationship to housing and what it is. Is it an investment or is it a basic human right to have a house over your head? I live in Australia, and there are a lot of "rich" people who made a money off property, just flipping regular houses in our insane market. All the components of a medium house are reasonably cheap. But then market value comes into play you you add thousands to a sale price. I think the real issue is that a house (basic human need) is being used like any other financial tool. There should be restrictions on the types of investment that uses residential property, to protect people and to allow them to live where they work. But good luck controlling capitalism, last GFC started because of houses. But nothings really has changed. Just to add in the Australian context people see property as a way to get rich. the idea of starting business or generating wealth via new ideas, services, technology is sadly not as prevalent as other places.
  - jrbancel 11y ago
    > Is it an investment or is it a basic human right to have a house over your head? Muammar al-Gaddafi had an interesting take on this particular issue: page 51 of The Green Book (http://openanthropology.org/libya/gaddafi-green-book.pdf http://openanthropology.org/libya/gaddafi-green-book.pdf). Newlyweds were given enough money to build a house.

cynicalkane 11y ago

5% of purchase is a perfectly cromulent rent. Outside cities, that number goes up, not down.

gammarator 11y ago

it's happening in almost every major city Agreed. Here, for example, is an excellent article about these effects in Portland, Oregon: http://www.invw.org/cash http://www.invw.org/cash

_yosefk 11y ago
Widespread building restrictions limiting supply and huge subsidies for those holding financial assets ("QE") together with low yields caused by near-zero interest rates fueling demand will do that. (How it will end I can't imagine. I'm amazed at how calmly people are taking it, and at the kind of countermeasures they propose (usually rent control or other foot shots.))
- tormeh 11y ago
  QE is just a handout for private individuals who sell government bonds on the second-hand market; it doesn't really have anything to do with real estate. But yeah, near-zero interest rates right now and borrowing costs being tax-deductible contribute to housing bubbles.
  - tonyedgecombe 11y ago
    Yes, I'm not sure why we let landlords expense mortgage interest but not home owners (in the UK) but it would be a good idea to get rid of this loophole.
- wmil 11y ago
  What gets me is that the problem is very easy to solve. Bring in property tax brackets, increase the top rate.

nosuchthing 11y ago

Couldn't this be solved by passing city ordinances, and state taxes on vacant properties, non-primary houses, and un-rented apartment spaces? Without any way to counter balance out speculation, land hording, and gentrification/displacement of urban areas, syndicates of real-estate investors would just buy up everything in sight, turn it into luxury condos/lofts and set the price at a rate determined to be some minimum of %75 of the target populations' average income..

eru 11y ago
> Couldn't this be solved by passing city ordinances, and state taxes on vacant properties, non-primary houses, and un-rented apartment spaces? Why restrict these taxes only to unused spaces? If you do so, you'll have to get around people only nominally using the spaces. > Without any way to counter balance out speculation, land hording, and gentrification/displacement of urban areas, syndicates of real-estate investors would just buy up everything in sight, turn it into luxury condos/lofts and set the price at a rate determined to be some minimum of %75 of the target populations' average income.. If only making money was so easy..
- wmil 11y ago
  Keeping a large number of properties empty is extremely disruptive to transit planners. They have to puzzle through the situation where homes next to the subway aren't using the subway.
- nosuchthing 11y ago
  >Why restrict these taxes only to unused spaces? To create an incentive for unused spaces to be used, instead of horded. >If you do so, you'll have to get around people only nominally using the spaces. Who could pull that off? Someone who owns 4 houses?.. 10 apartment units?
  - eru 11y ago
    How would the legal system tell apart used from unused spaces? How would you make that distinction hard to game for someone with expensive lawyers and resources.

ars 11y ago

> with extra-ordinary rents (typically 5% annual of purchase price 5% is not extra-ordinary, 5% is low. 10% is average and more than that is high. After paying for property tax and maintenance, anything under 10% is not really worth it unless rent is just a side effect and you are really hoping for appreciation.

markvdb 11y ago
That might be true for the US, but it certainly is not for most of Europe. I guess that difference has at least something to do with differences in fiscal regime. I dare you to find me real estate with a 10% gross yield in Belgium for example...
- mutatio 11y ago
  It's the same in the UK, banks won't even look at you if your projected yield isn't at least 6%. The fact buy-to-let mortgages have this requirement for mum and pop landlords means that even if you have the liquid assets (large hedge funds, investors, mega-rich) you might as well extract the 6% minimum yield. Result: astronomical rental costs growth in London, gotta feed the system somehow!
- ars 11y ago
  > I dare you to find me real estate with a 10% gross yield in Belgium for example... Does Belgium have no property tax? That's the only way such low rents could work.
  - markvdb 11y ago
    Taxation is very low compared to other taxation in Belgium: http://www.globalpropertyguide.com/Europe/Belgium/Tax-Pages http://www.globalpropertyguide.com/Europe/Belgium/Tax-Pages Round trip transaction cost is sky high though. My experience is that the 21.10% estimated here is a gross underestimate: http://www.globalpropertyguide.com/Europe/Belgium/roundtrip-cost http://www.globalpropertyguide.com/Europe/Belgium/roundtrip-...

icu 11y ago

What many people don't get is this is global asset inflation due to the enormous amounts of money created by central banks worldwide. The term "currency war" has been used to describe it and like any war the poor and working classes bear the burden. My solution is to protect my family as much as possible while trying to generate enough wealth entrepreneurialy to have a seat at the table.

sytelus 11y ago
My solution is to protect my family as much as possible How do you exactly do it? If you are not yet home owner, it looks like your rents would go up to a point where you are paying 10% of the property price a year. That means in 10 years you will look back and see you sunk all your money in rent while you could have walked out owning it. But at the same time it won't be prudent to buy it right now because you just can't tell how and when current bubble will end. So either way, you don't have good option when wealthy investors are coming together to squeeze you out of a fair home ownership.

dalore 11y ago

It's not that those apartments aren't being rented, they usually are. It's those apartments aren't being lived in.

nicwolff 11y ago

My office near Columbus Circle in NYC looks directly at One57, the 75-story condo tower whose apartments are setting price records up to $100 million (and which will shortly be dwarfed by newer taller pricier towers). No matter how late I work, not one window lights up.