I see a lot of expensive houses being built in my area. A LOT. And the weird thing is that they’re being bought pretty quickly. Are these people just making more money than me? If so, what are they doing for a living? Or are they just living house poor? How exactly are they affording these places?
Edit: For reference, my neighborhood is starting to become popular (because the other popular neighborhoods have priced most people out of affording places there). The normal price of newer homes here is $700k. My home, built in 1965, which is 2500sq ft on a quarter acre of land, is $500k.
All this talk of foreign investors. But the reality is they represent a small proportion of single family homes[1] and residential units. It’s easy to blame foreigners, but the real problem is domestic. It’s corporations. Corporations are buying all the housing[2]. And they don’t mind sitting on their invest, even vacant, for years. So yeah, y’all keep the bigotery going and blame foreing investors, you’re playing right into capitalism’s hand.
I feel like this article didn’t do a great job of answering the question. They didn’t really determine whether big corporations are buying homes, they determined that investors are buying homes. The actual text:
Those two statements are not equivalent. “Investor” could be a single individual buying a home with the intent of offering it as a vacation rental when not in use. It could be somebody who bought a duplex and rents the other unit out until their parents retire. It could be a house flipper who does 1 house at a time – each time registering an “investor purchase”.
Even “corporation” doesn’t really mean anything; a “corporation” could be an LLC with one employee, the owner.
And even when big corporations buy single-family homes, it’s not clear to me that this has a lasting economic impact. It sounds like a lot of these investment companies are renting the the homes or flipping them. Ultimately, demand is still demand. Somebody has to be there to buy or rent the home for these investments to make sense, so any price increase resulting from this investment activity is not an external, artificial pressure. It’s a real representation of economic value, it is a price that the next occupants are willing to pay.
I have a very specific viewpoint on this issue, as I live in a vacation destination. Various investors are buying up every property that comes up for sale in my community (large corporations, small companies, wealthy individuals looking for vacation homes, etc.)
Every single property that gets bought, gets renovated or otherwise improved to the point that there’s no chance in hell anyone living and working in the community full-time can afford to buy, unless they bought their first property before 2016. Since then, home ownership among my colleagues has become a pipe dream (and without giving away too many personal details, let me just say my colleagues and I are well-educated professionals making way above the median income for jobs in the area).
As I type this out, I’m listening to a million-dollar house being built in the lot behind me (which will almost certainly sit vacant >80% of the time), a shit rental being turned over next door (which charges $3k/mo for a 3/1.5), and two short-term vacation rentals partying across the street (which usually charge at least $300-$400/night).
Regardless of who it is, investors buying up housing is a huge problem for people that are trying to own their own home, especially first-time buyers.
With respect, you’re missing the point.
Sellers don’t determine price. Buyers do. “Investors” (big, small, whatever) are selling homes at those prices (or renting, or VRBOing) because there are customers ready to buy the next available unit. If customers aren’t willing to buy at that price, then the seller will lower the price. Or never build the big house in the first place. Or never renovate. Who would spend money on an investment when nobody will buy it?
They can only sell for those prices because buyers are ready to buy.
Economists have a concept of “economic value”. Regardless of price, “economic value” it what the next buyer is willing to pay for an item RIGHT NOW. People have a lot of weird ideas about what the “value” of something is, and they’ll include all sorts of non-monetary factors because they think value is a feeling or concept of utility that particularly applies to them. They value “walkability” or “views” or “quaint antique design”, or whatever.
But inasmuch as “value” has any objective meaning, the best one economists have managed to come up with is economic value – the price that a unit of something will sell for at this very moment. And I humbly suggest that the economic value of housing in your area something is determined entirely by the buyer: the person or entity that is willing to buy the next available unit of housing.
If those buyers can’t outbid all the other buyers, then they weren’t going to get a home anyway. This has nothing to do with the seller.
You and the other guy are talking about two different things. You’re trying to explain supply and demand in a very factual way, the other guy is explaining to you how this is hurting actual people who need somewhere to live.
They haven’t missed the point at all but are talking about the human element here.
The “investors” are the buyers/customers, and they aren’t reselling these houses–they’re renting them out. It’s mostly corporations increasingly doing over the last 15 years or so (I think it started around the 2008 financial crisis). They have the capital to do it and so regular people are being priced out more and more as this practice keeps driving up prices.
It didn’t used to be this way. Even in my “cheap” area, when I bought my house back in 2005 all but one house on my block were owner-occupied. Now, more than half the houses are rentals because whenever one came up for sale it was bought by a rental company. This is a serious crisis that needs to be addressed.
Renting them out is still selling them, just another kind of selling. The company can only charge rent if there is a renter willing to pay. Again, the buyer determines price – if rent is too high, there will be no renters.
Renting them out is not selling, it’s an ongoing income source for the owner. The renter does not determine the price when the alternative is to move elsewhere or live out of your car. There’s simply not enough housing–supply is limited. It’s not a simple equation like a factory adjusting the output and price of its widgets. If things were as simple as you say, there wouldn’t be such a severe housing crisis in the US. Just search for US housing crisis, there are thousands of articles explaining what’s going on.
The renter is the person who pays the rent, not the person who can’t afford it. If someone gets evicted because they can’t pay rent, they are replaced with someone who will.
You’re on the right track, though. Over-regulation, opposition to new construction, and opposition to multi-family construction are the reason buyers are willing to pay more and more in HCOL areas.
Part of the problem is it’s still more profitable to build an expensive property and wait a couple years to find a buyer who can afford it than to build an affordable property which will sell right away.
True, there is a “frictional” effect on occupancy rate, that causes property to be idle for some time. I’m about to buy a house that was built by somebody else, but they decided they couldn’t afford it, and backed out, so it’s been sitting there new & idle for a couple of months.
When there is a lot of economic dislocation, or major demographic changes, that frictional rate of idle property may spike up (e.g. in the wake of the 2008 recession/real estate bubble, when some owners decided they would rather wait for recovery than find a buyer at a huge discount), but it’s a transient effect.
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If the first time buyer cannot afford a house, it means another buyer showed up with a higher offer. It doesn’t really matter who owns the house.
Did I ever say anything about the seller? The problem is that investors are buying homes and not selling them. They are only renting them out.
There’s no meaningful difference in value between selling and renting. You pay a mortgage, or you pay rent, both represent the economic value of the property.
Suppose some entities step in and buy literally every property, and convert everything to rentals. The “price” of a rental is still what the next occupant is willing to pay. Nothing has really changed, except the way payments are handled.
If the price is too high, people leave the area. If the price is low, people flock to the area. This is true whether buying or renting.
This tells me all I need to know about how little you understand the situation. The equity gained by buying a house and paying a mortgage instead of rent is one of the primary ways that families can get beyond living paycheck to paycheck. Investors buying homes in which they will never live deprives people of the opportunity to earn that equity for themselves. Instead, people are stuck paying rent, which is effectively paying for the landlord to gain that equity.
I’m intentionally simplifying. Take all the concerns about ownership vs. renting, etc, and ask yourself: at the end of the month, what is someone willing to pay to put a roof over their head?
I can buy a car, or I can lease a car. I can buy a crane for my construction business, or I can rent a crane. I can buy an office building, or I can lease an office building. I can buy a house, or I can rent a house.
The function of a car, a crane, an office, or a house is not different based on how I structure the payments. I’ve got a budget, I need a car. I’ve got a budget, I need a house.
Sure, there are long term social implications of ownership vs. renting, clearly. But the economic value of a car or a house doesn’t depend on how one pays for it. I could pay cash money up front, I could take out a loan, I could rent. I could trade a supercar for a house, or mine gold to build a house. It doesn’t really matter. The opportunity cost of committing all the cash up front is similar to the interest on the mortgage, which is in turn similar to rent. Any method I might use to pay for it can be converted into a perpetuity… which is similar to rent.
That was the point of the hypothetical. That’s why economists say, if you want to know the economic value of something, find out the price of rental. That’s a quick baseline to the economic value. The seller – be they corporation, hedge fund, or private owner – doesn’t actually determine that value, the next buyer does, based on what they are willing to pay. If you’re not willing to pay, then you’re not the next buyer.
I’m aware. Turns out, if you remove enough nuance from a situation you can make it seem like whatever you want!
But paying a mortgage is not just paying for a roof over your head. It is working toward owning the shelter forever. You are paying for two different things simultaneously, versus paying only for the monthly shelter while allowing the investor to own the shelter forever. They are two fundamentally different things.
So, yes, the value of shelter from an economic view can be estimated looking at rent. And if you want to remove the nuance until unfettered capitalism seems like it’s going to work for the average citizen, then sure, all you need to think about is supply and demand. But those of us who live in the real world care about the long-term social and economic effects of allowing investors to control housing for the middle and lower classes.
What about “able to pay?” Leaning on the market to set all of these values with no regulation means that the only people able to own property are the ones who start with capital and everyone else is SOL. I’m not ok with that.
Because the alternative is to be homeless.
Or leave the area for lower prices somewhere else.
So quit your job and pay hundreds, maybe even thousands, of dollars to move somewhere different where you no longer have a source of income and don’t know anyone?
I’m not saying I like it, that’s just how it is. As a consumer of housing, like anything else, when you can’t afford what you want you have to get something less.
No, this is not how it is. In order to rent an apartment you have to show proof of income, and people who can’t afford a studio apartment where they live also cannot afford to move. What you are suggesting is literally not possible. You might as well tell someone to grow wings and make a nest in the clouds.
Whether the investors are foreign or domestic, doesn’t matter, as long as governments allow living space to be gambled with, people like OP (I assume OP is working class) are very unlikely to ever own their house/apartment.
It matters because blaming foreign investors is a diversion used to avoid bringing forth actual solutions.
Another take is that it’s the developers who is to blame for the high prices. What would happen if they stopped buying land? Short term? Disaster, no new houses, prices sky rocket. Long term? With no new supply investors and foreign buyers will just leave the market since it’s not making money. As they leave, more supply will be available for the normal people.
Buying as an investment, whether by foreigners, corporations or whatever, is a symptom not a cause of the housing shortage. The cause of the housing shortage is that we’re not building enough houses. That’s it. Supply and demand, same as it’s always been. The solution is to reduce demand or increase supply.
That doesn’t mean “is a symptom, not a cause.” If it’s actually supply and demand, then the investors buying the housing is part of the problem, not just a symptom. The investors are decreasing supply and increasing demand, so it’s really two sides of the same coin.
Personally, I think that just building more houses isn’t the answer, because the corporations can just keep buying them up. This will continue to artificially decrease supply and increase demand, which keeps them making a profit. And as long as corporations can make a profit with this model, they will (and people will continue to suffer).
Yes let me buy a house on someone else’s land I’m sure they won’t mind. And if there’s not enough land left in America, we just need to increase the supply of land.
the free market won’t fix this because it’s not a bug, it’s a feature.
If the owner of the land is selling it then they obviously don’t mind. Or do you believe that no-one should own land?
Actually, I’ve never thought about it, but the concept of “owning” land is pretty absurd tbh. There are people born everyday, beholden to imaginary lines drawn by dead fuckers hundreds or thousands of years ago.
Abolishing land ownership sounds like an attractive idea, the problem is that it doesn’t work well in practice. Ownership of land, and a legal system to protect it, brings remarkable economic benefits. It allows owners to raise capital using the land as collateral and then to develop the land. A free market ensures that land is correctly valued. When values are set by government they tend to be incorrect or, worse, deliberately distorted by corruption. A quick look around the world shows that the richest countries all allow private ownership of land. China is the notable exception. It’s true that productivity in China has increased dramatically over the past few decades but this has been driven by urban centers and manufacturing… rural areas, where land remains under state control remain poor and impoverished.
That’s short sighted. Developers collude with each other and investors. There is serious conflict of interest since everyone on the supply side has lots to gain in ever rising house prices.
Ironically getting rid or severely limiting these developers to reduce supply is what’s needed to reduce prices. Not short term, but the long hard way until you take away the “investment “ side of real estate. Lower supply until it’s not profitable for these developers and investors.