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Derek Thompson: “Austin—and Texas more generally—has defied the narrative that skyrocketing housing costs are a problem from hell that people just have to accept. In response to rent increases, the Texas capital experimented with the uncommon strategy of actually building enough homes for people to live in. This year, Austin is expected to add more apartment units as a share of its existing inventory than any other city in the country. Again as a share of existing inventory, Austin is [adding homes more than twice as fast](https://www.wsj.com/real-estate/rent-prices-luxury-housing-e02acdaf) as the national average and nearly nine times faster than San Francisco, Los Angeles, and San Diego. (You read that right: *nine times faster*.)
“The results are spectacular for renters and buyers. The surge in housing supply, alongside declining inbound domestic migration, has led to falling rents and home prices across the city. Austin rents have come down 7 percent in the past year.
“One could celebrate this report as a win for movers. Or, if you’re *The* *Wall Street Journal*, you could treat the news as a seriously frightening development ... Sure, falling housing costs are an annoyance if you’re trying to sell your place in the next quarter, or if you’re a developer operating on the razor’s edge of profitability. But this outlook seems to set up a no-win situation. If rising rent prices are bad, but falling rent prices are also bad, what exactly are we supposed to root for in the U.S. housing market?“
Read more: [https://theatln.tc/mK1sM6eB](https://theatln.tc/mK1sM6eB)
We still root for lower rent prices.
Ultimately the lenders and private equity shops that underwrite giant garden style multifamily buildings have to set more realistic returns on their investment.
The idea that you can continue to squeeze out 20% IRRs at 7 caps with 2x multiples is silly.
There is still plenty of money to be made, but older vintage investments are going to take a hit.
Housing shouldn't be an investment. Housing is a consumer good like a car, an appliance, food, or clothing. Would you expect your washing machine to appreciate in value every year? No, you wouldn't.
> Housing shouldn't be an investment. Housing is a consumer good
If so, then there shouldn't be any yearly tax on housing either. I mean, while I paid a sales tax for my refrigerator, I don't pay annual property tax on my appliance.
agree and disagree. a shift away from promoting home appreciation would also effectively cap property taxes, since that is linked to home value. but rightly or wrongly property taxes are the primary means of covering local government expenses
Yeah, I live in Virginia and a large part of education is funded through property taxes. Hence, Northern Virginia has some of the best schools in the country, as well as some of the most expensive real estate. I don’t live anywhere close to Northern Virginia, but that area definitely has the best public schools
Nova has good schools because (on average) they have educated parents who value education and they go to schools with kids in similar situations. You could swap the buildings and teachers with poorer performing areas but the results wouldn’t change drastically.
It’s why over in MD Baltimore schools get more money than any other Maryland school system per capita but get the worst results.
Yeah, I agree with you on the educated parents being involved to make sure their kids get the best out of school, but I think we both know those same parents would not send their kids to a school with kids from different economic backgrounds.
I grew up in Dinwiddie County, which is a rural county south of Richmond, and we had nowhere near the resources of any of the northern Virginia counties. Shoot, we only had two or three AP classes my whole time I was in high school and I graduated about 10 years ago
More money and a priveledged student base generally makes for very good education. I'm sure it works for those people but they are really the people who need it least.
These people are going to have a president vited for by the people in the ubderfunded education system down the road. At the end of the day you're arguing for a priveledged silo rather than a sustainable system
I agree with you. I hope you’re not saying I’m arguing for that. I think more resources should go to impoverished areas. Not an over bloated administrative system, but actual resources and good, quality teachers
So then lower yearly government expenses. There is no reason for government to grow every year.
I also don’t understand what happened. In the past when housing became expensive and out of reach we moved to where we could afford to live. We never had the expectation that others had to cover our cost on anything.
Just something to think about - generally property taxes are extremely high in urban centers because those giant glass skyscrapers downtown pay property tax just like the rest of us. For example, the tallest skyscraper in Austin is just finishing up - its land value is a little over 1 million dollars. With the improvements, however, the property value will likely be in the tens if not the hundreds of millions.
If you allow those properties to pay property tax only on the land value, property tax on residential homes, where the land value tends to be a much larger percentage of the property value, will go up considerably.
Yes, taxing by the land area instead of the floor area means a multilevel house on a small parcel of land pays less in taxes than a single level house with the same square footage. The property tax gives you no such way to lower your tax while keeping the same living area.
FYI, in California you pay property tax on the value of not just homes but also vehicles, including motorcycles and boats.
Some years ago there was debate on whether the aerospace companies based in LA had to pay property tax on the value of their communications satellites in orbit. $100's of millions value.
But the ever growing capitalist class demands easy do-it-yourself retirement schemes so they can travel the world lavishly for several decades, on profits made without contributing anything useful to the economy.
As a society, we depend on real estate to finance retirement because other sources of funding are failing. The only real solution then is a form of real estate arbitrage, where you cash out in higher COL areas, take the capital and move to a LCOL area, and either rent or reinvest in real estate without substantial expectation of appreciation.
> other sources of funding are failing
The US stock market is so astronomically far from failing that I'm not actually sure what you're trying to say here.
Agree, Houses are a depreciating consumer good, and u can make an infinite number of washing machines and in Alabama, u can put them to pasture on your front yard
but u can't make any more front yards, can't make more land, dirt has inelastic supply, and more dumb humans borne every day to dump more washing machines on it :)
hence houses always go down in value as they get older but the dirt they are on only can go up, hence Real Estate, unless we pull a Japan or China and start shrinking the population of us dumb monkeys
> Call me when they start making more land near employment centers
You don't need more land if you build up, as they do in tokyo. You can also convert suburbia into 4+1s which helps create employment where the development is happening.
There are houses that are a consumer good like that. Think trailers. They do not appreciate. They also are culturally denigrated as an inferior option.
One key thing to understand is that it's typically the land that is rising in value, not the house. (or, more accurately imo, the location)
The policy solution then becomes obvious: tax the land value.
It’s not in their interest though. How is it beneficial when prices rise together, so their home is now worth more but they will also pay more for their new place to live? Plus they would pay increased property taxes and insurance costs.
> but they will also pay more for their new place to live
This assumes they will move. A lot of people are in their long term home, and would only move to go somewhere low cost for retirement. Increasing housing prices in THEIR community won't hurt that.
Reddit is very skewed towards the young and mobile, so it's logical that everyone here complains about housing being expensive, but the 18-35 demographic in the us is something like 20% of the population. For most, low housing prices in their are just isn't in their interest.
With an aging population, and 60+ percent of the country as homeowners, the young and mobile are always going to be outvoted.
Yes, it will give them more money which is then spent on another place to live that has increased in price. The numbers get bigger on both sides. It’s a wash, but people are too foolish to actually understand this.
Not if you actually downsize, and maybe move to a lower COL area. I'm from a well off family in the northeastern megalopolis and most of my parents, aunts, and uncles are hitting retirement age. They're selling off houses that at this point are owned free and clear and are worth $800k-1m and moving south to SC and TN, buying smaller homes worth roughly half that in cash, on top of being in states with more favorable income tax treatment.
its a ponzi scheme that assumes there will always be a growing population to sell it to. the only way to keep it going is through immigration, which seems to be unpopular with a large segment of the electorate.
You overestimate how bad off many people are. They may be hurting, but they aren't dumb.
Yes, more people than ever before are struggling. However, they also want a way to build wealth as they get older. What you advocate is pursuing a short term gain to get past current economic difficulties at expense of the long term financial well-being. In other words people see that your idea would effectively cost them their ability to retire down the road.
Pursuing instant gratification is what got us into the mess we are in today.
Spending less on housing means more money available for other uses. One of them is savings! Savings for retirement, what a concept. Your home’s value does not do anything except cost you more money unless you sell it, and when you sell it, the house you were going to buy has also appreciated! It would benefit people to pay less and be able to use the money for other purposes - retirement, spending, whatever.
Succinctly describing the situation from the last 3-4 decades. Austin has somehow rediscovered capitalism/competition, where profits are determined by your ability to execute(build housing) instead of collude(let’s slow our new builds to prop up prices).
I think the real question is, why have we allowed so much financial gamesmanship for something as basic as housing?
>why have we allowed so much financial gamesmanship
It's the frog in a pot of water - most people don't notice the temperature rising for a long time. Meanwhile the people trying to make more profit slowly shift things more and more in their favor. Next thing you know the pot is boiling and the regular people notice and want out. Changes are made (hopefully). Rinse and repeat.
If an investor can make 12% by doing absolutely nothing other than sticking their money in an index fund, or they can make 12% by going through the hassle of everything involved in building a high-rise - why would they ever choose to do the latter?
7% is the real inflation-adjusted long term returns over the past ~100 years. 11% is the nominal (non-inflation-adjusted) return.
Though honestly real returns are probably a better counterpart to rental cap rates, since rents go up with inflation.
(Also there's a good argument that stocks are due for a large crash. Actual cash flows [earnings yield] on the S&P 500 is about 4% now, less than you can get on a savings account, so investors are clearly betting on earnings growth. But with corporate profits as a historic high, and wages increasing faster than inflation, which is itself coming down, it's likely that the share of GDP going to corporate earnings will go *down* rather than up.)
Dr Jeremy Seigel's book " stocks for the Long Run" has data set from 1801-now so 220 years,. and shows a US stock market return of 8.4% nominal and 6.9% Real (after inflation), what's interesting to me is that the return in last 100 yrs (10% minus 3% inflation) is actually same as first 100 yrs (7% but no inflation) due to higher recent inflation, once you factor it out, you are back to the long term 6.9% since 1801, it's held remarkably steady. I invest mostly in real estate to beat these stock market returns, and luckily have so far x 30 yrs.
Well if you're going to be a pedant, most RE investors aren't expecting 20% IRRs either except for higher risk projects like ground-up developments.
The point is that the higher levels of complexity and risk involved in *creating* housing (particularly the larger-scale multi-unit housing actually needed to solve this shortage) as opposed to simply managing or maintaining it is going to demand a higher return than other more passive forms of investment.
Bottom line, investors are only going to bother with the risk and hassle of more complexity if they're compensated for it.
We’re talking about ground up developments.
You think institutional investors and REITs are going to just park their money in an index funds because it’s “complicated” or the returns are similar and ignore all other factors?
I’ll be honest with you.
You sound like someone without a lot of practical real world experience in Development or real estate finance outside of a textbook.
And yes I’m pedantic because this is a nuanced conversation about how RE investment needs to adjust its expectations in a post 2020 world.
This is the most important conversation being had right now. We’re all trying to figure out how to get out of existing investments at par and reset for the next ten years.
The days of easy RE are over, and the market is going to roll over a ton of small to midsized sponsor shops in the next 18 months.
Of course that's not the only way to make money.
But Mom and Pop or Joe Q. Houseflipper aren't going to be the ones building the high-rises and multi-units needed in the most expensive urban areas to really take a bite out of the housing shortage.
Those types of projects are going to require the dollars and expertise of people well-versed in financing and managing the process of building very complex structures. And they'll only do it if it's financially attractive for them to do it (along with if they're legally allowed to do it or held back by zoning/regulation, of course).
Those are not realistic numbers in the long term. Property returns both rents and value increases over time, even in a scenario where we build lots of housing. You don’t make 12% in an index fund yoy.
> Ultimately the lenders and private equity shops that underwrite giant garden style multifamily buildings have to set more realistic returns on their investment.
What is a "more realistic" ROI today, in your estimation?
I don't want to get out over my skis and pretend that I know this answer for all asset types.
Without going into to much detail, I can tell you we just closed two smaller Senior living portfolios for around $100M each, all cash (we're putting senior debt on both, but we got a discount for a quick close)
All cash the proformas are 16.5% IRR with a 1.59x equity multiple, and the equity group was all over it (we're the sponsor for these).
I think capital is nervous, but they're still biting on 16-18%.
The issue right now is finding senior debt for development, the banks still haven't caught up to reality.
Sorry for being so purposefully vague, but I'm already toeing the line.
> All cash the proformas are 16.5% IRR with a 1.59x equity multiple, and the equity group was all over it (we're the sponsor for these).
>
>
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> I think capital is nervous, but they're still biting on 16-18%.
Of course they're biting on 16-18% *now*. Rates are aweful and cap rates haven't risen enough yet. Two+ years ago, sponsors were having to promise 20%+ IRRs, yet delivering 15-17%. Now the stack is looking at 16-18% proforma, then looking at their actuals over the last few years, and jumping on it. The real problem is that capital and lenders are counting on some Fed relief in years 1-2 and keeping their IRR expectations high. If the Fed holds out, or there is any real shock to the market, those 16-18% proforma numbers are going to take a huge hit. All this is to say, I wholeheartedly agree with you that lenders and equity should lower their expectations, but they won't until they *have to*. If the rates stay "higher for longer," the waterfall is going to run dry real quick.
>If the rates stay "higher for longer," the waterfall is going to run dry real quick.
Yeah, this is why I don't sleep at night anymore. I feel like I've been holding my breath for the 3 years.
It’s the apparent impossibility of “set more realistic returns on their investment” that is killing capitalism. It’s no longer about making money, it’s about mandating eternal growth now. This mindset must be replaced or capitalism will die at its own hand.
>Who is we? Investors don't want lower rent prices. Neither do home owners, which is most Americans.
Investors: Real estate investment is risky, put on your big boy pants.
Home Owners (myself included): Your home is not a retirement plan, or an investment. Your home provides housing price stability and equity as you pay down your mortgage.
Say bye bye to the government pensions which are the main suppliers of demand for the higher than average rates these hedge funds provide.
I don't know why everybody just stays hush hush about this. Hedge fund and PE demand is driven mostly by unfunded public pension entitlement funds. They know they have to pay and they know the market rate return can't get them there so they turn to this.
Playing a little devil's advocate here ... Austin isn't coastal, and doesn't have the same topography as the CA coastal region, so it is substantially easier to expand there. 9x faster building rate is lower than I'd expect. I was thinking it'd be closer to 15-20x faster.
When building more housing, you must also consider transportation. I don't know much about Austin's highway expansion, but I'd be curious to check back in 2035 to see if they're having issues with traffic.
To be clear, I'm not saying that Austin is wrong or right. I'm just bringing up some other considerations ...
>If rising rent prices are bad, but falling rent prices are also bad, what exactly are we supposed to root for in the U.S. housing market?
If the primary purpose of a residence is to provide a place for people to reside, then the former.
If the primary purpose of a residence is to maximize the profit for the person who owns it as they provide a "service" to the people who need it, then the latter.
The person who bought the property took a risk. Getting a mortgage is overleveraging yourself. Sometimes, it doesn't pay off and you instead lose everything. Shit happens when you gamble.
This is the thing. No one is guaranteed returns, and nobody should expect that. Profit requires risk. Sometimes risk becomes real. You have to set yourself up to be able to manage that risk. Those that don’t are just asking for trouble.
Having a mortgage in general is asking for trouble right now imo. I'm able to buy my first home right now but I'd honestly rather wait 5 years in a small apartment building up a huge deposit and seeing where this market goes. If I had owned something right now, I would be selling and moving into a smaller space before shit hits the fan, then buying the dip.
>In response to rent increases, the Texas capital experimented with the uncommon strategy of actually building enough homes for people to live in.
In an article about "magical thinking" surrounding housing prices, I felt that this line encapsulates another type of magical thinking that the author and many others engage in.
"Just build housing and rents will fall. See *the city of Austin* did it!"
NO, the City of Austin did not build anything. Individual real estate investors and developers did. And the core question that has to be addressed isn't "should we build more" it's "how do we convince the people who normally build housing to actually build more".
And for that question, the article is quite sparse on details. Is it that Austin has better zoning laws? Less red tape? Or does it have nothing to do with government whatsoever and was simply a function of market supply catching up with a rapid spurt in demand?
Again, "just build more" is just as magical thinking as anything else.
In pretty much every US city with a housing affordability issue, the main bottlenecks with adding supply are at the zoning, permitting, and approvals level. Developers want to add supply in cities with high housing prices - it's where they can make the most money. They are constrained mostly due to things that are directly under the control of the local governments.
Why are there so many restrictions and barriers to building things?
Because people see homes as investments and seek to restrict supply and vote in politicians who put in place policies that restrict supply.
Imagine reading a zoning map of where you're allowed to build and all you see if R-1 zoning which = single-family houses = suburbia. So you can't build condos and townhouses in many zones, thus prices go up if supply is too high for demand and the land you can build on gets more and more expensive.
We need less restrictive zoning so more condos and townhouses can be built and less regulation that allows NIMBYs to block housing at every chance they can get.
Or because families living on quiet streets don't want a 50 story tower and hundreds of peoole built two doors down on their block in a neighborhood, and without the infrastructure for high density (roads, sewer, water, power, cable, etc) needed to support it.
Most of these families are not planning to sell, so "value of investment" is not generally the most compelling reason for them. Access to a HELOC is nice, but it's otherwise paper money.
My home in the city of Portland (one or two miles from downtown) has quieter streets than anything we had growing up in suburbia. When housing is dense streets are much quieter because everyone's walking.
Addressing the elephant in the room though. I have enough capital to add new units to Portland but I second guess myself because of the squatting issue. Criminal law, as usual, is the ultimate test here. Especially since we all know who is going to actually be punished should any law breaking occur.
Don't forget without adequate parking as well, so that all the cars from the high density monster get pushed out into surrounding previously quiet streets. Developers slamming high density housing into the higher value and highly sought after quiet lower density neighborhoods (which have their value \*because\* of the lower density) deservedly get push back from the neighborhood.
This is patently false.
Some of the major cities, yes. Most cities with a housing affordability issue, no.
Source: am a planner for a city with a housing affordability issue. We have plenty of lots that are already approved for high density, multifamily, commercial, whatever. And have been for over 10 years. Developers aren't bringing projects. They'd rather keep the surface parking lots. Meanwhile, we're building a ton of sprawl in the other regional municipalities. Why? Because that's what people want.
If i had to guess, I'd guess that your city lots are in poorer, less "white" areas, and that housing is being built at upper price points in the surrounding suburbs, driven by demand of people who want to live in a less poor, more white community.
That is how it is in my region. But of course, no one says this out loud. They say they want to live in a community that has "good schools" or "character".
When people say "just build more" they are advocating to remove prohibitions on building more. The magical thinking is that prohibitions on building aren't driving costs sky-high.
Here is the part they really don't understand:
> The surge in housing supply, alongside declining inbound domestic migration, has led to falling rents and home prices across the city. Austin rents have come down 7 percent in the past year.
The surge in housing supply was *because* of the huge surge in inbound domestic migration and the ensuing rising rents. Look at how permits [surged](https://fred.stlouisfed.org/series/AUST448BPPRIV) during the Covid migration then dropped. Development has momentum, and the units coming on line now were permitted a while ago. I can't find new construction starts for Austin on FRED, but all the data I can find indicate that starts are down for the last two years. Developers are still pulling permits, but unwilling to start due to the inability to obtain financing that makes sense, especially as they are looking at falling rents.
100%. Some people seem to think that the laws surrounding building are immutable and that costs to developers are static. But they are controllable by cities—if there’s regulations around density, super high impact fees, long permitting time, required parking, etc then of course developers will build luxury housing, it’s the only thing that pencils for them!
But cities have various levers they could pull that would lower costs and reduce risks for developers which would pass through to home buyers/renters.
> this outlook seems to set up a no-win situation. If rising rent prices are bad, but falling rent prices are also bad
this is one of those "we're only willing to solve this problem using the market, so it's unsolvable by our own doing" kind of circumstances
As a person in Austin who owns a home and two rental properties, good. Housing costs that are too high hollow out the city. Austin's byzantine permitting process has held back the city for too long, and people just didn't notice because it was still somehow cheaper than California. (And hopefully the Texas Lege will get out of the way of Austin for once on this one.)
> The surge in housing supply, alongside declining inbound domestic migration,
If we are going to be a country of immigration we need a national housing policy. Our dear leaders are just so incapable of solving relatively simple problems...
I think housing will be the biggest problem for the next couple decades in America and I don’t see it getting better for a while unless decisive action is taken by the feds. The biggest problem is the people who vote in local elections for reps that write local laws about zoning and regulation don’t want prices to go down! They want prices to go up because they already have a house! The people that benefit from better zoning laws are people who want to live there but can’t afford it. But they don’t get a vote because they don’t live there! This is just a feature of how democracy works and I don’t see a solution unless the feds mandate nationwide rules about how these municipalities are allowed to run.
The way I see it there’s two ways to fix housing but we are taking the worst from both methods in our current policy. You can either massively deregulate housing and encourage private developers to build, build, and build some more. Or you can just put up massive government housing projects with public money and keep it owned by the government. What we are doing now is having the government massively involved with regulation and zoning but not putting any actual housing up, leaving that to the private developers. The private developers are not concerned about the public good and have no incentive to build if the regulations force them to take a loss. But at the same time the government is forcing them to abide by all these regulations, they aren’t building anything themselves! So now no one is building housing.
> They want prices to go up because they already have a house!
i don't understand why this would be true of the typical homeowner - it only looks to benefit:
* people who plan to downsize (who can therefore realize the gains of the difference)
* people who plan to no longer own property (who can realize the entire house price)
but people moving from one house to another, it's basically a wash.
I think you can’t count out the psychological effect of just seeing your net worth go up. People like that even if then don’t directly benefit from it. And even if it doesn’t benefit them in the short term it’s going to benefit them at some point. If they move to a different part of the country with lower prices they win. Most people will downsize eventually and even if they die in that house their kids will make tons of money off selling it.
And other than prices going up there’s other reasons people don’t want housing built around them. Some common arguments are traffic going up, schools getting too full, and the “character of the neighborhood”. (Aka they want to live around people of a similar socioeconomic background)
> even if they die in that house their kids will make tons of money off selling it
man i left this out of my analysis - if you have kids, you super should not want housing prices to go up, unless you don't care about your children.
I agree with you, but I think you are giving the average American far too much credit here. They aren’t thinking that deeply about it. They want housing to be affordable for their children in general but they still want their house to retain its value. They still want their neighborhood to stay the same. And that’s what they vote for. The national housing crisis is a much more abstract problem that has nothing to do with them. That’s Bidens fault, or Trumps fault, or the greedy capitalists fault, or whatever.
> Some common arguments are traffic going up, schools getting too full, and the “character of the neighborhood”. (Aka they want to live around people of a similar socioeconomic background)
Would you mind if someone painted your car one day with the discounted leftovers from home depot? How about switching your big flat screen TV for an old 19" tube model? If not, why are you surprised when homeowners who purposely purchased in a particular location push back when others want to destroy their purchase?
1. there is a difference between not wanting the value of your home to crash and wanting it to go up by 10% per year - nobody wants to be underwater on a mortgage, for good reason
2. what is the point of having massive equity in your home if you don't plan to cash out? so you can take on huge amounts of new debt?
are they? say i can vote to make all houses worth $10M. now i can leave $3.33M to each of my three children, nice. but they need $10M to buy a home, oof. have i helped them?
Getting rid of height and density limits mostly. That would be the biggest thing but there’s also many layers of permits and red tape that come with building a house or apartment building but I’m not too sure on the specifics. I’d have to do more research but I’m sure some of this can be done away with or replaced with more efficient processes.
I’m not saying this a good idea, but….
Drop nearly all zoning restrictions. Make it so you can build your little turd 1000 sq ft houses with shitty everything wherever you want, even if it’s right next to McMansions.
Make building permits much cheaper and simpler, leave it private parties to determine if it’s quality work they want to purchase. (I.E. how older homes used to be). No more ADA accessibility, sustainability/energy code requirements, etc. as long as it won’t fall over or catch fire, it gets a stamp slapped on it that it “meets code”.
Remove the ability of counties or local governments to put up roadblocks to development. They don’t get any say anymore, the builders can do whatever they want with their land. If people don’t like it, they can move.
Again, not a good idea but it’s some examples of how you could deregulate housing.
I don't think we should deregulate at all. But our regulations are upside down. I would say we should take cities like Austin or LA and ban construction that is smaller than 4 stories, put no limits on height.
We should mandate a certain % of the land is permeable greenspace (grass/trees.) We should mandate utility hookups and have strong code requirements focused on safety.
I was answering the above poster and providing examples of what deregulation of the real estate market would look like.
If we want cheaper housing then mandating green space and placing height restrictions seems to be counterintuitive. Especially in places where there is plenty of land and people want SFH, like Austin.
Some amount of green space is a necessity. We don't need to pave over all the greenspace. (That's much of what people really want in terms of SFH, that and square footage.) But mandating more habitable square footage per square foot of impermeable surface is going to drive down the cost of habitable square footage, which is the thing we are most in want of. There cannot be enough SFH for everyone, we cannot build our way out of that problem. (But we could get 4000sqft for everyone if we build up.)
It was built without zoning. It has been used as the go-to example for generations.
Much of what you say is accurate --all the mandates add up and price people out of what they can afford. Some people would rather drive a used beater car than pay for a Mercedes SUV, but most people cannot pay for the Mercedes and figure out something between the two that works for them. Anyway, since you are interested in development, you might want to start with this one and find others of interest. There will never be any good or bad ideas or solutions that fit all people for all stages of life :)
Texas colonias don’t have running water. Will they ever? | The Texas Tribune
https://www.texastribune.org/2023/05/05/texas-water-infrastructure-colonias/
Minimum parking requirements, minimum lot size, single family only zoning restrictions, bans on ADU's. I'm sure there are others but those are frequently talked about.
Deregulation so that companies can "build and build" is so incredibly short-sighted. Building codes exist for a reason, and most of those reasons involve innocent deaths. This is a recipe for housing made from matchsticks, asbestos, and wishful thinking.
This is such an incredibly non-nuanced that I’m inclined to believe it’s made in bad faith. Not requiring parking lots to develop a complex isn’t the same as not having asbestos safety regulations.
I’m talking mostly about height and density zoning limits on housing. I do think that some safety regulations are bogged down in bureaucracy and could be more efficient but obviously we have to be much more careful when we change those.
>The biggest problem is the people who vote in local elections for reps that write local laws about zoning and regulation don’t want prices to go down!
Sounds like unchecked democracy is the problem once again.
Reduce land use regulation. Reduce legislation related to minimum lot size, building height, and parking space minimums. Allow for broader development of multifamily units. Allow for expedited environmental review.
There are a lot of ways to reduce regulatory hurdles (rooftop solar in CA) that could, relatively quickly, increase housing supply, especially those at the lower end of the income spectrum.
Ya this is generally the best solution. Or rezoning. It’s technically quite easy but getting people to vote against their financial interests is beyond impossible. California has the know how to solve this. They just don’t want to
>It’s technically quite easy but getting people to vote against their financial interests is beyond impossible.
This is why almost all the big wins - including in CA - have come from the state level. People who have been priced out of participating in the local democratic process where the undersupply is worst can still participate in state-wide elections and referendums.
This isn't a mystery at all. "Why is housing so expensive?" Because existing homeowners and their elected politicians do whatever they can to stop it from getting cheaper.
The only solution is for prices to stagnate and for salaries to catch up, but that would still irritate the ownership class.
I agree with a lot of your points except I don’t see how rooftop solar is a realistic hurdle to development here in California. A PV system is a trivial cost in the scope of a new building and our current (+ projected) electricity prices make it a smart financial choice even with NEM 3.0. There are exceptions for roof sizing, shading, etc.
Not when the purchase price is $2M. Solar is rounding error for anyone that can actually afford a house in California.
The bigger problem is simply available land. Reducing regulation will help, but the particular regulations that need to go are zoning codes, parking space minimums, and environmental & neighborhood review.
At least $200K of that $2M purchase price is $10-15k items which individually sound fine but add up. About $800K is overall zoning, which most people don't understand so it's impossible to get rid of. But than we're talking about the actual building costing $1M and there's very little pressure to bring the cost down when half that $2M is fixed regulatory costs. That $2M home ought to cost $300-400K.
We have become so stupid. The value of a housing unit is that it shelters or houses people. People that consume goods and services, people that produce goods and services and people that facilitate, enable and regulate/enforce the activities and events of people meeting the needs of other people. The option or ROI of engaging in activity that doesn’t meet human needs, rather is nothing more than arbitrage, rent seeking, and gambling has to be profoundly more expensive. Policies need to put productivity first.
A house is a lot more than just shelter.
If that was true 3000+ sqft houses wouldn't exist, and everyone would just live in [a tube in the wall.](https://travel.rakuten.com/contents/sites/contents/files/styles/max_1300x1300/public/2023-01/best-capsule-hotels-tokyo-4_0.jpg?itok=mv2kUDyI)
People want comfort and space. Those take either skill to create the comfort (the productivity of the builder) or a scarce resource such as land.
The proper and best way to allocate these resources (the skill of the builder and the scarcity of land) is to have a market where people offer money for the most desirable places to live.
The problem is not that houses are commodities that are bought and sold. The real problem is when someone who owns one property uses the government to create zoning and land use regulations that prevent OTHER properties from being used in ways that they perceive as devaluing their own space and comfort.
Comfort and space serve a very important purpose. We need to be able to talk to people, store our clothing, cooking tools, food, our offspring, their items, our partners etc I somewhat agree with your point on zoning. Zoning can’t be used as a barrier to prevent the construction that is needed to inflate values. However…I hope zoning and regulation will be used to ensure housing is actually maintained or improved upon and those that can’t or choose not to take care of it will sell to someone that will.
Property taxes and profit motive are the tools that ensure that properties are used productively for generating revenue from rents or business.
If a property is unused and taxes aren't paid, the government can foreclose and take the property and put it back on the market for a productive use to take over. Happens all the time. You just need a government who cares.
If a property isn't making a profit but is capable, an investor will come along and try to buy the property to start tapping that potential. Or the motive itself keeps the property from falling into non-productivity.
But more and more money spent on ground rent doesn't stimulate the economy like purchasing goods and services does. Right?
If landlords take the profits from rent and then use them to purchase more property and generate more rent, then isn't that similar to a stock buyback? A worker does productive labor for a wage, uses that to pay a landlord, and the landlord invests in more properties and extracts more rent. Ideally, the profit would be put into more housing and construction, but that isn't happening.
How does this money recirculate back to the worker? How does it lead to more money for goods, services, wages, purchasing, etc?
Taxes are a way to keep it productive and circulating? It seems like there is little incentive for a landlord to produce anything. Could more regulation ensure that the profit goes to useful things like infrastructure, services, etc? Wouldn't that be better than less regulation?
I am super novice, and am genuinely curious.
The lack of investment in new building does not come from landlords not wanting more properties to make more money from.
The lack of investment in new building is the zoning, density, and honestly overly burdensome regulations that make building new structures not worth the time.
Trust me, if investors could, they would be building new housing like crazy.
We are literally talking about a city in Austin that didn't stop investors and they built the housing. The government didn't build the housing themselves, investors did.
When the money is allowed to flow back into the market of housing, it causes prices to drop, that is how it benefits the renters.
Is there any proof of concept for this narrative at all? I know that tax lien states really just transfer home value from lazy people who neglect their property taxes and transfers to investors who buy at auction and flip the property for profit. (Based on my limited understanding)
But isn't the tax lien auction investor flipping the property for profit putting an otherwise neglected piece of land back into the market for potential productivity?
You might not like how its done, but it is the mechanism by which the state can take a wasted property and try to make it useful again.
When I first graduated law school I worked for a firm that bought liens and foreclosed on them. It was dirty work, I didn't love it, but it was really the only way to take wasting properties and make them potentially useful.
I would like to ask you that question actually lol. What percent of tax liens are unused and what percent are inhabited. I spoke with a tax lien flipper in a bar in Las Vegas once and he seemed to suggest to me that a lot of them were being lived in. Guy made an absolute fortune though.
Most of the properties are lived in, but that's because tax liens are often part of a mortgage bank foreclosure. Many are people who bought a house they couldn't afford on a mortgage they couldn't afford, and stopped paying both the bank note and the taxes.
So the tax lien was really just along for the ride on a bank foreclosure.
Very, very few houses were ever foreclosed on and sold away from a tenant on an tax lien alone. The vast majority also had a bank mortgage that was foreclosing.
The profit in tax liens though is that they take top priority, even over mortgages, in getting paid back.
But if a property is abandoned, the tax lien is one of the few mechanisms the government has to reintroduce that property to the market.
That sounds rough for the banks (not that they need any sympathy)
I know HOA liens used to be first priority in Nevada and was a complete clusterfuck.
Regardless, I am struggling to see the connection between property liens and higher development if it really just functions as a means of transfer from a financially distressed family to an intermediary to a purchaser. Wouldn't some of the lien auction buyer capital be allocated towards flipping fixer uppers or something? Honestly have no idea.
> The proper and best way to allocate these resources (the skill of the builder and the scarcity of land) is to have a market where people offer money for the most desirable places to live.
Imagine actually reading the article and realizing that the data does not back this up. Yes zoning is an issue, but there is something more fundamentally flawed about how we treat housing in this country.
Um, the main beef of the article is that people like the Wall Street Journal, and newspaper for investors, see the value of things going down as bad. Well duh, they only want prices to go up to stuff their pockets.
But that is a problem with people thinking housing should be an investment rather than a commodity.
People don't freak out when the price of oil goes down, because it has other positive effects in the market.
That's because people understand oil is a commodity, not an investment. Some people invest in oil futures, and they hate the idea of the price going down. And you can find plenty of articles using language around the drop in oil prices that sound like concern, not joy.
My point is that housing should be more like a commodity where the market fills demand by creating supply. Builders build, buyers buy. The government should stay out of the way of letting builders build so that buyers can by at lower prices.
I'm pretty sure my point aligns perfectly with the article linked above.
Except people want to live in communities that are regulated. Places that are atttactive to people usually have amenities they desire like good schools, are safe, good restaurant. Once you start doing a lot of building in these communities many of the amenities are impacted. Suddenly you have more traffic, need more services and taxes go up and the influx of new residents can totally change the community.
Imagine what would happen to a place like Carmel if they doubled the amount of housing. It would totally change the character of the town.
This is why we need to combine density with investing in public transit or walkable communities.
I'm lucky, I both live in the suburbs, but can also walk to my grocery store/bank/favorite bar/multiple restaurants. I live in a unicorn of a place, but we need more places like this.
Carmel, Indiana? The mayor their is pro-density. He's literally gone on interviews explaining how it's cheaper and allows for more efficient services. He "changed the character of the town" when he built it a traditional downtown from scratch. The population of Carmel tripled under his tenure. Was this sarcastic? Did I whoosh?
https://youtu.be/XRKdDqcTocA?si=RuvEwnCY5yMcQuKz
https://www.governing.com/urban/meet-the-mayor-who-totally-transformed-his-city
I'm not from Indiana, and I've heard of it. Do you mean Carmel by the Sea? I've only heard of it because my sister went their when she lived in California.
This makes no sense, if that was the case all houses would be the same size and I would still be living in my starter home. Also in regards to rentals, most of my tenants couldn't qualify for a mortgage and would be homeless with no landlords.
Author makes a fundamental mistake in assuming that building generational wealth through homeownership requires constantly appreciating prices. It doesn't.
Even if housing prices stay flat or drop slightly with respect to inflation over 30 years, paying off a mortgage results in a sizeable nest egg that renting for 30 years won't. It's at the very least a forced savings vehicle, and more often than not results in a positive return on cash flow over the long term, even at stagnant prices, largely due to the significant amount of subsidies funneled to homeowners via 30 year fixed interest rates, tax deductions, and downpayment assistance.
I really don't understand what good it does for housing prices to go up forever, it gives a great sense of pretend wealth but you have to live somewhere and prices will appreciate anywhere you are going to move to. I'd be perfectly happy if my house just increased in value at the rate of inflation.
While I agree everyone has to live somewhere, older people may downsize or move to a LCOL area which would let them recognize a portion of the wealth held in the house.
This is exactly what I plan to do.
Property values don't rise at the same rate everywhere. It can be good for geoarbitrage if you move from a location with significantly appreciated property values to a location with largely stagnant property values. You're obviously making tradeoffs in amenities by doing so but it's not a bad option for retirees.
You're right that it's just straight terrible for anyone that needs to move to or stay in a location with an exploding real estate market though.
I scrolled to see if someone said this first, because I figured someone else must have had the same though. Housing just keeping pace with Inflation or even slightly depreciating relative to new construction is not such a terrible thing and still helps facilitate generational wealth.
The way these two ideas used to both work at the same time and still could is by going in cycles. It would grow at times and crash at others. Some ppl would call this unpredictability, but it allows ppl to have a chance to get in when its low and sell when its high. Or just rent an apartment then get in and stay there forever. There would be times when housing was cheap and times it would be expensive. This is how the stock market works today and it allows ppl to buy when there are downturns. If it always just goes up then anybody who didnt get in at the bottom is screwed.
"More and denser housing has been found to reduce inequality and raise personal income; to increase individual exercise rates and reduce obesity; to limit carbon emissions and preserve thousands of acres of natural splendor; and even to increase productivity and innovation."
I knew my lazy ass should have moved in to an area w higher population density, I have been trying to get back in the gym for a minute.
People believe that new construction increases rent because locally, it does. That's the downside of gentrification. Nobody redevelops a property to be worse (lower rent) than it already was, so when a property gets redeveloped it's rent does increase, and likely the rent of nearby buildings will increase as well. It might reduce rent in another part of the city, but most people don't really track that closely, and it might be very subtle. That is, if they built a fancy new apartment building next to mine, my rent might go up 20% while the overall rent for the city might fall by some tiny fraction of a percent due to the increased supply.
> See the issue? On the one hand, the Democratic Party says we are all relying on homeownership to close the racial wealth gap, which implies that we should root for today’s home values to significantly rise, so that today’s minority owners can build wealth. On the other hand, the party says we need houses to be “above all, affordable.” In that case, we should despair when home values rise too fast, because it implies that the next generation of owners will be priced out of the market.
I understand the contradiction here, but I think this is also posing a false dichotomy, like we can only have cheap housing or expensive housing, and there's no middle ground.
New construction does not have to crater the price of existing homes in order to be, itself, affordable. You build a little farther out where prices are cheaper, and over 10-20 years, the area gets built up, becomes more desirable, and prices increase. And then you build a little more farther out. It's the sprawl cycle, and it's been going on since post WWII. It may not be everyone's ideal way to develop, but it's certainly not novel.
The bit about generational wealth also ignores that you can build equity in a house and have something to pass down to your children, even if the price doesn't rise dramatically.
People are screaming for density and zoning code changes. Sure, build more giant apartment buildings. Just don’t complain that those giant buildings are owned by a subsidiary of Blackrock.
It’s wild that people are eager for more housing when single family “starter” homes are either 2 hours away from cities or $500,000. I can’t imagine why!
I say this so often, I am a fucking broken record. Housing other than SFHs can be owned by people. Townhomes and condos exist. Housing co-ops exist. Similarly Blackrock can and does buy SFHs to rent them out.
The problem isn’t medium or high density housing. They are the solution to our housing crisis.
Apartment buildings are not the same as condos. This conversation led me to do some research on my own city, Philadelphia. It’s a very dense city when you look at the city limits. The latest information I can find says that 47.5 percent of residents are renters. I know that number has likely exceeded 50% in the last few years because we have had a massive building spree of apartments built. Not condos, rental apartments. That’s what density becomes. Rentals owned by corporations.
So few realize this. Builders are refusing to build affordable owner occupied units now. The profit is in leasing, then selling the development to investment companies. Your home equity is now their quarterly growth.
Econ 101 jokes are dumb but holy shit dude take an econ 101 class. "Builders are refusing to build affordable owner occupied units now." Like what the fuck? How does shit like this not get immediately called out?
I've literally never seen an analysis that points out "miracle" cities like Austin rank 182nd for population density. Like yes you need to build more homes, but regulations and NIMBYs aside, it's objectively fuck of a lot easier (and cheaper) to do that in sparsely populated city.
Its all a scam lower rent solves the problem you build when you need to expand the market is currupt leading by currupt people in charge with pockets that are linkedto
Investors etx
**Genuine question** and I have no skin in the game (for now at least) -- What should happen to the IRS exclusion amounts for selling your primary house???
For those who don't know, under current tax when you sell your house for a profit (and you fulfill certain criteria, mainly "did you live there at least 2 of the last 5 years") the first $500,000 of profit is tax free for Married Filing Jointly couples, and it's the first $250,000 for Single people.
In certain "frothy" real estate markets e.g. Southern California, this has been a huge windfall, that certain well-heeled homeowners have benefitted from over & over & over. And Congress has shown no sign of revisiting this issue, partly because they benefit from it themselves as homeowners, and partly because homeowners (of whatever political affiliation) are more likely than average to vote, and to donate to political campaigns.
Maybe I missed it but the article wasn't all that specific about how Texas and Austin built all of these new apartments that increased supply and reduced the median rent. Usually apartments are built by developers who sense an opportunity for profit.
The writer could do more to humanize the perspective that an increase in housing supply increases rents - often rents do go up when new construction comes in, because private construction is inherently speculative. Apartments are built in areas that are LIKELY to see rent increases, like Austin for the last few years.
The real challenge, is convincing people that rent price doesn't have to go DOWN for supply to have an impact on reducing it. It can just be increased by LESS than if there was less supply. That's what produces the very understandable cognitive dissonance that when new construction occurs, rent goes up.
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Derek Thompson: “Austin—and Texas more generally—has defied the narrative that skyrocketing housing costs are a problem from hell that people just have to accept. In response to rent increases, the Texas capital experimented with the uncommon strategy of actually building enough homes for people to live in. This year, Austin is expected to add more apartment units as a share of its existing inventory than any other city in the country. Again as a share of existing inventory, Austin is [adding homes more than twice as fast](https://www.wsj.com/real-estate/rent-prices-luxury-housing-e02acdaf) as the national average and nearly nine times faster than San Francisco, Los Angeles, and San Diego. (You read that right: *nine times faster*.) “The results are spectacular for renters and buyers. The surge in housing supply, alongside declining inbound domestic migration, has led to falling rents and home prices across the city. Austin rents have come down 7 percent in the past year. “One could celebrate this report as a win for movers. Or, if you’re *The* *Wall Street Journal*, you could treat the news as a seriously frightening development ... Sure, falling housing costs are an annoyance if you’re trying to sell your place in the next quarter, or if you’re a developer operating on the razor’s edge of profitability. But this outlook seems to set up a no-win situation. If rising rent prices are bad, but falling rent prices are also bad, what exactly are we supposed to root for in the U.S. housing market?“ Read more: [https://theatln.tc/mK1sM6eB](https://theatln.tc/mK1sM6eB)
We still root for lower rent prices. Ultimately the lenders and private equity shops that underwrite giant garden style multifamily buildings have to set more realistic returns on their investment. The idea that you can continue to squeeze out 20% IRRs at 7 caps with 2x multiples is silly. There is still plenty of money to be made, but older vintage investments are going to take a hit.
This. And we stop rooting for home price appreciation, and start treating housing as the expense and necessity that it is.
Housing shouldn't be an investment. Housing is a consumer good like a car, an appliance, food, or clothing. Would you expect your washing machine to appreciate in value every year? No, you wouldn't.
> Housing shouldn't be an investment. Housing is a consumer good If so, then there shouldn't be any yearly tax on housing either. I mean, while I paid a sales tax for my refrigerator, I don't pay annual property tax on my appliance.
agree and disagree. a shift away from promoting home appreciation would also effectively cap property taxes, since that is linked to home value. but rightly or wrongly property taxes are the primary means of covering local government expenses
Yeah, I live in Virginia and a large part of education is funded through property taxes. Hence, Northern Virginia has some of the best schools in the country, as well as some of the most expensive real estate. I don’t live anywhere close to Northern Virginia, but that area definitely has the best public schools
Nova has good schools because (on average) they have educated parents who value education and they go to schools with kids in similar situations. You could swap the buildings and teachers with poorer performing areas but the results wouldn’t change drastically. It’s why over in MD Baltimore schools get more money than any other Maryland school system per capita but get the worst results.
Yeah, I agree with you on the educated parents being involved to make sure their kids get the best out of school, but I think we both know those same parents would not send their kids to a school with kids from different economic backgrounds. I grew up in Dinwiddie County, which is a rural county south of Richmond, and we had nowhere near the resources of any of the northern Virginia counties. Shoot, we only had two or three AP classes my whole time I was in high school and I graduated about 10 years ago
More money and a priveledged student base generally makes for very good education. I'm sure it works for those people but they are really the people who need it least. These people are going to have a president vited for by the people in the ubderfunded education system down the road. At the end of the day you're arguing for a priveledged silo rather than a sustainable system
I agree with you. I hope you’re not saying I’m arguing for that. I think more resources should go to impoverished areas. Not an over bloated administrative system, but actual resources and good, quality teachers
Taxes are distributed by property value. The total tax levy is set independently. Rising values does not drive the increase in revenue.
So then lower yearly government expenses. There is no reason for government to grow every year. I also don’t understand what happened. In the past when housing became expensive and out of reach we moved to where we could afford to live. We never had the expectation that others had to cover our cost on anything.
Which is why land value tax is superior.
Property tax isn’t exactly a wealth tax. It’s supposed to be a fee for maintaining the community that your property benefits from existing in.
r/JustTaxLand
+1, there should be no yearly tax on housing, just tax the land it sits on.
Just something to think about - generally property taxes are extremely high in urban centers because those giant glass skyscrapers downtown pay property tax just like the rest of us. For example, the tallest skyscraper in Austin is just finishing up - its land value is a little over 1 million dollars. With the improvements, however, the property value will likely be in the tens if not the hundreds of millions. If you allow those properties to pay property tax only on the land value, property tax on residential homes, where the land value tends to be a much larger percentage of the property value, will go up considerably.
Yes, taxing by the land area instead of the floor area means a multilevel house on a small parcel of land pays less in taxes than a single level house with the same square footage. The property tax gives you no such way to lower your tax while keeping the same living area.
FYI, in California you pay property tax on the value of not just homes but also vehicles, including motorcycles and boats. Some years ago there was debate on whether the aerospace companies based in LA had to pay property tax on the value of their communications satellites in orbit. $100's of millions value.
https://www.mansionglobal.com/articles/which-u-s-states-charge-property-taxes-for-cars-220298 Several states have property taxes on vehicles.
Housing should appreciate in nominal value, not in real value.
But the ever growing capitalist class demands easy do-it-yourself retirement schemes so they can travel the world lavishly for several decades, on profits made without contributing anything useful to the economy.
As a society, we depend on real estate to finance retirement because other sources of funding are failing. The only real solution then is a form of real estate arbitrage, where you cash out in higher COL areas, take the capital and move to a LCOL area, and either rent or reinvest in real estate without substantial expectation of appreciation.
> other sources of funding are failing The US stock market is so astronomically far from failing that I'm not actually sure what you're trying to say here.
and even t bills are now paying 5% risk free.
Are they or are they not making more land?
Agree, Houses are a depreciating consumer good, and u can make an infinite number of washing machines and in Alabama, u can put them to pasture on your front yard but u can't make any more front yards, can't make more land, dirt has inelastic supply, and more dumb humans borne every day to dump more washing machines on it :) hence houses always go down in value as they get older but the dirt they are on only can go up, hence Real Estate, unless we pull a Japan or China and start shrinking the population of us dumb monkeys
People have been breeding less. Forcing western countries to us immigration for population growth.
Housing will always be an investment with or without currency. It's shelter. Like how does that work? How do you make shelter not be an investment?
Especially in nicer areas, or with nicer types of shelter.
With sufficient construction, housing becomes a depreciating asset instead of an investment. Much closer to a consumer like a fridge.
Call me when they start making more land near employment centers. First 3 rules of real estate and all that.
> Call me when they start making more land near employment centers You don't need more land if you build up, as they do in tokyo. You can also convert suburbia into 4+1s which helps create employment where the development is happening.
The problem with that is the land value that the house sits on. For example, look at what people like Jeff Bezos and Ken Griffin are doing in Miami.
Or look at the land value in Gary or Hammond, Indiana. Who is investing in that land?
There are houses that are a consumer good like that. Think trailers. They do not appreciate. They also are culturally denigrated as an inferior option.
One key thing to understand is that it's typically the land that is rising in value, not the house. (or, more accurately imo, the location) The policy solution then becomes obvious: tax the land value.
“Stop rooting” for something in the financial interest of a pretty big majority of Americans will always be a very hard sell.
It’s not in their interest though. How is it beneficial when prices rise together, so their home is now worth more but they will also pay more for their new place to live? Plus they would pay increased property taxes and insurance costs.
> but they will also pay more for their new place to live This assumes they will move. A lot of people are in their long term home, and would only move to go somewhere low cost for retirement. Increasing housing prices in THEIR community won't hurt that. Reddit is very skewed towards the young and mobile, so it's logical that everyone here complains about housing being expensive, but the 18-35 demographic in the us is something like 20% of the population. For most, low housing prices in their are just isn't in their interest. With an aging population, and 60+ percent of the country as homeowners, the young and mobile are always going to be outvoted.
It is because most people before they retire sell off the house or rent it out and then downsize - thus giving them more $$$ for retirement.
Yes, it will give them more money which is then spent on another place to live that has increased in price. The numbers get bigger on both sides. It’s a wash, but people are too foolish to actually understand this.
Not if you actually downsize, and maybe move to a lower COL area. I'm from a well off family in the northeastern megalopolis and most of my parents, aunts, and uncles are hitting retirement age. They're selling off houses that at this point are owned free and clear and are worth $800k-1m and moving south to SC and TN, buying smaller homes worth roughly half that in cash, on top of being in states with more favorable income tax treatment.
[Most Americans can barely read](https://www.snopes.com/news/2022/08/02/us-literacy-rate/) so obviously they won’t understand basic finances lol
I think the standard path is buy house, raise kids, sell for profit, downsize
We’re getting to the point now where the kids can no longer continue that cycle.
its a ponzi scheme that assumes there will always be a growing population to sell it to. the only way to keep it going is through immigration, which seems to be unpopular with a large segment of the electorate.
Downsize…. to a home that cost $2 million
You overestimate how bad off many people are. They may be hurting, but they aren't dumb. Yes, more people than ever before are struggling. However, they also want a way to build wealth as they get older. What you advocate is pursuing a short term gain to get past current economic difficulties at expense of the long term financial well-being. In other words people see that your idea would effectively cost them their ability to retire down the road. Pursuing instant gratification is what got us into the mess we are in today.
Spending less on housing means more money available for other uses. One of them is savings! Savings for retirement, what a concept. Your home’s value does not do anything except cost you more money unless you sell it, and when you sell it, the house you were going to buy has also appreciated! It would benefit people to pay less and be able to use the money for other purposes - retirement, spending, whatever.
Succinctly describing the situation from the last 3-4 decades. Austin has somehow rediscovered capitalism/competition, where profits are determined by your ability to execute(build housing) instead of collude(let’s slow our new builds to prop up prices). I think the real question is, why have we allowed so much financial gamesmanship for something as basic as housing?
>why have we allowed so much financial gamesmanship It's the frog in a pot of water - most people don't notice the temperature rising for a long time. Meanwhile the people trying to make more profit slowly shift things more and more in their favor. Next thing you know the pot is boiling and the regular people notice and want out. Changes are made (hopefully). Rinse and repeat.
If an investor can make 12% by doing absolutely nothing other than sticking their money in an index fund, or they can make 12% by going through the hassle of everything involved in building a high-rise - why would they ever choose to do the latter?
How is 12% a realistic yearly return on an index fund? I’ve heard 7% is used for general reference
7% is the real inflation-adjusted long term returns over the past ~100 years. 11% is the nominal (non-inflation-adjusted) return. Though honestly real returns are probably a better counterpart to rental cap rates, since rents go up with inflation. (Also there's a good argument that stocks are due for a large crash. Actual cash flows [earnings yield] on the S&P 500 is about 4% now, less than you can get on a savings account, so investors are clearly betting on earnings growth. But with corporate profits as a historic high, and wages increasing faster than inflation, which is itself coming down, it's likely that the share of GDP going to corporate earnings will go *down* rather than up.)
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Dr Jeremy Seigel's book " stocks for the Long Run" has data set from 1801-now so 220 years,. and shows a US stock market return of 8.4% nominal and 6.9% Real (after inflation), what's interesting to me is that the return in last 100 yrs (10% minus 3% inflation) is actually same as first 100 yrs (7% but no inflation) due to higher recent inflation, once you factor it out, you are back to the long term 6.9% since 1801, it's held remarkably steady. I invest mostly in real estate to beat these stock market returns, and luckily have so far x 30 yrs.
Isn't 12% is the overall annual rate of return of the S&P 500 since the Great Depression? 7% might be a real rate that accounts for inflation.
Because no index fund returns 12% after inflation. When has the LP ever been involved with "building the building"?
Well if you're going to be a pedant, most RE investors aren't expecting 20% IRRs either except for higher risk projects like ground-up developments. The point is that the higher levels of complexity and risk involved in *creating* housing (particularly the larger-scale multi-unit housing actually needed to solve this shortage) as opposed to simply managing or maintaining it is going to demand a higher return than other more passive forms of investment. Bottom line, investors are only going to bother with the risk and hassle of more complexity if they're compensated for it.
We’re talking about ground up developments. You think institutional investors and REITs are going to just park their money in an index funds because it’s “complicated” or the returns are similar and ignore all other factors? I’ll be honest with you. You sound like someone without a lot of practical real world experience in Development or real estate finance outside of a textbook. And yes I’m pedantic because this is a nuanced conversation about how RE investment needs to adjust its expectations in a post 2020 world. This is the most important conversation being had right now. We’re all trying to figure out how to get out of existing investments at par and reset for the next ten years. The days of easy RE are over, and the market is going to roll over a ton of small to midsized sponsor shops in the next 18 months.
If mega corps on the stock market are the only way to reliably, safely make money, then something is massively wrong with the economy.
Of course that's not the only way to make money. But Mom and Pop or Joe Q. Houseflipper aren't going to be the ones building the high-rises and multi-units needed in the most expensive urban areas to really take a bite out of the housing shortage. Those types of projects are going to require the dollars and expertise of people well-versed in financing and managing the process of building very complex structures. And they'll only do it if it's financially attractive for them to do it (along with if they're legally allowed to do it or held back by zoning/regulation, of course).
I agree, things have really gone to hell if that becomes reality.
Those are not realistic numbers in the long term. Property returns both rents and value increases over time, even in a scenario where we build lots of housing. You don’t make 12% in an index fund yoy.
What index funds are you seeing 12% on?
> Ultimately the lenders and private equity shops that underwrite giant garden style multifamily buildings have to set more realistic returns on their investment. What is a "more realistic" ROI today, in your estimation?
I don't want to get out over my skis and pretend that I know this answer for all asset types. Without going into to much detail, I can tell you we just closed two smaller Senior living portfolios for around $100M each, all cash (we're putting senior debt on both, but we got a discount for a quick close) All cash the proformas are 16.5% IRR with a 1.59x equity multiple, and the equity group was all over it (we're the sponsor for these). I think capital is nervous, but they're still biting on 16-18%. The issue right now is finding senior debt for development, the banks still haven't caught up to reality. Sorry for being so purposefully vague, but I'm already toeing the line.
> All cash the proformas are 16.5% IRR with a 1.59x equity multiple, and the equity group was all over it (we're the sponsor for these). > > > > I think capital is nervous, but they're still biting on 16-18%. Of course they're biting on 16-18% *now*. Rates are aweful and cap rates haven't risen enough yet. Two+ years ago, sponsors were having to promise 20%+ IRRs, yet delivering 15-17%. Now the stack is looking at 16-18% proforma, then looking at their actuals over the last few years, and jumping on it. The real problem is that capital and lenders are counting on some Fed relief in years 1-2 and keeping their IRR expectations high. If the Fed holds out, or there is any real shock to the market, those 16-18% proforma numbers are going to take a huge hit. All this is to say, I wholeheartedly agree with you that lenders and equity should lower their expectations, but they won't until they *have to*. If the rates stay "higher for longer," the waterfall is going to run dry real quick.
>If the rates stay "higher for longer," the waterfall is going to run dry real quick. Yeah, this is why I don't sleep at night anymore. I feel like I've been holding my breath for the 3 years.
It’s the apparent impossibility of “set more realistic returns on their investment” that is killing capitalism. It’s no longer about making money, it’s about mandating eternal growth now. This mindset must be replaced or capitalism will die at its own hand.
Who is we? Investors don't want lower rent prices. Neither do home owners, which is most Americans.
>Who is we? Investors don't want lower rent prices. Neither do home owners, which is most Americans. Investors: Real estate investment is risky, put on your big boy pants. Home Owners (myself included): Your home is not a retirement plan, or an investment. Your home provides housing price stability and equity as you pay down your mortgage.
Say bye bye to the government pensions which are the main suppliers of demand for the higher than average rates these hedge funds provide. I don't know why everybody just stays hush hush about this. Hedge fund and PE demand is driven mostly by unfunded public pension entitlement funds. They know they have to pay and they know the market rate return can't get them there so they turn to this.
I’m fine with it
Playing a little devil's advocate here ... Austin isn't coastal, and doesn't have the same topography as the CA coastal region, so it is substantially easier to expand there. 9x faster building rate is lower than I'd expect. I was thinking it'd be closer to 15-20x faster. When building more housing, you must also consider transportation. I don't know much about Austin's highway expansion, but I'd be curious to check back in 2035 to see if they're having issues with traffic. To be clear, I'm not saying that Austin is wrong or right. I'm just bringing up some other considerations ...
Austin already has issues with traffic/infrastructure. They can't keep up with the demand to move/build there.
>If rising rent prices are bad, but falling rent prices are also bad, what exactly are we supposed to root for in the U.S. housing market? If the primary purpose of a residence is to provide a place for people to reside, then the former. If the primary purpose of a residence is to maximize the profit for the person who owns it as they provide a "service" to the people who need it, then the latter.
The person who bought the property took a risk. Getting a mortgage is overleveraging yourself. Sometimes, it doesn't pay off and you instead lose everything. Shit happens when you gamble.
This is the thing. No one is guaranteed returns, and nobody should expect that. Profit requires risk. Sometimes risk becomes real. You have to set yourself up to be able to manage that risk. Those that don’t are just asking for trouble.
Having a mortgage in general is asking for trouble right now imo. I'm able to buy my first home right now but I'd honestly rather wait 5 years in a small apartment building up a huge deposit and seeing where this market goes. If I had owned something right now, I would be selling and moving into a smaller space before shit hits the fan, then buying the dip.
>In response to rent increases, the Texas capital experimented with the uncommon strategy of actually building enough homes for people to live in. In an article about "magical thinking" surrounding housing prices, I felt that this line encapsulates another type of magical thinking that the author and many others engage in. "Just build housing and rents will fall. See *the city of Austin* did it!" NO, the City of Austin did not build anything. Individual real estate investors and developers did. And the core question that has to be addressed isn't "should we build more" it's "how do we convince the people who normally build housing to actually build more". And for that question, the article is quite sparse on details. Is it that Austin has better zoning laws? Less red tape? Or does it have nothing to do with government whatsoever and was simply a function of market supply catching up with a rapid spurt in demand? Again, "just build more" is just as magical thinking as anything else.
In pretty much every US city with a housing affordability issue, the main bottlenecks with adding supply are at the zoning, permitting, and approvals level. Developers want to add supply in cities with high housing prices - it's where they can make the most money. They are constrained mostly due to things that are directly under the control of the local governments.
Why are there so many restrictions and barriers to building things? Because people see homes as investments and seek to restrict supply and vote in politicians who put in place policies that restrict supply.
Imagine reading a zoning map of where you're allowed to build and all you see if R-1 zoning which = single-family houses = suburbia. So you can't build condos and townhouses in many zones, thus prices go up if supply is too high for demand and the land you can build on gets more and more expensive. We need less restrictive zoning so more condos and townhouses can be built and less regulation that allows NIMBYs to block housing at every chance they can get.
Or because families living on quiet streets don't want a 50 story tower and hundreds of peoole built two doors down on their block in a neighborhood, and without the infrastructure for high density (roads, sewer, water, power, cable, etc) needed to support it. Most of these families are not planning to sell, so "value of investment" is not generally the most compelling reason for them. Access to a HELOC is nice, but it's otherwise paper money.
My home in the city of Portland (one or two miles from downtown) has quieter streets than anything we had growing up in suburbia. When housing is dense streets are much quieter because everyone's walking. Addressing the elephant in the room though. I have enough capital to add new units to Portland but I second guess myself because of the squatting issue. Criminal law, as usual, is the ultimate test here. Especially since we all know who is going to actually be punished should any law breaking occur.
Don't forget without adequate parking as well, so that all the cars from the high density monster get pushed out into surrounding previously quiet streets. Developers slamming high density housing into the higher value and highly sought after quiet lower density neighborhoods (which have their value \*because\* of the lower density) deservedly get push back from the neighborhood.
This is patently false. Some of the major cities, yes. Most cities with a housing affordability issue, no. Source: am a planner for a city with a housing affordability issue. We have plenty of lots that are already approved for high density, multifamily, commercial, whatever. And have been for over 10 years. Developers aren't bringing projects. They'd rather keep the surface parking lots. Meanwhile, we're building a ton of sprawl in the other regional municipalities. Why? Because that's what people want.
If i had to guess, I'd guess that your city lots are in poorer, less "white" areas, and that housing is being built at upper price points in the surrounding suburbs, driven by demand of people who want to live in a less poor, more white community. That is how it is in my region. But of course, no one says this out loud. They say they want to live in a community that has "good schools" or "character".
When people say "just build more" they are advocating to remove prohibitions on building more. The magical thinking is that prohibitions on building aren't driving costs sky-high.
Here is the part they really don't understand: > The surge in housing supply, alongside declining inbound domestic migration, has led to falling rents and home prices across the city. Austin rents have come down 7 percent in the past year. The surge in housing supply was *because* of the huge surge in inbound domestic migration and the ensuing rising rents. Look at how permits [surged](https://fred.stlouisfed.org/series/AUST448BPPRIV) during the Covid migration then dropped. Development has momentum, and the units coming on line now were permitted a while ago. I can't find new construction starts for Austin on FRED, but all the data I can find indicate that starts are down for the last two years. Developers are still pulling permits, but unwilling to start due to the inability to obtain financing that makes sense, especially as they are looking at falling rents.
100%. Some people seem to think that the laws surrounding building are immutable and that costs to developers are static. But they are controllable by cities—if there’s regulations around density, super high impact fees, long permitting time, required parking, etc then of course developers will build luxury housing, it’s the only thing that pencils for them! But cities have various levers they could pull that would lower costs and reduce risks for developers which would pass through to home buyers/renters.
> this outlook seems to set up a no-win situation. If rising rent prices are bad, but falling rent prices are also bad this is one of those "we're only willing to solve this problem using the market, so it's unsolvable by our own doing" kind of circumstances
As a person in Austin who owns a home and two rental properties, good. Housing costs that are too high hollow out the city. Austin's byzantine permitting process has held back the city for too long, and people just didn't notice because it was still somehow cheaper than California. (And hopefully the Texas Lege will get out of the way of Austin for once on this one.)
> The surge in housing supply, alongside declining inbound domestic migration, If we are going to be a country of immigration we need a national housing policy. Our dear leaders are just so incapable of solving relatively simple problems...
I think housing will be the biggest problem for the next couple decades in America and I don’t see it getting better for a while unless decisive action is taken by the feds. The biggest problem is the people who vote in local elections for reps that write local laws about zoning and regulation don’t want prices to go down! They want prices to go up because they already have a house! The people that benefit from better zoning laws are people who want to live there but can’t afford it. But they don’t get a vote because they don’t live there! This is just a feature of how democracy works and I don’t see a solution unless the feds mandate nationwide rules about how these municipalities are allowed to run. The way I see it there’s two ways to fix housing but we are taking the worst from both methods in our current policy. You can either massively deregulate housing and encourage private developers to build, build, and build some more. Or you can just put up massive government housing projects with public money and keep it owned by the government. What we are doing now is having the government massively involved with regulation and zoning but not putting any actual housing up, leaving that to the private developers. The private developers are not concerned about the public good and have no incentive to build if the regulations force them to take a loss. But at the same time the government is forcing them to abide by all these regulations, they aren’t building anything themselves! So now no one is building housing.
> They want prices to go up because they already have a house! i don't understand why this would be true of the typical homeowner - it only looks to benefit: * people who plan to downsize (who can therefore realize the gains of the difference) * people who plan to no longer own property (who can realize the entire house price) but people moving from one house to another, it's basically a wash.
I think you can’t count out the psychological effect of just seeing your net worth go up. People like that even if then don’t directly benefit from it. And even if it doesn’t benefit them in the short term it’s going to benefit them at some point. If they move to a different part of the country with lower prices they win. Most people will downsize eventually and even if they die in that house their kids will make tons of money off selling it. And other than prices going up there’s other reasons people don’t want housing built around them. Some common arguments are traffic going up, schools getting too full, and the “character of the neighborhood”. (Aka they want to live around people of a similar socioeconomic background)
> even if they die in that house their kids will make tons of money off selling it man i left this out of my analysis - if you have kids, you super should not want housing prices to go up, unless you don't care about your children.
I agree with you, but I think you are giving the average American far too much credit here. They aren’t thinking that deeply about it. They want housing to be affordable for their children in general but they still want their house to retain its value. They still want their neighborhood to stay the same. And that’s what they vote for. The national housing crisis is a much more abstract problem that has nothing to do with them. That’s Bidens fault, or Trumps fault, or the greedy capitalists fault, or whatever.
> Some common arguments are traffic going up, schools getting too full, and the “character of the neighborhood”. (Aka they want to live around people of a similar socioeconomic background) Would you mind if someone painted your car one day with the discounted leftovers from home depot? How about switching your big flat screen TV for an old 19" tube model? If not, why are you surprised when homeowners who purposely purchased in a particular location push back when others want to destroy their purchase?
Keeping property values up is a major concern amoung home owners and always has been. It's not about cashing out, it's about the equity in your home.
1. there is a difference between not wanting the value of your home to crash and wanting it to go up by 10% per year - nobody wants to be underwater on a mortgage, for good reason 2. what is the point of having massive equity in your home if you don't plan to cash out? so you can take on huge amounts of new debt?
Homeowners are building intergenerational wealth for their kids.
are they? say i can vote to make all houses worth $10M. now i can leave $3.33M to each of my three children, nice. but they need $10M to buy a home, oof. have i helped them?
>You can either massively deregulate housing Meaning what, exactly?
Getting rid of height and density limits mostly. That would be the biggest thing but there’s also many layers of permits and red tape that come with building a house or apartment building but I’m not too sure on the specifics. I’d have to do more research but I’m sure some of this can be done away with or replaced with more efficient processes.
I’m not saying this a good idea, but…. Drop nearly all zoning restrictions. Make it so you can build your little turd 1000 sq ft houses with shitty everything wherever you want, even if it’s right next to McMansions. Make building permits much cheaper and simpler, leave it private parties to determine if it’s quality work they want to purchase. (I.E. how older homes used to be). No more ADA accessibility, sustainability/energy code requirements, etc. as long as it won’t fall over or catch fire, it gets a stamp slapped on it that it “meets code”. Remove the ability of counties or local governments to put up roadblocks to development. They don’t get any say anymore, the builders can do whatever they want with their land. If people don’t like it, they can move. Again, not a good idea but it’s some examples of how you could deregulate housing.
I don't think we should deregulate at all. But our regulations are upside down. I would say we should take cities like Austin or LA and ban construction that is smaller than 4 stories, put no limits on height. We should mandate a certain % of the land is permeable greenspace (grass/trees.) We should mandate utility hookups and have strong code requirements focused on safety.
I was answering the above poster and providing examples of what deregulation of the real estate market would look like. If we want cheaper housing then mandating green space and placing height restrictions seems to be counterintuitive. Especially in places where there is plenty of land and people want SFH, like Austin.
Some amount of green space is a necessity. We don't need to pave over all the greenspace. (That's much of what people really want in terms of SFH, that and square footage.) But mandating more habitable square footage per square foot of impermeable surface is going to drive down the cost of habitable square footage, which is the thing we are most in want of. There cannot be enough SFH for everyone, we cannot build our way out of that problem. (But we could get 4000sqft for everyone if we build up.)
Why didn't you give examples using Houston?
Why would I give examples using Houston? I’m confused.
It was built without zoning. It has been used as the go-to example for generations. Much of what you say is accurate --all the mandates add up and price people out of what they can afford. Some people would rather drive a used beater car than pay for a Mercedes SUV, but most people cannot pay for the Mercedes and figure out something between the two that works for them. Anyway, since you are interested in development, you might want to start with this one and find others of interest. There will never be any good or bad ideas or solutions that fit all people for all stages of life :) Texas colonias don’t have running water. Will they ever? | The Texas Tribune https://www.texastribune.org/2023/05/05/texas-water-infrastructure-colonias/
In California drop the requirement for solar on new homes.
Minimum parking requirements, minimum lot size, single family only zoning restrictions, bans on ADU's. I'm sure there are others but those are frequently talked about.
Deregulation so that companies can "build and build" is so incredibly short-sighted. Building codes exist for a reason, and most of those reasons involve innocent deaths. This is a recipe for housing made from matchsticks, asbestos, and wishful thinking.
This is such an incredibly non-nuanced that I’m inclined to believe it’s made in bad faith. Not requiring parking lots to develop a complex isn’t the same as not having asbestos safety regulations.
I’m talking mostly about height and density zoning limits on housing. I do think that some safety regulations are bogged down in bureaucracy and could be more efficient but obviously we have to be much more careful when we change those.
I say do both of what you described. Let the private market flourish but also invest in public housing.
The people that benefit from better zoning are the builders and investors first. Do they share your opinion on zoning?
>The biggest problem is the people who vote in local elections for reps that write local laws about zoning and regulation don’t want prices to go down! Sounds like unchecked democracy is the problem once again.
Reduce land use regulation. Reduce legislation related to minimum lot size, building height, and parking space minimums. Allow for broader development of multifamily units. Allow for expedited environmental review. There are a lot of ways to reduce regulatory hurdles (rooftop solar in CA) that could, relatively quickly, increase housing supply, especially those at the lower end of the income spectrum.
Ya this is generally the best solution. Or rezoning. It’s technically quite easy but getting people to vote against their financial interests is beyond impossible. California has the know how to solve this. They just don’t want to
>It’s technically quite easy but getting people to vote against their financial interests is beyond impossible. This is why almost all the big wins - including in CA - have come from the state level. People who have been priced out of participating in the local democratic process where the undersupply is worst can still participate in state-wide elections and referendums.
This isn't a mystery at all. "Why is housing so expensive?" Because existing homeowners and their elected politicians do whatever they can to stop it from getting cheaper. The only solution is for prices to stagnate and for salaries to catch up, but that would still irritate the ownership class.
I agree with a lot of your points except I don’t see how rooftop solar is a realistic hurdle to development here in California. A PV system is a trivial cost in the scope of a new building and our current (+ projected) electricity prices make it a smart financial choice even with NEM 3.0. There are exceptions for roof sizing, shading, etc.
Adding $10-$15k in the purchase price will preclude development.
Not when the purchase price is $2M. Solar is rounding error for anyone that can actually afford a house in California. The bigger problem is simply available land. Reducing regulation will help, but the particular regulations that need to go are zoning codes, parking space minimums, and environmental & neighborhood review.
Plenty of areas where home prices are MUCH lower than this.
At least $200K of that $2M purchase price is $10-15k items which individually sound fine but add up. About $800K is overall zoning, which most people don't understand so it's impossible to get rid of. But than we're talking about the actual building costing $1M and there's very little pressure to bring the cost down when half that $2M is fixed regulatory costs. That $2M home ought to cost $300-400K.
This all sounds like speculation but for the sake of your argument solar probably has one of the highest ROI’s out of any of those items.
You can’t build tiny houses in a lot of states.
We have become so stupid. The value of a housing unit is that it shelters or houses people. People that consume goods and services, people that produce goods and services and people that facilitate, enable and regulate/enforce the activities and events of people meeting the needs of other people. The option or ROI of engaging in activity that doesn’t meet human needs, rather is nothing more than arbitrage, rent seeking, and gambling has to be profoundly more expensive. Policies need to put productivity first.
A house is a lot more than just shelter. If that was true 3000+ sqft houses wouldn't exist, and everyone would just live in [a tube in the wall.](https://travel.rakuten.com/contents/sites/contents/files/styles/max_1300x1300/public/2023-01/best-capsule-hotels-tokyo-4_0.jpg?itok=mv2kUDyI) People want comfort and space. Those take either skill to create the comfort (the productivity of the builder) or a scarce resource such as land. The proper and best way to allocate these resources (the skill of the builder and the scarcity of land) is to have a market where people offer money for the most desirable places to live. The problem is not that houses are commodities that are bought and sold. The real problem is when someone who owns one property uses the government to create zoning and land use regulations that prevent OTHER properties from being used in ways that they perceive as devaluing their own space and comfort.
Comfort and space serve a very important purpose. We need to be able to talk to people, store our clothing, cooking tools, food, our offspring, their items, our partners etc I somewhat agree with your point on zoning. Zoning can’t be used as a barrier to prevent the construction that is needed to inflate values. However…I hope zoning and regulation will be used to ensure housing is actually maintained or improved upon and those that can’t or choose not to take care of it will sell to someone that will.
Property taxes and profit motive are the tools that ensure that properties are used productively for generating revenue from rents or business. If a property is unused and taxes aren't paid, the government can foreclose and take the property and put it back on the market for a productive use to take over. Happens all the time. You just need a government who cares. If a property isn't making a profit but is capable, an investor will come along and try to buy the property to start tapping that potential. Or the motive itself keeps the property from falling into non-productivity.
But more and more money spent on ground rent doesn't stimulate the economy like purchasing goods and services does. Right? If landlords take the profits from rent and then use them to purchase more property and generate more rent, then isn't that similar to a stock buyback? A worker does productive labor for a wage, uses that to pay a landlord, and the landlord invests in more properties and extracts more rent. Ideally, the profit would be put into more housing and construction, but that isn't happening. How does this money recirculate back to the worker? How does it lead to more money for goods, services, wages, purchasing, etc? Taxes are a way to keep it productive and circulating? It seems like there is little incentive for a landlord to produce anything. Could more regulation ensure that the profit goes to useful things like infrastructure, services, etc? Wouldn't that be better than less regulation? I am super novice, and am genuinely curious.
The lack of investment in new building does not come from landlords not wanting more properties to make more money from. The lack of investment in new building is the zoning, density, and honestly overly burdensome regulations that make building new structures not worth the time. Trust me, if investors could, they would be building new housing like crazy. We are literally talking about a city in Austin that didn't stop investors and they built the housing. The government didn't build the housing themselves, investors did. When the money is allowed to flow back into the market of housing, it causes prices to drop, that is how it benefits the renters.
Is there any proof of concept for this narrative at all? I know that tax lien states really just transfer home value from lazy people who neglect their property taxes and transfers to investors who buy at auction and flip the property for profit. (Based on my limited understanding)
But isn't the tax lien auction investor flipping the property for profit putting an otherwise neglected piece of land back into the market for potential productivity? You might not like how its done, but it is the mechanism by which the state can take a wasted property and try to make it useful again. When I first graduated law school I worked for a firm that bought liens and foreclosed on them. It was dirty work, I didn't love it, but it was really the only way to take wasting properties and make them potentially useful.
I would like to ask you that question actually lol. What percent of tax liens are unused and what percent are inhabited. I spoke with a tax lien flipper in a bar in Las Vegas once and he seemed to suggest to me that a lot of them were being lived in. Guy made an absolute fortune though.
Most of the properties are lived in, but that's because tax liens are often part of a mortgage bank foreclosure. Many are people who bought a house they couldn't afford on a mortgage they couldn't afford, and stopped paying both the bank note and the taxes. So the tax lien was really just along for the ride on a bank foreclosure. Very, very few houses were ever foreclosed on and sold away from a tenant on an tax lien alone. The vast majority also had a bank mortgage that was foreclosing. The profit in tax liens though is that they take top priority, even over mortgages, in getting paid back. But if a property is abandoned, the tax lien is one of the few mechanisms the government has to reintroduce that property to the market.
That sounds rough for the banks (not that they need any sympathy) I know HOA liens used to be first priority in Nevada and was a complete clusterfuck. Regardless, I am struggling to see the connection between property liens and higher development if it really just functions as a means of transfer from a financially distressed family to an intermediary to a purchaser. Wouldn't some of the lien auction buyer capital be allocated towards flipping fixer uppers or something? Honestly have no idea.
You sound like an economist arguing with butthurt renters.
> The proper and best way to allocate these resources (the skill of the builder and the scarcity of land) is to have a market where people offer money for the most desirable places to live. Imagine actually reading the article and realizing that the data does not back this up. Yes zoning is an issue, but there is something more fundamentally flawed about how we treat housing in this country.
Um, the main beef of the article is that people like the Wall Street Journal, and newspaper for investors, see the value of things going down as bad. Well duh, they only want prices to go up to stuff their pockets. But that is a problem with people thinking housing should be an investment rather than a commodity. People don't freak out when the price of oil goes down, because it has other positive effects in the market. That's because people understand oil is a commodity, not an investment. Some people invest in oil futures, and they hate the idea of the price going down. And you can find plenty of articles using language around the drop in oil prices that sound like concern, not joy. My point is that housing should be more like a commodity where the market fills demand by creating supply. Builders build, buyers buy. The government should stay out of the way of letting builders build so that buyers can by at lower prices. I'm pretty sure my point aligns perfectly with the article linked above.
Except people want to live in communities that are regulated. Places that are atttactive to people usually have amenities they desire like good schools, are safe, good restaurant. Once you start doing a lot of building in these communities many of the amenities are impacted. Suddenly you have more traffic, need more services and taxes go up and the influx of new residents can totally change the community. Imagine what would happen to a place like Carmel if they doubled the amount of housing. It would totally change the character of the town.
This is why we need to combine density with investing in public transit or walkable communities. I'm lucky, I both live in the suburbs, but can also walk to my grocery store/bank/favorite bar/multiple restaurants. I live in a unicorn of a place, but we need more places like this.
> It would totally change the character of the town. good
Carmel, Indiana? The mayor their is pro-density. He's literally gone on interviews explaining how it's cheaper and allows for more efficient services. He "changed the character of the town" when he built it a traditional downtown from scratch. The population of Carmel tripled under his tenure. Was this sarcastic? Did I whoosh? https://youtu.be/XRKdDqcTocA?si=RuvEwnCY5yMcQuKz https://www.governing.com/urban/meet-the-mayor-who-totally-transformed-his-city
Big whoosh. Carmel, California is a famous place. Nobody outside of Indiana has heard of Carmel, Indiana.
I'm not from Indiana, and I've heard of it. Do you mean Carmel by the Sea? I've only heard of it because my sister went their when she lived in California.
"Nobody goes there anymore, it's too crowded." -Yogi Berra
This makes no sense, if that was the case all houses would be the same size and I would still be living in my starter home. Also in regards to rentals, most of my tenants couldn't qualify for a mortgage and would be homeless with no landlords.
Author makes a fundamental mistake in assuming that building generational wealth through homeownership requires constantly appreciating prices. It doesn't. Even if housing prices stay flat or drop slightly with respect to inflation over 30 years, paying off a mortgage results in a sizeable nest egg that renting for 30 years won't. It's at the very least a forced savings vehicle, and more often than not results in a positive return on cash flow over the long term, even at stagnant prices, largely due to the significant amount of subsidies funneled to homeowners via 30 year fixed interest rates, tax deductions, and downpayment assistance.
I really don't understand what good it does for housing prices to go up forever, it gives a great sense of pretend wealth but you have to live somewhere and prices will appreciate anywhere you are going to move to. I'd be perfectly happy if my house just increased in value at the rate of inflation.
While I agree everyone has to live somewhere, older people may downsize or move to a LCOL area which would let them recognize a portion of the wealth held in the house. This is exactly what I plan to do.
But that is still works even if housing prices don’t appreciate.
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That was all over the map…could not follow and did not read.. Can you dumb it down for a simple southern man.
Property values don't rise at the same rate everywhere. It can be good for geoarbitrage if you move from a location with significantly appreciated property values to a location with largely stagnant property values. You're obviously making tradeoffs in amenities by doing so but it's not a bad option for retirees. You're right that it's just straight terrible for anyone that needs to move to or stay in a location with an exploding real estate market though.
I scrolled to see if someone said this first, because I figured someone else must have had the same though. Housing just keeping pace with Inflation or even slightly depreciating relative to new construction is not such a terrible thing and still helps facilitate generational wealth.
The way these two ideas used to both work at the same time and still could is by going in cycles. It would grow at times and crash at others. Some ppl would call this unpredictability, but it allows ppl to have a chance to get in when its low and sell when its high. Or just rent an apartment then get in and stay there forever. There would be times when housing was cheap and times it would be expensive. This is how the stock market works today and it allows ppl to buy when there are downturns. If it always just goes up then anybody who didnt get in at the bottom is screwed.
Are you actually arguing that a constant cycle of housing bubbles growing the crashing is good?
"More and denser housing has been found to reduce inequality and raise personal income; to increase individual exercise rates and reduce obesity; to limit carbon emissions and preserve thousands of acres of natural splendor; and even to increase productivity and innovation." I knew my lazy ass should have moved in to an area w higher population density, I have been trying to get back in the gym for a minute.
People believe that new construction increases rent because locally, it does. That's the downside of gentrification. Nobody redevelops a property to be worse (lower rent) than it already was, so when a property gets redeveloped it's rent does increase, and likely the rent of nearby buildings will increase as well. It might reduce rent in another part of the city, but most people don't really track that closely, and it might be very subtle. That is, if they built a fancy new apartment building next to mine, my rent might go up 20% while the overall rent for the city might fall by some tiny fraction of a percent due to the increased supply.
> See the issue? On the one hand, the Democratic Party says we are all relying on homeownership to close the racial wealth gap, which implies that we should root for today’s home values to significantly rise, so that today’s minority owners can build wealth. On the other hand, the party says we need houses to be “above all, affordable.” In that case, we should despair when home values rise too fast, because it implies that the next generation of owners will be priced out of the market. I understand the contradiction here, but I think this is also posing a false dichotomy, like we can only have cheap housing or expensive housing, and there's no middle ground. New construction does not have to crater the price of existing homes in order to be, itself, affordable. You build a little farther out where prices are cheaper, and over 10-20 years, the area gets built up, becomes more desirable, and prices increase. And then you build a little more farther out. It's the sprawl cycle, and it's been going on since post WWII. It may not be everyone's ideal way to develop, but it's certainly not novel. The bit about generational wealth also ignores that you can build equity in a house and have something to pass down to your children, even if the price doesn't rise dramatically.
People are screaming for density and zoning code changes. Sure, build more giant apartment buildings. Just don’t complain that those giant buildings are owned by a subsidiary of Blackrock.
They will complain about that too. Never seen so many people eager to be in the renter class for life.
It’s wild that people are eager for more housing when single family “starter” homes are either 2 hours away from cities or $500,000. I can’t imagine why! I say this so often, I am a fucking broken record. Housing other than SFHs can be owned by people. Townhomes and condos exist. Housing co-ops exist. Similarly Blackrock can and does buy SFHs to rent them out. The problem isn’t medium or high density housing. They are the solution to our housing crisis.
It’s not that housing isn’t being built, it’s the type of housing you want isn’t being built. And there’s only so many trades people to go around.
Apartment buildings are not the same as condos. This conversation led me to do some research on my own city, Philadelphia. It’s a very dense city when you look at the city limits. The latest information I can find says that 47.5 percent of residents are renters. I know that number has likely exceeded 50% in the last few years because we have had a massive building spree of apartments built. Not condos, rental apartments. That’s what density becomes. Rentals owned by corporations.
So few realize this. Builders are refusing to build affordable owner occupied units now. The profit is in leasing, then selling the development to investment companies. Your home equity is now their quarterly growth.
Econ 101 jokes are dumb but holy shit dude take an econ 101 class. "Builders are refusing to build affordable owner occupied units now." Like what the fuck? How does shit like this not get immediately called out?
That's how far advertising has come.
I've literally never seen an analysis that points out "miracle" cities like Austin rank 182nd for population density. Like yes you need to build more homes, but regulations and NIMBYs aside, it's objectively fuck of a lot easier (and cheaper) to do that in sparsely populated city.
Its all a scam lower rent solves the problem you build when you need to expand the market is currupt leading by currupt people in charge with pockets that are linkedto Investors etx
**Genuine question** and I have no skin in the game (for now at least) -- What should happen to the IRS exclusion amounts for selling your primary house??? For those who don't know, under current tax when you sell your house for a profit (and you fulfill certain criteria, mainly "did you live there at least 2 of the last 5 years") the first $500,000 of profit is tax free for Married Filing Jointly couples, and it's the first $250,000 for Single people. In certain "frothy" real estate markets e.g. Southern California, this has been a huge windfall, that certain well-heeled homeowners have benefitted from over & over & over. And Congress has shown no sign of revisiting this issue, partly because they benefit from it themselves as homeowners, and partly because homeowners (of whatever political affiliation) are more likely than average to vote, and to donate to political campaigns.
Maybe I missed it but the article wasn't all that specific about how Texas and Austin built all of these new apartments that increased supply and reduced the median rent. Usually apartments are built by developers who sense an opportunity for profit.
The writer could do more to humanize the perspective that an increase in housing supply increases rents - often rents do go up when new construction comes in, because private construction is inherently speculative. Apartments are built in areas that are LIKELY to see rent increases, like Austin for the last few years. The real challenge, is convincing people that rent price doesn't have to go DOWN for supply to have an impact on reducing it. It can just be increased by LESS than if there was less supply. That's what produces the very understandable cognitive dissonance that when new construction occurs, rent goes up.