
Renting in America Has Never Been This Expensive - uptown
http://www.bloomberg.com/news/articles/2015-08-13/renting-in-america-has-never-been-this-expensive
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astrocyte
It's simple ... Everyone got 'hip to the game' of extorting other people's
productivity vs. being productive themselves (aka rent at elevated prices)

> The housing bubble that blew up was re-inflated to keep tax revenue alive
> and keep the economy afloat (High entry cost warranting high rents)

> Fed rates have been kept low attracting speculation

> Tons of investment firms got into property management/real-estate

> Money seeks easiest method of return.. My father once said "People will
> always need a roof over their head"

> The U.S is pumping immigrants in hand over fist to offset lowered U.S birth
> rates (to keep the hamster wheel turning)

> Housing is a need and, as such, there is a ton of room to exploit people...
> (Markets they call it)

The funny thing about people highlighting wealth inequality is that those in
the middle exploiting the crap out of each other for their own gain don't get
the huge role they are playing in the over-all outcome. Meanwhile, it's those
at the top who are making the lion's share of the profit while the dummies
below eat each other. Of course, this eventually ends in tears but myopia
causes one to ignore that and get what you can while the good is still
gettin'. Bay area landlord "I heard your salary went up.. Your rent has just
went up too"

A true zoo.. and to think what American society would be like if we were
trying to elevate each other as opposed to coming up with creative ways to
exploit and keep others down. Instead of focusing on academic or economic
interpretations, the biggest thing manifesting is : greed/selfishness/lack of
comprehension of a greater whole

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zardo
We also set up regulations to make building truly dense affordable housing
impossible. Where it is possible, it offers lower returns than low density
luxury housing.

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pc86
> _[affordable housing] offers lower returns than low density luxury housing._

Not true - as a RE investor you're always looking for around 1% of the
property's value per month as rent ($1 in rent per month for every $100 the
property is worth). Much below that and you're not going to have sustainable
cash flow.

It is much, _much_ easier to get $1k per month in rent from five $100k
properties than it is to get $5k per month from a $500k property. Especially
in areas with high property values (California), you're lucky to break
0.4-0.5%, which is not going to support any meaningful level of investment,
only speculation. Which in turn helps drive a cyclical market, which helps
pump up the higher end home values, which further hurts cash flow, etc etc.

Lower value housing may offer lower returns in an absolute sense but as a far
as ROI it's much easier to make it on the lower end of the scale.

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gnopgnip
The 1% is based on those costs. If the costs to build affordable housing are
greatly inflated due to permits, city fees, professional services, zoning
waivers, subsidy to BMR, and additional construction costs, the ROI will be
artificially lower than single family detached luxury homes.

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rm_-rf_slash
Understated in these discussions is the role of landlords. In Ithaca, NY,
where I live, people's proportion of income going towards housing by some
counts surpasses Manhattan and San Francisco. Yes, it's a college town with
students already accepting the huge cost of tuition and throwing rent on the
debt pile. Yes, the city is hemmed in by a lake to the north and hills to the
rest. But there are like three landlords in the entire city. One in
particular, Jason Fane, is notorious for jacking up prices on his Ithaca
properties as collateral for his investments in China. Meanwhile, Collegetown
is becoming increasingly split between obnoxiously priced condos and old
houses that look more depressingly decrepit with each passing year.

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WillyF
My 9 roommates and I paid $60k a year for one of those decrepit old houses--
and this was 10 years ago. At $500 per month each, it didn't seem that bad,
but we really got ripped off. The density of college living (for instance I
had to walk through a roommates room to get to mine) allows landlords in
Ithaca to get a level of rent that they'd never get from families or older
individuals.

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iamthepieman
This is true even in rural areas. I bought a house 2.5 years ago and have a
monthly payment (including taxes and insurance) that is about 20% less than an
equivalent monthly rental.

I didn't want to buy a house. I wanted to keep renting and retain the
flexibility and freedom that renting gave me. It just no longer made sense
financially.

What are the underlying reasons for the disparity between rental and home
ownership costs? Obviously low interest rates are one and rented houses that
were bought by their owners at higher interest rates reflect that in their
price. But surely this would eventually normalize if rates stay low.

There must be something else since the relatively low cost of home ownership
should be putting downward pressure on rental rates.

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breischl
It is always the case that the monthly cost to buy is lower than rent. It has
to be, because the rent is covering the cost of repairs and depreciation which
isn't included in your mortgage payment. And then there needs to be some left
over to cover vacancies, and some profit for the landlord. Clearly in some
markets buying is legitimately a better deal. But most people do a fairly
cursory and incomplete analysis before coming to that conclusion.

20% is actually not a very large margin. Depending on how much your house
cost, and how much your rent was, it may have actually been cheaper to rent.

~~~
nilkn
Keep in mind that with a mortgage you're still renting -- you're just renting
money instead of the house. I know this is a simplified view, but some of your
points (e.g., profit for the landlord) have equivalents for a mortgage (profit
for the bank, via interest). Also, you're going to be paying for maintenance
in either case. In the case of owning it may not be literally baked into your
mortgage payment, but that doesn't mean you're not going to be responsible for
repairs on your own house.

Also, keep in mind that a landlord isn't entitled to profit just because
they're attempting to make a profit. It is entirely possible (and it does
happen in reality) that a certain rental market is such that the landlord will
not be able to turn a profit or may in fact even lose money. Being a landlord
is just like any other business -- it can fail.

Finally, rental markets are often _just different_. Here in Houston, I could
not buy an apartment like the one I rent for the same price that I pay. There
aren't many condo buildings for one thing, and the ones that do exist charge
exorbitant monthly maintenance fees. These fees would bring the monthly cost
of owning such a condo to about $500-$1000/month more than what I currently
pay in rent. At the same time, any townhouse or SFH that I might buy which is
larger than what I rent is naturally going to cost more -- often times
significantly more. In other words, the rental market sometimes has options
that _don 't exist_ in the for-sale market. (The opposite is of course true as
well.)

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breischl
Fair enough, I did not sufficiently qualify my statement. But my main point is
that looking at just mortgage vs rent is leaving a lot of costs out of the
equation.

If you can get rent for less than the monthly mortgage payment, then the
landlord is basically subsidizing you to live there and it's a pretty great
deal. Buying in those conditions is a sucker bet.

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groutexpectatio
Multiple factors figure into why the rent is so high, but from a government
policy standpoint, I'm interested in "the decision by consumers to rent over
purchase" but what is more likely, that in spite of low mortgage rates, a
number of buyers are not eligible for credit from private lenders.

The other policy piece that I think is interesting is the private housing
market's ability to deliver housing choices-- what are developers producing,
are they producing luxury units, are they producing affordable options in high
enough quantity, and are developers inhibited by government regulation in
delivering a diversity of housing choices.

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SlalomStallone
I'm definitely in the "rent over purchase" group, even though I could get a
mortgage with good terms. I think people are a bit nervous to purchase a home
after seeing what happened in 2008.

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smoyer
I think it depends on where you're buying your house. The value of my house
dipped slightly in 2008/2009 but is now about 12% higher than it was in 2007.
Buying a home is still a good long-term investment but you have to be in a
position to hold onto it (perhaps by renting it out after you vacate it).

~~~
SlalomStallone
Mostly the interest and upkeep that are keeping me away from purchasing.

If I bought a 200k house, in 5 years I would have paid 43k in interest and
still owe 180k on the mortgage (according to some amortization table I found),
and probably many thousand more fixing stuff that breaks.

After 30 years I will have paid $164,813 in interest, so even if the house
doubles in value it doesn't seem like a great investment.

Am I missing something? Maybe I'm not understanding it correctly but it
doesn't seem like that great of a deal.

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iamthepieman
I think this is caused by a couple of things.

Artificially low interest rates (insofar as the fed rates are artifical)

Banks less willing to loan money to anyone that doesn't fit a narrow financial
profile.

Individuals and business with access to existing capital can get money
extremely cheaply (see points 1 and 2 above)

This creates a stratification that makes it difficult for one group of people
to enter the real estate market and easy for another group to enter and
speculate in it.

The group without access to loans obviously must rent even if they would like
to buy. This inflates the demand for rentals thus raising their price.

The group with capital/access to loans can buy real estate with the express
purpose of renting it taking homes off the market (decreasing supply, raising
prices and further pushing up the bar for home ownership). This is even more
attractive because of the increased demand and price for rental units. Of
course by increasing the supply of rental units this should counteract rental
prices but under the current circumstances I think there's a feedback loop
that favors rising rental prices and entering/expanding the landlord business.

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sliverstorm
My unproven suspicion is this is the consequence of the much-celebrated flight
from the suburbs and return to the city.

\- Take a large population spread over a big area.

\- Consider that they are used to 2,000sqft homes and not the 300sqft
apartments of decades long past

\- Squish them all into cities

Boom, you've got yourself runaway prices.

~~~
staticint
I agree with you entirely. I read recently that the population growth of
downtown Toronto has tripled in the past five years. Assuming that is a trend
consistent with most major North American cities, the cost of housing has to
compensate.

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wj
I don't read this site very often but did read this article about renting vs.
buying using Toronto as an example. With his math you come out way ahead by
renting in a new building downtown vs. buying a house in the suburbs.

[http://www.mrmoneymustache.com/2015/07/27/rent-vs-
buy/](http://www.mrmoneymustache.com/2015/07/27/rent-vs-buy/)

Of course, you might not agree with his math.

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hellofunk
It wasn't explicitly mentioned, but I assume they are referring to a
percentage of gross income, not net (after taxes) income? 50% of gross is
gigantic, which would be a much higher percentage of your take-home pay. I
remember as a student in NYC many years ago, some friends would spend about
70% of their take-home pay on rent, which on average would probably be half
their gross, give or take. So I guess the numbers make sense, but that is
still hard to imagine.

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smoyer
"Exceptions include the Silicon Valley area in California, where homeowners
and renters each devote 42 percent of income to housing costs."

Single engineers and DINKs in the SF area should be buying if they're
expecting to stay any real length of time. Price corrections when the housing
market collapsed may not have helped SF like it did in other areas of the
country but mortgage rates are dirt cheap and rent versus own pricing is at
parity.

~~~
drewg123
My family and I lived in Mountain view for 2 years. We knew we'd only be there
for a year or two, and decided to rent, not buy.

After two years, we'd sunk $120K into our rental. Meanwhile, a friend bought a
house at the same time for $1.3M and sold it just before we left for $1.6M.
Even after real estate commissions, taxes, mortgage interest (which is tax
deductible) and upkeep, I'm sure he came out well ahead of us.

~~~
mlpinit
The market doesn't always move in that direction. Your friend could have been
in a much different position if he invested at a different point in time. If
you take into account the real estate commission + recordation fees, your
friend probably payed about 120k-130k. Also take into account the mortgage
interest and the opportunity cost of the money he could have otherwise
invested in this crazy bull market and your friend probably just barely broke
even. This is in a great market, imagine what would have happened in a bad
market to him...

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leeoniya
who at bloomberg thought it would be a good idea to pollute my browsing
history as i scroll between articles. ugh.

at least use replaceState instead of pushState

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dharma1
not just in America, I think we are seeing the same in many major economies of
the world - London, China, Australia, Brazil (house price vs income ratio
being significantly higher than before)

Good for those of us who own property but not so great for the rest, and makes
you wonder whether it's sustainable.

~~~
jazzyk
Of course it is not sustainable and will end in tears.

Governments around the world have been (re)-inflating asset prices by keeping
interest rates artificially low (far below even the official inflation rates,
never mind the real ones). This causes an ultimately speculative stampede into
assets (stocks, real-estate, etc)

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gglover
I miss the super saturated double gradient Bloomberg used to have on their
banners and feature images after the redesign.

