A fun thought experiment is to declare yourself "CEO for a day", or "PM for a day". You've been complaining about a societal problem, say the lack of affordable housing, and on this day you get the keys to the kingdom.
How would you solve it? I'll run by a few ideas from the perspective of the Netherlands, as I'm most familiar with it.
"Address land lords by more heavily taxing them or applying caps to rent".
Tried. Has the exact opposite effect. They'll just sell the property. There will be fewer rental homes with even more price pressure.
"Intervene in investing. Control what gets build, introduce price caps, who gets to buy it (for example teachers), etc"
Tried. Projects will simply be canceled. We have a 70% decline in new supply. In fairness, also due to the high interest rates.
"Land should be cheaper"
Can't be done over here. It's the main income for municipalities. Take this away and local taxes skyrocket.
"Building the home should be cheaper"
Can't be done. Materials are more expensive, so is labor, and building standards are much more complicated.
All of the above applies regardless of zoning. So you're in the situation where building a new home costs about 400K at least. Your idea of an affordable home is 200K.
Do share how you plan to solve that?
It's obvious that there's no easy fix, otherwise somebody in the many countries that have this problem would have fixed it already.
There is one thing that seems like it legitimately does work, but it requires a lot of time and a lot of expense. Have the the city (or some other organization interested in providing affordable housing) purchase and/or build so many non-profit housing rental units that it distorts the private market.
In Vienna, around 30% of the rental units in the city are offered through socialized housing programs that are incredibly secure, and low cost. There's so many of these units, that landlords in the private market have to compete with their prices. The for-profit rental units are more expensive than the socialized units, but the average price is still very low compared to comparable cities. As a result, Vienna is the cheapest major city in the German-speaking part of Europe, and Viennese people spend a much smaller portion of their income on housing than their peers spend pretty much europe-wide.
It's an interesting idea and I'm generally in favor of more social housing. I'd be even more in favor of it not being needed at all.
When market rent would be 1,200 yet you pay 800, somebody is paying for that 400. Typically the government, thus tax payers, and it will be subject to political turbulence. Ideally you want so much supply that the market value rent would be 800, as your idea illustrates.
The problem, at least over here, is that the naked price is still very high even without any profit motive. Land is expensive because cities are funded by that. And building that home really does cost 150-200K.
I'm sure you can find some 50K of wiggle room, but at the end of the day it's still going to cost 350K and rent/mortgage will reflect that.
While I somewhat agree with you, I feel compelled to mention that the most derisive term in the lexicon of Economics is "rent seeking behaviour" when they want to describe the behaviour of an actor in an economic system as non-productive, and parasitic, and that terminology is not an accident. It comes from the tendancy of land or property rental markets to quickly become non-productive exercises in wealth extraction by landlords.
While it's definitely possible to screw up a market via government intervention, I don't think it's really true that there's a fixed pie here that is being cut up and redistributed by this policy. I think it's better to be thought of as intervening to stop the rental market from going off the rails.
Buying land or property in Vienna is expensive, but it's actually not significantly more expensive than comparably sized German cities which don't have comparable social housing programs.
I should also note that the socialized housing in Vienna is not something that's just for poor people. People from every social class use it, and it's typically quite well maintained and high quality housing.
The nice thing about trying to follow Vienna's implementation too is that even at the very start, the city can help a lot of people by providing cheap, secure socialized housing to them, even if it will take a long time to benefit renters in the rest of the city.
I think this is a really nice example of how socialized policies can work really well when those socialized policies are aimed at taking advantage of market mechanisms, rather than resisting those market mechanisms.
The housing crisis is a function of homeowners being heavily economically incentivized to restrict supply of homes.
Do all the finger pointing you want. Nothing changes the fact that homes are a valuable investment because we constantly are tightening the housing market at the behest of homeowners who want a big ROI on the biggest purchase they will ever make.
It doesn't matter if it's a mega corporation, a tiny LLC, or your parents. Every one of them has a unified goal: Increase home prices.
Take [corporation] out of the picture and nothing will change. Small time investors will just snatch up those homes instead.
If you actually want to lower costs. If you understand your home grows in value at the expense of denying others affordable housing. There is only one fix:
> Take [corporation] out of the picture and nothing will change. Small time investors will just snatch up those homes instead.
To a degree maybe. Small time investors are less capable of withstanding increasing interest rates, and often lose steam when it comes to the hell that is running a small residential property portfolio and dealing with repairs, rent collection, etc, for relatively low returns.
While I have zero trust for such, but whatever they are trying to say here is that, they don't buy and limit supply but rather invest and build more to increase supply overall.
If you buy something that is limited, you can choke the supply and raise prices/costs, but if you build more of it, it will increase the supply and usually by economical law reduce the price given the demand remains constant.
However, if we take the other side of the coin, we could bend it a little bit and interpret that they invest into institutes and people who buys the assets instead... but that is slightly disenginous to derive from it.
They didn't say that they have a Pavlovian response to the phrase "mortgage securities", trained only on surface-level knowledge of a Ryan Gosling film.
They were simply reminded of the scene from The Big Short with the stripper talking about all the properties she has loans for.
(I'm reading the original comment a couple times and I'm wondering if I'm being trolled.)
Mortgages frequently get bundled up and sold as securities. That's just how it works. Blackrock is one institutional buyer. A mortgage is someone's liability and another's security.
Nothing about "mortgage securities" implies poor lending practices or overleveraging.
And that's where I see the "bad faith" in the conversation.
Why make a jump from "You are reminded of this scene" to "You don't understand how the system works"?
Even if we assume that one follows from the other (it doesn't, that's more than disingenuous) - than the way this was phrased is unnecessarily combative, aggressive and derogatory.
one of the largest Federal criminal prosecutions of nonprofits in US history was after the 1980s Savings and Loan scandal.. where some "bankers" colluded to drain national mortgage insurance assets (a social program setup to enable first time home purchases, and other stabilizing programs, across the US). Anecdotal evidence suggests substantial amounts of collusion occurred during a particular Playboy-sponsored golf series !
viral conspiracies rely on there being a secret that can never be proved or disproved, people susceptible to them would never be swayed by what was written here
so I don’t really understand what compelled BlackRock to even release this now
but telling people you mostly dont buy individual homes just to leave them unoccupied, but provide capital to people who do, doesnt really help? for the people that don’t believe BlackRock, nothing changed, for the people that suddenly now believe BlackRock, well good news: if that bothers you then you have to be bothered by every lender in the entire real estate sector.
> BlackRock is not buying individual houses in the U.S.
> BlackRock invests in multifamily properties, apartment complexes, and other residential real estate.
If BlackRock doesn't buy individual houses in the U.S., but does invest in multifamily, and apartment properties, then what kind of properties are "other residential"? Anything I can think of is either a kind of individual home (which they don't buy) or multi-unit.
"Companies also tout their ability to push rent and fees higher and higher, even as they market themselves as providers of affordable housing. Founded by Blackstone Group, a private equity giant, Invitation Homes raised its average rent in the Atlanta market 37% from $1,336 in 2016 to $1,836 today, according to public filings. It raised rent 11% in 2022 alone."
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"Large investor purchases have accelerated since then. During one 12-month stretch beginning in July 2021, investors bought one out of every three homes for sale in metro Atlanta."
If we actually built housing to meet demand, these kinds of schemes wouldn't matter so much. Supply and demand would limit the ability to extract undue amounts of rent.
But with a constrained supply it's entirely possible for large actors to come in and effect very substantial price moves. This is the case in any demand-constrained market.
Entirely unconvinced. At the very least, they should have this run through an ostensibly reputable media outlet that would at least imply responsibility for the claims and the questionable specificity. I would still be very skeptical, but it's just a joke as is.
The invest in funds that purchase homes. If they make a statement saying that none of their funds is invested in funds that purchase homes, then that's a different thing. But that's not what they said. They are being purposefully duplicitous.
It is very difficult to believe any company that "spontaneously" puts out a "fact check" or "record straightening" website without it being spindoctored, marketed and run through legal to the very limit of what the English language is capable of.
> Most recently, we began investing in new construction, purpose-built for-rent housing developments that add supply to the market and address the increasing demand we see for this property type. Our focus is on building single-family rental housing that can be managed and operated similar to multifamily properties with dedicated property management, leasing and amenities.
So you aren’t buying existing houses, but you’re buying land to build houses for the sole purpose of renting.
To say you aren’t participating in the market is disingenuous at best. Congrats, you found it’s cheaper to build new than refurbish existing, that doesn’t really change the calculus that you’re trying to eliminate home ownership in the US.
They didn't say they aren't participating. They said quite clearly that they are. The accusation has been that they are buying single-family homes and then renting them out. Their position here is that they don't operate at that level at all. They are merely providing capital to companies who may or may not be doing stuff like that at scale.
> They are merely providing capital to companies who may or may not be doing stuff like that at scale.
"Merely" is doing a lot of work there. As is "may or may not be". BlackRock very explicitly provides loans with the specific purpose of doing exactly that.
"They provide capital to companies to do stuff like that at scale".
If you are contending only the rich should be able to own homes, sure. Canada’s had a huge problem of rent vs own and has seen a huge cost of living increase. Building homes exclusively to rent is a net negative when looked at through the lens of home ownership. If, however, you just want companies busy building homes their employees will have to pay someone else to use for the rest of their lives, it’s okay to build just for renting.
No no silly people it's Black Stone! (not Black Rock -- how could you possibly get those confused!) who is stealing all your houses. We are just building houses which will only be rentable so you will rent your whole life and like it!
Thanks for posting the Blackstone link, very helpful.
While I think it's easy to demonize the investment companies (and there is plenty of evidence that in certain markets that non-resident investors drove up the price of housing considerably), basically everything I've read has said that, at it's root, the problem is just a huge undersupply of housing.
My question is: what is the real root cause of that? I know people talk about NIMBYism and regulatory capture, and that is most definitely a factor, but NIMBYs wanting to restrict additional housing has existed for many decades - why is the problem so acute now? Plus, the housing shortage is present in lots and lots of different countries with widely varying housing policies and demographics. Is it all just a consequence of the Great Recession hangover of under-building new homes?
My personal theory is that it's not so much a total broad-based underinvestment in housing, but it's that the economy has further concentrated wealth into fewer and fewer metropolises while many rural areas have hollowed out. E.g. you see depressed rural "ghost towns" in places like Japan and the US, and then you have famous examples of Italy selling old houses in villages for a euro. Thus, in many of these depressed locales, land is near free because nobody wants to live there, but prices in urban/suburban locales have gone through the roof because more people are congregating there.
That's just my pet theory though, I haven't really tried to back it up with hard data. I'm curious if anyone else has more evidence of what's driving the global house price insanity.
This pattern is broadly similar everywhere, where there may be older, denser buildings in a neighborhood but new ones cannot be built because the screws have been tightened over time, parking requirements have become more strict, etc. The opposite should be happening, you should be allowing more capacity as the current capacity is used up to maintain supply.
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There is also the fact that in a lot of areas that stopped building housing in the US, they pretty much reached out as far as you could get from city center by driving as a reasonable commute, so building ever more single family homes became significantly less desirable or possible. Now you hear people with crazy commutes like Stockton to San Francisco, nearly a 90 minute drive at 133km, but that is not really going to work out for most people.
Thank you, excellent insight! Yes, the other "feeling" I've had is that over the past 20-30 years basically the vast majority of land near urban areas was "filled up" - e.g. you could no longer sprawl out or take over farmland, so additional housing growth meant higher density in pre-existing neighborhoods, and we've all seen how existing home owners fight tooth-and-nail to keep that from happening.
I think this quote from the article sums up how zoning and its purpose has changed over the years.
> The legacy 1961 zoning created an invisible city with a loose shape, like a dress bought a few sizes too big, that the physical city had plenty of room to grow into. The Bloomberg administration has left behind a building envelope that’s more like a corset, pulled tight to the city’s body, cinching around places that were already small and boosting its curves.
Money printing and bad economic policy. The government has printed trillions of dollars and injected it into the housing market, via guaranteed loans and loans directly purchased. All this money pushed up prices beyond what new supply could absorb (it takes time to build housing).
We have a similar market failure with higher education: easy money makes for high prices.
But how does that explain a fundamental undersupply of houses? That is, I've read from lots of different sources that the primary issue is more people needing houses than there is supply. I get how all the stuff you've mentioned pushes up the price of houses, but shouldn't that also spur a ton more home building?
I guess a better way to frame my question is "Why has new home building been far below the actual need?"
<< I'm curious if anyone else has more evidence of what's driving the global house price insanity.
Not real data, but like you, I have theory of sorts based on goals. And while affordable housing is a goal to some, even to sympathetic owners, some of the solutions hit their bottom lines when it comes to valuation, helocs and all that. In other words, the push to inflate prices higher is greater than the push to lower those.
"Buying up all the houses currently for sale, so that your only option is renting, and that at a rate we control" is bad.
("All" is an exaggeration, of course. But they have enough capital that they can significantly reduce the available market in several metro areas. The claim is that they do exactly that.)
Rented a house for Invitation Homes, which is owned by black rock. Showed up all the windows were open didn’t think much of it; signed the contract.
Closed the windows, hour later call them up, complaining about the chemical smell. Took three months to get resolved. I was in an out of the hospital for months. Years for family to recover.
Leaking gas, which in a first for me didn’t smell like rotten eggs. They kept blaming the new carpet or paint or whatever else.
and to add to the fun, carbine monoxide from 2 sources. Included alarm with house was faulty.
Plus we were all acting like zombies. Bad smell made us keep windows open most of the time. Otherwise would have died. As it was gas company freaked out at how bad it was
"We don't buy them silly! We just buy huge stakes in the companies who buy all the homes! - totally different! We certainly can't use our monetary influence in any other way!"
FTA > Additionally, BlackRock invests in multifamily properties, apartment complexes, and other residential real estate.
Many multi family units were once SFH. Ignoring this narrows the conversation to a scope that black rock prefers not in a way that is intellectually honest or necessary to critically evaluate the wants needs and desires of the actual market participants and how institutional ownership distorts the market.
Black rock considers it a given that their investments are mutually beneficial but this is not a safe assumption to make and should be evidenced with robust data. I expect the data to show that black rock is profiting off of the misery of their tenants but I’m open to alternatives and hope that I am wrong.
Also, is black rock a participant in the emerging rent price fixing scandal?
This is also a common way to sidestep ESG metrics, instead of investing in companies that do business in oil, coal and etc, invest in investing companies that exclusively invest in those companies instead. Nothing to see here, just investing in financial institutions.
Mortgage securities literally finance the provision of mortgages. Without them, mortgage rates for normal borrowers would be much more expensive and credit requirements would be much more stringent. So house prices would very likely go down (significally) but houses might not be (on net) more affordable for normal people in this scenario because the finance would be much much more costly. You could argue those changes would be healthy overall, but it's not as cut and dried as you might hope.
It's a very complex ecosystem. It's very tempting to fall for superficial hot takes, quick fixes etc but actually making significant structural changes would be very challenging without unintentional adverse consequences.
It would absolutely be healthy for USA society if housing prices were deflated by 2-10x.
I don't care if my mortgage rate is 10% instead of 7% if the overall loan is a fraction of the size (i.e. $200k instead of $700k). Maybe I don't even need a mortgage.
It would be horrible for Wall St, which runs Washington from K Street. Many people would not be able to afford their yachts and Aspen resort homes. This is why we working Americans increasingly can't have nice things.
The lucrative mortgage industry is why Americans are the only country with widespread access to fixed-rate mortgages. The rest of us have to take on 25-30 years of interest rate risk when he get a mortgage.
