The Vicious Circle That Is Sending Rents Spiraling Higher 940
jones_supa writes: Skyrocketing rents and multiple roommates — these are the kinds of war stories you expect to hear in space-constrained cities such as New York and San Francisco. But the rental crunch has been steadily creeping inland from coastal cities and up the economic ladder. Bloomberg takes a look at the vicious cycle that keeps rents spiraling higher. People paying high rents have a harder time saving for a down payment, preventing tenants from exiting the rental market. Low vacancy rates let landlords raise rents still higher. Developers who know they can command high rents (and sales prices) are spurred to spend more to acquire developable land. Finally, higher land costs can force builders to target the higher end of the market. The interesting question is how long can this last before we reach a level that is not affordable to the majority of the demographic that is being serviced.
I'm spending 60% of my monthly income on rent (Score:5, Informative)
And I have the cheapest rent on a two-bedroom apartment in a 20 mile radius. I couldn't save for a down payment if I tried. Colorado's average vacancy rate is less than 5%. What is the market doing in response to this? Multi-state property management companies are buying up everything on the market. You can list your property and expect a solid offer at above-market pricing within 48 hours. Rental listings last for mere hours. Developers are building new apartments as fast as they can--luxury apartments that charge higher than market rates, further inflating the market.
Re:I'm spending 60% of my monthly income on rent (Score:5, Insightful)
If they are renting them, they must not be getting higher than market rent - market rent is what something will rent for.
Re:I'm spending 60% of my monthly income on rent (Score:5, Insightful)
That's like saying that slavery is the market wage because of truck systems and the like.
Slaves don't vote on their wages. But tenants, at least in the long run, do vote on their rents. In coastal cities, by big margins, they vote for higher rents. Last year in SF, 95% of all building permits were rejected. This "no growth" policy is broadly popular with voters. The high rents are simple supply and demand. With the supply constricted, you can either pay higher rents, or you can commute for 90 minutes from Tracy or Gilroy. If you don't like it, stop voting for it.
Re:Colorado sure has nice beaches (Score:5, Insightful)
The supply is being constricted by billionaire fuckholes buying up all the existing properties
No. The supply is being constricted by elected government planning commissions. Then the billionare FHs are buying up the tiny number of available building sites. That strategy would not work if there was a reasonable amount of property on the market. Without the NIMBYs and BANANAs, the BFHs would have little effect.
Re: Colorado sure has nice beaches (Score:4, Insightful)
Because letting rich people chase poor people out of their homelands is totally not a problem at all, right?
Imagine if for some reason some impoverished third world country became really attractive to rich Americans, who went there and bought up all the land and pretty soon none of the poor natives can afford to live in their own country anymore. That's no problem, right? Fuck them, they're less powerful than us, that gives us the right to move in and push them out and if they can't compete, their loss and our gain. What difference does it make if the power and competition in question is economic rather than military?
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If they were being pushed out of land they owned, you might have a point.
We're talking about renting. There is no ownership, there is only contract. Most rental contracts do not provide any guarantee of future habitation. This benefits both the landlord and the renter, as both have the same right to terminate the relationship after contract expiration.
On the other hand, a land owner is required to pay taxes, and mortgage dues if applicable. Land owners are guaranteed habitation on the condition of such
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The point is that it's a problem when people who were born and raised in an area can't buy there, because the rents keep getting cranked up and they can't save to buy while also renting. It's just an even worse problem when the rents crank up so high that they can't even afford to rent there anymore.
Re: (Score:3)
The only people who had homelands are native people's. Unless you're a native Indian shut up because your ancestors didn't give a shit. How do you think you are where you are now?
Don't fall for that shit. Original inhabitants were usually not there by choice, and migrated for the same reasons you did. They also fought each other to the death to steal each other's shit. Western culture is exactly the same just slightly more advanced. This myth of the noble savage is exactly that, a myth.
Re:I'm spending 60% of my monthly income on rent (Score:5, Insightful)
Problem with coastal cities is most all the land is already being used
The solution is to go up. Even in Manhattan, much of the land is restricted to four stories. Most builders would prefer to go to 25 to 50 stories, allowing six to twelve times as many people to live on the same land. In SF, even most two story permits are rejected. The BANANAism makes sense for property owners, who see the value of their assets soar, but I don't understand why renters vote against their own interests.
Re:I'm spending 60% of my monthly income on rent (Score:4, Insightful)
The solution is to go up. Even in Manhattan, much of the land is restricted to four stories. Most builders would prefer to go to 25 to 50 stories, allowing six to twelve times as many people to live on the same land
Not necessarily. 4 storey vs 25 to 50 storey is about ten-fold increase. So your "solution" is not a solution if the single storey roads to the place are not also replaced with 10 storey roads. They could be widened 10 times too, if there is space.
If building the 10-storey road is the government's responsibility, you are advocating socializing the external costs and privatizing the profits.
Re:I'm spending 60% of my monthly income on rent (Score:4, Insightful)
You still need land to build so it's tear down a 10-20 story building and kick the renters out or buy up a lot of houses
It is not cost effective to tear down a 20 story building to build a 25 story building. But "buy up lots of houses"? Sure, it makes good economic sense to replace houses with high rise apartment buildings. That should be encouraged.
they'll build luxury condos and sell for half a million and up.
Uhh ... no. In NYC, SF, etc. a half million will not even buy an entry level studio apt.
But so what if they build luxury condos? It is still increasing the total stock of housing, and the people that move into those luxury condos would otherwise be competing down market. The reason builders currently focus on luxury apts is because of the constricted market. When they finally get a rare and valuable permit, they want to get the most they can out of it. If more building of housing was allowed, there would be new housing built for all levels demanded.
Re:I'm spending 60% of my monthly income on rent (Score:4, Informative)
US birthrate is below replacement rate now. Population increases are entirely due to immigration, legal and otherwise.
BLOCKQUOTE>Access to water, food, transportation, trade, and industry, and the increasing shortage of arable land, are all squeezing available living space and ruining the dream of "owning you rown home".
Umm, no. What's ruining the dream of "owning your own home" is the hidden qualifier "any place I happen to want to live".
I own my own home. Ditto my parents and siblings. And my cousins. And children of same are mostly paying off mortgages. Mostly because we didn't choose to live in places like Silly Valley or LA or NYC....
Re:I'm spending 60% of my monthly income on rent (Score:5, Insightful)
Slavery is an economic transaction coerced by government under threat of force. Therefore, its wage is not a "market wage".
Renting an apartment is a voluntary transaction for both parties. Therefore, the money that changes hands is a "market rent".
Re: (Score:3, Interesting)
How far do you have to go to afford rent before it becomes 'involuntary'?
i.e. how far from work/life/community
Re:I'm spending 60% of my monthly income on rent (Score:4, Insightful)
Your world view is fundamentally incompatible with his.
He feels the world owes him something for existing.
Facts and logic inform you it doesn't.
If he were amenable to reason in the first place you wouldn't need to have the discussion.
Re:I'm spending 60% of my monthly income on rent (Score:5, Interesting)
If you're compelled to make limited choices, is it voluntary?
Criminalization of homelessness (Score:5, Insightful)
Slavery is an economic transaction coerced by government under threat of force. [...] Renting an apartment is a voluntary transaction for both parties.
In those cities that have criminalized homelessness, such as through sit/lie laws, renting an apartment is also "an economic transaction coerced by government under threat of force."
We may disagree on the definition of coercion (Score:5, Insightful)
The Wikipedia article "Coercion" [wikipedia.org] defines coercion as "the practice of forcing another party to act in an involuntary manner by use of intimidation or threats or some other form of pressure or force." In cities that have criminalized homelessness, failure to own or rent an enclosed place in which to live lands a person in prison. How is threat of imprisonment not "intimidation or threats or some other form of pressure or force"? Or if you disagree with the definition, how do you prefer to define coercion?
Re:I'm spending 60% of my monthly income on rent (Score:4, Insightful)
Imagine an agrarian society where all the land is divided up into huge plantations, and the only place that anyone can legally live or work (the land) is on one of them, and the only conditions under which anyone will allow you to live and work their land are the conditions under which slaves lived and worked.
You have the right to refuse that, if you're find with having nowhere to live and no way to survive. Basically, you're free to not be a slave, so long as you're OK with dying as a consequence. Not that anyone's going to actually kill you, just that you won't be able to survive unless you submit "voluntarily" to slavery.
That makes it totally not slavery anymore, right?
Re:I'm spending 60% of my monthly income on rent (Score:4, Interesting)
That condition is called "serfdom", and, indeed, it is pretty much the same as slavery. The coercion there is government coercion: "the only place that anyone can legally live or work".
That is not the yet world we live in, although there is certainly a risk that we fall into it; read Hayek's "The Road to Serfdom".
Re:I'm spending 60% of my monthly income on rent (Score:5, Insightful)
Free markets distribute capital according to how much people actually contribute to society.
Which is exactly why a market with rent and interest in it is not free. Rent and interest distribute capital according to who already has capital, not according to their contributions to society. That's why it's called "capitalism", because the prior capital distribution is shaping the market rather than the work of the people in the market.
Imagine a toy market consisting of only two people, who both do the same work and make the same money from that work. One of them has more capital than he's using, and the other doesn't have enough capital to use. The latter then has to borrow capital from the former, and pay the former for the privilege. Thus, though they both contribute exactly the same work, one of them accumulates more capital and the other loses it, only because the prior distribution of capital was different.
That is how rent breaks a free market and turns it into capitalism.
Re: (Score:3)
The problem is that person one isn't "risking" anything more than would have already been risked if the capital had been evenly split in the first place. Person one isn't doing anything more, he's just entitled to more by virtue of the prior distribution of capital.
And things like progressive tax structures and estate taxes are bandages over the problem of capitalism being rigged for people who already have capital. The kind of state socialism that is usually proposed as the alternative for a free market is
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Your premise is wrong: capitalism is not "rigged" for people who already have capital. If you're born rich, chances are you'll die a lot less well off than you were born.
Here is a longer discussion: http://www.economist.com/news/... [economist.com]
Lottery winners are another e
Re:I'm spending 60% of my monthly income on rent (Score:4, Insightful)
Small units don't need to be subsidized, they simply need to be permitted. Places like San Francisco have minimum size restrictions for apartments and condos, and they are in large part responsible for the astronomical housing prices.
Re: (Score:3, Interesting)
Yep, subsidy or not, nobody wants a shanty town in their backyard. I'm not even sure it's a good idea. Packing the poor into high density housing doesn't have the greatest track record, but of course it sort depends on if the goal is to have people live in basic dignity or if it's just to move the poor/blacks "somewhere else" and then drop all support for the project once they are, "somewhere else". As fucked up as the free market is, I have little faith in government's ability to improve on it.
Re:I'm spending 60% of my monthly income on rent (Score:5, Insightful)
Maybe you should learn what communism is before calling anyone "commiefriend". (Which I have to say, is really repulsive. It's sort of like picking your nose over the internet.) I think you are discussing the difference between lasiez-faire ecomomics and regulated markets. Communism is a very great difference in scale from that. And it's never been tried on a national scale just as "free market" has never been tried because there are always economic biases that make it impossible. What there has been so far is socialism.
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Increasing prices when demand increases and supply doesn't is just a free market.
Is it a bubble? Maybe. But, almost every market has bubbles. In fact, the sweet corn market where I live has a bubble every damned year - supply peaks in spring/summer and everyone is selling corn cheap then, as sure as fall follows summer, local supply plummets and the price goes up (and I stop buying corn -- reducing demand).
If rents stay high, investment in rental property will rise and supply will increase if it's allowed t
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Re:I'm spending 60% of my monthly income on rent (Score:5, Interesting)
I'm spending 60% of my monthly income on rent
They actually let you do that? I'm about to rent a luxury apartment (resort style, costs about $1100 a month, has gym, two large pools, tons of other amenities) and one of their requirements is that your income has to be at least 3 times what the rent costs. This is my first time renting though, so I don't know what the norm is.
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Landlords are businesses. Most don't do an income test before letting someone rent anymore then Apple or Sprint do. The ones that do are mostly doing it because it's a legal way to keep the riff-raff from moving in and ruining your building's NPR-listening vibe with a bunch of twangy country or loud-ass hip-hop.
60% is high, and I suspect the OP either has a really shitty-job (part-timers here in Cleveland making $10k pretty are either living with mom or paying 60% a month in rent), he refuses to live any pl
Re:I'm spending 60% of my monthly income on rent (Score:5, Informative)
The ones that do are mostly doing it because it's a legal way to keep the riff-raff from moving in and ruining your building's NPR-listening vibe with a bunch of twangy country or loud-ass hip-hop.
That's a bit uncharitable. Landlords do credit checks because if a tenant cannot (or does not) pay his rent, the landlord stands to lose thousands of dollars. It can take months to get a non-paying tenant evicted, during which time the landlord still has to make all mortgage payments, entirely out of his own pocket. Furthermore, serving a tenant with an eviction notice is no fun for either party, and a pissed-off tenant may well cause thousands of dollars of damage to the landlord's property before he leaves -- again, money that the landlord will have to pay out of his own pocket before he can put the unit back on the market.
So yes, there are really good reasons why a landlord would want to vet a potential tenant thoroughly before giving them the keys to the property. The landlord is taking a big risk every time he/she rents out a unit.
Re:I'm spending 60% of my monthly income on rent (Score:4, Insightful)
I love how the government recommends this, but then does absolutely nothing to make sure affordable housing actually exists for most people so that they can follow this advice.
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What makes you believe it's a government requirement? I suspect it's rather what the companies that rent out the property demand.
Re:I'm spending 60% of my monthly income on rent (Score:5, Informative)
The trick here is that price controls are far from the only option. Off the top of my head to increase housing:
1. Keep out of the way of housing developers when it comes to 'affordable housing'. IE get rid of size requirements, don't require 'every' unit be handicapped accessible, etc...
2. DO require developers who are building non-housing buildings (office, retail, industrial) to build a certain amount of housing as well.
3. Encourage dual-use office and retail spaces. PUT housing on top of the offices and retail shops.
4. And yes, actually subsidize the construction of 'affordable' housing.
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Developers are building new apartments as fast as they can--luxury apartments that charge higher than market rates, further inflating the market.
This is the core control. Yes, they're building luxury apartments, but that's a bit like selling new cars. Somebody moving into said luxury apartment is probably moving out of a less luxury apartment, which frees said apartment for less-well off types.
"As fast as they can" means that, sooner or later, they'll catch up, occupancy rates will drop a bit, and prices will stabilize and probably drop.
Oh, and 'solid offer at above-market pricing' is something of a misnomer - if you can consistently sell places f
Re:I'm spending 60% of my monthly income on rent (Score:4, Insightful)
The additional luxury apartments create downward pressure on prices, not upward pressure. It's the demand for apartments in general that drives up the prices. If they weren't building the luxury apartments, the people who wanted those luxury apartments would likely just outbid less rich people for less luxurious apartments.
Re: I'm spending 60% of my monthly income on rent (Score:5, Insightful)
The Internet has pretty much ruined everything from vacations to concerts to you name it. Find a nice restaurant you like? Some popular idiot posts it to a foodie group and now it's so crowded is not worth going to. Good vacation spot? Now the whole world competes with you for it and because of that it's not worth having anymore due to crowding.
"No one goes there any more. It's too crowded." - Yogi Berra
Re:I'm spending 60% of my monthly income on rent (Score:5, Funny)
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Actually, what's the harm in living in a trailer? It's possible to at least own a dwelling ...
If you mean an actual RV type trailer as opposed to a mobile home that's meant for full-time living, lack of insulation in the winter is a problem - the furnace in my parent's RV can't even keep the temperature comfortable in 35 degree (F) weather - the poorly fitting drafty single pane glass doesn't help either. I can't imagine it being usable in 10 degree winter temperatures.
Re:I'm spending 60% of my monthly income on rent (Score:5, Interesting)
I'm assuming "mobile home" is meant by "trailer". What's the harm? Unless you own the land as well, owning a trailer is risky. The land owner can, with a year's notice I believe, sell your land to some other developer and force you to move your trailer. Often, the expensive of disconnecting and moving the trailer is so high (especially if it's not all that structurally sound anymore), the owner is basically forced to simply dispose of it at their expense. This just happened in an area near me, and was a story in the local media.
Re:I'm spending 60% of my monthly income on rent (Score:4, Insightful)
And if "another place to live" isn't within practical commuting distance of your job or of any employer hiring in the field for which you have trained, too bad.
Sucks, but you made a bad career choice if you didn't consider this. I'm not insensitive to your plight, but in reality it was YOUR choice of careers which puts you in the spot you are in. It might be time to take responsibility for your part in this and start making choices to deal with it.
In reality, most people in your position just don't realize that it's not the location or their career choice that is the problem, if you like what you do and where you can do it, that's great! What the problem REALLY is in the majority of these cases is that you wish to live beyond your means. I've seen it time and again (and did it for awhile myself) where people choose to have that flashy new car, that wiz bang shiny new tech toy, the latest smart phone, a plush apartment in a desirable location etc. Then they complain (like I did) that I can never have "nice things" like a home because I cannot afford them.
The truth is, that you likely CAN afford "nice things" like a home if you really want it, but such choices are made though a thousand tiny choices you make each day. Do you *need* that $5 Starbucks over what your home coffee maker puts out for $1? Is it that important to dump $8 for lunch every day when you can bring your lunch from home for much less? How about that $1 bottle of water from the vending machine over the drinking fountain and a cup from home? Don't get me started on that car payment and cell phone bill. You see, the problem is you cannot afford them ALL, but in reality practically nobody else can either.
I discovered that the way to get MORE nice stuff, is to BUY LESS JUNK. Don't live on credit where you pay interest on credit cards but pay off your balance monthly. Watch for ways you can save even a dollar or two a day, bring your lunch, make your own coffee, make do with fewer clothes or that fancy sporting equipment upgrade. Shop around for everything, clip coupons, eat at home. Be self disciplined have a budget and stick to your goals. If you want that house, save for it...
Not me, not in California (Score:5, Informative)
I have a condo I rent out. Laws in California make it almost impossible to get rid of bad tenants. I go out of my way to find good tenants and then I go out of my way to keep them. I have not raised the rent on my current family for 5 years now. I charge $1400 and the condo next door is renting for $1900. Of course, I am not in it to make money. I am in it to break even and sell in 10 years when my boy goes to college. Gotta keep the place nice to sell well.
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Where I agree, having good tenants that don't tear up the place is great, I got to point out that it might not be worth it in the long run to be that far under market.
$500/month is $6K per year, and in 15 years that's $90K which could pay for 4 years of college at a LOT of pretty good schools at today's prices, and you don't have to sell the condo to do that. I'm no investment adviser, but I don't think leaving 1/4th of your possible profit on the table is a good idea.
If I was you, I'd seriously think a
Re:Not me, not in California (Score:4, Insightful)
Just a suggestion, you should always raise the rent every year, even if it just a percent or two. The family there now will now have the expectation of the rent not going up, and it will make things really awkward when you do decide to raise the rent down the way.
Re:Not me, not in California (Score:4, Insightful)
I've been a tenant for many years. Then I finally bought my own apartment, and now I own a second apartment that I am renting out. The main reason I decided to buy an apartment was the constant increase in rent, year after year. At some point it just triggered my "fuck this shit" mode and I went all in, took a debt just to get out of this spiral.
So, at least for some people, the rent increase may backfire.
Re:Not me, not in California (Score:4, Informative)
That's called "investing", and is an integral part of capitalism. It's not much different than investing in a company and not actually working there.
The other thing you're missing is how much time and effort goes into renting. Sure, a good amount of the time you can ignore it, but when the plumbing gets clogged or something breaks, as the landlord you're on-call at all hours to fix it, and you have to fix it at your own expense (except for this new phenomenon I'm seeing in rental properties where there's a "deductible" for repairs, but that's another subject). Also, as an investment, there's no guarantee of a return. The 2008 real estate meltdown should have taught you that: lots of rental property owners lost their properties (and all the money they invested in them) to foreclosure back then.
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"That's called "investing", and is an integral part of capitalism."
It is not an integral part, it's its very basis, root and soul.
You see, you have those that work and you have those with capital (it hasn't to be that black and white, you can be part worker part capital owner). But somehow, it is called "capitalism", it is not called "workerism": this should be a hint strong enough for those paying attention.
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Two problems with your idea:
1) "unearned income": this is a hallmark of capitalism. You can't have capitalism without it; the entire idea behind investing is that you put money into something, sit around and do little or nothing (besides watch and manage it), and later you can cash out and have more money than you put in. The whole reason this is exists is so that people can pool their money for bigger projects than one person can afford alone. Corporations exist this way; they wouldn't exist without inv
Re:Not me, not in California (Score:5, Insightful)
It sounds like you really don't understand capitalism very well. Investing in rental properties is little different from investing in shares in a corporation. You have risk and reward. There's more work in being a landlord, and somewhat less risk, but it's definitely not zero. Have you totally forgotten about the 2008 crash and all the real estate investors who lost their shirts there? You have to be a complete moron if you think that real estate is risk-free. And the way things are going now with rents spiraling higher, another crash could be looming, and again real estate investors could lose out.
I don't know where the hell you live that renting costs more than buying, that's simply not true
Then you've obviously never rented a house. Renting a house ALWAYS costs more; how else would your landlord pay the mortgage otherwise? Perhaps if he bought it when it was much cheaper, but even then usually rents go up to match current house valuations, regardless of what the sale price was. The only exception is if you get really lucky and your landlord doesn't feel like raising your rent and you've had it locked in for some time while house values have risen.
I want a free market economy without the distortions imposed by rent / interest / capitalism.
You can't build big projects without capital, and you can't borrow money without interest (who's going to loan money to you for free, unless it's a family member?). Your ideas make no sense, and I'm not going to toil away at trying to find your ramblings elsewhere. You sound little different from a Marxist: some nice-sounding words but no substance behind them and no actual ideas for a system which would work in practice.
Re:Not me, not in California (Score:4, Interesting)
That's how a free market works. They rent places for what the market will bear. If people want to buy it's not hard, there are plenty of places to buy. In fact, it's much cheaper to buy than rent because the market for buyers is much better than renters. Lots of places for sale compared to qualified buyers. Renting is very lucrative if you have the disposable income to enable you to acquire property.
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Not necessarily. The property market is just one form of investment and for many people it is a good investment. Not because it has particularly good or safe returns, though it often does, but because it FORCES people to invest. If you are putting money into property you should have something left when your working career ends.
That said if you are sensible about your investments and actually invest for the future it doesn't have to be property. If you are moving lots, and in particular moving between co
sigh... (Score:5, Insightful)
The interesting question is how long can this last before we reach a level that is not affordable to the majority of the demographic that is being serviced.
Care to guess what happens at that point? New construction doesn't sell, developers go bankrupt, new construction is sold at auction for lower prices. Then the new units available at lower prices push down prices of other housing, which makes purchase more affordable, which results in renters buying, which curbs rent prices.
No matter what part of the cycle you're in, no matter what part of the country, one thing can be counted to be constant: idiots proclaiming that the current trend is the new reality and will last forever!
Re:sigh... (Score:5, Funny)
I'm an idiot proclaiming the current rend is the new reality, you insensitive clod!
Re:sigh... (Score:5, Insightful)
Care to guess what happens at that point? New construction doesn't sell, developers go bankrupt, new construction is sold at auction for lower prices.
Here's the problem with that idea: the "new" construction often sits around unoccupied for years while the bank makes up its mind to sell it. Even if it doesn't get stripped of fixtures, wiring, plumbing, and whatnot, in many climates it's still likely to mold. The banks already own literally multiple homes for every homeless man, woman, and child in the USA, and are refusing to sell them at a market rate — i.e. what the market will bear. Instead, they'd rather see them rot.
When are these market forces you're counting on going to kick in? The banks are losing money daily on depreciation.
Re:sigh... (Score:5, Insightful)
And since they know they can get a bailout from the government they don't care.
Re:sigh... (Score:5, Insightful)
And that's the wrench in the cogs of a free market. When you prop up companies and banks that "are too big to fail" it's not really a free market. If the dickheads would have let the banks collapse like they were supposed to then after a few years of pain everything would have corrected. Instead they propped the losers up and kept all that wealth from spreading back out. Why did GM get to survive as a reward for fucking up for the last two decades while Ford, who had their shit at least partially together basically gets to compete now with a government subsidized corporation? For a free market to be free companies have to be free to fail.
Re:sigh... (Score:4, Insightful)
If Rolls Royce hadn't been bailed out then their competitors could have bought up their assets and flourished as well. Let companies fail and let the market respond properly. British Leyand's ultimate fate is how a free market is supposed to work - companies fail, competitors benefit from that failure.
There Are More Rooms than People (Score:3, Informative)
The banks already own literally multiple homes for every homeless man, woman, and child in the USA
Interesting figure. Where'd you get it?
It looks like Amnesty International: https://en.wikipedia.org/wiki/... [wikipedia.org]
Coincidentally, there are 116M housing units in the US, median size say 4-5 rooms. If you had one person per room in every house, we could house everyone easily--318 million people in the US vs. 464M rooms. But the market isn't doing that.
http://www.infoplease.com/us/c... [infoplease.com]
Re: (Score:3, Funny)
SO the solution to homelessness is to house people in these homes with 3-4 strangers.
What could go wrong with that plan?
Re:sigh... (Score:4, Interesting)
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It wasn't common knowledge to me, and I do care.
It is considered proper--even courteous--to supply citations when making a claim, and not to get in a snit when someone asks you for them in a nice way.
Thanks for the links, they make interesting reading.
Re:sigh... (Score:5, Interesting)
So long as people procreate, land will only go up in value. I make more owning a house that's appreciating, than working a job that puts me in the top 10% of wage earners. Buy all you can, hold it, and rent seek. It's the most direct path to wealth for anyone not born rich.
Re:sigh... (Score:4, Informative)
The goal with a rental is to break-even cashflow. The market will go up 100% in 7-15 years, and you will make 2-5% above inflation with more "guarantee" than any other investment with those returns. As the equity increases on your portfolio, you borrow against it to buy more houses, to the same effect. When you have 10+ houses, you sell 5 of them to pay off as much as you can, then you optimize your portfolio to cashflow. with 4 houses left, you'll have $112k income per year (at the $400k house example above), and have that paying out from an appreciating principle.
I'm 3 houses towards my 10, though I'm doing it wrong, as I'm living in one, and one one mortgage-free. But personal and tax implications have done that, not a lack of understanding the optimal path. One more every 2 years, until I have 5, then one every year to 10, then two every year until retirement is the plan. Retire by 55 with $10M in the bank, and a steady income that relies on no government. It's doable, and not hard. I've had retired by 45, if not for marriage. But that was on a non-house plan, so there's more than one way to retire early and independent of any government plans.
Re:sigh... (Score:5, Informative)
The interesting question is how long can this last before we reach a level that is not affordable to the majority of the demographic that is being serviced.
Care to guess what happens at that point? New construction doesn't sell, developers go bankrupt, new construction is sold at auction for lower prices. Then the new units available at lower prices push down prices of other housing, which makes purchase more affordable, which results in renters buying, which curbs rent prices.
Unless of course, large financial companies and well-connected donors are threatened by that circumstance.
Then, the central bank will step in, through its many channels, to put a floor under rental prices ("So I think if we spent enough money, got enough of a hit right now, it would look like a floor on house prices, and we might have something every bit as good as a floor on house prices." [wsj.com]). The multiple government housing agencies (Fannie, Freddie, FHA, VA [va.gov], USDA [usda.gov], etc) can also step in to influence the rental market, as they did the housing market.
Blackstone is a company securitizing rental flows and selling them [aljazeera.com]. They are the largest private equity company in the world ("By both profit measures, the first quarter set quarterly records for Blackstone, the world’s largest private-equity firm" [wsj.com]).
The former head of the US central bank, Bernanke, is now employed by Citadel, a massive hedge fund. [bloomberg.com]
My point is simply this: house prices did not revert to historical norms [ritholtz.com] because of the big players - donors - that would have been deleteriously impacted by it. With big players moving into the rental market, if something went wrong with their business plan, don't expect them not to use their clout to get the government and central bank to do something about it.
Re:sigh... (Score:4, Interesting)
And this is why we have boom-bust economics, we turn ripples in the water into huge waves. What's more there's really no underlying economic change, it flips when the rest of the market decide it's a flip. For example I remember one big investor who went broke on betting that the dotcom bubble would burst. Why? He was too early, the bubble just kept soaring and he couldn't hold his positions until it peaked. He was right about the underlying economics but as long as people kept believing the bubble kept growing.
These positive feedback loops can turn a relatively small change into a huge one, if you pay higher prices you want higher wages and the store pays higher wages it'll raise prices. You don't see a lot of them in microeconomics where your own actions don't change your own conditions much, but social economics is full of them. Greece for example is caught in a bad spiral now, when they cut spending they weaken the economy leading to less taxes leading to even greater needs for cuts. There's often no easy outs because the market is counteracting your actions, like swimming in quicksand.
and don't forget rent control (Score:5, Insightful)
Rent control makes it harder to make money offering an apartment for rent (or at least not as much as you can get by selling it out). So owners are incentivized to take housing off the rental market and sell it instead.
Sure, they try to make that harder too. But the owner can always kick tenants out to move in himself/herself. And so that's what's happening now. Owner kicks out tenants to occupy it. Then they later can sell it.
And they can even AirBNB it while "occupying" it.
Subsidize the supply side (Score:5, Interesting)
The problem is that we spent so long subsidizing the demand side that the supply for housing is hopelessly outpaced. The prices have skyrocketed over the past 15 years to the point where first-time buyers are largely priced out of the market. Want to drive home ownership in a sustainable way? Drive it at the supply side. That means subsidizing the whole supply chain, from land to materials to labor. Drive a massive swell of building to bring supply well above demand and watch as homeownership rates rise quickly but sustainably even as market speculators (who really just drive up prices further) get crushed under the weight of falling home prices.
Handing everyone a blank check to buy whatever they like (regardless of whether they can afford it) is the same thing we've done in the education market. The results are the same: prices soar and anyone who isn't willing to mortgage their immortal soul has little chance of getting what they're after (but on the bright side, we've made the immortal soul mortgaging a quick and simple process!) Having a higher supply than demand ensures prices drop to the point where someone other than the top 10% of the country can actually afford to live here. Steady or slightly falling prices encourages people who actually want to own a home (rather than simply investing in real estate for the sake of cashing in on a boom) to take that next step to do so. We need house prices to drop by 50 - 75% in most major markets. It'll create a much healthier, robust framework in the long run, regardless of how much hand-wringing takes place in the short to mid term.
Re: (Score:3)
The more means of abstraction to the service required, the more you're handing things to the middlemen. We don't want to cut checks to let everyone buy without price controls, otherwise the market will respond as if everyone's richer and just price accordingly. If you do price controls, that's extra regulation and besides the point.
What ought to be happening is a new homestead act; there are far more foreclosed buildings held by crooked banks than homeless people. Seems to me they should be dissolved, an
Re: (Score:3)
We only need to "subsidize the supply side" by getting out of the way. Building in major metropolitan areas has become such a complex and expensive process that planning, zoning, and code often accounts for at least as much of a building as the land and the building itself.
Um...no (Score:4, Insightful)
1. Real Wages have been falling for 40 years, to the point where wages for many jobs are what they were 20 years ago after 20 years of inflation. Outsourcing + lack of protectionism and free trade nonsense did this.
2. Capital has concentrated into the hands of a lucky few (the "1%" as they're called) and they have no incentive to build more houses when they're making obscene profits off the existing supply.
Said it before, say it again: Globalism _breaks_ capitalism. All your left with is oligarchy and kleptocracy.
Re:Subsidize the supply side (Score:5, Insightful)
I'd much rather have healthy people than a healthy market.
Re: (Score:3)
You and me both.
In fact, have you noticed that "healthy markets" always mean prices rising, wages falling and people working longer hours? It's the greatest scam of the 20th century, living on as zombie economics in the 21st.
Re:Subsidize the supply side (Score:5, Insightful)
Good luck having healthy people in an unhealthy market.
Look at the UK housing market (Score:4, Informative)
Welcome to a small taste of the "housing boom" in South East of England. If our experience is anything to go by, you have a very long way to go yet.
The most underrated misconception of economics (Score:5, Insightful)
This reads like a common economic trope: A journalist (presumably not an economist) observes that A has a positive effect on B, and B has a positive effect back on A. They then proceed to assume that both A and B will "spiral out of control" into infinity, as if the only kind of effect is a proportional effect, and as if the only kind of feedback loop is a positive feedback loop.
Well as it turns out, there's a such a thing as a negative feedback loop. In fact, that's how markets work; there's this law called the law of declining marginal utility. In most cases, given the nature of geometric sums, there's a total, maximum amount of utility that a single good can ever give you, ever, no matter how much you buy.
Let's take a look at the author's argument:
People paying high rents are, presumably, living in an area with high demand, further suggesting that they have a much better ability to pay for housing than the average person as it is; they just choose to live in a high-rent place because it's more beneficial than an average city or neighberhood.
There's no special correlation between prices and liquidity; there's a better correlation between how "hot" or bubble-like a market is, though. Volume isn't the same as price.
This is a downward force on prices. See also, the Law of Supply: higher prices creates more supply, or at least forces people to use the resources more effectively. Software developers don't need a huge living area, at least not compared to (at the extreme end) farms. In contrast to farms, which can go pretty much anywhere there's halfway decent land. As a result, people (in expanding cities, for example) tend to buy out farms, not the other way around.
This may seem obvious, but knowing it explicitly is a crucial component of knowing how resources are efficiently allocated. It doesn't even matter how resources are initially allocated, if we mixed everything up and assuming low transaction costs (something not typically present in housing markets, though), then people will trade with each other back to the optimum allocations.
No, there's this thing called the law of supply and demand. Rates are set based on what the market as a whole is able to bear - where the supply and demand curves meet. And if San Francisco can find 50k buyers for 50k $10/sqft (or whatever) rentals, then that's the market price (a simplified argument, of course, but hopefully still an accurate one).
Re:The most underrated misconception of economics (Score:5, Insightful)
Higher Deposits (Score:3, Interesting)
Re:Higher Deposits (Score:4, Insightful)
Comment removed (Score:5, Interesting)
Re: (Score:3)
This, exactly this.
Governments everywhere are printing money hand over fist and giving it to the banks to lend out (which they love).
This keeps people with mortgages happy (a lot of voters) as interest rates stay low.
This erodes the savings of anyone who dares not spend spend spend, which makes retailers and 'investment' sellers happy.
This forces savers money into the 'economy' to help subsidise everyones sins of excess.
This, however cannot last. It is highly inflationary (every wondered why there is not th
Everyone is building condos (Score:3)
At least around here there doesn't seem to be anyone building apartments anymore. Builders are putting up lots of condos and selling them. It probably lets them get their money back fairly quickly compared to renting out the units. Some people are buying individual units in these buildings and renting them out but the supply of apartments has remained fairly constant for the past couple of decades. I can't remember a large building going up for rental units in that time but can think of at least five being constructed for condos right now in just the parts of town that I frequent.
By design (Score:4, Interesting)
Here in California, this is by design. California creates fewer new housing units than demanded and has for decades. I was taught as a child that the only way to manage this is to live beneath your means when young (rent a SMALL place) so you can save for the down payment to get in on the crazy value ride. Leverage the HUD and you only need 5%. It's definitely boom and bust, but overall the housing market here rises much faster than elsewhere because we simply have more demand than capacity, and the politicians generally like it that way, so it's pretty much the norm.
Statism is the problem (Score:5, Insightful)
This is how it happens:
It was not always so — the problem in NYC, for example, started during the WW2, when rent control was introduced as a temporary measure to protect families of servicemen from rent-increases. 70 years later, the program still exists and the rent-controlled units are subsidized by other tenants of the same building. Like lottery-winners, only participation in lottery is voluntary...
Before dismissing this post as "a troll", observe, that the problem is highest in the Left-controlled cities: San Francisco, NYC says TFA. I may add Boston based on personal experience... Meanwhile, in Houston, TX [rent.com] or Atlanta, GA [rent.com], for example, the prices seem about half as much as in San Francisco, CA [rent.com].
Re:Statism is the problem (Score:5, Informative)
I don't think it's as simple as rent control, it's property value and population density. For example:
San Francisco, median income $81K, median house cost $900K (according to Forbes), population density 17K/sq mi (20th in country)
Houston, median income $60K, median house cost $180K (according to Forbes), population density 3.5K/sq mile. (88th in country).
Property costs substantially more in San Francisco because there's nearly 5 times the demand per square mile. Similar factors hold true for Boston, New York and other densely populated areas.
It's the interest rates (Score:5, Informative)
3 words, Rental Backed Securities (Score:5, Informative)
An Irish language documentary broke the news on the US Mortgage Backed Security driven property bubble back in 2005 so why doesn't it surprise me that another foreign news source is the first to piss off US real-estate corporations and reveal that rental backed securities [aljazeera.com] are also teetering on the brink of disaster? Here we go again, another replay of tulip madness. In the words of Yogi Berra, it's Deja-vu all over again. [wikipedia.org]
The real problem is that boom-bust cycles driven by loose monetary policy (whether it be Reagan's trickle down or Greenspan's helicopter drops) help those with deep pockets. Playing with matches around the global economic gas-tank eventually causes an explosion and as John Maynard Keynes put it, "Markets can remain irrational longer than you can remain solvent." (unless you happen to be a corporate slumlord.) [salon.com]
it's not rocket science (Score:3)
Rents in SF are high not because of anything developers are doing but because it's a desirable place to live for many people, and many people are willing and able to pay high rents. It's desirable, not just because of its location and natural beauty, but because its infrastructure is highly subsidized by government.
If it's too expensive for you, don't live there; it's a simple as that.
A Catch-22 (Score:5, Informative)
I'll note that, for years, I worked on developing new financial products sold to mortgage lenders (post crisis). I've spent a fair amount of time studying trends in US housing prices. I'm not well versed on other countries so my comments are US-centric. I've left this VERY high level, but wanted to note a few concepts and why they answers aren't super easy.
There are a few fundamental flaws in the mortgage system today. The first is that banks generally don't lend their own money (almost all mortgage money in the market comes through government sponsored entities like Fannie Mae, Freddie Mac, or Ginnie Mae). Well technically, it is their money, but realistically, the loans are purchased so quickly by the GSEs that it might as well not be their money. On top of this, the banks receive money from the GSEs for every loan they sell on to the GSEs. In short, the banks are incentivized to make loans.
Second, both the government and the the Federal Reserve seem to want a higher rate of home ownership by Americans. The Fed helps encourage this by keeping rates low (and buying huge amounts of mortgage backed securities from the GSEs). The GSEs encourage it by making loans more accessible (lower down payments, lower credit scores, higher debt-to-income ratios, etc.). The banks like this strategy because it allows them to make lots of new home loans (so they make lots of money with almost no risk) and every time rates drop they get to process lots of refinances (so they make lots of money with almost no risk). It's all good right? I mean, the banks are making lots of money.
Here's the problem: When money is easily available it creates more potential home buyers. When money is cheaper, it increases what people can afford (your $2000 per month payment now covers a 400k loan instead of a 350k loan). This is still good though right? More home for the same money?
Well, more people with more money means that demand for homes increases and, with it, home prices. Khan academy had an amazing set of videos that illustrated the home price bubble, but I can't find them. In summary, the number of homes available for purchase compared to the number of people has remained relatively constant since the 40's - even when adjusted for growth areas (things balance out in the growth areas over time). Home prices, however, have increased dramatically - especially as a percentage of total income. When did this star happening? When money became more accessible. Still good though right!?! I mean, now existing homeowners can sell their homes at a huge profit and people can get into those homes.
Ah, but there's a catch. While average income (inflation adjusted) has remained level and even trended down, home prices have sky rocketed. Eventually, even with low interest loans available, house prices reach a level where purchasing them puts people out of an acceptable debt-to-income ratio. Home prices can't go up to the point where people are spending more than 70% of their income on housing (as an example - this isn't a benchmark number or anything). Things hit a point where new buyers aren't buying anymore. That starts a chain reaction that leads to the bursting of the housing price bubble.
One way to fix this would be to make money harder to get and more expensive to get. It would have an initial downward push on prices, that would eventually level out. It would also stop the major price inflation. Why? Let's say we require a 10% down payment. Suddenly, a bunch of potential buyers are shut out of the market. Home prices stagnate. The responsible buyers (and those who advance in their career) eventually save up the 10% and can get into the market. They're actually able to save the 10% now because the house prices are stagnant and 10% is no longer a moving number. In the mid 2000', house prices were going up faster than people could save. Prices inflate, but the barrier to entry keeps them from going on a roller coaster. Banks, however, hate this because they lose out on all that sweet
Re: (Score:3)
SF Bay Area (Score:5, Interesting)
I've lived in the San Francisco area almost my entire life. In the SF area, the vicious cycle works like this:
1. Some progressive people live in an urban area, and they decide that they cannot stand urban areas, urban development, or tall buildings. They protest any construction, relentlessly, for decades. Any time anybody tries to build anything, the result is protests, lawsuits, and so on. This has been going on since about 1980. As a result, there was almost no housing development in this area for 3 decades despite steadily increasing population and prices. Granted, some construction started about 4 years ago, but it's WAY too late and not nearly enough. (Apparently, the same thing is happening in New York. The most preposterous example of this is people who've moved to Manhattan and decided that they can't stand tall buildings in Manhattan because tall buildings cast shadows [nytimes.com]).
2. When rents increase, those people who prevented housing construction decide to blame Google, blame Yahoo, and so on, not blame themselves. Remarkably, they start protesting the construction of housing again. I live in Oakland (just east of SF) and there have been protests against building new housing on EMPTY LOTS, during a housing shortage of critical proportions. People show up and start chanting "we want development without displacement!", as if displacement was caused by too much housing.
Recently I walked around the area south of market st, and saw that typical rents for a 1 bedroom are $6000-$7000 per month, and it's not a luxury area at all. Oakland is getting bad too, but not that bad yet. As a result, the progressive faction has now erupted into a fit of hysterical rage and they vomit on buses which transport tech workers to work.
Re:Really? (Score:5, Insightful)
When the cost of everything is going up (the value of the dollar is going down), that's inflation.
When the cost of one specific thing is going up - that's not inflation.
Bullshit (Score:3, Interesting)
Except if you pay with silver quarters... (Score:5, Interesting)
If you pay for anything you mention in pre-1965 90% silver coins, it would end up staying the same.
0.715 ozt of silver per $1 back then is $11.37 today ($15.90/ozt spot price).
Here is your 11x dollar devaluation since it got off silver standard.
Paul B.
Re:Really? (Score:5, Insightful)
Re:Really? (Score:4, Informative)
Now, none of these things are static. If you increase the amount of goods, but keep the amount of money the same, then the value of each piece of money goes up. Conversely, if there's more money, but the same amount of goods, the value of money goes down. Moving to the real world, we can't stringently control the amount of goods produced. It's generally increasing over time, and that's a good thing. We're making more stuff. Go us! So what happens if we don't print any more money? There should be enough, right? Not printing more means everyone gets richer?
What happens is called deflation, and in a modern economy it's very, VERY bad. Why? Well, that dollar you have today is going to be worth more tomorrow. Why spend it? Better to save it. All of a sudden lots of people start thinking this way, and nobody's buying anything, causing the economy to come to a screeching halt. This is great-depression style stuff. We really really want to avoid this. So what do we do? Well, we print more money. We force some inflation to occur, because while a lot of inflation is bad, a little bit is something that can be accounted for with interest rates, which fluctuate based on the expected rate of inflation.
A lot of people have forgotten this, because in the late 1970s we wound up with a specific situation marked by low growth and high inflation, and this was a big problem. We became paranoid about inflation, and the sorts of policies associated with increasing it, and forgot that there's something far worse on the other end of it. Printing more money would have made the situation back then would have made things worse, but in 2010 it was what was needed. It's supposed to be the job of Congress to do that sort of thing, especially by spending on things like infrastructure that not only pump more money into the economy, but also build stuff that's of use later. Thanks to politics, though, the Federal Reserve basically had to come up with a way to do so without Congress.
Furthermore, it's completely wrong to state that Quantitative Easing is responsible for the wealth gap. That has primarily to do with how all the increases in productivity have gone to the rich, rather than to the middle class and the poor, and that's true no matter how much or little each dollar of that is worth.
Re:Rent at all is inherently problematic (Score:5, Insightful)
This is nonsense. Property developers go to significant expense building apartment complexes. They go significant expense maintaining those apartment complexes. They are not monopolies: there are several property developers in any significant market.
All of this adds up to a market that should be pretty healthy if left alone. "BUT THEY HAVE SO MUCH MONEY" well yes, the successful ones do, and the unsuccessful ones go bankrupt, like in any business. The reason they have so much money is they're typically large corporations funded by a large number of shareholders: your screed is typical anti-corporate drivel except concentrated on the housing market instead of in general.
Going into debt to buy a house is a gamble. You're gambling that the value of your house will go up, or at least not go down. With anything else, that would be a really bad gamble, because things wear out which is why depreciation is a thing. It's not surprising poor people can't afford to take that gamble and that banks aren't willing to shoulder the risk to allow them to. And, while I do support more income redistribution in the US, I don't think, "everyone should be able to own a house" is a good standard. The US Basic Income should probably be high enough so everyone can afford a studio apartment, but not a house. We can't make people too comfortable on basic income, or we would do too much to decrease the incentive to work. Everything is a compromise.
Re: (Score:3)
There are complications in such calculations now because even if you "own" a home, as we do it these days, you likely still have a mortgage and are paying interest on it, which is just rent on money, so you're still renting, and the cost of home-"ownership" is artificially inflated by that rent-on-money / interest which should be abolished as well.
For me, the biggest reason why I want to own a home (free and clear) is the security of not having to pay someone every damn month just for the privilege of exist
Re: (Score:3)
That's not true. A house is a big expense. Either you pay for it outright, or you go into debt to buy it. In either case, you could be doing something else with that money if it weren't tied up in the house or in paying for the house.
There are also non-monetary costs; in other words, it's a pain. You generally have a longer commute when you live in a house, versus an apartment, because the houses tend to be in suburbs. You have to cut the grass, or hire someone to do that. You have to have work done w
Re:Not sure about the rest of the country (Score:4, Insightful)
but the H1-Bs have a pretty big impact here. They're guaranteed renters. There's no way to move into a house when you can't claim residency in the country.
As an H1-B who got a mortgage and bought a house, I can confidently state that this is just plain bullshit.
And yes, someone on an H1-B visa is a resident of the country. Just ask the IRS.
Re: (Score:3)
Isn't rental income taxable, which is presumably why those other things are deductible? Same elsewhere although people to whinge about.
I live in London, and I can tell you that it can get much worse. I suspect it's more about the overseas investors than anything else, who buy knowing that the prices will go up and the returns are good enough that they don't even bother renting them out. Councils around here are reacting by considering laws that will allow them to forcibly use all the empty homes to help