I am excited and optimistic that we appear to be applying economic principles to housing! Now that we're getting rid of centralized price controls / collusion, next can we do supply/demand?
I live in a town where all the officials express politically popular laments about the affordability of housing, but every time a developer wants to build apartments or tear down some old run-down post-war cookie-cutter houses for modern duplexs or tri-levels these same officials run them through a gauntlet of demands and then often as not end up denying the permits.
They say they want dense, walkable, core neighborhoods but when people actually try to build denser housing it's like pulling teeth.
There actually is some building happening but the demand is so far ahead of the supply that it's not nearly enough.
There are a lot of places, particularly the high demand places, where the cost of acquiring the houses in the first place is the hang up. Everyone is certain they can get half a mil minimum. That drives costs considerably when you need 1/2 a block, or a full block for high density development. It's not easy. You could even have to end up giving the current land owners some preferential share of the finished development. Which, of course, means there's less profit for other potential partners at the end.
People ask, why are apartments so expensive? In high demand areas, that's a big part of the reason. Land acquisition costs were so high that it precludes building anything that can offer that <USD3000 a month price tag. (And to be honest, that's not even all that affordable really. But it illustrates how the numbers on a lot of these new developments work out.)
Usually the municipality or the state has to step in with some kind of break in order to make the numbers work out. And that's when we get to the step you're talking about where the state or the municipality demands this or that or the other. But the politicians have to demand something for the break, or it's seen as just having handed over taxpayer money to their buddies in construction. ie - corruption.
So from beginning to end, it's a tough problem.
EDIT:
It seems before I even finished typing my message, sibling messages appeared illustrating the point I was making in the last paragraph. There is no way in today's environment of completely broken down professionalism and trust, that a politician can give a concession without getting something for his/her community that s/he can use as justification for the concession. Otherwise, people, rightly or wrongly, just see it as handing free money to a politician's friends.
Land value tax would fix this in a hurry. Land owners would be incentivized to sell or make more productive use of their land, which adds enough positive pressure for them to go to market and make a deal. The biggest flaw in US housing is the ability to hold out at effectively no cost even as land value skyrockets. The taxation does not keep pace with the actual value. This allows stubborn sellers who want above market sales to hold out, potentially for years, until someone buys at an inflated price, with no real downside.
Combine with upzoning and it would really stimulate the housing market in short order without subsidy.
Land, being largely finite - especially when you start considering how communities make land more valuable etc - shouldn't be treated as a manufactured good. A land value tax is the only way to bring market incentives to real estate, because otherwise there is no pressure on owners to sell or otherwise make more productive use of land. Our current policies from local to state to federal, all incentivize holding land regardless of its utility.
> Land acquisition costs were so high that it precludes building anything that can offer that <USD3000 a month price tag
"The median time for securing approval to build in San Francisco is 627 days" [1]. Land-development loans cost between 8 and 12% [2]. The financing cost alone of that delay thus adds 15 to 20% to the cost of any housing in San Francisco. At the median.
Add the risk of not getting approved and the cost of the lawyers and lobbyists and I wouldn't be surprised if these officials bump real estate costs by 50%.
It's death by a thousand cuts. If it takes an architect working 10+ hours a week for 2-3 years get permits, that sets a fairly high floor on the cost for new development.
> I live in a town where all the officials express politically popular laments about the affordability of housing, but every time a developer wants to build apartments or tear down some old run-down post-war cookie-cutter houses for modern duplexs or tri-levels these same officials run them through a gauntlet of demands and then often as not end up denying the permits.
Hah, in my town, the developers and officials are all best friends, posts all over Facebook, going to each other's kids soccer and football games, going on vacation together, going out fishing together...
Yes, one way we could fix supply/demand is by scaling up the density of detached and semi-detached neighbourhoods. This means mandating narrow one-way streets (6m wide) and banning wide two-way streets (15m wide), forcing smaller front yards (reducing setback distances), eliminating garages and driveways in favour of street parking, allowing narrower properties and smaller homes overall. Furthermore, we should be allowing mixed use zoning so that small shops, restaurants, cafes, and bars can serve these neighbourhoods and promote a walkable lifestyle.
These neighbourhoods can be served by light rail / street cars allowing more distant travel via rapid public transit, further reducing the need for cars. Look at a lot of the older neighbourhoods in big cities such as Riverdale in Toronto [1] to see what streetcar suburbs look like.
YIMBY policy was the biggest issue at the DNC. Most of stars spoke of it in their speech and it was part of the first policy speech Harris gave. Dems are at least acknowledging the issue, but the enumerated powers clause may make it difficult to enact federally. We need to get YIMBY politicians elected locally.
Land Value Tax[0] is the way. It strongly incentivizes the following:
>The owner of a vacant lot in a thriving city must still pay a tax and would rationally perceive the property as a financial liability, encouraging them to put the land to use in order to cover the tax. LVT removes financial incentives to hold unused land solely for price appreciation, making more land available for productive uses. Land value tax creates an incentive to convert these sites to more intensive private uses or into public purposes.
The entire purpose of a land value tax is to encourage the productive use of land, which boils down to either building stuff on it to make it more productive or selling it to someone else so they can largely do the same.
Otherwise it is a simple tax burden to hold. While extremely wealthy individuals may choose to do this, its unlikely that businesses (like PE firms) are going to let their tax obligations stack over time and hold empty land / buildings etc. Same goes for individuals who are taxed at wildly different rates (like in California with Prop 13) simply based on time of sale
This has already failed. The bay area is full of empty land and buildings owned by firms and a horrific housing situation. Doesn't stop the statists from proposing yet more tax for every single problem though.
California doesn't count because they have a de-facto landed gentry.
In 1978 they passed a ballot initiative[0] that locks in property tax rates until a home is sold or renovated. This was further amended[1] to allow generational transfers of those rates. The end result is an extreme disincentive to sell land and a class of homeowners with favorable tax treatment who want the state to be coated in amber. Any market intervention is useless without addressing the harms caused by the current property tax regime and the people who benefit from it.
These PE firms specifically say in their SEC filings that the most credible threat to their business model is municipalities removing restrictive zoning regulation and allowing the natural rate of market-rate housing to be built (0, 1). You can foil their schemes and bankrupt them by electing officials who are pro-development.
[0]: https://d18rn0p25nwr6d.cloudfront.net/CIK-0001687229/a154763..., "“We operate in markets with strong demand drivers, high barriers to entry, and high rent growth potential, primarily in the Western United States, Florida, and the Southeast United States.”
Would be interesting to see what would happen if renters had the option to buy the underlying property/unit somehow after being a tenant for a certain time.
The goal should be ownership for folks who want it, not a nation of renters.
There's nothing actually wrong with renting, if there's enough supply to stop profiteering by landlords.
What's frustrating is when (as appears to be obnoxiously common in the UK) affordability requirements for mortgages mean someone "can't afford" to buy even when their mortgage payments would be less than their current rent. While the landlord probably has an interest-only mortgage and doesn't pay tax on their mortgage payments.
Here's a thought: tax landlords based on their self-assessed property value, but make it so that the tenant has the right to buy the property for that amount.
That's definitely an issue, even if constructive evictions can be prevented, landlords would also have to be forced to renew leases (at limited rent increases).
One small catch, maybe even a constitutional hold up?
It's not really your home if you are obliged to sell it after x years.
The traditional societal compact with private property is that the property is yours for as long as you choose to keep it. (Providing you pay the taxes covering the costs to provide municipal services to your property.)
This kind of changes that, and I'm not sure it would stand up to constitutional scrutiny?
Again, traditionally, renting your property on terms an owner unilaterally determines was seen as a right of owning private property. Provided you're able to find a renter who agrees to your terms, and provided your terms are legal, you were allowed to rent your property, again, forever. For instance, it was perfectly legal to rent your apartments for USD1500 per month, and at the same time, allow your kid to stay in one of the apartments for free and give a USD500 a month break to a long term renter who maybe lost his job. It was your property, so whatever terms you had with each renter was very much considered to be your business. (Again, within the bounds of legality. You can't be asking for a cut of the drugs dealt out of your apartment as a condition for instance.)
Unless I'm misunderstanding the proposal, this would change that practice. You would be told how much you could rent the property for, as well as the date you would need to sell the property. (Which, I'm guessing, would be based on the rent amount?) So a radical change from before in terms of private property rights.
The problem is they can't give the owner an adequate price when they're paying for the owner to grow more equity in the property while also needing to save at a faster rate to afford a downpayment on a mortgage.
Then they are renting something they can't afford, if ownership is their goal.
When I was saving for my first house I lived in a crappy little 1 bedroom apartment for a few years so that I could get a down payment together. I had the income to afford renting a larger apartment or a house in a nicer area but I would not have been able to save anything.
I too had roommates coming up. People today have roommates coming up. That doesn't change the fact that even with roommates, the burden is disproportionately higher than it was for the last generation, particularly with housing.
Median household county in my area is about $55,000 a year. The median price of a house is $450,000. Assuming two people, the 50th percentile wage is equivalent of $14/hour. (This as an eyeball looks pretty close to a median wage.) Fair market rent for a 2 bedroom apartment (40th percentile) is 1500, or 32% of income.
If you let everyone get their own bedroom? For a below median two bedroom apartment, they will barely be able to afford the place.
A 4 bedroom place is $2500, so you're going to get about 100 dollar discount, but that all gets wiped out if one of your roommates leaves and you can't find a replacement. The more people sharing a space, the more risk there is.
It's tougher out there right now if you're not on an engineer's wage.
If you are saving a down payment for a house you need to be spending far less than "32% of income" on your current rent. You need to move farther out, find a smaller/shittier place to live, be frugal with everything else, and/or increase your income. This has always been the case, unless you are earning well above average income.
> doesn't change the fact that even with roommates, the burden is disproportionately higher than it was for the last generation, particularly with housing
Oh totally agree. Just pointing out that a straight comparison of wages to home prices doesn't dictate unaffordability.
each successive generation shouldn't have to endure more and more hardship to achieve the same standard of living, especially if it's due to previous generations imposing regulatory barriers
Alternatively, we adjust the tax code to reflect the instinct that people should deserve to keep a larger percentage of money when they actually worked to earn it, and that income that's essentially free to people who already have lots of money should maybe be taxed at a higher rate.
I realize this is a spicy take, but we've really got to get away from this thing where we advantage passive income for wealthy landowners. It didn't work out well for society in enlightenment-era France, it didn't work out well in Victorian England, it didn't work out well in Tsarist Russia, and I'm not convinced that removing birthright qualifications and primogeniture makes all that much more equitable in the modern USA than it did in any of those periods that we tend to look back on as being indefensibly elitist.
To be fair, the income isn't "free" and the margins are basically zero for small-time property owners on the rent itself. The bulk of the income comes from appreciation in value of the real estate, and when you sell you owe capital gains taxes (which are exempt on sales of a primary residence). And in most places the property taxes are higher, for my home it's about 15% higher.
I only know this because I have been preparing to rent my primary residence to see if it's more economical to sell today or hold and sell later, while renting. The answer is the latter, but in terms of real cash I will be in the red for about 2 years until the (very small) difference in mortage + insurance + taxes + upkeep and the rent will be profitable. And even then, it's maybe $150/month.
All told it's a slightly better investment than S&P 500 index funds, but resistant to downturns. But it's not a real source of passive income, you don't get your cash out for years.
It sounds like you're looking at it from the perspective of someone who's wealthy enough to take on a few rental properties of their own. The economics start looking rather different from the perspective of a real estate speculation hedge fund. The same forces that make it such easy money for them are also the ones that make it not such easy money for you. When they drive up prices it curtails any more liquid form of asset growth you might have by pulling all the money over to the on-paper value of the property. That's fine for them because real estate is still pretty darn liquid from the perspective of hedge funds and REITs. But it's not very liquid at all from the perspective of a small-time landlord who needs to actually look their tenant in the eye and tell them they're facing eviction because the owner of their home needs to free up some spending money. This, in turn, helps them by creating barriers to entry that push smaller competitors out of the business and securing their place in the oligopoly they're trying to engender.
The actual number of residential properties owned by hedge funds is a pittance compared to the number owned by individuals and small time land lords. So I have a hard time seeing how they're pushing smaller competitors out of the business when the smallest competitors aren't even doing it as a business.
> All told it's a slightly better investment than S&P 500 index funds, but resistant to downturns
This is incredibly bad for society. Investing in businesses that hire people and make goods and services should never be disadvantaged relative to hoarding a plot of land, and it is the folly of the anglosphere that we've allowed land hoarders to siphon so much money from people doing actually productive things.
I think you're making broad statements about macroeconomics without thinking too hard about it.
If you're spending $X in rent and have $Y in cash, whether or not it's better for you personally to put that money into equities, treasuries, or real estate depends almost entirely on the current interest rate.
So while to me personally, it makes more financial sense to rent the property, the same could not be said of anyone that would purchase or rent the property today.
The market rates for housing, either for sales or rent, is pretty much the same when looked at as a monthly payment. The only question is whether or not one has $Y in cash for a downpayment and if they will come out on top if they use that money for a mortgage instead of putting it into the stock market. Owning your home is not always better than renting, it depends entirely on your situation and the current market.
All models are wrong. But the model that suggests that inflation is directly controlled a knob that policymakers can turn on a whim is incredibly useful to the people who stand to profit the most from deflationary policies.
You're assuming everybody wants/needs a single family with a yard.
SFHs should be expensive and considered a luxury. At least in a desirable urban/suburban location.
We could/should/must provide more housing in those desirable areas, but it likely should be a mix of high-rise, mid-rise, small apartment units (which could be owner-occupied or rentals), duplexes and triplexes, and row-homes/townhomes.
While we are at it, make it easier for mom-and-pop landlords to rent out their homes so that they can compete with the resources of PE firms. Too many renter protections where I live and the consensus is don't ever try to be a landlord here. One bad tenant/squatter can bankrupt you.
One could argue that a owner of one single family home that could be turned into a rental loses out on the social safety net of diversified income and someday retirement, and is subsidising renters on the government's behalf.
Most of us are a couple events of bad luck away from homelessness. Mon-and-pop landlords included.
You can't just ban them. Where there is profit to be made, they will find a way around any regulation.
You have to change the structure of the market so they no longer see these investments as profitable.
One way local areas do this is by "homestead tax exemption" which reduces property taxes if you live in your own home, but this is binary and punishes small landlords equally as big ones.
> which reduces property taxes if you live in your own home
My town is experimenting with allowing this exemption if anybody claims the address as their primary residence, whether it is the owner or not. The main purpose is to cut down on people keeping vacation homes, but it should also make things more expensive for flippers and speculators.
Small landlords are no better than big ones if they’re keeping properties empty.
It's a complex problem. Some landlords are great, keep nice homes, and take care of the property. Some homeowners are absolute slobs, and don't take care of their properties. But, in general, "landlord" quality is considered the lowest level of effort/materials for maintenance.
Once an area reaches a certain % of landlords (no idea the actual %, but it's low), it leads to a general decline of the neighborhood. These landlords are buying starter homes (apartments and houses) whether they are PE companies or individual landlords, driving up the cost of "cheap" housing.
It has to be binary, doesn't it? If it's some sort of progressive scheme with tax brackets based on number of properties owned then PE will find a way to structure their holdings so that each legal entity only owns a single property. The only way to prevent that is to mandate that the owner of the property be an individual (not a business or trust) who resides on that property for more than 183 days per year.
In a free market, yes. But not when the demand is so artificially constrained. Rents go up and people are forced to either pay a higher percentage of their income to rent, or move farther away.
Housing is not a free market by any stretch of the imagination, so if you just move one lever you don't always get the response you would in a true free market.
Better yet, we can just copy Singapore or Vienna's public housing systems and actually have desirable public housing.
Arguably, the reason we don't already have this is because a large contingent of the voting public has been conditioned to believe that if the government does something well, it's communism, so the government should do anything well.
The reason we don't have it in the US is that many cities tried and failed to make it work in the 50s and 60s, to the point that we have a slang term "projects" memorializing the failure. Public housing can't be desirable unless it's safe, and it's not clear whether anyone knows how to run a crime-free public housing project in the US.
If you fail a test and the rest of the class doesn't, it implies that you were just unprepared for the problems the test is not in fact impossible.
Just because the US made some poor decisions (e.g obviously cramming 100% poor people into vertical concentration camps doesn't work, you need to have mixed incomes to have a healthy community) in its rollout of public housing many decades ago doesn't mean it's an unworkable idea. Singapore and Vienna are two examples demonstrating this point.
Sure! But the fact that it's possible in principle doesn't automatically prove that you should trust your local city planners when they say they're totally gonna get it right this time.
It's not like public housing has gone completely extinct in the US. Chicago is working on a couple of mixed-income projects, and if they succeed at creating safe units where people who have a choice might like to live, presumably that will boost the popularity of public housing. But given the historical track record, I'm not holding my breath.
Part of the problem, I should note, is that the "100% poor people" thing is very much a live issue. Many American advocates of public housing continue to argue that housing developments _should_ contain 100% poor people, arguing that mixed-income developments are gentrification and/or a handout to developers. In San Francisco, for example, both locals and government officials routinely insist (https://missionlocal.org/2022/06/plaza-east-residents-demand...) that mixed-income projects don't make sense because the market rate units could instead be given to a poor person.
Haha, yeah let's exclude SF from any cities we're going to use as examples of good planners, unless we're talking about "How to slowly convert a city into a giant museum." 99% of the city's purist concern trolling is purely to prevent development, not about doing it equitably. Indeed, any city that's setting unrealistic development goals in the name of equity is likely doing it as an excuse to block development/solicit bribes/transfer wealth to existing property owners.
We don’t have it because we aren’t a city state. In Singapore, you have a few choices, but they are all in Singapore. If the public housing system came to the USA without any local residency requirements, everyone would want to live in a few hot cities and the system would just fall apart. Not only that, once residency restrictions are in place, people will be stuck in places due to their public housing, they won’t be able to just move to Seattle for better job opportunities.
It really isn’t. It’s simple game theory. People want to live in nice places. So they will all want their public housing in a nice place, but people generally like the same places, and that doesn’t really work for 380 million people. Someone will have to live in Mississippi, but then that also locks them down since we aren’t using market anymore to determine who gets to live where.
Public housing doesn't have to mean free housing for everyone, it can merely mean subsidies are in place to ensure that real estate market failures like the ones that exist nationwide today don't result in extortionate housing costs and growing slums.
Subsidies without new supply mean we can just throw even more money at existing housing stocks. We could also go with the current system in place now where some people win the housing lottery and get an affordable place to live, but it doesn’t really scale.
a large contingent of the voting public, the same contigent that support public housing and are against private housing, see enforcing nuisance and public order laws as (race|class)ist. until enforcing laws against disadvantaged minorities in their own homes and neighbourhoods becomes acceptable again, public housing with under-market tenants will continue to rapidly degrade into hovels like NYCHA.
I don't think anyone beyond extreme outliers is 'against private housing,' and disadvantaged minorities themselves want police protection in their own communities. What they don't want, and what nobody wants, is bad policing. So if you build mixed income public housing and do policing right, it just might work. We should try it.
There are plenty of motivated actors that are terrified that the government will do a good job, and so they work to sabotage it so it won't be effective competition.
Right, and I'd argue that the belief that it can't do things well frequently comes from the government being deliberately handicapped by those who believe it should't do things well. For example crippling (or outright trying to destroy) the US Postal Service out of the belief (or vested interest) that private delivery companies shouldn't have to compete against a publicly subsidized service.
We could also ask the Soviet Union which despite being an authoritarian shithole, did not have homeless people.
In any case, most cities in the US have obvious supply side issues with housing. It doesn't matter who builds it, we need more supply. Why shouldn't it be the government?
Soviet Union had a residency system also so everyone didn't just move to Moscow.
Can we build enough housing in SF, Seattle, LA, SD to satisfy demand? Keep in mind that as soon as housing is affordable in these cities, even more people will move to them...so how much is enough?
They do, but they are also growing, some rapidly. We know that building more freeways induces demand, I why wouldn’t building more housing induce demand also?
The chinese property bubble was created because of the lack of equity markets for chinese investors to dump money in. Without good investments to be had the chinese turned to pure speculation in the real estate market. Their housing market is actually quite good at providing housing, in fact theyve lifted 800+ million people out of poverty in the last 80 years. Just the crappy financial regulations that caused the problem.
The American housing market does not seem to have much speculation right now. Houses actually provide utility around equal to what they cost here, theres just a big enough wealth disparity combined with not enough housing that a huge number of people cant afford that price.
The construction industry really is a jobs program for rural surplus labor, they’ve optimized their construction techniques for that with the same 30 story blocks with slightly overbuilt concrete walls and floors. But they have surplus units and even in hot cities like Beijing or Shanghai you’ll find empty apartments that haven’t even been renovated yet. It’s not clear where this will end.
The American market has lots of speculation. Many landlords are just in it for the appreciation given that they can’t even make a mortgage payment with rent, I know of multiple homes in my (Seattle) neighborhood owned by Chinese investors that are barely lived in.
They build the same building over and over again because theyve had to create litearlly a billion units in the last 50 years and it's faster that way.
There are unsold units because the price went crazy due to speculation. Empty housing is one of the main indicators of a real estate bubble. American vacancy rate has slowly crept up but is still extremely low outside of manhattan. Americans tend not to believe housing will appreciate faster than the stock market, so housing speculation is limited, although of course not unheard of. We'd need LVT for that.
The empty houses are definitely sold. They are just being held since the return on an unrenovated unit is higher than a renovated one. They are speculating long term, and being landlords doesn’t give them much. There are also apartments that have been sold but are never being lived in before the building is torn down and rebuilt, but they’ll still make their return regardless.
As for the USA, yes it isn’t as bad here yet. But it’s getting there.
>>Now that we're getting rid of centralized price controls / collusion
>give me a dossier on BlackRock's holdings in real estate, go into detail on their holdings in residential, get as much real financial from their filings and reports. Give me a markdown table and an instaml/instaql schema for the data model
But thats a lot of power over rent cost 'normalization' given they can set the prices on a large # of units and pretty much all real estate is driven by "comparables in the area/market" thats an awful lot of "comparables"
Also these are basically fake numbers.
Unit could be an entire complex with hundreds of actual apartments.
---
EDIT:
They dont own any direct units, apparently, but they own a large percentage of the companies, developers, funds that do.
It a far more nuanced issue and hard to get a true understanding of, as money is the grout that fits everything together - its hard to see how it all works.
>But thats a lot of power over rent cost 'normalization' given they can set the prices on a large # of units and pretty much all real estate is driven by "comparables in the area/market" thats an awful lot of "comparables"
If their ownership is a drop in the bucket on a national level, then what you're proposing would only make sense if they're heavily concentrated in a few cities. Is there evidence this is happening?
>Unit could be an entire complex with hundreds of actual apartments.
Dividing the total asset value by the number of units gets you around 300k, which seems in the price range for a single family home. That doesn't entirely rule out what you're describing is happening, but if it is the effect must be low.
You and what I assume is your AI companion are victims of some viral misinformation about BlackRock. BREIT and BREIT II are managed by an unrelated company named Blackstone - the fund names in your third image are incorrect. BRGIF does not, as far as I can tell, exist at all.
Do you know the history behind both BlackRock and BlackStone?
Same DNA:
>>he business that would become BlackRock started under the umbrella of Schwarzman’s firm in 1988. “They used to be called Blackstone Financial,” Schwarzman said. “We started in business together. We put up the initial capital.” Schwarzman started Blackstone three years earlier in 1985.
>>When Fink decided to branch out on his own, he needed a new name for his asset management operation, Schwarzman said. “Larry and I were sitting down and he said, ‘What do you think sort of about having a family name with “black” in it.’”
Thanks for the input though - I am working on figuring out how to document all these entanglements - there are a lot of others also attempting to do so, if you have any links to such, I appreciate real data that I can trust (I am mapping out The Oligarchs, their entanglements, and what/who they are/actually own.)
Getting rid of the law of supply and demand is like getting rid of Boyle’s law. Legislate whatever you want but the behavior those laws model will still exist.
I prefer to think of it this way. I like my markets free as in GPL, not free as in BSD. That is, I want the market itself to be free with limitations on the participants that keep them from taking it for themselves.
This is moronic. Economic theory is a self-reinforcing veneer of soft science studying observed human behavior with wild variance between different cultures, geographic markets, and individual people.
The "laws of supply and demand" are not empirical laws of physics. They are general principles with well-known exceptions and flaws of their own. You should lay off the microdosing.
Supply & demand is such a basic emergent property of, well, anything involving life as we know it, that I have a hard time imagining opposition to it.
If a vendor anywhere in the world has more stock than their customers want, the price goes down. If more people want it than the vendor can provide, the price goes up. If there's more food than animals that want to eat it, animals eat their fill and the rest rots. If there are more animals than food, each spends increasing effort developing strategies to get more than their neighbors.
Now, if someone claims they can prove that demand increasing by X results in prices increasing by exactly Y, I'm with you. There are too many variables to make that predictable. But the basic idea behind it? That's pretty fundamental.
Emergent property != laws of physics yet to be broken. All I meant was equating economic principles to empirically proven scientific theory is deeply misleading. I agree with your last paragraph. I liken it to the saying, “all models are wrong, but some are useful.”
> You can derive the basics of supply and demand from game theory.
You can derive supply and demand from game theory once you make some assumptions about preferences, costs, rationality of players, etc., all of which are non-mathematical, mostly empirical concepts.
to anyone even remotely studied in economics - this is astoundingly ignorant. And the hubris is incredibly cringey. Please provide a counter example to the soft science law of supply and demand?
Uh, you're reading the wrong thing about it. Fixing supply and demand means things like punishing vacancies with taxation, promoting construction with tax breaks, and removing the demand by severely limiting rent seeking real estate investors.
Are you sure that’s what they meant? I’m completely on board with everything you describe (and liberating the market from the people monopolizing it for their own benefit). I’ve heard way too many people arguing that we should do away with supply/demand, as though it were a regulation we should repeal, and didn’t understand it as an inherent property of the system.
I follow the RE space, and have done some RE investments (albeit mild ones - I don't own homes to rent or anything like that).
> punishing vacancies with taxation
Outside of tourist spots, this will hurt more than it will help. Most RE investors lose money on vacancies (it's literally a line item in their expenses) and work hard not to have them. They definitely do not make more money by artificially limiting supply that way. I assume you're targeting rich folks who own multiple homes (and do not rent them)? They're what - less than 5% of all vacancies? Perhaps less than 1% in many cities?
Almost everyone I know who purchases houses/apartments to rent them would get out of the business if vacancies were taxed - they operate these properties on a narrow margin - most of their "profit" is due to depreciation benefits and gaining equity from the payments the renters are making (and in a minority of cases, property value growth).
It may sound like if they sell, that's a good thing (more people can buy their offloaded property), but a lot of houses would also go out of circulation, because these people often buy distressed homes that banks won't give a loan on - and they renovate them, bring them up to code, etc.
I suppose if you could tax vacancies only for those that are not trying to rent them - sure. I'm on board.
> promoting construction with tax breaks
There are plenty of these, although it varies from location to location. But it's a pretty common RE investment strategy to go for these, as the tax savings can be very significant. People pool their money for a down payment on a construction loan (be it for an apartment complex or office building), build it, and are required to hold it for a number of years to get the tax breaks.
Of late, the push has been in the other direction - states/cities are removing some of these tax breaks - not sure why - perhaps they weren't as effective as they thought?
> and removing the demand by severely limiting rent seeking real estate investors.
There are ways to do this that may not be popular. The main one would be to remove fixed interest mortgages. Most developed countries don't have them - that's why plenty of foreigners buy in the US market.
Another is to allow property taxes to track actual property values (i.e. remove the cap on increase in property taxes). You can imagine how unpopular this will be for SF residents.
Remove tax benefits like bonus depreciation or accelerated depreciation.
Remove tax benefits that allow one to count RE losses against their W-2 income (it's tricky to do it, but possible for AirBnB investors).
Basically, just remove most tax benefits :-) The majority of RE investors get in it for tax benefits, not appreciation, and not that much even for cash flow (cash flow is fairly pathetic in most cases - getting $200/mo is considered good).
> Most RE investors lose money on vacancies (it's literally a line item in their expenses) and work hard not to have them
Plenty of landlords would rather a unit in a building go empty for longer than compromise on rent in a way that weakens their negotiating position with the other units. (Also, with lenders.)
The argument for taxing vacancies is city taxes are often set on the assumption of occupancy. A vacant unit doesn't contain a tax-paying worker. The vacancy tax adjusts for that.
> Remove tax benefits like bonus depreciation or accelerated depreciation
>Also, the argument for taxing vacancies is city taxes are often set on the assumption of occupancy. A vacant unit doesn't contain a tax-paying worker. The vacancy tax adjusts for that.
Also important for commercial vacancies. The rent is too high, costs for commercial goods and services (and especially food and entertainment) is inflated by inflated rent so restaurants and consumer businesses can't stay open because they can't afford to pay the rent and lower prices to attract customers at the same time. And yet a huge proportion of the commercial space is just empty.
A vacancy tax makes up for that missing tax revenue from a running business and also just raises the quality of life for the people of your city by giving them opportunities for things to do and lowering the bar for entry into running a business.
>Plenty of landlords would rather a unit in a building go empty for a little longer than compromise on rent
Yep, I watched my last apartment (which I left partially because the rent went up to an unreasonable price) sit vacant for several months and laughed at how he could have made much more money if he compromised slightly on rent (which he seems to eventually given in to, so his greed only served to lose him money and not get the price he wanted).
Our previous landlord evicted us to "rent it to her sister". We saw it listed for rent at a higher price soon after, and then it sat empty for 4 years. That did my heart good.
> Plenty of landlords would rather a unit in a building go empty for longer than compromise on rent in a way that weakens their negotiating position with the other units. (Also, with lenders.)
In my experience: A tiny minority (for housing - not sure about commercial). This is one of those cases where selection bias applies. As most landlords really hate vacancies, the ones you do see are the tiny few that don't. And because they let them be vacant for months, it adds to the selection bias. They perhaps own most/all of the property, so the vacancy cost is miniscule (only property tax).
I do know the bulk of landlords are fussy about the type of consumer they get (e.g. decent credit rating, etc), and will allow for longer vacancies to get them - the rationale being that a bad occupant costs more than the vacancy charge - especially in tenant friendly states like California (extremely expensive to evict).
Keep in mind - the bulk of them don't own the properties outright - they are paying a loan. In a place like where I live, they may need to pay $2000/mo on a property that they rent out for $2300/mo. That $300/mo is a very slim-to-nonexistent profit margin once you account for costs. If it goes vacant for a month, they are losing over 6 months of net revenue. When you factor in the costs, it may well be closer than a year's worth of gain. The property doesn't appreciate much here, so they're not gaining in that fashion. Now when an eviction takes 4 months to execute, you can do the math on how they may prefer a 1 month vacancy to a bad tenant.
Really: Get rid of fixed interest mortgages and you'll discourage rent seeking behavior. Most are playing the long game: They'll accept a net loss of, say, $100-200/mo because they know their costs are (relatively) fixed, and in, say, 5 years the rents will have gone up enough to break even or yield a small profit. Keep it up for the next 30 years and they've made good money (and had a tenant pay for all the equity).
If you want to discourage rent seeking, discourage the main incentive: The cheap loan.
Taxes on vacant rental units means they'll be sold sooner, and increases the odds they'll be sold to an occupant instead of a speculator. I am a capitalist above basically anything else but that sounds great to me (and I already own a home and will likely never move again).
> Almost everyone I know who purchases houses/apartments to rent them would get out of the business if vacancies were taxed
Yes, you've successfully articulated the point. In an actual free market where supply can be added easily with minimal headache, buying an asset to rent it back is perfectly fine. In something like the housing marketing, buying a home specifically to rent it out is bad whether it's one unit or one thousand because supply is already artificially constrained. The end of that line is BlackRock buying up thousands of homes and materially hurting Americans. The fact that some random person with a few million in inheritance can make money in the interim is irrelevant.
> but a lot of houses would also go out of circulation, because these people often buy distressed homes that banks won't give a loan on - and they renovate them, bring them up to code, etc.
It's pretty easily to exclude vacant homes with open permits that are actively being renovated or with 203(k) loans, or to provide revenue-neutral tax breaks. This is a legitimate criticism but it means you address the criticism, it doesn't mean the original goal is bad or impossible.
> There are ways to do this that may not be popular. The main one would be to remove fixed interest mortgages.
We should definitely remove fixed-interest mortgages for non-owner occupied purchases.
>> Almost everyone I know who purchases houses/apartments to rent them would get out of the business if vacancies were taxed
>Yes, you've successfully articulated the point.
And the goal. Why raise taxes on vacancies? To push out owners whose primary goal is to leach out a few percentage points above loans they can get or to sit on property while it appreciates in value (while harvesting tax benefits on the depreciation of the structures they maintain to a minimum because _margins_)
There just shouldn't be a class of people whose business is harvesting tax benefits and arbitrage of trust by banks.
There are legitimate concerns or arguments against a single national government-run healthcare system covering 330 million people in 50 different states (medicare/caid notwithstanding, basically all healthcare is regulated state by state and not federally).
I don't know anything arguing that adjustable-rate mortgages will "fail" in the US (we have them already), especially focused specifically toward/against non-owner occupied properties, just that it would negatively affect them and they don't want to do it.
