This is a good example of the fallacy of youth: buying too far into hype and being all "the sky is falling" with negative news.
It wasn't long ago that we were reading how Zillow et al were going to buy up all the housing stock and keep millenials and Zoomers homeless forever.
The people saying this have obviously never gone through a "bust" cycle. This is unsurprising as we've now been in the longest bull market in modern history. It's not always like this. It won't always be like this.
History is littered with the corpses of those who tried and failed to corner a market. Real estate is no different. That's not to say we can't make the system better. We can and we need to. But serfdom isn't imminent either.
Zillow shouldn't be taking real estate positions as it's going to end badly and will likely hurt their core business (ie transactions). I'd love to know who signed off on this idea. They need to be fired.
I disagree strongly with this sentiment. Clearly Zillow is not going to buy all the houses in America and turn us into serfs overnight - that is an absurd strawman. What? Zillow is far from the only actor here trying to enter this space. It's quite ridiculous to claim, as you are, that industrial-scale home speculation is doomed to fail since there are boom and bust cycles and therefore we don't need to worry. That's ridiculous. We really don't have any direct, past precedent for this type of situation. It is rational to be concerned here. The fact that Zillow failed on their initial attempt does not imply that this can't work - it just means they're one of the first making a serious attempt and, unsurprisingly, they got overzealous and it didn't work on the first try! Quant firms for the stock market in the early 90s did not work overnight even though the market was much more inefficient than it is now. It takes time for groups of highly qualified and very smart people to figure this stuff out - but, they will.
> We really don't have any direct, past precedent for this type of situation
Yeah, we do. Massive housing speculation in the mid-2000s.
> The fact that Zillow failed on their initial attempt does not imply that this can't work
I'm reminded of Gamestop here. Around the time $GME first spiked and then fell you saw lots of people trying to encourage everyone to hold. What this ignored is that someone would be left holding the bag and the long interest holders knew it so it was a question of not being left holding the bag.
This is classic Prisoner's Dilemma, basic human nature (ie to act in self interest) and exactly why markets work long term.
The boom and bust cycle reflects basic human psychology of fear and greed.
Asset bubbles aren't new. Attempting to corner or even just manipulating markets isn't new. Ultimately these things always revert to mean. Sometimes you can predict the reason. Often you can't.
I personally favour fairly radical and progressive real estate reform. This includes (much) higher property taxes for non-resident owners, treating owners as tax residents and thus taxing their income, ending special treatment for real estate assets in asset reporting and withholding taxes at source on real estate income.
Cities should be for those that live in them, first and foremost. Having landlords is fine as long as those landlords themselves are residents of the same city. Residential property shouldn't be for investment funds or oligarchs hiding money from governments.
Concentrating on the likes of Zillow however is largely unnecessary and a diversion. The focus should be on the game not the players.
But I also firmly believe that the prisoner's dilemma and human psychology will limit the impact of institutional real estate buying just as in any other market.
Real estate speculation has likely been around for thousands of years; it’s certainly not new. But, do you see any difference between A. individuals in the mid-2000s speculating on real estate based on individual whims and taking out mortgages they should not and B. large corporations with access to massive datasets previously unavailable, teams of PhDs trained to work on this, equipped with game-changing modeling capabilities that were computationally infeasible until the past decade, along with access to massive amounts of capital? In my opinion, the former case seems less of a concern than the latter.
Also, maybe I’m dense but I’m not able to see any relevancy to GME at all.
For the entire US yes. For new york city, that's just under ~3% of total sales. Given how fundamentally illiquid residential housing market is, thats more than enough to push prices up/down as the player sees fit.
I bet it's even an even bigger part of the pie if you exclude $10m+ homes. My hunch is that the middle and low end of the market is more attractive because they are easier to rent.
Someone in a related thread here on HN yesterday said that at some recent point in time, US$200M would have bought every piece of residential real estate for sale in Boston (proper). Didn't try to verify if that was true.
I agree that 2.6b is chump change relative to the US housing market. In fact, it’s not a large hedge fund, regardless of what they’re trading. I think the real concern here is if this model proves to be profitable and that 3b increases by several orders of magnitude across a much larger set of firms and funds. I’m not saying that will happen, but that is an alarming potentiality.
A sounds like it would lead to increased chances of people overpaying and overextending themselves, and B sounds like it would lead to more accurate pricing.
That’s one of the talking points parroted by HFT firm representatives defending their business. There’s a lot of research on it as well. I bet successful real estate firms will use that same argument. I personally have a hard time believing this will benefit the average consumer buying a home.
You are right that the pricing is more accurate. But it is more accurate for a company trying to increase their own revenue, not someone trying to own and occupy a house (most Americans, based on home ownership rates). The calculations used are entirely different and so is the capital available. In the world without this type of behavior, that pricing difference could be captured by an actual homeowner over the life of their mortgage.
It's another thing we are seeing "optimized" right in front of us. Meanwhile, housing, education, and healthcare get more expensive for actual humans.
> But it is more accurate for a company trying to increase their own revenue, not someone trying to own and occupy a house (most Americans, based on home ownership rates).
Also for the house seller (prior to the company), who is getting paid a more accurate, higher price.
And a price is accurate all the same for buyer and seller, since there exists a range with the minimum price the seller wants to receive and a maximum price the buyer wants to pay. The smaller this range, the more accurate the price.
With more data and more accurate projections, it may be possible for current owners to capture more of the gain that may have happened down the road.
I agree B) isn't being employed by only malicious companies. We're talking about a huge market and tons of competition. It would take a lot of effort to keep honest companies from making money also bringing prices down if there was artificial price inflation.
I've definitely not studied the market extensively, but it seems rather intuitive to me that if you artificially give everyone access to the best loans in any market, you'll see prices continue to inflate until everyone in the housing market is educated and capable on benefiting from the subsidized loans.
Scenario B and A are more similar than you acknowledge. Both are fueled by low cost capital driving prices to unsustainable levels. Scenario B will be a problem too if/when interest rates rise and companies have insufficient cash flow from rents to pay the new debt service. In fact, scenario B may result in a deeper crash, since selling will be swift and by many actors at the same time since they are using similar valuation models. Scenario A was predominately driven by actual homeowners whom are more reluctant to sell in a down market.
> companies have insufficient cash flow from rents to pay the new debt service.
If they are pouring their own capital into purchases, why would there be any debt? Are the entities (companies) in scenario B actually borrowing money?
Given the current interest rate market, I think it's safe to assume they are borrowing money to purchase homes. They aren't taking out individual mortgages but I would be shocked to learn that they aren't borrowing millions through other forms of financing and then paying "cash" for homes.
Also not leveraging purchases would be considered financial management malpractice unfortunately and likely result in a hostile takeover of the company or at the least a change in management. This is a major reason companies get into trouble with debt during times of increased interest rates; proper unwinding of debt and sale of assets near the top is key when playing with leverage.
I had the impression that this was happening because they had excess cash and nowhere particularly interesting to put it. Why would you borrow if you have cash sitting around and expectations of a good-to-crazy rate of return?
Why use your own money when you can use other people's money? Apple, MSFT, Google, etc. All these companies have massive piles of cash on hand yet continue to finance operations.
Irrespective of that, I agree that even if Zillow fails here, it doesn't bode well for the future of the RE market.
> But I also firmly believe that the prisoner's dilemma and human psychology will limit the impact of institutional real estate buying just as in any other market.
Possibly. Real estate is different than most other markets for a few reasons. Favorable tax treatment, sheer market size, high barriers to entry, and being at the bottom of the hierarchy of needs.
I'm worried if this isn't the inevitable path of concentrated wealth accumulation. Stocks have grown too over-valued? Move to housing, a gigantic market that people require to survive.
> Stocks have grown too over-valued? Move to housing, a gigantic market that people require to survive.
This is kinda what happened in the 00's housing bubble. Tech crashed and people looked at housing as the next big investment. It feels like we just have groups of people going from bubble to bubble.
Like the other responder, I don't think the 00s and this cycle have much to do with each other. 00s was lots of people who couldn't afford a home being provided mortgages by banks, and it falling.
This is presumably a number of well-financed institutions buying up property to hold or rent.
Now, perhaps you're correct that it isn't as bad as it seemed, since Zillow is selling the homes rather than getting into the rental business, but even the header of the article says they are seeking "institutional investors".
I also agree that cities should be for those who live in them, and that land is a different type of asset from most others (again, like another responder mentioned).
The more I type the more I think we're on the same page, but you seem to think everyone is focused "just on Zillow" while I am thinking more about the long-term opportunities for trillion-dollar megafunds to gain a monopoly on living space and destroying the ability of families to own property in America's cities.
Nobody is saying (I think!) that the fundamentals are strong, or that old rules don't apply.
What's being suggested is that the influx of large scale corporate purchasing in the residential real estate market is different, and that because of the old rules, this could be a problem.
> also GME is over $200 currently, when it was $10 a year ago
And they got there by running a sustainable and profitable business? No, they got there because Reddit decided to play their own little game of pump&dump.
Which is yet another blatant example of how decoupled the stock market is from the actual real world economy.
Actually the game was buy and hold ( diamond hands ), and only because they saw an enormous amount of shorts outstanding, so much so that a squeeze was all but guaranteed.
> Around the time $GME first spiked and then fell you saw lots of people trying to encourage everyone to hold.
Everyone who got into $GME after the first spike knows that the value will tank some time, they are in it simply for the lulz - to this day, short sellers are accumulating losses, and given how long the price has stood up way over anything supported by fundamentals there must have been dozens of billions of dollars in value lost for them.
Obviously some are in $GME in the vain-ish hope of a second short squeeze event... but that's just gambling.
> Having landlords is fine as long as those landlords themselves are residents of the same city.
I suspect this would simply lead to property owners having a nominal “registered agent” in the city as the “owner” but all control and profit flows to the real owners.
Moreover, think about blighted cities. If a company is willing to come in to such a city and build some really nice affordable apartments that would improve the city for everyone, it seems like an undue burden to force them to live in that city as well. Your proposal could lead to shitty places to live staying shitty for a long time.
> We really don't have any direct, past precedent for this type of situation.
Unfortunately we do have precedent. Through all of history almost no one owed their own home. It was by extraordinary government intervention in the 20th century through loan programs, incentives and building, and impediments to speculation, that made it uniquely happen in our era.
As the government steps back from continuous intervention favoring individual home ownership and low to nonprofit housing, the more profitable rental economy will re assert itself: it is always more profitable to own a property to rent out then to live in it and the market will reflect that if left to itself.
Price fluctuations (eg 2008) do not change the fact that land price increases have far outpaced wages for decades. So yes, it is rational to be very concerned.
And note that Zillow is not selling these 7k properties to would be homeowners but to investors.
> Quant firms for the stock market in the early 90s
False equivalence. The real estate business which Zillow failed is massively capital intensive, whereas figuring out a quant strategy is not necessarily so. In other words, it is very possible to go out of business before a business model is worked out (assuming there is an undiscovered, workable business model).
Investors will not endlessly fund money losers, and Zillow is a huge money loser from both a income and cash flow perspective–a trend that predated their entry into the iBuyer space. Now you might say, the investor appetite for money losing Zillow is bottomless, just look at asset class X, which is totally unproven and yet has insane valuations. To which I would reply, "That is true until it isn't." One common characteristic of all financial bubbles is that its participants claim "this time is different."
Supposing iBuyers do become a significant force in the SFH market, so what? Large companies already participate directly in housing in a massive way. Who do you think built all of these apartments? Also, don't YIMBY's want to eliminate SFH anyway?
But then that's just saying you'll find more affordable housing in cities that people don't want to live in, which would then go along with your point.
> Not to say that it's necessarily a model to follow: there's a lot of sprawl involved. Just saying that "abundant housing has some real benefits".
I've heard it isn't a nice place, but I've never been before so can't judge.
Everywhere is struggling with housing right now, because nowhere has built enough since the great recession - and some places like California have probably been underbuilding for decades.
It does not strike me as a particularly attractive place to live - but I'm not a big city person, and prefer more mountains/nature. Its population has sure been growing, though, indicating that someone wants to live there.
> Everywhere is struggling with housing right now, because nowhere has built enough since the great recession
That was my original point in another thread (under building during the great recession + an exodus of building talent).
> It does not strike me as a particularly attractive place to live - but I'm not a big city person, and prefer more mountains/nature. Its population has sure been growing, though, indicating that someone wants to live there.
Houston is growing at half the rate of Seattle, at least in the last 10 years (10% vs. 20% growth). Those cities growing the fastest seem to have the most pressure put on their housing markets, which makes sense.
Demand certainly contributes to rising prices if supply lags. Houston does a much better job than other places of adding supply, and part of that is their 'zoning-lite' approach.
I don't know. If Houston is the poster child for the zoning-lite approach, a lot of people won't be interested in going in that direction. Or to say, if zoning creates a problem with affordability and the lack of zoning creates a problem quality of life, it doesn't sound like getting rid of zoning is a no brainer.
I'm not really sure where that article gets its data, but the actual price of homes in Houston is low despite a lot of people moving there and the economy thriving. Seems relevant.
> Quant firms for the stock market in the early 90s did not work overnight even though the market was much more inefficient than it is now. It takes time for groups of highly qualified and very smart people to figure this stuff out - but, they will.
This example works against you. Quant firms did succeed but they did not corner the stock market nor are they cause for concern. There is a long history of firms that failed to corner a market or become a monopoly. True natural monopolies are extremely rare and don't typically last very long.
You can't squeeze more money than the market is willing to pay. If private equity tries to corner the housing market, more people would decide to live with their roommates and family while developers will happily sell them overpriced homes and they pay property taxes.
more people would decide to live with their roommates and family
And we made fun of Soviet Russia, where people would live with roommates and family because their government was so dysfunctional that it couldn't even arrange shelter for its citizens, a basic necessity for life.
Not everyone can afford a Bentley or a condo in Manhattan. That is not some terrible injustice that needs to be fixed. Living within your means and buying a place where you can afford to live is also an alternate approach. Or you can moan about capitalism and how unfair life is.
The price for housing has gone up substantially in the last 20 years, housing takes up a greater share of peoples incomes than it did in the past, and there is no reason for it.
We wouldn't tolerate the price of food going up by the same percentage.
We tolerate it in housing because the asset appreciates.
If food costs went up substantially, but you could eat the food and then resell it for more than you paid for it (and sometimes a lot more than just inflation-linked increases), I suspect we'd tolerate that too.
Now we are getting somewhere. The owner class tolerates housing price increases because they think they are getting a good deal (but it's just inflation, if the price of necessary goods goes up, that's inflation), and the renter class gets fleeced. It's not a recipe for long-term stability when 2/3 of the population band together to oppress the remaining 1/3, all this with government support.
It's also concerning that housing is a government-supported investment, it's an unproductive asset. That's not how you encourage progress and development. Even if you just have a field you can grow crops but no such luck with housing.
(Maybe there's change on the horizon, a collegue who lives somewhere in the Rust Belt complained that her 25-year old daughter can't move out. She has a regular job, but the rents have become so high that she cannot afford an apartment on her salary. So there's hope that civil unrest will be averted.)
> The price for housing has gone up substantially in the last 20 years
This is the result of supply and demand. How does demand for housing increase? Falling mortgage, downpayment assistance programs, government guaranteed loans. That increases demand.
And housing is also larger than 20 years ago.
> We wouldn't tolerate the price of food going up by the same percentage.
This is just silly. It is not something you "tolerate" it's something you cause.
Food prices also rise when demand increases.
The public has 100% control over demand as they are the ones bidding up the house prices! Now they do not have 100% control over supply. But house prices have not risen because of a decline in supply.
How does demand for housing increase? Falling mortgage, downpayment assistance programs, government guaranteed loans.
Also growing population and people moving to areas where the jobs are. Most recently: pandemic refugees from NYC and California settling in adjacent areas. When demand changes for a good with inelastic supply you see large excursions in price.
And housing is also larger than 20 years ago.
That's a problem right there. Everyone needs a roof over the head. Some people would like a palace. There is not enough entry-level housing being built to keep up with demand, meanwhile the existing stock has reached the end of its serviceable life. There's a good chunk of 70's construction which has deteriorated to a point that it needs rebuilding. The shortage at the low end causes high rents for those who can least afford it.
Food prices also rise when demand increases.
Food prices mostly rise in response to missing supply, either because the harvest fails and the government can't secure imports or because of political upheavals. Either way, it's a political problem, food riots are what starts revolutions. and food price instability is a hallmark of banana republics.
> Also growing population and people moving to areas where the jobs are. Most recently: pandemic refugees from NYC and California settling in adjacent areas. When demand changes for a good with inelastic supply you see large excursions in price.
Right, when there is a disruption. Say there is an increase in jobs in city A and wages rise by 10%. Say there is a decrease in jobs in city B and wages decrease by 10%.
Now what must happen is some kind of population transfer from B to A. We also know that rents will rise in A and fall in B.
But how does this happen? Via evictions in B as people can no longer afford the existing rents and move out. That adds to the rental supply in B as landlords struggle to find tenants, which causes rents to fall. Similarly in A, there is a bidding war for apartments and rents rise. This is how the market adjusts to the new reality of jobs and wages in both cities.
Now covid had lots of these disruptions. Entire job markets were shutdown, others thrived.
So what happens when the government puts a freeze on evictions in both A and B. Then everything is frozen except for the handful of new construction in A and B, so you get massive price spikes and rent too high in city A as well as rents being too high by not adjusting downward in city B.
The effect of this is that prices are always much higher than the market clearing price, which is what this paper demonstrates.
This is also what happens when you try to make economic interventions based on sentimental intuition -- "it's not fair that you should be evicted if you are laid off" -- often the exact opposite of what you want ends up happening, as housing becomes too expensive for everyone. What has to happen is that people must live in the housing they can afford. Attempting to live in housing that they can't afford always causes excessively high prices for the majority.
economic interventions based on sentimental intuition -- "it's not fair that you should be evicted if you are laid off"
We pay people unemployment compensation because the knock-on effects from someone taking the next-best job are serious, and it's immensely difficult to recover from an eviction. There's volumes of research on that. The "sentimentality" has vast economic benefits.
> We pay people unemployment compensation because the knock-on effects from someone taking the next-best job are serious
We have unemployment insurance not because of sentimentality, but because insurance is economically useful. A person cannot insure themselves from loss of wage income, so paying some overhead to have the government do it makes sense.
Freezing evictions does not make sense. We do not freeze layoffs, for example, in our unemployment insurance program. We let employers make the layoffs they need and then have an insurance pool that the laid off can draw from.
A proposal to have rental insurance that you contribute to and can then draw from for temporary eviction assitance might be a good idea -- it depends very much on how it's implemented.
One of these has economic benefits but the other does not. Both are sentimental in nature, but that is not a sufficient condition to adopt a policy -- actual economic outcomes has to be the deciding factor.
"we'll take the ... back by force"
Why are so many people so quick to suggest that a nationwide situation will be resolved by force. No one is going to take back hundreds of homes by force. That amount of force would be absolutely crushed by state sanctioned violence. Even if you could, what are you going to do with the thousands of homes you have now claimed? Who decides who gets to live there? What about the renters already living there? America is in an awkward position right now and the constant larping of using force to resolve issues is not helping.
I suppose it could mean voting in people to write a law that makes it exceedingly unattractive for institutional investors to buy single family homes. You could probably even do such a thing "neutrally" since people really only need one home and if you own more than two you're almost certainly investing in some way. Apply some onerous tax on each unit owned above 100, and all these investors will flee the market.
Edit: IIRC, the companies that buy up all these single family homes are large corporations. I'm pretty sure you could write a law like I described that they wouldn't try to use some cheeky corporate shell game to try to bypass (e.g. in their tax filings require them to declare how many single family homes they're the beneficiary owner of, regardless of any intermediary shell companies/special purpose entities, and tax them for that). Require the auditors to sign off of on the number. If they lie, everyone's subject to even more onerous civil and criminal penalties (e.g. blow them up like Enron). Large corporations will stretch the law as far as they can, but it's rare for them to deliberately venture into fraud and other kinds of illegality (for the pedants out there, note I said rare not never). The systemic issues can be solved if they're made to comply, even if some relatively small fish still don't
I wouldn't be too quick to claim that the myth of institutional house buying has been dispelled. Zillow isn't the only company out there buying real estate, and they are planning to sell most of the properties to other institutions and landlords, not the open market of owner occupiers.
It appears they made some errors in their calculations and temporarily bought too many houses at too high a price but the article says they are only pausing purchasing for the rest of the year and there's no mention of if they are revising their plan to purchase up to 5,000 homes a month by 2024.
So, looks like without evidence of a market wide cessation or significant long term reduction, significant institutional real estate actors remain a factor in the market.
Agreed. One thing this article doesn't point out that was a bigger topic a couple of weeks prior is that Zillow had to halt purchases due to lack of workers to help flip the homes [1]. The iBuying revenue model depends on the ability to flip a home quickly so that market fluctuations do not have enough time to pose as a risk, which Zillow was willing to take.
I would guess supply chain costs and delays reduced their speed of renovation unexpectedly and they can’t carry the cost of sitting on the property during that wait time. So to your point, it’s likely temporary based on unexpected renovation constraints.
I've never seen any good data that supported the myth of institutional house buying being a big enough phenomenon to affect homeowners.
It was never apparent in the homeownership rate (https://fred.stlouisfed.org/series/RHORUSQ156N) which has been broadly stable for decades, and the jumps over the last few years are, if anything, towards increased homeownership, not less.
It is apparent in the rental listings for single family homes in decent neighborhoods though. A large percentage of listings are from landlords like Invitation Homes, Key Homes, etc.
As I understand things, Zillow's approach wasn't a corner, but rather an attempt at arbitrage/value-creation. They were pretty sure they had an edge at price-estimation and had enough capital to be able to simultaneously offer sellers execution speed and offer buyers a price they would accept. It is a market-making play.
My impression here is that Zillow has re-evaluated some part of that calculus and decided to pull back. I hope that they'll be able to retool and revisit the approach after learning expensive lessons, as it is my impression that there should be real value here for all concerned.
I'm pretty sure that their internal dataset is far more rich/detailed than the public-facing "Zestimate".
Traffic-data alone, segmenting the buyers clicking on each listing and their expressions of intent, would give them an incredibly-actionable trading/training signal.
Zillow might see, nationally, the nationwide (and regional) direction of buyer and seller sentiment 2-4 weeks ahead of all but the largest regional brokerages.
While I don't disagree, there have to be multiple forces at play here. Take a town like Boise. They have very lenient zoning / building req's. If it was just zoning, their property market wouldn't be so out of whack. In addition to zoning, speculative investing, low interest rates, housing authorities, rent control, the list goes on and on.
IMO, CA prop 13 is just as guilty as restrictive zoning.
We'll never get to see the other side of the experiment, the people of CA would never vote to remove it. Prop 13 interrupts the natural cycle of housing.
I don't disagree that there are other factors at play.
The last part about Prop 13 seems like a bit of a cheap shot. CA is anything but a natural market.
CA government set that poison pill to ensure it must listen to its constituents and remain as "natural" as possible. Now we find they can't enact meaningful reform around zoning, building requirements, parking, or making the city more welcoming to trades, etc.
Why should old taxpayers carry the water for ineffectual govt ?
CA: "We refuse to make the changes needed to let more people in at a reasonable cost. We will instead take more money from one group, so that they leave and we can fleecce someone else ! "
eh - I think short term housing fluctuations are different from long term underbuilding. My understanding was Boise was due to demand shocks that supply hadn't had a chance to respond to.
Is there a dearth of skilled labor for building houses?
As a "youth", I don't have any insight into this as I'm a renter for the foreseeable future, but my parents' and their friends complain about how difficult it is to get anybody to do any sort of construction / home upgrades, e.g. my parents putting in a heat pump.
Given how much the "you're a loser if you don't go to college" narrative has propelled people who may have been happy and skilled at carpentry, plumbing, electrical work, etc, into soulless corporate jobs, this seems like something that the US could take a page out of Germany or Switzerland's book, i.e. much more emphasis on non-uni career tracks starting in high school.
And continuously rising construction costs. Parking minimums are under-discussed here, as the apartment block I used to live in in Los Angeles was probably more underground car park than apartment if you looked at the balance sheet. And yet the parking lot was never more than 20% full.
Restrictive zoning is a consequence of scarcity seeking incentives.
Housing can't be both Affordable and a good Investment. Therefore the only proper value for a home is the price that it costs to build it. The way to do that is a 100% Land Value Tax.
Maybe I dont understand (which I am open too) but it does not seem to make sense unless we transition to a centrally managed economy. Supply and demand drive the price of housing. Whether a house is purchased as an investment or not, it will appreciate based on a variety of factors, including quality of schools, proximity to jobs, etc. If the price of housing did not fluctuate based on demand, and everyone could afford a house anywhere they wanted, who determines who gets the house? House A is on sale and 15 families can afford it. In the current situation, the highest offer takes it. If all offers were forced to be the same, who gets the house? How do you account for bias in the decision process?
I think the way this looks in GP’s proposal is “he who can afford to pay the most rent (taxes) gets the home”, which is a lot like the current system you describe except the rent (taxes) goes toward funding the city and improving such public goods as the schools and roads you mention, instead of rewarding speculators.
Yes, exactly. I go into a bit more in how I envision the plan in a previous post[0]. A much better introduction to the LVT is this book review[1].
People would still bid for the home. You might get one offer for $190k, another offer for $200k. But if enough homes got bid up in the area, taxes would rise and those high bidders would probably lose a small amount.
You know what else will do that? A general sense among the population that certain real estate is a “cant lose” investment and a general shift in desirability from suburbs to urban housing.
> the rapid reversal of white flight to the suburbs among young people in the last 10-15 years
The massive buy-ups in West & Central FL have led to an unprecedented shortage in housing. Rentals get 400 applicants each day and people with money in the bank are facing homelessness. People without have little hope.
Another solution would be encouraging economic development in other areas instead of cramming increasing numbers of people into a small number of geographically constrained cities.
Do you have numbers to back that up? If anything, underbuilding came from a moribund housing market after 2008, as many left the industry and it took way too long to ramp up on talent when housing began to boom again (a lack of people skilled in building houses is still a problem).
But I doubt this is an under building problem at all. Look at Seattle and the area, and there isn’t a shortage of new housing projects at all. They are mostly all luxury, which is the only way builders can make a profit on high land prices, and they sell very quickly regardless.
The U.S. built on average 276,000 fewer homes per year between 2001 and 2020 compared to the period between 1968 and 2000, according to the report which was covered earlier by the Wall Street Journal.
Had building continued at the same pace, there would be 5.5 million more units of housing, the report estimated.
To make up the shortage, the NAR report says the U.S. would have to build 2.1 million homes each year for a decade—more than it built each year during the housing boom of the mid-2000s.
So you compared a 32-year period with a couple of technical recessions and one relatively brief stagflation period averaged over huge growth with an 18-year period dominated by the Great Recession?
Would it be interesting to point out that the US population growth also was much higher in the 1968-2000 period compared to 2001-2020 period on an annual basis?
Why are you comparing a 19 year period to a 32 year period? Ah, I see it is a per year measure.
Well, it isn’t weird that land runs out for new subdivisions. What is left is to build more dense (replace single family housing with apartments or town homes). Still, why is it zoning per se that is the problem rather than just the market? They have the same pricing problems elsewhere in countries with building booms (eg China).
> dense housing is frequently not permitted by zoning. sometimes housing itself isn't permitted.
But where they are permitted, housing prices are still high. Higher even, like NYC and much of New Jersey near NYC. Is there a good example where increased density has led to lower prices, not higher ones?
Most of the area in those places still has significant zoning restrictions on density--the cap is higher than other places, but there's still a cap. That's why there are still brownstones in Brooklyn.
Second, the economics of building dictate that skyscraper-level density will only happen in places where housing is relatively expensive. But there are plenty of examples of density leading to lower prices, in the suburbs.
> But there are plenty of examples of density leading to lower prices, in the suburbs.
Do you have specific examples? The only places I can think of are economically depressed (e.g. in the midwest, or in Florida swampland) and aren't particularly dense.
Maybe Houston? Houston is famous for having almost no zoning, but even Houston seems to be heating up these days.
I found the section "New Evidence on the Effects
of Land-Use Regulation" to be quite interesting in past reads (and discussions) and probably relevant.
You can make a rough comparison by looking at housing starts in Japan[1] vs USA[2] housing starts. Housing cost in Japan has been flat even in major metros like Tokyo. They also build 2-3x as many houses over the long term according to the data cited.
Seattle is a weird example for me (anecdotally). When I lived there in 2017-18 I found the rental market to be great. The city had incentivized building rental units and as a result there were great deals to be had. I was able to negotiate a 15% discount and dictate the length of my lease on Capitol Hill. I don't know what it looks like now, but it was great at the time.
Japan builds a lot of houses because they tear them down after 20 or 30 years. What is Japan's net gain (housing starts - housing ends) per year, not just the number of units started?
> When I lived there in 2017-18 I found the rental market to be great.
The market was weaker in 2017 because of all the new rental capacity that came online. That capacity has long been filled and rents are skyrocketing ATM.
>>We quantify the amount of spatial misallocation of labor across US cities and its aggregate costs. Misallocation arises because high productivity cities like New York and the San Francisco Bay Area have adopted stringent restrictions to new housing supply, effectively limiting the number of workers who have access to such high productivity. Using a spatial equilibrium model and data from 220 metropolitan areas we find that these constraints lowered aggregate US growth by 36 percent from 1964 to 2009.
I’ve got friends in Kansas City whose 100k house is now worth 300k. Friends in Omaha buying new construction for 400k. Housing shortages in Grand Rapids, Michigan where I am from. If you’re immune to all of this, you must be in either a very magical, or very undesirable place. It must not be California, that’s for sure.
Many cheap places have other problems that are reflected in the price of the property (ie. There is a cost to living in a town full of anti-vaxxers/religious nutjobs/etc.)
If you look at California exodus data, its mainly people making less than 100K, population is increasing for people making more than 100K.
Despite this, property prices are still increasing elsewhere. This is a worst of all worlds scenario.
Be very careful over-extrapolating based on known variables. That's my point.
For decades we've have the concentration of populations in a few urban centers because of employment opportunities and other factors. Two years ago, you wouldn't have even thought about that trend ending anytime soon.
Yet here we are with what seems to be the beginning of a structural change to the employment market to remote work for a significant number of potential jobs. We're not there yet of course. But this seems to have already been a boon to medium-sized regional cities (eg Boise).
This was all possible two years ago but it didn't happen. Covid was a big catalyst. No one predicted that.
Likewise, you see young people rejecting the 30 year mortgage, have kids then retire model that was the norm for Baby Boomers. Living remote, tiny homes, van life, etc.
I fully support residential real estate not being used for money laundering, hiding assets from governments and an exchange-traded asset class, to be clear. The focus there should be on the governments who create the rules that allow this to happen and not the players however.
I don't have numbers but I think that remote working is tech-centric and not available for the majority of workers. Also we'll see if it sticks. In any case, I doubt it will have a big impact on home prices.
I think this is a fallacy perpetuated by unrealistic ideals. I bought a house for 175K at 24. I only make 50K a year. I don't have a college degree.
Lot of people saying buying houses is hard, unrealistic, or impractical want to buy mansions with a 10 second commute to their workplace in silicon valley but the reality is most people are not living like that.
Wage workers are still buying houses no problem in what are considered "low income" areas as they have been and interest rates are better than ever.
My ideal is for real housing prices to remain somewhat steady - ie. I don't like that I have to pay much more than inflation to get a house compared to what my parents pay.
It'd be nice to be able to afford a house where I grew up without having to tie a ridiculous amount of my net worth up in this one very pricey illiquid asset, even if I could get the mortgage.
If you can accept technology changes over time (goodbye horse and carriage), and that society changes over time (hello LGBTQI rights), why is it unreasonable to accept the price you pay for goods will change? Naturally, its a given that's not the only change. The materials to build have changed, transporting them has changed, wages have changed. Prices are not going to be the same.
These are policy decisions being made that make it so it is harder to purchase housing near my job or where I grew up, as well as being net detrimental to economic growth (and the growth of wages and output which lowers prices).
This is backwards. If society gets more expensive because we no longer oppress certain groups in the same ways, then it should have been the case that people from these groups were the ones getting cheap housing in the past since they were “buying” a shitty social experience.
But that’s not the case. It was straight white families who got cheap housing while at the same time holding minorities back.
I presented a broad example that society is changing. I did not associate a variation in pricing due to the oppression or lack thereof of certain groups.
We have 1) inflation and 2) population growth. Given the limited amount of resources, land, and labor, why on earth would house prices remain steady?
You'd need at least one of these factors to be reversed, or demand for standalone housing to go down for cultural or economic reasons, before you see long term downward trends.
In general though I agree with the poster above that the affordability "crisis" is really an expectations crisis. Everyone wants to live in a nice neighborhood with great schools that is close to the top employers, but there's simply not enough space, so this results in high competition and therefore prices. For some reason nobody wants to move to the rust belt where houses are nice and cheap. People don't want houses, they want the BEST houses.
Houses don’t go up in value. It’s the land. What makes a piece of land valuable is it proximity to work and leisure. Land in growing cities and towns should go up in value. The only way to make housing price constant is to give people the ability to tear down an old building and built something higher. That’s how cities like Tokyo have more stable housing prices compared to western cities.
Houses have labour and material components. The materials have a labour component too. It's now more expensive to build a house (per square foot) than it was 30 years ago because of wage inflation.
This is one reason why real estate is viewed as a good hedge against inflation.
I don't know where it's being blocked in your view but to use my earlier example of silicon valley, maybe there is a limitation of geographic space, resources in relation to population, and zoning considerations. Maybe silicon valley workers could sponsor the building of a floating land mass to add additional residential space unbound by traditional limitations.
Or we could just not zone as heavily? A recent building near me got blocked because it would add 0.001% (I know it sounds like hyperbole, but I promise I'm being dead serious that was the number) shadow to a nearby park. That is absurd and to pin it on "silicon valley workers" is nativist and dumb.
I know people who live where there is no zoning and went from having nothing but empty land next to their house, to a car mechanic, loud gym, fireworks stand, and many other undesirable businesses (to be living beside) in their backyard. You definitely will want some zoning. I am not familiar with zoning laws in your area and know you are not advocating for no zoning at all, but just food for thought.
Three years ago, I could've bought a house at 60% of current market rate now in my town of 700K. I wasn't in a position to buy that house (under median) then, and I don't want to buy it now given market conditions. The other issue is that the median housing price in my city is now above the FHA limit for this area... so no 10% down mortgages. Again, that wasn't the case 3 years ago.
I also need to replace my lease vehicle next year, so there are two challenging life purchase decisions pending at the moment, and market/global conditions are putting pressure on both.
Well, if Nashville is like Tucson... or any other similarly sized city, those houses are likely not in a great part of town. We have 203 houses and condos under $175k in Tucson right now. I wouldn't live in any of them for their location(s) alone. Suckers from out of state have been buying... and I am sure regret the decision when they have homeless, tweakers and other ne'er-do-well's sleeping in the back yard or stealing anything that isn't bolted down.
Zillow has been buying in my neighborhood, and they overpaid... plain and simple. The offers my neighbors received were too good to be true. I mean, $50k to $150k over the z-estimate. Everyone in Tucson is laughing at Zillow all the way to the bank. Prices are going to crash here and its going to be brutal.
Ahh, you see, I have an ex-wife and a child I share custody with. I'm in the place that I'm in. Others are probably similarly constrained geographically.
I do WFH -- someday, I may head away from my current place, but I'm not that flexible yet.
Yup. As someone who was in the real estate market in 2007 it’s pretty amazing how quickly we went from “be careful with housing” to “housing only goes up, it’s now or never”. I’d say it took about 5 years.
Human recency bias is very strong. Whatever trend has happened in the last 6-12 months is assumed to continue ad infinitum. And that’s true on both sides. When the market crashed everyone assumed it was forever.
> The people saying this have obviously never gone through a "bust" cycle. This is unsurprising as we've now been in the longest bull market in modern history. It's not always like this. It won't always be like this.
I once heard someone who ran an investment floor say, paraphrased: During a bull market, I want my floor staffed with people too young to have lived the last bull market.
They didn't want the risk aversion - drilled into people by the last bust cycle - on their trading floor.
The cycle will repeat itself, folks will go from being unbelievably wealthy to bankrupt overnight (overnight as a figure of speech speaking, the crash will come but might drag out). Folks who bet it all will have their lives ruined. We will have another generation of market participants who are risk averse from hard earned lessons.
The flip side of this is that _everything will go on sale_ for those who had stable investments and those who are income rich.
If everything doesn't go on sale soon (soon might mean many years) it'll be the first time in history we broke out of the boom/bust cycle.
For me, personally, I track my net worth and check in monthly. For the past year I've excluded my home's valuation from my net worth, it's monopoly money; by the time I'm willing to liquidate my house we will be on the other side of a bust cycle. I'm mentally prepared for my home to lose 50% of its value "overnight."
You're right, but the difference these days is the Fed putting the pedal to the metal even when fiscal spending and economic data at all time records.
We haven't seen this phenomena since the 70s when inflation was running hot and the Fed did nothing for many years. Back then, prices continued to rise nominally for many years.
I suspect the Fed will tighten somewhat (taper should be announced tomorrow), but they keep stating that inflation is transitory.
So clearly their intention is to kick the can as far down the road as possible. If inflation does start to inflect downward, they have the perfect excuse to do nothing until it levels off at an elevated level many months later. Rents alone will drive elevated inflation for years to come. However, used car prices will certainly tank at some point which will mask the effect.
By moving so slowly, they seem to be facilitating the development of a new epic bubble, except it's a bubble in most asset classes. Stocks generally aren't too over valued, but hypergrowth is for sure. E.g. NET at 100x sales.
Compare to Cisco in the dotcom bubble, which peaked at something like 200 PE and much smaller sales multiple. The PEs back then are now the PSs. Kind of insane, even accounting for the greater legitimacy of the businesses today.
In the past the Fed used to preempt excesses and inflation. Anytime they haven't, has been a disaster in the long run, historically.
Unfortunately I think a lot of their action is motivated by Powell trying to retain his seat. They really need to either renominate him or put somebody else up for vote so he stops optimizing for the job. His term ends in Feb 22.
>I suspect the Fed will tighten somewhat (taper should be announced tomorrow), but they keep stating that inflation is transitory.
I hope so, but keep in mind, the Fed has lacked the will to tighten even in the most favorable conditions -- strong market, no covid -- merely because banks screamed bloody murder about having to pay slivers of a basis point more on overnight loans or (heaven forbid) stay more liquid so they don't need to get as many loans.
Yeah, I don't have my hopes up, particularly. Things are so good right now on pretty much every metric, they have to at least taper, though. I suspect they will use overly dovish language at the announcement though, which will spur even further speculation.
But the unfortunate aspect of the current fed is that they care way too much about the markets. And they are very short term oriented. They're pulling the good times of the future into the now, at potentially major costs later.
I think Powell is just too focused on being liked and retaining his job, at the root of it. That's the only explanation that makes all the pieces fit.
Everyone looks at the FED, but there's an interesting counterintuitive hypothesis out there that it's not actually the FED that has anything to do with inflation. In the 1970s, it was international credit creation by banks that was not tracked by the FED that caused persistent inflation (and their attempts to control it were futile since they were not tracking it), and now it's actually the government stimulus combined with the supply shortages that caused the inflation (like the pre-1955 era) - and the inflation will not last beyond this spike since it's not the FED that actually controls it, it's the intermediaries in the financial systems and the banks and their propensity to lend (which is still low relative to pre-GFC).
So the FED can do all it wants, but ultimately it's the other actors (banks, financial institutions and government in the form of transfers) that will ultimately decide the fate of inflation going forward - right now it's looking like disinflation/deflation after all of the stimulus and supply shortages work their way through the system (can be seen from the long end of the yield curve).
The FED's actions can and will affect the markets however - but that effect is mainly psychological.
> The people saying this have obviously never gone through a "bust" cycle.
Yes, indeed. What's more, those people have a large, receptive audience: An entire generation that has never gone through a "bust" cycle. We're talking about nearly everyone in their early 20's to their mid-30's who joined the workforce after the global financial crisis. They have zero personal experience as to what it's like to be an asset owner in a prolonged bust or bear market.
It's ridiculous to suggest young people don't know anything about downturns. People who are now in their early-mid-30's were some of the biggest victims of the 2008 GFC because they bore the brunt of unemployment and delayed entry into careers (and other life milestones) as a result. If you're an employer, why would you hire a new grad when you could fill all your hiring needs with experienced hands? You wouldn't, and that was the reality in many industries back then. New grad unemployment reached nearly 15% in the period from 2008-2012, significantly higher than the overall unemployment rate. Then there was something like 20+% underemployment, with college grads working as baristas just to have some money coming in while they waited for the economy to thaw so they could start their lives.
Many young people had no opportunity to pursue a real career after taking on four years of educational debt through no fault of their own. "Go to college and get a good job" was revealed to be a complete farce. A few years later as things picked up, there was a fresh crop of new grads behind them without any awkward employment gap or strange jobs to explain. Even those who managed to make their way into solid careers missed out on the stock market and housing asset boom of the last decade because they did not have the deposits and credit history needed to contemplate buying a home until fairly recently when prices went vertical.
Like, in my filter bubble, I never saw any of that hype/doom. I saw Zillow and a few others making home buying and selling attractive and more efficient because it made the assets much more liquid. One of the most unattractive things to me about real estate was how long it takes to convert it back to cash, compared to other kinds of assets.
The second is that Zillow's $2.8bn position isn't a problem even for Zillow or for the real estate market. There is simply not enough information to suggest its a bust or about the folly of trying to corner a market and there is more information to say that its just reached their corporate risk tolerance. For example, the article doesn't mention anything about the delta between buying price and price they are trying to sell at. Is it 2% off, 5%, 20%? And secondly does it matter? Zillow issued $4bn in corporate bonds at like 2% interest rate to do whatever they want. They've spent half of it on houses and still make revenue. That's nooooooothing like someone overleveraged on a mortgage 20:1. This isn't even 1:1 leverage, its way less. This is a complete nothingburger and that's before we even know the difference in value of their purchase price and new listing price.
$2.8bn or 7,000 homes, is barely a dent in this several dozen trillion market.
"The youth" is still not going to be able to afford anything, no matter if some institutional investors buy this bit, or if there was a fire sale.
Responding here given that you are calling out the 'fallacy' of others.
You seem to be making quite declarative statements here that are false:
-Buying real estate does not always end badly
-Zillow's core business is not transactions
Zillow's issue was not that they attempted to buy houses, it was that they didn't operate with enough fiscal discipline in doing so. They got too far out over their skis, as the saying goes.
Given your suggestion that someone who signed off on the idea should be fired, is there any record of you stating publicly that the person should be fired for the idea when they first started this endeavor (or at least when you first heard of it)? If not, it seems like you are operating with the fallacy of hindsight bias.
I don't read it that way. My guess is that they 1) didn't believe that prices would level off a bit, as they have in the last couple of months 2) didn't factor in significant delays & increased costs for even minor refurbs and 3) as a result realized that any profits would be eaten by carrying costs (property taxes, maintenance, opportunity cost of having capital stagnate).
> History is littered with the corpses of those who tried and failed to corner a market. Real estate is no different. That's not to say we can't make the system better. We can and we need to. But serfdom isn't imminent either.
Zillow is just a piece of the puzzle. I don't want to go down the 'collapse-porn' hole but with Zillow (and many others) doing this and pushing/pricing out family buyers + my city's new buildings being 99% rentals owned by financial corporations, I don't see a bright home ownership future. I'm driving around and all I see are 'vibrant' cities that look like https://archive.curbed.com/2018/12/4/18125536/real-estate-mo.... I find that super depressing. Whenever I see cranes going up I get excited there's going to be a new condo building. NOPE. It's yet another 6 story matchbox owned by some no name shell in Delaware which ends up in 2 years under Berkshire Hathaway.
> It wasn't long ago that we were reading how Zillow et al were going to buy up all the housing stock and keep millenials and Zoomers homeless forever.
I think you're making a significant error there: the narrative you're criticizing wasn't focused exclusively on Zillow, but rather "big investors" buying up single family homes and pushing actual single families out of that market. This news does nothing to repudiate that narrative, from the OP:
> The company is seeking roughly $2.8 billion for the houses, which are being pitched to institutional investors, according to people familiar with the matter. Zillow will likely sell the properties to a multitude of buyers rather than packaging them in a single transaction, said the people, who asked not to be named because the matter is private.
> History is littered with the corpses of those who tried and failed to corner a market.
History is also filled with the bloated corpses of those who did successfully corner a market. Or, in modern times, those who participated in a synergistic duopoly to skirt anti-trust laws.
I don't know about your assessment, Zillow in my opinion is just a third party here. Sure we can agree Zillow bought too much for probably too high of a price but I think there is a larger discussion about the significant move of institutional money into real estate. I have not seen that slow down and I have been amazed with how entire new developments are being bought up by institutions to be rental home communities. That I think is a new change that we have not seen at this volume before.
Fired? Zillow has explored the market and is making an operating profit on these "losses". They charge exorbitant fees to sellers, effectively buying properties at a decent market discount, while publicly showing a sale price above market so as to inflate the price.
Even though the first go at it may have failed due to whatever reason (stated or otherwise), whoever signed off on this should be promoted.
Look at how short the last recession was in the US. It was 2 quarters, meeting the bare minimum definition of a recession. Since 2008 policy makers have shown a broad willingness to stimulate the economy at all costs. Barring a USA debt crisis or a change in the political climate, I’m skeptical the US will see a major recession any time soon.
I think I agree with your ultimate conclusion, but that's not a fallacy it's an ageist trope, and also you're mistaking whoever generates oversimplified clickbait for the youth. I want to emphasize this: the youth do not control what the real estate media is urging various news outlets to say.
New monetary policy is designed to prevent any kind of bust from happening. It is only boom from here on out. 2009 was the last chance to get on the train.
They just need to hold all that inventory long enough for it to go black. But of course the market can remain irrational longer than they can remain solvent so that's not how it will play out.
Also good luck convincing the sociopaths of VC to get rich slow here: they want their capital back so they can throw it at more promising get-rich-quick schemes.
It wasn't long ago that we were reading how Zillow et al were going to buy up all the housing stock and keep millenials and Zoomers homeless forever.
The people saying this have obviously never gone through a "bust" cycle. This is unsurprising as we've now been in the longest bull market in modern history. It's not always like this. It won't always be like this.
History is littered with the corpses of those who tried and failed to corner a market. Real estate is no different. That's not to say we can't make the system better. We can and we need to. But serfdom isn't imminent either.
Zillow shouldn't be taking real estate positions as it's going to end badly and will likely hurt their core business (ie transactions). I'd love to know who signed off on this idea. They need to be fired.