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How private equity is changing housing

theatlantic.com

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Re: How private equity is changing housing

#31

Post by teeray »

garbawarb wrote: post #15
oldjim798 wrote: post #7

Ban corporate ownership of residences. Only individuals, Coops or condominiums. Cap how many rentals an individual can own. The government should also build massive amounts of housing. Everywhere of all types - apartments, townhouses, single family. After built transferred to the residents as coops.

It's interesting to think of the second-order effects of this. If these corporations can't invest in housing, they'd direct their money elsewhere. Maybe we'd see a stock market or commercial real estate boom. Maybe a proliferation of new ventures.

I wonder if they could develop some legal apparatus to employ individual straw buyers to circumvent such a restriction.

Re: How private equity is changing housing

#32

Post by lanfeust6 »

Akronymus wrote: post #6
christkv wrote: post #4

I'm as pro capitalism as it comes but private equity should not be allowed to operate in the consumer housing market. They can develop and sell houses but cannot hold is my point of view.

IMO the main problem with them is that actual competition isnt really possible. Most of the time, you just can't develop newer/denser housing where they are taking over neighbourhoods, so no real competition is possible which allows them to distort the market for their own gains.

it is stymied in part owing to regulatory requirements that makes getting loans at good rates impossible for small developers.

Notwithstanding that, the populist fantasy is that developers won't build more "because they are greedy", as though that math works out. If developers don't leave money on the table, then they'd want to build where the demand exists and it does. They face a number of constraints and bottlenecks, not just for materials/labor, but managing risk. Risk makes loans expensive, everything is built on credit. Some of that risk is compounded by the threat of litigation by NIMBYs, or regulatory requirements, or environmental review, etc.

Re: How private equity is changing housing

#33

Post by api »

hardtke wrote: post #18

One of the issues the article doesn't mention is that these houses are effectively cheaper to purchase for corporate owners. Generally they can borrow money at a lower rate, but the ability of corporate owners to use depreciation on a new purchase to offset profits from previous purchases is more significant. Effectively they are redirecting money that would be paid in taxes into the payments on the new purchase.

Our system is far more regressive than most people realize. The poor pay more for things, don't have access to all kinds of tax breaks and cheap money, and can't afford accountants and shell companies and all the other complicated tricks you can use if you are wealthier.

I wonder: if you added it all up, would a flat tax (which is nominally regressive) actually be more progressive than the regressive taxes we have?

Re: How private equity is changing housing

#34

Post by BeetleB »

hardtke wrote: post #18

One of the issues the article doesn't mention is that these houses are effectively cheaper to purchase for corporate owners. Generally they can borrow money at a lower rate, but the ability of corporate owners to use depreciation on a new purchase to offset profits from previous purchases is more significant. Effectively they are redirecting money that would be paid in taxes into the payments on the new purchase.

As another commenter pointed out, buying a home to live in gets you lower interest rates than buying for any other reason.

> but the ability of corporate owners to use depreciation on a new purchase to offset profits from previous purchases is more significant.

If you're referring to cost segregation, this is probably less true now than in the past. It used to cost a lot of money to do a cost segregation analysis, and made sense only for apartment complexes (i.e. the cost to do the analysis vastly exceeded whatever savings you'd get on a single house). So only rich investors who owned 20+ unit complexes would do it.

I've heard that in the last few years, many accounting firms are providing it for relatively cheap, so ordinary investors can do it now.

RE people make a big deal about depreciation as a tax benefit, but it's minor in my experience. You're effectively reducing the cost basis, so when you ultimately sell, you have to pay a larger tax on the capital gains. Overall you gain, but not by a lot.

Perhaps if you combine with a 1031 exchange, you may get a greater benefit.

Re: How private equity is changing housing

#37

Post by api »

ryanmcbride wrote: post #22
postflopclarity wrote: post #12

build. more. and this problem will go away.

Not if private equity just snatches it all up. Yes build more. Also regulate the oligarchs until they no longer exist.

PE buying real estate is a long bet on housing prices. If supply increases enough, prices flatten out and then fall, and the longs get crushed.

These investments are a bet on continuing to under-build and under-densify.

Re: How private equity is changing housing

#38

Post by api »

collinmcnulty wrote: post #16

I recently learned about Singapore’s seemingly excellent public housing system that is used by over 75% of its population. Singapore being so capitalist about everything else while carving out housing I think provides evidence that capitalism can be made stronger by keeping certain things away from strict market forces. https://en.wikipedia.org/wiki/Public_housing_in_Singapore

We don't have a free market in housing at all. It's a cartel with restricted supply.

Re: How private equity is changing housing

#39

Post by BeetleB »

oldjim798 wrote: post #7

Ban corporate ownership of residences. Only individuals, Coops or condominiums. Cap how many rentals an individual can own. The government should also build massive amounts of housing. Everywhere of all types - apartments, townhouses, single family. After built transferred to the residents as coops.

> Ban corporate ownership of residences. Only individuals,

Many/most corporate owners are individuals (as per the linked report). See my comment here:

https://news.ycombinator.com/item?id=46208561

> Cap how many rentals an individual can own.

Yes. Cap to 0. Until we get data on the breakdown (what percentage of rental homes are by owners who own 1, 2, 3, etc), we don't really know. It won't be easy to determine because a lot of RE investors create a new LLC for each property they own.

Re: How private equity is changing housing

#40

Post by gjsman-1000 »

stock_toaster wrote: post #29

Wild idea... Maybe tax wealth instead of income? Tax break on single home ownership, but significantly increased tax on multi-home-ownership? It would be interesting to see comparisons between PE ownership in markets with property tax vs markets without.

Wealth taxes don't work because wealth gets extremely fuzzy.

For example, unsold stock that I bought 15 years ago; and then got a loan against. I'm wealthy... kinda? But I didn't sell the stock; I have unrealized gains, and you shouldn't tax me beyond income tax on borrowed money? Okay, tax me on my unrealized gains then - but then 2008 repeats itself, stock goes down 40%, do I get a refund? Of course not, I only pay when stock goes up and never down, which is not exactly a fair incentive.

Now imagine artwork I bought 15 years ago from Banksy. Or imagine my video game collection I bought on eBay that contains some rare titles. Or what about my wine collection? Now imagine I'm Elon Musk, on paper worth $400B, but if I sold even 20% of my stock, that paper valuation would be shredded from an excess of liquidity driving the share price down, so you can't tax me on what is physically impossible to realize.

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