Making housing more affordable means your home's value will have to come down • Hacker News Board

Re: Making housing more affordable means your home's value will have to come down

#181

Post by s1artibartfast » Sun, Jun 02, 2024, 6:33 PM UTC

grecy wrote: post #180

tlb wrote: post #176

Earlier quoted context omitted.

What will people who want to rent do? Who will they rent from?

I believe renting is the weakest part of my idea, but I don't see why it can't be solved. Maybe humans are allowed to own some maximum number of properties for the purposes of renting it out, and that number will decrease over time. Maybe banks can own houses and rent them out at some capped amount. Maybe the government can own houses and rent them out with the express purpose of "rent to own", with absolutely no int…

do you have a reference for that 40% number. I have a hard time believing it is accurate, and especially not for single family homes. It looks like large companies own 2% of single family homes in my state of California. This reference puts the number at 3% of single family homes nation wide being institutionally owned, or 446,000 out of 15,1 million homes [Ref 1, pg 9].

There is also a fundamental tension between forces driving people into dense urban apartments and the desire for home ownership. When you look at dense European cities, virtually nobody owns their flat.

Overall, Im not opposed to banning mega investors, but think it will just make more opportunity for small scale rental companies. This reference [2], talks about some of the laws proposed in California, but also has a lot of valuable context.

https://www.brookings.edu/wp-content/uploads/2023/11/2023110...

https://calmatters.org/housing/2024/03/institutional-investo...

Re: Making housing more affordable means your home's value will have to come down

#182

Post by qeternity » Sun, Jun 02, 2024, 6:39 PM UTC

s1artibartfast wrote: post #153

qeternity wrote: post #150

Earlier quoted context omitted.

If a buy a house today for $1m and it goes up 50%, great I've made $500k. But if I really want to buy a $2m house eventually, that house has (probably) also gone up 50% and so it now costs $3m. So when I bought the first home, the second home was $1m more expensive, after appreciation it is now $1.5m more expensive. I said "implicitly" for a reason. (I am well aware of what long and short means, my background is in t…

I still dont understand the nuance of how this appreciation relates to shorting, implicitly or otherwise. Does it matter what you think your cash investment would meet or beat the real-estate appreciation?

Let's say you are an airline. You are selling tickets for the next year. Jet fuel is a major input cost, largely driven by the price of crude oil. If you sell a ticket today for 6 months from now, you are implicitly short the oil market.

You haven't actually shorted the market, but if prices increase over the next 6 months, you may end up losing money on the tickets you sold. This is why you see airlines hedging, because they are implicitly short.

The same holds true for housing for most people as I explained above. People rarely downsize their homes. Their forward consumption of housing is almost always greater than their current exposure to the housing market. This leaves them implicitly net short.

Re: Making housing more affordable means your home's value will have to come down

#183

Post by rickydroll » Sun, Jun 02, 2024, 6:42 PM UTC

yterdy wrote: post #179

rickydroll wrote: post #154

Earlier quoted context omitted.

I tried to edit my original comment, but the editing was turned off. My comment was not intentionally snarky but based on my experiences in 2008. At that time, there were many subprime mortgages floating around that should've never been written. Those taking the risk (financial institutions) should've taken the fall, but instead, they pushed the losses onto the homeowners. Your last paragraph needs more nuance becaus…

You've given individual solutions to try to fix a systemic problem, which of course does not work. They are good ideas; they are also not enough, and don't even begin to address the issue at-scale. What does is recognizing that the "be realistic" bluster is just that: a bluff, from people who hold real power in the status-quo, but who realize that that status-quo can be changed, if only the walls would fall and natur…

Thanks for the reply.

On reading your comment, I am reminded of Planck's opinion that science advances one funeral at a time. I think that is true here too. The change you want will come one funeral at a time.

I think one fallacy in your logic is that the older generation reaped benefits uniformly. The reality is something like 40% of my generation is retiring into poverty. Another 20 or 30% will end up in poverty when they run out of assets. Does that sound like people who have advantages they can give up? How do you convince someone to give up hard-earned privilege that is not financial but makes life worth living for them?

The very real conflict you describe is, in my opinion, misattributed. It is a class problem, not a generational one. The number of people who have caused the pain and suffering you, heck, we experience would fill a very small city in our very large country. These are the people we need to take power from in order to make the change we want to see occur and stick.

When I gave examples of problems in a small, I was not telling you to be realistic. If I did, I missedited and I apologize. I gave you the examples to use as a tool for measuring your capacity to implement change. The problems you want to solve are huge and are what I consider century-level problems. However, if you put what you want to do in the context of a very small population of powerful people, change becomes a multi-century problem if nothing about the current power structure changes.

But all is not lost. Remember, it's "if nothing about the current power structure changes". The question then becomes how to change the power structure, and I think the fastest way is to increase rent-seeking opportunities in your desired future.

My logic is that people in power are motivated by money as a proxy for power. After all, who needs more than three or four times basic expenses to have a good life? In today's economic realities, rent-seeking is the dominant method of wealth accumulation. You want to change the attitudes of the rich and powerful, change where rent-seeking is rewarding.

This has been a good conversation, and I thank you for it.

Re: Making housing more affordable means your home's value will have to come down

#184

Post by dragonwriter » Sun, Jun 02, 2024, 6:46 PM UTC

This isn't true at all; for one example, the main reason housing prices are high in the US is policies that exist to maximize the supply (and thus suppress the price) of low-density and particularly the extreme case of that, single-family detached, housing (which also suppresses the value of land, since the land can only be used for that purpose)

Removing those policies will decrease the cost of the minimal housing unit by increasing supply, but also increase land prices (by opening up more valuable uses) and increase the premium for single-family homes sitting on land (since they will become rarer), so making housing more affordable will simultaneously make existing houses more valuable.

Re: Making housing more affordable means your home's value will have to come down

#185

Post by s1artibartfast » Sun, Jun 02, 2024, 6:52 PM UTC

yterdy wrote: post #178

s1artibartfast wrote: post #141

Earlier quoted context omitted.

Strongly disagree. That is an additional factor, but doesnt change most of the factors I mentioned. It doesnt change population or urbanization. It doesnt change the cost of labor or materials. Underutilized RE is a red herring. As long as construction costs remain high, supply remains low, and there are enough buyers that afford the price, you wont see changes.

Monetary expansion underlies and significantly influences if not drives, everything you mentioned (save the nature of US mortgages, which is still related in the sense of it being a part of financialization of as much of American life as possible). The QE boom drove immigration, and low interest rates drove hiring and wage inflation; the COVID bust dampening immigration, and the extremely low interest rates driving a…

I agree expansion is an influence, as it impacts just about everything. It you look back to my core point, it is that the factors driving real-estate prices are unlikely to reverse in the short term, and certainly not enough to cut prices like the proposed 50% of price.

You would have to have major declines in the first 4 factors I mentioned. good luck unwinding worker salary, population, cost of materials to that degree.

Re: Making housing more affordable means your home's value will have to come down

#186

Post by fragmede » Sun, Jun 02, 2024, 7:12 PM UTC

s1artibartfast wrote: post #131

fragmede wrote: post #129

Earlier quoted context omitted.

what part of your house are you going to eat in your advanced age? if you sell your house, you no longer have a house. What is your plan? Sell your house for money, move to somewhere cheaper, and use that money to live? What will you do when housing is too expensive elsewhere as well? Is uprooting your life near the end when you need the most care really the ultimate plan?

That is a pretty normal cycle for most people and it makes perfect sense. You buy a house, use it to save on rent and protect your retirement from inflation. Come to old age, you reverse mortgage or sell and go back to renting. Many people need to downsize anyways as their energy and capability decreases. It is pretty unrealistic to expect that everyone can die without breaking into what is their largest expense in l…

It's pretty normal, but I don't agree it makes sense. You've spent your whole life in Anytown, USA, and the plan is to determine a birthday at which to sell your home and move away from all your friends to Florida? Or maybe they move with you? What about setting down roots and living in the same house from generation to generation. I mean, to each their own, but housing as an investment is what leads to this "logical" conclusion. If housing merely tracked inflation then we'd have a different situation.

Re: Making housing more affordable means your home's value will have to come down

#187

Post by grecy » Sun, Jun 02, 2024, 8:37 PM UTC

s1artibartfast wrote: post #181

grecy wrote: post #180

Earlier quoted context omitted.

I believe renting is the weakest part of my idea, but I don't see why it can't be solved. Maybe humans are allowed to own some maximum number of properties for the purposes of renting it out, and that number will decrease over time. Maybe banks can own houses and rent them out at some capped amount. Maybe the government can own houses and rent them out with the express purpose of "rent to own", with absolutely no int…

do you have a reference for that 40% number. I have a hard time believing it is accurate, and especially not for single family homes. It looks like large companies own 2% of single family homes in my state of California. This reference puts the number at 3% of single family homes nation wide being institutionally owned, or 446,000 out of 15,1 million homes [Ref 1, pg 9]. There is also a fundamental tension between fo…

https://news.ycombinator.com/item?id=32568858

https://www.washingtonpost.com/business/interactive/2022/hou...

https://247wallst.com/special-report/2022/06/05/cities-where...

https://www.redfin.com/news/investor-home-purchases-q4-2023/

(There was an article here on HN a couple of months back that was "Investors own 40% of homes in " - I can't find it now.

Re: Making housing more affordable means your home's value will have to come down

#188

Post by s1artibartfast » Mon, Jun 03, 2024, 3:08 AM UTC

qeternity wrote: post #182

s1artibartfast wrote: post #153

Earlier quoted context omitted.

I still dont understand the nuance of how this appreciation relates to shorting, implicitly or otherwise. Does it matter what you think your cash investment would meet or beat the real-estate appreciation?

Let's say you are an airline. You are selling tickets for the next year. Jet fuel is a major input cost, largely driven by the price of crude oil. If you sell a ticket today for 6 months from now, you are implicitly short the oil market. You haven't actually shorted the market, but if prices increase over the next 6 months, you may end up losing money on the tickets you sold. This is why you see airlines hedging, bec…

Thanks for explaining. your are talking about exposure to cost increases relative to your intended purpose.

I hold that still depends on what your alternative investment opportunities are. If you buy the $1M house when you actually want the $2M house, you are still locking in 50% of the cost. Thats a good thing if the alternative investments perform poorly, and a bad thing if the alternatives are better.

Re: Making housing more affordable means your home's value will have to come down

#189

Post by s1artibartfast » Mon, Jun 03, 2024, 3:58 PM UTC

grecy wrote: post #187

s1artibartfast wrote: post #181

Earlier quoted context omitted.

do you have a reference for that 40% number. I have a hard time believing it is accurate, and especially not for single family homes. It looks like large companies own 2% of single family homes in my state of California. This reference puts the number at 3% of single family homes nation wide being institutionally owned, or 446,000 out of 15,1 million homes [Ref 1, pg 9]. There is also a fundamental tension between fo…

https://news.ycombinator.com/item?id=32568858 https://www.washingtonpost.com/business/interactive/2022/hou... https://247wallst.com/special-report/2022/06/05/cities-where... https://www.redfin.com/news/investor-home-purchases-q4-2023/ (There was an article here on HN a couple of months back that was "Investors own 40% of homes in " - I can't find it now.

Your reference is purchase, not ownership, and for select locations.

The 2-3% number is comprehensive nationwide data.

Re: Making housing more affordable means your home's value will have to come down

#190

Post by jjav » Mon, Jun 03, 2024, 9:11 PM UTC

grecy wrote: post #175

jjav wrote: post #161

Earlier quoted context omitted.

> Policymakers could decide to implement laws to limit how much of an "investment" housing can be. How, exactly? > Obvious choices are limiting houses to only be owned by humans, limiting how many each human can have These are great and I fully support such rules. They will not make houses depreciate though. They'll make more of them owned by regular people instead of rental conglomerates, which is a wonderful outcom…

> These are great and I fully support such rules. They will not make houses depreciate though. They'll make more of them owned by regular people instead of rental conglomerates, which is a wonderful outcome. But it won't make them depreciate. So there are cities in the US where 40% of all residential properties are owned by investment firms. Now they can't own them. So they sell them. Now you have a LOT of residentia…

> Now they can't own them. So they sell them. Now you have a LOT of residential properties on the market, and a lot less entities that are legally allowed to purchase them than before. Of course prices will come down.

It's an interesting thought experiment, I'm not sure what the outcome would be.

In the real world we also have a lot of people who want to rent, so someone else needs to own those rental properties. But for the sake of a thought experiment, let's ignore that part.

There's a town with 1000 houses and 1000 families. 500 families own their house, the other 500 are owned by MegaCorp who rents them to the remaining 500 families (who'd prefer to buy but can't).

If MegaCorp is ordered to sell all their 500 houses overnight, I agree prices will drop. Because not every one of those 500 renting families will be ready to buy overnight, it means the ones who do can negotiate down on price. But that's not how divestitures are usually done, precisely due to this shock to the market.

If MegaCorp is ordered to sell one house per month until all are sold, I suspect prices go up a bit. Because even though the buyers know every house will eventually be sold, it's going to take 500 months so many would rather get in earlier so they'll be bidding against each other, rising prices in the early years of this program.

My main point is that "a lot less entities that are legally allowed to purchase them" is not that important. Because MegaCorp is a pass-through entity, they don't occupy a house, they just want the income stream from it. Ultimately it is still occupied by a family, whether by direct purchase or via renting. So removing MegaCorp from the picture does not reduce demand, there's still 1000 houses and a 1000 families. (It does remove their profiteering from renting, so that part is still a win.)

Of course, reality is more complex since there are renters who want to rent as well as families moving both into and away from this town, so modeling this precisely is too much work for a HN comment.