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How private equity is changing housing

theatlantic.com

201–210 of 312 posts

Re: How private equity is changing housing

#201
post #33
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?

> would a flat tax (which is nominally regressive) actually be more progressive than the regressive taxes we have?

That's an easy one to fix regardless. Use a flat tax with a large fixed refundable credit. Now everyone pays e.g. 30% but gets a $12,000 credit, so someone who makes $40,000 is effectively paying zero, someone who makes $80,000 is effectively paying 15% and the effective rate approaches 30% as the number goes up. But the marginal rate is the same for everyone so there aren't all these complexities and arbitrage games, and at lower incomes the credit stands in for a lot of assistance programs so you don't get all the marginal rate cliffs from overlapping phase outs.

Re: How private equity is changing housing

#202

Earlier quoted context omitted.

You whiffed on the point (note the word "but" in parent comment). The depreciation strategies are where the real benefit is. PE buyers use 60% bonus depreciation and cost segregation studies to create a $70-80K writeoff on a $120K asset, which often larger than the check they cut for the property in the first place The final phase is to exit via UPREIT for OP units rather than cash, with the REIT getting a step up in…

> PE buyers use 60% bonus depreciation and cost segregation studies to create a $70-80K writeoff on a $120K asset Source? That looks like a juicy target for state taxation…

Bonus Depreciation:

https://tax.thomsonreuters.com/en/glossary/bonus-depreciatio...

Cost Segregation:

https://warrenaverett.com/insights/what-is-cost-segregation/

I believe bonus depreciation is time limited (unless Congress renews it).

Re: How private equity is changing housing

#203
post #134

Earlier quoted context omitted.

For every complex and difficult problem, there is a simple, easy and wrong solution. If corporations can't own residential properties, how would anyone rent a house? How would home builders build model homes? How would Trusts manage real estate? This is a complex and nuanced problem.

From individuals? Anecdotally: I've rented 5 different single-family houses in my life. All of them were rented from individuals. Only 1 out of the 5 had a landlord that owned some other stuff that they also rented out. For the remaining 4 out of 5, the landlord only had that singular property to rent: They lived wherever they lived, and they also had an extra house for whatever reason that they rented to me.

So no apartments? I would much rather do business with another business than deal with individual hobby landlords

Re: How private equity is changing housing

#204

Earlier quoted context omitted.

Yes, the natural state of every resident is to live in their own home. To be clear by home I don't mean "single family detached house on a suburban street", I mean a place to live with water, electricity, and a roof. Landlords provide no 'service'; they are merely an existence tax. The market already does not build dense multifamily; what is there to halt?

You can't fathom that someone might not want an ownership stake in the property they happen to reside in, that there could possibly be a downside to that.

I never said homeownership. Just a place to live thats not owned by a ruthless corporation that spends every day trying to squeeze every penny possible out of the tenant

Re: How private equity is changing housing

#205

Earlier quoted context omitted.

That sounds like an absolute dream compared to today's market

Homeownership rates are not materially lower than before. Page 5 for the data, page 13 for the formula. https://www.census.gov/housing/hvs/files/currenthvspress.pdf I would bet most, if not almost all homes, are sold to buyers who will occupy them. This graph goes further back: https://fred.stlouisfed.org/series/RHORUSQ156N More info: https://en.wikipedia.org/wiki/Homeownership_in_the_United_St...

The issue is really felt more on the housing constrained markets. In these markets home prices weren't really very diverged from what we consider extremely low cost markets today very much. In the past 25 years, we've seen these low cost markets essentially stagnate or very hardly grow from 1990s prices, while high demand markets have gone up in price 4x or more in some cases over that time.

Now there are certainly high income buyers who can afford these 1-2-3-5 and up million dollar homes. But the very nature of who is a homebuyer is changing before our eyes in these places. The white collar office worker in 1990 who was buying in west la then is saddled with being a renter, because they only make $70k in west la. Their income hasn't 4x since 2000, not even close.

How does this change the makeup of who lives in the homes? Maybe that $70k worker would have shacked up with the home purchase, and had two kids to fill those spare two bedrooms, who go on to be enrolled in the school district, maybe work part time jobs, and hopefully stick around after and contribute to the regional economy. Instead, maybe that 3br home goes to a content creator, who uses one spare bedroom as a guest bedroom and the other spare for creating content. The school ends up short two potential pupils. The local economy loses two potential contributors, shops don't have anyone to hire and cut shifts and start a downward cycle of declining service and profit against rent increases until closure.

Re: How private equity is changing housing

#206

Earlier quoted context omitted.

I love that there are people that can't even conceive of the idea that entities that let out apartments are providing a service to residents. In their view, the natural state of every resident is a desire to own their home. A fun knock-on effect of this policy proposal: it would effectively halt all new development of dense multifamily.

Yes, the natural state of every resident is to live in their own home. To be clear by home I don't mean "single family detached house on a suburban street", I mean a place to live with water, electricity, and a roof. Landlords provide no 'service'; they are merely an existence tax. The market already does not build dense multifamily; what is there to halt?

> The market already does not build dense multifamily; what is there to halt?

Landlords have existed since forever, and the market was until recently very happy to build enough supply.

That it's suddenly gone downhill implies a problem well beyond "landlords".

Re: How private equity is changing housing

#207
post #117

Earlier quoted context omitted.

Did you intend to add something after the definition? For better or worse, "moving out once you reach 18" is widespread enough of an expectation that it can be used as a yardstick for housing shortage.

I think it's interesting how "shortage" is defined across different products. From an economics standpoint, "shortage" isn't a useful word, unless it's applied in the extremely unlikely scenario where there nothing is available at any price. Generally, this is because price dictates supply. "Shortage" for the current housing market is generally used to mean, "relative to historic trends, many people want houses who c…

Shortage in the absence of price controls generally means that something is inhibiting supply from increasing as demand does, causing increased demand to have the primary result of increasing prices rather than increasing production.

Sometimes this is expected or unavoidable, e.g. if you have a sudden increase in the demand for electricity then the price will increase temporarily until new power generation or transmission capacity can be brought online, and in the meantime you have a shortage.

The problem comes when the shortage is a result of artificial scarcity as it is with housing/zoning, because then it's not temporary, it persists until the cause of the artificial scarcity is defeated.

Re: How private equity is changing housing

#208
post #192

Earlier quoted context omitted.

I'd be willing to bet the majority of those "individuals" were incorporated as an LLC to limit liability, thus making them corporations.

I knew these individuals (no scare quotes required) personally before I rented from them. But sure: If you want to bet that you're right about a very specific situation that you have no specific knowledge of, then don't let me stand in your way. A fool and his money are soon to part.

I think you're misreading his intent. It may not be the case for those you rented from, but over the last 15-20 years, the standard practice for them has increasingly become "Form an LLC".

In most cities, when you rent a detached house from a corporation, it's really one individual behind it.

These people are likely not the minority.

Re: How private equity is changing housing

#209

Earlier quoted context omitted.

Why would someone listen to Dave Ramsey of all people? He is neither an economist, nor a Christian, he has nothing to contribute to the subject! His shtick is real estate investment, of course he wants to see Joe Public buy a starter home. The trouble is: real estate as a government-guaranteed investment vehicle is what brought us the housing affordability crisis.

> nor a Christian ... what bearing does that have on anything?

Dave Ramsey, commonly described as "Christian finance guru", who had a show on the "Christian Broadcasting Network".

Re: How private equity is changing housing

#210

Earlier quoted context omitted.

You can't fathom that someone might not want an ownership stake in the property they happen to reside in, that there could possibly be a downside to that.

I never said homeownership. Just a place to live thats not owned by a ruthless corporation that spends every day trying to squeeze every penny possible out of the tenant

I'm responding to your policy proposal! It's not my fault if that policy doesn't cohere with your preferences!
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