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How private equity is changing housing

theatlantic.com

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Re: How private equity is changing housing

#251

Post by jfindper »

tptacek wrote: post #250
jfindper wrote: post #248

Earlier quoted context omitted.

> your logic I didn't write any other comment here :) But, anyways: > It has not been my experience that individual owner landlords have been better than institutional owners! My experience has been different than yours, in that case!

Must be. In particular: the only landlord I ever got a security deposit back from automatically was a corporate landlord. More broadly: if your concern is that the landlord isn't going to fix the furnace or whatever, you can address that without distorting the market just by creating causes of action, penalties, and fix-and-deduct ordinances to shift incentives. Banning corporate landlords reduces the supply of housi…

Right. I'm not advocating for a banning of corporate landlords. I just wanted to look at the regulations/ordinances/etc. of a "carefully-regulated market of institutional single-family-home lenders" to take some inspiration from, and perhaps advocate for some of the sensible rules in my area. I know you participate in your local politics, and have a different viewpoint than mine, so I thought I'd ask.

Re: How private equity is changing housing

#252

Post by potato3732842 »

austhrow743 wrote: post #232

The reasons for high housing prices generally come down to "government restriction of supply, as supported by a large amount of voters". There's no other expense where we talk about it as a market, at least in general layman focused new and discussions. People aren't concerned about the fuel market or the grocery market. They're concerned about fuel prices. Grocery prices. Housing is an exception due to catastrophic…

Most people are apathetic about most things at best. They don't "really" care nor should they. They only casually approve or disapprove.

The problem is that we as a society tolerate people turning off their brains and becoming useful idiots if you frame things in certain ways. And so what to the scheming weasels with special interests to serve do? They frame things that way.

You see it all the time on HN, say nothing of "other" platforms. People who have no real pressing need to care about some specific thing will go to bat for something just because it's peddlers say it's good for the environment or public health or god or whatever. Anything can be framed in such a way they're happy to advocate for. It's like an open mail relay or DDOS reflection. This exploit in our society gets leverages left and right by special interests to get all sorts of things that make them money written into the rules and laws at every turn.

These people ought to feel bad for just taking a one sided story at face value and broader society ought to ostracize them for it same as we'd ostracize anyone stupid enough to go to bat for bigotry in drag.

The problem is in the mirror. This is a social norms issue.

Re: How private equity is changing housing

#253

Post by tptacek »

jfindper wrote: post #251
tptacek wrote: post #250

Earlier quoted context omitted.

Must be. In particular: the only landlord I ever got a security deposit back from automatically was a corporate landlord. More broadly: if your concern is that the landlord isn't going to fix the furnace or whatever, you can address that without distorting the market just by creating causes of action, penalties, and fix-and-deduct ordinances to shift incentives. Banning corporate landlords reduces the supply of housi…

Right. I'm not advocating for a banning of corporate landlords. I just wanted to look at the regulations/ordinances/etc. of a "carefully-regulated market of institutional single-family-home lenders" to take some inspiration from, and perhaps advocate for some of the sensible rules in my area. I know you participate in your local politics, and have a different viewpoint than mine, so I thought I'd ask.

Fair enough! Hard for me to answer, because my priors are that non-corporate landlords are generally worse than institutional landlords, if only because the structural incentives favor scale.

Re: How private equity is changing housing

#254

Post by jameslk »

postflopclarity wrote: post #12

build. more. and this problem will go away.

Supply constraints are a symptom of the problem, which is housing is a huge leveraged investment for many. You generally won’t get policies for building more when it negatively affects the finances of a majority of voters

Re: How private equity is changing housing

#255

Post by mlsu »

Private equity goes to housing because there is a return there.

A housing can either be an investment or be affordable. It cannot be both. Those two things are completely at odds.

When something is an investment, it must become unaffordable over time. There is no way to square that circle! Unfortunately, housing-as-investment is more or less baked into our cultural DNA. We do not need to unwind the supply problem; or the government regulation problem; or the corporate problem. We need to unwind the idea that a house is an investment.

Good luck with that. It's the air we breathe here. There's nowhere to go but up.

Re: How private equity is changing housing

#256

Post by Projectiboga »

triceratops wrote: post #104
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.

What is this special depreciation corporate owners get? IIUC any landlord can use depreciation to lower their tax bill. Wouldn't the depreciation from a new purchase also apply to the rents from that new purchase? Somewhat more outrageous is the 1031 exchange. Sell VTI at a profit to buy VOO and the government hits you with a capital gains tax. Sell your primary residence for $250k more than you bought it - same thin…

Depreciation is mandatory, your cost basis declines while inflation slowly pushes up the value, which leads to a type of phantom gain. There are abilities for individuals to lower their tax bill as there are breaks. But for a Mom & Pop small landlord the tax situation can be tough. 1031 exchanges are tricky for small investors as you have to exchange into a situation with the same mortgage. A big real estate corp can borrow against their total equity, rather than taking a mortgage on the new property. So they can roll their equity into the new deal tax free. This is especially lucurative to buying cheap, rennovating and then selling to another corp. And what isn't discussed is there is a huge amount of "carried interest" deferred profits. That tax break was intended for high risk venture capital investments but in the 80s and 90s it became used for speculative and even day trading. https://www.pgpf.org/article/what-is-the-carried-interest-lo...

Re: How private equity is changing housing

#257

Post by cal_dent »

austhrow743 wrote: post #232

The reasons for high housing prices generally come down to "government restriction of supply, as supported by a large amount of voters". There's no other expense where we talk about it as a market, at least in general layman focused new and discussions. People aren't concerned about the fuel market or the grocery market. They're concerned about fuel prices. Grocery prices. Housing is an exception due to catastrophic…

Good luck trying to mass build in this financial and fiscal environment. Governments could cut as much red tape as they'd like now to stimulate housebuilding and the market will still continue to build higher priced homes because that's the only game in town now to deliver an attractive ROI.

A fundamental issue no one is truly engaging with his the concentration of where people want to live which has been a combination of where jobs are and the development consumer activities in those locations have fostered to keep them attractive places to live. They're too many people trying to live in too few places and thats subtly due to necessity related to where employment is.

Remote working should have eased that more sustainably over the medium term but society decided it was better to throw the baby out with the bathwater when it came to that & productivity issues etc.

Re: How private equity is changing housing

#258

Post by cal_dent »

bilbo0s wrote: post #240
djoldman wrote: post #167

Earlier quoted context omitted.

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…

Let's be honest, it's not even that. It's more like "relative to historic trends, many people want houses [in desirable areas] who can't afford the current prices." Building tons of new houses outside of the hot areas that all these people want to live would still elicit cries of a shortage and an affordability crisis. Because there are currently affordable places outside of hot areas, but not very many takers. It's…

Exactly this. There's something about housing which causes so many people to think its an easy thing to solve by just building more and that's not actually true

Re: How private equity is changing housing

#259

Post by jameslk »

austhrow743 wrote: post #232

The reasons for high housing prices generally come down to "government restriction of supply, as supported by a large amount of voters". There's no other expense where we talk about it as a market, at least in general layman focused new and discussions. People aren't concerned about the fuel market or the grocery market. They're concerned about fuel prices. Grocery prices. Housing is an exception due to catastrophic…

I agree with you general point, however in the long term, I don’t think this will financially end well for those betting on housing as an investment. At some point, if a loan essentially spans the course of a borrower’s lifetime, it’s no longer a loan, it’s a rental.

Therefore the lender will not be made whole when their debt serf dies. That seems to place an upper ceiling on the (inflation adjusted) growth of the investment side.

Re: How private equity is changing housing

#260

Post by bpt3 »

austhrow743 wrote: post #232

The reasons for high housing prices generally come down to "government restriction of supply, as supported by a large amount of voters". There's no other expense where we talk about it as a market, at least in general layman focused new and discussions. People aren't concerned about the fuel market or the grocery market. They're concerned about fuel prices. Grocery prices. Housing is an exception due to catastrophic…

People talk about the market for assets: cars, precious metals, collectibles, and houses are examples. They are not normal expenses because you have something after the expense, unlike fuel or groceries.

Assets often function as stores of value, and housing is unique in that it performs an essential function, is comprised of material that generally rises in cost, has sentimental value, and is fixed to a specific location that may or may not rise in value but does in general (you see very little written about the non-housing shortage in Baltimore or many rust belt cities where land is very close to free, or even less than that in some cases).

Residential real estate is one of the most fragmented investment classes in existence. We're so far from feudalism that it's not even worth talking about. If you want housing to be less expensive in your area, you need to be like Baltimore and reduce demand or remove the disincentives from building and allow an increase in supply. Most people prefer the latter.

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