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Housing is at the root of many of the rich world’s problems (2020)

economist.com

541–550 of 817 posts

Re: Housing is at the root of many of the rich world’s problems (2020)

#541
post #484

Earlier quoted context omitted.

Yes, we're landlords. We own two small properties that were originally built as residences but now have commercial tenants because the zoning permits it and therefore the tax valuations assume we'll use it that way. > Everyone wants to do what you are doing. As with any other asset that makes money, there are reasons why property prices are what they are, and if it's a magic ticket to free wealth, you have to ask you…

> you have to ask yourself why professionals with deep pockets aren't grabbing every property and driving prices up even further. But... they are. My Experience Ever heard of Grant Cardone? He and his ilk are filling my youtube algorithm with seminars on how to do this. I meet strangers on planes telling me about gathering together in clusters of partners and buying up real estate. Ads on the radio hawk house-flippin…

> Ever heard of Grant Cardone? He and his ilk are filling my youtube algorithm with seminars on how to do this. I meet strangers on planes telling me about gathering together in clusters of partners and buying up real estate. Ads on the radio hawk house-flipping courses. Robert Kioysaki sells book teaching how to do this.

In those cases the professionals are making money using people's dreams of becoming wealthy to sell books and seminars. Learn the One Simple Trick to turn your high salary into lasting wealth that Wall Street doesn't want you to know.

In the cases you cited where corporations are buying homes, yeah, there are firms that do a lot of quantitative research and forecasting and identify homes that they think are underpriced according to their rental value, ignoring the vast majority of properties on the market. If you're in a community they've identified as being underpriced, I guess it can look like they're buying up the whole world, but it's a selective strategy, completely different from the blanket assumption that property is an easy doorway to wealth and riches. As one of those articles notes, they don't compete against "wealthy boomers and the nation’s finance and tech bros," because we're willing to pay silly prices for property. They buy in neighborhoods where people like us aren't looking.

Re: Housing is at the root of many of the rich world’s problems (2020)

#542
I'm not sure people understand how expensive it is to build what we consider a house in the West. Materials are unbelievably expensive and if you go cheap you're going to be replacing a lot of them soon. Labor is through the roof expensive.

People forget that the average home was ~700 square feet 100 years ago. It's 2400 today. How many people would be willing to put a family of 4 or 5 in a 700 square foot home today? Go to old towns and look at some of the houses that are 100+ years old and 2400 square feet. You know who lived in those homes 100 years ago? Really rich people like lawyers and business execs and they had servants cooking and cleaning. Today that's just expected to be a home for a normal family.

We could change what we think a home is for most people but I don't think most people are willing to accept that the home they can afford is closer to a prefabricated trailer than it is a traditional single family home.

Even apartments are super expensive to build and the reason you don't see many dwellings that aren't "luxury" is because the cost to construct and maintain them is so high that you'd never get your money back otherwise.

Re: Housing is at the root of many of the rich world’s problems (2020)

#543
post #473

Earlier quoted context omitted.

> Housing affordability plagued Germany of the early 20th century You gotta reach back to over a hundred years ago to find an example? > Can you list these rich countries with 'population explosion[s]'? What the hell are you talking about? The population in the US is the highest it's been in history. You're using a bullshit metric like growth rate which is a percentage of constantly increasing number? 1% of 100 is th…

Then why did Japan face a massive housing bubble in the 1980s, despite low immigration? And why did their housing problem only go away when they reformed their zoning laws to allow people to build? Population is a negligible factor. Laws restricting land use are artificially constraining the supply of housing, and these laws have grown more common and more popular.

Why not both supply and demand?

The reason the laws are needed is because the land is being overrun by people.

Lifting the laws ruins someones neighborhood, keeping the laws makes it unaffordable to live there.

The solution is just to have less people who want the land.

Re: Housing is at the root of many of the rich world’s problems (2020)

#544
Depends. High income economies of eastern eu have a high percentage of ownership:

https://ercouncil.org/2018/chart-of-the-week-week-46/

For those a bit challenged, here’s a list of high income east eu countries:

https://en.wikipedia.org/wiki/World_Bank_high-income_economy

Re: Housing is at the root of many of the rich world’s problems (2020)

#545

Earlier quoted context omitted.

In Canada business and government says this stuff, to justify importing immigrants to work for low wages and often lower standards of living.

Importing immigrants in Canada requires that the employer provide suitable housing for the imported workers, so that brings us back to the earlier comment.

In a lot of documented cases a tim Hortons franchise owner owns rental housing and rents it at outrageous rates to temporary foreign workers.

Re: Housing is at the root of many of the rich world’s problems (2020)

#546

Earlier quoted context omitted.

>Fannie Mae guaranteeing mortgages FM does not guarantee most mortgages, only certain govt types like FHA and VA loans, which the govt decided to back in order to help low income people get loans (otherwise the rates would be even higher for them). FM buys up a lot of mortgages and sells them to investors, then turns around and puts the money back into productive use. >taxing home owners on the imputed value of rent…

Both Fannie and Freddie buy mortgages, but your description is much more stringent than in truth. Fannie buys from big banks, Freddie buys from thrift banks; both buy conforming loans(conforming to their standards) which is a large part of the home buying audience. In addition to that, the non-conforming loans that you listed e.g. FHA and VA. Those government-backed loans are for special populations. These mortgages…

>Both Fannie and Freddie buy mortgages

Yes, I said as much. The OP claimed they guaranteed mortgages, which they do not.

I'm decently aware of the MBS market - I developed MBS pricing algorithms in the late 90s/early 00s for putting houses in tranches after a friend at a mortgage company asked for help with algorithms. Turns out the problem was NP-hard (a lattice based linear programming problem if I recall), but good heuristics from the literature and some special sauce outperformed their current (at that time) pricing.

Around the time the whole market blew up I was considering going to hedge funds, and was working out details of how all the math, science, and computer algos work to prepare for interviewing. After the market crash, I moved on more into scientific and R&D computing. But I still read papers in the area out of curiosity.

But the fact is the market is not "guaranteed" in any sense - which is likely good as 2008 showed.

Re: Housing is at the root of many of the rich world’s problems (2020)

#547
post #434

Earlier quoted context omitted.

You don't write off your rental income. You depreciate the rental property over 27½ years and write that off against your rental income. Few rental properties will have under a 3.7% ROI where depreciation would cover all the income. At best you might be paying half tax. In your example, you'd pay no tax, but you'd lose out on the potential income you could have had with better investments (and lose about 6 years' wor…

You're skipping over the (extremely important) part where you take out a mortgage on property. So you buy the $500k property with $125k in cash and a $375k mortgage (25-30% down is typical for investment mortgages). Depreciation *plus mortgage interest expense* leads you to (for tax purposes) more or less break even on this investment after 10 years and so you pay no tax. After those 10 years are up, you've now paid…

The mortgage interest deduction has a cap though, right?

https://turbotax.intuit.com/tax-tips/home-ownership/deductin... seems to indicate there's a cap on the amount, as well as number of homes (only primary and secondary, not third, fourth etc)

Or are people going around those caps somehow?

Re: Housing is at the root of many of the rich world’s problems (2020)

#548

I'm not sure people understand how expensive it is to build what we consider a house in the West. Materials are unbelievably expensive and if you go cheap you're going to be replacing a lot of them soon. Labor is through the roof expensive. People forget that the average home was ~700 square feet 100 years ago. It's 2400 today. How many people would be willing to put a family of 4 or 5 in a 700 square foot home today…

Where in the west? In europe we use concrete and bricks, while the us something else. I believe anyone in the construction business will be able to explain that the most expensive part is the land actually. At least in europe.

In the uk for instance, the exact same new house, exact same materials, can be 100k GBP less in a cheaper area. Or even half in extreme cases.

Re: Housing is at the root of many of the rich world’s problems (2020)

#549

Housing in the US has gotten to where it is due to horrible laws effectively allowing total tax avoidance for landlords. Take some investment property. You buy it at some basis price, let's say 500k. You rent it out for 15k a year. Each year you can offset your rental income against deprecation of the property and property taxes - meaning, you pay no income tax on your rental income. ~30 years later, you've deprecate…

And it gets better! They now have the added buffer of rental/leasing agencies! Many of these are fly-by-night and skirt or outright ignore inconvenient laws like renter's rights. Repairs? Cost sink, just don't renew complaintant's lease. Bonus you get to raise the rent again! Want to get in touch with the owner? Most times you'll have to look up tax records and hope it's actually in the owner's name. Makes rental pro…

The heart of the problem is low vacancy giving landlords market power. The inherent scarcity of land in desirable locations is amplified by zoning laws keeping housing supply growing much slower than demand. When 90% of urban land is zoned for single family housing and it is literally illegal to build a duplex let alone an apartment building you will have a shortage. Eliminate parking minimums, setbacks, feature area ratio, height limitations, endless environment impact lawsuits, and build!

Re: Housing is at the root of many of the rich world’s problems (2020)

#550

I'm not sure people understand how expensive it is to build what we consider a house in the West. Materials are unbelievably expensive and if you go cheap you're going to be replacing a lot of them soon. Labor is through the roof expensive. People forget that the average home was ~700 square feet 100 years ago. It's 2400 today. How many people would be willing to put a family of 4 or 5 in a 700 square foot home today…

>Even apartments are super expensive to build and the reason you don't see many dwellings that aren't "luxury" is because the cost to construct and maintain them is so high that you'd never get your money back otherwise.

Luxury is just a marketing term. Luxury apartments are the cheapest apartment that are legal to build. Stainless steel appliances and quartz countertops are a rounding error in construction costs.

An actual luxurious apartment does not have to call itself a luxury apartment, the price being multiple standard deviations above the mean speaks for itself.

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