(But that is on a national level: in the West, in comparison, housing growth hasn't been sufficient to house the new households formed at any time in the last 70 years and so the problems run deeper.)
Normally, cheap housing is housing that was expensive housing 30-100 years ago. Think of all of the post-war apartments in NYC, or the Boston multi-family houses built around the previous turn of the century.
Since many cities currently lack the recently-aging housing that would normally be filtering down market right now, the elasticity at the top is affecting housing too new for developers to be out of debt on, and thus we are unlikely to see it translate into lower prices on the low end until another 20-25 years pass and we get out of this housing doldrum.
(Not the West, though. Sorry San Francisco: you just have to build more places where people can live.)
> Since many cities currently lack the recently-aging housing that would normally be filtering down market right now
Huh.... in the UK house prices go up for older houses. You'd pay a premium to get an interwar house, or a 19th century house. Do people not like old houses in the US? They're usually better built, with more character, built on more land, in my experience.
Old houses in the US come with a lot of costs. They're usually poorly insulated, need to be brought up to code when renovations are performed, can have electrical and plumbing systems that need to be replaced in their entirety, and sometimes are just hard to insure in general (insurers can cancel your homeowners policy on any home in Florida over 40 years old at their discretion when your policy comes up for renewal). House has lead and asbestos? Remediation can be costly depending on your jurisdiction's requirements. This is less of a concern in highly desirable areas, as well to do buyers will buy for the land alone, demolish the property, and build new.
Disclosure: I renovate homes as a hobby, and occasionally demo those beyond repair. Most recent project was an older duplex in Naperville, IL torn down to replace with a modern three flat.
Prices for older homes in more historic cities are high, even in the USA. But that's because commuting in Boston or DC is a fucking nightmare and most new development is occurring pretty far from the city centers. (though, not nearly to the degree of London)
When you get to places like Nashville, it's still possible to build a new home 15 minutes from downtown. Plus, fly-over cities tend to have satellite "office districts"* in the suburbs. So there's really no benefit to dealing with an older house, so, unless they are particularly charming, old homes come at relative discounts to new ones.
* Basically a town, usually off of a major highway, that is made up entirely of large office complexes designed for commuting by car from nearby suburbia.
- Modern homes tend to have large kitchens, bathrooms, and bedrooms, and open common areas. People may prefer this over the misc-rooms approach that's more common in older places.
- Old homes in the US may not have 3-pronged outlets
- Old homes may have faucets that don't stick out far enough to get your hands under. Ones in the UK may have separate faucets for hot and cold. (Is the intent to fill the basin? Rapidly move your hands between the two?) You're more likely to have touchy shower temp controls
That may be a perk of having had an aristocratic ruling class, the first industrial revolution, and global empire (not being sarcastic- I'm a big Hidden Houses of Wales fan, would love to renovate an old castle). The UK was historically wealthy and has amazing old houses. In the US every decade has had significantly better housing stock with increasing standards of living, so its much less appealing to get an older house in 95% of the country. Especially anything 40s - 70s you get smallish rooms, low ceilings and questionable "vintage" building practices like I'm dealing with now (aluminum wiring, poor insulation, etc).
Yeah and higher ceilings, bigger windows, nice wooden floors, ornate decorations etc. Turn of the century apartments are the nicest and most expensive.
I've heard that usually the price of the land goes up faster than the price of the building goes down.
But I guess if the building is unique or listed or has high enough build quality that it won't be knocked down in the foreseeable future, then maybe the building's price goes up to.
If the house even still exists and is in a desirable part of town in a desirable city, then yes it will certainly commend a premium. Though often as much for its location as for any other reason.
But consider also that in 1900, the population of the US was less than a quarter of what it is now, and also that the number of people per household is much less. Also, a lot (probably most) houses that existed in 1900 don't even exist any more. So in reality there are relatively few houses that old that are still available today.
Insufficient housing creates competition among workers and they do more work for less pay, as nobody wants to be an outsider. The number of building permits is set by city councils and those listen to the capital as the latter can choose where to create jobs.
If cheap housing is expensive housing built 30-100 years ago, we should have had decades and decades of delapidating housing stock left to go before hitting a shortage.
Not to mention your example of housing in Boston built at the turn of the 20th century. A laissez faire policy that makes the poor wait 120 years for housing is hardly any policy at all.
Later on, in 1978, most of the city was down-zoned, and in the EIR (Environmental Impact Report) written at the time, it was clearly predicted that this would result in a supply shortage and increased prices. Unless the city made a point to increase density and development in the industrial parts of the city. That didn't really happy to the scale the EIR said was needed.
And many cities did, which is why the trend has been getting slowly worse.
I didn't talk about any "laissez faire" policy, and as far as I know no city in the US is pursuing a laissez faire policy. I also don't know why you think it is bad to have housing stock that lasts; having lived in a number of those turn of the century homes, they were better and cheaper than the "affordable" new apartment options. They were well-built luxury homes that are comfortable to live in, but didn't have the modern status symbols the new luxury apartments had. It isn't a universal thing, either; it was specifically because the luxury housing from the time was _nice_. I looked at cheap apartments in 1970s cement bunkers and always went back to living in a beautiful Victorian with vaulted ceilings, even if they were dustier & colder.
Affordable housing will always compromise on something, and personally I preferred finding roommates & buying space heaters to living in a shoebox.
As someone below noted, these dynamics vary dramatically by local. California, much less San Francisco, is a whole different kettle of fish. But because we stopped building housing for a while, we are at best going to face a period of catch-up, no matter what we do.
It is a huge risk right now to take on someone that is poor as a renter because of the moratorium. It is completely unsurprising to me that landlords have priced this risk factor in.
Interestingly, if landlords were allowed to use larger security deposits, some would choose to do this instead of raising the monthly rent. My friend is looking to rent out an ADU, and the first idea was to have a sizable security deposit in order to filter applicants who fully intended on paying rent from those who would be more likely to use the eviction moratorium.
But apparently California tightened the rules around security deposits in 2020, which actually exacerbates this problem. Landlords used to be able to ask for up to two month’s rent as a security deposit, but now they can only ask for one month's rent.
This leads to upward pressure on rents, as landlords adjust the only lever they have left. I wonder if applicants can/do offer to prepay several month's rent, to signal that they are serious long-term tenants who have the ability and interest in paying rent (even if they legally could avoid payment).
That's horrible to hear, I was only able to get my first apartment in California since I could offer a double deposit.
Chicago on the other hand has fantastic housing supply and so many rules on security deposits, most buildings just don't do it. Access to housing permeates every aspect of a culture, people are significantly nicer when they can afford a place to live.
Has your friend been able to get out of California ?
This comment is spot on. Rent premiums are often not greed, but just a risk premium and buffer-collection for a catch all of issues from future non-payment to other BS.
Hmmm - I just paid 2 months deposit in 2021. Googling seems to say that is allowable.
"Effective January 1, 2020, landlords may not request a security deposit of more than one month’s rent for an unfurnished unit, and two month’s rent for a furnished unit, if the unit is rented to a service member."
The one month limit seems specific to service members.
The article does cite eviction moratorium effects, but from a different angle:
Landlords stuck with tenants who can’t pay may try to offset these losses by raising rents on everyone else. Rents in lower-end units tend to already be close to operating costs, Schuetz noted, so landlords may have slim profit margins.
Not only this, but there will be a eviction-moratorium risk premium that tenants will implicitly pay for years to come, to adjust for the added risk and to help keep a virtual buffer for future moratoriums.
There was an article a saw a few weeks ago about some guys based out of Oakland (maybe someone else can find it) who has accumulated 5 figures worth of rental debt. It talks about how he had just moved into an expensive place at the beginning of the pandemic, got laid off, then couldn’t pay for the whole year.
IIRC, he eventually moved, but still couldn’t pay rent and started accumulating even more rent debt there. I can’t imagine who would rent an apartment to that guy.
I know the exact article you mentioned. The real story is actually more nuanced. The guy off course got laid off and could no longer afford the rent. But he racked up rent also because even if he moved earlier, his contract would have made him pay a ton of fines to even get out of it. So he decided to stay.
It's probably because of speculation. If there is a chance that the moratorium will end in July it's better to not have any tenants for a few months than bad ones you cannot evict and will trash your place. Also, unoccupied properties are always more valuable.
Occupying a home reduces its value. Letting someone live somewhere "for free" (to them) is still worse to the owner of the house than leaving it vacant.
The more modern trend of businesses passing risk sort of flies in the face of the old rationale of business ownership taking on risk which justified the rewards of doing business.
Now you're just doing business wrong if you don't minimize risk or figure out how to shift and transfer risk away from yourself.
You try to minimize all risks, not only in business but in all aspects of life. That has always been the case. The caricature you presented has never existed.
It's crazy that we live in an economy where you have to pay just to live somewhere, but when the eviction moratorium ends, there's going to be a huge financial reckoning as there's no way anyone is paying all that back rent.
Biden is going to have to either bail out tenants or landlords and banks. I'll be taking bets on which one he does.
It's crazy that we live in an economy where all you have to do to live until 80 years is pay to live somewhere. We don't even have to hunt our own food.
...either bail out tenants or landlords and banks.
Not quite. This crisis will be handled just like the last one. No tenants, homeowners, or landlords will be bailed out. That they go bankrupt and have their property repossessed is the whole point of the exercise. Big lenders will get the bailout on top of the collateral.
Many rich people still earn a paycheck. YOu can be on payroll making 500k and have a stock portfolio worth 10mill, this is common for boomers who started investing in the 70s and 80s. A portfolio of that size will easily throw off 500k in dividends a year.
My point is that a large paycheck does not mean you are not paid wages. I get your point though, billionaires probably are not taking a salary.
I recently won the IPO lottery--went from nearly zero net wealth to a solid seven figure net wealth. I could buy a house in the bay area and give up > 50% of my cash for it, or I could give up 15-25% of my net wealth with a down payment on a a mortgage and pay (PITI) 110% or more of what I could pay in rent for a similar home.
Or I could continue renting and put that 15% - > 50% of my net worth in appreciating assets and income producing investments. Even better: I could move my family to a place where people aren't paying $2M for a home that's worth $250k.
The housing market here is suited best for people with absolutely no money sense at all, or those VHNWI and UHNWI who can buy into genuine investment grade real estate out here. It makes zero sense for the vast majority of people to buy here, especially people who more or less win a lottery with some options from a company that makes an exit. In almost every case their money would be put to better use renting here and investing elsewhere (assuming they're tied down here, e.g., due to work).
Or people who've put down roots here. Some people value family, friends, and community more than economic maximization. The Bay Area has excellent schools, being nerdy makes you cool, immigrants and people with different skin colors are accepted, there are a wide variety of cultural attractions, the weather is always nice, and you can get out in nature quickly.
If I were still a single guy I probably would've moved back home after winning the stock option lottery, but my wife's family is all here, my friends are here, my kid won't get bullied for being nerdy, etc. That's really why people stay, and they pay a premium to do it.
> Or I could continue renting and put that 15% - > 50% of my net worth in appreciating assets and income producing investments.
Property is a leveraged investment (as well as the loan being a hedge against inflation, depending on the rate you negotiate - with a 7 figure NW you should never have to use market rate). Unless you're using a large amount of margin on these "appreciating assets", the appreciation should be compared at a 1:5 rate.
Be careful not to become one of those people who "win the lottery" and then lose it all in their hubris. I'd stop saying things like "people with absolutely no money sense at all" - for all we know, that's you.
Buying has costs too. Mortgages are an obvious example, but even if you could afford the house without debt the money could also have been invested in something that yields income like stocks or bonds. If the amount you'd receive in income from investing the house price can cover the rent of an equivalent house, it can make sense to rent as you come out ahead overall. It does not surprise me at all that rich people (who can take the time to shop around because they are not at risk of getting evicted) manage to get a better deal than someone who represents more credit risk for the landlord.
Of course pulling this type of thing off requires that you can find investments that will yield more than the rent price, which may not be easy to do in the long term as high yielding investments can often carry unforeseen risks. Also because a significant amount of people already know this, when renting is "cheap" enough compared to buying the demand for renting will increase and prices will rise. This means that the condition is unstable and will often disappear on its own.
Still, there are sometimes very valid monetary reasons to rent instead of buy. Then there are nonmonetary reasons to rent instead of buy that make sense even for quite rich people. If you're a NYC banker and you get seconded to London for 2 years to set up some new division, it is probably not worth the hassle to buy a house there.
I am with you. There is a huge lobby to make people buy houses. Not enough people question if it is a good investment. The opportunity cost to buy vs rent is huge.
"What sort of rich person rents a house, except whilst between selling old and new?"
There are quite a few techies who move to SF, work for the hot unicorn for 4 years, and live extremely cheaply. They don't buy housing because they don't intend to stay in SF (and besides, who wants to buy a house in SF?), but when they "retire" they've got a few million in stock options. They can buy a house, they just don't want to, because their living situation is temporary.
I suspect that a lot of the housing boom going on around the country now is because the rich techies in SF no longer have to stay in SF.
I don't really buy this. if you're going to be at a hot startup for 4 years and can easily afford a house the way the SF bay market has been for the past 2 decades is such that you would've made money in any 4 year period just buying and selling. covid might be the single exception.
I think the issue is more that sf people are rich for the country but not rich for the bay area so they just rent.
Ones good at math and likely to move in a few years?
Buying a house has really high transaction costs. ~6% commission, plus more in fees and taxes. And then once you have the house, you've taken on all the maintenance and price risk. That can make sense if you're staying a long time and want the benefits of ownership. But plenty of people with high-flying jobs know that they may move soon enough that the math doesn't work out.
Personally, I could afford to buy a house, but I never have. I like the freedom, and I really like never having to worry about maintenance, taxes, renovations, and the like.
> Buying a house has really high transaction costs. ~6% commission, plus more in fees and taxes. And then once you have the house, you've taken on all the maintenance and price risk. That can make sense if you're staying a long time and want the benefits of ownership. But plenty of people with high-flying jobs know that they may move soon enough that the math doesn't work out.
Interestingly, most of the transaction costs hit you when you sell, not when you buy, which is one of the ways the US favors landlordism and sequentially acquiring more and more properties instead of just renting forever, or even just buying one primary residence and sticking with just one.
That's a weird comment. Plenty of people are rich by your definition (could easily buy a house) but don't do it because it makes no sense financially.
Most good investors are better off renting and getting higher returns in the stock market.
Renting also allows you to move very quickly and you don't spend your time fixing things (i let my landlord handle it all)
You can't get the same leverage nearly as safely or as easily in the stock market, which is why so many people start to play landlord with second, third, etc, properties that they finance.
What changed in the last year is that people want a lot more space which is pulling them out of the "expensive apartment" market and into the "house" market, while also being less concerned about commute distance. So the expensive apartments fall in demand while the houses go through the roof, without effecting the lower end of the rental market at all.
One who doesn't want to bother with maintenance, insurance, taxes, etc. One who wants to leave whenever they feel like it, instead of having to go through months of a sale process.
In the very short term, that can be true. If you intend to move in a year or two, sure.
Rents only ever go up, whereas a mortgage can only go down (in a refinance). A mortgage ends and so do the payments, but a renter will pay ever increasing rents forever. It gets particularly painful after retirement on a fixed income.
There are probably also ways of justifying a rental through a business expense vs personal assets. I know a few businesses that pay for living expenses for some of their top level corporate staff under certain circumstances.
I've seen it done as a job perk for certain positions which seems like a way of indirectly increasing total comp without increasing taxable income. I'm not rich enough to know all the tax laws and loopholes around this area though.
What sort of rich person rents a house, except whilst between selling old and new?
Properly rich people do. The people for whom buying and leasing and renting a house is the background noise that the staff works out.
If a properly rich person wants to be able to live in London and Tokyo and Paris and New York and a bunch of other places, where they will just turn up depending on how they feel and what's going on in town that week, buying and leasing and renting are just noise (although being properly rich, it's usually not the kind of renting where an individual landlord is posted a cheque each month). If they want a new place somewhere, they get shown some and they just buy one. Or lease it. Rent it for six months. Whatever. Six figures for six months? Pocket change, talk to the staff. Often leasing or renting is easier and more convenient than buying. These are fairly inconsequential sums of money for these people; just whatever's easiest, the staff will handle it.
I did some work for a Russian feller in the global top 500 richest a while ago. He took us all to lunch. Drove a smart car (of the garage full of luxury cars, it was the one he liked to drive most - it was just the most convenient for him; if I was an economist, I might estimate the price he put on his personal convenience was six figures an hour, at which point buying a house somewhere is the more convenient option compared to having to get a floor in a hotel on arrival) and clipped a pillar driving out of his Swiss estate. Money for him below the level of tens of millions was just not something he bothered about. Rent? Own? For something like a luxury apartment in New York (not that he can travel to New York anymore, I understand) it would be like me spending time deciding whether to rent or own a movie.
What sort of rich person rents a house, except whilst between selling old and new?
These people you mention who only own one house because they can't afford more than one at a time; these are not the properly rich of whom I speak. Many properly rich people are unobtrusive and inconspicuous.
I have met people who find it incredible (even unbelievable) that rich people own houses that sit empty for long periods and that these rich people don't rent them out. These are rich people; they don't think like poor people. Not everything is a money-making investment, and if they decided to get into real-estate they don't mix the houses they live in with it.
> What sort of rich person rents a house, except whilst between selling old and new?
The kind that reads Robert Schiller and says “why would I want to concentrate my assets in a non productive asset class with high transactional costs?”
Some poor people just build houses slowly over several years in less than ideal places ofcourse. If the world decides to spit me out, I'll have a pretty big hiding hole.
Before reading the article, I would say because obviously the rich can, and are, fleeing population centers because of covid, while the poor mostly can't and aren't?
<skims the article>
"With covid-19 largely shutting down the perks of city life, many tenants who had the means to leave did so. Higher-wage workers who were juggling remote work and virtual school sought out more space, often purchasing a house in the ’burbs."
It's not "rents for the rich" it's "rents for higher priced apartments" and it's basic supply & demand. This headline stokes unnecessary class conflict. WaPo should be ashamed.
I thought it was a well known problem that in the US class disparity (i.e. the gap between middle class and upper class) is increasing. The middle class is evaporating, becoming very rich or borderline poverty. Am I confused? WaPo isn't really saying anything new or controversial.
It's more like the middle class is bifurcating between upperish middle class and lower-middle class. In-demand tech workers, doctors, high-level admins/managers, etc. are getting higher and higher wages while other professions that used to be middle class as starting to stagnate and fall behind such as low-level office workers, journalists, teachers, mid-to-low level managers, etc. I wouldn't consider either group to really be upper class, but I guess there's always going to be differences in how people are sorted into those categories.
I think the issue is that the article is inflammatory click-bait because it makes it seems like rich people are getting a break while poor people are getting shafted. It's not until you've read through most the entire article that they finally get to the point, which is that 'rich' people are buying houses in the suburbs/exurbs now that they can work remotely. Unsurprisingly this means prices are spiking in those areas while rent for high-end apartments are shrinking as demand dries up. So rich people aren't really catching a break so much as exiting the rental market in major cities and redirecting their spending to the suburban housing market.
It's better not to fulminate. If the market restricts access to housing for working class people, we can't just wave our hands and say "oh, well, markets". Chicago doesn't have rent control. The implication of the story is that the market is failing in Chicago, and that's a problem, whether or not it's the product of top-down policy or bottom-up market dynamics.
How is it the "market restricting access" if the rents went up because of the eviction moratorium? If that's the reason, then what you said is true in a trivial literal sense, but that's blaming the consequence (market pricing) instead of the real cause (government policy).
Likewise, if housing supply is restricted due to regulations, that's not the "market failing" - that's government policy guaranteeing that rents will be high for poor people.
The only way to make rents cheaper for all poor people is to incentivize massive construction of new apartments, or at least clear all regulatory hurdles to doing so and simply let the market do the rest for you. Flood the market with supply. The more supply, the cheaper rents will be, since demand is mostly stable.
There's nothing natural about housing markets. Across the developed world bougie homeowners have been using zoning regulations to restrict supply with immensely lucrative results. I would also like to see you tell someone experiencing housing precarity that these conversations are unnecessary, to their face.
Landlords in big cities always raise rent because they can. They'd rather push a current tenant out than work with them, because with the high turnover they are sure to get a new tenant pretty soon at the higher price anyway. Its this sort of unscrupulous taking, of maximizing profit because its 'leaving money on the table' to not do so, is why we have rent control ordinances which work by capping the maximum yearly % increase in many of our big cities (although this cap is typically higher than the median wage increase so landlords still beat the economy with their investment and with rent control ordinances applied, despite some sentiments online about rent control).
> Its this sort of unscrupulous taking, of maximizing profit because its 'leaving money on the table' to not do so, is why we have rent control ordinances which work by capping the maximum yearly % increase in many of our big cities
No, the reason is because cities don't want to build more houses.
Is the landlord at fault that there are so many desperate people willing to pay absurd rent? The only reason the landlord gets to choose is because someone else gave them a better offer.
Often this is due to laws that limit annual rent increases. If landlords don't increase the rent by the allowed amount each year, it greatly increases the risk they will be unable to 'catch up' to market rates in the future.
Luxury housing is often not subject to these limitations, so landlords are forced to compete and respond to market dynamics.
Readit News
Starting around 1975, housing supply stopped keeping up with the growth of housing demand. It picked back up fifteen years later, around 1990: https://www.brookings.edu/research/the-goldilocks-problem-of...
(But that is on a national level: in the West, in comparison, housing growth hasn't been sufficient to house the new households formed at any time in the last 70 years and so the problems run deeper.)
Normally, cheap housing is housing that was expensive housing 30-100 years ago. Think of all of the post-war apartments in NYC, or the Boston multi-family houses built around the previous turn of the century.
Since many cities currently lack the recently-aging housing that would normally be filtering down market right now, the elasticity at the top is affecting housing too new for developers to be out of debt on, and thus we are unlikely to see it translate into lower prices on the low end until another 20-25 years pass and we get out of this housing doldrum.
(Not the West, though. Sorry San Francisco: you just have to build more places where people can live.)
Huh.... in the UK house prices go up for older houses. You'd pay a premium to get an interwar house, or a 19th century house. Do people not like old houses in the US? They're usually better built, with more character, built on more land, in my experience.
Disclosure: I renovate homes as a hobby, and occasionally demo those beyond repair. Most recent project was an older duplex in Naperville, IL torn down to replace with a modern three flat.
Prices for older homes in more historic cities are high, even in the USA. But that's because commuting in Boston or DC is a fucking nightmare and most new development is occurring pretty far from the city centers. (though, not nearly to the degree of London)
When you get to places like Nashville, it's still possible to build a new home 15 minutes from downtown. Plus, fly-over cities tend to have satellite "office districts"* in the suburbs. So there's really no benefit to dealing with an older house, so, unless they are particularly charming, old homes come at relative discounts to new ones.
* Basically a town, usually off of a major highway, that is made up entirely of large office complexes designed for commuting by car from nearby suburbia.
- Modern homes tend to have large kitchens, bathrooms, and bedrooms, and open common areas. People may prefer this over the misc-rooms approach that's more common in older places.
- Old homes in the US may not have 3-pronged outlets
- Old homes may have faucets that don't stick out far enough to get your hands under. Ones in the UK may have separate faucets for hot and cold. (Is the intent to fill the basin? Rapidly move your hands between the two?) You're more likely to have touchy shower temp controls
But I guess if the building is unique or listed or has high enough build quality that it won't be knocked down in the foreseeable future, then maybe the building's price goes up to.
- is balloon-framed
- has zero insulation
- might have knob and tube wiring kicking around
- probably has a dirt basement
- will be an absolute bitch to bring up to modern building codes if you want to do anything to it.
- has coats and coats of lead paint
- has asbestos everywhere
* Central A/C
* Fire safety (can't put a price on your family's safety)
* Attached garages
* High ceilings
* High capacity electrical circuits (Victorian homes weren't built for modern gadgets)
* Swimming pools
* More bathrooms
* Larger windows
* Better insulation
* Tighter seals to stop bugs and pests creeping in
* Better lighting
But consider also that in 1900, the population of the US was less than a quarter of what it is now, and also that the number of people per household is much less. Also, a lot (probably most) houses that existed in 1900 don't even exist any more. So in reality there are relatively few houses that old that are still available today.
Ab old house in the middle of nowhere, no matter how "well built" isn't going to command such a premium.
Jobs such as "city councilman," for example.
Guess what happened in October 1974: https://en.wikipedia.org/wiki/Equal_Credit_Opportunity_Act
That correlates with the boomers entering the housing market.
Not to mention your example of housing in Boston built at the turn of the 20th century. A laissez faire policy that makes the poor wait 120 years for housing is hardly any policy at all.
See this amazing twitter thread with images of historical news paper clippings.
https://twitter.com/enf/status/753435745272995840
Later on, in 1978, most of the city was down-zoned, and in the EIR (Environmental Impact Report) written at the time, it was clearly predicted that this would result in a supply shortage and increased prices. Unless the city made a point to increase density and development in the industrial parts of the city. That didn't really happy to the scale the EIR said was needed.
See: https://twitter.com/enf/status/775185946941591553?s=20
So here we are.
I didn't talk about any "laissez faire" policy, and as far as I know no city in the US is pursuing a laissez faire policy. I also don't know why you think it is bad to have housing stock that lasts; having lived in a number of those turn of the century homes, they were better and cheaper than the "affordable" new apartment options. They were well-built luxury homes that are comfortable to live in, but didn't have the modern status symbols the new luxury apartments had. It isn't a universal thing, either; it was specifically because the luxury housing from the time was _nice_. I looked at cheap apartments in 1970s cement bunkers and always went back to living in a beautiful Victorian with vaulted ceilings, even if they were dustier & colder.
Affordable housing will always compromise on something, and personally I preferred finding roommates & buying space heaters to living in a shoebox.
As someone below noted, these dynamics vary dramatically by local. California, much less San Francisco, is a whole different kettle of fish. But because we stopped building housing for a while, we are at best going to face a period of catch-up, no matter what we do.
But apparently California tightened the rules around security deposits in 2020, which actually exacerbates this problem. Landlords used to be able to ask for up to two month’s rent as a security deposit, but now they can only ask for one month's rent.
This leads to upward pressure on rents, as landlords adjust the only lever they have left. I wonder if applicants can/do offer to prepay several month's rent, to signal that they are serious long-term tenants who have the ability and interest in paying rent (even if they legally could avoid payment).
Chicago on the other hand has fantastic housing supply and so many rules on security deposits, most buildings just don't do it. Access to housing permeates every aspect of a culture, people are significantly nicer when they can afford a place to live.
Has your friend been able to get out of California ?
Denmark allows for 3 months deposit plus 3 months rents upfront, so you have to be able to come up with 6 months rent total to get an apartment.
(market here is very hot, so rental apartments have no problem getting 6 months rent)
When you "quit" living in the apartment, you can use the 3 months prepaid rent, so you don't have to pay rent the last 3 months.
To clarify, the problem you're talking about is that it's risky to be a landlord, and maybe more so now than a few years ago.
> as landlords adjust the only lever they have left
At least some landlords also have the option of pulling the lever labeled "sell the unit".
"Effective January 1, 2020, landlords may not request a security deposit of more than one month’s rent for an unfurnished unit, and two month’s rent for a furnished unit, if the unit is rented to a service member."
The one month limit seems specific to service members.
Landlords stuck with tenants who can’t pay may try to offset these losses by raising rents on everyone else. Rents in lower-end units tend to already be close to operating costs, Schuetz noted, so landlords may have slim profit margins.
IIRC, he eventually moved, but still couldn’t pay rent and started accumulating even more rent debt there. I can’t imagine who would rent an apartment to that guy.
The reason why they have pricing power is likely due to the moratorium.
People aren't being evicted so those units aren't going on the market, so supply of rentable units is being artificially suppressed.
When the moratorium expires then renters will be evicted and those units will go back on the market which should drive costs down for everyone else.
Now you're just doing business wrong if you don't minimize risk or figure out how to shift and transfer risk away from yourself.
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Biden is going to have to either bail out tenants or landlords and banks. I'll be taking bets on which one he does.
Not quite. This crisis will be handled just like the last one. No tenants, homeowners, or landlords will be bailed out. That they go bankrupt and have their property repossessed is the whole point of the exercise. Big lenders will get the bailout on top of the collateral.
Because of the economical impact of locking down the economy and giving money to everyone.
> Rents for the rich are plummeting
Because they don't need to live in expensive central hubs to get their high wages and there is less demand for their luxury flats.
Also, this lax definition of rich people is exactly how the richest 1% can stay hidden.
Wages? What are you talking about, the working class?
My point is that a large paycheck does not mean you are not paid wages. I get your point though, billionaires probably are not taking a salary.
What sort of rich person rents a house, except whilst between selling old and new?
It’s a strange question to ask .... who doesn’t see this as self evident?
Or I could continue renting and put that 15% - > 50% of my net worth in appreciating assets and income producing investments. Even better: I could move my family to a place where people aren't paying $2M for a home that's worth $250k.
The housing market here is suited best for people with absolutely no money sense at all, or those VHNWI and UHNWI who can buy into genuine investment grade real estate out here. It makes zero sense for the vast majority of people to buy here, especially people who more or less win a lottery with some options from a company that makes an exit. In almost every case their money would be put to better use renting here and investing elsewhere (assuming they're tied down here, e.g., due to work).
Or people who've put down roots here. Some people value family, friends, and community more than economic maximization. The Bay Area has excellent schools, being nerdy makes you cool, immigrants and people with different skin colors are accepted, there are a wide variety of cultural attractions, the weather is always nice, and you can get out in nature quickly.
If I were still a single guy I probably would've moved back home after winning the stock option lottery, but my wife's family is all here, my friends are here, my kid won't get bullied for being nerdy, etc. That's really why people stay, and they pay a premium to do it.
Property is a leveraged investment (as well as the loan being a hedge against inflation, depending on the rate you negotiate - with a 7 figure NW you should never have to use market rate). Unless you're using a large amount of margin on these "appreciating assets", the appreciation should be compared at a 1:5 rate.
Be careful not to become one of those people who "win the lottery" and then lose it all in their hubris. I'd stop saying things like "people with absolutely no money sense at all" - for all we know, that's you.
Of course pulling this type of thing off requires that you can find investments that will yield more than the rent price, which may not be easy to do in the long term as high yielding investments can often carry unforeseen risks. Also because a significant amount of people already know this, when renting is "cheap" enough compared to buying the demand for renting will increase and prices will rise. This means that the condition is unstable and will often disappear on its own.
Still, there are sometimes very valid monetary reasons to rent instead of buy. Then there are nonmonetary reasons to rent instead of buy that make sense even for quite rich people. If you're a NYC banker and you get seconded to London for 2 years to set up some new division, it is probably not worth the hassle to buy a house there.
There are quite a few techies who move to SF, work for the hot unicorn for 4 years, and live extremely cheaply. They don't buy housing because they don't intend to stay in SF (and besides, who wants to buy a house in SF?), but when they "retire" they've got a few million in stock options. They can buy a house, they just don't want to, because their living situation is temporary.
I suspect that a lot of the housing boom going on around the country now is because the rich techies in SF no longer have to stay in SF.
I think the issue is more that sf people are rich for the country but not rich for the bay area so they just rent.
Buying a house has really high transaction costs. ~6% commission, plus more in fees and taxes. And then once you have the house, you've taken on all the maintenance and price risk. That can make sense if you're staying a long time and want the benefits of ownership. But plenty of people with high-flying jobs know that they may move soon enough that the math doesn't work out.
Personally, I could afford to buy a house, but I never have. I like the freedom, and I really like never having to worry about maintenance, taxes, renovations, and the like.
Interestingly, most of the transaction costs hit you when you sell, not when you buy, which is one of the ways the US favors landlordism and sequentially acquiring more and more properties instead of just renting forever, or even just buying one primary residence and sticking with just one.
What changed in the last year is that people want a lot more space which is pulling them out of the "expensive apartment" market and into the "house" market, while also being less concerned about commute distance. So the expensive apartments fall in demand while the houses go through the roof, without effecting the lower end of the rental market at all.
One who doesn't want to bother with maintenance, insurance, taxes, etc. One who wants to leave whenever they feel like it, instead of having to go through months of a sale process.
Rents only ever go up, whereas a mortgage can only go down (in a refinance). A mortgage ends and so do the payments, but a renter will pay ever increasing rents forever. It gets particularly painful after retirement on a fixed income.
Things to consider!
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I've seen it done as a job perk for certain positions which seems like a way of indirectly increasing total comp without increasing taxable income. I'm not rich enough to know all the tax laws and loopholes around this area though.
Properly rich people do. The people for whom buying and leasing and renting a house is the background noise that the staff works out.
If a properly rich person wants to be able to live in London and Tokyo and Paris and New York and a bunch of other places, where they will just turn up depending on how they feel and what's going on in town that week, buying and leasing and renting are just noise (although being properly rich, it's usually not the kind of renting where an individual landlord is posted a cheque each month). If they want a new place somewhere, they get shown some and they just buy one. Or lease it. Rent it for six months. Whatever. Six figures for six months? Pocket change, talk to the staff. Often leasing or renting is easier and more convenient than buying. These are fairly inconsequential sums of money for these people; just whatever's easiest, the staff will handle it.
I did some work for a Russian feller in the global top 500 richest a while ago. He took us all to lunch. Drove a smart car (of the garage full of luxury cars, it was the one he liked to drive most - it was just the most convenient for him; if I was an economist, I might estimate the price he put on his personal convenience was six figures an hour, at which point buying a house somewhere is the more convenient option compared to having to get a floor in a hotel on arrival) and clipped a pillar driving out of his Swiss estate. Money for him below the level of tens of millions was just not something he bothered about. Rent? Own? For something like a luxury apartment in New York (not that he can travel to New York anymore, I understand) it would be like me spending time deciding whether to rent or own a movie.
What sort of rich person rents a house, except whilst between selling old and new?
These people you mention who only own one house because they can't afford more than one at a time; these are not the properly rich of whom I speak. Many properly rich people are unobtrusive and inconspicuous.
I have met people who find it incredible (even unbelievable) that rich people own houses that sit empty for long periods and that these rich people don't rent them out. These are rich people; they don't think like poor people. Not everything is a money-making investment, and if they decided to get into real-estate they don't mix the houses they live in with it.
The kind that reads Robert Schiller and says “why would I want to concentrate my assets in a non productive asset class with high transactional costs?”
Think apartments, not houses. Think young single people in tech making $100k+.
<skims the article>
"With covid-19 largely shutting down the perks of city life, many tenants who had the means to leave did so. Higher-wage workers who were juggling remote work and virtual school sought out more space, often purchasing a house in the ’burbs."
Exactly.
I think the issue is that the article is inflammatory click-bait because it makes it seems like rich people are getting a break while poor people are getting shafted. It's not until you've read through most the entire article that they finally get to the point, which is that 'rich' people are buying houses in the suburbs/exurbs now that they can work remotely. Unsurprisingly this means prices are spiking in those areas while rent for high-end apartments are shrinking as demand dries up. So rich people aren't really catching a break so much as exiting the rental market in major cities and redirecting their spending to the suburban housing market.
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Likewise, if housing supply is restricted due to regulations, that's not the "market failing" - that's government policy guaranteeing that rents will be high for poor people.
The only way to make rents cheaper for all poor people is to incentivize massive construction of new apartments, or at least clear all regulatory hurdles to doing so and simply let the market do the rest for you. Flood the market with supply. The more supply, the cheaper rents will be, since demand is mostly stable.
It's kind of amazing that they raised the rent. Is it because people stopped paying rent and they tried to get it from other renters?
Only if coupled with insufficient construction of new housing.
No, the reason is because cities don't want to build more houses.
Luxury housing is often not subject to these limitations, so landlords are forced to compete and respond to market dynamics.