If you understand the underlying reasons for why an investor would buy an actively depreciating asset, then you understand why OP suggests--correctly in my opinion--that this is a non-story.

We have a housing shortage. As long as it looks like the shortage will continue, investors--people--will buy depreciating assets in the hopes that population growth will cause them to be worth more tomorrow than they are today. If it's not Private Equity, it'll be rental companies. If it's not rental companies, it'll be mom & pop landlords. If it's not mom & pop landlords, it'll be people looking for a second home or pied-a-terre with upside potential. The problem is the perpetual shortage clearly indicating increasing economic rents, instead of a trend toward the cost of production.

This is a housing crisis but most Americans are treating it like a housing whoopsie. We treat it with kid gloves, where we fight about the "correct" way to build just enough housing, in just the right places, instead of pointing a firehouse of development incentives, to the point of literally subsidizing private development and public development.

It's basic economics, but our electorate will tie itself in knots to make the housing crisis fit their niche political narrative.

This is a very important thing to point out. So often, issues that affect normal people negatively are only afforded a little bit of coverage once in a while. If the trend persists and it is still negatively affecting the citizenship, it deserves to be in the news.

> Of those, mom-and-pop investors, or those who own between 1 and 5 homes, account for 85% of all investor-owned residential properties, while those with between 6 and 10 properties account for another 5%.

There’s nothing wrong with investing by buying homes.

Just pay a 75% tax when you do.

If you can find places to make money with those taxes, have at it.

But you’ll stop messing with normal people’s attempts to buy a house for the most part.

Distorting markets like that tend to have unforeseen deleterious side effects that just make things worse.

For example: rent control

Even Adam Smith fulminated against landlords, who he saw as parasitical free riders.

If you want cash poor people to compete with cash rich private equity in the housing market without banning PE completely, you need to make it cheaper for cash poor people to borrow money. That too isn’t a particularly radical policy proposal. A lot of countries across the world do it with positive outcomes.

Yep, pass that, free up a few percentage points of inventory, good wealth transfer to the rest of existing entrenched investor base. They might even come leased!

That's the desired outcome. What's the policy proposal?

Why not?

Are PE firms worse landlords than mom-and-pop landlords?

Americans hear any limitations on greed or anything that would benefit society as "communism".

Private equity shouldn't be able to own housing. It should be like new highways and tolls, you get to charge until you make up for your investment, but then people who live there or the government should own it.

Want to keep your toll business? Build more housing.

the govs of the left shifting countries in EU (Norway, Denmark, Iceland) played an active role in nipping private energy monopolies in the bud. (Where did Spain err in comparison?) Their policies probably would be regarded as communist in the US though. I tend to call it "communitarian" rather than "communist", but I might be too lazy to argue that distinction :(

https://www.taylorfrancis.com/chapters/oa-edit/10.4324/97813...

https://www.norden.org/en/publication/power-communication-an...

Abstract >Traditional corporatist mechanisms in the Nordic countries are increasingly challenged by professionals such as lobbyists, a development that has consequences for the processes and forms of political communication. Populist polit­ical parties have increased their media presence and political influence, whereas the news media have lost readers, viewers, listeners, and advertisers.

YC used to be about investing in potential millennialist monopolies like AirBnB/Stripe/Coinbase/sama, though these days they lobby for the small businesses & the small cities (SF) :)

I really enjoyed this quote but you know the old nobility didn't give it up easier so you probably could drop the "new".

I need to look up Alan Kohler

>The new nobility will not give this up willingly.

It's not just the nobility, it's also the Australian economic system itself. Australia's GDP is built on asset inflation and the housing market - I find numbers between 10% to 25% of Australia's GDP being based on housing.

If the Australian government stops the boomer money train they might crash the GDP, which in turn will negatively affect Australia's borrowing capacity, which will negatively impact (crash?) the economy.

Edit: the obvious solution is to diversify Australia's economy, away from digging holes and building houses. Economists have been shouting this from the roof-tops for years now and I have seen little political will to actually make this happen, the easy-money-train is just too good.

In Australia, I'm a software engineer and don't own property so I'm a peasant but my parents are in the noble class. I'm finding it increasingly difficult to find things to talk about with them because almost everything that happens to me is bad and they can't relate.

So every topic we talk about seems to dissolve into some detailed complaint about how the system is screwing over people and it makes my parents uncomfortable. But then I can't talk about my work since it's too technical (and mind-numbing) for them so I literally have nothing else to talk about since I work all the time. I can't discuss politics because they think everything is fine politically. I picked up some outdoor hobbies so thankfully I have that to talk about; at least until my workload increases and salary drops to the point that I don't have time for hobbies anymore and can't afford to go on holidays.

The class divide is so strong, my life's goal shifted from "become a tech millionaire" to "try to save a deposit for an apartment" to now "just survive 30 years". If I can survive 30 years, I will become noble and I will finally understand what it feels like to be happy.

But because I'm a peasant and constantly stressed with a horrible workaholic lifestyle doing unfulfilling work, I think there's a possibility I'll die before my parents. I try to teach my toddler son about the importance of money. I had my son quite late because I couldn't afford to have a child sooner. Also, because I'm poor, my wife is quite a bit older than me (only noble men can afford younger wife these days). I worry my son won't understand the importance of money so I wrote letters for him in case he ends up inheriting at a young age to explain how money works and how horrible my life has been without money and how corrupt the system is and that real friends cannot exist in this system because people are always trying to get your money or securing their own money and that money is the most important thing. I explain to everyone around me how the government has made it illegal to be homeless and to exist without money, even if you perfect your wilderness survival skills, rangers will literally find you in the forest and arrest you if you refuse to vacate. I already started planning with my wife how we're going to get him married into money when he is older.

My parents always said that it's bad to spoil a child; that you have to be firm with a child; "when you say no, it means no" kind of thing. I couldn't disagree more nowadays. I started teaching my son that if he throws a tantrum bad enough, for long enough, I will give him what he wanted. Because he needs to know what being a jerk pays off and he needs to demand what he wants. Also, I prioritize his confidence above everything else.

I wonder if the increase has anything to do with the post-COVID lack of interest in commercial property?

Hence Romania.

How did they break through the dome in the sky?

The rocket had a sharp point on the top.

So what? You're just deflecting attention from this story to a poorly researched one written by someone else. That's like me saying people should ignore anything you say because some other lawyer used ChatGPT in court. Do better.

On the bright side, the folks who bought houses as investments might see that investment collapse along with the population.

> the rest just vote to say fuck 'em.

The rentier class has tools to prevent such coordinated voting. They divide us with scare tactics on fringe issues, religion, encourage over identifying with things/movements/celebrities, etc.

I'm afraid things would have to fundamentally and undeniably bad to rally enough people to change things. It's amazing how much folks with overlook or rationalize if given an effective distraction, like fear or hate.

There was already money in preventing it. In a link I posted elsewhere about a hearing, the same people raised nearly $8,000 to try and stop one apartment building from going up in their neighborhood.

Not private equity, not 'tHe ChINesE' (or whichever 'bad' foreigners are currently in vogue), but wealthy local NIMBYs.

Problem is absolutely lack of housing and population growth has nothing to do with it.

Average house size was about 1000 sqft in the 1900 and average household size was 5. This remained relatively the same in 1950 where the average household size was 4. These days, the average size of a house is 2600sqft and household size is 3. We have created a system where we build fewer larger houses. This is because policy (often dictated by people who already own houses) makes it impossible to build small high density housing or even if it is possible to build it, it’s not profitable.

The US birth rate hasn't exceeded the replacement rate since the 1970s

You should consider getting in an airplane and meandering around and reporting back on how full the earth is.

People don’t live in land, they live in floorspace, and we can make plenty of that if we choose.

Much of the news lately has been about how we're going below the replacement rate, and somehow that's also a crisis.

The US is nowhere near full.

> That’s fascinating to me. Generally, the homes people buy to live in aren’t optimal investment properties. Why not sell and buy something optimized for return and growth?

Great question and one I wrestled with until hearing Paula Pant's perspective:

You _really_ know the house you already own. You have a much better understanding of its issues and capital expenses in the next 1-5 years, than a house you are purchasing with an inspection. You know the yard, the neighbors, the city regs, the roof, the plumbing, the weird dog two doors down, and the weirder neighbor three doors down. The mom and pop investor have a much greater risk-of-ruin on a single property than an institutional investor, so this knowledge is extremely valuable.

The second reason is you most likely purchased that house with a non-investment mortgage, so you get priced in a bit to converting to an investment property after the living in it. My non-owner occupied mortgages for my investment properties required 30-35% down and had a much higher interest rate. Converting your existing home avoids all that.

Thirdly, taxes. Selling a house triggers a taxable event and with investment properties will heavily push the seller towards a 1031 exchange to avoid a hefty tax bill that year. A 1031 basically requires you to pick 3 specific properties when your property closes with a requirement to purchase one of those three in the immediate six months or face a capital gains bill is a hard bill to swallow. Depending on the state in the United States, purchasing a new property will also reset your property tax bill, while an existing property can have property taxes well below the current rate based solely on property values when purchased.

That's the first order analysis. It's correct within its assumptions, but it neglects leverage.

But if you bought a place before the pandemic you could lock in a ridiculously low interest rate for 30 years.

Now you have the value of the mortgage (leverage) locked at an interest rate lower than inflation. Let's say rent covers expenses and mortgage. The return on an initial $50k down on a 250k property might be around $10k/year, or 20%.

Tell me, where does one get an investment returning 20% annum?

Real estate is the easiest and safest way to leverage your investment.

Land rents are pretty great in the US at least. Landowners get bailed out by taxpayers when times are hard in many instances. Plus laws are generally designed to protect land rents.

Why wouldn’t it be a good house to rent? It’s usually not tourist rental (airbnb), it’s long term living rental (annual lease). Anyone who doesn’t own has to rent an apartment or house.

Theres also a chunk of people who “don’t believe in debt” so even when they have kids and live in a house they rent until they can pay cash. Or there’s young people who get together in a group of 4 and rent a house to share etc etc.

The U.S. is unique in that it offers fixed-rate 30 year mortgages to basically everyone who can afford the monthly payments. Once you've locked in a 30 year mortgage at a great rate, it's super cheap money - your new goal is to basically hold it until it's completely paid off. Then, the only way you can move is by renting out your old place.

because of your existing mortgage rate

If you get involved with any of this on the ground, it's not really a 'both' question. It's the NIMBYism. Without that, you build enough for it to become not a very interesting investment and large-scale investors go find something else to put money in.

When we were buying a house, we made offers on around 30 properties, and about 10 of them lost out to lower dollar value cash offers. In a hot real estate market, nobody wants to deal with any contingencies.

According to my friend, the issue is that financed deals frequently fall apart at the last minute.

Cash is more secure, when you turn down a bunch of offers for one that goes belly-up, at the end.

The leverage cash gives you is convenience. A normal buyer will have very specific times they can do the transaction (since they need to almost finish selling their house before they can buy yours). Showing up with cash offers means that the buyer can be done right now.

It is very regional. An older house on 5 acres (2 hectare / 20k square meters) could go for $300k. $500k could get you a really nice house. Picking a random rural area in a random midwest state found this beauty: https://www.landsearch.com/properties/16167-160th-st-letts-i...

The homes investors would look to pick up to flip and sell or rent would go in the $80-120 range in this area, I'd think.

My neighborhood is like this. It's been underresourced and neglected for decades, but is well connected to transit and is adjacent to more prestigious neighborhoods.

The buildings being bought are 2-4 unit apartment rental buildings, and quite old, so 300-500k is typical. Then they're downzoned into single family homes or possibly two condos and resold for about double the price I think.

Obviously the ones using (and then losing) them as rental housing and the ones buying are completely different groups.

In Long Island, cheap houses are a half mil.

I suspect that the Bay Area is even worse.

I agree. I’ve said as much. He just shrugs. I think he makes a lot of money.

Land prices rise with income but housing constraints mean each family needs more land. Just look at the rental market in austin collapsing 20% while incomes continue to rise to empirically falsify your working paper.

upvoted then realized you are promoting LVT. this is why i think LVT is a terrible idea: https://news.ycombinator.com/item?id=44532444

land value is only a small part of housing costs.

  > this is a better solution

Public housing is very good, but I want to encourage a mindset shift. There are many plausible housing policies, and they are not in competition with each other. We should have public housing and we should follow the neoliberal abundance agenda and we should implement a LVT and we should do many other things. None of these policies somehow makes it difficult to implement the others. There's no tension. If anything they work in harmony. A LVT can be used to fund public housing, and neoliberal deregulations will also assist in making public housing cheaper for the taxpayer in terms of land use efficiency. If we care about housing, we need to get over these factional battles that only serve the landowning class.

If loads of housing is built and the price of housing starts dropping, firms won't want to invest in housing because they'll lose money. Unfortunately, a lot of politically active home owners also want to keep the price of housing from dropping so this is a harder thing for local governments to put into practice.

Because if you get zoning out of the way, we can keep building, and keep building, and keep building.

Let them keep buying. But if we build enough, they won't be able to rent it all out. Are they going to keep buying to control the rent-able supply forever? No, they'll run out of money before we run out of buildable land. (Maybe not before we run out of wood, shingles, and labor though...)

You're fixated on price. Look at rent instead. Private equity cannot create new tenants. The number of tenants is fixed. That's why rental inflation is significantly better in Texas compared to California. Private equity is not a relevant variable here.

They don't have the cash. Housing is a huge market.

Downvote all you want, but math is math.

Yea really weird. 1 home usually doesn’t even mean you are an investor: you just own one home and live in it. And then 5 homes? That’s not what anyone would think of as “mom and pop.” That’s a very large real estate investment business.

I’d just ignore people with one home because they are not investors. Have one “mom and pop” bucket for people with 2 homes, one rented out, and then another bucket for businesses with 3+ homes, 2+ rented out.

> But if 27% is pure corporate investment pushing up the prices - yes, it's bad.

But it's not "pure corporate". Quite the opposite. From the article:

> mom-and-pop investors, or those who own between 1 and 5 homes, account for 85% of all investor-owned residential properties, while those with between 6 and 10 properties account for another 5%.

I really don't see anything wrong with mom and pop buying a second or third home to rent out for extra income.

And I don't see anything inherently wrong with 27% either. If there aren't enough rental homes, then an increase in the share of investors is exactly what you need to achieve the "reasonable balance" you're talking about. And then there's nothing bad about it -- it's exactly what's best.

1. I mean, investors invest to make money. You make money by renting. Otherwise you're just throwing money away, which isn't what investors like to do.

2. In general, rent payments are less than mortgage payments for the same property (though this can vary in specific cases due to a number of factors). So the point is the renters get to save more money than they would with a mortgage.

And the problem with buying and selling is the realtor fee on both ends. You can't buy and sell a house every year or two. You'd go broke real quick.

> Can't your friend buy and then sell when they are ready to move?

They can, but because of realtors these 2 transactions will end up costing 12% of the cost of the house.