I’m going further to say that the speculative investment style itself is the problem, for many if not all areas. Once this kind of investor comes in, they want to squeeze the market for all it has, effects be damned. They may as well bet on crop failure – and they do.
The problem as I see it, is investment without value added, a.k.a rent seeking.
Buying an apartment and renting it for long duration without any value added is a problem. If you buy something without expectations of its economical value increasing, only its price, that's a problem.
Buying an apartment and hosting it for short duration in Airbnb (or another way) to tourists, while providing real service, is a real investment. It created real economic value. I'm OK with these kind of investments.
The root of the problem comes from the central bank. There's asset inflation that is virtually ignored, created by low rates, QE, and regulation around mortgages. That asset inflation makes "investing" without creating value a good strategy.
I truly feel that people who think that property prices are going to go up forever are in for a shock.
In many countries, the population has already began to stabilize or decrease. Look at Japan for an example of what is in store for many other countries. There is just not enough people being born to drive the sort of demand required to keep property prices increasing forever.
Maybe innovation in housing drives some type of infinite growth picture, where houses keep getting better so whoever is left on earth just keeps paying more for them, but I'm not sure if that's a reality.
There might be a large influx of immigrants to fill apartments thanks for climate refugees, but they're (very sadly) not going to be coming to NYC with a bunch of money?
Are property price slumps sad for people? Yes, are they the end of civilization? I don't think so.
Interesting point taking population growth into account. If everyone owned a good house and had no reason to change house –probably would never happen, although there are forces like remote working and VR pushing to remove the need to concentrate around city centres–, genuine demand for housing would halt, leaving only speculation. If new technologies enabled us to built more and cheaper houses –and governments didn't oppose it–, offer might increase. And maybe housing would come back to being what should have always been, a commodity.
In reality, these massive companies buying up apartments can hold apartments vacant for 20 years. If an investment company has $100 billion in funds, what does it matter to them if they have $100 million in apartments in Manhatten? It's only .001 of their funds. It's nothing to them. And as new properties become available to them, they can snap them up creating even more of a oligopoly and quasi-price-fixing - or at least contribute to it.
And the problem is that it is everywhere, not just New York. "Fundrise LLC, an online property-investing platform that purchased 124 houses in Conroe, Texas, for $32 million, paying building firm D.R. Horton Inc. "roughly twice what it typically makes selling houses to the middle class" — illustrating how home builders stand to make more money by selling houses to investment firms instead of middle-class Americans who want to own their first home." The report goes on to detail how "yield-chasing investors are snapping up single-family houses to rent out or flip," contributing to the scarcity of houses for sale and driving up prices for everyone. According to one estimate from John Burns Real Estate Consulting, as many as 1 in 5 houses sold in the nation's top housing markets is purchased by someone who will never move in. As a result, the consulting firm expects prices to continue to rise. "You now have permanent capital competing with a young couple trying to buy a house," said company CEO John Burns. "That's going to make U.S. housing permanently more expensive." Burns notes there are more than 200 big money companies and investment firms competing with families and first-time buyers for houses, including titans of finance J.P. Morgan Asset Management and BlackRock Inc.
These companies will buy up new neighborhoods or start buying piecemeal in desireable neighborhoods and due to the near monopoly will jack prices up double.
All this can lead to a housing bubble, to be sure, but then the capital companies snap up undervalued homes and hang on to them, just like they did in 2008.
Invitation Homes is owned by Blackstone Group, the world’s largest real-estate investor. Created after a company called Treehouse Group was folded into Blackstone, then renamed in 2012, Invitation Homes was on a $10 billion spree, purchasing $150 million worth of houses per week. “At an auction in Sacramento, a house flipper named Ryan Heck was bewildered by a bidder who bought every house that hit the block,” Dezember writes, noting that the bidder went one dollar over every other bid until the other bidders conceded. “He had a handful of cashier’s checks,” Dezember writes. “The new guys had duffle bags full.”
The bonanza really took off in 2011, when Morgan Stanley issued a report called “A Rentership Society.” With over 1.6 million foreclosed homes in the United States and more on the way, the report forecast “a surge in the number of renters and a potentially massive opportunity for investors to convert the glut of repossessed homes into rental properties.”
America’s investment managers were all in. By 2012, “more than $1 billion had been raised by investors for the purpose of doing just that. Some of the biggest names in finance were hoarding houses.”
Soon we will return to feudal times when there are a few vast landholders and everyone else is a serf.
There is even a lobbying organization, the National Rental Home Council, to look after large investment companys' interests in the government, such as defeating rent-control laws.
a three-bedroom, two-bath home in Spring Hill, Tennessee, that went on the market in April 2017. In the strong, fast-growing market, the seller had four bids on the house within hours.
“The high bid of $208,000 came from a couple with a child looking for their first house,” Dezember writes. “American Homes 4 Rent matched their offer, all cash.”
American Homes got the house, the seventh it had purchased on that street. since 2010, 700 houses in Spring Hill have been purchased by just four companies, including American Homes 4 Rent and Progress Residential, Dezember writes. As a result, rents skyrocketed. The town’s vice mayor, Bruce Hull, in April 2017, said, “It hasn’t been that long since you could get a three-bedroom, two-bath for $1,000 a month.” Those houses were now closer to $1,800 a month, and this was by design.
Personally, I think the government should put limits on how many units - houses, apartments, duplexes, etc - that a corporation or subsidiaries can purchase. I don't like this, but the larger societal implications must be taken into account.
Meanwhile, people need apartments right now. To live.
They created economic value. The tourists couldn't buy the house themselves just for few days visit, and there was economic value in the cleaning, the service, the flexibility of making the reservation in quick timing.
There's no economic value in "providing long term housing to residents". You hodl the asset which someone else required and added no economic value. They could've bought the asset themselves because they wanted to be there for a long term. But they can't because everyone is hodling. When economic incentives are good, you should sell an asset or an investment when you do not expect to gain economic value from it anymore.
Why do people "provide long term housing" instead of just selling their assets ? I see houses as an asset similar to cars. They decay, they break, old houses are horse trade, they require high maintenance. Their economic value only goes down, and their prices would too if there wasn't a housing cartel opposing new construction and high population growth combined with bad government housing policy, but most importantly, if the regulation around mortgages was similar to any other asset.
The root problem isn't the central bank. Central banks are relatively new inventions while rent seeking is thousands of years old.
The core problem is that land ownership is an entitlement (derived ultimately from the application of historical violence) and not a liability.
I expect these entitlements will be expunged from humanity one day but it'll be as arduous to eradicate as absolutist monarchy was. Land redistribution of any kind always invites a violent backlash from elites.
I'm going further to say that every investing is speculative in itself, because investing is the activity of buying an asset, speculating that there will be a return.
while that's true, it's not black and white. The invested asset produces output. This output is useful, and speculative demand of that asset will, in normal circumstances, produce more of that output due to the pressure to increase the number of those assets.
Housing is not different. Except that there are some people who would prefer to limit the builds of new housing.
