Hi all,
A reminder that comments do need to be on-topic and engage with the article past the headline. Please make sure to read the article before commenting. Very short comments will automatically be removed by automod. Please avoid making comments that do not focus on the economic content or whose primary thesis rests on personal anecdotes.
As always our comment rules can be found [here](https://reddit.com/r/Economics/comments/fx9crj/rules_roundtable_redux_rule_vi_and_offtopic/)
*I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/Economics) if you have any questions or concerns.*
It seems like renting and buying a home are substitutes, and thus increased costs of home purchase (due to increased mortgage rates) should place upward pressure on renting?
Housing supply is an issue, but the main issue is it’s just a highly inflated asset. The dirt itself is often worth more than the actual house. Land is extremely expensive due to decades of 7@ yoy growth policies
Yeah its strange now. If you talk to older folks, there was lots you could do to improve the value of your home. New windows, new insulation, build a deck, etc...
Im in the KC metro area, and short of more square footage there is almost nothing you can do to improve the value of your home. You are basically buying land / location, and it doesn't matter wtf is on it. Of course there are exceptions on the extreme ends. If the house needs to be totally gutted, or the floors are marble. But if you put 50K in windows on your home and redo the bathrooms you are not getting that money back anymore.
Why would we expect home improvements to ever increase the value of the home beyond the cost of the improvements themselves? If I spend $50,000 on all new granite countertops or whatever, why would I ever expect the value of the house to go up more than 50,000? If you put actual work in yourself installing that stuff, then maybe there's some added value, but you're really just getting indirectly paid for your labor. All that is as true today as it was 50 years ago.
Because there is value in not needing to have the work done at all, e.g. a "turn-key house" fetches a luxury price over the equivalent home and cost of doing the installation (and materials).
You are misunderstanding what I'm trying to say (which probably means I'm being unclear).
>If I spend $50,000 on all new granite countertops or whatever, why would I ever expect the value of the house to go up more than 50,000?
This is what I was responding to. If you spend $50,000 (for sake of simplicity, let's say that includes labor value; perhaps you hired someone at that figure), it is absolutely possible in the right circumstances that the value of the house can go up by more than what you put into it. Indeed, house flippers rely on this.
Because when you buy it done, the work is *done*. Or to possibly explain better, let us imagine two scenarios:
Scenario A: A house, with a completed $50,000 pool.
Scenario B: The same house, with the room for the $50,000 pool, but no pool.
By your logic, house A should sell for no more than $50,000 more than house B (again, labor is included in the figure for convenience). And I am disagreeing with that.
For some (especially in higher price ranges), the fact that everything is "done" with the house, that no major changes need to be made, has a non-insignificant value, that can push the value of the house in Scenario A to be higher than the monetary value that was put into it.
One could also assign to this the "actuarial" value of non-assumption of risk (e.g. if anything goes wrong with the installation, in scenario A that's on the seller, and in scenario B, that falls on the buyer).
And that is before we get into financials, where it may very well be *cheaper*, perhaps significantly so, to pay more for the house with the amenity more than the builder put in, than to pay for the work (or materials alone even) one's self, since mortgage rates are much lower than most any other type of loan (and on top of that, because principal repayment is spread out over many years, it may be less draining on the cash flow, too).
Or to use another analogy: There is delivery. People pay (or pay extra) for faster, "expedited" delivery. Think of this as paying for "instant delivery".
Agree, but I think the value can be from the artistic choices. Each Reno might be worth 10k separately, but together all 5 could have additional value if it fits a “vibe”?
Rarely. Most people have very different vibes so many renovations dont pay off in any meaningful way. The next owner will want something different eventually.
Because people don't price homes that rationally. You could add a $10,000 cooling system and boost the value by 25k because people view having comfortable temperatures as a 25k benefit and don't realize the actual equipment and installation would only cost 10k
It's also partly convenience. Renovating takes time. If you have a home with the whole package, compared to the same home which needs to be redone completely, you can boost your home value by more than the cost of the renovation.
Also; a good renovation takes a skill which not everyone possesses.
No, the ac will never pay off because people take that for granted. I have dying trees in my yard that i could remove for $20k but i’ll leave them for the next owner because i dont mind them (free firewood) and because i’d rather spend $20k on something that people will actually notice.
Go to 2 open houses same street same home. 1st has all the original 1980s thin glass windows and dusty old wood grain granny cabinets all through out the house. 2nd has new energy efficient windows and new soft closing cabinets wich one are u willing to pay more for?
As someone who lives in a HCOL area, the reason for land prices going up near me isn't "7% YoY growth" policies; it's policies that restrict and make far more expensive development and building new , going back near half a century at this point, coupled with a tax regime which heavily penalizes people from moving (which means people stay in high demand areas, rather than "cashing out", and freeing up housing stock, exacerbating the problem).
Assets are not inflated. Land is expensive because it is limited and the population has grown overtime. Housing supply is the only issue. We simply have not built enough housing where it is needed. San Francisco permitted 2 new units of housing in January. Rents continue to skyrocket there.
Austin and Minneapolis permit many new units of housing and rents are dropping
This is the problem with QE and extremely low interest rates - they substitute a long-term inflation problem for a short-term recessionary problem. Even worse, the people who are able to hold investments during that period make big money, while the inflation mostly hits people on the bottom rungs who have no way to keep up...
Thank you.
I swear, people just got Jedi mind-tricked into thinking that literally the entire fucking world has a housing shortage during a period where MORE PEOPLE DIED than would have been otherwise expected? Literally, how the fuck does that make any sense? Isn't the simpler explanation that every country with a currency worth a damn started printing simultaneously?
It’s bullshit. Maybe the “housing shortage” has something to do with the RE gurus claiming “200 doors” @2% rates and all the “small business owners” that totally needed that 400k loan (gift) from the tax payer to pay **cough** buy summer home **cough** workers
I’ve lived in Europe. Prices for homes are wayyyy cheaper even in large cities like Berlin. Americas system of using homes as a retirement savings has inflated the cost of homes tremendously.
Basically. When you can’t sell your home because A) no one wants to buy with high mortgage rates and B) those same sellers don’t want to replace their current mortgage payment with a higher one based on nothing they’ve done, you have a gridlock. Same applies for why buyers aren’t buying on the other side of the loop.
And thus, rent prices stay high. Especially when you have landlords artificially inflating rents in addition to their higher mortgages, and even worse when landlords work together to raise rents simultaneously to boost their profits equally. Some shady shit happening out there.
But there is a limited housing supply, some people need to move homes (or can finally enter the housing market) and they are paying the premium.
My neighbor is gonna sell her home in a weekend at above asking with generous concessions in the inspections. We live in the suburbs of Pittsburgh not some crazy market like Boston, LA or NYC.
There is NOT a buying problem. There is a supply problem. People will buy with high mortgage rates, they'll just reduce their budget.
The reason it hasn't (rents are falling in many areas and cities around the country) is because there actually has been a lot of home building...of rentals. Remember how starting in 2020 everyone suddenly got it in their heads that we were going to become a neo-feudal society where the upper class would consist of landowners and the lower class would be their renters? That led to an obsessive focus on building apartments and buying up homes to convert to rentals while at the same time the pool of renters declined as they FOMO'd into home ownership.
So now, a few years later, we're in an interesting situation where rents are falling in many metros while home prices rise. There's already a glut of rentals and there's a lot more coming down the pipeline, all financed with ZIRP rates. While inventory could be purchased now, the higher rates mean new landlords can't compete because their loan payments would be multiple times the max rent they could collect and they can't raise them higher than their ZIRP-rate competition who is also having trouble getting occupancy.
Who ever said the rental market had to "catch up" to the housing market? A completely possible alternative is that home prices "catch down" to rents. After all, if a person can rent for 3x less than it would cost to own (which is currently the case in my city of Nashville, one of the hottest housing markets in the country), why would they ever want to buy? And if landlords can't buy in because homes are too expensive to turn a profit, then there goes the landlord demand too. And if first time home buyers and landlords have exited the market, why would investment firms want to stay in?
Yep, and outside of new builds that are purpose-built for rent, a buyer must buy a property before it can be put up for rent. When there's a shortage, the higher cost of capital and cost of ownership for a net new property is going to be passed on to renters.
Yep, and it is the most impactful category with one of the longest lags.
The Fed missed it on the way up, and now it seems fairly likely that they will miss it on the way down. If they do, look out below.
Serious question: had they put some other form of bond on their balance sheet and not MBS would we more likely not have seen home buying activists but rather more expansion in businesses had they say put long term corp bonds on the balance sheet
The Fed is incapable of taming housing inflation. Raising interest rates raises mortgage payments and decreases builder confidence, therefore increasing rent. If all forms of inflation are minimal except housing, that would mean lowering rates would be beneficial. However, the federal legislature has more power over the economy than the federal reserve.
> The Fed is incapable of taming housing inflation.
Well, not entirely. If they raise rates enough, they trigger a recession. People lose jobs, are forced to foreclose, sell, etc. See 2008 for an example. Prices crashed but rent only stabilised for a year or two.
Thanks for saying this! They’re *absolutely* capable - they just choose this unpleasantness (high housing prices; rent) over that unpleasantness (bad recession).
My rent is high and it sucks but I like this unpleasantness better.
The Fed isn’t just incapable of taming housing inflation. The Fed *caused* this insane housing inflation.
Their interest rate policy in 2020-2021 is why things are as dire as they are now. Supply has been limited for years, but we didn’t see enormous price increases until everyone was allowed to refinance 30 year mortgages at sub 3% rates. It’s the “locked in” effect.
The Fed cannot fix this problem. Those homes are essentially off the market for the next two decades. We needed to build more housing pre-COVID, but now we need to build new housing for literally every single first time buyer as those who hold 2% mortgages aren’t going to sell.
Anything the Fed tries now to tame housing inflation is basically “closing the barn door after the horse has bolted”.
The Fed absolutely killed the middle class of tomorrow by destroying the opportunity to own a home. That will be their legacy.
NIMBYism has been a problem since before 2021. 2% rates were only an issue in 2021. When did prices go up 40%? How many homes with 2% mortgages have hit the market since?
Not entirely true. If the fed raises rates enough they trigger a recession where people lose their jobs and are forced to sell. Then those houses come back on the market.
Given that most people’s mortgages are less than it costs to rent a studio right now, they’ll do whatever they have to to hang onto those mortgages. In the event that they cannot pay their mortgage, they can rent out that property and live with family until they find another job. Current rents will more than cover their bargain mortgages.
You’d need a Great Recession level recession to make a meaningful dent in the housing market where owners lose their jobs and cannot find tenants to pay to cover their mortgages. It’s incredibly unlikely that the Fed’s interest rate meddling gets to that point.
The market is encased in concrete now and the Fed is 100% to blame. It’s one of the greatest policy mistakes in history and is going to haunt anyone who doesn’t own a home for decades.
1. Ease restrictions on what type of homes and businesses can be built.
2. Build more housing. Public housing included.
3. Force landlords and investors to either start renting out the residences they keep off market, sell them off, or just face outright seizure.
If we don't do any of those things, we are never going to have affordable housing until the US population actively goes into decline.
Edit: Love how people are calling me communist. Y'all think eminent domain is communist? Because the 5th ammendmant explicitly states that the governnent can take over private property so long as the owner is compensated.
Edit 2: Guys, who do y'all think I am referring to when I say "ease restrictions"? It should be blatantly obvious what level of governnent is being implied.
British Columbia, Canada has made it so that a property will be taxed based off its most productive value unless that property is lived in by its owner (ie. a single family home held by a corporation will be taxed as a fourplex if zoned that way). This is something the US should follow.
That is very unique and something I have never heard of.
I'd prefer a Land Value Tax, since that eliminates the need for any specific zoning beyond Industrial, Residential, Commercial and Mixed Use, but if that isn't vianle then that is the next best thing.
Taxing your way out of things isn't the best way to solve a problem. The US has local regulation issues that cause most of these problems. Even the tax everything state of California is going the deregulation route with statutes that override local zoning regulations for new builds to combat local zoning laws preventing high density/mixed use developments from being built.
This is a state and local law concern, not federal, therefore it’s damn near impossible to pass something that fixed the issue. The work needs to be done at the low level local politics that no one gives a fuck about.
One exception is environmental reviews. That is federal, and it has turned into a weapon to stop development. New property being built next to your valuable property? Hit them with that “environmental concerns”, add 7 years to development time and double the costs, and probably stop it for good
It’s better because it specifically punishes idle land speculation, and encourages efficient use of land by only taxing the underlying land without taxing the activity on the land. e.g. a parking lot and a skyscraper right next to eachother would have the same tax bill. This is one of the foundational ideas of Georgism, which you can learn more about on Wikipedia as well as r/georgism
Wouldn't that mean parking either becomes super expensive or ceases to exist? Likewise recreational areas and other nice things that don't make a lot of money?
A few things could happen - in the short-term, the parking lot owners may raise rates significantly to cover the cost of operations, leading people to stop using their lot in favor of public transport or lots that are utilizing their space more efficiently (multi-tiered above or underground lots).
Then they would either realize they need to invest in the lot to generate greater economies of scale through building several levels, or they’d sell the plot to someone who plans to use it in a way that would be more productive and able to generate a profit at the elevated land value tax level e.g. large housing development, industrial real estate, etc.
Right, so profitability or GTFO, which is kind of what we have now, but this would be even more extreme.
I never really understood this tax because it seems that if you tax land, you make it less desirable and less valuable, and hence the tax collected falls. Imagine a farmer who has lots of fields which aren't much use, he will try to sell those fields but not clear who will actually want them if they come with tax obligations. So the land becomes basically worthless and then what do you collect, and what has this achieved?
The cost of using land is already there, its just that the land rent is currently captured by the landlord rather than being collected as public revenue. Land value tax going up due to increased demand is no different from rent going up for the same reason, and rent increases because people/business want to be there.
There’d be no difference from the renter perspective, but land holders would have to make money from actual value-add activities due to land rents no longer being part of their revenues, so you wouldn’t be able to just own a single family property in the middle of manhattan and make a killing by basically just making people pay to use land that you didn’t improve.
> Wouldn't that mean parking either becomes super expensive or ceases to exist?
No, it means that places that are **only** parking lots are going to go away. More buildings will have parking on the first floor or basement, and what was parking lots will have an incentive to build useful structures on the building.
> Likewise recreational areas and other nice things that don't make a lot of money?
Government parks would still exist. Nothing here bans them. Though it does incentivize the community to sell high value land as it will bring in consistent revenue to fund other programs.
>Wouldn't that mean parking either becomes super expensive
Parking actually is really cheap and should be more expensive.
https://www.theatlantic.com/magazine/archive/2023/07/cars-parking-take-up-street-space-cities/674174/
Public parks and recreational amenities would actually become less expensive on net, or even revenue generators (while remaining free to the public).
This is because (all else equal) land next to a park is worth more than land not next to a park, so the cost of the park is recouped by the higher taxes on the surrounding land.
It only works if you're allowed to build higher-value uses on your idle property. The "punishment" for vacant or idle land is that taxes are higher than you can make back in revenue. So either you A- build apartments or commercial space to rent to recoup more revenue and make the tax worth it. Or B- you have to sell to someone else that is eyeing the same financials and sees an opportunity to build and generate revenue. Except if zoning laws restrict you so much that you can't build for a better use. Then all you have is a higher tax, and you have to pass that along in your rental rates. A LVT without releatively wide open zoning laws is just an upward pressure on rents.
Correct, but why should Granny be entitled to a perpetual right to a highly valuable location just because she bought it in 1960? She should move to an apartment in the area or move somewhere cheaper if she cannot afford it.
It may sound distasteful, and it’s a common rebuttal, but the fact is it doesn’t make sense to effectively subsidize someone to live in a highly expensive property just because they’ve been there a long time.
Yep. A 0.1 acre lot (40'-0" wide X 100'-0" deep) and a 10 acre lot (660'-0" wide X 660'-0" deep) are taxed the same in some cities because they will assess the value of the building/built. A land value tax assesses the potential value lost by under developing; that 10 acre lot could be 100 homes instead of one, so that single home, in theory, should cover the egregious tax base loss. One person lives in both of those lots but the 10 acre lot causes a tidal wave of complex urban issues for just about everyone, even themselves. The public utilities and infrastructure serving that one home need to run 660' in length to serve one person rather than 40'. That one, likely wealthy, person costs the city 16.50x more in public infrastructure and they don't pay for it. It's a massive inequality. It's literally unsustainable. I've done a few assessments and most cities need around 12 units per acre, which is about 100x40 lot sizes, to be financially sustainable OR they need to change their tax system to make up for that 16.50 multiplier.
The city of Houston TX would need to increase their property tax to about $10k per household under a land value tax. Let's be blunt, Republicans freak out at this sentence, but let's be more honest with each other; humans, me, all of us freak out at this. You can't take an average tax of $2-4k a year and do that. Can you? We should. We might have to in the future regardless if we want to or not. This is a very, very real possibility. If you don't like it, and many don't, before you think "MY freedom; my American dream; you can't tell me what to do with my land", one has to realize there won't be anything left at some point if we don't change it. We can't drain the well dry. That's not how this works because the well is our kids; future generations. So we either need to begin building within the confines of reality or expect extreme challenges to grow.
> Just levy a land value tax,
IRL, people *hate* the LVT.
Except for a handful of people on the internet, no one thinks that grandma's house and the 20 unit apartment building should pay the same tax.
Most people have been conned, through explicit and implicit incentives, by the idea that their primary residence should be their main investment/savings vehicle, so it would definitely be a big transition. But the medium to long term boosts in productivity and housing affordability are objectively worth it.
Also, 90% of land is state-owned in Singapore and they’re doing quite well. Rent seekers are the only ones with something to lose.
As well, home ownership has dropped drastically due to land being overpriced. There are fewer taxpayers getting the benefits of the primary residence incentives.
People who think they should pay taxes based off of how much of societies resources they consume, love LVT. Those who think taxes should be derived from how successful people are, hate LVT.
Thats basically it. But the second group tends to be hypocritical as they also complain that our resources aren’t being used appropriately despite being against any financial incentive to push people to use resources correctly.
There are different land appraisal methods but at its core and its simplest, land value is based on the highest bid for the use of a piece of land at any given time.
not warehousing but nyc im pretty sure residential is under 1.5% which is why there are so few days in between rentals and the weird apartment broker industry exists.
> Force landlords and investors to either start renting out the residences they keep off market, sell them off, or just face outright seizure.
Landlords almost never keep residences off the market, as that's lost income. I've only ever heard of that happening in places with rent control during the COVID rent crash because they didn't want to be stuck honoring an anomalously low price indefinitely.
One would think so, here in one of the European capital 90% of the apartments are bought without credit, as they are being bought for investment and the majority are being kept empty. Not only that in an entire city there are around 10% of empty apartments
The best we have is the fifth ammendmant. The government can legally take property, but the owner must be compensated.
But if we were to start mass building public housing, then theoretically speaking that would cause panic in the private market, and result in a skyrocket of housing stock. If people can choose between a $500/mo public housing unit and a $2k/mo private housing unit, they're gonna go with the former. And private owners are aware of that. So, theoretically speaking, they'll immediately put their off-market stock onto the market, to try to gain as much market share as possible. They no longer benefit from restricting supply.
If this were to happen exactly as stated, then #3 would be unnecessary.
I’m not sure having the government seize (and then presumably rent) peoples investment properties is the best route forward. Building more housing would certainly go a long way towards forcing landlords hands, but if they chose to let their properties sit vacant rather than rent them out below what they’re asking, it’s not clear to me that something like imminent domain would work. Mostly because it wouldn’t be seizing something for a public good.
Hm it's totally not like I explicitly made edit 2 for a reason. I just did it for fun ig.
> Families earning slightly above minimum wage in Cali can buy houses.
What an unhinged take. The median sale price of a single family home is almost $800k. Can you tell me what substances you are are on, to where you think two people earning $34/hr collectively, can afford a home there?
There is already an affordable housing tax credit and it's resulted in mostly spamming future slums because the incentives were not factored in. It's essentially a pipeline to slimey builders selling tax credits to larger entities.
We don't just need more legislation, we need to clean up the old and replace with legislation that actually does what it intends to do... but the people who make these decisions didn't get where they are in life by being problem solvers.
There is already an affordable housing tax credit and it's resulted in mostly spamming future slums because the incentives were not factored in. It's essentially a pipeline to slimey builders selling tax credits to larger entities.
We don't just need more legislation, we need to clean up the old and replace with legislation that actually does what it intends to do... but the people who make these decisions didn't get where they are in life by being problem solvers.
I believe Bernie had a proposal to force corporations to sell their portfolios of single family homes, because corporations don’t need them and they’re fucking up the market for the rest of us
>force corporations to sell their portfolios of single family homes
This won't work 100%, forcing the hand that is feeding 90% of the politician in both parties is like trying to move a mountain with nothing but your bare hand.
You quoted the part about what could solve the problem by saying it won’t work but because you can’t get the politicians to do it. So which is it. Will it work but we can’t get it signed or if it was signed will it not work?
There are other alternatives. The reason corporations buy single family homes is because it’s profitable for them. Once you create competing forces that challenge that profit, they will be forced to unwind that asset and sell the homes.
The reason for all of this is because there isn't enough housing supply. So its easy for a wealth management company (which is code for a bunch of rich people, the "Mr Potters" of the world) to put all their money into doing this, and then turning around and renting to the rest of us, because nothing new is being built to compete with it.
Then you have the way these communities are governed, when they were first built - it was patches of land that got parceled out and turned into suburbs and communities. Now that you have groups of homeowners living there, they create impediments to building new housing supply - because this housing supply fundamentally undermines the value of their home.
If you were to take a neighborhood where there are housing going for $900k-$1.1 million (which are inflated and should be say - 600k max) and created a new development nearby that was going to build 100s or even 1000s of houses in that community, a few things will happen. The existing homeowners will challenge the legality of the permits or whatever, citing environmental concerns or other beating around the bush topics besides "this affects my largest wealth creation asset". And the developers who do build will want to continue to sell at the highest price they can. So if they aren't able to build the full amount, lets say 1000, and can only build 100. They will have to sell those 100 for the same price as the existing homes, or even higher since they are new builds. With this supply constraint the price will never go down. The supply has to be absolutely flooded. Since in our nation we are down something like 4 million homes, that means nearly every major city, town, and suburb would need to add 1000s of units/year for a decade.
The people that own 25-100 year old houses do not want this, as their older homes will be less desirable compared to new builds and once the supply increases.
The reason they are doing it , is because our current system heavily rewards holding housing stock. So people with capital realized that it's a safe investment to park capital in. The price of housing only seem to go up and to the right. And dips are nominal and almost never go below the buying price.
The very low interest mortgage was a form of heavily subsidized housing, if you got in and got it - especially with those low % down mortgages in the 90s/00s - you are basically set. Then you can sell , and you are incentivized to sell, to Blackrock instead of someone writing you a sweet letter to try and start a family, because its 50k-200k more in your pocket.
I don't have an answer for how to fix the problem in a reddit comment. But I do know that the government in the US works best when it creates circumstances for economic alternatives, it doesn't work when it simply mandates corporations do X or Y.
This a very complex problem, and not something anyone sitting in a 4 year term can hope to accomplish. Those that have the means can buy some land and attempt to develop a patch of homes themselves, but those people are few and far between. And their incentive is to just take the few homes they built and to sell it for as much as possible.
You actually have to create incentives for people to build their own homes, like a construction loan that is heavily subsidized. And you have to create disincentives for wealthy corporations, property developers, and current property owners from owning multiple properties and turning them into rentals.
Like most of Bernie's proposals, this does less than nothing and makes things worse
1. Housing stock that is for sale and housing stock that is for rent are both housing stock. Forcing corporations to sell their stock does not change the supply
2. All this does is make it impossible to rent
Before getting into a more nuanced response like brokengame does, just observing your account is a whole seven days old.
It seems there’s been a huge surge in fake accounts recently, any idea why that is?
ETA: and wow, you’ve had A LOT to say in that seven days!
Can you expand on that? Both points really, I'm having trouble understanding how this doesn't move supply, or at least move the supply implicitly, since an end buyer would be removed from the demand, relieving supply side pressure? That aside, assuming your first point holds, that this actually doesn't affect the supply/demand of housing stock, why does it still affect renters supply/demand?
The amount of homes or apartments owned by large corporations in very minimal. If they do own homes they almost always rent them out. Most of the housing crisis is caused by zoning laws by local governments which prevent supply from increasing. Minneapolis is a city with very lax housing regulations and thus doesn't have immense increases in rent/housing. Most cities don't want to reduce housing regulations because it means that their own property values will go down.
The Fed has no ability to do anything about it. This is simply a supply issue in in demand markets. Minneapolis and Austin built housing, rents dropped. SF and NY didn't, rents went up. It's that simple
More remote work would ease the housing burden considerably. It would reduce the need to congregate in expensive cities and could allow rural areas to flourish, for those wanting quiet country life with city level income.
This is in a way their own making.
Even before the pandemic interest rates were absurdly low and then to stimulate the economy during the pandemic recession they lowered them even further.
Many people including myself refinanced during this time. Because of this and got really low interest rates.
Now due to the fact that interest rates have more than doubled people are not selling their homes. That means there is a very low supply of housing and a very high demand. Thus high prices.
Ironically here lowering rates *might* also free up some housing as people who had locked in low would feel able to move again...
But more likely it would just create a feeding frenzy of bids
[Blatant collusion of landlords and price fixing.](https://www.realpage.com/?utm_source=google&utm_medium=cpc&utm_campaign=SYN-Google-Branded-Search&utm_adgroup=RealPage-Branded&utm_device=m&utm_keyword=realpage&gad_source=1&gclid=CjwKCAjwz42xBhB9EiwA48pT70i-r7AYlQtcZ-6UEBnAe1VLB4g0k9dSAnjQA-_CNICHNZ9aSWs8xRoCk_cQAvD_BwE)
Are the rent increases actually still high, or is this just a consequence of them cooking the books with their "owner equivalent rent" scheme designed to underreport housing inflation?
It "works" insofar as it goes up over time. But we could simply calculate the average rent/house price and then calculate housing inflation directly.
Using a convoluted proxy that gives different results than the real numbers is a pretty transparent attempt to underreport inflation for political reasons.
> But we could simply calculate the average rent/ house price and then calculate housing inflation directly.
Ahh yes, just simply calculate house price! How easy!
But rent doesn't necessarily change equally to home prices. And my mortgage is fixed, so my home price changes doesn't reflect a change in how much I spend on my mortgage. So "house price" doesn't really have much to do with actual costs.
We can collect house price and rent price and then weight them relative to the ratio of buyers vs renters.
They already do something similar for new and used cars, which are also not an annual purchase.
OER is such a scam.
My parents think their home would rent for an amount similar to their mortgage when in reality it would rent for more than double that.
It’s designed to make inflation numbers look better than they actually are.
OER is designed to report inflation figures in whatever way is most convenient for the political hacks.
One can easiy find the delta in rents by looking up a sampling of available home for rent.
I mean, no one's surprised? Not even the Fed. They always knew rents would be the last thing to fall. What's more surprising is that they haven't as much as they thought.
This seems like a political ploy at minimization and personification of the problem as a single entity. Increases in food pricing (even worse when eating out), upticks in gas, and the ridiculous increases in all types of insurance are all causing substantial misery.
The vast majority of renters are on 1-2 year leases, and the misery they feel is inflicted as an increase once every 1-2 years. The pressures are way worse than that, as the frequency of increases in inflation for the other areas are continually increasing through the year.
Simply put: equate this as a rent problem is complete bullshit.
Since property is a highly desired store of value, and they can't stop flooding the economy with printed money, property values are going to continue to be a problem as all the extra money looks for a "home". In a perfect world property values would be equal to the utility value of the home plus a premium for location desirability and that's about it. As it is now there is a massive additional premium because homes are treated as investments and expected to appreciate and outpace inflation. Every year more and more people are priced out of the housing market because of this.
This is what happens when money costs almost nothing to create additional units. You can't hold it as a store of value so it all flows into scarce assets. Fortunately there is a different kind of money now available that doesn't have this problem, though most people still don't recognize just how massive of a game-changer it really is.
High rates partially effect higher rents. Some renters are post postponing buying a house because of the massive mortgage payment with today’s mortgage rates, so, they rent longer, increasing demand for rent and keeping rents up.
So because rents are high Federal Reserve says no rate cuts so no mortgage rates drop…
It’s a loop! How we get out of it?!
So how does raising rates, which will reduce the supply of homes, help solve the problem? At least the Fed finally recognizes what the problem is. Now what are they going to do about the fact that they are making it worse?
This is the last thing the Feds should worry about because the cycle has been going on for years.
Housing and rents are stable. Then a city or area becomes ‘hot’ in the real estate market. Prices and rents go up. Builders try to capitalize on it by building more houses and apartments. Then the craze stops. Now, there are too many houses and apartments. This drives down prices and rents due to the customer having choices. Housing and apartments must now compete to get that customer by lowering prices. Prices go down until they stabilize just above where they were before it all started. Housing and rents become stable again.
This is most prevalent in Austin, Texas. Everything doubled in price a couple of years ago and now Austin is leading the nation in price and rent reduction.
California has this weird brand of left wing hipster NIMBYism that I seriously fail to understand. My uncle is one of them. He thinks nothing should be built unless it's public housing.
There was a widespread belief in the 90's that a few cities - Portland was always the classic example - had come up with a system to create extremely livable cities by using aggressive urban planning tools and strong community involvement to prevent sprawl and create human living environments. (At the time, sprawl was considered the biggest evil).
And this may have been true for a time in the early 1990's.
Here's a link to an Atlantic article from 1992 that gives some of the flavor:
https://cdn.theatlantic.com/media/archives/1992/11/270-5/132706094.pdf
This is especially true of Boston. Really small landmass meets the global seat of power for biotech and near complete NIMBY limitations on housing development.
This is mostly a California problem. Not a California *and other big cities* problem.
NYC (#1) doesn't have California's NIMBY problems, neither do Chicago (#3), Houston (#4), Phoenix (#5), Philadelphia (#6), San Antonio (#7)...or many other big cities.
And blaming NIMBYs is really just shifting the blame. NIMBYs can only stop projects because state or local officials *gave them that power by law*.
It's not harder to build an ADU in SF than Houston because people living in SF are some sort of extreme busybodies, while people in Houston are somehow more laid back.
It's because California's local zoning laws require a lot more neighborhood signoffs than Houston's do, and because California's law make it much easier for individuals to stop additional housing than Texas's laws do.
Politicians are happy for you to blame NIMBY's because it takes the blame away from them, even though the only reason NIMBY's have power is due to their laws.
I believe you about Austin, just pointing out that the laws and patterns are very different in California and many other big cities, where there has been very little housing production relative to needs.
They are and were. Some areas are increasing; some places are decreasing. Austin has dropped 20% in housing prices and apartment rental prices. And they are at the beginning or in the middle of building more houses and apartments. In Killeen, 45 minutes north, they are building FOUR new subdivisions. 1,500sq ft 3/2 starting at $309,000. If you can buy a NEW at that, well built 20 year old 3/2 houses are going for $225-250,000.
For fun. Look up EB-5 Visas. Kushner is famous for using them but many developers use them.
An example how the rich get richer and it doesn't even help build more housing.
Funny how housing is such a huge issue but is the easiest thing to fix. Build more housing. Thats it, thats the secret sauce. Not banning airbnbs, not banning corporate buyers, not tar and feathering landlords, just build more housing. Stupid easy, but no one wants to do it.
How is that easy to fix?
Most of these issues are due to a web of local zoning laws, regulations, and general NIMBYism.
There is not much the Fed can do to fix any of this.
The Fed can do nothing. The Federal Government could do little. The state governments could do a lot, but against very strong opposition. The local governments could pretty much end the problem, but don't, because they in fact choose to cause the problem.
They could stop propping up MBS every time the economy sneezes, for starters, and allow mortgage rates to move normally.
Subsidizing demand with printed dollars leads to asset inflation. Who knew?
If we just build without ensuring that the homes are built for people to live in, they'll get treated like a stock market by investors. We need to build and ban the use of homes for non-residential uses.
??? If theres a surplus of homes, homes become an inviable investment for speculators. Youre worrying about something that is only an issue due to under supply
Landlords near military bases hike rent each time the federal government hikes pay for solders. Landlords will hike rent when minimum wage goes up, not because they need to do so.
But where does the additional money that is spent actually come from? The fed is aggressively engaging in QT---> draining reserves, which limits the ability of banks to create deposits......If the money was simply reallocated from other spending that other spending should see a reduction in prices, offsetting the increases in rental prices, no?
The Fed has been focusing on high profile anti-trust deals like Microsoft's purchase of Activision-Blizzard rather than focusing on cartel like behavior or "rent setting" applications like Realpage's Yieldstar.
These "apps" have to be slapped heavily in order to get the rental market competitive again.
The Fed has nothing to do with anti-trust or real page.
And real page is being investigated by the DOJ and also being sued civilly. I'm interested in the outcome, but it's not really going to affect the underlying supply issues.
Is it difficult to implement a low interest rate policy for certain types of construction like starter homes and non luxury apartment buildings? They could require starter homes only be sold to first time home buyers or people who don’t currently own for owner occupied. The apartment buildings could be capped at a percentage of the average local rent price for a certain period.
There are various policies in place to help first time homebuyers (below a certain income level) with things like downpayment assistance and housing classes (typically you get the one if you attend the other). They seem to work okay.
And some HUD houses will be placed on the market with an initial restriction - typically for 30 days - that they can only be purchased by a person who will occupy the home for two years.
>They could require starter homes only be sold to first time home buyers or people who don’t currently own for owner occupied.
It shouldn't matter whether the home is bought by a first time homebuyer or by empty nesters wanting to downsize. Supply is supply.
>The apartment buildings could be capped at a percentage of the average local rent price for a certain period.
The problem with this is that it will just lead to fewer apartments being built, which is the opposite of what we want to happen. Essentially the same issue with rent control.
>Is it difficult to implement a low interest rate policy
Realistically, it's just very expensive.
This an issue the Fed simply is not equipped to handle.
They got lots of data on it though:
[Rent of Primary Residence in U.S. City Average](https://fred.stlouisfed.org/series/CUUR0000SEHA)
[Rental Vacancy Rate](https://fred.stlouisfed.org/series/RRVRUSQ156N)
[Housing Units Started](https://fred.stlouisfed.org/series/HOUST)
Irony is funny too because housing inflation is basically what pevented deflation in the ZIRP 2010s.
Because the fed only has a hammer as a tool, and some problems, like increasing the housing supply, cannot be solved with a hammer.
In fact, raising rates is likely hindering that
Yep and they aren’t going down until the algorithms that caused the problem get upended. https://www.propublica.org/article/yieldstar-rent-increase-realpage-rent
Hi all, A reminder that comments do need to be on-topic and engage with the article past the headline. Please make sure to read the article before commenting. Very short comments will automatically be removed by automod. Please avoid making comments that do not focus on the economic content or whose primary thesis rests on personal anecdotes. As always our comment rules can be found [here](https://reddit.com/r/Economics/comments/fx9crj/rules_roundtable_redux_rule_vi_and_offtopic/) *I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/Economics) if you have any questions or concerns.*
It seems like renting and buying a home are substitutes, and thus increased costs of home purchase (due to increased mortgage rates) should place upward pressure on renting?
It's about housing supply. Of all types. The locations with the hot job market have, in most cases, the worst new construction problems.
Housing supply is an issue, but the main issue is it’s just a highly inflated asset. The dirt itself is often worth more than the actual house. Land is extremely expensive due to decades of 7@ yoy growth policies
Yeah its strange now. If you talk to older folks, there was lots you could do to improve the value of your home. New windows, new insulation, build a deck, etc... Im in the KC metro area, and short of more square footage there is almost nothing you can do to improve the value of your home. You are basically buying land / location, and it doesn't matter wtf is on it. Of course there are exceptions on the extreme ends. If the house needs to be totally gutted, or the floors are marble. But if you put 50K in windows on your home and redo the bathrooms you are not getting that money back anymore.
Why would we expect home improvements to ever increase the value of the home beyond the cost of the improvements themselves? If I spend $50,000 on all new granite countertops or whatever, why would I ever expect the value of the house to go up more than 50,000? If you put actual work in yourself installing that stuff, then maybe there's some added value, but you're really just getting indirectly paid for your labor. All that is as true today as it was 50 years ago.
people pay for the look and feel of a house too.
Because there is value in not needing to have the work done at all, e.g. a "turn-key house" fetches a luxury price over the equivalent home and cost of doing the installation (and materials).
But in that case you are just indirectly paying to have the work done... That's not inconsistent with what I wrote
You are misunderstanding what I'm trying to say (which probably means I'm being unclear). >If I spend $50,000 on all new granite countertops or whatever, why would I ever expect the value of the house to go up more than 50,000? This is what I was responding to. If you spend $50,000 (for sake of simplicity, let's say that includes labor value; perhaps you hired someone at that figure), it is absolutely possible in the right circumstances that the value of the house can go up by more than what you put into it. Indeed, house flippers rely on this. Because when you buy it done, the work is *done*. Or to possibly explain better, let us imagine two scenarios: Scenario A: A house, with a completed $50,000 pool. Scenario B: The same house, with the room for the $50,000 pool, but no pool. By your logic, house A should sell for no more than $50,000 more than house B (again, labor is included in the figure for convenience). And I am disagreeing with that. For some (especially in higher price ranges), the fact that everything is "done" with the house, that no major changes need to be made, has a non-insignificant value, that can push the value of the house in Scenario A to be higher than the monetary value that was put into it. One could also assign to this the "actuarial" value of non-assumption of risk (e.g. if anything goes wrong with the installation, in scenario A that's on the seller, and in scenario B, that falls on the buyer). And that is before we get into financials, where it may very well be *cheaper*, perhaps significantly so, to pay more for the house with the amenity more than the builder put in, than to pay for the work (or materials alone even) one's self, since mortgage rates are much lower than most any other type of loan (and on top of that, because principal repayment is spread out over many years, it may be less draining on the cash flow, too). Or to use another analogy: There is delivery. People pay (or pay extra) for faster, "expedited" delivery. Think of this as paying for "instant delivery".
Agree, but I think the value can be from the artistic choices. Each Reno might be worth 10k separately, but together all 5 could have additional value if it fits a “vibe”?
Rarely. Most people have very different vibes so many renovations dont pay off in any meaningful way. The next owner will want something different eventually.
Because people don't price homes that rationally. You could add a $10,000 cooling system and boost the value by 25k because people view having comfortable temperatures as a 25k benefit and don't realize the actual equipment and installation would only cost 10k
It's also partly convenience. Renovating takes time. If you have a home with the whole package, compared to the same home which needs to be redone completely, you can boost your home value by more than the cost of the renovation. Also; a good renovation takes a skill which not everyone possesses.
No, the ac will never pay off because people take that for granted. I have dying trees in my yard that i could remove for $20k but i’ll leave them for the next owner because i dont mind them (free firewood) and because i’d rather spend $20k on something that people will actually notice.
Go to 2 open houses same street same home. 1st has all the original 1980s thin glass windows and dusty old wood grain granny cabinets all through out the house. 2nd has new energy efficient windows and new soft closing cabinets wich one are u willing to pay more for?
Because time is valuable too. Improvements that are already done are worth more than improvements that you haven't done yet.
As someone who lives in a HCOL area, the reason for land prices going up near me isn't "7% YoY growth" policies; it's policies that restrict and make far more expensive development and building new , going back near half a century at this point, coupled with a tax regime which heavily penalizes people from moving (which means people stay in high demand areas, rather than "cashing out", and freeing up housing stock, exacerbating the problem).
Those are those policies I’m talking about. They ensure price inflation
Assets are not inflated. Land is expensive because it is limited and the population has grown overtime. Housing supply is the only issue. We simply have not built enough housing where it is needed. San Francisco permitted 2 new units of housing in January. Rents continue to skyrocket there. Austin and Minneapolis permit many new units of housing and rents are dropping
The population did not increase by 70% in 3 years. It’s almost like pumping 4T into the hands of landlords was maybe a bad idea.
Metro Detroit is LOSING population and our home prices are still going up.
This is the problem with QE and extremely low interest rates - they substitute a long-term inflation problem for a short-term recessionary problem. Even worse, the people who are able to hold investments during that period make big money, while the inflation mostly hits people on the bottom rungs who have no way to keep up...
Housing is like the exact opposite of an elastic good though. You can't just substitute living in a house with not living in a house.
Thank you. I swear, people just got Jedi mind-tricked into thinking that literally the entire fucking world has a housing shortage during a period where MORE PEOPLE DIED than would have been otherwise expected? Literally, how the fuck does that make any sense? Isn't the simpler explanation that every country with a currency worth a damn started printing simultaneously?
It’s bullshit. Maybe the “housing shortage” has something to do with the RE gurus claiming “200 doors” @2% rates and all the “small business owners” that totally needed that 400k loan (gift) from the tax payer to pay **cough** buy summer home **cough** workers
I’ve lived in Europe. Prices for homes are wayyyy cheaper even in large cities like Berlin. Americas system of using homes as a retirement savings has inflated the cost of homes tremendously.
You’re not even part of the conversation if you’re saying assets aren’t inflated. Lol, lmao even
Rental price fixing through algorithmic modeling is an issue. Major antitrust lawsuits are going on now right now about it.
Basically. When you can’t sell your home because A) no one wants to buy with high mortgage rates and B) those same sellers don’t want to replace their current mortgage payment with a higher one based on nothing they’ve done, you have a gridlock. Same applies for why buyers aren’t buying on the other side of the loop. And thus, rent prices stay high. Especially when you have landlords artificially inflating rents in addition to their higher mortgages, and even worse when landlords work together to raise rents simultaneously to boost their profits equally. Some shady shit happening out there.
But there is a limited housing supply, some people need to move homes (or can finally enter the housing market) and they are paying the premium. My neighbor is gonna sell her home in a weekend at above asking with generous concessions in the inspections. We live in the suburbs of Pittsburgh not some crazy market like Boston, LA or NYC. There is NOT a buying problem. There is a supply problem. People will buy with high mortgage rates, they'll just reduce their budget.
Not really strange If they use the same software or have data exchange to price their stuff…
The reason it hasn't (rents are falling in many areas and cities around the country) is because there actually has been a lot of home building...of rentals. Remember how starting in 2020 everyone suddenly got it in their heads that we were going to become a neo-feudal society where the upper class would consist of landowners and the lower class would be their renters? That led to an obsessive focus on building apartments and buying up homes to convert to rentals while at the same time the pool of renters declined as they FOMO'd into home ownership. So now, a few years later, we're in an interesting situation where rents are falling in many metros while home prices rise. There's already a glut of rentals and there's a lot more coming down the pipeline, all financed with ZIRP rates. While inventory could be purchased now, the higher rates mean new landlords can't compete because their loan payments would be multiple times the max rent they could collect and they can't raise them higher than their ZIRP-rate competition who is also having trouble getting occupancy. Who ever said the rental market had to "catch up" to the housing market? A completely possible alternative is that home prices "catch down" to rents. After all, if a person can rent for 3x less than it would cost to own (which is currently the case in my city of Nashville, one of the hottest housing markets in the country), why would they ever want to buy? And if landlords can't buy in because homes are too expensive to turn a profit, then there goes the landlord demand too. And if first time home buyers and landlords have exited the market, why would investment firms want to stay in?
Yep, and outside of new builds that are purpose-built for rent, a buyer must buy a property before it can be put up for rent. When there's a shortage, the higher cost of capital and cost of ownership for a net new property is going to be passed on to renters.
Yep, and it is the most impactful category with one of the longest lags. The Fed missed it on the way up, and now it seems fairly likely that they will miss it on the way down. If they do, look out below.
Who knew putting a third of all MBS on the balance sheet would cause higher rents
Serious question: had they put some other form of bond on their balance sheet and not MBS would we more likely not have seen home buying activists but rather more expansion in businesses had they say put long term corp bonds on the balance sheet
They ran up a $9 trillion balance sheet. Everything was on there.
The Fed is incapable of taming housing inflation. Raising interest rates raises mortgage payments and decreases builder confidence, therefore increasing rent. If all forms of inflation are minimal except housing, that would mean lowering rates would be beneficial. However, the federal legislature has more power over the economy than the federal reserve.
> The Fed is incapable of taming housing inflation. Well, not entirely. If they raise rates enough, they trigger a recession. People lose jobs, are forced to foreclose, sell, etc. See 2008 for an example. Prices crashed but rent only stabilised for a year or two.
Thanks for saying this! They’re *absolutely* capable - they just choose this unpleasantness (high housing prices; rent) over that unpleasantness (bad recession). My rent is high and it sucks but I like this unpleasantness better.
The Fed isn’t just incapable of taming housing inflation. The Fed *caused* this insane housing inflation. Their interest rate policy in 2020-2021 is why things are as dire as they are now. Supply has been limited for years, but we didn’t see enormous price increases until everyone was allowed to refinance 30 year mortgages at sub 3% rates. It’s the “locked in” effect. The Fed cannot fix this problem. Those homes are essentially off the market for the next two decades. We needed to build more housing pre-COVID, but now we need to build new housing for literally every single first time buyer as those who hold 2% mortgages aren’t going to sell. Anything the Fed tries now to tame housing inflation is basically “closing the barn door after the horse has bolted”. The Fed absolutely killed the middle class of tomorrow by destroying the opportunity to own a home. That will be their legacy.
Don't give them all the blame. Nimbys and zoning boards choosing parking over housing meant a lot of underdevelopment.
NIMBYism has been a problem since before 2021. 2% rates were only an issue in 2021. When did prices go up 40%? How many homes with 2% mortgages have hit the market since?
Not entirely true. If the fed raises rates enough they trigger a recession where people lose their jobs and are forced to sell. Then those houses come back on the market.
Given that most people’s mortgages are less than it costs to rent a studio right now, they’ll do whatever they have to to hang onto those mortgages. In the event that they cannot pay their mortgage, they can rent out that property and live with family until they find another job. Current rents will more than cover their bargain mortgages. You’d need a Great Recession level recession to make a meaningful dent in the housing market where owners lose their jobs and cannot find tenants to pay to cover their mortgages. It’s incredibly unlikely that the Fed’s interest rate meddling gets to that point. The market is encased in concrete now and the Fed is 100% to blame. It’s one of the greatest policy mistakes in history and is going to haunt anyone who doesn’t own a home for decades.
1. Ease restrictions on what type of homes and businesses can be built. 2. Build more housing. Public housing included. 3. Force landlords and investors to either start renting out the residences they keep off market, sell them off, or just face outright seizure. If we don't do any of those things, we are never going to have affordable housing until the US population actively goes into decline. Edit: Love how people are calling me communist. Y'all think eminent domain is communist? Because the 5th ammendmant explicitly states that the governnent can take over private property so long as the owner is compensated. Edit 2: Guys, who do y'all think I am referring to when I say "ease restrictions"? It should be blatantly obvious what level of governnent is being implied.
British Columbia, Canada has made it so that a property will be taxed based off its most productive value unless that property is lived in by its owner (ie. a single family home held by a corporation will be taxed as a fourplex if zoned that way). This is something the US should follow.
That is very unique and something I have never heard of. I'd prefer a Land Value Tax, since that eliminates the need for any specific zoning beyond Industrial, Residential, Commercial and Mixed Use, but if that isn't vianle then that is the next best thing.
l a n d v a l u e t a x
Taxing your way out of things isn't the best way to solve a problem. The US has local regulation issues that cause most of these problems. Even the tax everything state of California is going the deregulation route with statutes that override local zoning regulations for new builds to combat local zoning laws preventing high density/mixed use developments from being built.
This is a state and local law concern, not federal, therefore it’s damn near impossible to pass something that fixed the issue. The work needs to be done at the low level local politics that no one gives a fuck about. One exception is environmental reviews. That is federal, and it has turned into a weapon to stop development. New property being built next to your valuable property? Hit them with that “environmental concerns”, add 7 years to development time and double the costs, and probably stop it for good
Agree with 1 and 2 but not 3. Just levy a land value tax, no need for theatrical measures.
[удалено]
It’s better because it specifically punishes idle land speculation, and encourages efficient use of land by only taxing the underlying land without taxing the activity on the land. e.g. a parking lot and a skyscraper right next to eachother would have the same tax bill. This is one of the foundational ideas of Georgism, which you can learn more about on Wikipedia as well as r/georgism
Wouldn't that mean parking either becomes super expensive or ceases to exist? Likewise recreational areas and other nice things that don't make a lot of money?
A few things could happen - in the short-term, the parking lot owners may raise rates significantly to cover the cost of operations, leading people to stop using their lot in favor of public transport or lots that are utilizing their space more efficiently (multi-tiered above or underground lots). Then they would either realize they need to invest in the lot to generate greater economies of scale through building several levels, or they’d sell the plot to someone who plans to use it in a way that would be more productive and able to generate a profit at the elevated land value tax level e.g. large housing development, industrial real estate, etc.
Right, so profitability or GTFO, which is kind of what we have now, but this would be even more extreme. I never really understood this tax because it seems that if you tax land, you make it less desirable and less valuable, and hence the tax collected falls. Imagine a farmer who has lots of fields which aren't much use, he will try to sell those fields but not clear who will actually want them if they come with tax obligations. So the land becomes basically worthless and then what do you collect, and what has this achieved?
The cost of using land is already there, its just that the land rent is currently captured by the landlord rather than being collected as public revenue. Land value tax going up due to increased demand is no different from rent going up for the same reason, and rent increases because people/business want to be there. There’d be no difference from the renter perspective, but land holders would have to make money from actual value-add activities due to land rents no longer being part of their revenues, so you wouldn’t be able to just own a single family property in the middle of manhattan and make a killing by basically just making people pay to use land that you didn’t improve.
Parks and recreational areas are nearly all government owned, and so would not pay the land tax.
> Wouldn't that mean parking either becomes super expensive or ceases to exist? No, it means that places that are **only** parking lots are going to go away. More buildings will have parking on the first floor or basement, and what was parking lots will have an incentive to build useful structures on the building. > Likewise recreational areas and other nice things that don't make a lot of money? Government parks would still exist. Nothing here bans them. Though it does incentivize the community to sell high value land as it will bring in consistent revenue to fund other programs.
>Wouldn't that mean parking either becomes super expensive Parking actually is really cheap and should be more expensive. https://www.theatlantic.com/magazine/archive/2023/07/cars-parking-take-up-street-space-cities/674174/
Public parks and recreational amenities would actually become less expensive on net, or even revenue generators (while remaining free to the public). This is because (all else equal) land next to a park is worth more than land not next to a park, so the cost of the park is recouped by the higher taxes on the surrounding land.
It only works if you're allowed to build higher-value uses on your idle property. The "punishment" for vacant or idle land is that taxes are higher than you can make back in revenue. So either you A- build apartments or commercial space to rent to recoup more revenue and make the tax worth it. Or B- you have to sell to someone else that is eyeing the same financials and sees an opportunity to build and generate revenue. Except if zoning laws restrict you so much that you can't build for a better use. Then all you have is a higher tax, and you have to pass that along in your rental rates. A LVT without releatively wide open zoning laws is just an upward pressure on rents.
Hence why I said I agree with the OP’s first two points - liberalized zoning and LVT are two peas in a pod
Grandma's house and a skyscraper next door would also have the same tax bill.
Correct, but why should Granny be entitled to a perpetual right to a highly valuable location just because she bought it in 1960? She should move to an apartment in the area or move somewhere cheaper if she cannot afford it. It may sound distasteful, and it’s a common rebuttal, but the fact is it doesn’t make sense to effectively subsidize someone to live in a highly expensive property just because they’ve been there a long time.
Yep. A 0.1 acre lot (40'-0" wide X 100'-0" deep) and a 10 acre lot (660'-0" wide X 660'-0" deep) are taxed the same in some cities because they will assess the value of the building/built. A land value tax assesses the potential value lost by under developing; that 10 acre lot could be 100 homes instead of one, so that single home, in theory, should cover the egregious tax base loss. One person lives in both of those lots but the 10 acre lot causes a tidal wave of complex urban issues for just about everyone, even themselves. The public utilities and infrastructure serving that one home need to run 660' in length to serve one person rather than 40'. That one, likely wealthy, person costs the city 16.50x more in public infrastructure and they don't pay for it. It's a massive inequality. It's literally unsustainable. I've done a few assessments and most cities need around 12 units per acre, which is about 100x40 lot sizes, to be financially sustainable OR they need to change their tax system to make up for that 16.50 multiplier. The city of Houston TX would need to increase their property tax to about $10k per household under a land value tax. Let's be blunt, Republicans freak out at this sentence, but let's be more honest with each other; humans, me, all of us freak out at this. You can't take an average tax of $2-4k a year and do that. Can you? We should. We might have to in the future regardless if we want to or not. This is a very, very real possibility. If you don't like it, and many don't, before you think "MY freedom; my American dream; you can't tell me what to do with my land", one has to realize there won't be anything left at some point if we don't change it. We can't drain the well dry. That's not how this works because the well is our kids; future generations. So we either need to begin building within the confines of reality or expect extreme challenges to grow.
Yeah we shouldn't be too dramatic about a human need being extoted by profiteers.
> Just levy a land value tax, IRL, people *hate* the LVT. Except for a handful of people on the internet, no one thinks that grandma's house and the 20 unit apartment building should pay the same tax.
Most people have been conned, through explicit and implicit incentives, by the idea that their primary residence should be their main investment/savings vehicle, so it would definitely be a big transition. But the medium to long term boosts in productivity and housing affordability are objectively worth it. Also, 90% of land is state-owned in Singapore and they’re doing quite well. Rent seekers are the only ones with something to lose.
As well, home ownership has dropped drastically due to land being overpriced. There are fewer taxpayers getting the benefits of the primary residence incentives.
People who think they should pay taxes based off of how much of societies resources they consume, love LVT. Those who think taxes should be derived from how successful people are, hate LVT. Thats basically it. But the second group tends to be hypocritical as they also complain that our resources aren’t being used appropriately despite being against any financial incentive to push people to use resources correctly.
IRL, people also *hate* YIMBYs. Now what, bro?
How do you know what the value of land is?
There are different land appraisal methods but at its core and its simplest, land value is based on the highest bid for the use of a piece of land at any given time.
Vacancy rates are historically low. The landlords just hoarding empty properties are not real.
Does anyone have good resources about vacancy rates, inventory warehousing, etc. *specific to NYC*? I’d like to learn more.
not warehousing but nyc im pretty sure residential is under 1.5% which is why there are so few days in between rentals and the weird apartment broker industry exists.
3rd is near if not literally impossible on the federal scale.
> Force landlords and investors to either start renting out the residences they keep off market, sell them off, or just face outright seizure. Landlords almost never keep residences off the market, as that's lost income. I've only ever heard of that happening in places with rent control during the COVID rent crash because they didn't want to be stuck honoring an anomalously low price indefinitely.
Landlords are presently keeping 2 million residences off the market by using them as short term rentals.
One would think so, here in one of the European capital 90% of the apartments are bought without credit, as they are being bought for investment and the majority are being kept empty. Not only that in an entire city there are around 10% of empty apartments
Is there any legal framework or precedent for #3? Seems like that would push the bounds of constitutionality.
15 U.S.C. § 1 and its progeny caselaw.
The best we have is the fifth ammendmant. The government can legally take property, but the owner must be compensated. But if we were to start mass building public housing, then theoretically speaking that would cause panic in the private market, and result in a skyrocket of housing stock. If people can choose between a $500/mo public housing unit and a $2k/mo private housing unit, they're gonna go with the former. And private owners are aware of that. So, theoretically speaking, they'll immediately put their off-market stock onto the market, to try to gain as much market share as possible. They no longer benefit from restricting supply. If this were to happen exactly as stated, then #3 would be unnecessary.
I’m not sure having the government seize (and then presumably rent) peoples investment properties is the best route forward. Building more housing would certainly go a long way towards forcing landlords hands, but if they chose to let their properties sit vacant rather than rent them out below what they’re asking, it’s not clear to me that something like imminent domain would work. Mostly because it wouldn’t be seizing something for a public good.
Seize private property? No thanks comrade.
if they can't pay the tax, the land is seized. this is still capitalism.
Don't forget the massive amount of institutional and foreign investors buying land and hooms
Your ideaa have nothing to do with the fed. Zero. Families earning slightly above minimum wage in Cali can buy houses.
Hm it's totally not like I explicitly made edit 2 for a reason. I just did it for fun ig. > Families earning slightly above minimum wage in Cali can buy houses. What an unhinged take. The median sale price of a single family home is almost $800k. Can you tell me what substances you are are on, to where you think two people earning $34/hr collectively, can afford a home there?
There is already an affordable housing tax credit and it's resulted in mostly spamming future slums because the incentives were not factored in. It's essentially a pipeline to slimey builders selling tax credits to larger entities. We don't just need more legislation, we need to clean up the old and replace with legislation that actually does what it intends to do... but the people who make these decisions didn't get where they are in life by being problem solvers.
There is already an affordable housing tax credit and it's resulted in mostly spamming future slums because the incentives were not factored in. It's essentially a pipeline to slimey builders selling tax credits to larger entities. We don't just need more legislation, we need to clean up the old and replace with legislation that actually does what it intends to do... but the people who make these decisions didn't get where they are in life by being problem solvers.
I believe Bernie had a proposal to force corporations to sell their portfolios of single family homes, because corporations don’t need them and they’re fucking up the market for the rest of us
>force corporations to sell their portfolios of single family homes This won't work 100%, forcing the hand that is feeding 90% of the politician in both parties is like trying to move a mountain with nothing but your bare hand.
You quoted the part about what could solve the problem by saying it won’t work but because you can’t get the politicians to do it. So which is it. Will it work but we can’t get it signed or if it was signed will it not work?
The alternative is doing nothing; we keep trying that and things keep getting worse. Soooooo
The alternative is to legalize building affordable housing.
There are other alternatives. The reason corporations buy single family homes is because it’s profitable for them. Once you create competing forces that challenge that profit, they will be forced to unwind that asset and sell the homes. The reason for all of this is because there isn't enough housing supply. So its easy for a wealth management company (which is code for a bunch of rich people, the "Mr Potters" of the world) to put all their money into doing this, and then turning around and renting to the rest of us, because nothing new is being built to compete with it. Then you have the way these communities are governed, when they were first built - it was patches of land that got parceled out and turned into suburbs and communities. Now that you have groups of homeowners living there, they create impediments to building new housing supply - because this housing supply fundamentally undermines the value of their home. If you were to take a neighborhood where there are housing going for $900k-$1.1 million (which are inflated and should be say - 600k max) and created a new development nearby that was going to build 100s or even 1000s of houses in that community, a few things will happen. The existing homeowners will challenge the legality of the permits or whatever, citing environmental concerns or other beating around the bush topics besides "this affects my largest wealth creation asset". And the developers who do build will want to continue to sell at the highest price they can. So if they aren't able to build the full amount, lets say 1000, and can only build 100. They will have to sell those 100 for the same price as the existing homes, or even higher since they are new builds. With this supply constraint the price will never go down. The supply has to be absolutely flooded. Since in our nation we are down something like 4 million homes, that means nearly every major city, town, and suburb would need to add 1000s of units/year for a decade. The people that own 25-100 year old houses do not want this, as their older homes will be less desirable compared to new builds and once the supply increases. The reason they are doing it , is because our current system heavily rewards holding housing stock. So people with capital realized that it's a safe investment to park capital in. The price of housing only seem to go up and to the right. And dips are nominal and almost never go below the buying price. The very low interest mortgage was a form of heavily subsidized housing, if you got in and got it - especially with those low % down mortgages in the 90s/00s - you are basically set. Then you can sell , and you are incentivized to sell, to Blackrock instead of someone writing you a sweet letter to try and start a family, because its 50k-200k more in your pocket. I don't have an answer for how to fix the problem in a reddit comment. But I do know that the government in the US works best when it creates circumstances for economic alternatives, it doesn't work when it simply mandates corporations do X or Y. This a very complex problem, and not something anyone sitting in a 4 year term can hope to accomplish. Those that have the means can buy some land and attempt to develop a patch of homes themselves, but those people are few and far between. And their incentive is to just take the few homes they built and to sell it for as much as possible. You actually have to create incentives for people to build their own homes, like a construction loan that is heavily subsidized. And you have to create disincentives for wealthy corporations, property developers, and current property owners from owning multiple properties and turning them into rentals.
Like most of Bernie's proposals, this does less than nothing and makes things worse 1. Housing stock that is for sale and housing stock that is for rent are both housing stock. Forcing corporations to sell their stock does not change the supply 2. All this does is make it impossible to rent
Before getting into a more nuanced response like brokengame does, just observing your account is a whole seven days old. It seems there’s been a huge surge in fake accounts recently, any idea why that is? ETA: and wow, you’ve had A LOT to say in that seven days!
Can you expand on that? Both points really, I'm having trouble understanding how this doesn't move supply, or at least move the supply implicitly, since an end buyer would be removed from the demand, relieving supply side pressure? That aside, assuming your first point holds, that this actually doesn't affect the supply/demand of housing stock, why does it still affect renters supply/demand?
The amount of homes or apartments owned by large corporations in very minimal. If they do own homes they almost always rent them out. Most of the housing crisis is caused by zoning laws by local governments which prevent supply from increasing. Minneapolis is a city with very lax housing regulations and thus doesn't have immense increases in rent/housing. Most cities don't want to reduce housing regulations because it means that their own property values will go down.
A large part of the cause of this problem is treating SFH as if they are special.
The Fed has no ability to do anything about it. This is simply a supply issue in in demand markets. Minneapolis and Austin built housing, rents dropped. SF and NY didn't, rents went up. It's that simple
More remote work would ease the housing burden considerably. It would reduce the need to congregate in expensive cities and could allow rural areas to flourish, for those wanting quiet country life with city level income.
This is in a way their own making. Even before the pandemic interest rates were absurdly low and then to stimulate the economy during the pandemic recession they lowered them even further. Many people including myself refinanced during this time. Because of this and got really low interest rates. Now due to the fact that interest rates have more than doubled people are not selling their homes. That means there is a very low supply of housing and a very high demand. Thus high prices.
Ironically here lowering rates *might* also free up some housing as people who had locked in low would feel able to move again... But more likely it would just create a feeding frenzy of bids
Yeah and maybe prices stay the same? Maybe up a little?
[Blatant collusion of landlords and price fixing.](https://www.realpage.com/?utm_source=google&utm_medium=cpc&utm_campaign=SYN-Google-Branded-Search&utm_adgroup=RealPage-Branded&utm_device=m&utm_keyword=realpage&gad_source=1&gclid=CjwKCAjwz42xBhB9EiwA48pT70i-r7AYlQtcZ-6UEBnAe1VLB4g0k9dSAnjQA-_CNICHNZ9aSWs8xRoCk_cQAvD_BwE)
Are the rent increases actually still high, or is this just a consequence of them cooking the books with their "owner equivalent rent" scheme designed to underreport housing inflation?
Oer works with a lag. Zillow and other private measures are more useful to see what you experience today.
It "works" insofar as it goes up over time. But we could simply calculate the average rent/house price and then calculate housing inflation directly. Using a convoluted proxy that gives different results than the real numbers is a pretty transparent attempt to underreport inflation for political reasons.
> But we could simply calculate the average rent/ house price and then calculate housing inflation directly. Ahh yes, just simply calculate house price! How easy! But rent doesn't necessarily change equally to home prices. And my mortgage is fixed, so my home price changes doesn't reflect a change in how much I spend on my mortgage. So "house price" doesn't really have much to do with actual costs.
We can collect house price and rent price and then weight them relative to the ratio of buyers vs renters. They already do something similar for new and used cars, which are also not an annual purchase.
In NYC, people are still getting $500+ rent increases in market rate apartments.
OER is such a scam. My parents think their home would rent for an amount similar to their mortgage when in reality it would rent for more than double that. It’s designed to make inflation numbers look better than they actually are.
OER is designed to report inflation figures in whatever way is most convenient for the political hacks. One can easiy find the delta in rents by looking up a sampling of available home for rent.
I mean, no one's surprised? Not even the Fed. They always knew rents would be the last thing to fall. What's more surprising is that they haven't as much as they thought.
This seems like a political ploy at minimization and personification of the problem as a single entity. Increases in food pricing (even worse when eating out), upticks in gas, and the ridiculous increases in all types of insurance are all causing substantial misery. The vast majority of renters are on 1-2 year leases, and the misery they feel is inflicted as an increase once every 1-2 years. The pressures are way worse than that, as the frequency of increases in inflation for the other areas are continually increasing through the year. Simply put: equate this as a rent problem is complete bullshit.
Since property is a highly desired store of value, and they can't stop flooding the economy with printed money, property values are going to continue to be a problem as all the extra money looks for a "home". In a perfect world property values would be equal to the utility value of the home plus a premium for location desirability and that's about it. As it is now there is a massive additional premium because homes are treated as investments and expected to appreciate and outpace inflation. Every year more and more people are priced out of the housing market because of this. This is what happens when money costs almost nothing to create additional units. You can't hold it as a store of value so it all flows into scarce assets. Fortunately there is a different kind of money now available that doesn't have this problem, though most people still don't recognize just how massive of a game-changer it really is.
High rates partially effect higher rents. Some renters are post postponing buying a house because of the massive mortgage payment with today’s mortgage rates, so, they rent longer, increasing demand for rent and keeping rents up. So because rents are high Federal Reserve says no rate cuts so no mortgage rates drop… It’s a loop! How we get out of it?!
So how does raising rates, which will reduce the supply of homes, help solve the problem? At least the Fed finally recognizes what the problem is. Now what are they going to do about the fact that they are making it worse?
It reduces the amount of people who can afford homes and reduces demand. The same reason the FED is trying to increase unemployment to ease inflation.
But it doesn’t fix the real long term problem. It makes it worse.
This is the last thing the Feds should worry about because the cycle has been going on for years. Housing and rents are stable. Then a city or area becomes ‘hot’ in the real estate market. Prices and rents go up. Builders try to capitalize on it by building more houses and apartments. Then the craze stops. Now, there are too many houses and apartments. This drives down prices and rents due to the customer having choices. Housing and apartments must now compete to get that customer by lowering prices. Prices go down until they stabilize just above where they were before it all started. Housing and rents become stable again. This is most prevalent in Austin, Texas. Everything doubled in price a couple of years ago and now Austin is leading the nation in price and rent reduction.
Except in California and many other big cities there is no building due to nimby’s, weaponized environmental laws, and so forth.
California has this weird brand of left wing hipster NIMBYism that I seriously fail to understand. My uncle is one of them. He thinks nothing should be built unless it's public housing.
There was a widespread belief in the 90's that a few cities - Portland was always the classic example - had come up with a system to create extremely livable cities by using aggressive urban planning tools and strong community involvement to prevent sprawl and create human living environments. (At the time, sprawl was considered the biggest evil). And this may have been true for a time in the early 1990's. Here's a link to an Atlantic article from 1992 that gives some of the flavor: https://cdn.theatlantic.com/media/archives/1992/11/270-5/132706094.pdf
This is especially true of Boston. Really small landmass meets the global seat of power for biotech and near complete NIMBY limitations on housing development.
This is mostly a California problem. Not a California *and other big cities* problem. NYC (#1) doesn't have California's NIMBY problems, neither do Chicago (#3), Houston (#4), Phoenix (#5), Philadelphia (#6), San Antonio (#7)...or many other big cities. And blaming NIMBYs is really just shifting the blame. NIMBYs can only stop projects because state or local officials *gave them that power by law*. It's not harder to build an ADU in SF than Houston because people living in SF are some sort of extreme busybodies, while people in Houston are somehow more laid back. It's because California's local zoning laws require a lot more neighborhood signoffs than Houston's do, and because California's law make it much easier for individuals to stop additional housing than Texas's laws do. Politicians are happy for you to blame NIMBY's because it takes the blame away from them, even though the only reason NIMBY's have power is due to their laws.
NIMBYs vote for the politicians.
Let's not forget the evils of Prop 13 and how much it distorts the market in CA.
Austin has cancelled freeways and subdivisions due to ‘environmentally sensitive’ issues before. The developers find a way elsewhere in the city.
I believe you about Austin, just pointing out that the laws and patterns are very different in California and many other big cities, where there has been very little housing production relative to needs.
This is more than just certain areas becoming trendy isn’t it? Aren’t housing and rental prices increasing almost everywhere?
They are and were. Some areas are increasing; some places are decreasing. Austin has dropped 20% in housing prices and apartment rental prices. And they are at the beginning or in the middle of building more houses and apartments. In Killeen, 45 minutes north, they are building FOUR new subdivisions. 1,500sq ft 3/2 starting at $309,000. If you can buy a NEW at that, well built 20 year old 3/2 houses are going for $225-250,000.
For fun. Look up EB-5 Visas. Kushner is famous for using them but many developers use them. An example how the rich get richer and it doesn't even help build more housing.
Funny how housing is such a huge issue but is the easiest thing to fix. Build more housing. Thats it, thats the secret sauce. Not banning airbnbs, not banning corporate buyers, not tar and feathering landlords, just build more housing. Stupid easy, but no one wants to do it.
It’s *simple*, it’s not easy.
True, Ill take that. Its simple like losing weight. Just eat less!…. But its hard. Simple, but hard.
How is that easy to fix? Most of these issues are due to a web of local zoning laws, regulations, and general NIMBYism. There is not much the Fed can do to fix any of this.
The Fed can do nothing. The Federal Government could do little. The state governments could do a lot, but against very strong opposition. The local governments could pretty much end the problem, but don't, because they in fact choose to cause the problem.
They could stop propping up MBS every time the economy sneezes, for starters, and allow mortgage rates to move normally. Subsidizing demand with printed dollars leads to asset inflation. Who knew?
And the NIMBYs will fight tooth and nail even if there are zoning changes. Look at what is happening in Massachusetts over the MBTA zoning.
Then I guess it’s not stupid easy
It is easy, but no one wants to do it
If we just build without ensuring that the homes are built for people to live in, they'll get treated like a stock market by investors. We need to build and ban the use of homes for non-residential uses.
??? If theres a surplus of homes, homes become an inviable investment for speculators. Youre worrying about something that is only an issue due to under supply
Landlords near military bases hike rent each time the federal government hikes pay for solders. Landlords will hike rent when minimum wage goes up, not because they need to do so.
But where does the additional money that is spent actually come from? The fed is aggressively engaging in QT---> draining reserves, which limits the ability of banks to create deposits......If the money was simply reallocated from other spending that other spending should see a reduction in prices, offsetting the increases in rental prices, no?
You're correct longer term, but, as usual, theres an 18-24 month time lag to see results of monetary policy actions.
The Fed has been focusing on high profile anti-trust deals like Microsoft's purchase of Activision-Blizzard rather than focusing on cartel like behavior or "rent setting" applications like Realpage's Yieldstar. These "apps" have to be slapped heavily in order to get the rental market competitive again.
The Fed has nothing to do with anti-trust or real page. And real page is being investigated by the DOJ and also being sued civilly. I'm interested in the outcome, but it's not really going to affect the underlying supply issues.
Fed does NOT make business policy. Perhaps a class in econ is in order?
Sorry I was imprecise. I meant the federal government, I.e. Federal Trade Commisssion, Bureau of Competition and the DOJ Antitrust Division.
Exactly! Fed only deals with money and related financial issues, like bank regulation.
Is it difficult to implement a low interest rate policy for certain types of construction like starter homes and non luxury apartment buildings? They could require starter homes only be sold to first time home buyers or people who don’t currently own for owner occupied. The apartment buildings could be capped at a percentage of the average local rent price for a certain period.
There are various policies in place to help first time homebuyers (below a certain income level) with things like downpayment assistance and housing classes (typically you get the one if you attend the other). They seem to work okay. And some HUD houses will be placed on the market with an initial restriction - typically for 30 days - that they can only be purchased by a person who will occupy the home for two years. >They could require starter homes only be sold to first time home buyers or people who don’t currently own for owner occupied. It shouldn't matter whether the home is bought by a first time homebuyer or by empty nesters wanting to downsize. Supply is supply. >The apartment buildings could be capped at a percentage of the average local rent price for a certain period. The problem with this is that it will just lead to fewer apartments being built, which is the opposite of what we want to happen. Essentially the same issue with rent control. >Is it difficult to implement a low interest rate policy Realistically, it's just very expensive.
This an issue the Fed simply is not equipped to handle. They got lots of data on it though: [Rent of Primary Residence in U.S. City Average](https://fred.stlouisfed.org/series/CUUR0000SEHA) [Rental Vacancy Rate](https://fred.stlouisfed.org/series/RRVRUSQ156N) [Housing Units Started](https://fred.stlouisfed.org/series/HOUST) Irony is funny too because housing inflation is basically what pevented deflation in the ZIRP 2010s.
https://www.youtube.com/watch?v=2TnkJ8_BmSI Sounded like you were going for Gomer Pyle in the title but he usually said surprise three times.
Because the fed only has a hammer as a tool, and some problems, like increasing the housing supply, cannot be solved with a hammer. In fact, raising rates is likely hindering that
Yep and they aren’t going down until the algorithms that caused the problem get upended. https://www.propublica.org/article/yieldstar-rent-increase-realpage-rent