These are the macro effects of housing. I buy all of them. I'm a housing activist involved in local politics in Oak Park, IL (one of Chicago's two equivalents of Berkeley or Brooklyn, the suburb of Evanston being the other). Some micro/local impacts of housing restriction:
* Retail business stagnation; retail is dependent on foot traffic, and SFZ residents do not understand what it takes to support the kinds of businesses (yoga studies, coffee shops, art galleries, bookshops) that they actually want to see sited near them. The result is that city plans for commercial corridors create near-blighted streets with gas stations, vacant lots, and the occasional nail salon or Domino's Pizza.
* Public safety issues; those same underutilized commercial drags are dead once the sun goes down; without people walking on the streets, nobody's watching, and you can see on a map clearly where crime gravitates.
* Escalating property taxes; lots of people want to retire in the same community they spent their adult lives in, but in an overwhelmingly SFZ muni with good schools, the top bidder on any residential lot is a family with school-aged children. Schools make up over half (in our case, 2/3) of the property tax burden, and it gets worse as the demographics shift more and more to school-aged families who move out when their kids graduate high school; housing diversity could give retirees an economically rational place to move (and remain in the tax base), but we outlaw it.
The problem with all this stuff is you start to sound like a crank, because almost every problem a typical urban muni faces will probably stem from many generations of outlawing housing.
I live in a very similar neighborhood with exactly the same problems (DC railroad suburb) and completely agree with your assessment.
Your observation that you start to sound like a crank really rings true, and it’s exacerbated by the stark generational gap where every interaction is painted as an attack on long-time residents, especially ones who don’t want to recognize that, say, taxes need to go up because infrastructure costs more to maintain or that traffic is worse because they, a retiree sitting on a $2M house, haven’t been able to downsize into an apartment and so the people who actually need to commute to work have to drive from a further out suburb and transit isn’t an option because guess who reliably votes against it? We had a positively surreal debate when the “preservationists” demanded that an apartment building literally next to a metro station have a huge parking garage even though the developer thought it was overkill. That made fewer, more expensive units and then they ended up renting out unused parking spaces as storage units because the people who choose to live next to transit are often trying not to pay for a car. Actuarially, most of the people who showed up at those meetings are probably dead by now but their decisions will still be visible in 2050.
It is a very typical problem in the US, but it's not really the only issue. Go look at Spain, a country that has, historically, had little issue building housing: Very dense housing too by most standards.
After you liberalize housing, you still run into the trouble of economic forces trying to turn housing into a sensible investment: Buy an apartment, pay your mortgage for 20 years, and then you have a pile of leveraged money on top of the basic savings! But then you run into current housing in Spain: Said primary housing has huge tax savings over anything else. Taxes at sale time overwhelm property taxes (which are very good, yet seen as unfair by owners, so they stay low), so it's also better to keep the housing underused. So ultimately you end up with a situation where the building that before had an average of 5 or 6 occupants per flat in the 1980s, is now sitting at one and a half. So you end up having to massively overbuild, as to make sure nobody that bought in a good location does anything but make money on their "investment"
The US could build more, thanks to so many inner suburbs that should really be filled to the brim and 8 stories tall, but ultimately it's just kicking the can down the road until residential investment is not so important, and the price of housing lines up with its utility, not the ever-growing value of the land it sits on top of.
The Georgists that want to just LVT as the one tax in the world are going too far, but I don't see long term solutions to all the problems downstream from housing if, along of making it easy to build, we don't make sure that speculating on the value of the land is actually risky.
It sounds like both Spain and the US have tax systems that cause it to be expensive to sell a house and buy a less expensive house.
In the US, this takes the form of a nonsensical capital gains tax system: personal residences are not eligible for 1031 exchanges, so taxes on gains are due immediately, those taxes are not indexed to inflation, the exemption is too small to make much difference in any high-property-value area, and the basis step-up at death strongly incentivizes children to encourage their parents to keep their house until they die. California puts icing on the cake with Prop 13, so you can trade for a cheaper house and your property taxes increase. At least some recent changes in CA take baby steps toward improving this.
That is false in the case of a house. a house you live n can lose value relative to inflation and still be a good investment. remember you have to live someplace and so that rent cost needs to be subtracted from you total investment costs as you would pay it anyway. After you pay the house off (if you do) you continue to sbtract those costs from your investment.
a stock or bond might have a better return but a house also diversifies risk and so is a good investment for that.
the above doesn't mean a house is good for everyone. Just that the analisys everyone else is doing is missing critical details.
> Housing can be affordable or it can be a good investment. Not both. Not for long.
This isn't really true.
Suppose that housing is extremely affordable. Cost is only the construction cost, no scarcity component, and construction costs haven't been bureaucratically inflated. You get a house for $25,000. Then local rents are low, but they're not zero, because they'd still have to yield a return consistent with a $25,000 investment.
Rents in that case are a lot lower than they would be if they had to yield a return consistent with a $500,000 investment, but the ROI is the same. It's just that if you invest $500,000 in housing you'd get 20 units and then e.g. rent them each for $250 (so $5000 in total) instead of paying the same amount for one unit and renting the one unit out for $5000.
And it's not different if you live in it because living in it is an opportunity cost. In fact, the higher price is worse for you if you live in it, because then you're losing the much higher value of the imputed rent. Suppose you can get a loan for $500,000 and you want to invest that in housing. If that's the price of one unit and you live in it, you have to pay the whole mortgage out of your pocket and get $0 in rental income. If that's the price of 20 units, you live in one (which costs you $250/mo in opportunity cost) and then rent out the other 19 and get $4750 in rent every month you get to stick in your pocket.
Housing as an investment here references the idea of owning the home you live in being a great source of capital gains. This depends wholely on appreciating value, which is orthogonal to affordability.
The reason people care about this type of 'housing as an investment' is that it helps sell people on high mortgages, so more people can own rather than rent. It doesn't quite work out well, except for the banks and pre-existing home owners. And it's a plausible enough story. They might believe it themselves.
> Housing as an investment here references the idea of owning the home you live in being a great source of capital gains.
But why would you even want that?
Possibility 1: You want to invest $500k in housing, and live in one unit. You get one unit, pay the entire $500k plus interest yourself, receive no rent other than imputed rent, and then can't sell at the end because even if your property is now with $1M if you sell you get a huge capital gains tax bill while still needing somewhere to live, so your "investment" has left you stuck in a place where you can't afford to move because the capital gains tax would prevent you from selling your house and buying an equivalent one, or even selling it for a smaller one at a profit because the difference in their values is lost to tax.
Possibility 2: You invest $500k in housing, get multiple units for that price, live in one of them, receive rents from other tenants that compensate for a lack of capital gains while holding an asset with a stable value, can easily move out of your own unit because you're not trapped by capital gains tax.
Possibility 3: You have $500k to invest, put $25k into a house for yourself and receive the small imputed rent, put the other $475k into an ordinary investment fund because you don't actually like investing all your assets solely in real estate. You now have a more diversified investment portfolio that isn't heavily exposed to volatility in the local housing market, are still getting the market rate of return, are getting actual returns from the ordinary market instead of paying a huge amount in imputed rent and once again aren't trapped by capital gains tax if you ever want to move house.
The first one is clearly the worst one.
> The reason people care about this type of 'housing as an investment' is that it helps sell people on high mortgages, so more people can own rather than rent.
High mortgages are the counterargument. If you were taking out a $25,000 mortgage, that could be a good investment even if the value never goes up, because you get a place to live, and are insulated from (and indeed benefit from) potential increases in local real estate if there were any. If you're taking out a $500,000 mortgage for one unit, the imputed rent could be the same percentage of the investment if local rents are high, but now the potential upside is blunted and replaced with risk of value loss because you're buying high instead of buying low. That's a bad investment -- you're getting the same percentage ROI in terms of imputed rent while exposing yourself to the risk of a housing crash with a disproportionate share of your net worth in an undiversified investment, and further increases in value are long-term unsupportable by local wages.
And if you're talking about a matter of policy (we want to encourage home ownership) then there are obviously more people who would qualify for a $25,000 or $100,000 mortgage than a $500,000 one. Even for the smaller number of people who could make the payments on $500k, you don't have to convince them to take out a huge mortgage if you can supply them with the same house with a smaller mortgage.
People who are trying to buy a house may or may not want it, but people who currently own who are beneficiaries of this stand to lose a lot if their house lost its value, which they have undoubtedly financially planned around.
It doesn’t help that the move to 401ks from pensions was generally not good for beneficiaries and Social Security is facing a shortfall even before you consider current shenanigans.
> People who are trying to buy a house may or may not want it, but people who currently own who are beneficiaries of this stand to lose a lot if their house lost its value, which they have undoubtedly financially planned around.
So you've given the actual reason here, but now the original description is wrong.
It's not that people want housing to be an investment, it's that people want the housing they already own to remain expensive instead of becoming affordable.
That is, of course, directly in opposition to housing being affordable. But the problem isn't that you need the number to go up, it's that people don't want it to go down. Which isn't a problem if it starts off low and stays there, but is currently a problem because the price is already unsustainably high and needs to go down.
That problem only has one solution and the existing homeowners aren't going to love it.
> It doesn’t help that the move to 401ks from pensions was generally not good for beneficiaries and Social Security is facing a shortfall even before you consider current shenanigans.
People have not been better off for having invested in real estate rather than e.g. stocks:
The Social Security "shortfall" is also entirely fictional in the sense that it has already happened. The Social Security Administration, today, is already paying out more in benefits than it collects in social security taxes. It used to do the opposite, so it gave the extra money to Congress to immediately spend. As a result the government has government bonds on its own books, which is a no-op. Today Social Security sells those bonds to cover the existing shortfall, which is equivalent to deficit spending. Social Security started out by paying benefits to people who never paid in, which is why it will "run out" but is also why the "trust fund" is a sham and nothing magic happens when the bonds run out except that Congress has to pass a law that says "no that's not any good" and change how the accounting works to not be so ridiculous. What they should do is eliminate both the "trust fund" and the social security tax and just fold the program into the general budget with a corresponding adjustment to the general income tax.
"Housing is a good investment" means that the total returns from investing in housing are competitive with the risk-adjusted returns of the overall market.
The returns from an investment include both capital gains and dividends. For example, there are stocks that never pay dividends, but might still be a good investment if the stock price increases. There are other stocks that only hold their value, but pay higher dividends, and those could have the exact same total returns.
In the case of housing, rent or imputed rent is a dividend. If you get $250/mo in [imputed] rent on a $25,000 investment, or $5000/mo on a $500,000 investment, that's 12% annually. That's a good investment even if the sale value of the property remains flat.
The sale value won't stay flat unless you tax land (or use leasehold like Singapore), because typically incomes rise, and in most places the rate of building new housing has an equilibrium lower than the rate of demand, because profit is needed for private developments to go ahead.
This results in a) higher incomes, and b) higher rents, because landlords can extract some of the increase in income, because tenants don't have enough alternatives to keep the rents low.
Capital value of property is a function of rents, so increases in rents result in increases in sale value of the property.
> The sale value won't stay flat unless you tax land (or use leasehold like Singapore), because typically incomes rise, and in most places the rate of building new housing has an equilibrium lower than the rate of demand, because profit is needed for private developments to go ahead.
Developments can be profitable without the price per unit significantly increasing.
Suppose that an existing unit is $50,000 and it costs $150,000 in construction costs including profit to replace one unit with four. Then you have a stable equilibrium; a construction company could buy one unit for $50,000, convert it into four, sell them for $50,000 each and net $150,000 which covers their costs and profit. They'll stop doing this if the price per unit falls to $45,000. They'll start doing it again if the price per unit rises to $60,000 and keep doing it until it gets back down below $50,000. Therefore, the price per unit remains stable at ~$50,000, even if demand increases, because that just triggers more construction as the price temporarily gets slightly above the breakeven point.
This is why zoning restrictions cause housing costs to increase. If you declare that 95% of the land is zoned exclusively for single-family homes, you can't replace one unit with four or even two in any of those areas. Then the remaining 5% of the land already has a 20-unit complex on it and in order to add units, you have to replace it with a 30-unit complex. Taller buildings require more expensive materials, you've had to demolish 20 units instead of one and only increased the number of units by 50% instead of 300% and land on which you can even do this at all is now more scarce so you're paying even more per unit for the ones you're going to demolish. Now the breakeven price for new construction is $500,000/unit and if growth continues it has to rise to the level that can cover the cost of demolishing a 30-unit building to build a 40-unit one, even though 95% of the local land is still single family homes.
I have tried to explain the sense of "good investment" that is meant by policymakers and voters and the cliche above. You have tried to explain that there is another sensible definition available. I don't disagree, but I think it is beside the point.
I feel like it is the point. The claim being made is incorrect.
If you have to invest a significant amount of capital to own housing and it isn't a good investment then people won't want to do it. But there are reasons we want to encourage home ownership, so if it actually wasn't a good investment then that would be bad. People would stop doing it. So it's important that the claim actually is incorrect; it can still be a good investment even if the value never goes up, because it avoids you needing to pay rent. If keeping the values flat would result in lower home ownership then doing that might actually be a problem, but it isn't.
The real problem -- the thing people actually care about -- isn't that the value has to go up. It's that they don't want the value to go down. If they paid $500,000 for something which is only worth $100,000 they're going to be pissed. But that's also what needs to happen, hence the impasse.
Why do we want people to buy houses? It incurs transaction costs and makes it difficult for people to relocate to be near their jobs and such. It seems like we should optimize solely for the cost of meeting people's needs - either by paying rent or by owning - compared to the sale value of their labor.
Renting contains a lot of inefficiencies. If you don't like your bathroom faucet and you own your home, you go to Home Depot and buy a new faucet. If you rent, that's not yours to change and now you have to negotiate with the landlord or live with it. Also, you might not want to put money into a building you don't own, but the landlord wouldn't want to put money into a building they don't live in. There are a lot of perverse incentives and transaction costs.
That doesn't mean renting should be prohibited -- if you'll only be somewhere temporarily or you can't afford to buy then you still need somewhere to live -- but in general it's something we'd want policies not to encourage.
Housing services aren't the problem, capital gains are. You know this. You are nitpicking. But if you ever find a portal to the alternate dimension you describe, please give me a ping, I'd love to live there.
> Housing services aren't the problem, capital gains are. You know this. You are nitpicking.
Rents and imputed rents are definitely part of investment returns, and you can have a "good investment" where the returns are entirely in the form of [imputed] rents/dividends and not at all in the form of capital gains.
Your example is nonsensical. This is not how the real world works, living in hypotheticals doesn’t help anybody.
Also quite literally the meaning of a good investment is “it goes up and to the right” and anything that goes up and to the right in perpetuity is bound to become unaffordable if the wages or wealth of the buyers doesn’t increase at the same rate as the asset.
The housing market is a Ponzi scheme propped up by governments. But that’s a topic for another conversation.
> Also quite literally the meaning of a good investment is “it goes up and to the right” and anything that goes up and to the right in perpetuity is bound to become unaffordable if the wages or wealth of the buyers doesn’t increase at the same rate as the asset.
I feel like you're just not understanding the math.
Suppose you want to invest in real estate, but property values are low and stable, zero capital gains. You invest $500,000 in twenty $25,000 units, rent them out and receive $250/mo each in net profit, $3000/year in gains/unit, 20 units, $60,000/year in total gains. Then you invest the $60,000 back into real estate, so now you have $560,000 in housing and next year you collect $67,200/year in gains from renting them, which you invest back into real estate, so then you have $627k in assets.
Number chart goes up and to the right, even though the price per unit hasn't moved.
It's not different for homeowners. If you buy a house -- it doesn't matter if it's $25,000 or $500,000 -- you no longer have to pay rent to somebody else. Whatever you used to be paying in rent, now you get to keep. You can invest that in more real estate or in stocks or whatever you want, but by buying a house to live in, you have a return in terms of imputed rent regardless of whether the value of the house goes up.
Your growth rate of 560k to 627k is 11.9% (r - the rate of return on capital). This outpaces wage growth - let's assume generous non-inflation corrected 5 % (g - a proxy for the growth rate of the economy)
Your assets after 50 years: 267x
Your wages after 50 years: 11.4x
Your new ratio of assets to wages: 23.4
This calc works with any number where r > g (source: capital in the 21st century by piketty). The end result of asset growth outpacing wages is complete divergence and the end game of Monopoly where 1 guy owns everything. Usually by then the system has cracked and the society has burned down.
These are hypothetical numbers. The point is that you can receive a return without any capital gain, not what the exact percentage is.
> This outpaces wage growth
So does the S&P 500. The big problem here is that real wage growth has stagnated, of which a major contributor is... high real estate costs.
> The end result of asset growth outpacing wages is complete divergence and the end game of Monopoly where 1 guy owns everything.
This is obviously untrue. Example: Jeff Bezos and Elon Musk get into a bidding war over real estate on Mars. The Martian real estate market is now worth a hundred trillion dollars, even though nobody lives there. The owners of Martian real estate now have a net worth of trillions, but it's all locked up in Martian real estate. The rest of the economy is unaffected.
Asset price inflation only affects ordinary people if the inflated assets are something they have to buy.
Which gets us back to real estate, which is such a thing. Suppose Bezos wants to buy Earth real estate in order to rent it out and turn a profit. He buys units that cost $25,000, makes not just 12% but 25% annual returns, uses all the money to buy more units.
If construction is constrained, housing costs are going up with higher demand, which is the problem in the existing market. But suppose we're not doing that; it still costs $25,000 to add a new unit of housing and anyone proposing regulations to make construction more expensive shall hang from the neck until dead in the gallows on main street.
If Bezos wants to use his profits to buy more housing and he tries to buy the existing housing, demand increases, so the price goes up to $26,000/unit, so construction companies build more units until it falls back below $25,000/unit again. Then Bezos goes to rent out his new units and finds that rents have gone down because there are now more units on the market. But a 21% return still great so he keeps at it and then goes to buy more units with the profits again, which causes more to be built, which further lowers rents/returns by increasing supply.
The ultimate result of this, then, is that r falls below g. Unless you constrain construction.
I think you present an idealized version of market economies that is not in line with my experience (I live in Sydney Australia our housing system has collapsed). Our disagreement seems predicated on our beliefs around r > g. Have you read Piketty?
I'm familiar with it. The obvious question to ask in response is, why is r > g? What can be done about it?
Piketty's answer is more or less "do socialism", but that's not obviously correct. For example, a lot of government spending programs tend to funnel money into well-connected industries, which are the things already accumulating capital. Likewise, transfer payments to individuals can be absorbed by monopolists if the monopolies are allowed to persist.
And that, really, is the true cause of it. Market consolidation. Regulatory capture. If there is more competition, the competition lowers margins, and then more of the surplus goes to the consumer instead of the investor. If the incumbents capture the government (or the government is careless about creating market barriers to entry) then competition is reduced, margins increase and more returns go to capital. The latter is clearly what's happening in the housing market.
The difference you’re not accounting for is that when someone buys a house, in practice they value it as an asset that must increase in value, not simply as a way to offset rent costs, which is effectively what you’re saying.
Thats the real problem. People believe their 500K house must go up in value and not fluctuate in value like any other marketplace of goods would see, and therefore are in opposition to anything that reduces the value of the home in which they live.
That’s why homeowners routinely bend over backwards to maintain home values. The general consensus society has is it’s one of the primary nest egg assets, and for many it’s their biggest one and they act in that self interest.
Real estate lacks the functioning market dynamics you see in every other area of economic activity, in part because we have collectively as a society decided long ago to adopt policies that would enshrine protecting home values above other concerns.
Edit: This also captures capital in an unproductive manner because real estate doesn’t have functioning market dynamics.
Imagine instead of having ever increasing real estate costs (the reality of todays world) which benefit only a finite fraction of economic investment but make up a huge total of the average persons expenses, that productivity gains could instead be captured by other investments like stocks. You’d have more people able to invest in companies, meaning there well could be more companies to invest in, increasing the health of other markets in turn. People will put their money somewhere and naturally a productive business is one such place afterall
Instead, one of life’s biggest overall expenses not only increases over time in aggregate but the value is captured by an fraction of the population of that increase, which is really a net loss to economic activity more broadly
Putting aside rent (which should be illegal IMO outside of rent to own—it just makes no sense as a social construct if you want to fight poverty instead of create it) the idea of an affordable investment is just bonkers. Any investment market necessarily precludes the idea of affordable entry or they wouldn't make good investments—the longer term you look at, the more this is true.
We also can't force developers to build. This is a major problem in cities: they budget for housing that's supposed to come online but there's no (general, broad, accepted) way to penalize developers for failing to follow through.
Public housing or bust, IMO. The housing market has failed this country for too many decades to trust it to suddenly start irrationally acting in our best collective interests with older generations selflessly sacrificing their retirements to not fuck over their grandchildren.
> Putting aside rent (which should be illegal IMO outside of rent to own—it just makes no sense as a social construct if you want to fight poverty instead of create it)
Suppose housing is less than it is now, but a house is still e.g. $100,000. There will obviously be people who can't get a $100,000 loan, so where are they supposed to live? "Rent to own" is just another name for a mortgage, except that you have to pay more for the right to give back the property at any time instead of needing to find another buyer yourself.
Suppose you take a two year contract job in a city where you're only going to live for the term of the contract. Should you be required to buy a house there? Why?
> the idea of an affordable investment is just bonkers. Any investment market necessarily precludes the idea of affordable entry or they wouldn't make good investments—the longer term you look at, the more this is true.
You can go to a brokerage right now and buy a share of stock for $10. This is clearly affordable, so now explain why it is inherently a bad investment.
> We also can't force developers to build.
Developers want to build. It's how they make money. The problem is we keep prohibiting them from building through single family zoning etc.
> Rent to own" is just another name for a mortgage, except that you have to pay more for the right to give back the property at any time instead of needing to find another buyer yourself.
That's not necessarily a bad thing. You can leverage whatever you're mortgagibg as an asset (or in this case, whatever portion of the property you now own). You can't leverage your rental property despite almost certainly paying more than the equivalent mortgage.
As you point out, rent makes sense for transitional or temporary living. I just think you should get ownership over some portion of the assets you are de-facto paying for.
> Developers want to build
Well, stalled developments are a problem across basically every metro market in the country. They don't make their money by building, they make their money by waiting for the labor & materials market to make an eventual sale profitable. In some metro areas with labor-this may be sufficient for some markets, but others (like the bay area) it's clearly not going to provide the housing people expect yimby zoning policy to deliver. Like yes zoning is a major issue in the city, but it's only one of many, and it's not sufficient to explain dysfunction where development was already zoned and approved years ago.
One really great way to encourage developers to perform the role they're allegedly already serving is by having public-sector competition (zero- or negative-margin development/property management) to give them an incentive to be realistic about costs and timeframe. Or just straight fine them for wasting city property on zero-or-arguably-negative-value use.
> That's not necessarily a bad thing. You can leverage whatever you're mortgagibg as an asset (or in this case, whatever portion of the property you now own).
"Not necessarily a bad thing" is the argument that it could have benefits under some circumstances. It's the argument that it should be allowed, not that its alternative should be prohibited.
The obvious cost is that you're paying more per month. Essentially, if you want a place to live, you're required to pay more in order to invest in real estate, even if you don't have any surplus to invest or you would rather invest in something else.
> I just think you should get ownership over some portion of the assets you are de-facto paying for.
When you rent, the landlord is covering the interest on the mortgage loan, property tax, maintenance, etc. The rent covers their costs and some profit to make it worth their trouble, which they often use to start paying off the mortgage. If there is no profit, there is no landlord to pay to build the building and either you can afford to buy it outright or you're homeless. So if you want to build capital, the money that goes to that capital is additional money on top of the rent, i.e. you'd be paying more per month because you'd be getting something you don't get when you rent. You're basically saying you think poor people should have higher expenses so the extra money can be used to force them to invest in real estate.
> Well, stalled developments are a problem across basically every metro market in the country. They don't make their money by building, they make their money by waiting for the labor market to make an eventual sale profitable.
They still make their money by building, you've just passed regulations that make building so expensive that it isn't profitable until rents are unreasonably high, e.g. by requiring them to knock down an existing multi-story building in order to add housing because most of the land is zoned exclusively for single family homes.
> you've just passed regulations that make building so expensive that it isn't profitable until rents are unreasonably high
This is just demonstrably false, though. Regulation does cause large overhead especially crossing municipal boundaries, but developers aren't building even where they've been approved to build. Either they accepted the work they knew they couldn't deliver under the current regulatory burden (essentially, committing fraud) or the bottleneck isn't regulations at all, but the other costs that dominate building.
Anyway, you can either pay off your investment or you can turn a profit. Doing both is just antisocial (ie malicious and harmful) behavior. If you're turning a profit, I better also get an equitable return. That would actually make sense.
Of course the world doesn't work like that, but nothing you're explaining helps me understand why this behavior is legal and people don't murder more landlords. This is simply not a reasonable way to divvy up resources in a community.
> developers aren't building even where they've been approved to build.
Suppose it costs $100,000 to add each additional housing unit if you could build them in areas that are currently zoned exclusively for single family homes, but they can't because the zoning doesn't allow it. By contrast, in the areas "where they've been approved to build", it would cost $800,000 for each additional unit, and the current market price is $750,000.
They're going to sit there and do nothing until the market price gets above $800,000 because otherwise they'd be losing money. If you want to change it you need to make it cost less to add housing units.
> Anyway, you can either pay off your investment or you can turn a profit.
These are not alternatives to each other. If there is any net profit, it would eventually cause the mortgage to be paid off. If there isn't any, why would anyone pay to build an apartment building?
If renting is illegal, moving without a buyer should be illegal. Wanna go land that cool new job in SV? Before you give them a start date you better find a buyer for your flat. Otherwise you're stuck. It's illegal to make someone else foot the bill when you decide to go somewhere else.
I believe the model is just like renting but the rent is a percentage of the value of the home. When you leave the landlord has to return part of the "rent".
> Putting aside rent (which should be illegal IMO outside of rent to own—it just makes no sense as a social construct
I understand the sentiment.
But many people at many stages of their lives do not want to be owning g property, so some rental properties make plenty of sense as a social construct
But. The current situation where the poorest third give most of their income to the richest third of the population is manifestly unjust and is a blight on our society
Why wouldn't you? The only reason I don't want to own a home is that it's very expensive. I own a lot of other things, because they are not too expensive. And there's an argument that if everyone had to own their home, it would bring prices down, until they'd still be expensive, but no so expensive they couldn't be afforded.
Hell, I don't want to own property right now as I'm in a transitional form in my life. I pay too much for what I get out of my current apartment and I'm looking to downsize/chuck amenities away. Trust me, I'm happy to not have to maintain my plumbing or HVAC and while the ikea-quality hardware is ugly and cheap feeling, it's not my problem. It hurts, but I know that I'm not up to the task of maintaining a house and it would cost me more than rent to hire someone else to do it for me + property taxes + mortgage + actual material costs of maintenance.
But if you want to solve homelessness, like actually try to remove it as a necessary reality of modern life (as many other capitalist AND socialist countries have successfully achieved), we fundamentally can't get there through mortgages and rents. I'm happy that people are more literate about housing policy than ever, but I think we can aim for more than marginally more affordable housing—we can completely defeat homelessness if we have the will to do so and don't have a dogmatic fear of subsidized housing destroying the value of the asset you'll leverage to retire on (if you're lucky).
Sadly, I suspect we'll see a lot more homelessness before people who legitimately have any of their interests at heart enter power.
See also China, which has seen massive overbuilding (50M empty units and 20M paid for but unbuilt), many empty buildings, and now the beginnings of a crash. Why? Because everything was financialized. Houses became an investment rather than a place to live. "If you move in, it loses value!"
One thing there, though is that even though a 100m2 in Beijing/Shanghai/Shenzhen may cost $1M (30x urban educated middleclass income), the monthly rent will be under $1k (<30% income). That's still horribly expensive, but nothing compared to Spain or US. Maintenance suffers and there's even less reason for owners to fill "pristine" apartments, but it's a less bad form of malinvestment.
If something goes up more than inflation - it is a good investment, but also less affordable over time (it costs you more labor hours to purchase over time). Think - tech stocks, housing, etc.
If something goes up same/less than inflation - it remains affordable. Think - basic consumer goods we mostly import like laptops, t-shirts, etc.
> If something goes up more than inflation - it is a good investment
It’s not that simple. First, risk is a also factor. But a real estate investor is not just looking for capital gains. They are looking at rent yields against costs (taxes, insurance, maintenance, interest).
Real estate can be a good investment even without appreciation in real terms. And that is a good thing.
Real estate investors play an important role in society. Without landlords, it would be impossible to rent a home. So anyone without the ability to purchase a home would have to rely on friends and family or charity, or sleep in the street.
Sure but if you make the tax incentives TOO good for landlords, owner occupied housing % goes down as those with capital amass larger portfolios to lease out.
Further if you made building housing easier there would be more available, with less price pressure from excess demand pushing prices and rents up.
I’m more interested in enticing developers to build than I am encouraging more landlords.
Okay but I think we’ve lost the thread of the argument.
I am arguing against the claim
"Housing can be affordable or it can be a good investment. Not both."
You support this claim with the argument that “If something goes up more than inflation - it is a good investment” and therefore it can’t be affordable.
I am saying real estate can be a good investment even if it doesn’t go up more than inflation. Do you disagree?
Further, for landlords to make homes available to rent, housing must be a good investment. Do you disagree?
Note that a Georgist tax on 100% of land rental value does not stop the landlord from earning a return on their improvement values. The land tax of a property with a 100% land tax will decrease the land price down to $0, and thus instead of for instance putting $500k into buying land and $500k buying apartments, they could instead buy 2 $500k apartments for the same capital cost. The end result of this will be more apartments, which will bring down rents, but this will yield a higher ROI than they currently achieve, since they have to pay less rents to the banks.
> I am saying real estate can be a good investment even if it doesn’t go up more than inflation. Do you disagree?
Yes I think so. You need rents to escalate faster than maintenance costs (which are tied to inflation closely) for this to be a good trade. So again - for rent to become relatively less affordable over time.
It sounds like you are not considering rental income (the argument I made in my original comment). You only need growth of rental income to exceed growth of cost for it to be profitable to be a landlord. Am I incorrect?
GDP / inflation / labor hours all loosely correlated though, so we aren't too far off.
Really I think of things in two main buckets-
Stuff that's going up faster than income and therefore the sooner you buy it and lock in a level, the better. This is also something that you can invest in, because it means when you sell in 10-40 years at retirement, it will have appreciated.
Stuff that's going up slower than income, and I'll buy it as needed.
For example on the face of it - cars and houses should both depreciate.
They cost money to maintain, that maintenance cost goes up over time (it is labor), and newer ones get nicer and nicer. However it is only cars that depreciate. And I don't just mean a used car. A 2000 Honda Civic started at $13k new. A 2025 Honda Civic starts at $24k new, and you now have good reliable Hyundai Elantra at $22k, which weren't as prevalent and reliable 25 years ago.
The fact that we underbuild is why houses refuse to depreciate though.
Perhaps, but at vastly different time scales. For most normal people a car degrades to beater status in just a couple decades.
Houses last more than a lifetime in most cases, barring natural disasters. Many centuries in some cases.
> The fact that we underbuild is why houses refuse to depreciate though.
Given that a house is seemingly good forever (no, not forever, but longer than a human lifespan) its value must go up at least as much as inflation. This is easy to prove by contradiction. Assume it didn't: it would mean two identical houses right next to each other would have vastly different prices depending on when they were built. But we know they don't, since comparables in any given neighborhood have about the same price (the value is assessed based on the comparables, after all).
If a house was built 30 years ago for $100K in labor and materials and an identical house across the street cost $400K in labor and materials to build today, the older house can't help but be worth at least as much because it is a comparable property.
Sometimes the argument is made that we'll just build so much that values are pushed below this, for both the old and new comparables. It is not clear to me who that "we" can be though, since no builder is going to afford to sell houses below cost of construction.
> Assume it didn't: it would mean two identical houses right next to each other would have vastly different prices depending on when they were built.
They kinda do, in many places? Around here, past a certain age, your house is basically a tear-down, where it's a liability over just having an empty lot. Or if you really want to save the guts it's still getting torn down to the studs for new wiring/plumbing/insulation.
> Around here, past a certain age, your house is basically a tear-down, where it's a liability over just having an empty lot.
Where is around here and what that certain age? That's wild to me.
Of course you can ruin a house to the point it is best to tear it down. Even a 5 year old house could get there with enough gross neglect.
But assuming any kind of occupancy and minimal maintenance, that's not normal at all. Any house will outlive you and your grandkids and great-grandkids with any kind of reasonable care.
Here's a house over a century old, totally not a tear down. Nothing special about this one, just the first hit I found in zillow:
Maybe the NorCal climate is too mellow and houses last more? Ok then, let's look at Boston, certainly a rough climate. Here, a house built in 1880, totally not a tear down:
Maybe Boston is too rich, so they spend a lot on house maintenance? Ok let's look at, dunno, Pittsburgh (rough climate again). Here's another 1920 house, looks beautiful to me, definitely not a tear down:
I'm in Calgary, Canada, but I don't expect it's a particular outlier in North America on this front.
Houses become tear-downs mostly based on economic viability and comfort, not based on their habitability. I lived for ~10 years in a desirable inner-city neighbourhood that was originally bungalows from the 1960s. In the time I was there close to 50% of the bungalows were torn down (or trucked off - last I checked the value of the physical home being trucked off was in the $10k range after costs) and rebuilt with either larger homes or denser units.
My landlord bought a second bungalow in the area and did a full reno, keeping the guts, and by his math he was basically break-even per sq ft over tearing it down and building bigger/denser.
To your original point, the 1960s bungalows and the 2010s homes (or 1960s home renovated to modern standards) do have vastly different prices. Modern builds are much better from so many perspectives - electrical, plumbing, layout, lighting, insulation, heating/cooling, air quality, fire resistance, etc. (including ways that can't be upgraded even with a gut job - e.g. you can't upgrade from 2x4 framing to 2x6 framing for extra insulation space) - it would be deeply weird if all of those improvements made no difference to prices.
I'm not sure what you're getting at as you argue with me about maintenance and this guy about tear-downs.
Look at that Boston home for example, nearly nothing inside that home is original. Even the floors look replaced. Certainly all those windows, the siding, the roofing.
Look at the kitchen and baths, all redone in last 10 years probably.
Look at the bedrooms - mini splits, also probably done in last 10 years. You can probably assume a pretty good gut reno to get that all done, at which time they may have gone all the way to the studs and done electrical & plumbing.
I have friends who live in 100+ year old apartment buildings that once you reach a certain project size you might as well go down to the studs because the old fuse box electric isn't up to modern requirements and god knows what's in the pipes.
Do you think the furnace/boiler are original?
That $1.2M home may have had $400k of renovation work in the last decade, depending on how much was done all at once. My point was that "reasonable care" involves a lot of 5-figure projects over the years, or a giant 6-figure project per lifetime.
Cars and houses have different useful lives, but neither is forever.. and neither can get by without significant maintenance cost after a certain point.
I think we will see more baby boomer houses go on the market which are near full teardown as the remaining value is the land only.
Not sure if you've lived in wood framed SFH, but stuff built in the 40s-70s really shows its age now.
Lots of $10k-50k costs that start to creep in as you need to replace roof every 10-20 years, wooden siding/shingles (10-20 years), all the windows (20 years?), boiler/furnace (20 years), central air (20 years maybe), etc. If you need to replace hardwood flooring could be $20k.
My parents have well water and even though it's treated, after 50 years if you were doing a gut renovation you'd probably replace all the pipes. Could switch to city water but thats about $50k.
The masonry on their chimney just cracked and a baseball sized chunk fell on the deck, I dunno $5k. Speaking of the deck, it needs to be torn down and replaced.. $10-20k.
Did I mention their home is worth like $300k on Zillow? These things don't go all at once, but they start to hit more and more often past a certain point.
And this is before the era of particleboard pre-fab construction which I'd imagine will breakdown faster.
Everything you say is so profoundly alien to my house experience that I'm not sure how to relate.
If you are replacing major structures of the house every 10-20 years, something is wrong. That is not normal.
The house I grew up in is turning a century in a few years, and nothing about it suggests it isn't good to go another century at least. Original windows, who replaces windows every 20 years? Why?
Multiple friends live in houses their grandparents or great-grandparents built, those are well over a century. Perfectly comparable (in valuation) to new ones built a block away. And that's why houses won't depreciate in the timescale of a human lifetime.
> The house I grew up in is turning a century in a few years, and nothing about it suggests it isn't good to go another century at least. Original windows, who replaces windows every 20 years? Why?
Modern windows leak their argon out eventually. The break-even for replacing them is bad, but home comfort in rooms with many windows is greatly improved in cold climates with top-end triple pane windows.
Note: I’m summarizing a very complex topic as best I can. There is a lot of nuance and thought that goes into a properly implemented land value tax (LVT) that I’m not covering here.
The reason for the LVT is because land doesn’t otherwise follow market dynamics.
In a functioning market you have pressures to sell things. If you can sell something at a reasonably high enough profit margin there is every incentive to do so. There is no benefit to waiting or holding if the price is right. This also encourages competitors who may try to sell a superior version of a widget at the same price or lower, and thus we have basic functioning market dynamics that help achieve relative price stability. It also achieves maximal utility for said market
Real estate however doesn’t work this way. Once someone owns a plot of land there is no incentive to sell. We can’t simply make more, and the things that make said land more or less valuable aren’t inherent to the land but rather where it is located and/or what’s on top of said land.
An LVT is a way to introduce a functioning market dynamic on land. It puts pressure either selling the land or utilizing it maximally. It becomes more expensive over time to hold land that is under utilized. This forces land owners into a set of choices: hold as is but pay an inevitably increasing tax on the holdings, sell part of the land to reduce the holdings, or further develop the land to offset the cost.
Without this function, there is no functioning marketplace for land. Once you own it you can largely hold it forever, without any regard to the actualized value of the land. So for example, a 4 acre lot sitting on “prime” (lack of a better term) real estate with only 1 suburban style house has zero incentive to become maximally utilized even though its value has increased exponentially relative to its utilization.
A LVT is one (and full disclosure I’m a big fan of the land value tax) such proposal to that problem
> property taxes (which are very good, yet seen as unfair by owners, so they stay low)
Property taxes aren't actually good. Consider the economics of new construction: If the net present cost of building new housing is less than its net present value, it gets built.
Net present value is the value of future rents (or rents avoided if you live in it yourself) minus future costs, each discounted by the time value of money. Property tax is a future cost, so it reduces net present value, so you get less construction until rents increase to cover the cost of the property tax.
If you don't like high rents, you don't like property tax.
> Taxes at sale time
This too is a problem if you want people to downsize once they no longer need a piece of property, but e.g. raising the exemption amount so that approximately nobody is paying this tax would then not cost a lot in terms of revenue because as it is the problem is that people are already avoiding the tax by not selling.
If you tax something you get less of it. It's not different when you tax housing.
The observations about effects of tax seem fair enough, but perhaps miss the point of taxes. The local government presumably needs to balance the budget somehow. The income has to come from somewhere, and that's presumably going to be a tax of some sort. Whatever is taxed, there are going to be drawbacks and market distortions as a result.
The issue shouldn't be "property tax raises rent" but rather "is the current structure the least bad option". Assessing the latter is going to include a lot more than just real estate.
> Whatever is taxed, there are going to be drawbacks and market distortions as a result.
That still leaves the question of what you want to do. Moreover, that doesn't mean that all of the distortions are equal. Land value tax has fewer distortions than property tax[1], and property tax is differently distorting than various other taxes.
Meanwhile a lot of the taxes are going to social assistance programs, but if you're using taxes that tax the people who are the recipients of those benefits, that's entirely counterproductive. You'd be better off removing those taxes and not having those programs than setting up a huge bureaucracy that just takes money from the same people it gives it back to with strings and paperwork attached.
Property tax is one of the more regressive taxes because everyone needs a place to live.
[1] The proponents like to claim that it doesn't distort at all, but you still need the government to accurately value the land, which it can't do perfectly, and if it doesn't then you'll have e.g. land being abandoned because the tax is set too high and exceeds its value. This also creates a perverse government incentive if "abandoned" land goes to the government. Of course, property tax has a different perverse incentive: The local government wants to make housing more expensive so they get more property tax revenue.
Property tax are mostly taxes on the land. If you want to build housing, you get the necessary land cheaper, thanks to the property tax. I agree that the sales tax is bad though.
Land value tax would be on the land. Property tax includes the buildings, which is naturally the issue. If you want to replace a single family home with a 6-unit structure that each provide as much housing as the original unit, your property tax is going up, providing a corresponding deterrent to anybody doing that until the rent or market price of the building has gone up by the same amount.
We stayed with friends outside Madrid who owned a home. They had bought it officially for 400,000 Euros.
They also paid a similar amount "on the black", meaning that they had to pay the sellers in cash so the sellers would only pay tax on the official amount.
This was 15 years ago. It seems hard to imagine something like this happening in the US with the Know Your Customer and Anti-Money Laundering laws but maybe it does. And it might not happen in Spain anymore.
Spain (since it's in Europe, though you could say the same about ME countries) is an example that housing does not drive growth. Growth can drive housing and housing shortages can hamper growth but housing on its own does not drive growth.
Like all these things even in a market like Spain thn solution for one area can create issues in others. Barcelona suffers very different problems to Santander.
I think it would actually make it easier if I could just pay 100K tax to have permission to erect any new 2 bed house anywhere in the country. There can even be a price list linked to local salleries or something.
I don't think slapping a Georgist LVT will magically solve everything, but it will point market forces towards a desirable path, which is already a huge huge help compared to the state of things now.
If taxes at sales time (capital gains on real estate) are keeping people from selling houses, why not eliminate those taxes to free up the frozen housing market?
> After you liberalize housing, you still run into the trouble of economic forces trying to turn housing into a sensible investment.
Karl Marx made this crystal clear 150 years ago. You have to socialize housing, not "liberalize" it, whatever that means. And the Georgist solution will face a similar problem - the political one. The rich will always undermine mere tax law. You have to get rid of the rich, plain and simple.
Even worse, our housing policy is corrosive to the fundamental social contract. When I was young, I was taught that if you worked hard and kept your head down, you could have a comfortable life. You may not be Bill Gates, but you could have a successful middle class existence.
Our housing policies have broken this social contract. Many younger people cannot afford to live in high opportunity but high priced cities. Those that can, often only do so because of help from family. [1]
NIMBYs dominate both sides of the political spectrum, especially among older people. It will take younger people getting involved in the YIMBY movement to effect change.
I think YIMBYs really like to cast NIMBYs as their evil adversaries, but the problem is systemic. Any policy change, be it "what can be built on this lot", or "what social services do we fund", or, in particular for my muni, "how do we deal with leaf collection in Autumn" will generate three cohorts of people:
(i) People who don't like the change
(ii) People who don't care about the change (most people)
(iii) People who do like the change
People who don't like the change (i), regardless of the amplitude of their dislike, will turn out and give public comment and put up yard signs.
People who like the change (iii) will turn out and give public comment only if they are weirdos like me, with off-the-charts amplitude for their feelings.
The net result is that the only public opinion that is legible to staff and electeds is opposite. Again: regardless of what the change is.
I don’t know what YIMBYs like to cast people who oppose housing. I am pointing out an effect of the lack of new housing.
I reccommend you read, if you haven’t already, Katherine Einstein’s book ‘Neighborhood Defenders.’ It accurately describes the housing politics in Massachusetts.
Any housing analysis is incomplete without taking into the geographical effect: The only people who care strongly one way or the other about new homes are the people who live near the proposed construction. Almost invariably, people who live nearby are against the change. Those who live far away are actually fine with new construction, at least in the abstract. The very same people who show up to protest nearby construction are also typically fine with housing on other side of the city. People just don’t want new housing in their neighborhood.
This has a practical lesson: control of housing policy, particularly, density, must be ripped from local city councils, where it now rests. Local city councils are beholden to their NIMBY homeowners, as homeowners are the only one who typically vote in city elections. The states thus need to reclaim their legal right to set housing a policy, a right they have ceded to municipalities.
The difference here is whether or not folks are actually pro-social.
Do you care about other people’s wellbeing or not?
Most folks who are “against” things are against them because they perceive change as “bad for them”, and perhaps “good for people I dislike for historical and tribal reasons”
Civilization is a an endless series of Tradeoffs. Compromises. Loss of something in the short term in exchange for something better in the long term. If you aren’t willing to suffer in any meaningful way for your fellow human, eventually the entire bargain falls apart.
Makes me think a bit about how negative content engages more people. Is this the same with people who don't like change? Not liking change activates people more than people who do like change?
I am from the (possibly naive) believe that beauty will change the world. So if you want to present any changes, it has to be beautiful. Ethical and logical arguments only work if people already desire your vision and are only used to rationalise their emotions.
Speak for yourself. I am 38, live in one of the top fastest growing cities in America for like 5 years running now (with a booming housing market), and own my own house outright as a result of my hard work.
Just because someone taught you something doesn't make it so. And even then, it might be true but your own choices (and failures) may be the reason you have not met your goals - rather than "housing policy".
Try on some personal accountability for size - it'll probably help you achieve those unachievable milestones you are yearning for, also.
The housing equivalent of "works on my machine!". Glad it worked for you but it's not working for millions of others. Your experience does not invalidate other's experiences.
"Our housing policies have broken this social contract. Many younger people cannot afford to live in high opportunity but high priced cities. Those that can, often only do so because of help from family"
No, your post was an emotional reaction based on some who-knows-what chip on your shoulder that propelled you to launch a strawman attacking an anonymous commentator. You know nothing of my personal situation. Nor, it seems, do you know much about the personal situations of younger people of modest backgrounds and modest means who simply want to live in the high priced city they were raised.
Don't you think it helps seeing opposing perspective, especially if it might likely be the majority opinion rather than just be an echo chamber of all the other comments agreeing with each other on how it's unfair and inefficient how unaffordable housing has become?
>> I was taught that if you worked hard and kept your head down, you could have a comfortable life
I didn't even work that hard and I have a comfortable life. I learned to code, and that was it.
Your mileage may vary.
If you move to one of the most expensive cities in the world, one of the things you can do is complain that it is really expensive to live in one of the most expensive cities in the world.
You can do that. I don't recommend it, but it is one of the things that you can do.
The number of YIMBYs who own property is approximately zero. "Yes, I would prefer that you make my life worse", said no property owner ever.
I am a bad person. I want my life to be better, not worse.
This is maybe a bit tangential, but I live in a very walkable neighborhood (by US standards, anyway). But as commercial rents are rising (even faster than rent for housing) it's driven several small businesses out of our walkable core - a bookstore faced a 30% rent increase and couldn't make it work, a donut shop shut down for similar reasons, several other small businesses facing this. It kind of seems like commercial landlords saw that it was becoming more walkable because many high-density housing projects have come in over the last 7 years and they decided to gouge their tenants. Their tenants (small businesses) can no longer make the numbers pencil out with the high rent and shut down leaving empty storefronts - or large chains move in destroying the local character. And then there's less to walk to.
Louis Rossmann has a video series of his rants about commercial real estate and the refusal of landlords to rent spaces to him which have been vacant for multiple years.
One of his videos speculates that real estate is being used to store money and the building owners don't want to rent out anything:
Another video speculates that the owners of some buildings have made claims to banks and investors that their buildings are worth more than these buildings are actually worth. In this situation, if the buildings' owners lowered rents they would be admitting that the building is not worth as much as they claim. This could trigger contractual obligations they have with their mortgages and investors:
> This is empty speculation. And it can be trivially refuted by noticing that vacancy rates are at record lows.
His rants were prompted by his failed attempts to rent out specific vacant storefronts in NYC and that those exact storefronts have sat vacant for more than 10 years at the time he made his videos.
This is similar to my experience living in a smaller city where there are similar vacant and rundown properties a short walk away from where I live. Notably, these vacant properties are owned by commercial landlords who have a reputation for refusing to sign leases, or quoting "fuck off" prices, with small businesses.
Bookstores and things are desirable to local residents but are less profitable than other prospective tenants once the area has high traffic. The bookstore can't afford the higher rent but a Starbucks or something can. The landlord is willing to take a short-term vacancy for a long-term higher paying tenant.
Therefore, if you want local bookstores you need enough supply of commercial real estate to keep the rents at a level the bookstore can afford, or they'll get replaced by chains.
Whether it's a franchise or not isn't really the issue.
It's that something like a coffee shop can do a ton of business in a high traffic area, and so can pay a higher rent than a local bookstore. So if you only have enough rental units for one of them, the coffee shop is going to bid higher. Which means if you want to have both, you need enough units to exist for both.
Also, you're not actually trying to lose the coffee shop. You want to have both.
If rents go down, commercial mortgage providers re-value the building, and then call in the entire mortgage at once because it's now greater than the new value.
I have heard it said that landlords are willing to take losses on some properties (leaving them vacant) if it means they can continue to justify their other property valuations. If they drop rents, that lowers the valuation of that property - and others like it - which can have a cascading effect of their entire portfolio. Would love to be corrected here if someone has a more detailed understanding.
This one has legs because it plays into the "landlords are evil" vibe, but it makes zero sense. There are thousands of landlords in any given city, if not millions. It's not uncommon for a local landlord to only own a single building, and even the ones that own multiple properties will almost never exceed a single digit percentage of local real estate. The exceptions are things like company towns which is just not what anybody is talking about here. But if you own 0.3% of the units in a city, withdrawing some of your units from the market is not going to materially affect the city-wide rental price for the other units.
The evil thing the landlords do is go to the planning and zoning boards and lobby to prevent anyone else from increasing the supply of local rental units.
I actually think this one is pretty accurate for commercial real estate in particular. I’m in Metro Detroit and either a building is a totally dilapidated wreck in an area that has theft problems, or it’s going for $1~3 per square foot per month on triple net terms (leasee must do all upkeep, pay utilities, etc), which comes out to $100000/year in rent before utilities and such for an empty concrete shell. Worse than that, none of the places anyone lives are anywhere near anything available, so I can’t rent something for a nice big woodshop. At the same time, I can’t build a decent thing as a “garage” on my 2.1 acres due to zoning in my municipality from 25 years after my house was built. At the same time, there’s a bunch of buildings sitting empty with no rent paid. This means that landlord cost structure for light industrial is completely different than you seem to suppose or there would be competition and prices would come down…
I'm not entirely sure what you're even arguing here:
> I’m in Metro Detroit and either a building is a totally dilapidated wreck in an area that has theft problems, or it’s going for $1~3 per square foot per month on triple net terms
That makes a certain amount of sense. If a building is completely wrecked then the landlord would have to spend a lot of money to improve it, but isn't going to do that if it's in a bad area that couldn't command higher rents even if it was in better condition.
> Worse than that, none of the places anyone lives are anywhere near anything available
Again what you would expect to happen if they weren't purposely withholding units; units in higher demand areas are all rented out and the vacant units are vacant because nobody wants to be there.
> At the same time, I can’t build a decent thing as a “garage” on my 2.1 acres due to zoning in my municipality from 25 years after my house was built
Again consistent with the evil thing landlords do being to lobby the government to prevent competition, rather than not renting out units they could profitably rent out.
> At the same time, there’s a bunch of buildings sitting empty with no rent paid.
But you have yet to establish why. Are they units nobody wants for some reason? Are they "empty" but actually rented out, because some company signed a long-term lease before COVID and now they're WFH so nobody is there, but the lease doesn't allow subletting?
The inverse of the latter could also explain a lot of it for commercial real estate. Companies typically use long-term leases with defined terms because if they move in they're going to have significant expenses to install office furniture, wire up all their computers and cameras and things, put up walls where they want them etc. They're not going to do that in a place that could jack up their rent a year after they move in, so they demand a long-term lease with a defined rent.
Now the landlord has a problem. WFH is still a thing and it's harder to find commercial tenants, but they don't want to provide a new tenant with a huge discount in a long-term lease if they're predicting WFH will go away and they'll be able to demand higher rents in a year or two. And maybe that's cope, but it could still be why they're doing it, at least until they've sacrificed enough income to realize that WFH isn't going away.
Or it could be something else, but "landlord with twenty buildings thinks they can significantly increase city-wide rent by not renting out some of their units" is still nonsense. If it's happening at all it's only because those landlords are the proverbial fool and their money, not because they've devised an evil plan to profit from screwing people, because that evil plan screws the landlord doing it more than it screws the tenants.
Again, their actual evil plan is to prevent other people from putting more units on the market, by lobbying for zoning restrictions that inhibit new construction. Not by foregoing their own profits on their existing units.
There could be honest but non-obvious reasons. Maybe they need multiple renovations before they can get a certificate of occupancy but the local permitting office is Kafkaesque, or the site needs environmental remediation before it could be rented but the owner doesn't want to deal with it so they're trying to find a buyer instead of a tenant, or they have to finish suing the previous tenant who messed up the unit before they have the money to fix it, or the landlord took out an adjustable-rate mortgage right before interest rates went up and WFH started and is now bleeding cash and waiting to see if rates come back down to decide whether they want to invest new money in finding tenants or just file for bankruptcy.
One of the serious possibilities is that they're dumb. Lots of idiots exist, some of them buy real estate. They're asking for more because they erroneously think they can get it and then they're wrong so the unit is empty. They eventually either figure this out and lower the price or they run out of money to pay the mortgage and the bank comes for them, but either of those could take an arbitrarily long period of time.
A theory that I've seen is that as an area increases in value redevelopment will offer the highest ROI for a strip mall owner, but local zoning and town council approvals are a huge barrier. Empty stores are inefficient short term but the blight can help to push through rezoning or council approvals for redevelopmemts that will pay off in the long term.
Business stagnation and crime are particularly bad for Oak Park and Evanston. For the walkable areas increased density seems worse for local businesses. It prices out the mom and pop shops. I suspect there's a happy median.
I too am in a western Chicago burb. All this tearing down of $400k houses and replacing them with hideous cookie cutter $1.8M new builds drives me crazy. They're 5-6 bed 5-6 bath. One in particular is a $500k to $2.5M flip. That's criminal.
There's another housing problem which maybe sounds ironic but I would argue that due to land costs, and tastes.. new housing in general is "too nice" compared to old housing. That is - the size, materials, appliances and finishes of housing have all got dramatically better in my 40~ year lifetime. No one builds utility housing anymore, its all aspirational.
So for example, my parents & in-laws live in SFHs worth like 300k built in 1970-1990 era. The problem is that anything of comparable size built in the same town or neighborhood since is now going for 800k (literally across the street even). There is no cash-out downgrade for them to move to a townhouse and put there underused homes on the market. They weren't building said townhouses 30-50 years ago, so all available ones are newer and thus .. too nice. Why would you move to a smaller place for same/more money which also has some monthly HOA/condo fees?
My first NYC apartment didn't even have a dishwasher or full sized fridge. I didn't have an in-unit washer/dryer until I was 35, and it was small/bad. Meanwhile it's interesting seeing the expectations of GenZ moving into apartments with their first job that are finished like the nicest apartment I ever lived in. Then they complain about cost? I can still find my old crappy apartment on street easy, and its rent is only up 50% in 20 years which given wages seems fine. Kids are moving to shiny finishes new rentals in Bed-Stuy for more money rather than enduring the indignity of living north of 96th street in a 2nd floor walk up.
Everything but size is an extremely marginal cost compared to construction labor, and size is determined by what local zoning will allow. That is, more often than not, nothing but single detached homes on large lots, which makes it pointless for a builder to not maximize size while they've already got labor on site.
This is an interesting point that I’ve seen play out as you described. It was the parents of an acquaintance of mine, and they did choose the downsize option because they were getting too old for the upkeep of a whole house and niceties it brings such as having the hotel like amenities of a doorman. Then there’s the point of choosing new vs. old stock, agreed there is a higher demand, thus it demands higher cost.
Further - because it’s easy & cheap to stay in a paid off SFH indefinitely, a lot of retirees do so.
Part of it is inertia and part of it is stuff like “where will the grandkids stay if I moved to a condo”.
Which sure if your monthly costs are near $0 then having 2-3 spare bedrooms sit empty 360 days per year seems sensible.
If they could cash out 50% of their homes value and have same/lower monthlies, then losing some spare bedrooms wouldn’t matter.
Downgrading has to be both easy and cost saving for retirees to do it.
Between my dad and his 3 siblings only 1 has done the downgrade-after-70 thing. And even then that aunt only did so as a gift to her son selling them the family home below market …
I mean, if there's restricted supply/excess demand then the ones at the margin moving the point where supply and demand cross will the ones willing to pay high prices.
It shouldn't surprise anyone who took econ 101 that new builds are appealing to the ones at the margin of buying or not buying, and that those people are way above the median income right now.
Yes, as long as there’s a shortage of housing no one is going to build “utility” (read low-profit) housing when you could build high-profit “luxury” housing.
Imagine you have a development company that is restricted to building one building a year instead of five—what would you build? The kind that makes you money. People forget each project is risky for the builder.
Even mid-profit is selected against in an intense shortage.
Everyone believes in the myth of "dark, dangerous alleways", but when you look at the crime distribution of almost any city, it's usually actually concentrated in the city centre. Which makes sense. Imagine you want to mug someone - would you stand in a place where you're alone and wait entire night for someone to pass by, or would you go in front of a bar, and wait ten minutes for someone who's too drunk to resist. I absolutely love walking around at night and I strongly prefer dark places without any people around me, and I feel much safer than when surrounded by people. Can't get robbed if there are no robbers around. Simple as that.
So far, I have had only one dangerous situation when being out in the city alone at night. There's a place I pass by where groups of people hang out - drinking, talking, listening to the music. Seemed like a lovely spot that lightened up the neighborhood, until one evening they decided to start shooting each other right when I was passing by.
BTW I really wish my city ran out of money for street lamps, because the fact that we need to keep everything lit 24/7 like a carnival is driving me crazy, and I can't wait to move to the countryside for this reason alone.
* Retail business stagnation; retail is dependent on foot traffic, and SFZ residents do not understand what it takes to support the kinds of businesses (yoga studies, coffee shops, art galleries, bookshops) that they actually want to see sited near them. The result is that city plans for commercial corridors create near-blighted streets with gas stations, vacant lots, and the occasional nail salon or Domino's Pizza.
* Public safety issues; those same underutilized commercial drags are dead once the sun goes down; without people walking on the streets, nobody's watching, and you can see on a map clearly where crime gravitates.
* Escalating property taxes; lots of people want to retire in the same community they spent their adult lives in, but in an overwhelmingly SFZ muni with good schools, the top bidder on any residential lot is a family with school-aged children. Schools make up over half (in our case, 2/3) of the property tax burden, and it gets worse as the demographics shift more and more to school-aged families who move out when their kids graduate high school; housing diversity could give retirees an economically rational place to move (and remain in the tax base), but we outlaw it.
The problem with all this stuff is you start to sound like a crank, because almost every problem a typical urban muni faces will probably stem from many generations of outlawing housing.