What happens when private equity buys homes in your neighborhood

> But the bigger problem for housing affordability, he adds, is that "we just haven't built enough [homes] to keep up with the population growth and household formation."

The circular incentive here is left unsaid. If a house is an investment, you and every other homeowner has an incentive to keep supply low and demand high. This ultimately drives votes, lobbying, and policies that prevent houses being built. Otherwise you end up with falling rents and stagnating property prices, like in Austin.

https://www.apartmentlist.com/research/cooling-rent-growth-d...

Housing is only 'an investment' of the kind people expect to get fast returns on because of the shortage of housing. Everyone who benefits from that is effectively extracting wealth from the people who are stuck outside of the housing market because of those shortages.

"Housing as investment" is such a terrible idea, embedding it in culture should be avoided at all costs. Not only does it drive up housing costs, but it has people dumping loads of money into a single investment. Of course people don't want home prices to go down when, for many, it's their primary investment vehicle.

I hope we can get to a point where this idea eventually dies. I'm shocked that 2008 didn't wake people up in this regard, but I guess the supply shortage made real estate a pretty rational place to invest for a while.

"Housing is an investment" is just a sales tactic that took over and went insane.

It's only really used to justify the humungous loan payments you're willing to take on.

I'd happily take a $1 house if it was guaranteed to never change in value; but it also served my needs.

It's moderately fun to try to figure out what a "healthy" home market would look like - probably something similar to cars; "used" houses should sell for significantly and noticeably less than "new" ones (all things considered). But location and constraints often invert this - the new houses are so far away that they sell for less than the old ones in more favorable locations.

The scary thing is that ONCE you are metrically fuckton in debt, you become exceptionally concerned with the valuations, because once it trends to level or goes under, you're stuck!

When the line goes up, everyone hopes it keeps going up, and tries to figure out a way to profit from that.

One way to stop that, is ensuring the line doesn’t go up. That has some pretty nasty side effects in other ways though.

When the line stops or starts to go down, then bad things happen. People can’t sell and move without losing a ton of money. People go bankrupt, etc, etc.

I would imagine most of the housing being newly built is also on the higher end. This new supply doesn't exactly help affordability!

> When the line stops or starts to go down, then bad things happen

Only because many millions bought risky investments since they were told it was basically risk free. Normally things getting cheaper is a good thing, but we tricked people into thinking that housing being expensive is good for them.

It probably looks somewhat like this: https://psmag.com/economics/inside-japans-disposable-home-ma...

This is true literally everywhere, in every country (and under every gov’t) I’ve ever seen. And I’ve seen a lot. If you think US property prices are nuts, look in Europe, Asia (especially East Asia), etc.

Most people take crazy risks to buy the most/nicest house they can get a loan for because where you live is a huge factor for a number of other things in people’s lives.

If people will give them loans for more than they can afford, many people will still do it. So easy credit? Housing market goes up. Tough credit? Housing market goes down. All things considered anyway. Eventually.

Owners have a very, very strong incentive to stop it from going down, so unless they have to move, the market can stay locked up for a long time.

Most people are investing in houses wrong. If you want to invest as most people think of investments you really need several houses and rent them out. Owning your own home as well makes sense, but your own house is not an investment in the same terms even though it is one of the houses you own!

A house falling in value is still a great investment for many, but it is a very different type of investment from what most people mean by investment. By owning a house you have a place to live for the same price even as inflation increases you income. By owning a house you have a place to live after it is paid for when you are retired and have a much smaller income (even if you have more money you have more time to enjoy/spend that money when you are not working 40 hours per week) - retirement savings are limited and houses are a great place to store money that doesn't falling into traditional accounts. These are great things to have long term, but none of them are about the increase in value. The house you live in is an investment in future rent, but you should only think of the value in terms of paying for your nursing home if/when you need one (even then you should have long term care insurance despite all the fraud and near-fraud in this area)

The idea that rents fall and property values stagnate is short term thinking. Over any 5 year period is can be true, but over 10+ years inflation tends to catch up. Unless you are buying in a very rural area nobody wants to live in - Austin doesn't qualify. Sure prices will fall, but builders have a lot of fixed costs and so that limits supply and in turn ensures prices will need to go up as population expands, or just the old houses start wearing out (houses last for a long time with maintenance, but eventually)

I'm not blindly advocating everybody buy a house. Buying vs renting is a complex question, and many people have proven they can do well in life with both. You need to make your own decisions based on your life situation. If you buy be careful not to think of your house in terms of any other investments you make - it needs very different accounting.

How do you end housing as an investment?

> you and every other homeowner has an incentive to keep supply low and demand high.

Do you really believe everyone thinks this way? No one I know who owns a home bought it for investment. They bought it so their family has a place to live that is theirs.

'Abolish rent' is a good read.

One thing we can do to drive down property prices without driving people out of their homes is to tax the ever-loving-bejebus out of second (or more) Single family homes, for individuals and corporations. Make it progressively worse the more SFM's corporations hold.

An example would be to tax a second home and onward at (land tax)^(10nn) where n is the number of total homes you have. The point is to make it financially absurd to own a second home, let alone 20.

This is only one particular point on a multi-prong approach.

Removing the ability of Private equity to eat up all the local contractors to make a little mini-monopoly is also something that 100% needs to be done.

The fastest way to remove 'your home is an investment to be reaped later' mentality is to limit the total sale price based on the last sale price (IE: only increasing the price of actually investment into the property, and legally allowing any sale price far below the estimated property value) which mostly removes all of the incentive of buying a house 'for investment'. That's extreme and would have downstream consequences, we still want to (financially) incentive people to improve their living conditions.

It's also extremely hard to build a home! Regulations and zoning laws aside, America lost a fair bit of knowledge after we practically stopped building homes after the 2008 collapse. There's no silver bullet solutions. No company is going to solve the immensely complicated task of building a home in a warehouse to reduce production costs via automation: that's a pipe dream sold to venture capitalists.

Any real solution would have consequences that would hurt some folks. Still: doing nothing hurts everyone (except for an extremely small subset of already wealthy individuals and corps) far more.

Homes should be for 'living in': not to 'make a living from'.

So they wouldn't mind if the resale value drops because other houses get built?

If you're planning on upsizing in future, you still benefit from falling prices.

I don't think that's the case. The article specifically mentions multi-family units:

> Austin, TX presents the clearest example of this trend. From 2021 to 2023, an average of 9.9 multifamily units were permitted for every 1,000 existing residents in the Austin metro, by far the highest rate among the nation’s 50 largest metros. As these new units have gradually reached completion, the median rent in the Austin metro has fallen by 7.3 percent over the past year, which also ranks first among the top 50 metros.

I don't have an answer to that (I'm sure others do) but I do feel this is a problem that can only make itself worse

The more prices go up, the larger % of net worth for an individual a home consumes. If your entire net worth is wound up in your home because your home costs so much, your incentives are much higher to keep the price of your home from falling than if it was just a fraction of your net worth. Worse yet if you're in debt and you have to sell

The longer this problem goes on, it seems the harder it will be to rectify

No, I don't think every homeowner thinks that way. But that doesn't change that the incentive is there for every individual, company, and trust that owns homes to keep prices from falling

Healthy means the value of a house is the value of the land, plus the value of building a new house exactly like it minus depreciation (meaning if you replace something the value goes up). Builders of course need a reasonable profit so that is factored into the value.

The reason why the bay is unhealthy is they don't allow you to put something on the land that matches the value of that land. People who want to spend millions on a house should be getting a mansion not a small house. People who buy a small house should get it on a lot not worth much money. I'm not sure of a good number, but something like only 1/3rd of the value should be the lot, 2/3rd the structure. This is right for most people, but there is nothing wrong with wanting a mansion in an area of tiny houses, or a tiny house on a massive lot if that is how you want to live (if a farm lets count the house separate from the rest of the farm buildings - not that this is possible but ...)

This cannot be said enough. If we were remotely serious about addressing the lack of supply, we have multitudes of hard/heavy levers to yank on:

* Taxing non-owner-occupied single-family residences at higher rates (incentivizes sales)

* Removing or barring the traditional zoning/approvals boards beyond a rubber-stamp for developments that meet safety codes (incentivizes building)

* Taxing the capital gains of home sales without ability to roll over (disincentivizes housing as an investment strategy)

* Mandating housing as a human right (myriad of knock-on effects for decades after)

* Barring no-fault evictions of tenants (helps renters save to buy a home)

* National rent control (helps renters save, incentivizes construction since growth must now be achieved through volume, not price hikes)

* Public Housing (a la Singapore’s model, where we can place a down payment on a home or condo with a gov-backed loan to the developer, but with restrictions on sales/residency requirements)

* Prohibition of algorithmic pricing (flattens rent increases)

* Mandating longer leases (to help renters predict housing costs for longer periods)

* Allowing renters to “buy” their apartments and convert into a condo (reduces apartment vacancies, allows more renters to build equity and control housing costs)

* Price controls on rent increases or sale prices, especially for First-Time Buyers (e.g., 20% margin on a home’s cost for sale by builder but with a gov-backed loan, or restricting rent increases to local COLA or a 20% margin, whichever is lesser)

We have so many more options, and nobody wants to try anything because it’ll tank housing values across the board. The longer we wait to pop this metaphorical bubble, the worse it’s going to hurt, for longer.

That is a bad idea. It assumes the buying a house is something everybody must do. For some buying is a good idea, for some it is not. You have forced people who should rent to buy anyway, or pay massive rent to cover that taxes the investor who owns their house must charge.

> Removing the ability of Private equity to eat up all the local contractors to make a little mini-monopoly is also something that 100% needs to be done.

There is no need because private equity has not done that, and there is not current reason to think they will. If they ever to get a monopoly then we need to do something about it, but right now there is no sign they are. Plenty of little builders exist who are competitive with the large builders in both price and quality. There are also enough large builders to be competitive even without the small builders.

Enough of them think that way as to matter to politicians. Even if that is a tiny minority, the rest of not given any reason to think they care otherwise and so that "squeaky wheel" gets the power.

I don't have hard numbers but anecdotally it's a lot of people. If you listen carefully you'll hear a lot of things like "Renting is throwing money away", "I want to get on the property ladder", "buy land because they aren't making any more of it", etc.

The American Dream™ centers heavily around home ownership and the government subsidizes it by allowing mortgage interest deductions and underwriting zero-down loans. Getting a mortgage and building equity is the only feasible path to wealth for working-class people who don't have money lying around to invest or the financial literacy to start doing so [1]. Contrast this with reality: in the market I live in it's actually around 20% cheaper to rent on average (presumably because California caps property tax increases). For 30 year mortgages in a sideways market you generally have to make payments for 5 years before you can break even when you sell. On top of that houses are non-fungible, illiquid assets that require maintenance and are subject to black swan events like termites, natural disasters, and destructive tenants that might not be covered by insurance. On a rational basis they are mediocre investments but our culture has conditioned people to think this way because it's their only hope for a nest egg. One might also recall what happened circa 2008 when banks encouraged the house-poor to leverage themselves to the hilt via various home equity loans to the delight of sports car and big screen TV manufacturers.

I don't think this is a healthy state of affairs but these are the breaks.

[1] I didn't gain a solid understanding of personal finance until after I'd already bought a house with nothing more than several thousand dollars in my checking account - stumbling across Bogleheads via the web saved me.

That depends. Builders build what there is profitable demand for. If there is a lot of demand that means the high priced high end homes are in demand and builders won't build anything else. (unless forced) However there is only finite demand for such things so and as you build eventually someone says "can you make it cheaper" and some builder - having no other customers is forced to build something lower end just to get any work.

Now builders won't accept a loss (in general), so that does limit how low end they can go. However the other half of this is that most people moving to something high end just freed up something lower end for someone who can't afford luxury. (most people cannot afford a second home and even those who could afford it want to spend their money on something else. There are also a small number of junk houses that are so worthless they end up destroyed, but this isn't common)

People who are not investing need to vote usefully. Renters typically do not vote in large numbers and so this group that isn't getting anything from the investment isn't getting their needs represented. When renters do vote it is often for things that increase rental costs indirectly.

Even those who do own a house are often helped by things that lower value in some way. Many have a kid they want to move out and be successful in life and this means they gain more from lower values then raising values (which is paper money anyway since they would have to sell to see it - most are not). Many want to put an addition on the house and the same laws that prevent building also prevent their addition.

That's why the "Century Initiative", lobbying to increase Canada's population to 100 million by 2100, is funded by real-estate investors:

https://en.wikipedia.org/wiki/Century_Initiative#Connections...

I live in the Netherlands. In the 80's we use to have giant stores owned by couples living above or behind it. They owned 100% of the building, they owned everything inside it.

One particularly memorable instance to me was an old couple, the store had a ceiling two floors high with an 8 shaped cast iron balustrade wrapped around it. I want to say they sold puzzles, postcards and mostly wooden toys but technically that was what they had in stock, they didn't sell much of anything. If they sold 3 postcards and 2 puzzles per day it was enough to buy food. Food was really cheap.

The store was empty most of the day, if customers arrived they switched some of the lights on from behind the counter. If a wave of tourists arrived the place lit up brightly like a xmas tree. They sold the single key chain and one post card and went back to their living room on the other side of the door behind the counter. It was a magical place with many items aged into antiques on the shelve.

The old couple eventually died and the place was sold for many millions, stripped down and modernized for millions followed by a parade of over priced tourist traps that went bankrupt one by one.

Everyone working there has to pay for housing too! The rare place to live that becomes available would also be far away enough that you need a car, a long drive 2x per day and places to park it. Then you need to work hard, there need to be at least two shifts, you need to sell lots of things with very large margins.

The difference is much larger than people imagine. A bad day use to be one post card for some potatoes. Today's postcard is 1/100 the production cost, sold for 6 times more but the revenue isn't enough for one employee to park their car.

For just 6 employees at 1500 pp plus say 6000 for the store you end up with 15 000 just for housing everyone (not counting the 80 year olds such store has no use for)

> Taxing non-owner-occupied single-family residences at higher rates (incentivizes sales)

We already do that in the form of homestead tax credit. This just discourages renters though and so I oppose it. If you come up with a way to ensure that if the house is rented the renters pay the lower rate (get a tax rebate?) I'm for it.

> Mandating housing as a human right (myriad of knock-on effects for decades after)

I have no idea how you do that in practice. There are many choices, but everything I've seen as serious unintended consequences that end up being worse.

> National rent control (helps renters save, incentivizes construction since growth must now be achieved through volume, not price hikes)

Unintended consequences get you. Every rent control I've seen disincentivizes construction since you can't be sure of a profit.

The market you're describing is pretty similar to the Japanese one, where the land keeps its value but the home itself depreciates over time, and old-enough houses are assumed to be teardowns unless proven otherwise.

> National rent control

Rent control is a deeply counterproductive policy that reduces housing supply and lowers housing quality, with the benefits accruing overwhelmingly to already-wealthy households that can make the most of rent control regulations. https://www.nmhc.org/news/articles/the-high-cost-of-rent-con...

Not everyone needs a home, no, that is not the assumption.

It does make the assumption that it's bad to buy twenty houses and live in only one while also opposing more housing contraction.

'Abolish rent' is still a good read.

As far as private equity... look closer: it is happening.

https://fieldrocket.us/private-equity-companies-are-buying-t...

https://www.marketplace.org/story/2024/10/24/private-equity-...

There is EVERY reason to think that they would do this, besides the data showing that they are. The MO is to find an area, buy up all the local tiny contractors, and set prices higher and higher until those contractors finally fail, then sell off any and all assets for a profit.

I am also making the assumption that you haven't tried or researched building a home in the last few years, based on your comment.

> There is EVERY reason to think that they would do this, besides the data showing that they are. The MO is to find an area, buy up all the local tiny contractors, and set prices higher and higher until those contractors finally fail, then sell off any and all assets for a profit.

That is a goal that makes sense. However that goal has been around for a long time and nobody has been successful, and it is unlikely this current round will be. They can't buy up enough small players to make it work.

Anybody can write a book that sounds good. I've read enough to not trust them. I need more authority than just someone wrote a book that ignores any factor that isn't convenient to their opinion. Note that I have not read that book, and yet I'm 100% confident that they did that - it is a pattern repeated far too often.

It seems like the only solution is going to be an FDR style president that sort of runs up against traditional liberties in order to to build. I do wonder if an interesting quirk of the current president essentially consolidated executive power for questionable reasons, leads to a candidate that uses some of those changes to bulldoze these types of projects back into America.

> They can't buy up enough small players to make it work.

We just don't have the data to track that. KKR, Blackstone, and Bain Capital, all buy up small time contractors, as well as real estate. They absolutely have the money to bully their way using that strategy. We don't know for sure if that's what they are doing or not... but as you agree: That goal makes sense.

> Anybody can write a book that sounds good.

Not everyone can write a book both sound and logical, agreed. That is to say, a well researched book is rare indeed.

It is biased, yes: it is very anti-landlord. It views a landlord as inherently extractive, and makes the case for that viewpoint.

To say that the book is not worth reading is also incorrect. It has some fantastic insights unrelated to its anti-landlord bias and it is an interesting read.

And yes: you shouldn't just trust what you read. Ever.

Regardless of it's flaws, I still recommend it as a read.

If your home's price fell too much, you likely aren't allowed to sell it because that would force you to repay the difference in your mortgage all at once.