New legislation proposes to take Wall Street out of the housing market(nytimes.com)
nytimes.com
New legislation proposes to take Wall Street out of the housing market
https://www.nytimes.com/2023/12/06/realestate/wall-street-housing-market.html
71 comments
I’m not sure how this would work practically in the US. A huge constituency of people has most of their finances centered around their home as minimally a value store and maximally a growth investment. Having homes go down in price or even just leveling off would create a whole other host of challenges for a society that’s been organized so completely for so long around home values going up.
Good thing this would have no impact on home values. Hedge funds getting involved is a symptom, not a cause. Hedge funds buy properties *because* home values go up due to limited supply. The only thing that can lower housing prices is a dramatic increase in supply.
Putting aside whether or not discouraging investment makes sense as a strategy, it is absolutely wild that this is specific to single family homes. Apartments are unaffordable as well and they are also often owned by funds.
Are people who live in apartments just out of luck then? Discouraging investors from owning single family homes could encourage more speculation on multifamily homes.
Are people who live in apartments just out of luck then? Discouraging investors from owning single family homes could encourage more speculation on multifamily homes.
The price of rent roughly tracks the price of a mortgage, and apartments are only about 20% of all homes. If this legislation passes, and home prices go down, then rental prices for homes will go down, and apartment rental prices will need to match those price reductions to attract renters.
They are somewhat opposite: rents go down when everyone wants to (and can) buy, they go up when people don’t want to (or cannot) buy. This is just a short term effect, long term rents should track home values.
I see this bill as a no-op: Wall Street will continue to invest in multi-family rental buildings, as it always has, and SFH purchases were always somewhat of a side show.
I see this bill as a no-op: Wall Street will continue to invest in multi-family rental buildings, as it always has, and SFH purchases were always somewhat of a side show.
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Short of banning land ownership (IMHO the correct solution, since the earth belongs to all of us) they should just put large taxes on land, with some rebates if you actually live there, farm there, etc.
This is Georgism, of course. There's a lot to recommend it; I was convinced by Henry George that land ownership is uniquely difficult to defend ethically compared to other forms of property, since it all comes from conquest in the end. I'm not sold on it as a panacea, but big land taxes do seem like a good idea.
Ironically thats the opposite of how the current system works, where you pay very little property tax if you own a vacant lot and your tax burden increases if you build
something productive on the land.
And those taxes will be paid by whom? How does this help the renter?
It helps the renter because it forces the land owner to develop the land with as many apartments as possible, thus increasing supply.
rayiner(1)
I'm yet to see a holistic review of housing. Yes corporate ownership is bad, I think, however the availability of land is also a problem, the cost of building, which is driven by the cost of materials and labour.
Arbitrarily capping one part of the problem I have doubts will help overall, and possibly make the situation worse.
Eg if we block wall Street investment, and could that money go into other areas and increase competition for materials and labour and make it harder and more expensive to build homes?
Arbitrarily capping one part of the problem I have doubts will help overall, and possibly make the situation worse.
Eg if we block wall Street investment, and could that money go into other areas and increase competition for materials and labour and make it harder and more expensive to build homes?
IMO corporate ownership isn't bad as corporations rent housing to individuals who can't afford mortgages. Let's say corporations are 100% banned from the housing market. 85% of Americans cannot qualify for a mortgage, where would they live?
I believe this will eventually come to pass as the housing crisis impacts more and more families and eventually becomes an election issue. It's unlikely to happen in the first few attempts though
It's a bit like healthcare - the national consensus has gradually but firmly shifted in the direction of a regulated marketplace. Took a while but eventually did happen.
It's a bit like healthcare - the national consensus has gradually but firmly shifted in the direction of a regulated marketplace. Took a while but eventually did happen.
Banning investors from owning homes will do NOTHING to alleviate the housing crisis. The problem is lack of supply, not the capital structure of the supply. We will never solve the housing crisis as long as people like you continue to deny basic economics and refuse to acknowledge the basic supply and demand problem that is causing rents and home prices to skyrocket.
You can always argue that a problem that involves shortages will be alleviated by more supply (like saying that building more roads will solve traffic congestion), but if the increased supply is just captured by the same forces that capture it now, you haven’t solved anything.
So these hedge funds buy the houses and let them sit empty forever?
Or how do you imagine they “capture supply”?
Or how do you imagine they “capture supply”?
They buy the asset and crank rent as high as they can. That’s capturing supply. When you buy a home, your payment is fixed for the life of the loan, and instead of being exposed to annual rent increases that can greatly exceed inflation, you as the homeowner are insulated from a private corporation’s extraction efforts due to that fixed payment (while your potential annual wage increases inflate away the debt).
Google yieldstar to understand the collusion in doing this. If homes don’t end up in the hands of people, they end up in the hands of corporations who treat their renters like cattle. At current build rates, supply may never exceed the rate at which institutional investors can acquire these assets, hence the need for legislation and regulation.
https://www.propublica.org/article/yieldstar-rent-increase-r...
Google yieldstar to understand the collusion in doing this. If homes don’t end up in the hands of people, they end up in the hands of corporations who treat their renters like cattle. At current build rates, supply may never exceed the rate at which institutional investors can acquire these assets, hence the need for legislation and regulation.
https://www.propublica.org/article/yieldstar-rent-increase-r...
Key phrase is “as high as they can”. When supply goes up their ability to charge high rents goes down. They do not have the power to defy economics and charge arbitrarily high rents as supply tends to infinity. More supply pushes rents down even if all the excess supply is acquired by investors.
> They do not have the power to defy economics and charge arbitrarily high rents as supply tends to infinity.
Housing supply will never trend to infinity.
Ok I realize you exaggerate and probably meant to some very large number. Even that is quite wishful thinking since housing is expensive to build and takes time and people (who are in short supply, tried hiring a house building crew lately?)
> More supply pushes rents down even if all the excess supply is acquired by investors.
Can you name a few US cities where this has worked out that way?
Housing supply will never trend to infinity.
Ok I realize you exaggerate and probably meant to some very large number. Even that is quite wishful thinking since housing is expensive to build and takes time and people (who are in short supply, tried hiring a house building crew lately?)
> More supply pushes rents down even if all the excess supply is acquired by investors.
Can you name a few US cities where this has worked out that way?
"When supply goes up." When will supply velocity exceed the rate at which investors (institutional and otherwise) can acquire real estate? Please be specific if this is your argument.
https://fred.stlouisfed.org/series/HOUST
https://www.mortgagenewsdaily.com/data/housing-completions
https://www.fanniemae.com/research-and-insights/perspectives...
https://www.fanniemae.com/media/45106/display
https://fred.stlouisfed.org/series/HOUST
https://www.mortgagenewsdaily.com/data/housing-completions
https://www.fanniemae.com/research-and-insights/perspectives...
https://www.fanniemae.com/media/45106/display
Isn't that the wrong question? Presumably unrestrained builders would be happy to sell to anyone, so you need the build rate where it is not profitable to invest in properties, not the build rate where it is impossible for investment to buy all properties.
And then it's logical that the one is lower than the other.
And then it's logical that the one is lower than the other.
It does not need to exceed the rate at which investors acquire supply, because the homes investors buy are not removed from the market, they are just rented out, and increasing the rental supply will drive rents down.
I don’t even know where to start.
The buying and renting markets for houses are linked.
These landlords need to rent their houses, so clearly they meeting a demand in the market. That demand would not go away and thus prices would not go down if the houses were owned privately. There would simply be more former renters, now trying to buy.
You can keep blaming the messenger or you can just accept that the housing demand is real and work to increase housing supply.
One of these things works.
The buying and renting markets for houses are linked.
These landlords need to rent their houses, so clearly they meeting a demand in the market. That demand would not go away and thus prices would not go down if the houses were owned privately. There would simply be more former renters, now trying to buy.
You can keep blaming the messenger or you can just accept that the housing demand is real and work to increase housing supply.
One of these things works.
> You can keep blaming the messenger or you can just accept that the housing demand is real and work to increase housing supply.
> One of these things works.
If simply increasing housing supply is known to transform a city from having very expensive housing to having affordable housing, it should be possible to name a handful of previously-expensive cities which are now cheap.
Could you name a few?
> One of these things works.
If simply increasing housing supply is known to transform a city from having very expensive housing to having affordable housing, it should be possible to name a handful of previously-expensive cities which are now cheap.
Could you name a few?
Tokyo, Vienna, … Most cities aren’t very good at adding enough supply.
And sometimes that supply increases agglomeration effects and makes even more people want to move there.
Which is a good thing, that’s what cities are for.
And sometimes that supply increases agglomeration effects and makes even more people want to move there.
Which is a good thing, that’s what cities are for.
Tokyo is such a unique special case that I don't think it should be an example for anywhere else.
I did not know about Vienna, spent some time reading about it! Seems that it had very expensive rents and government programs to build a lot of public housing cut those rents making it fairly affordable. So it is a good case study of this approach working.
Although it seems most of that housing was built a century ago. I have to wonder how practical it would be to replicate that today.
> Most cities aren’t very good at adding enough supply.
Maybe it's just not that easy?
Also, culturally in the US it's just never going to happen that a city owns half or more of all housing as a public service, so I suspect wishing for that is not realistic. So in the US, building housing doesn't happen unless it is profitable for builders.
I did not know about Vienna, spent some time reading about it! Seems that it had very expensive rents and government programs to build a lot of public housing cut those rents making it fairly affordable. So it is a good case study of this approach working.
Although it seems most of that housing was built a century ago. I have to wonder how practical it would be to replicate that today.
> Most cities aren’t very good at adding enough supply.
Maybe it's just not that easy?
Also, culturally in the US it's just never going to happen that a city owns half or more of all housing as a public service, so I suspect wishing for that is not realistic. So in the US, building housing doesn't happen unless it is profitable for builders.
There is nothing wrong with builders making money.
Most of the cost of housing in cities comes from the underlying land. And you can make that cheaper overnight by increasing supply through zoning.
Most of the cost of housing in cities comes from the underlying land. And you can make that cheaper overnight by increasing supply through zoning.
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It’s a step in right direction to cool off demand, but the big issue is supply.
Make a law that building permits can’t take longer than 6 months. No nimbysm crap.
Permits can only be denied if the building plans don’t meet code and cause major environmental issues.
Also permits shouldn’t cost a fortune.
Permits are a huge bottleneck. A piece of paper.
Make a law that building permits can’t take longer than 6 months. No nimbysm crap.
Permits can only be denied if the building plans don’t meet code and cause major environmental issues.
Also permits shouldn’t cost a fortune.
Permits are a huge bottleneck. A piece of paper.
Housing has been destroyed by unrestrained capitalism.
Capitalism without limits, without social seatbelts is a bad thing. I don’t care if this makes the pure capitalists shriek “COMMUNISM!”. In fact it’s not communism to have a society that has rules around housing, it’s healthy social democracy.
Housing is a fundamental human need and houses should be owned by people and every single citizen who wants to own a house should be able to buy one within their local community. Teachers, clerks, garbage collectors, everyone. It used to be this way before housing turned into a real world monopoly game.
Rich people - ie those who own one or more houses tend to be completely lacking in empathy for those who don’t own a house.
And people who own houses tend to have lots of advice like “move somewhere cheaper further out”, but such advice is easy to give because they never have to take such worthless and insensitive advice.
Singapore has 89% owner occupied housing. This should be the mission for any country that cares about its people. But modern governments don’t care about their people, they care about growth, and about making politicians and vested interests richer.
Capitalism without limits, without social seatbelts is a bad thing. I don’t care if this makes the pure capitalists shriek “COMMUNISM!”. In fact it’s not communism to have a society that has rules around housing, it’s healthy social democracy.
Housing is a fundamental human need and houses should be owned by people and every single citizen who wants to own a house should be able to buy one within their local community. Teachers, clerks, garbage collectors, everyone. It used to be this way before housing turned into a real world monopoly game.
Rich people - ie those who own one or more houses tend to be completely lacking in empathy for those who don’t own a house.
And people who own houses tend to have lots of advice like “move somewhere cheaper further out”, but such advice is easy to give because they never have to take such worthless and insensitive advice.
Singapore has 89% owner occupied housing. This should be the mission for any country that cares about its people. But modern governments don’t care about their people, they care about growth, and about making politicians and vested interests richer.
Housing is expensive because supply is artificially limited.
You can increase supply by allowing more construction.
No need to decree the end of capitalism.
You can increase supply by allowing more construction.
No need to decree the end of capitalism.
I'm for this, but it raises questions about what will happen to the millions of renters living in these investment properties. They're mostly not just sitting there empty.
Apparently a bunch are, otherwise vacancy taxes wouldn't be a thing
This is a paper tiger. just by banning "Hedgefonds" (misnomer of the decade by the way, they do anything but hedge these days), or, more precisely investment funds structured as limited partnerships, from owning residential real estate you do absolutely NOTHING to mitigate what happened in 2008.
hedge funds are just an easily hated scapegoat, because they ARE insufferable in many cases, but they are not at fault here.
The real problem is the moral hazard that is growing exponentially with every increase in distance between the ones dishing out the money and the ones who are liable. If you can repackage mortgages into more and more complex derivatives you can sell to other people, and you also figure out a way to game rating agencies into a triple A rating by misleading them with thin-file FICO scores and faux diversification, you can profit from deadbeat customers and make someone else the bag holder at the same time. That’s the archetypal moral hazard.
The institutional clients don’t understand that correlation increases with volatility, they are consoled by the ratings and don’t realize they are part of a time bomb, waiting to drag the whole economy down with it.
hedge funds are just an easily hated scapegoat, because they ARE insufferable in many cases, but they are not at fault here.
The real problem is the moral hazard that is growing exponentially with every increase in distance between the ones dishing out the money and the ones who are liable. If you can repackage mortgages into more and more complex derivatives you can sell to other people, and you also figure out a way to game rating agencies into a triple A rating by misleading them with thin-file FICO scores and faux diversification, you can profit from deadbeat customers and make someone else the bag holder at the same time. That’s the archetypal moral hazard.
The institutional clients don’t understand that correlation increases with volatility, they are consoled by the ratings and don’t realize they are part of a time bomb, waiting to drag the whole economy down with it.
There's a _really_ cool way to take Wall Street out of the housing market.
Build. Enough. Housing.
Enough housing means supply meets or exceeds demand which means prices fall which means Wall Street doesn't get the returns they want which means they move on to prey on something else.
Build. Enough. Housing.
Enough housing means supply meets or exceeds demand which means prices fall which means Wall Street doesn't get the returns they want which means they move on to prey on something else.
> Enough housing means supply meets or exceeds demand which means prices fall
While this seems obvious on the surface (if there are more houses than people in some area, prices should drop right), are there real world example of this working that way?
More housing just creates more demand which drives more density and yet more demand. The densest area in the US is Manhattan, not known for being a cheap place to live. Second densest is SF, also not a bargain for housing.
While this seems obvious on the surface (if there are more houses than people in some area, prices should drop right), are there real world example of this working that way?
More housing just creates more demand which drives more density and yet more demand. The densest area in the US is Manhattan, not known for being a cheap place to live. Second densest is SF, also not a bargain for housing.
Manhattan and SF has built almost no housing over the past several decades, and demand has continued to rise anyway, causing skyrocketing prices. Those metro areas are proving the exact opposite point you are trying to make. Building more housing is not what is creating more demand.
More housing doesn't create demand, the city's economy creates demand. This is exactly why people have kept pouring into NYC and SF over the last few decades while the rate of new construction has slowed down to a crawl and nothing is affordable.
> More housing doesn't create demand, the city's economy creates demand.
I doubt there is a simple one-way causation, it's a feedback loop.
The economy of a city only grows if more and more people and businesses move in, which means more housing and density which in turn grows the economy and prices even more.
Is there any example of a city where housing was quite expensive and over time housing became cheap merely by building more of it, while still remaining a thriving city?
As far as I can see, once a city is thriving and expensive it only becomes cheap through economic collapse (e.g. Detroit) which isn't the solution anyone wanted.
I doubt there is a simple one-way causation, it's a feedback loop.
The economy of a city only grows if more and more people and businesses move in, which means more housing and density which in turn grows the economy and prices even more.
Is there any example of a city where housing was quite expensive and over time housing became cheap merely by building more of it, while still remaining a thriving city?
As far as I can see, once a city is thriving and expensive it only becomes cheap through economic collapse (e.g. Detroit) which isn't the solution anyone wanted.
One of two things is happening.
Either induced demand is real which implies if you bought a corn field in Idaho and built enough high density housing you could make the housing more expensive than Manhattan and walk away richer than god.
Or high demand drives housing density and high prices.
Either induced demand is real which implies if you bought a corn field in Idaho and built enough high density housing you could make the housing more expensive than Manhattan and walk away richer than god.
Or high demand drives housing density and high prices.
> bought a corn field in Idaho
For an example how trying to build something up artificially in the middle of nowhere can fail, see California City. OTOH, for a counterexample see Las Vegas.
> Or high demand drives housing density and high prices.
Yes, and it also drives even more demand and even higher prices.
The premise of the OP is that you can make housing become cheap in an expensive city by building a lot more of it. If that works, there ought to be a few success story cities where it happened. Which ones are they?
For an example how trying to build something up artificially in the middle of nowhere can fail, see California City. OTOH, for a counterexample see Las Vegas.
> Or high demand drives housing density and high prices.
Yes, and it also drives even more demand and even higher prices.
The premise of the OP is that you can make housing become cheap in an expensive city by building a lot more of it. If that works, there ought to be a few success story cities where it happened. Which ones are they?
Yeah, and it’s a faulty assumption that all investors price housing on the basis of rents. I recall reading that in Vancouver, BC they had a large influx of foreign money pouring into their housing market because it was a way for foreigners to expatriate their money. Drove prices through the roof. They had to impose measures to discourage it. Those properties, I read, often sat empty because using them for housing was never the intent of the owners.
Ya, this could be a case of induced demand that we see in freeway building. Making more housing in a hot area where people want to live could conversely encourage more people to move to that hot area. Unless you just have slow growth like Japan/Tokyo, or some kind of residency restriction, I don’t see a way to cheaper prices just by adding in more supply. The increased density is still a win, just don’t expect it to make housing much cheaper.
But who will build enough housing? And will they be able to do it at a reasonable profit? There have to be the appropriate incentives for builders to produce.
Kind of my concern as well, maybe banning them from buying used housing but no restrictions on them owning new housing so that the money is even more focused on acting as a prime originator for new housing allowing it to trickle down later.
Also give like a 10 year or something proptery tax reduction for new construction also increase homestead exemptions to help homeowners but with increased proptery taxes to also encourge them to sell off and not rent housing after the intial honeymoon period.
Also would encourge them to purchase demolish and rebuild older housing and ruined housing so they could invest in it healing some of the older rundown areas.
Also give like a 10 year or something proptery tax reduction for new construction also increase homestead exemptions to help homeowners but with increased proptery taxes to also encourge them to sell off and not rent housing after the intial honeymoon period.
Also would encourge them to purchase demolish and rebuild older housing and ruined housing so they could invest in it healing some of the older rundown areas.
You mention ways to accelerate new housing, but we should maybe just take our foot off the break before we look into acceleration.
Just allow more new construction. Upzone and speed up the approval process.
Wouldn't removing demand from the likes of Wall St make the required supply much easier to achieve?
No. The renters would then push into the house buying market. The demand would be the same.
That's the required supply I am talking about though
Wall Street would lose interest if the housing market stopped being pumped.
Yep.
"Cities and municipalities suddenly start building enough housing to meet current and even maybe expected-future demand" is often in the "Known Risks" section of the SEC filings of these sorts of businesses.
"Cities and municipalities suddenly start building enough housing to meet current and even maybe expected-future demand" is often in the "Known Risks" section of the SEC filings of these sorts of businesses.
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Investors that buy houses just rent them out again, so the houses are not removed from the supply of housing, just moved from the homeowner's market to the rental market. There is nothing wrong with this - renters need a place to live too! The problem is the lack of overall housing, not the balance between homes to rent and buy.
The fact that it's profitable to buy homes and rent them out means that renters are currently overpaying relative to buyers, and shifting properties over to the rental market will help correct this inequality. If you advocate against this then you are arguing that renters should be screwed over the subsidize homebuyers.
If you want to screw over wall street you should build more homes to flood supply and tank the value of their investment. Of course many of the people who complain about Wall Street buying up homes are also NIMBYs who adamantly block all new housing because they are supply-and-demand deniers or vacancy truthers.
The fact that it's profitable to buy homes and rent them out means that renters are currently overpaying relative to buyers, and shifting properties over to the rental market will help correct this inequality. If you advocate against this then you are arguing that renters should be screwed over the subsidize homebuyers.
If you want to screw over wall street you should build more homes to flood supply and tank the value of their investment. Of course many of the people who complain about Wall Street buying up homes are also NIMBYs who adamantly block all new housing because they are supply-and-demand deniers or vacancy truthers.
A lot of times they just buy em and let em sit too though. A lot more than individuals since large corps can afford to do that.
Is there any evidence of that? The last thing any landlord I've ever talked to wanted was for a property to sit empty.
Why would they do that?
> There is nothing wrong with this - renters need a place to live too!
They wouldnt be renters if they could afford buying homes and that would make them home owners, living in their own homes not someone else’s.
They wouldnt be renters if they could afford buying homes and that would make them home owners, living in their own homes not someone else’s.
This is just wrong, there are many people who rent for non financial reasons (e.g they plan on moving within a few years). Just because you’ve chosen to nest in the same place until you die doesn’t mean everyone wants to.
It seems unworkable. The $50M threshold for hedge funds is easily circumvented by breaking up funds, and the "on any day" language makes bulk transfers tricky. "Single-family" includes 1-4 units, so all those savers who prefer real estate to the stock market could have their buyers dry up.
(No comment on the actual economic or fairness benefit.)
However, what could work this year and be even more useful would be to strip out everything except reporting requirements. The government has really no idea what's happening in the housing market or why, and no evidence that could quantify the degree of market control or indicate illegal collusion. This could be combined with anti-money-laundering reporting requirements designed to disclose real estate being used to launder dirty money, with appropriate requirements to disclose the beneficial owners, and detect the effective but unregistered sale of property by selling the owning entity. There's really no policy objection because property already must be registered, and there are no real business confidentiality concerns from the government having this information. If/since the reporting would be limited to real estate, it wouldn't raise the substantial lobbying hackles of all the other businesses relying on shell corporations, and might even garner the support of the big hedge funds seeking to scare off competition.