Good article, fact-based, from C Rampell at Bulwark. (Article was on Feb 19, am behind on my reading today Mar 3.) Would add two things, (1) billionaires can buy into a "suddenly fashionable" neighborhood and, by being price-insensitive at purchase time, pay too much. That gets factored into local valuations. Suddenly, housing costs rise for everyone else IN THAT neighborhood. (Geography-loving spouse says just one example is "Lincoln Park" north of Chicago.)
(2) Spouse also says MAYBE FAR BIGGER problem is tech billionaires getting subsidies to desert their old places, instead build new plants/offices, at city edges elsewhere. That urbanizes the formerly half-rural edges previously cheap to serve. Previously not needing a big expansion in schools and roads and sewers and electricity and hospitals and EMS and police, but now, suddenly, they do need them.
Yet the billionaires are NOT asked to cover costs of the schools, NOT cover new roads, etc., etc. for the often highly paid employees brought in from elsewhere.
The relocated employees of the billionaires, better paid then the old population, lack the old budget constraints previously more typical of the area. They then overbid in the area they are told they must move to.
Examples would be Californian employees brought to Texas, most recently because of "incentives" given to Musk to build a plant at Austin's east edge. Will see if have time to look for numbers on how much "land value" suddenly increased, when Musk's company bought land for the plant, then, a second step, brought in employees, as the local population was not enough to satisfy added needs of, not just the plant, but also whatever vendors moved in.
I would humbly submit that the reason there is such popular support for economically nonsensical polices such as rent control and price ceilings is that economists have thoroughly discredited themselves in the aftermath of the Great Recession that there is just limited - if any - appetite to listen to the "always correct expert economists" who completely, utterly failed to prevent anyone from losing their homes or their jobs. People are ignoring the "expert economists" because the "expert economists" have so often been proven wrong.
Where does short-term rental fit into this equation? In my area, the housing problem is that most of the long-term rentals have become vacation rentals, and most of the people who own houses they don't live in are in that market. Not only does this reduce residential rentals, but it has driven up the cost of buying because the revenue from short-term is so high. That's the coast of Maine though, so I don't know if that is an isolated phenomenon
I would never doubt Catherine's numbers, so maybe its not a nation-wide growing issue. But it's definitely an issue in some towns, and in some neighborhoods. Star Tribune has run multiple articles on this which I unfortunately cannot find at the moment. I think they too showed a downward trend, but not in all areas in the Twin Cities (Minnesota) metro here.
The issue is not just large investors though, there seem to be smaller out-of-state investors. These upset people too because, like the large investors, they also have no real vested interest in the community.
Curious, what particular economist were you reading? They have "schools of thought" and "method differences" (using numbers based on real data, versus calculus assuming how people would act if perfect).
Know someone who says regional economists can be really good, especially ones using numbers showing changes over time, broke down by nation, then by state, then by county. They are best when finding changes "go together", called correlations.
The opposite kind might be "micro-economists", the ones who "just assume" people making decisions are perfectionists, who magically understand how absolutely everything works, then use calculus in their heads, to figure out what's "optimal", no data needed.
Obviously not exhaustive because it is only single-family homes, not real estate in general. And its old. And everyone defines investors differently (they used anyone owning 2+ non-homesteaded properties).
On the even more local level, Grand Avenue in Saint Paul has gotten a lot of headlines lately because the State Teacher's Retirement System of Ohio owns several properties, many business have recently left them and they requested one business to sign a 10-year lease. People disagree on how much the investor is to blame here, but an out of state group owning so many commercial properties in one business district doesn't sit well with folks.
thank you. Will read your Minneapolis Fed link. Ohio retired teachers group owning biz on Grand Avenue sounds weird. Grand Ave on a map appears to be near colleges, maybe Ohio teachers are going back to school?
It seems that if we are looking at the increase in housing prices , we shouldn't just be looking at the U.S. single-family homes by ownership type. But instead, what % of home purchases over the last 5-6 years, were made by institutional investors? If these investors currently own a small % of the housing stock, but are responsible for 30% of purchases in a given year, that will drive up prices (particularly when these institutional investors make all cash offers over asking).
Inflation is the measurement of prices increasing across the broad swath of the economy. It is not the measurement of the increase in certain prices. Deportation doesn't cause inflation. As long as you have the same amount of dollars chasing the same goods/services, there is no inflation. To have inflation you have to have an increase in those dollars which happens when the Treasury increases the money supply to pay for deficit spending.
I like all the concrete data here regarding single-family homes. I would be interested in the data on multi-family units. When we are talking about reducing housing costs, building more multi-family units at higher density is more likely to result in lower rents at the lower end of the market where people are struggling the most. How many of those units are held by institutional investory? How many of those units are vacant or used for AirBNB or VRBO rather than rented in the community?
There are a lot of complicated issues, but there is almost certainly an issue with the non-rented stock owned by institutions.
It seems like a majority of the houses "downtown" near where I live are managed by vacation rental companies. This small town (pop. 2,000) is isolated--a three-hour drive north of San Francisco (with an hour of that drive on Hwy 1, which many people find daunting, but some find alluring). I checked out one block downtown that has ocean views, and out of 20 houses, 14 were vacation rentals managed by companies such as Airbnb, Vacasa, Vrbo, HomestoGo, Holiday Homes, and Vacation Rentals. A few others were vacant (perhaps second homes?) and three were occupied by local year-round residents. I think the whole idea of a home as an "investment" instead of just as a place for people to live is a rotten idea at its core.
I suspect rural towns, like mine, that have potential to be vacation destinations or near tourist attractions (like ski slopes) have a disproportionate slice of that orange, gold, and sliver of black pie chart displayed in the article above.
By defining the problem as people who own 1000 units or more, it minimizes the problem. As many of the commentators say, the problem is homes converted to other uses, no matter how big the investor. Here in California about 700,000 homes have been left vacant or converted to other uses in the last 15 years due to second homes, vacation rentals, and outside investors leaving homes empty. It’s not uncommon to have vacancy rates of 25% in attractive areas. And for the last 10 years the Legislature has essentially removed the ability of NiMBYs to stop projects, yet housing production has fallen.
One of the simplest reasons for the housing crisis is that the supply hasn’t kept up with demand. The population has grown by approximately 130 million in the last 50 years and housing hasn’t kept pace. There are a variety of reasons for this, the most obvious being a lack of foresight.
How much of the housing stock is owned by firms / individuals owning between 10 and *999* homes, though? This seems like a significant gap that the piece is uninterested in exploring. I mean, we could reduce the percentage of homes owned by "institutional investors" to zero by just setting the threshold at 1,000,000,000 units instead of a measly 1000. Problem solved! I don't know what people are worried about.
Mild snark aside, the issue isn't "institutional investors", it's the concentration of homes in fewer hands, with the intention of using them to turn a profit. In theory, that *should* include mom-and-pop landlords, except you do of course need some investment capital in the market to make it more responsive and spur development-- the question is how much, and from where? Defining the investors under scrutiny down to a sliver of the market and saying 'See? No issue,' feels a little bit like missing the point of the argument to begin with. I'm not saying Democrats are certainly right about the role of investors in driving up home prices-- I don't have the data on what percentage of single-family homes are owned by investors. But I read this article, and I still don't have the data-- just an overturned 'institutional' strawman.
None of this excuses the Republican plan, of course-- any law that allows the executive branch to define the regulated class will be used as a cudgel to help this administration run a grift by selectively applying the regulation.
Let’s not get distracted. It’s just a new branch of the larger three-card Monty extortion racket: cover your failures by finding a new scapegoat with deep pockets and exact tribute and cash donations with the threat of regulation. You make money looking like you’re doing something. And remember, the permanent tax cuts are upon us, he has to fill the budget hole and now tariff revenues won’t be doing the job.
None of which is to suggest, by the way, that private equity is not a toxic player in housing. The required returns ensure declining affordability and/or substandard quality at scale over time.
Love your work, Catherine. Have been a fan since you were at the Washington Post. Your stuff is always concise and easy to digest. Being a journalist myself, I appreciate that. Ex BBC and London Daily Telegraph, UN correspondent. Now writing books. All the best and continued deserved success on TV, in print, and at the Bulwark. Tony Brenna.
Good article, fact-based, from C Rampell at Bulwark. (Article was on Feb 19, am behind on my reading today Mar 3.) Would add two things, (1) billionaires can buy into a "suddenly fashionable" neighborhood and, by being price-insensitive at purchase time, pay too much. That gets factored into local valuations. Suddenly, housing costs rise for everyone else IN THAT neighborhood. (Geography-loving spouse says just one example is "Lincoln Park" north of Chicago.)
(2) Spouse also says MAYBE FAR BIGGER problem is tech billionaires getting subsidies to desert their old places, instead build new plants/offices, at city edges elsewhere. That urbanizes the formerly half-rural edges previously cheap to serve. Previously not needing a big expansion in schools and roads and sewers and electricity and hospitals and EMS and police, but now, suddenly, they do need them.
Yet the billionaires are NOT asked to cover costs of the schools, NOT cover new roads, etc., etc. for the often highly paid employees brought in from elsewhere.
The relocated employees of the billionaires, better paid then the old population, lack the old budget constraints previously more typical of the area. They then overbid in the area they are told they must move to.
Examples would be Californian employees brought to Texas, most recently because of "incentives" given to Musk to build a plant at Austin's east edge. Will see if have time to look for numbers on how much "land value" suddenly increased, when Musk's company bought land for the plant, then, a second step, brought in employees, as the local population was not enough to satisfy added needs of, not just the plant, but also whatever vendors moved in.
Everybody then suddenly has to pay more in taxes.
I would humbly submit that the reason there is such popular support for economically nonsensical polices such as rent control and price ceilings is that economists have thoroughly discredited themselves in the aftermath of the Great Recession that there is just limited - if any - appetite to listen to the "always correct expert economists" who completely, utterly failed to prevent anyone from losing their homes or their jobs. People are ignoring the "expert economists" because the "expert economists" have so often been proven wrong.
Where does short-term rental fit into this equation? In my area, the housing problem is that most of the long-term rentals have become vacation rentals, and most of the people who own houses they don't live in are in that market. Not only does this reduce residential rentals, but it has driven up the cost of buying because the revenue from short-term is so high. That's the coast of Maine though, so I don't know if that is an isolated phenomenon
Something black for sure. Nailed it.
I would never doubt Catherine's numbers, so maybe its not a nation-wide growing issue. But it's definitely an issue in some towns, and in some neighborhoods. Star Tribune has run multiple articles on this which I unfortunately cannot find at the moment. I think they too showed a downward trend, but not in all areas in the Twin Cities (Minnesota) metro here.
The issue is not just large investors though, there seem to be smaller out-of-state investors. These upset people too because, like the large investors, they also have no real vested interest in the community.
Curious, what particular economist were you reading? They have "schools of thought" and "method differences" (using numbers based on real data, versus calculus assuming how people would act if perfect).
Know someone who says regional economists can be really good, especially ones using numbers showing changes over time, broke down by nation, then by state, then by county. They are best when finding changes "go together", called correlations.
The opposite kind might be "micro-economists", the ones who "just assume" people making decisions are perfectionists, who magically understand how absolutely everything works, then use calculus in their heads, to figure out what's "optimal", no data needed.
I cannot find the Star Tribune article, but this from the MN Fed looks very likely to be the data that was underlying the article I read. We see investor owned homes declining since Covid in the cities, but generally rising in the suburbs. https://www.minneapolisfed.org/article/2023/investor-owned-homes-ebb-and-flow-in-the-minneapolis-st-paul-region
Obviously not exhaustive because it is only single-family homes, not real estate in general. And its old. And everyone defines investors differently (they used anyone owning 2+ non-homesteaded properties).
On the even more local level, Grand Avenue in Saint Paul has gotten a lot of headlines lately because the State Teacher's Retirement System of Ohio owns several properties, many business have recently left them and they requested one business to sign a 10-year lease. People disagree on how much the investor is to blame here, but an out of state group owning so many commercial properties in one business district doesn't sit well with folks.
thank you. Will read your Minneapolis Fed link. Ohio retired teachers group owning biz on Grand Avenue sounds weird. Grand Ave on a map appears to be near colleges, maybe Ohio teachers are going back to school?
It seems that if we are looking at the increase in housing prices , we shouldn't just be looking at the U.S. single-family homes by ownership type. But instead, what % of home purchases over the last 5-6 years, were made by institutional investors? If these investors currently own a small % of the housing stock, but are responsible for 30% of purchases in a given year, that will drive up prices (particularly when these institutional investors make all cash offers over asking).
Inflation is the measurement of prices increasing across the broad swath of the economy. It is not the measurement of the increase in certain prices. Deportation doesn't cause inflation. As long as you have the same amount of dollars chasing the same goods/services, there is no inflation. To have inflation you have to have an increase in those dollars which happens when the Treasury increases the money supply to pay for deficit spending.
I like all the concrete data here regarding single-family homes. I would be interested in the data on multi-family units. When we are talking about reducing housing costs, building more multi-family units at higher density is more likely to result in lower rents at the lower end of the market where people are struggling the most. How many of those units are held by institutional investory? How many of those units are vacant or used for AirBNB or VRBO rather than rented in the community?
There are a lot of complicated issues, but there is almost certainly an issue with the non-rented stock owned by institutions.
Weird. Wasn’t it a Republican who said “corporations are people too (my friend)?
Why I didn’t write “first”.
No, it was first said by the SCT in an 1886 decision.
Ft
It seems like a majority of the houses "downtown" near where I live are managed by vacation rental companies. This small town (pop. 2,000) is isolated--a three-hour drive north of San Francisco (with an hour of that drive on Hwy 1, which many people find daunting, but some find alluring). I checked out one block downtown that has ocean views, and out of 20 houses, 14 were vacation rentals managed by companies such as Airbnb, Vacasa, Vrbo, HomestoGo, Holiday Homes, and Vacation Rentals. A few others were vacant (perhaps second homes?) and three were occupied by local year-round residents. I think the whole idea of a home as an "investment" instead of just as a place for people to live is a rotten idea at its core.
I suspect rural towns, like mine, that have potential to be vacation destinations or near tourist attractions (like ski slopes) have a disproportionate slice of that orange, gold, and sliver of black pie chart displayed in the article above.
Excellent, Flavia.
By defining the problem as people who own 1000 units or more, it minimizes the problem. As many of the commentators say, the problem is homes converted to other uses, no matter how big the investor. Here in California about 700,000 homes have been left vacant or converted to other uses in the last 15 years due to second homes, vacation rentals, and outside investors leaving homes empty. It’s not uncommon to have vacancy rates of 25% in attractive areas. And for the last 10 years the Legislature has essentially removed the ability of NiMBYs to stop projects, yet housing production has fallen.
One of the simplest reasons for the housing crisis is that the supply hasn’t kept up with demand. The population has grown by approximately 130 million in the last 50 years and housing hasn’t kept pace. There are a variety of reasons for this, the most obvious being a lack of foresight.
How much of the housing stock is owned by firms / individuals owning between 10 and *999* homes, though? This seems like a significant gap that the piece is uninterested in exploring. I mean, we could reduce the percentage of homes owned by "institutional investors" to zero by just setting the threshold at 1,000,000,000 units instead of a measly 1000. Problem solved! I don't know what people are worried about.
Mild snark aside, the issue isn't "institutional investors", it's the concentration of homes in fewer hands, with the intention of using them to turn a profit. In theory, that *should* include mom-and-pop landlords, except you do of course need some investment capital in the market to make it more responsive and spur development-- the question is how much, and from where? Defining the investors under scrutiny down to a sliver of the market and saying 'See? No issue,' feels a little bit like missing the point of the argument to begin with. I'm not saying Democrats are certainly right about the role of investors in driving up home prices-- I don't have the data on what percentage of single-family homes are owned by investors. But I read this article, and I still don't have the data-- just an overturned 'institutional' strawman.
None of this excuses the Republican plan, of course-- any law that allows the executive branch to define the regulated class will be used as a cudgel to help this administration run a grift by selectively applying the regulation.
Let’s not get distracted. It’s just a new branch of the larger three-card Monty extortion racket: cover your failures by finding a new scapegoat with deep pockets and exact tribute and cash donations with the threat of regulation. You make money looking like you’re doing something. And remember, the permanent tax cuts are upon us, he has to fill the budget hole and now tariff revenues won’t be doing the job.
None of which is to suggest, by the way, that private equity is not a toxic player in housing. The required returns ensure declining affordability and/or substandard quality at scale over time.
Love your work, Catherine. Have been a fan since you were at the Washington Post. Your stuff is always concise and easy to digest. Being a journalist myself, I appreciate that. Ex BBC and London Daily Telegraph, UN correspondent. Now writing books. All the best and continued deserved success on TV, in print, and at the Bulwark. Tony Brenna.