One aspect of articles like this that I've noticed is the absolute certainty the author seems to have that these terrible outcomes are inevitable, with no expression of a confidence interval or possible less world-ending alternatives.<p>I just... can't take articles like this seriously. It's the political equivalent of gore porn, and it feels like a waste of time to think about.<p>When Nassim Taleb wrote about "Black Swan events", he more or less ended circumspect skepticism, because now everyone is trying to find the next "black swan event" that they can predict, and have discovered calling out hundreds of them is the most effective way to get one right, with minimal/zero consequences for being wrong.
I love this article! These types of articles are the signs the market is about to turn over. The eviction moratorium and mortgage forbearance programs [i]just[/i] ended. It will take some time for the contagion from those programs to propagate thru the housing market.<p>Secondly, you can not get massive inflation with the velocity of money in the dumps[1]. Probabilistically, we are going to see stagflation until demand drops off due to higher prices and supply chains normalize. With "free" money drying up from "stimulus" packages, the demand for goods and services should wane in the coming months. There are various charts that show this starting to happen now. (Steve Van Metre on Youtube is good for macro stuff)<p>Thirdly, I recently watched a video from the Global Labor Org. [2] that made a few bold claims. One of which was, the US is probably already in another recession with consumer sentiment being the "tell." Interesting stuff. The methods are non-traditional to arrive at this conclusion and time will tell if they are bold and right or bold and wrong. I happen to believe they are right...<p>Anecdotally, I work the streets as EMS and Fire for my city, blue collar... but stable and can make SWE money with overtime. I worked through the GFC of 2008 and I see soooo many similarities, mostly in my colleagues at the station. Lots of them buy the most house they can afford monthly while living on the edge of personal solvency. They extract money from the property via HELOC to buy toys and remodel endlessly. If rates rise even a tiny bit, that party comes to a screeching halt. "Assets" are dumped at fire sale prices or they will simply walk away, ala 2008-09.<p>Yes, blackrock is buying thousands of properties, no one that pays attention will dispute that. However, we don't know how exposed these hedge funds are to the Evergrande collapse contagion that will spread like Covid in the coming months (ironic, no?). If these hedge funds are leveraged to the gills with bad paper, they will collapse and the houses will be sold at fire sale prices. My money is on the whole thing being exposed in ways we do not comprehend.... yet.<p>[1]<a href="https://fred.stlouisfed.org/series/M2V" rel="nofollow">https://fred.stlouisfed.org/series/M2V</a>
[2]<a href="https://www.youtube.com/watch?v=_-jmDyg0AcE" rel="nofollow">https://www.youtube.com/watch?v=_-jmDyg0AcE</a>
The author lists every reason under the sun while missing the most important one: zoning or aka restricting buildable land that is causing the housing shortage
So wrong.<p>1. Population is growing -> sure worldwide, but projected to start declining by mid century. In addition, Japan, Italy and other places are already in decline. Japanese home prices have been almost flat for 30 years. Tokyo has no zoning and you can build what you want. If you live in the developed world, East Asia, China, etc you are going to witness declines if you don't have immigration<p>2. People are moving to cities -> Were. Covid has allowed a lot more flexibility. First tier city residents moving to second tier and rural areas with good internet service. Real reversal of the last twenty years.<p>3. More people are living alone -> sure because there are fewer of them. Direct contradiction of point 1 by the way.<p>4. Multiple house ownership. So what?<p>5. Housing construction isn't keeping up. Sure. But that can be fixed if there is political willpower.<p>6. Material shortages and building costs. -> We were just in oversupply of materials post '08 financial crisis. We could be again. Just focused investment on production of materials. Land.. If you have Hong Kong density, the entire US population could squeeze into a corner of the state of Texas.<p>7. Sure inflation is soaring, but can come down again, with higher interest rates, which would also absolutely slaughter leveraged real estate investors.<p>8 Weird thing on the monopolists... They were already financing 90% of house anyway with debt. You were paying a rental equivalent called a mortgage. Now they're financing 100%, and you still pay a rental equivalent.<p>9 Outrageous leverage - individual homeowners have way better leverage. 30 year fixed mortgage with the option to refi to lower interest rates if they are available. Corporates don't get to access that. What's really happened is that post '08 financing disappeared for buyers with low credit scores.<p>The Solution is Simple
1. Get rid of most single family zoning
2. Create incentives and penalties such that cities with higher real estate prices build more housing of all kinds
3. More supply everywhere
I've always thought the solution to this was exponentialy increasing property taxes beyond the first property you (or whatever legal entity you create to horde properties) own. I'm dumb, so I'm sure there are reasons this won't work, but it seems like it should.
> The new paradigm: A house’s value is now the maximum amount of annual rental income that can be extracted from it by a global investor, multiplied by maximal institutional leverage.<p>This is generally the same thing from the other point of view?<p>Let’s put aside conversion of housing units to vacation stays. That’s a separate issue roiling some housing markets (and not others — some states have already dealt with the Airbnb problem)<p>Then, what you’re left with is that when a house goes on the market either a family buys it and pays mortgage however much they can afford or an investor buys it and… rents it to that family however much the family can afford. The investor is screwed if rent doesn’t cover mortgage, especially if they are over leveraged. Over time the math works out that the monthly costs of renting and owning are similar. Typically if it seems out of wack, it’s either because there’s a bubble and prices will crash or there’s a boom in the economy and rent is about to join home prices in the stratosphere.<p>The real difference between rent/buy now vs then is the difficulty affording a down payment in a low interest rate environment when asset values are bloated, and risk of being underwater if interests rates ever rise significantly.
A couple pieces of legislation can shift the equation drastically. Incentives carved out for the home you live in (versus investment properties) are a common way to squeeze more out of a state run property subsidy program without making too many constituents mad.<p>For now, probably not, as the the the majority of the US Speaker of the House's wealth comes from real estate holdings across California.
> <i>5. Housing construction isn’t keeping up</i><p>This is sufficient to explain why prices are much higher than they used to be. All the other stuff is window dressing for things the author already believes about the world. Once you've admitted that we've way under-built, then you don't need any other explanations.
For over a decade pundits have been calling for the housing market to fall, yet prices keep going up to no end. Even Covid could not derail it. Although homes are more expensive than ever before , thanks to historically low 30-year mortgage rate and low inflation, real estate is probably a better investment now than ever before, although the down payment is more expensive. But despite this, the returns are very good, assuming you can afford the downpayent. One thing I have observed reading these articles is that it's way easier to explain why prices keep going up than propose any viable solutions. I think the best answer is building outward, expand the economy outward.
Not a bad overview, but misses some things<p>(1) political instability<p>(2) $10M/home as sticker price wouldn't happen. Apartments and row homes would be more common substitutes (and already have sopped up demand in the starter home markets)<p>(3) what inflation measures show 10% inflation?
This author needs relax and take a breath. Even if he’s right that financialization is displacing some would-be homeowners, he’s ignoring all the second order effects and reactions that would counteract this trend long before we reached a state where there are 99% renters. The middle class having an acceptable quality of life is the only thing keeping society stable, and the masses would be guillotining the plutocrats long before we reach that point. If people seem politically disengaged today it’s because by-and-large Americans are doing alright, something I think would absolutely change if you had middle class working adults losing their homes due to property taxes growing much faster than incomes.<p>He cites growing property tax bills as the reason even current homeowners are not safe from this trend. If this really became a problem, you would just see an acceleration in Prop 13 style laws protecting incumbent homeowners. But also, many cities recalculate the tax rate each year based on their budget needs. If home prices all doubled in a short period of time, I’d expect the effective tax rate to fall since the city’s revenue needs grow at a slower pace.<p>Leftists like the author seem to start from the premise that somebody making money is always a bad thing and build their entire housing ideology around that belief. Profit motive is a great thing if it incentivizes the creation of needed housing. Profit motive is great when it motivates landlords to buy and fix run-down properties, raising the overall quality of housing in that community. Building and maintaining housing stock is work that entails risk and that deserves compensation. Without these financial incentives, the whole system breaks down. For a glimpse at the alternative, just look at what happened with housing in the Soviet Union: huge blocks of dingy 300-500 sq ft units with nicer units reserved only for the beneficiaries of political corruption, a system of housing I doubt any of us here would wish to adopt ourselves. But, hey, at least no greedy landlords got paid.
The price of the average house in the USA is based primarily on the government-guaranteed 30 year fixed rate mortgage. For a given interest rate and income, the house will cost exactly the maximum amount of loan the borrower can get. Banks no longer have any skin in the game - they go through a massive checklist, gather tons of documents, and once they can fulfill their legal mandates they immediately approve the loan and flip the note to investors.<p>With interest rates so low for so long, a significant increase in rates would decrease the real value of homes as the monthly payment would exceed what someone can afford.<p>As home ownership is a political football, you can be sure the price of homes will only go up. 2008 was a blip in the steadily increasing price of homes.
At least the US had a small housing crash in 09/10, most of the rest of the world hasn't seen that so its been 3 decades of non-stop boom. It has to add badly. I thought the baby boomers retiring would cause a lot of downsizing but that just hasn't happened.
He lost me when making statements about a paradigm shift and human history while explicitly talking about US of A. A fine country, but not representing the entirety of any global trend.
So, he hasn't heard of Bitcoin? You don't need all these regulations if you just fix money. Central bank controlled interest rates and inflationary monetary policies are the root of this problem. There's no way for these monopolists to lose if they can leverage with money printed from thin air. It's a risk-free return, because they can profit from centrally controlled monetary policy, which is guaranteed to work for their favor and bail them out if they take too much risk.<p>Make money printing impossible and everything will correct itself. When money is truly owned and controlled by people, free market interest rates will increase and kick out these leveraged rent-seekers. No one will lend their hard-earned money to these people for free.<p>The beautiful thing is that market forces will actually make Bitcoin take over the current system by itself. Free markets will always choose fair money, because it's more beneficial for all of its users, expect for those who benefit from a central mint.