It's impossible to read almost any mass-media article about real estate without leaving wearied by loaded phrases and unfounded conclusions. In what other sphere is a decrease in purchasing "fleeing the market"? Where are the fire sales, or even, where are the begrudging foreign property sellers?
Still somewhat fresh in memory are NAR economist Lawrence Yun's bizarre rationalizations in the runup to the 2008-09 GFC.
I agree those things are typical in articles like this, but a 40% drop in foreign sales can quite reasonably be described as fleeing the market. It's not a trivial decrease.
It needs context. Are 100% of American home buyers foreign? Wow, that's quite dramatic. Are 20% of buyers foreign? Okay, so that's an aggregate decline of 8 percent-- while impactful, not nearly as exciting of a number, which matters in a journalistic sense these days.
What was it? Like 36% decrease in foreign buying overall? China specifically was like a 60% decrease?
I'm not an expert or anything, so what I think means exactly jack. Having mentioned that, those decreases seem to me to be far in excess of anything that could be reasonably explained by economic factors alone. Something must be going on.
It says in the opening paragraph "tighter currency controls by the Chinese government". As with most financial articles there is no discussion of the relative magnitude of the effects at play. Financial journalists are perfectly happy to ignore the elephants in the room and report a laundry list of tiny effects that might have had an impact and then devote 1 line to whatever causes 80% of the change observed.
Fleeing implies they have a choice and are choosing to leave because of poor prospects in US housing. That might be true. But the choice might be involuntary or be due to sharply rising prospects in China or elsewhere. If China those capital controls are significant, maybe a better title is "Chinese purchasers dragged away from US housing kicking, screaming and cursing their own government". That is a possible interpretation based on what is included in the article.
> As with most financial articles there is no discussion of the relative magnitude of the effects at play.
Principal Component Analysis is really difficult to do on a live economy because no one is omniscient and policies/events enter and go in a less than ideal simultaneity.
I mean, the Canadians don't have currency controls. Neither do the Mexicans. All three of the Big Three foreign real estate buyers have pulled back in a material fashion this year.
Like I said, I just think something must be going on here. I don't think this can be waved off as "Well, it's just China."
"Hispanics are experiencing the largest homeownership gains of any ethnic group in the U.S., a turnaround for the population hardest hit by the housing bust that could help buoy the market for years."
Compared to Mexico and Canada, China's economy has changed dramatically in the past 20 years. A middle class emerged in China. Tons of wealth created. A large number of potential purchasers of foreign real estate. Mexico is today where China was at the turn of the century (when comparing GDP).
What's your source? Mexico's per capita GDP is the same as China's and Mexico's data is probably more accurate. Mexico is a middle income country and NAFTA has been transformative for Mexico in the last couple of decades.
I wasn't citing the per-capita numbers. Here's total GDP:
China, 2000: 1.2 trillion USD [0]
China, 2017: 12.2 trillion USD [0]
Mexico, 2000: 700 billion USD [1]
Mexico, 2017: 1.15 trillion USD [1]
If GDP is a proxy for wealth, China --over the past ~2 decades-- had way much more potential in investing in foreign real estate. I don't understand why per capita GDP would be more relevant in determining which nation would have more capacity in investing in foreign real estate. That capacity for investment seems independent of how the wealth is divided among a countries citizens.
"That capacity for investment seems independent of how the wealth is divided among a countries citizens."
The rest of your comment makes sense. But this last part doesn't seem right: if wealth were distributed evenly in China, then there might be no Chinese buyers for US real estate. It's only due to inequality ('how the wealth is divided') that there is a segment who can afford this.
I don't think we'd be able to infer the wealth distribution from GDP per capita, either. Total GDP tied with the Gini coefficient might tell a reasonable story. But the premise of Gini Index of 1 leaving all people too poor to invest directly in U.S. Real Estate makes sense. I'm pretty confident that China's wealth distribution is far from perfectly equal among all citizens.
The inability to acquire fully convertible currency means they have to leave the market. Yes, they are being forced, but the same could be said about any influence they would have to react to.
The main problem Chinese face currently is getting money out of China that is the reason Chinese property purchases are down it is the same in Asian cities and countries where Chinese were doing a lot of purchases last few years.
I don't agree with either statement at all but the second statement seems predicated on the first. That is, some people bought in a bubble the Chinese created and they lost their savings when the bubble popped and the Chinese stopped buying. This does not at all resemble the dichotomy of, damned if you do or damned if you dont, like you seem to be implying.
Again I do not agree with either statement even remotely. I haven't done any serious research on the current housing market and dont harbor any feelings or ideas on it.
One thing I noted was that the median price paid by foreign buyers was not as high as I expected when compared to the median price for all buyers (280.6k compared to 259.6k).
This indicates to me that these foreign buyers are not necessarily institutional investors or companies, but foreign citizens, so the segment of the market they're in is probably not the multi-million property segment, but the more "standard" residential properties market a normal US resident would be in. The article does somewhat confirm this:
>"Foreign buyers include those living in the U.S. and overseas, but the majority (60%) were recent immigrants and foreigners who live in the U.S. for work, school or other reasons."
If you also take into account that there is an effect of the purchases made by these buyers on the "median price for all buyers" cited above (and so the real difference in median prices between foreign/domestic buyers is higher than what is suggested by those figures), I think the effect is somewhat diminished (as this pushes them into a more "upscale" market).
Even with the above, I still think it's relatively safe to assume this will have a downwards impact on US residential prices, at least in these states (but I'd need precise figures as to what share of homebuyers are foreign).
*edited the last paragraphs to correct something I had gotten mixed-up on
From the article, the CEO and director of Juwai.com explains it as a result of "a combination of anti-Chinese political rhetoric, a clampdown on visa processing, and of course tariffs".
My simplistic view is foreign buyers want to buy because of stability in the us market, and as a way to park their money away from their government.
The simplest reason i can think of is due to tariffs rmb lost value compared to us, making us housing tad bit more expensive. But housing market has dropped a bit to make up for it.
1. Visas aren’t permanent. My best friend renewed his H1B, ran through that renewal, and had to spend a year out of the country to reapply (all while in line for a green card)
2. Given the finite nature of real estate, especially in metro areas, (vacant) investment property harms the residents
Counterpoint: at least in AZ there is a tax for foreign buyers.
I think it doesn't help in the current 'lootacracy' where zero interest central banks loans are being used to jack up the price of existing real property. Vs historically where foreign money finances development and upgrading of real property.
America has mostly a free market, so why would you expect otherwise? America doesn’t have a hukou system, nor restrictions on internal residency, so why would they distinguish between residents when buying property?
Because foreign investment in real estate can massively distort prices for domestic market participants, which can lead to a variety of other negative affects for the communities affected by that investment.
One could argue the same applies to investment properties by Americans who do not live in those communities, but it seems like an acceptable line to draw I suppose.
They simply don’t have the framework to regulate those kinds of things, however. And it doesn’t really fit with the economic liberalism that has been pretty constant since it’s founding.
It is kinda weird though - if an alien race basically arrived with trillions of gold bricks and started buying US properties (and obviously not showing how many gold bricks they had or that they were aliens) there would be an effective take-over of the country. There would be absolutely "rich" people with gold bricks in their trunks driving around realizing they can't actually buy other homes. edit - I'm talking about space aliens because hey ;)
Same applies for the stock market (foreign money is pushing it up, increasing the costs at which retirement funds purchase equities). But yeah world's finance is heavily interlocked.
Not really the absolute price of stocks isn't so much of an issue though the only thing that really matters is how much it's growing for things like retirement funds and investing. A house however is a pretty indivisible unit, splitting or sharing a house among many owners is really unusual outside of houses built for that purpose. On top of that not everyone has to own stocks (somewhere over 50% of American's have no stock holdings not even in retirement plans) but everyone needs some kind of home/shelter, be it rented or owned.
I'm an American and it's dawned on me recently how absolutely bonkers it is that we see housing--a basic human need--as something to make a profit from. Foreign-owned houses/land left vacant for most of the year is definitely a symptom of this problem.
Housing held for investment, which is usually rented out, is tied to the economic realities (e.g., wages) of a given area. People can only afford to pay so much. You can always choose to rent or buy. Prices to buy are quite high in hot markets. But the cost to rent will be tied to wages. So, the basic human need should still be getting met. Ownership, though, is becoming a smaller and smaller pool-- which meets the ongoing trend of progressively growing income inequality.
Compare the delta between what you'd spend on rent versus a mortgage (all in costs-- principal, interest, taxes, and insurance. "PITI", they are collectively called). Take the difference and invest it. I'll admit this won't work for everybody, since behaviorally most people spend their whole paycheck (without saving any of it), but there are plenty of low-cost index fund providers that have minimum investment requirements far below the cost of putting 20% down on a house.
There is no house in LA where you can't take an arbitrary 10 year period and make money even if you bought in 2007 on the eve of the recession. We've reached the point where even putting 5% down on the median house is unaffordable to massive swaths of the population in southern california. The median is 600k now, who the hell can afford to drop 30k in a world where the median student loan debt is 40k? Not to mention something like 40% of americans can't come up with $400 cash without selling something or taking out a loan.
Of course you save on a mortgage, in LA you profit on nearly every mortgage no matter what. But that benefit is limited to the class of people who can afford to put money down, and that class is a minority in CA.
Exactly, in my European city that delta he talks about would be negative.
Plus since the crisis the banks will only lend with 20% deposit, plus 10% taxes - so you need a 30% downpayment.
Given a flat will cost you around 180k euros you can see why home ownership is in decline, because no-one has 60k euros lying around when the average tech salary is 30-40k euros and the average normal salary around 20k.
This is only the case if everyone has to stay in their city. We are already seeing jobs migrate to smaller metros in the United States in order to reduce wage costs. Employees will follow, and pressure will reduce.
We see this with the large investment banks and internet companies. Before this, we saw this with the large manufacturers. Believe it or not, cars used to actually be manufactured in Detroit city limits. Baltimore was full of canneries, etc.
I'll be the first to admit it sucks, and I don't feel like moving ---I selfishly want other people to move. I also selfishly want other people to buy condos so I can live in a single family house. But life is full of such tradeoffs for those making less than the top 99% or so of their region's income.
Being that rents have dramatically increased in the US in almost all places while wages have not seems to put some dents in your theory.
Also rent is becoming an ever larger expense in almost everyone's budget. I have a feeling we are playing the "market can remain irrational longer than an individual can remain solvent" game yet again, especially propped up by low rates of borrowing that's going to explode in our face yet again.
Rents increased because people can afford it, at the expense of everything else in their budget. If it was "too much", they wouldn't pay it-- the sacrifices would become too big, to the point where living on the street or sleeping in their car would look like a better option. For that to happen, rents would have to be so high you might be deciding between food and a place to a sleep. We're far from that.
We aren't in LA which has 60k people living on the streets and many more on the brink. What happens when rents get too high is that you ultimately grind your city to a halt because you start making the apartment disproportionately available to certain occupations.
Sure, the software engineers move into the apartment and the janitors move out, but you still need janitors, you still need service workers, you still need these low wage jobs to actually make a city function.
So now the janitor moves to a place that's 2 hours away and still needs that job where he used to live, so he buys a dirt cheap car and commutes from where it is affordable (which doesn't have any jobs for him) to where he works.
Roads get clogged, road maintenance costs increase, pollution increases, the costs to repair things increases because you gotta pay people more to spend more time getting to the job site, services are hindered, goods deliveries are hindered because now everyone is spread out across a 500mi suburban area instead of being close together in a dense and sustainable urban area, and we end up with the LA we see today: a hellhole for the working class, but a boon for the few people with capital to grow.
There is a limit for lateral growth and it's already been reached in LA in the 40s. They built highways which were a temporary reprieve for the traffic, but now those are clogged as badly as the avenues were in the 40s (and still are today). It's been time for vertical growth and transit, which is how much of the city was originally planned, with a vast interurban rail network spanning the entire basin and the valleys that made the NYC subway seem paltry.
It's just as bonkers as people profiting from providing food--a basic human need-- … which is to say not at all.
There's no difference between somebody 3000 miles away in the US owning property and renting it out and somebody in China owning that property and renting it out. The problem is housing stock being underused, but that (a) can be addressed via taxation and (b) is no different from stuff like empty nesters keeping their 4 bedroom house after the kids move away.
Food is at least a healthy market, look to other human needs which are regulated like pharmaceuticals and you’d see that people get very upset about it.
A major way in which pharmaceuticals are regulated is to enforce western monopolies internationally so that poor people are priced out of getting them.
There's a big difference: it's more likely that someone from your community shares cultural values and is interested in building a sustainable community.
To the person living at the other end of the world you're just a source of income.
We're human. We see _everything_ as something to make a profit from, and will do so if the system allows it.
Even if you don't want to, _somebody_ will, so you're a chump if you don't.
The solution here is to fix the system allowing it (after all, the above logic could apply to slavery just as easily). For starters, break up the housing cartels, also known as "community planning boards".
If you've not noticed that with the rapid increase in the costs of medicine and its exploitation people are starting to die.
Unless you want to go back to a world where some percentage of people die from lack of shelter of the rich can make massive profits it might take a little rethinking of your position.
The whole green card thing is just a legal niceity. Nowadays a Chinese can you just show up at the US southern border saying they're a refugee of the Syrian civil war and bada-bing bada-boom they're now on easy street.
There are lots of people without green cards or citizenship who actually can live in houses they buy.
-- People on H1B visas
-- People here as students. Okay, they'd have to have rich parents, but some times it makes economic sense
-- Other people here for the long term but not necessarily having green cards (people here as refugees, for example).
Be happy but be aware of the cascading impacts. Foreign buyers affected the price in valley and elsewhere in big markets, and while you may get cheaper house don't end up causing another subprime. All it needs is one domino to move.
I would prefer lower prices but am not sure it will be happy for all.
Not to mention that money (as in USD or any other fiat) is mostly backed up with houses on banks' balance sheets. Perhaps it'll push down the ridiculous prices on US equities too. Whoever has much of their investing time left should cheer for a good stock market crash - to buy stocks cheaply.
Zoning laws have more of an impact than foreign purchases. California has been under-building for decades. It would take a monumental political change to play catch-up.
True, a market that allowed for up-zoned property building would absorb the foreign investment. Hell, it would help bring money into the community. Exporting flipped condos to foreign buyers is wealth transfer to that locality, if the market can be permitted to expand in response to increased demand. This does not mean "bulldozing Central Park," it means "allowing the owner of a laundromat to build a 3-story condominium."
The worst-case scenario in that case is "overbuilding," a deceptive term that means that housing becomes affordable again to those who need it, e.g. minorities previously subjected to redlining.
Your neighbours have been confiscating property for the sake of parking welfare and density restrictions (i.e. forming a housing cartel). I think that's more likely to be your problem.
I believe the international buying in southern california has been a drop in the bucket compared to places like Vancouver. Housing costs in CA have surged due to prop 13 limiting turnover and NIMBYs refusing to allow supply to be built in their neighborhoods. Housing demand follows job growth, so as long as CA is doing well and hiring a lot of people, housing costs will be surging if sufficient supply isn't built.
Chinese leverage is high and their economy is trending down. They have to contract into slightly more conservative positions. And afaik, they were the world wide cause of inflationary real-estate.
I would suspect that US markets are less to blame than foreign economies showing signs of contracting. In any case, it's good for American's.
It's insane to me that our ability to buy homes is so adversely affected by foreign investment.
As our economic productivity centralizes around cities, zoning laws protect existing property owner interests, which in turn, restrict supply. Foreign investment certainly plays a role, but I think it misses the forest for the trees.
Also the fact that people can leverage a home purchase 5-to-1. If mortgages weren't a financial instrument, few could afford today's prices. I won't go into detail here, since the chances of mortgages going away is near-zero, but the possibility of zoning changes is somewhat reasonably possible.
Demographics is the real key issue. A bulge of kids had reached home buying age all at once (the children of the Baby Boomers). We're now on the other side of that curve. Prices are starting to stabilize in all large cities that have seen a bubble.
The demographic bubble/bulge was made worse by foreign investors, zoning, speculation, etc., but fundamentally all the kids of the Baby Boomers entered the market at about the same time.
Housing Shortage After WWII (aprox. 1945-1955)
30 years latter another housing bubble (aprox. 1980s)
30 years after that another housing bubble (aprox. 2010s)
Incidentally Trump is a good reflection of America. His father made a fortune in the post war housing bubble, Trump is the face of the 80s housing bubble, and now he's back again for this housing bubble.
I would argue that foreign investment plays almost no role.
Homes generate cashflows (rents). Rents are a function of local economy (paychecks). What one is willing to pay for a home is a function of rents, risks, interest rates and expected changes in rents, risks and interest rates.
If home prices are not detached from these fundamentals (and is there evidence that they are?), some investor is going to buy them, foreign or local.
The U.S. economy is one of the most stable in the world, and certainly the most stable of any major world power. In fact, many economies are directly tied to the value of the dollar directly or indirectly. A lot of foreign investors are simply trying to put their money in US assets. Most conservatively in treasuries, least conservatively in the stock market. Housing falls somewhere in between.
To these investors, the fundamentals of the housing market don't apply as rigidly.
You're one of the few commenters in this thread who actually gets what's going on.
This is not in any way about the cost of housing in the US. The US real estate market has virtually no impact on capital flight from other nations.
The article completely misses the point, for understandable reasons: this is a domestic Chinese fiscal and political issue, as perceived by CNBC's Real Estate Correspondent.
What we're seeing is the effect of the latest step in tightening capital controls by Beijing, designed to reduce capital flight, something which they've been actively trying to limit, and publicly so, for at least the last three years. The paid lip service to the single biggest factor.
People engaging in capital flight don't care all that much about market prices. Paying more than the value of something is acceptable if the alternative is losing everything. Buying a home and leaving it empty is not a problem. Using it to get in-state tuition so your kid can get a western education is better, but not necessary.
Money laundering fronts will give up profit margin that would be unthinkable in a legitimate business, all in order to turn some portion of ill-gotten gains into something that can be more safely used.
The reason Chinese nationals are buying fewer American homes has nothing to do with America, and everything to do with China. The current American political climate has nothing to do with it, either, unless one's considering America's stability and the international status of the US Dollar (both of which are the surest respective bets on the planet), the two things that make it such an attractive destination for capital flight. It's also an economy in which one can put that capital to good use without much difficulty (relatively speaking).
Beijing swings back and forth between opening up their capital markets, and maintaining domestic stability. That's all this is.
I suppose it might work like council housing (used to) work in the UK. The council builds large numbers of homes and houses people in them for lower than market rentals. Of course people are still free to build and buy homes privately if they want.
The problem with this in the UK was that the stock of council housing became immensely valuable and as soon as we had a right wing government they started to sell it off. Selling it off created home owners (who are more likely to vote for that government) and raised "free" money which could be given out in tax cuts, so it was a natural target.
In the UK an alternate system - housing associations (HA) - survived a little bit better. Here the houses are either built with public money and handed to a housing association (a private trust) or built by the HA. The HA then rents them out on similar terms to council houses. Because they aren't publicly owned the government couldn't sell them off. Except that because some HAs built using government loans or assistance the government was able to extend the right of tenants to buy to those homes too.
In the Netherlands we have the good tendency to take these away from politicians: any extra budget MUST be used to lower our national debt, not to lower taxes or 'buy votes' for the current people in charge.
This takes away the incentive to sell off public goods for their own short term profit.
Wow, are you joking, or has the new socialism worked its way into people's thinking so easily that you would state such a notion in so offhand a manner?
"Real estate should not be a market and an investment opportunity"? Are you kidding? Real estate, and its scarcity, has been the driver of competition, wealth, value creation, for oh, say, all of human history. There must be something to that, even if you think it's not ideal for how it works out for some people.
Just like that, you say you want to do away with it? Stunning.
>Real estate, and its scarcity, has been the driver of competition, wealth, value creation, for oh, say, all of human history.
Much like excessively long copyright periods, real estate also allows for excessive economic rent that can destroy value creation. Incentives for individual real estate owners are divergent to those of society, hence we see problems getting mass transit online in many places and lack of sufficient housing in booming job markets.
There needs to be some balance between needs of society and individual. I don't claim to know the fine line of this balance, but that's how long-running successful societies work. Opposite side is dictatorship in some form - most common being some variant of communism regime that I had displeasure to live in for initial part of my life - its not a good system for 99% of the population.
This is generally highly controversial topic, people either align as per their left/right viewpoints, or their current situation and needs (homeowner/investor views it differently compared to somebody young looking wanting to buy accommodation and and being priced out of their favored location).
> Real estate, and its scarcity, has been the driver of competition, wealth, value creation, for oh, say, all of human history. There must be something to that, even if you think it's not ideal for how it works out for some people.
You know when humanity started evolving rapidly? When real estate stopped being the main driver for wealth. And you know how the system where the main source of wealth was real estate was named? Feudalism.
I'd much rather have socialism than feudalism...
I know that there's more options than these two, but we're seeing again a major increase in real estate value that's causing average people to not be able to buy their homes or not even be able to rent something decent. Over time it's starting to look a lot like that regime where a few people "rent" real estate to masses of people... and can (almost) control those masses through it.
Personally I'd make it so big groups of people get affordable rents or even affordable prices for homes, through various laws that incentivize private ownership and constant improving of property. The latter part is not even socialist, it's a Roman principle.
It's a bit of an extreme case, but basically if you'd own land and someone else took it over (not by force) and took care of it for a longer period (several years), that someone else could claim ownership and be granted the land.
So if you'd "abandon" your property, someone else could take it over, provided he would take care of it.
The modern equivalent would be, in my opinion, buying houses or apartments and leaving them unoccupied. Outright usucapio would be a bit strong, but I definitely think exponentially higher rates of taxation would make sense.
>>You know when humanity started evolving rapidly? When real estate stopped being the main driver for wealth. And you know how the system where the main source of wealth was real estate was named? Feudalism.
Real estate stopped being the main source of wealth because other sources of wealth grew, not because the state interfered in the market to hobble real estate as an investment.
Humanity began progressing rapidly because of better enforcement of private property rights, which made investment to create productive capital more profitable.
Deliberately harming the real estate market by making it harder to invest in it will do no such thing, and will only add to the restrictions that have increasingly suppressed housing supply growth, and worsened housing affordability:
Masking the true price (cost) of something is what causes the market to be inefficient, resulting in excess or insufficient supply.
If anything, rents indicate true cost compared to mortgage costs which can accurately signal for more (or less) construction needed. In the US, ownership costs are masked by subsidizing interest rates, loan repayment periods, down payment amounts, and mortgage interest tax deductions. Also, property tax limits subsidize existing owners.
There is a bit of a conflict in the mechanics of democracy with zoning laws and taxes, with existing owners having an incentive to limit supply, especially in booming markets. It’s a very tough problem to solve, but making clear the costs of all the subsidies would help.
The true cost of something depends on the market, and the market is created and shaped by law. If the law changes to disallow foreign direct investment in residential housing and the prices drop then this IS the new true price.
Homeowners don’t really care about the cost of subsidies since they benefit the most from it.
The real problem is that zoning is decided at the local level; local turnout is not very high, so it doesn’t take that many concerned homeowners to overthrow someone who is too pro-growth. And usually local municipalities are balkanized subsets of the region, who want all the upside of regional growth but none of the downside. In the most extreme example, the Bay Area, this leads to lots of permits for job expansion in small localities but not for housing, since residents need a lot more in the way of services.
It would be much more healthy to have zoning laid out at the state or regional level, but regional level governments don’t even really exist in the American context, and only a few cities in America have continued annexing suburban areas into the 21st century.
>The real problem is that zoning is decided at the local level; local turnout is not very high, so it doesn’t take that many concerned homeowners to overthrow someone who is too pro-growth.
Hence removing the subsidies or at least making explicit the cost of subsidies, so people are incentivized to go out and vote for increases in supply. Another option is to hand over ownership to government and make everyone do land leases to make them participate in the market and therefore vote the “right” way. Not a perfect solution of course.
The problem is that, in general, wealthy and older people are more likely to turnout and vote, and more likely to participate in lower level elections, and this class of people is well-correlated with owning homes. So homeowners have quite a lot of power even compared to renters, and they are more than happy to flex it. They don't really care that there are subsidies, because they're the primary beneficiaries.
>It would be much more healthy to have zoning laid out at the state or regional level, but regional level governments don’t even really exist in the American context, and only a few cities in America have continued annexing suburban areas into the 21st century.
Not just zoning, soooooo much shit would be better done at the regional level because it would allow the urban areas to do what they think is best for them without pissing off the rural areas (or needing their approval) and vise versa.
Power is completely fucked at the local level in a lot of places. In LA councilmen have basically unilateral power on what gets built in their district, and of the people who vote something crazy like 70% are homeowners (which only make up 30% of the population of LA iirc). So NIMBYism in LA ends up with grossly disproportionate representation that isn't going to ever change until the city charter does, probably long after the city is completely fucked from being unable to build housing supply or transit needed to sustain economic development. It's hard not to be a cynic when these people have just so much entrenched power.
> There is a bit of a conflict in the mechanics of democracy with zoning laws and taxes
There’s really not. All extant democracies recognize private property, with certain limits for the public interest. Zoning is an extreme imposition on private property rights, of a sort that ordinarily would only be consciences in light of equally compelling public interests. Unfortunately, we had a few bad Supreme Court decisions at the height of white panic about desegregation that normalized such impositions. You’d hesitate greatly before taxing someone half the value of their property, but local governments think nothing of eliminating half the value (or more) of private property through zoning or historical preservation ordinances.
The extremely high prevalence of HOAs in the US indicate to me the population not only wants zoning, they want to go further than what normal zoning does. The conflict I’m talking about though is two fold: the voter voting in their own interest which is opposite to those of society as a whole, and the voter voting for gain in the short term while sacrificing the long term.
All democracies allow personal property but this does not extend to land. In fact, all democracies have always put controls on land ownership and treatment of tenants. Even the US itself taxed land before income.
The only places with no protections were medieval societies and their resultant immense inequality.
The equilibrium market price will displace owner-residents because the return on a property that is bought and rented is always greater than one which is bought and lived in (ie not rented).
There was very little urban home ownership until twentieth century incentives and regulation directly changed that. Efforts made by people like FDR, William Beveridge and influenced by Keynes who would all be called vociferously denounced as socialist today.
So unless we want to return to that historic lack of home ownership, those are the kinds of policies needed. This because the eventual outcome of an uncontrolled hosing market is as problematic as an uncontrolled market is to climate.
It is being worked on in many european cities. Berlin for instance has a public housing buyback plan in place and many European cities are looking at or have already placed rules in place making foreign ownership or running of massive rental companies more expensive or difficult. Generally commodification of essential needs such as housing and food does need some regulation in order to prevent victimization of the poorest citizens.
> A company buying thousands of homes and then milking workers through rent for decades seems unethical.
Providing homes for rent is a service provided to people that they can pay for if they want to make use of it. An economic transaction involves an exchange for money. It is not milking someone. Is a grocery store milking you for food you buy?
A house has value. The people who built it had to feed themselves and their families. Land has value. It is not free. I have to pay expensive annual property taxes to maintain ownership. The services a bank provides are not free. Living expenses are a real thing and even if you can't afford it then someone else is going to have to pay for your housing.
The difference is that housing is a market where you can't increase supply much, because of location. This makes it an accelerator of inequality, unfairness and hereditary wealth. Also, regulatory capture.
And if you derive any rental income from the land value whatsoever, you are milking money from something valuable you did not create and did not make valuable. It's a purely parasitic form of value extraction from something that isn't free.
This is why the value of land improvements (e.g. having a nice house) should be untaxed, separated from the value of the land while the rental value of the land should be taxed at 100%.
And, until we do do that, we shouldn't pretend that rent isn't largely (i.e. ~60%) parasitic value extraction.
Then consider the "value" of an empty lot, the archetype of land in itself. Its _price_ is based solely on the the _value_ that those near it produce. A high productivity region increases the value of neighboring empty lots. The lots themselves have produced nothing and whatever price they command is solely a drain on the productive part of the economy.
>Is a grocery store milking you for food you buy?
Value added by building or improving a resource like food or a structure is fundamentally different and obviously needs to be compensated and encouraged. But profit from an unchanged property is entirely a zero-sum gain moving wealth from productive parts of an economy to unproductive.
Depends on the details - the tax could be paid by the occupants a bit like the council tax in the UK. And then discounts applied. Or by the owner if the property is unoccupied.
You could charge exponentially more tax based on the number of units rented. That way even if the cost is passed on, renters are incentivized to rent from small landlords.
Then tax and cap rent increases county wide on every building no matter when it was built or if a tenant moves out. Then again, I'm pretty far left on housing issues. In my ideal world, the rent formula would be:
monthy rent = 0.3(minumum hourly wage * 160 hours) * n bedrooms; with studios being n = 0.5
That way if landlords want to lobby for higher profit margins, the only way to do it would be to also ensure the working class can actually afford to supply those higher profit margins for the landlords.
I am completely against a 'landed class' collecting malthusian rents. But, if these companies are adding value that shouldn't be overlooked. Not all people want to maintain a property, and not all people want to "rent for decades" in the same place.
I rented in a larger city last year. Had I bought instead of renting I would have had transaction costs that would be 3x the amount I paid in rent. Not only that, if something broke in the apartment I had someone I could call to take care of it. I didn't even have to think through the logistics of getting contractors to my apt and getting bids on jobs.
I rent for the exact same reason, and can agree. The second reason is that there is minimal opportunity for capital appreciation where I am, and I do not feel like locking up a significant deposit in such an illiquid asset. I get much better returns on my money elsewhere.
The real estate agent wants between 2% and 3% of the actual value of the building from both the seller and the buyer.
Taxes (unless it is a "first house" designed and actually used as your "primary residence" AND provided that you are not going to resell it within 5 years, in which case will be around 2% of nominal value) will be around 9% of nominal value (usually much lower than market value).
Then there is the notary fees.
So, example, you buy an apartment paying it 200,000 Euro, something that would be rented between 600 and 800 Euro/month (if you are lucky):
Estate agent (buying) 6,000 (0.03x200,000)
Taxes (buying) 10,800 (0.09x120,000)
Notary 2,000
Estate agent (re-selling) 6,000 (0.03x200,000)
That is 24,800 Euro to which you add the equivalent of 1 year land tax probably some 800 Euro, and some repairs/refurbishing making it more than 26,000 Euro (and without considering what the 226,000 Euro could have produced if invested).
Compare this with 12x800=9600
Maybe it is not exactly 3x, but it is at least 2.5x.
If you prefer, unless there is a huge increase in house value in the (short) period of ownership, the breaking even point is past more than three years.
>Ah like France with its corrupt lawyer cartel then.
I am not following you, in the example I posted there is no "lawyer" (corrupt or belonging to a cartel or not) involved (as normally there are no lawyers involved in "normal" real estate transactions).
So the cost to buy/sell a $1mm apartment could be in the range of $110,000 after broker fees and all taxes are accounted for. An apartment at that price would rent for maybe $4k for month, though that will rise at a faster price over 30 years than a fixed mortgage + common charges. Unless the value rises at a pace much faster than the rate of inflation, you're going to lose money if you don't hold on to the place for a few years. See this fun calculator to find the inflection point:
I think a lot of landlords are slumlords without even realizing it then. Landlords whine and scream and sound the alarm that shit will hit the fan when cities try to limit rent increases to a generous 5% to keep pace with actual wage growth. Yet to the landlord, did their costs even increase at all the year they jacked the rent? In CA, their taxes remained the same as when they bought the place. Hiring laborers to upkeep the property has always been about hiring from the very bottom of the handiman market, a market that also has not seen wage growth.
So if all the landlords costs do not rise all that much, why do they feel justified to raise rents sometimes well over 10% a year? The only reason is to fatten the wallet by milking the tenants, and we've hit a point where in some cases the working class has to commute 4 hours a day in desperate effort to find a job that pays the exorbitant rent.
'Foreigners who have studied or worked in China for a minimum of one year are permitted to buy property. ... Unfortunately, a foreigner can only own one property and it has to be residential. Again, the foreigners are banned from renting the property as you are supposed to use it for dwelling purposes.'
Thanks for bringing it up. I see it being perfectly rational for countries to mirror asset possession rules that are instilled on their citizens abroad.
There is so much draconian regulations of foreign bank account holding all around the world, but none regulating foreign possessions of the said bank. Same for real estate.
LOL! US would be always ranting instead of being happy that security risk is leaving country/ceased to buy their place for living. Can believe my eyes how stupid one country can be. First you impose sanctions and then you can't believe when these sanctions hit you back. bwahahahah
Foreign + corporate ownership of single family homes is a ridiculous concept and significantly contributing to our inflated home prices. You should have to be a citizen to own property.
Imagine having to get a visa to go to a home you own?
Citizenship is an absurd requirement IMO, there are greencard holders that live and work for decades in the US without going through the onerous and expensive process of obtaining citizenship.
OP said "corporate". A person and a company are two separate things (even though they get problematically conflated in the concept of "corporation").
Calling citizenship outdated is a fashionable idea for the class of people who can cherry pick their prefered work-, investment- and tax environment.
In the old days an individual would have some sort of responsibility towards the community, including the effect of house ownership as described by OP. Another outdated concept?
Real estate sales to foreign buyers is a form of export. Maybe the best export:
* the good (the house) does not leave the country
* the money continues to flow after the actual sale: real estate taxes and maintenance
* taxes go to the local government, but the non-resident buyer does not really consume government services, so that benefits the rest of the local population
* maintenance go to the local economy
* when the rich foreigner visits, they spend like a tourist, not like a local, i.e. they contribute to the local economy disproportionately compared to their actual presence
Why do rich Chinese buy in Manhattan? Why not in Lagos, such as this wonderful house [1] that goes for $1MM ? Because of the rule of law. Real estate sales to foreign investors is actually export of the rule of law. The rule of law is simply a more valuable asset in Manhattan than in Lagos, or in Beijing for that matter.
Impeding real estate sales to foreigners simply means obstructing the monetization of maybe the most valuable asset that the Western world has. (or maybe the second most valuable)
"Impeding real estate sales to foreigners simply means obstructing the monetization of maybe the most valuable asset that the Western world has. (or maybe the second most valuable)"
> taxes go to the local government, but the non-resident buyer does not really consume government services, so that benefits the rest of the local population
The non-resident might not spend any money on goods or services in the municipality resulting in less tax revenue for the city/state. Especially bad if they don't even rent it out to anyone.
Still somewhat fresh in memory are NAR economist Lawrence Yun's bizarre rationalizations in the runup to the 2008-09 GFC.
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