In my experience, $100b companies tend to be owners of things and not renters. Why would you pay multiple times for something when you were the ones who took the biggest risk in creating it?
And the people buying them also have profit incentives. Whether JPM is doing it to profit from rentals directly or with the expectation that some future buyer won’t make a difference.
But it’s illogical by any standard economic model that any supplier will not build more units if they see it can bring in more money. Either they build more or someone else does.
I think it's also because if you're a company that wants to make money doing real estate related activity, it's easier and more profitable to just buy existing buildings and sit on them than build new ones. This is a recent trend, and home building companies do still exist but...
"Between 2011 and 2017, some of the world’s largest private-equity groups and hedge funds ... spent a combined $36 billion on more than 200,000 homes in ailing markets across the country. In one Atlanta zip code, they bought almost 90 percent of the 7,500 homes sold between January 2011 and June 2012; today, institutional investors own at least one in five single-family rentals in some parts of the metro area"
The other part is that as the value of your properties increase, you can leverage this to buy more properties, capturing even more wealth.
My old landlord was a civil engineer who went into business buying multi-family homes in Los Angeles with his brother-in-law maybe 30 years ago. They now own close to 30 buildings, maybe around 120 units total.
I'm not unhappy that he's been successful. What's annoying is that this success is not replicatable by other generations. There's no way two people who make less than $100,000 are going to buy a single multi-million dollar residence, let along leverage that process 20 times over.
They contributed value by giving a pile of money to the previous owner (part of the economy). Now they're recovering their investment. If they can't recover it in rent/resale, then why would they buy in the first place? Then where would the previous owner get their pile of money from? Ultimately it went back to the original developer who was smart enough to build a house in a good place that people in the future will want. Without that chain of incentives, he could just as well have built it in the desert. That's what I think the value is - incentivizing property development where it'll be needed in the future.
But why can't you out build them? If there is demand of ten people who need houses and you build ten and a rich person buys all of them so they can rent them out, build ten more. Now the rich person has to buy those if they want to preserve the rental value of the original ten, so you've doubled their costs. They may not be willing to do this. If they are, build ten more...
At some point the rich person decides it's not worth buying 100 houses so they can collect rent on ten, and then they take a bath when they want to unload the first 90 properties which they can't rent for what they paid, to the benefit of everyone else. And when it's repeatedly demonstrated that it's possible to do this, rich people holding property they're not using will start unloading it and bring prices down without even building anything more.
i love tidbits like this could you say more? why can't they just buy the real estate out right why go through a startup isn't that more risky? isn't wework just airbnb but for offices
Wikipedia says $100 billion was raised with PIF contributing $45 billion, SoftBank contributing $28 billion, the Mubadala Investment Company contributing $15 billion and the rest from other investors including Apple. The estimated total dollar value of commercial real estate was $20.7 trillion isn't 45 billion a drop in the bucket compared to that
If they could buy 10K on-rental-market units at an average price enough under $100K each to leave room to build luxury housing there, it would make a hell of a lot more sense to just continue to rent them.
Because it's financial engineering. You get to sell off the property, get a one time bonus, and next year paying the rent becomes somebody elses problem while you're sipping margaritas around your new swimming pool.
Another question is "why shouldn't I create new houses and apartments and create more profit"? This is true whether or not that person/company already owns apartments in that place. The market is global.
We treat housing like investments. Buying multiple homes to rent out just makes the problem worse because first time home owners are competing with investors who can pay all cash.
Singapore and other Asian countries do a 99 year lease of government land near transit stations that allows a person to have an affordable place to live while they are alive, but not to treat as a speculative investment.
There's also many companies buying up as much real estate as possible for rent-seeking which inflates home ownership costs substantially (especially in my area).
But in a way if the rental prices were to stay reasonable (say it was a non profit running the schtick) isn't a great way for as many people as possible to share a limited ressource? Maybe property is like golden handcuffs, nice but locks you down...again it's more a western thing as we in the east tend to buy cash down... Though I would like to see some company buying out the inner city ground floor space of some of the banks or insurances that ghostify my town and inject some fun rental people instead
you mean like a condo that only exists because the contractor KNOWS it will sell all it's units, and the reason they know it is because rental companies buy in bulk.
reply