Local building policies are creating a huge problem here, but a big part of what's causing prices to skyrocket is not tech workers, it's foreign investment...
for the period April 2013 through March 2014, total international sales have been estimated at $92.2 billion, an increase from the previous period’s level of $68.2 billion [1]
And according to some reports, 90% of new condos sold in Miami are to foreign buyers.
A soon-to-be-released study by New York consulting firm Integra Realty Resources for the Miami Downtown Development Authority, an economic-development agency, found that about 90% of the buyers of new residential units are from abroad. Despite steadily increasing prices, their appetite doesn't appear to be waning... [2]
Rules for purchasing real estate in the US are generally pretty relaxed, and as wealth grows in the rest of the world, people are looking for places to invest (and probably in some cases "hide") their money. The "premier" cities receive the bulk of that investment.
Tech workers and private buses do make it more convenient to live in SF and I'm sure it helps drive up the cost of renting in the city, but only 7% of the population of the city works in Tech. There are much bigger forces at play here.
Is no one considering the impact of foreign investment on housing and sunbsequently rent prices? Sure tech workers play a part, but they often pay a better part of their salary to the land owners who are more frequently likely to be foreign investors
So the issue is that foreign investors are significantly driving up the cost of real estate, making home ownership prohibitively expensive for locals? Has anyone quantified the impact in various regions?
This really comes from ultra-low interest rates. Hike interest rates to 20% (US in 1980s had over 20% APR for mortgages) and see what happens with real estate prices then.
Foreigners influx has some influence but not as much as one might think.
One thing that I haven’t really seen explored much is how much influence real estate investment from foreign companies influences housing costs in places like this. I don’t foresee it being an overwhelming influence, but I can’t help but wonder if there’s a crowding out effect going on where a decent percentage of housing sits idle, or not in use by people who actually work in the area.
Edit: meant to say “foreign countries”, but the point is the same.
I suspect it is less about the “foreign billionaire” and more about the single-digit millionaires worldwide looking for an ostensibly safe place to park some money and be assured of a healthy return (or at least not a loss).
It's a self-perpetuating cycle¹: people invest in real estate; prices go up; it becomes a more attractive investment.
Downvoting for the massive sense of entitlement shown, which is high even for HN!
Lots of global cities do have bubbles from foreign investment parking wealth in property, driving up prices and squeezing out locals looking to buy. Here's how it works:
Foreign investors buy luxury properties
Top-tier locals can't buy luxury properties, buy the next highest property class
Second-tier etc.
Lower-rung locals have no properties to buy. Not: they don't have enough money; but the property type they would traditionally occupy isn't available, and no alternatives have been built since it's always in a developer's best interest to aim at the top, in the abscesses of government incentives.
It gets worse when foreign real estate speculation is allowed. Where I live most new condo developments are bought out by millionaires in Asia for the sole purpose of making money thus I need $700,000 for a tiny studio.
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
" There is a non-trivial amount of money coming in from other countries to bid up property as well."
That is true and one of my neighbors was a realtor for 20 years and has a number of friends who advertise in foreign countries that they can find you an investment property in California. Typically though, those buyers seem to be "status invested" rather than simply buying a house. So they look for places in San Francisco, or Palo Alto, or Saratoga (places where there is some status associated with owning a home there) rather than say Sunnyvale or Santa Clara.
That said, my neighbor came to the US on an H1B with his wife and daughter, is working for a local tech company, and his parents gave him the money for a 20% down payment on his house. That saved him the more typical path it seems of getting a starter house, building a bit of equity and then trading up to a larger house. I expect that being foreign nationals they don't have the gift tax burden that US parents do.
On the one hand that is foreign capital fueling higher house prices but at the same time my wife and I got a loan from her parents to help buy our original house, so I don't consider it out of the ordinary if the parents can help out.
It is a real issue, I was amazed to find places such as Milton Keynes were seeing foreign investment on new build - friend is renting there and his new build place is owned by a family based in the UAE
The reason foreign real estate investment is so high is because the dollar is the reserve currency of the world, and since those countries produce so much they have a huge excess of dollars but the US produces so little they have nothing to buy with those dollars. The only thing the US can realistically offer is land, if you ban it it will only accelerate the collapse.
I don't have the link, but I read somewhere that foreign investors (I think this was data upto last year - things may have changed fast) don't make up THAT much of the market, and only for the 1M+ homes, which is way above median price in the US.
I understand that this is the narrative, but show me what markets specifically. Even if ownership is 10%. That means 90% of homes that are bought and sold are NOT to foreigners.
The fact is that inflation has eroded away the value of $$ and houses that should cost $50,000 now cost $700k.
Out of curiosity, do you know how many of your offers were from foreign nationals? I've seen some articles talking about how overseas investors are driving up property prices and was wondering if it was true in your case.
Why would anyone want foreign money driving up prices for residents by insane margins and then keeping the bought property empty? It's just common sense to not want that.
for the period April 2013 through March 2014, total international sales have been estimated at $92.2 billion, an increase from the previous period’s level of $68.2 billion [1]
And according to some reports, 90% of new condos sold in Miami are to foreign buyers.
A soon-to-be-released study by New York consulting firm Integra Realty Resources for the Miami Downtown Development Authority, an economic-development agency, found that about 90% of the buyers of new residential units are from abroad. Despite steadily increasing prices, their appetite doesn't appear to be waning... [2]
Rules for purchasing real estate in the US are generally pretty relaxed, and as wealth grows in the rest of the world, people are looking for places to invest (and probably in some cases "hide") their money. The "premier" cities receive the bulk of that investment.
Tech workers and private buses do make it more convenient to live in SF and I'm sure it helps drive up the cost of renting in the city, but only 7% of the population of the city works in Tech. There are much bigger forces at play here.
[1] http://www.realtor.org/news-releases/2014/07/international-h...
[2] http://online.wsj.com/articles/condo-builders-fuel-land-rush...
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