Comment by jmyeet
2 days ago
So there are (at least) six important aspects to the housing crisis.
1. Politically, this issue is a winner and it's crazy that the Democratic Party has refused to bang the drum on this, basically because it potentially upsets corporate donors. They have instead ceded this poopulist political ground to the Republican Party. The Democratic Party does not want to win elections and this should never have been more obvious than the 2024 presidential election;
2. Hoarding housing is state-sanctioned violence. You need housing to live. Housing affordability is the number one factor in homelessness [1]. That then subjects people to violence and danger that we, as a society, are allowing to happen. There is no reason that the wealthiest country on Earth can't provide a roof over the head of every man, woman and child within our borders;
3. The private sector will never solve the housing crisis because solving the housing crisis involves devaluing, definancializing and decommodifying housing. Wealthy people and large corporations who own a lot of real estate won't on their devalue their holdings. Things like Ezra Klein's Abundance claptrap are simply putting a Democratic bow on Reagan era trickle down economics and deregulation. This requires state action. That means the state needs to build significant amounts of housing to provide to people to regulate the housing market. The poster child for this policy is Vienna, Austria;
4. Voters have fooled themselves into thinking that increasing house prices are good for them. They're not. They're bad in virtually every way. There are people who bought a house for $100k in 1990 where that house is now worth $2M. Are you $1.9M richer? No. Because if you sell it what happens? You have to buy another house. And if every other equivalent house costs $2M you still only own one housing unit's worth of wealth;
5. Increasing house prices are simply stealing from the next generation and suppressing wages. Why suppressing wages? Because if you're laden with debt, you'll be a complaint little worker bee. You need that paycheck to not be homeless. You are in effect a debt-slave, particularly combined with student and possibly medical debt; and
6. The next wave of antitrust action will involve the use of AI as a means for market collusion and manipulation. A great and relevant example is RealPage [2]. If all the landlords use the same software and that software is designed to algorithmically increase rents, then that's market collusion. Honestly, dynamic pricing in general needs to be banned.
[1]: https://www.pew.org/en/research-and-analysis/articles/2023/0...
[2]: https://www.justice.gov/archives/opa/pr/justice-department-s...
> There are people who bought a house for $100k in 1990 where that house is now worth $2M. Are you $1.9M richer? No.
This is often repeated but not 100% correct.
You are in fact richer, and you can leverage this $2m in equity to take on debt and buy more houses. This is what has been happening here in Australia, and it's a major factor in the continued rise in prices.
When you've done this, hung on a handful of years and all of your houses have gone up 20-50%, you can cash out for a very nice sum indeed. AFAICT this is now a pretty mainstream middle-class retirement plan in this country, and it's terrible because, as you point out -
> Increasing house prices are simply stealing from the next generation
The money is coming from people, usually younger people, who are funding the insane market with ever larger mortgages and staying in rental properties longer, both of which benefit the equity-holder.
In the US you can often buy houses with no money down.
Also, if you're taking the equity out of your $2M house, how are you servicing that debt?
My point is that it's an awful lot easier to buy 6 $100k houses than it is to buy 6 $2M houses and if houses weren't speculative assets, maybe we wouldn't get those buyers driving up prices.
> In the US you can often buy houses with no money down.
Presumably you can't just walk up to a bank and say "I'd like finance to buy 10 houses please!" with no collateral beyond the houses you're purchasing?
Here you usually need a 10% deposit. If you already own a house you can borrow against equity. The bank considers multiple houses as a single portfolio to calculate loan to value ratio (LVR), and will take tenants rents into account on affordability. A quick worked example based on local figures (average first home price $700k, average home price $1m):
New market entrant looking for a $700k house: Needs $70k in cash for deposit plus $28k stamp duty, takes $630k loan and now has a 90% LVR and 70k equity.
Existing homeowner with $1m house, bought at $300k some years ago and now has $100k left on their mortgage: Has $900k equity. Takes an interest-only loan against equity for the full $728k on the same 700k house. Total property worth $1.7m, 48% LVR qualifying for a lower interest rate and paying much less per month as they have taken the loan interest-only. Didn't have to save up a single cent to cover deposit or stamp duty. Still has $872k in equity on the two properties so does it again three more times. Buys a total of four investment properties, still comes in under 80% LVR.
If the market goes up another 25%, the new entrant is sitting on $245k equity.
The landlord's IPs are now worth 3.5 million on total debts of 3 million, at which point they can sell four houses, clear all their debts including their original mortgage and pocket $500k (and while capital gains tax is chargeable on sale of investment properties, it's heavily discounted compared to other assets). Or they can use this new equity to buy more houses.
> if you're taking the equity out of your $2M house, how are you servicing that debt?
Rent. There's also a rental crisis going on over here. Rents are really high and can pretty easily cover investor mortgages. There's lots of people who would have been able to buy few years back but can't scrape together the finance to do so now that prices have gone up, who are forced to keep renting. So the investor crush creates its own client base!
Plus if you do end up making a loss on mortgage payments, property upkeep etc, the government allows you to offset that against your all-sources income for tax purposes, potentially reducing that loss by 45% if you're a higher rate earner.
> My point is that it's an awful lot easier to buy 6 $100k houses than it is to buy 6 $2M houses, if houses weren't speculative assets, maybe we wouldn't get those buyers driving up prices.
It kinda isn't in Australia. The market rising makes it much easier to access more debt and leverage that into more houses.
But I very much agree that housing shouldn't be a speculative asset and this market is broken. The government should be putting in place disincentives, not discounts and offsets. Unfortunately established homeowners now see this as a normal way of 'getting ahead' and I know multiple people who are effectively playing monopoly like this.
I hate it. Even though in theory I could go out and buy four or five houses next week if I wanted to. But with the rising cost of living and general bleak economic outlook everyone is continually fed, and the seeming impossibility of 'winning' for the average person, I'm not surprised people do it.
(Yes I was very bored with work this morning....)