Learn about budgeting, saving, getting out of debt, credit, investing, and retirement planning. Join our community, read the PF Wiki, and get on top of your finances!
Note: This community is not region centric, so if you are posting anything specific to a certain region, kindly specify that in the title (something like [USA], [EU], [AUS] etc.)
I (age 60) remember buying my condo in 1991 or so, interest rates about 7% with a VA-guaranteed loan. My parent's first mortgage was 2% or 3% but my mom, a Realtor, said those days were permanently gone. (They weren't. I had that in the house I bought in 2010.) But it felt forever at the time, and she thought it would be forever.
Nothing is forever. It may crash, but something else we can't imagine might happen too. I think we all agree the present situation is unsustainable.
The crash of 2008 is just 15 years ago. You could hardly give away properties in my neighborhood - there were multiple sales for less than the cost of my car. Those exact conditions may not recur, but speculators always, always overextend. The 15 years of continuous gains we've experienced since 2008 are historically unprecedented, so one might even guess that we're due for a major correction. Maybe it won't be for another 10 years, but there will definitely be a major housing crash "in our lifetime." Unless, maybe, you're already 80 years old.
I think laws need to be changed to make owning (not building) real estate unattractive as an investment. Something like wealth tax (every year you pay X% of the property value) aimed at real sector specifically, with very progressive structure / exceptions for single homeowners.
That should help in a lot of cases. Then it also depends on the demographic development - many places will actually see drop in the population in the coming decades, that should make housing cheaper. Areas with growing population - there it may not be possible to stop the price increase completely.
This is the only path I see - real estate needs to not be a guaranteed profit generator. It's been viewed this way for decades. Rents are allowed to increase indefinitely, which inflates property values, which raises taxes, which raises mortgages, which raises rents, because real estate is said to be zero risk maximum reward investment. So it's better to hold an empty unit until someone comes along willing to pay the price you're asking than let it go for less.
The only way I see around this is a really aggressive cap on rent. Like, once a rent is established, it can never be raised, for any reason, ever again (unless the property were radically transformed, like a large single family plot in to a townhouse development, condos, etc.). The home value can still do whatever, but it no longer has the catalyzing agent of perpetually exploding rents to drive it up.
I spent a few weeks reading as much about rent control as I could, where it had been tried and analyzing how they failed. The legislation has never been remotely extensive enough - only touching a handful of (usually very old) structures in a single neighborhood, county, or city. Of course if there is a cluster of rent controlled units you will depress building where the properties might not generate as much profit vs. guaranteed to generate profit forever. But if it applies everywhere at once, you don't have this problem. Landlords evicted tenants to get around the caps, because the only mechanism to increase rent beyond the cap was to cycle tenants out. So the real problem here is landlords taking it out on their tenants, rather than let the properties simply not be a guaranteed infinite profit generator. Finally people in rent controlled units tend to stay in rent controlled units, limiting mobility. This seems to be cited as a weakness but I never came across an adequate explanation as to why. You have to make landlording simply not worth it to bring the number of people who want to own homes in to balance.
New developments would be able to charge whatever rent they wanted, if they wanted to rent them. So if you are absolutely determined to own and rent out properties, you have to keep building them if you want to keep setting new market rates.
An interesting note though is once rents are largely stagnant (except for some special exceptions I would make where owning single units is unusual, like apartment complexes own by single property management firms who handle communal landscaping, clubhouse, etc.), those properties will actually remain competitive for longer... in an environment where average rents go up 10% a year, of course not increasing rent will make it unprofitable very quickly and you might as well sell... but when average rents go up 1% a year, it will actually stay profitable for a lot longer even if you can't increase rent. So I don't foresee an instant flood of the housing market.
I also see benefit to pairing this kind of legislation with one that bars or otherwise limits corporations, especially foreign corporations, from owning and renting single family properties, but that's a separate issue I haven't studied as extensively.
The only way I see around this is a really aggressive cap on rent. Like, once a rent is established, it can never be raised, for any reason, ever again
We have something like that in my city. The rents grow, but are bound to the inflation. The dynamic is similar - the old contracts are vastly cheaper than the new contracts. That has several downsides:
The problem is allowing there to be old vs. new contracts, not the control itself. There wouldn't be a black market for contracts if the price of rent for a unit was permanent, public information, and tied to the property. Even if it's sold, renovated, whatever - if the rent can literally never go up, sooner or later it's going to make financial sense to sell it. It might not be today, it might not be next week, but someday, the goal is to force as much of the property ownership in to the hands of people who want to be property owners and live in the properties.
It would have no effect on people who own and live in their home (except on the value of the property, if it causes a mass flood of properties on the market... which I doubt. The properties are still valuable just by virtue of being a place to live, they don't need the rent generating component to be valuable).
Taxing property doesn't really work, because landlords just pass those taxes on to their tenants. Even if you make a big differential between owner-occupied and rental property (and homestead exemptions are already common), there's a huge base of people who are either short-term residents or lack down payment, and will rent regardless of how much of the landlord's taxes they have to pay. You can make specific neighborhoods or communities unappealing to landlords, but that just makes them move across the street.
One of the things that makes rental property attractive is the massive leverage available to speculators. You can easily get 5:1 leverage on a property - i.e., you get the profits on a million dollar investment for just $200k cash. Interest on the loan is low, because it's backed the the property, and that interest is tax deductible, and there's many ways to disguise profits or offset them with management expenses. Maybe there's things you can do in the income tax code to discourage property rental, but it's not going to be taxing the property directly.
Taxing property doesn’t really work, because landlords just pass those taxes on to their tenants.
Perhaps. But the renting business would get way more risky, since you need to pay those X% of the value whether you have a vacancy or not. I expect this would disincentivize the rental providers and would a) stop buying and b) sell a lot of their properties, both leading to a significant drop of the prices on the market.
Most people are renting housing not because they like the lifestyle, but because they can't afford to buy their own. If you make buying housing affordable (mortgage is what they pay for rent), then the actual number of people who really need to rent as opposed to own is pretty small and could be covered by some kind of social/city provided housing.
Pretty sure risky owning means higher rent prices
Ok, so the rent goes up by 500, what happens next? The demand is somewhat elastic, so it shrinks, there will be more vacancies which will become deadly to property renters who might prefer to exit the business.
The other thing is that rent is already controlled in many places, so the landlords can't actually increase it.
The reason houses are not affordable is not because the mortgage is more expensive than the rent for an equivalent unit. In fact the opposite is almost universally true. The problem is you can't rent cheaply enough, to set aside enough of your income, to accumulate a down-payment for a reasonable property at a pace that is faster than the appreciation of those properties.
Take our situation just a couple years ago - we had a good deal on an old 2br apartment, paying a little under half our income to rent+utilities. I was saving about $1200~1300 a month towards just the house down-payment. Very respectable, I thought. But house prices were going up nearly 20% YoY. On a $400k house, which was very much on the cheaper end of what was available, that means the down-payment required is increasing at around $1500 a month. Literally every month I'm losing buying power. For perspective, when I looked recently the absolute minimum price I saw on Zillow for a unit in our area that wasn't just an empty plot of land was $285k.
Raising taxes doesn't work because the landlords will literally always just pass it on, plus profit margin, to the tenants. As long as there's another tenant looking in the area, they will always fill the unit. People will just get in to a lease that's 40, 50, 60% of their income because it's all there is.
Can't say I really buy the always pass on taxes idea. If a landlord could jack rent by $500 because they have to pay $500 more in taxes and people will pay it, then why not jack the price regardless of whether or not there's a tax increase.
If you want to disincentivize landlords through tax, it'll be through income tax to directly reduce their profit. Take away the tax deduction for mortgage interest. Take away depreciation. It's easy for most landlords to book taxable losses every year while generating positive cash flow.
Rent is always more than mortgage+insurance+taxes on equivalent property. The landlord has all the same expenses (and more) as a homeowner, passes them on to tenants, then adds expected vacancy and his profit on top.
Sure, as long as you redefine your concept of "housing" to be reduced to a tent or less.
No. Reasons:
For whatever reason, it seems like many people focus on the real estate speculators, and while that's undoubtedly part of the problem, the costs and red tape of actually building new housing is often ignored. When population increases and you can't increase supply there's no where for prices to go but up. The root cause of the problem needs to first be addressed which is the need to build more housing and that's not a simple problem to solve since it involves the intersection of so many other problems. Therefore I can't say I'm optimistic that housing will go anywhere but up.
I was looking at the numbers up until about May/June of this year. What drove housing prices down before doesn't seem to be driving them down now. You plentiful construction, relative to now. Construction workers haven't recovered from 2008. There is still a running shortage of construction workers.
There is also a COVID backlog of started but not finished homes. Because supply chains were backed up. The cost of soft lumber, sheet goods, and milling are all near all-time highs. Once these homes start hitting the market, supply will go up and maybe prices will go down a little bit, but not 10-years-ago-low
If commercial real estate crashes then some of those investors might have to unload their residential assets to offset losses. That's about the only scenario I can see where we get a sudden flood of supply.
Defaults on residential is still pretty low. Credit defaults are climbing but not outside of 1 std deviation, yet. Lease defaults are low. So with restricted supply, few being built, fewer workers, more expensive materials, and everyone paying their loans, I can't see a sudden crash anytime soon. Also it doesn't look like mortgage fraud (people lying about their identity or their worth) is particularly high either. Though that stat is much harder to track.
IMO housing prices will go up before the end of the year.
I think housing costs will stay high and the next "innovation" will be disposable housing or something vile. That'll be the only way you can afford to own something. You buy a house you throw away in 10 years.
I think the disposable housing is already a major concern in regards to small manufactured homes on lots leased to those in less than ideal financial situations.
Seems like an interesting question for our community
I have a proposed solution for affordable housing, make what is essentially a FHA or first time home buyer community. If senior communities are a thing, why not this. For those that don't know FHA loans are for "first home buyers." The loans require that the loan holder lives in the property as their primary residence, and some time frame of not previously owning property, and I think something about length of ownership. To me this is the only rule that needs to be applied. A community with no "investment properties", no "house flipping", and no landlords. A place where everyone owns the place they're living in. Property could still appreciate in value, but just needs to be sold to another "first time home buyer".
There’s kindof 2 ways to describe affordable housing though:
1: Affordable given any reasonable person with a reasonable job can afford to live within 15 minutes of their workplace
2: any locality that when you save enough money you can move to and find subsistence wages after moving (gentrification)
Number 1 is basically never coming back unless people spread out far and wide and opportunities are afforded by federal programs that can absorb the losses and round things out for everyone.
Number 2 is basically the only way to become a homeowner anymore
Temperature are on the rise and weather is getting more and more extreme with truly no viable solution available. There is going to be growing demand for housing in more sustainable areas. So...probably cheaper in hurricane/tornado/mega-heat-wave country, and even worse prices in more survivable areas.
Or technology advanced so far and quickly that we either live in a utopia or are immediately made extinct by our new AI overlords.
IDK