If we want to solve the housing crunch, the price of your house has to go down. In the battle to make homes more affordable, you are the adversary, and your preferences must be overridden.
I don’t intend to be hostile about it, it’s not your fault for following the conventional wisdom for building wealth. But it was a mistake for America to make home ownership the linchpin of retirement, because it incentivizes incumbent homeowners like you (and me) to pull up the rope after we’ve clawed our way to financial security. That’s not right, and it’s not sustainable.
Just for transparency, decreasing housing prices would also knock a dent in my retirement as well. But I’m raising 2 teenagers, and I have a stake in good outcomes for them and their generation.
But even to this day, you need a good FICO score to qualify.
That is the way to go! Everyone I know that has done mod housing love it and say they are more durable than traditional stick built.
Convince lenders of that. What led to the 2008 housing issue, banks selling off their mortgages as financial instruments. As late as 5 years ago (and maybe it is still going on) they are still doing that. It is not that the bank is lending you money and collecting their 6.5% on it. They are selling off the mortgages and if the buyers say “We won’t buy any loans to people with lower than a 660 FICO.” then banks are not going to give a mortgage to anyone with a 659 or lower.
Is it worth it for companies to buy and build lots then sell them without houses? I thought all of their profit was to build a cheap-ass house for $150,000 and sell it with the lot for $450,000. And what if I want to live in the city that have few if any vacant lots?
That is simply not true. Historically you get cheaper houses by going further from the urban center.
One way to stop investors is to liberally apply homestead property tax exemptions. Set property taxes at some outrageous rate that discourages investors and offer homeowners the homestead exemption (declaring the owner as the primary resident) to bring the rate back to a reasonable level.
Problem with that is it also locks people into their own homes.
If I and my neighbor live in near identical houses we ought to be able to trade them without ether or both of us having our assessment reset to undo 20 years of homestead exemption rate caps.
Financial incentives only go so far. Not everyone will get to live in their first choice of location. I’d love to live in San Diego but it’s not happening. If the housing crunch gets solved by cutting prices, my equity will decrease, there’s simply no way around it.
There’s no policy that can give a pony and ice cream cone to everyone who wants it. I’m talking about systemic financial incentives that, in the aggregate, will reduce prices across the board, which is a precondition to affordability.
I don’t see low FICO borrowers as a priority to be fixed. They took out loans, they didn’t meet their obligations of repayment, and they got a poor credit score that prevents them from borrowing. That’s just how credit works, and they can fix their own problem by opening high-interest, low-limit credit cards and paying back on time for a few years. If they can’t manage that, they have no business trying to get a mortgage, and should remain renters.
Most negative hits on Americans’ credit scores is from medical debt. Also low is relative. I can finance a car with a FICO much lower than buying a house.
I get that but there is more to it than “build cheap houses and they will come”.
Saving down payments.
Current minimums on credit scores for loans.
Ensuring there is a priority for people buying their first home.
Property taxes in some jurisdictions.
The problem was that those financial instruments were backed by mortgages to people who couldn’t afford them. The solution to people who can’t afford a mortgage now not being able to get one is to make rent cheaper, which happens if there are more rental units as a result of more investor-owned properties for renters to choose from. Coercing banks into offering mortgages to people who don’t have good enough credit is a recipe for another 2008.
A quick Google suggested that about 20% to 30% of single family homes are owned by investors. And most of those are individual investors (like my wife and I renting out our old condo) compared to about 2% institutional investors (private equity, hedge funds, or banks).
Fundamentally, yes. There is no way to isolate different aspects of the housing market. Your housing values can’t go up while investor-owned homes go down and new home buyers we like can’t get cheap homes while investors buying homes get expensive homes. We’re all in the same market. You can mess around the margins with taxes or other incentives (which already happens in the US) but that’s all you can do. And if you did that to the extent it would prevent investor ownership, it would result in a combination of people just committing fraud and people figuring out how a big investor can invest in the mom-and-pop landlord without technically having to own the property.
Not exactly. What led to the 2008 housing issue was extensive sub-prime mortgage lending - Issuing lots of mortgages to people with low credit scores who couldn’t afford to pay them back. The lenders sold off their mortgages as a type of Collateralized Debt Obligation (CDO) or Collateralized Mortgage Obligation (CMO) called a Residential Mortgage-backed Securities (RMBS).
Banks like Lehman Brothers and Bear Stearns and insurer AIG bought and traded these CDOs that were highly rated because they were so “diversified”, thinking that the price of homes never goes down and people always pay off their mortgages.
Well people did stop paying their mortgages and home prices went down, leading to these companies holding a lot of worthless debt.
My wife does all that structured finance shit. She’s super busy and I’m unemployed (technology/management consultant) so that’s historically a good sign we’re heading into recession. It means Wall Street is investing a shitton of money in weird esoteric financial instruments but otherwise not spending money on infrastructure or other projects (outside of AI).
The lower the price of housing is the smaller of a loan people will need and the more they could afford to put down as a percent of the price of the house, thus making home ownership more attainable.
Additionally you are conflating housing being affordable with home ownership being affordable. Building more housing will help both, of course, but even for people too low income to buy a home, a decrease in the cost of housing would be beneficial as it would impact rent, too. The minimum price rent can sustainably be is slightly more than the total cost of home ownership (mortgage, insurance, etc) after all.
Yes, of course, this is correct.
…what do you think determines rental price, then?
Yes, we should; building more housing helps the middle class afford home ownership, and it helps the lower class afford rent.
Does it also help some rich developers get richer? Sure. Are we so determined not to allow this to happen that we are willing to sacrifice all the benefits lower and middle class people can gain from more housing, just to spite the rich? That seems silly and counterproductive at best.
…can you please explain how exactly the chart in the article proves that rental markets aren’t controlled by supply and demand?
Yes, rent outstripped inflation. That’s because the demand for rentals has been growing faster than the supply. If they were growing at the same rate, then the cost of rentals would grow at roughly the same rate as inflation. And if the supply of housing outstripped the demand, the price would grow slower than inflation, or even fall.
Yes, if a bunch of new homes are built (or if a big highrise is built down the street from you), the value of your home will go down, as will the cost of rentals and new homes in the area. That’s the point.
Yep, it will hurt existing homeowners. That’s part of why this is an intractable problem; no one with political power actually wants to see it done.
The going rental rate in your area (for a given home, obviously a studio apartment rents for a different price than a two bedroom townhouse) isn’t an arbitrary value though; it’s based on a lot of factors, including the value of the home and the cost of a mortgage.
The supply/demand relationship is a fact - but that doesn’t always mean that increasing the supply will bring the price down or even slow the increases. Sometimes it will just mean that people from out of the area can move in. You could put a million new housing units in NYC and it wouldn’t have much of an effect on house prices or rent. People would just move to NYC unless the new apartments/houses were so expensive that people wouldn’t pay that much to live in that neighborhood.
I don’t think a homestead exemption has to involve caps - you could let the property taxes go up and just give any owner/occupied property a large exemption. which would stay in effect when a new owner moves in. For example, property taxes are $10K but if the house is occupied by the owner there’s a $5K exemption.. House gets sold , new owner moves in, new owner gets $5K exemption.
I’m always amazed when I hear people complain about how their kids can’t afford to “stay in the neighborhood”. Somehow, when I ask them if they will sell their house/rent an apartment below market so their neighbor’s kids can stay in the neighborhood , they never say yes. They don’t want large apartment buildings built in their neighborhood.They don’t see that people selling their house for 4 times what they paid for it and fighting apartment buildings are the reason their kids can’t afford to live where they grew up.
I wouldn’t be thrilled to have my house lose half its value overnight- but I also know my house is worth more than 4 times what I paid for it - and the job I had them only pays twice as much as it did then.