When It’s Easy to Be a Landlord, No One Wants to Sell

On the surface, lower home prices would seem to have created the first buyers' market since the recovery from the housing bust and Great Recession began in earnest a decade ago. Yet for many would-be homeowners the combination of two years of price run-ups and significantly higher mortgage rates has left homes just as expensive as they ever were - assuming they can find a home that lies somewhere at the intersection of what they want and what they can afford, which many still can't.

This problem revolves around the fact that anyone who already owns a piece of real estate has very little reason to sell it right now. Homeowners can charge high rent, their locked-in borrowing costs are low and equivalent properties are hard to find. Even people who need to move - whether to find more space or to relocate for a job - don't necessarily have to sell: The strong rental market means they can hold out if they don't get the price they want, and it's hard to imagine that changing until there's enough housing to satisfy demand.

https://www.nytimes.com/2023/02/11/business/economy/real-estate-market-landlords.html

alt link:

https://dnyuz.com/2023/02/11/when-its-easy-to-be-a-landlord-no-one-wants-to-sell/

Comments ( 31 )

23d
Ozymandia , what's your opinion? Comment below:

Seems like a fluff piece.  Being a landlord isn't "easy" and it's by no means certain that these people have locked in low interest rate mortgages.

Moreover, the line "Even people who need to move - whether to find more space or to relocate for a job - don't necessarily have to sell" breaks down when you think about it for 5 seconds.  Yeah, I own my home and don't need to sell... but if I move, then I don't have the money to buy a place, now do I?  And renting is ever so expensive, apparently.  As always, some idiot op-ed writer trying to have their cake and eat it too when it comes to explaining about high housing prices.  Either it's impossible to buy, and thus this hypothetical owner cannot buy a new place (in which case they're still not really absorbing too much housing supply, they still only own the one home) or it isn't, and the entire piece is worthless.

It gets mentioned at the end, sort of, but the only villains of the housing market are NIMBY owners and planners who restrict new supply from coming on the market, either rentals or ownership units.  The only solution to the housing crisis is to build more, but no one wants to admit it, because it would mean laying the blame on the average American homeowner, and apparently we can't actually assign fault to middle class Americans at this point for anything.

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  • Analyst 1 in S&T - Equities
22d

What about the massive investment funds that have bought real estate of all types in bulk at prices well above asking, thus extremely restricting supply? They don't have a bit of blame for the absurd housing crisis? It's so stupid to say that the middle class is the only reason for this problem. NIMBY is a problem of course. But it's naive to think that upper class looking at housing as only an investment rather than an essential right for all doesn't contribute to this problem as well. This type of "housing as solely an investment" is exactly what led to the GFC and what is leading to the current housing bubble.

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22d
Ozymandia , what's your opinion? Comment below:

What about the massive investment funds that have bought real estate of all types in bulk at prices well above asking, thus extremely restricting supply?

How does that restrict supply?  Those homes don't disappear.  Goddamn dude, think before you post! Unless you have some evidence that "massive investment funds" are out there demolishing 2 homes to build 1 massive one, this argument is stupid on its face.

They don't have a bit of blame for the absurd housing crisis?

No, not really.  Build more homes, expand supply, decrease price.

You're also basing your entire argument on the premise that homeownership is a fundamental right; you've done absolutely no work to prove that.

It's so stupid to say that the middle class is the only reason for this problem. NIMBY is a problem of course.

I didn't say that, and if you interpreted it that way, well... I don't believe the middle class is the "only" reason for the problem.  But they're the only people who don't get blamed.  Foreign buyers, "massive investment funds", etc... they get blamed all they want despite operating at the margins of the housing market.  Single family homeowners own most of the real estate in this country, and it is exceptionally rare you hear blame assigned there.  You know, same as no one wanted to blame people who took out mortgages they couldn't afford as a causal factor in the GFC.

But it's naive to think that upper class looking at housing as only an investment rather than an essential right for all doesn't contribute to this problem as well.

A little?  Maybe?  The "upper class", however you define that, isn't removing supply, and doesn't absorb enough housing units to make a huge difference.  Housing is an essential right, but it's not just rich people who prevent housing from being built, as any affordable housing developer can tell you. No one wants more housing; the only difference is that the people complaining about how they can't afford a home are the less well off.  Can't have your cake and eat it too

This type of "housing as solely an investment" is exactly what led to the GFC and what is leading to the current housing bubble.

Uh, no, it isn't.  You're pretty obviously not old enough to remember the GFC, so go learn a bit about it.  There were many causes of the financial crisis , and the housing bubble (which is what you're referring to, presumably)  was the symptom, not the cause.  But "treating housing as an investment" was certainly not one of the causes, and certainly not a proximate one.

Even when housing is treated as an investment, it is still housing .  It is still being rented out, and since no landlord is nearly large enough to exert a monopoly power on the market, that means that it's not "landlords" driving up rents.  It is housing scarcity .  Build more, pay less.  It's a super fucking easy equation.  You know what happens when landlords can't get the rent they want?  They rent it for less, or sell for less, because sitting on an empty apartment month after month, year after year is way more expensive than renting for a 5% loss.  The only time that isn't true is in places like NYC that have rent control, where there is no pricing power at all so the costs of renting out a unit exceed the costs of carrying a vacant apartment.

You really need to educate yourself beyond the confines of Reddit or Twitter or wherever you're getting these godawful takes from.

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22d
PEarbitrage , what's your opinion? Comment below:

No, the price of supply being run up by investors has nothing to do with the supply basically staying the same.   The problem isn't who is buying or at what price they are buying.  The problem is that you have new housing demand of X and a new supply of X - Y.  Demand of X is everyone who is looking to move into the housing ownership side of the market and a shortfall of Y that is basically 80% of X.

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21d
jarstar1 , what's your opinion? Comment below:

https://www.theatlantic.com/ideas/archive/2023/01/housing-crisis-hedge-funds-private-equity-scapegoat/672839/

Private equity purchasing single family homes has been a very small part of the SFH market, they just don't have the market position to affect prices the way you are claiming. There are about 83 million detached SFH in the US, it would be extraordinarily difficult for anyone to corner any aspect of that market.

An interesting tidbit from the linked article:

In 2021, according to a recent report , the "median purchase price of institutional buyers [was] typically 26% lower than the states' median purchase prices," suggesting that they are not typically competing with ordinary individual buyers, anyway. Institutional investors tend to specialize in distressed communities. In these markets, they can take advantage of economies of scale in making repairs.

21d
Ozymandia , what's your opinion? Comment below:
jarstar1

https://www.theatlantic.com/ideas/archive/2023/01/housing-crisis-hedge-funds-private-equity-scapegoat/672839/

Private equity purchasing single family homes has been a very small part of the SFH market, they just don't have the market position to affect prices the way you are claiming. There are about 83 million detached SFH in the US, it would be extraordinarily difficult for anyone to corner any aspect of that market.

How dare you bring facts into this discussion!  Everyone knows it's the giant corporations!

image-20230215092030-1

20d
CRESF , what's your opinion? Comment below:

In certain markets they might have a small effect, but overall, the cries over large corporations/investors pushing up home prices are unfounded.

The big issue that is sometimes spoken about but not nearly to the extent that it should...2008-2010 was brutal on the homebuilding industry. Up and down the ladder, groups were completely wiped out. Producers, builders, land developers, you name it. The workers at those companies left the industry and largely never returned to it. And we really never replaced them. The large homebuilders today are incredibly conservative and there just aren't a lot of them.

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20d
Ozymandia , what's your opinion? Comment below:
CRESF

I2008-2010 was brutal on the homebuilding industry. Up and down the ladder, groups were completely wiped out. Producers, builders, land developers, you name it. The workers at those companies left the industry and largely never returned to it. And we really never replaced them. The large homebuilders today are incredibly conservative and there just aren't a lot of them.

100% agree, but then you ask "why aren't more homebuilders coming back into the market?"  Even talking conservatively, the GFC has been over for ten years.  More than enough time for new players to recognize the opportunity, move into the market, and establish themselves.  But they haven't, and new construction starts remain low.  So we have to ask why.  Especially considering the extremely favorable capital markets environment we had for about 15 years

And the pretty obvious answer is that NIMBYs have made it exceptionally difficult, laborious, time consuming, and therefore expensive to build new housing stock.  You don't seem new homebuilders entering/re-entering the market because it takes so fucking long and you have to jump through so many fucking hoops in order to get housing built.  You know the saying, "if it was easy, everyone would do it?"  Well, that applies here... if it was easier to build, more people would, and you'd have more product built.  That it isn't being built despite an insanely large mismatch in supply/demand intrinsically means something is keeping people out of the market.  In a single metro area maybe that could be chalked up to other factors, but when you take the country as a whole the only answer is that there must be a consistent force that pushes back against introducing new housing into the market, and there is only one class of people numerous enough and with a loud enough voice to effectively to that, in thousands of municipalities, simultaneously.  That would be middle-class homeowners, the most coddled and entitled demographic in the country.

20d
CRESF , what's your opinion? Comment below:

The other aspect has just been demand for SFH's post-GFC. Population growth slowed coming about of 2009, homeownership rates plummeted, the median age of a first-time home buyer increased, etc. etc. So for the first 6-8 years coming out of the GFC, probably made sense we didn't see a bunch of homebuilders and supporting infrastructure jump back into the market. And then COVID happened around the same time a significant number of Millennials came of homebuying age, money became extremely cheap, you had 15 offers for each home on the market, and home prices even in my sleepy Midwestern market jumped 25-30%.

So today you've got this perfect shit storm of NIMBYism, unaffordability, low months of supply combined with resurgent demand, and we just don't have the ability to produce enough homes to meet it absent: (a) a huge shift in govt policy, (b) profit margins becoming so outrageous that people jump back into the market despite the difficulty to develop, (c) technological breakthrough, or (d) Last of Us style zombie apocalypse.

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20d
Ozymandia , what's your opinion? Comment below:
CRESF

So today you've got this perfect shit storm of NIMBYism, unaffordability, low months of supply combined with resurgent demand, and we just don't have the ability to produce enough homes to meet it absent:

Except that you'd expect low supply and high prices to entice lots of new homebuilders into the market.  And that hasn't happened.  So obviously something beyond supply/demand is impacting that.  Perhaps there is some other reason, but the only one I can see that would consistently have that kind of powerful pushback is homeowners raising a stink in local community board/city council/etc meetings.  The people who sit on those committees are usually homeowners, so they're acting self-interestedly anyway.

All you have to do is look at the rezoning process in NYC to see in microcosm what happens all across the country.  Everyone wants more housing, and they all want it somewhere else.  Ask them to support new development around the block from their home and all of a sudden there are a million reasons why new development is bad.

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20d
CRESF , what's your opinion? Comment below:

My point is that up until recently, the demand-side of the equation wasn't really there to justify building substantially more housing. The Case-Shiller Index only hit its pre-GFC peak in late 2017. And when you think about the capital investment and time lag to start, say a lumber mill, or build out a subdivision, I think it puts into perspective one of the reasons that supply has lagged. Now obviously the demand is incredible, but I'd expect a multi-year lag at a minimum before you would see any sort of supply push.

I'm not arguing that NIMBYish doesn't play a role in many cases and certainly the coasts are extremely impacted by it. But where I live? Not so much for single-family homes. Most communities around here are dying for a developer to come in and build a 150-home subdivision like they used to.

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20d
Ozymandia , what's your opinion? Comment below:
CRESF

I'm not arguing that NIMBYish doesn't play a role in many cases and certainly the coasts are extremely impacted by it. But where I live? Not so much for single-family homes. Most communities around here are dying for a developer to come in and build a 150-home subdivision like they used to.

Well that is an interesting wrinkle.  I am sure that economically depressed or stagnant communities do want additional investment.  But in growth areas I'd argue that isn't the case.

So in that sense, yes, I can see that demand didn't catch up to supply until recently.  But if you isolate out areas or municipalities which have growth, then you'd find that supply is lagging demand by a lot , and that you still didn't get the new entrants into homebuilding that you would expect.  Obviously homebuilders won't be entering a market in which they cannot make money.

Most Helpful
20d
CRESF , what's your opinion? Comment below:

Well, I wouldn't say my market is economically depressed or stagnant. We have incomes that are much higher than the national average, sub-3% unemployment, and population growth that is pretty good. I work with a few guys who were in the homebuilding business pre-GFC. GFC happened, they all left the business and started building apartments/industrial/etc. No plans to get back into it. One of the wealthiest guys I know where I live is a homebuilder. Barely survived the crash, and will be the first to admit the reason he's been successful is he has been the only game in town for years. In the last year I know of a handful of groups that have been formed to start building homes, so I'm hopeful new blood will lead to more development.

I'm always amazed at the amount of homebuilding in the South, Texas and Arizona. And I've met a few homebuilders down in the Carolinas in the last 3-4 months. It's a good business for them and based on my conversations with them, it's not really NIMBYism or lack of municipal support that is driving the lack of supply. It's a few things (utility infrastructure or lack thereof being a big one), but the biggest hurdle is just costs (surprise surprise). They also have some interesting war stories about the GFC. Especially down there, people just got murdered. The companies that survived are smart as heck, but conservative.

Listen, I think we are saying similar things. I sometimes get frustrated by the YIMBY crowd that thinks if we can just defeat NIMBYism all of our housing problems will be solved. Will it help massively? Absolutely. But we do not have the infrastructure (materials/people/labor/capital/regulations/etc.) right now to develop the amount of housing we need as a country.

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22d
asmith_1 , what's your opinion? Comment below:

NYT pabulum aside, the article brings up an interesting point: what is the unintended consequence of multiple years of rock bottom interest rates, followed by massive, repeated hikes?

When a majority(?) of homeowners have interest rates locked sub-3% for 30 years, there's a massive incentive to hold, not sell, and for-sale inventory will be driven even lower than it's been.

Neighborhoods that never had renters will now get them, and there will be less of a 'stigma' to renting, as high earners will rent.  I could buy a home and pay a $ 8K mortgage at today's rates, or the current owner could keep his $5K mortgage, and I pay $ 6K in rent, and we both win (assuming that this mortgage arbitrage more than pays for the additional management headache.)  Yes, I understand that seller may want his liquidity out of the property for something else, but keeping the low rate will definitely compel many to hold.

Prediction: for-sale inventory stays extremely low (for reasons described in article), and people who still have a fixation with the American Dream(TM) will pay the still-very-high market clearing price to purchase and take on these extremely high mortgage rates, along with the big downpayments (a fool and their money ....).  The transaction volume will continue to crater (look at recent redfin charts), and this will be a structural (not cyclical) downturn for the mortgage / brokerage industries.  Frankly, I don't see things going 'back to normal' in the next several years as interest rates will settle at a very high level and create a lot of losers in the real estate industry (where frankly, everyone looked like winning geniuses as long-term decline in interest rates drove property values higher - this new normal will be the opposite trend.)   I also think the idea that everyone 'builds wealth' by owning their home will go away, as, again, rising interest rates will spoil that arithmetic.

Painful to consider, but my two cents.

22d
Ozymandia , what's your opinion? Comment below:

Timing the market is a foolish game no matter what, so I'm not sure it matters.

At the end of the day, hand wringing of any sort about how expensive the housing market has become is going to be an exercise in futility, done only to gin up resentment against a particular class of people, unless the only thing you really talk about is increasing new builds.  No, it isn't the fault of "corporate landlords" that housing is so expensive, and no, it isn't the fault of people who own second homes, or of Boomers for not dying.  It's the fault of local communities for preventing new housing from being built to keep up with increasing demand.  And unless we figure out a way to make it easier to build, you won't find a way out of the morass of unaffordable housing prices.  In the absence of new supply, the best that can be done is to shift gain and less from one group to another; it'll be a zero sum game .

The problem is that easing supply constraints will naturally have a negative effect on home values, and now that your average homeowner saw that their Zestimate was up 50% in the last 3 years or whatever, they'll view that as their god given right and fight anything that might bring that valuation down.  And they're the ones with the most sway when municipalities make decisions regarding density and use planning

  • Associate 3 in RE - Comm
22d

NIMBYism definitely protects property values by restricting supply. But (in my experience doing suburban residential and dealing directly with these NIMBYs) they generally aren't directly seeking to protect their home values. They don't want the traffic on the local streets, they don't want trees cut down and replaced with buildings, they don't want someone's windows overlooking their rear deck, etc. And they just generally don't want the quiet, low-density nature of their town to change.

22d
asmith_1 , what's your opinion? Comment below:

Timing the market doesn't matter?  Like taking out a mortgage at 3% in January 2022 vs. taking out a mortgage at 7% in September 2022?

Not sure if you intended to respond to a different comment but I don't think your unified theory addresses the tectonic shift in monetary policy, whose lags are long and variable per Milton Friedman.

5h
rf949 , what's your opinion? Comment below:

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