It’s an interesting observation. One reason to be bearish on real estate funds which have a “hold forever” model is fertility-driven demand declines. But this seems to be a concern for a few decades from now.
"hold forever" models will surely collapse, there aren't enough immigrants for the coming population decline. After these coming decades, due to the fact that population growth or decline is exponential, we will get a decline in global population of billions as old people die off en-masse. If you assume the same roughly linear decline in TFR that has been happening for the past 100 years across all modern civilizations, humanity could actually be extinct in 300 years or so; at least that's the current path. Interesting to ponder. Exponential processes.
I'm aware, but urbanization and fertility decline seem strongly correlated, therefore as a greater percentage of society urbanizes, fertility will collapse even further, speeding up the process of the population decline. Which is why I think for people in 50-100 year or so; all cities at some point will have plenty of housing.
Not necessarily, housing slowly crumbles and needs to be replaced on a regular basis.
>By convention, most U.S. residential rental property is typically depreciated at a rate of 3.636% each year for 27.5 years. [1]
A housing lifespan of 27.5 years is remarkably similar to how long a home is expected to last in Japan (where it's broadly legal to build housing).
>Japanese homes gradually depreciate over time, becoming completely valueless within 20 or 30 years. [2]
This suggests the convention is broadly accurate and we only have housing that is forced to serve well past its reasonable lifetime in the US because we can't replace it. The implication of this is that, at a 0% population growth rate, we should be replacing about 3.636% of our housing stock every year. For us to be able to get away without building *any* housing, our population would need to be declining by about 3.636% each year. That is, our population must be falling faster than our homes are depreciating.
We are faced with a fertility crisis, but I doubt our major cities will be losing population at > 3% a year this century.
> Also this ‘can I see your rent controlled apartment’ seems like a great new dating strategy?
Ted mosbey: "she wants me to move in with her in New Jersey? I thought having a rent controlled apartment on the upper east side was half the reason she decided to marry me!"
"Homeowners associations lose veto power over rooftop solar, also various other home upgrades like EV charging stations. I do not love the idea of the government invalidating private contracts like this."
HOAs are more like a very local government than they are private contracts. And it is often the pettiest, most inefficient, and most tyrannical local government you can imagine. So I love the idea of curtailing the power of HOAs like this.
As a Michigan resident and voter, they’re too ubiquitous to really consider them a voluntary contract. Also, the rule against perpetuities is something that *should* abrogate these contracts more frequently than it does, so I feel less bad about state involvement in this.
My real question is why the state legislature doesn’t amend the zoning enablement laws to do some of the remove single family or mandate ADU legality or something.
Yup. And as for what happens when you blatantly violate the rules the HOA is no longer allowed to enforce…well my aunt and uncle did this (for a different issue), the HOA tried to fine them, and a quick letter from their lawyer later the whole thing was dropped. And all their neighbors learned the rule was no longer enforceable and started breaking it themselves
"Sell an insurance product where claims are only 3% of revenue, and it's also legally mandated on every transaction, and you also have a cartel to fix prices."
I think title insurance is pretty close to a scam, but I can make an argument that "insurance" that only pays out 3% of revenue can still be reasonable. You aren't really paying the title insurance company for "insurance," in the sense that you are paying them to take on an unknown risk. You are paying the title insurance company to perform due diligence, and then also take on the risk if they missed something in their due diligence. A perfect title insurance company that always performed perfect due diligence would never pay out at all. And that would be a good thing!
Was gonna make a comment on this. The 3% figure is very misleading. Some non-industry sources ChatGPT fed me estimated 70-80% of the premium goes to diligence costs. That said, a 73-83% expense rate is still a little low, not to mention those costs are probably inflated significantly due to lack of competition. Still probably a racket but much less aggressively so than Yglesias and co frame it as. We tolerate much worse inefficiencies, though it needs fixed at some point
Yeah, their profits aren't exorbitant. I suspect that there is value there that people are overlooking.
Cook county had a Torrens system instead of titles until the 90s but lenders demanded title insurance anyway, so it was abandoned in the 90s as it just added cost.
Should the clear private market failure implicated by the loan collateralization willful blindness issue make us more broadly skeptical of efficient market clearance in real estate? The most sophisticated actors in the space seem to have been free to operate here and they managed to cock it up in a comically visible way (thinking here of empty storefronts on Amsterdam Ave.)
It doesn't matter if the private market is good or not, it's whether they're better than the alternative. Anything thinking the US government can do anything competently in 2024 needs their head examined. (And a reminder that the US government essentially supported what you're talking about until it collapsed).
Yeah that confused me to - seemed like a misunderstanding of the electoral college providing partisan advantage due to the senate (partially true, but often offset by eg the small Northeast states going dem), versus the actual advantage, which is getting close wins in some states versus running up the score in non-competitive states (eg CA).
I believe it's short hand for manufacturing jobs due to their relevance specifically to the Rust Belt and how those states are highly likely to be where the election is decided. Where as manufacturing jobs/car jobs are a pretty small percentage of the overall economy.
Are we sure the "Average Value Higher in the Suburbs" is not just a reflection on crime/disorder/education availability? Which also reflects on cars vs. Public transit. No loud music/drugs/disorder/petty crime occurring in my car.
This is a tangent, but "reduce disorder on public transit" is major low-hanging policy fruit (given the variance in the level of this by system, it's very doable).
The HUD definition of "first-time homebuyer" is actually remarkably different than the English meaning of those words. Anyone who hasn't owned a property used as a principal residence qualifies as a first-time homebuyer.
That means, for instance, a person who has bought 5 properties in the past could qualify for first-time homebuyer benefits as long as those properties were all rented out in the past 3 years and the prospective homebuyer was renting their own housing during that time rather than living in one of their properties.
It also means that someone who overspends due to the $35K first-time homebuyer subsidy and loses their home would be eligible for that subsidy again after 3 years of renting, they would not be locked out of it forever.
That probably makes the impact of the proposal even worse than in your analysis.
I'm a single thirty something making low six figures in a low cost of living area. If I could move back into my 300 square foot college dorm with the bathroom down the hall, but without the roommate, I would. Instead I live in a 3 bedroom 2 bath house in the suburbs and use 2 bedrooms for storage.
Your reflexive aversion to antitrust is often leading you to conclusions that should be obviously incorrect. If a cartel colludes to fix prices for a large proportion of a market, especially one with impenetrable barriers to entry, that’s not increasing market efficiency. That’s what happened with RealPage. Seems dead simple to me.
Also, HOAs are horrible quasi-governmental NIMBY-empowering disasters. Why shouldn’t the government stop them from imposing stupid awful policies on people, when they often control vast contiguous swathes of highly desirable real estate? It’s only a private contract in the sense you mean if the contracting agents actually have another option. In the nice suburbs “just don’t have an HOA” is not actually an option.
> That an owner can always “just sell” a building that losses money every month. ( big pool of buyers for people who like to lose money apparently)
This is actually true. I mean, yes, literally un-sellable buildings that no one wants at any price do exist (very poor condition; remote rural area). But not in cities. Given a sufficiently low price, someone will buy almost any property (they can live in it, even if rental regulations make renting it out unprofitable). The former owner may make a loss selling it if the rental market has become more regulated, of course. But they can sell it.
It's encouraging to see more saplings of "best time to plant a housing tree" efforts showing up, much as it's sporadic and frequently laced with poison pills. Housing is so precious that it's worth taking a number of drubbings and pork extortions to make it happen...but man, price controls (rent control especially) make me nervous. So many stories in the Bay Area of people living in shitty ossified apartments until they're wheeled out on a gurney or otherwise forced to move, just because they won the luck lottery and rely on the illicit surplus to make ends meet. Many of them don't even like where they're living! It's just painful to see such market inefficiencies, and voters repeatedly misunderstanding one of the root causes as a cure. Even for my own cheap-but-non-rent-controlled place, I'd rather upgrade to someplace not built in like 1910...hard to beat the price + location combo though. It's just immensely valuable to build housing where people actually want to live. (In my case, right on a major LR line, 15 minute walk to work, and yet mostly-residential. I can't remember a single new construction in this neighborhood since moving in a decade+ ago though.)
Historic preservation is a vile abrogation of property rights. Raze outdated buildings and raise modern ones in their stead.
Agreed. Think about how much better Europe would be if all of their buildings were built in the past 10 years.
I wonder how many people who say stuff like this actually believe in unlimited property rights? Probably none.
Won't the fertility collapse solve this eventually?
It’s an interesting observation. One reason to be bearish on real estate funds which have a “hold forever” model is fertility-driven demand declines. But this seems to be a concern for a few decades from now.
"hold forever" models will surely collapse, there aren't enough immigrants for the coming population decline. After these coming decades, due to the fact that population growth or decline is exponential, we will get a decline in global population of billions as old people die off en-masse. If you assume the same roughly linear decline in TFR that has been happening for the past 100 years across all modern civilizations, humanity could actually be extinct in 300 years or so; at least that's the current path. Interesting to ponder. Exponential processes.
Au contraire. Subgroups, mainly the devoutly religious, have high fertility rates. The future belongs to the Mormons, Orthodox Jews, Muslims, etc.
Urbanization still happens, so not so much (housing costs crash hard in rural areas but still go up in hot cities)
I'm aware, but urbanization and fertility decline seem strongly correlated, therefore as a greater percentage of society urbanizes, fertility will collapse even further, speeding up the process of the population decline. Which is why I think for people in 50-100 year or so; all cities at some point will have plenty of housing.
Not necessarily, housing slowly crumbles and needs to be replaced on a regular basis.
>By convention, most U.S. residential rental property is typically depreciated at a rate of 3.636% each year for 27.5 years. [1]
A housing lifespan of 27.5 years is remarkably similar to how long a home is expected to last in Japan (where it's broadly legal to build housing).
>Japanese homes gradually depreciate over time, becoming completely valueless within 20 or 30 years. [2]
This suggests the convention is broadly accurate and we only have housing that is forced to serve well past its reasonable lifetime in the US because we can't replace it. The implication of this is that, at a 0% population growth rate, we should be replacing about 3.636% of our housing stock every year. For us to be able to get away without building *any* housing, our population would need to be declining by about 3.636% each year. That is, our population must be falling faster than our homes are depreciating.
We are faced with a fertility crisis, but I doubt our major cities will be losing population at > 3% a year this century.
Source:
1. https://www.investopedia.com/articles/investing/060815/how-rental-property-depreciation-works.asp
2. https://www.theguardian.com/cities/2017/nov/16/japan-reusable-housing-revolution
> Also this ‘can I see your rent controlled apartment’ seems like a great new dating strategy?
Ted mosbey: "she wants me to move in with her in New Jersey? I thought having a rent controlled apartment on the upper east side was half the reason she decided to marry me!"
"Homeowners associations lose veto power over rooftop solar, also various other home upgrades like EV charging stations. I do not love the idea of the government invalidating private contracts like this."
HOAs are more like a very local government than they are private contracts. And it is often the pettiest, most inefficient, and most tyrannical local government you can imagine. So I love the idea of curtailing the power of HOAs like this.
As a Michigan resident and voter, they’re too ubiquitous to really consider them a voluntary contract. Also, the rule against perpetuities is something that *should* abrogate these contracts more frequently than it does, so I feel less bad about state involvement in this.
My real question is why the state legislature doesn’t amend the zoning enablement laws to do some of the remove single family or mandate ADU legality or something.
Yup. And as for what happens when you blatantly violate the rules the HOA is no longer allowed to enforce…well my aunt and uncle did this (for a different issue), the HOA tried to fine them, and a quick letter from their lawyer later the whole thing was dropped. And all their neighbors learned the rule was no longer enforceable and started breaking it themselves
"Sell an insurance product where claims are only 3% of revenue, and it's also legally mandated on every transaction, and you also have a cartel to fix prices."
I think title insurance is pretty close to a scam, but I can make an argument that "insurance" that only pays out 3% of revenue can still be reasonable. You aren't really paying the title insurance company for "insurance," in the sense that you are paying them to take on an unknown risk. You are paying the title insurance company to perform due diligence, and then also take on the risk if they missed something in their due diligence. A perfect title insurance company that always performed perfect due diligence would never pay out at all. And that would be a good thing!
Was gonna make a comment on this. The 3% figure is very misleading. Some non-industry sources ChatGPT fed me estimated 70-80% of the premium goes to diligence costs. That said, a 73-83% expense rate is still a little low, not to mention those costs are probably inflated significantly due to lack of competition. Still probably a racket but much less aggressively so than Yglesias and co frame it as. We tolerate much worse inefficiencies, though it needs fixed at some point
Yeah, their profits aren't exorbitant. I suspect that there is value there that people are overlooking.
Cook county had a Torrens system instead of titles until the 90s but lenders demanded title insurance anyway, so it was abandoned in the 90s as it just added cost.
Podcast episode for this post:
https://open.substack.com/pub/dwatvpodcast/p/housing-roundup-10
Should the clear private market failure implicated by the loan collateralization willful blindness issue make us more broadly skeptical of efficient market clearance in real estate? The most sophisticated actors in the space seem to have been free to operate here and they managed to cock it up in a comically visible way (thinking here of empty storefronts on Amsterdam Ave.)
It doesn't matter if the private market is good or not, it's whether they're better than the alternative. Anything thinking the US government can do anything competently in 2024 needs their head examined. (And a reminder that the US government essentially supported what you're talking about until it collapsed).
"Thanks to the electoral college, car jobs are the single most important part of our economy."
Explain?
Yeah that confused me to - seemed like a misunderstanding of the electoral college providing partisan advantage due to the senate (partially true, but often offset by eg the small Northeast states going dem), versus the actual advantage, which is getting close wins in some states versus running up the score in non-competitive states (eg CA).
I believe it's short hand for manufacturing jobs due to their relevance specifically to the Rust Belt and how those states are highly likely to be where the election is decided. Where as manufacturing jobs/car jobs are a pretty small percentage of the overall economy.
Are we sure the "Average Value Higher in the Suburbs" is not just a reflection on crime/disorder/education availability? Which also reflects on cars vs. Public transit. No loud music/drugs/disorder/petty crime occurring in my car.
This is a tangent, but "reduce disorder on public transit" is major low-hanging policy fruit (given the variance in the level of this by system, it's very doable).
This is absolutely not low-hanging fruit in post-2020 reckoning era. This is actually extremely fraught, difficult and dangerous to harvest fruit.
The HUD definition of "first-time homebuyer" is actually remarkably different than the English meaning of those words. Anyone who hasn't owned a property used as a principal residence qualifies as a first-time homebuyer.
That means, for instance, a person who has bought 5 properties in the past could qualify for first-time homebuyer benefits as long as those properties were all rented out in the past 3 years and the prospective homebuyer was renting their own housing during that time rather than living in one of their properties.
It also means that someone who overspends due to the $35K first-time homebuyer subsidy and loses their home would be eligible for that subsidy again after 3 years of renting, they would not be locked out of it forever.
That probably makes the impact of the proposal even worse than in your analysis.
Hasn't owned a property used as a principal residence *in the past 3 years*. Important omission.
How many people do you imagine this describes?
I'm a single thirty something making low six figures in a low cost of living area. If I could move back into my 300 square foot college dorm with the bathroom down the hall, but without the roommate, I would. Instead I live in a 3 bedroom 2 bath house in the suburbs and use 2 bedrooms for storage.
Yes, it's actually this bad in the UK. Godspeed to Labour.
You are out of your mind if you think the UK government is capable of making things better.
Is this a commentary on the *current* government, or on literally any government's ability to encourage more housing in the UK?
Your reflexive aversion to antitrust is often leading you to conclusions that should be obviously incorrect. If a cartel colludes to fix prices for a large proportion of a market, especially one with impenetrable barriers to entry, that’s not increasing market efficiency. That’s what happened with RealPage. Seems dead simple to me.
You are jumping to a conclusion that RealPage is "collusion"
You have to twist the meaning of that word pretty far to make it apply to RealPage.
It literally does no such thing. They suggest a price - price discovery isn't collusion and landlords aren't required to use the suggested price.
Furthermore, only a minority of landlords even use their service. Even if the intent was to set prices, you can't do it with a minority of suppliers.
You are the one that doesn’t know what they are talking about. That is price discovery, not price fixing.
The fact that some markets (but not most) have a majority of units using RealPage is entirely irrelevant.
Also, HOAs are horrible quasi-governmental NIMBY-empowering disasters. Why shouldn’t the government stop them from imposing stupid awful policies on people, when they often control vast contiguous swathes of highly desirable real estate? It’s only a private contract in the sense you mean if the contracting agents actually have another option. In the nice suburbs “just don’t have an HOA” is not actually an option.
> That an owner can always “just sell” a building that losses money every month. ( big pool of buyers for people who like to lose money apparently)
This is actually true. I mean, yes, literally un-sellable buildings that no one wants at any price do exist (very poor condition; remote rural area). But not in cities. Given a sufficiently low price, someone will buy almost any property (they can live in it, even if rental regulations make renting it out unprofitable). The former owner may make a loss selling it if the rental market has become more regulated, of course. But they can sell it.
Okay, and now the rental market is smaller. Rent control saves the day.
The new owners *can't* just live in it: the rent controlled tenants are living in it, and they are (rationally) never moving out.
It's encouraging to see more saplings of "best time to plant a housing tree" efforts showing up, much as it's sporadic and frequently laced with poison pills. Housing is so precious that it's worth taking a number of drubbings and pork extortions to make it happen...but man, price controls (rent control especially) make me nervous. So many stories in the Bay Area of people living in shitty ossified apartments until they're wheeled out on a gurney or otherwise forced to move, just because they won the luck lottery and rely on the illicit surplus to make ends meet. Many of them don't even like where they're living! It's just painful to see such market inefficiencies, and voters repeatedly misunderstanding one of the root causes as a cure. Even for my own cheap-but-non-rent-controlled place, I'd rather upgrade to someplace not built in like 1910...hard to beat the price + location combo though. It's just immensely valuable to build housing where people actually want to live. (In my case, right on a major LR line, 15 minute walk to work, and yet mostly-residential. I can't remember a single new construction in this neighborhood since moving in a decade+ ago though.)