I think the Chinese billionaire effect might be real, but really the chief reason housing prices are so high is because we make it difficult to build housing. This is especially true in the most economically productive metro areas, such as New York and the Bay Area.

Even smaller cities such as DC are facing housing affordability crises. DC gained ~90K residents from 2005 to the present, but only gained ~12.5k new housing units in that time. If DC continues to grow, in the next 30 years DC will actually reach full buildout as allowed under current zoning and height restrictions. No additional units will be allowed.

In fact you could argue that if foreign investors have bought all your available housing then by building more housing you solve the problem of affordable housing and devalue the housing sold to others (but you got the income at the previous level).

Here in the UK we need a massive concerted national effort to replace both the sold housing stock and the demand from an increased population - not going to happen though as neither major party is looking to be responsible for a house price fall (however beneficial in a net sense that would be) as the newspapers/media will beat them over the head with it.

So we continue the wealth transfer from the poor/young to the rich/old.

Consider Toronto as a counter example. That city tore down parks to build condos. That didn't rein in prices. Now, the affluent foreigners have 3-4 condos to go along with that Maserati.

The obvious counter-argument is that home prices would have risen even faster without the construction boom.

DC has torn down a lot of things to build housing, and has converted former industrial properties into new neighborhoods (NoMA is an example). DC itself can't get rid of many of its parks because the National Park Service controls many of them, but neighboring jurisdictions certainly have gotten rid of parks in exchange for high rises (Arlington, for instance).

What matters isn't what was replaced, but how many net new units are built vs. demand for new units. DC is falling behind. I'd imagine that Toronto has similarly fallen behind.

>in the next 30 years DC will actually reach full buildout as allowed under current zoning and height restrictions

Where there is a will: https://youtu.be/gjHo5BZM7V0

It would help if most of DC wasn't limited by zoning to 3 stories. Even allowing the legal maximum of 10ish stories would help a lot.

> To some extent we're paying for our imported manufactured goods from China by exporting house ownership and rent payments.

Warren Buffet warned us of this years ago (trade deficit causing real estate transfer between nations):

https://www.youtube.com/watch?v=M-vMxKvYfVs

Which is actually nice for the US, since Chinese buyers can't pick up a piece of real estate and bring it back home with them, and the ownership obligates them to pay taxes, etc.

It hurts the domestic home buyer, though, who has to compete with inflated all-cash offers from these foreign investors.

This:

> It hurts the domestic home buyer, though, who has to compete with inflated all-cash offers from these foreign investors.

is much more hurtful then the benefits provided by foreign buyers paying taxes. If you don't believe me, look at London. Actual workers are pushed out by money launderers (yes, that is what they are).

The big difference between the US and GB is how much more land there is in the US.

We can always build a new city.

GB is less than 10% urban. A lot less. You could build another city the size of Birmingham in GB and not notice. The problem GB has with land isn't not having enough; it's a regulatory problem of planning permission and associated issues.

Its not where the land is. Its where the jobs are. Is everyone going to live in a tiny house in BFE Texas?

This wouldn't be as much of an issue if more companies embraced working remotely.

Completely agree. It'll happen slowly. You already can see more companies willing to hire remote so you're not limited to candidates that fit your requirements within 0-50 miles of your office.

"the ownership obligates them to pay taxes"

In theory you're right, and they often do pay taxes, but there are many schemes where the foreign investors pay zero taxes. There's no incentive on the industry's part to showcase or investigate to what extent this occurs, but we know it's pretty prevalent.

Can you give examples?

NYC super wealthy pay less on property taxes: http://nypost.com/2015/03/09/new-yorks-super-wealthy-pay-les...

I fully believe the capital outflow link to the rise in western real estate prices. As someone unlucky enough to be caught without any property, I am perplexed by the reasonable response. Friends have responded by taking insane loans (since property prices went up after said loans, these were really prudent financial decisions). I am at a loss. Will I be buying at the top? :(

Careful here with the "prudent financial decisions" They took a risk and it paid off. It is only prudent if they were in a position to take the loss if the market had gone the other way. And I assume they still have their loan, so they are still at risk of losing the mean to pay it. Big risk, big reward/losses.

I talked to a guy that became property millionaire, if I had followed the exact same step he took, just with 2 years difference and a different city, I would have been in bankruptcy right now. You didn't/couldn't take a loan when they did - that boat has sailed. Buying today is a different market and you should approach it ignoring what you friends did in the past.

I won't give you market advise as I don't have a crystal ball. However, as a renter you are free to move around - that's your strength. Alternative to buying is therefore to move around and maximize your bang per rental buck. In most cities, there are areas where people would rather rent than buy and vice versa. Try to rent in the place where the rental yield is the minimum. Also, you have can look for better job opportunities that requires moving.

Foreign investors buying up real-estate don't do it for the love of it. They seek returns by renting out.

And even though real-estate value has increased a lot. Rental income from these properties didn't increase at the same rate. Tenants can't afford to pay rent landlords would like to charge so there is downwards pressure on returns these properties can generate.

Not to mention, interest rates are at record low. What's going to happen when they go up? Not only demand for real-estate will be lower, there are borrowers who have accumulated too much debt to buy real-estate. They might be simply forced to sell as they wouldn't be able to service their loans anymore.

Nobody can predict the future but I'm not going to be surprised if we witness another real-estate crash in 2-3 years.

Lots of people suspect that the Chinese purchase of overseas property is mostly an expression of distrust at the Chinese government. Remember that China is still (very nominally) communist and not afraid to confiscate property of people who are sufficiently discredited. It happens occasionally in corruption crackdowns.

For this purpose, it's a minimum-risk store of wealth with a potential for appreciation and any actual returns are less of a priority. Something similar applies to Saudi and Russian oil wealth; an escape from the possibility of SHTF.

> Foreign investors buying up real-estate don't do it for the love of it. They seek returns by renting out.

Except often they don't, rental income is almost like a rounding error to them (it's not really, but they can't be bothered - the main thing, it seems, is buying the asset.)

I'm expecting a significant rise in the number of homes for sale when interest rates spike. Many multi-property landlords are relying on "hard money loans" or "bridge loans" to finance their properties. The nature of these loans is that they put the asset itself (i.e. the house) up as collateral, but also allow the landlord to leverage the loan into another one. So a landlord can put just a little bit of money down on a house, and then leverage it into a chain of multiple houses.

When interest rates spike, landlords lose leverage ability and may even have to refinance their loans. Spiking interest rates will lead to an influx of homes into the market as landlords who did not plan well enough for the spike are caught underwater in the same way as residential homeowners were in 2008.

Private equity firms are backing the loans, so maybe they'll just take the houses when interest rates spike, and rent them to tenants themselves. In the future, we'll all be renting from the Blackstone group!

Disclaimer: I am very uninformed on this subject and do not know what I'm talking about. :)

What's wrong with paying rent to someone in another country? There's the argument that the money doesn't come back into the local economy, but in this case it clearly does - they bought the house by paying a local seller.

Unless they bought it from a foreign investor.

There is something to be said for not having another country control property that one's citizens need to live. What if another country started buying up farmland, for example?

Beyond that they have no interest beyond financial to, say, keep things nice or affordable or to encourage sustainable growth or any of the other bonuses communities get when they have locals own property.

Citizens (and occasionally residents) have ultimate control over the land, through control of taxation and regulation.

Only if said Citizens are keeping their government in check.