I do see your point about foreign investors though, they will view the house as a bank account, one that won't lose money, and will probably appreciate, and is safe from the corruption (or corruption investigations) of their home country. And they have money they need to put somewhere, so why not there?
But even they would probably prefer someone to be living in it and paying them in the meantime, because that improves the return by a lot, and doesn't put the principal at risk.
Let's also not forget the housing crisis saw a lot of money pouring into bad investments. Assuming people only make wise investments is naive. The market is crazy right now with people paying over asking and waiving inspections. A lot of people are going to ride that train over the cliff.
Those returns are underwritten by voters rejecting new housing. If that political landscape changes, the incentives for landholders evolve.
Political NIMBYism probably does play some part along with the pandemic, but again, that doesn't mean these investors are paying attention to that. There is a gold rush on at the moment.
Currently living in zone 2 north-east London and house prices have seemed pretty flat for the last couple of years. Flats have had a surge due to current stamp duty holiday... and prices outside London seem to have increased a lot with people anticipating a permanent move to remote/hybrid working.
Taxes on empty properties aren't high, but you still need to consider maintenance... and there's an opportunity cost of leaving a house empty rather than renting it out.
Just interested in your data - thanks!
Update: found https://www.actiononemptyhomes.org/pretty-vacant in one of your sibling posts - was that what you were referring to? I just read it (on my phone, so might have missed it), but didn't see any numbers for investment returns here... and there was a fairly-extensive section talking about London property being used for money-laundering instead - is that what you're referring to?
About once every 2 weeks his son pops by to make sure the house has not burned down or had a pipe burst.
I don’t know the details as I'm a renter but from speaking with a few Realtors they mentioned the companies the worked at did this.
Even if we buy the exotic premise that investors would buy houses and leave them empty - generating zero rental income for these greed driven people - as an investment, we still have to explain why they would only do this with new housing stock.
Why can't you do the same trick with existing housing?
Where I live the housing prices are expected to go up roughly 15% this year. So someone buying a house for 600k can expect to sell it for 690k making 90k. That is 7500 USD a month. If you wanted to make that much money from rent you would have to squeeze 4 or 5 tenants into the property. It is simply not worth the hassle trying to rent buildings out when house prices go up at such a high rate
It's not either/or, which is why I'd assume the parent poster called it weird. That investor could make the appreciation and of top of it could make the rental income. So it is weird, from their perspective, to leave it empty. If they're flipping real estate for profit (as opposed to buying a home to live) why reject the extra income.
Also, selling a rental property with a solid history of rental income tends to be better than one with a history of sitting empty. Although that probably doesn't apply to mansions.
Make $7500/month from house value increase, and also, say, $4k from rent.
This increases the resale value since the house is generating income to the buyer.
Fortunately, this is already a metric that is tracked, called the vacancy rate. And what we see is, that in in-demand cities, that have high rents, the vacancy rate is pretty low.
So, if the vacancy rate is 5%, that means that if you build 100 houses, then 95 of them are going to be lived in. Yes, it sucks that those other 5 houses are not lived in, but those extra 95 houses, in our example, are still a good thing.
> This is precisely what happens in places like London
It is really not. A quick google search shows that the vacancy rate is as low as any other major in-demand city.
So yes, the rich do leave I think more places empty in some places because they can afford to and because the economic calculation is not simple. If you rent and want to end the rental later you end up in a bad spot.
Ok, this is a nice story that one could make up. But once again, my point is that vacancy rate is something that is already tracked.
In San Francisco, the vacancy rate is about 3.5%.
So, in other words, regardless of whatever story you are making up about parents, or rent control or whatever, the actual data shows, that the vacancy rate is very low, and therefore not much of a problem.
I know someone who sublet an extra room to someone, a year later her wonderful lease was destroyed, landlord sued her and the women never paid a dime, could not be evicted, claimed she felt unsafe and got a restraining order against the person actually paying rent etc so they ended paying rent on two places, one to live in and one for the women.
I mean - this stuff does turn you off renting a small bit.
That said, supply is REDICULOUSLY constrained around here, red tape is nuts, minimum requirements crazy, affordability payments high etc. So yeah, no question that there is artificial scarcity.
Manhattan https://www.theatlantic.com/ideas/archive/2020/01/american-h...
Seattle https://www.seattleweekly.com/news/luxury-apartments-whos-bu...
Melbourne https://www.theage.com.au/national/victoria/ghost-tower-warn...
Boston https://bostonagentmagazine.com/2018/09/11/study-bostons-new...
Vancouver: The article claims that there is ~5% vacancy rate. This is actually below the normal rate for vacancies in the US. Condos have a higher vacancy rate, but the article offers a reasonable explanation.
Manhattan: Ultra-luxury home vacancies aren't the same as luxury apartment buildings. Most people are not buying $5-$10 million condos. And even if the buildings are unsold, they aren't necessarily unoccupied.
Seattle: Again focuses on "foreign investors" and unsold apartments. No concrete data on how many those apartments are actually empty.
Melbourne: > Prosper Australia project director Karl Fitzgerald said, based on the water data, Melbourne's actual vacancy rate was closer to 7 per cent.
7% is on the high-end of vacancy rates, but if you reduced that down to 5% then the effect on prices would still be low.
Boston: No data on vacancy rates. Again, sale != occupancy. There are plenty of property management companies that build out luxury apartment buildings and directly rent to people.
The real issue is lack of housing, which can be fixed by letting developers build more housing, including high-end housing.
The Manhattan article links to https://www.nytimes.com/2020/01/10/realestate/new-york-decad... which says "Nearly half of new condo units in Manhattan that came to market after 2015... remain unsold, according to a December analysis of both closed sales and contracts" and "7,050 new condo units available for sale in Manhattan in January [2020]"
Melbourne: "Docklands... 17 per cent consuming no water in 2013" and "12.4 per cent of Cardinia and Clyde homes reported no water use."
Boston: "12 of Boston’s newest and biggest luxury developments could remain largely empty despite having sold most of their available condo units to buyers."
Manhattan: Unsold != unoccupied.
Melbourne: Now we're cherrypicking districts that have less than 15,000 residents total in a city of 5 million in one specific year? This is essentially p-hacking to support a non-existent narrative.
https://en.wikipedia.org/wiki/Cardinia,_Victoria
https://en.wikipedia.org/wiki/Clyde,_Victoria
https://en.wikipedia.org/wiki/Docklands,_Victoria
Boston: "could remain largely empty." This is speculation. Where is the data?
"Wealth investment leaves an estimated 125,000 homes in London without anyone living in them."
There are 268,385 empty homes in England according to the government (people get a tax break in most parts of England if they own a property that is unoccupied and unfurnished so its quite easy to track empty homes), and half of them are luxury houses in London.
I'm not saying that's definitely the case everywhere, but I am saying it's worth considering.
Also, the report doesn't tell us how many non-vacant homes there are in their survey area, so we have to guess. London reportedly has 3.59 million dwellings, so 25,000 vacant homes would only represent 0.7% of homes being vacant. Even if you use the higher 125,000 number, that's still only 3.5% of all homes. That's a fairly low vacancy rate, and about right for a city.
Even after the pandemic, housing officials report a 3.4% vacancy rate, which is the highest in eight years. https://lfpress.com/news/local-news/london-apartment-vacancy.... Before that, it was only at 1.8%. That's extremely low.
You can tax vacant homes, but in general, those taxes have a very small effect on housing prices. It's far, far more effective to allow people to build more housing, including luxury housing.
If the economy cannot consume all the products the suppliers produce you need to encourage consumption.
If you perfectly hit the balance (unlikely but in theory possible) then you need to do... nothing, neither savings nor consumption increases.
It depends on what your economy needs.
Only if people actually live in those houses, and they're bought by people living in the cheaper houses right now who then move up in to the new housing stock.
If people buy the new houses as investments and leave them empty most of the year then it has no impact on the rest of the housing market, or if people from outside buy them and move to the city then it just increases the population of the city with no effect on the lower social strata. This is precisely what happens in places like London. There's a boom in house building but it's often apartments bought by foreign investors (allegedly for money laundering... ).
Directly building more social housing would have a far greater impact than trying to affect cheap housing stock by 'trickle down' methods.