But because real estate agents are middlemen in the process, there's an incentive in a hot market to not act as an honest broker.
When the market isn't "hot", a realtor has an interest to move quickly. When the market is hot, they have incentive to move their own listings so they get both sides of the commission. In my case circa 2005, I bid $50k over list via the broker who was managing my home sale. The selling broker "lost" the bid somehow and sold it for $20k over listing price.
7% of 20,000 is close to 3% of 50,000. But... I came to learn later that the selling agent targeted a particular religious community hard, and did a hard sell on insurance, inspection, and even attorneys to buyers, and frequently yielded another 3-5% based on "spiffs" from those providers.
All of these inefficiencies and bad behavior add up and inflate prices.
Though I will point out that in most of the jurisdictions in the link provided, there's nothing that prevents your scenario - a third party offer is turned down due to the dual agency bid being favored by the sellers because they never received your bid. Only in Colorado, Florida or Kansas is it explicitly prohibited. But at least if it was in one of the other states that requires disclosure (Alaska, Maryland, Texas, Vermont, Wyoming) the sellers would have at least been aware of a possible conflict of interest and may not have entered into a contract because of it.
Of course the reality is that there is very little governing their conduct and behavior. Without a functional "exchange" or disclosure rules, both buyer and seller are dependent on good faith.
Where there is money and little oversight there is bound to be fraud. It grinds my gears to think about this because I bought a house and the escalation clause went to the maximum. Now do you think that was purely coincidence?
Eg. my realtor called up the selling realtor and asked for the name of the realtor that submitted a competing offer. My realtor called the competing realtor to confirm they had a client that submitted an offer.
Yes, of course the two other realtors could conspire together. But, now instead of one dodgy realtor you have 2 and the probabilities go down further.
Is there fraud, I'm sure there is. But, I don't think it's a significant factor in the market.
In such a case, I’d predict a lot of partnerships (or whatever the lowest cost legal structure that isn’t traceable over time if not activated) would be bidding for houses. My bid as “123 Main St Partners” can be as public as you want I suppose.
Almost everything mentioned in the various comments here is a scapegoat. These all might contribute a little to the escalating prices at the margins, but they are not the root cause.
The root cause is that many capitalist societies have decided that purchasing a house is the most expensive and important investment most people will make in their lifetime. Therefore these societies gradually shape their policies to ensuring these investments continue to increase or else there are widespread repercussions. The end result is we have collectively refused to build enough housing to keep prices stable or decreasing. The prices need to go up. I don't understand why no one is willing to admit this.
All the other problems originate from this. The reason foreigners want to buy homes as speculation or a place to park their money is because governments are committed to ensuring that housing is a safe and profitable investment. It all comes back to us deciding that a basic human need should also be an investment that always is increasing in value.
We don't want prices to go down so we don't build enough supply. The policies that make housing a good investment increase demand from speculators and investors above the natural need for housing. There are all sorts of subsidies that exist to give people more money to buy housing instead of trying to make housing actually cheaper. Interest rates are a lever the government uses to support its political goals which includes increasing housing values. It all comes back to the same root cause.
If it’s feasible and profitable to build new homes, then developers will do so.
Everyone loves the simple solution of “build more houses”. Very few actually consider the execution of the master plan. What would it take for you to start building homes? It’s an enormous risk, requires tons of upfront capital, specialized labor and supplies.
When everyone wants to live in the same areas, housing prices go up. Lifting zoning restrictions isn’t some magic bullet that will alleviate that fact.
No, but real estate companies wouldn't be able to lower property taxes alone. It's only happening once there is a critical mass of homeowners that is voting themselves a tax cut. Large real estate companies get exactly the same tax cut and since they have more property they benefit more than the average homeowner. One could have a tax cut for owner occupied housing but no, there is no limit to the tax cut. Everyone including billionaires gets it. That's incredibly unfair.
High property taxes hurt renters too. Rent prices increase to cover the difference.
Homeowners don't need to orchestrate and elaborate scheme, they just vote for the politicians who will prioritize increasing home values because that will help them financially. That politician will enact policies favorable to homeowners because that is what their constituency wants. That will encourage more people to become homeowners because people see homeownership as a financially beneficial endeavor. That will increase the power of homeowners as a constituency which will lead to more politicians courting homeowners with favorable policies making homeownership more attractive. And on and on the cycle goes until it isn't "feasible and profitable to build new homes" because we have made it difficult and expensive through all our pro-homeowner policies.
Or y'know...maybe homeowners don't want to have their neighborhood become overcrowded. Not everyone wants to live in a megacity with traffic, air pollution, constant bustle, and restricted personal liberty.
If financial gain is your only motive as a homeowner, you would actually WANT an increase in density. As you cram more people into a smaller space, the land underneath becomes more valuable. Increased density attracts amenities, restaurants, businesses, nightlife...etc, all of which raise the value of your property.
Homeowners care about things other than net worth.
Then it’s time to collect your scarcity-generated windfall and move someplace rural you’ll like better! Super-common, and you can even complain self-righteously about the terribly governed crime-ridden hellhole you’re leaving behind.
I am quoting my original comment because it seems like you didn't read it:
> Not everyone wants to live in a megacity with traffic, air pollution, constant bustle, and restricted personal liberty.
> If financial gain is your only motive as a homeowner, you would actually WANT an increase in density. As you cram more people into a smaller space, the land underneath becomes more valuable. Increased density attracts amenities, restaurants, businesses, nightlife...etc, all of which raise the value of your property.
Do you have an actual response? Or do you just need to be outraged at something?
Nothing I said here is specific to neighborhoods. It also applies at the city, state/province, and national level. A homeowner in San Diego likely doesn't care about the density of various neighborhood in San Francisco. But they might still vote for Prop 13 which put harsh limitations on property taxes in the state and in turn increased the value of homeownership and the cost of housing. That decision has nothing to do with personal preferences of what type of neighborhood in which people want to live. It is purely homeowners being powerful enough to vote themselves tax breaks which makes homeownership more attractive which makes homeowners more powerful...
This is just one piece of the puzzle, and frankly its a bit much to chalk it all up to power/greed. Again, if CA homeowners make up the majority of voters what exactly is the alternative?
If I'm being honest, my opinion on CA housing markets means nothing...but it seems pretty sensible to me that when a shitload of people all want to live in a handful of cities, prices HAVE TO increase. Removing prop 13 and zoning restrictions isn't going to double the housing supply.
On a semi-related note, pretty much everything in CA is more expensive. The residents there vote for expensive public services and legislation. When everything is more expensive, you bet your sweet ass houses will be as well.
There's also no incentive to build affordable or well-constructed homes. Many builders will try to maximize profit by investing the bare minimum (i.e., cutting corners) and creating the largest number of dwellings possible. Mattamy Homes is infamous for developing large neighborhoods with pretty homes that practically fall apart in a matter of months if you look at them wrong.
This is sort of my point. Who's going to build the "affordable housing"? Why won't the affordable housing get snatched up by the highest bidder?
The federal government already spends way more than it can afford. State/local governments don't have anywhere near enough tax revenue. It would require a multi-trillion dollar operation to increase supply enough to offset shortages.
> The end result is we have collectively refused to build enough housing to keep prices stable or decreasing
This is not the result of a hushed down societal decision. The refusal to allow housing construction the cause of the ever increasing prices. As so often, it comes down to basic microeconomics: If you limit supply while demand rises, prices will constantly go up.
I do agree that foreigners, like anyone else, buy homes as speculation because they're guaranteed to increase in value.
And what would you say is the cause for that? I would generally say it is people trying to protect their existing investments in housing.
It sounds crazy today, but the vastly poorer US society of 1960 supplied pretty everyone with an indoor place to sleep and call home.
I'm American so I can't speak to the specifics of what happened in Canada, but I imagine it is similar to what happened in the US.
It is all related to the post-war suburbanization of the population. In the early part of the 20th century, homeownership rates in the US were in the 40% range. By the 70s it jumped to roughly 65%. Large swaths of the population went from being lifelong renters in cities to buying single family homes in the suburbs. Owning a home became a symbol of American middle-class life and the government both supported and encouraged this transition. Obviously a constituency that makes up 65% of the population is going to see more political power than one that only makes up 45% of the population.
1960:
Pop: 3,034,949,748
%Urban: 34%
2020
Pop: 7,794,798,739
% Urban: 56%
I think it was more a case of upgrading to modern sanitation standards etc.
That said, I have no real detailed knowledge, and would be happy to learn how wrong I am about this :)
The insanity of "we can't let you have a bad X, so you get no X!" is one of my least favorite things in this era...
On the other hand, flop houses aren’t economical to run anymore, and the drug problems (especially with decriminalization) have gotten much worse. It’s not clear they can work like they did in the past.
No, rather somebody at the top needs to go down.
That aside, this is absolutely correct. It's constantly irritating to hear politicians praise "strong housing markets" when "strong" means "unaffordable if you're not already wealthy".
You mean opposite of a free market. Property rights, aka the exclusion of other people, is actually an inherent part of capitalism. When you think about it, capitalism isn't actually about physical capital. It's actually about having the rights to be allowed to do things and restricting other people's rights while boosting your own rights is considered perfectly okay under the guise of private property.
When you think about it. We have built a system that tells you whether you get to work or not. This is completely independent of your ability to work or gain skills. It's like a brain cage that tells people they are powerless when they really aren't, they just aren't allowed to help themselves.
A lot of laws that set a minimum living standard basically make it illegal to live. If you are going to demand that everyone must meet that bar, then you must actually do something to let them achieve it. Instead, we just abandon people under the guise of personal responsibility.
can you give an example of this? I don't believe the current system prevents anyone from working if they have the skill. The closest policy to what you described is segregation and racism, but i don't think that is what you're referring to.
> A lot of laws that set a minimum living standard
there's no such law. There's minimum wage law, which might cause unintended consequences, if the minimum is inappropriate. But so far, the current minimums don't seem that inappropriate.
Steering is a problem.
Not to mention the ridiculous commission fees for realtors, and their well-known practice of "steering" people away from homes with lower commission or prices. A practice that is technically illegal, but not enforced.