I can buy a house tomorrow and hold it vacant off the market at a listing price 3x its value. I will have zero impact on the housing market. You may be conflating the listing price of an asset with the clearing price of that same asset. You can, obviously, build up inventory to manipulate prices. To do that, you have to be able to generate scarcity, which is exactly what corporate investors aren't doing.
You've just given me 6 more paragraphs about the control you think they have, and you still haven't told a simple 1-2-3 story about how they're using a microscopic footprint in the total housing market to distort prices.
You have to do better than "supply and demand normally influence pricing feedback at much more granular levels". In the context of your original claim, of them being "a huge driving force in setting and manipulating prices", you need to explain how that would actually work, and not rely on handwaving.
> To do that, you have to be able to generate scarcity, which is exactly what corporate investors aren't doing.
But they did. When inventory was low and then zero percent rates where available, they bought everything they could and drove prices up and created an appreciation bubble. I don’t think they have some other dark patterns for manipulating the market but they had access to a lot of basically free cash. Inventory of houses for sale is a tiny portion of the total market and they could and did contribute to driving prices up. But so did everyone that had the opportunity and inclination to do so, and why not when money is free leverage the shit out of it in an asset class that will generally appreciate without much risk.
I don’t know what ever came of that now that rates have increased. Are they still holding those homes? Did they sell them after driving prices up? (But not fast enough to make prices go down again obviously). Are they landlords now? Etc.
The market is still reeling from that economic situation that created this. Prices may eventually float down but no seller is eager for that so it’s a bit sticky.
My claim would be that in any any of the top 10 markets by transaction volume (just to pick a handy metric out of the sky; you could choose others), corporate investors are literally a nonfactor.
They can also target just specific areas of specific major metros and there are ripples throughout the entire market.
The housing “market” does work the same as the stock or commodity markets. People aren’t buying an intangible share. They’re buying this specific and unique house and if they’re told “we just got a cash offer for $50k over ask”, they may be tempted to beat it. That doesn’t happen when people buy AAPL. The shares are fungible.
There’s only empirical evidence of their buying activity. We’ll never know how many deals they bid the price up on but didn’t buy. This auction like quality is evident in any market like this; watch Storage Wars and one disinterested buyer will bid up the price just to fuck with his competing bidders.
You can't "just bid". A bid is a contract. If you back out, you'll lose your earnest money.
There’s a lot going on between making an offer and losing earnest money.
I’m selling a house right now that’s in bad shape so getting lowball offers. They don’t even submit an offer, they text me or call me and tell me what price they would offer. They don’t want to do the paperwork for something I’m just going to ignore. Yet, if it turns into 2 or more people floating numbers I like I will tell them to write it up then I will tell them there’s another offer and try to get them to go higher. All that is before I accept there offer and earnest money is put down after that. So the bidding war is over by that time.
Even if earnest money did work how you describe, it would tie up a few thousand dollars per property for a few days max then be returned and redeployed on another property. These companies have deep enough pockets to fund that. There earnest money only ever enters the picture of their offer is accepted.
Where did this occur? Is this substantiated?
Googles AI overview of my search for “ covid era corporate home purchases”, also plenty of substantiating references in those search results;
> Corporate home purchases surged during the COVID-19 pandemic, driven by factors like low mortgage rates and increased demand for single-family homes. While this trend has plateaued since the peak, investor activity remains above pre-pandemic levels and has sparked significant public debate and legislative action.
A tidbit from an article indicates they doubled their prior investment activity. Probably more than double because investors bought homes increased and their share of that metric doubled.
> Prior to the pandemic, mega investors averaged about 7% of overall investor purchases and their share increased to 14% during the pandemic — it has now slowed
I do not think it's unreasonable to request a single example, statistic, or attributable fact.
What? Cash is never ever free. If it's your Scrooge McDuck cash vault, you're losing money by not investing it. If you borrow it, you're paying interest on it.
https://romanroyce.com/wp-content/uploads/2022/02/ScroogeMcD...
Because if I saw a house 15% below market where I live, I would buy it (to live in). I don’t imagine I’m the only one. Institutional investors can’t stop me from doing that if it’s offered - can they stop the seller from offering that?
The main contributor to the price here is financialization. The more money the average buyer can raise for one of the scarce things, the more they cost. Nobody wins from this except the banks, so perhaps it should be more regulated.
Building regulations are also a problem. Legalize whatever you feel is the minimum safety standard of homeless encampment or slum, and watch house prices crash overnight, since prices are set at the margins and a lot of people (including me) would be happy to find a way to work with simple concrete box if it was cheap and secure, but it's not legal to build those.
Yes, you still need to solve the problem with 'money', or more accurately a tax. That tax is based on the assessed land value using market knowledge, but it would ideally be set to drive down the price of land to zero. However since we don't live in a world of spherical cow, tax would be set below that ideal to avoid land abandonment.
This is not even new by the way. The crisis we face is the same as in the 19th century when Land Value Tax and Georgism was proposed.
The Netherlands and Tokyo beg to differ.
There's not enough houses on the market (zoning, and people want to keep their low-rate mortgages), there's people worried they can't afford houses (prices inflated faster than wages, rates went up), and a large amount of housing transactions (someone quoted 29% of starter homes) are being paid for by institutional investors (who can pay cash).
Wouldn't these institutional investors buying houses be "marginal consumers", kind of like the marginal producers who set the price of inelastic commodities such as oil? Seems like 29% of transactions is even more than marginal.
I assume that sellers would need to come down in price to what non-institutional buyers could afford if institutional buyers were removed from the equation.
As an aside, I'd rather see supply increased, but maybe demographics over the next decade or two will fix that problem anyways.
To be clear, I don’t think institutional real state investment is a substantial part of the reason housing prices are so high. I’m just trying to push whatever argument they were thinking of toward something quantifiable.
It's just land ownership isn't being taxed properly, no matter who owns the land. We homeowners get a free lunch from economic growth and price appreciation of real estate while penalizing capital investment.
The solution is simple if not necessarily easy to implement. Tax land and at a high enough rate, and exclude building and improvements. We'll reap bigger benefits if we reduce taxes on income and capital and eventually phase it out.
Some people do that, but they aren't good businessmen. Vacant houses lose money at a prodigious rate.
Many vacant homes in the SF bay have been that way for years and have appreciated tremendously.
Mant would perfectly prefer buying poorly maintained boomer stock, holding for roughly forever (in ideal markets, like the distorted California/Prop13) and leveraging it like a brick of gold. Actually having someone live in it doesn’t outweigh the risk of managing pesky tenants esp. when the houses are appreciating 500k over 5 years.
Having deep pockets simply means that you lose a lot more money when following money-losing strategies.
Most of these schemes are hare-brained because they do not take into account the time value of money nor the costs of having vacant investments that are not generating revenue.
The way businesses make money is by buying an asset and then immediately putting that asset to work generating revenue.
They behave accordingly. The do things that they can, and because those things are relatively new, it's a type of information asymmetry and policy / good intentions / competence arbitrage that we haven't had to cope with before.
You might end up banning certain types of institutional participation in the housing market, because there's no way to protect against the negative consequences that doesn't have even worse consequences for either the participants or the population at large.
It'll probably have to be arbitrary, and the cost will be a bunch of firms no longer get the opportunity to make a bunch of money by leveraging their resources in that way.
And we see the influence and impact constantly, with outlandish asking prices being immediately met by institutions that have decided they want a particular property in a particular region. Or house prices being set to an outlandish level with no reduction in price over months and months on the market, because they can afford to sit and wait for the market to change. And if they can afford to do that, then all of a sudden they've got an incentive to drive prices up in that region, because local and state governments, banks, and realtors tend to use the same basic rubric to evaluate price. If a lower valued area sees home prices go up, properties in the higher valued area will be raised accordingly. There's no secret quant voodoo, it's just using a level of liquidity and staying power not accessible to non-institutional homeowners.
Supply and demand normally influence pricing feedback at much more granular levels which benefits individuals, and our policy and regulation and evaluation models are largely built around those assumptions. Without the negative feedback driving prices down, bad things happen for consumers, good things happen for those who already have lots of money and property.