I see a lot of expensive houses being built in my area. A LOT. And the weird thing is that they’re being bought pretty quickly. Are these people just making more money than me? If so, what are they doing for a living? Or are they just living house poor? How exactly are they affording these places?
Edit: For reference, my neighborhood is starting to become popular (because the other popular neighborhoods have priced most people out of affording places there). The normal price of newer homes here is $700k. My home, built in 1965, which is 2500sq ft on a quarter acre of land, is $500k.
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All this talk of foreign investors. But the reality is they represent a small proportion of single family homes[1] and residential units. It’s easy to blame foreigners, but the real problem is domestic. It’s corporations. Corporations are buying all the housing[2]. And they don’t mind sitting on their invest, even vacant, for years. So yeah, y’all keep the bigotery going and blame foreing investors, you’re playing right into capitalism’s hand.
Foreign owners only account for a small share of the Canadian real estate market. According to Statistics Canada, a government website, non-residents owned 2.2 percent of residential properties in Ontario and 3.1 percent in British Columbia in 2020. The percentages were 2.7 and 4.2 in the Toronto and Vancouver metropolitan areas, respectively.
According to data reported by the PEW Trust and originally gathered by CoreLogic, as of 2022, investment companies take up about a quarter [25%] of the single-family home market.
https://todayshomeowner.com/blog/guides/are-big-companies-buying-up-single-family-homes/
I feel like this article didn’t do a great job of answering the question. They didn’t really determine whether big corporations are buying homes, they determined that investors are buying homes. The actual text:
According to data reported by the PEW Trust and originally gathered by CoreLogic, as of 2022, investment companies take up about a quarter of the single-family home market. Specifically,investor purchases accounted for 22% of all American homes in 2022.
Those two statements are not equivalent. “Investor” could be a single individual buying a home with the intent of offering it as a vacation rental when not in use. It could be somebody who bought a duplex and rents the other unit out until their parents retire. It could be a house flipper who does 1 house at a time – each time registering an “investor purchase”.
Even “corporation” doesn’t really mean anything; a “corporation” could be an LLC with one employee, the owner.
And even when big corporations buy single-family homes, it’s not clear to me that this has a lasting economic impact. It sounds like a lot of these investment companies are renting the the homes or flipping them. Ultimately, demand is still demand. Somebody has to be there to buy or rent the home for these investments to make sense, so any price increase resulting from this investment activity is not an external, artificial pressure. It’s a real representation of economic value, it is a price that the next occupants are willing to pay.
I have a very specific viewpoint on this issue, as I live in a vacation destination. Various investors are buying up every property that comes up for sale in my community (large corporations, small companies, wealthy individuals looking for vacation homes, etc.)
Every single property that gets bought, gets renovated or otherwise improved to the point that there’s no chance in hell anyone living and working in the community full-time can afford to buy, unless they bought their first property before 2016. Since then, home ownership among my colleagues has become a pipe dream (and without giving away too many personal details, let me just say my colleagues and I are well-educated professionals making way above the median income for jobs in the area).
As I type this out, I’m listening to a million-dollar house being built in the lot behind me (which will almost certainly sit vacant >80% of the time), a shit rental being turned over next door (which charges $3k/mo for a 3/1.5), and two short-term vacation rentals partying across the street (which usually charge at least $300-$400/night).
Regardless of who it is, investors buying up housing is a huge problem for people that are trying to own their own home, especially first-time buyers.
Whether the investors are foreign or domestic, doesn’t matter, as long as governments allow living space to be gambled with, people like OP (I assume OP is working class) are very unlikely to ever own their house/apartment.
It matters because blaming foreign investors is a diversion used to avoid bringing forth actual solutions.
Buying as an investment, whether by foreigners, corporations or whatever, is a symptom not a cause of the housing shortage. The cause of the housing shortage is that we’re not building enough houses. That’s it. Supply and demand, same as it’s always been. The solution is to reduce demand or increase supply.
That doesn’t mean “is a symptom, not a cause.” If it’s actually supply and demand, then the investors buying the housing is part of the problem, not just a symptom. The investors are decreasing supply and increasing demand, so it’s really two sides of the same coin.
Personally, I think that just building more houses isn’t the answer, because the corporations can just keep buying them up. This will continue to artificially decrease supply and increase demand, which keeps them making a profit. And as long as corporations can make a profit with this model, they will (and people will continue to suffer).
Yes let me buy a house on someone else’s land I’m sure they won’t mind. And if there’s not enough land left in America, we just need to increase the supply of land.
the free market won’t fix this because it’s not a bug, it’s a feature.
That’s short sighted. Developers collude with each other and investors. There is serious conflict of interest since everyone on the supply side has lots to gain in ever rising house prices.
Ironically getting rid or severely limiting these developers to reduce supply is what’s needed to reduce prices. Not short term, but the long hard way until you take away the “investment “ side of real estate. Lower supply until it’s not profitable for these developers and investors.
They are not being bought by regular people like you - they are being bought by investment companies, hedge funds, and filthy rich investors… all for the the sole purpose of turning them into rentals.
By turning them into rentals, they keep supply low which increases prices… which prevents people from buying, keeping rental demand high, which also lets them charge exorbitant rental rates. They are gaming both sides of the system to ensure that us peasants can be milked dry over a fundamental human need.
That does not add up.
Home rental and ownership are substitutes. If they are renting those homes, they are reducing the demand for ownership. And adding renting unities can not allow them to charge exorbitant rates.
What is keeping those prices high is something else.
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This is pretty basic math. Just think about Monopoly (yes, the board game).
Housing is a finite resource. You can buy it or you can rent it. When you buy, you build equity. When you rent, it’s pure expenditure.
So what happens when nobody can buy? They are forced to rent. Demand for rentals rises, which allows landlords to raise their rents.
So how does someone with very deep pockets turn this to their advantage?
First, starting one metropolitan area at a time, you buy up everything you can. If you coordinate with other investors, all the better. The goal is to strangle supply for buyers and prevent anyone who can’t pay cash upfront from making a purchase. When people are unable to buy, they are forced to rent. So supply is down for buyers but demand is up for renters. Renters also aren’t building equity, when means it is perpetually more difficult for them to buy in the future as long as they kept away from the equity opportunity. So you now control the entire regional market on both the supply side and the demand side.
But what if you have more rental property than people willing to pay your asking price? Do you lower your prices? First of all, that rarely happens - because as an investor, you target places that already have lower supply than natural demand. If you have to occasionally let a property go unoccupied for a few months, it’s still no biggie… you keep those prices high and do not, under any circumstances, devalue the market (for your own sake as well as your investment cronies). To avoid accusations of collusion and price fixing, you farm out your rates to a third party service that all your cronies also use: RealPage. It’s not collusion or price fixing if you use a middleman, right? So now you are making bank on rental rates that will see a full return on your (higher than the properties value) investment in 15 years or less.
This has been going on for well over a decade, and these “investors” are now printing money on some of their earliest purchases, with no intention of EVER putting anything back on the market.
TL;DR; Buy all the supply, force plebes to rent, control the prices, profit. Just like Monopoly.
Home rental and ownership are not substitutable to each other nor does renting lower the demand for ownership. The amount of tax exemptions of buying a home, esp as first buyer, are decent over rental. Find out what a buyer’s vs seller’s market is. Look at what the avg. capital gains are for homeownership vs home rental (which are basically none). You still pay property tax on rentals such as apartments. Buying real estate is an investment, meaning you expect and should make returns on it (even if its just from selling the home years from initial purchase). A lot of this can change by state but generally, and overwhelmingly so its rings true across the US.
Look, I’ll be straight up, you seem like you are coming from a place of someone who has never closed on property - which is 100% okay. but you are wrong, as what you said was not an opinion but just factually wrong.
In my area the biggest factor is multiple families purchasing homes together. When you’re splitting the mortgage it’s a lot more affordable.
DRS GME. They need collateral for their bad bet
The profit margin per square foot on a large “luxury” housing unit is a lot higher than on a smaller, cheaper unit. Plus you won’t get people upset that you’re eroding the price of their homes by building cheaper ones, so NIMBYs won’t stop you.
As someone who works with people in residential construction fairly often, this is the answer - and it’s why they don’t build new “starter” homes anymore. It’s very difficult to turn a profit on a single family home that would be considered affordable most places.
Basically, its very little extra effort and expense to build a luxury house compared to an inexpensive one, and your profit margin goes from very thin to decent.
Anecdotally in my area, most residential new construction is going to retirees who have a nest egg and the sale now very expensive house, or couples who sold an inherited house. Occasionally there are people who are remotely working or people building as an investment property, but they’re in the minority.
The profit margin per square foot on a large “luxury” housing unit is a lot higher than on a smaller, cheaper unit.
This is the weird part. It’s not normal by any means, and there must be something causing it to happen.
The normal situation is that cheaper homes are more profitable by area.
From what I’ve seen this has been turned upside down by… well essentially automation, just not the kind everyone is afraid of.
Between better techniques and tools, a lot of construction is significantly faster than it used to be, to the point that a job that’s smaller has enough… I guess “opportunity” cost that it can be significantly less profitable.
Let’s say I’m a plumber. In the 80s, I would use copper pipe and have to solder all the connections - even a small job would take a long time - on the order of days. If I do a small house it takes way less time than a big house.
But now instead I would put in long lines of PEX with crimp on connectors. It’s like 4x as fast so it should be 4x cheaper right? Except now I have to drive to 4 different jobs to work all day, set up and tear down 4 times, deal with 4 different customers and invoices, etc. OR I can do 1 big house and make essentially the same money since I cut out all the extra work.
Add to that that most people are going to use more expensive finishes on larger houses that I basically just take a percentage of, and they might request something specialty and working on small affordable houses seems like a terrible business plan.
It’s pretty simple: The cost to make the structure of a house is pretty much the same for luxury or basic models: Framing, electrical, foundation, etc.
But if you throw in some cheap granite countertops, a fancy tub, and up-market flooring suddenly it’s a luxury house and you can charge twice as much, despite it not costing nearly twice as much to build.
Same thing goes for cars: A luxury car just has different fabric and some badges, but they charge way more than a comparable econobox because it’s “luxury.”
Remote work means a lot of well paid individuals are able to move to less expensive areas, assuming internet is decent.
That’s me! Moved to a very small town with fast internet so I could have a house for about 0.75x my annual salary. It’s great, now we can almost afford to pay for student loans!
Generally the problem simply boils down to there not being enough housing, it’s extremely difficult for it to remain expensive if you have more housing than you have people.
What most of the world needs right now are million programmes, just slap down a bunch of areas with commie blocks wherever you can. Sweden and other countries did this back around the 60’s and wouldn’t you know it those apartments remain vital for providing people with access to cheap housing.
This is funny, because I consider OP’s house to be obnoxiously expensive, let alone all the newer homes they mention.
There are MANY calculators out there as to how much house one can afford, and personally I think most of them over-estimate the amount. But based on very rough numbers, you could spend about 3x to 4x your yearly salary on a house. So to afford a $500k house, one “should” be in the $150k/year range. To afford a $700k house, one should be in the $200k/year salary range.
Personally I think both those numbers are bonkers and rather live well below my means than be house-poor.
The reason there are just so many expensive homes is that people are terrible at personal finances. They don’t mind being in debt and then there is the awful FOMO mentality that is helping drive home prices up for no good reason. Add in the fact that for years now new home construction has simply not kept up. There were homes being built, of course, but many of them were on the top end of the market because local town governments rather get the taxes for ten $10M homes, rather than force developers to build 50 $250k homes. So there is so much blame to pass around.
I think it’s awful that people are willing to be house poor in order to live in an expensive home, likely with no way to deal with it if something goes sideways.
FWIW, we bought the house when it was $330k with a sizeable down payment. We wanted to make sure that only one of us can pay for it, in case the other loses their job, or good forbid something worse happens.
I’ll add a “Yes and…”
Don’t underestimate people’s willingness to go into debt, for a bigger house because it will “look good”
Gotta keep up on the pretense of being successful.
What is the price compared to the local average salary? How long does it take someone to afford that house with two salaries?
It’s about perspective.
I have tech coworkers who make about $250k in California take a pay cut to work remotely, so they can move someplace affordable. And they’ve said things like “This house is 800k for 1200 sqft?! What a steal!” Because their prior baseline in CA was it being $1.2million.
Meanwhile I bought my 1200 sqft house for $128k in the midwest. I suppose it has doubled in value since 2016, but still.
You need a lot more info. Are these retirement condos, older people downsizing after kids, California migrants, a popular or quickly growing neighborhood, vacation rentals, corporate speculation, or just normal cost housing for your area.
Edited my post to provide some more info. I have no idea what the average salary is here.
information is readily available on this thing we call the internet
They’re being built cheap by large corporations
yes, there are a great deal of people that are making far more than you do. foreign and corporate investment snap up a great many private homes. short term rental investments have exploded so people with credit can buy homes, rent them out in the long or short term, and pay off the mortgages. the american dream centered around owning your own home, since the turn of the century has receded further and further away, where it was once the norm for the post ware middle class, doesn’t really exist any longer. it’s the haves and have nots in the united states.
Where I live they’re all bought by investors/landlords.
Perhaps foreign investors. It’s not uncommon for rich people to buy several houses, rent them, resell them once the prices go up in a few years, repeat.
Investors, rich immigrants, just a lot of rich people in general. Sucks, and I would blame the government.
