I've lived in the US for so long that I forgot other countries have like semi-serious government that actually do stuff. I just tried to buy a house in the UK and since I was last there they've added a billion new taxes. There's a buying a house tax, a buying a second house tax, a buying a house when you don't live in the UK even though you're a citizen tax, a non-resident landlord tax, UK specific capital gains tax... and they all stack on top of each other. I am going to get absolutely clapped by taxes, but it's nice to see even right-wing governments trying to address the housing crisis.
If you want to get an idea of just how bad the housing crisis in the US is, you can make money just by buying a house. I'm not talking about owning instead of renting, I'm not talking about renting it out, or flipping it, I'm talking about just buying a house as if it were stock in a corporation and leaving it empty. You pay something like 1.2% property tax per year, but the value increases about 4.5% per year.
In some cities houses can appreciate by as much as 12%+ per year. At which point you could theoretically pay cash for a house, take out a loan against the value of said house to get your money back, then buy another house with the exact same money you bought the first house with. The appreciation covers taxes + interest, so over time you can just buy infinite houses for free without even adding the almost non-existent value that landlords and flipper add to the economy.
Few people actually do this because renting houses out lets you buy infinite houses faster, but the fact that it's even possible is literally insane.
@malwaretech
I love on a housing estate in London, UK. There are folk who bought for £20,000, 40 years ago and they could sell now for £750,000. Unearned profit
@malwaretech add in renting and put rent into interest payments and you can leverage this trade to the tits too! (and I know someone who was doing this in Germany, and blew up during rate hikes)
@qwertyoruiop Hoping the fed rate hike blew up some of those people, but with the 22% price appreciation during the zero interest rate frenzy I'm doubting it.
@mastodonmigration@malwaretech Yep, it's vaguely a ponzi scheme in that everyone is buying houses between each other without any plan to actually live in them. You don't want to be left holding the bag when the music stops!
@malwaretech this is not quite true. Houses aren't fixed intangible assets. They depreciate/rot/rust. They need upkeep, sometimes significant upkeep. The rule of thumb here is 1% per year in upkeep. Additionally house buying and selling isn't frictionless. There are significant fees (less significant at scale but more so for retail markets) these take at a minimum 7% of the purchase price. They vary due to state and local requirements.
@malwaretech interesting! I'm buying a new house and selling and old house, my market research would seem to indicate differently. House size, quality, features, manufacturer, and maintenance history all seem to have significant impact on sale price/speed even on the same block. It's weird that you would just dismiss all that out of hand, but I'm sure you have an ernest and charitable explanation. Care to share it?
@jab01701mid not really. The prices were inflated by banks giving interest only mortgages to people they knew couldn't afford the properties. In this case the prices are going up due to genuine lack of supply.
@malwaretech I would slightly disagree. The "problem" was that property values were increasing, so banks were willing to bet that even if the borrower defaulted, they could recover their investment in foreclosure. At some point, that stopped being the case. Thus the crash.
@malwaretech you haven't lived here long enough to know that sometimes house prices go down. just like stock markets. Also, the areas where people can buy huses and not need a mrortgage are often areas that don't see much price appreciation. And if you leave your house vacant and unused for 4 or 5 years (or less), you will likely have things break down (sounds counter-intuitive, but it's true).
@malwaretech I figured that, but my point is I don't think buying a house and not using or renting it is a great investment. the house I bought in 2003 was worth maybe 10% more in early 2020 (a bad "investment"), Of course it more than doubled in value in the last 3 years.
@malwaretech I was sitting in a coffee shop in Seattle, while the guy at the table next to me went though a stack of real estate listings on a speaker phone making a list of buy/no buy.
They were going to buy at least 10 properties that afternoon.
@malwaretech In fact this is an extremely unreliable way to make money.
In the 22 years that I have ‘owned’ the house I live in, it’s lost (notionally) about 80% of its purchase price in value & then regained it all plus about 40%. So my return averages out to <2%. Lower than my tax rate.
Also, your math can only work at all if you’re not borrowing the money for the house. It has occasionally been possible to get capital at <3% but it has mostly not been so.
@grumpybozo We're not talking about homeowners with mortgages here, we're talking about extremely wealthy investors and corporations who can borrow at extremely low rate.
@malwaretech But you’re only talking about a few limited areas. That’s not happening in most of the US. It’s also unsustainable: where it was true over the past year, it probably will not be next year.
California is not representative of the US as a whole.
@malwaretech it's actually pretty similar in UK - yes there are tax implications but nothing a savvy investor doesn't factor in. Issue is that houses are assets rather than homes
@malwaretech also interesting to see how some luxury apartments/condos are places used to park money, driving up the cost of living in an area without even having people live there. I’ve seen that in both out of the way resort cities as well as the large ones.
I started to reply with all the costs and factors you omitted, but quickly ran out of character counts to post the reply.
So... short version... yeah, there's a housing issue. "Crisis"? Only if you don't have money.
No chance your "buy and get rich on appreciation" scenario works.
Start with a mortgage calculator and a guestimate of what a home would cost in a market that has 12% appreciation.
Lets say its $750k.
So your scenario, you give up $750k cash to get in the door.
That means you lose the 6% investment return on that money for each year ahead... that's $45,000 lost in year 1.
You only get to borrow 80%.
Interest rates ~7%
Loan cost w/points-fees
Home owners insurance (required to get the loan)
Monthly pymnt ~$4,000.
No payback for minimum 1 yr as equity accrues.
Tally up Year 1 Mortgage Interest paid. About $41,000
Long story short: You're losing your ass before you even get a chance to collect any appreciation related equity.
This sounds a bit like the plot of "The Big Short" which you should watch if you've not seen it.
Basically what caused the 2008 financial crash was that sort of property speculation but people couldn't afford to repay the loans because the mortgages were issued to people who couldn't actually afford to repay them.
Then thy pretended the mortgages were fantastic and then sold and resold mortgage backed securities as amazing investments when they were total shit.
@malwaretech That is what was happening in Australia in its last boom - one guy was a train conductor owning eight houses, renting them all to housesharers individually to maximise income.
It’s so wrong to speculate on the roof and security over other peoples’ heads, but it seems the fundamental wealth and security of our countries are balanced on it.
@malwaretech Something I observed relatively recently when comparing different housing arrangements in different countries is how Swedens seems more rare when our most common form of housing are a type of regulated "housing-cooperatives" called "bostadsrättsförening".
By having a non-profit, where laws regulate that all profits must return to the co-owners, shared ownership, costs are substantially lowered. It's not perfect and must go hand-in-hand with other regulations but compared to LLCs or companies own housing, especially if it's a public company with shareholders... they're astronomically better in potential to improve housing availability and pricing. #bostadsrättsförening#cooperativehousing#housing#housingcrisis
@malwaretech a lot of people complain abut taxes in California, but the state actually tries to do things with those tax dollars. As for much of the rest of the US, see GOP.
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