Affordable housing continues to be
a massive problem
in the United States,
particularly in large cities.
That had already been a problem.
But now we're noticing that prices
for home are lower in the market,
typically in neighborhoods, that
are a little more affordable for
people are also experiencing
a pretty steep increase in prices,
bidding wars and apparently all
cash buyers are behind all of it,
but the situation is much worse
than you even expect.
So, I want to start off by just
showing you exactly what's
happening in the housing market
overall.
Affordable housing advocates
are panicking.
This one tweet says,
the case schiller tiered home price
index below, shows why the lowest
priced homes in the country
are appreciating the fastest driven
by all cash investor buyers.
So you can look at that graph and
it shows you exactly what
he's referring to there.
And there is a very real reason for
why this is happening.
Homebuilders are literally selling
entire neighborhoods to wealthy
investors, which prices middle
class buyers out of the market and
also off course inflates the price
of housing and understand that when
they do this, they don't do it with
the intention of then selling
the houses in these neighborhoods.
They do it with the intention of
renting the homes, which of course,
minimizes inventory of houses for
people to buy, and that
prices people out of the market.
There are other ramifications
as well,
which I'll get to in just a minute.
But this was a pretty decent report
from the Wall Street Journal.
They gave some examples.
For instance, D.R. Horton Inc built
124 houses in Conroe,
Texas, rented them out and then put
the whole community Amber Pines and
Foster's Ridge, on the block.
A Who's Who of investors and
home rental firms
flocked to the December sale.
The winning $32 million bid came
from an online property investing
platform Fundrise LLC,
which manages more than $1 billion
on behalf of about 150,000
individuals.
So, D.R. Horton booked twice, what
it would typically make selling
houses to the middle class.
And this is really about
speculating, yield, chasing
investors or snapping ups single
family houses to rent or flip.
A lot of this activity is
reminiscent of what we saw prior
to the housing collapse in 2008.
But as one real estate consulting
firm mentions you now have
permanent capital competing with a
young couple trying to buy a house.
This is from John Burns, who has
a real estate consulting firm and
he estimates that in many of
the top markets, roughly one in
five houses are sold to people who
will never even move into them.
So again,
this is speculator activity,
investor activity.
This isn't about providing homes or
selling homes to people who
are looking to live in them.
And the worst part about all of
this is if you've done your
due diligence,
you followed all the rules, you're
putting the avocado toast away,
you're saving up like crazy for
that 20% down payment.
You're done.
You're priced out of the market
because your 20% down payment is
now competing with all cash buyers
more often than not investors who
could be over leveraged.
Meaning that they took out loans
speculating that investing
in this market, investing in
the housing market, and
doing these rentals will pay off.
But if, for instance, interest
rates increase a little bit,
that could lead to a complete
collapse of this system.
And I'll get into more details
on that in just a second.
But Ryan, I wanted to give you
a chance to jump in.
>> Right, and I think that
the the top line point for
me is that this is a function of
what Thomas Piketty was describing
almost a decade ago
at this point is absolute runaway,
extreme inequality and
what Occupy Wall Street was about.
There's just too much loose capital
in the hands of private investors,
who don't feel like they have,
an easy way to get the return
that they're looking for.
And part of this is a function of
the the long term low interest rate
life that we've been living in
coupled with the mass of
exploitation that has continued to
push the wealth of the entire
economy up to the very top.
So you have very small amount of
super rich people controlling most
of the resources, unable to get
a guaranteed interest rate returns.
They're, well what can we do and
they look around, how, why don't we
just snatch up all of these houses?
You started seeing, New York City,
in London and a few other places,
become places where money
launderers and other oligarchs
would would park 10s of millions of
dollars in these penthouses that
they would never move into,
because they realize,
real estate is an asset that is
going to be pretty sturdy.
It might go down a little bit,
it's probably going to go up and
so when I need the money,
than I can sell the thing and
I can get out.
And this is taking that
to the logical next step,
okay if this $20 million penthouse
is worth parking my money, why
don't I park it in this $200,000
home rented out the entire time.
So you're getting paid for
your investment,
which is why people like to own
their own home because, ideally, it
grows while you're living in it so
that when you're ready to retire,
you sell the house and that's your
retirement that's the American
dream that has been sold to people.
These investors have said, okay,
well we'll just buy this house.
And then in this family that was
going to rent it that was going to
buy it.
Instead, now they're going to
have to rent from us because if
we're all doing this, we're
going to be driving prices up.
So we're breaking even or
making a tiny profit every month.
Meanwhile, there's a decent chance
that the asset price rises
over the years and then we sell it.
30 years from now when we want our
capital we sell it or
we package it up and bundle it and
turn it into assets.
And so, yeah, so, it's capital
just invading one of the only
places that regular people have to
amass wealth in this economy.
>> I mean,
if you look at the trends, it's we
are living in this Gilded Age,
right because what led to the Great
Depression was essentially
people taking out debt in order
to invest in the stock market.
People were over leveraged and
that led to the crash.
And so what we're seeing here is
something very similar with
the Federal Reserve printing money.
We have low interest loans.
Ordinary people have a much
more difficult time qualifying for
those insanely low interest loans.
But you see these investors,
these massive investors able to get
the as you mentioned loose cash and
just pump the housing market with
this money and again, they're not
selling, they're not flipping these
houses which is bad enough.
They're basically taking available
housing off of the market and
turning them into rentals, which
prevents literally the only way at
this point most working Americans
can build generational wealth.
So that's the short
term ramifications of this.
The long term is, and
it's difficult to tell,
I don't know, I mean, there's some
people who are definitely convinced
that there's a housing bubble, and
it's going to burst and
it's going to be disastrous.
It's hard to tell because you can't
tell how over leveraged these
investors really are.
Well, one thing that I do know is
as this inequality continues to
grow and as more and more ordinary
Americans find it incredibly
difficult to just afford rent,
these investors are not going to
get the return on their investment
that they're hoping for.
They're the drivers of inequality,
at least part of what drives
inequality in the country.
That inequality hurts their bottom
line in the long run, right?
I don't think they've
thought about that.
I don't think they're even
considering that, because maybe
they're planning on selling just as
things are about to crash.
But if these companies are in fact,
or these investors are in fact
over leveraged,
we're looking at another massive
collapse somewhere down the line.
It's just hard to tell when.
>> Right and
the long term political
implications are interesting too,
because focus groups, polls and
even common sense will tell you
that owning a home is one of the
things that actually pushes people
in a conservative, in a politically
conservative direction.
They start becoming a lot more
concerned about all of the types of
things that conservatives are most
concerned about.
From crime to property values to
what's >> Property
taxes >> Property taxes, what's on
your get off my lawn it creates
a reactionary mindset, whereas
renters feel like they're willing
to take more political risks.
Because they just simply have less
to lose.
And so you could see a situation
where this took the populist energy
that is out there now and
super charged it.
Because if you take home ownerships
rates from where they are, and
you knock them down under 20% or
less then, the ability to appeal
the peoples fears around crime and
property taxes and
other issues diminishes.
Not that people are going to be pro
crime but, there is something about
owning a home.
No, you're just more bothered if
somebody breaks your window and
then if they break your landlords
window, right?
>> Right. >> Right.
>> Right.
>> And so that could have
interesting political
implications because it creates
a different class of political
actor in the country.
>> That's a fascinating
perspective and
I think you're right about that.
But this, there's a real
consequence to what the Federal
Reserve is doing right now.
I don't see a lot of people raising
alarm about it.
When we discuss inflation usually
it's in response to any type of
government spending that would
actually help provide financial
relief to ordinary people or
improve people's lives.
But inflation is already negatively
impacting the housing market as
a result of what
the Federal Reserve is doing.
And I don't see enough
of a discussion on that issue, but
we're going to stay on it.
I think it's an Important issue to
focus on.
And for now, it doesn't seem like
there's any real policy proposal to
combat what we're seeing.
But this is something that needs to
be dealt with legislatively.
There needs to be limits on how
many homes any one individual or
anyone company can purchase,
I get that people
want to have an investment.
But if we're dealing with this
insane housing crisis, especially
in a place like California where
the homelessness issue is out of
control, where we keep hearing our
local lawmakers tell us that we
just need to redo our zoning laws
and build more homes.
No, they're building more homes.
The problem is, the developers
are building the homes and
then selling it off to investors
who have no interest in
providing affordable housing and
the homes for people to buy.
>> And the Fed could do
something about it.
They could just, they could say,
as a policy we going to absorb
asset backed securities that
are involved in this type of
manipulation because we think it's
dangerous to the systemic stability
of the economy.
So we're just not doing it in boom,
that would that would deflate it
overnight.
They wouldn't want to do it
overnight.
>> Yeah and there are a lot of
conflicting interests at play here,
but at the end of the day,
people are not only getting priced
out of neighborhoods,
priced out of the housing market.
We're seeing the impact of this
inequality and the system on our
streets right now.
We have encampments all over
California.
And it's because of this system
that certainly needs to be tackled.