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.
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.
They are NOT reducing demand. People want to own because rental is not capital building. Demand is suppressed, but not reduced. Supply is constrained due to rentals, thus high prices.
This substitution is mechanical, but psychology is what actually drives prices.
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.