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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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
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.
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!
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.
It’s not FOMO, it’s financial sanity. If I pay rent for another thirty years, I have nothing to show for it except a period of non-homelessness and years more of rent to come. If I pay a mortgage for the same amount for thirty years, I’m rewarded with a house for the rest of my life and no more mortgage - and I can resell the house when it no longer suits my needs, or give it to a younger family member
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.
You sound like me! Your situation and everything is similar. I also refuse to follow the herd when it comes to 30 year loans. No way, no how am I being enslaved by debt for that long.
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.
They’re being built cheap by large corporations
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.
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.
@TheGiantKorean@lemmy.world please make your title a question.
Its our Rule no. 1!
Sorry! Fixed it.
Because the system is rigged, the wet dream of the people who own america is a purely subscription/rent based economy where you own nothing and they own everything. Wake up, move somewhere more rural, or live out of a converted van/box truck. Otherwise sign the dotted line on half a million in mortgage debt and work the rest of your life to MAYBE pay it off before you die or your life burns down from a failed marriage or some other BS. I have no sympathy for grown ass adults who knowingly sign up for decades if indentured wagie slavery just so they can live in a suburbanite hellhole. “B-b-but I want a faaamilllyyy!” Good. Before you plop out some kids save up enough money to buy land and build a homestead out of pocket. DO NOT GET INTO DEBT IF YOU CAN HELP IT. DO NOT PAY A LANDLORD ALMOST ALL OF YOUR PAY. Other choices exist.
Yeah, show me how to not get into debt and be able to afford both land and a house. People usually don’t have half a million+ lying around burning a hole in their pockets.
