Given that wealth is concentrating such that fewer people can buy houses and the houses are already there, I suppose something like this was bound to happen. But even assuming screwing over the renters, this business model seems difficult to me. Houses take a lot of upkeep and in ways that I would think it would be hard for an investment company to manage properly.
Moby,
I remember when this started happening (10yr ago?) and even back then, the anecdotes regarding careless and meaningfully negligent management of rental properties were legion. I mean legion. As a lifelong renter, I prefer owner-occupied properties specifically for this reason.
I wonder if phase 2 of PE getting into Houston renting is stealthily lobbying for more zoning rules or otherwise constraining new supply, since that's a sure route to no-work profits.
2: Negligent management companies are nothing new, but I was thinking that we might be seeing money-losing rental companies, which would be new.
I'd love to see government run like a business. The products are a social safety net, civic organization, and public order, and consumer satisfaction is measured by management getting reelected.
In a government run like a business (AGRLAB), subsidized flood insurance might have a place as a loss-leader. We might want people to live in certain areas for various economic or cultural reasons, so we could subsidize it even though it's impossible for a flood insurance company to make a profit on its own. Lots of New Deal programs come to mind. AGRLAB would probably do things differently, though. Someone should take a hard look at which areas are really worth paying to keep the population density up, and whether there's a more cost-effective way to do it than insurance.
Most people who say they want AGRLAB seem to actually mean they wish it was easier to commit extortion, though.
The usually sensible Felix Salmon says this is good because renting is better than owning. I would venture to say to him that he doesn't appreciate the difference between the sort of landlords we traditionally have, and having Wells Fargo or Apollo Global Management as your landlord - let alone a new regime that goes beyond absentee landlords into nonexistent landlords because they are hedge funds or synthesized debt products.
(of course having a landlord who communicates openly and responds to complaints has always only been possible for the more fortunate renters anyway.)
He makes sense on the benefits of house flippers though.
3: It's been a long time, but when I was living in Houston (4yr at Rice, 5 summers) I remember that one of the things that made Houston special (ahem: "special") was lack of zoning, pretty much everywhere. I could be misremembering.
I think economists view renting as a good deal because it doesn't impede labor mobility. For example, if I moved to someplace where I could earn more money that I do here, I would almost certainly more than double my housing expenses, so I have therefore hurt the economy by slacking off.
6. Salmon also ignores that "flipping" and "improved rental housing" are not the same thing. Flippers come in, do a superficial renovation that will last around five years before things fall apart, and move on. In his scenario the ultimate customers are landlords, not renters, so the incentive is to do a quick and cheap job and get out of Dodge before it breaks.
7: I know, I'm talking about their trying to add zoning or other new restrictions.
9: I think in this context of flooded housing that NEEDS major renovation flippers are good. Although even in that case they make it easier to sell your home since you don't have to sell it to a person who happens to want to live in it at that exact moment.
"Although even in that case" s/b "Although even when they do superficial improvements"
11: Flippers are especially good if the house remains underwater.
I'd love to see government run like a business. The products are a social safety net, civic organization, and public order, and consumer satisfaction is measured by management getting reelected.
It already is. The product is the elected leaders, and it's purchased by those with the most money.
Maybe I'm blinded by big neoliberalism on this, but, basically, what's the problem? You get more housing stock into the rental market, and it's managed by funds, the funds (like anybody else) get over-subsidized flood insurance for their investments, you suddenly have a buyer that's turning things into rentals that otherwise would have either been vacant or non-rental homes. So rents go down a bunch in Houston, more renters have places to live, the people who take the biggest loss (structure value) on future flooding in Houston are funds instead of individual homeowners. What's the problem?
I guess funds buying home in flood zones makes it more expensive for Harris County to eminent domain the same homes. But that just means that these same funds are taking the biggest hit when there's a flood, and the housing stock isn't reduced. And renters don't have flood insurance for their personal property but their personal property is way smaller loss than the structure value. Sure, we shouldn't have federally subsidized flood insurance in the way we do now but that has approximately 0 to do with investment funds buying up homes to turn them into rentals and then flip them.
No real idea why this is evil lamprey-esque sucking instead of making it a little bit easier to provide rental stock to people who want to rent a place to live.
If your plans to reduce settlement in flood-prone areas can be thwarted by big companies moving in to invest, they probably were never very robust to begin with.
On another dimension, behemoths are more likely to have the political power to minimize regulatory oversight and jack up economic rents than mom-and-pop landlords. And if they get to a bigger share of ownership of the overall market, which seems possible, that decreases market competitiveness.
The flood insurance issue bothers me because when you have an owner, they are getting subsidized insurance, but the subsidy probably isn't great enough to cover the cost of the hardship of being flooded. That's a powerful check on abuse that is absent for investor-owned houses.
Anyway, in the scheme of things done by the finance industry in the area of housing, I don't think this rates as especially problematic. I just wonder how they'll make money since, unlike an apartment or a complex, nothing is standardized and I think maintenance is going to involve way more labor.
NooOOOOooooOOOO! NO! No! All of you, NOOOOOOOO. People shouldn't be living in flood zones and talking casually about the effects of financial instruments on the costs of housing is all distraction. If it floods there once, it'll flood there again and no one should be living there when it happens. (Also true for fire-prone areas. And for places that don't have reliable water supplies. The risk areas stay risky and people should not return to them. Right, the increasingly smaller safer areas should get much denser. YIMBY.)
if they get to a bigger share of ownership of the overall market, which seems possible, that decreases market competitiveness
Without comment on other issues, there is no possible way that a single fund (or really even a group of funds) is going to meaningfully have market power to set rents in a city the size of Houston due to market size alone. There are something like 2 million people in Houston so hundreds of thousands or a million housing units. That's a non-issue. Similarly with jacking up economic rents (which is the same thing), not gonna happen, the supply and market size and diffusion is just way too great.
How the politics of it play out is a different question, maybe the funds are better able to regulate away building restrictions in flood zones (though they would then also be the ones taking the above-insurance losses). But if there's a problem there it's the subsidized insurance, not the funds buying up distressed houses.
People shouldn't be living in flood zones
OK, but then the problem is flood insurance and has little or nothing to do with the funds. Having funds buy up housing stock already in flood zones and rent it out just means that they bear the (uninsured) risk, except for renters' personal property, instead of having individual homeowners bear the risk.
subsidized insurance
NFIP insures 5M homes mostly in TX and FL. Free markets only when it's convenient.
Well, there's the risk of dying, which is borne by the renters. But since we can't really accept that, we also require that engineers build things to make them safe and can't get out of this cycle while homes in floodplains still exist.
I mean one big problem, albeit not particularly related to these rental-housing funds, is that (I think) an absolute ton of urban Houston is already in a floodplain, so if the plan is "no homes in floodplains exist" I think that basically means no Houston. The map below seems complicated to understand but suggests that your flood risk in most of Houston is high.
https://www.hcfcd.org/interactive-mapping-tools/harris-county-flood-education-mapping-tool/
No real idea why this is evil lamprey-esque sucking instead of making it a little bit easier to provide rental stock to people who want to rent a place to live.
I see it like people in the 80s and 90s felt when Mom and Pop stores got replaced by Big Box Stores and Walmart. That all that rent money is leaving the community instead of going to someone in the community, and planning decisions are being made by someone who is not at all invested in the community. I think it's shitty and counterproductive to people working hard to improve their community.
I think that basically means no Houston
That seems acceptable.
Obviously slumlords have always been a giant problem. But this is even more disconnected from mechanisms to rein in slumlords.
25: I worry about the planning decisions, but the rent money is probably leaving the community anyway, since the mom-and-pop rentals are probably paying on a mortgage.
planning decisions are being made by someone who is not at all invested in the community
This may be a city vs small-town difference. In a city the size of Houston things are already big and diverse and profit-driven enough so that it's hard to see it making a difference. If you're in a much smaller town and suddenly a few big out-of-state companies are landlords, I could see it being a real change.
Though I should say my understanding (just from doing a few cases where these issues popped up, all of a sudden I'm looking at some Hollywood dispute and somebody's ownership of a warehouse in Nebraska is important) is that commercial or large-scale residential housing has been a national market with national investors for some time, even in smaller places.
Everybody should own a warehouse in Nebraska.
an absolute ton of urban Houston is already in a floodplain
Wow, they better hope they don't get hit by a hurricane that drops four feet of rain any time soon.
there's the risk of dying, which is borne by the renters. But since we can't really accept that
So many rules!
16: Setting aside issues of monopoly & flood insurance, the one big problem is that these rental-managers-of-securitized-houses jokers act like loan servicers. Remember them? They had no incentive to maximize the value of the loan -- only to maximize the value of the current cash flow from the loan. So it could actually work out better for them to foreclose than to try to work out new loan terms.
Similarly (in the case of rentals) I suspect that deferring maintenance until renters' complaints hit the size of sonic booms .... would be a great strategy for minimizing payables, eh?
I saw a presentation on absentee landlords in Youngstown, Ohio. They were not giant corporations, but they would buy cheap houses, make the livable enough to pass a HUD inspection once, and then do nothing for major maintenance until the place was unlivable, usually keeping property taxes in arrears. Once the house was unlivable, they'd just abandon it as after several years with nothing done, it cost more to repair than the house was worth. The process destroyed the neighborhood, but I think these were cheaper houses than Houston has.
Also, I don't think the Houston houses were renting through Section 8.
Anyway, there was a power point and a counter at the back with bottles of water, so it was science.
I don't know and am too lazy to dig up information if there is any data on this, but my guess would be that in general fund-owned rental housing turns things over to management companies, which in turn I would guess are, conpared to mom-and-pop landlords, pretty good about management and especially about avoiding deferred maintenance (because it's not obviously profitable). I would also guess also that compared to mom-and-pop landlords they are more brutal about evicting people (because that's a clear profit center). Just a guess!
I would guess actually the funds' (and eventual bond-holders') approach to maintenence would vary greatly depending on how long they're planning to hold the assets, and management will vary accordingly.
Investment companies make me grumpy. "Hey there's a functional company or process. We've got more money than god. Why don't we replace the people at the top, loot the system, slice it up and move along?"
I'm largely with Halford on this one. I don't really understand the romanticisation of small-time landlords that's going on in this thread (I mean, they're the stereotypical villain in pop culture) and Minivet's 17.1 seems spot on. Of all places, blaming Houston's decisions (or lack thereof) on where to place housing on a relatively nascent corporate single-family rental market seems insane.
In my experience, small landlords are much more likely to be absentee and/or non-compliant with regulation. Many of them just hire a letting agent to do the work anyway. The UK's had to introduce a licensing regime to deal with slumlords.
"Barclays Corporation, The Slumlord of The Duke of Edinburgh."
But if that kind of arrangement becomes common, it's another sign of the concentration of wealth in the U.S. Having people put 25% of their income for thirty years into a pile of sticks that hopefully isn't on a flood plain so that they can sell it and have a shot at a comfortable retirement isn't maybe the most sensible system ever, but it did allow the bulk of the wealth accumulation that happened in the middle and lower middle class and there's no replacement.
It doesn't necessarily have anything to do with investment firms getting involved though. Until very recently, there was very little corporate rentals in the UK in the manner of Blackstone in the US, or the big German listed landlords. Yet about a fifth of the population rents privately anyway.
It does if they have all the money. Most of the house rentals here are, I think, owned by somebody near-elderly with a couple of houses they inherited or bought to provide a retirement asset. The corporations were limited to big complexes.
Obviously, in America way more than 1/5th of the population rents privately. There's not much of a public sector for housing.
I'm going to generalize from the Pittsburgh housing market to America because reasons.
Obviously, in America way more than 1/5th of the population rents privately. There's not much of a public sector for housing.
I mean, one fifth of the total population, including home-owners. There's now more private rental than social housing in the UK, though that wasn't the case 20 years ago.
37: Until last year I owned a rental property in another state and used a management company. I still had to OK the repairs and maintenance.
If something was needed they would email me saying "we need to do x and y and estimate that it will cost z". I always just said OK, but if I had wanted to be a jerk about i I could have insisted they do something cheaper or simply not answered their emails for weeks.
Maybe it works differently with large real estate holders. This was just a single condo.
46: Still, it's probably higher in the U.S. 62% own their house and there are only about 2 million people living in public housing. Most of public housing funds were shifted to Section 8, which is public support for private rentals because Mother Cabrini had problems.
47: I gathered you didn't think it was a good investment.
Maybe it works differently with large real estate holders. This was just a single condo.
Blackstone* and the German landlords** do this stuff in-house, in large part precisely to get economies of scale. That's not to say they're not hiring contractors or whatever as opposed to employing all the plumbers and decorators full-time, but there's not generally outsourced property management.
*Technically Blackstone IPOed its SFR operations a while back. So really I'm talking about Invitation Homes, which merged with Starwood's SFR operation last year.
** The German landlords are more about apartment buildings than SFR. A lot of it is social housing that they're allowed to sell or privately rent when the municipality doesn't want it any more.
All that said, there may well be legitimate concerns about institutional investors being quicker to evict. But the solution to that seems to be to change the law around tenants' rights.
Most of public housing funds were shifted to Section 8, which is public support for private rentals because Mother Cabrini had problems.
Technically a lot of social housing in the UK is public support for private rentals. Housing associations, which are pretty much the only source of new social housing stock, are technically private.
It's private, for-profit owners here. It's very neoliberal, but it seems to have worked far better than the older system.
Anyway, Section 8 scares suburban white people, so it must be doing something right.
Also largely with Halford. The problem I think is really a new class if mortgage backed instruments. But that has nothing to do with housing, it's just capital sloshing around chasing too few investments.
I have a theory about that.
I don't really understand the romanticisation of small-time landlords that's going on in this thread
AIUI it's not romanticisation of small-time landlords, it's romanticisation of owner-occupiers. Like Moby said, that might not be the ideal way for middle-class people to plan for their retirement, but we don't have anything better these days.
47: I'm in a similar situation with more complex details due to the out-of-state rental properties being owned by various parts of my family. Our relationship with the property management company is similar--they inform us of needed maintenance, and if isn't immediate and critical we have to sign off on it. Although our previous management company was incompetent and hid maintenance from us, I generally think they lead to better landlording assuming the landlord wants to play ball. We could probably be shitty if we wanted to. I'd assume the same would hold with a larger firm, but their response to the profit motive would be more efficient.
The downside of a PMC is that they only get their cut if the houses are occupied, so they were very quick to encourage us to evict a new tenant (recommended by the old PMC, sigh) who turned out to have no intent of paying.
56: This seemed to be an implicit romanticisation of mom and pop landlords: I see it like people in the 80s and 90s felt when Mom and Pop stores got replaced by Big Box Stores and Walmart. That all that rent money is leaving the community instead of going to someone in the community, and planning decisions are being made by someone who is not at all invested in the community.
Similarly 6.1.
58: Not really disagreeing, but money recirculating locally isn't romanticism, it's Keynesism.
I'm suggesting that mom and pop landlords weren't necessarily local. They certainly aren't here.
They would be here. Or at least, formerly local people who moved away.
You know what sucks? Forgetting to finish your whiskey before you brush your teeth.
Put it in a sealed contained in the fridge. It can be your tomorrow morning's dram.
Whiskey kills germs, don't worry about it.
OT: Apparently coffee causes cancer in California?
Also OT: Can you just give money as a wedding gift if the groom is your brother? Everything left on the registry seems too expansive for what they get.
give him 3/4 of a Wedgewood plate and pin $50 to the bride's dress.
My real problem with out of state, investment company landlords is that my animal brain or whatever you want to call it is unable to distinguish the following situations:
1. leveraged buy-out that left Jammies' work saddled with a shit ton of debt and made quality of life worse for him
2. Toys-R-Us closing when it was tied to a birthday treat for our kids, because of the same kind of thing
3. Out of state corporations developing Heebieville in noxious ways, particularly ill-conceived apartment complexes that have been discussed here at length
If I try to string these together into a coherent statement on Houston, it's possible that it falls apart.
Not that those are particularly toxic examples of corporations behaving badly, but they're ones that resulted in a disproportionate amount of radio space in my head.
I'm still focused on how they fucked up the housing market, crashed the whole economy, took government aid to get the banks restored, and then nearly all move to support political candidates who blocked the standard economic stimulus response to end the pain of the recession they caused.
72 - Geoffrey the Giraffe was an asshole who had it coming.
Also, the bankruptcy means that next month you can buy "sex-toys-r-us.com."
Thinking about 74 weirdly makes me understand Trump supporters better. The way bankers relied on Obama to save them, and then turned him because he hurt their feelings, makes me want them to eat shit the next time there's a crisis. I know that's the wrong policy approach -- bailing out the banks saved us from the Great Depression -- but it would be worth it to watch the world burn to see the fuckers pay.
There's always receivership / nationalization.
I think a postal banking system would be the best revenge.
The only problem I can see is that I'd have longer lines when I wanted to mail stuff.
The way bankers relied on Obama to save them, and then turned him because he hurt their feelings,
Obama gave them a great deal but the Republicans were giving an even better deal. Nothing personal, strictly business, all that mafia/responsibility to shareholders stuff.
I just got a mailer for Lt. Gov. Stack. This kind of disorganization suggests he's not likely to win.
I think a postal banking system would be the best revenge.
79: I think postal banking is a great idea, but it wouldn't save us from a banking system collapse. Businesses are all reliant on short-term credit, individual banks themselves now don't keep much cash, electronic payments rely on the banking system, etc.
83: If all the world's banks closed their doors? I think some bankers would at least by mildly inconvenienced by it.
I think postal banking is a great idea, but it wouldn't save us from a banking system collapse. Businesses are all reliant on short-term credit, individual banks themselves now don't keep much cash, electronic payments rely on the banking system, etc.
I'm not sure what any of these have to do with the existence of postal banking. Countries with postal banking also have retail, commercial and investment banks and all the problems that come with that. Japan's postal banking system is enormous, and its banking crises were pretty notorious before the GFC. Having Deutsche Postbank didn't stop German banks from loading up on US subprime mortgages. The UK has postal banking and we're still trying to offload the commercial banks we nationalised during the crisis.
I don't understand what I said that disagrees with that.
I was more thinking about punishing the banks by creating a competitor than fixing anything.
That said, if the U.K. wants to give me a free bank, I'll take it.
I agree with 86 - I don't get why left-wing Americans think postal banking is such a big deal. Most of what you expect it to do - basic current accounts and payments operations - aren't really what banks make money from or take risks on. In fact I can see the US banking system happily offloading the cost of operating branches in small towns, ATM networks, low-margin transactions stuff etc onto the post office and keeping the bits they actually like, such as lending, which are also the bits that involve scary risks.
The U.S. banking system makes a ton off poor people with small accounts because of penalties and fees. They make, indirectly, a larger sum off even poorer people who don't use banks (because of lack of availability and fees usually) and thus pay up to 3% of the total to get their paychecks cashed.
Most of what you expect it to do - basic current accounts and payments operations - aren't really what banks make money from or take risks on.
That so many people lack that is the problem left-wing Americans are trying to solve. The punitive motivation is purely my own addition.
I suppose it's changed, but I still remember being a student in England and spending like a ten pounds more than I had in the account while I was waiting for money to come from home. I was expecting a big penalty and worried that they would cancel the account when all I got was a nice letter asking me to please make a deposit.
I doubt it's changed all that much. When I was a student, they typical account came with a pre-arranged no-fee overdraft of something like a grand. By the time I had graduated my limit had increased to two grand. They want to hook you early.
I learned some things about financial systems in the UK from this thread.
- Even small landlords are not often locally based
- Retail banks don't make big money by tricking people into fees and penalties
95 Or singing them up fraudulently for services for services or products they did not agree to.
Retail banks don't make big money by tricking people into fees and penalties
They prefer to call it "maximizing shareholder value."
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While we await the official Friday thread, Italy's new coalition government is already shaping up to be quite a piece of work. Detention of 500,000 deportees. Ethnic cleansing of Romany. camps Sucking up to Putin on sanctions. Flat tax. Magic non-debt, non-currency bearer bonds. Bank bailouts for everyone.
|>
- Retail banks don't make big money by tricking people into fees and penalties
Well, they do. Not as much as in the US, but still. But they don't for students.
Here, a payday lender will typically charge $15 per $100 loaned for two weeks. And if the alternative is an overdrawn bank account, you'd be a fool not to take that loan to avoid the bank fees. And the alternative is always an overdrawn bank account since you mostly can't get a payday loan without a checking account and if you weren't about to be overdrawn you aren't borrowing money at what would be a 400% APR.
100: Before I download mystery pdf, is it in Italian?
We have more weeks in a year than you.
Fine, 390%. You're still wrong.
It's hard to go through life without somebody who will lend you $500 without asking too many questions.
American needs more slightly disreputable uncles.
Is usury not a sin in any major religion?
103: Yes
102: If you had a non-student current account without an arranged overdraft, you'll still get whacked with a fee*, although the regulator is about to change the rules.
From a recent speech by the head of the FCA:
"Data received from personal current account providers show that annual revenues from unarranged overdrafts, excluding unpaid item fees, were around 200% of the average amount outstanding in 2016, with a range of 100 to 440% across the firms we looked at. For arranged overdrafts, it is around 25%, with a range around 14 to 38% across the firms. We are looking at whether this difference can be justified. Unarranged overdraft fees and charges also appear to be highly concentrated: while around 20% of personal current accounts received charges for using an unarranged overdraft in 2016, over half of the charges were concentrated on just 2% of accounts"
*Apparently some banks have pre-emptively dropped the fees ahead of the regulation, but that's very recent.
One thing the British banks don't do is order your debit card charges to push you into an unarranged overdraft to save you the "inconvenience" of a declined transaction.
98 Pretty damn good. Got past a major milestone here and I also gave a very successful talk and then had a paper accepted at a conference in Oxford in the fall. And best of all on Sunday I'll start moving into a brand new apartment in a brand new building with all new furniture and no pigeons pooping on my windowsills or other filth. So relieved. Then I'll be heading back to NY on June 8th. How's things with you?
Good to hear. I'm meh. Think I have a good modus vivendi with the manager now, so good.
I found this a pretty interesting read: https://www.theatlantic.com/magazine/archive/2018/06/the-birth-of-a-new-american-aristocracy/559130/
115: From that article:
Every piece of the pie picked up by the 0.1 percent, in relative terms, had to come from the people below. But not everyone in the 99.9 percent gave up a slice. Only those in the bottom 90 percent did. At their peak, in the mid-1980s, people in this group held 35 percent of the nation's wealth. Three decades later that had fallen 12 points--exactly as much as the wealth of the 0.1 percent rose.
Seems like it should maybe be focusing more on the villainy of the 0.1%? Looking at their graph, members of the 90% have 2/3 the average wealth, members of the 9.9% have 6 times, while members of the 0.1% have 200 times. So the average 9.9%er has 9 times that of the average 90%er, while the 0.1% has 300 times. (Admittedly, "the average 90%er" is probably a useless statistic.)
113: Barry, like you're heading back to NY for good, or that's just for a visit and then you'll be returning to a less fraught Arrakis? I've been out of touch over here. /Glad things are good either way.
Just for leave for about 5 weeks then heading back to Arrakis during the worst of the heat.
Always summer, never 4th of July.
116: There's some discussion of that in the other thread. I think it's deliberately saying that it's misleading to focus on the 0.1% -- I'm not sure I agree.