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.
With respect, you’re missing the point.
Sellers don’t determine price. Buyers do. “Investors” (big, small, whatever) are selling homes at those prices (or renting, or VRBOing) because there are customers ready to buy the next available unit. If customers aren’t willing to buy at that price, then the seller will lower the price. Or never build the big house in the first place. Or never renovate. Who would spend money on an investment when nobody will buy it?
They can only sell for those prices because buyers are ready to buy.
Economists have a concept of “economic value”. Regardless of price, “economic value” it what the next buyer is willing to pay for an item RIGHT NOW. People have a lot of weird ideas about what the “value” of something is, and they’ll include all sorts of non-monetary factors because they think value is a feeling or concept of utility that particularly applies to them. They value “walkability” or “views” or “quaint antique design”, or whatever.
But inasmuch as “value” has any objective meaning, the best one economists have managed to come up with is economic value – the price that a unit of something will sell for at this very moment. And I humbly suggest that the economic value of housing in your area something is determined entirely by the buyer: the person or entity that is willing to buy the next available unit of housing.
If those buyers can’t outbid all the other buyers, then they weren’t going to get a home anyway. This has nothing to do with the seller.
You and the other guy are talking about two different things. You’re trying to explain supply and demand in a very factual way, the other guy is explaining to you how this is hurting actual people who need somewhere to live.
They haven’t missed the point at all but are talking about the human element here.
The “investors” are the buyers/customers, and they aren’t reselling these houses–they’re renting them out. It’s mostly corporations increasingly doing over the last 15 years or so (I think it started around the 2008 financial crisis). They have the capital to do it and so regular people are being priced out more and more as this practice keeps driving up prices.
It didn’t used to be this way. Even in my “cheap” area, when I bought my house back in 2005 all but one house on my block were owner-occupied. Now, more than half the houses are rentals because whenever one came up for sale it was bought by a rental company. This is a serious crisis that needs to be addressed.
Renting them out is still selling them, just another kind of selling. The company can only charge rent if there is a renter willing to pay. Again, the buyer determines price – if rent is too high, there will be no renters.
Renting them out is not selling, it’s an ongoing income source for the owner. The renter does not determine the price when the alternative is to move elsewhere or live out of your car. There’s simply not enough housing–supply is limited. It’s not a simple equation like a factory adjusting the output and price of its widgets. If things were as simple as you say, there wouldn’t be such a severe housing crisis in the US. Just search for US housing crisis, there are thousands of articles explaining what’s going on.
Part of the problem is it’s still more profitable to build an expensive property and wait a couple years to find a buyer who can afford it than to build an affordable property which will sell right away.
Because the alternative is to be homeless.
Or leave the area for lower prices somewhere else.
So quit your job and pay hundreds, maybe even thousands, of dollars to move somewhere different where you no longer have a source of income and don’t know anyone?
I’m not saying I like it, that’s just how it is. As a consumer of housing, like anything else, when you can’t afford what you want you have to get something less.
No, this is not how it is. In order to rent an apartment you have to show proof of income, and people who can’t afford a studio apartment where they live also cannot afford to move. What you are suggesting is literally not possible. You might as well tell someone to grow wings and make a nest in the clouds.
You can’t afford steak, you eat chicken, you can’t afford that, you eat beans. You can’t afford that, you’re in trouble.
I didn’t create the system, man. I get it, it’s hell to be poor. But corporations buying and flipping homes doesn’t have much to do with the plight of people who can’t afford studio apartments. If somebody else is ready to pay a higher rent than you are for the same apartment, they’re gonna get it. Doesn’t matter whether the landlord is a friendly grandma or a faceless megacorp, nobody is gonna willingly sell something for less.
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If the first time buyer cannot afford a house, it means another buyer showed up with a higher offer. It doesn’t really matter who owns the house.