This is not a wealthy SF landlord story, this is an house cleaner. It’s an impressive story of someone slowly building up a real estate portfolio in the Bay Area. Most of it through creative means and living lean.
It's impressive in the way a trainwreck is impressive. There's no reason why housing appreciates year after year. It should be a depreciating asset, like a car or at most value-neutral. But misguided government policies have caused housing to be out of reach for the greater part of the population.
Pittsfield. In Western MA. Not a desirable area. But it's going up, up, up. Asset inflation at its finest. This needs to stop, but it's unclear how. Can people invest in tulips instead, you can do without pretty flowers, but a roof over your head is a necessity for life!
The frontier has been settled since 1890, but housing prices have been stable from 1950 to 1980, then they started creeping up, with a big burst around 2000 and another beginning 2018. Desirable can't be the answer.
A burst happening has nothing to do with desirability not being the answer. Less desirable areas had bigger bursts. Relatively, desirable areas will always appreciate, by definition. Housing isn't a mass produced fungible commodity like a car.
It's a complex issue, though both aren't necessarily wrong. Land is limited and its raw volume rarely changes. Housing could be increased through scaling up, developing greenfield, or redeveloping underutilized land.
If housing were thought of more as a consumable than ones primary investment that would accelerate better use of land for housing.
Even if zoning didn't exist and land was perfectly used certain property would just be worth more than others.
Imagine all of humanity living in a single skyscraper that can be built up indefinitely. Perhaps a condo closer to the ground floor would be more expensive, or maybe at the top, or maybe west, east, etc.
Certain land being worth more than others is more a function of the inherent differences in things than anything else.
Now you're just making an argument equivalent to "it's not weird that some cars appreciate, look some of the classic Mustangs" instead of distinguishing it from housing in any way.
The reason housing increases in value to the extent that it does is that areas where it's in high demand prohibit creating more of it. It would be like prohibiting the construction of new cars. Obviously that would make existing cars cost more in general, independent of the fact that some cars are worth more than others.
The problem with your argument is that it's predicated on it being physically impossible to build more housing of the same type that people want. If people prefer to live close enough to the ground that they don't have to ride an elevator for an hour to get there then you build a thousand ten story buildings instead of one ten thousand story building. If people like higher floors because they have a better view then you build two hundred 50 story buildings instead of a thousand ten story buildings. You can build more of whatever the market demands, so the price falls to the construction cost (absent zoning), and remains there because increased demand causes more construction rather than higher prices.
To get to the point of true scarcity due to land you would have to need thousand story buildings because covering the city in twenty story buildings wouldn't be enough housing for its population. But even if that's possible in theory, it's not the case anywhere in practice.
> The reason housing increases in value to the extent that it does is that areas where it's in high demand prohibit creating more of it. It would be like prohibiting the construction of new cars. Obviously that would make existing cars cost more in general, independent of the fact that some cars are worth more than others.
Yes, and the areas that are desirable and the ones that are restricting the construction. Even if we suppose that you allow infinite construction, there will always be certain houses or parcels of land that will cost more, perhaps because of being closer to certain things.
Your example ignores reality. It is sometimes just not possible to build more housing that shares the exact same properties of existing houses.
If an area is desirable because of nature, then naturally those who first live there will prevent the destruction of said nature that brought them there to begin with.
You're the one ignoring reality. In your defense, basically every clueless voter living in the US and a lot of Europe does it too, though.
In Tokyo, you can work part time as a non-union, non-salaried janitor or a nail stylist and make enough to live within 20 minutes of the bustling heart of downtown. That's due to light zoning restrictions making housing into a depreciating asset for everybody instead of a stupid fucking pyramid scheme
I can't believe that anyone who actually lives or has lived in Japan and who has also lived outside of Japan could defend the property market in Japan, so I am willing to presume that you are not in that group.
It's a corrupt, poorly regulated market that suits the construction industry and produces - on the whole - ugly, poorly insulated and tiny living spaces, surrounded by concrete (again, the amount of concrete used seems to be driven by corruption) that leads to overpriced land and buildings that depreciate so much that they are destroyed within one or two generations.
A quick search of this site alone will bring you reams of complaints about Japanese housing and plenty of good reasons why it should not be held up as an exemplar.
Never set feet into Japan, but the US construction industry is no better. The only difference is that what you get isn't tiny and made from concrete, instead it's huge and made from sheetrock and chipboard. But it's ugly, shoddy, poorly insulated and overpriced. And the industry and the permitting process is corrupt.
> Even if we suppose that you allow infinite construction, there will always be certain houses or parcels of land that will cost more, perhaps because of being closer to certain things.
In which case those parcels of land would end up with high density housing on them so more people can live near those things, until such time as the cost per square foot falls below the construction cost.
> If an area is desirable because of nature, then naturally those who first live there will prevent the destruction of said nature that brought them there to begin with.
"Nature" e.g. Montana or Alaska or the Ozarks. Do you believe these to be the places with high land costs and restrictive zoning laws?
> In which case those parcels of land would end up with high density housing on them so more people can live near those things, until such time as the cost per square foot falls below the construction cost.
Why would this happen? You're talking about the construction of more housing like it's free.
Perfect example of this is something like Chicago - let's say you live right near the loop and are fortunate enough to have a SFH that's huge. The land is worth a lot, and you like your lifestyle. Sure in some perfect world that house would be purchased and turn into a high rise, but you want to live near the loop and have a SFH. Therefore that house will be expensive.
Others in similar situations will do the same. Later more people will come to Chicago and see that they want that lifestyle as well - these types of houses will then command a premium.
Not everyone will sell to a developer to turn it into a high-rise.
> "Nature" e.g. Montana or Alaska or the Ozarks. Do you believe these to be the places with high land costs and restrictive zoning laws?
> Why would this happen? You're talking about the construction of more housing like it's free.
Not free. Less than the market price of existing real estate.
Suppose you have a 10,000 square foot building and it costs a million dollars to knock it down and build a 20,000 square foot building on the same lot. If doing this would cause the new building to be worth $500,000 more than the existing building (because local housing supply is high relative to demand), you're not going to do it, because you'd lose half a million. If doing this would cause the new building to be worth $1,500,000 more than the existing building (because local housing supply is low relative to demand), you are going to do this -- unless prohibited by zoning. Because you'd make half a million.
So when housing prices go up, you'd get more construction, until they go back down below the construction cost.
That doesn't cause housing prices to hit zero, but it establishes a long-term price ceiling, because any price above it makes new construction profitable, and increased supply lowers prices. So housing costs would converge on construction costs even if demand changes.
> Are those areas desirable? I've never been.
Those areas are beautiful, and the land is cheap and hardly anyone lives there because they're far from major cities. It's not proximity to nature that makes land expensive, it's proximity to jobs.
> If housing were thought of more as a consumable than ones primary investmen
Housing would be "thought of" differently, if property depreciated. Has nothing to do with how people think, but optimal financial strategy. Is there a way to solve it without taxation? Deflating the currency moves the window, but it leaves the status quo trend.
House prices also appreciate when the surrounding area becomes more attractive. People call it "gentrification" and hate on it, but the reality is that the surrounding area is being improved (meaning nicer shops, better facilities, access to jobs and hospitals and so on), which is a good thing.
You can argue about his conclusions, but you cannot argue with data. People today have no idea about the percentage of income that went into housing back then. It was really small!
In my corner of the nation (rural), fixer-uppers that no bank will give you a mortgage on are going for 150 kUSD and more! That's > 125 USD/ft^2! It's madness!
> It should be a depreciating asset, like a car or at most value-neutral.
The building unit depreciates, but the total value usually goes up due to the land value, not the construction value. Cars would also appreciate hypothetically if metals suddenly became more expensive.
Land is what should appreciate, not the building built on top of it, which should deprecate. What make land valuable is the collective work and contribution of a community.
However, since lands are scarce and a collective effort to maintain, maybe it should be taxed for the benefit of the community and rewards given to the people who put it to the most valuable use, by not taxing buildings and other improvements built upon it.
> Land is what should appreciate, not the building built on top of it, which should deprecate.
That’s not entirely true. A home structure is worth what the materials + labor - depreciation are worth. A home can depreciate far more slowly that the cost of labor and materials rising. Not to mention that renovations will occur over time essentially removing some depreciation and adding to labor + materials to build a similar structure.
A well maintained home should hold its value well over time.
On their backs? He bought property on the market, and put it to economic use. He made rental property available in an area where many people can't afford to buy. He hasn't done anyone down.
Not arguing your greater point at all, but the Pittsfield MSA includes all of the Berkshires which are absolutely desirable even if Pittsfield itself isn't.
> There's no reason why housing appreciates year after year.
Of course there is a reason, multiple ones.
Land, of course, but that's the easy one so let's ignore it for the sake of argument for a moment. Let's say land price remains constant.
Housing will still appreciate simply because everything related to it goes up. Contractor labor and supplies.
So to build a new identical house on an empty lot next to an older house will cost more than it cost to build that old house. But they houses are identical so they compete for the same buyer. So inevitably the old house value will go up to match the new house that cost more to build.
Another way to look at it is that there is absurd amounts of empty land throughout the country. Places were undesirable and cheap, and people of moderate means bought them, improved the area, and over decades it became a desirable area.
Young people need to go to shitty places that are cheap and then make the place better. Many young people want to live in SF or NYC. Go to Detroit instead.
The process of making unwanted real estate wanted is called real estate development. It's not done by "young people just moving there." That just makes crappy real estate more crowded.
Real estate development is very much a "build it and they will come" sort of deal. It takes capital, a lot of it, to make an area desirable. You can't just dump it anywhere, there has to be a good reason to dump it in this particular area otherwise the hip young people will go somewhere that did have a good reason. And the poor investors who poured money into a development in that area won't see any appreciation or significant profit, because no one else is developing the area, just them. Lots and lots and lots of money going into lots and lots and lots of developments, that's what turns the sticks into the burbs.
You just can't put the family cart before the development horse, every young person starting a family has different reasons for moving out to the sticks. Left alone without already-developed real estate, they'll just spread out evenly across rural America.
Perhaps the problem with the availability of housing is the "real estate development" model you describe, which is capital intensive and therefore will be undertaken by large corporations instead of by the people who will actually live in the area and who therefore have a personal stake in how livable it is. Perhaps if more development was done by "young people just moving there", we would have more livable areas and less competition for housing.
They do if they pool their resources through, say, property taxes paid to their locality. Localities can build out basic infrastructure without having to have large corporations do all the development. That has the added advantage that you get actual communities that grow and evolve over time instead of sterile cookie cutter suburbs.
Without the advantages of upfront planning and design, they'll pay more for crappier services. If the area grows significantly, then they'll have to pay even more on top for upgrades.
But hey, at least it'll be idyllic. Good luck keeping your kids around after they graduate high school.
> Without the advantages of upfront planning and design, they'll pay more for crappier services.
I've had that experience in neighborhoods that did have the "advantages" of upfront planning and design. I don't think upfront planning and design is the panacea you are making it out to be.
What are the good reasons to develop an area? Proximity to a better one? Fresh water sources? Desirable weather? Good schools? Unpolluted environment? Nice parks?
All of these things. The more the better, and places with better potential get developed first. Commercial opportunities tend to be developed first, followed by better weather. As all these places got developed, tertiary concerns become more important. Rural America will mostly stay rural and suburbs will slowly develop economies and become part of the metro areas they surround.
When I moved to my neighborhood it was dangerous to walk in at night and there were no children. 10 years later and plenty of families are here. The movement of all of these people are what made it safer - people who want a safe and healthy community. I don’t know why you are so defeatist, it must be a depressing mindset.
That’s at the root of all these stories about, ”I can’t afford to live where I grew up”. Buddy, I can’t either, but when my parents bought it was a fruit orchard. Today it’s the hottest real estate market in the world. It’s apples and oranges.
A colleague told me about her daughter - she finished college and has a regular job but cannot afford to move out. That's in rustbelt central. Yes, you can live with roommates, but if you are late 20's it becomes awkward, and when at some point the children arrive it becomes a habitability issue.
The article explicitly points out that the shed they originally lived in would certainly be illegal now (and quite possibly also at the time, but it was easier to get away with then); building their own cabin would also be a lot more difficult (maybe it's not flat out illegal, but there are a lot more requirements about what kind of qualifications you have to have to sign off on a design, do wiring/plumbing/...).
Impressive, but it lost me at "start in the market slump of 2008"
Like that was the time in my life where I was literally the most broke. I had a neighbor try to practically give me his home if I could just take over the mortgage. But I was fresh in school and staring down combined debts well into 5 digits, no assets save for my car and a bunch of tech junk, and no income.
It’s kinda difficult to hear about how someone owning multiple houses and renting them out is not a wealthy landlord. That’s the definition of a wealthy landlord. Sure, there are wealthier landlords out there. I’m sure the Wisconsin tenant paying their California landlord’a mortgage takes a lot of comfort in the fact that their landlord isn’t the richest one out there.
I think there are some good things landlords bring to the table, like increased capital investments and stability of ownership for short duration stays. But I feel one would have to live under a rock to not recognize the fundamentally extractive nature of landlordism under our current conditions. Perhaps with something like a land value tax, some degree of market functioning could be restored. However, in the mean time with asset prices increasingly out of reach to everyday Americans, expect lots of hate for landlords as the American dream continues to evaporate.
It’s actually an impressive story.