A weekend topic starting with NPR. “This week’s Democratic presidential debate touched on a topic that usually doesn’t get much attention in these forums. ELIZABETH WARREN: Our housing problem in America is a problem on the supply side. And that means that the federal government stopped building new housing a long time ago, affordable housing.”
“Nobel laureate economist Robert Shiller joins us. SHILLER: For buyers, we’ve seen a home price boom since 2012, which has pushed home prices up quite a bit. For renters, rents have gone up kind of steadily and smoothly, not as much as home prices. But the wages haven’t kept up that they earn to pay the rent. So in either case, there is some suggestion of a problem.”
“SHILLER: One thing that I’ve been working on over the years is redesigning mortgages to help prevent the disaster of foreclosure and mortgages that have a automatic workout attached to them if home prices fall.”
From Bloomberg Opinion. “Democratic presidential candidate Elizabeth Warren attacked Wall Street firms on Monday for buying houses in the wake of the financial crisis, arguing that it contributed to the country’s growing inequality. I’m sympathetic to Warren’s criticism, and yet two things are true when it comes to the investor response to the housing bust.”
“It did represent a transfer of wealth from stressed homeowners to the wealthy, contributing to inequality, but it also stabilized the housing market and local economies at a time when there were no other buyers.”
“Homeownership, particularly for entry-level buyers, is intertwined with politics and community in a way not comparable to other forms of economic activity. Today it’s understandable why seeing aspiring homebuyers squeezed out of the market by all-cash institutional investors is problematic. But back in the dark days of the early 2010’s housing market, investors and cash buyers were just about the only game in town. Without them, America’s housing crash would have been much worse.”
Fromm Vice Magazine. “Tom Steyer, a billionaire from California, was asked during the fifth debate what he would do to address a rampant homelessness and housing affordability crisis in his home state. ‘What we’ve seen in California is that as a result of policy, we have millions too few housing units,’ Steyer said, potentially referring to the state’s infamous NIMBY-ism, which can make it tough for developers to enter new contracts.”
“Meanwhile, Massachusetts Sen. Elizabeth Warren, who represents a state with its own unique rental crisis, brought up racial inequity in U.S. housing policy and how that’s created a wider wealth gap. ‘Housing is how we build wealth in America,’ she said. ‘The federal government has subsidized the purchase of housing for decades for white people, and has said for black people, ‘You’re cut out of the deal.’ That was known as redlining.’”
From The Hill. “In Los Angeles, vacant housing could provide accommodations for the city’s entire homeless population of at least 36,000 people, with more than 5,000 units to spare. Many of those more than 41,000 vacant units are uninhabited because their owners bought them as long-term financial investments, and not because they needed a place to live, LAist reports.”
“Out of 10 high-end apartment buildings in downtown L.A., the researchers found an average vacancy rate of more than 70 percent in April 2019. A modestly sized one bedroom in one of these buildings can easily rent for more than $3,000 a month. ‘When developers put up exclusive luxury buildings that rent for more money a month than the residents currently living in a neighborhood make, they are making a speculative bet on what that neighborhood will look like in the future,’ the authors wrote.”
The Colorado Real Estate Journal. “Denver continues to be a premier destination for job seekers in this growth cycle, but net migration and total employment growth is decelerating from their peaks set earlier in the cycle. Rent growth is expected to plateau in Class A properties with concession offerings increasing, while Class B and Class C properties are projected to see stronger rent growth with the opportunities that value-add properties can offer. Value-add properties are Class C or older Class B properties that investors buy and renovate to bring the units up to date and subsequently raise rents to complement the improvements.”
“The uptick in new developments in areas such as Lower Downtown, River North, Five Points and Jefferson Park has brought thousands of Class A units to Denver and set a record for the most Class A new development completions in 2018. However, demand did not keep up and is expected to fall behind again this year. With such an overflow of new units in the market, Class A vacancy rates have started to rise, forcing Class A owners to provide larger concessions in order to attract new tenants, as well to retain their current tenants.”
“The abundance of value-add properties in the suburbs provides investors the opportunity to renovate and raise rents, which increases the net operating income. From 2011 to 2015, Class B asking rents averaged an increase of 7.5% annually, more than double the average annual rent growth of 3.4% recorded from 2016 to 2018. Class B asking rents are expected to increase 2.8% and 2.2% in 2019 and 2020, respectively.”
From Bay City News in California. “Housing affordability activists on Friday protested at bank branches in Oakland to call on the institutions to sell foreclosed properties to community land trusts at reduced prices and play a greater role in creating more affordable housing in California. The protesters chanted ‘Chase got bailed out we got sold out,’ and talked with customers in line. A security guard called police but the activists left before officers arrived.”
“One of the protesters on Friday was Dominique Walker, an Oakland native who was homeless but earlier this week moved into a vacant West Oakland house owned by real estate investment firm Wedgewood Inc. ‘Our goal is to reclaim the property owned by speculators into the hands of the community,’ Walker said. ‘We’re demanding that they give some of that money and land back in the hands of the community.’”
From News.com.au in Australia. “The RBA just admitted it didn’t realise how important housing is to the Australian economy, in a sign that it could push back hard against any further fall in house prices. Australia’s central bank just released its major quarterly report, the statement on Monetary Policy. In it was this gem of a line: ‘Recent developments have shown that dynamics in the housing market can have more pervasive effects than we had expected.’”
“There’s a meme that our economy is just houses and holes – i.e. real estate and mining. But the latest admission from the RBA is there’s more truth to that meme than they thought. And that’s disconcerting news for anyone hoping we can find a sweet spot where the economy grows healthily but house prices stay sane.”
“All this background is why their current statement arrives with such impact. They were for some time quite sure that a house price fall was worth it. Now, well, it is not so clear. Because now they understand better how deeply woven into the Australian economy housing is. That raises serious questions about whether, next time there is a natural downturn in Australian housing prices, the RBA might try to fight it.”
From Mortgage Broker News in Canada. “The Canadian Mortgage and Housing Corporation (CMHC) has been facing some heavy criticism from the broker community for a number of reasons, including its First-Time Home Buyer Incentive and its frequent and vocal support for the latest iteration of B-20 amendments.”
“At Mortgage Professionals Canada’s national conference this week, CHMC President and CEO Evan Siddall had a conversation with MPC President Paul Taylor in front of a packed house. ES: I will say that the fact that the [First-Time Home Buyers Incentive] isn’t as seful—it’s not un-useful, but it’s less useful—in higher-priced markets may be a design feature in the sense that the more people are exposed to higher-value homes, the more they’ve got to lose.”
“PT: What is the likelihood that the limits within the program will be increased in the event that you’re not meeting target?”
“ES: I don’t have a target. It may be—you’ll laugh, but—it may be that the reason we’re at half capacity is because it’s not as grand a problem as everyone says there is. We actually are helping first-time homeowners. We’re offering people a 5% equity opportunity to buy a home. And I need to say this: we should all be concerned about the health of our real estate markets. There’s a lot of academic research that says that the combination of high prices and high debt levels is very dangerous, and a ratio of disposable income to house prices of 80% is a problem. We’re at 100% in Canada. If you want to crash a real estate market, feeding debt is exactly the way to make it happen, I’m telling you. I’m trying to preserve healthy markets, which you should want.”