I was reading the latest ResiClub post that ends: “Big picture: U.S. home prices have been in a period of sideways movement following the 2022 mortgage rate shock. However, under the surface, some markets have seen some give up while others continue to climb at an elevated pace.”
This is a little off topic, maybe, but your statement that "It was a feast just waiting to be lapped up because there is no way that small time investors could buy up all the discounted properties. There just isn’t enough small-scale capital. Slowly, large-scale institutional capital eventually came into the space, and now, finally, prices have risen high enough that the large-scale buyers are purchasing new homes from the builders." reminded me of something I've always wanted to look at.
I was looking at a graph of housing starts going back to the mid 60's broken out into single-family and multifamily. The compressed graph emphasized how flat the MF start line became beginning in the late 80's which coincides with changes to the tax laws. Those changes impacted depreciation schedules and limited passive losses.
Before those changes most of the small apartment buildings and 4-duplexes, the missing middle, were mainly built as tax shelters and owned by small partnerships, mostly local. I remember reading that MF starts fell over 50% in years shortly after those changes.
My hunch is just like your statement about larger scale capital in the SF space, the same occurred in the MF space as a result. My hunch is also that it's not just zoning that limits the missing middle; it's lack of capital. Also, because of scale it's hard for a new 4-plex to compete with a new 200 unit apartment complex with full amenities.
Really enjoy your analytical approach to housing markets, housing costs, and, in my mind, placing the blame for 2007-9 on the money side where it belongs.
Also, while I think I agree that locking institutional level investors out of SFRs is a good idea, the banking, house builder and investment lobbies will never stand for denying institutional ownership of SFR’s as long as the current neoliberal GOP, Investment Advisory, Lending Agencies and Fed groups are in control. Too much money to be made, as always, at the consumer’s expense.
Thanks Kevin. I’ll be away for a few days. We can continue when I’m back. Ken
This is a little off topic, maybe, but your statement that "It was a feast just waiting to be lapped up because there is no way that small time investors could buy up all the discounted properties. There just isn’t enough small-scale capital. Slowly, large-scale institutional capital eventually came into the space, and now, finally, prices have risen high enough that the large-scale buyers are purchasing new homes from the builders." reminded me of something I've always wanted to look at.
I was looking at a graph of housing starts going back to the mid 60's broken out into single-family and multifamily. The compressed graph emphasized how flat the MF start line became beginning in the late 80's which coincides with changes to the tax laws. Those changes impacted depreciation schedules and limited passive losses.
Before those changes most of the small apartment buildings and 4-duplexes, the missing middle, were mainly built as tax shelters and owned by small partnerships, mostly local. I remember reading that MF starts fell over 50% in years shortly after those changes.
My hunch is just like your statement about larger scale capital in the SF space, the same occurred in the MF space as a result. My hunch is also that it's not just zoning that limits the missing middle; it's lack of capital. Also, because of scale it's hard for a new 4-plex to compete with a new 200 unit apartment complex with full amenities.
It's a different world today.
Really enjoy your analytical approach to housing markets, housing costs, and, in my mind, placing the blame for 2007-9 on the money side where it belongs.
Also, while I think I agree that locking institutional level investors out of SFRs is a good idea, the banking, house builder and investment lobbies will never stand for denying institutional ownership of SFR’s as long as the current neoliberal GOP, Investment Advisory, Lending Agencies and Fed groups are in control. Too much money to be made, as always, at the consumer’s expense.