I came across a recent article that reported on rent declines over the past year in some towns around Boston, including Quincy, Somerville, and Lowell. Increased supply of multi-tenant buildings is probably the most significant cause. Before we break out any champagne it should be noted that median rents in the metro area are still quite high---over $2,300 a month in Quincy. The Trump assault on higher education and immigrants is also not helping demand dynamics.
Has anyone studied whether the relationship between rents and mortgage prices broadly correlates with rates of corporate ownership? It makes intuitive sense and your anecdote is strong, I’m just curious if anyone has done an analysis across markets
I ask in part bc I wonder if PE housing investment might have risen some amount in certain areas even without changes to mortgage lending standards just bc it’s smart to invest in supply constrained areas. Especially in high-cost places with YIMBY reforms happening, property owners will get an upzoning-induced windfall. I expect lending standards are a much bigger factor, but interesting to think of a counterfactual where we still have pre-2008 lending standards but PE investment still occurs to a lesser extent
There are some papers. I'd say the more careful ones generally find relatively weak effects in either direction. I might have the chance to write a paper on this soon. One problem with the existing literature is that the economics academy is out to lunch on the mortgage crackdown in 2008, so none of the papers control for it. Really, what happened is that neighborhoods sensitive to mortgage access lost half of their value from 2007 to 2012, and a return to the previous value was inevitable. Neighborhoods in Atlanta that had averaged $120,000 before 2008 were selling for $40,000 by 2012. Then, some sociologist comes along and benchmarks to 2012 and claims that private equity investors coming in at $40,000 in 2012 were responsible for causing home values to triple. As if $40,000 houses in 21st century America reflects a city in a reasonable equilibrium.
This is a great article, I was wondering how you'd respond to the announcements. I also love the Pooh reference 😄 I identify as a progressive but I really take issue with the "all of our problems are caused by greed" story. It seems like everyone needs someone to blame but this seems to me to be a really good example of how it's just a policy that's having these consequences.
It is generally believed renting is cheaper than buying. As your example shows, that’s not always true.
I, too, live in a place where it’s cheaper to buy than to rent.
Could you report on the bigger story here? In what percent of the country is this the case?
Since my first home purchase in 1990, I’ve been able to cut out the landlord profit portion of my living expenses. Granted I’ve had to pay for repairs and upkeep, but renters do that too, just indirectly.
I’m grateful to live in Cheaphouselandia.
One of my kids closed on a house yesterday in a HCOL area and paid approximately a hundred million bajillion quintillion dollars.
When interest rates were low, it was probably a majority of homes. Now, maybe a quarter? It's a fun exercise to poke around Zillow and compare rent and mortgage payment estimates. To me, the more you do that, the more you realize that it's not a very powerful aspect of housing market dynamics. There are places where owning is a lot more expensive and places where renting is a lot more expensive. But, definitely, as in the example I cite here, it suggests that affordability isn't the binding cause of low homeownership.
This is really interesting, Kevin. I've followed housing discourse for a while, and I've never heard the angle that overly restrictive lending rules are causing a portion of the housing affordability problems. It's fairly obvious now that you've pointed it out! Is there anything I else you've produced on this or could me to?
I came across a recent article that reported on rent declines over the past year in some towns around Boston, including Quincy, Somerville, and Lowell. Increased supply of multi-tenant buildings is probably the most significant cause. Before we break out any champagne it should be noted that median rents in the metro area are still quite high---over $2,300 a month in Quincy. The Trump assault on higher education and immigrants is also not helping demand dynamics.
Great article, Winnie the Pooh ftw!
Has anyone studied whether the relationship between rents and mortgage prices broadly correlates with rates of corporate ownership? It makes intuitive sense and your anecdote is strong, I’m just curious if anyone has done an analysis across markets
I ask in part bc I wonder if PE housing investment might have risen some amount in certain areas even without changes to mortgage lending standards just bc it’s smart to invest in supply constrained areas. Especially in high-cost places with YIMBY reforms happening, property owners will get an upzoning-induced windfall. I expect lending standards are a much bigger factor, but interesting to think of a counterfactual where we still have pre-2008 lending standards but PE investment still occurs to a lesser extent
There are some papers. I'd say the more careful ones generally find relatively weak effects in either direction. I might have the chance to write a paper on this soon. One problem with the existing literature is that the economics academy is out to lunch on the mortgage crackdown in 2008, so none of the papers control for it. Really, what happened is that neighborhoods sensitive to mortgage access lost half of their value from 2007 to 2012, and a return to the previous value was inevitable. Neighborhoods in Atlanta that had averaged $120,000 before 2008 were selling for $40,000 by 2012. Then, some sociologist comes along and benchmarks to 2012 and claims that private equity investors coming in at $40,000 in 2012 were responsible for causing home values to triple. As if $40,000 houses in 21st century America reflects a city in a reasonable equilibrium.
This is a great article, I was wondering how you'd respond to the announcements. I also love the Pooh reference 😄 I identify as a progressive but I really take issue with the "all of our problems are caused by greed" story. It seems like everyone needs someone to blame but this seems to me to be a really good example of how it's just a policy that's having these consequences.
It is generally believed renting is cheaper than buying. As your example shows, that’s not always true.
I, too, live in a place where it’s cheaper to buy than to rent.
Could you report on the bigger story here? In what percent of the country is this the case?
Since my first home purchase in 1990, I’ve been able to cut out the landlord profit portion of my living expenses. Granted I’ve had to pay for repairs and upkeep, but renters do that too, just indirectly.
I’m grateful to live in Cheaphouselandia.
One of my kids closed on a house yesterday in a HCOL area and paid approximately a hundred million bajillion quintillion dollars.
When interest rates were low, it was probably a majority of homes. Now, maybe a quarter? It's a fun exercise to poke around Zillow and compare rent and mortgage payment estimates. To me, the more you do that, the more you realize that it's not a very powerful aspect of housing market dynamics. There are places where owning is a lot more expensive and places where renting is a lot more expensive. But, definitely, as in the example I cite here, it suggests that affordability isn't the binding cause of low homeownership.
This is really interesting, Kevin. I've followed housing discourse for a while, and I've never heard the angle that overly restrictive lending rules are causing a portion of the housing affordability problems. It's fairly obvious now that you've pointed it out! Is there anything I else you've produced on this or could me to?
Here are a link or two where I refer to some of the post-2008 developments.
https://kevinerdmann.substack.com/p/we-need-wall-street-in-housing-this
Here I estimate the change in mortgages outstanding based on credit score.
https://kevinerdmann.substack.com/p/mortgages-outstanding-by-credit-score
https://kevinerdmann.substack.com/p/follow-up-mortgages-by-credit-score