When we were looking last summer almost everyplace we looked got a couple of cash offers. Some were definitely investors planning to rent -- rents here are nuts right now, if not quite SF nuts -- but I didn't get a sense if it was big banks (I would have guessed not).
I think buying houses in California for cash makes you richer than "upper middle class American", let alone "upper middle class Chinese". Unless the houses are in Vallejo or Adelanto.
I've always thought property was a very vulnerable investment for companies. What are they going to do if things go wrong, excavate the house and bring it back to headquarters? In one sense the town is at the company's mercy, but with a united mayor and city council, the town could flip that rapidly. A town that had the will could milk that company for property taxes until it fled.
In one sense the town is at the company's mercy, but with a united mayor and city council, the town could flip that rapidly. A town that had the will could milk that company for property taxes until it fled.
I was sort of wondering about that too.
Of course that might have been why they're securitizing the rent and selling the securities.
Huber Heights in suburban Dayton and thus right by where the aliens are stored in Wright-Patterson.
They could write a city ordinance that a landlord with more than 100 properties can't charge more than $100/month for rent, and also has to pay for road and sewer repair and for undergrounding electrical lines. If developer fees are legal, I bet something like that would be legal. With the right perspective, a company like that is just huge pockets that walked right into your snare. They're trapped unless they release the properties.
That last was me. Cities don't do this with developers because they stupidly want developers. But if they don't want the purchasing firm there anyway, they could become a fat mosquito off that company.
I think the company's defense against that is probably literal bribery, either straightforward lawbreaking or more likely legal election-buying. It's not going to work always, but there are well-established ways to split political decisionmakers away from the clear interests of their constituents.
Easy-peasy! Except if you write a law for 100 properties, they'll buy 99, etc. And if you do something creative in your town, there's still the larger problem that some people/corporations can afford so many investment properties that it's difficult for people to buy homes to live in.
I don't think it would be easy. I agree that it would take an unusual level of discipline and strategy. It is definitely a bull by the horns situation. But, that is a whole new bull that you didn't have before to add to your flock and milk.
A rich bull. Not some scraggly thin bull.
Ok, so give me an example. You can't just raise property taxes, because you still have residents there (and you can't raise them in California, period).
9: or constant, well-funded nuisance lawsuits. Or all of the above.
Setting out to milk a bull, you'd better know what you're doing.
Anyhow I wonder how many of these properties are in unincorporated areas? If they're buying boom-era development, probably a good chunk.
15: we'll you grab one of the three horns, first of all.
corporations can afford so many investment properties that it's difficult for people to buy homes to live in.
So... who are they going to rent to?
14: Yeah, I'd start with a class-of-one equal protection suit, probably takings clause too. You could drag that out a long long time, and make a poorly funded local government purely miserable with discovery.
13: School districts can't* raise them by more than 2% here either, because state law. And the corporations would have much less of a problem winning if they move things up to the state.
* There are exceptions, but mostly not.
I forgot to link to this, too, but it's a very good piece from a few months back, about how desirable real estate is turning into a global reserve currency, and what that means for regular buyers.
16: They have a lot of unincorporated land in the West, at least in Colorado. I know that there's really almost none in New England, but I don't know what the rest of the country is like.
There must be some handy database that teo is familiar with.
My thought is something parallel to cities using eminent domain to reverse foreclosures. Cities have a lot of power to be nuisances in their own right, if they have the will to use it.
This is the fundamental lesson from Jackie Chan movies, that every weapon has two ends. It would definitely be drawn out manuvering, but a city goes into it with some interesting powers.
21: But it is a really weird reserve currency that depends on a lot of norms holding up. I mean, what is Greece going to do if London uses eminent domain to re-take it? Or if squatters choose to live in it? What if London simply decides not to use its police force to defend Greek property interests? Send an army to guard their properties? It is useful so long as norms hold up and as soon as they don't, it is almost uniquely vulnerable.
To Megan's point at 24, if that had happened in my town when I was a teenager, we would have targeted those properties for some pretty extreme vandalism.
Does anyone remember one of the first TAL-Planet Money collaborations, explaining what had gone down with the CDOs and credit default swaps and all the rest of it? There was a company whose name was either Magnetar or something really similar, which was the worst of the worst of the worst. Anyone remember what I'm thinking of?
I mean, what is Greece going to do if London uses eminent domain to re-take it?
Seize the (probably much larger amount of) property that British people own in Greece?
This also makes me think about some of the questions I've seen about the use of AirBnB in SF. I can't find the original article that I read, but this covers some of the issues.
"Many landlords decided they would be able to make more money by renting (their properties) as tourist space," said Ted Gullicksen, president of the San Francisco Tenants' Union, which promotes renters' rights. "We're seeing a big loss of rental housing stock, which we're already losing through other means. This is added pressure."
Jon Golinger, president of the Telegraph Hill Dwellers, an association for residents of Telegraph Hill and North Beach, had similar objections.
"We are very concerned with reductions in available housing for people to live in the neighborhood," he said. "We want to keep San Francisco a place where people don't just visit and take pretty pictures, but where people actually live."
This is the fundamental lesson from Jackie Chan movies, that every weapon has two ends. It would definitely be drawn out manuvering, but a city goes into it with some interesting powers.
. . . It is useful so long as norms hold up and as soon as they don't, it is almost uniquely vulnerable.
I have a hard time being optimistic that any city would actively decide to make like difficult for big-money outside investors and end up with a positive outcome.
It isn't just that I think outside money has a lot of power (which it usually does), but more that it seems like a pretty narrow window to pull it off successfully with lots of ways that it could go wrong, and I just don't think that government is good at being precise in its policies.
It isn't just a question of, "political decisionmakers [and] the clear interests of their constituents." But also once the council starts thinking about new regulations which local constituencies will see that as an opportunity to shift things in favor of their narrowly defined interests.
Also our own P&Z committee is kind of stupid, and likely to be enamored of big city slickness.
I get the facets that make fighting back unlikely. But the alternative seems to be rolling over to get reamed. Anything that makes that result less inevitable is worth trying.
I thought effectively different property tax for non-owner occupied homes was already pretty common.
For example, at the federal level, the mortgage deduction only applies to owner-occupied homes, and I believe that many localities in the US have different property tax regimes for owner occupied vs non owner occupied homes.
And if you are going to fight back, the right attitude to have is "Oh look, an incredibly deep pocket just wandered into my city boundaries and got itself mired here."
33 and 34: Yes, certainly in Vermont it is. Britain's got (or did have) a lot of people who live there but are technically resident in tax havens like the Isle of Man. Screwy that Bloomberg pays so little in tax on his London house.
I think you get the deduction for one vacation home--which can be a boat if you want (fun fact from my tax law prof who wrote the reg) provided that certain parameters are met.
Hm. Okay, given that city councils are unlikely to have the wherewithal (the balls, financially, legally, and electorally) to fight back as Megan suggests, what are the options?
1. Exodus from major city centers undergoing this sort of real estate/private equity capture. Per the article linked in 21. I like the notion that late stage capitalism with gross income inequality is, of necessity, countered by a response along the lines of: The only way to win this is not to play. Actions do have consequences, after all.
But maybe it's distasteful to let London or San Francisco become functional tax havens for the jet set.
Eh, this is disturbing in the extreme. I have no idea how to try to correct it legislatively. I find myself thinking that globalization is not working out well; if people decide to set up shop in a smaller locale, and keep their money local, there might could be some relief.
And if you are going to fight back, the right attitude to have is "Oh look, an incredibly deep pocket just wandered into my city boundaries and got itself mired here."
I like the attitude, which is why I'm trying to figure out why that doesn't sit quite right with me. I'm not quite sure.
Perhaps it's just that I feel like these stories are a symptom, rather than a problem that needs to be addressed independently. It feels like "the giant pool of money" all over again. Building have lots of problems as investments, they aren't liquid, they require maintenance and administration, etc . . . if there's a bunch of investment money flowing into real estate is makes me think that there's too much money for the existing investment opportunities.
34: I thought the mortgage deduction for homeowners was justified as putting owners-occupiers on equal footing with those owning to rent because those owning to rent would be able to deduct their loan payments as a business expense.
Almost 40 comments in and no one's pointed out yet that it's spelled "tranche"? Standards are slipping around here.
I thought a better title would have been "Split-level tranche"
33/34: Commonly implemented here in MA as not paying property taxes on the first $X of owner-occupied property. So two $500k houses in my city, the owner-occupied one pays taxes computed on $360k and the one rented out pays taxes computed on $500k.
(X is constrained by law to be no more than 30% of the average residential parcel value)
42 is what we have, but the amount exempt is something like $30,000.
Oh my, I see that ogged's posts on these matters are utterly au courant; I'd thought he was just following real estate news or something.
I imagine various bloggers are writing sensibly about why concern over income inequality actually isn't anti-Semitic.
if there's a bunch of investment money flowing into real estate is makes me think that there's too much money for the existing investment opportunities.
I've heard that this is true -- there aren't many businesses planning to expand, so people with money have nowhere to invest it.
On the other hand, it's horrifying that a hedge fund can't think of anything better to do than being a landlord. I mean, really. Half a billion dollars gives you the ability to do big, transformational things. Invest in infrastructure, maybe? Technology? Advanced manufacturing? Something that maybe opens up new opportunities down the road? Extracting value from foreclosed houses seems like such a petty, short-sighted waste of an opportunity.
We recently paid cash for a house, but it was a tiny, relatively inexpensive house, and we are in a weird tax situation wherein the mortgage interest tax deduction benefits us not at all. And this way we don't have to deal with fucking bankers.
so people with money have nowhere to invest it.
Gosh, how horrible.
43: Could you buy a house for $30k in Pittsburgh? In parts of the Finger Lakes you could get a pretty good house for $40k 15 years ago.
How much does a dumpy house in Pittsburgh go for?
48: I have friends who bought a fixer (out of date decor, not falling apart) in the suburbs for about that.
Yes, you could find something like that here.
If these hedge fund folks can't find any businesses to invest in, maybe they could lobby the government to do something about economic inequality, so businesses will have more prosperous and secure customers.
I think you have a great idea there, ned.
Bleh, this is a longstanding and ongoing phenomenon over whether the wealthy among us are too stupid to see that a drastically lopsided economy and society is eventually not viable.
I don't really understand how the article in 21 is defining property tax for London homes. Or rather, I understand it, but I don't think it makes sense to really think about it in American terms. In the UK, (as far as I understand it from the purchase of our home) you pay tax when buy the house, but it's a relatively static 'stamp duty,' and then each year you pay council taxes, which go to pay for your local police, trash, welfare, etc, etc, etc. (I don't know if schools are funded from council tax, I must admit.) The council might also represent an area bigger than your own town/village. Council taxes are the duty of the person resident in the home (and I doubt Bloomberg rents his out, so I imagine he pays them), and they are based on the price of the home. However, there are only 8 or so council tax bands, and I just looked at London's, and any homes over the cost of £320,000 are in same bracket. So, yes, Bloomberg would pay only about £3,000, but that's really not the same thing as American property tax as I understand it. I do think it would make sense to have more bands and tax £10,000,000 homes at a higher rate, but that's not the way the system is set up.
51, 52: Yglesias has been banging that drum for a while.
PS I would be pleased if a real British person fixed any errors I have made.
"Hey man could you spare some change for Vietnamese food? We're trying to get some fancy cuisine. We're hobos. We're not living the lifestyle." Kids are weird these days.
Also also, I forgot to say that those council tax bills seem roughly equitable with charges in my region of the country as well. So .... London alone isn't a tax haven, all of England is?
22: There's no handy database AFAIK, but in general the pattern is that the Northeast has little to no unincorporated land and the West and South have lots. I'm not sure about the Midwest.
51, 52: Yglesias has been banging that drum for a while.
but I thought he was a bad person because econ101?
Yes, it's almost as if there's more to economics than justifying the whims of the wealthy elite.
The problem is that Yglesias, in his typically reality-blind, undergrad theory-loving manner, ignores the fact that 85% of his policy outlook makes the 15% of his blog that is devoted to the (completely correct) idea that macroeconomic stimulus is important and should be provided by the government politically and practically impossible.
but I thought he was a bad person because econ101?
Apparently Yglesias will be joining Ezra Klein's new venture. That seems like good news. I may start reading him again.
As has been pointed out to him about 15,000 times, by the way.
62: Yeah, I think the Slate gig has definitely steered him in problematic directions and a new start is likely to help correct that.
61: I think he devotees more like 50% of the blog to the monetary policy stuff, which is just as simplistic and theory-driven as all the rest.
But sure, whatever. Hate on, you crazy diamond.
The problem with 33 and 34 is that a city needs some non-owner occupied housing so that people can rent apartments and homes. What a city does not need, and what may be deleterious to the housing market, is a conglomerate which owns all of those properties itself. So you might need to limit the number of properties which any non-resident owner can purchase without being subject to an enormous tax. As ogged suggests, there will be some gamesmanship at the edges. But you don't need to set the limit at 100 properties. You could set the limit at 10. Companies might skirt the tax by buying only 9 properties, but then the problem of a single conglomerate, or a small group of conglomerates, owning an entire city's rental market would be avoided.
And if this were a unique solution -- if only one city adopted it -- that would be all the better for its residents. It might even create an influx of potential renters from other nearby areas, which would probably be good for the local economy. So you might see a race among cities to incorporate the Megan Tax, if the local politics aren't subverted by the new wave of housing speculators.
I do see the problems with Yglesias's blogging, but I really love it when he says that the reason a Congressperson is putting out stupid shit is that the Congressperson is not that bright.
I thought one of the things that stifled early 20th century reforms by cities aimed at getting more control over what corporations were doing was a move by state governments to strip cities of certain degrees of autonomy in political decisionmaking. I guess I should go back in time and read that Teaford book on state government because I'm probably not going to do it now that I don't really "do" history.
Speaking of our moral superiors, Davos just keeps getting more Davos every year.
For those wanting to experience real hardship (for an hour or so) there were multiple sessions each day that attempted to simulate what it is like to be a refugee in a camp. During these sessions actors dressed up as soldiers stormed in, pretending to beat up another actor dressed up as a refugee and firing fake gunshots. Sheryl Sandberg of Facebook and Peter Brabeck-Letmathe of Nestle were among the executives who participated.
"It used to be just bankers that were bashed," the chief executive of a large European consumer goods company said with a sigh after coming out of his morning trance. He spoke on condition of anonymity, perhaps not wanting to seem as if he was complaining. "Now it's all of us."
First they came for the rich, and the rich spoke up, and then they decided to go for someone else.
70: I am not read up on each state's code, but I think it's possible that a major U.S. city could adopt a tax on companies which own x number of properties. It would essentially be a "doing business" tax. If that's not possible, then I think state legislatures could levy a property tax which applies only to land which is owned by a person who owns x number of properties.
74: The point isn't what the state legislatures could do, it's that historically (if I have the history right) the state legislatures stepped in to stop what the cities were doing.
I fucking hate twitter, I have no idea who is responding to what, that link just brings up a bunch of noise and some names I recognize.
I ended up seeing that tweet after making the mistake of seeing what people said in response to something Josh Marshall said about Perkins (I think).
Never read the... well, twitter, I guess?
45: Half a bllion dollars is small if you are thinking of raising an infrastructure fund. I know of one firm that closed two parallel funds of a billion US and a billion Euros, and that seems to be about the level of being-taken-seriously.
I've become fairly good at staying away from the never-read-the-comments parts of the small subset of twitter I look at. In my field, twitter is actually a really good resource for getting outside of a narrow all-that-matters-is-what-my-institution-is-doing view of the world. It's almost too bad, because sometimes I just don't want to look at it.
76: I understood your point. I don't know whether it would be difficult for a major U.S. city to simply raise property taxes on a subset of properties, as you suggest. I was under the impression that local governments levied property taxes. But I expect people to argue in good faith. So, assuming that were a problem, I suggested two alternative mechanisms for taxing companies which own more than ten residential structures in any given municipality. A city could tax the corporation itself on the rent profits obtained by ownership of more than ten residential structures, or the state legislature could simply raise the state property tax for all residential properties owned by a person who owns more than ten properties.
I am actually curious about the historical argument you raise. Is that a real thing or do you raise arguments in bad faith?
Could you go back to taking whatever it was you were taking earlier in the week?
82: Apparently what I'm thinking of was Municipal Home Rule and results appear to have been varied so home rule didn't mean any one thing. There's also Dillon's Rule going in the other direction. Since I was just raising a historical question, I wasn't arguing about current policy since doing so in comments here is almost as pointless as voting.*
*I kid. About voting.
Sorry, it gets tiresome when everything's just puns. Arguing about policy in comments is no more pointless than having a conversation about policy in person -- the point is that it's interesting. Or not, take your pick.
It really is true that text was once a beloved member of this community. I have no idea what happened.
62: Apparently Yglesias will be joining Ezra Klein's new venture.
What??!!?? This is a joke, right?? WTF? That is a really stupid idea. I mean, they're personal friends, I think, so it's gonna be really hard for Ezra to fire him.
Oh well. Erm, maybe it'll work out okay.
To be fair, the post linked in 54 is pretty good. Well, alright then: I wouldn't want to be completely and unfairly rude about Yglesias. He just seems so bone-headed sometimes.
What??!!?? This is a joke, right?? WTF? That is a really stupid idea.
Why is it such a bad idea? They do have complimentary strengths (broadly speaking Yglesias is capable of being more prolific, funnier, and a more engaging writer; Ezra Klein is better at earnestness (for lack of a better term) and sustained in-depth attention) and it could work out well.
it's gonna be really hard for Ezra to fire him.
Does this matter? Has anybody fired Yglesias before (or Ezra for that matter)? We probably wouldn't know, but he's seemed like somebody who moves on when things aren't working right, rather than somebody who would have to be fired.
Why is it such a bad idea?
Chiefly because I thought the new venture was supposed to be dedicated to explaining stuff. I don't know how good Yglesias is at that. As I said, the post linked in 54 is good; if he can be channeled into that sort of thing, great. I'm just not sure I'd hire someone with an eye toward having to rein in his tendency to want to write ill-thought-out columns.
For all I know, Yglesias is writing the latter due to pressure from Slate to produce something, anything. For all I know, he's been chafing there.
And Yglesias will, after all, bring an audience with him, which is not to be sneezed at for a start-up. I suppose I'm thinking that if Yglesias's audience is among the targets for the new venture, it's not quite what I thought it was supposed to be. Then again, I rarely read him these days, and have basically never read the comments at Slate, so I'm talking out of my ass.
Klein speaks! Still not a whole lot of detail, but the basic idea seems to be a site providing context for current events.
Saiselgy doesn't sound like he was chafing at Slate.
Speaking of houses, I just found an empty lot that's about 2.5 miles from my office. I should probably just go ahead and buy it and assume my family will support my desire to build our own cob house and live there.
94: yes, because surely if he was dissatisfied he would have vocally and immediately burnt bridges with a set of coworkers who he could easily find himself working with/for again.
This seems relevant to this thread or perhaps worth its own discussion. If companies are holding down wages of high-tech workers (I'm guessing in the 200-300k range?) in the Bay area, is that not so bad because it helps non-tech workers not get squeezed out or bad because it's still companies screwing their workers in favor of the ultra-rich?
Ok fine, I suck at selling the slate pitch thing, the answer to that one was too obvious.
immediately burnt bridges with a set of coworkers
I suppose, but it seemed heartfelt to me. It's confirming my biases, I suppose, since I imagine I would like working at Slate more than I like reading their product.
Give me a moment and I'll come up with a few more suppositions.
95: You know, if you wanted to write up a guest post about cob houses and how you became obsessed with them, I could probably sneak it by the Guest Post Review Board.
assume my family will support my desire to build our own cob house and live there.
As long as you don't assume they'll want to join you.
102: Thanks, but I'm going to wait until it's finished.