alt Hacker NewsI don't mean to convey that it's intentional. There's no conspiracy of cigar smoking financiers in tuxedos smoking cigars in dark rooms. It's just like the Carlin observation - there doesn't have to be a big conspiracy. They just know what's good for them.
They behave accordingly. The do things that they can, and because those things are relatively new, it's a type of information asymmetry and policy / good intentions / competence arbitrage that we haven't had to cope with before.
You might end up banning certain types of institutional participation in the housing market, because there's no way to protect against the negative consequences that doesn't have even worse consequences for either the participants or the population at large.
It'll probably have to be arbitrary, and the cost will be a bunch of firms no longer get the opportunity to make a bunch of money by leveraging their resources in that way.
And we see the influence and impact constantly, with outlandish asking prices being immediately met by institutions that have decided they want a particular property in a particular region. Or house prices being set to an outlandish level with no reduction in price over months and months on the market, because they can afford to sit and wait for the market to change. And if they can afford to do that, then all of a sudden they've got an incentive to drive prices up in that region, because local and state governments, banks, and realtors tend to use the same basic rubric to evaluate price. If a lower valued area sees home prices go up, properties in the higher valued area will be raised accordingly. There's no secret quant voodoo, it's just using a level of liquidity and staying power not accessible to non-institutional homeowners.
Supply and demand normally influence pricing feedback at much more granular levels which benefits individuals, and our policy and regulation and evaluation models are largely built around those assumptions. Without the negative feedback driving prices down, bad things happen for consumers, good things happen for those who already have lots of money and property.
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> because they can afford to sit and wait for the market to change
Some people do that, but they aren't good businessmen. Vacant houses lose money at a prodigious rate.
How do I distinguish the world where institutional investors are meaningfully contributing to high housing prices and the world where they aren’t? Is there some metric you’ve seen that substantiates the mechanism? For example, are they only 1% of holders but 50% of trading volume or something?
Because if I saw a house 15% below market where I live, I would buy it (to live in). I don’t imagine I’m the only one. Institutional investors can’t stop me from doing that if it’s offered - can they stop the seller from offering that?
You overly complicate the situation by targeting one type of actors. If you look at comment around this story, people propose complicated mechanism to hack at the problem instead of looking at the root causes.
It's just land ownership isn't being taxed properly, no matter who owns the land. We homeowners get a free lunch from economic growth and price appreciation of real estate while penalizing capital investment.
The solution is simple if not necessarily easy to implement. Tax land and at a high enough rate, and exclude building and improvements. We'll reap bigger benefits if we reduce taxes on income and capital and eventually phase it out.
Carlin was a comedian, not a finance person.
Having deep pockets simply means that you lose a lot more money when following money-losing strategies.
Most of these schemes are hare-brained because they do not take into account the time value of money nor the costs of having vacant investments that are not generating revenue.
The way businesses make money is by buying an asset and then immediately putting that asset to work generating revenue.
I'm not talking about whether it's intentional. I'm talking about whether it's possible. If corporate investors could control the price of housing, I believe they would.
I can buy a house tomorrow and hold it vacant off the market at a listing price 3x its value. I will have zero impact on the housing market. You may be conflating the listing price of an asset with the clearing price of that same asset. You can, obviously, build up inventory to manipulate prices. To do that, you have to be able to generate scarcity, which is exactly what corporate investors aren't doing.
You've just given me 6 more paragraphs about the control you think they have, and you still haven't told a simple 1-2-3 story about how they're using a microscopic footprint in the total housing market to distort prices.
You have to do better than "supply and demand normally influence pricing feedback at much more granular levels". In the context of your original claim, of them being "a huge driving force in setting and manipulating prices", you need to explain how that would actually work, and not rely on handwaving.