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A self-defeating argument
If investors and hedge funds are a major cause of high housing costs, why do they seem to be most common in cheap cities?
Liberalizing Cities From The Ground Up
Tag investors
Where investors invest
One argument I have run across recently is that the high cost of housing is caused by mysterious corporate investors are buying up real estate and forcing up the cost. The stupidest version of this argument is that investors are hoarding all the real estate. Why is it stupid? Because corporations like to make money, and a corporation that doesn’t sell or rent out real estate is making no money from it. A more sensible version of the argument is that the existence of investors adds demand for housing, and thus that their presence thus increases housing costs.* But even if this true, are these investors really a significant factor in the housing market? In today’s Washington Post, an article supplies data for 40 metro areas. If investors are really the problem, one might think that the most expensive metros have the highest investor share. But this is simply not the case. In San Francisco, only 6 percent of for-sale houses are being purchased by investors (about the same as the 2015 share). In metro New York and Los Angeles, that share is around 10-11 percent. The most investor-heavy markets are in growing, medium-cost Sun Belt markets like Atlanta (25 percent), Charlotte (25 percent), Jacksonville (22 percent) and Phoenix (21 percent). And within those markets, investors are not buying in the most expensive areas. In Atlanta, the highest investor shares are in the lower-income Southside, and low and moderate-income southern and western suburbs. In Jacksonville, the mostly lower-income Northside and the working-class Westside have higher investor shares than the more middle-class Southside. This pattern seems to hold in less investor-heavy metros as well: even though some affluent Manhattan zip codes have high investor shares, most of the high-investor zip codes are in East Harlem, the South Bronx, and other poor […]
Empty Houses, part 2
The most interesting comment to my last post focused on one narrow issue: to what extent are vacant housing units second homes (and thus presumably less likely to be rented out) as opposed to units for rent/sale or held for other unknown reasons? Why does this matter? Because one might argue that even if overall vacancy rates are low, a high “second home rate” might be evidence that the city’s housing prices are rising because of nonresident investors. Unless I am missing something, 2015 American Community Survey data does not contain data at this level of detail. However, 2000 and 2010 Census data contains data on types of vacancies. Below are percentages of vacant units held (in the Census Bureau’s words) “for seasonal, recreational or occupational use.” 2000 2010 Expensive markets Manhattan 32.7 33.9 (3.3 pct of all housing units) San Francisco 22.4 17.9 Boston 12.6 15.2 Los Angeles 7.8 7.9 San Diego 26.8 23.5 Not-so-expensive markets Dallas 4.6 3.7 Houston 6.5 4.5 Philadelphia 2.5 3.2 Chicago 5.0 7.0 On the one hand, expensive markets tend to have more second homes (evidence of a wave of outsider capital). But if such outsider capital was a major cause of rising housing prices, one would expect the “second home percentage” to grow over the 2000s. Instead, this number has been pretty stable. Moreover, this group of vacancies is a pretty small percentage of the overall housing market- a bit over percent in Manhattan, and a little over 1 percent in New York City as a whole (since second homes are not so common in the other boroughs).
