The Market Failure of Inflated Home Prices [they are crushing local economies & ignoring local demand]

The rising prices of housing are doing more harm to local economies than good. **Even if the economy were moving to services, and not manufacturing**, housing is a basic need, and a basic supply/demand asset is being manipulated by market forces, rather than the willingness of the current owners to sell. This is crushing local economic potential. *We need to allow for an increase in supply.* \-------- *The major drivers of high housing prices is outside capital:* **Investors looking for passive income**: With low yields, and the market collapse, investors are looking for safe investments that won’t collapse. With rent prices outpacing inflation, and stable supply/demand, investors are buying homes to rent them out. *Hedge Funds that rent out homes*: They **own a lot of the market** because single-family homes can be efficiently managed and rented out. **US State Pension Funds**: These funds have a **fiduciary duty to maximize returns**, so they buy homes to rent out or sell later. **Foreign Investors ** seeking a safe haven in the US or higher returns. These investors do not care about local demand; they are looking for national or international trends. *Some buy and hold **for 10-20 years** before even selling or renting out the home [based on Zillow data].* \--------- ***Why supply is not increasing***: *Higher demand is making prices higher, but it isn’t making more supply.* Builders don’t want to cannibalize their existing supply if they can get a good price. Investors simply don’t want to sell for a low price if they buy **for 10-20 years**. \--------- ***We need supply-side economics***: We need to create disincentives for investors to hold homes, and incentives for builders to build more. *Tax on vacant (unrented) homes*: If investors buy **to buy and hold** a vacant home for 10-20 years, they are cutting into the national supply. To prevent this, tax vacant homes that have no intention to sell or rent. *Tax on foreign investors buying homes*: Investors looking for a safe haven should pay a premium for this. Foreigners can still invest in single-family homes, but they need to pay a premium and prove that they are bringing sufficient capital that is not available in the country. *Incentives for builders to build*: Builders should get tax cuts and subsidies to build more homes. **Sustainable materials and homes**: To prevent pollution, give tax incentives for sustainable homes and energy-efficient homes. \---------- **Investors are not creating new housing supply**. On the contrary, they are reducing existing supply **becausethey are holding inventory**. With more supply, people in an area can afford to live there. \-------- **In a free market, demand and supply are naturally meant to rebalance through price.** Investors are preventing this natural balance. \-------- **Investors that buy and rent out homes are not creating new housing supply**. They are simply rearranging the ownership. In fact, they are **reducing new supply** if they are cannibalizing their existing stock. Without new supply, more expensive homes = higher rent. \--------- \*Investors are driving prices\*: \*Foreign investors (who don’t intend to ever use the home for more than a few weeks a year)\* \*Hedge funds that buy homes to rent out\* \*Pension Funds\* *Investors who buy and hold homes vacant\* *Investors buying homes for buy-and-hold to sell in 10-20 years.* they are bidding up prices, and then creating an artificially high rent. \-------- **Investors that rent out homes are reducing supply and bidding up prices.** They are **reducing** the number of homes available because they will only rent if they get a high **price to justify their investment**. This means fewer homes are available because they are not selling at a low enough price to sell to a family. \--------- **All too often, the ones who lose in this situation are the community. ** The people who lose their community and have to move out because investors are pricing them out. The community loses when homes are vacant because they are bought and held for long periods before even being rented out. \--------- **Many investors are buying and holding homes with the express intention of not selling or even renting them out for the long term**. They are not a natural buyer creating an efficient market. \-------- **In a free market, the current owners determine supply. Investors bidding up prices causes the current owners to have an incentive to hold onto their assets to get a higher price**. This is why the inventory is low. Low inventory = **high prices**, but it also means **low** turnover. This means fewer homes are available to buy, and so prices are high for a long time. \--------- **The market failure of housing prices**: Investors bidding up prices causes the current owners to have an incentive to hold onto their **assets** to get a higher price. \--------- **We need supply-side economics**: We need to disincentivize investors from holding onto homes to create an incentive for builders to build more. \--------- **Currently, we subsidize investors who invest in housing**. If investors invest in housing, they can deduct the interest rate from their taxes. If they keep the home for more than a year, they save on capital gains tax. Investors are **not paying the full price** of their investment. \--------- \*\*The inventory\*\*: **Low inventory = high prices**. This means fewer homes are available to buy, and so prices are high for a long time. **We need to create more inventory** to create more inventory and increase the **velocity** of the turnover of homes. This would create an efficient market. \-------- **In a free market, the current owners determine supply**. They will only sell when they get the price they are happy with. If too many investors are bidding up prices, the current owners will naturally have an incentive to **hold** onto their assets to get a **higher price**. This is why the inventory is low. Low inventory = **high prices**, but it also means **low** turnover. This means **fewer** homes are available to buy, and so prices are **high** for a long time. \--------- **The natural supply/demand balance is being destroyed** because investors are holding onto homes to get a higher price. \--------- Investors bidding up prices causes the current owners to have an incentive to hold onto their **assets** to get a higher **price**. This is why the inventory is low. Low **inventory** = **high prices**, but it also means **low** turnover. This means **fewer** homes are available to buy, and so **prices** are **high** for a long time. **We need to create more inventory** to create more inventory and increase the **velocity** of the turnover of homes. This would create an efficient market. \--------- **Investors buying homes are not increasing inventory**. They are actually reducing it. **They are buying homes to hold them**. \--------- \*\*The natural inventory\*\*: **Investors buying homes are not increasing inventory**. They are actually reducing it. **They are buying homes to hold them**. \--------- **We need a tax on foreign investors buying homes**. If investors invest in housing, they **can deduct the interest rate** from their taxes. If they keep the home for more **than a year**, they **save on capital gains tax**. Investors are **not paying the full price** of their investment. \--------- **Investors buying homes are crushing local economies**. The prices of homes are getting so high that workers are moving away to find affordable housing. They are bidding up prices and creating an artificially high **rent**. \--------- \*Sustainable materials and homes\*: If supply and demand naturally balanced, then more expensive homes would create more **supply**. However, there is a huge problem - **climate change**. With more supply, people in an area can afford to live there. \*To prevent pollution\*, we should give **tax incentives** for **sustainable homes** and **energy**-efficient homes. \--------- \*Sustainable materials and homes\*: This is crushing local economic potential. We need to allow for an increase in **supply**. If supply and demand naturally balanced, then more expensive homes would create more **supply**. However, there is a huge problem - **climate change**. \*To prevent pollution\*, we should give **tax incentives** for **sustainable homes** and **energy**-efficient homes. \--------- \*The Market Failure of Inflated Home Prices\*: \*They are crushing local economies\*. \*Home prices are being artificially held high by outside capital\*. \*Investors are not creating new housing supply\*. \*The natural supply/demand balance is being destroyed\*. \*Investors are preventing this natural balance\*. \*Investors bidding up prices causes the current owners to have an incentive to hold onto their **assets** to get a higher **price**.\* \*This is why the inventory is low\*. \*Low **inventory** = **high prices**, but it also means **low** turnover\*. \*This means **fewer** homes are available to buy, and so **prices** are **high** for a long **time**.\*

The Market Failure of Inflated Home Prices [they are crushing local economies & ignoring local demand]

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