I see a lot of expensive houses being built in my area. A LOT. And the weird thing is that they’re being bought pretty quickly. Are these people just making more money than me? If so, what are they doing for a living? Or are they just living house poor? How exactly are they affording these places?
Edit: For reference, my neighborhood is starting to become popular (because the other popular neighborhoods have priced most people out of affording places there). The normal price of newer homes here is $700k. My home, built in 1965, which is 2500sq ft on a quarter acre of land, is $500k.
Generally the problem simply boils down to there not being enough housing, it’s extremely difficult for it to remain expensive if you have more housing than you have people.
What most of the world needs right now are million programmes, just slap down a bunch of areas with commie blocks wherever you can. Sweden and other countries did this back around the 60’s and wouldn’t you know it those apartments remain vital for providing people with access to cheap housing.
This is funny, because I consider OP’s house to be obnoxiously expensive, let alone all the newer homes they mention.
There are MANY calculators out there as to how much house one can afford, and personally I think most of them over-estimate the amount. But based on very rough numbers, you could spend about 3x to 4x your yearly salary on a house. So to afford a $500k house, one “should” be in the $150k/year range. To afford a $700k house, one should be in the $200k/year salary range.
Personally I think both those numbers are bonkers and rather live well below my means than be house-poor.
The reason there are just so many expensive homes is that people are terrible at personal finances. They don’t mind being in debt and then there is the awful FOMO mentality that is helping drive home prices up for no good reason. Add in the fact that for years now new home construction has simply not kept up. There were homes being built, of course, but many of them were on the top end of the market because local town governments rather get the taxes for ten $10M homes, rather than force developers to build 50 $250k homes. So there is so much blame to pass around.
It’s not FOMO, it’s financial sanity. If I pay rent for another thirty years, I have nothing to show for it except a period of non-homelessness and years more of rent to come. If I pay a mortgage for the same amount for thirty years, I’m rewarded with a house for the rest of my life and no more mortgage - and I can resell the house when it no longer suits my needs, or give it to a younger family member
I think it’s awful that people are willing to be house poor in order to live in an expensive home, likely with no way to deal with it if something goes sideways.
FWIW, we bought the house when it was $330k with a sizeable down payment. We wanted to make sure that only one of us can pay for it, in case the other loses their job, or good forbid something worse happens.
They are not being bought by regular people like you - they are being bought by investment companies, hedge funds, and filthy rich investors… all for the the sole purpose of turning them into rentals.
By turning them into rentals, they keep supply low which increases prices… which prevents people from buying, keeping rental demand high, which also lets them charge exorbitant rental rates. They are gaming both sides of the system to ensure that us peasants can be milked dry over a fundamental human need.
That does not add up.
Home rental and ownership are substitutes. If they are renting those homes, they are reducing the demand for ownership. And adding renting unities can not allow them to charge exorbitant rates.
What is keeping those prices high is something else.
Home rental and ownership are not substitutable to each other nor does renting lower the demand for ownership. The amount of tax exemptions of buying a home, esp as first buyer, are decent over rental. Find out what a buyer’s vs seller’s market is. Look at what the avg. capital gains are for homeownership vs home rental (which are basically none). You still pay property tax on rentals such as apartments. Buying real estate is an investment, meaning you expect and should make returns on it (even if its just from selling the home years from initial purchase). A lot of this can change by state but generally, and overwhelmingly so its rings true across the US.
Look, I’ll be straight up, you seem like you are coming from a place of someone who has never closed on property - which is 100% okay. but you are wrong, as what you said was not an opinion but just factually wrong.
This is pretty basic math. Just think about Monopoly (yes, the board game).
Housing is a finite resource. You can buy it or you can rent it. When you buy, you build equity. When you rent, it’s pure expenditure.
So what happens when nobody can buy? They are forced to rent. Demand for rentals rises, which allows landlords to raise their rents.
So how does someone with very deep pockets turn this to their advantage?
First, starting one metropolitan area at a time, you buy up everything you can. If you coordinate with other investors, all the better. The goal is to strangle supply for buyers and prevent anyone who can’t pay cash upfront from making a purchase. When people are unable to buy, they are forced to rent. So for buyers supply is down and costs are WAY up, and being locked out of buying means demand is up for rentals.
Now, renters also aren’t building equity; when means it is perpetually more difficult for them to buy in the future as long as they kept away from that equity-building opportunity.
So as an “investor” you can now have a lot of different levers for manipulating both the supply and demand sides of the housing market. For example… what happens if you have more rental property than people willing to pay your asking price? Won’t you be forced to lower your prices? First of all, that rarely happens - because as an investor, you target places that already have reliable, consistent demand (e.g. big cities and metropolitan areas). If you have to occasionally let a property go unoccupied for a few months, it’s still no biggie… you keep those prices high and do not, under any circumstances, devalue the market (for your own sake as well as your investment cronies). Now, if there were competition, prices might be driven down… so how do you avoid competition? You collude. But that’s illegal… so to avoid accusations of collusion and price fixing, you farm out your rates to a third party service that all your cronies also use: RealPage. It’s not collusion or price fixing if you use a middleman. So now you are making bank on rental rates that will see a full return on your (higher than the properties value) investment in 15 years or less.
This has been going on for well over a decade, and these “investors” are now printing money on some of their earliest purchases, with no intention of EVER putting anything back on the market.
TL;DR; Buy all the supply, force plebes to rent, control the prices, profit. Just like Monopoly.
The problem is government and zoning laws. When they pass a law saying “this area can only have single family detached houses with at least 1/2 an acre of land” then you’re stuck at that density.
I wanted to build my house as a duplex, but government said no.
Government has created the situation where it’s only profitable to build luxury units, be they condos or houses.
Because the system is rigged, the wet dream of the people who own america is a purely subscription/rent based economy where you own nothing and they own everything. Wake up, move somewhere more rural, or live out of a converted van/box truck. Otherwise sign the dotted line on half a million in mortgage debt and work the rest of your life to MAYBE pay it off before you die or your life burns down from a failed marriage or some other BS. I have no sympathy for grown ass adults who knowingly sign up for decades if indentured wagie slavery just so they can live in a suburbanite hellhole. “B-b-but I want a faaamilllyyy!” Good. Before you plop out some kids save up enough money to buy land and build a homestead out of pocket. DO NOT GET INTO DEBT IF YOU CAN HELP IT. DO NOT PAY A LANDLORD ALMOST ALL OF YOUR PAY. Other choices exist.
