A company like Open Door can monopolize a local market very quickly. Pick up 10 listings in a neighborhood, suddenly they control all the comparable properties which means they dictate the housing prices. Or maybe they want to buy up the remaining home inventory in the surrounding areas, and they'll use 10 of their own properties to explain why your home is now worth less.
Corporations can qualify for nearly interest free loans and offer up ridiculously high bids that most private individuals cannot hope to compete with. The effective buying power of a private individual vs a corporation is next to zero.
Corporations probably don't want to flip the home in the short term, they might want it to be a rental for the next 10 years while it appreciates on the books.
So in short, you have a system that can control the housing supply, control housing prices, force out real potential buyers, turn a lot of would be buyers into renters, all while increasing some billion dollar corporation's bottom line. Should absolutely be illegal.
Sure, you _could_ waste all your money on villainous anticompetitive practices, but it's more profitable to a) provide a service where you have an efficiency advantage b) only purchase things you need, bidding at the margin, where people don't mind selling to you.
I would expect a system where Open Door is active to be better for consumers and investors than the incumbent system you represent.
But I'll just offer up this:
"Large investment firms are converting single-family homes to rentals and building communities to rent in the Houston metro area to help meet rising rental demand, while the housing shortage is driving more people into renting. The Houston Association of Realtors reported June 15 the number of leased single-family home rentals increased 24.8% from May 2021 to May 2022. While rising mortgages and low inventory are contributing to the trend, experts said potential homebuyers are also facing competition from real estate investment firms—or institutional investors—buying properties to sell or lease.
Locally, NAR data showed 38% of single-family properties purchased in Harris County in 2021 were bought by institutional investors. Property data from the Harris County Appraisal District shows nearly 7,000 homes in Harris County as of June are owned by five NRHC members and their subsidiaries."
https://communityimpact.com/houston/bay-area/city-county/202...
In what world would you imagine that this is better for consumers?
I also don't "represent" anything. I worked in real estate from a technical side (mostly CRE), and had nothing to do with the trash that goes on from either side. I just got to witness it.
The issue is that individuals who wish to purchase and live in homes cannot compete with companies of scale at all.
So it’s not about anticompetitive practices, because it’s now two corporate incumbents competing, but a corporate incumbent competing against an individual, who stands no chance against that scale of cheap money.
Competitive effects do not always lead to desired outcomes even if they create healthier markets.
You can't corner the food market by buying restaurants both because there are grocery stores and anyone willing to wade through a small amount of red tape can start a hot dog stand to undercut you. You can corner the housing market in a school district, or neighborhood because families can't live in tents or cars and the government forbids via zoning would-be opportunists from undercutting a monopolization attempt by e.g. turning their 1 unit dwelling into a 5 unit dwelling.
History shows time and time again that anticompetitive practices are wildly profitable.
We could do that by changing how banks come up with the interest rate on corporate loans versus individuals who want loans.
However, if interest rates rise, the EV drops, and sentiment may shift which will substantially increase the risk that market appreciation strategy fails.
Eventually the music stops and enough investors stop pumping the asset class, it peaks, and the lack of retail ability to shoulder the debt-load results in collapse in pricing - some major US banks have indicated that mortgage originations are down 90% this year.
Interest rates are only part of a larger calculus. What ultimately blows the problem up is a shift in perception about real estate being a good investment vehicle for large sums of capital.
The downside is that such a policy reduces rental properties available.
How about the same, for water?
How about the same, for basic medical?
How about the same, for electricity?
Profiteering and gatekeeping essential things to live is ethically abhorrent. And yes, housing SHOULD be a right. Instead we have "right to badmouth government" and a bunch of other 'self-actualization' (Maslow) style needs, but We collectively ignore the bottom ones, like food/water/shelter.
This is easy to say. Can you elaborate how to implement this “right”?
Do 330M people in the US have a “right” to live on the California coastline? It is doable, can always downsize to Hong Kong style living.
Perhaps Hong Kong size abodes are too small. Then how much space do you propose per person and per family?
Or, in other words: "housing is a human right" does not need to be construed as a positive obligation.
Even if we decided on positive-freedom housing rights, it doesn't mean giving everyone a California beachfront property. This is the thing a lot of Americans don't get about positive rights in other countries: when they exist, it just means that the country is going to use tax money to pay for and provide that good. This works for the same reason that welfare programs work: the existence of a large buyer, even one that's lowballing, provides price stability to suppliers.
California beachfront property can remain expensive, but the houses behind it should be allowed to build up to whatever density that the market will support.
You should look at the track record of providing food, water, and shelter in places where you don't have a right to badmouth the government and instead had "rights" to things like food and shelter.
I fail to understand why heavy controls that enable real humans (not made-up on paper corporate humans) to get a residence of their own, is so damned radical.
I see what the environment looks like, with RealPage ( https://www.propublica.org/article/yieldstar-rent-increase-r... ) and Zillow and Redfin, and whomever else is buying residences left and right. And I want none of it. Burn these parasites to the ground. And damn the "profit".
If an org really wants to profit from real estate, go build new homes, there is a huge shortage, we don't need to competes with rich companies when trying to purchase a house.
I would love to build houses but unfortunately, it costs about twice as much to build a new house or apartment building than it does to buy an old one and bring it up to date. That's not even including the zoning/permitting headaches of various municipalities.
(And to be clear, I'm not advocating for the abolishment of zoning/permitting, just that some municipalities make the process unreasonably hard/expensive just because they can.)
Putting on a heavy tax burden realted to the house price means that eventually, you get rich enough where its not even an inconvenience, and those people will have an even stronger cartel over land use
What people don’t get is that you need some houses to sit empty. This allows people to find a place when they move. This allows people to move around within a territory.
Also not all secondary houses are bad. I want to buy a plot of land for a small farm and a place to go in case of hurricanes. Presently there is no house. Should I be taxed for improving land for personal ways that didn’t remove housing?
Many of the comments so far are emotional. We need to do better when making policies.
I 100% agree with this premise.
However this is not what Redfin/Opendoor/Zillow do. The most you're going to get regarding "fixing" is a very bad coat of paint, replacing a couple angle stops, and putting a full cover-plate over an outlet that seems iffy.
These companies are not taking an unmarketable product, actually fixing it, and putting a restored property on the market.
I agree that actual property restoration is a fantastic industry to optimize, and I could talk about this for way longer than is appropriate in this post. But the best you're getting from these companies are some lipstick-on-a-pig photos and a sellers disclosure that says "We never occupied the house so have no idea if there are any issues".
There are also other financial-engineering-esque fashions in which they make money, which are all at the expense of residential home buyers. None of the ways are actually "improve the property".
There's a large grey area of old/marginal/condemned housing stock where buyers are making a tradeoff between a teardown + rebuild vs buying an old house and patching it up.
Flippers who successfully rehabilitate an old house do increase the effective supply.
100% agree that that is not what any of these ibuyer companies are/were doing.
For the parachute pants aficianados, the 1980's used the term poison pill to thwart certain strategies. The linear explains a lot of "fun the mentals/fundamentals" in place in 2022.
https://www.investopedia.com/terms/p/poisonpill.asp
Layoffs, housing price decreases, used car decreases, crypto crashes, balloning interest rates.
It looks like the updated strategy is "get them high enough to where the fall kills them" :)
It does sound like a macroeconomic saying if you look at several linears for each :p
The problem is that these companies are more interested in driving up the price of housing, than they are in fulfilling the need to facilitate a market, and make repairs. So you end up with prices artificially driven up, and many properties being used as investments against inflation. Which means that people in lower valued homes are now unable to upgrade, which means that there is less available at the low end, which leads to more homelessness.
I think local municipalities should enact speculator taxes, for anyone who owns an unoccupied property that was not recently inherited. Maybe you get 18 months after your parents die to either sell their home, or take on a tenant.
There are properties near my house that have been for sale for over 15 years. Which means the speculators holding these properties have likely paid more in taxes than they will ever get for them.
Basically I don't think that holding property hostage should not be a legal business, either you sell/rent it at the current market values, or you pay out the ass for the privilege to wait it out.
I'd actually agree with this, with the addition of "or appeal as to why you can't". 18 months seems like a long time, but there are many situations where you just can't get something settled in that amount of time.
They had gas service in the home, but instead of running that to the dryer or range, they ran electric because it was cheaper to run a wire.
Every single thing they did they picked the cheapest, worst, option. Anyone buying that home is in for an expensive annoying time as they have to re-fix tons of things they did.
They had to change the plumbing in some areas, and instead of a 3/4 pipe, they ran 1/2 inch to far too many fixtures - you'll never notice, until you try to shower and run the dishwasher at the same time.
It was just non-stop shortcuts.
I made a policy of not even going to look at a home that was fixed without the owner actually living in it afterward.
But yes I agree, often flippers are taking every short cut they can to make something look nice to unsuspecting buyers but it will all fall apart in 5 years. Cheap vinyl windows is the biggest violators I've seen. Even in nice homes going for $1m.
People don't like that because that profit comes at the cost of people who are trying to find homes at a reasonable price. I am happy their model didn't work.
Also I think you assume that their model would be efficient but I don't think it would - you still have to work with all the small mom and pop shops who are doing the actual renovation work and that quality is worker specific. There is no proof that Redfin's model would improve quality or efficiency.
Add in redfin trying to guide the market buyer on the price to purchase with their price forecast mechanism ... which I would not be surprised if they boosted their own properties (speculation, but wouldn't be surprised at all).
This doesn't ipso-facto make it inefficient.
There's evidence that construction does not become meaningfully more efficient with scale [1]. At GIGANTIC scales, you're looking at maybe 10% savings. And these scales are quite rare in the US & the EU - mostly only happening in Asia.
True, on the largest investment of most people's lives - 10% is something...
Anyway - you're not going to get great returns with layers of high-paid management and beat mom & pops by much.
[1] https://constructionphysics.substack.com/p/why-are-there-so-...
Is it thought? Productivity has been going up for 20 years, so have essentials like housing, healthcare, and education. Wages haven't kept pace. Efficiency in the service of inflating housing prices further seems like it's going to tank living standards for many people.
Efficient as in "most profitable?" That means changing a few cosmetic things about the property and charging the original value plus 2-3x the useless improvements that were made.
When I was house hunting a few years ago, you'd see this all the time. Someone buys a crappy house: bad plumbing, bad electrical, leaky windows, foundation issues. What do they do? Put in some frosted glass Ikea cabinets, granite countertops (wooo fAnCy!!!1), and some crappy click-lock flooring. Then they charge 150K more for the house than they bought it for.
This is my experience with flippers, and it's totally in line with "find an efficient model." They did find an efficient model: efficient for them, but sucky for the people who can no longer afford the home, and sucky for the poor sap who actually buys it and now has to dump another 200K into it to fix the real issues (and will likely end up ripping out the cabinets anyway because they are cheap and ugly).
I know there are people who do good flips, and who fix the foundational issues, but I am willing to bet they are much more skewed toward the "mom and pop" flippers.
Just anecdotal, but the first house I bought had some issues that enabled me buy it at a discount and fix it up over time to my liking. I'm thankful I had that opportunity, and I still would've probably upgraded certain things if the flipper just went with the base options.
When you want to sell 100 shares of Company A, and someone else wants to buy 100 Shares of Company A, sometime you do so at just the same moment, and you can directly transact with them. However, almost all of the time you are selling and they are buying a few minutes apart. So called "Market Makers" (aka "High Frequency Traders" aka "Flash Boys") take the other side of both transactions, and get a very small cut (generally less than 1% on the modern stock market). They are basically in the business of time-arbitrage. Their goal is to almost always be net zero on the market- to have roughly the same number of buys and sells at any given moment, so that the market floats along smoothly and they make their tiny cut whether it is going up or down.
And so the home buying version of this is, it is a real pain to have to find a buyer for every seller at the exact same moment. If we could similarly have a market-maker who can buy houses and sell houses when someone comes along looking to be the other side of that transaction, wouldn't it be awesome? You could take a tiny cut of the transaction, but what a big transaction! Just for some time arbitrage. Of course, the differences are stark: shares of stock are fundamentally fungible, whereas houses are almost as non-fungible as one can get. Stock transactions are quick and painless, and don't require months of work by teams of mortgage originators, with inspections and appraisals etc. It is difficult to be net-zero as a market maker in houses, since your inventory sits on your books for months and months, either appreciating (yay!) or depreciating (boo!). All of these are serious problems with the business model. The current wave of companies attempting this basically said "what if we fix this with <waves magic wand> Artificial Intelligence?" The actual answer is that they have once again found themselves in the business of picking up pennies in front of a steamroller- the fate of all arbitrage attempts that blow up.
