Monday, April 22, 2013

Really Stepping In It

On a pure theory of economics basis, I suppose there is some merit to this Matt Yglesias post.  But it's more than a little bit of a mess, conflating several disparate things into some argument that isn't there.

On the one hand we have investors buying distressed properties to rent them out to occupants who cannot buy them because, a. their credit scores are too low to qualify for loans that are granted by people in the investor class and b. they are being outbid by those same investors who come with cash.  The resulting rents are necessarily higher than would be the mortgage payment (it would be a really crappy investment otherwise), meaning the poor sub-prime market segment is in fact losing out to the monied class. 

The other thing he is arguing is kind of a non-sequitor: housing isn't a great investment so most people would be better off renting and investing in index funds.  But since, as he states early on: you have to live somewhere, you have to pay for renting, so you can't compare housing as investment to total stock market index fund as investment.  You have to compare housing as investment plus other available investments to: renting as money hole but some other investments.  If the case is that renting is more expensive than buying would be: you get the worst of both worlds: money hole, plus less $ left over to invest.  This isn't hard, and yet it is routinely fucked up by people advocating for more renting.

There are good reasons to rent, and good reasons to buy, but this investor push to buy distressed housing and rent it out is nearly prof in itself that renting (on average, particularly for long terms) is a sucker's bet: your rent is someone else's profit, so you must be able to do better by buying...even factoring interest on the mortgage.

As an aside, one of the problems with this, that really only gets voiced by Atrios is that there is a lot of reason to be skeptical of this type of investing with respect to treatment of tenants.  Renting from an organized apartment complex and renting from some guy who owns a couple rental houses nearby are both different animals, and it's not a bad bet to say that renting a house from one of these hedge funds will mean you have a hell of a time getting a leaky faucet fixed.

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