Month: April 2022

You’ve got unearned wealth, what should you do with it?

What is referred to as “equity” is the value above what the owner has invested…so where did that come from? More correctly, it’s whatever has been paid down against the mortgage — what you own free and clear — but in too many markets today, it becomes the combination of that and the scarcity-driven appreciation. It’s the value of location, of scarcity, not the result of anything the owner did. The existence of home equity/HELOCs is predicated on the inevitable increase in value of finite/scarce real estate. If your property isn’t guaranteed to increase in value, you wouldn’t borrow against it…but since it is, many people do.

If you don’t understand or believe that, look around and see how many abandoned properties are still increasing in value? It might not happen overnight, but over a few years, even a vacant lot is worth more than the owner paid for it.

The headline on Google news was more direct: Housing costs are rising as investors purchase more real estate. And that’s really the game.

Last June, investors purchased 24% of the single-family homes sold in the US, according to CoreLogic researchers. By the end of September, that share reached nearly 27%.

Land is finite, land-use policies favor passive investors or owners, and [w]ith the growth of population, land grows in value, and the men who work it must pay more for the privilege.

“With out-of-towners driving up home prices in Phoenix, a lot of local first-time buyers have bowed out of the market,” Heather Mahmood-Corley, a Phoenix Redfin agent, said in a housing report. “They just don’t have the cash to compete, especially when there’s such limited inventory.”

Locals often face rising housing costs in areas where these businesses have relocated— especially in markets like Dallas and Phoenix where rents have risen by 21% and 28% year over year, respectively. This is because investors hoping to make a profit, typically increase prices to meet the income levels of new residents moving from higher cost-of-living locales.

Until we decide to move from a propertarian land model to a communitarian model — one that accepts that land belongs to everyone and taxing its use will drive growth and fund the infrastructure needed to support it — this will not change.