This Real Estate Bubble Won’t Pop

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Outrageous leverage

“A privileged class of investors are allowed to utilize the Fed and private banking system to print nearly infinite quantities of money via leverage, and use that money to out-bid first-time homebuyers who had to work for years to earn their money.” — Throop Von

This is where things get truly ugly. Once monopolies form, they utilize the power of financialization to drop an economic atomic bomb on their competition.

Let’s say a condo is for sale right now.

  • A first-time buyer can afford maybe $1,200/month, so they’re able to bid up to $250,000.
  • A landlord can squeeze $1,250/month in rent from a long-term tenant. If they’re expecting half their revenue to go to costs and want a 2.5% ROI. plus appreciation, they’re willing to pay up to $300,000.
  • A non-resident Airbnb host can fetch $2,500/month in nightly rent, double the long-term landlord. So they’re willing to pay up to $600,000.
  • A predacious hedge fund, like all monopolies, will shave those profit margins to near-nil to destroy competition. (Amazon’s profit margin was negative for seven years while they killed off competitors.) So the hedge fund is willing to pay up to $1,200,000 to turn your house into a vacation property, nearly five times what the average person can afford.
  • But here’s the really insidious move: The monopoly will partner with banks that — thanks to a corporate-controlled government that constantly prints ultra-cheap money and lets them create credit out of thin air — allow them to leverage their positions to an absurd degree. The monopoly won’t be paying $1.2 million for that house — they’ll be betting <$60,000 with 20+X leverage and a 20+X return on investment. (Prior to the 2008 crash, Lehman Brothers was leveraged a whopping 31X.) A financialized hedge fund will be willing to pay many more multiples than you can ever possibly hope to afford.
  • It gets worse. Just like the banks spun off millions of mortgages as CDOs during the 2008 subprime debt crisis, the new real estate monopolists will likely take thousands of their underperforming vacation units, bundle them into shiny-looking investment packages, and get their brokers to sell them to the derivatives markets for even more leverage. Before we know it, house prices could soar to astronomical heights.

Make real estate investment wildly unprofitable

There are many ways to do this:

  • Charge an eye-watered premium on second house purchases. Start at 250% and keep raising it until investors give up and invest in anything but residential real estate. Why should anyone be allowed to own a second house until everyone has the opportunity to buy their first? Why should a fund be able to passively extract wealth from active societal contributors?
  • Issue outrageously-priced landlord licenses and zoning permits for those bent on running a commercial business in a residential neighborhood.
  • Drastically increase tenant rights, safety standards, maintenance standards, and cleanliness standards so landlords have to continually invest more than they extract.
  • Zone all residential neighborhoods as owner-occupied only, so real estate investors have no choice but to allocate their capital to commercial holiday properties in commercial zones.
  • Start not-for-profit city, state, and federal banks that loan directly to housebuyers without the need for middle-man credit-printing banks.
  • Tax passive extraction income at 90+% and use the revenue to build owner-occupied houses.
  • Encourage young entrepreneurs to start blitz-building affordable, eco-friendly owner-occupied houses by the millions. We need to build 1 billion new houses in the next decade to keep up with population growth, so we should invest heavily in innovative startups who can help crush the house-as-investment market.
  • Bring a class-action lawsuit against Airbnb in every jurisdiction where they’ve stolen even one unit of family housing.

We can debate the exact methods by which we eliminate for-profit residential real estate investment, so long as we understand the fundamental need to do so. We need to scrub culture clean of the notion that a house is an investment or a savings account. Houses can’t be commodities. They need to be homes.

I subscribe to the radical belief that safe, healthy, adequate, and affordable shelter is a universal human right. Yes, a human right. I am aware it’s not a constitutional right. This proves America still has room to improve. Because if hyper-elites retaining obscene wealth matters more than the majority being able to afford shelter, it’s time for a revolution.

At present, a new hyper-commodification paradigm is emerging that stands in direct opposition to the human right to shelter. Housing-as-investment is a deeply anti-social belief that needs to be quelled if we are to thrive as a global family.

Family homes or hedge fund investments.

The paradigm that prevails is ours to decide.