09-05-2016, 02:53 AM
Although not plagued by outright market failures like health care (or other insurance) markets, housing still isn't guaranteed to provide for everyone under free markets.
One of the problems is that houses are increasingly seen as an asset, attracting investors who don't live there and maximize rent. Some of the consequences:
These trends are reinforced by sky high stock and bond valuation, leaving lots of money seeking places to invest.
One of the problems is that houses are increasingly seen as an asset, attracting investors who don't live there and maximize rent. Some of the consequences:
- Even middle-class people are increasingly priced out of city centers
- Often, occupancy leaves much to be desired
- Incentives are switched to building luxury apartments
Quote:It might seem as if there’s an apartment shortage in cities, judging by the ever soaring cost of rent. But a growing fraction of U.S. apartments—especially luxury—have been left unoccupied for longer stretches of time, real estate research firm CoStar revealed in a reportToo Many Expensive Apartments in the Cities Could Lead to a Recession
Monday, as developers continue to build housing in the cities instead of the suburbs—injecting more risk into the economy. The vacancy rate for downtown and adjacent districts in the U.S. has grown mildly—from 3.4% four years earlier, to 5.5%, but it’s luxury real estate that is the concern.
While new apartment complexes in cities opened with a 52% vacancy rate in the first quarter of 2013 that fell to 11% within 18 months, vacancy rates clocked in at 72% in the first quarter of 2015, falling to just 18% over the year-and-a-half period. That’s partially because developers have continued to build apartments in cities while neglecting the suburbs. According to CoStar, the number of apartments in cities have grown 16.6% in the central business area over the past four years, but just 5.5% for mid-priced suburban units. Building luxury apartments seemed like a highly profitable investment just a few years ago.
These trends are reinforced by sky high stock and bond valuation, leaving lots of money seeking places to invest.