Housing

WTF? I don't get it.

Three federal lawmakers are calling on the U.S. Department of Housing and Urban Development to stop any initiatives involving cryptocurrency and the blockchain, saying the scantly regulated technologies should be kept far away from the agency’s work overseeing the nation’s housing sector.

[…]

The letter is a response to reporting by ProPublica that the housing agency recently discussed taking steps toward using cryptocurrency. The article described meetings in February in which officials discussed incorporating the blockchain — and possibly a type of cryptocurrency known as stablecoin — into the agency’s work. The discussion at one meeting centered on a pilot project involving one HUD grant, but a HUD finance official in attendance indicated the idea could be applied much more expansively across the agency.

“We are looking at this for the entire enterprise,” he said in that meeting, a recording of which was obtained by ProPublica. “We just wanted to start in CPD,” he added, referring to HUD’s Office of Community Planning and Development. The office administers billions of dollars in grants to support low- and moderate-income people, including funding for affordable housing, homeless shelters and disaster recovery, raising the prospect that these forms of aid might one day be paid in an unstable currency.

[…]

The HUD official pushing the idea internally was Irving Dennis, the agency’s new principal deputy chief financial officer, a staffer said at one of the meetings. Dennis denied to ProPublica that HUD was considering any such experiment. He published a book in 2021 in which he wrote that HUD should use the blockchain.

The blockchain is a digital ledger most commonly used to record cryptocurrency transactions. Boosters of the technology depict it as a way to cut middlemen such as banks out of financial transactions and to make those transactions more transparent and secure. One such evangelist is Robert Judson, an executive at the consulting firm EY, who is listed in a document obtained by ProPublica as an attendee of one of the HUD meetings. Judson has written glowingly about the potential of blockchain to prevent aid money from being misused. (Dennis was previously a partner at EY.)

Each financial crisis — Savings & Loan in the 1980s, the subprime mortgage crisis in 2008 — led to even greater centralization of housing finance, as short-term fixes reinforced the dominance of national lenders and government-sponsored entities. The repeated cycle of risk, collapse and bailout has made housing a primary vehicle for financial speculation rather than a stable, accessible market for homebuyers.

Today, the product isn’t a home; it’s the promise to pay contained in the mortgage note. The buyer isn’t an individual or a family; it’s a financial institution acquiring that mortgage note and the decades of promised payments.

The innovations and efficiencies of scale we see in the housing market today are innovations in finance, not in home construction. These financial innovations have not been good for homebuyers or for affordability.

[…]

Ironically, the one-dimensional efficiency of financialization has created a massive gap in the real market for homes. Large financial institutions are eager to fund single-family homes in bulk or large apartment complexes that fit their investment models, but they have no interest in small-scale, entry-level housing. A so-called "efficient" housing finance system has, in reality, left little to no capital available for small, incremental projects — like converting single-family homes into duplexes, adding backyard cottages, or financing small starter homes. This is despite the overwhelming demand for entry-level housing.

Giant White Houses are white, with jet-black accents: the shutters, the gutters, the rooves. They are giant—Hulk houses—swollen to the very limits of the legally allowed property setback, and unnaturally tall. They feature a mishmash of architectural features, combining, say, the peaked roof of a farmhouse with squared-off sections reminiscent of city townhomes. They mix horizontal siding, vertical paneling, and painted brick willy-nilly.

Like the giant White House just down the road from us in Washington, D.C., the Giant White House may be occupied by a Republican or a Democrat, but whoever they are, they are rich. Once the house next door was finished, it went on the market for $2.5 million. The house has five bedrooms and six baths and is 5,600 square feet.

[…]

Kate Wagner of McMansion Hell argued that this architectural incoherence stems, in fact, from the modern homebuyer’s saturation in Zillow and Redfin. “Design magazines, HGTV, even Instagram—those are really media empires of the past,” she said. “Overwhelmingly, by sheer monthly users, the way people interact with architecture now is through real estate listings. We’re always Zillow browsing.”

And what do you see on Zillow? If you’re one of the lucky Americans who can afford to buy your first home, and you want to live in a neighborhood like our part of Arlington, you may find that the “starter house,” as you once knew it, is awfully hard to find. Because land is worth so much and old houses, comparatively, are worth so little, when families sell small houses here, they sell them to developers, not to other families. And those developers, driven by fear and money, knock the small houses down to build GWHs. The more GWHs they build, the more the neighborhood is made up of GWHs. The more you scan Zillow, the more it starts to make sense: Like nearly a million Americans a year, you’re better off just buying a brand-new house, too.

After all, in an era when a home purchase is likely the most secure, lucrative investment you will ever make, a house really no longer is a house. It is no longer simply the place where you live. It is your future in building form. It is the way you’ll pay for college, the way you might afford retirement. “I don’t think we think of the dream home anymore,” Wagner said. “We now see houses primarily as vehicles for investment. The best way to do that is if everything looks the same.”

The rental vacancy rate across Melbourne rose to 1.7 per cent, up from just one per cent in March 2023 when overseas migration was peaking.

That put rental vacancy rates almost back to the pre-pandemic five year average rate of 1.9 per cent.

Mr Lawless said the rental property sell-off was likely due to a combination of high taxes, low yields, poor capital gains and serviceability challenges from high interest rates.

He said investors tended to chase capital gains rather than rental returns.

"With Melbourne home values down 3 per cent over the calendar year and 6.4 per cent below the market peak in March 2022, it seems that investors have been attracted to the better capital growth opportunities in markets like WA and Queensland."

[…]

Property Investors Council of Australia chair Ben Kingsley said the fall was driven by four main factors — investors selling up due to high interest rates, increased land taxes put in place by the state government to help fund the COVID recovery, tenancy reforms that ended no-fault evictions, and investors who had been in the market for a long time who were now cashing out.

He said the fall in rental bonds was "further evidence that the Labor government has made the lives of tenants in Victoria a lot harder" by causing an "exodus of investors providing private rental accommodation in Victoria".

Mr Kingsley said Victorian renters had only been spared rent rises because of the government's capping of international student numbers.

However, if that cap was removed post-election, he expected rents to rapidly rise.

"I would be very, very worried as a tenant that I'm going to be paying higher rent in Victoria over the near-term," he said.

On the 14 December 2024, housing advocates and people experiencing homelessness occupied three adjoining empty properties in Brunswick, an inner-city suburb in Melbourne, Australia, which have cumulatively been empty for almost 25 years.

[…]

Government reforms since colonisation have created a landscape where housing in Australia is now treated as a commodity rather than a basic necessity for living. When the area now known as Brunswick was first colonised and the land privatised, only 1 out of the 10 allotments sold for speculation at a Sydney auction was actually lived on by the purchaser, a legacy that continues today.

In 2023, nearly 100,000 homes in metropolitan Melbourne, or 5.2% of all dwellings, were found to be either empty or underused. This number exceeds the 48,620 households currently on the Victorian social housing wait-list, suggesting vacant homes could house everyone on the list twice over.

With 540,000 rental properties in Melbourne, utilising vacant homes would increase rental stock by nearly 20%. The number of vacant homes also equals more than two and a half years’ worth of new construction, based on the annual average of 37,000 new homes built.

This action is not without historical precedent. Dr. Iain McIntyre, Historian and research fellow at The University of Melbourne has written extensively on the historical role of squatting in the housing crisis following the end of World War 2. According to Iain, squatters “had the most impact in Victoria where three days after the house in Hawthorn was squatted the Premier announced that the state government would introduce its own legislation to give councils and municipal shires the power to install tenants in disused houses, with the state government to guarantee the payment of rent”.

The so-called ‘miracle cure’ solution gives people homes when they need them without conditions attached, and has brought down homelessness by 70 per cent in Finland and eradicated poverty-based homelessness completely.

Burnham has worked tirelessly to bring homeless numbers down since he was first elected in 2017, and has even been donating 15 per cent of his salary to a homeless charity every month he’s been in the job.

Now, after a successful pilot of a similar housing first scheme in Greater Manchester, which has supported 430 people with complex experiences of homelessness, Burnham is bidding for government funding to extend it beyond the current deadline of March 2025.

“I kept hearing people talking about Finland and housing first, so I just thought, well, I better get over there and have a look. So I went, and it was sort of life-changing, actually”, the Manchester Mayor said when he was first elected.

He has since worked hard to PR the initiatives to the public, saying it financially makes sense.

“It actually saves public money to do this,” he said. “It’s not as if we’re just asking for something, and it’s another pressure. The bigger you do housing first, the more you’ll save.”

Key points

• Poor building quality, conditions and environmental performance is prevalent in Australia’s housing stock. In a large, national survey in 2022, 70 per cent of households reported one or more major building problems.
• The ability to accurately measure and monitor the characteristics of the housing stock as a whole has never been greater. The current national data infrastructure is insufficient.
• Australian policy that deals with housing standards is fragmented across federal and state and territory governments, and portfolios. When compared to international benchmarks, it is weak and overly reliant on voluntary measures.
• A national strategy to improve housing standards should be developed. Short-term, considerable opportunities exist to enhance housing standards via mandatory disclosure of performance at point of sale or lease, minimum standards in the rental sector and stronger performance requirements for new houses.
• Policy action will have to balance lobbyist resistance. Lessons from two case studies show that change is possible but requires mobilisation of a strong narrative by advocates.

In 1994, the ten largest builders had just 10% of the national market. By 2018, the top ten builders had a little less than a third. Partly this consolidation is due to a credit crunch. During the financial crisis from 2007-2012, 55% of residential developers disappeared. There were also post-crisis mergers, like Pulte Homes and Centex, Lennar and CalAtlantic, Tri Pointe and Weyerhauser, and so forth, but many of the acquisitions these days are smaller roll-ups, like D.R. Horton buying an Arkansas specialty builder Riggins Custom Homes, Gulf Coast builder Truland Homes, or lot developer Forestar Group, or Lennar acquiring developer WCI Communities. Analysts are projecting 2024 to be another strong year for M&A.

Of course, such numbers understate consolidation; national shares matter very little, since housing is local, and concentration is higher when you get to local levels. In Miami-Fort Lauderdale, for instance, Lennar has 47% of the market for new homes, in Los Angeles, D.R. Horton has about a third. As economist Luis Quintero noted in a paper, 60% of local markets are now “highly concentrated,” a new phenomenon. In 25 of the top 82 markets, one builder controls at least 25% of the market. That’s 60% of the housing markets in “Virginia, Maryland, Delaware, New Jersey, New York, and western Pennsylvania.”

[…]

So why all the consolidation? And more importantly, why hasn’t the number of builders bounced back? If margins are up, why aren’t there new entrants coming in to take profit and share? To answer this question I started by reading a bunch of investor documents from the big homebuilders. And I realized that to call these businesses “homebuilders” is misleading. It’s striking how little of their business has to do with, well, building. For instance, here’s D.R. Horton in 2023: “Substantially all of our land development and home construction work is performed by subcontractors.” Here’s Lennar in 2023: “We use independent subcontractors for most aspects of land development and home construction.” I suspect most of the other big guys would say something similar. These aren’t builders, they are financiers that borrow cheaper than real developers and use that cheap credit to speculate in land, hiring contractors to do the work. They are, in other words, middlemen.

Local homebuilding markets have become highly concentrated in the past decade. We document this increase in concentration and use IV regressions to show that it has led to lower production volume, fewer units in the production pipeline, and greater unit price volatility. These results are consistent with a theoretical model in which oligopolistic firms strategically set the timing, volume, and price of their new construction. Our estimates imply that market concentration has decreased the annual value of housing production nationwide by $106 billion. These findings provide further evidence that the secular decline in competitive intensity is altering macroeconomic dynamics .

In the US, housing policy distinctively subsidizes homeownership. Most notably in the form of the Mortgage Interest Tax Deduction, federal policy benefits owners much more than tenants. Climate policy is no different. In public or cooperative housing models, the government or cooperative serves as the landlord or property manager, and therefore has more direct influence over the fate of property conditions. In much of the private market, by contrast—which is where the vast majority of tenants find housing—the federal government sees its role as less direct. Tenants in many multifamily properties have no direct method of contracting for services; many do not know who owns the real estate. The IRA’s focus on incentives and credits for landlords maintains this property relationship.

The fact that about one in three housing units are occupied by tenants raises questions about the effects such climate tax incentives will have on owners of rental property. The Biden Administration has emphasized the importance of channeling these funds to “disadvantaged communities,” maintaining that about 40 percent of funds should go toward low-income households, 10 percent of which should go toward multi-family households. However, the facts of ownership leave open a stubborn question: will landlord spending on climate retrofits—a condition for receiving public funds—alter existing financial terms between tenants and landlords?