First they came for our news, then our homes, now our pets
November 30, 2021 10:23 PM   Subscribe

There are many reasons life is unaffordable for many Americans. Stagnant wages and the high costs of housing and healthcare have been well covered by the media. What there’s been less writing about is how private equity has impacted the houses we live in, the news we read and even how we care for our pets. Mass changes in ownership overtaking entire economic sectors raise important questions for Americans: Should we be pressuring our politicians to create policy that ensures whole industries don't get eaten up by the investor class? If so, at what point should we intervene?

Once upon a time, homebuyers bought houses. Now investors do: According to Housingwire, in the first quarter of 2021, “[o]ne of every five low-priced homes that sold in the U.S. (20.8%) was purchased by an investor, compared to 12.5% of high-priced homes and 11.3% of mid-priced homes.” Vox begs to differ on the importance of the investor trend. They give a nuanced view of the many factors affecting supply and demand in "Wall Street isn’t to blame for the chaotic housing market."

When it comes to newspapers, however, things are more clear cut. It used to be that local newspapers were owned by families. Now they’re increasingly owned by a type of investor referred to as “vulture capitalists.”Today, half of all daily newspapers in the U.S. are controlled by financial firms, according to an analysis by the Financial Times, and the number is almost certain to grow…The [business] model is simple: gut the staff, sell the real estate, jack up subscription prices, and wring out as much cash as possible.”

Healthcare for pets is the most egregious example of a covert industry takeover. “Last year, in the U.S., spending in the veterinary care market totaled $31 billion. Today we spend more than double what we did a decade ago on our pets.” There’s a reason for that. In recent years, “[c]orporate and even private equity money from everywhere from Goldman Sachs to Mars to JAB Holdings (ph), which is the parent company of Krispy Kreme, has been pouring into the vet industry.” Of the approximately "6,000 small- to medium-sized vet practices and hospitals in the U.S., the kind that have at least two or three full-time vets on staff ... 5,000 of them are now owned by big corporations. You might not know it because a lot of them like to keep that small business look and feel. But many are consolidating or even buying and flipping them, and that is having an impact on independent vets” and pet owners.
posted by Violet Blue (55 comments total) 46 users marked this as a favorite
 
Yup, I remember distinctly when my local vet that was headed up by two crusty old vets and their newer colleagues, sold to VCA (at the time an LA group) - things got rebranded and slightly more dear - but everything - including the bad 1960's-1970's wood paneled waiting room stayed the same. Then VCA got sucked up by Mars (and boy, it's weird to think that Mars makes way more $$ from their animal ventures than candy) and things got a lot more expensive - service was still good, but everything was a touch more - less experienced vets rotating through across the chain. And then the pandemic hit with all the add on effects and things have gotten really bad across the industry. (And yes, except for the "VCA" added to my vet's sign, you'd never know they were in league with Mars/Banfield)

I will give great props to the increased visibility of women in the field - they're far more sympathetic to my (and my wife's) distressed babble about our knuckle heads.

Also, Zillow and the rest of the home buy up crew can go get bent. I hope they lose a ton of money.
posted by drewbage1847 at 11:01 PM on November 30, 2021 [13 favorites]


I always wondered whether there was a reason for VCA suddenly pushing certain brands of medications and food for our dog a few years ago: Vetsource and Royal Canin are owned by Mars. VCA sent us to Blue Pearl for emergency care — also owned by Mars. It's a bloody monopoly.
posted by They sucked his brains out! at 11:33 PM on November 30, 2021 [10 favorites]


I'm still unclear as to why leveraged buyouts are legal. Private equity firms seem to decimate industries in the same way loan sharks bust-out their victims. I don't understand why that's ok.
posted by ishmael at 11:46 PM on November 30, 2021 [31 favorites]


I am still reading it but I can strongly recommend this book, "Icebergs, Zombies, and the Ultra-thin", on how financialisation affected building, property, and architecture, and how it impacted communities around the world in the wake of the 2008 financial crisis.
posted by secretdark at 2:20 AM on December 1, 2021 [12 favorites]


I don't understand why that's ok.

Because capitalism, or because fuck you, but I guess they are roughly equivalent.
posted by Meatbomb at 3:56 AM on December 1, 2021 [39 favorites]


Private equity firms seem to decimate industries in the same way loan sharks bust-out their victims. I don't understand why that's ok.

The same reason payday lending - the corporate form of loan-sharking - is OK: lobbying, campaign contributions, regulatory capture.

Any sufficiently advanced business is indistinguishable from a criminal enterprise.
posted by ryanshepard at 3:58 AM on December 1, 2021 [68 favorites]


This has been happening in the UK also, a shift from small practices to chains in big stores with lots of pet related things to sell. Big drop in vet salaries as a result, which I am pretty sure has not got through to people choosing their degree studies, which remains one of the toughest programmes to get into at universities.
posted by biffa at 4:34 AM on December 1, 2021 [1 favorite]


Should we be pressuring our politicians to create policy that ensures whole industries don't get eaten up by the investor class?

...you mean like the industry of our politicians?
posted by Reasonably Everything Happens at 4:52 AM on December 1, 2021 [8 favorites]


Because capitalism, or because fuck you, but I guess they are roughly equivalent.
Yes, yes, Squid Games, etc.
Why are leveraged buyouts legal? How are they not considered usurious?
posted by ishmael at 4:59 AM on December 1, 2021 [2 favorites]


Why are leveraged buyouts legal?

You've asked this already and already gotten your answer: because the people doing it are very, very rich and powerful and can make the politicians listen to them. If you own the people who make the laws, guess what laws don't get made?

How are they not considered usurious?

Because they have nothing to do with usury.
posted by star gentle uterus at 6:29 AM on December 1, 2021 [8 favorites]


I used to be really involved in the aquarium hobby, and watching all these small businesses be gobbled up by private equity firms has been depressing. A lot of the businesses started out as small companies out of genuine interest decades earlier and serviced aquarists, pet stores, and small aquaculture farms (a lot out of Florida). One by one started seeing the companies being swallowed up, and subsequent drop in quality and customer service. Many coasting on the brand name. I don’t even think that it was always because the companies in question were doing poorly, but aquarium related supplies tends to be lower margin- and it used to be that small brick and mortar fish shops could charge a much higher rate on some of the hard goods, but the Internet and cheaper brands from China dramatically reduced what margin there was.

One of the biggest blows was when petco purchased the brand Doctor’s Foster and Smith, which sold general pet supplies online, coming up from a previous catalog business decades prior. They had a loyal following, and had a division (Live Aquaria) that sold live fresh and saltwater plants and animals. I don’t know if it’s still true today, but at least for a long time, the biggest coral farm in the US was tucked away in a tiny town in Northern Wisconsin.

Everyone was afraid of what would happen when Petco purchased Dr Fosters and Smith and Live Aquaria. Sure enough, there was a drop in quality and even though there were good people at Live Aquaria and DFS, there was only so much they could do. DFS was known for its outstanding customer service; they WERE the town of Rhinelander. Lifers worked there.

Of course they shuttered DFS not long after the acquisition to move general pet supplies purchasing to petco out of their warehouse. Which was much more limited in scope of what they offered. At least from the standpoint of aquatics, one place DFS stood out was that they had a wide selection of products that appealed to the experienced aquarists that needed specialty items. Petco offered a much smaller selection for the casual aquarist. All that, gone. I can’t imagine the impact it had on the town; so much commerce came from DFS shipping out of Rhinelander.

Within the last year, the private equity firm that owned petco and DFS “divested” in Live Aquaria and sold it back into private hands. I haven’t been keeping up with the hobby so I don’t know how that’s gone. But yeah, basically a PE firm came in, dismantled most of the company and sold off the remaining piece while creating ill will and leaving a negative impact on the hobby, and eliminating 300 jobs in a town of just over 7000.
posted by [insert clever name here] at 6:38 AM on December 1, 2021 [52 favorites]


If so, at what point should we intervene?

I want to challenge this framing. What is happening is not somehow "natural" and the way things progress "without intervention." The market itself is an extremely complex intervention, and the question is whether we should change how we intervene.
posted by praemunire at 6:45 AM on December 1, 2021 [31 favorites]


There was a good article on this in the FT a couple of months ago - it's here, and I got past the paywall using incognito.

TL;DR: F*ck private equity.
posted by YoungStencil at 7:27 AM on December 1, 2021 [1 favorite]


The increasing practice of investors purchasing homes worries me. I live in a tight housebuying market (Twin Cities, MN) and it's been really hard for people to get into the market - especially at the lower end. And now they're contending with investors, too?

There's a part of me that thinks that the homeowner holds all the power here. They can sell their house to whomever they want, right? If I were selling my house, I'd make a point of selling it to a human instead of an investor. But how does one do that when they need the proceeds from the sale (especially if they still owe on the house) and investment groups can always undercut the humans?

Also, unfortunately "selling the house to whomever I want" can also translate to "I don't want to sell to THOSE people", which isn't a good thing, either. Arrgh, don't we have enough race/class/social issues to work through in housing without having investment groups barging in as well??
posted by Gray Duck at 8:10 AM on December 1, 2021 [6 favorites]


And, on a separate topic, I make a point of taking Thunderdog to a local, independent vet clinic. But wow, are they ever overloaded right now. I had to wait almost two weeks to bring her in for a not-quite-urgent situation (I would have gone to the emergency vet but the situation calmed down over time). They're understaffed and overloaded and they're doing what they can - in a hard profession.

My poor sister's beloved dog died last week. She was a patient at the same family vet that our family's dogs have gone to for over 40 years. As Pumpkin's situation grew worse, my sister had a more and more difficult time getting her in for visits. Last week she had to take her to the emergency vet instead of the family clinic, and that's where she was put down. My sister absolutely would have preferred not to introduce Pumpkin to a new clinic/situation right at the end, but the family clinic was just so overwhelmed with patients that she could not get an appointment. (I think that if she would have said "this will be the last appointment for Pumpkin" they would have made space, but she didn't know that at the time.) It was not what my sister had hoped the end would be like, but the e-vets were kind and compassionate. I do not envy them their jobs.
posted by Gray Duck at 8:20 AM on December 1, 2021 [9 favorites]


Interesting links.

Mass changes in ownership overtaking entire economic sectors raise important questions for Americans: Should we be pressuring our politicians to create policy that ensures whole industries don't get eaten up by the investor class? If so, at what point should we intervene?

I think the really interesting shifts are the ones in residential real estate and newspapers as noted which used to be owned by smaller investors. I don't know that I'd categorise this as a shift to the "investor class" so much as it is an internal transfer within it. Whether your landlord is someone who owns five houses or five thousand, they are still in the investor class. Given the amount of illegal stuff that small business owners and landlords routinely pull (there's no tyrant so bad as the small business owner to their employees) I'm not even sure whether it would be materially worse for tenants although I did note that some PE backed residential landlords seem to be more trigger happy in filing for evictions.

I guess the difference is that the local bourgeoisie was:

a) likely to recycle their profits into local spending, even if that was vain luxury spending taken from the labour surplus of their workers, much of it still still ended up supporting local restaurants, theatres, museums, orchestras, and things like that.

b) bound by whatever the local standards of respectability were (not always a good thing in parts of the American South no doubt) which put a certain braking force on pure profit.

c) used to holding onto its social position through ownership of particular assets (specifically thinking of newspapers here) rather than total wealth and therefore likely to engage in prestige spending and maintaining ownership of assets for that reason.

d) multigenerational owners are less likely to have the kind of ruthlessness that their ancestors who built the business did and so the idea of cutting costs when the business is still relatively profitable might never really occur to them.

I'm still unclear as to why leveraged buyouts are legal. Private equity firms seem to decimate industries in the same way loan sharks bust-out their victims. I don't understand why that's ok.

On paper, there doesn't look to be anything particularly special about them. It's not illegal to buy a company, it's not illegal for a company to borrow money if someone wants to lend it, it's not illegal for a company to be run in such a way that it goes out of business. In particular, the difference with a bust-out is that all the lenders know to whom they're lending and what the circumstances are. That is rather different than a bust-out where the new owners (or criminal gangs coercing the owners) are unknown to lenders. Of course if society wanted to make a particular class of behaviour illegal, then that could be done but it's worth considering what it actually is that we want to ban.
posted by atrazine at 8:30 AM on December 1, 2021 [5 favorites]


According to Housingwire, in the first quarter of 2021, “[o]ne of every five low-priced homes that sold in the U.S. (20.8%) was purchased by an investor, compared to 12.5% of high-priced homes and 11.3% of mid-priced homes.”

This is Federal Policy, as dictated by the Fed Government seeing the last 'housing bubble' and drawing the wrong conclusions, ie (poor) people who could not actually afford their mortgages bought homes due to loose lending standards and crashed the entire economy.

So the policy to fix it was to only give mortgages to people with really good credit ratings. So now something like 80% of all mortgages are to people with credit scores greater than 760 out of 800. And banks don't lend much on properties less than $100k. The policy sort of worked - foreclosures are bouncing off record lows. But that means that most people with credit scores below 760 have to rent.

Also that stat is skewed, because so few homes are lended at less than $100k, so it's probably even more dire and a huge number are not sold at all and left to rot.

The fix is real simple: allow banks to lend to people with so-so credit scores, because there was no housing bubble to speak of.



Also vets: a huge number of vet school programs are set up for large animal care (cows and horses) and those jobs are shrinking and don't pay anything (like barely above minimum wage), but the school is still super expensive and pet insurance isn't really a thing yet, so that is driving boutique animal hospitals with people treating their pets more and more like small children with mucho medical care, which requires more and more testing and expense. This treatment of dogs and cats is pretty new, but Corb Lund wrote a song about it in 2009, so it's not that new. So IMO it's incorrect to say that private equity is driving up the price of vets, it's just chasing a growth industry.
posted by The_Vegetables at 8:31 AM on December 1, 2021 [5 favorites]


I read this article by Robert Kuttner this morning before I saw this post. It seems to me to be relevant.
posted by wittgenstein at 8:32 AM on December 1, 2021


Yes, yes, Squid Games, etc.
I'm sorry for being flip in my previous reply, I was grumpy in the middle of the night because of lack of sleep.

You've asked this already and already gotten your answer: because the people doing it are very, very rich and powerful and can make the politicians listen to them. If you own the people who make the laws, guess what laws don't get made?
I understand the larger point of laws becoming arbitrary at a certain point because of lobbying, I guess I was more questioning the legal basis for leveraged buyouts. Apologies if it came across that I was re-asking the same question.

Because they have nothing to do with usury.
They don't? I am not a lawyer, but looking up the legal definition of usury from the Cornell Law site:
Usury is interest that a lender charges a borrower at a rate above the lawful ceiling on such charges; a contract upon the loan of money with an illegally high interest rate as a condition of the loan. Usury is also the act of making a loan at such an interest rate; making a loan at a usurious rate.
From what I understand, companies under leveraged buyouts implode because their assets are sold out from under them and the interest rates are astronomical.

I suppose I'm sticking on this point because leveraged buyouts seem to be one of the main instruments of private equity firms.
posted by ishmael at 8:35 AM on December 1, 2021 [1 favorite]


Also mods, please delete the above post if it's too much of a derail.
posted by ishmael at 8:46 AM on December 1, 2021


The policy sort of worked - foreclosures are bouncing off record lows. But that means that most people with credit scores below 760 have to rent.

Cue "My bank says I can't afford a $900/mo mortgage so I gotta pay $1400/mo in rent" memes.
posted by Your Childhood Pet Rock at 8:52 AM on December 1, 2021 [26 favorites]


Proposed solution: get rid of the investor class. (In the structural sense, of course.)
posted by eviemath at 9:12 AM on December 1, 2021


What kills me is how easy this would be to fix. Fixing the housing crisis writ large requires a complex and nuanced approach that attacks the problem from multiple angles. Fixing the "housing as an investment" problem requires merely that we tax every dollar made from selling any real estate you can't prove you lived in at 101%. Burden of proof is on the seller. You could probably pass the law by executive fiat, and skip the part where the bill dies in committee because the legislature is bought and paid for.
posted by Mayor West at 9:28 AM on December 1, 2021 [5 favorites]


Proposed solution: get rid of the investor class. (In the structural sense, of course.)


"What? Guillotines are a structure!"
posted by We put our faith in Blast Hardcheese at 9:35 AM on December 1, 2021 [9 favorites]


"What? Guillotines are a structure!"

You start raising capital for this exciting new opportunity and I'll hop in the bathtub and start making a list.
posted by Your Childhood Pet Rock at 9:41 AM on December 1, 2021 [3 favorites]


Should we be pressuring our politicians to create policy that ensures whole industries don't get eaten up by the investor class?

Why doesn't the working class, the largest of the classes, not simply eat the investor class?
posted by shponglespore at 9:54 AM on December 1, 2021 [9 favorites]


Why doesn't the working class, the largest of the classes, not simply eat the investor class?

Probably taste like shit.
posted by Serene Empress Dork at 10:06 AM on December 1, 2021 [3 favorites]


From what I understand, companies under leveraged buyouts implode because their assets are sold out from under them and the interest rates are astronomical.

I wonder if this requires a misrepresentation in the accounting on at least one side of a transaction and therefore an existing illegal action.

I have started looking for employee-owned enterprises not just because that seems good for the employees and society as a whole, but because they seem harder to bust out and more likely to seek to thrive by doing their jobs well, which is handy for me as a customer, so that’s nice.
posted by clew at 10:08 AM on December 1, 2021 [3 favorites]


drewbage1847: Also, Zillow and the rest of the home buy up crew can go get bent. I hope they lose a ton of money.

Looks like you're getting your wish:

Zillow plunges 25% to lowest since July 2020, after company exits home-buying business, CNBC, Ari Levy:
"Zillow said ... it was exiting the Offers business after the company reported a pre-tax loss of $422 million in its homes segment."
Zillow to stop flipping homes for good as it stands to lose more than $550 million, will lay off a quarter of staff, MarketWatch, Jon Swartz:
"Zillow [disclosed] expected losses of more than $550 million on homes purchased in the second half of this year for which the company admits it paid too much. The real-estate giant on Tuesday blamed a faulty algorithmic model for ditching its iBuying business of buying and selling homes quickly ... "
Zillow Comes Unglued, Lost $1.4 Billion on Flipping Houses since 2019, Bails Out, Lays Off 25% of Staff, Stock Plunges Further , Wolf Street, Wolf Richter:
Home flipper Zillow reported a nightmare today. In Q3, it bought 9,680 houses and sold only 3,032 of them, after having purchased 3,805 houses in Q2, and sold only 2,086 of them. In other words, it was very good at buying houses by overpaying for them, but now cannot sell them without losing bigly. Its inventory of unsold houses ballooned to $3.8 billion, up from $491 million in December 2020. It admitted it overpaid for those houses and blamed its AI-powered pricing genius.
The fact that these losses resulted in over 1000 people losing their jobs (my guesstimate; none of the articles bothers to mention how many newly unemployed there will be, but Wikipedia says Zillow has about 5200 employees) is barely acknowledged in coverage of investor takeovers of businesses, even though job destruction is rampant in vulture capital takeovers.

I also wonder how easy it is for massive companies to absorb massive losses (versus the precarity of smaller companies facing proportionally similar losses), especially companies with holdings in bizarrely disparate industries, like candy and veterinary services mentioned above;

and that makes me wonder how much money laundering might be yet another profitable sideline of some of these firms.

Really interesting (if dispiriting) stuff, Violet Blue. Thank you for posting this.
posted by kristi at 10:16 AM on December 1, 2021 [4 favorites]


You could probably pass the law by executive fiat

Is that so?

Fixing the "housing as an investment" problem requires merely that we tax every dollar made from selling any real estate you can't prove you lived in at 101%.

How about this as a proposal:

First, companies owning the real estate pay corporation tax on their profits, so when they sell these properties they have to pay 21% and they have to pay that same 21% on all their rent profits.

Then, we create a capital gains exemption that protects... say half a million dollars(?) in capital gains from CGT for homeowners selling their primary residence but to prevent this being used by house flippers, we restrict it so that you can only use it once every few years. To further reduce flipping, we restrict it to the sale of property that you've lived in for more than a few years and treat any income from more frequent flipping as ordinary income subject to normal progressive taxation.
posted by atrazine at 10:18 AM on December 1, 2021 [2 favorites]


That last paragraph, atrazine, sounds pretty similar to what is already in place in the U.S.
posted by Press Butt.on to Check at 10:25 AM on December 1, 2021 [1 favorite]


A recent SFGate op-ed by Anthony Carrasco, a founding member of Berkeley’s Homeless Services Panel of Experts, which begins by discussing the problem of foreign investors buying up housing stock ("According to the National Association of Realtors, foreign real estate buyers spent $267 billion on American homes in 2018. Foreign real estate speculators were able to outbid domestic buyers on average by more than $50,000."): Make this group of people pay for California homelessness relief.
…In cities like Berkeley, this policy intervention has already begun. In 2018, Berkeley put a real-estate transfer tax on the ballot to fund homeless services. Thanks to local voters, by successfully raising a tax on the exchange of multimillion dollar properties from 1.5% to 2.5% the city’s homeless service funding increased substantially. On the eve of the pandemic, this tax plan saved hundreds of lives as COVID-19 decimated local coffers. Practically, this means that if a $2.5 million house were to be sold in Berkeley, the city would receive $62,500 in revenue for homeless services. Compare this to a typical city without a progressive real estate exchange tax — take for instance San Francisco, where if the same $2.5 million house were sold, the city would only collect $18,750 in general funds.

It would be relatively easy for any city to tax foreign real estate speculation. First, focus on taxing cash purchases. Again, foreign moguls use cash offers to muscle out first-time homeowners. Next, keep an eye out for multiple unit sales — in Canada, more than a quarter of real estate transactions between January and August 2021 were made by multi-property owners. Any city government in California can put a property tax on the local ballot that increases taxes on multimillion dollar cash transactions in their housing market. A tax like that could better enable locals to buy their first house, discourage foreign speculators from inflating home prices and generate critical public funding to house the homeless..…
posted by Lexica at 10:38 AM on December 1, 2021 [5 favorites]


From what I understand, companies under leveraged buyouts implode because their assets are sold out from under them and the interest rates are astronomical.

I suppose I'm sticking on this point because leveraged buyouts seem to be one of the main instruments of private equity firms.


Not precisely. It's typically not the interest rate that is the issue, it is the amount of debt that is taken on. It's usually a sustainable amount provided that nothing goes wrong. But sometimes things do go wrong and so over leveraged companies have to cut to make their payments. This then causes their business to suffer even more which leads to more cuts. This cycle ends with the business going bankrupt.
posted by nolnacs at 10:42 AM on December 1, 2021 [3 favorites]


Not precisely. It's typically not the interest rate that is the issue, it is the amount of debt that is taken on. It's usually a sustainable amount provided that nothing goes wrong. But sometimes things do go wrong and so over leveraged companies have to cut to make their payments. This then causes their business to suffer even more which leads to more cuts. This cycle ends with the business going bankrupt.

Hey kids. I'm Beaker the vulture and we're going to show you how to profit from a failed leveraged buyout!

1) Convince a bunch of gullible fools investors that you can turn around a company.
2) Acquire said company using other people's money (OPM).
3) Turn everything the company holds that's vaguely liquid into cash. Pull every credit line to the max. Print as much commercial paper as you can even at ridiculous interest rates.
4) Pay yourself, your cronies, and any other people who propped up the scam using a massive dividend.
5) Walk away. You got paid. The company being overloaded with debt and short on cash is now the problem of the morons investors who trusted you.
6) Find a new company and a new group of suckers investors and let the cycle begin anew.

Congratulations! You're now a private equity firm worth squillions. To celebrate why not go buy a couple of Senators? They're really great value when you buy the Red Special six packs.
posted by Your Childhood Pet Rock at 11:07 AM on December 1, 2021 [17 favorites]


Homeownership in the US is already heavily subsidized.

Some of the proposals here sound like they'd even further favor ownership over renting. To me that sounds like poor policy for a number of reasons, not least that it's quite regressive.
posted by bfields at 11:24 AM on December 1, 2021 [1 favorite]


In what ways is favoring home ownership over renting a poor and regressive policy?
posted by nikoniko at 12:55 PM on December 1, 2021 [1 favorite]


Some of the proposals here sound like they'd even further favor ownership over renting. To me that sounds like poor policy for a number of reasons, not least that it's quite regressive.

I'd be genuinely curious to hear from an economist why this would be true. A good chunk of my adult life was spent paying rent, which is money I will never get back to put into the economy in other ways — such as buying my own home or otherwise helping contribute economically to a stable, self-sustaining neighborhood. Renting seems regressive in a true economic sense, because the structure of it is set up to both maintain revenue flow to those who are already wealthy and to discourage personal ownership by people who are not wealthy — from the cost of the rent itself to the legal periphery of security deposits, landlord background and credit checks, and eviction and occupancy laws.
posted by They sucked his brains out! at 2:16 PM on December 1, 2021 [3 favorites]


Though I would entirely agree that homeownership is heavily subsidized at all levels of government. Mainly that public policy heavily tilts its favor to investors who are not buying homes for occupancy, but to rent out or, maybe, resell properties at vastly inflated prices. While profitable in the short term, that doesn't seem like a good way to build a stable society in the long run.
posted by They sucked his brains out! at 2:20 PM on December 1, 2021 [1 favorite]


Just nationalize everything, duh
posted by moorooka at 2:22 PM on December 1, 2021 [2 favorites]


If so, at what point should we intervene?

I want to challenge this framing. What is happening is not somehow "natural" and the way things progress "without intervention." The market itself is an extremely complex intervention, and the question is whether we should change how we intervene. — praemunire
How **do** we intervene now? Honest question: What kinds of policies do we have in place to prevent the kind of industry churn that devastated huge swaths of the midwest when factory farming gutted the family farm? What politicians are even talking about these issues barring, maybe, Warren? I notice that by the time I hear about vast industry changes, a lot of the change has already happened, and I don't think I'm alone in that, barring those within whatever targeted field.

As far as I can tell, no one is doing anything about the 45,000 jobs "the fourth estate" has lost since the 2008 Recession. That's a lot of our democracy right there. As for the costs of pet-owning: I've been hearing stories about hidden costs and surprise billing that rival the excesses and bankruptcies of human healthcare, of companies, for example, like Hospital Corporation of America, which basically went into the small town I come from and told the town's independent doctors HCA would be happy to employ them, on HCA terms . I'm not sure what the implicit (explicit?) threat was: lack of hospital privileges?, pricey lab work?, no referrals? All I know is within two years, some independent doctors retired, others moved, the rest buckled under. It was like reading about a mob takeover.

So, anyway, no, I was not inferring any of this was natural, or inevitable. Rather, I was thinking that diversity of ownership seems healthy, so if investors own 5 or 10% of X, off-hand, it seems fine to me. But in many different industries, that's not what's happening at all.
posted by Violet Blue at 4:59 PM on December 1, 2021 [2 favorites]


I'd be genuinely curious to hear from an economist why this would be true. A good chunk of my adult life was spent paying rent, which is money I will never get back to put into the economy in other ways

First off, there's no such thing as an "economist" because, as an accountant I may hold a current, up to date certification from the relevant professional body (CA / CPA) but there's no such equivalent for economists, so, I shall call myself an economist for the purpose of this discussion.

There is an economic principle called "tax incidence" which says that it essentially doesn't matter whether you tax the buyer or the seller - the impact will be the same. This principle can be extended to subsidies / incentives as well. Therefore, it doesn't matter whether you subsidize the renter, or subsidize the homeowner, the effect will be the same.

As a rather trite demonstration of this principle, in Amazon's MMORPG "New World", players pay a housing tax to the owners of the settlement, say $500 per week. Amazon decided to subsidize 90% of the property tax as a way of saying sorry for all the bugs in the game, so they would step in to pay 90% of that $500 per week, so Amazon paid $450 and the players paid $50.

When I logged into the game after the update, I found my property tax had been raised to $5000 per week.... but after the subsidy, was still $500 per week. So instead of subsidizing me, the tax payer, who is still paying $500 per week, Amazon had inadvertently subsidized the rich landowners, who are now getting $5000 per week instead of $500

Tax incidence says the burden of tax will fall upon the party with less price elasticity.

In the housing market right now, it's not super clear which party is less price inelastic - you could argue that it's a pretty competitive market, with most rental units owned by individual investors who are unable to collude to set prices, and it's the same case with renters, who aren't part of a union who can collectively collude to set prices. In which case, if the government subsidizes renting, maybe half the benefit will be captured by the landlords, and half by renters.

In either case, pure monetary interventions aren't considered effective because the outcome (who gets to benefit) is uncertain. It's usually much better from a policy perspective to focus on qualitative issues instead:

1. Laws that benefit renters (extremely difficult to evict renters, vs renters being allowed to leave with a month's notice)
2. Laws that set minimum standards for rental apartments (insulation, amenities, safety standards, pets must be allowed, mould mitigation, lighting, heat, etc)

In particular, there are inefficiencies in cost / benefit asymmetry to address - you could put in insulation for $1000 that saves $300 per year in heating bills which is a no brainer, but in a landlord - tenant situation, the landlord pays the $1000, but the tenant receives the $300 per year... so the landlord never installs sufficient insulation unless the law compels them to.

In any case, home owners also pay interest, money they will never get back to put in the economy in other ways. The property I am living in costs $23,000 per year to rent, but $800,000 to buy the land and build. Assuming a person pays 3% interest on the whole amount (as the cost of capital), that would be 3% x $800,000 = $24,000 per year in pure interest that the mortgage payer will never get back either. Plus there's several thousand dollars per year extra to pay in maintenance, property taxes, etc.

The main thing motivating home buyers is the dangling carrot of capital appreciation in the future if the property is sold. The feeling is that you're 90% sure to make money on it, but there are definitely failures out there - I know somehow who bought a $600,000 house that fell in value to just $250,000 after a few years while he still owed $400,000 on it.
posted by xdvesper at 8:16 PM on December 1, 2021 [1 favorite]


How **do** we intervene now?

For starters we could stop letting landlords deduct depreciation from their taxes on what is clearly appreciating through the fucking roof.
posted by Your Childhood Pet Rock at 8:17 PM on December 1, 2021 [6 favorites]


First off, there's no such thing as an "economist" because, as an accountant I may hold a current, up to date certification from the relevant professional body (CA / CPA) but there's no such equivalent for economists, so, I shall call myself an economist for the purpose of this discussion.

Uh, where is this anti-intellectualism coming from? The relevant certification is a PhD in economics.
posted by eviemath at 5:08 AM on December 2, 2021 [4 favorites]


"you could argue that it's a pretty competitive market, with most rental units owned by individual investors who are unable to collude to set prices, and it's the same case with renters"

Hm, but the competition isn't so much for investors/landlords, it's for the actual housing, right? Housing supply is elastic if more units are brought on line as prices go up.
posted by bfields at 8:02 AM on December 2, 2021


Also, that’s not a particularly apt description of ownership of the rental market in basically any Canadian city at present. YMMV depending on location, and the post here is about the US, specifically. But there are certainly also US cities where ownership of rental properties is quite consolidated, and where landlord lobbying groups facilitate strong coordination between owners.
posted by eviemath at 8:09 AM on December 2, 2021 [2 favorites]


In any case, home owners also pay interest, money they will never get back to put in the economy in other ways.

I'm a little unclear about this. Interest is taxable income and so can partially work its way back into the economy through the things taxes normally pay for. But tenants pay interest, as well. It's just wrapped into the rent — landlords paying mortgages on investment property are not eating that cost, right?
posted by They sucked his brains out! at 11:58 AM on December 2, 2021


The relevant certification is a PhD in economics.

There are numerous online degree mills or honorary degrees... as evidenced by many politicians or talking heads having such "degrees". Then we start debating which schools count and which don't...

Also merely having a degree doesn't mean much: I have a degree in Actuarial Science but I could never claim to be an Actuary, not having taken the board exams.

Furthermore, a current certification in accounting or pharmacy, requires ongoing education and practice: if you're not actively working in the field, your accreditation lapses.

There aren't any such requirements to be called an economist, or even to be hired as one. Plenty of people work in accounting without being an accounting major, and plenty of people work as an economist without being an economics major - for accounting, the key thing is the professional exams and ongoing education, but there's nothing for economists...

Also, the PhD requirement you mention as the bar to pass is odd - the Chief Economist for Australia (Russ Campbell) only has a Bachelor in Economics with Honors - does he not quality as an economist in your view then?

You are right that I am taking this anti-intellectualism to an extreme, it was meant to be tongue in cheek. But I really enjoyed and excelled at all the economics subjects in my commerce degree and have come away with the impression that it's far more of a religion than a science, a view which many self-aware economists agree with. But then again we have a no-true scottsman situation - who is an economist? Someone who did a commerce degree, then graduated to work for a major consulting group who advises the government on economic matters, then entered politics, would they be considered an economist? There's no such ambiguity when asking if someone is an accountant or doctor.
posted by xdvesper at 5:31 PM on December 2, 2021 [1 favorite]


Sorry, xdevsper, is your contention that no profession exists which isn't licensed? That if someone calls themselves, say, a teacher, and you find out that they in fact teach dance and don't have a teaching license, you'd ridicule them as being fake?

Very absurd.
posted by sagc at 5:34 PM on December 2, 2021 [1 favorite]


xdvesper, you're doing some goalpost-moving and circular reasoning.

You claimed think that "there's no such thing as an "economist" because, as an accountant I may hold a current, up to date certification from the relevant professional body (CA / CPA) but there's no such equivalent for economists" I gave you such a certification. You seem to be confused about the distinction between degree mills (which generally don't even claim to give out advanced graduate degrees, since that would be a lot harder to get away with) and accredited university programs? Fair enough, there's no reason for someone who hasn't spent much time around universities to know that (although it does usually come up somewhere in the advertising for accredited colleges and universities, even for undergraduate students). You may also be interested to learn that obtaining a PhD requires passing a number of qualifying exams as well as completing and defending some original research; thus new PhDs are certified by the body of existing PhDs at accredited university graduate degree-granting programs. Again, fair enough that you didn't know this previously; most people don't, because most people haven't been through a PhD program or know anyone who has, so there's zero reason why they would have knowledge of the inner workings of that particular system. But your prior lack of experience or knowledge in this particular area doesn't negate its existence.

Obviously not everyone who describes themself as an economist has a PhD in economics. You yourself amply demonstrated that for us. And not everyone who works in any area where there is some sort of certification process has the certifications - not applied academic disciplines, not carpentry or plumbing or other building trades, and not accounting (lots of people get their taxes done by someone with adjacent experience who is not a certified accountant). And as you point out and also demonstrated for us in your comment, it is prudent to take the opinions or policy recommendations of such folks with a grain of salt or with some understanding of their potential limitations. But if you want the equivalent of a certified accountant or plumber or whatever - eg. someone who we could call a "certified economist", whose recommendations are more likely based in peer reviewed social science research on people's economic behavior or behavior of economies - such a certification does exist, your claims for yourself notwithstanding. Saying that no such certification exists is factually incorrect.

As a mathematician who works with statisticians, I have some doubts about statistical reliability of some of that research: in particular, there seems to have been, in orthodox economics in the last century, a certail lack of hypothesis checking before applying mathematical results and/or checking that the hypotheses of a model align well with reality; but the discipline seems to have grown past those issues in many sub-fields. Likewise a structural engineer will have some quibbles with some of the orthodoxy of certified builders; and I've certainly heard some critiques of some of the accepted practices of certified accountants by those with even more training in relevant areas. In each such case, however, the existence of such critiques does not mean that the certification regimes do not exist.
posted by eviemath at 6:31 PM on December 2, 2021 [1 favorite]


(Also, I have bad news for you about some of the people who call themselves doctors....)
posted by eviemath at 7:04 PM on December 2, 2021 [1 favorite]


Eviemath - I am aware of the university accreditation process, it was a significant factor in selecting my masters degree. It absolutely isn't the same - like my first statement mentioned, professional accreditation for medicine / accounting mandates lifelong, continual practice and learning. Stop working for a few years and you lose your accreditation, but you never lose the PhD title - someone with a PhD from 30 years ago might know nothing about current economic thinking. Even worse, university accreditation typically measures how comprehensive the course content is, and how demanding it is to pass - but says nothing about your ability to work and function in the industry, dealing with actual clients / treating actual patients. I never said there was no certification, I said there was no such equivalent certification. If there's anyone moving goalposts or attacking strawmen, it's not me. I apologize for the derail, it was a tongue in cheek comment that actually come to me from a friend who has worked 20 years for the government as an economist, but, I guess, since he doesn't have a PhD, he's not a real economist.

Anyway, I'd like to address some comments -

Also, that’s not a particularly apt description of ownership of the rental market in basically any Canadian city at present. YMMV depending on location, and the post here is about the US, specifically. But there are certainly also US cities where ownership of rental properties is quite consolidated, and where landlord lobbying groups facilitate strong coordination between owners.

Yes, this is precisely my point - we may assume the housing market has certain characteristics on average, but the average is certainly wrong in different parts of the country. Therefore, any attempt to distort the housing market by offering subsidies to renters, or taxing homeowners, is going to have an effect that is difficult to predict or control, and you are certainly going to end up benefiting homeowners to some degree. Thus my point about legislation targeting qualitative aspects of renting in response to "how do we intervene" - that's a short term band aid that in no way fixes the underlying issues, but in the long term it all comes down to income inequality (more on that later).

But tenants pay interest, as well. It's just wrapped into the rent — landlords paying mortgages on investment property are not eating that cost, right?

I was referring to the decision point between a person choosing to rent or choosing to buy using a mortgage. In either case, the person is paying a fee to the asset owner - the landlord, or the bank.

In the case of landlords, the decision point is whether they put $200,000 into ETFs or they leverage that into a mortgage for an $800,000 property. But that's an entirely different discussion.

Though I would like to comment on the concept of renters paying for the cost of interest in the rent - that's not how it works conceptually. Prices are largely demand side driven - customer willingness to pay - and yes, in the case of housing, being a necessity, the absolute willingness to pay is near infinite but is tempered by the availability of competitor offerings.

Say one landlord faces costs of $1000 per month to maintain their property - the amount they can rent it out for is completely disconnected from the cost. They can rent it for whatever the competitors allows them to rent it for. If all the competitors are renting it out for $1500 per month, that's what they get. If their competitors are renting it out at $500 per month, that's what they get. Their "costs" of $1000 are irrelevant in this scenario, at least in the short to medium term, they would still rent it out for $500 because $500 is better than nothing. This is why the article is alarming, because the current real estate landscape is predominantly small landlords who are unable to collude on prices, it would be a huge detriment if any one player gained significant market power to set prices because the willingness to pay to avoid being homeless is near infinite.

Hm, but the competition isn't so much for investors/landlords, it's for the actual housing, right? Housing supply is elastic if more units are brought on line as prices go up.

I'm using landlord when talking about this because you talk to the landlord to negotiate the rental contract, you can't talk to the house. Like another person alluded to, it can be different by geographic region, in some areas it's definitely inelastic if councils / local governments protect landowner interests by preventing competition (high density housing, or turning green areas into more houses), counterbalanced against their desire for more revenue from taxes. In which case prices are set by the push / pull factors on the demand side: which renters are willing to outcompete other renters to secure a spot in a highly desirable location.

Arguably, then you get this trite statement that high rent is not unaffordable: rents are high precisely because the majority can afford to and are willing to put down that money - the problem then lies in inequality, where some people can and some people can't without significantly hurting their finances. You see this in places like Seattle, where rents went sky high after Amazon moved in, and brought with them very highly paid workers, which then bid up the price of rent in the city and made it unaffordable to people who were originally living there.

In theory, even if the number of housing units remained the same, but wage inequality was reduced, housing stress would go down significantly, since high earners won't be able to bid up the price of rent as much as before, and low earners are getting an income boost.

I'll also note that a lot of the discussion online about "unaffordable" rent are from a certain economic class - usually places with unusually, extremely high rent (Seattle, Vancouver, New York, etc) - these comments included - but there's a whole other spectrum of poverty / minimum wage level concerns about affording rent, which have completely different dynamics to what I've been describing.
posted by xdvesper at 10:06 PM on December 2, 2021


I don't want to turn this thread into a 1 vs all, but xdvesper made a very long post with a number of assertions and this one has not yet gotten a response:
The main thing motivating home buyers is the dangling carrot of capital appreciation in the future if the property is sold
This is not true in my experience. The benefit of owning is that you own the house. Whether it appreciates or not, at the end of the process you have an asset. Eventually you stop needing to make monthly payments. And if children inherit the home, they never need to start. Homeownership is the first step on the path to generational wealth.
posted by dbx at 4:08 AM on December 3, 2021 [4 favorites]


Which is not to mention the benefit of fixed monthly payments. Mortgage as rent control is one of those memes that's a little too true.
posted by dbx at 4:09 AM on December 3, 2021 [5 favorites]


xdvesper, what I was reacting to was that you seemed to (a) be conflating authority (via certification processes) and expertise, and (b) claiming that there was no basis for either from anyone calling them self an economist. I was providing a counterexample to show that your claims in (b) were not true, regardless of whether one was more interested in authority or in expertise. (Which is very much not saying that everyone who calls them self or works as an economist has either authority or expertise or both.). But you don’t seem to be reading/responding to my whole point/what I’ve actually written, and this is a derail, so we may as well drop it. I don’t think you need to have a certification or PhD-level expertise in economics to participate in a discussion thread on an economics topic on Metafilter; I think that the general default assumption should be that other Mefites will consider what you have to say on the topic on its own merits. Suffice to say that there are some gaps in reasoning in both your argument against the existence of economic expertise and/or authority (though, personally, I don’t care about the authority part) and in your assertions about economics itself, even though I don’t think they are entirely 100% wrong. And the way you phrased it was kind of disrespectful to some other Mefites.
posted by eviemath at 4:17 AM on December 3, 2021 [1 favorite]


I want to buy a house 1) because rent keeps going up, but salaries don't, 2) so I can't be kicked out in a few years because my landlord has another use for the property, 3) so I can have solar panels and an EV, 4) so I can get rid of all the invasive plants and landscape how I want to, 5) so I can have more pets if I want to, 6) so I won't have to share walls with anyone, 7) so I don't have to feel guilty for cosmetic damage, 8) so I can have a functional kitchen that isn't god awful trendy steel and granite with hardwood floors, 9) walls and doors that close between rooms would be so very nice, but we literally may not be able to purchase anything that hasn't been gutted and had an open floorplan forced upon it.

If I die before my spouse, it will be nice that he will continue to have a place to live if he so chooses. When we both die, I guess our heirs, whoever that ends up being, will get some money. I have no intention of selling a house after I buy it, except if we become so disabled that we need to move into assisted living.

Not everybody cares about "property values"
posted by hydropsyche at 8:51 AM on December 3, 2021 [6 favorites]


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