[aristophenes]

Yes. Really bad article, I don’t understand how people can handle the cognitive dissonance. If anything, the situation described would reduce rents for your average consumer because the increased building sale prices makes it more profitable to build more buildings, increasing the supply of apartments. Basically foreign oil money supporting jobs and subsidizing rents. And as the article actually states, it doesn’t make sense for them to buy single family homes, so they aren’t even inflating the market for people who want to own their own home instead of renting.

The only potential drawback is the situation where investors buy property as an investment only, not for income, and consider tenants will decrease the value of the property, so they keep it vacant. I hear this happens in China. But it is expressly not the case as described in the article.

[boombust]

This is a clear example of someone quoting theoretical economic arguments as if they were as rigorous as mathematical proofs (and believing the gospel that they are preaching just because the logic is, on the surface, sound).

It takes years for buildings to be built. There are a ton of regulations that exist around construction and refurbishment in most cities (for good reason). Demand increases in any part of a market will have knock on effects on other parts of that market if supply is static (if buyers are priced out of one area they move onto other areas, increasing the demand and therefore price level).

Basically, the way the world behaves cannot be quoted out of a textbook. This is economic thinking at its worst.

Where I live, London, the rental market has gone absolutely mad in the past 20 years. While there is no single reason for it, it is no coincidence that this has been happening in the money laundering capital of the world, a favourite destination for oligarchs as our governments have turned a blind eye to their dirty money in the pursuit of foreign investment.

[aristophenes]

Please explain how the data provided by the article relates to higher rents. Just because rents are high and oligarchs are buying properties in order to collect rent, it does not follow that rents are high because of that foreign investment. It only makes sense that they are related if they are not renting them out. Which may be the actual case, but was not what was described in the article.

[boombust]

Easy, it is a two-fold problem.

First, if housing prices growing at a faster rate than wages then less people can afford buying and must keep renting. This means that the amount of people seeking rentals keeps getting larger, which increases the demand for rentals (and therefore the price).

Second, and this point is speculative and I have no evidence to prove this, these properties are much more likely to stay empty (or at least take longer to get to market as the goal of the money laundering operation is not the bottom line but the purchase itself). This is completely anecdotal, but the owner of a dog that my dog likes to play with represents a wealthy foreign individual, and this individual owns a really expensive property on Lancaster Gate that just sits empty that would otherwise pull in over 10 grand a month easy. If you live in these cities you see this kind of thing first hand.

[aristophenes]

My point is not about foreign investment driving rents up or down, it is that this is a poorly written article. I generally agree with what you are saying, though your logic is somewhat flawed in your first point. Every property that gets turned into a rental on average changes one home owner to a renter but also adds a new rental to the market so in principle it’s a wash. However as I’ve stated now for the third time, I acknowledge that properties bought as investments without renting them out will increase rents.

What I have been saying is that the actual article doesn’t make that point, and therefore doesn’t make sense. Even if foreign investment drives up rents, a reasonable person without their own experience would not be able to conclude that from the information in this article.

Furthermore, I believe it is HN policy to assume the strongest argument of the person you are debating if you choose to disagree. Instead you are continuing to mischaracterize what I am saying.

Please don’t explain to me how it works in real life again, I am aware. I do agree that over the short and medium term some types of real estate investment will raise rents.

[boombust]

I agree with you that it is not a particularly polished article. However, you were basically saying that rents would decrease as a result of market forces, which is not really true as property markets can't react fast enough to match changing demand year on year.

You do have a point with your criticism of my arguments. I don't think I did a good job making the arguments as the issue that arises with renters not moving onto the properly ladder is closely linked with empty properties. Yes, a sold home becomes a rental in principle. But if it is slow to come onto the rental market or is kept empty then the supply for rentals decreases and the demand for rentals doesn't decrease accordingly, exacerbating the problem. So you are completely right that by itself it shouldn't matter much. You are correct that the problem arises when landlords are not too bothered by renting, which is a common feature in real estate money laundering.

[Supermancho]

Your first answer is in regard to: https://en.wikipedia.org/wiki/Law_of_rent

The second answer was verifiable from multiple markets on my end, in high rent areas like Southern California to Seattle where it was common knowledge that luxury items and land was bought up and left empty...unsurprisingly until China decided to start heavily double taxing foreign assets.

[shawnb576]

I've heard this a lot. Vancouver passed some laws to try to discourage the practice.

That said, I live in Seattle, and have for 25 years. I've lived in some of the nicest neighborhoods (Kirkland, Capitol Hill) and I have not seen or heard of a single actual example of nice places being bought and sitting vacant.

I'm not saying it's never happened, but I've seen zero evidence that it's happening on any scale that effects the market.

[SideburnsOfDoom]

> the situation described would reduce rents for your average consumer because the increased building sale prices makes it more profitable to build more buildings, increasing the supply of apartments

Ok, so why don't we see that happen in the real world? What you're saying is empirically wrong. So please supply an explanation of what's happening in reality.

[Nasrudith]

Well for one people who paid for expensive real estate or had it appreciate in value won't be keen on any sort of devaluation whether from newer shinier buildings, an affordable housing project, or crime rates.

That is in addition to price per square foot rise from building larger scale - while more efficient in infastructure and land usage it may start requiring things like seriously deep foundations and pilings as opposed to a stack of bricks and mortar as a foundation. However while a high density area may wind up more expensive than prefabs at the outskirts not building isn't going to make things cheaper until demand collapses. Essentially it is complicated - part raw goods-and-labor economics and part selfishness tragedy of the enclosures essentially.

[aristophenes]

Why would you criticize a remark for being unfounded, by making another unfounded remark?

But here is some recent proof that the actual current rental market in the US is an example of what I was saying: https://www.bloomberg.com/news/articles/2018-09-07/boom-to-b...

I do agree that there are inefficiencies in the market that mean high building prices don’t always lead to more buildings being built. But the cause is certainly not because there is too much indiscriminate foreign capital available. That’s like telling me candy bar makers stopped making candy bars because they were selling for too high of a price. Local building restrictions, permitting, high labor and material prices have huge impacts on whether a growing city will be able to build enough housing to keep rents low. All it takes for rents to keep growing is one more family moving to the city than new units have been built. In cities with increasing rents, has the population recently been growing or shrinking?

[SideburnsOfDoom]

I live in London UK, and here the idea that "high rents leads inevitably to a noticeably increased supply of more affordable apartments" is generally taken by the evidence of your eyes and wallet as so trivially false that it is not something that needs any additional evidence; it can an should be be dismissed with an unfounded statement. It is obviously not what happens.