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This Is What Happens As America Converts Into A Nation Of Renters

Tyler Durden's picture




 

Wall Street got into the single-family home business about a year ago. The win-win idea is to buy and rent until prices increase enough to make selling profitable. Investors can improve neighborhoods by fixing up vacant or damaged properties and providing lower-cost housing to people who are recovering from a foreclosure. But, as The Sacramento Bee reports, a responsible landlord is not guaranteed, and while no one is bashing renters, experts say it is human nature to care more for where you live when you own.

The idea of a long-term home means more attention is paid to its upkeep and more consideration is given to neighbors, but "renters can change the culture of a neighborhood," creating instability in neigborhoods since if there is any 'issue' (such as a strip club proposed nearby), renters are more likely to say 'I'm outta here', while homeowners will band together for a common cause.

The other potential problem is poor upkeep of rental properties leads to greater costs to communities overall since "renters have less tendency to take care of their surroundings." The problems are widespread but in West Palm Beach, FL (where landlords are required to get licenses), applications are up from 296 in 2011 to 399 last year with one entity owning 150 'unregistered' homes: "it's a free-for-all, there's no such thing as a community anymore."

 

Via The Sac Bee,

The fragile sense of community in homeowner Bryan Melzard's neighborhood - the impromptu chats on the sidewalk, shared gripes about overzealous condo commandos - is fading.

 

...

 

As corporate America sops up the remnants of the real estate crash, it's not only more difficult for the traditional buyer with financing to find a home; it also has planted a niggling concern about how it could change the fabric of the American community.

 

...

 

"Renters can change the culture of a neighborhood," said Alan Mallach

 

...

 

The idea of a long-term home means more attention is paid to its upkeep and more consideration is given to neighbors. Increased stability creates a bond to protect a common interest, such as if an unwanted store or strip club is proposed nearby.

 

"When you have a large body of homeowners, that neighborhood organizes in a millisecond around that kind of issue," Mallach said. "If you have mainly renters, an awful lot will say, 'Well, I'm out of here.' "

 

...

 

"It's out of control when local people can't find a place to live," said Paige, who didn't want to live in a high-rental community. "Everything is turning to rentals."...

 

...

 

it can be a slippery slope. Too many renters, Nye said, can lead to higher costs to the association, which may have to put in extra effort to maintain the property.

 

...

 

In West Palm Beach, new rental applications increased from 296 in 2011 to 399 last year, with a hefty number coming from international and out-of-state buyers, said Sandy Wuraftic, the city's license permit supervisor.

...

"It can be kind of a free-for-all," Melzard said. "There's no such thing as a neighborhood anymore."

...

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Wed, 05/08/2013 - 21:16 | 3543261 docj
docj's picture

They may not have a long-term dwelling, or a job, or food - but the Sheeples will all have absolutely fabulous stock portfolios. So it's all good.

[ / Fraud Street ]

Wed, 05/08/2013 - 21:36 | 3543289 DormRoom
DormRoom's picture

Only the top 11% have experienced the wealth effect in any substantive way.  The rest of the population are still living in the great recession.   Contemporary Central Bankers aren't elected, but have caused greater income inequality than any government.  You can't un-elect them.  Moreover, most central bankers have adopted the ideology of printing, so even if one leaves, the next perpetuates the idea.  Bernanke leaves, Yellen continues the print lovefest.  Just as Bernanke carried on Greenspan's printing hard on.

There's a fundamental law that governs all of Nature: There is no free lunch.     The hubris of Central Bankers is that they believe they can mis-price risk without any catalysmic consequences. This is not going to end well.

Wed, 05/08/2013 - 22:09 | 3543382 RaceToTheBottom
RaceToTheBottom's picture

The Greenspam briefcase disapeared but the bubble money boner continued

Wed, 05/08/2013 - 23:50 | 3543403 SafelyGraze
SafelyGraze's picture

OT: awakening

a: I'm thinking about giving up drinking coke
b: ok

a: maybe try diet coke
b: right

a: or coke zero
b: you're a coke loyalist

a: not really .. I drink sprite sometimes
b: you know that it's a coke brand

a: no it isn't. it called "sprite"
b: same company

a: I also drink root beer. barq's root beer.
b: still coke

a: doctor pepper
b: still coke

a: fanta. fresca. mello yello. tab.
b: coke coke coke and coke.

a: nestea iced tea
b: coke

a: powerade
b: coke

a: fruit juice! minute maid! fuze! odwalla!
b: coke

a: water! evian water! dasani water!
b: coca cola

a: Hi-C
b: coke

a: no way
b: it's all coke 

a: you're just talking crazy talk
b: ok

a: shit
b: yeah

a: all those "choices" in the drink machine ..
b: they are choices within the coke product line

a: maybe I'll just exit from the coke universe
b: ok

a: I'll look something up on dictionary dot com
b: barry diller

a: excuse me?
b: he's on the coke board of directors

a: so?
b: he's chairman of the board at IAC

a: so?
b: they own dictionary dot com

a: you're shitting me
b: mm

a: you're saying it's all diller?
b: ask dot com .. about dot com .. match dot com .. newsweek .. vimeo ..

a: you're killing me here
b: have a coke

a: how come I haven't read about this?
b: read about it where?

a: I dunno .. maybe in the washington post?
b: diller

a: the post? diller?
b: he's on the board

a:  expedia .. tripAdvisor ..
b: it's all diller

a: can I get out of the diller universe?
b: why would you want to

http://en.wikipedia.org/wiki/Barry_Diller#Career

 

Thu, 05/09/2013 - 02:09 | 3543745 Kirk2NCC1701
Kirk2NCC1701's picture

When you buy Coke products, a good chunk of the profits go to Warren Buffet, since he owns so much Coke stock.  Ditto for shaving with Gillette products.

Thu, 05/09/2013 - 04:19 | 3543793 MeMadMax
MeMadMax's picture

Diller is a democrat jew....

Thu, 05/09/2013 - 00:17 | 3543636 StychoKiller
StychoKiller's picture

AbFab!  :>D

Thu, 05/09/2013 - 01:41 | 3543721 Dingleberry
Dingleberry's picture

Those "homeowners" sure took care of da hoods they squatted in.

Wed, 05/08/2013 - 21:28 | 3543291 John Law Lives
John Law Lives's picture

If a condominium association does not have by-laws that set a minimum ratio of owners to renters at a reasonable level (say 70/30 in favor of owners), it can be the kiss of death for the property.  Renters generally do not care as much about the upkeep of the property as owners do.

Wed, 05/08/2013 - 21:28 | 3543295 gbresnahan
gbresnahan's picture

Until home prices fall to realistic levels, I'll continue renting.

Wed, 05/08/2013 - 22:24 | 3543411 1C3-N1N3
1C3-N1N3's picture

Absolutely.

I'm also not a buyer of college tuition at current prices, either. We're living in a country where straight-A students are saying no to college education and home ownership.

Thu, 05/09/2013 - 09:08 | 3544136 aerojet
aerojet's picture

Validating that they indeed smart!  I went to college, got a master's, then a doctorate.  Damned if I have that much to show for any of it.  But  coming from a lower-middle class background, I was enamored of the prestige and probably easily taken in by the academic culture.  Never could stand the elitism, though.

Wed, 05/08/2013 - 22:48 | 3543458 PeaceLover
PeaceLover's picture

Thanks never going to happen.
once again
why would the 99 familys not want your servitude in the form of you pay just to live somewhere?

google and watch the TED's

ted lesterland take the time.. think about it.. its not a side unless your one of the 99..

Thinks about it.. less than 99 people rule this deal.

Wed, 05/08/2013 - 23:00 | 3543489 Timmay
Timmay's picture

Won't this trend lead to a "renters" market which drives down rental income, (competition for tenents) but at the same time drive up home prices (owners chasing rental income? Having a higher mortgage cost closes the spread on a dropping rental income. This hotter this gets the sooner the end must come. 

The cash home buyers (flippers) could be the trigger if they decide to start liquidating homes to realize gains. How do you sell a home with renters occupying it, renters who could give a crap how the home looks to the next buyer?

Thu, 05/09/2013 - 10:28 | 3544468 MachoMan
MachoMan's picture

To investors, homes are worth more with a tenant/good rental history...  so, to answer the question as to how you could sell a home if a renter is occupying it...  simple, you raise your asking price.

Thu, 05/09/2013 - 00:40 | 3543664 yogibear
yogibear's picture

Fed has turned-on housing flippers and speculators. 

Any sound fiscally responsible rules have been replaced by the casino rules.

Last one holding the bag looses all.

Thu, 05/09/2013 - 01:55 | 3543726 Kirk2NCC1701
Kirk2NCC1701's picture

Amen to that! One metric to use, to decide if it is better to buy or rent, is to look at the TCO (Total Cost of Ownership) on a dollar basis, and on a per square foot basis.

Be sure to include ALL the costs of Ownership, including: mortgage interest, insurance (hazard, hurricane, tornado, flood), utilities, maintenance and repairs (house, yard, HVAC, pool), property taxes, burglar alarm, etc...  Best to do Excel comparisons.  If your TCO is, say, $1.25/sq.ft for owning, but $0.80/sq.ft for renting, you should rent.

It depends on where you live, but your TCO is often 50% higher than the P+I of the mortgage.  Then use the 3:1 rule of thumb. If (after down-payment) the Principal is more than 3x of your income, you will be 'house poor': Too much of your income is going into the house.

If you want to be really conservative, you live on the income of the "bread winner", and you save + invest the rest.  That way, if the bread winner experiences a layoff, the war chest is hopefully big enough to ride things out.

Thu, 05/09/2013 - 10:36 | 3544511 MachoMan
MachoMan's picture

Don't forget to subtract out the tax benefits of home ownership from the total cost of ownership, with an expectation that many of these tax breaks will be phased out/eliminated in future years...

Also, I'd put a good rule of thumb at more 5:1 of gross income:home price in an environment of decreasing/flat wages and increasing taxes/costs, with an expectation of the ratio increasing in later years...  the old paradigm is over.

If you want to be really conservative, you live on the income of the "bread winner", and you save + invest the rest.  That way, if the bread winner experiences a layoff, the war chest is hopefully big enough to ride things out.

Bingo.  But, I contend this is the MOST OUTLANDISH thing to do in the present environment...  in other words, this is the most risk taking that you can possibly do...  your costs should be somewhere that if both of you get fired, that you can each take jackoff/quick jobs and keep up with all the payments...  plus having a couple years of savings in the war chest.  The grim reality is that there aren't but a smidgen of folks who can accomplish this, although, it isn't something that is solely for the wealthy or professionals...  it can be done by any socioeconomic class.  I would also tack on local/personal food production to the "conservative" approach...  of course, this is one of the necessities to having savings, but I digress.

Wed, 05/08/2013 - 21:28 | 3543296 Rustysilver
Rustysilver's picture

I am in CT in a town of  70k people. The town is broke. The annual deficit is about $2 mil. All landlords that do not live on their property are assess  a fee. Started with $150 per unit per year. The mayor got sued and a lot of people were protesting by being bus in to city hall marches. The price was reduced to $50 per apartment  per year. Once this starts it never going to go down. $500 fine if you have more than 5 police / fire calls per years. The capitol of CT, Hartford has more than 50% absentee landlord.  The city is a shithole.

Wed, 05/08/2013 - 21:28 | 3543298 A Lunatic
A Lunatic's picture

Do you want communities or fistfuls of dollar bills?

Thu, 05/09/2013 - 03:49 | 3543785 Redhotfill
Thu, 05/09/2013 - 03:49 | 3543786 Redhotfill
Wed, 05/08/2013 - 21:35 | 3543312 denverdolomte
denverdolomte's picture

Most asinine business model on the planet, next to the Federal Reserves / Treasury Departments. "Housing Market On The Up - n -Up!!!" said every newsreel nationwide. Denver for example, rent at an investment property in a normal inner city neighborhood is going to run you between $1800 on the low end and $4000 on the high end, they only rent to single occupancy or families, not to mention pent rent, first last and security deposits to rent for a year. With out roommates or kids, I guess a couple could afford this or should I say would be willing to give up half of their combined monthly income back to the bankers and investors. 

Reality :: People are not out buying houses and haven't been for a long time because of the cost both short and long term. Investors have flooded the markets with home rentals at prices that are well above the average income of normal folks unless numerous people live within a house here. What these idiots have done is created another bubble that will break in the same way as the first one.

 

If anyone on here works for BUBBLEYUM or a company that makes bubble gum, can you please sponsor the Federal Reserve and Treasury Departments? 

Wed, 05/08/2013 - 22:05 | 3543374 Freddie
Freddie's picture

Americans do not own anything.  Even after you pay the banksters - the county owns your house and property.  You are just a tenant.  Unless you love way way out in the boonies where the property tax is low then it is all a joke.  The govt owns pretty much most of your stuff and property.

Wed, 05/08/2013 - 22:18 | 3543402 denverdolomte
denverdolomte's picture

+10 :: I completely agree. I have recently been beginning to understand the theorum around the difference between property rights and mineral rights. Even if you live way out in BFE and paid off your land, the governments still sell your land to energy companies to posses your land and make decisions about your land rights. Its F'ed in the A side. 

Thu, 05/09/2013 - 10:41 | 3544532 MachoMan
MachoMan's picture

Taking your land is one thing (constitutional)...  Stealing your land without offering you the opportunity to get market price for it is another (unconstitutional)...  the trick is to lawyer up and duke it out with them over the price...  and, in most cases, go to a jury trial and mop the floor with them (a jury of your peers seems to have your sympathy at heart much moreso than .gov's).  However, they will likely bottom dollar your ass initially...  so don't get nailed on the eminent domain cross.

Thu, 05/09/2013 - 13:53 | 3545257 m0w0g
m0w0g's picture

Ummmm ... heard of the Kelo decision? Where someone did what you suggest all the way to the Supreme Court and lost? Screwed is hardly the word.

Thu, 05/09/2013 - 14:40 | 3545462 MachoMan
MachoMan's picture

Not at all...  I did not suggest that you could avoid the taking...  only that you could get just compensation for your property (market price).  Huge difference.

Kelo was decided on the issue of "what" powers the government has to take land...  not "how much" the government has to pay for the taking.  Traditionally, the most common takings are for roads/easements...  The government's (typically a state highway commission) M.O. is to fire away with a bottom dollar offer for the taking...  and, unfortunately, ~75%+ of folks go for it.  Some of the dollar amounts in dispute are too small to litigate...  but many are not.  You won't likely win on the issue of whether the government has the right to take it...  (that ship sailed long ago, and was expanded by kelo).

If you want to curb the taking, then the most practical way at this point is to ensure that everyone contests the takings and forces the government to pay up for the pleasure.

Wed, 05/08/2013 - 22:44 | 3543449 hamstercheese
hamstercheese's picture

JTWROS - how married couples brokerage accounts are often titled = Joint TENANTS with rights of survivorship. What is a tenant?

Thu, 05/09/2013 - 01:15 | 3543689 Harbanger
Harbanger's picture

That's right.  It does come with rights of survivorship.  The welfare state doesn't want you to pass your property to your children after you die if they can't get a piece of it thru taxes.  Who's to say what that percentage will be when most "voters" are dependent on the govt. for survival.  I'm sure a slick politician could convince them that 100% is only fair.

Thu, 05/09/2013 - 10:47 | 3544568 MachoMan
MachoMan's picture

You can have a joint tenancy with right of survivorship with different generations of family members...  you might have generation skipping tax issues, but it has nothing to do, inherently, with the type of tenancy.

In this context, tenancy simply means "an interest in personal property"...  the type of tenancy denotes the type of interest each respective tenant has in the property...  it has few similarities to "landlord/tenant law" in the proper sense...  we're dealing with legal terms of art, not their common usage.

Thu, 05/09/2013 - 11:45 | 3544760 tip e. canoe
tip e. canoe's picture

we're dealing with legal terms of art, not their common usage

like in the word person

Thu, 05/09/2013 - 00:44 | 3543666 edifice
edifice's picture

You own the house, the government owns the land it sits on.

Thu, 05/09/2013 - 01:59 | 3543737 Kirk2NCC1701
Kirk2NCC1701's picture

It didn't used to be that way.  You might as well live on a Reservation.  /s

And, technically, you don't actually "own" the house till you own the Deed.  The mortgage holder holds it till then.  What many call home "ownership" is actually a nice weasel word for a kind of "rent-to-own".

Thu, 05/09/2013 - 09:08 | 3544132 suicidalpsychologist
suicidalpsychologist's picture

That's a great comment and all, but you realize same could be said of any country on earth; ultimately someone who s isolated and doesnt have guns owns nothing, only the people with weapons and cash do.  In a SHTF situation it4s always the most violent and cohesive groups who take over eveything the weakest might "own".

Wed, 05/08/2013 - 21:38 | 3543313 22winmag
22winmag's picture

It's called "owner occupancy". In the old days, it was difficult or impossible to get a mortage in a condo complex or neighborhood without a high double digit percentage of units that were occupied by the actual owners.

 

Condo buildings and even whole neighborhoods with low rates of owner occupancy are always shitholes. 

Wed, 05/08/2013 - 21:45 | 3543331 pickupthatcan
pickupthatcan's picture

Being a landlord/owner of multiple properties is the last place I'd have capital.  I believe Weidemer when he said that the shit will go so far south, that the Sheriffs will get tired of evicting folks.  The L/O will still be paying taxes with no income stream on property that won't sell, that's lived in by squaters. 

Wed, 05/08/2013 - 23:01 | 3543488 Parisnights
Parisnights's picture

Squaters or any other resident.  Neighborhoods will evolve (devolve)? into villiages.  Better   get to know your fellow villigers--sooner rather than later.

Bartering and neighborhood watches will become the new norm of life.

Thu, 05/09/2013 - 02:02 | 3543741 Kirk2NCC1701
Kirk2NCC1701's picture

And you get to pay the Bailiff to evict the squatters, and for the disgusting clean-up for the mess that the pig-humans left behind.  You're better off paying for house-sitters till it rents.

Thu, 05/09/2013 - 11:23 | 3544698 BooMushroom
BooMushroom's picture

Sometimes I think the only way to do it (were you so inclined) is to build a quadruplex, live in one, and rent the other three, doing regular inspections, and all the maintenance yourself.

Doesn't scale well, though.

Wed, 05/08/2013 - 21:47 | 3543334 Caviar Emptor
Caviar Emptor's picture

Frankly, renters, we don't give a damn. 

-The 7% 

Wed, 05/08/2013 - 21:50 | 3543344 oilseed
oilseed's picture

Bullshit. I've rented a sf for the past seven years, notsofresh out of a divorce, CS, kids with me 1/2 time. Waiting for the correction to dip the toes into the RE swamp. Well 80 a month from the fed to prop up this pig just aint going to make me swallow the worm. I continue to rent, mow the lawn and paint the porch. Furnace breaks and yes, f'it, but I take pride in where I put my head and the community I keep. Ownership is secondary.

Wed, 05/08/2013 - 22:14 | 3543392 TheMeatTrapper
TheMeatTrapper's picture

You sir, are the exception, as are most here. 

Thu, 05/09/2013 - 09:11 | 3544145 suicidalpsychologist
suicidalpsychologist's picture

that's because you re undecided with what you should/are going to do, nothing more.

Wed, 05/08/2013 - 21:58 | 3543352 Judge Crater
Judge Crater's picture

The idea that you can make a profit renting out houses may have worked in the past but no more in most places, thanks to higher costs for insurance, for paying for documented labor and for raw materials and home repair supplies.  In damp climates like Florida, during some parts of the year, mold is an ever present problem, which is why homeowners there run their A/C all the time during the summer.  Ed McMahon, well known as Johnny Carson's sidekick on the "Tonight Show," got sick from toxic mold after a water pipe broke in his Beverly Hills home and the repair was not done properly.  McMahon filed a lawsuit in 2002 over the black mold. a lawsuit that publicized the dangers of black mold to everyone but the speculators now buying up homes in warm climate states like Florida and Arizona. If you watch the show "Holmes On Homes," you can only be amazed at the hidden problems Mike Holmes finds when he fixes up a house.  On one episode, he found out that drywall used in construction during the 70s and 80s often had asbestos in the drywall.  So removing the drywall cost more to handle the problem of airborne asbestos when taking down this drywall.  In many places now along the coast, it is prohibitively expensive and sometimes impossible to obtain hurricane insurance.  Another downside is that insurance companies will sometimes fight tooth and nail not to pay out after a natural disaster.  Sometimes renters even don't pay the rent.  Somehow, speculators who buy up foreclosed homes can always find investors to jump aboard these rent for profit schemes.  Those investors better be prepared to get wiped out.

Wed, 05/08/2013 - 22:25 | 3543412 TheMeatTrapper
TheMeatTrapper's picture

The idea that you can make a profit renting out houses may have worked in the past but no more in most places

Very true. I have a friend who is a young family man. Good education, good job, wife and two kids. When times were booming he purchased two town homes and rented them out. He had a positive cash flow, the renters were paying the note plus some and the future was so bright he had to wear shades. 

Then things changed. The "complexion" of the neighborhood darkened. The language, customs and culture of the area became "non traditional". The property value plummeted. Renters were consistently late paying rent. Damages and complaints and demands for "repairs" skyrocketed. 

He's now bleeding money and owns two mortgages he can't sell because nobody in their right minds wants to buy property in that neighborhood. The only tenants willing to live in the area are those you don't want to rent to. 

Rock and hard place. Damn shame. He's a nice guy who tried to do the right thing. I've learned it pays to be the old codger sitting in the back row muttering "bullshit" to all the new fangled fancy money making schemes. 

I'll stick to stacking physical, staying out of the 'market', and catching my dinner. I may be a redneck idiot - but I'm a solvent redneck idiot

Wed, 05/08/2013 - 23:06 | 3543504 Common_Cents22
Common_Cents22's picture

location location location!   I live in a real nice burb on a lake, metro city planners decided to put in section 8 in all the nice hoods.  just finished building a large apt building in the middle of the burbs.   out of place eyesore already.

Thu, 05/09/2013 - 01:57 | 3543738 Freddie
Freddie's picture

Don't worry - that Section 8 shithole will drag everything else down with it like a "black" hole.

Thu, 05/09/2013 - 02:27 | 3543757 dunce
dunce's picture

It only takes a half dozen predators in that section 8 apartment block to ruin the neighborhood. Trayvon Marten wandering around looking your stuff over. Even without section 8 govt. organized crime plagues over a few years things can change and you must move to protect your children.

Wed, 05/08/2013 - 23:15 | 3543523 SubjectivObject
SubjectivObject's picture

Ha!  He should name that show epynomous with his other one (Holmes Inspection):  We call it Holmes Destruction, and at the beginning of the show, the wife and I shout at the innocent home owners:  Don't open the dooooor!  Don't talk to the guy!   Don't let him innnnnn!   Your life will be destroyed ......

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