Private Equity money in Housing

[Purple]

Given that there is no shortage of money in the country should there be more barriers put in place to stop institutional investors from buying existing homes?
If the funding that a developer requires to build the homes comes from institutional investors that's fine but if they are block-buying developments that they didn't fund then they are just pushing up the price for individual buyers.

 

[T McGibney]

Isn't there a case though that there aren't nearly enough rental properties available for those who wish to rent, and that any move to stop institutional investors from buying existing homes (including currently rented homes) would be likely to worsen this chronic shortage?

 

[DublinHead54]

It is a supply issue.....closing the market to certain buyers exposes the markets to other risks and you may suddenly find that institutional investors don't want to provide funding anymore.

I get the PR standpoint that this looks like big bad venture funds preventing people from buying homes, but it doesn't capture that this type of buying is also supplying rental homes which are much needed.

I don't believe it is as simple as saying block purchasing is the sole reason that increases prices for individual buyers.

 

[Purple]

It is a supply issue.....closing the market to certain buyers exposes the markets to other risks and you may suddenly find that institutional investors don't want to provide funding anymore.

I get the PR standpoint that this looks like big bad venture funds preventing people from buying homes, but it doesn't capture that this type of buying is also supplying rental homes which are much needed.

The supply of capital to build decreases price pressure on individual buyers. The use of that capital to compete with them for existing properties increases price pressure.

I don't believe it is as simple as saying block purchasing is the sole reason that increases prices for individual buyers.

I agree with you, I'm not suggesting that it is. It's one factor but probably not as big an issue as the State buying private homes and turning them into social housing. That's probably the biggest single factor driving price within the starter home segment, just as HAP drives rental inflation.

It could be an easy one to change though, without the populist whinging from RTE etc.

 

[DublinHead54]

The supply of capital to build decreases price pressure on individual buyers. The use of that capital to compete with them for existing properties increases price pressure.

I am not an economist, but that would assume it is the same pot of capital that can either be invested to build houses or buy them. It isn't the same pot. The price pressure is driven by the supply, if the private firm have bought up all the supply it drives up prices indirectly by making people compete for less houses. If there is more supply it would lessen the impact of bulk buys, which are needed to a degree to support the private rental market.

It could be an easy one to change though, without the populist whinging from RTE etc.

Same story, two headlines.

"Private Company buys entire housing estate locking first time buyers out of the market" vs "Private company buys entire housing estate delivering much needed rental supply"

 

[Purple]

I am not an economist, but that would assume it is the same pot of capital that can either be invested to build houses or buy them. It isn't the same pot. The price pressure is driven by the supply, if the private firm have bought up all the supply it drives up prices indirectly by making people compete for less houses. If there is more supply it would lessen the impact of bulk buys, which are needed to a degree to support the private rental market.

Yes, buying residential properties that have been built and financed by another developer reduces the supply of properties available for private individuals. Basic economics tells us that drives up price.

Same story, two headlines.

"Private Company buys entire housing estate locking first time buyers out of the market" vs "Private company buys entire housing estate delivering much needed rental supply"

No, if the private developer financed the building of the housing then they helped to deliver much needed housing, though I'd argue that the supply of Capital, or lack thereof, is not currently a constraint on the supply of housing.
If the private developer buys homes that have been built by another developer, bearing in mind that skilled labour is actually the biggest constraint on supply, then their money is being used to reduce the supply of housing available to private individual buyers.

The counter argument is that home prices in Ireland aren't that out of kilter with the rest of the developed world but our rents are so increasing the supply of rental properties should be a priority, and that's what the investor does in this example. Of course the main driver of rents is the State through HAP.

 

[T McGibney]

Yes, buying residential properties that have been built and financed by another developer reduces the supply of properties available for private individuals.

It doesn't. The properties will be occupied in either event. If some of them are let as houseshares, these will normally accommodate more people than a first-time-buyer's home will.

 

[Purple]

It doesn't. The properties will be occupied in either event. If some of them are let as houseshares, these will normally accommodate more people than a first-time-buyer's home will.

They may well house the same number of people but they will not be available for purchase and so the same number of purchasers will be chasing a reduced number of properties.

I find it interesting that the reduction in the average household size over the last 30 years or so had absorbed around half of all the residential property we've built without housing any extra people. During that time the percentage of the housing stock which is rented has increased. I suppose more apartments and fewer intergenerational homes is the main reason.

 

[T McGibney]

They may well house the same number of people but they will not be available for purchase and so the same number of purchasers will be chasing a reduced number of properties.

Purchasing is a choice for some. Those who cannot purchase are forced to rent. I can never fathom why public policy always seem to favour those in the former category, who are usually better off than those in the latter.

I find it interesting that the reduction in the average household size over the last 30 years or so had absorbed around half of all the residential property we've built without housing any extra people. During that time the percentage of the housing stock which is rented has increased. I suppose more apartments and fewer intergenerational homes is the main reason.

There has also been a significant population increase in those 30 years and net additions to national housing stock have been negligible for the past 15 years.

 

[Itchy]

Given that there is no shortage of money in the country should there be more barriers put in place to stop institutional investors from buying existing homes?

Is the scale of the problem serious enough to warrant further measures? As you pointed out, the more immediate problem is capacity constraints rather than the crowding out.

If the funding that a developer requires to build the homes comes from institutional investors that's fine but if they are block-buying developments that they didn't fund then they are just pushing up the price for individual buyers.

Even so, there are advantages in that the developer reduces their legal, administration costs, turnover time and hence financing costs etc. Small beer but still.

 

[Purple]

Is the scale of the problem serious enough to warrant further measures? As you pointed out, the more immediate problem is capacity constraints rather than the crowding out.

I was thinking that it could tick the populist box without being as moronically stupid and counterproductive as increasing HAP, tracker mortgage interest relief and help to buy etc.

Even so, there are advantages in that the developer reduces their legal, administration costs, turnover time and hence financing costs etc. Small beer but still.

All true but see above.

 

[Leo]

I can never fathom why public policy always seem to favour those in the former category, who are usually better off than those in the latter.

Perhaps it's linked to home ownership generating more employment and more revenue for the state.

 

[The Horseman]

Yes, buying residential properties that have been built and financed by another developer reduces the supply of properties available for private individuals. Basic economics tells us that drives up price.

.

Basic economics also tells us as supply increase prices fall so someone who is housed irrespective of how they are housed is one less person looking for housing. At some point we will reach an equilibrium price where supply will meet demand. Again this is basic economics.

 

[Dermot]

It would appear that the sale to the fund was because there was going to be a further delay by private purchasers of the houses and the developer needed the money as he was paying over €20k a week interest on borrowings. Again basic economics.

 

[Purple]

Basic economics also tells us as supply increase prices fall so someone who is housed irrespective of how they are housed is one less person looking for housing. At some point we will reach an equilibrium price where supply will meet demand. Again this is basic economics.

Private equity funding the building homes contributes to an increase in supply. Private equity buying homes that have been built using funding from other sources doesn't increase the supply of homes.

 

[Purple]

It would appear that the sale to the fund was because there was going to be a further delay by private purchasers of the houses and the developer needed the money as he was paying over €20k a week interest on borrowings. Again basic economics.

Which development are you referring to? This is a common occurrence.

 

[T McGibney]

Private equity funding the building homes contributes to an increase in supply. Private equity buying homes that have been built using funding from other sources doesn't increase the supply of homes.

Is that always true though? In general terms, the entry of additional buyers into a market makes it a more attractive proposition for existing owners to put properties up for sale.

Of these properties, some subset of them will be currently underutilised, typically as holiday homes, and will come into use as residences once sold.

 

[Purple]

Is that always true though? In general terms, the entry of additional buyers into a market makes it a more attractive proposition for existing owners to put properties up for sale.

What is it that makes it more attractive, other than an increase in price due to additional demand in excess of supply?

Of these properties, some subset of them will be currently underutilised, typically as holiday homes, and will come into use as residences once sold.

I think that's a stretch.


This is similar to the State using public money to buy existing privately owned housing stock to use as social housing. Both have the opportunity cost of capital which could be used to increase the net housing stock being used instead to change current housing stock from one category into another. In this case changing from private ownership to rental and in the case of the State buying existing housing stock it changes from private ownership to public ownership.

 

[T McGibney]

What is it that makes it more attractive, other than an increase in price due to additional demand in excess of supply?

That's easy. If there's only one buyer in a market, a prospective vendor would be foolish to sell if they have other options. If there is a limited pool of buyers, selling becomes marginally more attractive. If more buyers express interest, then more owners will be tempted to sell.

I think that's a stretch.

Hardly, unless you're somehow claiming that the existing national housing stock is fully occupied for residential use, which is clearly not the case.

This is similar to the State using public money to buy existing privately owned housing stock to use as social housing.

Not really. The State has for the past decade or so simultaneously scooped up private housing for social use while doing its best to stymie new construction.

The involvement of private equity operators in residential letting should make it more attractive for developers to create new housing specifically for that market.

 

[Purple]

The involvement of private equity operators in residential letting should make it more attractive for developers to create new housing specifically for that market.

The supply side of the market is constrained by labour shortages and State inefficiency. Therefore increasing the supply of capital will not, in any meaningful way, increase the supply of homes.

That's easy. If there's only one buyer in a market, a prospective vendor would be foolish to sell if they have other options. If there is a limited pool of buyers, selling becomes marginally more attractive. If more buyers express interest, then more owners will be tempted to sell.

But there is currently no shortage of buyers so your point doesn't stand up.

Hardly, unless you're somehow claiming that the existing national housing stock is fully occupied for residential use, which is clearly not the case.

Why do you think that holiday homes and under utilised properties will come into residential use or be more efficiently utilised if sold?