It’s a well-known fact that Singaporeans love property. Before the pandemic, it was common to hear of hordes of people thronging condominium showrooms where units are snapped up like hotcakes.
While the pandemic has eliminated these throngs, the property market continues to remain buoyant. Last month, 99.co and SRX reported that condominium resale prices climbed for the 15th consecutive month, hitting a new all-time high.
The rental markets for HDB flats and private property also benefitted from Singapore’s economic recovery, with condominium rents climbing by 9.1% year on year in October. But it’s not all good news for investors.
Physical property requires heavy upfront capital and constant upkeep. Property-related stocks, on the other hand, offer an alternative, acting as a proxy for owning physical capital and can easily be accessed through the stock market.
REITs and property stocks are breathing a sigh of relief as economic activity picks up. As an investor, you may wish to take a second look at property-related stocks as they offer some compelling characteristics. Here are five reasons why they are attractive.
1. A scarce resource
No matter how you cut it, land is a scarce resource in our tiny island. That’s the reason why the government has been trying to maximise the space by building higher and increasing the plot ratio for properties. Property developers such as CapitaLand Investment (SGX: 9CI) and City Developments Limited (SGX: C09) that own land banks have a valuable asset on their balance sheets.
And REITs such as Frasers Centrepoint Trust (SGX: J69U) and Mapletree Commercial Trust (SGX: N2IU), which owns a portfolio of heartland retail malls and retail cum commercial properties in Singapore, respectively, are sitting on a veritable gold mine. By buying into such companies and REITs, investors can indirectly own a piece of valuable real estate.
2. Tax exemptions
Companies naturally are obliged to pay corporate taxes to the taxman at the current rate of 17% on their chargeable income. REITs, however, have a distinct advantage in this area. As long as they pay out at least 90% of their earnings as distributions, REITs are exempted from paying income taxes.
In addition, investors also do not need to pay income taxes on dividends received from both REITs and property developers. So, REIT investors win on two fronts as their distributions are completely exempted from income tax. Contrast this with owning an investment property where the property tax rate stands at 10% of the annual value of the property.
3. Easy to transact
Selling physical real estate can be a tedious process. You will need to engage a property agent and lawyer, and get in touch with the banker who offered you the mortgage. Not to mention the property is also an illiquid asset that may take weeks or even months to dispose of.
In contrast, property stocks and REITs offer much less hassle. As they are listed on a stock exchange, you can easily transact through the platform. The market is also fairly liquid and you can obtain your cash much more quickly should you sell. All you need is a stockbroker to facilitate the transaction.
4. Piecemeal holdings
When you’re dealing with physical property, you can’t sell it off piece by piece. It’s impossible to just, for example, sell off the dining room while retaining the rest of the property. For property-related stocks, though, you can choose to sell all or part of your shareholders.
This ability to transact in piecemeal fashion provides you, the investor, with much more flexibility.
5. An external manager
Owning an investment property comes with a set of responsibilities including maintenance and tenant management. You have to periodically check in on the property to ensure it is in good condition and also liaise with your tenant on rent collections. If the unit is vacant, you have to expend the effort to locate a suitable replacement tenant or else your cash flow dries up.
On the other hand, REITs appoint a manager that takes care of all the above, and the portfolio will be professionally managed by a competent team of staff.
The REIT manager’s duty is to ensure the properties are occupied and well-maintained, and that all tenants pay up on time. You can thus outsource the management of the properties to a competent manager who has your best interests at heart. Stay tuned for another five reasons as to why we believe property stocks are a great asset class to own!
First-time investors: We’ve finally released our beginner’s guide to investing. Read it in an afternoon, follow the principles, pick an investing style and buy your first SGX stocks within the next few hours! Click here to download it for free.
“REIT 50 Years Timeline”. Reit.com. Archived from the original on 2012-11-13. Retrieved 2012-12-18. Section 10(a) of Public Law no. 86-779, 74 Stat. 998, 1003-1008 (Sept. 14, 1960), enacting Internal Revenue Code sections 856, 857 and 858.
Whether you’re just starting out in real estate (congratulations!) or making the switch from another career, there’s a lot of excitement in store for you. You’re in a field with absolutely no financial ceiling and unlimited earning potential—but there are also many expenses that you’ll have to prepare for. I get asked a lot about how to set a budget, so I’ve put together a plan to guide you. Here are the four important expense categories to prepare for, and exactly how to prioritize them.
From your very first commission check, start saving for taxes. This isn’t like your last job when you had a W-2 and taxes were already taken out of your paychecks—you are solely responsible for saving for and calculating what you owe the government each quarter. If you don’t have enough money for your taxes, the IRS won’t care that you spent it on shoes. Talk to your accountant and figure out an amount to use from every paycheck for your taxes. Transfer that money from your checking to savings account each month—and keep it there.
2. Living Expenses
With the money left over after you transfer over your tax budget, calculate what you need for your monthly living expenses. Figure out what you need for food, rent, transportation, and other essentials. For those just starting out, times might be a bit lean—my debit card was once declined when I tried to buy a yogurt—but it will get better. Get a roommate, cancel cable, cook at home, and do what you must to keep expenses low while you’re getting started.
3. Business Expenses
After your taxes and living expenses are accounted for, you’ll have to pay some business fees. Typically, that includes professional dues, state license fees, and required courses. It’s also very important to stay on top of news, stocks, and market trends, so I recommend adding a subscription to The Real Deal, The New York Times, or another news outlet to your budget. You never know what questions your clients will have, and chances are they’re reading up on the market and current events—so you need to be prepared with answers.
Next, it’s time to spend money on marketing in order to grow your business. That includes things like social media ads, print and digital ads, signage, and events—as a real estate agent, you front the money for all of it. Down the road, when you start getting really busy, you’ll add someone else to your team; At that point, budget for a small base salary for that assistant, plus a percentage of commissions that you’ll give to him or her.
If you have anything left over after all of that (and if you’re just starting out in a high-cost city, you may not!) invest it. Aim to put 10 percent of your income away in a retirement fund. You can also use it to invest in cryptocurrency or stocks, or to buy some real estate of your own.
These budget tips will help you prioritize your expenses, prepare for the future, and ensure nothing catches you off-guard. Have more questions? Tweet them to me @RyanSerhant.
The third time Drew Mena’s manager asked him about relocating to Austin, Texas, he and his wife, Amena Sengal, began to seriously consider it. They had deliberated each time before, in 2017 and 2018, but landed on a hard no: Drew and Amena had lived in New York for more than 10 years, and they loved it. They owned a two-unit townhouse in the Bedford-Stuyvesant neighborhood of Brooklyn, and they felt lucky to have it, with its yard and the kind of close-knit neighbors who compete to shovel one another’s sidewalks after a snowfall.
But now it was August 2020, and the pandemic had changed their calculus. When the city shut down, their daughter, Edie, was 7 months old; Drew and Amena co-parented while working full time, one at the kitchen island, the other at the breakfast table. In May, they escaped to Drew’s family’s cottage in New Hampshire, and gradually their tether to the city began to fray. When the relocation offer came in from Drew’s employer, an asset-management company, they started browsing listings online, and it looked as if they could get a lot more space in Austin. They would certainly save money on everything else, like gas and groceries. The world is ending, they said to themselves. Why the hell not?
Amena, who was born and raised in Houston and attended the University of Texas at Austin, called her parents to solicit their opinion. They were so thrilled at the thought of her return that they suggested she consider buying, and offered to help with the down payment. They could all share the home as an investment property if Drew and Amena moved on. Amena crunched the numbers and quickly realized a truth about America: Thanks to persistently low interest rates and tax policies that favor the rich, you can almost always get more space with a mortgage than with the same amount in rent.
So she threw herself into the search with zeal. She mapped commutes to Drew’s new office downtown; she found a dozen preschools she liked, and video-toured more than half of them. In her mind’s eye, she drew a backward C around central Austin, cutting out downtown and the expensive west side. Their maximum budget was $550,000, $575,000 tops. They were looking for a house that was move-in ready, maybe around 1,500 square feet overall, with three to four bedrooms, two baths and a shed or office space for Amena in the backyard — she planned to keep her New York job in education policy and telecommute.
She reached out to John Gilchrist, a close friend from college who was now a real estate agent and, in January, he began taking her on up to four FaceTime tours a day. In the background, she could see other intent buyers, masked but often encroaching on one another. She could sense quality, but scale was harder to discern. “How many paces is that?” Amena would ask Gilchrist. “Can you put your hand in that sink? It looks tiny.”
The day that she and Drew were scheduled to fly to Austin for house-hunting, at the beginning of February, New York was buried in snow and flights were being canceled, so they opted to reschedule theirs. Feeling stranded and agitated, Amena began bidding on houses. There were two for sale in Johnston Terrace, on Emmitt Run, on the same block as Amena’s best friend from high school. Both were two stories and 1,700 square feet. One, listed for $437,700, was a bouquet of beiges — beige interior and exterior paint, beige carpets, beige linoleum floors and beige oak cabinets. The other, listed for $50,000 more, was being remodeled by its owner and his friends: modern gray paint, white cabinets, dark wood luxury vinyl plank. “We’re all putting lipstick on a pig trying to get our houses sold,” the owner told me.
Amena bid on the beige, imagining she’d use the extra money to do her own remodel. It went under contract for $45,800 over the asking price, or $43,500 more than her bid. A few days later, Amena bid on another home she’d been dying to see on their trip, a black-and-white ranch house in South Austin listed at $460,000. At the urging of Gilchrist, who told her how tight the market was, she bid more aggressively, offering $495,000, and was chagrined when she lost that house too.
For Amena and Drew, their Austin home-buying odyssey was just beginning — a monthslong ordeal that would teach them quite a bit about the cruel realities of America’s housing market, in which home prices nationwide have risen by an astonishing 24.8 percent since March 2020. And this first lesson, appropriately enough, demonstrated just one of many ways that the old, measured rules of home-buying no longer applied — that the cutthroat competitiveness that once defined only a few U.S. markets (San Francisco, New York, Los Angeles) had now become standard across the country, as the median home price in small- and medium-size metropolitan areas rose by jaw-dropping levels: Boise, Idaho, 46 percent; Phoenix, 36 percent; Austin, 35 percent; Salt Lake City, 33 percent; Sacramento, 28 percent.
By bidding on two properties she had never visited, in a city nearly 2,000 miles away, Amena joined the 63 percent of North American home buyers in 2020 who made at least one offer on a home that they had never stepped into. Homes had been one of the few things resistant to online shopping: We browsed online, but we didn’t buy. The pandemic changed that. The result was a market that moved much, much faster.
Drew Mena and Amena Sengal’s first 15 bids in Austin’s cutthroat home market were rejected. (Tap to cycle through the houses that got away.)
Combine that with the surge of millennials into the housing market — they represented more than half of all mortgage originations last year — as well as the insatiable appetite of investors, who now snatch up nearly one in six homes sold in America, and the contours of a new, lightning-fast, permanently desperate housing market come clearly into view.
“It’s so irresponsible,” Amena lamented, when discussing those first, remote bids they made, and Drew chimed in: “In a normal market you would never do that.” By “normal,” Drew meant a time when a home buyer could tour a house in person, mull it over, go back a second time with her parents or friends and then make an offer with time for an inspection and an appraisal. But there’s reason to fear that America’s real estate market, after passing through the pandemic madhouse, might never get back to that kind of normal again.
Several Austin real estate agents told me the same story about when the “flip switched” during Covid: a sale on Ephraim Road, in the suburb of Brushy Creek, on New Year’s Day 2021. The house was “well cared for,” a buyer’s agent told me, but “nothing out of the ordinary”: two stories in brick, with a large arched window — the sort of place one of Tony’s underlings might own in a Texas spinoff of “The Sopranos.” It was listed on Dec. 30, 2020, for $370,000, and it seemed like mere minutes until buyers and agents began lining up in the bitter rain to tour the house one by one, a process that took hours.
Agents texted Google Maps screenshots to one another, noting the red traffic jams around the property. By the 11 a.m. deadline on New Year’s Day, the house had received 96 offers, with the winning bid clocking in at $541,000 — a mind-boggling 46 percent above asking. “Just when you think you know a lot about real estate, you realize you don’t know anything,” the listing agent told me. “The market shifts and keeps shifting.”
Austin real estate has been hot for years. Over the last decade, an average of more than 100 people have moved into the area every day. But 2020 broke the levees. In July, Tesla announced it would build an auto plant in Austin. Facebook and Apple, meanwhile, were expanding their local campuses. All were attracted by Texas’ lower cost of living and business-friendly tax and regulatory environment.
In December, the database giant Oracle said it was moving its headquarters from California to Austin. That month, the median sales price for homes in the Austin metropolitan region was up 23.7 percent year-over-year. “Before the pandemic, you would see a line of 20 people standing outside a restaurant downtown,” Albert Saenz, who has been a real estate agent since 2003, told me at the time. “Now you drive downtown, there’s nothing happening. But out in the suburbs, you see lines of 20 people waiting to see a house.”
The last time U.S. housing saw such rampant price growth was in 2005, and the market corrected itself, infamously, in 2008. But the underlying reality today is different. Back then, a geyser of subprime adjustable-rate mortgages sputtered out as borrowers defaulted. (According to Bloomberg News, 60 percent of mortgages during the bubble years were adjustable rate; fewer than 0.1 percent of mortgages are now.)
The current boom is better compared to a river, one fed by streams that have long been visible on the horizon: high demand, low supply and a dysfunctional economy in which wages are stagnant while restrictive zoning and poor public policy have turned housing into an artificially scarce commodity. Historically low 30-year fixed mortgage interest rates, hovering between 2.68 and 3.08 for the last year, are narrowing the riverbed, quickening the current.
After a decade of too little development, the pandemic made the low inventory lower. Construction stopped. Sellers, afraid of inviting the virus into their homes or reluctant to move in uncertain times, didn’t list, and inventory declined by nearly a third from February 2020 to February 2021, falling to the lowest level relative to demand since the National Association of Realtors began record-keeping almost 40 years ago.
At one point in January 2021, the month the Ephraim Road sale broke everyone’s brains, Austin had just 311 homes listed for sale; in a normal month, the number would be 5,000. An estimated 65,000 starter homes were completed nationwide in 2020, less than a fifth of the number built annually in the late 1970s and early 1980s. A typical home listed for sale on Zillow was available for a median of 14 days in December 2020, compared with 33 days the year before. Now it’s nine.
As the pandemic made the poor poorer, meanwhile, it made the rich richer. Homeowners, already more than 40 times as wealthy as renters, were more likely to keep their jobs, profit from the stock market and have enough savings to take advantage of low interest rates.
Then there’s the role played by investors and speculators. Large corporate and Wall Street landlords, like Invitation Homes, American Homes 4 Rent, BlackRock and Blackstone, are arguably the most toxic players, driving up rents in the select markets they saturate, lobbying for corporate tax cuts and fighting tenant protections. But a majority of investment buyers are smaller companies and individuals: mom-and-pop landlords, tech workers looking to diversify their portfolios, teachers who supplement their paltry paychecks by Airbnb-ing properties on the side.
The ease with which they can access credit strains the market and drives up prices. Those effects are likely magnified when investors target homes in cities less expensive than the ones in which they live, whether they’re Chinese investors in California or Californian investors in Texas.
Perhaps the most important factor driving the new housing market is demographic inevitability. Millennials — the 72 million Americans born between 1981 and 1996, including Amena and Drew — are aging into their prime home-buying years and belatedly entering the market. This has been made possible in part by a recent rise in wages, after years of stagnation. Even so, millennials, many of whom came of age during the Great Recession, will probably never make up all those lost earnings from their early adulthood.
Now the largest living generation, they control just 4 percent of America’s real estate equity; in 1990, when baby boomers were a comparable age, they already controlled a third. What’s more, because of the financialization of housing, millennials need more savings or to take on greater debt to buy a house than previous generations did. The end result is that millennials buying their first home today are likely to spend far more, in real terms, than boomers who bought their first home in the ’80s.
Given these handicaps, they have to approach things differently, and that’s changing real estate, too. In a housing market riddled with speculators, the only way millennials can break in and compete is by acting like speculators themselves.
Back in 2012, Stephanie Douglass greeted a new East Austin neighbor in her usual manner, with a tin of pecan sandies. The woman who opened the door reminded Douglass of herself: cute and casual and blond. Except while Douglass was teaching fourth grade and bleeding away half her earnings on rent, this woman, just a few years older, had bought her house, and was building equity. As a math teacher, Douglass could crunch the numbers.
Shortly afterward, Douglass, who was 24 and had $35,000 worth of student loan debt, bid on nine houses in East Austin before winning one so far east it was almost outside the city: $180,000 with 5 percent down. Her friends thought she was nuts, planting roots at such a young age, but she fixed up the home herself; to cover half her mortgage, she rented the second bedroom to a friend from grade school in Houston.
When Douglass moved in with her boyfriend, she rented out her whole house, and when the relationship ended, in 2016, she told her mom that she didn’t want to waste money renting until her tenants left. They decided to buy a bungalow together and found one with popcorn ceilings and terrible wood paneling that would accept a 5 percent down payment. They spent July and August sharing a mattress on the floor and fixing up the place themselves.
Douglass loved her fourth graders, but not the way she loved her houses. At the end of summer, she dreaded returning to school, dreaded waking at 6 a.m. to work from 7 a.m. to 5 p.m. “Remodeling this house was the first time I had been passionate about anything,” Douglass told me. She was a high achiever, but she had fumbled through college looking for a sense of purpose. With real estate, “I’d figured out how to take control of my life, and it was insanely exciting. I thought, This is cool, and everyone needs to know there’s another way.”
That same year, she got her real estate license and moonlighted as a sales associate, soon earning more than $100,000 annually in commissions. Her closest friends, who once thought she was crazy, now saw her as their financial guru. They began to follow in her footsteps — using her as their real estate agent, of course. Six of them now own homes within a mile and a half of her in East Austin; four of those friends, all under age 35, own at least two properties.
“We wouldn’t be able to stay in the city if we hadn’t bought,” Douglass told me. She has invested in 13 properties around Austin, often adding additional units. Her mother, Meshelle Smith, oversees 10 of them as Airbnbs. (Smith quit her teaching job to found an Airbnb management company, which has 51 listings.) Douglass’s passive net cash flow is $14,000 a month, and her net worth exceeds $3 million.
In 2017, Douglass had what she calls “the best first date ever” with Kristina Modares, a real estate licensee and investor who messaged Douglass on Instagram after following her home-renovation posts. They talked for seven hours and over the next few months decided to found an agency focused on the clientele they were already serving, clients most Austin agents don’t want to touch: first-time buyers looking at homes under $200,000 or $300,000.
Douglass quit teaching, and in June 2019, they opened their agency, Open House Austin, with a party at their office, a once-derelict commercial property on the east side that they (of course) bought and renovated themselves. In 2020, Douglass and Modares started offering Homeschool, a self-directed, six-week course (“The Surprisingly Simple Path to Buying Your First Home With an Investor Mind-Set — Even if You Know Nothing About Real Estate”), which quickly sold out. Amid the economic turmoil of 2020, Open House sold 101 homes to millennials and earned a million dollars in net profits.
On a recent Wednesday evening, Douglass and Modares logged on to a video chat to answer questions from their third Homeschool class, a group of 30 students from across the country, almost entirely millennials and younger. It was the first meeting, which called for an icebreaker. “What is your first item you want to buy in your new house?” Kristina Modares asked. “Or first renovation,” Douglass added.
“I live in the Washington, D.C., area, in the suburbs, in Maryland, currently at my childhood home,” a young woman said. “Hopefully temporarily, but then we had a pandemic, so I was sort of stuck here. I’ve been looking to buy for a long time, looking to stay in my area and just find a house and a yard. The first thing I want to get is a dog.”
Another woman said that she and her husband lived in San Francisco but were originally from Fort Worth; they were torn about whether to buy in the Bay Area or in Texas near most of their friends and family. “We are in a super, super small apartment in San Francisco, so I imagine we’ll have to buy a lot of furniture.”
Another attendee, a local, said, “I’ve always dreamed of building a little ‘catio’ for my cat, so that she can just go outside safely whenever.”
MOM [Modares in ’80s glasses and a gray blazer]: Well, you’re definitely going to have to save 20 percent for your down payment.
DAUGHTER [Modares in a black tank]: I don’t think so. I talked to my lender, and they said actually I could put 3 percent down.
MOM: Me and your father have been living there for 30 years. It’s a big commitment.
DAUGHTER: Yeah, wow, so I’m actually going to live here for maybe two, three years tops, and then I’ll probably rent this out on Airbnb.
MOM: Well, don’t you think you should be married before you buy your first house?
DAUGHTER: No, I got preapproved on my own. I’m actually going to house-hack, and my whole mortgage payment will be covered by someone else.
MOM: [Looks puzzled at the phrase “house hack”]
DAUGHTER: [holds up a sticker that reads, “Houses before spouses”]
Joking aside, the skit encapsulates a truth: Much of Open House’s messaging nudges buyers to think beyond the traditional path of homeownership, built on long-term investment in one home. Instead, they encourage first-time home buyers to start as early as possible with whatever they can afford, typically small or farther-out homes chosen primarily for their investment potential. Open House advises buyers to use credit to leverage whatever they have to bet on appreciation and swiftly vault themselves into better and better homes in different budget brackets.
House hacking, cash flow, passive income, financial independence: These are the buzzwords, but they aren’t new concepts. This is the natural culmination of the way in which housing has been transformed into an investment vehicle over the last 50 years — and it’s a recognition of the economy younger generations have inherited.
When Amena and Drew finally made it to Austin on Thursday, Feb. 11, they brought Snowmaggedon with them: sleet, snow, freezing temperatures and statewide power failures that amounted to one of the costliest disasters in Texas history. “We thought: We’re rugged New Yorkers. No one else wants to drive on this ice, but we’ll do it as a competitive advantage,” Drew told me. Gilchrist had scheduled more than 20 showings, and so on that first weekend, as the state froze, they saw as much as they could, including trendy new houses and the Emmitt Run home being remodeled by its owner and his friends. It was weirder in person. Drew said they built the base of one vanity out of two-by-fours. “And then just like slapped the sink on top of it. It wasn’t even sanded.”
But by Sunday, much of the city lost power, including the friends they were staying with. They moved in with friends at a different house — which lost power an hour later. Everyone slept in the dark, and the next day they trucked over to a third friend’s house. The kitchen was being renovated, and they were washing dishes in the tub, but it had a hot plate and heat.
One of the last homes Amena and Drew were able to visit was a powder blue condo on a street crammed full of identical homes. It retained power because it was on the same grid as a major hospital. Driving up to the address, Malvina Reynolds’s “Little Boxes” played in Amena’s head: “Little boxes on the hillside,/Little boxes made of ticky tacky,/Little boxes on the hillside,/Little boxes all the same.” “It was just like, Oh, my God, they’re all the same! But it was fully done, had the backyard, had all of the space and the rooms that we wanted, had a loft upstairs for me to have an office plus a guest bedroom and a room for the baby and the master,” Amena told me.
As night fell, Amena submitted three offers on her phone: on the powder blue little box; on a 2005 home that felt too far south but was across from a good Montessori school; and on an East Austin condo from 2006 with concrete floors that reminded Drew of the Greenpoint loft apartment they once rented in a former pencil factory. Doing three at once “felt so reckless,” Amena told me. But they weren’t the only ones submitting simultaneous offers — a taboo during “normal” times.
The highest offer on the first house they bid on, the black-and-white ranch house in South Austin, fell through within an hour of execution, because the buyers learned they were also the highest bidders on another home that they liked better. “People kind of just started losing their minds: ‘I’ll offer whatever it takes,’” the listing agent, Ashley Tullis, told me. “We learned some big lessons about the buyer’s remorse.” As a consequence of backing out, the buyers lost their option fee, a sizable $3,000 (before 2020, a typical option fee was $500 or less). But such was the price of playing in this market.
On their simultaneous bids, Amena and Drew never went more than 8 percent over asking price, and they returned to New York having lost out on all three. Amena began to panic. The second house they considered on Emmitt Run, the one with the homemade vanity, erupted in flames during its inspection, injuring the inspector. The buyers pulled out, and it was taken off the market and re-listed, a month later, for nearly $50,000 more. It was hard to imagine a better metaphor for their search: Austin real estate was literally on fire. (The house sold above listing price, after again receiving multiple offers.)
By the end of February, Amena and Drew realized that if their budget was $550,000, they had to look at houses listed for $400,000. “Turnkey” — move-in ready — properties in central Austin were out of reach. For a brief moment, they sought homes needing a gut renovation. But anything less than $300,000 was inevitably being hoovered up by some investor paying all cash. Frenzied buyers were waiving their inspection periods and their appraisal contingencies, meaning they were contractually committing to buying homes even if their lender wouldn’t cover the full price.
And the market was moving so fast that this had become a real risk: Prices from a month before — generally the most recent data available to appraisers — were already outdated, leaving buyers scrambling to make up gaps of as much as $100,000. Others buyers were offering absurdly large option fees (say, $10,000) that they wouldn’t get back if they canceled the contract.
Amena began bidding on any house that seemed acceptable, click-click-clicking through DocuSign at 11 p.m., exhausted, right before falling asleep. Homes blended together. A 1949 bungalow, totally renovated, in East Austin. A fixer-upper owned by a professor of Russian literature at U.T. A handful of other 1950s ranch houses in Windsor Park. Amena was offering between $40,000 and $95,000 over asking. A squat yellow home from 1977 stood out because of its location on Duval Street, walkable to the coffee shops and vintage stores of North Loop.
But the one that most seized Amena’s imagination was a 1955 home on Westmoor Street, brick and wood that was painted purple, green and blue, like a preschool. “It was a mess of a place — we would have to do everything over — but it was huge and beautiful in terms of its potential,” Amena told me. It was listed at $375,000, and she bid $400,000, needing to reserve cash for renovations. In her love letter to the seller, she wrote, “You will probably be offered all cash by someone, but please don’t take it.” Amena and Drew couldn’t bail on Austin. Drew had signed a contract, and they’d rented out their New York apartment.
“More bad news, my friends,” Gilchrist texted. “We got passed over for Duval and Westmoor. Westmoor acknowledged how brutal the market is with an apology, and Duval said they got 28 offers.” Westmoor got 27.
“This is market is no fun,” the Westmoor listing agent told me. “People think that realtors are making money hand over fist, but that means 26 realtors didn’t get to feed their families.
“My client had a big heart and was sentimentally attached, but the less risky bids for her were cash and no contingencies,” the listing agent continued. “This was her nest egg.” She chose an all-cash bid from a buyer planning to tear down her house and rebuild. At this point Amena and Drew were on their 10th failed bid. “It’s like a danceathon,” Drew told me. “Last person standing wins.”
Often, the person still standing was that most hated figure in the Austin real-estate market, the California investor. The winning bidder for Ephraim Road, for example, was Michael Galli, a Silicon Valley real estate agent. “Here’s the interesting truth,” he told me. “I’ve never been to Austin.” He toured the Ephraim Road house on FaceTime.
In 2019, Galli decided he wanted to diversify, so he spent eight months studying cities online and kept coming back to Austin. It had high-income job growth and an influx of venture capital, the very things that had made Bay Area real estate so lucrative. Galli bought a large map of Austin and mounted it on the wall, studying it in the evenings with a glass of red wine in hand. He stuck Post-its onto points of interest: Apple, Samsung, Tesla, new transit lines.
He believed he understood what tech workers wanted: spacious feng shui- and Vastu-compliant homes, with a bedroom on the first floor to accommodate foreign parents on long visits. And most important, good school districts. He resolved to acquire 10 homes within a 12-minute drive of Apple. For $1 million down, he’d own $5 million in assets that he would rent out for top dollar and that he believed would double in value in five years and double again by 12 years.
Then there was a 35-year-old tech worker in Long Beach, Calif., who bought a house in Round Rock for $300,000 last October. By January 2021, it was worth roughly $400,000; in February, he bought two more. His winning bids were two of dozens that his real estate agent, a former equities trader who now works primarily with individual investors, made sight unseen, all of them for at least $40,000 over the asking price. “I’m part of the problem,” the buyer acknowledged to me, though he was not your stereotypical speculator: Despite earning six figures, he drives a 2005 Honda Civic and, when I spoke to him, was renting a room for $900 a month, preferring to save and invest. (Scarred by graduating into the Great Recession, he aligns with the Financial Independence, Retire Early movement popular on Reddit.)
He marveled at how FaceTime, DocuSign and electronic transfers made everything seamless, but because real estate money can now move so easily, it meant what he had liked about real estate investing in the first place — its stability and relative slowness — no longer held true. “We’re gamifying real estate investment to the point that it’s almost like throwing money at the stock market,” he told me.
Some Austin real estate agents have positioned themselves to capitalize on all this out-of-town money. On a steamy 95-degree day in late June, Matt Holm lifted the winged door of his Tesla Model X so that I could hop in the back seat behind his client, Jon, a man who worked in commercial real estate financing in Santa Monica. (Jon asked that I withhold his last name because he hasn’t shared his relocation plans with his friends and family.) During the pandemic, Jon, originally from Madison, Wis., began to rethink what was keeping him in California. “I’m getting a little anxiety about making a longer-term commitment to L.A., just given the political climate, the tax climate, the homelessness problem,” he told me.
Jon had traveled to Austin three times in as many months and was getting a handle on the “resi” market. He was looking for a home where he could declare residency to take advantage of Texas’ lack of income tax — but he also wanted to live elsewhere half the year, and so he was looking for a place he could easily rent out and make money on. And he wanted guaranteed appreciation. “I mean everything’s an investment, right?” he told me. A friend of his who had just relocated to Austin introduced him to Holm, whose dirty-blond hair was pulled into a sleek ponytail.
He founded the Tesla Owners Club of Austin in 2013 and proudly referred to himself as the “Tesla realtor” in town. When Jon slipped in to look at a short-term rental, Matt told me that Jon would like to spend $500,000 to $700,000, “but he’s going to spend 1.3 to 1.5 by the time he’s done.”
“There’s nine million square feet of office being built,” Holm said, as we drove through downtown, cranes and glass skyscrapers glinting above stalky yellow-limestone and red-granite buildings. (The Austin Chamber of Commerce gave a lower but still shocking figure, 6.2 million square feet.) “And it’s being built, like, it’s not occupied. So those jobs are coming. People are telling me, like, Oh, you know, we peaked. … As far as the metrics, the Texodus is not slowing down. We’re about to get a tidal wave.”
“People haven’t even factored in the Elon effect,” he continued, “I can’t tell you the number of people that are saying, Oh, Elon’s building a factory. Like, no, Elon’s not building a factory — this is headquarters for everything Elon. He hasn’t officially announced it, and I don’t know anything behind the scenes, but I can see very clearly the people that are moving here, and they’re not factory workers.” (Indeed, in October, Musk made it official.)
Holm and Jon spoke the same language. They analyzed every parcel for how to maximize profits and shared tips for minimizing taxes. Walking through a cavernous tiled-and-carpeted two-story in Travis Heights, Holm suggested that with its many bedrooms, it would make an excellent Airbnb. Although Austin and the state stipulated that owners could rent only their homestead and only for a maximum of six months a year, “that could be every weekend,” Holm said.
“The investor I know that’s killing it right now is a systems guy,” he continued. “And I told him for four years that he had to get into the Airbnb business and he thought I was B.S.ing him on the numbers. And finally, he believed me, and now he has 13 Airbnbs.”
“How does he do that?”
“Because he’s bought them all in the ETJ” — the Extraterritorial Jurisdiction, a broad swath of unincorporated land bordering Austin that isn’t subject to the city’s short-term rental restrictions. “Dripping Springs is about 30 minutes west of here, and it’s the wedding capital of Texas,” Holm said. “You see these people getting married with cowboy boots on and a wedding dress, and they’re on top of a hill and all that [expletive]. That’s where they are. But there’s like no hotels out there. … Well, if you can get a big-ass house out there where the entire wedding party can stay together, jump in the pool after the wedding … there’s almost a completely unlimited market. … He doesn’t take any Airbnb bookings that don’t gross rent $30,000 a month.”
“I like this place,” Jon said of the house. At 3,000 square feet and $1.2 million, this home was over Jon’s budget. The question was how much was he willing to live in his investment. “I don’t need so much house unless I was really going to take on the project you describe,” he said. “But that puts me in a bit of a conundrum, because I am living here six months a year. You don’t want it to be a complete party house either.”
Next up was a condo with clean white walls, black fixtures and gray oak floors. At $1 million, it didn’t offer the same opportunities for monetization: He couldn’t build, and there were fewer rooms to rent.
“Everybody is from San Francisco today,” the seller’s agent said when we got there. “What about you guys?”
Despite the competitive market, despite having to work double the hours and write triple the offers, Open House’s agents were moving cash-strapped millennials and some Gen Z’ers into houses in record numbers: 130 so far this year, 88 percent of them first-time home buyers, at an average price ($369,000) far below the Austin metro median of $450,000. Because they were encouraging clients to think of property first and foremost as an investment, their young charges were going after what they could, buying new homes in neighborhoods with homeowners’ associations, older condos with perhaps-less-than-ideal natural light and suburban fixer-uppers that reeked of cigarette smoke. Anything to break in and start building equity.
At those price points, Open House clients were inevitably snapping up stock in once-affordable neighborhoods. For the last decade, East Austin, the historically Black and Latino neighborhood atop the city’s less-desirable clay soil, has been among the city’s hottest destinations. It began with a couple of fun dive bars and an excellent Japanese fried chicken truck and exploded into the site of award-winning restaurants, a hipster honky-tonk, a Whole Foods and, now, some of the highest-price-per-square-foot real estate in Austin. Gut-renovated bungalows and new homes in moody shades of midnight blue, hunter green or white were rapidly multiplying, squeezing out the weathered old houses with pit bulls and barbacoa pits, the piñata shop, the tire-repair place.
In the spring, Douglass, Smith and Douglass’s uncle, Moose Mau, took out a hard-money loan to buy their fifth property together (and Douglass’s eighth property in East Austin), a run-down 1,614-square-foot home on the floodplain, along with a vacant lot next door. The cost for both was $550,000. As usual with Douglass, one project spawned another: The empty lot came with a shipping container filled with junk, and she decided to turn it into an Airbnb. For $20,000 she was going to carve out some windows, add a kitchen and bathroom and insulate it from the inside. For another $78,000, she ordered a tiny house to put in back. (During one drive, I saw three such miniature homes traveling the Texas highways.)
The Latino family that sold the two lots was using the profits to purchase a larger parcel of land outside the city, a move common among people of color selling their homes on the east side. Gentrification has different effects in different geographies, as research by Virginia Tech’s Hyojung Lee and Georgetown’s Kristin L. Perkins has shown. In New York, where the cost of living is high for miles and miles, it tends to lead to densification — doubling and tripling up. But in Texas, where the sprawl is decidedly more affordable, it spurs suburban migration. The proportion of the Austin population that is Black has been declining for decades. Many of those selling homes in the city were moving to the parched suburbs of Pflugerville, Buda and Bastrop. Or they were moving on to the next phase of life, aging into retirement or nursing homes.
In the late spring, Mau flew in from Southern California, where he works as a mortgage broker, to help with the renovation. He was clearing trash in the front yard when a young man walked by and asked if he needed help. As they worked alongside each other, the man mentioned that his girlfriend was helping the woman next door. The woman said she’d sell her home for between $200,000 and $250,000, he said.
“We’re like, ‘Whoa, that’s supercheap,’” Smith told me. So she went over to the run-down yellow house, which seemed to be made of little more than splinters and asbestos. The owner, Maria Saldaña, was in her late 60s and partially blind and spoke little English. An orange Home Depot five-gallon bucket with a toilet seat on top sat beside her bed, because the toilet didn’t work. She was eager to sell and asked for $210,000. Smith agreed. Micah Domingues — Smith’s employee at her Airbnb management company and her middle daughter’s 28-year-old boyfriend — was interested.
Before the sale closed, one of Saldaña’s sons moved her into an affordable senior living facility. He vaguely described where it was located so that Smith and Domingues could visit her and finalize the sales contract. After studying the map, Domingues and Smith drove to the most likely complex, but the receptionist didn’t think Saldaña had arrived. So the two started knocking on doors there, rapping, rapping, rapping as instructed by Saldaña’s son, who told them to continue to knock so that she could follow the sound. She opened the third door they tried. She was alone and unfamiliar with her surroundings, so Smith and Domingues led her by the hand around the room.
“You have a new couch, and it’s over here,” Smith said, helping her grasp the cushions. “Here’s your table, and there’s a box of cereal on top of it.”
“There’s cereal?” Saldaña said. “I have a little milk.”
Smith poured milk and cereal into a bowl, and Saldaña dug in as if she hadn’t eaten all day. The air-conditioning was too cold for Saldaña, and so before leaving they led her out onto the patio she didn’t know she had and brought out a chair so she could sit in the sun.
In the end, the sale fell through. There was a cloud on the title. Saldaña had been married, and although her husband was dead, he had grandchildren from a previous marriage who potentially could claim a share of the property, and two of them wouldn’t sign off. Micah, who had been so excited to purchase his first property, told me that by the end, “I had no more emotions.” Given his budget — $300,000 was his upper limit — he worried he’d have to wait a long time before stumbling upon another off-market house.
Real estate agents have a saying: “There’s a buyer for every house, but there might not be a house for every buyer.” That’s the definition of a seller’s market — and a pithy indictment of the way America subsidizes homeownership, in an era when a majority of Americans are utterly shut out of it. All the changes that Covid brought to the market have only made things worse.
It doesn’t exclude just those who can’t muster all-cash offers, or those without the financial cushion to take on the risk of losing a large option fee or forgoing an inspection. It also disadvantages those who are unable to drop everything to make a play for properties. In the Covid-era Austin market, there was seldom a house for anyone who couldn’t house-hunt full time.
In keeping with seasonal trends, September 2021 brought an easing in the market, both in Austin and nationwide — but the city’s median sale price was still its highest on record for a September. The Case-Shiller home price index reported that the August 2021 year-over-year appreciation was 19.8 percent nationwide: “That’s just an astronomical pace of price appreciation,” Jeff Tucker, a senior economist at Zillow, told me. “The only remotely comparable points in time in the modern era of low inflation were late 2005, when price appreciation peaked in the 14 percent range for many months, and 2013,” when prices finally began to rebound after the Great Recession. “And again, there it didn’t quite crack 11 percent,” Tucker said.
As for Drew and Amena, things were still dire a month before Drew had to report to work in Austin. Amena began flirting with the idea of renting, but friends of hers were having as much difficulty finding a rental in Austin as she was with buying. Renters were offering $500 more than the monthly asking price and signing two-year contracts. Some were offering an entire year up front. Amena applied to four or five, and was rejected on all of them.
But two days later, miraculously, she and Drew were under contract to buy. The home had taken extra clicks to be located on Zillow because it was for sale by owner. It was smaller than they had wanted — 1,200 square feet, about the same size as their unit in Bed-Stuy. But it had a guest room for Amena’s parents, and the master bedroom was at the back of the house looking onto a huge backyard with a mature fig tree. They could build a home office, they figured — or a home gym or a rentable backhouse.
It was also in Windsor Park, a sleepy community of ranch houses that they’d come to love. The neighborhood was so close to so many major highways that it was no more than 20 minutes away from almost all of the major tech campuses. At $525,000, it was listed higher than comparable homes, but Drew and Amena had learned their lesson. They bid $50,000 over asking with an expedited five-day option period.
“I think, maybe, it’s looking good,” Gilchrist said shortly after they submitted. “The guy is currently asking whether or not you will water and harvest the potatoes in their backyard for them once you close and then share the potato harvest.”
“We will take a potato-cultivating class if that’s what he wants us to do,” Amena said.
Amena and Drew went under contract, having seen only photos of the house online and a video shot by Gilchrist. The backyard was recently added to the flood zone, meaning they’d have to pay for a FEMA-approved flood-insurance policy. While talking to their lender, they also learned that the city wouldn’t let them add anything to the backyard — a heartbreaker.
With two days left on her option period, Amena flew to Austin for 24 hours. Gilchrist picked her up at the airport and drove her directly to the home. She walked through the low-slung rooms with their boxy windows and opened every drawer, closet and cabinet. She FaceTimed Drew: The living and dining area was cramped, but the owners, who were moving with their two children 30 minutes south of Austin to Niederwald, where they could afford more square footage and more outdoor space, had large furniture. Most important, the house didn’t smell, and it was theirs if they wanted it. They would redo the bathroom and reconfigure the kitchen. It would work.
The home was still under renovation when they moved in, in July. And it would be for quite some time, because houses weren’t the only thing in short supply during the pandemic: The same was true of appliances, cabinets, vanities, sinks and shower heads. In October, they still didn’t have kitchen counters. They were creatively laying cardboard and cutting boards atop the open cabinets. “It’s actually convenient from the standpoint of the silverware drawer,” Drew told me. “You don’t have to open anything,” Amena said. “You just reach in and grab.”
But even before they were settled in, Amena couldn’t see staying in Austin long term. The problem with Austin wasn’t that housing deals sometimes hinged on potatoes. (The owners harvested them and left Amena and Drew a small bounty, which was reportedly delicious.) The problem, they felt, was that the city seemed too staid, too homogeneous, too white — and each sale in this crazy real estate market seemed to be making it even more that way. When it came time to celebrate Drew’s 40th birthday, they considered a number of destinations: Mexico, Cuba, Portugal. But in the end, the place they most wanted to go was New York.
“I still miss Brooklyn — I kind of want to move back,” Amena said, her voice echoing off the bare walls and hardwood floors of her empty new home. “To be honest, the Austin housing market was a little demoralizing.”
By : Francesca Mari
Francesca Mari is a journalist based in Providence, R.I., and a national fellow at New America. She has written about housing, inequality and con men for The New Yorker, The Atlantic and The New York Review of Books, in addition to the magazine. Dan Winters is a photographer and portraitist based in Austin, Texas. He is widely recognized for his celebrity portraits, scientific photography, photo illustrations and drawings.
Shiller, Robert (June 20, 2005). “The Bubble’s New Home”. Barron’s. The home-price bubble feels like the stock-market mania in the fall of 1999, just before the stock bubble burst in early 2000, with all the hype, herd investing and absolute confidence in the inevitability of continuing price appreciation. My blood ran slightly cold at a cocktail party the other night when a recent Yale Medical School graduate told me that she was buying a condo to live in Boston during her year-long internship, so that she could flip it for a profit next year. Tulipmania reigns. Plot of inflation-adjusted home price appreciation in several U.S. cities, 1990–2005:
Plot of inflation-adjusted home price appreciation in several U.S. cities, 1990–2005.
Roubini, Nouriel (August 26, 2006). “Eight Market Spins About Housing by Perma-Bull Spin-Doctors … And the Reality of the Coming Ugliest Housing Bust Ever …”RGE Monitor. Archived from the original on September 3, 2006. A lot of spin is being furiously spinned [sic] around–often from folks close to real estate interests–to minimize the importance of this housing bust, it is worth to point out a number of flawed arguments and misperception that are being peddled around. You will hear many of these arguments over and over again in the financial pages of the media, in sell-side research reports and in innumerous [sic] TV programs. So, be prepared to understand this misinformation, myths and spins.
“President Highlights Importance of Small Business in Economic Growth” (Press release). The White House. January 19, 2006. [President Bush was asked about the housing boom’s impact on the ability of the questioner’s children to purchase a home. The President answered:] ‘ … If houses get too expensive, people will stop buying them, which will cause people to adjust their spending habits … Let the market function properly. I guarantee that your kind of question has been asked throughout the history of homebuilding – you know, prices for my homes are getting bid up so high that I’m afraid I’m not going to have any consumers – or my kid – and yet, things cycle. That’s just the way it works. Economies should cycle.’
Retsinas, Nicolas (September 26, 2006). “The housing wail”. Scripps Howard News Service. Archived from the original on October 5, 2006. Retrieved October 2, 2006. The headline hints of catastrophe: a dot-com repeat, a bubble bursting, an economic apocalypse. Cassandra, though, can stop wailing: the expected price corrections mark a slowing in the rate of increase—not a precipitous decline. This will not spark a chain reaction that will devastate homeowners, builders and communities. Contradicting another gloomy seer, Chicken Little, the sky is not falling.
Google made waves in Manhattan real estate when it bought the iconic Chelsea Market and its 2.9 million-square-foot New York headquarters building within a few years of each other in the past decade. The technology giant followed up last month with the largest U.S. real estate transaction since the pandemic, a $2.1-billion purchase of the under-construction St. John’s Terminal.
Google’s takeover of Manhattan’s West Side has been mirrored to varying degrees by Amazon, Microsoft, Apple, Facebook and Salesforce, each of which has established a campus in the city. The surge in real estate occupancy shows how technology companies are rapidly displacing counterparts in banking and finance as the city’s biggest industry in the aftermath of the pandemic: Big tech also leads in employment growth and by volume of companies.
Two decades ago, Tim Armstrong, 50, became Google’s first New York-based employee. “If you were having a cocktail party for all the people who worked in the internet in New York, you could fit them all in a bar,” Armstrong says. “Now I’m guessing you’d have to take over Madison Square Garden, plus the Javits Center to fit everybody in.”
Data provided to Forbes by the New York State Comptroller’s Office provide an expansive view of this phenomenon. The number of tech companies in the city surpassed more than 10,000 in 2020, more than double the number 20 years ago — and almost twice as many as securities companies. Tech employment has also surged: Between 2000 and 2020, the number of tech employees in the city grew from 108,000 to 167,000, while the number of securities employees shrank from 190,000 to 176,000.
The tech takeover of Manhattan has occurred in visible ways — the Salesforce logo replacing MetLife above 1095 Sixth Avenue near Bryant Park, for example — and in more subtle ones, such as the receding of bank offices. Since the wake of the Great Recession in 2008, the five largest banks in the U.S. by total assets — JPMorgan, Bank of America, Citigroup, Wells Fargo and Goldman Sachs — collectively shedded nearly 5.5 million square feet of office space in Manhattan, according to data provided by Real Capital Analytics.
Over the same time period, just two tech firms — Google and Amazon — acquired about 6.5 million square feet of office space. Apple, Microsoft and Facebook, meanwhile, leased millions of square feet of space across the city. Facebook brought its total Manhattan footprint to 2.2 million square feet when it last year leased 730,000 square feet at the Farley Post Office building in Midtown.
Apple also signed a 220,000-square-feet lease nearby at 11 Penn Plaza last year. Microsoft has an additional 200,000 square feet of leased space at 11 Times Square and last month was in talks to take 100,000 square feet more at an undisclosed building in the Flatiron District.
“The city was always talked about as a financial services city, and now it’s talked about as a financial services and tech city,” says Darcy Stacom, a commercial broker for CBRE who represented Google in its building acquisitions. “It was never said before in my career.” Stacom, who has worked in New York City real estate for more than 40 years, says that the recent activity could put the tech industry on track to surpass finance as New York’s biggest occupier of commercial real estate by the end of the decade.
Google says it is doubling down on New York because of the city’s vast talent pool, a rationale echoed by Amazon, Facebook and Microsoft. Last month, Google said it planned to hire an additional 2,000 people in the city, growing its local workforce to 14,000 people, with sales and marketing employees at its newest property.
“With people fretting about whether New York would come back, we thought this would be the perfect illustration of our corporate commitment to New York,” says William Floyd, Google’s head of public policy and government affairs. “In New York, tech is not only an industry, but tech also cuts across and is a vital part of the other industries of New York.”
The most recent real estate mega-deal could also be chalked up to Google having too much cash and nowhere to spend it, says Rahul Jain, deputy comptroller with New York State. “They have the money, and they are playing the long game,” he says. “It’s a belief in the fact that New York will remain desirable.”
Google’s parent company, Alphabet, has cash reserves valued at $135 billion in April, and according to a public filing, holds almost $56 billion in real estate assets as of June 30 — ranging from a new $1 billion building in London’s Kings Cross to a vast portfolio of data centers across the world — making its Manhattan holdings a relative drop in the bucket.
Google has said it will require its employees to return to offices in January, although it has twice postponed the mandate because of concerns about spread of Covid-19. The approach doesn’t align with those of Microsoft, Amazon and Salesforce, which have suspended return to their offices indefinitely.
While the tech industry was born in Silicon Valley, New York’s focus on the sector kicked into gear in the 2000s under Mayor Michael Bloomberg, whose eponymous data and financial intelligence company was the city’s largest tech tenant at the time. Bloomberg vowed to wrestle away New York’s reliance on the finance sector, launched initiatives and in 2011 spearheaded the $2 billion development of Cornell University’s tech campus on Roosevelt Island.
The bet has had a strong effect on both the tech and finance industries. This month, the Comptroller’s office issued a report on the use of office space in New York City that showed between 1990 and 2020, the finance sector’s office occupancy dropped from 48% of all office space in New York to 35%, citing data from commercial brokerage Cushman and Wakefield.
By comparison, the TAMI sector (technology, advertising, marketing and information companies), now holds 25% of New York’s leased office inventory, up from 16%. The Comptroller’s office also found that 30 years ago, finance companies allocated on average 420 square-feet per employee. Now TAMI companies give their employees that same amount of space, while finance companies have shrunk their floorplates to 372 square feet per employee.
“The tech sector will surpass the financial services in New York very soon”
Despite all indicators reflecting the tech industry’s growth, one key metric remains out of reach: better pay. Securities workers still earn more — therefore generating more personal income tax for the city — with an average $438,000 salary, compared to $195,000 for tech workers, according to the Comptroller’s office.
However, the information sector is closing in on financial services as New York’s biggest producer of economic output, according to figures provided to Forbes by the Partnership for New York. Citing data from labor market data company Emsi, the organization found that from 2015 to 2020, the information sector’s share of New York’s Gross City Product grew from 10% to 13%, while the financial services industry (excluding insurance companies) only rose from 18% to 19%.
Those figures may not reveal the true breadth of the tech-driven impact, says Nicholas Economides, an economics professor at New York University’s Stern School of Business, because many of its largest tech companies are based outside of New York. “The tech sector will surpass the financial services in New York very soon,” Economides says. “Before the end of the decade for sure.”
One other major factor is the role of tech-trained employees within the financial sector. In 2000, Goldman Sachs employed 600 traders on its cash equities desk, only to replace them with automated systems overseen by 200 computer engineers. In 2018, the bank announced that computer engineers made up a quarter of its workforce, or 9,000 employees. “Tech has become a significant part of those companies,” says Armstrong. “You’re going to end up with super-tech corporations living in an ecosystem, in the same environment.”
Armstrong, who left Google as head of its Americas’ operations in 2009 to lead AOL as CEO, has since started his own tech startup in New York, Flowcode, which he launched in 2019 with a QR-code generating product, in addition to investing in other startups based in the city. As one of the first players of the city’s tech scene, he points out that the migration of tech isn’t limited to the finance sector; there are now industries growing around health-tech, real estate-tech, media-tech and fashion-tech. “The tech scene in New York used to be called Silicon Alley,” he says. “Now it’s really become the Silicon City of the world.”
Soaring property prices are forcing people all over the world to abandon all hope of owning a home. The fallout is shaking governments of all political persuasions.
It’s a phenomenon given wings by the pandemic. And it’s not just buyers — rents are also soaring in many cities. The upshot is the perennial issue of housing costs has become one of acute housing inequality, and an entire generation is at risk of being left behind.
“We’re witnessing sections of society being shut out of parts of our city because they can no longer afford apartments,” Berlin Mayor Michael Mueller says. “That’s the case in London, in Paris, in Rome, and now unfortunately increasingly in Berlin.”
That exclusion is rapidly making housing a new fault line in politics, one with unpredictable repercussions. The leader of Germany’s Ver.di union called rent the 21st century equivalent of the bread price, the historic trigger for social unrest.
Politicians are throwing all sorts of ideas at the problem, from rent caps to special taxes on landlords, nationalizing private property, or turning vacant offices into housing. Nowhere is there evidence of an easy or sustainable fix.
In South Korea, President Moon Jae-in’s party took a drubbing in mayoral elections this year after failing to tackle a 90% rise in the average price of an apartment in Seoul since he took office in May 2017. The leading opposition candidate for next year’s presidential vote has warned of a potential housing market collapse as interest rates rise.
China has stepped up restrictions on the real-estate sector this year and speculation is mounting of a property tax to bring down prices. The cost of an apartment in Shenzhen, China’s answer to Silicon Valley, was equal to 43.5 times a resident’s average salary as of July, a disparity that helps explain President Xi Jinping’s drive for “common prosperity.”
In Canada, Prime Minister Justin Trudeau has promised a two-year ban on foreign buyers if re-elected.
The pandemic has stoked the global housing market to fresh records over the past 18 months through a confluence of ultralow interest rates, a dearth of house production, shifts in family spending and fewer homes being put up for sale. While that’s a boon for existing owners, prospective buyers are finding it ever harder to gain entry.
What we’re witnessing is “a major event that should not be shrugged off or ignored,” Don Layton, the former CEO of U.S. mortgage giant Freddie Mac, wrote in a commentary for the Joint Center for Housing Studies of Harvard University.
In the U.S., where nominal home prices are more than 30% above their previous peaks in the mid-2000s, government policies aimed at improving affordability and promoting home ownership risk stoking prices, leaving first-time buyers further adrift, Layton said.
The result, in America as elsewhere, is a widening generational gap between baby boomers, who are statistically more likely to own a home, and millennials and Generation Z — who are watching their dreams of buying one go up in smoke.
Existing housing debt may be sowing the seeds of the next economic crunch if borrowing costs start to rise. Niraj Shah of Bloomberg Economics compiled a dashboard of countries most at threat of a real-estate bubble, and says risk gauges are “flashing warnings” at an intensity not seen since the run-up to the 2008 financial crisis.
In the search for solutions, governments must try and avoid penalizing either renters or homeowners. It’s an unenviable task.
Sweden’s government collapsed in June after it proposed changes that would have abandoned traditional controls and allowed more rents to be set by the market.
In Berlin, an attempt to tame rent increases was overturned by a court. Campaigners have collected enough signatures to force a referendum on seizing property from large private landlords. The motion goes to a vote on Sept. 26. The city government on Friday announced it would buy nearly 15,000 apartments from two large corporate landlords for €2.46 billion ($2.9 billion) to expand supply.
Anthony Breach at the Center for Cities think tank has even made the case for a link between housing and Britain’s 2016 vote to quit the European Union. Housing inequality, he concluded, is “scrambling our politics.”
As these stories from around the world show, that’s a recipe for upheaval.
With annual inflation running around 50%, Argentines are no strangers to price increases. But for Buenos Aires residents like Lucia Cholakian, rent hikes are adding economic pressure, and with that political disaffection.
Like many during the pandemic, the 28-year-old writer and college professor moved with her partner from a downtown apartment to a residential neighborhood in search of more space. In the year since, her rent has more than tripled; together with bills it chews through about 40% of her income. That rules out saving for a home.
“We’re not going to be able to plan for the future like our parents did, with the dream of your own house,” she says. The upshot is “renting, buying and property in general” is becoming “much more present for our generation politically.”
Legislation passed by President Alberto Fernandez’s coalition aims to give greater rights to tenants like Cholakian. Under the new rules, contracts that were traditionally two years are now extended to three. And rather than landlords setting prices, the central bank created an index that determines how much rent goes up in the second and third year.
It’s proved hugely controversial, with evidence of some property owners raising prices excessively early on to counter the uncertainty of regulated increases later. Others are simply taking properties off the market. A government-decreed pandemic rent freeze exacerbated the squeeze.
Rental apartment listings in Buenos Aires city are down 12% this year compared to the average in 2019, and in the surrounding metro area they’re down 36%, according to real estate website ZonaProp.
The law “had good intentions but worsened the issue, as much for property owners as for tenants,” said Maria Eugenia Vidal, the former governor of Buenos Aires province and one of the main opposition figures in the city. She is contesting the November midterm elections on a ticket with economist Martin Tetaz with a pledge to repeal the legislation.
“Argentina is a country of uncertainty,” Tetaz said by phone, but with the housing rules it’s “even more uncertain now than before.”
Cholakian, who voted for Fernandez in 2019, acknowledges the rental reform is flawed, but also supports handing more power to tenants after an extended recession that wiped out incomes. If anything, she says greater regulation is needed to strike a balance between reassuring landlords and making rent affordable.
“If they don’t do something to control this in the city of Buenos Aires, only the rich will be left,” she says.
As the son of first-generation migrants from Romania, Alex Fagarasan should be living the Australian dream. Instead, he’s questioning his long-term prospects.
Fagarasan, a 28-year-old junior doctor at a major metropolitan hospital, would prefer to stay in Melbourne, close to his parents. But he’s being priced out of his city. He’s now facing the reality that he’ll have to move to a regional town to get a foothold in the property market. Then, all going well, in another eight years he’ll be a specialist and able to buy a house in Melbourne.
Even so, he knows he’s one of the lucky ones. His friends who aren’t doctors “have no chance” of ever owning a home. “My generation will be the first one in Australia that will be renting for the rest of their lives,” he says.
He currently rents a modern two-bedroom townhouse with two others in the inner suburb of Northcote — a study nook has been turned into a make-shift bedroom to keep down costs. About 30% of his salary is spent on rent; he calls it “exorbitant.”
Prime Minister Scott Morrison’s conservative government announced a “comprehensive housing affordability plan” as part of the 2017-2018 budget, including 1 billion Australian dollars ($728 million) to boost supply. It hasn’t tamed prices.
The opposition Labour Party hasn’t fared much better. It proposed closing a lucrative tax loophole for residential investment at the last election in 2019, a policy that would likely have brought down home prices. But it sparked an exodus back to the ruling Liberals of voters who owned their home, and probably contributed to Labor’s election loss.
The political lessons have been learned: Fagarasan doesn’t see much help on housing coming from whoever wins next year’s federal election. After all, Labor already rules the state of Victoria whose capital is Melbourne.
“I feel like neither of the main parties represents the voice of the younger generation,” he says.
It’s a sentiment shared by Ben Matthews, a 33-year-old project manager at a university in Sydney. He’s moving back in with his parents after the landlord of the house he shared with three others ordered them out, an experience he says he found disappointing and stressful, especially during the pandemic.
Staying with his parents will at least help him save for a deposit on a one-bedroom flat. But even that’s a downgrade from his original plan of a two-bedroom house so he could rent the other room out. The increases, he says, are “just insane.”
“It might not be until something breaks that we’ll get the political impetus to make changes,” he says. -Jason Scott
Days after calling an election, Justin Trudeau announced plans for a two-year ban on foreigners buying houses. If it was meant as a dramatic intervention to blind-side his rivals, it failed: they broadly agree.
The prime minister thought he was going to fight the election — set for Monday — on the back of his handling of the pandemic, but instead housing costs are a dominant theme for all parties.
Trudeau’s Liberals are promising a review of “escalating” prices in markets including Vancouver and Toronto to clamp down on speculation; Conservative challenger Erin O’Toole pledges to build a million homes in three years to tackle the “housing crisis”; New Democratic Party leader Jagmeet Singh wants a 20% tax on foreign buyers to combat a crisis he calls “out of hand.”
Facing a surprisingly tight race, Trudeau needs to attract young urban voters if he is to have any chance of regaining his majority. He chose Hamilton, outside Toronto, to launch his housing policy. Once considered an affordable place in the Greater Toronto Area, it’s faced rising pressure as people leave Canada’s biggest city in search of cheaper homes. The average single family home cost 932,700 Canadian dollars ($730,700) in June, a 30% increase from a year earlier, according to the Realtors Association of Hamilton and Burlington.
The City of Hamilton cites housing affordability among its priorities for the federal election, but that’s little comfort to Sarah Wardroper, a 32-year-old single mother of two young girls, who works part time and rents in the downtown east side. Hamilton, she says, represents “one of the worst housing crises in Canada.”
While she applauds promises to make it harder for foreigners to buy investment properties she’s skeptical of measures that might discourage homeowners from renting out their properties. That includes Trudeau’s bid to tax those who sell within 12 months of a house purchase. Neither is she convinced by plans for more affordable housing, seeing them as worthy but essentially a short-term fix when the real issue is “the economy is just so out of control the cost of living in general has skyrocketed.”
Wardroper says her traditionally lower-income community has become a luxury Toronto neighborhood.
“I don’t have the kind of job to buy a house, but I have the ambition and the drive to do that,” she says. “I want to build a future for my kids. I want them to be able to buy homes, but the way things are going right now, I don’t think that’s going to be possible.”
Back in 2011, a public uproar over the city-state’s surging home prices contributed to what was at the time the ruling party’s worst parliamentary election result in more than five decades in power. While the People’s Action Party retained the vast majority of the seats in parliament, it was a wake-up call — and there are signs the pressure is building again.
Private home prices have risen the most in two years, and in the first half of 2021 buyers including ultra-rich foreigners splurged 32.9 billion Singapore dollars ($24 billion), according to Singapore-based ERA Realty Network Pte Ltd. That’s double the amount recorded in Manhattan over the same period.
However, close to 80% of Singapore’s citizens live in public housing, which the government has long promoted as an asset they can sell to move up in life.
It’s a model that has attracted attention from countries including China, but one that is under pressure amid a frenzy in the resale market. Singapore’s government-built homes bear little resemblance to low-income urban concentrations elsewhere: In the first five months of the year, a record 87 public apartments were resold for at least SG$1 million. That’s stirring concerns about affordability even among the relatively affluent.
Junior banker Alex Ting, 25, is forgoing newly built public housing as it typically means a three-to-four-year wait. And under government rules for singles, Ting can only buy a public apartment when he turns 35 anyway.
His dream home is a resale flat near his parents. But even there a mismatch between supply and demand could push his dream out of reach.
While the government has imposed curbs on second-home owners and foreign buyers, younger people like Ting have grown resigned to the limits of what can be done.
Most Singaporeans aspire to own their own property, and the housing scarcity and surge in prices presents another hurdle to them realizing their goal, says Nydia Ngiow, Singapore-based senior director at BowerGroupAsia, a strategic policy advisory firm. If unaddressed, that challenge “may in turn build long-term resentment towards the ruling party,” she warns.
That’s an uncomfortable prospect for the PAP, even as the opposition faces barriers to winning parliamentary seats. The ruling party is already under scrutiny for a disrupted leadership succession plan, and housing costs may add to the pressure.
Younger voters may express their discontent by moving away from the PAP, according to Ting. “In Singapore, the only form of protest we can do is to vote for the opposition,” he says.
Claire Kerrane is open about the role of housing in her winning a seat in Ireland’s parliament, the Dail.
Kerrane, 29, was one of a slew of Sinn Fein lawmakers to enter the Dail last year after the party unexpectedly won the largest number of first preference votes at the expense of Ireland’s dominant political forces, Fine Gael and Fianna Fail.
While the two main parties went on to form a coalition government, the outcome was a political earthquake. Sinn Fein was formerly the political wing of the Irish Republican Army, yet it’s been winning followers more for its housing policy than its push for a united Ireland.
“Housing was definitely a key issue in the election and I think our policies and ambition for housing played a role in our election success,” says Kerrane, who represents the parliamentary district of Roscommon-Galway.
Ireland still bears the scars of a crash triggered by a housing bubble that burst during the financial crisis. A shortage of affordable homes means prices are again marching higher.
Sinn Fein has proposed building 100,000 social and affordable homes, the reintroduction of a pandemic ban on evictions and rent increases, and legislation to limit the rate banks can charge for mortgages.
Those policies have struck a chord. The most recent Irish Times Ipsos MRBI poll, in June, showed Sinn Fein leading all other parties, with 21% of respondents citing house prices as the issue most likely to influence their vote in the next general election, the same proportion that cited the economy. Only health care trumped housing as a concern.
Other parties are taking note. On Sept. 2, the coalition launched a housing plan as the pillar of its agenda for this parliamentary term, committing over €4 billion ($4.7 billion) a year to increase supply, the highest-ever level of government investment in social and affordable housing.
Whether it’s enough to blunt Sinn Fein’s popularity remains to be seen. North of the border, meanwhile, Sinn Fein holds a consistent poll lead ahead of elections to the Northern Ireland Assembly due by May, putting it on course to nominate the region’s First Minister for the first time since the legislature was established as part of the Good Friday peace agreement of 1998.
For all the many hurdles that remain to reunification, Sinn Fein is arguably closer than it has ever been to achieving its founding goal by championing efforts to widen access to housing.
As Kerrane says: “Few, if any households aren’t affected in some way by the housing crisis.”