Ethics of Real Estate Investment, NIMYism and the Housing Crisis

SVreX (Forum Supporter) said:

93EXCivic said:

In reply to SVreX (Forum Supporter) :

I call bs on that. If there was no minimum wage, every business would push their minimum wage workers down to basically nothing. It wouldn't be just the occasional business and the comsumer would still buy from them because they will pretty much always chose the lowest cost option. 

So, your OPINION is that it wouldn't work.  That doesn't make it BS.  That makes it a difference of opinion.

Provide a few facts, and I will consider them.  Seems pretty easy to prove.  How about showing increased employment percentages in areas that have enacted higher minimum wages?

Feel free to work for minimum wage if you want.  I refuse to work for ANYTHING hourly.  My value is not based on how many hours I work.  My value is based on how much value I bring to the company, and how much future business I bring them.  

It's 1.2% of the population.  It's a red herring.

The thing is if you push up minimum wage it would push up the amount a lot of people make just above minimum wage. Like lets say I was making $10 an hour which isn't minimum wage my wage would also go up. Similarly people who are just above the current minimum wage would probably also get a wage bump to move them away from the new minimum wage. Of course this could lead to lots of problems but the current system isn't working. The gap between the haves and the have nots is growing to such an extent that this is not sustainable. You look at how little minimum wage gets you versus when it is established. 

I have less the zero faith in the fair market to work for the working class cause as far as I can tell in the past 3 decades it has done berkeley all. I am fortunate to be very comfortable in my life but I know way too many people who have done their best but are struggling to get by. 

In reply to 93EXCivic :

There hasn't been a fair market in the last 3 decades.  There has been a minimum wage.

SVreX (Forum Supporter) said:

In reply to 93EXCivic :

There hasn't been a fair market in the last 3 decades.  There has been a minimum wage.

And every time stuff moves closer to fair market it gets E36 M3tier. 

I am just tried of my generation and younger ones getting told work harder and stop complaining ignoring the average wage versus housing cost, schooling cost, inflation. 

93EXCivic said:

SVreX (Forum Supporter) said:

In reply to 93EXCivic :

There hasn't been a fair market in the last 3 decades.  There has been a minimum wage.

And every time stuff moves closer to fair market it gets E36 M3tier. 

I am just tried of my generation and younger ones getting told work harder and stop complaining ignoring the average wage versus housing cost, schooling cost, inflation. 

Just curious how old you are because the generation comment. I'm 38 so I think I might be a few years older than you, but still younger than some of the others in the thread.

In reply to z31maniac :

32. 

I don't like the minimum wage jump at all. It's the minimum wage, it could be .02 an hour or 5 million an hour. The number is meaningless, it just means that you are at the absolute bottom of wage earners.

What I don't like is if we get a $15 an hour minimum wage it means that there's a large amount of people that were making over double the minimum wage that are now....making minimum wage. There's a lot of people that won't get raises because businesses aren't exactly doing well now.

It will cripple a lot of small businesses in my area. Minimum wage is 7.25 here, and yeah that's not a great wage but there are people that are working for it. I get that it sucks that you are working for so little money but you know what sucks more? No job or income at all, and I can guarantee that is gonna happen around here.

Also as a business owner too I've never paid minimum wage, I've never even paid low-for-the-area wage. I pay well, because that's how you get good workers. Pay a man E36 M3, and you get E36 M3 back usually.

In reply to 93EXCivic :

And yes.  I've heard that "raise the water level from the bottom up" argument a thousand times.

I'm calling BS.  It doesn't work that way.

Because businesses work off budgets, and there are enough tiers to squeeze stuff in.

So, lets say you have 100 employees.  60% of them make minimum wage $7.25.  25% make $8.25.  10% make $8.50.  And 5% we call managers, and they make $10 per hour.  All of them work 25 hours per week, so no full time employment, and no health insurance costs.  Good grief.  Weekly payroll is $19,406.

Along come political hacks who want to "raise" minimum wage (for their own political gains).  So, we bump it up to $8.25.  Everyone runs to the voting booth to applaud Mr. Political Hack.  Young people get especially excited.

But someone still has to run a business, and they don't get to sell any more hamburgers.

They bump the salaries as required.  Ist tier gets the full $1 bump, but the next few tiers only get $0.25.  The managers work pretty hard, so they get a $0.50 raise.  The owner goes to the employees and says "Great News!  Everyone gets a raise!  But we will have to get a little more efficient around here.  I hope you understand."  It sounds great, but something is not right.

Then Jimmy quits, and for some reason he doesn't get replaced.  Then a couple more...

When its all said and done, the percentages have shifted.  70% make the new minimum, there are only 20% in the second tier, the third tier only has 6%, and the manager tier is down to 4%.  No one works 25 hours per week anymore- the lowest tier now works 27 hours per week, but all other tiers only work 21 hours per week.  Gross payroll is DOWN to $19,032.  And 10 people have lost their jobs.

Then the owner goes to the stockholders and says, "Great news!  We have met the new mandate for the increased minimum wage, and we have reduced our overall payroll costs, and INCREASED profits!  WooHoo!"

Then they raise the selling price of hamburgers, because they can justify it based on the new minimum wage.

THAT'S why minimum wage arguments don't help anyone.  Because the world is much more complicated than a single stupid number that defines the minimum a worker is worth.

Be irreplaceable.

The minimum wage increase is any easy way of getting more money to the people at the bottom of the income ladder. Something like 40% of working Americans would get a raise if the minimum wage jumped to $15/hr. 

In middle America, and the southern states, it might work ok. Probably put a lot of small businesses under. Might close a few big box stores in favor of drop-shipping. $15/hr in Kansas or Alabama goes pretty far, but it also hits the small employer harder.

On the coasts? It'll do Jackship. 

Our local wage here in Flagstaff is nearly $15/hr minimum. 

It doesn't suddenly make rent cheaper or housing cheaper or put more housing in the market. It doesn't magically make land cheaper. My plumber or handyman or construction contractor already paid their helpers $15/hr or better, so no change there, housing and remodels still cost the same. 

It has however, changed the tipping scheme. Tips are less expected. Tourists still tip, but locals are tipping between 5-10% instead of the usual 20%. One local pizza place has a big sign at the register: "All Our Staff Makes Flagstaff Minimum Wage of $15 or Higher. Tips are gracious accepted, but not expected. Buy more PIZZA!"

I'd sooner not worry about the minimum wage, and instead I'd rather us focus on Medicare for all, or universal healthcare. That'd make doing business for my plumber about $20,000 cheaper. THAT would make a big difference in the cost of housing. It would make a huge difference to low wage workers on the coasts and in expensive cities. Give them a lot more flexibility of employment. Allow them to climb the income ladder without worrying about if they or their  families will have health insurance. 

Higher minimum wage and universal healthcare aren't going to produce a housing boom. We need to make housing cheaper so more people can buy it without handouts, and that means making the land cheaper. 

In reply to pheller :

40%?  I'm calling BS.

It's a twisted statistic.  42.4% of US workers make less than $15 per hour.  That DOES NOT mean 40% of working Americans would get a raise if the minimum wage jumped to $15/hr.  Many of them would LOSE their jobs.  Many more would get their hours reduced.

In reply to SVreX (Forum Supporter) :

So what do we do? Nothing? 

Cause I don't see how that is working. I don't really think raising the minimum wage is going to help and will certainly damage some small businesses and cost not us not a small number of jobs but I can't agree that getting rid of the minimum wage will do anything except make things worse. 

In reply to SVreX (Forum Supporter) :

As you probably know, the CBO is estimating that a $15 minumum wage will cause up to 3.7 million jobs to be lost.

Those that don't lose their jobs to closures, robots, or offshoring and get a pay bump will see much of their gains lost to increased prices...awesome, I just got a 25% pay increase...wait, my Mc Lunch just got 25% more expensive.

In reply to 93EXCivic :

We encourage workers to reconsider the way they define their value and sell themselves.

When 50% of the politicos and 90% of the news media is making a ton of noise about minimum wage, everyone starts to view THAT as the problem.  It's a red herring!

We should be asking ourselves, How can we bring value?  What can we do to improve the bottom line?  What is unique about ME, and why should someone wnat to hire me?  We should be pushing back on politcal noisemakers and saying "STOP!  It's NOT about minimum wage!  I am worth MORE THAN MINIMUM!"  We should be seeking advanced training and certifications, upward mobility, a profitable economy.  We should be holding our leaders in business and politics accountable for the mess they've made, and making our expectations clear, instead of patting them on the back and sayiing "Yeah, it would be great if minimum wage was raised". That just sounds stupid.  Let's not be stupid.

My company has no obligation to keep me on staff this year.  But I know what I bring to the company, I'm thrilled they make money on me, I know exactly how much revenue I drive, I give till it hurts, but I also expect respect from my company (and get it) for the things I value.  My family, etc.

I'm not a minimum.  And I never will be.

It's phenomenal how many people I hear every single week who ask "Are you hiring?"  I say, "What are you looking for?"  They ALWAYS say the same thing... "I'll take anything.  Whatever you will pay me for".  Nope.  Sorry.  We're not hiring.

I'm not actually arguing for getting rid of the minimum wage.  I know that's a non-starter.  But good grief!  It's a TERRIBLE way to measure a workforce.  It's demeaning, and brings down the overall quality and productivity of the workforce.

93EXCivic said:

In reply to SVreX (Forum Supporter) :

So what do we do? Nothing? 

Cause I don't see how that is working. I don't really think raising the minimum wage is going to help and will certainly damage some small businesses and cost not us not a small number of jobs but I can't agree that getting rid of the minimum wage will do anything except make things worse. 

It's really important to realize when we are being played.

The ONLY people arguing for increased minimum wages are people looking to get your vote.  They are NOT offering a solution to the wage problem.  They are buying votes.  At the peril of a strong workforce and economy.

You are asking for a solution, but I am trying to help you see no one is offering a solution to the wage problem.  They are looking for bragging rights going into the next election.

Be irreplaceable.  That will make you better than 90% of the workforce.  And you can use it to fix your personal wage problem.

pheller said:

I'd rather us focus on Medicare for all, or universal healthcare.

Hi pheller,

I'm 56.5 years old and I've been paying into Medicare for 40 years (cost #1) along with my employer provided health insurance being much more expensive than it otherwise would be to offset the shortfall coming from 80% of Medicare transactions being provided at a loss (cost #2).  Since 18% of the economy is healthcare, my taxes would have to be increased wildly to provide Medicare for all / universal healthcare (cost #3).

Honest question, do you believe it's fair to make me pay for something three times so others can get it for freeeeeeeeee.  Again, honest question, maybe you do think it's fair and I'll respect your opinion if that's the case...I'm just wondering if you've thought through what'll happen to people like me.

Modifying the minimum wage is like any other artificial market instrument (others are things like tariffs, tax incentives, immigration requirement changes, etc etc etc). 

And in general, I understand them to all work the same way. In the best case, in the short term, they have the 'desired' effect - raising min wage gives workers making min wage slightly more money. However, in the best case in the long term, they do nothing - raising min wage moves all wages up as well as the costs of goods sold. 

In everything other than the best case however, they tend to unfairly impact some people very negatively, and others very positively. And these unpredictable unfair effects I really don't like. 

one example - raising min wage in chicago causes businesses to move their factories out of chicago, reducing the chicago property tax revenue base, meaning same annual chicago govt spend is spread across fewer business causing property taxes for everyone in chicago to go up, making land just outside of chicago more desirable. 

So while the min wage workers rejoiced in the short term, the real winners were the people owning land just outside the city. And the real losers were the people living in the city paying property taxes (who also likely made just enough more than the min wage that their wages didn't really go up either). 

pheller said:

$15/hr in Kansas or Alabama goes pretty far, but it also hits the small employer harder.

On the coasts? It'll do Jackship.

What that's telling me is that the majority of Americans are poorly located for the employment opportunities and cost of living afforded by their skill set.

In reply to SVreX (Forum Supporter) :

I don't have a personal wage problem. I have no debt other then a house, two nice salaries in the household and plenty in savings plus a job that is in high demand particularly in the town I live in. Really I should be fine with status quo. It is working great for me but I see too many of my friends just getting by/ struggling despite having college educations, despite trying to make good choices with their money, despite having jobs that in previous times in American history would have made for a comfortable life (or had jobs before Covid hit). 

Also we as a society need a lot of the jobs that are in these lower paying brackets. We need food workers, we need grocery store workers, we need janitors to be a functioning society. 

I think taxes will need to go up for everyone, yes. 

We're going off track, however. I'm focused on: what will make housing more affordable.

How do we build more houses in the places where people want to live?
 

Duke said:

pheller said:

$15/hr in Kansas or Alabama goes pretty far, but it also hits the small employer harder.

On the coasts? It'll do Jackship.

What that's telling me is that the majority of Americans are poorly located for the employment opportunities and cost of living afforded by their skill set.

 

Unemployment rates in November 2020:

California - 8.2%

Kansas - 5.6%

Kansas 2019 average annual mean wage across all industries: $46,520

California 2019 average annual mean wage across all industires: $63,786

Average home price in California September 2020: $712,430

Kansas' median home value is $150,657

Ok, so it would make sense for all the people struggling to buy homes in California to move to Kansas, if their job or skills would allow it. 

Even if I could get all my wishes to come true, and we could just impliment all my wild ideas, California would likely not become drastically more affordable. 

Despite Kansas being vastly cheaper it's losing population. In fact, pretty much all the flyover states are losing population. Is the solution to just let housing markets and their prices dictate the new American culture and force people back to the hinterlands? 

I dunno, maybe this shift in national population demographics will reshape corporate America to allow more remote work, more vacation, more flexibility of residency, etc. Like I've said before, I'd move back to Pennslvyania if anyone could match my current employers wage and vacation. They can't match the wage, but they can match or beat the vacation time. They just don't want to. I'm not moving back to Pennsylvania winters and humidity for no improvement in lifestyle or financial gain, even if I could buy a bigger house all cash. 

I guess my luxury is living someplace for its climate and culture. Someone elses luxury is buying vacant land or 2nd home right down the road and sitting on it. 

Lots of good discussion here, both on wages and on the original housing topic. 

Like others have said, raising the minimum wage is a false solution. The intent is to raise those at the bottom of the income curve up to the middle, by mandating that they are paid more than they are worth. But in reality, it’s like your big brother holding your toy above your head- as you jump to reach it, he just raises it out of your grasp. At best- there will be a short period of time when some of the lowest wage earners get a bonus. It’s effectively short term redistribution of wealth, but that is another topic. It doesn’t take long before the market adjusts, because it has to. Inflation raises prices for everyone, but disproportionately- low wage earners are also customers of low wage services, which have to raise prices. Higher skilled workers find themselves at or close to minimum wage. They can get that anywhere now, so employers need to pay them more to retain them. That trend continues up the chain of higher skilled workers, adding to inflation. Eventually you end up right back where you started, with the low skilled workers back at the bottom and well below the artificial “living wage” that we were trying to achieve. Those pushing for this aren’t ignorant of this cycle- they count on it, as it benefits them each time. So what’s the harm if the poor get a nice bump every once in a while? The harm is that each time it happens, a few of the chairs get pulled away and some of the low skilled employees don’t get jobs at all. Businesses move or close, companies move production off shore, or- with increasing likely hood in coming years- employers do the math and realize machines are more cost effective than employees. 4 or 5 low skilled jobs get traded for 1 high skilled job building and maintaining machines.

We’ve had this experiment for some time now here in CA, and the gap between the haves and the have-nots has only grown. I’d argue that it has made it much more difficult to become one of the haves. Minimum wage used to be a training wage, a starter job. If you were working a minimum wage job, you were learning how to be an employee, so you don’t blow it when you move up to a better paying job. They used to be high school and college kids- never meant to support a family of four. But now, less and less kids are working. Employers can’t afford to take a chance or pay kids such high wages. The kids are not getting the experience they need, and are worse employees when they do land a better job. The whole curve of their working career has been lowered. Kind of like if we just skipped elementary school and started kids in Jr. High. Some would figure it out, but there would be a lot more failures. 

Now, I’d still argue that the notion that we have a minimum wage class is largely a myth. Most people work their way up and don’t stay at minimum wage for long, if ever. It would be like taking census by saying “everyone who has driven through this intersection must still live in this town.” But by raising the minimum wage, we are in fact trying to create a minimum wage class- keeping people there longer. The thing that many fail to see is that if they weren’t worth $15 before the hike, they likely won’t be after, and they may find themselves with no job at all. BTW, employees cost their employers a lot more than their hourly wage- a good estimate is double. Technology is only getting more cost effective. I predict that in my children’s lifetime, we will have a large number of people living off the state because there will not be enough low skilled jobs to go around. Bumps to the minimum wage will accelerate that timeline. Staying low skilled is not a wise career move, no matter how high they make minimum wage. If your plan to rise out of poverty is a minimum wage increase, you need a better plan. 

On the original topic- 

Despite being a strong free market supporter, I found that I’ve always had some strong feelings in alignment with the O.P.. It just somehow feels wrong to invest in and drive up prices on housing, a basic need. I knew my feelings were “wrong,” but I just couldn’t put my finger on why. There were a lot of good posts early on explaining that if it wasn’t for investors, we wouldn’t have many of the houses in the first place. It is the buyers that drive up costs, not investors. 

That said, I think most people look at 2008 bass ackwards. I hear a lot of finger pointing and crying about the lenders getting bail outs and how they were the bad guys, and home “buyers” were the victims. Correct me if I’m wrong- the banks lent people money to buy homes. The people agreed to pay them back, but couldn’t- didn’t. Sure, they made some stupid loans- many because they HAD to under law, which were backed up by the government. The government “bailed out” the lenders when they were stiffed on loans that they were required to make. Lots of dumb ideas and mismanagement led to this, but in the end- Home “buyers” were given opportunities to buy homes. Maybe opportunities they shouldn’t have had, but they were not forced to buy a home. They were not forced to buy homes outside of their means. Many stayed in these homes for months or years while being forclosed on, paying nothing. Their total “invested” in the home that they “lost” amounted to less than what rent would have been. They didn’t lose their home, it was never theirs to begin with. Meanwhile, the “victims” bid up houses that they couldn’t afford, driving up the prices for real homebuyers such as myself in 2003. I bought an entry level house that I could afford. Others that make similar money to me bought twice the house, did 20/80 loans with adjustable rates (despite fixed rates then being near all time lows) with nothing down. They paid the mortgage that was less than what rent would have been, until the adjustable rates went up and they could no longer afford the mortgage. Then they just stopped paying, lived for free for months/ years while getting foreclosed on. They contributed to the crash of the housing market. But they were “victims,” so the usual credit hits were softened- which allowed them to get back into the market that they had helped crash, where they bought another house twice the size of mine at half price. They were rewarded for their irresponsibility while I was stuck in an entry level home that was worth 1/2 what I was paying. But the banks are the bad guys. The only victims were chumps like myself tried to be responsible. I stayed in the house for another ten years before I bought my dream home- still well within my means. And I’m saving like crazy for the next crash, when I’ll buy rental properties and/or upgrade to my “beyond my dreams” home. 

I posted a research paper a few pages back by the Federal Reserve that actually blamed much of the crash on 2nd home buyers. People who didn't need to live in their 2nd homes, but bought them because they were hoping to flip them for more money. When values tanked, these buyers foreclosed on their 2nd homes while retaining the primary house. The 2nd Home buyers also drove up the price of houses by buying up excess supply that would've been cheap for primary home buyers, but because of all of this cash rushing in to buy these new homes, prices increased quickly and dramatically.

The people who were buying primary homes outside of their means were the people desperate for an increase in supply. They were folks who worked in construction industries and had wanted to buy for years, but no homes were available. Suddenly, this boom in development provided a lot of new home to meet that demand, but these financially unstable buyers would need to 1) keep their jobs in construction and 2) stretch to make payments. 

When suddenly it dawned on people that "hey, I don't think these homes are actually worth $300k, $400k, $500k" the demand dropped off. Spooked banks and developers who immediately halted development.

The dramatic downturn in new housing starts meant that all the people who had just bought a new house a year or two earlier were out of work, and because they had taken out ill-advised loans way about their means, they tried staying in their homes, eventually foreclosed, and moved to cheaper areas. 

I don't think we distinguish enough in our lending and in our taxes between people who speculate/invest in real estate and those who buy their primary home. 

Maybe someone can chime in on the risk and rates of 2nd home ownership. 

Feel free to correct me, as I understand the 2008 crash, the other big problem was the banks leveraging those home loans for other investments.  There used to be limits (Glass-Steagall Act) on what investments the banks could play with that were lifted in 1999.  There still would have been mass foreclosures, but financial institutions wouldn't have been able to dig such a big hole.

In reply to pheller :

 

I posted a research paper a few pages back by the Federal Reserve that actually blamed much of the crash on 2nd home buyers. People who didn't need to live in their 2nd homes, but bought them because they were hoping to flip them for more money. When values tanked, these buyers foreclosed on their 2nd homes while retaining the primary house. The 2nd Home buyers also drove up the price of houses by buying up excess supply that would've been cheap for primary home buyers, but because of all of this cash rushing in to buy these new homes, prices increased quickly and dramatically.

 

The people who were buying primary homes outside of their means were the people desperate for an increase in supply. They were folks who worked in construction industries and had wanted to buy for years, but no homes were available. Suddenly, this boom in development provided a lot of new home to meet that demand, but these financially unstable buyers would need to 1) keep their jobs in construction and 2) stretch to make payments. 

When suddenly it dawned on people that "hey, I don't think these homes are actually worth $300k, $400k, $500k" the demand dropped off. Spooked banks and developers who immediately halted development.

The dramatic downturn in new housing starts meant that all the people who had just bought a new house a year or two earlier were out of work, and because they had taken out ill-advised loans way about their means, they tried staying in their homes, eventually foreclosed, and moved to cheaper areas. 

 

I don't think we distinguish enough in our lending and in our taxes between people who speculate/invest in real estate and those who buy their primary home. 

 

Maybe someone can chime in on the risk and rates of 2nd home ownership. 

To me, it doesn’t really matter how many homes someone is buying as long as they can pay for them. I’m sure this varies by region, but what you posted above doesn’t match what I saw out my way. If you could afford your primary home and your rental was the one giving you trouble- you really screwed up. Rental rates skyrocketed during the housing crises, the rent taken in should have easily covered the mortgage. And if it didn’t- say their adjustable rate jumped- they would have had plenty of time to sell Vs. going into foreclosure. Now, if they were doing it the other way around- bought a new larger primary home that was beyond their means and rented out their old starter home rather than sell- I can see that happening. 

BTW- it is much harder to do this now, they seem to have tightened up their lending practices. When I bought my new home a couple years ago, I wanted to do so without any contingencies on selling my old home. I figured It gave me a better shot at getting the most I could out of the old home. So I had to show that I could fully afford both homes. They tracked every dime I had going back months to make sure no one lent me money to inflate my cash on hand. I guess it was a big thing before the crash to fake how much money you had to qualify for a loan.