This $1.1 Million Silicon Valley Shack Is A Steal, But There's A Bizarre Catch

The owner of one tiny, unassuming cottage in Mountain View, California just sold his house for well below the asking price of $1.6 million – but asked the new buyers to agree to one highly unusual condition: They must allow him to continue living there, rent free, for seven years, NBC News reported.

The Silicon Valley property went for $1.1 million after being on the market for only a few weeks, which is surprising, considering the house – little more than a shotgun shack – hardly has room for multiple tenants.

The property’s realtor said the home’s elderly former owner will continue living in the home for seven more years "rent back at no charge.’

Realtor Joban Brown said that while the price is not unusual for the hot spot location, the former owner’s request to continue living at the property is "not a typical situation."

Erika Enos, another realtor, said she’d never heard of this type of a deal during her multidecade career as a realtor.

"In almost 40 years as a realtor, I have never seen terms of sale that included seven years free rent back, not even seven months free rent back," Enos said.

"What if the property does not close or the seller is unhappy with the results or work men don"t get paid and put a lien the property?"

"The asking price reflects market value, which is essentially lot value, for this area ... I empathize with the seller, but the terms and conditions for this sale I feel are unrealistic and may have negative legal ramifications."

The listing for the 976 square-foot cottage also included a requirement for the buyer to pay for the expensive repairs needed.

However, Mountain View’s status as a well-heeled tech hub – Google’s headquarters is located in the town, and companies including Microsoft and Samsung have offices there – has caused real-estate prices to explode over the past two decades, reflecting similar gains throughout the tech-focused Bay Area.

The realtor in charge of selling the location described it as having “all the conveniences of urban living” but in a secluded setting.

"This is a location that"s hard to beat, tucked away in a quiet corner at the end of a small street," listing agent Daniel Berman said.

"You"ve got all the conveniences of urban living, nestled in a secluded country-like enclave."

We wonder: With Silicon Valley home prices soaring well beyond the means of most middle-class families, will we start to see more deals like this one? Already, a startup called Loftium has hit upon a similar concept. The commpany will front you the entire down payment if you just agree to rent out one of the rooms in your new house over Airbnb for a specified period of time.  But there"s a catch...for now Loftium is only available in Seattle.

U.S. Rent Growth Flatlines As Massive Flood Of New Apartment Supply Finally Takes Its Toll

After a slow and steady march higher in the wake of the "great recession" nearly a decade ago, a note today from Rent Cafe shows that average rents in the United States may have finally stalled in July at $1,350 per month after posting a paltry sequential gain of just 0.1%.  

Rents are still steadily climbing across the country, but that growth is finally slowing – and in a big way. In July, national rents grew a meager 0.1% over the month and just 2.6% from the same period in 2016, according to recent data from Yardi Matrix.

This national slowdown is thanks, in large part, to the huge influx of new apartments that has hit the scene in the past year – as well as the thousands more expected by the end of 2017. This year is expected to mark the biggest jump in apartment construction in the last two decades, with nearly 347,000 new units entering the market – a 21% increase over last year’s numbers.

Of course, this should come as little surprise to our readers as softening apartment rents, particularly in the massively over-priced, millennial safe-spaces of New York City and San Francisco, have been a frequent topic of conversation for us over the past several quarters...here are just a couple of recent examples:

As we pointed out several months ago, just like almost any bubble, stagnating rents are undoubtedly the symptom of a massive, multi-year supply bubble in multi-family housing units sparked by, among other things, cheap borrowing costs for commercial builders.  Per the chart below, multi-family units under construction is now at record highs and have eclipsed the previous bubble peak by nearly 40%.

But, while rents are certainly slowing – and construction is indeed playing its part – the impact isn’t spread evenly across all markets as Rent Cafe notes that 64% of the new supply is limited to the nation’s top 20 metro areas.  Therefore, it"s not terribly surprising that the worst performing rental markets so far this year also happen to be the most expensive and the ones that have attracted the most capital for new developments. 

Incoming apartment supply isn’t just lowering national average rents; it’s also making some of the country’s most historically pricey markets just a little bit more affordable. “The huge number of apartments entering the market benefits all renters – but especially those in the country’s more expensive areas,” said Doug Ressler, Senior Analyst for Yardi Matrix. “More apartments mean more choices – and, ultimately, more bargaining leverage for the renter.”

Take Manhattan, for example. The exclusive NYC borough has long been the most expensive place to live in the nation, but thanks to a recent 3.1% dip in rents year-over-year and the huge inventory expansion, it’s slowly becoming more accessible to the region’s growing population. With more than 7,000 units to be delivered in 2017, rents in the area now run $4,054 – a huge downturn from the $4,154 rents seen at the start of the year.

With so many new units hitting the market, Ressler says some communities are forced to offer serious amenities in order to stay competitive. “These new apartment communities often come with upscale amenities, including 24/7 fitness centers, yoga studios, rooftop farms and pet spas,” he said. “Some even offer concessions, like a month of free rent or free gym memberships. These perks aren’t limited to overly-popular markets such as NYC or San Francisco, either. Minneapolis is also seeing tons of new, top-notch apartments added to its rental market, as is Nashville and Orlando.”

Meanwhile, areas with stronger job markets and better overall affordability are still seeing demand growth which, combined with a lack of capital investment, is driving rents considerably higher.

Midland, Texas, is a prime example of this. Texas has added more than 319,000 jobs over the last year, and unemployment is at record lows. Midland came in with the second-lowest unemployment rate in the state, with just 3.5% of residents without jobs in June. This healthy economy has led to serious population growth over the past few years, and more than 25,000 people have moved to the area since 2010. Apartment construction has been unable to keep up with this growth – and the subsequent rising demand – and rents have skyrocketed in the city. The average Midland apartment now costs $1,180 per month – a whopping 18.1% higher than this time last year. Nearby Odessa is also seeing a similar problem. The city’s rent has grown 13.4% over the year, hitting $1,013 in July.

Finally, here are the top 10 most and least expensive rental markets in the U.S. at the end of July 2017.  To our complete lack of surprise, New York and California continue to dominate the expensive list while Southern and Midwestern markets continue to provide the best value...perhaps this is why all those domestic migration studies show a mass exodus from the cities on the left to the cities on the right?  Just a hunch...

Rent Control Makes For Good Politics And Bad Economics

One needn’t read very much about public policy before coming across some statement to the effect that “bad economics makes good politics.” This statement is clearly untrue when good politics is defined as furthering mutually beneficial arrangements, as good economics is central to that task. But the statement is often true when good politics is defined as attracting 50%-plus-one votes on some issue or candidate, which is a much different standard, leaving plenty of room for government-imposed harms to be imposed on citizens.

Few issues reflect this divergence between “good” politics and bad economics more clearly than rent control. One of the most universally accepted propositions among economists is that rent control produces a host of adverse social consequences with its large involuntary redistribution of wealth and suppression of market prices as communicators of information and incentives. Despite that, it has been adopted as policy in many places and times — and now is a good time to revisit these issues, as efforts are currently underway in several states (including California, Oregon, Washington, and Illinois) to repeal existing statewide restrictions on rent control.

How Rent Control Destroys Value 

Rent control takes a large portion of the value of residential properties from landlords. It does so by removing owners’ rights to accept offers willingly made by potential renters. And the value of the rights involved are large. For example, after Toronto imposed rent control in 1975, affected building values fell by 40% over five years, and a decade ago, such losses were estimated at $120 million annually in Santa Monica. A law like rent control, which can take half or more of each apartment’s value from the landlord, harms them just as much taking away half of their apart­ments, even though the latter is recognized as theft. Those stripped property values are given to current tenants, whose resulting bonanzas are shown by the fact that those under strict rent control almost never leave.

Rent-Controlled United Decline in Quality and Quantity

By taking away so much of the effective ownership of rental housing from owners, rent control creates several other additional adverse effects. Without owners’ ability to capture the value of their buildings, the rental housing stock deteriorates in both quantity and quality. Reduced incentives for maintenance and repair erodes existing rental housing. Further, owners retain little incentive to construct new rental units, bringing new apartment construction to a virtual halt, taking with it local construction jobs and tax revenues. Rental units are also converted to condos and non-housing uses to escape the burdens rent control imposes. All of this reduces rental housing availability, which worsens the problem of inadequate housing rather than alleviating it.

Rent control also increases discrimination and landlord-tenant hostility. Owners who can no longer be compen­sated for increased costs created through crowding, water usage, potential damage, or reduced probabili­ty of actually paying the rent — or any other unattractive tenant charac­teristic — have sharply reduced incentives to accommodate those who might impose them. This is why rent controlled areas, rather than helping those of low and moderate means, become increas­ingly popu­lated by higher income tenants with few children. Further, tenants bla­me “greedy” land­lords for not providing the services they desire, and landlords view tenants as the enemy engaged in an ongoing rip-off, even though rent control is the real culprit.

Rent Control Creates Black and Gray Markets 

Rent control’s artificial restrictions on mutually agreed upon exchanges also lead to evasion attempts, such as under-the-table payments, agreements to renovate apartments or upgrade appliances at private expen­se, personal connections, etc. Not only do these alterna­tive forms of competition favor higher income renters, rather than “the poor” (who populate rent control rhetoric but far less of the housing available under it), they lead to rent control boards to stymie such at­tempts. That enforcement, as well as the costs land­lords must bear both to defend them­selves and comply with its edicts, consumes a great deal of resour­ces that could have been put to productive uses. 

Despite such an overwhelming case for rent control being bad economics, why has it not been equally politically unattractive? The essential reason is that in cities where rent control is imposed, existing local renters, who are the recipients of the value taken from landlords, form a political majority who approve of that theft, vote for it, and go to great lengths to rationalize and defend it as part of “the wonders of democracy.”

Rent control offers current tenants perhaps the greatest economic returns of any policy they could use their majority power to enact. Not only do they save what can far exceed $1,000 a month compared to what market prices would be, they are also awarded what amounts to life tenure. If you saved $1,000 a month and stayed 10 years, that would be $120,000, while staying 21 years would generate over a quarter million dollars in benefits. And many long-term tenants have saved themselves far more. What other political act offers local renters so great an economic benefit in exchange for their votes?

Rent control’s “pro renter” rhetoric also allows a powerful form of misrepresentation. Rent control benefits current renters, but it does not benefit renters overall. It harms all renters and potential renters who aren’t already in rent-controlled units. It harms all those who seek to rent apartments after rent control is imposed, mainly finding “no vacancy” signs instead. But they don’t get a vote in the communities to which they"d like to move. Even though those who are eventually successful in finding a controlled unit have been harmed, once there, they don’t want their finally-achieved good deal halted. Rent control also harms renters in surrounding communities, as the restricted supply of available units raises rents there, as well. But they don’t get a vote, either. Rent controls also harm those who rent houses, which are usually exempt, because rent control’s reduction in housing availability leads those rents to be bid up as well.

Rent control also involves unusual characteristics that weakens and divides opposition.

The Long-term Effects of Rent Control 

Because housing is durable, there is an unusually sharp dichotomy between short-run and long-run effects. The short-term effect of imposing rent controls on the available supply of rental units is quite small. Proponents can focus only on the immediate effects to argue that objections are unsubstantiated. However, the cumulative effect of ongoing rent control is very large, leading many economists over the years to recognize its ability to decimate the supply of urban housing.

Property owners, who might be expected to be unified in opposition to the threat to property rights rent control poses, are also subject to divide and conquer techniques.

Not only are rental housing owners far outnumbered by current tenants, many of them live outside the jurisdiction considering rent control, undermining their voice. And if they raise money for an opposition campaign, their efforts against the harm that would be imposed on them can be easily demonized as proof of how much they rip off tenants whenever they are given a chance.

Some Property Owners Benefit 

Property owners are also split in other ways. Owners in neighboring areas, who would otherwise tend to side with those in the jurisdiction considering rent control, due to the similar threat posed against them, can be bribed away because the reduction of housing supply “next door” increases their demand and raises their rents. Owners of commercial property, who are usually exempt from rent control, can benefit from higher rents for their properties due to the influx of higher income residents rent control brings. The restriction in supply of rental units in an area also raises the price of owner-occupied homes, undermining their support against rent control.

Rent control can give current tenants massive windfalls taken from owners by their dominant majority vote. That also means politicians who cater to that politically dominant majority can more easily acquire and maintain power. The fact that current tenants benefit at the expense of those in nearby areas and all other future prospective tenants can be masked by pretending current tenants interests are the same as all actual and prospective tenants. Rent control also splits owner opposition to the threat of expropriation by exempting commercial uses and houses in the jurisdiction by increasing the value of their properties, as does the spillover gains they capture from the reduced supply of rental housing nearby. That combination goes a long way to explain why, in majority renter areas, the truly bad economics of rent control frequently translates into “good” 50%-plus-one piracy politics.

Here's How Much You're Paying For Those Apartment Amenities You Never Use

Authored by Priceonomics via RentHop

Many details about an apartment can impact monthly rent, other than the amount of space and location. For example, units that seem similar could be priced differently if one has a balcony. This price differential could be even greater in newer luxury apartments which offer things like concierge service, furnished rooftops, and fitness centers.

So what kinds of features could increase your rent? And by how much? Using thousands of apartment listings across major US cities with details including, monthly rent, number of bedrooms and bathrooms, and the presence of different amenities, we attempt to find out using data from Priceonomics customer RentHop, an apartment listing site.

We identified 10 features across the 10 largest metropolitan areas to investigate. These included:

• Is the apartment furnished?


• Does it allow pets?


• Does it have a washer and dryer in the unit?


• Does it have a common laundry room in the building?


• Does it have a private outdoor space (i.e. balcony)?


• Does it have a common outdoor space (i.e. shared rooftop)?


• Is there a doorman?


• Is there an elevator?


• Is a designated parking spot included with rent?


• Is there a fitness center?

Ultimately, we found that as expected, the number of bedrooms and bathrooms (highly correlated with square footage) are the biggest drivers of price. The amenities that were most associated with higher rent were having an elevator, having doorman, parking included and laundry in the unit, with each city having some variation.

Also in a rough model, designed to isolate the impact of each factor on price in NYC apartments, we found that having a doorman was the most important and increased monthly rent by about $260. The next most expensive feature was having an elevator, which increased costs by about $120.

The major drivers of rental pricing

In starting our analysis, we wanted to understand the differences in price by location. Grouping the over 450,000 records into cities, we calculated median price for each.

Data source: RentHop

From this we can see that the most expensive city is New York, followed by the Boston area (which includes Cambridge). The least expensive city was Houston, which was cheaper by several hundred dollars.

It is important to recognize that not all apartments are easily comparable. A studio, one bedroom and two bedroom apartment are all very different, and this could impact our median price calculation. To account for this difference, we broke out our city view to compare median price by number of bedrooms.

Data source: RentHop

The top three most expensive cities remain the same across all categories, but on the other end of the spectrum there are some differences. While Atlanta, Houston, and Dallas has similar one-bedroom pricing, Dallas has a higher pricing for two bedrooms.

Our goal was to understand which of these factors were most related to price. It’s important to note that we did not have access to some relevant information, such as square footage, but our model is able to account somewhat for size differences using other parameters.

To start our exploration, we calculated correlation between each feature and higher monthly rent. A strong positive relationship would suggest the two are connected – and thus a specific feature may be more likely to increase your rent.

Rather than present raw numbers, we’ve color coded the results. A darker green indicates a stronger correlation with higher monthly rent.

Data source: RentHop

Doorman, elevator, fitness center, laundry in unit, and parking are most correlated with price. Each market has a unique mix of what factors matter most. New York in particular has several important features including pets and fitness center as well as those mentioned previously.

It is important to call out that these factors are only more or less influential in relative terms. In absolute terms, the correlation coefficients are small and suggest only a slight relationship with higher prices.

Closer Look at New York City

To understand each factor in more detail we zoomed in on New York City, which offered the largest and most diverse set of data. We analyzed the correlation between higher price and features at a neighborhood level (focusing on the 50 neighborhoods with the most records). Understanding the neighborhoods helped us build a model for the city overall.  For this analysis we focused on listings with 2 or fewer bedrooms.

Each part of New York is distinct and features can have different degrees of importance. To test this, we plotted the results of the top 10 most expensive neighborhoods to find out what was most important for higher priced apartments.

Data source: RentHop

Across the board, there is a strong correlation between laundry in the unit as well as presence of a doorman on cost. Other important features appear to be allowing pets and having a fitness center.

Similarly, looking at the 10 least expensive neighborhoods, we isolated the most important features. This also provided us the benefit of comparing which are important across the range of different neighborhoods.

Data source: RentHop

The same main features are important, but the degree of correlation is slightly different. Having a doorman is also a major feature but, laundry in unit is slightly less important. Relative to the more expensive locations, a fitness center is more important, while allowing pets is not correlated at all in most neighborhoods.

Finally, we created a linear regression model to predict the impact of each feature on price. From the coefficients of the linear regression equation, we can see about how much the feature impacted price. The results of the previous correlation exploration helped us to identify which features to include in our model and through a comparison of many different models, we identified the one which best predicted rent from the presence of features.

Data source: RentHop

In the end, we had 9 variables in our model: 1) number of bedrooms, 2) number of bathrooms, 3) allowing pets, 4) laundry in the unit, 5) having a doorman, 6) having an elevator, 7) having a fitness center, 8) having a parking garage, and 9) a factor indicating how expensive the neighborhood is generally.

Controlling for the number of bedrooms and bathrooms, having a doorman has the greatest impact on price at about $260. This may seem like a large amount for just a doorman, but it makes sense as it is a good indicator that the building overall will be very nice and is likely in a more expensive neighborhood. The same goes for having an elevator and fitness center, which contributes roughly $120 and $90 to price, respectively. Finally having a washer and dryer inside the unit is also a major benefit. If you think you’ll spend more in $80 in quarters at the laundromat in a typical month, finding an apartment with a washer dryer may be cost effective for you.

You may have noticed there are many features that are not in our model. The other factors may have been correlated with price, but they did not have enough predictive power to improve the model beyond these four. Also as we stated earlier, this is not a perfect model. There is still a large degree of variation that our variables cannot explain. These numbers should only be regarded as a rough estimate and a way to compare relatively which matter most.

In the end, your price will be significantly impacted by what city you’re looking in as well as the size and location. Still, certain features do have some impact on costs and it’s important to keep these in mind when making comparisons. Being aware of the differences between listings (and how much they are worth) will help you make smarter decisions about renting.

L.A. To Worsen Housing Shortage With New Rent Controls

Authored by Ryan McMaken via Mises Institute,

Los Angeles, home to one of the least affordable housing markets in North America, is now proposing to expand rent control to "fix" its housing problem. 

As with all price control schemes, rent control will serve only to make housing affordable to a small sliver of the population while rendering housing more inaccessible to most. 

Specifically, city activists hope that a new bill in the state legislature, AB1506, will allow local governments, Los Angeles included, to expand the number of units covered by rent control laws while also restricting the extent to which landlords can raise rents.

Unintended Consequences

Currently, partial rent control is already in place in Los Angeles and landlords there are limited in how much they can raise rents on current residents. However, according to LA Weekly, landlords are free to raise rents to market levels for a unit once that unit turns over to new residents. 

This creates a situation of perverse incentives that do a disservice to both renters and landlords. Under normal circumstances, landlords want to minimize turnover among renters because it is costly to advertise and fill units, and it"s costly to prepare units for new renters. (Turnover is also costly and inconvenient for renters.) 

By limiting rent growth for ongoing renters, however, this creates an incentive for landlords to break leases with residents — even residents who the landlords may like — just so the landlords can increase rents for new incoming renters in order to cover their costs of building maintenance and improvements. The only upside to this current regime is that at least this partial loophole still allows for some profit to be made, and thus allows for owners to produce and improve housing some of the time. 

But, if this loophole is closed, as the "affordable housing" activists hope to do, we can look forward to even fewer housing units being built, current units falling into disrepair, and even less availability of housing for residents.

Why Entrepreneurs Bring Products to Market

The reason fewer units will be built under a regime of harsher rent control, is because entrepreneurs (i.e., producers) only bring goods and services to market if they can be produced at a cost below the market price. 

Contrary to the myth perpetuated by many anti-capitalists, market prices — in this case, rents — are not determined by the cost of producing a good or service. Nor are prices determined by the whims of producers based on how greedy they are or how much profit they"d like to make. 

In fact, producers are at the mercy of the renters who — in the absence of price controls — determine the price level at which entrepreneurs must produce housing before they can expect to make any profit. 

However, when governments dictate that rent levels must be below what would have been market prices — and also below the level at which new units can be produced and maintained — then producers of housing will look elsewhere. 

Henry Hazlitt explains many of the distortions and bizarre incentives that emerge from price control measures: 

"The effects of rent control become worse the longer the rent control continues. New housing is not built because there is no incentive to build it. With the increase in building costs (commonly as a result of inflation), the old level of rents will not yield a profit. If, as often happens, the government finally recognizes this and exempts new housing from rent control, there is still not an incentive to as much new building as if older buildings were also free of rent control. Depending on the extent of money depreciation since old rents were legally frozen, rents for new housing might be ten or twenty times as high as rent in equivalent space in the old. (This actually happened in France after World War II, for example.) Under such conditions existing tenants in old buildings are indisposed to move, no matter how much their families grow or their existing accommodations deteriorate."

Thus, 

"Rent control ... encourages wasteful use of space. It discriminates in favor of those who already occupy houses or apartments in a particular city or region at the expense of those who find themselves on the outside. Permitting rents to rise to the free market level allows all tenants or would-be tenants equal opportunity to bid for space."

Not surprisingly, when we look into the current rent-control regime in Los Angeles, we find that newer housing is exempt, just as Hazlitt might have predicted. Unfortunately, housing activists now seek to eliminate even this exemption, and once these expanded rent controls are imposed, those on the outside won"t be able to bid for space in either new or old housing.

Newcomers will be locked out of all rent-controlled units — on which the current residents hold a death grip — and they can"t bid on the units that were never built because rent control made new housing production unprofitable. Thus, as rent control expands, the universe of available units shrinks smaller and smaller. Renters might flee to single-family rental homes where rent increases might still be allowed, or they might have to move to neighboring jurisdictions that might not have rent controls in place. 

In both cases, the effect is to reduce affordability and choice. By pushing new renters toward single-family homes this makes single-family homes relatively more profitable than multifamily dwellings, thus reducing density, and robbing both owners and renters of the benefits of economies of scale that come with higher-density housing. Also, those renters who would prefer the amenities of multifamily communities are prevented from accessing them. Meanwhile, by forcing multi-family production into neighboring jurisdictions, this increases commute times for renters while forcing them into areas they would have preferred not to live in the first place. 

But, then again, for many local governments — and the residents who support them — fewer multifamily units, lower densities, and fewer residents in general, are all to the good. After all, local government routinely prohibit developers from developing more housing through zoning laws, regulation of new construction, parking requirements, and limitations on density. 

And these local ordinances, of course, are the real cause of Los Angeles"s housing crisis. Housing isn"t expensive in Los Angeles because landlords are greedy monsters who try to exploit their residents. Housing is expensive because a large number of renters are competing for a relatively small number of housing units. 

And why are there so few housing units? Because the local governments usually drive up the cost of housing. As this report from UC Berkeley concluded: 

"In California, local governments have substantial control over the quantity and type of housing that can be built. Through the local zoning code, cities decide how much housing can theoretically be built, whether it can be built by right or requires significant public review, whether the developer needs to perform a costly environmental review, fees that a developer must pay, parking and retail required on site, and the design of the building, among other regulations. And these factors can be significant – a 2002 study by economists from Harvard and the University of Pennsylvania found strict zoning controls to be the most likely cause of high housing costs in California."

Contrary to what housing activists seem to think, declaring that rents shall be lower will not magically make more housing appear. Put simply, the problem of too little housing — assuming demand remains the same — can be solved with only one strategy: producing more housing. 

Rent control certainly won"t solve that problem, and if housing advocates need to find a reason why so little housing is being built, they likely will need to look no further than the city council.

Wall Street Vs. Main Street - Bank Bonuses Beat Baristas, Bartenders

Since 1985, banker bonuses have soared 890%, seven times the rise in the federal minimum wage, according to the Institute for Policy Studies, a left-wing think tank in Washington, D.C., which they proclaim has "contributed to racial and gender inequality" in America.

As MarketWatch"s Quentin Fottrell reports, the average Wall Street bonus rose 1% to $138,210 last year, but fell 15% the year before, more than twice the median U.S. household annual income of $55,775. Bonuses in the New York securities industry were 1.6 times the combined annual earnings of all the nation’s 1 million-plus minimum wage workers in 2016.

The report, “Off the Deep End: The Wall Street Bonus Pool and Low-Wage Workers,” estimated that the 2016 bonus pool held enough dollars to lift all of the country’s 3.1 million restaurant servers and bartenders on a $15 per hour minimum wage, or 1.7 million home health and personal care aides, or all 3.2 million fast food preparation and serving workers. (The national minimum wage has risen only 116% over the last three decades, from $3.35 an hour to $7.25.)

We leave it to Nobel-prize-winning economist Angus Deaton to unravel this...the fact this economy isn’t what we’ve been told. In reality, it’s largely a rent-seeking based system, in which a meaningful percentage of the people who earn the most money are not only not adding value to society, they’re in fact parasites feeding off the general public. Market Watch reports:

Income inequality is not killing capitalism in the United States, but rent-seekers like the banking and the health-care sectors just might, said Nobel-winning economist Angus Deaton on Monday.

If an entrepreneur invents something on the order of another Facebook, Deaton said he has no problem with that person becoming wealthy.

“What is not OK is for rent-seekers to get rich,” Deaton said in a luncheon speech to the National Association for Business Economics.

Rent seekers lobby and persuade governments to give them special favors.

Bankers during the financial crisis, and much of the health-care system, are two prime examples, Deaton said.

Rent-seeking not only does not generate new product, it actually slows down economic growth, Deaton said.

“All that talent is devoted to stealing things, instead of making things,” he said.

Another prime example of rent-seeking is that the Medicaid is funding opioid prescriptions for low-income workers, Deaton said. The results are workers who are becoming addicted and overdosing while profits are going to the Sacker family which owns Purdue Pharma that makes OxyContin.

...

Raising taxes on the wealthy is not a good way to combat rent-seeking because it taxes the legitimate profits of entrepreneurs along with rent-seekers. 

“The key is to somehow find a way of tackling rent-seeking, crony capitalism, and corruption legal and illegal and build fairer, more equal society without compromising innovation or entrepreneurship,” he said.

As Michael Hudson explained so eloquently recently that bankers have become the top exploiters of the economy. Today, families entering the labor force are going to have to spend all their life working off the debt they need to take on in order to get an education to get a job, as well the debt they need to buy a car to drive to the job, and the mortgage debt for the house they need to live in to avoid rents going up and up. They have to spend all their life merely to pay their creditors, not to live better with more goods and services. Unlike serfdom, today’s workers can live wherever they want. But wherever they live, they have to produce value not only for their employers but also for the bankers. These bankers (and bondholders) are the main exploiters today. So finance capitalism is overwhelming industrial capitalism. Instead of industrial capitalism evolving into socialism as was expected, it is retrogressing back to neo-serfdom and neo-feudalism. This is mainly because of the inability to bring debt within the industrial capitalist system to evolve into a socialist economy. That is what neoliberalism is sponsoring by financialization and privatization.

The Bubble Boys

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There is a famous Seinfeld episode about an arrogant guy who unfortunately has to live in a bubble. This is the same situation which millions and millions of good people around the world are in. The arrogant central bankers, The Bubble Boys (+ Janet), have created the conditions for speculation to metastasize all over this Planet. The rampant money printing and the low rates have "forced" speculators to pile into numerous markets, turning them into orgies of greed. Speculators have piled into collector cars, high end art, and knick knacks and doo dads galore. But those are just side shows. The truly disgusting side effects stemming from decisions made by the arrogant, omniscient Bubble Boys +, can be seen in the real estate market. Their reckless hail Mary "policies" (experiments) have forced way too many good people into very tough situations, as rents and house prices have soared (housing costs). But of course the incessantly rising home prices are great for speculators. And many of these speculators have lived off of the government teat (courtesy of the always shafted non-insider tax payers) for years. But unfortunately the President apparently has no problem with these "teaters", like Treasury Secretary Steve Mnuchin and his RE shenanigans. Many of the small, independent flippers and rehabbers aside, the insiders, thanks to our compassionate governments all over the world, have gotten disgustingly, grotesquely rich. And their lucre (basically) has come at the expense of the 99%, who have zero say in the policies enacted by the arrogant clowns running governments and central banks. So as government-connected Blackrock keeps piling up the profits, the average citizens suffer. If there is truly karma, then it"s time for that situation to reverse.

So as these RE banditos move from pueblo to pueblo, pillaging, plundering and looting, the unfortunate citizens have to pay their ransom to their new landlords. And if they wanted to buy, they are forced to pay bubble prices, or keep renting at higher and higher rates. We are so lucky to have such compassionate leaders around the world. And now Portland, Oregon has been invaded by the marauders:

"The migration from Silicon Valley, as well as Seattle, adds to the pressure on Portland real-estate prices.

New arrivals flush with money from home sales in the higher-priced regions often bid up prices. Through most of last year, the monthly rate of increase in Portland home prices led the nation, according to the S&P Case-Schiller price index.

Meanwhile, rapidly rising rents are straining tenants.

 Scott San Filippo, a software developer from the Bay Area, got a front-row seat to that process after he moved to Portland last year. His new home was just across the street from a four-plex that was sold to a new landlord. He then watched three of the tenants, a single father with his son, a couple and an older gentleman, vacate."

And of course, what does the compassionate government do, as the situation was caused by the governments and central banks to begin with - by meddling in the "free market" (not that their are any around anymore)? So just add in more bureaucracies and meddling:

"I was shocked how people could be forced out." .... "In San Francisco, there is rent control."

In Portland, there is a new push for rent control.

That movement has gotten a boost from state House Speaker Tina Kotek, a Portland Democrat, who supports a bill in the Legislature that would remove a statewide ban on rent control. She also backs a temporary, one-year measure to limit rent increases to no more than 5 percent and forbid evictions without cause.

"Too many property owners are taking advantage of the market conditions by evicting tenants, raising rents and finding new people who can pay more each month," Kotek said in a September speech."

So as the speculation keeps forcing average folks to make very tough choices, and the arrogant buffoons running the show continue downing their cognac and devouring their Kobe beef filets, the citizens are getting extremely restless. They continue to see their real wages fall, as everything else around keeps going up in price (stagflation). But the elites time is coming. As the Seinfeld episode ends, George pops the bubble boy"s bubble, and an angry mob chases him and his colleagues down the street. The central bankers and politicians will suffer the same fate when their government/central bank bubbles finally implode. And we"re getting close.

Centralization's Slide Into Oblivion

Authored by Charles Hugh-Smith via OfTwoMinds blog,

When something no longer works, it goes away: it costs more to maintain than its output is worth.

The fragmentation of political consensus (i.e. the consent of the citizenry) is presented by the Powers That Be and their media servants as being a disaster. The implicit fear is real enough: how can we rule the entire nation-empire if it fragments?

As I noted the other day, fragmentation terrifies the Establishment of racketeers and insiders, for when the centrally-enforced rentier skims and scams collapse, those who own and control the rentier skims, scams and rackets will lose the source of their wealth and power.

To understand why fragmentation is the solution rather than the problem, we have to look at how power is leveraged in centralized government. Let"s take the recent increase in a common pinworm treatment from $3 to $600: Pinworm prescription jumps from $3 to up to $600 a pill (via J.F.).

In a top-down, centralized hierarchy of political power (i.e. the central state), the pharmaceutical company only needs to lobby a few authorities in the central state to impose its rentier skim/scam on the entire nation.

Lobbying/bribing a relative handful of federal officials and elected representatives is remarkably inexpensive: a financier or corporation only needs to focus on these few key players, and smoothing the PR pathway via a highly concentrated corporate media.

A mere $5 million spent in the right places guarantees $100 million in future profits-- profits earned not from open competition in a transparent market, but profits plundered as rentier skims: the product didn"t get any better or effective when the price leaped from $3 to $600, and competition was squelched by regulatory capture and high barriers to entry.

Now imagine if the pharmaceutical company had to lobby/bribe officials in each of America"s 3,142 counties to impose its rapacious rentier skim on the populace of each county. The lobbying/bribing effort will be orders of magnitude more costly and complex, and the national corporate media is less effective at the local level, where community groups and local media have some influence.

If we look at the source of the 2008 Global Financial Meltdown, we find that the centralization of capital and power were the primary enablers of the meltdown. If the financial system were composed of 1,200 local banks, each of which had to comply with local and state regulations instead of five behemoth banks that had the capital and klout to buy Washington D.C."s approval of their leverage and shady dealings, some hundreds of the smaller banks might have failed--but the system would have survived.

Those banks that played fast and loose with derivatives and subprime mortgages would have reaped what they had sown and been liquidated. Investors in those banks" bonds and stocks would have been wiped out. Losses would have been taken by those who had taken the risks, bad debts would have been written off and lessons would have been learned.

Instead, the five big banks and a handful of other monstrous financial entities were able to cry, "If you don"t save us, we"ll take the entire system down with us!" A system that prohibited the concentration of centralized capital and power would never have been in a position to be blackmailed by the Too Big To Fail predatory parasites.

We live in an incredibly diverse nation and world. Fragmentation serves this world better than centralized power, which as I explain in my short books Inequality and the Collapse of Privilege and Why Our Status Quo Failed and Is Beyond Reform, is breeds corruption, self-serving bureaucracies, insider rackets, cronyism and rentier skims as the only possible output of the system.

If we want a resilient, flexible, low-cost system, we must replace the centralized system of enforced consent and artificial consensus with a fragmented, transparent one of smaller scaled, competing organizations of governance, capital and enterprise.

The intrinsic limits of a corrupt, inefficient and rigged-to-serve-the-few-at -the-expense- of-the-many centralized pyramid of power and wealth is why centralization is the problem rather than the solution:

Transparent fragmentation is the solution. Only those who will lose their share of the rentier skims, scams and rackets are afraid of history"s trajectory away from centralization. When something no longer works, it goes away: it costs more to maintain than its output is worth.

As its defenders tax the system to protect what no longer works (except for them, of course), the slide to oblivion accelerates as the system breaks down under the collective weight of all the skims, scams and rackets benefiting the few at the expense of the many.

NYC Isn't The Only Place The "Rent Is Too Damn High"; Euros And Canadians Also Struggle To Make Rent

Jimmy McMillan III, the now infamous founder of the "Rent Is Too Damn High Party", as well as a self-described karate expert, Vietnam War vet, former postal worker and male stripper, has made it his mission for the past two decades to fight rising rents in New York City that have persistently pushed lower-income families out of Manhattan to make more room for America"s Ivy-League educated, entitled snowflakes.

But according to recent data published by Harvard"s Joint Center for Housing Studies (JCHS) and the  Organization for Economic Cooperation and Development (OECD), the Big Apple isn"t the only place where a significant portion of the population is struggling to meet monthly rent payments.  In fact, per the JCHS, the U.K., Spain and Canada join the U.S. to round out the list of the top four countries in the developed world where 20-30% of renters spend more than 50% of their gross income on rent alone.

The US, along with Spain, exhibits more pervasive and severe rental affordability problems than the other countries considered. The analysis indicates that the greater cost burdens found among renters in the US, relative to most of the other countries, are largely due to greater income inequality, to more limited housing assistance programs, and perhaps to a housing supply consisting of units that are larger and better-equipped but that are consequently more expensive. This paper is largely focused on lessons for the US from comparisons to other countries, but hopefully it will be useful for those interested in comparisons among those other countries
 as well.

As Bloomberg points out, when you lower that threshold to 40%, the numbers are even more staggering and includes a large portion of Europe.

Meanwhile, Spain wins the award for the highest percentage of gross income that goes directly to landlords, while the U.S. and United Kingdom are a close 2nd and 3rd at around 30%.

That said, while a significant portion of renters across Europe receive some type of taxpayer-funded rent subsidy, renters in the U.S. just have to rely on their federally-subsidized student loans to cover their rent and spring break trips to Cancun.

Nobel Prize Winning Economist Blasts America's "Rent-Seeking" Economy

Via Mike Krieger of Liberty Blitzkrieg blog,

I’m really grateful Angus Deaton was willing to come out and state the obvious.

That is, the fact this economy isn’t what we’ve been told. In reality, it’s largely a rent-seeking based system, in which a meaningful percentage of the people who earn the most money are not only not adding value to society, they’re in fact parasites feeding off the general public.

Market Watch reports:

Income inequality is not killing capitalism in the United States, but rent-seekers like the banking and the health-care sectors just might, said Nobel-winning economist Angus Deaton on Monday.

If an entrepreneur invents something on the order of another Facebook, Deaton said he has no problem with that person becoming wealthy.

“What is not OK is for rent-seekers to get rich,” Deaton said in a luncheon speech to the National Association for Business Economics.

Rent seekers lobby and persuade governments to give them special favors.

Bankers during the financial crisis, and much of the health-care system, are two prime examples, Deaton said.

Rent-seeking not only does not generate new product, it actually slows down economic growth, Deaton said.

“All that talent is devoted to stealing things, instead of making things,” he said.

Another prime example of rent-seeking is that the Medicaid is funding opioid prescriptions for low-income workers, Deaton said. The results are workers who are becoming addicted and overdosing while profits are going to the Sacker family which owns Purdue Pharma that makes OxyContin.

But Jeff Sessions swears it’s all the fault of the evil marijuana.

Deaton said he favors a single-payer health system only because our current part-private and part-public system is exquisitely designed to give opportunities for rent-seeking.

“So I, who do not believe in socialized health-care, would advocate a single-payment system…because it will get this monster that we’ve created out of the economy and allow the rest of capitalism to flourish without the awful things that healthcare is doing to us,” he said.

Raising taxes on the wealthy is not a good way to combat rent-seeking because it taxes the legitimate profits of entrepreneurs along with rent-seekers.

“The key is to somehow find a way of tackling rent-seeking, crony capitalism, and corruption legal and illegal and build fairer, more equal society without compromising innovation or entrepreneurship,” he said.

If you enjoyed this post, and want to contribute to genuine, independent media, consider visiting Mike"s Support Page.

Luxury Apartment Bust Spreads To Main Street

For months we"ve warned about the impending collapse of the luxury real estate markets in New York and San Francisco amid tepid demand and a supply glut that is getting ready to flood the market with new capacity (see here, here and here).  Of course, one of the first signs of excess capacity comes in the form of rent concessions, which as we pointed out over the summer, have been relatively easy to find in the large metro markets.

“Listings that once rented in just two to three weeks can now take two to three months to rent,” explains Paul Hwang, principal broker at Skybox Realty, a San Francisco-based real estate agency.

At least four new apartment buildings have opened within a three-block radius of one another during the last 18 months in San Francisco’s thriving South of Market neighborhood, which is home to major tech companies like Airbnb, Pinterest and Yelp (YELP).

Those four buildings — Jasper, 340 Fremont, 399 Fremont and Solaire — frequently offer some sort of bargain for prospective renters. 340 Fremont is offering six weeks of free rent; Solaire is pitching four weeks of free rent, free on-site storage and $1,000 discounts to renters who work at tech companies like Apple (AAPL), Facebook (FB) and Yahoo (YHOO). Meanwhile, another building, 399 Fremont, even tried giving away free bikes one weekend.

But new buildings weren"t the only ones offering incentives.  Craigslist was also flooded with listings like the one below offering free rent and a $500 gift card to interested renters.

Unfortunately, as the Wall Street Journal points out, NYC and San Francisco aren"t the only cities across the country that are about to get flooded with new luxury apartments.  In 2017 alone, 378,000 new apartments are expected to be completed across the country, or roughly 35% more than the 20-year average. 

Developers in New York are already offering up to three months of free rent on some projects. In Los Angeles, some landlords are offering six months of free parking, and some in Houston are waiving security deposits. Meanwhile, MPF Vice President Jay Parsons said he expects little or no rent growth in urban rental markets this year.

“This will be a very challenged leasing environment almost everywhere,” Mr. Parsons said.

The slowdown, he said, is being driven not by a pullback in demand but rather a flood of new apartments. Demand for urban properties jumped after the housing bust as young, high-earning professionals eschewed homeownership and flocked to big cities. Developers responded by focusing most of their efforts on high-end properties.

Now, though, the number of upscale apartments coming onto the market appear to be outpacing the number of renters able to move into them: More than 50,000 new units were rented by tenants in the fourth quarter in the U.S., six times the number in the year-earlier period. But that demand was overwhelmed by the 88,000 new units that were completed in the quarter, the most since the mid-1980s, according to MPF.

That gap looks set to widen in 2017. More than 378,000 new apartments are expected to be completed across the country this year, almost 35% more than the 20-year average, according to real estate tracker Axiometrics Inc.

And smaller cities like Dallas, Atlanta and Nashville are expecting some of the largest supply gluts.

The sluggishness is expected to spread across the U.S., hitting markets from Nashville, Tenn., and Dallas to Los Angeles and Atlanta.

Dallas is expected to see nearly 25,000 new apartments delivered, compared with the long-term average of roughly 9,000 new apartments a year, according to Axiometrics. Los Angeles is expected to get roughly 13,000 new apartments, nearly double the historical average.

Nashville could see some 8,500 new apartments, more than triple the typical 2,400 apartments completed annually.

John Tirrill, managing partner at SWH Partners, an Atlanta developer that has several projects under way in the Nashville area, is leasing a new five-story property with a fitness center, yoga and barre studio and swimming pool. He has lowered rents from $2.25 a square foot to $2.10 a square foot—a $150 discount on a 1,000-square-foot apartment—and is offering one to two months of free rent.

Meanwhile, as Wolf Street notes, rent concessions have become fairly pervasive across the country.

And, banks are starting to get just a little worried that they financed a few too many luxury skyscrapers.

Banks are pulling back on lending, which could help slow the pace of construction starting in late 2018.

“We’re just being really selective,” said John Cannon, a senior vice president at Pinnacle Financial Partners, a Nashville-based financial-services company that has increased its focus on multifamily lending in the last couple of years. “Multifamily has a large number of units on the ground that they really have to demonstrate some absorption.”

We vaguely recall seeing the single-family version of this movie a few years ago...