UBI increases housing demand without increasing supply of homes --- drives prices up and creates huge bubble

(Wes, Real Estate Agent, “How Universal Basic Income Could Change Real Estate Investing,” pg online @ https://www.biggerpockets.com/forums/48/topics/719023-how-universal-basic-income-could-change-real-estate-investing //um-ef)

INCREASED HOUSING DEMAND, WITHOUT INCREASED SUPPLY At the bottom end of the market, this UBI of $1,000/month would suddenly allow many people who could not afford a home without it to suddenly purchase one. Using a DTI Ratio of 45%, a married couple would have an extra $900/mo (45% of $2,000/mo) to allocated to their housing expenses, allowing them to more than double their pre-approval amount in some cases. Without UBI: Max Purchase Price = $117k at $800/mo With UBI: Max Purchase Price = $250k at $1,710/mo (+$900/mo to take new DTI to 45%) (Note: I'm not a lender, and surely there is more to this calculation than I am sharing here, this is merely just meant for illustrative purposes) Further, the extra money would allow many people who already have the income and credit but no down payment to suddenly be able to save up for the down payment, creating additional buyers at the lower price ranges. But without increasing the supply of available homes, the base floor price for housing would certainly be raised. Simple supply and demand. MORE POTENTIAL MOVE-UP BUYERS With more income available for housing, some buyers will be tempted to "trade up" and purchase more housing than they could normally afford. Suddenly you'd be able to move into that better school district or nicer neighborhood instead of settling for what you could previously afford. Thereby creating more demand in the mid-range markets as well (Under $500k in most areas). But still, the increased demand would be felt at the bottom end of the price range where it already exists. I recently received 9 offers in the first weekend for a $150,000 home in Phoenix, and could easily see that number doubling to 20+ offers with a UBI plan for an extra $1,000/mo. EFFECTS ON THE RENTAL MARKET You'd likely see a similar trend in the rental market, with people moving out of their relative's house and into their own rental who couldn't afford to do so before. Also, you'd see renters at the lower end in not-so-nice neighborhoods suddenly move out into nicer neighborhoods that are safer with better schools. The big question is how many landlords are going to jump ahead of this demand and automatically bump the rents a superficial amount now that everyone has an extra $1,000 every month. QUESTION: If you were a landlord and had a 10-unit apartment building, and suddenly all your tenants are now receiving an extra $1,000/mo, how tempted would you be to raise the rent sharply for no other reason? If that happens, you might see an even greater increase in demand for purchasing lower level housing, with tenants perceiving they're getting a bad deal in their current rental, motivating them to finally buy a home instead. EFFECTS ON SHORT TERM RENTALS (STR) Since short term rentals are associated with travel, which itself is somewhat of a luxury, I don't think UBI would have as much impact on the STR market. Surely, more people that couldn't afford to travel in the past would suddenly be able to, but they may choose to spend that money elsewhere instead. And that's the whole rub with UBI. When everyone has a larger supply of money, the demand for ALL things naturally increases. People will spend money they didn't have in the past on new non-essential items (things they only wished they could afford in the past, but suddenly now can). LOW PRICED MARKETS BUBBLE FROM INVESTORS With extra income every month, and a resulting increase in local housing costs, real estate investors would swamp lower priced housing market like Ohio where homes are under $100k. Investors who may not be able to invest locally because of the increased demand and raising of the lower home prices would look to other states where homes are already more affordable. This could have a devastating effect on those markets who are already experiencing fierce demand in the lower price ranges from owner occupants, with an additional demand coming from out of state investors, making the housing situation worse than it was previously.