
How I won the housing market without trying - sasvari
http://www.theguardian.com/society/2015/feb/05/how-i-won-the-housing-market-without-really-trying
======
duckingtest
Real estate is so expensive around the world now because of unfair tax
policies. True wealth creation is taxed mercilessly via a multitude of income
taxes, while gains from real estate are often not taxed at all, even though
they're completely unproductive. A person holding a land in the city for 25
years didn't make anything new, their profit is a direct zero-sum transfer
from someone else. How is that fair?

The net result is an enormous redistribution from productive young people to
(mainly) older owners and inefficient land use, a growth-killing policy.

The solution is simple. Abolish all personal income taxes (or at least reduce
their levels) and replace them with land value taxes (not property), something
like 30% of value annually. Unproductive use of land would disappear. Retiring
people with homes close to jobs would move out fast somewhere else, as short
commute times have no value to them. Uneconomical building limits would
disappear (more efficient use of land - multilevel housing - would have much
smaller land tax per living surface area) which would reduce transport costs
and time wasted. It's easy to imagine many more positive effects.

Sadly that's never going to happen.

edit: After some thought, never is too strong. If aging gets cured, something
like that will be a certainty, because the alternative is the world in which -
more numerous - generations after the invention don't own almost anything,
which won't work for long.

~~~
prostoalex
Extrapolating the data from the US
[http://taxes.about.com/od/statetaxes/a/property-taxes-
best-a...](http://taxes.about.com/od/statetaxes/a/property-taxes-best-and-
worst-states.htm) the states with highest property taxes (New Jersey, New
Hampshire) don't seem to be the economic powerhouses compared to the states
with ultra-low property rates as the theory would imply. (The rates there are
on "property value", so the rate for land value would be higher than
indicated.)

> A person holding a land in the city for 25 years didn't make anything new,
> their profit is a direct zero-sum transfer from someone else.

For one, he took the opportunity risk of locking his liquid capital into a
piece of land, which only accumulates property taxes, as opposed to owning a
bond or a stock that pays dividend or interest. When you calculate the IRR,
land doesn't necessarily come out ahead of S&P 500 over longer periods of
time.

For two, he took on the appreciation risk - the land is not guaranteed to go
up in value all the time.

~~~
duckingtest
>the states with highest property taxes (New Jersey, New Hampshire) don't seem
to be the economic powerhouses compared to the states with ultra-low property
rates as the theory would imply

These are property taxes, not land taxes, unless the article is lumping them.
A property tax doesn't provide incentives for more efficient use of land, on
the contrary actually.

Even if they were land taxes, they would be way too small for a meaningful
difference. Also the biggest effect would come from replacing income tax with
land tax, as the most productive people would gain the most, and presumably
invest the gain in whatever productive thing they're doing.

>For one, he took the opportunity risk of locking his liquid capital into a
piece of land

>For two, he took on the appreciation risk

There's nothing valuable in risk. Your argument works even better for buying a
piece of a rock for a million dollars and expecting profits, as the
opportunity risk and appreciation risk are way higher than buying a piece of
land.

~~~
prostoalex
> These are property taxes, not land taxes, unless the article is lumping
> them.

I am not sure I understand. The property tax in the US is the tax on land +
additions, both subjects to appraised value, so yes, the rates listed do
include both.

> Also the biggest effect would come from replacing income tax with land tax,
> as the most productive people would gain the most

How would this be sustainable for farmers or ranchers? If they have to
radically increase their prices to account for new 30% land value tax, does
the society benefit or lose?

> There's nothing valuable in risk.

He provided liquidity to the market when somebody was willing to sell that
piece of land. If you're taxing someone for providing liquidity, the price of
the underlying good will plummet, as that removes incentives for current
buyers, and then you're back to square one - low tax revenues collected from
land owners.

> Your argument works even better for buying a piece of a rock for a million
> dollars and expecting profits

People do invest in gold and silver.

~~~
duckingtest
>I am not sure I understand. The property tax in the US is the tax on land +
additions, both subjects to appraised value, so yes, the rates listed do
include both.

Land tax is a tax on a value of unimproved land only [0]

>How would this be sustainable for farmers or ranchers? If they have to
radically increase their prices to account for new 30% land value tax, does
the society benefit or lose?

Why would it change anything? The land prices would just fall so that the net
result would be neutral for average farmer.

>He provided liquidity to the market when somebody was willing to sell that
piece of land

Land tax increases liquidity drastically by making it much more expensive to
hoard it.

>and then you're back to square one - low tax revenues collected from land
owners.

It's not back to square one - it's a situation in which people with more
productive use of land can get it much more cheaply. Think of a situation in
which a prime residential city land costs one __average __annual wage.

>People do invest in gold and silver.

People do many weird things.
[https://images.angelpub.com/2014/17/24245/returns-on-
stocks-...](https://images.angelpub.com/2014/17/24245/returns-on-stocks-bonds-
gold.gif)

[0]
[http://en.wikipedia.org/wiki/Land_value_tax](http://en.wikipedia.org/wiki/Land_value_tax)

------
awjr
In the UK it's normal practice to get in a chain. You sell yours, line up the
one you want to buy, and all 14 people in the chain complete on the same day.
Not sure you should be selling your house, then deciding to look.

You have to ask yourself what changed in the UK mortgage market to create this
increase in housing value. It comes down to a bank regulation change the
government put in place in 1996. Banks were able to offer buy-to-let
mortgages.

This has fundamentally distorted the housing market in the UK.

In London you also have another issue. Apparently 40% of new build apartments
are bought and never lived in. They are used as an investment to hold money
'safely' primarily by foreign buyers.

[EDIT] Citation for "buy to leave"
[http://www.theguardian.com/business/2014/dec/04/property-
inv...](http://www.theguardian.com/business/2014/dec/04/property-investors-
islington-london-homes-empty-jail)
[http://www.theguardian.com/commentisfree/2014/dec/08/islingt...](http://www.theguardian.com/commentisfree/2014/dec/08/islington-
council-buy-to-leave-investors-uk-housing)

So you have a situation where the Banks leant like crazy inflating the housing
market, the crash happened, the banks hardened their mortgage lending
criteria, which forced most people into renting, enabling landlords to
maximise returns and invest further in rental properties using buy to let
mortgages that use rental income as part of the payment calculation.

It's one hell of a vicious circle.

From my point of view I have benefited, but I honestly cannot see my 11 year
old daughter ever owning her own property.

~~~
NotableAlamode
I seriously doubt that 40% figure. Why would "foreign buyers" who by flats as
investments not take home the (very substantial) London rents? It would be
financially imprudent.

I suspect that this is really a form of xenophobia, used, among other things,
to sensationalise newspaper articles.

~~~
awjr
[http://www.theguardian.com/business/2014/dec/04/property-
inv...](http://www.theguardian.com/business/2014/dec/04/property-investors-
islington-london-homes-empty-jail)
[http://www.theguardian.com/commentisfree/2014/dec/08/islingt...](http://www.theguardian.com/commentisfree/2014/dec/08/islington-
council-buy-to-leave-investors-uk-housing)

It's called "buy-to-leave" and no it's not xenophobia, it's a symptom of a
housing bubble very much centred on London.

~~~
NotableAlamode
The article is a bit sketchy on the methodology used. The fact that not
everybody flat investigated has somebody on the electoral register can easily
be explained by several factors.

\- The central London population is very transient. Many stay only for a few
weeks, months or at most a year or two. Why bother registering?

\- Many central Londoners, especially the young and newly arrived, move about
quite a lot before they settle in one place for longer. They would not bother
with registration.

\- Many, probably the majority of central Londoners are foreign and don't
bother with the electoral register because they can't vote in the general
elections anyway, and may not know that the can vote for the major (or may not
care).

\- There's a lot of legally questionable subletting going on (think AirBnB),
where the subletter and / or sublettee might not necessarily want to be on an
official register.

\- Some owners may simply fail to find a tenant, for example because they
pitch rent too high.

As a piece of anecdotal evidence, I offer myself: I only got on the electoral
register about 10 years after I moved to London.

------
stana
Thanks to banking deregulation housing has become an investment commodity. In
major cities in Australia at the moment half the purchases are for investment
rather than owner-occupier. Government incentives like first-home buyer grants
(if you can't save for a deposit) have only lifted the prices and helped
vendors. Another one is negative-gearing introduced a couple of decades ago
allowing tax deduction for investment properties making a loss (after rent),
pushing prices higher. Only a few years ago the rules were changed around
Australian pension funds (superannuation) allowing leverage. Property
purchases from these funds sky-rocketed. All of this while Foreign Investment
Review Board (who should be in charge of making sure foreign investors only
buy new properties) has not had a single prosecution in last 8 years making
you wonder if the rules are being followed at all. It is hard not to make a
connection between constantly rising house prices and baby boomer generation
dominating the government. It has been recently estimated Australian
politicians hold a $300m property portfolio. Talk about conflict of interest..

~~~
Omniusaspirer
It's basically inevitable though that in demand property will rise in price,
especially with regulation constraining building height/form factor. Home cost
in urban areas is much more about location than it's about any real cost to
building the residence. Lots of people buy large houses for very little a few
miles out of town where land is abundant and demand is more reasonable.

I guess I'm just having trouble really feeling sorry for anyone who decides
that living within a select few square miles is worth paying an obscene
percentage of their income towards that pursuit. It's a housing _market_ and
prices will rise to meet demand until buyers finally split off to other nearby
locales.

As to your last line; There's a reason that most people don't want to admit
that 2008 was the housing bubble popping and instead insist that homes are
"finally returning to their true value".

~~~
mwj
"There's a reason that most people don't want to admit that 2008 was the
housing bubble popping and instead insist that homes are "finally returning to
their true value"."

It may have burst in the US, but certainly nowhere else

~~~
galfarragem
With the current prices just with a gun pointing to my head, I would agree to
buy a house in Australia as investment.

With the money needed to buy a crappy flat, you can buy a luxury house in a
lot of places around the world. Prices are crazy.

------
junto
What is interesting, is that the policy makers have a financial interest in
ensuring that the housing market does not crash. Therefore every time it
should have crashed big time (2001, 2008), the BoE has propped it up by making
sure that borrowing remained dirt cheap and the government made sure that the
market stayed liquid (raising stamp duty levels for example).

Every time they do this, they just exacerbate the problem long term, which is
quite simply, that the market needs a correction, and the longer they put it
off, the more painful the correction is going to be (like it was early 1990's
in the UK but worse).

I for one say let it burn.

~~~
matthewmacleod
I don't think you achieve much by 'letting it burn,' as it were. All you do is
force a large number of people into a bad financial situation – that's not
good for anybody.

The market needs correction, but it needs to be well-managed. That basically
means long-term house price stagnation and investment in social housing to
remove the incentives for buy-to-let landlords and multiple property owners.

~~~
justincormack
Property is a zero sum game. People without houses lose the equivalent in
future spending as homeowners gain. So propping up a market is directly taking
money from the young and increasingly old non homeowners. So not doing
anything is putting a large number of people in a bad situation.

~~~
notahacker
Property isn't quite a zero sum game; as the last few years have show the
overall losses from a crash outweigh the benefits of lower prices and greater
liquidity to people without houses (especially if the result is that people
without houses can't get mortgages even after the prices have fallen)

That's not to say there shouldn't be more pressure put on property price
appreciation, not to mention confiscatory levels of capital gains tax on
property speculators that aren't tax-resident in the UK. But inducing a
property price crash (as opposed to slowing property price inflation) would be
a bad move for the economy as a whole, as well as electoral suicide in a
country where the majority of the population have a mortgage or own their
house outright.

~~~
lentil_soup
Doesn't "losses from a crash outweigh the benefits of lower prices" depend on
who you're talking about?.

For me this has to be looked at from the point of who it affects the most. A
person that already has a house is much better suited to "take the hit" of
property prices than someone that doesn't have one (in general terms).
Obviously you have to manage it, but in the end you should strive to protect
those that are more vulnerable.

~~~
notahacker
People most vulnerable to house price changes are people who own the title
deeds to a house and an obligation to make mortgage repayments which may end
up vastly exceeding the future value of the house. And the banks which see
rising default rates from owners in negative equity, repossessed houses they
can't sell. And anyone whose pension fund bought the wrong tranche of CDOs.
Not to mention property developers, and workers in construction industries
that support it, assuming the house price fall is generalised.

People _least_ likely to be positively affected by a house price crash include
people that don't have houses, the majority of whom face considerably more
difficulty and up-front expense in obtaining a mortgage in an environment of
falling or unstable property prices.

Sure, there are some beneficiaries from a house price crash, just like some
people make money shorting a failing company. That doesn't mean there isn't a
deadweight loss, and if your conception of people who are "most vulnerable" to
property prices prioritizes the welfare of those with no significant exposure
to property but plenty of liquid funds and a long term investment horizon,
it's a very strange conception.

Much of the world is still suffering from the after-effects of a major house
price crash in the US several years later; I'm genuinely quite saddened that
some people are so adamant the effects of that must have been "zero sum" they
feel obliged to reach for the downvote button when HN commenters have the
temerity to suggest otherwise.

------
vacri
A couple of things are worth mentioning. Firstly, everything but housing is
much cheaper now than in the 80s/90s. People will spend their money somewhere.
The ability to do your own repairs is also much greater, as the huge (and
cheap!) hardware stores have sprung up and the DIY culture has become
stronger.

Secondly, I don't know about the UK, but here in Australia, home loans in the
80s had interest rates of almost 20%, as opposed to 5-6% today. It had calmed
a little in the 90s though. The cost in dollar terms was much cheaper, sure,
but it was still difficult to service at the time. Buying a house was still
monumentally stressful. I know a few boomers who were unable to maintain their
mortgages in that time.

Just because the sticker price was significantly smaller doesn't mean that it
was all that much easier.

Edit: it's also worth mentioning that the median wage in the UK has increased
about 50% from 1990 to 2010 (~16k to ~24k) and the average wage more than
that. Housing is still depressingly expensive, but the numbers aren't quite so
wildly different as shown.

~~~
nl
_here in Australia, home loans in the 80s had interest rates of almost 20%, as
opposed to 5-6% today._

That's a pretty big exaggeration. Rates peaked at 17% in 1989, but were below
15% for most of the 80's[1].

[1] [http://www.loansense.com.au/historical-
rates.html](http://www.loansense.com.au/historical-rates.html)

~~~
tonylemesmer
Individual loan products from lenders would have been slightly different to
rate shown in the graph. So "almost 20%" isn't that far off.

~~~
nl
I'm old enough to remember rates in the 80's (though not old enough to have
had one!). And I have a loan now, and the rates almost exactly match the rates
in that table.

Here's another reference: [http://www.abc.net.au/news/2007-08-08/the-reality-
of-interes...](http://www.abc.net.au/news/2007-08-08/the-reality-of-interest-
rates/2525330)

17% was as high as they got for mortgages.

~~~
vacri
Well, I guess my argument is completely blown out of the water because they
peaked at 17% (I guess 17 is not near 20...) instead of 18-19%, and averaged
around a couple of percentage points lower. Hardly a "pretty big
exaggeration".

It doesn't change the fact that mortgages, _regardless of the percentage rate_
, were still not 'easy' back then. The smaller mortgages were not being paid
off with today's rates and today's pay packets. They also had fewer
flexibility features (things like redraw or offset accounts).

~~~
frobozz
Yes, but in the period you state, when the average wage has risen by 50%, the
average house price has risen by over 200%, and RPI has risen by 117%.

It's true that back then, the average monthly mortgage payment might have been
similar, if not slightly more (adjusted for inflation). However, a lifetime
fixed rate is unusual and they would have moved to lower rates when they came
available.

Also back then, more people had a 'job for life', defined benefit pensions,
and inflation-matching or beating pay rises without the risk of moving to a
new company. One could be reasonably confident that if a mortgage was
affordable now, it would continue to be so in the future. Nowadays, with
stagnant wages, interest rates that can only go up, and the need to invest
more into personal pension funds in order to mitigate the risk of retiring at
a market low point.

------
nodata
I don't get it: she sold up and made a profit, but unless she downsized, the
profit is gone on buying a new place.

~~~
makomk
If you get lucky and don't particularly care where you live, you don't
necessarily have to downsize. London house prices are a lot higher than the
rest of the country and have gone up a lot more. You could get a decent-sized
house with a garden in most of the UK for what she sold her flat for.

~~~
UK-AL
You could buy a McMansion in most of the UK for that price.

------
buro9
I saw a startup tweeting yesterday about a shared investment.

The gist is that instead of investing in stocks and shares, you put your money
into property and a shared structure gives you some % of the property in
question. The startup actually owns the property, and there is some legal
allocation of your portion, and they offer the means to exit your share of a
property without the property itself needing to be sold... your share just
gets sold to the next investor.

As a startup I can see this working, as an investor I could see this working,
as a resident in London I'm frankly appalled.

~~~
prostoalex
This has been around, if you buy the house under LLC, you can divvy up the
equity whichever way you want it.

How's liquidity provided when there's no "next investor"?

------
harkyns_castle
Be nice to have got into the market early, many people over here in Australia
get the benefit of negative gearing too as they accumulate more houses.

I'd particularly be worried as a young person in the States now, a hefty
mortgage on top of some of the student loans I've seen look like it'd spell an
entire lifetime of loan repayments.

------
dingaling
> A person holding a land in the city for 25 years didn't make anything new

Of course they did. When they took out their mortgage, none of that 'money'
existed. They had to participate in the creation of wealth in order to pay
back mortgage + interest.

I've finally paid-off my mortgage. If someone has a more 'productive' use for
my land and building, they are welcome to make me a financial offer.

