Housing in the US has gotten to where it is due to horrible laws effectively allowing total tax avoidance for landlords.
Take some investment property. You buy it at some basis price, let's say 500k. You rent it out for 15k a year. Each year you can offset your rental income against deprecation of the property and property taxes - meaning, you pay no income tax on your rental income.
~30 years later, you've deprecated it down to an effective value of $0, so you hypothetically would have to start paying taxes on your rental income(of course, you can still deduct property taxes against that). What do you do? Well, there's something called a 1031 exchange - this lets you sell an investment property, and as long as the funds go directly into another investment property, you pay no capital gains taxes. So guess what? You can buy a brand new investment property with a new(albeit adjusted) cost basis, and you can start the entire cycle of depreciation and deduction all over again on your new, more expensive, property.
So, you've now held this property your entire life, and you die and pass it to your kids - well, great news, unless your estate is over 12 million dollars(and double that for a married couple), you pay no estate taxes. And even more fun - when you inherit property, the cost basis is "reset" to the present day value of the property at time of inheritance - So your children can now rent the property out, deprecate it, and pay no income tax on the rental income either, and continue the cycle.
The net result is that rental properties generate a ton of income for the owners, who pay almost nothing in taxes. Even if they do pay property tax, property tax rates are generally much lower than income tax rates.
You don't write off your rental income. You depreciate the rental property over 27½ years and write that off against your rental income. Few rental properties will have under a 3.7% ROI where depreciation would cover all the income. At best you might be paying half tax. In your example, you'd pay no tax, but you'd lose out on the potential income you could have had with better investments (and lose about 6 years' worth of depreciation by the depreciation then being too fast).
And flipping to more and more expensive properties through 1031s requires more and more capital and only makes it cover less taxes. There's no tax benefits versus just keeping the first property and paying all the taxes and buying a separate property to depreciate.
If you sell a $500k property earning $40k/year where the depreciation covered 45% of your income, and you buy a $1 million property earning $80k/year, you get a new $500k to depreciate $18k/year. Then the depreciation only covers 22% of your income.
Depreciation is very fundamental to business tax law. I'm not sure how you'd "fix" that without penalizing non-rental companies for expanding.
You're skipping over the (extremely important) part where you take out a mortgage on property.
So you buy the $500k property with $125k in cash and a $375k mortgage (25-30% down is typical for investment mortgages). Depreciation *plus mortgage interest expense* leads you to (for tax purposes) more or less break even on this investment after 10 years and so you pay no tax.
After those 10 years are up, you've now paid off around $68k of the principal, plus the asset has gained $250k in value. So from your initial $125k of capital invested, you now have ~$400k in capital that you can leverage into a $1.6M property in a 1031 exchange. That bigger loan comes with a much larger mortgage interest expense, so you continue to earn no taxable income while growing a larger and larger asset and taking a (relatively modest) cash-on-cash return.
This is very common. We have it in Norway too. It started in 1882. At that time, it was mainly farmers who had mortgages, so the idea was to encourage productivity, making it less costly for them to buy new land for cultivation (You might wonder, wouldn't this just drive up land prices? I wonder, too.)
But once you have them, they're hard to get rid of. When they were in charge for 40+ years, Labour defended them because they wanted to push for homeownership so working people didn't have to live at the mercy of landlords. In the 80s I believe they considered changing it, but then the Conservatives (who of course benefit disproportionately from the deduction) were in a position to block it. These days there is an interest deduction on ALL loans, not just mortgages. Why and how that happened I have no idea.
The deduction of business mortgage interest payments is still always less than the money you lose by having to pay interest. Paying cash will always make you more money than a mortgage unless you have something else to do with the cash.
That doesn't change my point that the only way you can pay no tax is to have less than a 3.7% ROI before mortgage principal payments.
Again, that's a bad investment. If they put the money in the stock market or a better real estate market and got a 7% return, that would be 60% higher, even after taxes.
Sure, you build equity in the properties, but you'll have to pay all those taxes you've been putting off if you ever try to use that equity. I guess the kids could sell it before they depreciate it, but I can't imagine who would intentionally waste the potential of their money so they don't have to pay the (low) capital gains tax. Again, you'd make more money paying taxes on any almost investment making over 4.3%.
This is certainly not my area so I could be missing something basic. But after you sell a property, why shouldn't that force a reevaluation on past depreciation writeoffs? In idkyall's post, they mention the scenario of depreciating your property down to an effective value of $0 and then selling to buy another property to start again. You've argued that this only covers a fraction of your income. But at a basic level, if you get enough from the sale to buy a new property, then the old one must have been worth much more than $0 so one was wrong for decades about claimed depreciation ... right? In which case, it seems like it should be natural and fair to have to pay up on taxes from those previous years.
If I can invest in real estate, rent it out for decades, and then sell it at a significant profit (which seems to be the case in many in-demand cities), then why should _any_ amount of that rental income get a to be balanced against imaginary depreciation?
What you describe does happen, unless they use that transfer process described, but by doing so they reduce the effective cost basis of the new property by the difference between the cost basis of the old one and the sale price.
Yeah, I guess the unintended? consequence here is that the lack of a time window allows indefinitely propagating it, maybe the exchange should come with a time window phase out.
We need a third party to validate both of your claims, because I don't know where to start to understand who is right. This is an example of someone (me) who wants to understand the issue, but would need to google for days to understand both arguments.
The rebuttal by mminer237 is much closer to right [0].
Also it isn't even as good as mminer237 mentions, as many states also have a much lower exemption, and there is work in congress to get rid of the step-up in basis (a bad thing, imo) and to reduce the $12MM lifetime gift & estate exemption (a very good thing).
So yes, there are some advantages, but OP is vastly exaggerating as if it is some freebie to landlords when it is not. There were some freebies introduced in the bills in the Trump term for the type of LLCs that Trump runs, but IDK if they were fixed in legislation in this term.
If you want a general complaint, perhaps the angle is that capital is taxed much less than labor, under some notion that lower taxation is necessary to get people with capitol to actually deploy it in investments. I think that is provably false, and certainly does not require the level of tax code favoritism it currently enjoys.
[0] source: tax & estate attny at biglaw firm in the household, although this is just from info absorbed by osmosis over years and is NOT a detailed legal analysis.
It may not be a freebie for landlords, but it is much more "cost neutral" or "tax neutral" to own an investment property than to own a primary residence. Consider:
Investment property:
* Deduct maintenance costs
* Deduct insurance costs
* Deduct property taxes
* Deduct mortgage closing costs
* Deduct mortgage interest
* Deduct HOA dues
* Deduct property management fees
* Take advantage of depreciation deductions
* Avoid paying cap gains taxes on sale using 1031 exchanges
Primary residence:
* Deduct property taxes (only on federal taxes, and only up to $10k, assuming you don't have other SALT to deduct)
* Deduct mortgage interest (only up to a loan value of $750k)
* Avoid paying up to $250k in cap gains taxes on sale
Doesn't that seem incredibly lopsided to you? The current tax regime makes it very attractive to own an investment property, but a basic need -- housing! -- doesn't give you much in the way of tax breaks. And the breaks that are there, are capped.
Of course there are more deductions when an object is a BUSINESS instead of a piece of PERSONAL PROPERTY.
No, it does not seem the slightest bit lopsided.
There is zero difference between the deductability of expenses you mentioned and expenses for any other business.
Businesses are generally taxed on their PROFITS, which are [INCOME] MINUS [COSTS].
The regular homeowner is not running a business.
The same thing is true of a truck or racecar. If you own it as personal property, you don't get to deduct much of anything. If you own it and run it as a business, you can deduct your expenses before counting profits and paying taxes.
The same object can be either a personal property or a business, and it is the ACTIVITY that matters, not the object.
Your argument is either attitude & ignorance gone wild, or demagoguery attempting to confuse the issue with sleight of hand.
If you think that home ownership should be more subsidized than just the mortgage interest deduction, just say so and advocate for those subsidies. It'd be much more cogent, but you evidently don't want that discussion, or expect it to be a loser, which it likely is.
> Businesses are generally taxed on their PROFITS, which are [INCOME] MINUS [COSTS].
Sure. But why does it get such a sweet deal?
It's because we want to encourage business, since businesses produce things of value.
But how much does a landlord actually produce things of value, and how much is he just extracting value others are producing (a.k.a "rent")? That's an important thing to consider when we look at having this tax/tax break or not.
The distinction between extractive vs value-creating profits is very important.
That said, it's not automatically a "sweet deal", and identifying that difference is nontrivial. The same activity could be one or the other, depending on how it is done. Your example with a landlord is particularly thorny:
>>But how much does a landlord actually produce things of value, ...?
A good landlord creates a building from nothing, and maintains it in good condition for his/her tenants. What was an undeveloped parcel of land is now homes for all the families who live there. Considering all of the people yelling about lack of housing, that is something of real value. Even maintaining a building in good condition is a very expensive activity, and if the maintenance is not done, the homes will certainly revert to rubble.
So that good landlord is absolutely creating, for both his renters and society at large, serious value.
OTOH, a bad landlord doing superficially the exact same activity can be completely extractive - merely collecting rents and failing to maintain the building(s) in any way beyond what will keep them out of immediate trouble. The bad landlord extracts everything they can for current cashflow and allows the building(s) to degrade towards rubble, an anti-creative activity.
One is definitely creating value that is highly needed in our society, and the other is destroying and extracting it, yet both have the same business type, both have the same income and cost structure, etc..
Even more difficult, the same landlord can look like one or the other in different times - in high-demand times and/or markets, they can charge premium rents and profit while still doing lots of maintenance & upgrades, but in a down market, they may have high vacancy, and still lose money while doing the absolute minimum.
So, how do we tell the difference and tax them differently?
That's a serious question, and one which, if we can find an answer will really help the society improve.
Rent extraction from the underpriveleged for basic needs in a deliberately skewed market is hardly "business", it's raw exploitation at the systemic and the social level. Justify your habit of cannibalism however you may.
If I buy a widget for $100,000 and sell it of for $105,000 do you expect me to pay income taxes on the $105k or on just my $5k profit?
The former would be absurd and in most cases would make it impossible to be in business-- you'd take a net loss on every transaction unless your markup was greater than your tax rate. Good that went through fewer hands would be astronomically less expensive.
So why do you think that it's weird that a landlord doesn't pay taxes on the portion of his income that goes to the costs of operating the business?
> If you want a general complaint, perhaps the angle is that capital is taxed much less than labor, under some notion that lower taxation is necessary to get people with capitol to actually deploy it in investments.
Yes, I recall when cap gains taxes dropped significantly during GWB and was, sadly, happy. Of course, I was just a dumb 20-something and didn't realize how much of boon to the wealthy it was.
Please point to the "boon". If you mean people got to keep their jobs = boon, then I guess you are right. The problem is, wealth was transferred upstream, en masse, and not taxed anywhere near labor.
Here is some data that solidly debunks your disguised claim of "trickle down":
> It's a boon to anyone whose job was created by it as well
You then say:
> If you mean people got to keep their jobs = boon
No, I said the job in the first place is funded by investment. I couldn't have made it clearer.
If investors don't invest in your startup/scaleup then there is no job in the first place. Nothing about being grateful for keeping your job.
> The problem is, wealth was transferred upstream, en masse, and not taxed anywhere near labor.
You're thinking in terms of groups instead of individuals, and that the groups are static. You shouldn't (as it will lead to so many broken ways of thinking) and they aren't.
> Here is some data that solidly debunks your disguised claim of "trickle down"
It's not trickle down - I only go for nonpolitical theories, and the US left wing's labels to oversimplify and demonise some fairly standard economics doesn't hold up by that measure.
I'd rather you replied to what I said than straw man it. You will mislead casual readers by doing so.
It contains the ASSUMPTION that the favorable capital tax rate (vs labor tax rate) is NECESSARY for the investment to happen.
This is obviously not the case. People with capital will want to deploy it so that it grows, as long as the tax rate on the profits is <100%.
What we do not have is the curve - how high can the tax rate be set relative to the tax on labor income before investment is ACTUALLY discouraged?
Only an assumption, based on the obviously self-serving assertions of people who own capital, that higher tax rates will make them just sit on their money and not deploy it profitably.
As you can see above, I'm happy to debunk oversimplification & demonization from the LW or RW, but "trickly down" is pretty much what the RW called it when it was flogged as a concept in the '80s, that "freeing up capital" for the rich would trickle down to everyone in the economy. The ACTUAL result was the opposite. Ratios of executive vs worker pay only increased from ~70x to over 300x, and the share of the total GDP going to labor declined to the lowest point ever.
The actual fact of the matter is that with lowering tax rates on capital, the "boon" you speak of is actually available to fewer people than ever.
> The ACTUAL result was the opposite. Ratios of executive vs worker pay only increased from ~70x to over 300x, and the share of the total GDP going to labor declined to the lowest point ever.
You're assuming a cause effect relationship. The far more likely causes of this are automation (allowing more work done by machines than people) and globalisation (allowing reach of larger markets).
That's the mechanisms. As for the philosophy: I don't buy the idea that a CEO getting richer hurts me. What's important is that my standard of living is better than my parents', and my children's will be better still. If someone wants to risk it all for a big win then good for them. They will probably fail, and lose years off their life, but occasionally they will succeed. Only pointing at the people whose risk-taking paid off and saying "See!" is not a good way to understand (or communicate) the full picture of what's going on when people invest or run their own company.
Do we actually have strong evidence that these sorts of tax breaks actually stimulate this kind of economic activity to the degree where it's actually worth it?
It... doesn't seem like we do? I mean, it's not like pre-1990 we had skyrocketing unemployment and underinvestment in business, and lowering capital gains taxes fixed it.
Yes, the question is how much of a boon it needs to be.
The fact of the matter is that people with capital want to invest and grow that capital. It is absolutely false that if that activity is taxed, it will disappear. Just as obviously, if all capital gains are taxed at 100%, it will disappear. The question is the balance - how much to tax it so that the wealthy don't merely get wealthier at everyone elses' expense.
It may also be a good idea to tax underutilized capital, as land is taxed.
If you get all of that just right you may even extract enough money to pay for all the many governmental systems required to administrate it. Sadly none of that will have done anything as useful as an investment in a company that makes people's lives cheaper or better.
ummm, the mortgage interest deduction does NOT apply to rental properties, only your primary residence or a 2nd home that you spend at least 14 days or >10% of the time you rent it out. So, if you are talking about a fully rental property, it is incorrect.
I'm not saying that there are no advantages or deductions, only that this character is trying to portray it as the govt basically giving landlords all the funding to become landlords. If that were the case, he should simply do it — there's plenty of no/low money down ways to get into it —, but I notice that he is not doing it. It just smacks of a lot more attitude than fact.
This is already the case. You can only depreciate the building value not the land portion. So single family homes have much lower depreciation since most of the value is typically in the land vs an apartment which is the opposite.
> Since for most properties the majority of the value is in the land itself
I'm not sure that's the case for the majority of the country. At-least it's not here in my greater metro area (suburbs or rural... yuppie downtown areas... perhaps, but again, downtown is not majority for most places)
It may be not true right now amid difficulty in finding labour and materials. Much like cars, the value of a used home is proportional to the cost of building a new home. When new homes are difficult to acquire, cost of used homes go up. Used cars have also increased in value lately for the same reason. This is not typical, however. These are normally depreciating assets.
Under usual market conditions, houses are headed to being on the older side and reaching the end of their effective lifetime, leaving little value left in the structure. You can renovate a home to bring it back to new-like condition, which restores value to the structure, but that cost must be maintained in the equation.
I'd think anywhere where apartments are viable to build it would be true, and of course large rural properties. Whether they make up "most properties" I'm not sure - it would surprise me if much less than half of properties in Australia were sitting on land worth more than the house itself (despite the enormous amount of undeveloped/low-value land we have!).
When you are the owner/user and not the landlord you should be paying the taxes because most of the taxes are for use in the local community and most of that is schooling. The landlord gets no benefit from the majority of that stuff. The tenant does.
How does he benefit from the rental property? He doesn't live there an use the services. If he lives somewhere else in the town he pays taxes based on that. He charges rent for the other location to cover the taxes because he doesn't benefit from those taxes. The renter does.
But he passes the cost of those taxes on to the renter because the renter is the one benefiting from the schools/roads/police/fire/etc that the taxes fund.
That is often true. A vacant rental still owes the taxes though. I can only say my time as a landlord I have not always covered those costs with rental income. Sometimes the property is empty or doesn't command enough income to cover all your costs.
I actually don't understand why the laws are written that way, apart from the political goal of causing W2 workers ("suckers") to bear a disproportionate tax burden. A W2 worker incurs expenses that are necessary to earn their income, including food, transportation, clothing, and healthcare. If they were able to account for these necessary expenses as a business does, the expenses would be directly deducted from income.
And that's not even getting into the S-corp self-employment-tax dodge.
For one, no, those expenses aren't deductible even if you do itemize. They're considered "personal expenses" even though they were necessary to earn that W-2 income. If you buy a car and use it at least 50% to get to 1099 client(s) you can deduct that portion of it (including accelerated depreciation). But if your income is coming from W-2 job(s), you simply cannot.
For two, the standard deduction is better seen as a personal exemption (which it subsumed), giving everyone a level of income that they don't have to pay tax on. Especially given that business expenses generally flow through as direct subtractions regardless of the standard deduction.
There is definitely tension between allowing deductions to account for actual income fairly, and the resulting (de facto) requirement that everyone do minutiae accounting for their personal finances.
Unless your property taxes are over $20K per year, you can? It's just most people don't because their standard deduction is greater than what they have records for itemizing. https://www.thebalance.com/property-tax-deduction-3192847
The link you provide points out the SALT deduction cap of $10k. With the standard deduction up to $12k+ now, if your only itemized deduction is your property and state income taxes, itemizing isn't going to be worth it.
We were so close to losing the cap on SALT deductions with the Inflation Reduction Act; I'm super bummed it didn't make it into the final bill.
I think the only long term solution is a federal land and building tax. This is too important to leave to states (and definitely local) governments. A high tax with no credits, deductions, exemptions.
Then, from this tax, we can pay "forward" every adult tax payer (not children, only adults) a fixed amount that pays the cost of an imaginary nationwide median cost of a two bedroom unit. Only adults, all adults, regardless of whether you have no child or eight children. Must file a federal income tax return to qualify. Median nationwide cost somehow calculated and weighted by population, hopefully updated more than once a decade.
Everybody from Amazon.com to Walmart pays this land + building tax regardless of whether they are in Manhattan, New York or Deport, Texas. No exceptions.
Well yes but that's also the case with property taxes. A reasonable figure based on current market values seems simpler to calculate for unimproved land than it does for property tax, which includes the value of the unimproved land as well as everything else built or changed. And because it's the value of the _unimproved_ land it's based on, the value would be relatively stable over time as well as not varying much between one area and similar areas nearby, whereas property taxes are based on values that can change dramatically over time from one place to the next, which can lead to mis-valuations and general stress from constant changes.
Aside from a 1031 you can do what I do and take loans against the property to buy the next property. Keeps your tax basis lower. At least in LA county the appreciation is limited to 2% a year while the increase in property value has been 20%+ the last few years.
You can do this indefinitely with commercial real estate including multi-family dwellings. Lenders are comfortable with 50% loan-to-value. You do need to have some cash flow from the properties to service the debt. It does require the properties to either appreciate over time or for you to build up more equity in them by paying down your loan.
You can do this indefinitely with commercial real estate including multi-family dwellings. Lenders are comfortable with 50% loan-to-value. You do need to have some cash flow from the properties to service the debt. It does require the properties to either appreciate over time or for you to build up more equity in them by paying down your loan.
> Depreciation is very fundamental to business tax law. I'm not sure how you'd "fix" that without penalizing non-rental companies for expanding.
You can fix it by only deprecating the original cost. A person who buys a 50 year old house shouldn't be able to depreciate a second time, (then next owner again)
"Few rental properties will have under a 3.7% ROI"
This is a leveraged investment (meaning you have a mortage). What that means is for your 20% down payment (the actual money you invest), that 3.7% writeoff on income can be an 18.5% cash on cash yield (ROI) in which you pay no taxes, ever. Few properties on the market can get you a better yield than that. If your ultimate yield is less than that you can roll those losses over year over year, so that then later if/when you get more yield you still* don't have to pay any taxes. It's a really big tax loophole and is the reason Donald Trump pays almost nothing in taxes (and he admitted as much in the presidential debate).
*I own 3 properties in buffalo, one of the best rent to value markets in the US, and it's hard to find better yield than that even in that market. https://simplepassivecashflow.com/rv/
Really the only problem here is the step-up cost-basis at death that you mention. This is indeed a big problem, and the fix is simple: Your heirs inherit your cost-basis as well (likely $0), so that when/if they sell it they have to pay taxes on the whole capital gain. We could also force the payments over some years, by increasing the cost basis and taxing on that amount. e.g. I inherit a property worth $1M and zero cost basis. After one year, I have to pay capital gains taxes on $100k, but my cost basis also goes up by $100k. Repeat each year up to $1M.
The other stuff (depreciation, 1031 exchange) are very sensible accounting. Depreciation applies only to the improvements (buildings) on the land, not the value of the land itself. This reflects genuine loss of value over time (buildings wear out). And in the event that you sell the property at a profit down the road, you have to pay back all that tax savings at higher regular income rates (not lower capital gains rates). This is called "depreciation recapture." So depreciation can defer taxes, but not eliminate them.
Likewise, when you do a 1031 exchange, your new property ends up with a lower cost basis based on the previous property, so that when you later sell it you still have to pay all that capital gains tax and depreciation recapture. It defers but does not reduce or eliminate taxes.
Of course - if you die while holding these properties, then your heirs get the cost basis reset ("stepped up"), which does indeed eliminate all these taxes. This is what we need to fix.
It provides a large artificial financial incentive to hold onto a property that you otherwise would sell.
I also think it's not right to create this kind of arbitrary, large tax break that only applies in specific circumstances. I think if we're going to have a capital-gains tax (and maybe we shouldn't), then we should keep it simple and not have carve-outs.
If I sell my house while I'm on my death bed, I pay all the taxes. If I wait a week to die first, and then my heirs sell, no tax. This is wrong and unnecessary.
I don’t know, I think there are a lot of people that might not want to be owners anymore, but they just can’t bring GM themselves to sell and pay the taxes. Especially if they are, say, 60 and in dubious health anyway. So they hold, and hold, and hold some more for decades. I could see my own parents on this situation possibly.
Or I have a neighbor house that’s a rental, but it’s still owned by the same (now) 90+ year old woman who used to live there, but who moved out 20 years ago. Her 70+ year old son is managing it now… Does she really still want to own this house, or is inertia and fear of taxes holding her back from selling? I don’t know.
When purchasing real-estate in a hot area, the real money comes from increasing prices. Some cities have had something like 10% - 15% annual growth, for 10 years straight.
Banks are also much more forgiving when it comes to down-payment, when they know it's going to be a rental, and you already have other rentals as collateral.
In essence, purchasing a rental unit with only 1%-5% down payment up-front, is kind of like purchasing stocks with 20x - 100x leverage. As long as you meet your mortgage payments, get steady rent, and don't get any crazy expenses - you're sitting on a goldmine.
Some of the guys I went to school with did just that. Bought a rental unit, while working. All their salary went toward down-payment of the next unit, and the banks were very forgiving when it came to new loans. After 10 years they had a nice portfolio of rentals, which they then sold to typical real-estate investment funds.
> Banks are also much more forgiving when it comes to down-payment, when they know it's going to be a rental, and you already have other rentals as collateral.
I don't think that's true. The interest rate on your loan will be more expensive if it's an investment property and the LTV requirements are more strict.
If the bank knows it's a rental, it's considered a commercial mortgage with a minimum of 25% down.
And if you're lying to the bank by saying it's a residence when it's meant for rental -- you've just committed fraud (it's one of the clauses in your mortgage).
As a former landlord for nine years, this is pretty correct. I did the tax deferred exchange thing once.
Then I sold for cash (a pretty big no-no in terms of real estate investing) because I didn't enjoy such a concentrated risk.
When I sold, there's something called depreciation recapture. If the 27.5 year depreciation thing was used to offset your income taxes, part of your gains gets taxed as ordinary income. The cost basis of property is also lowered so that the capital gains is higher.
There's also tax trick called cost segregation that lets you depreciate certain parts of your property at an accelerated rate.
Basically, as the OP says, keep doing the 1031 exchange until you're dead and your heirs don't have to worry about depreciation recapture.
And are losing value on the property, which is the point of depreciation.
>~30 years later, you've deprecated it down to an effective value of $0
An no one will now rent, since your building has an effective value of $0 since it has become crap.
All throughout your list you ignore all the costs involved in being a landlord. Have any friends that have tried it? (I do). Did they become silly rich? Or did they quit because it is a major problem to actually make it very profitable versus other uses of capital and time? I'm a decently saavy investor (in many things), and have watched multiple friends start up rental properties, only to stop once it became clear that tenants destroy things, costs to maintain properties are volatile and astronomical, the work required is significant, and so on.
I have done the math on real estate investing many times, and each time have decided the returns are not worth it.
>The net result is that rental properties generate a ton of income for the owners
If it were so profitable, then tons of capital currently being spent on other uses (tech, medical, finance) would instead go into buying up more housing. But the fact is that being a landlord is not very profitable, so capital doesn't flood into that market - it is still mostly elsewhere.
Historically, housing has performed quite similar to the stock market for returns - as it should be. If housing were a better investment, money would flow in until they balanced. If housing is too poor an investment by screwing with taxes, then money will flow out into other more productive places. And if money flows out, people wanting housing will then have to pay even higher prices for less stock.
>"Did they become silly rich? Or did they quit because it is a major problem to actually make it very profitable versus other uses of capital and time? I'm a decently saavy investor (in many things), and have watched multiple friends start up rental properties, only to stop once it became clear that tenants destroy things, costs to maintain properties are volatile and astronomical, the work required is significant, and so on."
I'm sorry but this flies in the face of my experience. Most landlords I have met buy properties and then outsource their administration to property management companies. I have never seen or spoken to my last three landlords, none of whom lived anywhere near the same city as the property.
Landlordism is parasitic in the literal sense of the word. Landlords get rent and capital appreciation for doing nothing but possessing an ownership title. The propertyless pay the propertied a premium to live.
In light of both those observations, I would say any enrichment in this case is "silly", and that landlords don't tend to do much - or any - work.
>"If it were so profitable, then tons of capital currently being spent on other uses (tech, medical, finance) would instead go into buying up more housing."
This is a non sequitur. If X is profitable and the market knows X is profitable then it should, in theory, be attracting exactly the amount of capital it merits already.
In the UK, where I live, the rental sector has exploded, jumping from 2.8 million households in 2007 to 4.5 million in 2017. [1]
>>Most landlords I have met buy properties and then outsource their administration to property management companies.
And the cost of buying a property and outsourcing its maintenance is 0 right?
The landlord magically pulls a home out of thin air and some group of people maintain for them for free?
>>Landlordism is parasitic in the literal sense of the word. Landlords get rent and capital appreciation for doing nothing but possessing an ownership title. The propertyless pay the propertied a premium to live.
This applies to any investment, including things like 401K, pensions, getting an education, or even taking care of one's health.
Why should anybody in an economy be better off than the other part of the population by being disciplined, making routine and early investments?
Good news is you can plan and start working to go over to the winning side by taking action on it today. Or you can call others 'parasites' for making smart decisions you don't make. Calling others names might mask your own failure, and downplay their achievements, but is unlikely to change anything for your or for them.
> The landlord magically pulls a home out of thin air and some group of people maintain for them for free?
The building-lord should receive some return for their investment, as they have created value and added to it through maintenance.
The land-lord receives return for doing no work, no addition of value, and only through extracting the excess economic rent from their tenants.
Unfortunately, conversations around property investment and land taxes and so on tend to derail because the land-lord and building-lord are often the same person. The response to "the landlord is a leech on society" is "no, he built a house and maintains it!", but in reality it is "the land-lord is a leech on society, the building-lord is a contributor to society".
Yeah, land, like college seats, and gym memberships come in limited quantities. There is no infinite supply of land, college seats, or gym memberships. So whoever acquires a hold on a resource of this nature stands to benefit a better return on investment. Also note the limited nature of time in these things, you are basically in a race condition.
Note these extend to things like 401k, or a retirement savings scheme in the same way.
You feel like you are salty that you couldn't get a hold on such a resource in time.
The difference between land (and natural resources) and gym memberships, 401ks etc. is that you can make more gyms and companies and investment fhnds, but the supply of locations and natural resources is limited. This means that land functions as a monopoly (hence the board game!) whereas 401ks and gyms are non-monopolistic.
Owners of monopolies stand to benefit from not just a reasonable return on investment, but an excessive return on investment proportion to their contribution to society.
Many countries and societies have handled this in different ways, such as the idea of the commons, or Norway's taxation of oil extraction, or land value taxes and land leases.
> You feel like you are salty that you couldn't get a hold on such a resource in time.
I am a software developer, and as such am able to comfortably acquire land in a good location and provide for my family. However, many of my generation are unable to, unlike previous generations, because the good locations have all been taken by the previous generations. This is why we see enormous poverty next to enormous progress, because late comers to the party are so far behind as to be basically unable to "get on the ladder". The ladder is being pulled up before their eyes.
A great solution to this is to tax the excess economic rents that monopolies create, rather than taxing labour and capital. Henry George is the most famous proponent of such a system, and you can find out more here: https://www.gameofrent.com/ or at astralcodexten's book review of Progress and Poverty.
This means that those who contribute to society through labour and capital are not discouraged from doing so, but those who leech off others through monopoly rent extraction return that rent to the society that created it in the first place. This is a far more just and equitable solution.
Of course, many existing monopoly owners (e.g. landowners, and particularly property investors) hate the idea, because people tend to act in their own self-interest to the disadvantage of others.
> any enrichment in this case is "silly", and that landlords don't tend to do much - or any - work
Hm - the same could be said about your 401(k), but you probably expect to live off of it at some point in your life, right? At worst, buying and renting properties is a (risky) investment.
And there was a housing crash in there and decent growth in population over that time.
Next, instead of picking a window wrapping the biggest housing bust in a century, pick various decades and see how normal volatility behaves - and you might find this variability not uncommon.
In fact, from your own source, Figure 1 - the percent of rented properties is, well, nearly constant over the entire window (31% rented in 2007, 37% rented in 2017). And somewhere in there mortgage laws got significantly tighter - no need for pesky investors to be the cause of less mortgages.
So go figure, right? Lots of reasons and complexity in there.
>"And there was a housing crash in there and decent growth in population over that time."
There was a slight slump in rentals after the financial crisis, not before. So if anything it would depress the subsequent growth. In England the population grew over that period from about 51 million to 55 million. That's a 7% increase. Privately rented households, as per the link I posted above, rose by 63%. Hardly compelling.
>"In fact, from your own source, Figure 1 - the percent of rented properties is, well, nearly constant over the entire window (31% rented in 2007, 37% rented in 2017). And somewhere in there mortgage laws got significantly tighter - no need for pesky investors to be the cause of less mortgages."
Figure 1 shows private rentals increase from 13% in 2007 to 20% in 2017. Social rentals, which you are bizarrely conflating with private rentals, refers to social housing, and is exactly what I think should take the place of landlords. So its decline reinforces my point.
>There was a slight slump in rentals after the financial crisis, not before
And a significant decline in mortgages over that time, likely due to mortgage law changes as a result of the crash. Making it slightly harder to get a mortgage would, over time, move people from mortgages to rentals, which is exactly what the data shows, right?
UK added Basel capital rules, the affordability test, and changed capital ceilings in banks, among other changes. Academic papers list these as being major drives in declines in UK mortgage rates. Those people rent instead.
All with no need for speculators to drive the market up - the laws changed.
>Social rentals, which you are bizarrely conflating with private rentals
Ah, so now we're only taking a subset of renters. Good idea.
> Most landlords I have met buy properties and then outsource their administration to property management companies.
Who do not actually pay for any repairs or upgrades to the property (that is the landlord's responsibility, and who in addition take an extra 5-20% of the rental upfront. Yes, it "outsources" actually dealing with the rental property and renters, but has no impact on the costs other than making them higher.
I know we like to give the benefit of doubt here on HN, but that crosses a line. Landlords are known to perhaps not take the best care of their property, but in general, even if a tenant totally trashes the place it isn't too hard to strip down whatever got abused and rebuild it. Same thing happened to us when we rented a property. Tenant did as much damage as you can imagine with pets and abuse short of ripping wires and pipes out of the walls. It was really annoying to fix, but not hard. In the [late] 2020 real estate market it was easy to sell it and the house appreciated like 30-40K since we sold it easily.
To claim that you need to spend money equal to the tax-assessed value of the building over the course of 30 years to maintain equal value is slightly less ridiculous, but still not exactly reasonable. The (conservative) rule of thumb is 1% of the property value per year in repairs, which would be 30% of the property value over 30 years. And even then, it seems there's no shortage of fairly decrepit buildings that have no problem finding tenants.
Here is a starter list of things a house will need over the course of 30 years.
- a new roof (maybe two if they are 15 year rooves)
-new siding (unless fiber cement siding was installed originally)
-new exterior paint
-new windows
-major repairs to the driveway
-2 new furnaces
-2 to 3 new water heaters
-2 to 3 full new sets of appliances
-1 cosmetic kitchen remodel
-1 cosmetic remodel of each bathroom
-1 to 2 cosmetic relandscapings
-1 to 2 new floors (depending on the flooring material chosen)
-new exterior doors
-new garage doors and openers
None of this includes any repairs the home may have needed at the time of purchase. Nor does it include any upgrades. Nor does it include any unexpected repairs that may not be covered by insurance (there are many). Nor does it include any of the dozen or so minor repairs you either have to do yourself or get a handy man for.
I'm not going to symp for the landlords but maintaining property is brutally expensive. I know because I bought a 40 year old house. Since I bought a home I've become very convinced that there are a ton of landlords losing their ass out there. Some have been saved by the ridiculous property valuations we've seen lately. But that is not the norm. Houses typically increase in value at a pace with inflation.
Personally, I would only ever rent housing I had specced myself because the design choices and material choices have a huge impact on the cost of maintenance.
Factors also depend on the age of the house and your location - harsher climates are much worse on various house factors.
A new house will have much less costs to maintain over 25 years than a 50 years old house.
Having owned a few houses (both relatively new), and having gfs with houses and seeing the stuff they've done, and with helping my mom and sister with their house decisions and fixing, the list above is not far off.
State Farm says to budget 1-4% of the value of a house for annual upkeep costs. You're significantly below that it sounds.
> State Farm says to budget 1-4% of the value of a house for annual upkeep costs. You're significantly below that it sounds.
Certainly far below, maybe like 0.1%
Although basing it on the market value doesn't make much sense since housing prices cycle wildly up and down, whereas maintenance just increases with inflation.
>To claim that you need to spend money equal to the tax-assessed value of the building over the course of 30 years to maintain equal value is slightly less ridiculous, but still not exactly reasonable.
No one wrote that either. You're reading what you want to argue into what is written yet again.
> which would be 30% of the property value over 30 years
Ignoring increasing property value, compound interest, opportunity cost, that plenty of places put this between 1 and 4%, and that pretty much all places indicate the rate increases as the property ages, and that this rate is for owners whereas tenants are statistically worse on property, then sure.
For example, State Farm [1] recommends between 1% and 4%, which would vastly increase your estimate. And tenants are statistically worse on property than owners
In reality it's a far larger cost over 30 years than 30% of the original price.
Why would it not be rentable? That’s an assumption that doesn’t stand on its face when you look at the unmaintained crackhouses landlords will rent easily because demand is so high for housing.
Does >0 money spent equal 100% deprecation over 30 years?
If the landlord spends a single penny in paint does that make up for getting an asset that’s considered zero value but still gets to be sold for hundreds of thousands?
Are you aware of the concept of risk? The amortization schedules are what they are for a reason, even if not all houses only last 30 years, the average is what matters here.
Any number of things can result in houses being destroyed and become worthless prior to that time, including damage from earthquakes, fires. Additionally poor initial building standards, or changing building standards, or new regulatory barriers can make certain properties become not just worthless, but have an active cost to their owners and therefore have negative value.
I'd say the truth is somewhere in between. It is really, really not that great unless you have some superbly well located shiny great apartment in Manhattan or some other center center which gets 100% short term rental ie airbnb. But then this is multi-million $$ property.
Long term rentals - the gains are minimal given how much capital is completely locked in that property and not doing anything else. If you are lucky, you have long term nice tenants and stuff generally doesn't break (ie heating/wash machine bursting and flooding everything, including 5 apartments below). If unlucky, 1 bad accident that needs to be fixed asap will wipe out any income you have for given month, if not more.
Utterly random example - I got locked out (if thats the proper term) last sunday evening, went for a walk and big weird key wasn't turning in our old very massive (15cm thick & heavy) doors that look like they could handle a nuclear blast. Called some emergency services for this and they opened it, but showed me the lock basically disintegrated and I was lucky they didn't have to drill huge hole in those doors to get in and pay tripple the cost. The cost for new lock in those doors with all work? 2400 Swiss francs (cca 2500$), and that was work week rate of one of the cheaper agencies doing this, albeit in Geneva, one of the most expensive places to live. For a freaking lock that is just old design, fitting some 50 years old doors. Guess who pays that? Well me but I will get 100% reimbursement from agency who will get it from owner.
Properties are great if you inherit them and suddenly have a nice passive income (and management worries). Or if you are lucky with timing and in 10 years they jump 3x with value. Thats over now. I wouldn't invest in properties now unless its for primary residence and then a lot of emotions and other concerns come into equation, but financially its not great.
$2500 isn't that far off of the monthly rent for a single apartment in a lot of American cities. Sure, your old door might need a new lock after 30+ years (although given it was 15cm thick I'll bet it was much older than that).
> And are losing value on the property, which is the point of depreciation.
The house depreciates while the land appreciates. In the US for the last 50 years has been net appreciation for most homes.
> If it were so profitable, then tons of capital currently being spent on other uses (tech, medical, finance) would instead go into buying up more housing.
Hedge funds have been buying houses at scale since the great recession.
> Historically, housing has performed quite similar to the stock market for returns
Which increases faster than incomes. Hence the way each generation has a declining rate of home ownership.
>Hedge funds have been buying houses at scale since the great recession.
Zillow tried that and lost over a billion dollars - I'd expect lots of those purchases are not the money makers you think they are.
>Which increases faster than incomes.
Not for the same size houses - the median house now is many times the size of a median house from 1950, and a few times the size of a median house from 1970. If you buy the same house previous generations bought, you'd find prices relatively the same.
>Hence the way each generation has a declining rate of home ownership.
That's not what historical data shows [1,2], going all the way back to 1900. Each generation has had higher ownership rates at equal points in life than each previous one, except perhaps a recent one due to the 2008 crash, but they're catching back up again.
Certainly there is no way you can claim each generation declines and see the same data FRED and Census post.
For example, FRED shows that Q2, 2022, at 65.8% is higher than all of history except the decade before the crash, and it is trending up again.
Anecdotally, the price per square foot has also gone up in the places with the most jobs. To be clear, the whole context of the article is that we're talking about the (sub)urban areas that have seen substantial job growth. If zoning prevents large houses from being split then you're describing an increase in mansions while others can't afford a home.
Despite younger people moving to less prosperous regions where they can afford a home, yes, home ownership rates for younger generations have declined. Specifically, in the family and peak earning years from 30 to 50.
https://ipropertymanagement.com/research/homeownership-rate-...
"An no one will now rent, since your building has an effective value of $0 since it has become crap."
This isn't true. You will have put money into the property to keep its value up, also writing off all of those expenses, so that you can still rent it out.
>You will have put money into the property to keep its value up
You're ignoring what was written: if the building has value 0, then it is not maintained to keep the value up. Of you kept the value up, then it would not have an effective price of 0.
Of course most people put money into properties exactly to keep value up.
>also writing off all of those expenses
Writing off expenses does not make them free - you are still paying for them - out of otherwise profit. It just means you get taxed on net profit instead of taxed on property gross income. But you are still losing money.
Writing off expenses is not some free money giveaway.
The point was to illustrate that OP ignored costs involved for landlords in the thought experiment.
oh it's certainly not free money (queue the seinfeld episode of kramer telling jerry to "write it off") but the discussion is about taxes or lacktherof. In no other investment that I know of are you allowed this double write-off: you can write off both the investment as it depreciates and the costs to make sure it doesn't depreciate.
That's a list of how long until the landlord can file an eviction, not how long an eviction takes.
"Thus, the eviction process can take from five weeks to three months, assuming there are no delays. If there are delays, the process can take as much as a year."
It is easy to pick an example like this to show the “bad” sides. But what is the alternative? If people had to pay inheritance tax on their family home, how many could not afford such a tax bill and would have to get rid of their family home to please the tax man.
Regarding the cost basis rest that is so people can upgrade their house without having to pay a tax bill. This is just deferring the tax not avoiding it. Without this it would be much harder to get a bigger house once you have kids. Most people would have a harder time moving and removing this would lower our quality of life.
> If people had to pay inheritance tax on their family home, how many could not afford such a tax bill and would have to get rid of their family home to please the tax man.
so if they can't afford to pay tax on the windfall, they'd have to sell the house and buy a smaller one. is that the end of the world?
> Regarding the cost basis rest that is so people can upgrade their house without having to pay a tax bill
what they have in many european countries is that you can do this only on your primary residence. so you let people upgrade their homes, but not their rental properties
If you had to pay the tax you could probably just finance it anyway instead of paying it all at once so it would be just like having a new (small) mortgage.
Now the US is way ahead of the game here compared to Europe. There are no property taxes in most of Europe and families hang on to their homes for generations.
I know for a fact (through living here) that Denmark and probably the rest of Scandinavia has property tax and inheritance tax -- holding on to family property is almost as expensive as buying new property.
Which part of Europe are you referring to? I once had Greek colleague who complained about having to maintain three generations worth of houses, so that might be one place where things are as you describe?
Right, Europe is bound to be diverse on this point. I have exposure to Balkan countries and the UK (which, while they do have non-zero rates, still have them far lower what I'm used to in New England).
I think you can argue migration (forced) through history is tied to this. The US was a recent star in growth due to free land. But there is no more free land. And Mars does not fill that role. We need to disempower rentiers.
Wouldn't this just reduce land entitlement for those who aren't wealthy enough to afford the new taxes? I think something like taxes that apply for people who own more than 1 property would be better.
I mean, we can solve that problem by a 100% inheritance tax so they don't leave an obligation. No? Then maybe let's skip arguing in sound bites.
Personally, I think the answer here is a continued and ongoing land tax. Occupying land should come with an expectation you contribute to the common good, because you don't "own" land. It's a shared good, just like air and water, and you should pay for use.
Primary residences should indeed not be subject to an inheritance tax - if they are continued to be used as a primary residence. Providing an ongoing home for a family unit[1] is a societal good, we shouldn't punish it.
[1] Definition of family is a hairy problem for another, longer post.
I know reasoning skills are hard, but here, let me help you: OP posted a snarky comment. I proposed a policy. Feel free to bring arguments debating the policy.
So a family on hard times should be forced to leave their grandmothers home when she dies and hope they can find a new one? Gentrification can easily push a property in the place they've lived their whole lives out of their price range. And the family home might not have been super well kept up so the "windfall" isn't as big as the property values in the area may reflect. This happens now with gentrification in big cities, it would get worse with what you are saying.
Being able to leave something to your descendants is a critical part of society. If people know they cant leave anything behind they start acting differently (and not in a good way). I understand a key part of communism is you and your family own nothing, but trust me you don't want people to have a use it or lose it attitude towards everything.
Yes, if you can't afford your house you need to find a new one. The family will come out well ahead here because the tax would only be on a percentage of the houses value, they can use the proceeds to buy a new, cheaper house. No one has the right to live anywhere just because their grandma did.
>Private property, to a communist, is not your shoes or toothbrush, or even your house.
>Those things are called personal property and under socialism and under communism they continue to belong to workers in much the same manner as they do now.
Criticize people for what they actually believe, not what you imagine they believe.
I can't defend any particular policy of any particular place. I don't think I would call myself a communist, either. But restricting land ownership is a common feature of technocracy in dense urban environments. I seem to recall that the UK does something similar. Even in the US, when you "own" a condo, you are subject to various liens and easements, and can under certain circumstances be forced to sell. China, being rather crowded, likely has created policies to manage land availability.
Communism is, primarily and essentially, about the end of money. Other features of socialist countries are largely the result of how some theorists planned to achieve communism, although they invariably fail. (Some people insist on adding "so far".) Some communists on Quora directly addressed the question of homeownership here:
Somehow, all kinds of unrelated policies get called "communism" or "Marxism", even when they directly contradict what Marx said (e.g. restrictions on gun ownership). I don't think it's helpful to policy debates to have this syncretistic demon hanging around appropriating the bad name of communism.
Assuming that's true (I have no knowledge of how Chinese real estate works), then that's because China is an authoritarian country that has decided it wants to control every aspect of citizens' lives. That can be a feature of any economic system, if the government is powerful enough, and has nothing to do with communism.
> I understand a key part of communism is you and your family own nothing
As I understand, a key part is coming to the realization you and your family have already been robbed (or evicted to go back to your example), and then to ask what's next? At least as I understand Marx, particularly in Capital v. III, the point is to construct a world in which poor & working class regain collective control of resources like food, shelter, health that sustain life. The abolition of transfer of private property is intended to end the cycle of extracted (stolen) life-sustaining resources ending up in the hands of the same family (or dominant group).
As a case in point, the theft of Black farm land has been well documented https://www.reuters.com/world/us/us-black-farmers-lost-326-b.... The point of communist organizing in Alabama during the 1930's -- detailed in Robin DG Kelley's "Hammer and Hoe" -- was to protect Black small farm owners from theft of their meager lands, and to take actions so that sharecroppers (tenant farm workers) could collectively control enough land to sustain themselves.
No. The estate tax doesn't start until the inheritance is over $12 million.
So they have to inherit a $12m estate before they're taxed, if it's less, no estate tax.
And they don't pay taxes on that $12m if they're over the $12m, only the amount that it's over that $12m. If it's worth $12,000,001, they pay taxes on only $1.
When you effectively take someone's home for government benefit. People think that when they buy property they own it. You're model is more the China version. You don't own property, you only lease it from the government. Hence, your model looks more like the communist model than the traditional Western one.
It's basically the American model - if somebody isn't improving their land, you take it from them by force and sell it at cheap prices to people who will.
That's why it's a bunch of white people with title now, rather than all being native americans
> It is easy to pick an example like this to show the “bad” sides.
You're saying this as if the example is a cherrypicked outlier rather than ubiquitous.
> If people had to pay inheritance tax on their family home, how many could not afford such a tax bill and would have to get rid of their family home to please the tax man.
At some point in the value of a home, we're not really worried about that. We do not sympathize when someone can't keep their parent's $50 million dollar home tax-free. We've set that cap at around $12 million. It's a very high cap.
edit: we're happy to grab the estates of working people who end their lives in intensive care, nursing homes and hospices, before the Medicare kicks in.
I think inheriting property should absolutely force children out of their home unless they plan to actually live in it as their primary home immediately, and even if they do, they should be paying the same taxes as the rest of the neighborhood.
> Regarding the cost basis rest that is so people can upgrade their house without having to pay a tax bill. This is just deferring the tax not avoiding it.
I think it's fine to allow this treatment for a home used as a primary residence for the exact reasons you mention, but I don't understand the logic of allowing it for an investment property
> Without this it would be much harder to get a bigger house once you have kids. Most people would have a harder time moving and removing this would lower our quality of life.
If the goal is to help people consume more of <x>, then give them cash.
Giving assistance via tax rules is a way to discriminate who gets to benefit from government subsidized while maintaining plausible deniability. It also helps obfuscate the costs.
>If people had to pay inheritance tax on their family home, how many could not afford such a tax bill and would have to get rid of their family home to please the tax man
If your family is leaving you a house worth more than $12 million, you can afford to pay the tax man.
> But what is the alternative? If people had to pay inheritance tax on their family home, how many could not afford such a tax bill and would have to get rid of their family home to please the tax man.
This is absolutely normal in the rest of the world, and there's nothing wrong with it. People don't go bankrupt over inherited property. The tax-free inheritance part is also ridiculous, in my humble opinion inheritance should be fully taxed.
a tax per square feet on residential properties where the owner doesn't live in for more than half a year, irregardless of wheter it's rented out or not, and independent from the tax from rent income. since "promoting good behaviour" trough taxation didn't work the last idk 50 years, it's time to be back to "punish bad behaviour"
How high would that tax bill be? 50-60%? Still would be lot under fair value of property and thus should be able to get loan against that tax amount. So I really see no reason not to have it taxed.
There's an argument that for inherited property, the cost basis should be zero since you didn't pay anything for it; you got it for free.
Although, that's effectively a tax on inheritance that's due at sale, which would probably be a fairly big incentive against ever selling, and instead structuring it as a long-term lease.
I'm speaking as someone who put all his retirement savings into index funds year after year, but then married someone whose job is related to real estate. Real estate feels more concrete and understandable to her than finance, so that's where our money goes now.
It's not easy free money, and I don't know why you would think that any high-profile, low-barrier-to-entry investment would be easy free money. Half of my friends have either bought property or are constantly talking about it. My friends are part of a horde of first-timers who believe, like you, that it's easy free money, and their belief inflates prices.
And that's not just my amateur opinion: my wife and I sit in on a developer happy hour where experienced developers constantly bemoan that they haven't been able to work with certain types of property in years, because they get outbid by naive first-time buyers who don't have a plan for making money other than betting on the market going endlessly up. People who are looking for income rather than appreciation are not seeing opportunities at the current prices.
Thanks to my wife managing our properties herself and having a lot of applicable skills from her profession, we manage to make some money, but every hour she spends managing property is an hour less (or two, really) that she can bill her clients. I doubt that if we adjusted for that it would work out to be a wise use of time. It's work she enjoys and finds satisfying, so we don't look that closely at whether her time (or our money) would be more profitably invested elsewhere, but I'm certainly not quitting my software development job to double our commitment to real estate.
I'm in Austin, one of the hottest markets in the country, so in the end, it's possible that everyone regardless of how naive they are will be rewarded by continued appreciation. Income from real estate hasn't been a game-changing multiplier for us, but appreciation might be. Or not. That aspect of it is just a gamble.
It sounds like you're landlords, but you didn't explicitly state it. But isn't your tenant basically paying off each property, over the next 30 years. So right now your debt load may be high, but you're not experiencing that. You're just paying off the loans from rental income and handling the overage (prop tax and fixes) with the dev job. So in 30 years the two of you will have like 40M dollars paid over the backs of renters by selling all those properties..
I mean that's fine, it's legal. But if that's the goal of real-estate, then of course it will never be affordable to the next generations. Everyone wants to do what you are doing.
Yes, we're landlords. We own two small properties that were originally built as residences but now have commercial tenants because the zoning permits it and therefore the tax valuations assume we'll use it that way.
> Everyone wants to do what you are doing.
As with any other asset that makes money, there are reasons why property prices are what they are, and if it's a magic ticket to free wealth, you have to ask yourself why professionals with deep pockets aren't grabbing every property and driving prices up even further. In the case of properties that are within the reach of upper-middle-class earners, professionals are not willing to pay the prices that overexcited individual amateurs are.
> isn't your tenant basically paying off each property
...and it's special logic like this that convinces people that there's free wealth to be had. But there's no magic. There is a price. There is income. There are costs. There are assets that depreciate. The land is an asset that appreciates. That all adds up to a return on the investment. Professionals calculate the return and compare that to other things they could do with their money.
Amateurs (like us) just buy and hope and feel good because we're doing something that feels like rich person stuff. We're doing fine with our properties, but we'd be doing fine putting our money into index funds, too. In case it's not clear, I don't think our properties will turn out to be great investments for us unless the speculative aspect pays off big. But my wife actually enjoys the work of finding tenants, handling building maintenance, designing and overseeing improvements, etc., so we implicitly price her time at zero.
Let me repeat that to let it sink it: I think we'd be just as well off putting our money in the stock market. The main reason we've put a significant amount of our money in real estate because my wife enjoys it and doesn't mind putting a lot of personal work into our properties for free.
> you have to ask yourself why professionals with deep pockets aren't grabbing every property and driving prices up even further.
But... they are.
My Experience
Ever heard of Grant Cardone? He and his ilk are filling my youtube algorithm with seminars on how to do this. I meet strangers on planes telling me about gathering together in clusters of partners and buying up real estate. Ads on the radio hawk house-flipping courses. Robert Kioysaki sells book teaching how to do this. With just a little bit of inherited wealth - and American wealth is 60% inherited - people are building multi-generational legacies.
Research
In Massachusetts:
> In 2021, business entities purchased nearly 6,600 single-family homes across the state, more than 9 percent of all single-family homes sold. That’s nearly double the rate of such purchases a decade ago, according to a GBH News analysis of data provided by the Warren Group, a real estate data analysis firm. [0]
In 2021:
>corporate investors snapped up 15 percent of U.S. homes for sale in the first quarter of this year [1]
In 2020:
> a company called Treehouse Group was folded into Blackstone, then renamed in 2012, Invitation Homes was on a $10 billion spree, purchasing $150 million worth of houses per week.
In 2022:
> About 2.5 million households shopping for a first home will be shut out of the market this year, estimates Nadia Evangelou, senior economist with the National Association of Realtors. That amounts to 15 percent of all first-time home buyers. In an already daunting market, investor purchasing is adding to the obstacles. [3]
> “The more that investors buy up entire communities and turn them into rental communities — people don’t have a choice anymore,”
Yeah but part of what throwaway908724 says is absolutely true:
There are a lot of naive newbies _and_ investors buying up property right now without a viable plan to ever make money on that property. This in turn drives up prices for both potential owners and "reasonable" landlords, then by extension for renters both because potential owners continue renting reducing supply and landlords need higher rent to break even let alone profit.
The worst is when investors stop maintenance on the property, it begins to deteriorate, then they write it off and bail. That turns what could have been a rehabilitation by a competent investor into a tear-down. More than a few apartment buildings are being ruined by this sort of thing, evicting all the tenants in the process.
> Ever heard of Grant Cardone? He and his ilk are filling my youtube algorithm with seminars on how to do this. I meet strangers on planes telling me about gathering together in clusters of partners and buying up real estate. Ads on the radio hawk house-flipping courses. Robert Kioysaki sells book teaching how to do this.
In those cases the professionals are making money using people's dreams of becoming wealthy to sell books and seminars. Learn the One Simple Trick to turn your high salary into lasting wealth that Wall Street doesn't want you to know.
In the cases you cited where corporations are buying homes, yeah, there are firms that do a lot of quantitative research and forecasting and identify homes that they think are underpriced according to their rental value, ignoring the vast majority of properties on the market. If you're in a community they've identified as being underpriced, I guess it can look like they're buying up the whole world, but it's a selective strategy, completely different from the blanket assumption that property is an easy doorway to wealth and riches. As one of those articles notes, they don't compete against "wealthy boomers and the nation’s finance and tech bros," because we're willing to pay silly prices for property. They buy in neighborhoods where people like us aren't looking.
Those professionals may be making money on the books and seminars, but those books and seminars have been sold to people that are snapping up homes for investment, don't play dumb about that.
I know 6 people who all got into real estate including myself. Almost all of us exited because it's way too much work for very little gains. I just invest in an index fund, much closer to free money, and no calls at 2 am in the morning about a busted pipe.
"It's not free money because it's more time consuming than the stock market!"
It's free money in the sense that you are getting paid for having had the money to buy the property. Your wife might be putting in the time, but she is not more expert than 90% of people who could live there and maintain the property just as well (assuming they didn't have to pay you rent and the police didn't come to enforce your "property rights").
And yes, that means the stock market is also free money.
Are you spending an unreasonable amount of time managing property vs the rent you take in?
I spend a max of an hour a month on average on property management. Find good tenants (reduce the rent if you have to). On average my tenants have had 3+ year leases with minimal management.
We've done significant remodeling between each tenant just to stay competitive with other properties coming on the market. Plus each tenant requests specific improvements for their business, so those need to be negotiated. Then you need to keep a close eye on construction, like every day on site, because it often happens that if the tenant is on-site with the contractors they'll try to get them to do things that you said no to.
Finding tenants has taken a significant amount of work as well. There are commercial brokers that act as matchmakers, but you still have to meet with the tenants, walk them through the space, talk about what kinds of modifications they want, figure out if the timelines are compatible, and do a little bit of due diligence. She does quite a few of these where the details don't quite work out because the tenant is looking for a different style of building, easier in-out for the parking, improvements we'd never agree to, etc.
The process of transitioning the properties to commercial was also time-consuming. Commercial has entirely different requirements, and upgrading the parking, accessibility, etc. took a lot of time, money, and back-and-forth with the city.
> unless your estate is over 12 million dollars(and double that for a married couple), you pay no estate taxes.
Why aren't estates just taxed as income to the entity who it goes to? If my father croaks and leaves me $1m it should count as an additional $1m of income to me that year.
"If my father croaks and leaves me $1m it should count as an additional $1m of income to me that year. "
If it is $1m in property value, do you count that as still $1m of income? If so unless the child is in great financial situation with a lot of already liquid cash, they would be forced to sell part/all of the property to pay the taxes.
If a parent croaks and has a small business, mom and pop style. How would that be handled? If they had a small corner store making 100k/profit but has no assets vs a shop that sells very expensive equipment making 100k/yr in profit. But has hundreds of thousand in assets that would pass down.
Fine, as long as you tax based on what was paid for the property. The father is giving his invested money, no one chose to 'realize' at the current valuation, it is happening because of a traumatic family event.
The effects of lowering taxes on rental income is complicated.
If you lower the taxes on rental income, more people will buy houses (and build new ones!) to take advantage of the reduction in taxes. However, they will still have to rent the apartments/houses out at market prices. The rental price will go down because now there is a greater supply of houses, and renting out an apartment at a lower rent is equally profitable as before (since you don't have to pay as much in taxes).
The cost of purchasing a house, however will increase, because there are more landlords competing to purchase the house with you.
Overall, the real problem is zoning single family homes everywhere, and rent control that disincentivizes building new housing.
Ya I think you are leaving out the concept of Deprecation Recapture.
In short, if I buy the rental property for $10. Deprecate it to $0 over 27.5 years. Then Sell it for $20. I then haft to pay taxes on the sale of the profitable asset.
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Depreciation recapture is a tax provision that allows the IRS to collect taxes on any profitable sale of an asset that the taxpayer had used to previously offset taxable income
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You’re ignoring depreciation recapture which can have significant tax implications even with a 1031 exchange. It basically claws back the depreciation you used to offset rental income.
I disagree that the 1031 exchange laws are detrimental to society. In fact, I would argue that their existence boosts the rate of development and increases housing supply in the US.
Firstly, why does the government deserve to tax these transactions at all? These landlords are already taxed on their income from their jobs, pay property taxes, pay taxes on all the products they buy. The government is extracting plenty of wealth from its citizens, why on earth would we demand more of people just for being successful in real estate? Will the government put their money to better use than these people spending it themselves on products and services? I think anyone who engages with public sector projects and services knows that the government does not efficiently spend money.
Let's imagine a world where 1031 exchanges are banned. What happens? Wealthy investors no longer sell properties at the same rate. What's the point? If my apartment building is cash flowing every year, and I'm stuck paying a huge capital gain tax on the sale, I'll just hold it for life and enjoy the cash flow. The rate of real estate transactions would collapse overnight, killing all of the jobs connected to it from appraisers, to brokers, to investment firms and wealth advisors. Now, not only does the government get less tax revenue because overall real estate transactions and taxable events are diminishing, but there is less incentive to build new projects.
The appetite of 1031 exchange buyers is one of the driving factors in development of new commercial real estate projects in the market! The profit motive spurs growth. Look at the Opportunity Zone legislation of 2017, a once in a lifetime chance to defer and eliminate capital gains as long as you are investing those gain dollars into real estate development in blighted areas. This tax incentive alone has generated hundreds of thousands of new residential units on the market that would never have been built without the tax incentive. Taxing real estate more would only slow growth, if we want people to take the time, effort and risk to build more housing units in the US, we need to incentivize them with less taxes.. not more.
> Each year you can offset your rental income against [...] property taxes
The ridiculous thing is that, since the SALT deduction cap went into effect (and so narrowly avoided the axe this past week, ugh), people who live in states with high property taxes end up being able to deduct only a small amount of their property taxes on their primary home, but if they own investment property, they can typically still deduct all of it -- and I believe they can deduct on their state taxes as well, whereas the SALT deduction is only available at the federal level.
They now have the added buffer of rental/leasing agencies! Many of these are fly-by-night and skirt or outright ignore inconvenient laws like renter's rights.
Repairs? Cost sink, just don't renew complaintant's lease. Bonus you get to raise the rent again!
Want to get in touch with the owner? Most times you'll have to look up tax records and hope it's actually in the owner's name.
Makes rental properties probably 90/10 profit/cost.
I know people on both sides of the equation and it's more than a little insane the entitlement some landlords feel.
Rental/leasing agencies can ignore laws...but the courts don't. And the machinery of law enforcement, from bailiffs to cops to IRS revenue agents, keep both sides somewhat in line.
The heart of the problem is low vacancy giving landlords market power. The inherent scarcity of land in desirable locations is amplified by zoning laws keeping housing supply growing much slower than demand. When 90% of urban land is zoned for single family housing and it is literally illegal to build a duplex let alone an apartment building you will have a shortage. Eliminate parking minimums, setbacks, feature area ratio, height limitations, endless environment impact lawsuits, and build!
Give me a break. You'd need a down payment of ~400K to have a mortgage low enough to barely break even at $15,000 in rent per year. None of his math makes sense.
Of course you would really rent a 500k property at something more like 2500 a month but even then you'd need a down payment near 200k to start making a profit.
500k property at 2.75% is $200k down gets you under 15k
(this is very similar to my current mortgage)
Now you're going to object that the interest rate isn't that anymore, which is irrelevant. There are numbers that will work which are simply an example to illustrate how depreciation works, and you just don't like the arbitrary scenario.
Mate who cares about rates from years ago. You aren't getting anything under 5 these days. Not to mention those rates are for primary residences, you get even worse rates for investment properties.
The point is if you have 200k to put into a rental property you are already wealthy way beyond an average American.
> Mate who cares about rates from years ago. You aren't getting anything under 5 these days
That is irrelevant. The point was the role of other vehicles in investment properties, wherein the GP diverted into arguing about the specific numbers being used.
> The point is if you have 200k to put into a rental property you are already wealthy way beyond an average American.
Between banks and with very large real-estate purchases, it's still a thing. Before the rate hike at the end of last year, you could get it from many places. My wife and I happened to buy a home in ND last year.
Because of the city tax conditions and depreciation schemes available, enough capital will turn a net negative run cost into a positive capital sale in less than 10 years. It's the same thing as flat asphalt parking lot developments that covered southern california commercial land until the 90s.
It seems to be a gamification of city growth incentives.
So we went from buying a home to rent out to buying land and you only need to be able to sustain losses for 10 years. Ok great. I'm sure you are already a Millionaire Real Estate Developer by now.
All of what you describe above is good for the rental and housing market. It brings the rents down.
Imagine the alternative, where all the depreciation rules you describe above don’t exist, and landlords have to pay a bunch more tax. In that world, the government has some extra money in the coffers, but how does anyone else benefit? Rents will not go down because landlords have to pay more tax, in fact quite the opposite will happen.
Really, I get that you might have moral feelings of unfairness about it, but you are focusing on a minor aspect of the housing market that only has positive impact on rents by bringing them lower.
You’re confusing things. You do pay property tax regardless. You can deduct that from your income on federal (and probably state) tax return. But you definitely pay property tax. And some states have no income tax but very high property tax, and don’t get any sort of state deduction
I really don't understand what you're describing. Can you recommend a place where I could learn more about "deprecation of the property and property taxes"?
This system is clearly designed to subsidize and create new landlords. Which is one of many desperate micro-economies that American capitalism has spun up in order to manufacture economic activity.
There’s a really good argument to be made that taxes are actually a huge part of why dollars have a stable value.
Let’s say you buy a house for $1 million. 1% interest rate means you have to pay $10,000 every year to your local tax board. That means that you need to acquire US$10,000 or you lose your home. That means you need to earn USD. If the USD hyperinflated, 1% of your house is now $100,000. Now you need to go earn $100,000 and pay that in taxes — which is actually making dollars more in demand, countering inflation.
This is a really counterproductive take, not because of the ways it's wrong about how rental income works, but because it paints a completely wrong-headed picture of whose interests are opposed to progress. People who own property they don't live on stand to make a lot of money under policies that allow them to build more and build denser. It's homeowners who are opposed.
EDIT: Lots of propaganda in these comments painting individual homeownership as the cure for our housing crisis. It's not. It's the cause.
It's a simple problem, we turned housing into an investment. Now everyone who owns a home is incentivized to ensure their investment is maximized and that results in a lot of NIMBYism. The simple solution is we need more housing in cities and suburbs. How we get there is an exercise that's taken on by local housing authorities and they are not incentivized to solve the problem. That's because they work for voters who are currently living in the area opposed to future people who aren't contributing to the vote.
States are going to have to step in and override cities that aren't being effective, this cannot be solved from the federal level. They are going to have to say, these permitting processes are too restrictive, homeowners can add backyard units or convert their homes to duplexes/etc, and make it easy for apartment builders to buy a few homes to make small apartment complexes even if the neighborhood hates it or the city has been stalling on that kind of development.
I disagree. The federal government invests enormous resources into subsidizing home ownership. Everything from Fannie Mae guaranteeing mortgages to not taxing home owners on the imputed value of rent.
And I think that's all well and good, home ownership has many positive externalities. But there's zero point subsidizing demand for something when supply in inelastic. In those cases subsidies don't result in expanded supply, only increased prices. For example even if diamonds are good, it wouldn't make sense for the government to match first time diamond buyers payment, because the supply of diamonds is inherently limited. All it would do is drive up prices.
Modest proposal: the federal government should revoke all of its housing subsidies in any municipality that restricts the supply of housing. San Francisco would be more than free to continue to block development. But if it chooses to do so, then San Francisco home owners should no longer be eligible for Fannie/Freddie mortgages, no longer be able to tax deduct mortgage interest, and should have to pay income tax on the imputed rental value of their home.
FM does not guarantee most mortgages, only certain govt types like FHA and VA loans, which the govt decided to back in order to help low income people get loans (otherwise the rates would be even higher for them).
FM buys up a lot of mortgages and sells them to investors, then turns around and puts the money back into productive use.
>taxing home owners on the imputed value of rent
What does this mean? You want to tax homeowners as if they paid themselves rent? (Which even then is net zero, so no tax...)
If you want people to pay income tax on the imputed rental value (which is likely not even legal - they are not getting an income from ownership - and courts have held income tax must be on sources of income), then you will increase the cost of home ownership, putting even further out of reach for most people.
>In those cases subsidies don't result in expanded supply, only increased prices.
Yet many places subsidies do result in new housing.....
Both Fannie and Freddie buy mortgages, but your description is much more stringent than in truth. Fannie buys from big banks, Freddie buys from thrift banks; both buy conforming loans(conforming to their standards) which is a large part of the home buying audience. In addition to that, the non-conforming loans that you listed e.g. FHA and VA. Those government-backed loans are for special populations. These mortgages are assembled into MBS and then sold to investors; the banks that originated the loans get their liquidity back.
Yes, I said as much. The OP claimed they guaranteed mortgages, which they do not.
I'm decently aware of the MBS market - I developed MBS pricing algorithms in the late 90s/early 00s for putting houses in tranches after a friend at a mortgage company asked for help with algorithms. Turns out the problem was NP-hard (a lattice based linear programming problem if I recall), but good heuristics from the literature and some special sauce outperformed their current (at that time) pricing.
Around the time the whole market blew up I was considering going to hedge funds, and was working out details of how all the math, science, and computer algos work to prepare for interviewing. After the market crash, I moved on more into scientific and R&D computing. But I still read papers in the area out of curiosity.
But the fact is the market is not "guaranteed" in any sense - which is likely good as 2008 showed.
> At Fannie Mae, we provide liquidity to the single-family market by purchasing and guaranteeing mortgage loans made by lenders and issuing debt securities and mortgage-backed securities that attract global investors to finance U.S. housing.
They do guarantee some loans, as I wrote above. The marketing blurb you copies cleverly does not state they will guarantee any mortgage loan.
If they did, the housing crisis would not have been such a crisis - the crisis happened when so many investors realized the loans they bought could crash and cause them massive losses - precisely because FM does NOT guarantee all loans.
They guarantee certain loans (conforming loans), and charge a fee to investors for this when they purchase MBS from Fannie Mae. Conforming loans make up under 40% of all mortgage loans. Of all conforming loans made, Freddie and Fannie end up purchasing about 60% of those.
It may be that they stopped buying loans they deem too risky, but that didn't use to be the case.
> FM does not guarantee most mortgages, only certain govt types like FHA and VA loans, which the govt decided to back in order to help low income people get loans (otherwise the rates would be even higher for them).
And this.
> The OP claimed they guaranteed mortgages, which they do not.
So it read to me like they don't guarantee mortgages save for the "special" mortgages for underserved groups (FHA/VA). In fact, they do. They guarantee all the loans they buy, as far as I know. They only buy conforming loans. Conforming loans are another way of saying, loans that they will buy (and guarantee). Of course they don't guarantee loans they don't buy.
I used to work at a mortgage originator, and we sold the majority of our loans to Fannie and Freddie.
> Of all conforming loans made, Freddie and Fannie end up purchasing about 60% of those.
This is true, because private investors pay more than Freddie and Fannie for conforming loans.
Sorry for any confusion - what I wrote was "FM does not guarantee most mortgages" in reply to the OP claiming FM guaranteeing mortgages is subsidizing the housing market.
(And I ignored that FM is not the Federal Govt for now...)
From the stats of conforming mortgages being 40% of mortgages and the FM only buying 60% of those, FM is at most guaranteeing (to investors, for a fee) around 24% of mortgages. That's well under 51%, right?
So FM not guaranteeing most mortgages is true, and it's not even close.
What? Of course Fannie and Freddie guarantee the MBS they issue. Which is an implicitly a guarantee from the US government. Otherwise they'd trade at much wider credit spreads, which would in turn lead to higher rates for home buyers. You don't have to take my word for it, here's the New York Fed's own words:
For agency MBS, the GSEs and Ginnie Mae promise full and timely payment of principal and interest, a guarantee that is either explicitly or implicitly backed by the federal government[1]
> You want to tax homeowners as if they paid themselves rent?
Alice, who has a 20% income tax rate, owns a house and rents it to Bob for $25k/year. Bob also has a 20% income tax rate, owns an identical house and rents it to Alice for $25k/year.
In total the government collects $10k/year in tax revenue from Alice and Bob from their rental income. Now let's say Alice and Bob swap houses and move back into their owner-occupied properties. This is an economically identical situation (remember the houses are identical). Both still own one home. Both are still consuming housing that's worth $25k/yr to them. Yet the government collects no tax revenue. Exempting the implicit value of rent is a subsidy favoring owner occupied housing.
> imputed rental value (which is likely not even legal)
The IRS already taxes tons of benefits based on the imputed income, even if no cash changes hand. For example, if your employer provides you life insurance, you have to pay income tax on the actuarial value of the policy even if you don't die during the coverage period.[2]
> then you will increase the cost of home ownership,
Not if the supply of housing is completely inelastic. Any increase in housing taxes will result in a commensurate fall in the sticker price that matches the tax increase. Economists have known this since Henry George.
>What? Of course Fannie and Freddie guarantee the MBS they issue
Yes, they guarantee the MBS they issue, which is on a minority of all loans. The fact remains they do NOT guarantee most mortgages. They guarantee conforming loans, which are around 40% of all mortgage loans. And of all conforming loans, they only end up buying ~60% of them. So they at most guarantee around 24% of all mortgages, which is certainly not most mortgages.
>Alice, who ....
Ignoring the other side where landlords write stuff off and renters get tax breaks. On the ownership side, you're also missing lots of tax changes.
So not identical.
Also, the govt has an interest in property ownership as they have solid evidence that people owning property in a region make them less more stable. So there's very good reason to provide tax incentives for policy reasons. It's been shown that tax incentives, dollar for dollar, are pretty good incentives compared to most other forms of government spending to affect policy.
>The IRS already taxes tons of benefits based on the imputed income, even if no cash changes hand.
And they have tons the other way too - all because they desire to affect outcomes. So that they can do it is not really strong evidence to if they should do it, unless you address all the reasons they desire to do it.
>Not if the supply of housing is completely inelastic.
Which it is not [1]. "most areas that are widely regarded as supply-inelastic are, in fact, severely land-constrained by their topography" which is not most of the country.
>Both still own one home. Both are still consuming housing that's worth $25k/yr to them. Yet the government collects no tax revenue. Exempting the implicit value of rent is a subsidy favoring owner occupied housing.
Why stop at rent? Alice cooks at home? Tax implicit cost of dining out.
This is interesting. I wonder if it would work to make all FHA loans be required to be NEW properties/units. So the only way to get access to the money is to expand the housing. I'm sure there are consequences but I need to think them through a bit more.
I don't know about policy consequences, but one political hurdle is that this would be attacked as "welfare for the rich" or something along those lines, since new construction is generally more expensive than existing units.
Yeah, I haven't thought everything through yet. However, the hope that this would force more of the new housing to be more affordable. A poor person isn't going to be buying a luxury condo so I was trying to think of a way to incentivize builders to increase stock and create more affordable housing. There are definitely some second order effects.
OP doesn't talk about subcidies, but instead about the fact that the federal level needs to force the city level to build for example smaller apartments/houses, or build denser or whatever. However, cities and the ones already living there don't like it because it will bring in poorer people, which drives down the tax income and increases the costs, makes the neighborhood less attractive etc.
> It's a simple problem, we turned housing into an investment.
People are not natural economists and will basically dig in to support the status quo until that status quo changes, at which point they'll support the new one. Americans, for example, buy new cars at an average new price of $40k and for most of my life accepted uncritically that the value of those cars would plummet the second they were driven off the lot. They did not lobby for supply restrictions that would prevent it. They didn't ask their politicians to prop up "car values." They didn't try to avoid it, at all. They just accepted it.
They would do the same with housing, if they weren't already conditioned not to.
There's a legitimate reason why a car immediately loses its value. People are more likely to sell cars that have something wrong with them. The market price for a car that you just drove off the lot is not the market price for an average car of that age, it's the market price for the subset of cars of that age that people want to sell. Because a car in that subset is more likely to have something wrong with it, its value is lower. Even if you personally are not selling the car because there's something wrong with it, it's hard for the buyer to know this.
If people had magic X-ray eyes that could tell that the car you just drove off the lot doesn't have more problems than an average new car, then its sale price would be similar to a new car. But they don't.
During beginning of COVID I drove a Tacoma off the lot for ~29k out the door and at the end of COVID I had several offers to buy it from me used with over 10k miles on it for anywhere from $30-31.5k. At that time you could still buy it new for ~29-30k.
In fact the only reason why I bought new in the first place was because even a 10 year old tacoma is worth the better part of a new one. Guess it depends on your market but the premium for new looks pretty tiny or negative to me.
I don’t understand the downvotes. Your conclusion is wrong but you make a good contribution. Thanks for the anecdata.
I too have seen this phenomenon, and I think it’s pretty common recently because the used car market is really out of whack. In my case, last year I bought a lightly used Sonata for about $30k with 12k miles, and today I could still trade it for about the same price with 31k miles on it.
Where you’re wrong is that this phenomenon doesn’t apply in general to the used car market but only in the last few years because of the chip shortage shrinking the supply of new cars. Short supply in turn increased demand for used cars, raising the prices.
That sounds reasonable to me, but it didn't stop the cost of used cars from skyrocketing during the pandemic, due to the supply-chain-induced shortage of new cars. When the car market started looking a lot more like the housing market, so did its prices.
In that situation, the value of all cars went up, both new and used. The value of a used car was still much less than the value of a new car, you just didn't notice this because new cars didn't have their prices raised to correspond to the increased value.
That's not true, I could show you offers of my used truck being worth more than a brand new truck of the exact same generation of model in the exact same configuration. Used vehicle prices went insane during covid as the irrational market and places like Carvana paid more for your used car once it's off the lot.
I almost wonder if people overbought into the "new car must be more expensive" paradigm so they forgot new cars were competing against used cars, and the prices of used cars became irrationally high.
New cars did sort of have prices raised, because most of the incentive programs stopped. The 5-year zero interest financing, the thousands of dollars of rebates, the negotiating the dealer was willing to do, all ended. New cars sold at sticker price and there was no shortage of buyers.
> They would do the same with housing, if they weren't already conditioned not to.
That's a pretty unrealistic comparison, housing doesn't hold its value (or go up) because people are conditioned, there are real reasons.
There is an effectively infinite supply of new cars, as factories can much more easily ramp up production if there's more demand. (Sure, recent supply chain issues have made that problematic, but in normal times.)
Second, cars do inherently depreciate faster. A ten year old house is basically brand new whereas a ten year old car is probably mechanically sound but cosmetically often looking its age and a lot of people like new and shiny.
So I think folks overlook just how wealthy certain investors are when they propose the fix is to just build new properties. Those will also get snapped up by investors. To fix the problem, investing in housing needs to be either banned or made very unattractive. You only need one house to live in.
I agree with you, that's a whole other problem. But housing like many goods is still subject to supply and demand. The investors buy the properties because they are actually good investments in situations where housing is in demand, and that's true in all the major cities where we're not building enough housing and appropriately sized housing. If we increase the supply, if we make smaller housing units so there are also affordable units for poorer renters. The investors will move on to more lucrative investments. They can only extract so much wealth from housing before people move for alternatives.
Everybody has a place to live. Housing isn't scarce. When housing is scarce, people are homeless or living in extremely tiny spaces. They are not. The problem is that people wouldn't be able to afford to own the places where they live.
Housing is only "scarce" in desirable places, and that's simply tautological. The sum of unfulfilled desires is the contrapositive of scarcity.
Housing is a market in which a very tiny percentage of goods are up for sale at any particular time, and the projected prices of those goods are heavily shared among a huge network of people who profit when the prices are high. The owners of those goods are often heavily leveraged, and can't afford to lower the price significantly, and the transaction and mortgage costs push them to raise the price to cover those costs at the next place they buy.
> They can only extract so much wealth from housing before people move for alternatives.
No such alternative, which is why the market is as lucrative to exploit as health care. Finding an "alternative" to health care is just to find another type of health care, and if you find an alternative to being housed, you've just found a new kind of house.
Which is why California needs to fix the policies that led to its housing shortage. There is no inherent reason for California to be so expensive, it is a deliberate policy choice driven by local governments.
> Which is why California needs to fix the policies that led to its housing shortage. There is no inherent reason for California to be so expensive, it is a deliberate policy choice driven by local governments.
There's a lot of truth in that, but it's also an oversimplification.
There is plenty of cheap land in California, here, have a quarter acre lot for $15K:
Of course it's cheap since nobody wants to live there. If everyone wants to live in San Francisco, it's going to be much more expensive. Building more helps but in the end there's only so much that can realistically be built in 50 square miles. Some people will always be left out so there will always be some unmet demand, so it'll never be dirt-cheap.
So yes policy obstruction is a thing, but there are also inherent reasons why popular places will never be cheap.
By this logic oil & gas will never run out because rising prices will incentivize new extraction technology and formerly too expensive reserves will come online. Or supply will dwindle and the price rationing system will ensure it goes to the most productive use and energy consumers will switch to cheaper substitutes.
I actually think this is what will happen to oil and gas. It will become less and less of a feature of our lives over the long run. We will have to find alternatives (hopeful!) or cut back (painful!)
Many people do not want to own a home, they would rather rent. Someone has to be the landlord for all those people, and to all those someones, the home is an investment. You can only get rid of homes as investments if you get rid of renting.
I hate to go all "citation needed" on you, but I'm not sure this is true.
Do I want to pay for upkeep of a property? Probably not. But since renting is basically equivalent to burning money in our economy, any responsible renter will eventually feel a pull towards ownership if only to stop the bleeding.
I think we need a society where renting isn't so expensive AND owning a property isn't so heavily subsidized by tax breaks. The entire housing market is a massive bubble because of investors and speculation. At some point, that bubble prices people out, leading to homelessness and missed opportunities because people aren't willing or able to move.
Much like freedom of car-free movement, housing ought to be a fundamental human right. Not a business or a place to hide your money.
> I hate to go all "citation needed" on you, but I'm not sure this is true.
Given the number of people that rent in large cities all over the world for their entire lives, I don't know why you would find my claim doubtful. Many people seem to want to live in large, densely populated areas, and for most people that is always going to mean renting.
> Much like freedom of car-free movement, housing ought to be a fundamental human right
I disagree with this as a blanket statement; neither car-free movement nor housing as a basic right will ever work in areas that are not densely populated. And many people (including me) want to live in areas that are not densely populated. We are quite willing to pay the costs of doing that and don't need handouts.
However, in densely populated areas, I think many people would agree with your statement--but I think they would also say that "housing as a human right", for them, means availability of affordable rentals, not home ownership.
> Many people seem to want to live in large, densely populated areas, and for most people that is always going to mean renting.
The "for most people that is always going to mean renting" is that part that we could change through large scale collective policy. That's what Singapore has done for example. No one doubts whether people want to live in cities. We are asking whether the model of private landlords is the best way to manage large quantities of housing in cites. Look at Singapore:
"Eighty-two percent of Singapore’s residents live in HDB-built (Housing Development Board) apartments, of which there are more than 900,000. In contrast to both New York and Vienna, HDB encourages public housing residents to purchase their apartments. Nine out of ten HDB residents own their homes. The 50,000 rental units are, according to the HDB website, 'for the truly needy who have no other viable housing options.'" [1]
So yes, people want to live in dense cities. It does NOT automatically follow that they will have to rent. This is a policy choice.
We do not need to hand over ownership to the government to build more houses. Just simplify zoning laws. Private landlords want to build. People want to maximize the value of their properties. They can't because of zoning laws that favor single family home hellscapes.
"Hellscapes" is uncalled for. Many people like living in single family homes. The goal of housing should not be to enforce a single cookie cutter configuration on everybody. It should be to enable a free market in housing so that all of the different preferences people have for housing can have a reasonable chance of being met. I agree zoning laws should not favor single family homes to the detriment of other types, but equally they should not disfavor single family homes.
I agree, people should be able to do with their property what they want. Many SFH owners actively try to block development of the properties they do not own, unfortunately.
> They can't because of zoning laws that favor single family home hellscapes.
This can easily go too far in the other direction though, carving up a single family sized living space into 5 tiny 400 sqft apartments. There have to be incentives for mixed sized living spaces.
There is, that is “the market is willing to buy mixed sized living spaces.” I live in Tokyo, my first apartment was shocked pikachu 230sqft! Oh, the horror!
And yet there are plenty of single family homes and 2500+ sqft apartments if you want that. Just in the USA, if you want to live small - the government forcibly tells you that you’re not welcome here.
The market is willing theoretically, but practically with high property values there's more incentive to build tons of smaller units since they'll sell for more in aggregate. This happened in my city, where there's a distinct lack of family-sized apartments in the downtown core. Only older buildings from the 80s prior to recent real estate booms built decent sized units suitable for families.
Well I guess that's the problem with having failed to produce housing supply for decades, until the balance of the market got so far out of whack that pressure for smaller units is that high. Tokyo built both housing and infrastructure to increase the viable land to live in striking distance to the commercial core, and so that's not an issue (although typical apartment sizes for family homes included are much smaller across the board because of the premium on space).
To me, it's a scenario of pick your poison - continue to be unaffordable because society is not willing to accept the consequences of its failures, or eat the consequences for a brighter future. In cities like SF, I don't see a world where it will ever get affordable if they insist that everyone needs to live in 1000+ sqft apartments, unless you plan to pack it to the gills with ultra-tall skyscrapers (never happening) or it becomes so undesirable to live there that people just stop moving there (unlikely, but given the rampant human rights violations it commits everyday to its denizens... well maybe that's the most likely scenario).
Aside, Americans don't know what small apartments even mean. The presence of super tiny Tokyo apartments is a great thing IMO, it means that people can still live centrally even if they aren't rich. I think a lot of people would happily accept a well-designed 200 sqft apartment over a 2-hour commute, if society gave them that option, since Tokyo residents do that en masse everyday.
I can buy a house here in Tokyo but it doesn’t make sense for me to. Partially because housing is a bad investment here and rents are very affordable (which is exactly the point of OP), and partially because I expect that my needs in my current situation will differ greatly from my future needs and don’t personally want to take on the burden of managing properties at this time to compensate for that.
And if it's attainable, does it make financial sense? I rent an apartment now, and to buy a similar would be roughly 1000 times the monthly rent. I would have to bet very heavily on appreciation before that made financial sense, even with the leverage of a mortgage.
Talking about the total apartment price, not a monthly installment.
Yes most of the city is rent controlled, this is a ten year old rental contract. Rent is about 600€ and apartment I estimate would be 500-600k. Could also be more though, I'm not exactly up to date.
Condo model ownership is very common in dense urban areas. You "own" your apartment, and pay an association to manage the repairs and upkeep of the common building and amenities.
That said, renting in the short term is still something people will want to do. Some people will even want to do it longer term, if they want no responsibilities at all for repair and upkeep or freedom to leave with no strings attached at the end of the lease.
How many college students want to bother with owning a home for <4 years before potentially moving somewhere else entirely once done with their studies?
The number of people that end up never owning or wanting to own a home is likely small. But there is a very real case for non-ownership depending on what stage of life people are in and how they want to live their lives.
Not uncommon for parents to buy a house for their kid to live in, rent it to a few roommates to cover the mortgage, then keep it as an investment or sell for a profit when the kid graduates.
The even easier argument is how many college students and new grads can afford to buy a house? Subdividing property that people can't afford is a valuable service.
If by "many" GP meant "a small but noticeable percentage of the population", I think the claim is reasonable. Buying a home is a process. In additional to the standard search and short personal inspection you'd do for a rental, there's an official inspection, securing a loan, etc. It consumes a significant amount of time for a month.
For someone moving every 6-12 months, spending a month or even two per year on buying properties and ensuring the previous owners aren't hiding issues isn't worth it. If a landlord hides something this type of tenant will only have to deal with it for a year at most, but if a seller hid something they would lose a lot of money on the move.
Moving every 6-12 months isn't the default, but it's relatively common for college students and recent graduates who haven't established roots yet. Next year it's a new city for a different job or a different school. For example, for many fields in the US going to the same university for grad and undergrad is highly discouraged.
Good point. For those in niche situations where flexibility is king, renting will almost always make sense simply because of static purchase transaction fees. When I was in college and fresh out of college, I didn't have (tens of) thousands of dollars to float broker percentages, inspections, nor the time and know-how to navigate sales and inspection processes.
I think there's nothing wrong with renting, and for folks who just want shelter with a known cost up-front, it's a great solution. The problem is rental costs that creep up and up and up and housing policies that reward the haves (of housing) but indirectly penalize the have-nots (renters) because they miss out on massive tax writeoffs.
> I hate to go all "citation needed" on you, but I'm not sure this is true.
I don't have a paper to link to, but reading all the housing threads on HN for years there are always many people who sing the praises of renting for all kinds of reasons that make sense to them.
This line of reasoning is flawed. The government can build housing so that people have places to rent, in a way that isn’t “an investment” in the profit-seeking sense. That’s what they do in Vienna and it seems to work great.
And then in Singapore they have very high home ownership rates, so we could also be dramatically reducing the number of people who actually need to rent, reducing the need for private investment:
I rented (by choice) for many years. I never once thought, "I wish the government were my landlord." The arrangement actually works pretty great just how it is. I was very happy to write that rent check every month and always felt like I got a good deal for my money, even when I lived in a very expensive market (NYC). In every case, I desired something that was very important to me and for which there's a lot of demand. I was happy, therefore, to pay for it.
That the fact has not occurred to you personally does not mean such an arrangement in aggregate would not help solve the problem of housing as a profitable investment. Maybe you didn't think of this on your own accord, but I bet you WOULD have appreciated if the same unit was cheaper, and this would be the case if 50% of the housing in your market was public housing as is the case in Vienna, even if your unit was privately owned.
Plus your single example of being satisfied with your landlord is not evidence that we should accept landlords across the board. My own landlord sucks at repairing things that need repair, and I find it very frustrating.
The article I shared in my first comment in this chain addresses problems in NYC and compares that to Vienna and Singapore, which are much better. So please take a look if you would like to learn about alternatives.
I actually know already about Vienna and Singapore. I have zero confidence we can copy that model here. Every time we've tried to do public housing it's been a disaster. At some point it's just who we are. If I keep striking out, it's no use to tell me to look to Mike Trout for an example of what's possible. I'm not Mike Trout. I will never be Mike Trout. I will never achieve what Mike Trout has achieved. If we're talking about my batting average, then Mike Trout's success is irrelevant. I need an approach at the plate that accounts for my skills and limitations.
And why do people prefer renting to ownership? Because it's cheaper? Because the home buying process is too difficult?
Owning a home, even if its value is deprecating, is fundamentally still more attractive than renting. You get to recoup at least some of your investment, and you don't have property management invading your personal life.
Most people simply can't afford to buy homes in the first place.
I think many people enjoy the short term benefits of renting (spend money instead of saving for down payment) and undervalue the long term benefits of owning (lower housing cost when retired).
I'm sure many prefer it, but many also require it. Bundling the two groups is disingenuous.
Making ownership more accessible would attract a lot of prospective buyers, and getting rid of the landlord role and land investment would likely have that effect.
If there's enough housing it doesn't matter who owns it. Unless units are being held vacant by landlords (they're not atm) housing prices will reach an equilibrium that represents the value they provide. Landlords can't just unilaterally raise prices without lowering supply levels.
A tax was established, yes, but was it reasonable to do so (was it reasonable to expect that it will do much) and did it do anything? It seems the answers are no to both those questions.
I think it's a good signaling tax though. (I'm 50-50 on the extra tax for foreign buyers. Ethically there shouldn't be any difference based on where one's passport is from, but practically of course there is.)
Anyway, the real problem is constrained supply. Vancouver is still a fucking suburb compared to dense cities.
> Now everyone who owns a home is incentivized to ensure their investment is maximized and that results in a lot of NIMBYism.
This motivation is backwards. Getting zoning restrictions around your house removed multiplies the value of that house. NIMBYism comes from places where people live. YIMBYism maximizes property values, although there's an element of blockbusting because overbuilding and a change in neighborhood character can make a neighborhood so unpleasant to live in that holdouts will end up selling cheap.
YIMBYism simultaneously raises prices (presumably for the greedy developers and sellouts) and lowers them (for the noble neighborhood defenders who are forced to sell). Got it.
I'm going to ignore your presumptions (your "greedy developers and sellouts) and things I did not say (like "YIMBYism lowers prices for noble neighborhood defenders who are forced to sell"), so basically every word and try to find the spirit of your comment.
It's pretty difficult to fit a massive apartment building on a house sized plot between two massive apartment buildings. The prices you will be offered are not what your neighbors were offered. There will also be pressure on you to sell because your neighborhood is now shit. Your house prices may still, all that being considered, have massively risen since you bought the house. The property taxes also rose proportionally, sucking away your equity.
I think the contradictions are pretty clear: it raises prices, but holdouts sell cheap; it's a shit neighborhood that no one wants to live in because it's too crowded...
And the hypothetical boxed-in holdout scenario is simply not representative of what's happening in high demand areas in the US. We're preserving laundromats and parking lots in San Francisco and Manhattan. No one is trying to build towers in the middle of suburbia.
> home is incentivized to ensure their investment is maximized and that results in a lot of NIMBYism
I'm not sure a lot of NIMBYism comes from the notion of protecting home values.
If a home were to be upzoned for apartments the underlying land value would rise significantly, and this would be a significant financial windfall for the home owner. They should want to see their land be upzoned for apts but that's not what we see.
I think NIMBYism derives from the desire for exclusivity. When ones home and surrounding homes are ultra low density you are guaranteed to have few neighbours. This is what is eliminated when homes are rezoned for apartments.
Everyone benefits from their own property being upzoned, but loses when their neighbors build upzoned properties. Hence the NIMBYs block other people's development
When was housing not an investment? Throughout history, people have always wanted to drive up the value of their land and properties. There are still plenty of places in the US/Canada/UK where housing is cheap. The problem is that nobody wants to live in those areas.
edit: the history of US house prices is that they strictly tracked inflation, then with government subsidy right after WWII, housing prices jumped up, then stayed flat at that new level for the next 50 years, then the turn of the millennium happens and housing becomes an investment (after a stock market crash.)
“In terms of total returns, residential real estate and equities have shown very similar and high real total gains, on average about 7% per year. Housing outperformed equity before WW2. Since WW2, equities have outperformed housing on average, but only at the cost of much higher volatility and higher synchronicity with the business cycle. The observation that housing returns are similar to equity returns, yet considerably less volatile, is puzzling.”
That link doesn't show that housing was not an investment for centuries, does it?
Why wouldn't you consider an investment something that has a relatively stable value in real terms - at least over a long enough period - and also provides a yield?
The link supports the statement "housing tracked inflation for 400 years". I think the confusion here is the word "investment" is overloaded and could refer to a number of different things regarding property:
- you buy the property that you personally will live in
- you buy some other property and let it out to tenants or businesses
- you are a pension fund, mutual fund, hedge fund, day trader, bank, HFT etc which trades in derivatives based on mortgages
The first two have been going on for centuries at some level. The third only really got going at the point house prices completely disconnected from inflation.
I agree. That's why the original statement "Housing was never an investment before recent decades" doesn't make a lot of sense and the justification "Housing tracked inflation for 400 years" doesn't support it even it's correct.
(Btw, not sure if it was implied but the "you" in "you buy some other property and let it out to tenants or businesses" is often a pension fund or mutual fund.)
I genuinely don't understand why you're getting down-voted.
Not only has it been true historically - there's a real reason to allow it: it incentivizes owners to maintain and improve their properties. Further... maintenance of that property requires investment, both in time and labor. If you make it so that owners have no reward or incentive for improving their properties, they WON'T DO IT.
Why invest money into fixing your place if the price of the house is capped anyways? Trying to prevent this style of investment has almost always failed, and generally makes neighborhoods that are nice/attractive places to live much less nice and attractive - because people stop maintaining and improving them.
I think the real question right now that needs to be answered is: Why are we not able to create new urban areas in low cost areas? What has changed so that we no longer create towns?
Because frankly - right now the issue isn't housing, it's housing in areas where economic opportunities exist. Why are economic opportunities so exclusive to high population centers? What can we do to change that?
This positive effect goes far beyond just maintaining the house and land.
Governments love home owners. They are typically stable citizens in the work-force, law-abiding, reliable, etc. They have a high time preference and have every interest in maintaining the status quo, safety, anything that makes society pleasant.
It's true but the reason people are moving to cities are jobs. Rural locations do not have the job market to support the costs to live there. It's a lower cost, but a much, much lower income outlook as well.
If you have the money to outright buy a rural property and build a house there, it's not a bad place to live. But you don't want to have to depend on the limited job market with an expensive mortgage and limited buyer pool.
> If you have the money to outright buy a rural property and build a house there
That's if there are available builders. It took my mother the better part of a year to get her roof replaced, because there was no one available to do the job. I'd also argue that the place she lives in rural VA is pretty awful in most respects other than having space and she's not all that far from a town.
Remote work is commonplace now. Perhaps in the next few years we’ll test the theory that jobs and house prices are linked. It’s now possible (for tech workers at least) to work from almost anywhere for decent wages.
My hunch is that the housing crisis is simple supply and demand. People want to live in cities because of the better access to entertainment, amenities, and services. There aren’t enough houses to fill that demand. There’s no great city on earth that has a glut of housing. If there were, people would flock to that city to fill the housing. I think that’s the very nature of a city. In some sense, the more people that want to live in a city, the higher the quality of the city. That’s also directly correlated with housing cost, sadly.
It's always been an investment, but the difference is the shift from being a stable asset that appreciated at or above inflation, to the sort of incredible hyper inflation that we now see.
Sooo... the last thousand some years, given that feudalism was widespread by the 11th century (and housing was absolutely an investment before that). Basically - half of recorded history (~400bc for Europe), and longer than the United States has existed.
I don't understand what you think this comment means...
> and housing was absolutely an investment before that
..and don't make absurd generalizations. Humanity is way older that the middle ages, and hundreds of different cultures existed around the world even during the middle ages.
Very few had the concept of investment and the idea a house has a monetary value that grows significantly over time was simply unheard.
> longer than the United States has existed.
Imperial units are bad but measuring history in united-states is even worse. The US is not even 250 years old.
> I don't understand what you think this comment means...
> An exclusively European phenomenon, the bulk of which came and went while it was a backwater region with limited effect on the rest of the world.
Weird that it had limited effect on the rest of the world, since basically history from now back to about the 15th century represents a European hegemony, now a US hegemony that extends European Western philosophy to the world.
Seems that "limited effect" is pretty big. So much so that we're /literally discussing it now in 2022/.
Yes. Its post 1492* relevance through its legacy now established, we revolve back to the point:
- The last thousand some years (in Europe)
- Widespread (in Europe)
- Half of recorded (European) history
You may have misread my original comment, the “limited effect” was to describe Europe’s influence at that particular point in time, not feudalism/Europe’s influence since then.
I wonder if persistently low interest rates is the real culprit that led to housing as investment. I have been recently intrigued by FinTwit arguments that an excess of demand spurred by too low interest rates is the real reason for many shortages. As a saver, that argument naturally appeals to me.
> I wonder if persistently low interest rates is the real culprit that led to housing as investment.
Of course.
The profit from selling a leveraged investment is based on the delta between what you pay to borrow the money and how quickly the asset goes up. Doesn't matter it that's a house, a stock, bonds, whatever.
Housing is particularly attractive for these bets, because it's so easy to qualify for a big loan and because the rates have been so low.
Once mortgage rates exceed about six percent, the incentive to invest in real estate will be much lower.
> I have been recently intrigued by FinTwit arguments that an excess of demand spurred by too low interest rates is the real reason for many shortages
I don't believe this is the case as since 2008 the U.S. construction industry has not even built enough units to keep up with population growth. I believe this is a supply problem which is two-fold.
1) Restrictive zoning and permitting which really took off around the 70s
2) A boom and bust construction cycle which has convinced many to not risk it any longer and find other work (this which has been going on for decades but truly inflected after 2008).
> I don't believe this is the case as since 2008 the U.S. construction industry has not even built enough units to keep up with population growth. I believe this is a supply problem which is two-fold.
You certainly have valid points, especially in San Francisco. Nevertheless, looking at the broader market, outside of California, the market appears to be working: builders find a way to build what will sell and maximize their profits. Last week, I drove around a planned community in a middle-America state. Developers started building houses around ~2010 and are still building out the area. These developers had no problem building thousands of homes that were selling well until very recently.
I'm glad the builders in your area have been able to work consistently. I would guess that they are likely riding a trend of a decreasing number of builders who are increasingly professionalized and technologized their operations. Regardless, that is an anecdote and the statistics paint a pretty clear picture.
> It's a simple problem, we turned housing into an investment. Now everyone who owns a home is incentivized to ensure their investment is maximized and that results in a lot of NIMBYism.
I don't know how this came to be such an obviously true common wisdom answer here at Hacker news. It's an extremely incomplete account of what causes NIMBYism. I'm sure at least some of it is purely a desire to maintain land value appreciation, but as others have already pointed out, in plenty of cases, conversion from single-family to multi-family zoning increases land value and the land owners still don't want that.
The basic cause of NIMBYism is these are people's homes you're talking about. They live there. They may have lived there for decades, possibly even for generations. They chose the place for the character and culture it had at the time of choosing, and they don't want that to change. If they enjoy a relatively quiet life with space, they don't want to see their home changed into a traffic jam with nowhere to park. They don't want to be perpetually surrounded by nonstop construction.
I'm not trying to say anyone who feels this way is inherently right. At some point, change is inevitable. I'm sure the original inhabitants didn't like it when European colonists spread strange diseases across the land and then wiped out the stragglers with superior firepower. I'm sure the ranchers of the west didn't like seeing their ranches turned into suburbs. And the suburbanites don't want to see multi-family housing in their once-quiet and relatively secluded homesteads.
Without making value judgments either way, though, I think you have to acknowledge there are far more basic instincts at play here than simple financial incentives. It's fair to say we at some point have no choice, and if the result is we can solve housing unavailability and especially homelessness, and the cost is a few or even a large number of people are left with the neighborhoods they grew up in changed drastically into places they no longer want to live, that may be worth it. But you should understand the full range of motivations for people who want stability in their homes and communities and not act like it's purely about financial gain and greed. Remember also that a fair number of communities in which concerns about gentrification are the greatest and people really oppose redevelopment are neighborhoods that these people were historically forced to live in because they were ostracized if not killed when they tried to live anywhere else. That community in its specific current form is what they see themselves as being a part of, far more than the larger city, state, or country that never wanted them in the first place. This is far more complex than you're making it sound.
> The basic cause of NIMBYism is these are people's homes you're talking about. They live there.
You hit the nail on the head!
I'm often confused by how the vibe here is that thinking of housing as an investment is bad, and yet simultaneously consider that all housing-related decisions are strictly financially driven!
Reality from everyone I know is that housing is primarily about being a home. A nice place to live. A stable place for the kids to grow up. That's the primary motivation.
Investment? Sure, it's nice if it goes up over a lifetime, but that's not a driver in any decisions.
The government made me an explicate promise with zoning laws that my neighborhood was a safe investment, just as they make people comfortable that bank accounts are safe via banking laws, or that stocks are somewhat safe. Taking that away is breaking a MAJOR social contract made to the 65% of American's that own their home.
Yes, it's a social contract that must be destroyed. Otherwise we will experience economic ruin. Look at what happened in Japan in the 1980s, or is happening in New Zealand in Canada. The fact of the matter is that this social contract is pure rent-seeking, and never should have been allowed in the first place. It is theft from future generations by present day homeowners.
Also it certainly is not true for all homeowners btw, lots of municipalities have fairly minimal zoning laws.
You know how we got into this problem? Decades ago we used taxation and law to try and incentivize the development we wanted and disincentivize or prohibit what we didn't. And today the efficacy of that endeavor is obvious to even the most casual observer.
There is no compelling reason doing the exact same thing will work better for different values of "development we want" and "development we don't". Have you seen what gets developed when you incentivize mixed development? It's lifeless crap compared to the places that were built up prior to the advent of widespread usage restrictions on land where development happened organically without the input or prior approval of local government (i.e. people were basically free to do whatever within the permissive limits of the time).
How about we just get the government out of the business of telling people what and where they can and can't build. Let people develop what they think there is demand for. A few inappropriate industrial sites is a small price to pay for allowing pent up demand for residential and commercial construction to be satiated.
I think I wasn't clear. When I say incentivize mixed zoning, I meant that the federal government would incentivize local governments choosing to zone land as mixed use. Then people can build whatever they want.
It's not possible to remove zoning completely. That's severe hubris, thinking that we introduced zoning to begin with for no legitimate reason. That's not true - it's necessary to plan city infrastructure and that requires zoning. Removing zoning altogether would be an unmitigated disaster.
There is no easy clean solution like "remove all the rules". You can't get government out of the business of city planning and basic infrastructure, and that's in more words what you mean.
There is a difference between good policy and bad policy. We need good policy. The only solution is that local governments somehow make better choices.
I just think about this letter to the Atherton (median sold home price: $7.6M) Mayor and City Council:
===
Subject line: IMMENSELY AGAINST multifamily development!
I am writing this letter to communicate our IMMENSE objection to the creation of multifamily overlay zones in Atherton … Please IMMEDIATELY REMOVE all multifamily overlay zoning projects from the Housing Element which will be submitted to the state in July. They will MASSIVELY decrease our home values, the quality of life of ourselves and our neighbors and IMMENSELY increase the noise pollution and traffic.
Laura Arrillaga-Andreessen and Marc Andreessen
<address>
4 Properties on <street>
===
Everyone economic freedom and deregulation, until it means more people living near them.
What gets me is the dramatic language. I don't think home values would "massively" decrease with a few multi-family residences in the area. What's funny too is that even if they did, the Andreessen family is one that could easily afford to eat the loss.
Meanwhile no one blinks twice when home prices increase 20% over just a few years and put housing out or reach of even more families.
If they have 4 properties on the street they are likely renting them and just trying to create barriers in the market for someone else to be able to rent units. Multi-family units in that area would probably reduce their ability to raise the rents on their 4 properties.
My personal belief is that the housing supply scarcity is having the opposite effect and is actually holding property values down. Let’s say there’s two 1 acre lots that have a market value of $1m each. A developer can buy them and turn them into 8 condos and sell them each $600k yielding $4.8m. Is it possible the developer would pay more than $1m apiece for these properties? Obviously, these numbers are made up someone who has no real estate experience. with current prices the way they are largely due to zoning and external factors, the base economic case for these things holding down property values seems at the least a defensible argument.
At the property values referenced in above post, the opposition to apartment buildings is not exactly about properties’ sale prices. Presumably, the residents are happy where they live, so their priority is not in maximizing the sale price, but keeping the riff raff out that cannot afford $1M+ homes, and hence have to live in apartments.
The concern about decrease in home prices is just cover from accusations of discrimination, although keeping home prices high is a necessary component. But maximizing them is not.
Yeah that’s a good point. That the value argument is actually just a veiled way of saying people and buildings that don’t look like the way we want them to look.
Really astounding that a supposed philanthropist can write a letter like this and at the same time allegedly dedicate her life to improving people's welfare (the definition of philanthropy). I get that objecting to the housing development doesn't necessarily imply she's not an effective philanthropist, but the strong wording and outright dismissal really makes me think that her motives for doing philanthropy are more about power and a feeling of importance than an actual concern for others.
Nothing will change while the homeowners have more political power than the renters.
Even in the cities where the renter population is bigger than the homeowners, such as in Seattle, half of the votes come from people of > 65 years old (all of whom are homeowners, likely more than one home). Young people simply won't vote at all.
There is very little incentives for the young people to vote. Even if you cancel all the regulations right now and allow for unlimited constructions in the cities like Seattle, SF of NY, one will need about 10 years or longer to build enough apartments for the price to go back to affordable (which is 2-3 years salary of an average worker in the area). So the after-next generation will profit from the effort of the current renter generation.
Nevertheless, I think young generation needs to engage in the politics with the uncompromised goal to crush the housing price, to prevent the economic collapse of the "rich" world and prevent entire Earth from sliding into the dictatorship. Such is life.
I don't think mandating voting really helps that much. At best, you'll get people to vote for the candidate with the (D) or (R) next to their name. What we need is for people to be more informed. Fewer than 20% of people can name their state legislatures, let alone their stances.
Mandatory voting doesn't fix all the problems, but it's better than the alternative. Instead of campaigns focusing on "go vote" you get campaigns focusing on the actual voting.
I often watch architecture videos with houses from australia. Lots of properties built more or less to look like contemporary style stock photography. No wonder your houses are expensive, they are built for luxury investment
While I completely agree that Pelosi does this with insider knowledge, she and her husband also seem to be investing based on the hype they hear from people around them. Why else would the Pelosi's have taken such a bath on Roblox?! They had to have known shit is going bad over there, but they lost a LOT of money on that one...
So yeah, they do insider trading, but they are sometimes also the dupes in these deals. Look at their history. They make money, yes, but they lose a lot to stupid investments too, ones they obviously made because some Steve-Jobs-wannabe got a meeting with them and fired their reality distortion ray.
One thing that's missed in the renter vs homeowner thing is that the rules of election systems favors the homeowner too. Renters move more and will need to register to vote over again and the added inconvenience will stop plenty from even bothering.
A commonsense way to describe what you just said is that homeowners are more stable and stationary and therefore more invested in the long-term future of their communities than renters are, which is an argument that urbanists laugh at, but one that seems very clearly to be true.
I think people basically know this, if they're allowed to be honest with themselves. Nobody who ever lived in a college dorm and then spent a "magical year" in NYC and then bought a house in a suburb thinks they were just as invested in those first two places as they are in the third.
Even if this is true, those communities always have the class of people moving through and that class deserves a vote, even if the individuals within it are changing. For instance, take a university town with population of 100k, 25k of whom are students. The students themselves come and go, lasting about 4 years each, but it still makes sense that 25% of the vote each election should go to the student community overall. This doesn't happen for a variety of reasons, but some of them are the sorts of artificial barriers like voter registration that depress the vote of these sorts of communities.
As long as people can't afford to buy they're "less invested" so no reason to address housing affordability... In the modern housing market that's a self fulfilling prophecy.
> How about that principle of one person, one vote.
Reality, in my view, is absolutely chock-full of contradictions. I believe in the principle of one person, one vote; and I believe that what I said above happens also to be true. The dialectic doesn't care that we might wish things were simpler or more straightforward.
In a world with stable rents, renters also become long term residents and invested in the community. If someone’s only “invested” financially I doubt that they have the community’s interests at heart.
There will always be transients, students, travelers, and so on. In a world where most people rent and renters are indistinguishable from owners, renting will cease to be a signal that those people are present, but they won't disappear. They'll just be harder to identify.
The idea that municipal governance should intentionally disadvantage "transients, students, travelers, and so on" is appalling to me. This directly feeds into wealth inequality and the cycle of poverty. I get that people will want to protect their privilege, but I have no respect for it.
I would encourage you to try to read those words without any of the baggage often implied. The reason I chose the examples, "dorm room" and "magical year in NYC," above is that those both apply directly to me. If someone in my neighborhood in NYC would have said to me, "you don't really care deeply about this place, you're just going to be here for a year or two and then settle down somewhere else," they wouldn't have been entirely wrong.
I will note that Washington state makes this very straightforward; universal mail-in voting with real easy registration has definitely led to me, a disorganized young person, voting when I wouldn't have otherwise.
If you are free and able to vote but won't do it, it's hard for me to feel too much pity for your situation.
I started voting when I was 16 (my birth country allows that) and voted on every single election until I immigrated to the US - and then voted on every US election since becoming a citizen.
Some people find it difficult to vote, for reasons I suspect disproportionately affect renters. Where people must be registered with their home address in order to vote, renters are at more risk of being unregistered at election time, because they move home more frequently. People experiencing economic hardship (who are more likely to be renters) are less likely to make time for voting (especially if polling stations are congested or at inconvenient locations) or for prompt electoral registration.
I dunno, having election day be a holiday seems like a poor solution as plenty of people do work holidays and probably the same people who have trouble finding time to vote.
Mostly, I don't think we should be encouraging a ton of people to all show up at the same place at the same time. That's just asking for long lines and other issues.
I think it'd be much better to just drag voting out of the course of a month and actually encourage people to not show up on election day. Or to just vote by mail more, I haven't been a poll since I was a child (and back then we had levers!) but from what I hear now half the time you're just filling out a mail ballet in person now.
> plenty of people do work holidays and probably the same people who have trouble finding time to vote
It's a country with 300 million people, there's plenty of people for anything. I'd wager that in percentual terms, the absolute majority would benefit from an election day holiday.
It isn't in Canada either mostly I'd say because there's no set date. The government can lose a confidence vote and an election can be called at anytime (a date set in the future not immediate). But we do get a paid hour or two off work to go vote that's law.
The US has a mix of dates. All elections are effectively at the state or local level. Primaries are all over the calendar. General elections for President are all on the same Tuesday in November.
So, a national holiday really only makes sense for those presidential election years. Or, we could declare "first Tuesday after first Monday in Nov" as an annual holiday, and many states would likely line up their fall elections on that date. Primaries would still be a mess, but they always will, as they're not always open elections anyways (some states require party membership or declared party affiliation to vote in primaries).
Not being able to vote electronically is also really weird since ballots are only paper at the edge. Yes there are downsides, just like when you mail-in you give up non-repudiation, but the fact that it's not even an option is crazy. I personally would be more than happy to give up my personal ability to vote anonymously if I meant I could just sign up for a vote.gov account at the BMV, login, vote and be done with it.
I absolutely do not want electronic voting. I legitimately believe that system would be kept behind a black box, and would be far too likely and liable to be cheated and gamed. At least with a huge stack of paper that is stored for an approved number of years there is an option for independent verification.
How about vote by email? Go to a vote.gov, fill out your ballot, it gives your a PDF you can review, you email that to your board of elections, they reply with a "got it!", and they're counted like all other mail-in ballots on election night.
Same process, just s/USPS/SMTP/. But if that's fine, why make the user jump through the email hoop? Hell, digital ballots would give you stronger guarantees for verifying your vote. Publish all the ballots publicly and base the final tally for digital votes on that public ledger. Every voter will have a code they can use to pull up their specific ballot and see that it's correct. And since the codes are public that's not actually enough to prove it was yours (yay non-repudiation).
No cryptography, no hashes, no zero trust proofs. The internet is only used to move a document from A->B and security model could be explained to the least technical person since it's a direct analogue of how you would do it IRL.
I'm convinced that people afraid of electronic voting are either hucksters that like the status quo or people who've been convinced by them.
if you're worried about voting being a black box, it already kind of is. what proof did you get that your last vote was accounted for properly? who counted it?
if you're worried about "hacking" you're not paying quite enough attention. We have secure systems that exist. At least as secure as a fuckton of snail mail managed by tens of thousands of the worlds most insecure asset, people.
I like your system. Ping me if there's ever an open codebase and I'll contribute.
The Indian system is a hybrid model - you vote through an electronic machine which also prints out a confirmatory paper vote that you can confirm through a porthole and which drops into a strongbox. In case of conflict or concerns, the paper votes can be tallied.
No it's not. From the start the US was intended to be oligarchical - hence the franchise originally only being extended to white landowning males. There has always been a strain of politics dedicated to keeping barriers up to enfranchisement.
I have anecdotally heard from some Republicans in Washington that they do not bother to vote, especially in non-presidential election years, as they feel that a Democrat will win the election anyway.
This is visible in county-level voting rates. The counties east of the Cascade mountains tend to be more conservative than the counties west of the Cascades, or areas surrounding metros like Spokane, and they also tend to have lower voter participation rates.
> The whole point is that you need to compare it to other states to make any sense of the data
I disagree with your assertion. Even so, alistairSH's conclusion: "We'd do well as a country to allow nationwide mail-in voting." like it was solution to solving lack of voting from renters, when cherry-picking data gets us 12 points at best. It might be part of a solution, but it's demonstrably not a majority difference.
All this presumes every possible vote is equally valid.
1 - No national election day holiday, so wage-earners often have to forgo income to vote.
PSA: You can register as a poll worker and work election day to guarantee you have time to vote. There's a high chance that your work will give you the time off to go work as a poll worker without it eating into your PTO (and you get paid to boot!).
> There's a high chance that your work will give you the time off to go work as a poll worker without it eating into your PTO (and you get paid to boot!).
As an ex-linecook, LOL, there are too many assumptions baked in here to be in the realm of reality for working class jobs
I'm curious as to what the solution in this case is then. If election days were holidays, wouldn't the same people still have the same issues with employers? Do shift workers not work on holidays?
Realistically, how would that work for these same group of people? They'd have to know well in advance that they would need postal ballots and complete and return them in advance of election day. Would shift workers working multiple jobs be best served by mail-in voting? tbf I'm not sure if there is a better way, but it seems relying on mail-in ballots helps some people and alienates a different group of people.
I was imagining the ballots would be auto-shipped based on voter rolls (which get updated with DMV records in many states - this should also be mandatory).
So, check mail box as normal. Receive ballot. Research candidates (or not) and fill out. Drop in the mailbox. Not much different than paying paper bills.
Who were you imagining would be alienated by mail-in voting?
We could do mandatory extended timeframe/hours in-person voting but that costs a lot more (paying to staff the sites, rent locations because you can't just borrow a school cafeteria for a day like we do now, etc).
Are you suggesting mail-in ballots as a universal option that covers everybody? That seems unfeasible logistically. Does any large country offer universal mail-in ballots?
I think mail-in ballots best serve voters in an environment where they are the norm, rather than the exception. For example, the campaign cycles, like debates, that target the large segment of undecided voters right before election day. The mail-in voter has to be more informed about candidates and policy than an average voter to come to an equivalent informed decision about their vote weeks before the average voter. Yes, if the goal is to simply increase voter turnout, universal mail-in ballots are probably great. I wonder if that best serves the voter, though - hence my question.
My familiarity is with the Indian electoral system, which is highly regarded (at least within the country). Mail-in ballots are an option for a subset of people, but they make up for it by making polling booths readily accessible - your booth is just a short walk away. Election days are holidays, but I'm sure it still impacts workers in similar ways. Still, voter turnout is usually not too bad. Expanding mail-in voting has been discussed as an option for the very large floating population of migrant workers, but we don't have a solution yet. The logistics of offering universal mail-in ballots for a country approaching 1.4 billion is daunting. Already, the General Elections need to be spaced out over several weeks to allow electoral officials and poll workers to cover the entire country.
Are you suggesting mail-in ballots as a universal option that covers everybody? That seems unfeasible logistically. Does any large country offer universal mail-in ballots?
Yes, universal. Oregon (USA) has used universal vote-by-mail for many years now. It's widely considered one of the best systems in the US. Voter rolls are updated by the DMV (or via state websites), everybody receives a ballot by mail prior to the election. Voters can return the ballot by mail, at a drop-box, or they can choose to vote in-person. Voters don't have to vote any earlier - as long as the ballot is post-marked by election day, it will be counted.
I was curious on the data on this. I mean difficulty voting certainly is a major narrative and passes the smell test but the survey in this article suggests 3/4’s of non voters say it is easy to vote:
This is however contrasted by the confusing bit that not being registered was the biggest reason people didn’t vote, above apathy and political disengagement.
Well, I get a form every year from my town to confirm my particulars. I sign it and send it back. I guess if I weren't registered I'd go down to the town hall and do so. If I couldn't for some reason, I assume I could call the town clerk, and they'd send me a form in the mail. When I go into Cambridge around election time, I frequently see various tables set up to register people.
Obviously registering (and voting) is harder for some people than others but registering to vote is not, in general, an arduous process.
>I guess if weren't registered I'd go down to the town hall and do so.
What if your job wouldn't let you off during the town hall's regular hours? What if you don't have transportation? What if you don't have the necessary forms of identification?
> I assume I could call the town clerk, and they'd send me a form in the mail
What if you're not already registered and cannot just fill out a form to send in? What if you have to provide proof of residency in the form of a bill in your name and current address that matches your ID? What if you don't have an ID because you can't get to the DMV because you can't get time off work to go get it, or you don't have transportation, or you don't have internet access to set an online appointment with the DMV, or your credit is bad enough that the bills are only in your roommate's name to avoid headache with those companies?
I guess my point is, it's very flippant to just say, "well it's easy for me, so it's probably pretty easy for everyone else, so it must be apathy as the only solution."
> I guess my point is, it's very flippant to just say, "well it's easy for me, so it's probably pretty easy for everyone else, so it must be apathy as the only solution."
Right but the data suggests that apathy is the primary reason. I think we should make it easier to vote, but it’s not empathy if the people you’re trying to empathize with don’t actually feel that way.
As I wrote, it's doubtless harder for some than others. But, yes, I do think in general most people who don't get registered would probably (for perhaps understandable reasons) decide that it's too much of a burden to vote as well. If it's literally impossible for someone to get registered, it's probably equally impossible to vote anyway.
We probably need some service (an app or a site) that gives clear instructions on how, where and when to register.
Yes, it is harder for renters, but it is designed to be harder. This is to prevent renters from having political power and making homeowner's houses more expensive. One more reason to fight, from my point of view.
We have all that and more. There are even groups that seek people out to teach them to vote. When you file a change of address with the post office, they send you a packet with all kinds of moving resources including how to re-register. In addition, a really quick Google search gives you all you need to know to register and vote. I don't understand why some people pretend the process is difficult. If people still aren't voting it's due to lack of interest, not because it's confusing or difficult.
55% of Americans have hourly jobs, most of which do not control their hours. There are many polling places, particularly in underserved communities, where it can take multiple hours to get to vote. Elections are nearly always held on workdays. So if you are a single parent working an hourly wage job from 8am to 6pm and the polls close at 7pm, would you vote? The voting process is difficult in America for some people and easy for others.
While I'm a big fan of vote by mail, it's not the only thing. Having early voting options would also help that hypothetical person as they can vote in person on a day they don't work.
The vast majority of states have no excuse absentee voting and/or early in-person voting options. In addition, employees are legally required to allow time off to vote, though in the overwhelming majority of states, the early voting options make this unnecessary.
If people want to participate, they have many options.
I've found that if you need to argue edge cases (single parent, hourly schedule that almost completely overlaps poll hours, no absentee, no early voting or mail-in, and an employer that violates law) as you have in your post, you do not have a compelling argument.
I don't get why there's a "process" at all. In Canada, when I change my address with the CRA (our version of the IRS), my voter registration gets updated automatically. Why is there a separate step in the US? I've also voted when my CRA address was out-of-date at the time, and this was fine too as long as I brought government-issued ID or a recent bill sent to my new address.
Like most things in the USA, voting is a local matter, not federal. It would be prohibitive for the post office to manage this across 50 states with differing rules.
States in the US have more atonomy than states in most of the rest of the world. So much so that it often doesn't make sense to compare national US figures to national figures in other nations - education being a good example - https://learn.uvm.edu/blog/blog-education/vermont-eighth-gra...
But the same applies to voting. The federalist system under which the US operates allows communities and localities the flexibility to operate in a manner consistent with local needs and values.
Why stop there? Perhaps government employees should go door to door and record my vote for me. Sending something in the mail is unreasonably difficult.
Because this would actually save the government and thus taxpayers 100+ million dollars a year?
A change of address is informing the government you moved and happens millions of times a year. Automating it doesn't just save citizens 10’s of millions of hours per year it also saves all the effort by all these different agencies when people communicate the same information to multiple agencies.
Would it though? The agencies are at different levels - local vs. federal. In addition, you are notifying the post office you have moved, not the government. Your federal notification is basically to the IRS, and not everyone pays income tax, so integration there would not work. Also, not all taxpayers are eligible to vote - another complication.
You have oversimplified the details of this sort of integration and conflated local vs federal institutions. The best way to do this change would be through your state's BMV/DMV, and many states already update your registration (or offer to) when you submit an address change there.
Registration and voting are easy and well documented in every state in which I've lived or researched.
Federal and state agencies communicate all the time. It’s much easier going from the federal level down to the state level and local level.
It’s not that it takes a lot of effort per person to update the DMV and voter records it’s dumb specifically because most government agencies are automatically updated. So essentially this is just wasting 330 million peoples time for absolutely zero benefit.
You're probably correct in many (or even most) cases, but I still believe that it's too difficult for some people, for two reasons:
1) Some people are under more stress than others, and are less able to summon the effort to vote. Admittedly, this does also include people in rather different circumstances, such as elderly homeowners who become unwell at election time (especially after the postal vote deadline).
2) Voting arrangements aren't uniform between countries (or even within one country), and travelling some distance to a polling station and then queuing to vote is a burden some voters might experience much more than others.
The vast majority of states offer a multitude of early voting or absentee/mail in voting options. As far as uniform regulations between counties, who cares? Each person is only supposed to vote once, and in a single county. Learn your local regulations (easy as this is well documented) and follow them.
Further, you won't ever come up with a system that is 100% inclusive, secure, reliable, and economical. That should never be the goal since it's not achievable or necessary. Covering 99% of cases is good enough.
Well, you can't vote where you don't live. The large problem is the lack of appropriate land taxes in high cost municipalities. And you can't vote to change that until you live there, and once you live there, you are much less incentivized to vote against your self interests.
Most of the laws regarding property taxes are set at the state level, not the municipal level. In California, a voter in Modesto can influence tax rates in San Francisco. Local votes only control minor things like special additional school district assessments.
Even in other states which lack property tax caps, the basic framework within which tax rates are set is controlled at the state level. For example, some economists have proposed replacing property taxes with land value taxes but it would be impossible for a single city to do so without enabling state legislation.
Interesting. I assumed counties/cities are relatively free to set property tax rates according to their budget, and the city needing to compete with other cities is what keeps them relatively in line.
That may be how things work in California, but it definitely does not work like that everywhere in the US. For example, here in NJ, property taxes are partly set by the state, but the schools portion is set my the county and township.
Yeah, here in IL property tax is 100% local (state law sets limits and requirements only). And everything is an independent government body with taxing authority.
The city collects its taxes, the school district collects its taxes, the library collects its taxes, fire district, road department, forest preserve, etc. None of them can tell the other to do anything - they are all independent with independent funding. The county has its own taxes, but also has the function of actually providing the payment, billing and distribution services. So you only have to make a single payment.
By the way, property taxes in Florida work nearly the same as California and they don't have any problem building lots of housing.
> If you are free and able to vote but won't do it, it's hard for me to feel too much pity for your situation.
What if I vote, but people with interests aligned with mine tend not to? What if those people not voting are acting as rationally as the people who vote frequently?
Consider these two groups, who get the same number of votes, live under the government for the same amount of time, but rationally have different incentives to vote:
Home-owner:
* Bob moves in, lives there ten years.
Renters:
* John moves in, lives there two years, moves out.
* Phil moves in, lives there two years, moves out.
* Mike moves in, lives there two years, moves out.
* Jess moves in, lives there two years, moves out.
* Fred moves in, lives there two years, moves out.
If we assume these people are self-interested, Bob will, on average, vote more than the renters, because Bob values future-Bob's well-being more than John values Fred's. It's only through the altruism of John, Phil, Mike, and Jess that Fred will get to benefit from a government that accounts for his interests.
It's also true that each renter has an incentive to vote for things of short-term value and to discount long-term benefits, so maybe it's okay that Bob ends up more represented. But "John isn't voting as much as Bob" isn't a case of John being less responsible than Bob. It's that they legitimately have different incentives.
> so maybe it's okay that Bob ends up more represented
In this example, I'd say it is very legitimate that the Bob has over time more influence how local things are run, since he's a long-time local that has to live with it. All the others are transients that come and go.
Collectively, the others live with it for the same amount of time. Their incentives are lower to improve things locally, but the impact on them is the same.
Haha I am still not a citizen, so can't vote myself. I was trying to encourage my friends, but they were often too busy. They would vote for Hillary (or even for Trump), but never for a local mayor.
Sometimes I am considering running myself for a local government after getting my citizenship, with the only goal: drop housing price at my city for at least 70%. Once achieved - retire from politics :).
Q1: Yes, there is. Once a professional politician sees more activity from renters, they will include the renter's interests into their agenda
Q2: Yes, obviously there is a positive correlation. This is exactly why renters need to fight: stakes are against them. Current status quo is in favor of homeowners; it will not be possible to change it while being passive. Renters and homeowners have conflict of interests, there is inevitable fight.
Q3: I think blaming is the call for fight. If renters want better deal, they need to fight. Is it most constructive? I don't know, this is the best I can come up with. Does it reinforces the status quo? No, I think inactivity reinforces it.
I'm sorry but your answer to Q1 is extremely naive. There is no way that activity from renters will even remotely approach the power of those who own property in politics. The latter group can lobby and make campaign donations, the former can't exactly...
The best thing you'll get is a campaign promise to do something about it, but not much action. The only way something will actually be done about it is if the effects of it become economically catastrophic or people start rioting en masse.
> no way that activity from renters will even remotely approach the power of those who own property in politics
Can speak to New York politics. Tenants' associations have massive sway. I've canvassed elections where a single building's tenants' association could predictably swing the outcome.
They also ally with developers when advantageous, e.g. to continue building housing stock. (Their divergent interests explain much of our affordable housing policies' idiosyncrasies.) This combination of activism and pragmatism beats the well-funded candidate every time in local politics because their elections are decided by margins of hundreds or even tens of votes.
> latter group can lobby and make campaign donations, the former can't exactly
Donations, at the local level, are a threat to incumbents through enabling primary challengers. And tenants' associations absolutely lobby. The problem is renters in most cities are some combination of disorganized, disengaged and/or ideological to a dogmatic degree.
The latter group can unionize like the tenants union of Washington[1]. Unions can lobby on the behalf of their members and make campaign donations based on their dues. While their power may not be as great as the amount of individual homeowners who can independently donate a union is a good mechanism here for renters to advocate for affordable housing. Here in Seattle there are multiple unions that have lobbied to local city council members for increased tenants rights such as 6 month notice for increase in rent[2]. _Things_ are being done about the problem at the local level across the country through unionization of renters and workers.
Local politicians will often discount or ignore the opinions of people they see as renters rather than homeowners, in part because when a renter moves, they often leave the district.
I saw this recently in a fight over parking regulations - all the homeowners wanted strictly regulated street parking in neighborhoods, but none of the renters did. Both parties showed up to the council meeting discussing the regulation. Guess who won? Adding insult to injury, existing laws give owners a process for obtaining extra parking passes for guests, while renters get no such option and need to take a bunch of documents to city hall to get a pass when they move in. For street parking.
You have an incredibly naive impression of representative democracy and capitalist political economy. US politicians serve the rich, not only because they are the rich but also because they need the donations to even be able to run. This isn’t a mere hiccup but rather the entire point of the design.
Yes, in my experience, the naïve interpretation is right 80% of time and it is always best to start from a naïve explanation of a process.
US politicians serve the rich only because they think that donations will help them win. Make the donations irrelevant - "rich" will loose the political power. How to make the donations irrelevant - go to vote, especially if you are poor and powerless. Convince your friends to vote. And not for a president, but for a local mayor, city council, judge etc.
I think young generation needs to engage in the politics with the uncompromised goal to crush the housing price
At least where I live, the “bank of mom and dad” either use their home equity to help their kids buy OR the kids are banking on getting the family home when they die.
We’re in too deep now. We basically painted ourselves into a corner where the economic engine is so intertwined with rising home prices that nobody wants the gravy train to end.
My best guess is tenancy laws change to be more and more in favor of tenants (SF, NYC) securing near permanent housing for current renters and massively disincentivizing an increase in supply of new rental units., completely screwing over those that come later.
Basically kicking the can down the road another few decades.
Biggest problem IMO is that "young generation" is already split among ideological lines(myself included), and kind of hard to imagine a concentrated "young vs old" movement that wouldn't at some point devolve into infighting.
Definitely not that simple. To use your same argument though, it’s not just homeowners - it’s homeowners and aspiring homeowners. Which is nearly everyone.
The longer I live the more I am finding the universe is working on extremely simple few principles; their relations create complexity.
Aspiring homeowners will never become homeowners if the price is exclusionary.
Take SF: with average salary of 75-79K, the apartment cost starts from 1.1M. Only 8% has salary > than 100K, that makes the remaining 92% the "aspiring" homeowners.
They will stay "aspiring" for the rest of their life. The only think they (or rather, "we") can do - make sure that post-zoomer generation don't have to be "aspiring" for their entire lives.
It's a laudable goal but I have serious doubts about its achievability in cities that are already overpriced. Every single incentive leans in the direction of keeping prices high since not only would lower prices cost homeowners money but would also possibly cut into tax revenues and could financial ruin people who purchased under these high price regimes.
It's a bit of a ratchet. Once the prices go high, it's very hard to turn back. The only way out is probably to inflate the currency until a loaf of bread is $15 but housing is reasonable again, or for the state or federal government to offer some kind of huge tax write-off for depreciating home values. The latter is unlikely given the financial crunch faced by governments.
>Every single incentive leans in the direction of keeping prices high since not only would lower prices cost homeowners money but would also possibly cut into tax revenues and could financial ruin people who purchased under these high price regimes.
Not really. The way out is higher density. What we care about isn't land price, it's housing price - in other words, how much does it cost for people to get as much housing as they need. Lowering housing costs and rising land costs are perfectly compatible if you don't artificially restrict lots to 1 unit as most of the country has done.
Or raise rates. That's actually affecting housing prices. No one can sell at the price they wanted because no one wants a loan this crazy. Unfortunately this will have other consequences.
Perhaps it would be more accurate to say that they managed to crumble their economy which brought the value of housing down with it? They had a massive housing boom before the "Lost Decades". Japan is no stranger to asset prices rising out of control.
That said, when I have looked at Tokyo pricing it has always been in line with high priced North American cities, only configured differently. The difference in configuration means that the sticker price is often lower, but you are getting less for that lower price. Apples to apples the prices have always shown to be in the same ballpark.
I know I’m just ranting into the wind, but I wish it was illegal/ban-able to bring up the Bay Area (and NYC and Austin) in high-level discussions of the American real estate market.
It just kills the discussion because it’s such an outlier.
I would not be a popular king, but it’s better to be feared than loved, I guess. I do understand what site I’m on.
> They will stay "aspiring" for the rest of their life.
They have a very viable option, which is to leave SF and go somewhere else where they can stop aspiring and afford to actually become homeowners if that's what they want.
I speak from first-hand experience, although in my case it was Manhattan not SF. I very badly wanted to live in Manhattan but no matter how I sliced the numbers, there was no way. Too expensive.
I didn't remain "aspiring" for the rest of my life though. I gave up on that dream and moved and bought a house elsewhere. It's worked just fine.
At a certain point, if landlords strangle renters it can make hiring hard (workers can’t afford Cost of living if rents are too high), thus making the business environment uncompetitive.
Will the business community have more power than landlords?
Importing immigrants in Canada requires that the employer provide suitable housing for the imported workers, so that brings us back to the earlier comment.
All this is true, but you missed a crucial piece, addressing your "need to engage" - political energy capacity coming from the young. I'll be more than glad to be proven wrong, but I don't think young people have driven any sort of political change in the west for at least the last 20 years. There are many cases where they get used as a lever, but actual movements like "occupy wallstreet" got squashed fairly fast.
100% accurate. While popular society takes small steps forward in regard to social and political changes, the actual politics has not changed from when I was a kid.
There are more politicians willing to admit they support gay people, I guess. But that's about it. Deep down where it counts - fiscal policy - nothing changes.
> Nothing will change while the homeowners have more political power than the renters.
Homeowners and renters of course have the exact same politica power, one vote each.
If renters are for whatever reason choosing to not exercise that power, what can one do? They are free to vote, please do.
That said, I always vote and not once has there been anything on the ballot on whether to build more in my town, so it's not like it matters on that front.
I think you are more than exaggerating.
Thinking of someone who's 65 now and owns several homes, these people are utter fools. How much would money put into houses 40 years ago when they bought, and put into stocks at the same time, would make? You don't even need to google up to know the answer.
SP500 would make 96x with dividends reinvested and 37x without. Median home price is not even 10x, and the median home has increased in size 1.5x in the meantime, plus required upkeep.
Fix to housing problem is nothing but financial education for people.
Actually, you do need to google up if you want to look at an actual data analysis. I mean, you aren't even counting the rental income in your comparison. If you look at the rate of return on everything from 1870-2015, equity markets and housing actually provide somewhat similar returns [0]. Equity markets are far more liquid though so I choose them personally.
The equivalent to rental income is "with dividends reinvested". Dividends are the cash flows from owning a stock, just like rent is the cash flow from housing. So the 10x capital appreciation from housing is equivalent to the 37x capital appreciation from the S&P 500.
You and anovikov reach different conclusions because you're looking at different time scales. You're citing returns from 1870-2015; he's citing returns for the last 40 years, 1980-2020. The comment and paper you linked itself explains why: housing and equity returns were very comparable from the period 1870-1945, but equities significantly outperformed from 1945-present. I would bet on suburbanization as the cause: the U.S. embarked on a massive homebuilding project from 1945-2000, which kept supply high and prices relatively low during that period. Returns to housing since 2009 (when the bottom fell out of the homebuilding market) have much more closely matched equities.
OK, so returns from 1870 to 2015 are same for housing and stocks. Which again proves that there's nothing morally wrong about housing prices, if these investments are replaceable, one can always invest in stocks to save up to buy housing (at least on average, that is).
On the contrary, housing shouldn't appreciate. It's bad for the economy as a whole, and especially for young people, for homes to be an appreciating asset. Housing should be a commodity, not an investment.
10-20 years seems fine. It doesn't have to happen overnight. To fast would create chaos and make it into new lame situations for people.
Gradual rent control with a point system works just fine.
Personally I would like to see renting [gradually] changed into lease/buy. That I've paid the value of the house 3 times now (and the construction cost 7 times) could mean I own at least some of the house? Doesn't seem unreasonable.
Add to this the upcoming social security and Medicare crises, the constant rise in healthcare prices driven by elder care, and a shrinking population that needs to support more retirees.
We're in a weird place in the US where young people are unwilling to flex any political power to stop elder people from financially taking advantage of them.
I think a lot of young people just are ignorant about the situation coupled with the rise of populists on the left and the right, there's always some abstract other to blame without a focus on concrete problems and possible solutions.
Whenever I talk to my young friends about Social Security's trust running dry in a decade they just handwave it away with stuff like: the government will just print more money or blame jeff bezos
As a young person (28), I think it’s because we feel powerless in the face of what is to come.
Young people have no power because we largely are in the renter and working classes; while the home and business owners fight against every mention of renter protections, increased housing, worker protections, etc.
Not to mention we see the world we are growing up into is quickly becoming more and more inhabitable while living with the truth that the fossil fuel industry has been lying about climate change for 50 years.
Who are the populists you’re talking about? I can only think of Bernie and Yang. Trump isn’t a populist.
We aren’t ignorant either. We are a product of the social media machine and a decreasing faith in educational institutions. I think a lot of people are too scared of the future so they don’t think about it. Blaming an abstract for political problems has been a thing for long as politics as been around.
The millennials are the largest voting block in the US. What is everyone else supposed to do when the group with the most voting power "feels" powerless? I sure hope millennials are just late bloomers. Where are the great political leaders, engineers, scientists, artists and writers from the millennial generation? All these future problems are hard but solvable when there are people working to solve them.
> the group with the most voting power "feels" powerless?
It seems like a strange thing to have powerless concerns about as voting only selects a representative. In my experience, the most likely candidates are all reasonably suited to the job, leaving it to matter little who ultimately wins. Even if you are powerless it is not that big of a deal, being the most inconsequential part of the process.
The real work happens after the vote has taken place when you have to start engaging with the selected representative on the regular to make your perspective known. It is guaranteed that you didn't elect a mind reader. It is not clear if the younger generations are aware of that. This may be why they feel powerless.
It my youth the message was always "contact your local representative", but in recent times that message has changed to "how could <insert political figurehead> do this to us?" There is some apparent degree of learned helplessness at play; perhaps because greater media exposure gives us insights into places with strong dictatorships and we project their conditions upon ours.
Invariably, those with enough land ownership ties will ultimately run into municipal issues that will require approaching council, at very least forcing a deeper understanding of government upon them. This may also help explain why those who own things are apparently more engaged politically.
Young people often vote against their own economic self interest because the major political parties successfully leverage splitter social issues. Young voters are no different from old voters in that regard.
Break out what "homeowners" actually is. It's increasingly becoming these shell companies and entities like Blackrock. We need to ban that shit immediately. The deed of a house should have a fucking person's name on it, not a company's.
Investment firms buying homes is a symptom, not a cause. The only reason they do that is because local government artificially inflate the value of homes through supply restrictions.
In all seriousness, no. The way you multiply housing count is by making buildings taller and closer together, not by spreading them further out. This is how we used to build cities before cars and roads ruined them.
It's because most people don't want to live in small boxes stacked on top of each other. The market responded to what people wanted and it was larger single family homes with yards and living space. An automobile to get you to other places for shopping and entertainment. This is what most people people want.
I agree though that a lot of suburbs are just wastelands and I would consider them to be depressing places to live. But people seem to love them for some reason. A lot of these places don't even have sidewalks but I guess it makes sense as there isn't really anywhere to walk to.
I love how people seem to feel they can enforce their views of how a city should be build on others.
The fact of the matter is very clear.. we have so many detach houses because that is what people WANT.
For some odd reason there is a subset of the population who feel entitled to dictate how OTHERS should live. These people go on and on about "increasing density" while ignoring that some don't want to live like this.
The current state of affairs in the US is that, in most towns, detached single-family housing is the only thing you are legally allowed to build. When you buy land the local zoning board tells you what can be built on that land, and these zones are extremely fine-grained. Thus, the people who want detached houses are the ones who are dictating how others should live.
There is a huge demand for denser urban arrangements, because people would like to live closer to where they work and don't want to drive cars. This is why smaller houses in urban centers go for more money than larger houses in suburbs. This is an arbitrage opportunity for anyone with the capital to buy houses at the periphery of those urban centers and demolish or renovate them to house more people. Except that's illegal, so instead the market is stuck pricing by convenience, and you get a society that demands it's working class spend two or more unpaid hours of their lives each day driving from the suburbs into the city.
Historically, the transition to suburban home ownership as the default mode of living was also something dictated by elites rather than organically decided upon. To explain this we need to talk about cars, because suburbs and cars are basically a package deal. It is extremely inconvenient to live in the suburbs without owning a car, and cars do not work in cities where they have to compete for limited road space against pedestrians and public transit.
So the car companies demanded that the laws and cities change to make their business work. We invented the """crime""" of jaywalking[0] just to make cities more convenient to access in a large vehicle. Car companies even bought up and destroyed public transit, turning efficient streetcar and rail systems into buses that had to compete for road space with individual riders, and often lost. This meant more people having to buy back their freedom[1] by moving to the suburbs and buying cars to get to the job they used to walk to.
Had this decision not been made through top-down power and social engineering[2], the suburbanization of America would have been far more limited. We can see this in much of Europe and Asia, where attempts to level and rebuild cities in Henry Ford's divine image were resisted at every turn.
[0] "jay" is old-timey derogatory slang for rural farmers, roughly equivalent to today's "hick".
[1] I should point out that this freedom was an illusion because road capacity is far more limited for cars than it is for people. Suburbs will inevitably jam their streets and highways in ways that dense urban spaces cannot.
[2] As in, engineering society to work a certain way, not defrauding someone out of their login password
i love it when people make statements liek "you are projecting" yet dont fully understand them.
What it means to be projecting?
According to Karen R. Koenig, M. Ed, LCSW, projection refers to unconsciously taking unwanted emotions or traits you don't like about yourself and attributing them to someone else. A common example is a cheating spouse who suspects their partner is being unfaithful.
I've not taken any of my views and projected them anywhere.
you simply look around, and you can find TONS of so called "Social justice warriors" demanding more public transit, more density..
Usually under some "Stop urban sprawl" mantra - who gives them the right to enforce how others want to live?
Then each renter will become a homeowner, they will feel very comfortable, have 4 kids, and now you will need 4x more units.
Then their kids will have 4 kids, and you'll need 16x more units with respect to where you started.
Few generations after you have a much deeper problem that the one you started with. Now you live in a country with a population of over 1 billion, where protests cannot be controlled anymore and now you need a totalitarian regime with a massive surveillance and censorship apparatus to keep things under control.
The alternative is that everyone is stressed out and feels the pressure of a system that is over capacity.
Have you heard of Earth day? In 2022, it was April 22. It means that by April 22 we already consumed our environmental budget for the full year.
If we continue like this it's not going to be long until there's mandatory population control.
>> Then each renter will become a homeowner, they will feel very comfortable
Not sure about the entire comment, but the above line is the clutch item. Once a renter turns into a homeowners, things change drastically. In the US you are typically highly leveraged once you buy a home. That means a 20% drop in home value wipes out all your equity. So once you buy into the system (esp with leverage) you have a huge incentive now to perpetuate the system that once enslaved you. Now you become the prison guard. Sadly, even the prison guard is in the prison of debt for many years, thus has to maintain the jail.
Reminds me of this [1] post yesterday that because sedans can only fit 2 car seats parents don’t have a third child because they can’t afford a bigger car.
Maybe, parents are having less kids because they can’t afford to move to a place with an extra bedroom.
If you go camping and have limited amount of food rations, water, etc, you will make sensible decisions about how to consume the supplies you have. This is very similar.
I find it funny that I agree with you in some ways that others might not.
For example, I agree people should ditch the dumb super hero movies and do something better. Maybe garden or learn to weld or something.
But I completely disagree with you that humans are destroying the planet in an unsustainable way.
Sure, there are huge challenge and excesses, but the human spirit should also bring solutions.
Particularly in the face of both energy and water shortages, we should be building coastal nuclear plants.
Not only do they provide clean energy, but they basically function as desalination plants.
That and it's pretty glib to make people "uncomfortable" so they don't procreate. Especially when here in the US we barely even have population growth.
If we are not destroying the planet as you claim, then animal species would be flourishing. In reality, insects, fish, and many species of animals, especially animals above certain weight, they're all dying off and going extinct.
As we humans advance, we destroy the habitat of other species. As industrial agriculture expands, we consume all the topsoil (soil with microorganisms, worms, etc. in it.), we extract dietary micronutrients from it, we pump all of the groundwater, kill all the pollinators and insects, then cause collateral damage to all migratory species that cross those territories.
We dump trash everywhere, we pollute the atmosphere, we pollute the oceans, we make the oceans more acidic, we are raising the temperature of the planet, our industrial plants dump toxic chemicals everywhere... and the list goes on and on and on.
You, on the other hand, are heavily influenced by an alternate reality which is a combination of television and Internet content, documentaries, and uplifting stories about how some experimental technology 50 years away from mass production that is prohibitively expensive and makes things 1% better for the environment, while things get 10% worse each year. You are completely out of touch with reality and the hunter gatherers from the future hunting contaminated vermin will hate you.
Keep telling yourself that. The environmental impact of the human population at large, which is growing consistently, has nothing to do with you by any means!
The millions of marine animals drowning in single use plastic bottles will concur with you.
Our economic system is set up such that you either hit a bar at which you accumulate capital forever unless you make a mistake, or you're loss-making forever.
Once you hit that bar, your job becomes buying up housing like it's a Monopoly board.
As an individual you can either choose to win or lose this game. We're not going to change it, at least not within our lifetimes.
Agreed; I figure the necessary missing piece is government dampening this effect. Some way or another, to balance it out you need to “leak” capital faster & faster as you accumulate it. The size of the leak would be tuned to allow you to continue to grow your wealth if you are still rapidly creating new wealth, but if you just sit on a kings ransom in safe investments, it would leak away & attenuate.
Trouble being, this most likely takes the form of steeply rising taxes, which are ever-unpopular, and needs careful design. I also suspect just about everybody aspires to “make it” and then stop striving; this is somewhat antithetical to that (although the leak would be tiny at regular-people levels of wealth)
From what experimentation I've done it doesn't take much of a leak. I'm agreed too except that in the absence of us or somebody fixing it, the whole thing is going to blow up.
Dark ages are a thing. It's not at all guaranteed that you can preside over an injustice engine of this nature and have it persist at all: externalities will bite you.
I guess the follow-up is, 'given that this is going to blow up, how hard of a landing do you want? Do you want an apocalyptically ruined planet, or heads on pikes, or massive asset seizure, or all of the above in various combinations?'
IMO, owning a second property should be just as expensive in taxes as it needs to be to not be profitable to own one as an investment property, in the short and long term. That way people can _have_ second properties, but it's going to cost them, and they can choose to accept the cost or not. A yearly 5% tax on the property value should just about do it.
We need to start treating housing as a vital resource, not an investment, and rationing it.
Japan changed it. They passed sweeping zoning reform that made it easy to build and prices went down. New Zealand just passed sweeping reform to address their housing crisis as well. Reforms are being passed in the US too. Oregon, California, Minneapolis, Ann Arbor, and others have started to pass reforms.
> Japan changed it. They passed sweeping zoning reform that made it easy to build and prices went down
Japanese homes are generally prefabricated and have a lifespan of 20-30 years before they are disposed of and a new prefabricated home is put in its place. This is why housing is "cheap" in Japan.
> Because you know none of it actually pays for the building, it's just all for the artificial scarcity.
It depends on the quality you want for the build. There are homes being built today that use premium materials and the materials are expensive. You can easily spend $50k on windows, for example. Of course, lower end construction that price drops to like $10k.
You can buy prefabricated homes in the USA but it would be cool if "trailer" wasn't the only option. I don't think many people in the West would feel comfortable in a Japanese home though.
This doesn't explain why rent for apartments is cheaper in Tokyo than in the greater metropolitan area of similar cities in other countries like the US.
TL;DR Monopoly was based on The Lanlord's Game--a board game demonstrating the issues with land monopolism.
> In 1906, she moved to Chicago. That year, she and fellow Georgists formed the Economic Game Co. to self-publish her original edition of The Landlord's Game.
I've had this thought. Like we inevitably need a World War scale event every 100 or 200 years or the system will devolve into the most rent-seeking, unproductive, regulatory capture garbage.
Real estate speculation is just such an utterly unproductive endeavor just on the face of it, it's incredible it got this bad.
Exactly, and the ironic thing is that the most insightful comment in this page is coming from a throaway account (possibly because of the fear of reputation-burn or something...).
the fatal flaw in capitalism imo, a lot of wealth gets created which is good for everyone but eventually, a lot of that wealth also gets held by a smaller and smaller minority while the rest try to desperately compete over whatever is left over. After a certain point a certain portion of any new wealth created somehow trickles up to the capital owning class (think your VC's, fund owners, other rich investors), this capitalist system only works if "progress" happens in perpetuity, which if history is any indication society can always backslide
Not sure I agree with this worldview. The real currency of the world is labor, at least until we invent AGI. People need to be a certain amount of hungry before they will labor. Our current system supports a good number of older people being supported by the labor of younger people. That capital cannot magically increase the labor force and when you dump more capital into the system outside of a recession you get inflation, not more labor.
We might be able to support more idle people, but not at everyone’s current quality of life. That “excess capital” goes off to chase prestige goods like paintings and handbags that soak up a small fraction of the labor pool.
If a huge percentage of the labor economy were devoted to the quality of life for billionaires, then I would very much agree with “eat the rich.”
I’d say productivity is more of a currency than labor. Sisyphus isn’t producing anything, but sure is laboring a lot. The industrial revolution was huge, not because it had a lot of laborers but because the laborers were able to be more productive with their labor.
a very large portion of those goods and services are unnecessary, though. think about how frequently you have to buy a phone or replace a mechanical device - I've seen dishwashers from the 50s that still work, because they were built before artificial scarcity and planned obsolescence caught on. it's perfectly feasible to build a light bulb with an MTTF of hundreds of years. We're on a treadmill, because the economic incentives are contorted to favor unchecked consumerism.
We've gotten to a point where capitalism in it's current incarnation motivates a decrease in efficiency, which we call rent-seeking. it's maximise the dollars per productivity rather than maximise productivity.
It's not like people would do nothing without work, either. We've had periods of history where there was more time and more resources than there was work to be done, and it caused explosions of fields like art and science, both of which are stagnating under the current paradigm (relative to the capabilities we have as a species * population)
I'm just not sure that's true. The largest growing class of people over the last 50 years is the upper middle class going from a vert small percentage of the population 50 years ago (doctors, lawyers, and high level execs) to being a much larger percentage of the country, around 30% today. There are more "rich" people today than ever as the upper middle class is open to more professions like engineers, upper-middle managers, etc.
The issue is relative to a lot of people. There was a much large "middle class" 50 years ago and most people were much closer to each other. That middle class has shrunk because a lot of it graduated into a new upper middle class. The upper middle class has no problems buying up property in the most sought after areas as they are close to the places these people work. 50 years ago, it was a larger group of similar middle-income people competing for these places. Today, they can't compete and are pushed out to less desirable places or they rent and complain they'll never be able to buy a home. When really it's that they won't be able to buy a home in the place they dream to live because there's more people that can outbid them than there are properties.
You're missing a very important aspect: demographics.
In several nations, we're in a unique moment in time as the majority of the population is old-ish. Old people are conservative in that they're looking for the exit, they've worked longer (more time to save/invest) and they've benefited from favorable macro conditions.
So you might as well say the opposite: a lot (most) wealth is locked up in an enormous group of people (the majority), so not in a tiny group of people.
On top of that, yes, there's also a small group of super rich.
The other aspect you didn't mention is globalization. The former middle class is now the lower class. The "mail man" in the 60s that could own a home and run a family on unskilled labor no longer exists, nor will it return.
>a lot of that wealth also gets held by a smaller and smaller minority while the rest try to desperately compete over whatever is left over.
This is the tendency of every economic system that has ever been seen or theorized. The wealth creation is what makes capitalism distinct.
I don't mean to say that 'capitalism' is the answer to the world's problems, but I point out that it's not the source of that particular intractable problem.
This all-or-nothing thinking is, itself, a problem. Capitalism is a tool. And it's good at many things. Creating competition and innovation in consumer goods is one area it's obviously very good at. It is not good at equity. Externalities are a massive problem raw capitalism has no affordance for addressing. Regulations (another tool) are necessary to smooth out capitalism's rough edges.
You'll find very few people that actually want to whole-hog entirely get rid of capitalism. When you find people critiquing it, it's generally from the vantage point of "this is a rough edge that needs addressing via some government intervention". Housing (in addition to healthcare, education, transportation, and countless other areas) seems like one case where this is very obviously true.
One the the core issues with capitalism IMO is that it struggles to function as a meritocracy, because the reward for having merit - money - is itself an effective substitute for merit.
> because the reward for having merit - money - is itself an effective substitute for merit.
True! It's exactly what happens with, for example, the richest man in the world right now. Everyone loves him because they think he has so much merit, but he's just a glorified recruiter and/or magnate, he doesn't have any technical knowledge at all.
If you're talking about Elon, he does in fact have pretty deep technical knowledge. Both from reports of his employees and just watching technical interviews with him.
I get the hate about him, but it's reached the point where people just make stuff up and it gets swept up into "truth" just because it feels good.
Mmm ok it might be true that he has technical knowledge, I'll give him the benefit of the doubt there. But thing is, some things he does really suck big time, such as claiming he's the founder of Tesla (merit stealing smell right there) or maskerading their driving assistance system as FSD, when it's well known that his system is the worst in the market (probably will stay like that until they add Lidar sensors).
A couple ideas for how to fix some real estate problems:
1. A zoning rule that requires home owners to live in the owned home. This would prevent remote/foreign money from meddling with local housing in particular areas, and prevents big corps from buying up all the homes and forcing people to lease them out. Some people want to lease though, so that's why I think it's more appropriate as a zoning tool for particular areas than as a city or state-wide law. Maybe this could manifest as a leasing tax. (As an aside, in the US this wouldn't work for typical apartment buildings, however maybe we should consider apartment owning model like they have in Japan...)
2. Ban NDAs for real estate leases, period. They just allow for shenanigans like lying about how much a property was leased for in the past. NDAs are usually a cancer but I admit they can be useful in certain contexts; real estate is not a valid context for NDAs.
3. You can only deprecate the improved value, not the value of the land. "The land beneath a building does not deprecate, whereas the value of the building should." -- a good idea by
huevosabio that I saw in this thread.
4. Owners pay taxes on the claimed lease value, regardless of current occupancy. This would disincentivize owners from just sitting on dozens of properties refusing to lease because nobody wants to pay their unrealistic exorbitant rates. This is a plague in New York at the moment, where all the owners are playing a game of chicken with the economy to try to artificially prop up their building valuations by pretending that the supply/demand curve doesn't exist even in the face of record breaking unoccupancy (is that a word?).
1. The foreign owner thing is really overblown. They mostly invest in extreme luxury apartment, not lots of cheaper ones. The mega reit buying residential properties is also overblown. 70% of rental properties are owned by individual investors.
4. Empty units isn't really a big problem. 4.5% of NYC apartments are vacant, the majority of those due to structural reasons such as tenants moving or repairs. The historical rate is around 3%, it's quite hard to get below that.
The solution is simple. Build more units. Relax zoning requirements, incentivize density where it makes sense.
We got into this hole by making it illegal to build. For example, it is illegal to build a building with 5 or more homes in 90% of San Francisco. (Buildings with 3 or more homes are illegal in 70%.)
I appreciate galaxy-brained legislation as much as the next policy wonk, but the solution in this case is simple. Making it legal to build homes → greater supply of homes. Greater supply → lower prices.
Ever notice that cars are not that expensive, even though many people absolutely need them and they're very complex machines with high safety standards? It helps that it's legal to build them.
Our current situation is like if we made it illegal to produce new cars. Cars would get really expensive, and you'd had a bunch of people saying maybe you shouldn't be able to write off your rental car depreciation, or own a car you aren't driving, and that producing more cars can't possibly be the solution because most new cars are "luxury cars" and how exactly does more luxury cars help the car affordability problem again?
Sorry, that got off the rails a bit. It's possible that some of your suggestions would be necessary too. But when you find yourself in a hole, your first step to getting out is to stop digging.
None of this would have much impact. What is really needed is to abolish most forms of land use restrictions. Abolish parking minimums, abolish floor-area-ratio minimums, abolish single family zoning, abolish or severely limit community review of new housing developments. Neighborhoods built prior to WWII are nicer places to live precisely because these rules didn't exist when they were built. It was the insanity of post-war high modernist urban planning that destroyed American cities and suburbs.
> Neighborhoods built prior to WWII are nicer places to live
The East Coast is a great place to appreciate this dynamic. There are a lot of old suburbs and towns and they tend to be great places to live. The homes are beautiful and well maintained, the trees are mature, and they are generally expensive places to live.
Contrast them with adjacent towns that were built up post WW2 and the homes are ugly and isolated from restaurants and shops and they probably don't have a train station. And the property values are generally much lower.
Every non-rural home should be walkable to a real park, public transit into the anchoring city, and a town area with shops. So many post-WW2 suburbs are just wastelands where every home is an isolated island. But they aren't rural. It's weird.
> You can only deprecate the improved value, not the value of the land. "The land beneath a building does not deprecate, whereas the value of the building should." -- a good idea by huevosabio that I saw in this thread.
At least for residential R/E in the US - you cannot depreciate land from taxable income.
> Owners pay taxes on the claimed lease value, regardless of current occupancy. This would disincentivize owners from just sitting on dozens of properties refusing to lease because nobody wants to pay their unrealistic exorbitant rates.
You're misunderstanding the point.
From an accounting perspective, you can pretend unleased units have revenue - and that vacancy is an expense.
You can get loans on your revenues (imaginary money in the case of R/E).
R/E speculators want as much debt as possible - because they know that debt (especially leveraged) at interest rates typical of the last 12 years was the free money cheat code.
This incentives them to have empty units at 100% above market rates - because they can qualify for twice as much debt to buy more properties to do the same thing - to speculate further on leveraged appreciation.
It's also the reason you regularly see building with outrageous rents yet they're giving you 3+ months free. Why not just lower the rent by 25%? Because then you qualify for 25% less new debt (which in many cases they need new debt just to cover their deeply negative cash-flow).
>A zoning rule that requires home owners to live in the owned home.
This would reduce the housing stock.
The way capitalism works is that some people have excess capital, and they invest it. Housing is one such investment. People don't need multiple houses to live in, so multi-property owners rent out their investments, which is great because there are many people that can only afford renting, not buying.
It's great to an extent but it seems obvious we passed that threshold during the pandemic. Now the combination of NIMBYISM and corporate landlords is creating insane distortions in particular locales. They are turning potential home owners into renters.
I'm not sure people understand how expensive it is to build what we consider a house in the West. Materials are unbelievably expensive and if you go cheap you're going to be replacing a lot of them soon. Labor is through the roof expensive.
People forget that the average home was ~700 square feet 100 years ago. It's 2400 today. How many people would be willing to put a family of 4 or 5 in a 700 square foot home today? Go to old towns and look at some of the houses that are 100+ years old and 2400 square feet. You know who lived in those homes 100 years ago? Really rich people like lawyers and business execs and they had servants cooking and cleaning. Today that's just expected to be a home for a normal family.
We could change what we think a home is for most people but I don't think most people are willing to accept that the home they can afford is closer to a prefabricated trailer than it is a traditional single family home.
Even apartments are super expensive to build and the reason you don't see many dwellings that aren't "luxury" is because the cost to construct and maintain them is so high that you'd never get your money back otherwise.
Where in the west? In europe we use concrete and bricks, while the us something else. I believe anyone in the construction business will be able to explain that the most expensive part is the land actually. At least in europe.
In the uk for instance, the exact same new house, exact same materials, can be 100k GBP less in a cheaper area. Or even half in extreme cases.
It is the same in the US. While labor and materials do cost more, the greatest increase in costs is for the land. But since the US is big, there are huge disparities in land cost. While a laborer or materials might cost 2x or 3x more in a popular area than in an unpopular area, land will be 10x more.
Actually, the labor and land costs invert if you go to really unpopular areas, where the land is much cheaper, but no one lives there so labor is much more expensive.
It really depends on the quality you want. I could easily Alec out a 2500 square foot home that has $300k in materials alone. High end windows, flooring, bathroom materials, and kitchens aren’t cheap. A fridge and range can cost $30k+ at the higher ends. Windows $2k/each. $10/sqft premium flooring. This doesn’t include labor yet which is another $100k-$200k. All this can go on a plot of land that costs $350k. Thus isn’t uncommon in higher end developments.
Of course, vinyl windows, cheap flooring, builder grade kitchen and bathrooms bring the cost down significantly. But it still adds up. Foundations aren’t cheap.
What changed in the dynamics of the american society in such way that new cities are no longer built? I get it in europe there barely and land left to develop, but the us and canada have plenty.
it is fairly cost effective, modern, and the trains are all new and comfortable.
we also have a major problem with a population which seems to refuse to accept they cant afford to live where they want.
Everything is about "affordable housing in Toronto", but this is unrealistic.
Once i had a conversation at work on this. A younger employee was complaining that he wasnt able to afford a nice house in Toronto and how "unfair" this was.
The problem is he was making these comments to 5 others, not one of us lived in Toronto either, as we cant afford it.
He refused to commute, and felt he was somehow "entitled" to live where he (and millions of others) want to live.
So in short, while the US and Canada have plenty of space, the population doesn't want to live there because the commutes are around an hour each way to work.
we also have serious NIMBY issues, where any attempt to increase population density is met with fierce resistance by the local residents who are concerned about their own property values.
It seems like the main issue is proximity to work and the reasonable demand for a short commute.
If that need would be satisfied then i think the resulting effect of wanting to build more in already crowded cities wouldnt be there, thus nimby’ism wouldnt be an issue because either since locals wouldnt feel threatened.
When i moved to london uk i had the same opinion as your colleague. I wanted a place to live as close as possible to work so that i would spend as little time wasted on commute as possible.
But remote work gave me the option to live anywhere and as such i chose an area outside london. Having the option to leave crowded centres i took it because it satisfies my need for work and a short commute.
So i am wondering isnt the root of all evil the fact that high paying jobs are clustered around large urban centres? Shouldnt tech have solved this issue by now? Even if people prefer office work, cant this work be done in smaller urban areas? Or at the edge of large cities such that people can easily commute from surrounding areas? I get it that in the last blue collar work had to be done in city centres so everyone can access services. But why do software engineers need to be seated in expensive city centres? Or indeed accountants, or even lawyers.
> So i am wondering isnt the root of all evil the fact that high paying jobs are clustered around large urban centres? Shouldnt tech have solved this issue by now? Even if people prefer office work, cant this work be done in smaller urban areas?
This gets into an interesting "can of worms" problem.
My background is finance which tends to be clustered around "financial hubs" (London, New York, Toronto...).
Again, I will keep my "Toronto" perspective as I am most familiar with it.
Why are all the banks located on "Bay street"? Because if you dont have a "bay street" address you are a "nobody". This odd mentality can be found globally, "wall street" , specific "pockets" of London.
The "big 5" banks here COULD build places in smaller urban areas, but those lack the "power" of that Bay street address.
Now that we established that for odd reasons you have to be located in "bay street" there is also the view that you must be "seen". Remote work is a career killer in Finance.
One large Canadian bank has started the "we want you back in the office" discussions :
RBC CEO asks staff to come into the office more often 'Technology can’t replicate the energy, spontaneity, big ideas, true sense of belonging and fun' of being in the office, CEO says
Now RBC has issued a press statement on this, the other Canadian banks will quickly follow suit (they move in lock-step with one another).
So.. work in finance, you need to be on "bay street" monday to friday.
You don't want to commute, increase demand to live in Toronto.
Basic economics show that increased demand leads to increases in pricing..
In a way i can see why finance is linked with the status expensive offices give but surely the bulk of the work which happens behind the scenes doesn't need to be located in city centres.
Moving everything that isn't client facing outside would do both a favour. Indeed demand drives prices up but it seems like the reasons behind that demand are a bit archaic.
As a side note I cant help but giggle about this: “true sense of belonging and fun”.
I sympathize with your younger colleague. Spending 1+ hours of your day, 5 out of 7 days per week, just to afford your own house would mean I would opt out of raising a family. Even 30+ min per day commute sounds terrible.
Most people who do manage to afford to live in Toronto still have to commute. you can get condo's right in the downtown core, but they are insanely expensive.
So the debate he had was a ~30 min commute and a "toronto" address vs a 45-60 min commute and an address in a small city outside Toronto.
I worked in toronto a very long time, dont know many people who actually lived there. Most commuted from cities in the GTA (Greater Toronto Area).
Sometimes the commute is sort of unavoidable.
What are the options to avoid a 30 min commute if you work in a specific industry which prefers "on site" work, and that company owns property in a city you cant afford to live in?
You can change industries, etc.. but those are personal choices.
> You can change industries, etc.. but those are personal choices.
Yes, I looked around see older colleagues in NYC spending 5/7 days working and traveling to and from work just to get 2/7 days to live and decided pretty quickly it was not for me. It is okay in your 20s beside you can work and then party and work and party, but if your goal is to raise kids then that 2 hours on a train commute per day is soul crushing.
> Everyone wants that 3,000 square foot house, and naturally it has to be within walking distance from work.
The density that was built 100+ years ago was built pre cars. The cities that are dense are dense because they happened to develop at the right time.
Now, everyone in the political process of building a new city is going to question where they are going to have space for large cars, which leads to parking lots, 35ft+ or 10m+ wide streets, and of course quarter acre lots for detached single family homes with garages and driveways.
Creating a new Manhattan type region is simply out of the question due to costs. If the nation cannot even do proper upkeep on existing Manhattan, then there is not much chance of digging all the rail tunnels and etc etc for a new Manhattan.
I think the root of this issue is that we are forced to cluster in large cities for access to jobs. I think the way we approach blue collar work is wrong and tech should have solved it by now. There is no reason why we cant move most high end jobs to either small towns or in the proximity of large cities but in areas easily accessible from suburbs.
No need for a new manhattan. We need a totally new approach and it must be linked to how we work. I would be very happy to live in a small town, with narrow streets but well organised fast, cheap and reliable public transport, and work either remote or onsite but without the need to commute 2 hours a day total (24 hours of my life each 7 days).
A bunch of places towards the top of the list (not just a few) have doubled or more in population over the past 30 years. It is just that in the US people have a death wish and often flock to places like Phoenix and Las Vegas and San Bernardino rather than some place sensible and organize cities into the same endless sprawl everywhere.
European homes tend to be much smaller than American homes and are very rarely stand alone single family homes. I get to the UK often and almost everything is connected and have small little “gardens”. This is fine and it makes for cheaper construction since there are far less materials and labor is shared across many homes. The hones are tiny by American standards too.
We don’t have this as much in the USA. People generally want single family homes that are 2000 square feet+ and 1/5 acre of land. This is a lot of roof, a lot of siding, a lot of timber, a lot of flooring, a foundation, etc. Easily 6-figures in materials and even more for labor, etc. Especially if you go with premium materials. Windows installed are $2k/window. My would cost $70k to install all new, premium windows for example.
Premium hardwood quarter-sawn flooring in a 3000 sq foot gone is another $30k, etc. You can start to see how this adds up from $100k+ in materials for trash to many hundred thousand for premium, quality materials.
The uk is a bit of an exception. The norm in continental europe is standalone homes and usually much larger. Europe is a diverse continent with varying property size and expectations.
The average European home size is nearly 1000 sq-feet (92 square meters) smaller than the average American home being built today. And yes, although there are exceptions and Europe is diverse, multi-family homes are far more common. I'm not saying this is bad - in fact I think America should probably do more of this since it's much cheaper to share resources.
But yes, I did some quick research and it appears homes in the UK are among the smallest in Europe. Lots of people on that island I guess. It's no wonder so many of them choose to move to the USA!
Although we're currently in a frothy situation, scaled out a bit, it's not clear that housing prices are growing more than general inflation when adjusting for square footage. What _has_ happened is A) houses have gotten bigger and B) people per household has gotten smaller.
I’d love to go back 100+ years on that. Houses were made with better quality materials in many cases, but were much smaller and without things like fancy kitchens and bathrooms.
Here in the Netherlands, an ordinary home, which is not an apartment and not even necessarily a fully stand-alone home cost 400K EUR minimum. That's land, material, labor combined. And you'd have a hard time actually building it due to all the shortages in both labor and material.
A big part of that 400K is land cost. Land that is typically given out for development by the municipality. It's one of their main revenue streams. So that means you can't make land cheaper without it directly coming at the expense of local taxes. And they're already running deficits even with these high land costs.
We have a plan to build an additional 1 million homes in 10 years, but it can't be done due to shortages.
The other thing nobody seems to talk about is what happens during an economic downturn. In the aftermath of 2008, almost nothing new got build. After all, why would a commercial developer build something without a buyer? Meanwhile, the demand for housing is still there and growing (population growth), it's just that people are unwilling/unable to step in, temporarily.
This piled up backlog is the reason for the current drastic shortage. As is the case for construction workers. All laid off during the downturn, and didn't come back.
Guess what will happen during the next economic downturn? Yep.
My point: there will be no point of supply meeting demand or even over-supply.
>Even apartments are super expensive to build and the reason you don't see many dwellings that aren't "luxury" is because the cost to construct and maintain them is so high that you'd never get your money back otherwise.
Luxury is just a marketing term. Luxury apartments are the cheapest apartment that are legal to build. Stainless steel appliances and quartz countertops are a rounding error in construction costs.
An actual luxurious apartment does not have to call itself a luxury apartment, the price being multiple standard deviations above the mean speaks for itself.
The government is always there, with its hands out looking to get a slice of the real-estate market.
- Property taxes
- Land transfer taxes
- Development fees
And once you buy your house, any attempt to improve it could trigger more government involvement. Building permits, inspection fees.
Your point is spot-on. I think a big part of it is "keeping up with the Joneses". Everyone wants that 3,000 square foot house, and naturally it has to be within walking distance from work.
Lastly - Location is a a major problem.
Here (Ontario) the common complaint is "i cant afford to live in Toronto" - Living in Toronto is NOT A RIGHT. No one owes you "affordable housing" in Toronto to avoid a commute. A Lot of people commute on the GO train daily..
It always has been and likely always will be an assert class - it can be sold later so it's an asset.
For well over 100 years the inflation adjusted price of new housing has been a quite similar rate per sq foot, despite the quality and safety having increased many fold over that time.
I didn’t say it was an asset. The majority of physical things you purchase are assets.
I said it was an “asset class” in the financial use of the term.
“ An asset class is a grouping of investments that exhibit similar characteristics and are subject to the same laws and regulations.”
It is being treated as an asset class as opposed to say a service or a utility.
We need housing and clothing, but we don’t treat or normal clothing as an asset class. We buy it and use it, we don’t expect it to appreciate in value.
>“ An asset class is a grouping of investments that exhibit similar characteristics and are subject to the same laws and regulations.”
Yes, I got that. Housing has been such for well over 100 years, right?
It is not treated as a service or utility because, well it is neither of those things at all.
Even if you somehow forced it into such a market, the value would still likely be the same cost to a homeowner, since there is not going to be some free lunch here. People willing to pay $X to live at Y will continue to be willing to do that. Services and utilities do not mean free or low cost.
>treat or normal clothing as an asset class
Because it is cheap, it wears out, and goes to zero value. You really don't want the value of your house to be zero, meaning it has no utility to anyone, including you.
Right. But let us pretend that the we all decided to treat shoes as an asset class. Everyone (with shoes) is counting on their shoes increasing in value. So the government becomes focused on raising the prices of everyone's shoes.
It institutes restrictions on the amount of shoes that can be made (so as not to crash the market). Supports the market by subsidizing mortgages so people can purchase shoes at high prices (note that people will always be able to buy shoes, they just might not have the money that the market is asking and so the market would need to adjust their price - hence why mortgages are important.
They give everyone tax breaks on the income they make from renting out shoes to people without shoes and places restrictions on everyone so that everyone must have a complete set of shoes (no sandals allowed) and forces everyone to always wear shoes.
So now, the people who own shoes are happy. They decide the government is a great government because they are protecting their shoe interest and we have a situation where shoes are very expensive and always must be increasing in value for everyone (with shoes) to be happy.
Lots of people start investing money in shoes (driving up the value of shoes) because everyone knows the government are actively protecting the price of shoes. Which in turn drives up the "value" of shoes and the cost of shoes for people without shoes.
So, are shoes and houses that much different. Houses also require upkeep. You can resole your shoe, you can reroof your house. Some would say houses require much more upkeep. Sure, houses are a little more permanent and hard to steal. But a shoe very rarely burns down.
>Everyone (with shoes) is counting on their shoes increasing in value. So the government becomes focused on raising the prices of everyone's shoes
That is not how reality works. Prices go up because people are paying them - it has nothing to do with government. A seller wants the highest price, no matter what the govt or local markets do, and a buyer wants the lowest price, no matter what govt or local markets do. Each is competing against other sellers and buyers. At no point is the govt telling a seller they're too low or a buyer they're not high enough. If either side dislikes the deal, they walk.
It has nothing to do with being an asset class - the causality is the other way. Houses are valuable, are a significant amount of money for most people, and increase in value because, if nothing else, inflation - thus they're an asset. So is holding cash (which actually deflates in value, yet is an asset), so are bonds, stocks, annuities, pensions, and on and on.
As to the shoe example - here's more what happens:
People would all love it for their cars to increase in value, but in reality they do not. The govt is not making this market out of magic to satisfy people's desires - houses increase in value at slightly above inflation because the market values them so.
By your reasoning, govt is magically making prices go up, but the market would not simply follow along.
And, if the govt were magically making prices go up against market wishes, they're doing a terrible job at it - housing only increases around what other assets do - and that's the market doing it.
People have tried using govt or other forces to misprice markets, but that never lasts very long before wise investors pull the rug out and crash it.
History has a lot of examples of people both trying to fake high prices for force low prices by law and losing out to the market. The market commands vastly more resources than any govt to put things in check.
Are you trying to claim that the government (let's pick the US government) doesn't get involved in regulating the housing market?
Do you think they don't attempt to keep the house prices from crashing ? (also known as getting more affordable).
I think it's obvious that the US government is very interested in maintaining and increasing the monetary value of homes and real estate.
Here are some ways they influence them off the top of my head
1) monetary policy (Changing interest rates to encourage borrowing)
2) Subsidizing mortgages (Fannie mae, Freddie mac) - allows people to borrow more and so spend more
3) Zoning (reduces the amount of available land)
4) Bailing out banks involved in real estate
5) Tax relief for home ownership
6) Mortgage interest relief for home owners
etc etc
>Do you think they don't attempt to keep the house prices from crashing ? (also known as getting more affordable).
Also known as wrecking tax base for police, schools, local and state economies.... This is a terrible idea - deliberately crashing any asset class, especially one underpinning the majority of local services.
Property taxes account for as much as 63% of state revenue (NH) to as little as 17% (DE and AL, both of which offset this loss by other specialized taxes). Over the US around 35% of state revenues are property tax.
For most states your desire would destroy the economy vastly worse than the 2008 recession or COVID, neither of which tanked such a huge amount of revenue used for services. Good idea there.
> 1) monetary policy
Also done because it affects all aspects of the economy, from manufacturing, to employment, to R&D, to medicine. Claiming this is done for housing is shortsighted. Such monetary policy is decorrelated from housing prices (which you can check in Excel if you like). So to change monetary policy simply to drive housing prices down is a blunt hammer that will also lessen employment, lessen investment in productive areas of the economy, lessen trade by making exports more expensive, etc.
>2) Subsidizing mortgages (Fannie mae, Freddie mac) - allows people to borrow more and so spend more
No, it does not make me able to afford more loan - that is determined by my income. It provides more liquidity for the market, lowering prices. If there was less liquidity, then money would be harder to get, making borrowing more expensive, not less expensive. If you look at research on what people borrow, the term is Ability to Pay (ATP) as the driving factor, which is based on income, not on Fannie providing liquidity. And if you read more research, you'll find that the increased liquidity lowers prices significantly. You have this completely backwards.
> 3) Zoning
Done to industrial plants being mixed with housing. Here's a paper [2] showing that the major driving cost of housing is the marginal cost of physical construction costs, not zoning. There are very few places where zoning is much of a restriction (mostly places where land is super scarce, which is not the majority of the US).
>4) Bailing out banks involved in real estate
The "bailouts" were loans to provide liquidity, repaid with interest, profiting the taxpayer [1]. Many banks were forced to take these loans against their will to prevent signaling to the market vulnerable banks, to lessen bank run issues [2]. This was the correct govt action to prevent further harm. I think you seriously misunderstand what the "bailouts" were or what they affected.
So on this point your belief is vastly removed from reality. Spend some time reading on the details of TARP and you'll learn banks paid taxpayers, not the other way around (and note taxpayers did not even fund TARP, the Fed did, who was paid back with interest - not a cent was raised in increased taxes).
> 6) Mortgage interest relief for home owners etc etc
This is done to encourage home ownership, not to make prices high or low (note mortgage interest deduction has existed through many boom and bust cycles of housing prices). A good place to check your claim is looking pre and post the recent big change in mortgage deduction laws, and again, there are decent econ papers studying the question. Such papers are vastly more accurate than your opinion.
They do regulate and influence the real estate market specifically the price of housing. And as in the first point they don’t have any interest in the price dropping. If the only way the price is allowed to change is by increasing then that’s the only way it will change.
Anything capable of being owned is an asset class. How would housing become not an asset class? Government owns all the land and we just rent? Seems worse.
Land is finite, but housing is basically infinite. If I can get 2 houses to fit on the same piece of land, I would be willing to tolerate a 30% discount per house and still be up on my investment. It's a win win. Cheaper houses for the buyers and more profit for me
So clearly, the problem cannot simply be that housing is an asset.
> But households then need to rein in spending to repay their loans
Right now it looks like we may be about to witness something else: inflation is picking up, and if wages even just remotely track the increase in consumer prices (not assured ofc, but conceivable in a time of low unemployment), then those loans and their monthly instalments will actually make up a smaller proportion of household income (especially for those borrowers with fixed-rate loans).
People bid on houses the maximum they can afford (assuming supply of houses is constrained). So house prices are driven by people’s income and the interest rates.
If wages go up enough, then you keep the house you have with a low fixed 30 year mortgage (because the mortgage can’t be replaced), and buy another when you want to move.
Have we considered just building new cities? It would be cool if the state could run a contest, have a rural county sign up to reform their zoning laws, and in exchange receive 100 year tax relief guarantees from the state to build a new city.
America used to build new cities from scratch all the time up until WW2. This creates competition between cities (new entrants) resulting in better policies all around.
And the best part is it results in more empty land becoming valuable, enabling either dense or suburban housing as desired (hopefully making it non partisan).
Seems to me primary barrier today is there’s no unincorporated land left in the US, so let’s create a system for allowing new incorporations to emerge somehow!
Most cities are where they are because all the good spots have been taken.
Any new significant city will need billions if not tens of billions of dollars on transport links, water, sewer, etc, if there is even a way to bring a city sized amount of potable water.
And then you have to convince people to actually move their residences and jobs there. Most people don‘t like betting uprooting their whole family and social lives on a total unknown. History is littered of examples of new failed cities that in the best case scenario became really far bedroom communities, or in the worst case didn‘t get off the ground.
Cities are where good spots were x years ago, where x is somewhere between 300 and 100. The world is different with transportation/etc and the good spots don't look the same. See the flood of people to small mountain towns during covid. They weren't the best places before because they were hard to get to and from, but with highways, small airports, fiber internet, etc they are in many ways better than cities.
With enough investment in new roads and infrastructure we could easily build a huge city in Summit County, Colorado.
By definition, the carrying capacity of a small mountain town, is small.
Summit County is currently in drought. Where is more potable water for more residents going to come from? (That‘s a pretty big problem in most of the West as drought conditions show no sign of improvement.)
The cities are located where they are, because barring major changes transport costs going from cheapest to most expensive are navigable waterways > rail > road > air. Flying out of small airports is pretty expensive and not something that most Americans can afford to do regularly.
How would people get to work? If you have a new city, there are going to very few employers due to a lack of workers, and therefore few residents, due to a lack of employers. People who WFH can live anywhere, why would they move to an empty city?
If we want new cities to be built, what is needed is high capacity rapid transit. For example, build a high speed rail line from Chicago to St. Louis, and watch as the small towns in between become cities.
You don't even need to build a new city, you just need to take an existing rust belt city and make it a cool place to live again. Gentrification, but instead of just a neighborhood, it would be with an entire metro area. Pittsburgh might be a recent example of this.
I wouldn't be surprised if Musk tries this. Seems like there's some land in Idaho or around that part that he could move all his companies to and his cult of personality might follow.
That sounds nice, but I have 0 faith in any of the big entrepreneurs out there to successfully run this. It will end up like that one Disney-run town in the 90s: corners cut everywhere, residents with 0 representation, just a mess all around. The fact remains is any company making a town/city will want a tangible return on it, and that fundamentally conflicts with how a municipal government is ran.
I don't think the company would try to create the town, they'd just start building office space and hiring people to move there. Then the town would grow around them.
Not just the rich world, here in the third world it is the same.
Housing insecurity drains people's life energy. People can't take risks, learn new things, etc. The smallest mistake has them living on the streets. Hundreds of millions of potential scientists, artists, etc. that we loose because they can't afford giving up their minimum wage job and face homelessnes.
The article seems to be focused on politics, but I think it is not a political problem, it's a philosophical one, or even moral.
Speculating with housing should be seen as badly as speculating with water, too basic of a thing to play with, I'm not sure people that haven't experienced housing insecurity understand this.
Increasing real estate values are directly related to increasing poverty and homelessness. The reason is pretty simple- when housing prices go up, rents go up. When rents go up, people have trouble affording them. They deplete their savings and are at risk of becoming homeless. That's why you get million dollar homes with people sleeping on the sidewalk outside.
Normally, there would be a negative feedback mechanism to push back against this- when people can't pay rent or mortgage, then the prices would go back down. But if inequality increases enough, and there's a lot of extra cash sloshing around in the economy to be pushed into real estate as an investment rather than as a place to live, the feedback path breaks down as you have investors buying homes to flip them or just have a place to park their money, and the people who actually need homes to live in suffer for it.
As a 21-year-old guy, it's my absolute dream to have my own home. Fortunately because I work in tech, I can realistically achieve this within a few years, though I will be paying an arm and a leg for one. But I can't help but think of everybody else who isn't in STEM or didn't grow up in fortunate circumstances like I did. If young people don't have a stake in society by owning a home, why should they give a shit?
There needs to be serious reform but it won't happen because it's against the interests of the people with the power to do it.
I didn't bought house for 10 years but when I finally did, I realized the ownership of house essentially meant living in it without actually paying for it. The house appreciated so much that if we sell then it will be like we actually got paid to live in the house! So, the moral of the story is that renting sometimes used to make sense in the past but it no longer does because of massive appreciation that we now expect. This appreciation is also well protected because if government allows fall then people will push that government out. The governments must keep doing QEs to just stay in power. So it's essentially government secured investment to live rent free. This fact then drives obsession to own the house. This creates need to create more money and do series of multi-year QEs.
I see 2 main problems with housing, possibly related to each other:
- too many unoccupied apartments or offices, and secondary residences
- cars is at the root of the decision, and this leads to people living 30+km away from where they have to go daily, which is a big environmental issue
We should transition away from individual cars to light vehicles to solve the climate crisis, and we (the government) should also manage the housing crisis to help with that
Housing is another one of these systems (I don't have a name for), but once you have a house, you really don't care about many of the ills. The same for immigration. The same for college admission. The same for many jobs. Once you have what you want, the default is to not do anything to improve the system.
"In Britain the government now openly says that the housing market is “broken"". The day this government does anything to fix the underlying problems with housing in the UK instead of being in the pocket of developers will be a cold day in hell.
It's crazy that anyone with stable income can walk into a bank and get a __30__ Year loan to buy a house, at below the cost of inflation. The only reason it's possible is because the federal government (Fannie Mae/Freddie Mac) extend an unconditional guarantee to purchase back loans at a certain interest rate as long as they "conform" with some requirements.
You can see this is true by looking up the cost of investment loans that are not subsidized - interest rates for commercial loans like this are 8-10% today and access is limited to those who have demonstrated competency in the "landlord business" over a long time... i.e., they look more like business loans than home loans.
The government subsidizes up to 10 loans per person. Idk why this was the limit (worth researching), but probably should reduce 2 active loans (allow people to move their primary residence). This would eliminate most of the subsidy and would significantly reduce the "just hold it for 10 years and get free leverage" angle of investing. At that point, people would have to pour money into interest, operate at cash-flow negative to speculate on future value, and suddenly, most would not be interested.
Get rid of 10 subsidized loans per person and the system will quickly start normalizing.
2. (Some) Tax Advantages:
Effective tax rates are lower - but not much. It looks better than it is because while much of the cash flow can be deducted, whatever cannot be deducted is taxed at marginal income levels, rather than capital gains. That literally more than doubles the tax rate for most people, washing out almost all of the interest rate/cost deduction advantage. Doing a 1031 exchange reduce deductibility of depreciation on the next property meaning the cash flow shows up there as taxable.
However, the cost-basis step up at death is crazy and should go.
I think this a problem in everywhere. Take for instance, Dhaka, the capital city of Bangladesh. Housing is a disaster. The home ownership percentage is so negligible it is a shame. Land and housing price is so high, it is almost impossible for most people to own a house in one life time. I hear the same kind of scenario in many other developing countries.
American companies are working on doing that in the US: buying up the liquid housing, and driving up prices, only to turn around and rent it back to people who could have afforded it if they hadn't driven up prices by trying to monopolize markets.
> American companies are working on doing that in the US
Is that why I have gotten several phone calls over the last few months from people asking if I'm interested in selling my house, many saying they will pay above current market rates and in cash?
I'm not in a big city. I'm in a county with a population density of around 600/mi^2, where the biggest city population is 40k and second biggest is about half that. My house is a little bit outside a town that is only about 10k.
It's about an hour on a good day to commute from here to the nearest big city.
It's not a place I'd expect there to be a lot of interest in speculative house buying...but I'm getting the calls and can't think of what else they might be.
In principle there are a few possibilities - foreigners, pension funds, banks, insurances or other corporations, endowment funds, publicly owned,... although most of these would seem more likely in a place like the US.
It's also conceivable that nobody really knows, that there is no common land registry that really matches the reality 'on the ground', ie the people considering themselves owners and receiving rents. In such a situation it would be very hard to make transactions, hence why it might appear impossible to buy real estate in some areas.
You want housing prices to cave? Jump property taxes for landlords (short-term rentals included) and you'll see a shit ton of houses on the market tomorrow.
All you have to do is continue to raise interest rates. That will lower the value of property.
However, it won't change how much you pay/month for the property as people will pay whatever they can afford to per month to live where they want to. It's just more of that payment will go to interest. So yes, the list price will crater but the actual cost to buy the place will be the same.
The only person it really benefits is cash buyers which most people aren't. This could actually make homes less accessible to most people as their mortgage bid will never beat a cash bid.
It is very good for productivity when many jobs are concentrated in one location.
This unlocks the possibility for serendipitous connections. It is awesome when you can meet a founder, a leading engineer, an investor, a designer and a PR person in a coffee line, forming a new company before finishing your morning coffee.
Talents concentrated in one place gives significant boost to their productivity. This is called a "proximity bonus" in video games; building dependent factories in the nearby slots gives them the productivity boost. This is what US is missing by being nimbyistic.
I think we should return to the 1950s ideas of a futuristic cities and invest in building giant arcologies, where entire Earth population can move if they want to, and where the least paid McFastFood worker would afford to buy a minimum apartment.
China has this in spades, where you can build a (hardware) product and source everything needed from the same city. And not just distributors of those parts, the actual manufacturers are all right there building what you need.
Run out of anything and it's just a 20 minute drive to go grab more from the factory.
Can you really meet them if they're scattered over a multi-million city? I find the opposite. A digestible size (< 500k?) city where everyone-knows-everyone opens more opportunities. While in megapolis multiple bubbles may be doing same thing, but not aware about each other at all.
But even here in just-over-500k city people are already resorting to Zoom calls from one's office/home (or lake-side getaways) over meeting in coffeeshop.
I find it easier in the bigger city; but I might be biased as I lived in a big city most of my life.
What I meant is an ability to be within the reach of any other person within an hour.
Using zoom for 3 years now (for obvious reasons) - I find it inferior to the private in-person communication. Problem that you need to schedule a meeting, which adds some formality and is usually harder, while you can have a pleasant chat with even a rich and powerful person while accidentally meeting them in a hall. For scheduling a zoom call, you need to find an excuse. To chat in a hall with someone - you don't need and excuse.
> What I meant is an ability to be within the reach of any other person within an hour.
Is that all that significant? I live rurally and can be within reach of any other person in two different large cities (along with some smaller ones) within an hour. Under some circumstances, I can be at a shared meeting place in one of those cities before a person who lives in said city can get there. The highway is incredibly efficient.
Moreover, such proximity to the city – but also off the beaten path – seems to make it an attractive place for the rich and famous to have homes. I run into household names at the small town coffeeshop quite regularly.
What is significant, however, is the the city is much more amenable to wealth concentration. That small town coffeeshop might see 100 customers in a day, while a coffeeshop in a dense city can draw on thousands of customers, allowing a coffeeshop empire to be established. The small town coffeeshop will never be able to grow the same way.
> I think we should return to the 1950s ideas of a futuristic cities and invest in building giant arcologies
Ugh, I hope not. The 50s was the most infantile era, completely preoccupied with convenience and efficiency and big things that go wrooar. The vision of the future in the 50s was so cringey.
I'm not so sure about this, i believe the optimal curve for city population looks like the optimal stress response, after a certain level having more is just detrimental. There should be enough people where opportunities arise but no so much that your mind is too influenced by noise where you can't accurately make good decisions.
Have more futuristic optimism. We are doing quite well on the climate. We will prevent it once we get fully to solar and then build CO2 scrubbers using solar energy. Energy percentage that come from renewables is more than 10x higher than anticipated 10 years ago.
And don't call it a "collapse": a change is not necessary to the worse, sometimes it is to the better.
I'm a bit less optimistic than that. I think we will be forced to start atmospheric spraying, and hopefully use that bandaid to fix the underlying wound.
In theory it will stop warming, which may cause many people to take that as "Well, looks like we can go back to burning fossil fuels!".
High modernist city planning from the 1950s and 60s was a disaster. No, we should go back to the organic cities of the 1910s and 20s, with their mixed-use, medium density streetcar suburbs.
You are conflating densely populated cities and areas with high concentration of jobs. They are not the same. And as an aside, SF/SV are not even dense by global standards. You can live in an actually dense city and enjoy your serendipity while working remotely.
> Not housing per-se, but concentrating too many jobs in few locations.
Jobs weren't "concentrated" per se by any form of planning or centralized action, employers simply shifted to urban centers because the amount of skilled workers and other necessities (such as high speed Internet, universities, road and rail infrastructure) was vastly higher there than in dilapidated flyover-state villages. Additionally, rural areas got devastated by mechanization of agriculture following WW2 and later-on the closure of manufacturing plants and the mining industries [1], which led to a massive rural flight movement as everyone who could fled to the only place where employment was available - urban areas.
The fix to the housing crisis would be to invest in rural areas again - there is no limitation in the nature of the work at all that stuff like a callcenter or a bunch of programmers can't work from some rural town, but as long as there is no actual high speed Internet or no amenities (healthcare, education institutions for children, entertainment) worth their name employers won't establish shop there and employees won't move there. Would you, even for free rent, move to some small town where your children have no perspective?
I read this kind of thinking a lot lately, people trying very hard to come up with solutions that don't address the main issue. Just guessing, you already own a house?
The fix is to enable builders to build enough housing, and not just single family detached housing, by removing regulations which allow NIMBY-ism. At the same time, prevent investors from hoarding houses and jacking up the prices. I find it similar to scalping GPU's and reselling them for more money, which was a common practice in the past few years during the chip shortage and crypto mining boom. This kind of investment provides very little value to consumers, and in my view only serves to extract money from the poor to the rich.
LOL, I wish. Renting in Munich for enough money that I'll never be able to save enough for a downpayment. If I ever want to own my home, I'll have to move to the German equivalent of Alabama, with all the issues that come with that.
> The fix is to enable builders to build enough housing, and not just single family detached housing, by removing regulations which allow NIMBY-ism.
Where? Seriously, where?! Urban areas literally don't have enough space left any more to build any kind of building at affordable prices (plot values have sometimes doubled over four years here [1]), not to mention the associated followup costs of high-density populations (you need expensive subways as public transport at some point, denser / more anonymous populations leading to lower societal cohesion and rising crime as a result) or the fact that most urban areas simply are unsustainable regarding climate change in the long term (no trees to provide shade = lots of heat).
If zoning/regulations were relaxed, the density would almost instantly start to increase. Land value is high where I live, but there would be new, denser building projects in the suburbs and CBDs alike. I'm not arguing that it would be ideal in all cases, but it answers the "where" question.
Agricultural land here in the Netherlands sells at 6 euro per m2. With a single stroke of a pen that ground can become 300 euro per m2, when the municipality decides you can build a house there.
Same process in Germany. There is more than enough space. Problem is the price of plots is kept artificially high by municipalities, because they rely on the easy money it provides to finance their projects.
> Plot values have doubled BECAUSE OF regulations!
Hard disagree here. Munich, Berlin and Hamburg simply don't have much land in their borders any more. In Munich, we only have two major unpopulated areas left - the SEM Nord (900 ha, 50.000 people) and SEM Nordost (600 ha, 30.000 people) [1], and the currently under construction projects Freiham (25.000 people) and Bayernkaserne (15.000 people).
The opposition to these projects does have valid points, too: a city as large as Munich absolutely needs recreational areas for the populace as well as green areas for micro-climate and recreation, and the amount of both is really really low - the traffic to the existing lakes or the nearby Bavarian Alps is already immense and the areas are all struggling with the regional-tourist population issues like overcrowded trains, trash being left everywhere including in natural reserves or on farm land [2], overcrowded parking lots and vandalism [3], leading to sometimes outright violence against tourists from Munich [4].
"Just build more dense housing" may sound like an easy way out, but (too) dense housing has immense followup costs as well as all these people have to have other options in their lives than slave away as corporate drones and sleep. Otherwise, you end up with Japan-style psychological issues.
Take this area, plenty of plots now housing cows. Distance to city centre (by car!) is 20 minutes.
Same thing to the North West, in between Munich, Grobenzell, Puchheim...
Buddy you are buying into the horsecrap being told by current homeowners. "It's full!"... Nope, not really. Just like in the Netherlands, about 50% of land in Germany is farmland. And even outside of big cities like Amsterdam and Munich there's plenty of space left. But you're not allowed to build there, let alone build high apartment complexes...
> Take this area, plenty of plots now housing cows. Distance to city centre (by car!) is 20 minutes.
That area is precisely the site of the SEM Nordost [0], one of the two major remaining new construction areas. And as you can see on that newspaper map, it's the border of the city - the area to the east is already Aschheim territory. Munich cannot build outside of its borders, no matter how much farmland there is.
> Just like in the Netherlands, about 50% of land in Germany is farmland.
Uh, yeah, we have to grow the food we eat somewhere, Germany has over 80 million people to feed. We already import way too much food from elsewhere, especially the Amazon rainforest where beef for export to Europe is made on burned down rainforest area.
The territory of the city of Munich is already full, and you completely ignored my last point above, that a city also needs green areas for fresh wind to come into the city, recreational areas for the people, and that high-rises and other highly dense developments bring their own problems with them.
On other hand if municipality is struggling to attract people in Finland, they will give those plots of lands for essentially free. Or that is nominal cost of 1€ . Actually transaction happens when construction begins.
Then again those prices are in dying areas with little going on.
>> The fix is to enable builders to build enough housing, and not just single family detached housing, by removing regulations which allow NIMBY-ism.
I remember when Mayor DeBlasio (https://en.wikipedia.org/wiki/Bill_de_Blasio) was running for Mayor in NYC. He was hugely against high-rise high-density condos in Brooklyn adjacent (4th Ave) to expensive $2M+ brownstones (incidentally where he lived, in Park Slope!)
He was the "left" candidate and didnt seem to understand the concept of supply and demand. Nor the concept that no every city dweller can afford a $2M brownstone.
The problem is that Left and Right alike wants to perpetuate the system because they are all so fully bought into the system. I'm sure Mayor DeBlasio fully understood the economics here, but supported NIMBYism because he and his money base wants to keep their wealth.
That also means this isnt a left or right issue, its more of a hopeless issue. The only way out is to buy into the system and join them.
> The fix is to enable builders to build enough housing, and not just single family detached housing, by removing regulations which allow NIMBY-ism.
This is the short term fix, and I completely agree with you.
The long term fix is, aside from letting local governments make minor regulatory changes to facilitate denser urban construction, to simply do nothing.
Cities are expensive. People will (and are) moving away from HCOL areas because of this. Businesses are adapting (e.g., with remote work) to hire people living in MCOL and LCOL areas. At the same time, new economic agglomerations are springing up in these areas to support growing populations.
Given enough time, two things will happen. Many of these MCOL and LCOL areas will become more expensive. Some will urbanize. Some wont. Second, eventually, people living in the areas that don't urbanize will realize that they actually would enjoy living in a HCOL area. And the cycle will continue.
> The fix to the housing crisis would be to invest in rural areas again
There’s actually a really big, fundamental problem with this approach. Cities hugely subsidize rural infrastructure already. Tax income generated by rural (and even suburban) developments can’t repay the construction and maintenance cost required for upkeep. Partly because it’s not dense, and partly because typical rural/suburban economic development looks like a stroad with chain restaurants and huge parking lots. (Where most of the land isn’t being economically productive, and the land that is isn’t really boosting the local economy that much.)
This looks like a positive feedback loop. People move to locations where there are many jobs available, so end of employment would not require moving to another location. More jobs are created, where there is higher availability of candidates.
Even that probably has a root cause. Capitalism, efficiencies gained from concentrating resources in a single location, network effects etc?
In the UK, jobs used to be at local factories and offices. It was rare for people to move for university then move to another city for work.
My Grandad worked at a local electronics factory. My Dad worked at a local auto parts refurbishment factory. My mother in her early 20s worked as a secretary for the emergency services. Moving away for university and then again to another city for work was almost unheard of. You worked and lived close to your family. Of course the 80s came along and everything changed.
+ job hopping. Moving to factory town is fine if you can see yourself working here for decades. But nowadays when people are expected to switch jobs frequently... Both sides could win a lot by agreeing to loyalty.
Is this really true though? Sure a tech worker can move to rural Arkansas and live very easily, but in general, housing prices often correlate with local wages and most people can’t work remotely.
It’s frustrating to because housing really is one of those areas that you could just throw money at to solve. The government could build huge towers of apartments, maybe even on federal land, and sell them at cost. But this straight up does not happen.
In my opinion, I think the housing crisis in the US is mostly down to the limitations of our legal constructs of property. Right now, you basically own your house, including the land and its other rights, as a whole rather than as a condition of occupancy. In this way, it means that any house, especially in popular areas, are always a good bet and will rarely lose value. As the owners of housing continue to reap benefits beyond the scope of occupancy, everyone else is effectively paying interest to live. In my view, there needs to be a complete re-work of property norms surrounding housing but the chances of that happening is probably zero at this point in history.
Housing crises are a symptom, not a cause. The root issue is demographics, specifically the worker-to-retiree ratio growing at a rate that outpaces productivity growth. Since saving is essentially impossible at societal scales and generational timeframes (how exactly is a car built in 1980 supposed to cause more nurses to provide healthcare in 2020?), tomorrow's workers have to be coerced into transferring real goods and services to tomorrow's retirees. There's essentially two broad categories for this: "saving" by exchanging unconsumed current production for financial assets from retirees, and paying taxes.
If you managed to fix a housing crisis, the only way of doing so is torpedoing retiree financial assets (mix of personal home equity and pension fund), which would shortly cause an increase in entitlement transfers to sustain retiree standards of living. The only way to ease the combined tax and rent-seeking load on younger workers is to reduce the total transfer to non-workers, and the political balance of power forbids this, so things will remain fucked.
I feel like this kind of zero-sum argument does the rounds quite frequently.
The reality is that housing is the main mechanism used by the older wealthy folk for their pensions, and subsequently transfers wealth up through the generations.
What we need is a way for all that unproductive capital used to directly fund the businesses of the young, growing the real economy (rather than the financial).
Alongside that, additional legislative arrangements to provide security for renters.
Pension pots should be a return on investment, not speculation.
> What we need is a way for all that unproductive capital used to directly fund the businesses of the young, growing the real economy (rather than the financial).
You're conflating financial "capital" with real productive capital here. In real terms, non-productive financial assets simply do not matter; whether landlords extract a billion or a trillion dollars makes not a whit of difference in the real goods and services the economy produces.
If you redirect financial assets from bidding up the value of housing to bidding up the value of small businesses, you've simply moved the siphon from cost of rent to the cost of owning your own business and/or suppressing wages.
Yes, businesses produce actual value. The problem is in what you're diverting from, the ground rents extracted by artificial housing supply constraints. Whether you pay your landlord $X or $Y has zero direct effect on the total amount of real goods and services produced and consumed by the economy as a whole, it's purely redistributive. So if you reduce the total amount of rents paid to landlords, you are enriching renters at the expense of landlords without changing the total size of the real economy, and there's no real goods and services freed up to then be productively used by businesses to generate actual value.
Apologies here, my previous comment was a little flippant (I was at the pub…).
There's absolutely an argument here that rents, as a basic dead-weight cost of all people within a society, don't affect the real economy or productivity.
This could be true, but only if the access to finance is distributed across society relatively equally, with a positive effect on productivity. My understanding of, at least in the UK, is that it's not.
The relationship between financial capital and other forms is lossy at the moment — the purpose of financial capital is the creation of new goods and services, and we've spent 40-odd years making sure it goes largely into something that already exists (housing).
In that process, funding for new stuff, for non-rent economic activity, hasn't been properly funded.
Apology accepted, and I'll take that as permission to try to re-explain myself while I'm three beers deep.
There's an economic analysis trick that can cut through a hell of a lot of cruft and confusing abstraction - whatever happens with the dollars and financial instruments you ignore, and you take a pure look at the real goods and services involved. In these terms, the landlord/tenant relationship looks like "some guy makes a bunch of widgets and only uses some of them, selling the rest for rent money. The rent money can be used to buy those widgets, letting the landlord consume that many widgets without physically making them. Generalize this about generic 'stuff' instead of just widgets."
This is what bothers me about your suggestion to redirect money from non-rent economic activity. How do you want to redirect the widget consumption to make the actual physical changes necessary to have additional productive economic activity? Do you want to apply the squeeze to landlord, tenants, or both? And again, I'm not asking where the money comes from because it's completely irrelevant to this analysis: a more productive set of businesses will require more machinery, warehouses, etc. The labor and material used for these come at the expense of making other stuff, and this physical investment of real goods and services is someone's stuff that they made without consuming.
Like, the lack of an answer to this question is really what makes me think this solution is wishful thinking. There's many answers to the question of who gets squeezed in terms of real consumption, but with very different consequences:
1) Nobody gets squeezed. Workers produce and consume the same, there's the same amount of real businesses, and the same amount of non-worker consumption. The difference is something like "instead of your job paying $4000/mo (after tax) while rent is $2000/mo, now your job pays $3000/mo and rent is $1000/mo". You still have the same excess production over consumption, but more of it gets siphoned off by your employer instead of your landlord.
2) Landlords get squeezed. Rents might get reduced, but this isn't necessary - what matters is landlord consumption goes down. If rents are lower, then workers have excess consumption available, but they forgo it in favor of productive investments in new businesses. If rents don't go down, then landlords forgo this consumption in favor of productive investments in new businesses. Either way, it's landlord consumption that is reduced, the only thing that changes is the nominal owner of these businesses.
3) Workers get squeezed. Rents might or might not change, again, and it's only relevant for who the on-paper owner of these new businesses are. If rent is the same, then workers have to save more and forgo more consumption to make the businesses exists. If rents change to finance this, then they go up so that landlords can build businesses without reducing their consumption.
4) Mix-and-match between the effects of various changes. You can literally get all three of the previous situations simultaneously - businesses get better at underpaying employees for their owners' benefit, landlords consume somewhat less, and workers also consume less, all while rents do anything.
In summary, allocating more investment into non-rent economic activity requires someone to not consume the real goods and services that go into making these businesses. It's some combination of the renter and the landlord depriving themselves of consumption, and if neither consumer budgets on the question then you've merely changed the financial description for why identical real transfers are happening.
Thanks, I appreciate your response, and agree on many of your points.
> whatever happens with the dollars and financial instruments you ignore, and you take a pure look at the real goods and services involved
The trick of forgetting about money altogether in definitions of wealth is incredibly useful. It's definitely an idea we're missing today, when we're surrounded by ideas of wealth being primarily measured in currency, I think, but you're mostly right in that economics is the art of redirecting real resources in the real world.
There's a nice history to the idea too, where theorists as broad as the Georgists, who discount finance (and land) in their definition of wealth [0]; or Ricardo, who used it as a basis for Metallism from a perspective of a (mostly) labour theory of value.
If any reprioritisation of mortgage or buy-to-let finance ever happens, as you've rightly described, there will be various squeezes and reallocations of consumption and production. But what I think you're underestimating is that other configurations of the economy can be more (or less) productive than this one, even given the same amount of labour, energy, and resource.
> How do you want to redirect the widget consumption to make the actual physical changes necessary to have additional productive economic activity? Do you want to apply the squeeze to landlord, tenants, or both?
If you're solely talking about physical widget consumption, I don't think our current arrangement is particularly efficient. In the UK at least, new dwellings have mostly kept pace with population increases — we've got more bedrooms per capita than we've ever had in aggregate. Even so, there's still been a reduction in availability of rental properties and ownership for vast swathes of the population, notwithstanding the increases in homelessness and housing insecurity, with all of the stress and inefficiency that creates. Tenants (and prospective buyers who are attempting to save huge deposits) are also likely to consume the least, so we could theoretically redirect that consumption into other pursuits.
If we flip that around and talk about misallocation of widget production, there are very real resources today that are ultimately directed into purely financial returns, that could otherwise be directed in more productive, wealth-creating opportunities.
That's everything from:
– Landlords who would otherwise be working to produce goods and services, alongside all of the legal, retail, and management support they receive.
– Builders, architects, and project managers who are working to extract more of their tenant's labour, by badly refitting existing dwellings into flat shares, HMOs, rather than building new towns and cities.
– Financial institutions spending much of their time and energy on creating financial returns above increasing the real wealth of society.
– Tenants, who may otherwise be able to invest in other productive activities.
– People currently working in other industries, which may or may not be particularly useful to society (I have my list of favourites…), who may switch to a productive one.
– Speculative land investments from builders, who are using real energy to devise and capture the inflation created from QE, alongside various demand-side reforms like Help to Buy.
From a macro perspective, around 70+% of new money created in the UK goes into existing housing stock, and is mostly inflationary. We appear to have stumbled into a system where this financial inflation is captured by some and not by others, leading directly to inequality and the misallocation of real wealth.
There are many issues around housing, some derive from capitalism, like building apartments because doing so milk more money from a handkerchief on land, but some simply due to different evolution speed from human needs vs buildings lifecycle.
I see at least two kind of schools on housing, one who talk about cheapness, typically from USA, Japan and few others. Another who talk about forever and ever duration, typically from south EU. Both have reasons and both to the extreme prove to be a disaster:
- in the JP/USA model a simple strong wind or a flood (from EU perspective) suffice to demolish houses, making big damages etc
- in the southern EU model houses are VERY old, they do not respond then to current needs and evolve them being not design to do so is a nightmare
Some countries choose the "division" model, like almost in the entire north-America with their residential-only suburbs, some mix at unbearable high density. Both models prove to be disastrous: the suburb model impose too much travel and being tied to some "district" nearby became a graveyard when the district change; too dense southern EU and Asian cities suffer the opposite issue: little travel is needed but things are so concentrated that there is no room to evolve.
Old Romans have a proverb: in medio stat virtus, "in the mean live the virtue", and I think that's well valid for housing... Too much dense => fail. Too little dense? Fail as well. Too diversified => fails, too much scaling issues. Too subdivided? => fails can't survive for long. Unfortunately evolving from a model to another, no matter if the change is good or bad, take MUCH, MUCH, MUCH time. Around homes we need infrastructures, like roads, aqueducts, power lines, TLCs, ... building a single home might be quick and easy BUT change the infra around normally is not. We still do not have the '30s dream of flying homes or semi-autonomous starships that can be moved easily everywhere... So far we do not even have flying cars (while they might be there technically)...
That's not much tied to richness: poorest countries have their housing issues as well, just in different terms. It's tied to the lack of Star Trek alike replicators and tech. Something that's not on the horizon nor for the rich nor for the poor. Is something we can and should tend to, but knowing it's far away.
>We still do not have the '30s dream of flying homes or semi-autonomous starships that can be moved easily everywhere... So far we do not even have flying cars (while they might be there technically)...
There is a kind of home that can float anywhere though, I'm quite far long in my plans to move onto a sailing yacht. While my main motivation is a lifelong love of sailing and a desire for a nomadic lifestyle, I'd be lying if I said a small part of my motivation wasn't that shovelling money hand-over-fist into keeping a boat I own seaworthy is much more satisfying than shovelling money hand-over-fist into some random baby boomer's BTL portfolio every month!
That's was done by some, experimented on scale by very few and... well... it prove to be not really feasible: boats are expensive, far more than homes. All the efforts to made cheap and large-enough house-boat led to crappy stuff who do not last much. You need anyway much more raw materials and maintenance, most water is salty and salt corrode anything, lakes are too few and might make unpleasant drought issues and unpleasant waves... Insulation is an important issue, so energy consumption is. You can't even have good p.v. just because of limited AND constantly moving surface (your inverters suffer much a constantly crazy p.v. input).
You need fresh water and the cheap way to get is is from land, so you need land infra anyway, you also need food and you can't produce it locally, yes you can fish, but you do not live well ONLY on fish and some algae... Beside that logistics is a nightmare.
Long story short: FEW can live, perhaps even very well for some of them, on boats, but only if most others do not. That's an important issue too many forget even when they speak about Green New Deal: yes, we live in homes. We might WFH. BUT we also need factories, hospitals, schools, they are mandatory to live well and they need to be counted in the game: we need to sustain them as well. We need workers and they need a life as well. That's not much "housing problem" but is tied because we need a home to live BUT we also need to be physically nearby something else to do so as well. The dream of an autonomous home is not much different than the dream of an autonomous house-boat or starship or house-truck, house-airplane etc we can made "relatively autonomous" homes, tucks, ships, airplanes, ... where relatively means "you are free to live in in comfort FOR A LIMITED PERIOD OF TIME until something breaks, for instance, and such "things" can exists for you just because there is a complex industrial and social system behind. We still miss the 3D printer able to print itself...
That's the real issue... We are able to reproduce ourselves only with our body (well, if we can keep alive in nature) but we can't do the same for anything we build...
I'm not claiming that my life choices would scale to be a viable option for the majority of the population but it doesn't have to scale to be an option for some people who are already interested in that kind of lifestyle. It's not a society-scale solution to the housing crisis but it's definitely an option for people in the position I'm in personally.
Also it's not necessarily correct to say you require land-based infrastructure; you can be somewhat independent from the shore for long periods on a sailing boat since people do ocean crossings all the time, you obviously don't need fuel for propulsion, you can generate electricity with various renewables like solar, wind, and the boat's motion through the water under sail, and your water supply comes from the sea via a reverse osmosis machine. Provided nothing breaks beyond your ability to repair it you're effectively limited only by what food you can carry.
I read once that as a peasant serving under a lord you were usually guarantied land via agreements that went back generations. It’s funny how some things feel like they slide backwards.
there are thirty empty housing units for every single homeless person in the US, but sure, housing supply is the issue. let's deregulate the construction industry and have our own Grenfell!!! :)
Which is odd because piketty's data are entirely in line with the message of the article: overconcentration of wealth and prices going up. And Piketty has the 'solution' as well: the only times when inequality violently decreased was during world wars. I'm not sure how we can go about having one
It's odd that they picked a single statement to critique but neglected the larger message (in my reading of Capital and Ideology which he changed his mind a bit from his earlier work as I understand it) about capital accumulation, which has little to do with income for the very wealthy or even location. It is a pattern which continued in every country even after changes from feudalism to capitalism or communism to capitalism or feudalism to state communism no matter how much democracy was involved - the constitution or founding documents put too much power in those with lots of capital and this cannot be changed without changing the constitutions and financial transparency of cross national dealings.
Undertaxation is rarely at the root of investment bubbles. Housing is the only one off the top of my head where I can envision a convincing argument for it being the chief reason. For like 80% of recorded asset bubbles in history undertaxation of operations with the underlying asset/security would never be mentioned by finance people.
During the early years yes. Though this was likely as much to do with the fact that Russia was undergoing industrialization and urbanization in these years, which is a stage of development that has produced housing shortages in almost every country that has undergone it.
Also there is the fact that much of the urban West had been destroyed in the incredibly brutal fighting of WWI, the Russian Civil War and WWII which left as many as 7 million unhoused orphans alone. With these considerations it's not as easy to ascribe the lack of housing to the Soviet political economy. Remember, the Soviet Union didn't get a Marshall plan like Europe.
The housing projects under the post Stalin premiers eventually mitigated much of the problem but there appear to have been chronically homeless still that were largely jailed (an outcome ironically similar to what we see in the U.S.).
The solution is always to invent new system, we as a human race must be continually experimenting with our systems. For example, look at Singapore's model for housing.
Having the have it alls at gunpoint, forced to demonstrate the systems fitness & benefits to the citizens or perish. Which is why there needs to be a elphant graveyard clause in tax-law, that destroys all monopolies via taxation.
excuse me, what? they got their housing under control just as soon as they were able to modernize their agriculture-based economy into a modern industrial workforce in less than 50 years
Everybody here comment about the US and their tax or zoning issues but those problems exist everywhere, it is not like houses in London or Berlin are cheap, even with entirely different laws regarding, renting, taxes and zoning. There are also other issues like population growth, city planning and transportation. Many cities in Asia get it right and the prices there are more reasonable, Tokyo is a good example, but you need a combination of all the parameters above, changing just one of them is not going to work.
Housing is (along with healthcare in the US) a big part of why most people in the so-called "rich world" are in fact dismally poor, only one missed paycheck or turn of bad luck away from life becoming unlivable.
For most of us poors, money is a tool we need to survive. For the people who have the bulk of it, it's a weapon. And we're the targets. They love blowing us up; it's what they do. They care more about making others suffer than the material comforts (to which hedonic adaptation accrues quick) money affords. Putting the few "good jobs", the few jobs that offer us even a sliver of a chance (like 1%, but we're expected to work as if it were 95%) of being something more than an exploited worker, in congested and dysfunctional expensive cities is something they do because it's hilarious to them.
Barring a complete and final overthrow of corporate capitalism, you can't escape this crapsack world. The important land is already owned by reptilian shitasses. Billions of people are going without drinking water while a bunch of psychopaths fly around in private jets, destroying the planet because they find it comical.
> Housing is (along with healthcare in the US) a big part of why most people in the so-called "rich world" are in fact dismally poor, only one missed paycheck or turn of bad luck away from life becoming unlivable.
Not really.
Let's set up a quick boundary condition. Since you mentioned most people, you're talking about the lower-middle and middle classes. Let's keep the discussion on them. The working poor have it bad almost everywhere, and I think we both agree that there's more that can be done in most countries to support them.
For someone with a median household income, it's still very much possible to finding housing that is less than 25-30% of their household income. This is true even in high cost of living (HCOL) areas. Now, there are some cities or sections of cities that are unaffordable for someone with a median income, but these are very much the exceptions.
To put it simply, if you have a median household income for your country, in almost all locations in almost all OECD countries, you earn enough to follow a household budget that allows you to save 15-20% of your take home pay. If you can't save a portion of your income and you're not living off of a below-average wage, it's very likely that you either made decisions that aren't conducive to saving (e.g., you're house poor, car poor, or your discretionary spending is too high).
> along with healthcare in the US
Quality health care is expensive in most countries. The US has its own set of issues that make health care more expensive than in most other countries (e.g., population density), but it's not orders of magnitude higher. It's also offset by the higher salaries that people in the US earn over, say, the average EU state.
People will naturally spend beyond their capabilities, and the entire market is built around this (loans for everything is standard now).
The ONLY way to prevent this is to either stop offering loans or force savings in some way (taxes, etc). But apparently both those options are off the books.
> The ONLY way to prevent this is to either stop offering loans or force savings in some way (taxes, etc). But apparently both those options are off the books.
This is how the system is actually designed. Social security is a mandatory annuity/savings and disability insurance program. Many countries also have mandatory contributions into their 401K (OECD Pillar 2) equivalents.
Even in the US, where these contributions are mandatory, the tax code is set up to make them extremely desirable for the employer and the employee.
> loans for everything is standard now
Stopping this would be as simple as having an indebtedness line added to the tax code. In many countries, there is a maximum level of debt that a person is allowed to carry. Companies aren't allowed to issue new debt if the repayment for all of their current debt exceeds some percentage of their income.
It's not that consumer debt "helps to fuel" the economy; consumer debt is the only reason the economy hasn't collapsed in on itself already.
Henry Ford wasn't a good person. He was a rabid antisemite. But even he knew that he wouldn't be able to sell cars indefinitely if people couldn't afford to buy them, so he raised wages. The bosses, as a class, no longer have to do this. They can make enough fake money out of debt to keep their businesses alive. So that's what they're doing.
All this means we get artificial mediocre prosperity that is contingent on their piles of money getting bigger (i.e., all economic growth, meager as it has been, goes to them). And we know that they are willing to crash everything (or, to give an example that has actually happened, make lots of people sick with Covid-19) to keep themselves in charge and their piles of money growing bigger.
If the consumer debt game ended for some reason, the whole system would collapse immediately.
It's really not, at least when you compare OECD countries with one another.
For instance, per capita healthcare spending in the US is 11.4K. The OECD average is around 5.7K
Now, there are a lot of reasons for this gap:
1. Salaries are higher in the US. Health care workers are much better compensated there than, say, in France or Spain.
2. The US has a much lower population density. There are a lot of fixed costs with health care. There are real cost advantages to having a large majority of your population in dense urban areas.
3. The US is first to market/first to adoption for a lot of medical innovation. The R&D costs for anything health care related are enormous. Early adopters bear the brunt of these costs.
4. The US has a hybrid health care model. The two countries that use this model, the US and Switzerland, are one and three respectively for per capita health care spending.
> since the second world war, governments across the rich world have made three big mistakes. They have made it too difficult to build the accommodation that their populations require; they have created unwise economic incentives for households to funnel more money into the housing market; and they have failed to design a regulatory infrastructure to constrain housing bubbles.
The monotonic rise in the cost of housing is because of speculation. But this speculation is "legitimate" capitalism. The corpocracy certainly discourages the leftist notion of limiting capitalism.
> Housing is also a big reason why many people across the rich world feel that the economy does not work for them.
Housing is one of the reasons. Food, healthcare, and the environment are other reasons.
Speculation is not the cause, rent-seeking regulations are the cause. And these regulations are driven by the demands of ordinary homeowners seeking to protect their investment by artificially constraining new supply.
> Happily, they are at last starting to recognise the damage caused by these policies.
No, nothing changed, if anything it got worst post covid. The only countries that can do something are singapore and china, who are rationally treating housing as a basic need similar to food. In the western world things will probably never change on that front. The boomers built houses because they knew they d be appreciating forever - and they did, beyond their wildest dreams, while the economists were cheering. Millenials and GenZ will not touch housing because it's not an opportunity, and the barrier to entry is too high. Instead of housing bubbles, GenZ creates meme stock and crypto bubbles, and whatever comes next with the metaverse. Housing is very broken in europe, germans are building houses in the south where it's still cheap for their retirement. The housing stock will keep consolidating to fewer and fewer people, while the middle class will be using remote work for location arbitrage.
China is a terrible example lol. They have a massive problem with real estate bubbles. Singapore does indeed do a good job, the government builds large amounts of high quality affordable housing. However, Japan has had success with a more privatized approach, by simply making it easy to build new housing.
> The only countries that can do something are singapore and china, who are rationally treating housing as a basic need similar to food.
So why are people in China paying hefty loans for apartments that haven’t even been constructed yet? And now due to the housing bubble popping, construction has halted in so many parts of China that there is an epidemic of Chinese people who are refusing to pay their mortgages, and banks are refusing to let go of people’s money because fractional-reserve banking. China sure do have a serious housing crisis that’s arguably worse than that of the west.
Housing is not the root of the problem. The root of the problem is our current inflationary debt-based monetary system. Banks create currency by giving out mortgages, and mortgages are backed by real estate. Currency used to be backed by gold, and now it's backed by real estate. In other words, real estate has become money.
> Currency used to be backed by gold, and now it's backed by real estate
No it isn't. Mortgages are not the only kind of fractional reserve banking. The currency is also fiat, its backed by the market's belief in the strength of the US government and economy. Gold back currencies also had pricing shocks, inflation/deflation and a myriad of other weird issues.
You're parroting the least informed version of Austrian Economics.
Do you have any idea how many people were under housed when the gold standard was the international order?
The mid century boom in housing is almost certainly a direct product of the inflationary and easy credit economy that was created by loosening the gold standard.
Let's surround single family urban homes with high density apartment complexes and low income housing, and then act big mad when those people paying all the taxes and propping up the local public schools up and leave.
All of these trendy YIMBY schemes are great. All they need is a proviso requiring all the targets of the schemes to stick around while their neighborhoods and schools go downhill.
Dense urban neighborhoods are the ones propping up the single family neighborhoods, not the other way around. The infrastructure costs per taxpayer are way higher in low density neighborhoods. All those extra roads, sewage lines, water lines, power lines, street lights, etc. add up. The single family homes are the leeches not paying their fair share.
You'll get to test your hypothesis that middle class families are the real problem with urban life when they quietly ghost on urban zones subjected to these cool ideas of yours.
Lots of middle class families (to say nothing of the extremely wealthy, who also often live in dense city centers) live in apartments and condominiums lol. It's the single family homes that are the problem. They are wildly inefficient in terms of land use.
When AMD or NVIDIA sell GPUs to scalpers, and those scalpers resell the GPUs and keep the profit, there's outrage about it. Nobody ever says to "build more GPUs" to fix the problem.
When houses and new developments get snatched up by investors and landlords as buy-to-lets (or even by Blackrock and pension funds), there is little outrage and calls for restricting who can buy them. The same argument is rehashed over and over and over again. Just build more houses!
I feel that there is a disconnect between these two schools of thought. I personally believe that, while indeed more houses should be built, we should also have a serious discussion about whether houses should be sold en-masse to very wealthy investors
Building more GPUs requires billions of dollars of investment and many years to build a new fab. Building more houses requires only several hundred thousand dollars to form a new construction company and train some workers. So it's not a good analogy. It is physically possible to just build more housing in high-demand markets.
Separately, GPU scalping is (was) only happening because of cryptocurrency booms which everyone knew were temporary. Not many people are naive enough to scream for AMD or NVIDIA to spend billions of dollars on new fabs because of a temporary trend. The housing supply issues, on the other hand, have been brewing for decades and are not temporary.
> Building more houses requires only several hundred thousand dollars to form a new construction company and train some workers.
Hahahah look at this guy!
Bet you never tried to get a permit for home construction? Shit can take YEARS in most states/countries. Even worse if you dare suggest to make apartment complexes. N I M B Y
One, chipmakers are indeed building new factories to increase production of chips, so your entire premise is incorrect. Two, the people criticizing the scalpers are wrong. NVIDIA and AMD were simply generous enough to not raise the price of their products even though they could have, demand was high enough to justify it. Scalping GPUs is fair game. Three, the number of houses being bought by investment firms is negligible. It's not having a significant effect on prices. It's the land use restrictions that make building housing difficult or impossible that are the problem. Particularly those that restrict multifamily housing.
>Housing has never been this much of a problem up until the past decade or two.
This is certainly untrue. Possibly housing has never been this particular problem in this particular place. Housing affordability plagued Germany of the early 20th century. Low quality housing of the type not possible to obtain in the US was widespread in US cities before the last 50-70 years.
>Population is the problem.
Misanthropic nonsense. Show us your 'math', if you're so sure of yourself. And better yet, state your underlying assumptions for all to see.
>This is because the 'rich' people countries are having a population explosion despite the native 'rich' people havong a negative birth rate.
Can you list these rich countries with 'population explosion[s]'? Population growth rate in the US is at its lowest since 1960 (start of the readily available data.) Considering the shift of the population toward the elderly in the rich welfare states like the US, we actually have a reckoning coming from too few working age people.
> Housing affordability plagued Germany of the early 20th century
You gotta reach back to over a hundred years ago to find an example?
> Can you list these rich countries with 'population explosion[s]'?
What the hell are you talking about?
The population in the US is the highest it's been in history.
You're using a bullshit metric like growth rate which is a percentage of constantly increasing number? 1% of 100 is the same as 50% of 2. Of course the growth rate goes down as the population goes up.
The natives to the country have a declining birthrate. This is the responsible thing to do.
This decreases the population and returns the US to a stable population density.
If the US wasn't flooding the country with over a million non-natives every year both population AND housing would stabilize and NOT be a problem.
Population is the issue or more specifically non-native population.
Next, the housing shortages in other previously-afforded cities are being bought up by... other Americans, some moving from such expensive metros. That boom that happened during the pandemic might finally be reversing:
This isn't Malthusian. The world can support current population.
Just the worlds entire populations wants to be in a small part of the world America or Europe for some reason.
Which isn't sustainable and is destabilizing those places.
The ultimate solution is to make other places desirable to live, which is confusing because the US and Europe are only a small portion of the worlds landmass.
Then why did Japan face a massive housing bubble in the 1980s, despite low immigration? And why did their housing problem only go away when they reformed their zoning laws to allow people to build? Population is a negligible factor. Laws restricting land use are artificially constraining the supply of housing, and these laws have grown more common and more popular.
This sounds like a bullshit post-hoc rationalization for xenophobia. There's no valid reason to deny entry to any and all immigrants who are willing to work and have clean criminal records. Which side of an imaginary line someone is born on shouldn't determine whether they are doomed to poverty and oppression.
>Housing has never been this much of a problem up until the past decade or two.
>You gotta reach back to over a hundred years ago to find an example?
So, by 'never', you meant somewhere around 60 years? 75 years? I ask because you discount my 80 year-old example (chosen by availability because I'm reading an interesting book on the economics of Nazi Germany right now) as if it couldn't possibly be relevant because it's so long ago, while appealing to 'never' to attempt a weighty claim.
>The population in the US is the highest it's been in history.
And I hope that will continue, though things look bleak in that regard.
>You're using a bullshit metric like growth rate which is a percentage of constantly increasing number? 1% of 100 is the same as 50% of 2. Of course the growth rate goes down as the population goes up.
Yes, I'm using a percentage term for growth rate because it is appropriate for the comparison, unless you believe in some immutable constant carrying capacity for the US. Adding 1 million people to 10 million is not remotely similar to adding a million to 330 million, but that's the version you're arguing for.
>The natives to the country have a declining birthrate. This is the responsible thing to do.
Responsible to what? It's suicide by an entire species, not to mention dooming your descendants to lower standards of living as the viability of specialization gradually decays.
I'm out of time to respond to this comment, but your remaining points are equally in need of correction.
> And I hope that will continue, though things look bleak in that regard.
I suspect you hope that continues because it benefits you and your agenda. Not because it's what's best for a country.
If you don't understand basic science like carrying capacity of an area and stable population density...and how population's expand and contract to meet that stable density...if left without interference...then yeah, you're not going to understand my point.
I suspect you have an agenda so it's not a productive conversation.
