by ethor on 8/17/22, 7:55 AM with 789 comments
by technocratius on 8/17/22, 10:34 AM
by idkyall on 8/17/22, 2:56 PM
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.
by datacruncher01 on 8/17/22, 3:03 PM
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.
by kindatrue on 8/17/22, 3:17 PM
===
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.
<address>
4 Properties on <street>
===
Everyone economic freedom and deregulation, until it means more people living near them.
(From https://www.theatlantic.com/ideas/archive/2022/08/marc-andre...)
by pochekailov on 8/17/22, 10:23 AM
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.
by throwaway22032 on 8/17/22, 10:51 AM
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.
by infogulch on 8/17/22, 6:04 PM
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?).
by nemo44x on 8/17/22, 8:44 PM
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.
by reillyse on 8/17/22, 7:05 PM
The overarching issue is that housing (something everyone needs) is being treated as an asset class.
As an asset class people who own it want it to increase in price which gives the government an incentive to maintain and increase this value.
Unfortunately this makes it more and more expensive for people who need housing.
Decoupling housing from investment is the solution but it is politically unpalatable now given the state we are in.
That is the real problem. Everything else is just a symptom of it.
by t_mann on 8/17/22, 10:52 AM
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).
by obblekk on 8/17/22, 3:44 PM
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!
by cesarvarela on 8/18/22, 12:10 AM
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.
by fallingfrog on 8/17/22, 2:37 PM
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.
by c7DJTLrn on 8/17/22, 9:08 PM
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.
by rthomas6 on 8/17/22, 9:38 PM
The profit from owning land becomes whatever use you put the land to, instead of profiting just from owning it.
I could talk about Georgism for paragraphs, but this does a better job: https://astralcodexten.substack.com/p/your-book-review-progr...
by sytelus on 8/17/22, 10:50 PM
by 11235813213455 on 8/17/22, 6:05 PM
- 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
by 11101010001100 on 8/17/22, 6:18 PM
by anonymousDan on 8/17/22, 3:36 PM
by obblekk on 8/17/22, 9:45 PM
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.
by romel on 8/17/22, 10:54 AM
by rhacker on 8/17/22, 5:35 PM
by lbrito on 8/17/22, 6:25 PM
The whole non-anglosphere world works like that, more or less. Why are people so afraid of it?
by mantas on 8/17/22, 9:44 AM
by thehappypm on 8/17/22, 8:24 PM
by ladyattis on 8/17/22, 6:18 PM
by amar-laksh on 8/17/22, 8:22 PM
by yrgulation on 8/17/22, 8:44 PM
https://ercouncil.org/2018/chart-of-the-week-week-46/
For those a bit challenged, here’s a list of high income east eu countries:
https://en.wikipedia.org/wiki/World_Bank_high-income_economy
by ThrustVectoring on 8/17/22, 4:27 PM
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.
by kkfx on 8/17/22, 11:42 AM
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.
by robotburrito on 8/18/22, 5:49 PM
by FactKnower69 on 8/18/22, 5:45 PM
by black_13 on 8/17/22, 10:52 AM
by black_13 on 8/17/22, 11:38 PM
by fithisux on 8/18/22, 5:58 AM
by immmmmm on 8/17/22, 7:06 PM
by winReInstall on 8/17/22, 9:52 AM
Undertaxation is at the root of investment bubbles.
Accumulating economic energy devouring the containment of the system that created it, as at the root of the root of the rootproblem.
We need a dependency manager for discussion topics.
by golemiprague on 8/17/22, 8:55 PM
by psi75 on 8/17/22, 10:02 AM
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.
by heresie-dabord on 8/17/22, 11:17 AM
> 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.
by seydor on 8/17/22, 3:27 PM
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.
by Geee on 8/17/22, 2:21 PM
by wikitopian on 8/17/22, 7:05 PM
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.
by jason0597 on 8/17/22, 5:09 PM
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
by edmcnulty101 on 8/17/22, 2:31 PM
Population is the problem.
This is because the 'rich' people countries are having a population explosion despite the native 'rich' people havong a negative birth rate.
You can do the math as to why.
Housing has never been this much of a problem up until the past decade or two.