Under-35s in the UK face becoming permanent renters, warns thinktank
theguardian.com
theguardian.com
- Negative gearing: A deduction received on net rental income losses (e.g. I'm a landlord who pays $100 in loan interest, receives $60 in rent, so I claim a tax deduction of $40)
- Capital gains: I buy a house worth $100,000. A few years later I sell it for $260,000. I've made a capital gain of $160,000.
The under 30s age group receive:
- 1% of total negative gearing tax benefits, whereas the 50+ age group receive 55% (http://www.macrobusiness.com.au/wp-content/uploads/2016/02/S...)
- 2% of capital gains tax benefits, whereas the 50+ age group receives 76% (http://www.macrobusiness.com.au/wp-content/uploads/2016/02/S...)
It's inter-generational theft perpetrated by the baby-boomers, aided and abetted by tax policy. These tax breaks also cause of financial system instability and capital mis-allocation. The tax breaks are regressive: the top 30% highest income households receive 62.2% of total negative gearing tax breaks (http://www.macrobusiness.com.au/wp-content/uploads/2015/04/S...).
Personally, I think the main issue is that the distortionary effect of untaxed land rents are greatly amplified by capital gains tax exemptions. That, and housing market supply inelasticities due to restrictive zoning laws, property transaction taxes (i.e. stamp duty), drip fed land releases by local governments etc.
Eat the young!
It’s frowned upon to talk about this as a generational thing, but it very much is. Debt is the instrument to have now and pay later, and the debt burden is rampant everywhere. Modern economics has essentially disregarded the role of debt in the economy.[1] All our government institutions seem hell bent on maintaining asset prices at any cost.[2] There’s no sensible plan to even remotely reign in government debt. The world’s stuck at zero percent interest rates, handing out money to the politically connected, and growth is still anemic. Even at low rates people can hardly afford to buy anything since asset prices are so inflated.
I would like to believe we can deal with this in a reasonable fashion, but am skeptical. As can already be seen by the U.S. elections and elsewhere, populism is rearing it’s head on both the left and the right. It feels like a storm is on the horizon and I only hope it doesn’t devolve into war.
[1] http://blogs.lse.ac.uk/politicsandpolicy/ignoring-the-role-o...
[2] http://blogs.lse.ac.uk/politicsandpolicy/ignoring-the-role-o...
On the bright-side, even the most conventional institutional macro-economists are finally acknowledging these problems: http://www.bis.org/speeches/sp160210_slides.pdf
FYI the Bank of International Settlements is 'the Central Bankers' Bank', and the slides are from a speech given by its 'Head of Monetary and Economic Department'. The last dot point on the 'summary' slide (#2) really jumps out:
"Need to abandon debt-fuelled growth model"Come to Seattle. Reasonable housing costs, cheaper everything else and high american software engineering salaries.
SF has crazy housing costs, higher salaries, better weather and a bit higher cost of everything.
As an Australian a work visa is significantly easier for you than lets say a British citizen.
> As an Australian a work visa is significantly easier for
> you than lets say a British citizen.
For example, spouses can work on the visa.
Still the jobs market beats the pants off of Midwestern U.S. when it comes to software dev.
With only a few notable exceptions, some dying fast (mining jobs), the cost of living in Australia but not Melbourne or Sydney is any chance at meaningful career advancement. Adelaide, Darwin, Perth, Cairns and to a lesser but still noticeable extent Brisbane offer only small firms. Let's not talk about Hobart.
Though, for me personally this is brilliant and one of the reasons why I still live in Brisbane. The small firms have some big clients, and salaries are high if you're good at negotiating as there is a massive lack of talent in Brisbane/SEQ!
1. Higher than average wages mean higher than average prices. It's not much different to Melbourne in terms of house prices. Two full time prof incomes is the norm. Cost of living is higher. Quality is lower. 2. Fed gov is pretty backward and hard to get into (I voluntarily left after 5 years and no real prospect of job progression while still effectively taking below market wages at my org, while non-technical unskilled bureaucrats at other departments got paid 10-20k more, and I was politely informed if I wanted to progress, I would have to become non-technical/non-expert). Job cuts in recent years, promotion based on whether the person above you has died/left yet, and a policy of redeployment rather than competitive rehiring means it's really hard for young people. 3. You have to live in Canberra. Don't get me wrong, you really can make a career of it, and if you and your SO want to plop down, live in suburbia, have a child, and not worry about merit/skills/culture/tech/life while carrying a mortgage for 25 years, I can think of worse places to try to pull it off.
When you're on the outside, you figure all the clever folks in the 'central agencies' have got it figured out; they're tweaking their models and pulling the right policy levers at the right time.
When you get in, the horrible realisation hits you: no-one actually knows what the f* they're doing. There's no plan, no coherent goal, just a bunch of people doing....stuff. It's like you've wandered into the cockpit of a commercial aircraft, only to discover that no-one is flying the plane.
Are you a techie/IT person? It's a criminally under-valued skill-set in the public service.
I never worked in the "IT" streams (backend databases/helpdesk/hardware is kinda what I'm thinking of when I say that), but worked doing analytics for the ABS. Which at least at the time was one of the worse paying agencies in terms of the levels at which tech staff are employed, and by tech staff, i mean, people with specialist skills who actually do work (APS 4 - 6, with a handful of competent techie EL1 - EL2 old timers who are still there mixed in with the incompetent APS 6 - EL 2 rusted-ons). But it was also one with the smartest workforces (if I might say so) and had highly skilled requirements.
I found my time there quite intellectually stimulating at times, and left for a variety of reasons. Part of which was Canberra itself and the public sector attitude.
Part was because they were trying to phase out the higher skilled positions and enforce a mangement-aucracy: only managers get paid high, and we should get rid of EL1/EL2 non-supervisor specialist roles and subsequently they weren't willing to match pay to demand/productivity but had to try to fit everything into the public service predefined heirachy.
And part was a crackdown on social media posts and commentary that was happening at the time.
And part was questions of whether the government would try to claim intellectual property over anything I worked on during a side project, meaning I had some risk of them not letting me do challenging stuff at work any more, but claiming rights over it if i subsequently did it on the side.
Anyway, a whole host of issues. Good luck, hope its managable where you are :)
Once negative gearing is removed, the wealthy can simply debt shift against asset classes that still allow negative gearing. e.g shares. The very wealthy have this asset base to increase debt ratios against share type assets, then buying property for that cash borrowed, effectively leaving them with the same negative geared net benefit just more higher leveraged against shares (and likely debt covenants against the property for collateral). Meanwhile the middle class can never do that so you just knocked them out of the property investment game reducing competition for the wealthy.
Secondly, removing negative gearing doesn't stop property hoarding of all those people that own a bunch of houses debt free.
Ultimately I believe the goal should be to allow people to own a home if they wish, and this group should always have a financial advantage to doing so over someone simply investing/spectating as residential property should not be a speculative asset class.
The best way to solve investment hoarding of residential property is to remove/reduce land tax on owner occupied houses, and place a premium % land tax on investment properties. This will influence people buying both with and without debt. Further it will be easier for government to increase/decrease the % land tax differential to get the ratio right between investment opportunity and not overheating the market. Whilst Removing negative gearing is a one time move.
I'd also look to do the same deal for farmland or we're likely to find rural Australia largely owned by corporate interests over the next couple of generations.
I mean, the general problem you describe is that money creates means, to create more money. How do you solve this problem now that existing policies have resulted in a skewed distribution of existing money?
Absolutely agree though that owner occupied houses should be massively incentivised compared to investment properties. IMO it's advantageous for society to have most people owning property. I think a good goal would be to have most people both owning property, and not being cash-poor at the same time.
Sure. But then you making increasing complicated rules when the land tax premium is simple. And generally the more complicated/specific the rule the more new loop holes are made.
> I mean, the general problem you describe is that money creates means, to create more money. Not at all. The government should encourage people to save, invest and build wealth. I guess what my general problem is allowing unfettered business activity into essential areas of life, above the needs of the masses and especially where demand is inelastic. So I'd be inclined to keep strong regulation or government involvement in areas of; housing, health, education, agriculture (ie food), and telco if it became a problem to ensure this is available to the population at fair market rates not distorted by monopoly (or similar) or speculation.
Personally, I think the main issue is greed unchecked.
Doesn't seem that way.
Ah, yes, the Ayn Rand Derangement Syndrome.
Owing to the shorter engagement norm with any given employer, and the constant acceleration of change through technology, we cannot bet against entropy (unemployed, economy has tanked, etc.) as surely we once did. This is particularly the case for singles, who are faced with the entire gambit themselves, whereas traditionally more people were in partnerships which would effectively halve the chances of a particularly 'bad run', as it were.
In short, not only is it unaffordable, but the degree to which one takes ones chances even when committing to a long-term attempt at investment has increased significantly.
In my family, which is probably representative of upper middle class Australia, my brother has taken the conventional route and worked his ass off for most of a decade, and now has the deposit down and a fat mortgage on a shoebox with a view ... in conjunction with his 10-year long-term partner (they are unmarried). I on the other hand have studiously avoided such a commitment, living a year in London, a year in Hollywood, a year in Bangkok, traveling the world, seeing the Arab Spring first hand, spending months on end in 5 star hotels, having a family, and spending the rest of my time here in China, where I play with expensive toys like sailboats. In the end, out net worth is the same.
Most of my friends from youth in Australia, who are generally also higher income bracket people, are still unable to buy property or are locked in seemingly loveless relationships just to get past mortgage go.
My 'uncle' (actually somewhat more distant) recently sold the highest value property ever recorded in Melbourne (Toorak). He is the ex chairman of the board for Rothschild in the region, as well as ex-CEO of famous companies. When I last saw him, he said something is fundamentally broken in Australia, because his kids couldn't afford the downpayment on a house without his help (they have literally had all the opportunities you can pay for, and are not doing badly).
In Europe, the will to own is commonly seen as dissipated, in fact in Italy it has sunk so low as to be replaced by "the will to live away from one's parents", which many, many 30-something can ill-afford.
The world has changed. Travel gives you perspective. Individual countries, policies regardless, may have extreme difficulty changing this new reality. I say cheat. Leave your homeland, enjoy the differences. We are too intelligent to live stuck in a box. Eat someone else's young, or at least get drunk with them.
OK, the government can print more money, but this causes inflation, the worst taxation of all.
Keep in mind also that negative gearing was brought in to try and stimulate house-building. It has overstayed it's purpose, but it wasn't brought in as a 'fuck the young' measure.
Damn, you guys have a lack of empathy. Life isn't absolutely perfect for you, so whine whine whine.
Medicare?
Gay rights?
Indigenous rights?
Advances in medicine?
Equal rights for gender? Same wage regardless of gender? Women even being able to work at what they want?
End of the WAP and far greater multiculturalism?
Strong public attitude shifts against domestic violence?
Global travel? Cheap travel?
Legal abortions?
Working in airconditioned offices instead of brick factories being the norm?
Cheaper food and clothing? Much cheaper technical doodads. Colour television as standard?
Vastly greater entertainment offerings, and cheaper too? Entertainment on demand?
Food revolution? Coffee revolution? Bars closing later than 6pm?
No conscription?
Safer vehicles?
The bloody internet?
But no, you guys can only see the one issue right now about house pricing. ONE problem, and bam! it's 'worse than the boomers ever had it'. Whine whine whine; it's the only thing the young have to say about the difference between the generations. Show some empathy, and have a go at understanding how it was for the people before you. Then you'll better understand how things got to be that way today - and you'll start to see a lot of the things that you take for granted today are considered luxuries by the boomers, and you'll start to understand why they say "work harder". Whether or not they're right is a different thing, but jeez, the whining.
Instead of just focusing on this one issue and assuming they had it better than you, tell them to shut up and show them that you are already working hard - show them the hours or the effort. But most importantly, try and understand where they're coming from, why they say what they do. Show some damn empathy instead of just complaining that you didn't get dealt a perfect hand.
My apologies for that.
And yes, I have a double whammy - I'm Australian, and I'm a sysadmin, so I really like to complain :)
The weird thing, is why have houses become considerably more expensive in AU, the UK, NZ, CA and a few parts of the US while most things have become much better?
The finance thing, on negative gearings and capital gains isn't enough. And why does it do it now when negative gearing has been around in AU since 1915 and there was no negative gearing at all until the 1980s. But housing was much cheaper in the 1970s?
Totally a gut intuition, not supported by anything in particular. Things outside housing have become cheaper. And most people consume their full income in some way - I just think that housing seems to be taking up the slack from other things being cheaper.
See: http://i.imgur.com/t0RYpOo.png
The second graph is especially telling. The value of an investment asset is determined by how much income it is expected to produce in the future. Yet even though rents (i.e. the return to property) stayed flat, the price of the asset quadrupled.
And no, at the time it was brought in it wasn't intended as a 'fuck the young' measure. It was more, 'fuck the poor'. However, a 15 year head start on wealth accumulation and a selfish refusal by the baby-boomers to entertain the idea of fixing this glaring inequity (among many others) means it has since morphed in to 'fuck the young'.
And I don't want to own a string of properties. I just want to own one. I like the idea of owning my own shelter, as a form of insurance against homelessness.
Alice takes some of Bob's property without Bob's permission and with the intent to permanently deprive him of it. Alice is a thief.
Let's not conflate the means with the end. The goal is to make people financially secure, homeownership can be a mean to that but it's far from automatic. In fact homeownership can be a consequence of financial security.
Your home is an incredibly illiquid asset, and you are likely to need to liquidate it at the worst time.
_The Old Money Book_ recommends this: first get an income stream (outside of your salary), then divert some of it to pay for a house.
I think the biggest concern is that many young people today will not enjoy the same standard of living as their parents in many categories such as job security, retirement prospects, child bearing, etc
But construction is controlled by local governments through zoning law, and local governments are controlled by incumbent landlords who want the prices to skyrocket to unreasonable levels. So young people end up paying huge amounts of money to established landlords, while landlords distort the narrative to blame the problem on anything and everything except the lack of construction.
(EDIT: Speaking as someone who appreciates european-style preserved city centers, even though they do come with their own bag of problems)
http://uk.reuters.com/article/uk-britain-budget-housing-idUK...
http://www.bbc.co.uk/news/uk-scotland-scotland-politics-3511...
In the town where I live there are a lot of summer homes that are unoccupied in winter. In London, there are obviously a lot of homes that the rich use when they are visiting. This is an extravagance that is affecting the UK as a whole and a second home tax might help a little. I don't think that the above measures go anywhere near far enough though.
To be clear - this is a one-time 3% tax on the purchase price of second/more homes, for both occupation and rental. It's not an annual property tax.
Interestingly, it's waived for corporate landlords with (I think...) at least fifteen properties.
The UK doesn't have property taxes in the way that the US does. There is an annual tax and it is charged on second homes. But it's barely related to market value, so the tax difference between a studio flat (apartment) and a mansion isn't huge.
There are mutterings about a mansion tax on very expensive properties irrespective of occupancy, but they won't come to anything while the Tory party is in power.
Except where classified as a HMO.
Collecting from property owners is easier than collecting from tenants.
Our house is not selling quickly (it needs "neutralizing" and showing as empty, not packed with a family in it) but we have grossly outgrown it. Luckily we can afford two mortgages so are buying the house we want and doing up the "old" one to sell. So because it's "expanding our portfolio", we'll get to pay the extra tax (some £10K+) although supposedly we can reclaim it if we sell within 18 months. So it's annoying but TBH at this rate I just want to move so que sera.. :-) For people on tight budgets, it's going to kill a lot of options though.
I don't follow this? People on tight budgets cannot afford two concurrent mortgages and WILL sell within 18 months.
1) Some people have high incomes and low liquid capital/savings after paying a deposit. (So could afford to service two mortgages temporarily but don't have the stamp duty to lay down then reclaim.) They may not be poor either, they may simply have a lot of equity in property 1 that isn't liquid.
2) Others may choose to rent out their old property for a year or so until they are in a better position to sell. This does not really make them rich landlords to target with extra tax and they'll get it back anyway, but they may not have the capital as in option 1.
From 2017 you will no longer be able to reclaim tax from mortgage payments, which should have a bit more of an impact:
http://www.ft.com/cms/s/0/2c0281c4-2570-11e5-9c4e-a775d2b173...
(Paywall, go via Google)
You're correct in that you receive an exemption if the property is your primary residence, but you overstate the burden of property taxes on >$1MM residences (its really not that high).
People purchase a high dollar value home in Florida because there is no limit to the value protected from creditors (except notes tied to the house) in the event you're sued or declare bankruptcy (1/2 acre of land or less within a municipality, 160 acres if you're in an unincorporated area).
Source: I'm a Florida resident.
You sure? I haven't had state income tax taken out of my pay check in... forever. I'm assuming you meant to type real estate/property tax, though.
http://www.independent.co.uk/voices/the-housing-crisis-is-cr...
Crazy.
But to be honest, why is everyone focused on buying a house? Does everyone want to own a house, 1.7 kids and a car or where does the need to buy instead of renting come from? Maybe I'm missing something, but the flexibility of renting seems a lot bigger advantage than the small advantages of owning a house.
-More choices in terms of size, acreage, architectural features -No worry about landlords disapproving of your lifestyle, no drop-ins and inspections, etc. (I knew someone whose landlord let her cat out and it was missing for weeks) -You can change your property to suit your tastes -The only pet limits are those imposed by your government -With a fixed rate mortgage, your monthly costs stay basically the same. Yes, there are repairs, but you can save up for that and postpone many things in a pinch. Except in extreme cases coupled with poor emergency savings, rising property values are unlikely to push you out of your home (and if they do, you get something for it). With rent, your landlord can raise the price and you have no choice but to pay it or move out. -You can get attached. Some people just like that feeling of having roots, and there's nothing wrong with that preference.
In Germany, "inspections" are flat out illegal except in very strictly regulated circumstances.
> The only pet limits are those imposed by your government
Not true either. Just look at the HOA crap in America. Worse than government, in fact. Laws at least have to act like they've been passed by a democracy and stand up to judicial review, HOA decisions more often than not are pretty much final.
> With a fixed rate mortgage, your monthly costs stay basically the same
Good luck getting a long term fixed rate mortgage.
> With rent, your landlord can raise the price and you have no choice but to pay it or move out
That is what regulation is for: in Germany, there are laws limiting rent raises.
E.g. my suburban neighborhood near Salt Lake City doesn't have an HOA.
I've not seen an HOA survive in any significant way past 30 years.
HOAs can be a pain, but aren't universal. The HOA that covers my home approves exterior changes, collects fees to cover shared property maintenance and insurance, and that's about it. No limits on pets (beyond county rules, mostly dealing with livestock). No limits on interior renovations. Etc.
Even with regulated rent increases, you still end up paying more over time. With a fixed rate mortgage, you pay less per month over time (after inflation). By the time you retire, the house is yours, with only taxes and insurance to be paid.
In australia most mortgages are variable rate and I don't think I've seen anyone advertise longer than 5 years fixed.
So the pressure from them to their kids 'invest in houses' is very big. After all, house prices always go up.
I worked it out for my Uncle and he was making more on his house price going up than in his job (for a couple of years.)
You can't do up a renter. Most people want to 'nest' or have different requirements from a home than the renter has. Got a baby? Need a baby room. Go surfing? Need a surfboard storage room. Want to paint over the mould? Need permission from landlord.
And where I live no one rents out houses. So renters just can't live here.
Do you mean the fungi that spread on wet walls? Because I would consider just painting over these a very bad idea.
http://www.homedepot.com/b/Building-Materials-Moulding-Millw...
Not sure how else to fix it. The UK is very wet, houses are stone and cold. Condensation is almost constant and mold pops up most winters. We used to run a dehumidifier and it would collect water, but as soon as you open the front door another houseful of wet air comes in.
Want to paint a wall? Own a pet? Add a garage? Replace your grass with desert cactus? Build an extension? Knock a hole in the ceiling so you can hang upside down like a bat from the rafters? Build a dirt bike track in your backyard?
Owning is nothing if not flexible.
At the very least, you should agree that describing "flexibility" as a characteristic of renting alone is a incomplete summary of the situation.
Where I live is almost magically optimized -- My spouse and I can both commute to work without driving or parking a car. We're within walking distance of shops. Our kids are guaranteed of attending good schools. It would suck to be displaced from that situation.
Turning things around, why would you want to be a landlord? I'm my own landlord, I collect "imputed rent" from myself, and I have perfect tenants. ;-) Of course being a landlord has some risks, but if I had to move, I'd probably keep my existing house and rent it out.
This varies a lot.
I don't actually care to own a house too much but we are going to buy one soon because the rental market in my area has gone in-fucking-sane in the last few years so its ao much cheaper to own in my neighborhood, I'm basically lighting dollar bills on fire every month with how inflated rents are.
Oh, and landlords are so stupid. We are model tenants, both very high income... but we have a cat so we are ineligible to rent 90% of properties, no exceptions.
That is because it is a landlord's market right now.
I don't think governments have any business promoting home ownership though and society shouldn't make you feel like you didn't "make it" until you are strapped with a mortgage you can't afford.
Let's talk moves. Every month, renters play a stressful game of "musical homes": they have to move in a single day. Those that are lucky happen to be moving to a place that has been vacant for some time, and can negotiate a head start to start moving there before their official move-in date.
Owners negotiate possession dates, giving themselves comfortable time zones for moving gradually, and can write clauses into contracts like "we will buy this place, pending the sale of our current place".
Payments. Many people who own have a mortage. But you can shop around for a mortgage independently of the property you're moving into. Mortgages have flexibility. They can be moved to a new property ("portability"). How many landlords offer "skip a payment" feature in the rent?
Why do they do that? I always took at least 3-4 days overlap between the rent on the old and new place. Assumed that's what normally happens.
How do you overlap if the place you have now is month by month, and the place you want to move into isn't available until the 1st of next month? If you give notice, you have to move out the morning of the 1st, unless you pay another month's rent, and only on the 1st can you get keys to the new place.
The only way you will get overlap is if the people move out of the new place sooner and the new landlord lets you start moving in, or else your current landlord doesn't find any new tenants for the next month and nicely agrees to give you a few more days to move out.
When vacancy rates are low, the good places you want are never the ones that are conveniently vacant: what you want, everyone else wants.
It's not unheard of for one group of renters to be moving in simultaneously as another is still moving out.
In Vancouver, Canada things must be quite dim in this regard these days. Check this out:
http://www.metronews.ca/news/vancouver/2015/12/16/vancouver-...
Ouch! You're not likely going to find a nice, empty, move-in-before-official-date apartment here in this market.
By the way, from the above: "citywide, two-bedroom rents jumped to $1,643 from $1,571 in 2014." I haven't been looking, but the 2014 figure substantially surpasses my current mortgage payment plus property taxes and maintenance fee. Bye bye!
When I was renting, I always tried to get a few days overlap, but in some markets it's very difficult. After all, if I'm moving into my new place on 9/1, you can't very well move into my place a few days early, and vice versa.
Because rental laws in the UK offer no long term stability. See a previous comment I made.
Want to take a long time off from work (either a sabbatical or by being between jobs)? Good luck doing that if you have huge monthly expenses. If your expenses are instead hundreds of dollars a month instead of thousands, then it's a lot easier to save up for a 4 month hike of the Appalachian Trail, or a month long trip to explore Europe or Japan or Southeast Asia or to travel around the US or whatever. Or to spend a year concentrating on shifting careers or focusing on a hobby (or turning a hobby into a career) or volunteering or raising your kids. Or, for that matter, just taking full advantage of your vacation time.
Also, owning a home is great for investing. For the first several years not much will change, but then you'll start building equity, after that you'll be well into the "market proof equity" range. But after you've paid off your mortgage you'll likely not be retired, so now you have massive amounts of cash ballooning out your savings and investments.
All of this is predicated on actually paying off that mortgage and building positive equity, which is not always going to be easy and may not be the most reasonable economic choice depending on the housing market and one's income. But if you can manage it then it can have tremendous benefits.
Tends to be much MUCH better return wise versus homes.
The other big factor is inflation. Rent will increase every year while your mortgage payments will stay at the same nominal value. Admittedly inflation is much less of a thing now, but in the past it made owning a home hugely more worthwhile.
Great calculator to explore the various paramaters here: http://www.nytimes.com/interactive/2014/upshot/buy-rent-calc...
Sure, until you consider the flexibility other have to do stuff with your apartment (or house, I guess?). There is no guarantee of stability.
Also, mortgage interest is no joke and is never accounted for in these rationalizations.
Rent cost has to be insanely low to compete with owning a house in the long term.
And once you've paid off your mortgage, there's still investment opportunity cost. I agree that owning may be the smart thing to do on balance (though things like stamp duty add too much friction for me), but it isn't a slam dunk.
Which is subsidized by the US Government in the US in the form of tax deductions.
Always run the numbers. Numbers are the difference between emotion and logic.
No but the point is the government literally pays you (maybe not much, but a few $k) to own a house. This is a form of discrimination against renters and causes the marginal guy ("should I buy a house or rent?") to lean towards "buy" for no good economic reason.
Let's take two scenarios:
(A) In scenario A, you pay rent on an apartment for $5000 per month.
(B) In scenario B, you pay a fixed-rate mortgage on a residence in the amount of $5000 per month.
Therefore:
In scenario A, you are essentially taking $5k and setting it on fire once a month.
In scenario B, you are paying that money toward a share of the property's ownership.
So instead of setting it on fire, you're gaining $5k of equity in the property.
> because payments toward ownership build capital
Money invested outside of property also builds capital. Money not spent on mortgage interest builds capital. Money not spent on maintenance builds capital. Money not spent on property transaction-related costs (surveys, legal fees, Stamp Duty in the UK) builds capital. Owning property when a major housing bubble collapses burns capital faster than your wildest dreams. (Not everywhere has a housing bubble at the moment, but an awful lot of places do.)
Obviously you can argue with a lot of that, but the picture is nowhere near as clear-cut as you're making out.
If you rent, you're likely paying all those additional fees in addition to a share of the mortgage for the owner. Property owners aren't charities and are under no obligation to take on those costs when they can get somebody else to take them on for them.
It really is as clear cut as that.
Sentences like that are a huge red flag. It cannot be as clear cut as that. You can't ignore price levels when making that kind of blanket statement. Think of it as a reductio ad absurdum: if it's always better to buy, then it's still better to buy when buying costs 25x the annual rent, right? 50x? 100x? 1000x? 1000000x? People really do fall into thinking like this; it's exactly how bubbles happen.
Buying my current place would probably cost about the equivalent of 35 years' rent (before taking into account opportunity costs etc). That's longer than I expect to live. I could just about swing it, but my savings would be gone, I'd suddenly be stressed about losing my job etc. You might think it's still clear-cut, but it's far from obvious to me. If prices weren't completely ridiculous, sure, I'd probably go for it. But they are, and that matters.
Considering buying costs at multiples of renting basically doesn't occur in reality, so it's not worth spending brain-cycles thinking about it.
> I'd suddenly be stressed about losing my job etc.
Is your rent free? Job stress affects both kinds of home tenancy.
> That's longer than I expect to live.
Well, I hope that's not true. I'm dipping into the wine now, so I'll toast to your health and long life!
Do you think everyone on HN is 16-22 years old?
Average life expectancy in most of the world is >70. So somebody expecting to die in the next 35 years would have to be over 35, at which age I'd hope they would have learned about basic economics and arithmetic.
This isn't a very difficult discussion since it can be pretty easily rooted in readily available information and pretty basic calculations. There's even on-line calculators that will do the hard work of adding numbers together if people can't be bothered.
The hard realities that lots of people can't seem to get into their noggins are pretty simple:
- housing costs money, are you recouping that money in some way? owners do eventually, renters do not. Period.
- property owners don't run charities, all those things house owners pay for explicitly, renters pay for implicitly, they just don't get the itemized list
- renting a bedroom out of some guy's basement is not the equivalent of buying (or renting) a house, if you think they are, you've entered into a conversation you cannot possibly understand and you need to back slowly away
- owners get many more options to sway the cost of housing into their favor than do renters, in surprisingly common cases, owners can even make money off of their property
- Buy $1.2M - Rent $1800 a month. By law rent can only be increased a limited amount every year (and it's never been increased for me).
The landlord is getting 1.8% return on his money before his maintenance expenses, taxes, etc.
The only scenario this makes any sense is interest rates remain at 0% for the next 30 years. Even in this case it's not clear that house prices can keep appreciating at the same rate. Unless we go negative rates.
If I have 1.2M in cash why would I buy this house instead of renting? I'm taking a big risk with a lot of money. It's true that over the last 10-20 years people who have taken this bet came usually ahead (except in some parts of the US) but it's still a huge risk.
- London yields 2-5% https://www.portico.com/yields - No such rent capping law in London, it's generally expected that rents will increase every year and there's plenty of demand to cover it.
Clearly, people are making the decision to buy the house.
An income from investments of $60,000 a year isn't enough to live like a king, but it's certainly enough to live like a yeoman, even after taxes. If you buy an expensive house with that money, instead of buying an income stream with it, the best you can hope for is to live like a wage-slave.
It has to be an absolutely bizarre market for a renter to find an equivalent place to rent, then have enough money left over that they can invest in some mythical financial instrument that will earn them all that rent back plus whatever valuation a property owner is earning while their property appreciates in value.
At the end of the mortgage the owner now only has to pay any applicable taxes and the cost of living is more or less "free" (minus maintenance). A renter will rent forever.
A renter can rent a small room as part of a larger house, but you can't buy a small room.[1]
My personal investment fund has had 50% per year gains since 2012[2].
Perhaps we do live in a bizarre market because I've done exactly what you described.
[1] Do that here. https://flatmates.com.au
[2]
2012-2014 in tech. TSLA & SCTY contributed the bulk of my gains.
2014- in Australian gold miners, whose index has doubled in a year. https://www.google.com/finance?cid=16106836
Sure you can. Housing units come in all shapes and sizes. In the U.S. at least small places are usually sold as condos and can be as small as any efficiency.
> Perhaps we do live in a bizarre market because I've done exactly what you described.
No, you rented a smaller place than a house, then invested the difference.
I said "equivalent place to rent".
I'll say it one more time and maybe this time your reading comprehension will kick in, unless you live in an absolutely bizarre market, where rents are vastly under mortgage costs, and you can rent an equivalent property (same size, same number of bedrooms, etc.) at those vastly lower rates, you'll never have enough money extra that you would have spent on property ownership that will earn back the money you've set to fire by renting.
For example (since you seem to need a specific one):
A house that costs $600,000 needs slightly more than $2,600/mo to service a 30 year loan. Unless you live in an absolutely bizarre housing market, you will not be able to rent the same house for an amount that is significantly less than that.
But, let's suppose you cut a deal and rent it for $2,000/mo. That leaves you with $600/mo. You need to turn that $600 into $2,000 every month to make up for the loss on rent. I laugh at your 50% return, because now you're only $1,100 a month in the hole each month.
Suppose your landlord is a real cool guy and let's you keep the same $2,000/mo for 30 years (unlikely, but let's suppose he's an idiot), You've now burned about $400,000 and still have to figure out how to cover housing costs until you die.
Your smart friend on the other hand, after 30 years, has $600,000+ in property, no more major housing costs for the rest of his life and spent less than you to get there.
Suppose your friend hits it big, he can refinance after a few years, lower his mortgage payment below your rent (which has probably gone up by then), and can now make 50% gains on his investments and he's still buying his property.
Let's say he hits it really big on his investments, he can just pay the house off early, not pay the balance of the interest, his housing costs go to near zero and now he can invest all the money he'd spend on housing on your 50% return investment plan.
If he's real smart, he'll just buy a second house, and rent it out to you since you'll just pay most of that mortgage for him.
After 30 years he now owns two houses, has made a fortune on your investment plan and you're still paying what are probably much higher housing costs for renters.
Maybe you're a real clever guy and after 30 years you've somehow saved up enough to just buy a house outright and skip all the other costs (minus maintenance), maybe you but the house your renting from your friend. Great, you now own property, and your friend still has his house and the money you paid to buy his second house (now valued well in excess of the $600,000 he paid for it) plus the fortune he earned investing in your stock tips, plus you'll probably have paid him back for all the interest he ever paid on the house via your purchase price.
(okay okay, I'm handwaiving away interest and taxes and such, but the math doesn't change all that much once considered and most competent landlords simply pass along those costs to their tenants).
You've also got hundreds a month in day to day maintenance and upkeep, not to mention the taxes and insurance and hoa fees. Oh, and a point of PMI unless you've got 120k in your back pocket for a 20% down payment.
Don't forget 6% commission, closing costs and other taxes on the sale.
Buying doesn't pencil out against renting when the rent is lower than a 30 year mortgage payment.
You seem to think that renters don't pay for that and owners operate a housing charity where they foot all the maintenance and other costs while renters just pay some kind of courtesy "I'm occupying your property" fee.
In many 30 year models, given a $500k home up for rent or purchase, the owner comes out somewhere between $1mil-$2mil ahead of the renter in terms of total asset ownership. After which the owner has only maintenance and taxes to pay for living while the renter continues to burn their money at higher and higher rental rates.
During the same 30 year period, the owner will have a diminishing cost of living while the renter will maintain around a steady cost (on average) meaning that not only will the owner come out wealthier than the renter, it will be easier for them to gain that wealth as per inflation.
Even if rents are a bit lower now, that $2600 payment will stay approximately the same. In ten, fifteen years, those initially lower rents will have surpassed the $2600. Moreover, rent continues to be money set on fire. Less and less of that $2600 is burned on interest as time goes on.
Mortgages have ways to reduce the burn. You can choose accelerated payment plans with more frequent, smaller payments. There are ballooning options: pumping some money yearly into the mortgage to pay down principal.
Your figures are way off.
I started with $5000 in late-2012, and 3.5 years later, I have lower six figures investments. That's enough to buy a house in some parts of the country. So I don't get why I have to wait 30 years to buy a house if I wanted to.
I'm guessing you own property with a mortgage tying you down financially and are trying to justify why you did so.
I can quit today and live for 7 years doing absolutely nothing.
Can you?
> So I don't get why I have to wait 30 years to buy a house if I wanted to.
Why don't you? Then continue to just live in one bedroom of that house and rent the rest out to make more investment income? It doesn't make sense that you aren't? In fact it sounds pretty stupid that you aren't: in one swoop you secure infinite-term housing and you can get other people to cover all of your cost of living.
> I'm guessing you own property with a mortgage tying you down financially and are trying to justify why you did so.
No not really. There's a bit left, but I can finish paying it out from savings pretty easily. It's not worth it because my interest rate makes borrowing the money essentially "free".
>I can quit today and live for 7 years doing absolutely nothing. Can you?
Sure, I can liquidate my assets and pretty easily retire for the rest of my life to a few places my wife and I have scouted out in nice parts of the world. It wouldn't be lavish, but it would be fine.
If we're clever, we'll instead probably just rent our current house out to somebody like yourself and use the (rent - maintenance - taxes) to take out a mortgage on the same property we're thinking of buying outright for retirement and just live on the passive income forever. We'll thank the renters for funding our retirement with a gift basket full of cheap wine and summer sausages once a year. The mortgage on the place we're eyeing is not in the U.S. and current runs ~$600/mo. The rent on my house right now would run around $3k-3.5k/mo. In 30 years the rent on my house would run around $6k (keeping with expected inflation). The mortgage on the property we bought would still be $600. Feel free to do the math.
I and my wife expect to live another 40-50 years if that puts the value of property ownership into perspective for you.
There is almost no long-term scenario where renting wins over buying in the long-term. It would require a magical multi-decade convergence of oracle-like investment ability and absolutely bizarre and sustained housing market that has no historic precedent anywhere in the world.
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Is this desirable? Inevitable?
It's sad, because it's a good place to do science in, but everything is really expensive. I come from Scandinavia, and things work much better there and are miles ahead in terms of affordability.
Until the government changes planning policy to be realistic, such that it's economically attractive for the big homebuilders to build at about twice the rate they are doing at the moment, or it's economically viable for individuals to buy a plot of land and get their own house built as more commonly happens in continental Europe, or both, no amount of tinkering around the edges is going to do anything particularly useful. Schemes like Help to Buy just pump money into the existing system, without actually generating much new housing stock. Token tax rises on second homes bought for letting out won't do anything either, as they'll just get passed on to the tenants through higher rents. And even if they didn't, many UK homes "earn" more than the people living in them, so taking a 3% hit on stamp duty is basically pocket change to professional landlords.
The bottom line is that what we need is lots more homes, but since any change in policy that brings that about will hurt the values of existing homes and/or the profits of the big homebuilders, it seems unlikely we'll see any meaningful change in this direction as long as the Tories are in power. That said, for a variety of reasons I wouldn't bet on the Tories still wielding much practical power in government by the end of the current five-year administration, and housing is the kind of issue that could come back to bite them at election time if we do see another 3-4 years of huge price rises between now and then.
http://www.businessinsider.com/hsbc-sweden-housing-bubble-no...
Compare to London, where the average deposit needed to buy a first home is £91,000 ($130,000) -- 25% of total price.
You really shouldn't buy a house with less than 20% down in the US, either. It's just that some banks have looser financing (and higher interest) to allow 15% or 10%, and there are government programs that subsidize first-time home purchases to allow a 3.5% down payment.
They need to save that money while also paying rent and paying off student debt.
The deposit required is more like 5-10%. I think a 25% deposit is pretty rare for a first time buyer. Of course this still means you need the income to afford the huge mortgage.
Are you getting confused with the average deposit used by purchasers?
I prefer a free market. At least people can rent out in UK and not get in trouble with the Co-op that only allows one year at a time.
It's a nice balance between salaries and house prices. Malmö is even better. Since housing is usually taking the majority of your income, this has a huge impact on the quality of life.
As a postdoc, you can easily buy a house in Copenhagen. Or you can rent, at it's barely 1/3 of your salary. In Cambridge, an equivalent flat is more like 1/2-3/4 of your salary.
Also the rental market in the UK is really wacky with regards to tenant protection.
Yeah but at least the UK got a rental market, think about it. Stockholms market is scattered and hard to come by without connections or help. But not only that, most people who rent out their apartments in Sweden will either go through the Co-op board and only get a year, or do it under the table, both situations adds a lot of insecurity to the tenant.
In Singapore, there is a broad market from super cheap and shitty, to super expensive and amazing. Having a broad, free market helps consumers a lot more than having it closed down for a queue-system.
Sure, I can get a closet space with no air condition and no kitchen for a 1/5, or I can pay 3/5 and get a condo, at least there is a choice.
I can't speak for rest of Scandinavia, but I know in Stockholm that choice doesn't exist. You're forced to buy.
No need to discriminate against foreigners. Citizens are just as bad.
Here in London, all these new shiny builds with glass and metal balconies are selling (ok about 60%) to rich people overseas who are not UK taxpayers. They like new builds because they can buy off plan without ever seeing the actual property.
Capital gains on property for non-residents were indeed not taxed until 2014, but that loophole is now closed.
Capital gains do not apply to companies. I own the property through a company, whence no tax.
The fundamental problem is not enough houses, not that UK people aren't xenophobic enough. Just allow developers to build more and prices will come down.
London has a limited number of square miles, but the limit on cubic miles has not been reached. Ie build up.
The rules for developers have already been relaxed but it isn't making much of a difference.
Not sure if it's planned that way but concentrating property is one way for powerful to keep their power in the future. It's pretty safe to assume that in some decades you can have a robot that will be able to provide with your basic needs for free and live autonomously and not have to buy many things anymore. The way to get around this for the powerful is to own the land and intellectual property so people will have to pay rent (tribute?) forever.
This sounds a little extreme but I honestly thinks it's where things are going without major changes.
The super wealthy have been buying investment instruments for time immemorial.
>>Is this desirable? Inevitable?
The least of evils. Think of yourself as a "temporarily embarrassed millionaire" not as a exploited serf under a feudal, everything will suddenly makes a lot of sense.
As it stands, residents can do lots of things to make outside ownership unpleasant, at least, once/if they decide that is the best course of action.
(I recall someone mentioning that property owners are the voters somewhere in or around London, but there were close to 0 residents there)
So there are 7,000 residents. Oops, that's not zero. The majority of votes do go to businesses though, and it is an artifact of its long existence, not a new thing.
According to this article from The Guardian, it would appear to be similar in France.
http://www.theguardian.com/money/2016/jan/14/why-are-brits-s...
I am not exaggerating, there is no register of landlords, there are a lot of bad amateur landlords who bought into cheap "buy to let" mortgages. Agents don't stick up for tenants.
Here in England I have lost deposit money because of blu-tacking a poster to a wall. (That was pre TPS but still).
It is a culture where it is stacked against the renter. You don't feel like it is your home. And in many cases it isn't, the problem isn't just about renting,it is also about house sharing.
Lots of what were two bed houses are now 2 separate 2 bed flats (Convert downstairs room and basement to bedrooms, squeeze in extra kitchenette upstairs). The quality of housing is decreasing to match demand.
And even where that hasn't happened you'll find multi - tenancy is common.
In the most difficult US markets, ownership is a lifeboat on a wild economic sea if you can come up with a downpayment or, even better, can buy outright, as rents tend to grow much more slowly than property taxes. This is doubly true if you own an apartment rather than a house and can just pay a maintenance fee rather than dealing with paying for it yourself.
[1] http://fic.wharton.upenn.edu/fic/papers/03/0301.pdf, Banks' Advantage in Hedging Liquidity Risk: Theory and Evidence from the Commercial Paper Market
Before I wrote this comment I saw that less than a third of families in California can afford to buy a home. Perhaps for an individual family we could make the argument that they are somehow better off not buying, but I'm not sure it's a good thing that very few of them actually could if they wanted to.
Also I think lots of these reports never make any mention of demographic changes over time. The 35 year old of 1998 is likely to be a very different person to the 35 years of 2026.
In the 18 years since 1998 we have seen university attendance increase from 25% to 33%. We have seen the cost of university education increase, so most graduates now carry more debt. I suspect we've seen an increase in the average age of marriage. Probably also a reduction in marriage and number of people that are having children by 35.
Over long periods of time housing only goes up about as fast as inflation. Younger people in the UK are not facing "becoming permanent renters". They're just facing a bubble, for the time being, that will produce lots of bargain prices when it pops.
Politically it is now impossible to let it burst, so all sorts of schemes are made up to keep it going.
Edit to add: a typical 2 bedroom terrace or end of terrace now costs between £350-500k ($500-700k) here. These are not large homes, don't have luxurious gardens, don't have a garage at all. This isn't even London, this is just outside London in the south east. And wages haven't kept up.
Imagine San Francisco house prices without San Francisco wages, that's why people are talking about a generation of renters.
As someone who lives in both cities, I can assure you that San Francisco is measurably worse. Before I moved here from London I didn't think that was possible.
Directly comparing the advertised prices of housing in London and SF is misleading, because houses in SF in most cases are being sold above their sticker price, whereas that's still very uncommon in London. It is not unheard of to pay a 30% premium on the price the seller has put the house on for in SF. For renters London also isn't nearly as bad: for comparison - an average one bed rent in SF is $3,500 per month [1], whereas in London even in central areas like Bloomsbury it's $2,500 per month (£1700).
This is not to detract from your argument, and SF also has a "generation rent" problem (as does the rest of the bay area). But London's market is more comparable to New York in terms of prices and pressures - both cities have a housing crisis, but one that is at least partly tempered by more supply and a far superior transport network than SF. SF is in an insane world of its own.
[1]: http://www.sfgate.com/bayarea/article/San-Francisco-rent-cos... [2]: http://www.londonpropertywatch.co.uk/average_rental_prices.h...
I'm not sayin that SF, or NY doesn't have a housing crisis, they have their own problems too. But the problem or rather the solutions required are different in each case.
I don't think it is OK to hand wave it away with "it is OK just buy the crash" as someone further up did.
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All those 'old people' who we complain about are going to start dropping off the perch sooner or later. That's when the bubble will really burst.
The price of property can't keep going up indefinitely. When it stops going up, speculators will start to dump their stock, and that will turn into a panic.
How anyone saves for a deposit, while paying rent - without help from their parents is beyond me.
I couldn't agree with this sentiment of confusion more -- especially living in San Francisco, even with a reasonably healthy wage.
It seems that rent is included whilst mortgage interest and imputed interest on equity is not.
The split in the UK is very roughly 33% rental, 33% owned outright, 33% owner occupied.
What that means is that essentially all the other items have roughly triple the weighting that they should - in a rough sense it ends up showing the housing costs of 1/3 of the population, whilst showing all other consumption of 100% of the population.
May be if these under-35's had saved some money instead of blowing it all on "enjoying their lives", "travelling the world" and on those new iPhone models every year they would have a decent sum for a downpayment somewhere in the out skirts.
Also note that most landlords themselves probably went through hell to build themselves this portfolio for their rainy days.
If you think you can't buy yourself a home, you need to drastically rethink your priorities. Because like it or not, anytime is the best time for these things. Its about timing, location and money. Earlier you buy, the better place and lesser price you get to buy. For the perspective of the next decade now is the right time.
You an tax the rich as much as you won't, no matter anywhere in the world. Most of these people will never come to own a home. The true reason why these people can't afford a home is not because its expensive, but because they refuse to commit themselves to any kind of a long struggle, that doesn't interfere with the privileges they think they are entitled too.
This is due to people parking their funds in real estate because interest rates anywhere in the stock market are basically zero when compared to real estate, and because transferring ownership of an estate holding company is a pretty nice way to launder/transfer money.
I'd propose a law that makes it illegal for an estate owner in housing-crisis areas to leave a home un-occupied for over 4 months a year; if this is not the case the state is allowed to choose an arbitrary person and let him rent the apartment at a rate similar to the non-luxury-housing market.
In Germany, in some areas this law is already in effect (e.g. http://www.hamburg.de/contentblob/3999156/data/hamburgisches...). The legal foundation for these laws is in the Grundgesetz: "Eigentum verpflichtet. Sein Gebrauch soll zugleich dem Wohle der Allgemeinheit dienen.", which basically means that if you have the privilege of owning something, you have to contribute to common wealth with it.
Make the owner register his primary residence. I forgot not every country has something like we Germans have with the Meldewesen.
Seriously, using utility bills as proofs of residence... what a load of ...
And if no one uses a timeshare over the winter they lose it?
Taken literally, this seems horrible.
I'm assuming that the tenant gets rights and you can't just walk in and kick them out.
Reading grandparent post, sure, you could, but if it was in a housing crisis area, the government would be empowered to appropriate it for the purpose of renting it out at rates comparable to non-luxury housing (presumably, with you receiving the proceeds of the rent.)
Clearly, such a rule would need an objective definition of "housing crisis", but the temporary seizure of property with compensation this proposes is actually fairly mild compared to the way critical resources are generally treated in times of genuine crisis.
In my experience, one someone starts living somewhere, they're not in a hurry to leave.
Again, reading the post with the proposal, the government's authority to rent the property out exists only within the geographic and temporal extent of a "housing crisis".
So, again, the concrete definition of the crisis would be critical.
Few places in the world are temperate year round. When I'm old and rich and retired, I'd like to enjoy the outdoors.
And if you spread out the latitude, you can even capitalize on differences in day hours.
And if the secret police don't like something, they'll take over your property and put "an arbitrary person" in there. Brilliant.
mschuster91, I don't know if this is really acceptable in Germany, but I downvoted your post because I find the proposition in(s)ane and harmful.
The solution as with Vancouver is to ease the cost of building new homes and possibly using targeted property tax relief of those you are seeking to encourage into home ownership.
One other issue is apparently you can actually get a discount on taxation on your other homes if they are furnished because there seems to be some relation to the number of days it is occupied; unless I am just reading that wrong. If so this one area that needs adjusting, reducing tax because you don't actually spend time in the home but it otherwise is unavailable to others should not incur a benefit and if anything encourages buying up second and third homes
The UK is expensive. Also from today's Guardian: http://www.theguardian.com/lifeandstyle/2016/feb/16/cost-of-...
with people in the comments claiming a nursery place is 1000 pounds a month which sounds right based on what friends tell me, compared to out capped ~£250 a month in Norway where everyone screams about high taxation but where the cost of living and quality of life are (probably) much higher.
[0] http://www.thisismoney.co.uk/money/bills/article-2385465/How...
[1] http://www.theguardian.com/uk-news/2015/sep/02/housing-marke...
[2] http://www.bbc.co.uk/news/uk-england-merseyside-34474378
From speaking with friends and acquaintances with whom I went to Uni, it appears there's a pretty predictable pattern to housing costs: anywhere there's reasonably plentiful work, prices are very high. It's cheap to live in Stoke-on-Trent or Ayr, but good luck getting a job that pays much more than minimum, if you can find even that.
Edinburgh (most expensive part of scotland) average property price £234k. London, average property price £642k
Also people in Scotland and areas like Manchester can more easily get on the property ladder by buying in cheaper nearby areas. for Edinburgh places like West Lothian (average price £164K) make a much easier starting point.
Heck with improving internet access, if you can do your job remotely the western isles are nice and cheap (average price around £100k)
For me the UKs property market is heavily split between London and the south east and "the rest of the country", a lot of the stories about expensive UK property don't seem to cover those aspects.
The hot spots are all "capital" cities for their catchment areas.
>if you can do your job remotely the western isles are nice and cheap
I've considered this, but I decided that moving to Europe is a better idea, for cultural and political reasons.
Also, it doesn't rain nearly as much; climate change is going to flood/rot a lot of the UK's housing stock and infrastructure over the next few decades, and I'd rather be somewhere hotter and drier.
It's not just supply and demand. The government is heavily subsidising house purchasing. This essentially means that I'm paying (through high taxes) for homes that I don't live, for people who can't afford them.
How so? Taxes on property purchases, especially in London, generate significant income for the government - according to http://www.standard.co.uk/news/london/stamp-duty-burden-on-l..., London house buyers paid more than £3 billion in stamp duty in 2014, with one London borough (Westminster) contributing more than Scotland, Wales and Northern Ireland put together, and the most expensive London property (in Belgravia) raising more than the whole of Liverpool.
So it is skewing the market in their favour as opposed to landlords and speculators.
That's a good thing in my opinion.
But it also allows "normal" people to buy houses apposed to just rich foreign people.
However, if it's true that the subsidy exactly offsets the stamp duty, then I agree that this would be amazing - basically a tax subsidy for the poor.
Property transaction taxes are taxes on the precariously employed.
Disclaimer: I don't know anything about anything and it probably isn't that simple.
I read the US exported their Inflation of QE to other countries. And then gets the Chinese to spend buying property all around the world.
Most government are reluctant to act due to worry of popping another housing market like US 2008.
But it is good finally some* are taking notice, given we have 3 HN article the same week on property pricing. But it is likely too late. Those who are now 25 may have some hope to have some things sorted in their prime years. Those who are in their 30s like me will likely have to battle hard just for survival.
For those who don't know where this is going, take a look at Vancouver, Sydney, London, or a place call Hong Kong where many people could only afford to live in 10m2 "flat".
I maintain that unless there is social housing program in place to guarantee every citizen a place for basic living, housing should NOT be an investment options or should at least be heavily taxed / regulated.
Please edit this kind of thing out of HN comments. It's against the site guidelines (check the bottom of https://news.ycombinator.com/newsguidelines.html), and tarnishes your point.
As a recent graduate with a cushy programming job in london - I have been thinking strongly living in a van !
Its not because I cannot afford it etc. I hate handing my hard earned money to entitled baby boomers who couldn't get past grade 5.
Submitters: when posting, please follow the HN rules, which ask: Please submit the original source. If a post reports on something found on another site, submit the latter. This does take a little diligence, but only a little, and the benefit to site quality is high.
Of course that would cause estate value to drop which is something apparently nobody wants except for poor people (99%).
- Difficulty obtaining a loan if you wish to use the home as collateral (Second mortgage or HELOC)
- Inability to sell the house if you owe more than the home is worth
If you have no interest or need to move and have no need to use your home's equity to obtain capital, it's just a number in a spreadsheet and is largely unimportant.