Comment by yourapostasy | Hacker News Reader

Comment by yourapostasy | Hacker News Reader

Parent Full thread

As long as we're using capitalism to explain what is happening, then by all means let's use more capitalism in the US housing market.

1. Remove all government sponsorship of mortgages, gradually spool off all existing GSE mortgages into private markets. Possible exception: owner-occupied homes, limit one per

2. Remove all implicit government backing of insurers and re-insurers of anything having to do with mortgages.

3. Remove mortgage interest deduction.

4. Valuations reported to IRS, property insurers, permitting offices and bank loans link back to publicly-available property tax records.

5. Property developers, not taxpayers, pay for initial costs to extend infrastructure, foot the bill for floating the bonds to maintain the extensions, and residents moving in must pay into the bond fund over time, gradually paying off the initial buyers of the bond; bonds are reissued as old bonds mature.

6. Bill back costs of developing (up to inner core density, with adjustments to purchase fast public transport into inner core) further out from urban core back to inner core residents as increased property taxes spread over 7 years, if inner core residents vote down densification, and rebate some of the collected funds to developers of outer core.

7. Standardize all government building codes to a single set, specifying function/intent/goal and not form, thereby allowing offshore for example factory-built modules to access a contiguous national market, or alternative construction techniques without lengthy permitting.

These and other measures that open up competition for real estate development would be wildly politically unpopular in most areas and constituencies of the US. The US real estate market is superficially capitalist for a number of very interconnected reasons, and I've observed similar dynamics in other nations I've enquired about property within. Property is an extremely special-case asset, with privileged market protections/distortions few other asset categories enjoy.

While the rest are generally sound, Number 6 abandons the market and capitalism in favor of government intervention again, which is unfortunate and invites the system to be abused and gamed by the usual set of cronies. I'm against it.

Number 1 should avoid use of the proposed exception for the same reason that mortgage interest shouldn't be deductible: it's a subsidy that distorts the market and is unfair to the good people who are still renting (who are, broadly speaking, probably not as well off in general, so it's a regressive subsidy where we pay the rich).

You should add a #8 to remove all government subsidies of flood insurance and similar vehicles, especially along rivers and coasts, as they're basically paying people money to build homes (often luxury or vacation homes) in dangerous places.

Agreed on all points. I put in #1 because a substantial number of HN readers are highly invested in the US residential property market, and in past conversations with people who were similarly invested, not mentioning that exemption turned into a dismissive non-starter conversation. My concession to even get a conversation started at all with those folks. Upton Sinclair comes to mind: It is difficult to get a man to understand something, when his salary depends on his not understanding it.

#6 is an attempt to reconcile the following challenge. Well past the point when developers could foot the bill for infrastructure expansion, we continue levying taxpayers to pay for it all while property developers reaped the majority cash benefits the soonest from the expansion. This heavily subsidizes inner core residents who get there earliest, and regressively penalizes later generations and residents settling the outer rims with increased infrastructure costs that increase as the square of the distance from the core, while outer rim density-based tax revenue functions more linearly. We're saddled with the legacy, but how do we allocate the true infrastructure expansion costs of growing outwards instead up/downwards, not to speak of remedying past distortions that have magnified effects today? I'm fine with not going with my #6 as I'm highly dissatisfied with it as well, but would welcome other cost allocation mechanism ideas, any to offer?

#9 Remove all subsidies, deductions, and tax credits. Including those involving land banking. [1]

#10 All commercial property tax subsidies/waivers/rebates/etc. must pass by a super-majority vote of the ones who pick up the tab for the gap.

[1] http://usa.streetsblog.org/2013/01/09/450-billion-in-federal...

I don't have data to back this up but in regards to #1, wouldn't most people who are paying mortgage interest be middle class? Wealthy enough to own a house but not to buy it outright? I also believe that if you own multiple homes, you can only deduct this on your primary residence. I've always felt this is a small tax break for middle class.

Then lower the middle class taxes so people can choose how to keep the savings, instead of being forced to buy a house to take advantage of a specific tax break. (I'm being the devil's advocate here, I realize some taxes (or breaks) exist to incentivize behaviour.

When mortgage interest rates are relatively low like now, I would think even wealthy people would want mortgages. By using a mortgage instead of paying cash, it would be possible to buy more property (a fancier home, a vacation home or rental properties). Or they could invest more in higher-yield investments like stocks.

The high cost of housing is simply cause by the market failure or market inefficiency of zoning density restrictions which benefits landlords/land holders over the renters and those who wish to buy housing. Prices are higher because of scarcity and the scarcity is politically induced called "rent seeking". This rent seeking was first explained by David Ricardo regarding the "Corn Laws" which were a tax on imported grain causing workers to pay more for food/bread. Farmers received more money for their grain, but the landholders of the land the famers used simply charged higher prices.

Fix the market failure and free markets will create more housing. Renters will pay less for housing, there will be less commuting which causes less pollution. There will be more disposable income which can be used to pay for goods and services thus stimulating the economy and employing more people.

There are practical issues with #7, to standardize on a set of building codes across the entire US would make all construction needlessly more expensive for anything but offshore pre-fab modules. If you have to do California earthquake slab treatment in Missouri, that's not economical. If you need to support all the drainage, roof, and siding rules of the Northwest in Arizona, you're probably unable to efficiently handle all the plaster and cooling efficiency rules in place down there.

I'm sure there's a large core subset of rules that would allow prefabicratiom of framing, for instance, but as a guy who JUST finished building a house, I can tell you that it isn't the framing that gets you. Permits and land are by far the single biggest line item expenses.

I suspect they said the same thing about cars in the old days, and mass production kind of papers over those little differences.

Besides no one mass produces foundation slabs which would vary on frost depth, they mass produce kitchens and living rooms and bedrooms.

Also for sheer cost of truck shipment reasons most houses would be manufactured near where they stand, perhaps across a state line maybe two small ones at most, sure.

I would agree with the "its mostly a money grab by the system" as being accurate. $25K of wear and tear on that planning commission rubber stamp, uh huh. Cable company can connect service for free in a couple hours of labor but the electric company is required for an occupancy permit, and they know it, and they think they can squeeze $10K out for new service installation, uh huh.

Mass production definitely papers over the inefficiencies, but I wonder if it would be needlessly burdensome to try and make building products and rules that are everything for everyone. We've already seen huge debacles with things like LP siding that would last decades in the southwest that started breaking down and growing mushrooms in the Northwest after like two years.

The difference with cars is that save for some small tweaks, you're not dealing with completely different driving environments for decades or centuries on end. California has their own emissions standards, which they manage to meet (or cheat). But largely fuel efficiency is fuel efficency. Safety is safety. A seatbelt works the same whether it's rainy or sunny.

Houses should be designed to emphasize the local environment needs. I don't want a flat roofed stucco house in Portland. That would be a freaking nightmare.

I'm sure there's a set of federal regulations that could be applied to new construction, plumbing and electrical codes could probably mostly apply. General safety and minimum wind shear requirements. But the vast majority of the codes we had to deal with were regional and dealt with water runoff, moisture build up prevention, soil erosion, and a list of other things that I could see as being entirely not applicable to other areas of my state, let alone the rest of the country.

I have an interesting analogy that's even better than automobiles. Clothing. Mass produced clothing. Kids pajamas federally required to be fireproof, no problemo. Almost everyone in the entire country wears mass produced clothing. Yet there's incredible variation in style. I don't have to wear a skirt, but my wife can if she wants. I can wear a sweater on a cold day while people on Florida beaches are nude or close to. Yet its all successfully mass produced.

I was going to use industrially produced food as an analogy although maybe that's not seen as a winner. But its not out of business, which is something, I guess.

I think the premise is sound, but also basically where we are today. With the clothing analogy you buy the individual items (or not) and put together the outfit of your choosing.

As it stands I can pick one of a dizzying array of products that adhere to all kinds of regulation across many jurisdictions.

However, where it begins to be problematic is if we (returning back to clothing) say ALL belts must be 4" wide and made of genuine leather. Well, now that coat you wear that has a belt around the waist that is purely decorative is completely out of regulation and can't be used. Even though you and I both know it's just fine. Or the swimsuit that ties around the side gets classified as a belt because of some inane interpretation. You'll get that times a thousand for every single room in the house.

Like the argument I had to have with the plumbing inspector about my ridiculously expensive dishwasher not needing a breather valve because it had mitigating features built in. Showed him the spec sheet that called it out and pulled up customer support with him there. In the end? The rules say breather valve, put one in. No common sense or room for interpretation. The intent is to keep dirty water from back flowing into your dishwasher. But now years later you have minions that don't understand the intent, they just know what the regs say.

With #7 I envisioned (half-baked idea, I haven't thought through the implications, just an annoyance that I can fortunately ignore for the moment) an effort to produce a national building code affording us a one-time opportunity to restructure the code's presentation from specifying "how" to "why" as the lead-in, and the "how" as an example reference. I envisioned the building code instantiated as live data feeds of various metrics like earthquake data from the USGS, historical weather, flooding data from FEMA+US Army Corps of Engineers+USGS, soil surveys from USDA, etc., and for a building type and precise location you specify (commercial or residential, single-story/multi-story/highrise, etc.), only relevant code is extracted and received either electronically or in hardcopy, with a data package representing all relevant code.

Building plans are drawn up including metadata references to relevant code section(s) from the beginning. This part still requires human judgement and negotiation of which section(s) are applicable, but perhaps an online marketplace of pre-configured plan modules with pre-certified section(s) tagged to the module's components can help mitigate that complexity.

Merchants would certify products they sell are compliant with the "why" of specific section(s) through a number of insured certification authorities, who become (perhaps limited) jointly liable for their issued certifications against gross negligence (to avoid rubber-stamping behavior). Products are shipped with a cryptographically-signed RFID stamp ensuring authenticity and enabling remote building inspection. Can't avoid all "how's", like for example spot-checking to see that bare copper isn't laid exposed to house insulation because someone stripped off too much wire insulation and couldn't be bothered to re-run or fix the mistake. But with all the data we collect today, there has to be a better way to permit, construct and inspect buildings.

Then we open up the housing market to vendors with better mousetraps to solve the "why's" expressed in the building code, adding enormous dynamism to the economy.

If you do #3, you'll just have people forming companies for the sole purpose of buying a home and getting the same exact deduction, since interest on debt is not taxable for companies (it's a business expense like any other, and taxes are levied on profits, not revenue). This will be especially easy for people who are not on a salary (contractors, etc) to start with.

#3 would actually be pretty devastating to a lot of middle class people if you didn't give them some other tax cut or credit. You'd at least want to phase it out gradually so people can adjust for its impact.

One more: stop directly manipulating the Fed Funds rate -- in fact, get rid of it altogether. You could argue that the Fed can safely provide a backup reserve fund with an above-market interest rates for banks, but to set direct price controls on the rate at which private banks lend to one another is absolutely ridiculous -- on par with failed Soviet-era command economies (or Venezuela). Eight years of near 0% interest rates has put us in the same situation that we were in back in 2007. The interest rate problem is actually worse, although we don't have Fannie Mae snatching up bad mortgages like they were during the last boom.

It sounds like you have a misunderstanding of how the Fed manipulates the rate that banks lend to each other at. For a summary, the Fed tries to influence it by changing the rate that banks required reserves pay, but banks themselves negotiate the rate they lend to each other at. See: https://en.wikipedia.org/wiki/Federal_funds_rate#Mechanism

Someone who equates the Fed to Soviet-era economic planning misunderstands more than just how the Fed manipulates rates.

Mechanism aside, do you actually believe it's different? A price control is a price control, and it distorts information in the market, which is normally represented by price. I'd highly recommend you read up on the influences of the last boom and bust: https://admin.fee.org/files/doclib/houseunclesambuiltbooklet...

You are right. Another common misconception is that banks are limited by they reserves in the quantity of money that they can "create".

Banks search for reserves after finding customers to lend. If they are not able to find it in the interbank market, they always can go to the central bank. It's by manipulating that rate that the central bank have some control in how "hot" the economy is. If the central bank wants to cool the economy it will make money more expensive to the private banks. Selling bonds to the private banks have also this effect.

It's the responsibility of private banks to grant that the new created credit is used in solid business.

If there are not demand for credit or there are not solid business, never mind how much reserves there are in the system.

Thanks for posting that; I definitely misunderstood the mechanism. The effect is the same though (price control on base interest rates), just with a more convoluted series of steps.

Reply on news.ycombinator.com