Comment by shawnee_ | Hacker News Reader

Comment by shawnee_ | Hacker News Reader

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There is a solution. Since this would probably have to be implemented at a city or county level (that is where permitting, zoning and property taxes happen), my current theory is that it would be something like:

(1) Get rid of rent control; it doesn't work because it focuses on the price side. Instead...

(2) Tax all businesses and individuals collecting long-term residential rents at a flat rate of, like, 65 cents for every dollar of rent collected.

(3) Deposit the 0.65 revenue into a totally transparent, 100 percent "open accounting" fund that awards building projects to competing builders. The builders must build "for sale" units, some high-density urban, some "family size"... the key is to truly increase the supply of housing that allows people to build equity (as the article points out, people who rent simply cannot build equity and that has been the problem all along).

(4) Businesses and individuals who can't afford the 0.65 tax on rents they collect are probably already too leveraged with other people's money anyway; let them go under and convert that "for rent" complex into a "for sale" one. Whoever buys it will be subjected to the 0.65 tax, too, if they decide "making money on rentals" is the kind of business they want to do.

I suspect this "being too heavily leveraged with other people's money" is a root-cause issue for why rents keep rising astronomically and people's wages are not keeping up. Why not build a system that lets renters leverage their own earnings?

I don't really understand how this would work out. A 65% tax on renters would really drive them away wouldn't it? If you were to collect enough to create the "construction fund", cheap buildings would be built, but who would buy them? If a bunch of buildings were built and rent prices dropped, wouldn't that further block people from purchasing buildings from rent too?

>65 cents for every dollar of rent collected.

Do you mean that? A 65% rental income tax seems exceedingly high, and while I can imagine an argument for it, you don't really seem to present much of one in your comment.

(Also you refer to it as a "0.65 tax" everywhere else in your comment.)

I should know better than to attempt to have an advanced economics discussion with the likes of HN readers ... many of whom for reasons I will never understand always jump to the defense of evil landlords. Landlording is not a job and does not add value or goodness to the economy or to society. Most people involved in the "For Rent" business have gobs of money, no skills, no actual work ethic, and no ethics period (try a Google search "Jared Kushner slumlord" for reference of one key example).

The proliferation of renting "for profit" in the last 10-15 years is the number one factor contributing to the acceleration of the division of the top 1 percent from the bottom 40 percent (used to be the bottom 25 percent, then the bottom 30 percent; now it is the bottom 40 percent), because there are no market forces slowing it down. More progressive income taxes could have slowed down the top tier just enough to give the bottom 40 percent a little bit of a break. But the rate at which the top 1 percent's income is growing is now even too much for that to have any effect. They write tax code for their benefit, own lobbyists, get unfair tax credits, and basically wreak havoc on the working class by stealing their equity. The article's citations of median rents in LA is evidence enough.

Current system: When landlords have more profit to buy more units, they control more supply and are thus incentivized to further inflate rents, ad infinitum. Clearly price-side economics favors those setting prices. Rent controls do not really work, nor does any system that attempts to make renting "affordable" for working class people because it's basically just pouring more money into an already broken system. Lift people up and out of poverty by giving them incentives to escape the broken system rather than forcing them to stay beholden to it.

The reason the tax on rental income would work is it would make renting "for profit" prohibitively expensive for landlords. Sure, they could try to aggressively increase rents, but it would work against them because for every extra dollar of rent they tried to suck out of people, they'd only net 35 cents. Furthermore, a fresh injection of supply would hamper their efforts to buy up all the supply in consolidtions. Rather the small and independent landlords would have to focus on keeping their current renters happy (like by offering real customer service) and improving the quality of the rentals they manage. Imagine that!

The solution is to make collecting rents an unappealing and unprofitable avenue of investment. And it would work.

I'm no friend of the capitalist rentier class, I was mostly just surprised to see someone throwing around a figure like 65% tax without more justification.

That said, I feel like a better solution to wealth inequality would be something more direct like wealth tax or land value tax.

I don't see how this would work. Building owners would simply sell their assets. They wouldn't be able to service the debt.

Then there'd be no homes/condos/etc. to rent. How do citizens, most with no cash savings, acquire housing then?

Who would buy a home while the market was being flooded with the intent to make homes cheaper?

I wouldn't want to lock in my price until I thought prices were going to stop falling.

Cities wouldn't like the property tax revenue drop either. And there'd be no housing to rent which is a problem for a huge % of the population.

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