It is interesting fact that more developed European countries, such as Switzerland (42%) or Germany (51%), tended to have a lower home ownership rate compared to less developed countries such as Lithuania (90%) or Romania (96%).
Texas has an interesting setup. Property taxes are relatively high, but you can choose one house that you occupy to get a "Homestead exemption" that brings the taxes down quite a bit. This doesn't prevent you from owning say, a vacation home, but does make it quite a bit more expensive (which seems to be fair).
Wouldn't it also disincentivize people from lobbying for zoning laws that are only beneficial to homeowners?
Neither of these are particularly true in an economic sense, except in that homeownership in growing, zoning-throttled areas is a ticket to the rent-seeking wealth transfer those supply restraints create.
Homeownership is driven by this effect, federal subsidies, and general social norms encouraging it, but it creates labor market frictions by tying you to a place and ties up all your wealth in a single asset.
https://marginalrevolution.com/marginalrevolution/2016/02/67...
https://www.economist.com/free-exchange/2010/04/21/rent-or-b...
I have never understood this line of reasoning. I agree that it increases friction, but there is a whole lot of friction that has nothing to do with renting vs. buying. Particularly friction in long-distance moves.
I don’t know how common that sort of situation is, but I can easily imagine a much milder version of it in today’s housing bubble, which is people who bought ten years ago and now feel that if they moved, yes they’d get some equity out, but not enough to move to a home that would be “as nice” in the destination they’re considering. For example suppose you work in software and bought a house in Dallas, but you’re getting all these great offers to move to SF...
If you are open to moving when you have to, most real estate problems are non-issues. Once you limit yourself to a hard requirement of living in a particular metro or state, you are subject to the market.
Everyone reading this can afford a home somewhere decent in the US, but you have to be willing to move.
How many people reading this in the Bay Area would even consider moving to Gilroy or Benicia? Not many I presume.
But say you work in software and your career has plateaued. It’s tempting to move to SF because there are so many great jobs. But you cash out your $60k of equity or whatever in Dallas and go look for housing in SF.... well, you’ll have to accept a significant lifestyle change and switch to renting. There are a lot of people who feel tied down by that deal and so don’t move even though it might be better long term to be climbing the ladder at a major company than to be maxed out in the best available local job you can get.
I mentioned that. It's constant across the country though, so I don't think it creates a new cost to move from one place to another (the "friction"). Rather it's an ongoing subsidy on home ownership that incentivizes people on the edge to lean towards buying. More people buy because of the subsidy, who then have a higher one-time cost each time they move.
>How about the "friction" renters face by not turning their housing expenditures into a future retirement nest egg?
It's not clear to me that this is true, leaving aside places where rapid housing price appreciation due to supply restrictions dominate the cost of housing. Homeowners bear additional cost and risk - maintenance, insurance, interest on mortgage capital - that are part of the cost of rent. How much wealth accumulation results from acquiring home equity when you exclude tax and capital gains from demand shocks and include the transaction costs of buying and selling, potentially frequently?
Kids, spouses, and most people with friends, don't care to be constantly uprooted or at the mercy of a landlord who is likely to raise prices every year. Renting results in no value - it's a direct cost for never any gain. Even buying a house in a declining market will net you less loss then pure renting.
Does it tie up your wealth? No. It converts your wealth into a usable asset (a house). You can't build a shelter out of bricks of cash, or convert a money market account to a nursery.
4% rule?
In fact, it's renting that allowed us to upgrade our place when we had the opportunity, as we didn't need to sell our place in order to be able to buy a new one - we just moved our stuff over.
And to your point:
> It converts your wealth into a usable asset (a house). You can't build a shelter out of bricks of cash, or convert a money market account to a nursery.
You absolutely can do that - it's called "Renting" or "airbnb" or "subletting". The challenge is turning a usable asset back into a pile of cash if macroeconomic forces play against you.
It does not have to be this way. My apartment is owned by a housing cooperative, and every renter is also a member of the cooperative. The cooperative is required to act in the best interest of all its renters, so while apartments are being redeveloped all the time (e.g. adding lifts to existing apartment blocks), rents are remarkably stable. And the cooperative literally cannot terminate my lease. Unless I misbehave, only I can terminate the contract.
(This is in East Germany. A lot of apartment blocks constructed in the GDR era are now owned by cooperatives like described above.)
If you are are renting, then you are paying significantly less than a morgage.
If you don't have a morgage, you can put a bunch of extra cash into investments that make more money than housing "investment".
And once that stock market investment increases, you can spend all that extra money you got on anything you want. You could even use it to buy a house! Probably even a bigger or more valuable house than if you "invested" in a morgage years ago.
I know many people that buy and sell homes profitably on about the same timeline as renters move (less than five years). I myself have never owned a home for more than ten years.
By time you are on your third home you will probably be buying in cash and not even be tied down by a temporary mortgage.
2. The cost of housing has risen significantly, compared to what you bought at. To sell your current house and buy an 'upgrade' would increase your mortgage bill, even if you dump the gain into the next house.
3. The higher barriers to moving since you have to list, sell, etc. While a renter can send an email and get a new place without much hassle. A renter can never be 'underwater'.
There is nothing requiring you to move into a property with higher taxes - you could substantially downsize or leave the state entirely.
Even if your costs and mortgage become more expensive, the tax system is still there to benefit you. The tax system will always reward home ownership. By time you are on your third house you will be paying cash, so even mortgage issues will go away. I don't know anyone on their third property who has a huge mortgage...maybe a small supplemental one but that is about it.
Not sure what the "barriers" to selling are...a good realtor will cover those details for you and in most parts of California, your house will sell very quickly, my last sale was less than ten days, about the same amount of time most renters probably spend looking for a new place.
Past performance is no guarantee of future results. Housing prices have risen faster than inflation in California over virtually any period ending today other than cherry picking the top of the housing bubble. Nothing says this will always be the case. Just ask the homeowners in Japan or in parts of the rust belt. I'm a homeowner in California but I also remember the last time everyone said housing prices only go up.
Furthermore, the tax system may not always reward home ownership. New caps on mortgage interest deductions are already affecting California houses although the effect is currently small. It used to be true that homeowners always itemized deductions. For 2018, it'll be about a wash for me as opposed to taking the standard.
And yes, the tax system will always reward home ownership.
Alameda, Los Angeles, Orange, San Diego, San Mateo, Santa Clara, and Ventura counties all allow this.
Persons over age 55 or who are severely and permanently disabled may transfer the base-year value of a residence to a replacement dwelling in the same county, or in another county if the board of supervisors of that county adopts an ordinance granting base-year-value relief to replacement dwellings when the original dwelling was located in another county
In California, where I live now, its only $7k. Proportional to house prices here, it barely qualifies as lost pocket change that fell out of your pants and is rattling around the washing machine.
Of course those laws sometimes include other provisions, such as tax cap portability when you move (sometimes only for old/disabled/etc, depending on the state). The limits on tax rate increase might sometimes also be tied to this.
California's housing policies are the shame of the state (and the nation) and are destroying the state's culture. They will ultimately destroy its economy by driving away the next generation of creative people and entrepreneurs.
https://www.zillow.com/homes/for_sale/Cresskill-NJ/pmf,pf_pt...
A house listed for sale for $1,350,000.
Annual property tax of $35,700.
I've seen annual property tax bill upwards of 6 figure for $3 million house.
Other houses with hilarious price tags nearby. https://www.zillow.com/homes/for_sale/Alpine-NJ/pmf,pf_pt/23...
http://www.njmls.com/listings/index.cfm?action=dsp.info&mlsn...
This house is quite interesting too.
http://www.njmls.com/listings/index.cfm?action=dsp.info&mlsn...
Sold for $1.5mil in 2014. Listed for $1.15mil now. It was sold for $860,000 in 1995 when real estate was very cheap.
That house is in a very nice part of the town too. (Allendale is all nice to begin with)
Many other metro areas and suburbs have seen much higher appreciation over the last decade, such as Seattle, Austin, Portland, Denver, Nashville, DC, SF, LA, SD etc. NJ doesn’t have a major city and it’s inconvenient to travel to NYC or Philly.
From a financial standpoint, I’d avoid NJ/CT/IL just due to their value having been maxed out in my opinion.
Another factor is tenant rights -- renters in places like Germany have so many rights and protections that renting is a lot more like owning than it would be elsewhere.
Closing (transaction) costs in the US are in the ~$5k range.
https://tranio.com/articles/real_estate_agents_commissions_i...
Also, if you're paying 6% in the US you're doing something wrong. Selling through Redfin, for instance, and you'll be around 4.2% (1.5% for Redfin, 2.7% for the buyer's realtor).
Both of those are different things than paying money to the government just for the privilege of consummating the transaction.
As with any tax, depends on where in the US. Per Wiki, it's 4% in Pittsburgh[0].
This keeps the estate market propped up and hurts people’s mobility. It’s the main way banks get to make risk-free money off the population in a country that has the biggest GDP growth in Europe based mainly on consumption.
What is the denominator? Is it the current market price? The price you paid originally? Something else?
Commieblocks may be aesthetically ugly, but they do serve a nice functional purpose.