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Comment by gekkeboom | Hacker News Reader

The key problem is the rich buying property for literal rent-seeking to become even richer.

This drives prices up for homes in the city to a point that only if you are in a relationship and over 30 you might be able to buy your first 'home'.

There may be downsides to the measures proposed, but the fun part of government is that you can learn, change and adapt. Because you write the rules, you can change and you can use this ability to create a better living environment for people, which is the ultimate end goal.

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> The key problem is the rich buying property for literal rent-seeking to become even richer.

This key problem is in no way solved by the political proposal, as "the rich" can move to buy older real estate instead.

> This drives prices up for homes in the city to a point that only if you are in a relationship and over 30 you might be able to buy your first 'home'.

The reason that prices are going up is because a lot of people want to spend a lot of money for the real estate, so in the end you must take a moral stand regarding who owns the right to live and/or own real estate in the city, and what this right is based on. Long term consistency is key here, because short lived stabs at the market like this one will not make any difference apart from creating volatility.

As soon as you create economical impediments to achieve your "moral", or "political" goals, you must ask yourself questions almost like a penetration tester: how would I exploit this law if I wanted to stand to gain from it economically? There's almost always a way, and unless you take this into account before creating the law, you're just making the problem worse, and more complicated (normally the same thing).

> the fun part of government is that you can learn, change and adapt

Government shouldn't be having fun with laws. They should be enacting laws that are thoroughly studied, where the possible outcomes are weighed against eachother to minimize risk and maximize the odds of success. Of course you always need to evaluate and adapt, but this proposal is sloppy to say the least, perhaps even malicious.

Let them have older real estate. That pie isn't growing. The point is that the rich can't dominate the entire market any more, there is a class of housing reserved for the middle class

Giving the rich a monopoly on a fixed tier 1 subset of real estate in a market with huge demand is not how you solve affordable housing to the "local" middle class. It will create synthetic incentives, and escalate prices on all real estate as demand seeps over into black or grey markets. Changes like these need to be across the board, or not happen at all.

This isn't "giving the rich a monopoly", it is restricting their existing monopoly by declaring a type of housing (newly constructed sfhs) out of their reach.

But the middle class of today will be the rich of tomorrow, and not allowing them to rent out their own homes when they move means that basically they are prevented access to the same mechanisms of wealth creation that made today's rich people rich.

This law literally helps out rich people and hurts low income people.

Low income people can't buy a house. They can only afford to rent. This law would criminalize the ability of poor people to live in the city, and it would do so to help the wealthy home owners.

Complete nonsense. First of all, homeowners aren't wealthy. Landlords are wealthy. The law says that wealthy landlords have to keep their hands off of brand new houses for a certain period of time so that homeowners can have a crack at it (therefore lowering prices, since rental profit isn't a consideration)

This does nothing to prevent anyone from renting apartments, condos, or houses built over five years ago.

Poor people aren't the ones renting brand-new construction. The renters of new houses are going to be people who could have and would have bought the house, if super rich landlords weren't jacking up prices.

Ok, so you are seriously going to argue that a person who rents new apartment isn't going to be significantly less wealthy than someone who purchases a new home?

Do you see the obvious contradiction here?

All this law does is take away poor people's ability to rent a home, that will instead be sold to a wealthy home owner.

If you can afford to purchase a new home then you are way way more wealthy than someone who can only afford to rent that same home.

As you know with security, it's very difficult to predict in advance how flaws/loopholes will be exploited.

So the key thing here is to setup a society and government that can quickly respond + adapt and fix loopholes.

Cities don't exist for rich people to exploit. They are the places where we live our lives, the focus is quality of life.

Not some theoretical discussions about 'markets'.

> As you know with security, it's very difficult to predict in advance how flaws/loopholes will be exploited.

Not always. This law has some very obvious loopholes that I would be very surprised if they weren't abused, should it ever become reality.

> So the key thing here is to setup a society and government that can quickly respond + adapt and fix loopholes.

Nobody's saying that this is a bad thing, and it doesn't in any way require badly thought out laws like this one.

> some theoretical discussions about 'markets'

"Some theoretical discussion" is exactly what is missing in this proposal, which is why it's so badly thought out and will miss the mark, to nobody's benefit but the property owners of what politicians arbitrarily decide is "old" real estate.

Which policies do you propose to protect lower/middle incomes from getting priced out of their cities?

Build more housing, lots and lots more housing. Central Paris is beautiful and it’s almost uniformly dense eight story walk ups. Build new cities. It’s not like the Dutch haven’t built commuter cities around Amsterdam before. Do it again, taking account of the lessons learned from places like Almere.

Sydney is a great example of where that doesn’t work. There’s a crane every 100 meters here and everyone but people with loads of money or rich foreigners is priced out.

> Build more housing, lots and lots more housing.

We've already tried this, it doesn't work. Housing is valued exclusively by the value of the housing around it. Building more housing raises the value (and therefore the cost) of all nearby housing, and does so continuously until the economy resets.

So, if you are a private equity firm, you love this, because it's a guaranteed safe place to park tons and tons of money.

But if you are a human who needs to buy housing to survive, more housing hurts you, because it drives the "fair-market value" for all nearby housing higher, making any specific unit less affordable to you personally. Paradoxically, the more housing construction happens, the less likely a person can actually get housing.

---

There isn't a "just supply vs demand" on housing, because supply isn't fungible, and (with the exception of perhaps California), the demand is not primarily driven by people, but by private equity. You can't out-build private equity, no matter how many cranes hit the sky, because (currently) the act of taking the loan to begin construction generates more of the private equity that you are trying to outbuild. To fix housing, you have to fix equity first, because (in most but not all cities) the finances are the problem, not some huge influx of new residents.

"We'll just out-build these high prices" is the housing equivalent of "we'll lose money on each transaction, but make up for it in volume".

> We've already tried this, it doesn't work. Housing is valued exclusively by the value of the housing around it. Building more housing raises the value (and therefore the cost) of all nearby housing, and does so continuously until the economy resets.

Really? Maybe I'm being overly simplistic, but surely building enough dwellings to exceed the immediate demand would lead to prices dropping?

Could you point towards some links to learn more about this?

> Maybe I'm being overly simplistic, but surely building enough dwellings to exceed the immediate demand would lead to prices dropping?

I thought Toronto was doing a good enough job at building lots of housing, and it still hasn't worked.

The issue is that in order to actually have prices dropping, you need to overbuild by a bit. But prices dropping is an undesirable outcome for real estate developers, who are almost exclusively responsible for building new housing in a city. Naturally they don't want to shoot themselves in the foot, so they will only ever build as much as to satisfy the current demand, but not quite, and try hard not to exceed it.

Even with government-issued social housing, there's no way to solve this: as long as there's any space for developers in a market, their new supply is going to adapt elastically to just underserve current demand.

The only thing that has practically lead to supply-related price drops is an irrational boom followed by a realization that developers have actually (unintentionally!) overbuilt this time. Unfortunately, irrational booms are also accompanied by prior fast price increases and a lot of pain on all sides, so we probably shouldn't advocate for one.

So, I'm not sure what a good solution is to actually provide more supply than needed and have prices dropping, but the free market is not it. Especially as real estate developers get better with forecasting demand.

Maybe demographics will help a bit in 20 years or so.

Instead of building more housing, build more narrow-gauge electrified commuter railway lines and stations--with large multistory parking garages adjacent in the US, and maybe bike lockers attached in the EU.

If you make everywhere effectively closer to everywhere else, there is more competition for "good location", and landowners can't charge as much for any specific spot. Or at least they can't until demand goes up again.

Why narrow-gauge?

Smaller turning radius, therefore better suited to city architecture. Also, tunnels require less width.

I dont think that matters. The only time you care about existing city architecture is when youre building a tram. Most trams use standard gauge and that works fine.

Tunnel width does not depend directly on the gauge but on the loading gauge, i.e. the size of the car. That is generally wider than would be required by the gauge.

On the other hand, using the same gauge as other rail means you can run trains across both old and new infrastructure.

If your model of the property market is correct then you should be able to reliably make enormous amounts of money by investing in real estate investment trusts with exposure to the appropriate property markets or construction or construction materials companies that are publicly traded.

There’s nothing special about private equity that gives it better access to markets like property.

“We’ll just out-build these prices” is the equivalent of “Charge more” when the problem is that you, a consultant, are too busy. If you keep doing it for long enough the problem goes away. Tokyo has grown by 1.5m people since 2001. House prices and rent have been basically flat throughout. Have the metropolitan areas you’re talking about added about 100,000 people a year for almost two decades?

> We've already tried this, it doesn't work. Housing is valued exclusively by the value of the housing around it.

Not sure about the claim that this has been tried. Most cities where building housing is happening are having rents increase at much lower rates than cities like SF that refuse housing construction.

Moreover if we didn’t just focus on private construction and returned to pre 1980s style construction of massive public housing projects, it seems likely to me that supply and demand could start working and hold rents steady or reduce them. (E.g. something interesting I saw on this recently https://twitter.com/RottenInDenmark/status/11080317257523363... )

Instead of public housing most anti-housing activity seems to be focusing on failed policies like rent controls.

If people are just building investment properties to park money that sit empty of course that's not going to help things, it's not really increasing the supply if no one lives there and no one can rent it. They might as well be building a statue or some non-housing object.

That doesn't mean actually increasing the housing supply is a bad idea. Heck, maybe they could have a tax on vacant units to try to force those investment properties that are already built on to the rental market. Or if that's too hard to enforce, raise the property taxes enough where vacant units look undesirable as an investment.

I don't know about the speculative investment market, but at least for the rental market demand is people. I think there are very few people just renting a place with the intention of leaving it unoccupied forever. If there were affordable rental properties everywhere, I think it would be less of a problem even if real estate investments remained expensive.

It is very difficult to predict in advance how flaws will be exploited but you should at least think very hard about how they might be exploited before announcing a policy. You should ideally have thought about it enough that you have the policy ready when you announce it and can explain and justify it, including all the details.

Good policy beats discretion reliably and consistently for reasons of dynamic consistency. If you find yourself announcing a policy when you don’t even have the details ready you are doing it half assed. You certainly haven’t had tax lawyers or economists with expertise in mechanism design look over your policy proposals. You are an unserious person, making policy up on the fly, floating trial balloons while running off your mouth, a Trump or AOC.

Cities don’t exist for rich people to exploit but if you build less housing than there is demand for the richest will, on average, get more of what’s available than the poorer.

Why would you think they haven’t thought about it? Sounds like a great plan.

> The reason that prices are going up is because a lot of people want to spend a lot of money for the real estate

Hum. No. People don't want to spend a lot. But the whole system is built so owners can extract rent either from rentals or from buyers to which banks will lend enough money to meet the seller's price.

Yes, that’s what happens in a market where supply is growing slower than demand. Prices go up. See levels.fyi for an example of this in the market for software engineers.

> People don't want to spend a lot.

The fact that prices are going up proves this is not true.

> The fact that prices are going up proves this is not true.

No. Prices go up because demand is higher than supply and people are forced to live somewhere (as in "reasonably near their work") and are therefore forced to spend lots of money on this. They wouldn't do so if they did not have to.

> This key problem is in no way solved by the political proposal, as "the rich" can move to buy older real estate instead.

I suspect this proposal has less to do with protecting middle class people's ability to be home owners, and has more to do with preventing perverse incentives around real estate development from having a long-term negative impact on Amsterdam's housing stock.

For instance: look at what's happening in Toronto. There are a massive number of high-end, 1-br condos being built because that's the type of property which makes sense as an investment instrument. Large swaths of the renting population are not served by that type of property, but investors are the customer for real-estate development, so that's what gets built.

> Large swaths of the renting population are not served by that type of property, but investors are the customer for real-estate development, so that's what gets built.

It all comes down to the same discussion: what are the inherent rights of a native population when compared to foreign capital owners. It's subjective. Your opinion could be anywhere between "money buys you property rights" to "land is owned by living on it" and you wouldn't be objectively wrong in any case, since you're making a moral argument.

The problem appears when a moral argument should enter legal and political reality. When you look at this proposal through the lens of "what will be achieved", it's hard to be optimistic.

> Your opinion could be anywhere between "money buys you property rights" to "land is owned by living on it" and you wouldn't be objectively wrong in any case, since you're making a moral argument.

Even that sort of moral argument is short-sighted because natives benefit a lot by investments by foreign capital owners, specially in real estate.

> It all comes down to the same discussion: what are the inherent rights of a native population when compared to foreign capital owners. It's subjective.

Indeed it is, and in an honest democracy a question of this importance would be voted on in a referendum. But before doing that you'd first want the public to be informed of the facts. But in Canada the government won't even do that - we have no idea how much property is being purchased by foreign investors directly, or via proxy friends/relatives who have obtained Canadian citizenship.

> There are a massive number of high-end, 1-br condos being built because that's the type of property which makes sense as an investment instrument.

And the funny thing is that the value of those properties comes to a large degree purely out of the overall rise in real estate prices, not because they satisfy the basic human need of a shelter. I wonder what the price of these properties will do when a real estate crisis hits. They are clearly not a place where people actually want to live.

> The reason that prices are going up is because a lot of people want to spend a lot of money for the real estate...

No. Real estate is 80% driven by finance and tax policy.

The condo craze is just like the big box and franchises hotel boom a 15 years ago. Lots of money flows in, and the buildings get sold when they start losing money around the 15 year mark when depreciation catches up. Many of the marginal “luxury condos” will be shitty rentals in the 2030s when maintenance becomes a problem, and you’ll see them rapidly go down market.

By that time, the money will have moved on the the next thing, and we’re all stuck with the mess.

> By that time, the money will have moved on the the next thing, and we’re all stuck with the mess.

What mess would that be? A wealth of cheap condos in a market flooded by companies liquidating their investment?

You still have to pay to maintain them, and expensive high-rise condo maintenance sets a natural floor for rents.

Bankrupt condo associations and people with underwater mortgages walking away. For the rental units, the profits tank, so the landlords tighten the screws on opex, and they aren't "luxury" anymore.

You may recall 2008, when this phenomena happened with single-family homes. Condos are much more fickle investments.

Note that in the Netherlands you can't just "walk away" from a mortgage. If the bank sells your house and the yield isn't enough to pay for the mortgage, you're still on the hook for the rest.

After 2008 the housing market just more or less closed down. Nobody was selling as their mortgage was under water, so they just stayed where they were.

> literal rent-seeking

Ironically, although literally they are seeking rent they are not necessarily, economically speaking, literal rent-seekers. The economists' abuse of language remains an unfolding tragedy.

Economic rent seeking is characterised by seeking a cut of the profits without creating any new value. If you buy a new house and rent it out, you have just caused new wealth to be created and you are recovering the capital costs, so a reasonable argument can be mounted that it isn't technically rent seeking.

If you want to clamp down on rent seeking, the best and potentially only reasonable way is a land tax, so people can't profit off controlling an irreplaceable asset that doesn't require maintenance.

> This drives prices up for homes in the city...

One of several factors. Credit availability is also a big deal.

> Economic rent seeking is characterised by seeking a cut of the profits without creating any new value. If you buy a new house and rent it out, you have just caused new wealth to be created and you are recovering the capital costs, so a reasonable argument can be mounted that it isn't technically rent seeking.

These houses already exist though. What new wealth is being created by purchase with intent to rent vs purchase with intent to occupy vs the builder offering the building for rent?

> What new wealth is being created by purchase with intent to rent vs purchase with intent to occupy vs the builder offering the building for rent?

There is value being created here in the market for risk, flexibility, and capital allocation. Residents who prefer to rent rather than take on the commitment of ownership also capture some of this surplus.

If someone doesn't have enough money to buy a house, they can move in and rent it. They get to live in a house that is nicer than what they can afford right now.

I don't know much about the housing market, but arguing from theory, if the new build market is restricted to _only_ people who can afford to buy a house, that might be a much smaller group of people than individuals who want to live in the area but just cannot afford the cost of building a house. Renting is good for that not-enough-to-buy group.

For example, I couldn't afford to live in a city if I had to own my own home. I don't have that much money on hand. I'd rather rent land from a landlord than money from a bank. At least the landlord is carrying the risk.

In the current Dutch market your rent will be a lot higher than mortgage payments for a similar house.

well... when your renting you know that your rent payment is the top of what you will pay a month. If you own the house, you also need to pay its taxes, repairs, upgrades, etc.. so it makes sense that you must pay more than just the mortgage payment to rent, its less risk.

The "wealth" created is that there is a new house up for rent, and thus more options for those who want to rent.

The advantage of renting compared to buying is that you can occupy an house for a limited amount of time without being financially exposed to changes in the value of the house, without having to find a new buyer when you move out and without needing upfront capital or credit to buy it (there are of course also disadvantages to renting, so some prefer to buy instead).

The problem is demand being sufficiently high compared to supply to cause prices that consume most of peoples’ spending abilities.

Even if we removed the concept of ownership, which is the only way to remove rent seeking behavior, how are we going to address the limited supply in the face of extreme demand?

The long term structural solution in my opinion is to create more desireable places to live. This involves significant wealth transfers from already wealthy places to investing in infrastructure, education, communities in other locations, thereby increasing the supply of desirable places to live. That’s really the only way prices can be brought down in real terms.

Isn't it ultimately a side effect of a decade of extremely low interest rates, world wide? If bonds were yielding something closer to their historical norms, buying and renting out homes wouldn't be nearly as attractive to institutional funds.

You nailed it. It’s cheap to borrow money and if you have a large deposit you can get a mortgage which your tenants will be paying off. Then you buy another. In Australia you can actually write the interest off as a tax expense. So it lowers your taxable income. With enough maintenance and repairs receipts and a few properties you’ll pay fuck all tax. Awesome way for people with money to make more money.

That's the optimistic case (a learning process for government).

I think the pessimistic case is that foreigners+investors make convenient scapegoats, the public has reasonable demands but will fall for plans that sound good on paper and don't work, and entrenched interests ensure that the actual root causes will never be fixed.

If you think about it, if 8 households want 5 housing units, there's just no way it can be affordable to all 8. Not by paying the 8 more, not by discouraging renting or owning, not by prohibiting investment etc.

The only things I can think of that could actually solve the root cause are:

1) Build more housing

2) Increase the housing available somehow without building more (tax units that are left empty, allow renting places that weren't allowed before).

3) Decrease the demand for housing. Maybe try to drive high-paying jobs away, or try to raise the minimum wage high enough that business go under.

Otherwise I just don't see anything else that could work, without creating some special class that gets affordable housing while everyone else doesn't (maybe the lucky people win government lotteries or inherit rent controlled apartments).

Not sure about Amsterdam, but property prices in Vancouver and Toronto are heavily driven by the middle class over-extending themselves on credit with a little help from “The Bank of Mom” on the down payment.

Sure, the wealthy are buying to, but based on average debt levels, it’s mostly people who can’t afford it.

As always in the Canadian Real Estate discussion, the RBC reports have the best data and analysis.

http://www.rbc.com/newsroom/reports/rbc-housing-affordabilit...

The Toronto and Vancouver markets are in territory that is shocking and in Vancouver's case, literally numerically impossible to sustain without constant infusions of external capital.

"Rent-seeking" has a specific meaning in economics and has absolutely nothing to do with real estate.

> The key problem is the rich buying property for literal rent-seeking to become even richer.

Well, no. The only reason they can expect the rent is because the tenant is unable to buy. If there were more housing that was within reach to be bought, then rents would go down, and the landlords would find themselves unable to rent profitably, and would thus sell the home at the market rate.

As with all affordable housing 'issues', the answer is to build more housing.

Houses provide rental income. Whether you get that as money (by renting out) or consume it in kind doesn't matter.

At the most successful, this proposal would leave rents the same, but lower house prices. Ie it would artificially give people rich enough to own a house an especially attractive high yielding instrument.

In practice, it will be even worse.

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