The myth of excess vacant housing distracts from solutions
sgvtribune.com
sgvtribune.com
The article doesn't show that it's a myth, it just says roughly half of the vacancies are market vacancies (lease ended and looking for new tenant), the other half are non-market, and then waves its hands and speculates that the non-market half probably isn't livable anyways. Maybe that's true but the article makes no effort to figure out if that's the case.
Less passively, current property owners have successfully lobbied the local government to increase the value of their properties.
This is especially potent in California where Prop 13 heavily favors long-time owners. If you stand to make a fortune when you retire and are going to pay very little until then, you’re probably going to be in frequent contact with your elected officials.
Inplement a small annual fee on the parcel based on market rate and watch the vacant housing appear back on the market in the blink of an eye.
You can't clear the housing market without this. Instead of supply/demand dynamic you get a Greater Fool dynamic on the market.
When one factors in that this situation is decades in the making and present across most of the Western world, I would argue the political interest is in looking out for home owners, not starters, both in sheer voter numbers and the politicians' own group membership.
And the dynamics of the market sort of reinforce this. Real estate is a great investment but land lording is hard. Renting below market lowers the value your investment and so does leaving your investment open as a rental indefinitely.
Sure, just about anything that opens up will get many applications. But most of those will be from people who technically can't afford the location - because house is unaffordable, people making 3x the rent you are charging are scarce and the most desperate people put in the most applications, so any landlord will find most people applying look like bad renters and not want to deal with the situation.
And for the same reason, some portion of the "between renters" category may be actually off-market too. If the landlord is for the perfect renter, they may look forever.
[1] https://www.census.gov/acs/www/data/data-tables-and-tools/da...
Obviously building more affordable properties is a longer term solution, but that doesn't mean that people who keep empty houses around aren't also part of the problem. Personally, I think there should be a "use it or lose it" tax on vacant properties.
Edit: I realized after posting I'm off by an order of magnitude. It's 150-350 empty units! That would make a huge difference to homeless numbers almost anywhere.
In the US home ownership numbers are around 65%[1] (not 0%), and people on average only move about 11 times in their life[2] (not once per year).
It seems to me entirely reasonable to assume that in a community that touts its low vacancy rate of 3.5%, there must still be a not insignificant absolute number of properties that remain unoccupied for a month or more every year. If that number truly were near-zero, then nobody should have a problem with a vacancy tax, or a squatter's rule designed to grant rights to actual members of the community who want to use a property left vacant for longer than a couple of months.
[1] https://en.wikipedia.org/wiki/Home-ownership_in_the_United_S...
[2] https://fivethirtyeight.com/features/how-many-times-the-aver...
It shouldn't be possible for a lot zoned for mixed use commercial and residential could sit as a derelict burned out building for years(1). It was burned out recently, but street view from 2007 shows it's been abandoned for at least 14 years now. This metro station takes you either to hollywood or downtown LA in 10 minutes, massive job centers as well as nightlife areas. Anything built here would get signed leases that week, just like everything else in Koreatown. Other notable pieces of land use for this corner precious steps from the metro station are a gas station, an abandoned hyundai dealership, and a drive thru offering unhealthy food to the community.
If someone quantified all the externalities, I'm sure poor land use alone causes trillions in economic and ecological damage to our cities in this country. This is our hardest problem.
1. https://www.google.com/maps/@34.0769362,-118.2918114,3a,75y,...
We haven't designed or planned for the growth we're undergoing. It is a zoning and civic planning problem, first and foremost, and not a problem that can be solved by direct price manipulation.
It is a convenient issue to misdirect attention to for groups of diverse political leanings. Progressives and wealthy homeowners both can avoid any of the messy realities of needing to permit new housing while pretending as though there's this more politically palatable thing they can do instead.
Having been to Vancouver, the only thing that seems like a joke is the massive amount of land that is reserved only for multi-million dollar single unit homes, and the lack of space where apartment buildings are allowed. Vancouver is beautiful, has great transit, but needs a lot more apartment buildings.
Meanwhile, real estate prices are up for the whole country: https://www.cbc.ca/news/business/housing-bubble-small-towns-...
If there's still not enough space after these policies are implemented, maybe then we can entertain the YIMBYs' sqwaking.
I really wonder, why are you so opposed to giving people what they want, which just so happens to also meet BC's climate goals? Multi unit housing is much much better for the environment.
That is basically what happened when I lived in Switzerland. Places were let at reasonable prices, but there was so much competition for supply that your best bet was to find something overpriced.
If you want housing investments to be less valuable, just build more if it.
> YIMBYs' squawking
The huge advantage of the "squawking" which you are unfairly biased against is that it eliminates the profits that these speculators are depending upon.
The rise in prices is 100% dependent on a shortage of housing. If there wasn't a shortage, the market would correct. It may take a year or two of surplus housing to flush out those who are holding on for higher prices and teach them the new reality that they can't depend upon massive unearned gains every year, but it is the only way.
The other advantage of building surplus housing is that it gives people what they want. It stops the hoarding of a few wealthy people and opens up a desirable place to more people. This is nearly as big a benefit as lower prices.
Band aids on far downstream symptoms are not going to solve anything. And people are far too happy to only look at the symptoms rather than the underlying cause.
With a collapse in house prices, this problem is self solving.
Won't this be extremely problematic for anyone who can't afford to buy a house?
By making landlording prohibitively expensive, you compel them to sell. They can't sell to other landlords, since the new buyer would incur the same penalty, so the most likely customers would be first time owners or the state itself. The government, free of the landlord's profit motive, could in turn offer these properties to the public at lower prices through long term mortgages with little to no down payment. The weekly repayments would be less than rent, and the occupants would eventually own the property instead of lining somebody else's pocket. I don't know what the precise term for this model is, but I don't think it's unprecedented.
Like I said, this is the polite route. It introduces complexity to avoid stepping on too many toes, and therein lie its flaws. I can certainly think of more direct methods.
Redistribution of the spoils of unearned income is probably one of the leading causes of violence (e.g. civil war, bay of pigs) and the threat of violence is what helps keep those systems in place.
In supply-constrained markets, asset appreciation far outpaces the revenue from rents. So if you charge taxes on vacant apartments, the asset owner may try harder to rent out the unit, but that just increases their profits even more.
When profits from asset appreciation eclipse rent revenues, establishing rent caps does little to eliminate rentier profits. Already, loans are predicated on rents not increasing above inflation, so rent caps do nothing to curb asset appreciation, especially as long as rental units can also be owned (for example single unit detached homes).
Limiting the number of properties that somebody can own does little to force "small landlordism," unless you also ban the ownership of property by LLCs or other organizations, which would also ban many better forms of ownership like co-ops.
The core problem is not the profits, even though that is problematic. Rentier profits just a symptom of the real problem: asset price appreciation due to exclusionary practices. That's what must be attacked head on, with socialization of land use so that when lots of people want to live in an area, they are allowed to, and anti democratic landowners are not allowed to exclude new people. Ironically, the pure landlords are less often against such proposals, it's the rentier homeowners that are often the ones who subvert society and in turn force profits to landlords. Though quite often, these exclusionary homeowners have become "small" landlords too, and doubly invested in keeping our new people to maximize their unearned profits.
- at 0% the price ceiling is infinite, so the price tends to climbs up to infinity, up to affordability, which due to close to zero interest rates is also almost unbounded
- at 2% many vacant houses start returning back to the market since it no longer pay off to wait indefinitely for a greater fool to buy it from you. Price starts to equalize, because suddenly the market starts to clear again
- at 50% of land tax, the only thing changes is that the land price is reduced, all else being equal. In such a market you pay 50% tax on the parcel to government and 50% to the land owner (current leassee).
- At 100% of land tax the price of land is further reduced to almost optimal market clearing price. It is now equivalent to renting the land directly from the government. There is no longer any "private tax" paid to the land owner. The land is now rented only if the acticity performed on it outweights the benefit of the tax. The price is now determined purely based on market terms and actually affordable to many.
The house crumbles down eventually and eg. in Japan the price of a house is 0 or negative (destruction cost) after only 30years. It's the same in the west, but people choose to pretends it's not, because all their net worth is stored in that crumbling ruin of theirs.
All of these attempts are imperfect but more politically accepted variations of land tax.
https://www.pionline.com/article/20180621/INTERACTIVE/180629...
Edit:
>The housing market would look very different if everybody had to live in their property instead of engaging in transparently parasitic activity like speculation/landlording.
Sarcasm on. Yes, I think we should ban renting out properties. Everyone should live in their own property. Sarcasm off.
No sarcasm: I think we should ban renting.
Toronto rents were getting quite high pre-pandemic, but once tourism dried up, and Airbnb unit owners needed to pay their bills they seem to have released a lot of stock. The overall average rent dropped 16% YoY:
* https://www.torontorentals.com/blog/toronto-gta-march-rent-r...
Toronto has/had a lot of international students as well, and there's a lot fewer of those as well.
From the perspective of a politician this is very good for their career. It's the "fake it", mentality except you never intend to do the "until you make it" part.
[Little Bill viciously kicks English Bob]
The only ones I've found is in NYC where due to rent control it's expensive to convert a controlled rental unit into a co-op/condo so landlords have an incentive to empty out buildings and keep them empty until the conversion.
The exception might be if someone is trying to sell the property in the coming months. Doesn't make sense to find tenants who are cool with being kicked out in a few months.
Say you go for anything but want it leased fast. Maybe you get $2000/mo. Say you wait for a higher paying entity but it takes a year but you get $3000/mo.
Depends on what you optimize for.
The naive person would calc how long it would take to the total cash break even. And in particular look at the loss of $24k that first year!
But if they want to sell at 1.5yr from start date?
The 2k/mo option at a 4% cap is 600k. The 3k option delivers 900k, but subtract the 24k and you still get $276k more.
Also, finding tenants, performing background checks, and filling properties can take considerable time. Doubly true for smaller landlords doing this on the side while they juggle jobs and families.
In a few cities, some real estate is held as purely speculative investments or as a place to park cash. If you're an investor buying a $3mm property in Vancouver, BC with a goal of flipping it in 6 months, sticking a tenant in there will only get in the way of your plans for minimal gain. This situation is more rare than it's made to sound by some articles, though.
Generally speaking, you're right: Tenants strive to keep their investment properties occupied as much as possible. Unoccupied properties are costly.
When rent might total $30-40k per year, it would take 10 years of the place being empty to break even.
Unless you mean tenant protections in that owners are hoping to sell the buildings to flip to condos, in which case sure, they’re more valuable without tenants but that’s hardly unique to SF. Many places make it difficult to evict tenants to take rental units off the market.
So if you're a landlord with say a 2 unit building, the ideal scenario would be you rent it out, then once you're getting ready to sell, you leave the units empty once tenants leave. Even if you leave them empty for years, you'll get a better return on your investment than if they were occupied by a tenant paying market rate.
Older and richer landlords might not do the right thing because they have other problems like poor health.
Only a small minority want to acknowledge that the future of urban centres looks more like Hong Kong and less like Springfield.
We gotta build.
In ideological terms, it's a very convenient position to work from. It means you never have to evaluate if housing policy has played a role, which is handy when you support all the individual policies concerned.
- Maybe they haven't found a suitable tenant yet.
- Maybe they are holding it open for a friend or family member.
- Maybe they want to do some renovations before renting it out.
- Maybe they want to sell the property and it's easier to sell without an existing tenant.
I can think of lots of reasons.
Then they should lease it meanwhile or pay the tax, it's rare for people to buy houses fully finished, say, a year in advance.
>- Maybe they haven't found a suitable tenant yet.
They can lower the price to find a suitable tenant faster.
>- Maybe they are holding it open for a friend or family member.
Then that friend or family can move there officially while still occupying their current dwelling until the grace period expires again.
>- Maybe they want to do some renovations before renting it out.
These laws in practice have an exemption for rénovations.
>- Maybe they want to sell the property and it's easier to sell without an existing tenant.
Then they should price it as to sell within the grace period, or pay the tax.
I'll answer my own question: the root problem of too high rents is that governments:
1) have outlawed the construction of enough new housing to meet demand.
2) many places (CA especially) have property taxes that are drastically too low (and in CA's case, radically unfair).
Vacancy taxes are a bad hack. As you note in your comment you have to build in all kinds of grace periods or exceptions and even these can often be easily gamed or ignored.
Cities will be much better off if they fix the real underlying problems.
>What's so special about housing that you need an extra special tax like this? We don't have it for cars or machinery or other kinds of capital goods.
Land is not capital. It is not infinitely reproducible. You can't make more land, and as a result there is hard limit to any one kind of housing.
>1) have outlawed the construction of enough new housing to meet demand.
I agree that this should be fixed
>2) in many places (CA especially) have property taxes that are drastically too low (and in CA's case, radically unfair).
That is really far from being the reason for high rents, since most places with high rents don't have Prop 13.
An unused plot of land sitting fenced off in the middle of your city extends everyone's commute and diminishes the services available within walking distance in its neighbourhood. A municipal government interested in a functioning city will want to put that space to better use just like the factory owner did, and structure landowner incentives appropriately.
A tax helps encourage owners to minimize those negatives and could easily be phased in or have an appeal process (e.g. show that you have building permits for a 6 month waiver).
What you’re describing is exactly the myth the article is trying to dispel. It’s a common idea and I feel similar to you, but the reality is we need more housing.
Yes, we do need more housing. We also need to efficiently use the one we already have.
The real problem is that we highly constrain building housing, seemingly treating housing as a negative worse than cars or roads or pollution. Every tiny addition of environmentally friendly multi-unit housing faces stiff opposition, prolonged approvals that last years and risk any financing used to build the housing. Meanwhile, environmentally destructive single family homes on green fields faces no opposition, even though it forces people into long commutes, and single units are far less energy efficient, and are far oversupplied compared to multiunit urban living which is hugely undersupplied. This under supply of urban housing has resulted in something like 9% decrease in GDP, in addition to causing far more environmental damage, and in addition to displacing all sorts of people from their homes and families and communities.
I really don’t see this as very economical for very long. Property taxes on a ~$1m house are about $1200 a month in LA. Maybe this is the reason there are some empty lots, but it’s not very convincing for empty homes.