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Comment by noduerme | Hacker News Reader

I'm sorry, but this is sheer silliness. A "country" doesn't "decide" to make an asset class appreciate or depreciate. It's always been driven by supply and demand.

If the population of this country stopped growing and started shrinking, a lot of real estate would be freed up. Demand for housing in the densest cities would drop, and it would be cheaper to live.

Real estate prices have gone up for the last hundred years because there are more people. This is why it has been an effective and predictable model for businesses like car dealerships to always locate on the outskirts of cities and wait for the city to come to them, sell the land and move further out.

There isn't anything nefarious or even strange about it. It's a natural result of population growth and increasing demand that consistently (so far) outpaces supply. Nor is it inevitable; look at China. Tons of empty apartments, cheap bordering on free to live in. That's what happens when supply outstrips demand.

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Countries can easily affect the market in this case and there are incentives to do so.

Things like zoning laws, property taxes, taxes on investing in property all affect overall prices, it's never going to be pure supply and demand.

For example if a region/country wants to keep prices down, heavily tax second/third/fourth homes. Or provide tax incentives to new builds.

Then there's interest rates, one of the reasons that property prices in many countries are increasing is that the interest rates are low, so people looking to invest can't get a good return on their investment in "traditional" locations, so they turn to buying property to rent out.

> A "country" doesn't "decide" to make an asset class appreciate or depreciate. It's always been driven by supply and demand.

But it does. The supply is partially driven by speculators who bet on the prices continuing to grow. Currently, a lot of people are buying more expensive houses than they need because "house is a good investment". This (the speculators) can be easily stopped with a policy - e.g. tax heavily all profits from real estate sales, incl. primary residences. If taxes make it next to impossible to profit on increase of house value (the profit goes to treasury and not to seller), then the market would significantly cool down.

The fact that we (for example) tax heavily income from work, but not from real estate speculation, is a CHOICE.

Taxation is one angle to consider, but it isn't it an inadequate band-aid for the wounds caused by easy money, artificially low interest rates and the political incentives of the US's central banking system?

Look at the root causes of asset price inflation.

The root cause is long-term low interest rates but now that SFR is an asset class, the interest rate cycle won’t bring back the $150k home without a major crash that harms everyone.

Tax policy that punishes large investors can help things land without a crash.

If you did that, who would want to build houses? Buying an asset because it will increase in demand is not "speculation", it's investing. Banning investment means no one will invest to make more houses.

The taxation would be on resales only, not initial sales by developers.

Also, if you increased the value of house (e.g. via renovation), the value increase would be tax-free upon resale, so that you can fully recoup the money you've put into the renovation.

This is already true up to $250k. Look, I certainly don't think it's a good thing to build an economy on people or corporations flipping real estate. But active measures that would make it less attractive for people to buy a house, will drive that money elsewhere. As of 2020, 82.8 million residences in the US are owner-occupied. People have put their nest egg into a place to live, and that's good. It's a good thing that real estate is a safe place for people to put their savings to keep pace or outpace inflation. Imagine that money going into the stock market chasing gains. It would be a catastrophe. There is a true market for real estate driven by demand. A large number of houses in this country are owned by people who live in them, who are not speculators, but would only make the decision to own if it made financial sense.

It’s easy to treat taxation of primary and secondary residences different from rentals.

Houses in this country are being purchased by large investors at rates never seen before. It only started happening in the last decade. SFR wasn’t previously an institutional asset class. That has increased demand for housing that used to make sense to buy on a lower income and reduced supply. They literally will buy every house they can that fits their buy box. Suddenly that $150k starter home is a forever rental.

Frankly, I think tax policy may be the only way to fix it. That or prohibit ownership by large entities.

I'm totally with you on this. I think the sharing economy for housing is catastrophic. And I'm someone who rented most of my life - sometimes finding places on AirBnB and going long term on them - then bought a house, and I hope in a few years I will rent this house out (long term) and buy another. But I've watched areas around me turn into transient AirBnB wastelands, including the house next door. While other people can't afford rent, and the rents have gone up 30% in the last five years. Short term rentals are a blight. I don't blame people for taking the money - the family who owns the house next door put their house up on AirBnB, pays a company 10% to do housekeeping and fucks off to Thailand .. they come back once a year for a few days. I can't say they're wrong. But it's even worse if it's a faceless corporation buying up all the housing stock. Then we're all just living in a hotel.

I do think this should be addressed, either with tax policy or city ordinances against the practice, but I think the first step is to differentiate between short and long-term rentals. Long term renters have rights, for one thing. And they add to the neighborhood, they don't hollow it out. Every AirBnB is basically a dead property that takes away from the community and gives nothing back.

I agree except I’d say most people prefer neighbors that own and are invested over renters that may have historically stuck around for just as long as owners but now have to move every few years because corporate landlords up the rents 5% every year. That’s an entirely new phenomenon.

Corporate landlords have turn ratios near 40%. Small landlords are closer to 20%. The turnover is akin to Airbnb.

Buying an asset that you anticipate increasing in demand is the definition of speculation (and you are correct if you point out that is what most people are doing on the stock market and crypto).

Investing is lending your money or other assets to an entity with an expectation that it will use those assets to generate more value.

One is increasing value in the world, and the other is riding coattails.

Also, I'm sure parent poster was suggesting taxing of real estate capital gains, not every dollar of every sale, and particularly not the initial sale by builder.

If you tax the whole of the delta then real estate development would scrape to a halt. So that obviously won’t work.

It won't be affected at all, only resales (not initial sales) would be taxed.

Do buildings not wear out? Are buildings not improved?

Strange to use China's oversupply as a comparison when it too is the result of intentional government action.

Governments can cause oversupply, governments can cause undersupply. Bet you can think of plenty of examples without my help of government policy resulting in supply for some goods decreasing or increasing relative to demand.

Governments can do a lot. Like, they can pretty much dictate what you're allowed to make, how much they're gonna tax you on profits from making something, who you're allowed to sell it to - they can absolutely decide to cause an asset to appreciate.

Yeah - sure. But basically every government intervention leads to some abominable result. Politicians get traction by promising to fix markets, then get rich by twisting them for their own benefit. China distorted the real estate market to the degree that they overbuilt. The theory here is that America has underbuilt due to local regulations? Okay, but if that's the case I don't think the answer is more government intervention.

In 1st year econ, students learn about market externalities and the usefulness of government intervention in addressing them. So this statement from you is not based in economic science, but rather ideology.

Really it was more of an observation. I do think governments have a role in regulating markets and preventing businesses from externalizing costs. I would really like if the DOJ and SEC stepped up antitrust and insider trading litigation.

Few markets are as distorted by government action as the US housing market. It decides where people work, where people can build, what they can build, and how they can build. We directly and indirectly both tax and subsidize sales, loans, insurance, rent, and just about anything else related to housing.

The vast increase in home prices has almost nothing to do with the housing market and is almost 100% driven by government policy combined with a slightly wealthier society.

Aside from federal loan programs and interest rates, how does the US federal government decide where people work or build? Seems like a lot of local state and city regulations, not some master plan.

There are some federal rules, but why would you exclude state and local levels from the US government?

> But basically every government intervention leads to some abominable result.

Some interventions do, some don't. Without environmental legislation, for example, companies would export their negative externalities, e.g. pumping sewage into water systems, onto the rest of us.

Saying that, however, there have been some bad housing policies in the UK, for example, "Help to Buy" which could just as easily be called "Help to Sell".

That's true. But that's of a different category. Governments should regulate the public sphere and public resources. That benefits individuals. Who in a democracy ostensibly are the ones who vote in the government. Notably, authoritarian governments which don't respect individuals don't spend much time on environmental regulation either.

Market manipulation or redistribution of individual (not corporate) wealth by governments -- as opposed to regulation -- is always a bad idea because (a) the people making those calls from within the government are getting rich by doing so, directly siphoning wealth from the citizenry by exercising inside knowledge and the power to tweak a market, and (b) those actions directly harm the golden goose that produces the economic uplift the government needs to survive - that is, the individual in the middle class.

You are wrong, look what ie France is doing with its housing market. No bubbles since it highly demotivates speculations and corporate mega-investments that move markets.

There are tons of tools any state has to motivate or demotivate markets. Taxes, rules on primary, secondary and investment residence ownership, same goes for rents etc.

I tend to see a clear pattern here, just like in other topics - folks who are profiting from current situation by already owning see nothing wrong - in contrary, market forces in effect etc. The more the better.

The rest not so much, ie younger generation thrown in the world where they probably will never own their residence, which can be pretty infuriating compared t situation say 20 years ago. There aren't that many more people to explain this. But the move to consider housing more and more as a speculative investment rather than commodity is definitely out there, everywhere.

20 years ago I was the younger generation and hearing how we were the first generation who would have it worse than our parents, would never have a path to home ownership, and we should be so enraged because the "dream" had been stolen from us. I don't hear a lot of people (like me) defending the fact that it takes a couple decades of work to own a home, and that that's OK and how it should be. I just hear a volume boost on the angry 21-year-old I used to be when I thought I would be deprived of those things. They'll get there. Their parents' generation all have houses and are the richest in history, and are the ones who've driven prices up to inconceivable levels. A lot of this complaining comes from people who've never even rented a room.

I'm in my mid-30s, and I find this a little bit offensive. There is absolutely a difference in the action potential I need to buy a house vs what my parents dealt with - this is patently not just twentysomethings being upset.

Yeah, I don’t think they’ve done much research on historical pricing vs. income.

> Yeah, I don’t think they’ve done much research on historical pricing vs. income.

Can you share what you’ve learned?

https://en.m.wikipedia.org/wiki/Case%E2%80%93Shiller_index

If you take a look at the Case Schiller index, to which you’ve linked, it is clearly the case that someone from GP’s parent’s generation would have seen lower Index values than a current home buyer. What are your other arguments?

I think maybe it’s better to demonstrate a counter argument as I don’t know a single data point taken in context that doesn’t show housing is the least affordable it has ever been. There was a reprieve with the crash but that’s over.

Why should it take 20 years to own a home?

> by supply and demand.

The relevant unit of supply/demand here is mortgages, which are indeed controlled by government policies.

Interest rates act as an incentive or disincentive, but ultimately a government can't forever lend infinite credit to a population that doesn't pay its debts. America has certainly tried to extend her credit infinitely, and our parents and their parents got the best of that, but ultimately our credit as a country is tapering off.

Are you suggesting credit should be loosened again so you don't need 20% down to buy a property?

Citations needed for basically every sentence in this comment please

It is possible to build new houses. It is possible to scratch zoning policies that prevents building more houses in one area.

Housing does not have to be fixed amount resource.

> If the population of this country stopped growing and started shrinking, a lot of real estate would be freed up. Demand for housing in the densest cities would drop, and it would be cheaper to live.

Without a policy to disincentive it, couldn't large asset holders purchase freed up real estate and artificially control the supply?

Not profitably. Renting out apartments is profitable, but paying property tax and maintenance costs on a bunch of housing that you hold empty isn't. And to artificially control the supply the housing needs to be empty. (This is actually one way we know this isn't happening at a large scale right now: vacancies are at historic lows)

Buying up a bunch of real estate to drive up the price and sell for a profit also doesn't work. For the same reason that a pump-and-dump scheme needs other bag holders: when you start selling the price will drop too quickly

> paying property tax

Exactly, this is point I was trying to make. Policy can have an effect on the market. It is more than just supply and demand like noduerme was suggesting. An example is London. There is a large number of empty housing owned by non-residents because they can avoid a lot of taxes and its a good place to park money. If there wasn't preferential treatment for non-UK residents then the housing market there would look a bit different.

Also buying up housing assets could be a long term strategy that would benefit the owners in ways short term would not (change of policy 10 years later, increased population because of migration laws, etc.)

The apartment vacancy rate in London is apparently only 3.4% [0] right now! That's not even the 4.5-6% rate that it takes to cause rents to stop growing. I would hardly consider that a large number of empty housing.

[0]: https://lfpress.com/news/local-news/london-apartment-vacancy...

That data you provided is for London, Ontario, Canada. I was speaking about London, England, UK. That being said I looked up the official data and calculated around 3% for dwelling vacancy in London for 2020 [0]. Though, if look at individual boroughs one finds there is a high vacancy rate in certain areas [1] (based on the same data from [0]).

[0]: https://www.gov.uk/government/collections/dwelling-stock-inc...

[1]: https://www.bigissue.com/news/housing/one-in-three-homes-in-...

They raise property taxes and tell you your house is worth more to justify it. How is that not manipulative?

Oh hey, they raised mine by almost 5% this year. But it makes plenty of sense because the purchasing power of a dollar has clearly declined by at least 10% in the same span of time. So, every purchase you make with fiat money in a fiat economy is some form of arbitrage. You're trying to hold value against inflation. Yeah, they raised my taxes but in doing so they invented $25k in value for my house. That's great since I'm going to need that to buy vegetables. In the long run, it doesn't matter. Nothing of value has actually been gained or lost. I raise my hourly rate with inflation.

>I raise my hourly rate with inflation. You are lucky that you are able to do so.

Setting your own price. It's the future. I've been living in it since 1998. I still check pay scales for various skill sets regularly to make sure I'm not totally out of whack with them.

Anyone can set their own price for how much they sell their labor. There is no guarantee that they will find a willing buyer at any price.

This would be securities fraud if you applied it to any other asset. You’d be jailed if you did this.

See Georgism[1], Geolibertarianism[2], Are you a Real Libertarian, or a ROYAL Libertarian?[3] and Vulgar libertarianism[4].

---

[1] https://en.wikipedia.org/wiki/Georgism

[2] https://en.wikipedia.org/wiki/Geolibertarianism

[3] https://geolib.com/essays/sullivan.dan/royallib.html, and prior HN discussion: https://news.ycombinator.com/item?id=7076632

[4] https://rationalwiki.org/wiki/Vulgar_libertarianism

> A "country" doesn't "decide" to make an asset class appreciate or depreciate.

Look up negative gearing in Australia

Interesting. But it's just a form of writing off a loss. It seems like a stupid move, and at the end of the day I'm not sure how it hurts renters since the whole idea is to offer the rental at a loss to get the tax credits (?) Also historically, Australia has had a lot of bizarre policies of paying people just to go occupy some empty piece of dirt or live in the bush, so I'm wondering if that's got something to do with advantaging this type of a write-off.

In any case, you have to realize money will go somewhere. It will go into a bank vault or it will go into a house, or it will go into the stock market; people want a return on investment. If you outright make it onerous and expensive for the middle class to invest in real estate, the only real estate investors will then be trusts and speculators. This is a simple fact any time a government goes after small land holders.

Your original point was that a country doesn't "decide" to make an asset class appreciate or depreciate. I just gave you an example that the country can decide it can make an asset appreciate. In Australia's example it can make investors take more risks.

Did you also forget that the US govt created Fannie_Mae so that banks could issue more home loans, guess what happens when you issue more loans to more people, house prices go up.

>A "country" doesn't "decide" to make an asset class appreciate or depreciate.

In communist regimes they did exactly this.

And Central/Eastern Europe is still hurting today because of policies like this.

Because of policies like this? Please explain.

Hurting how? The real estate market in Easter Europe is better than in Western Europe as the communist governments built many high density housing in the cities so reas estate remains affordable for young people with skilled jobs even today. Compare that to Germany, Netherlands, Switzerland and you can't afford anything as a young professional without a FAANG job or help from parents and a 30 year bank loan.

Eastern Europe is hurting in many ways due to corruption and political incompetence but the real estate market remains mostly affordable compared to the west.

Don't know about Eastern Europe, but in Central Europe, Czech Republic (an Prague in particular) has had a housing crisis for quite some time.

Well, Prague, like Paris, London, Barcelona, etc. suffers the curse of being a touristic hotspot so it's difficult to compete with all the AirBnBs that rake in that sweet tourist $$$. I'm sure the rest of Czech republic that has less tourists are a lot more affordable.

Anecdotally, an acquaintance of mine had to put down a ~$US10K non-refundable deposit (several monthly wages back then, even for her way-above-average income at that time) to just be allowed to compete for a rented flat in Prague with other prospective tenants...more than twenty years ago. So well before any AirBnB or anything like that.

Sound kinda like a scam targeting rich foreigners. Like how in Berlin the landlords will make you buy their furniture off them for ~15.000 Euros if you want to rent their apartment as it's a seller's market.

Crazy times we live in in Europe.

Uh...she was a Czech, just like I am. That's simply how housing in Prague worked back then, apparently. I'm just glad that I was just a student living in affordable dorms at that time (something like $US40 per month or so? I don't recall the exact figure anymore). She was a Prague native.

BTW, as for "the rest of Czech Republic", things are not rosy in general: https://english.radio.cz/no-end-sight-inflation-czech-housin...

If the article about the US situation claims 118% of inflation-adjusted price increase since 1965, that's less than 2% increase per year. Not quite sure how this number is comparable to recent Czech figures, but I'm sure that Czech inflation wasn't anywhere near seven percent in the last years, so there's that. A 65% price increase since 2015 would be 9% annually on average. Czech inflation between 2015 and 2020 has been ~2.25%/y on average. So that would make the price rises adjusted for inflation 6.6%/y on average.

FYI, in America and most English speaking part of the world, they consider the former Warsaw Pact nations like Czech Republic Eastern Europe, and insisting that no, it's "central europe" will make them a bit confused and, frankly, sounds very small.

So if your goal is to communicate with English speakers, I'd stick to "Eastern Europe".

(Please don't respond with some argument about balancing a cutout of Europe on a needle, etc., I'm talking about using words instrumentally.)

What is it about "balancing a cutout of Europe on a needle"? That has nothing to do with anything. The Warsaw Pact existed for four decades. The Holy Roman Empire existed for a millennium. Guess which one shaped the country more. The important thing is that it used to have one of the communist governments that GGP talked about.

Your attempt to try to change a widely used label because of the Holy Roman Empire reveals either a charming belief that labels must preserve some long term historical truth, or it's a strident attempt to force people to change their own language. In either case, you are tilting at windmills.

No, they have windmills in the Netherlands. I'm in the Czech Republic.

BTW if you're concerned about "not preserving historical truths", a major contemporary truth is that Central Europe is part of the common EU market and Schengen Area, while Eastern Europe isn't. So that's quite relevant for the market situation.

Latvia is Central Europe?

OK, so make that "the overwhelming majority of Eastern Europe", then.

This is hopeless ))

East == bad

Central == better

Therefore Central Europe always extends far enough to encompass the speakers' country. Similar thing happens with Europe and countries beyond the Black Sea.

Actually, no. This would mean that there would be a dozen different accepted boundaries, which is simply not true. Instead, the eastern boundary of Catholicism/Western Church, the eastern boundary of Latin script, the eastern boundary of Germanized cultures etc. etc. etc. basically coincide.

But they don't really coincide...

Seeing as Germany itself has a Protestant-Catholic split, nevermind the rest of Central Europe, Catholicism is probably not it. Neither Latin script, nor the extent of the historical German population, unless you consider the Baltics Central Europe.

It seems there is indeed more than one way to look at it. For some, it is about not being in the same category with Russia, for some it's their Austro-Hungarian history. For some it's Germanic languages. Is the German North Sea coast any more Central than, say, Belgium? How about Slovenia? Is Südtirol Central Europe?

Where exactly the line is tends to depend on the context. In my experience, people from the region don't care much about the Iron Curtain line, unlike Anglos or the French.

The Czech Republic is AFAIK the worst EU country when it comes to the ratio of real estate price to net income.

It wasn't that bad five or six years ago, but now we are screwed beyond belief.

Edit: and no, it is not just the tourist hotspots like Prague, even though AirBnB contributed to the situation, especially in the rental market. Prices are crazy everywhere, including rust belt cities that have been losing population for a generation.

I'm just glad today that our family managed to purchase a three-story house from the municipal government for the equivalent of $US6K (!) about twenty years ago. In retrospect probably one of the best investments anyone could have ever made at that time. North Bohemia, but still...

I hear you, brother. Or sister.

I am now in process of buying a 120 sqm semidetached house in Ostrava. It is under construction right now. The price was about 270K USD. And this is in Ostrava, where good job opportunities are infrequent and which lost 40 thousand inhabitants since 1990.

And the construction corp. that is building the houses recently posted a new project of pretty much the same type of houses, only a mile away, but for 330K USD instead of 270K. This is the price growth since May!

The average salary in CZ is like 1600 USD/monthly pre-tax. The same new house somewhere around Prague would be around 500K USD at least, possibly 600K.

I know what Ostrava is like. Good luck with your house.

BTW our house has something like 160 sqm on those three floors, an attic, a cellar, and an attached three-level terrace garden (on a hill slope behind the house), all on a 250 sqm land parcel. The reason why it came for $US6k was that nobody wanted it when the town was trying to sell it (for around $US20k at the time), so the town put it into auction (with a ~$US6k initial minimum bid), where we (one of the tenant families at the time) were the sole bidders. I guess we were just lucky.

Oh, you were :)

I think the areas where cost-of-living is cheaper will see an influx of remotely working people. Prices around Prague and Brno have become too insane even for middle class professionals and crossed into the "front end for mafia" territory, as these are among the last buyers who can afford them.

And US local governments, especially west coast metros, have largely chosen to make housing appreciate by constraining supply -- at the will of their voters (landowners are a vocal and high-voting group).

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