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Comment by pydry | Hacker News Reader

>Otherwise that tax will end up increasing a resident's rent/mortgage

It would do nothing to rents or mortgages intrinsically but it would cause property prices to fall and it could add to the tax burden of regular property owners depending on how it were implemented (i.e. if the tax free threshold were set too low).

>that still wouldn't be much of a disincentive to the wealthy

It would be a massive disincentive to the wealthy, since they own the most property and are used to it being an asset not a liability.

They would dispose of properties that were nonperforming because taxes > capital appreciation + rent and this would spiral as falling prices leads to more hoarded properties being given up.

They would also scramble to rent out previously unrented properties where capital appreciation wasnt covering taxes. More rentals on the market means even lower rents which makes their properties worth even less to them.

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"It would do nothing to rents or mortgages intrinsically"

Most people have their property taxes escrowed with their mortgage payments. Taxes can easily account for 25% of one's monthly payments. As for rent, the property owners just pass the cost on to the tenants by increasing rent. So property taxes are related to rent and mortgage payments. Even if not included directly in the mortgage payment, it affects how much of a mortgage one can afford.

"It would be a massive disincentive to the wealthy, since they own the most property and are used to it being an asset not a liability."

I'm not sure about this. Just because they own more property doesn't mean they would be the most affected. The tax would likely be a larger percentage of a "normal" person's income for their own home and thus more impactful to them. Plus, if the wealthy are renting out the majority of the properties, then they can make up for tax increases by raising rents (because property tax increase priced more people out of homes (because the price drop was a drop in demand), increasing demand for rentals). I do agree that it should incentivize full utilization of rental properties. But I don't think there are enough vacant rentals to affect supply/pricing, but I don't have the numbers. I would think that most owners are already utilizing residential rentals pretty much at full capacity in the markets that are the tightest.

>As for rent, the property owners just pass the cost on to the tenants by increasing rent

Rents would either remain unchanged or go down.

I dont magic myself a raise because income tax goes up. It works the same for landlords. If supply and demand remains unchanged, prices remain unchanged.

The only change I could forsee to affect either is previously empty properties being put up for rent in order to cover tax payments to turn property liabilities back into property assets. This would increase supply.

>Plus, if the wealthy are renting out the majority of the properties, then they can make up for tax increases by raising rents

They'd really love for that to be how it works and sometimes they pretend it is.

"I dont magic myself a raise because income tax goes up. It works the same for landlords. If supply and demand remains unchanged, prices remain unchanged."

What you're missing is that the market floor get universally pushed up. There's no competition from cheaper places because they all increased their rent to cover the new coat so they can still make their same margin. The demand is still there because people still need a place to live.

"The only change I could forsee to affect either is previously empty properties being put up for rent"

Any numbers on that, or are you just going to keep claiming it's a big enough vacant supply to significantly affect prices?

"They'd really love for that to be how it works and sometimes they pretend it is."

This is still tied to the previous comment. If the number of vacancies are not sufficient, then supply is adequately constrained to just increase the prices to cover costs. Because, again, this increase moves the market floor.

> they all increased their rent

Why would they not have done this before, if they could? Landlords aren't trying to maintain some fixed margin, they want as much as possible, always.

Because of competition. They can't all conspire together to price fix (or if they do they could be arrested).

Writing in context of preceding comment, which seemed to be predicated on them having a special capacity to raise prices in response to land taxes.

I did wonder briefly if a land tax might decrease competition => higher prices, but then I recalled that the supply of land is fixed.

If it's s limited resource which people require (shelters), the price (rent) will be quite elastic. There will still be competition if the taxes go up. Competition is what prevents the price from rising unnecessary. The floor for all the competitors went up because taxes went up and they all want to stay profitable. They aren't going to take loss, so they raise rent to cover it. Buying won't look very attractive either because the tax increase raises those costs, and if it's as significant as they other poster wanted (to affect rich people) then it will likely exceed the $10k SALT deduction limit.

This SALT deduction is part of how they penalize landlords already, which is just passed on in the rent payments. This is part of the reason renting is more expensive than buying (comparing just monthly payments), in addition to management fees, profit, and repair/renovation reserves.

The last few cities I've lived in have seen 10+ straight years of rent increases (with a brief drop then rapid spike again from COVID) so... they do already do this?

Writing in the context of preceding comment. Landlords increase prices as much as they're able, they don't decline to increase when they could to maintain some fixed margin. I'm not saying they're generally unable to rise prices in general, but that they have no special additional capacity to raise prices in response to land taxes.

"but that they have no special additional capacity to raise prices in response to land taxes."

How so? If all landlords now have a significant new cost, why would they not raise rent to cover it?

This seems to say they cover 80-90% of tax increases through rent increases. And commercial properties should be more competitive.

https://mitcre.mit.edu/news/blog/can-landlords-really-pass-h...

>What you're missing is that the market floor get universally pushed up. There's no competition from cheaper places because they all increased their rent to cover the new coat so they can still make their same margin.

You're saying that it doesnt matter if supply and demand remains unchanged, rent goes up coz every landlord independently decided that it does?

Not that they decided it does, but generally that they all had to in order to stay profitable. Part of this is due to the othwr commenter's suggested goal that the rise in rates be significant enough to demotivate rich people.

Here is some research on commercial properties, which would in theory be more competitive than residential. It shows that 80-90% of any tax increase is covered by an increase in rent. https://mitcre.mit.edu/news/blog/can-landlords-really-pass-h...

And of course many landlord resources say to just build it in.

"The best way to protect yourself from taking a hit is to plan ahead. Plan for a tax increase every single year and adjust your rents accordingly. Build the tax increase into your rent and allow for future rent increases. A planned annual rent increase will allow you to stay ahead of tax increases instead of being caught off guard and behind."

https://commonsenselandlording.com/property-taxes-rental-pro...

> >As for rent, the property owners just pass the cost on to the tenants by increasing rent

> Rents would either remain unchanged or go down.

The rent must cover all the costs of the property (+ some profit). If any cost goes up, the rent will go up by at least that much. Anything else is wishful thinking.

If the costs go up so much that it's no longer possible to rent because nobody can afford it, that still won't make the rent go down because the owner isn't going to start taking a loss on it for fun. Instead, they'll sell the property and now it is off the rental market for good.

"If the costs go up so much that it's no longer possible to rent because nobody can afford it, that still won't make the rent go down because the owner isn't going to start taking a loss on it for fun. Instead, they'll sell the property and now it is off the rental market for good."

What do you mean it's off the rental market? The house doesn't dissapear. Either the next owner rents the house out, so nothing has changed, or they live in the house which means that someone who previously had to rent is now a homeowner. Either nothing changed or it's an improvement.

What is this weired attitude anyway, laws and markets change all the time and sometimes I have to eat a loss, are landlord some kind of divine nobility that never does?

> What do you mean it's off the rental market? The house doesn't dissapear.

I mean it's no longer available to renters. If it's no longer affordable to rent out, the alternative is to sell it off to someone who wants to live in it themselves. Of course the house itelf doesn't disappear, but the number of units in the rental market for that town now went down.

That's fine if those who were considering renting that unit are just as happy buying it as a homeowner. But I see many people saying they only want to rent, so for that audience, the rental supply went down.

> What is this weired attitude anyway, laws and markets change all the time and sometimes I have to eat a loss, are landlord some kind of divine nobility that never does?

I don't understand this comment. What I'm saying is that if the landlord find that renting out becomes unprofitable, they'll simply get out of that situation by selling it off.

"I don't understand this comment. What I'm saying is that if the landlord find that renting out becomes unprofitable, they'll simply get out of that situation by selling it off."

So if previously the buyers consisted of 50% landlords, and 50% would-be residents, presumably now there will be fewer landlords buyers and the price will go down. Is the landlord selling at a loss?

>The rent must cover all the costs of the property (+ some profit). If any cost goes up, the rent will go up by at least that much. Anything else is wishful thinking.

When businesses that can't raise prices get taxed more than their profits they go out of business.

Anything else is wishful thinking.

>Instead, they'll sell the property and now it is off the rental market for good.

It's almost as if there were an army of renters complaining vociferously that prices are to high for them to get on the housing ladder.

Basically every city in the world is growing and thus demand is increasing. If you increase costs and make it unprofitable to build, nobody is going to build until the rising demand increases rent to make it profitable.

I wish I was at 25%, mines at 38%!

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