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Comment by JasonFruit | Hacker News Reader

The assumption here is that housing can't be affordable by nature, but has to be made affordable by government intervention. Is that the case? Would it be possible to build an apartment building that simply will be affordable, without the government giving the developer a pile of other people's money?

I also wonder about the incentive that's created when artificially affordable housing is provided in an area that's expensive because of high demand: doesn't that prevent a shortage of low-skill labor that would otherwise be a limiting factor in that demand? That is, if it's too expensive for many people who might work low-paying service and manual jobs to live nearby, the rising cost of that sort of labor might begin to lessen other people's desire to live there and businesses' desire to locate there, mitigating the housing problem.

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IMHO after being a landlord and homeowner: home affordability is doomed. Homeowners vote to stop new construction to prop up their investment. Homeowners pretty much own local legislation: mayors, supervisors, boards etc. There is really no hope. People don't want affordable homes in their neighborhood - they want affordable homes in your neighborhood. The only way to stop this madness is to inversely tax homes based on their share of affordable homes in their area through state laws. Good luck passing that.

From my own professional experience: it costs a minimum of $350 per net rentable square foot for new construction of mid-rise rental apartment buildings. This includes all materials, labor and design/permitting costs, and the cost of land acquisition in the urban core of a second-tier U.S. real estate market (NC Triangle). $350,000, 1000-square-foot three-bedroom apartments are affordable housing. But good luck finding one in a new building!

In both cases, we have quite a lot of historical evidence. There aren't many prominent examples of housing at all income levels being created without government intervention. And when there's an affordable housing crunch in a desirable city with a wide spectrum of jobs, people commute and live further away, which is bad for everyone involved.

If they simply did not charge income tax on home sales we would have an army of solo developers and house flippers engaging in a flurry of small builds. There is still cheap land to be had where single family 1500sq ft homes can be built but developers can't do it because of the up front costs and taxes making such a thing impossible for them. Solo builders can do it...until they factor in the governments' cut. The margins too thin, risk too great. Eliminating income tax on home sales is dead simple, has no cost, and would enable a lot of one-off projects.

I am trying to build a two bedroom house in a small country township in Ohio. My upfront costs just to get county, state, and township approval are already at $15k with me doing all the work. No approval yet. The piece of land (1ac) I'm developing was held by various corporate builders for years until I bought it from another individual for $7k. This house is for myself but it could easily be built on speculation and sold but I would have to live in it for three years to avoid the $30k income tax on the sale. No way am I fighting through all this red tape and risk to hand over $30k in taxes. That $30k is another piece of land brought to shovel ready for another build...pissed away. Income taxes are a regression to solo builders that make each build a daunting risk. The government is not allowing profit on smaller single family homes...period.

Can’t you avoid the income tax by incorporating and rolling profit into the next project expenses in the same year? I don’t see any reason to distort the market by removing income tax on income.

Perhaps, that sounds like more expense and red tape. Another barrier/wall that demonstrates my point exactly. Just to build homes? The people with these skills can't use them because of all the administrative, tax, and obscure compliance munitia hamstringing the process. The market is already distorted to hell.

This might be totally true for Ohio. Most of the attention on the housing crunch is in cities where there is zero cheap land and the only development that should happen is high-density.

> Would it be possible to build an apartment building that simply will be affordable, without the government giving the developer a pile of other people's money?

Sure it’s possible. How often, statistically, will it happen when there is a complete lack of financial incentive to do so? Basically never. My question is, what evidence and metrics show that it is always a net negative when the government creates incentives for affordable housing?

We don't really have that problem with other goods: is it possible to make cheap and expensive bed sheets, or kitchen scales, bookshelves, or phones? Yes, in all those cases, and there's a financial incentive to do so: people who cannot afford an expensive version will pay for one they can afford.

Where exactly is the difference between those goods and housing? At first I thought land, because the same land could be used for expensive or cheap housing — but that's the case with the raw materials for those other products, and just as in the case of land for housing, not all raw material is equally desirable.

As to your question, we really can't have good evidence one way or the other, because there are too many variables. I'm attempting to reason about it, and am not really sure I have answers myself, but I'm not comfortable assuming that having government take care of a problem makes the problem go away.

The difference is if you want to make a cheap phone the people who don’t want you to are few, but if you want to build a cheap home there are lots of people who will try to stop you.

The presence of the opposing force in numbers is what is damaging.

No - the problem is in the cost

You can make cheap phones in China and sell them in the US

You can’t make cheap homes in Indiana and sell them in San Francisco

Why are there cheap homes in Indiana ? Look at the costs involved: land is cheaper. All the other components: materials and labor are the same

> Where exactly is the difference between those goods and housing?

The first difference is elasticity of demand. Housing is relatively inelastic in the short term due to land availability, time to build, and government regulation. This simply means that as price increases, quantity demanded does not decrease as much as it would for another good. For example, cereal is pretty elastic with good substitutes. If the price of cereal goes up, a good portion of consumers will switch products. In the long term housing is more elastic as people build more.

So, demand isn't changing a lot with price. And the second difference is that housing is a basic need. Let's make the assumption that housing is a truly competitive market without government regulation. The market will settle at different prices for different qualities of housing. It will be incredibly efficient and maximize consumer and producer surplus (economic goodness). But, people will be left out of the market. A perfectly competitive market DOES NOT guarantee that everyone will be able to purchase the product. It will just maximize consumer and producer surplus.

Okay, so we as a society think that we should provide some government assistance for those that cannot afford housing in this market. We have some options. We could implement a rent ceiling. Unfortunately, and this is well proven, price ceilings create shortages and inequities. Most economist do not agree with price ceilings. https://www.factcheck.org/2009/02/when-economists-agree/

We could provide programs as detailed in this article which effects the supply. As this article highlights, all government intervention WILL create market inefficiencies. The pie will get smaller. I'm not saying that the government should not act, I am simply saying that government interaction is a tradeoff between equity and efficiency in a competitive market without market failures.

I am a proponent of a voucher based system to give a credit towards rent for those in need. This reduces the government intervention on the supplier side. To be clear, these vouchers will slightly raise housing prices, likely not be implemented without exploitation, and make the overall economy slightly less efficient due to the tax. But the vouchers will also reduce inequity and provide people in need with a basic good.

I think a lot of the problem is from too much government intervention. For example, people get a lot of tax breaks as a landlord. This makes it more desirable to buy and then rent out a house. This shifts the demand curve right raising prices and removing some people from the market (it reduces home ownership rates). I think those tax breaks should be removed, especially if the house is not your primary residence or is your second or third home. People will make the argument that this hurts the poor because people won't build for them. But then the discussions above about a competitive market and the voucher system are better in my opinion than giving tax breaks to companies that own hundreds of homes.

> For example, people get a lot of tax breaks as a landlord

As a landlord that is wrong. You get to deduct the expenses you have for running the property against the rental income, but that's just how business works. Landlords have enormous deductions because operating a property is really expensive.

In fact, you pay higher taxes in a lot of cases. It is very common to give people a property tax deduction/reduction if it's a person's primary residence. Landlords don't get that. Many places also impose direct revenue taxes. So your city/county/state will take several percent of your revenue off the top.

Finally, after higher input taxes, paying all those business expenses, you get to pay income tax on what's left over.

Also, primary residences are subject to a $250k/$500k capital gains exclusion that rental properties do not get.

Ignore the plight of renters at your own peril.

Do you think that Mao had the right idea w.r.t landlords?

Pointing out that primary residents get great breaks does not mean that landlords do not also get tax breaks. They just don’t get those. And of course you pay tax on the income left over after expenses.

About the direct revenue tax. Government can impose a tax on a producer or consumer, but that doesn’t matter. The proportion of who pays that tax is purely based on the elasticities of both the demand and supply curve. Because demand is inelastic, that tax probably is paid mostly by the consumer through rent prices. I don’t live in a place where there is a direct revenue tax on rental income.

There are still breaks landlords get like the 20% pass-through deduction, 1031 exchanges, and interest rate deductions (similar to small business loans - which the government also wants to promote). Keep in mind that if some of these tax breaks apply to other types of businesses, they are still tax breaks for landlords incentivizing people to be landlords vs deciding not to enter the market. That is not a normative statement. I kept deductions for depreciation (which is huge), repairs, employee fees, etc out of the list since they are the expenses you mention.

you can build a home for under 10k, nice ones too using earth bags. It's not up to code/zone everywhere and that's the catch. They're not dangerous to live in, and in fact - many are more structurally safe.

Bini-shell homes can withstand hurricane force winds and earthquakes and maybe even lava-flows assuming your door is shut and you don't get completely blocked in and suffocate.

Tiny homes cost about 50k to get and are portable. Yurts can make nice homes too. There's a TON of youtube videos on alternative housing 'ideas' beyond normal builds.

If I had a million dollars I'd build an intentional community with some glamping spots for revenue, and charge like $100/month/family member hoa fee or something, put whatever home you want on it. Camper, tent, yurt, earthbag, earthship, etc. Have to work out some legalities of ownership when people move/etc.

- Put some common buildings and share a lot of things like lawnmowers, 4-wheelers, power tools, etc. Things everybody owns but is really a waste of space when you could just have a community library of these things to checkout when needed. - Outdoor games like horseshoes, frisbie golf, rockclimbing walls, movie screen. - Locate it near Zion national park, or Grand Canyon. - Glamping camp for additional revenue while building things out. - Farming area and rain-capture tech to get the most use of our rainwater. - Solar array. - Commercial Kitchens, with weekly potlucks and volunteer-chef-supplied dinners (maybe tip your chef). ...etc

it could happen if the regulatory environment were "right-sized" with a heavy emphasis on ensuring clear and concise information to potential buyers/renters to counteract the natural information asymmetry that arises in markets between producers and consumers. this is often a key missing piece to laissez-faire flavors of economics that leave markets more distorted and less competitive than ordinarily regulated markets.

that's not the only condition, but it is a necessary one, to create affordable housing without shoveling piles of tax money at developers. the market must also be made fair and competitive in other ways, and there must be enough volume for prices to equilibriate to new information quickly (which also requires new information to spread widely to consumers, as in the first condition above).

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