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Comment by RocketOne | Hacker News Reader

Im one of those 'greedy' old farts who owns more than one home. We have one for ourselves and 5 rentals. Im starting to agree with those who are feeling priced out of the market. What would make me stop buying homes? A graduated tax would.

If there were no sales tax on the first two, and then 15% tax on the third, 25% tax on the 4th, and going up by 10% for each subsequent house, it would definitely make me quit buying likely by the 3rd or maybe the 4th house. Too expensive after that.

Then that money could go half to the gov, and half to subsidizing first time homeowners by giving them no interest loans for downpayments, or even grants if they qualify at a low enough income. I wouldnt object to that - real estate has been good to me, I think it would be fine if my taxes were helping others to start out.

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I agree this is closer to the root of the problem. It's not just foreign capital, or faceless corporate ownership (although both are part of it).

IMO it's that every professional / business / owner / wealthy person in Canada can basically easily borrow against their existing home equity, use that to purchase add'l rental units, and claim the mortgage interest as an expense against the rental income (thereby making the loan "free" of cost, although obviously you're still on for the principle). You have the risk of the housing market crashing, but that hasn't seemed realistic for the past 10+ years or so.

I'm not sure what the solution would be. I hesitate to even call it a "loophole" since to me, from a business POV, it makes sense (the cost of the debt is an expense to be put against the income, so you shouldn't have to pay tax on it).

Then, even if you're just breaking even as a landlord after the interest, property tax, maintenance, vacant times, etc - the underlying asset is appreciating as well.

So there needs to be solutions (like graduated tax on subsequent properties, or perhaps changes to being able to claim your mortgage interest as deductible, etc) to change this underlying dynamic.

Yes, dramatically increasing the supply of housing would be a better fix, but that's not likely to change quickly while economically de-incentivizing the real estate investment I described above would change things.

My $0.02, not an expert.

Your loop-hole doesn't make any sense. Mortgage interest is deducted against income but that doesn't make your loan "free" from cost since the tax rate isn't 100%.

Example:

$1000 in net operating income, $500 in mortgage interest, 25% tax rate

Taxes paid = (1000 - 500) * 0.25 = $125

I think what happens is then your wife goes through her 4 houses and then your kids, etc. It's a good idea though. I'd prefer all homes get high taxes and then give a homestead exemption to the one you live in for 6+ months out of the year at a normal tax rate.

Well I have to ask you whether or not you participate in zoning board meetings? Have you actively fought or supported any motions to restrict mixed use development or anything that would bring the "missing middle" to your city?

If you haven't done the following then I don't think you're the problem but a symptom. Sure, we could tax small landlords more over an arbitrary amount of real estate valuation or something but I would suspect that due to how corporate structuring can be handled that it would be mitigated by such things. I think it'll be a complex set of decisions that'll need to be taken before North American cities become economically viable for most folks in the lower income brackets. Until the various benefits are exceeded by the hidden costs of keeping them for multiple take holders, nothing will change.

I'm curious is there not a property tax effect? Here where I live in Illinois I pay property taxes on my home. Where I live it is currently about 4.4% of my home's real value every year. I am able to deduct it from income only for state income tax purposes. There are limitations there that I don't reach based on my income but also I can only do so for a small handful of connected parcels. So in your case you would only be able to deduct for one of your homes. Can you please explain how it works where you live?

Additionally for a home sale in US I have to treat it as income for income tax purposes. In my state there are state, county, and often local transfer taxes as well. Here $1 for every $1000 of sale price to the state and an additional 50c for every $1000 to the county are typical numbers. There are also a number of other fees like recording fees, but those are flat rates.

I pay a ton of property taxes. About 1500 a month but its all deductible against rental income except for my primary dwelling.

And Ill pay a lot in taxes when I sell the rental houses. My primary dwelling is tax exempt for capital gains but the rest are taxed at 50% of the gain. Eg. If I bought for 300,000 and sold for 400,000 then 50% of the 100,000 is taxable. So if I made 100,000 that year then my new income is 150,000 and that will be taxed at about 36% so Id pay 54,000 in taxes that year instead of 36,000.

That wouldn't work.

You can always make more LLCs to dilute your numbers.

Ultimately we need to weaken corporate ownership of real estate

Im in Canada. Very few 'mom and pop' investors make an LLC for RE investment here. Thats more an American thing.

Similar to tax avoidance which people tend to loathe, you’re only doing what makes economic sense. So long as it makes sense, it’s hard to criticize or resent someone for making sound investment in their economic well-being.

I do think it’s a problem when a handful of people have 5 houses and far more have none, but I really don’t see the problem as one originating from the people who own 5 houses. It’s a systemic issue.

I’m not sure your tax solution would work well. Like most individually limited purchases, people can simply forward purchases to family members or in some cases subsidiary corporations.

I don’t see a way through this without major reform. As long as housing is a commodity I don’t think we can fix anything.

Would you object to a graduated tax that gets applied to your existing mortgages in addition to an outright ban on new purchases of secondary properties within the metro area? I'd be fine with it.

I don't any reason why we shouldn't do that. It discourages people in your position from hanging on to multiple residences, and it levels the playing field a bit, at least until some equilibrium is reached in which existing and incoming demand approximate the available stock and pace of development.

it's insane to me that so many people still seem to have never heard of land value taxation...

>What would make me stop buying homes?

Are you saying you don't know what to do with your money?

Not the OP, but this is an interesting remark.

Stocks aren't as attractive as they used to be, because people seem to be pessimistic about the development of the economy. Stagflation is the word that keeps emerging again and again in conversations of people who never used it two years ago.

At the same time, cash is obviously losing its value.

So the only thing that attracts investment is real estate, which cannot be printed at will, nor can it really "stagnate" as long as certain cities act as a magnet for immigrants, domestic and/or foreign.

Basically, this situation reflects our collective pessimism for the future. If/when people start believing that strong economic growth is around the corner, stocks will soak up some of the money that now flows into bricks and mortar.

Don't see why the government deserves to profit off it.

The government isn't a for-profit organization, its profits are our profits. We all get to profit off it. If the government makes profit off it, that's just corruption.

(I've been living in Sweden for a while)

This is true for an ideal and perfect bureaucracy. But in practice, some government employees will use bigger budgets to arrogate more power to themselves - bigger projects, more headcount.

Now we do need a degree of bureaucracy, but it’s best to have most of the money circulate in the market where there is pressure to employ it efficiently or lose it.

Have you increased your rent prices? Why or why not?

Not this year. I dont raise rent on tenants who stay, only when getting new tenants if the market allows it.

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