We just need to remember that banning housing investment means banning rentals which is problematic for people who don't have good credit and a down payment.
If I understand your solution correctly it also puts a higher burden on the rest of the population who then have to pay higher land taxes each year (politically unpalatable) and I would argue that REITs probably have more capital to be able to pay off higher taxes where cranking up land taxes on the population makes home ownership more challenging.
The strictest Georgist philosophy would hold if you happened to homestead in the heart of Manhattan your family will eventually have to choose between paying the price for holding that piece of land hostage from the rest of society or letting someone else make use of it.
In practice, places like Denmark and Estonia make exemptions for owner-occupied dwellings.
You're literally proposing a scheme that views removing people from their homes as beneficial. Your values don't match with others. That's the disconnect.
And by the way, that increase in value over the years is because other people want to live in that area. Perhaps we should disincentivize that instead of punishing the people who made it a nice area to live in.
I expect most citizens would recognize this and any effective LVT would be politically DOA.
The LVT as envisioned by its advocates isn’t like that. It’s a fee—largely determined by market forces—to continue to occupy and make use of “your” land. If the government can insist you pay some market-set cost to remain on a plot of land, you don’t own it in the way we classically think about land title ownership. You’re not the market participant, the government is.
I don't see how this follows. Would you mind explaining?
My point is that Americans who own one or more plots of land definitely do NOT believe they are renting that land from the government. Ownership is, of course, a degree of control and everything is a matter of degree. Meaningful LVT would be a qualitative change in a home- or farm- or business-owner’s degree of control over what they heretofore considered their property, and they’d recognize that.
Suppose you do a “buy and hold” strategy on a neighborhood that is gentrifying. The increased taxes you pay each your will eat into your profits. If you sell, the buyer will have have to pay those taxes too, so the value will be lower.
Capital is make believe, a fiction, rows in a database. Physical laws are mandatory, everything else is a shared delusion or a suggestion. The rules can change at anytime with enough will.
Broad strokes, if Capital is primarily serving a small minority while the majority suffers for it, the tool (capital allocation) is broken and it is time to reevaluate the implementation.
For those concerned about sovereign debt, that should’ve been thought about before running it up on unnecessary conflicts (which there have been many!) and other unproductive efforts (tax cuts for the wealthy). Real needs coming up, and no excuses because of previously suboptimal governance. Lots of assets and wealth in the US to tax for those who really want the debt line go down, but if debt line doesn’t go down, nbd.
You could imagine other programs that could encourage renting, for example (no thought has been given to this, just an example/idea) - federal guarantee that you would pay NO capital gains tax if you could prove that you continued to rent out the property and never increased rent more than 1%, say.
With regards to the IRS, even though there are occasional delays, I’ve always had a top notch experience even when my own mistakes would have incurred thousands of dollars in penalties (which were waived more than once). If you want effective delivery of government services, you must fund them at the necessary levels. Effective government is not free.
A large % of the high density housing being built around Seattle is rental only, all that does is funnel money out of the city. Residents don't get to build equity, and rental prices keep going up year over year, vs mortgage payments that, except for the property tax portion, stay the same over 30 years.
Also large rental complexes don't build communities.
Someone who bought a small 2 bedroom house 10 years ago and who now rents it out, those people aren't the problem. Heck odds are they are renting that 2 bedroom out for less than what a large corporation would charge.
I used to live in a large, over 100 unit, town home complex.
Central to the complex was a very large open green space, larger than most suburban yards.
Over the years, about 50% of the units are now rented out, typically at a price lower than in the nearby built for rental apartment complexes. Individual landlords prize stability in tenants more than maximizing short term value, also if a person is only renting out 1 unit, that unit being vacant for a month or two is a lot of lost income, raising rent by $200 and then losing out on 4k of rental income due to having to lose then find a new tenant is not something a smart landlord does on a yearly basis.
Prior to that I lived in a luxury condo complex in a very nice area that was again, lots of rental units. From what I gather, soon to be retirees had bought in and were renting the units out until they they needed to move into them. They also prized stability and boring tenants over maximizing monthly income.
The point here is, within reason, today's fancy high end condos are tomorrows reasonably prized housing.
Will the 50 story skyscraper condos ever be reasonably prized? No, of course not, but if someone dropped 150,000 units of medium density housing into Seattle, I bet that in about 5-10 years housing prices would start to come down.
The other issue I have is the absurd number of 4 story town homes being built, which should instead be 4 story condo complexes. Insane square footage is wasted on stairs, and no one over 35 can live in those places, and raising a family in them is either impractical or horribly annoying. (Good for baby gate sales though...)
If it were up to me I'd remove elevator requirements for 4 and 5 story condo complexes in return for having the bottom floors requiring ADA units.
For example, many small-time landlords would have been better off just buying a much more valuable property to live in themselves, than buying one to live in and one to rent. Eg, buy a $400k house instead of two $200k houses and renting one.
There definitely needs to be some rentals, but I believe that there needs to be controls over how many and the rental price.
Renting is very much a poverty trap where the poor with bad credit get poorer and worse credit.
Only a fool treats their dwelling as an appreciating asset anyway. It's subject to market forces.
* It gives you a fixed monthly houseing cost. No "10k new roof" or "1k new stove" suprises hit you.
* If you are say, saving 50% vs buying, you can put this difference in an index fund. This would over 10 or 20 years potentially give you a LOT of money over buying.
Look, buying is mostly great. It's one of the biggest builders of wealth for most Americans. But from a purely numbers game, it's not so clear "rent is just losing money".
2. So does a fixed-rate mortgage. Even better, refinancing a mortgage during a low-rate period (e.g. 2012, 2020) actually lets you reduce your payment, while contributing more to equity. How often do you have an opportunity to reduce your rent?
3. Saving 50% of what exactly? You can put the down payment into an index fund, yes, but remember than the house is an asset that gives you 5x leverage initially, assuming 20% down. You can't get 5x leverage at your broker, and even if you could, playing with 5x leverage on the stock market is insanely risky compared to real estate.
> But from a purely numbers game, it's not so clear "rent is just losing money"
It's pretty clear actually. They've compared retirees who rented all their life vs home-buyers. The difference in wealth was striking, a factor of 6x-7x if not more.
What's not clear is whether that trend will continue in perpetuity under the conditions of declining population.
Home values rising historically is good, but I don't think a clear win through all time. There is no instrinsic reason a house value should rise faster than inflation. You can always build a new house for cost X. Buying existing means that new house supply is too low or too costly.
But for what I've paid in rent over the years, I could have paid for entire dwellings. And had the freedom to fix and alter things per my desire.
Renting is the opposite of a fixed monthly cost, since rents go up all the time. If you rent, you can't tell me what your rent will be in ten years. I can tell you what my mortgage will be, exactly the same as today.
> No "10k new roof" or "1k new stove" suprises hit you.
If these bother you, you can sign up for house maintenance insurance programs to give you a fixed monthly cost. I'd recommend against that since they make a profit off you, you're better off putting that money into an investment account and withdraw from there when you neeed it.
When the new roof goes in, what happens to you as a renter? I'm pretty sure you still have to pull together 4k for moving/security deposit/first several months
New roof costs are pretty much never a surprise. You should know when you buy the house how much life is left in the roof and plan accordingly. If a natural disaster occurs that destroys your roof, insurance will cover it.
Appliance costs? Yeah, they are often surprises. Hard to find reliable appliances any more.
Oh, and it's hard to get a $10K roof these day :-)
> If you are say, saving 50% vs buying, you can put this difference in an index fund. This would over 10 or 20 years potentially give you a LOT of money over buying.
Yeah, I always wondered if I should do this analysis for my house, and I'd be curious on studies on how this would play out in most cases. For me, right from the get go the rent on a comparable house exceeded the monthly interest + tax + insurance (excluding principle). The tax benefits more than paid for all the maintenance costs. So the main questions would be:
1. How much would the down payment be worth in an index fund?
2. How much would the principle payments monthly in an index fund be worth?
I suspect that I'm ahead of the market significantly, what with all the crazy house appreciation (that alone is about 8x my down payment), and rents are quite high - easily increased by over 70% since I bought the house.
But once it's paid for, it's paid for. Now you just need maintenance and taxes, easier on a fixed income. And it's easier to build intergenerational wealth if one of your children doesn't need to blow money at all on rent or home purchase.
It's still a roof over my head regardless of how much it's worth. And more importantly, how much it's worth is completely irrelevant unless/until you want to sell. And if you do want to sell, and home values have crashed, then the next house you buy will also be cheap!
Yes, it often seems the rental cost will be less than your monthly payments, but do realize that you lose all the rental cost, but not all your monthly payment.
There are online rent vs buy calculators that you can use to generate these scenarios.
https://www.calculator.net/rent-vs-buy-calculator.html
Plug in negative appreciation for property values and watch how the comparison tilts.
Also, rentals tend to be higher density than houses that are owned. If there is a housing crisis, this seems like a desirable thing. Ex: roommates (yes, possible with a house, but less likely), etc.
aside from the federal tax breaks and very high amount of leverage ($40k to get a loan on a $200k unit that you _might_ be able to resell at $300k to get into a larger $400k unit that you _might_ be able to resell at $500k to get into a larger $600k unit...), I never saw, and still don't see, the benefit of home ownership.
actually, that's not true. for people with families who need (or "need") stability, home ownership makes a lot of sense. you're going to be in the same town until the children reach maturity...might as well get a loan on a house since you're going to stay put for a while. cheaper than hoping that your landlord doesn't bump the rent up.
however, we are not having children, have moved three times in the last six years, and spend a lot of time traveling. i very much like emailing my landlord "hey, weird noise" and they bring in their contractor friends to look into it on their dime
i do hate how there is this sense that you should feel "bad" for not owning, i.e. renters are always pictured as troubled people in financial distress who don't have a choice but to rent.
Rent controls are unfortunately very similar in key ways. They've been tried, and the results may not quite line up with what you might be hoping for.
Technically true, but practically false. Yes, zoning exists in most of the US. And yes, most people have no trouble converting a region to residential zoning. I've known people on both sides, and most of the problems are the opposite - people who want to run businesses in a residential zone. I've yet to meet a single person who couldn't go the other direction.
There's a process to getting approval to build a house/apartment complex. You simply follow the process and get approval. Most of the US is not the Bay Area, Seattle or NYC.
So yes, you're absolutely right, technically true. In practice, they fundamentally don't do what the user wants them to do because that's not what caps are capable of doing. The tools don't work that way.
One of the biggest benefit of owning is a hedge against housing inflation. Its not a perfect hedge, I do acknowledge. As property values increase my taxes go up, as housing materials increase in cost the cost to repair it goes up. But the amount my taxes will go up in a year is far less than how much I've been seeing rents shoot up.
They're "small" expenses but if you track out the various things and divide them over the ownership period, they do add up.
E.g. - current house, here 5 years, so far: furnace and A/C, $9k, fence, $14k, landscaping and misc, $2k, tools and supplies, $3k, plumber and window repairs, $2k. So about $6k a year, double my taxes and half my mortgage again. And I haven't even hit the big ones (and didn't count appliances as those were "optional" purchases).
Owning is still a good idea for many, and has benefits, and renting will almost by definition be more overall, but it's not a given. You note the main advantage - stability. If you're on a fixed loan (whether it be 5, 10, 20 or 30 years) your payments are calculable years in advance and you get to pay much with tomorrow dollars, which are almost always worth less than today dollars.
But you do have to want to stay in the area for years.
On the other hand, you have to count the mortgage interest as a cost but not the mortgage principal repayment.
Obviously, this won't hold true for all time-frames, and I'm not even necessarily a fan of thinking of primary residences as investment vehicles, but if you're going to compare it for opportunity cost it's still not necessarily a home run comparison.
If you recall how these things were done before credit scores it was not pretty. Without them lending would virtually cease to all but the most obviously creditworthy people.
I generally agree the system for credit scores needs to change. In particular it should not be controlled by a veritable monopoly. But this does not discount the utility of it in general.