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Comment by jbigelow76 | Hacker News Reader

(2) make housing an unattractive financial asset

I think this should be revised to "make housing an unattractive financial asset if you don't live there"

Both would be be highly unpopular for the majority of existing home owners.

"Homeowners" as a concept needs to be substrated. Is Blackrock Capital a "homeowner"? Yes, the corporate entity owns and rents out domiciles people think of as homes. Are they the same as the person(s) wanting to "buy" the enclosure that provides privacy and puts a roof over their head in a neighborhood with a decent school for their kids[1]? No.

For this particular niche of economic policy, we need to start talking about things as a "homeowner-resident class" and a "land(lord/owner) class" and crafting public policy around that.

[1] I'm trying not to pigeon hole this point to single occupancy dwellings, it's part of how they divide us ;)

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It still leaves the problem of people living in much larger houses than they need because it's financially advantageous to do so.

Here in the UK older people with kids who've left the nest often continue to live in large houses because there are a wide range of strong incentives to do so, from low council tax, capital gains tax treatment, inheritance tax treatment, and the protected status of housing wealth for some benefits.

The housing crisis could be mitigated to some extent without building any new homes, just by reshuffling the existing stock to people who need the space more.

My recommendation would be property taxes that reflect the implicit income you get from living in a home you own i.e the avoided rent.

Why should it be an attractive financial asset if you do live there? Why shouldn't it just be a depreciating asset like a car (which it would be if land was taxed effectively)?

That way, we could invest in productive assets instead of land.

Houses don't depreciate at nearly the same rate as cars though. Not uncommon at all to see a well-built house last over a century.

> That way, we could invest in productive assets instead of land.

Housing is worse than "land". The building itself is inherently depreciating, yet many think that they "invest" when they get a new kitchen or bathroom.

You can invest in depreciating assets, if you sell them for higher than the cost of your investment.

For example, if one buys flour, and bakes a cake that a classic depreciating asset. In two or three days, that cake will be worth less than the flour that went into it. However, if you sell it today to someone having a birthday party then you may make 3x on your investment.

Buildings work the same way but with a longer timeline. That’s why developers build houses then sell them with the land, and don’t just sell land. It’s also why home owners invest in their own houses.

If one builds a kitchen in their own house, they get to use it during part of the depreciating timeline. Let’s say kitchen costs 10k, they use it for 5 years and it’s depreciated to 5k worth. Now so long as it doesn’t cost 5k to raise it back up to 10k worth, then they have gained if they sell the house. Alternatively, they could rent out the house for 5 years at a higher rate because it has a kitchen.

Like the cake, housing is an asset class where more strategies apply to it than “buy and hold”.

What people think isn't the same as reality. Yes, I've noticed lots of deluded Americans think a new kitchen or bathroom is an "investment", but it's really not: they never get remotely as much money as they paid when they sell the home.

That depends quite a bit on the area and on what is being remodeled and the current state of the market.

Near me, $10k-$20k of landscaping can go a long way in affecting the listing and eventual sale price.

The daily use of the upgraded kitchen and bathroom is value too, not just the resale.

Sure, but that's not how they rationalize it to themselves. They really believe they're going to get every dollar back in resale value, and then some. With ever-increasing house prices until recently, it seemed to be true to them.

If housing is an unattractive financial asset, how are investors motivated to create housing?

Without owners there needs to be either easy credit or state funded housing. However, without a free market there needs to be a way to prevent abuse.

Housing has to remain attractive but there is no need to artificially inflate housing value by limiting supply. With enough supply, rent should go down to production costs plus reasonable profits. Real estate is a secure investment so interest rates on government bonds should be the upper bound for those reasonable profits.

Firstly let's be clear that the supply of land is fixed. The only limitation is that of the housing that goes on top of the land - the amount, density and quality.

Housing should be a highly financially attractive to build. The land under the housing should be highly unattractive as a financial asset. There is a clear difference between the two. The distinction can be made by taxing the capital gains from LAND very different from the gains from improvements. If you tax the capital gains from land at 75%, I promise you will get the same amount of building but a lot lower overall housing cost.

You can also lower interest rates for housing construction/refurb companies but also remove the tax incentives for actual home ownership.

> If housing is an unattractive financial asset, how are investors motivated to create housing?

They say it should be unattractive to hold, not to build and sell.

If it is not attractive to hold then there will be nothing to rent.

I actually agree that it should be attractive housing management companies to own and manage property. If they do a good job they should see a good risk adjusted reward in their business. What they should NOT be doing is have a business model that is based on the capital appreciation of the land if they sell the property. This can be achieved by ensuring their cost to purchase is reduce by lower interest rates but the capital gains of the land are tax very heavily.

Yeah this is the key I think. With Chase also recently announcing they're entering the landlord game to the tune of a BILLION dollars, I think we need to look at OP's "(2)" from the perspective of these players rather than the individual, likely-middle-class, homeowner.

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