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Comment by pstuart | Hacker News Reader

On the demand side it would be nice to keep PE firms from hoovering up all the single family homes.

https://www.thesling.org/are-hedge-funds-and-private-equity-...

Land Value Tax[0] is the way. It strongly incentivizes the following:

>The owner of a vacant lot in a thriving city must still pay a tax and would rationally perceive the property as a financial liability, encouraging them to put the land to use in order to cover the tax. LVT removes financial incentives to hold unused land solely for price appreciation, making more land available for productive uses. Land value tax creates an incentive to convert these sites to more intensive private uses or into public purposes.

The entire purpose of a land value tax is to encourage the productive use of land, which boils down to either building stuff on it to make it more productive or selling it to someone else so they can largely do the same.

Otherwise it is a simple tax burden to hold. While extremely wealthy individuals may choose to do this, its unlikely that businesses (like PE firms) are going to let their tax obligations stack over time and hold empty land / buildings etc. Same goes for individuals who are taxed at wildly different rates (like in California with Prop 13) simply based on time of sale

[0]: https://en.wikipedia.org/wiki/Land_value_tax

This has already failed. The bay area is full of empty land and buildings owned by firms and a horrific housing situation. Doesn't stop the statists from proposing yet more tax for every single problem though.

California doesn't count because they have a de-facto landed gentry.

In 1978 they passed a ballot initiative[0] that locks in property tax rates until a home is sold or renovated. This was further amended[1] to allow generational transfers of those rates. The end result is an extreme disincentive to sell land and a class of homeowners with favorable tax treatment who want the state to be coated in amber. Any market intervention is useless without addressing the harms caused by the current property tax regime and the people who benefit from it.

[0] https://en.wikipedia.org/wiki/1978_California_Proposition_13

[1] https://en.wikipedia.org/wiki/1978_California_Proposition_13...

California does not have a land value tax, even attempting to study the effects of a land value tax failed[0]

[0]: https://www.billtrack50.com/billdetail/1555689

These PE firms specifically say in their SEC filings that the most credible threat to their business model is municipalities removing restrictive zoning regulation and allowing the natural rate of market-rate housing to be built (0, 1). You can foil their schemes and bankrupt them by electing officials who are pro-development.

[0]: https://d18rn0p25nwr6d.cloudfront.net/CIK-0001687229/a154763..., "“We operate in markets with strong demand drivers, high barriers to entry, and high rent growth potential, primarily in the Western United States, Florida, and the Southeast United States.”

[1]: https://www.sec.gov/Archives/edgar/data/1562401/000119312513..., "The continuing development of apartment buildings and condominium units in many of our target markets increases the supply of housing and exacerbates competition for tenants."

Would be interesting to see what would happen if renters had the option to buy the underlying property/unit somehow after being a tenant for a certain time.

The goal should be ownership for folks who want it, not a nation of renters.

You can rent your home with x% profit, but after x # of years the home sells to the renter.

I like it but that seems like a system VERY susceptible to abuse.

You can bet landlords would be doing everything possible to force renters out just before the purchase window comes open.

That's definitely an issue, even if constructive evictions can be prevented, landlords would also have to be forced to renew leases (at limited rent increases).

One small catch, maybe even a constitutional hold up?

It's not really your home if you are obliged to sell it after x years.

The traditional societal compact with private property is that the property is yours for as long as you choose to keep it. (Providing you pay the taxes covering the costs to provide municipal services to your property.)

This kind of changes that, and I'm not sure it would stand up to constitutional scrutiny?

No one is forcing you to rent it

Again, traditionally, renting your property on terms an owner unilaterally determines was seen as a right of owning private property. Provided you're able to find a renter who agrees to your terms, and provided your terms are legal, you were allowed to rent your property, again, forever. For instance, it was perfectly legal to rent your apartments for USD1500 per month, and at the same time, allow your kid to stay in one of the apartments for free and give a USD500 a month break to a long term renter who maybe lost his job. It was your property, so whatever terms you had with each renter was very much considered to be your business. (Again, within the bounds of legality. You can't be asking for a cut of the drugs dealt out of your apartment as a condition for instance.)

Unless I'm misunderstanding the proposal, this would change that practice. You would be told how much you could rent the property for, as well as the date you would need to sell the property. (Which, I'm guessing, would be based on the rent amount?) So a radical change from before in terms of private property rights.

Forcing people to sell private property against their will is generally a pretty bad economic policy.

All they have to do is offer the owner an adequate price.

The problem is they can't give the owner an adequate price when they're paying for the owner to grow more equity in the property while also needing to save at a faster rate to afford a downpayment on a mortgage.

Then they are renting something they can't afford, if ownership is their goal.

When I was saving for my first house I lived in a crappy little 1 bedroom apartment for a few years so that I could get a down payment together. I had the income to afford renting a larger apartment or a house in a nicer area but I would not have been able to save anything.

When was this?

Have you paid attention to the percentage of wages required for a unit nationally? In your area?

> Have you paid attention to the percentage of wages required for a unit nationally? In your area?

Roommates.

I too had roommates coming up. People today have roommates coming up. That doesn't change the fact that even with roommates, the burden is disproportionately higher than it was for the last generation, particularly with housing.

Median household county in my area is about $55,000 a year. The median price of a house is $450,000. Assuming two people, the 50th percentile wage is equivalent of $14/hour. (This as an eyeball looks pretty close to a median wage.) Fair market rent for a 2 bedroom apartment (40th percentile) is 1500, or 32% of income.

If you let everyone get their own bedroom? For a below median two bedroom apartment, they will barely be able to afford the place.

A 4 bedroom place is $2500, so you're going to get about 100 dollar discount, but that all gets wiped out if one of your roommates leaves and you can't find a replacement. The more people sharing a space, the more risk there is.

It's tougher out there right now if you're not on an engineer's wage.

> doesn't change the fact that even with roommates, the burden is disproportionately higher than it was for the last generation, particularly with housing

Oh totally agree. Just pointing out that a straight comparison of wages to home prices doesn't dictate unaffordability.

If you are saving a down payment for a house you need to be spending far less than "32% of income" on your current rent. You need to move farther out, find a smaller/shittier place to live, be frugal with everything else, and/or increase your income. This has always been the case, unless you are earning well above average income.

each successive generation shouldn't have to endure more and more hardship to achieve the same standard of living, especially if it's due to previous generations imposing regulatory barriers

That's a very different situation than the one you initially replied to. It's also not something everyone can do.

There's nothing actually wrong with renting, if there's enough supply to stop profiteering by landlords.

What's frustrating is when (as appears to be obnoxiously common in the UK) affordability requirements for mortgages mean someone "can't afford" to buy even when their mortgage payments would be less than their current rent. While the landlord probably has an interest-only mortgage and doesn't pay tax on their mortgage payments.

Here's a thought: tax landlords based on their self-assessed property value, but make it so that the tenant has the right to buy the property for that amount.

You do that by building enough houses to make housing unattractive to investment firms

There is never enough houses, or they are located in the middle of nowhere thousand of kilometers from nearest subway station or supermarket.

You're assuming everybody wants/needs a single family with a yard.

SFHs should be expensive and considered a luxury. At least in a desirable urban/suburban location.

We could/should/must provide more housing in those desirable areas, but it likely should be a mix of high-rise, mid-rise, small apartment units (which could be owner-occupied or rentals), duplexes and triplexes, and row-homes/townhomes.

Alternatively, we adjust the tax code to reflect the instinct that people should deserve to keep a larger percentage of money when they actually worked to earn it, and that income that's essentially free to people who already have lots of money should maybe be taxed at a higher rate.

I realize this is a spicy take, but we've really got to get away from this thing where we advantage passive income for wealthy landowners. It didn't work out well for society in enlightenment-era France, it didn't work out well in Victorian England, it didn't work out well in Tsarist Russia, and I'm not convinced that removing birthright qualifications and primogeniture makes all that much more equitable in the modern USA than it did in any of those periods that we tend to look back on as being indefensibly elitist.

Or stop stealing everyones money through inflation?

All models are wrong. But the model that suggests that inflation is directly controlled a knob that policymakers can turn on a whim is incredibly useful to the people who stand to profit the most from deflationary policies.

And the opposite has been the excuse of every abusive government in history.

To be fair, the income isn't "free" and the margins are basically zero for small-time property owners on the rent itself. The bulk of the income comes from appreciation in value of the real estate, and when you sell you owe capital gains taxes (which are exempt on sales of a primary residence). And in most places the property taxes are higher, for my home it's about 15% higher.

I only know this because I have been preparing to rent my primary residence to see if it's more economical to sell today or hold and sell later, while renting. The answer is the latter, but in terms of real cash I will be in the red for about 2 years until the (very small) difference in mortage + insurance + taxes + upkeep and the rent will be profitable. And even then, it's maybe $150/month.

All told it's a slightly better investment than S&P 500 index funds, but resistant to downturns. But it's not a real source of passive income, you don't get your cash out for years.

It sounds like you're looking at it from the perspective of someone who's wealthy enough to take on a few rental properties of their own. The economics start looking rather different from the perspective of a real estate speculation hedge fund. The same forces that make it such easy money for them are also the ones that make it not such easy money for you. When they drive up prices it curtails any more liquid form of asset growth you might have by pulling all the money over to the on-paper value of the property. That's fine for them because real estate is still pretty darn liquid from the perspective of hedge funds and REITs. But it's not very liquid at all from the perspective of a small-time landlord who needs to actually look their tenant in the eye and tell them they're facing eviction because the owner of their home needs to free up some spending money. This, in turn, helps them by creating barriers to entry that push smaller competitors out of the business and securing their place in the oligopoly they're trying to engender.

The actual number of residential properties owned by hedge funds is a pittance compared to the number owned by individuals and small time land lords. So I have a hard time seeing how they're pushing smaller competitors out of the business when the smallest competitors aren't even doing it as a business.

> All told it's a slightly better investment than S&P 500 index funds, but resistant to downturns

This is incredibly bad for society. Investing in businesses that hire people and make goods and services should never be disadvantaged relative to hoarding a plot of land, and it is the folly of the anglosphere that we've allowed land hoarders to siphon so much money from people doing actually productive things.

I think you're making broad statements about macroeconomics without thinking too hard about it.

If you're spending $X in rent and have $Y in cash, whether or not it's better for you personally to put that money into equities, treasuries, or real estate depends almost entirely on the current interest rate.

So while to me personally, it makes more financial sense to rent the property, the same could not be said of anyone that would purchase or rent the property today.

The market rates for housing, either for sales or rent, is pretty much the same when looked at as a monthly payment. The only question is whether or not one has $Y in cash for a downpayment and if they will come out on top if they use that money for a mortgage instead of putting it into the stock market. Owning your home is not always better than renting, it depends entirely on your situation and the current market.

Yes a Land value Tax also would be great

While we are at it, make it easier for mom-and-pop landlords to rent out their homes so that they can compete with the resources of PE firms. Too many renter protections where I live and the consensus is don't ever try to be a landlord here. One bad tenant/squatter can bankrupt you.

Let's find a solution that doesn't poke even more holes in what little social safety net the US has.

One could argue that a owner of one single family home that could be turned into a rental loses out on the social safety net of diversified income and someday retirement, and is subsidising renters on the government's behalf.

Most of us are a couple events of bad luck away from homelessness. Mon-and-pop landlords included.

can we please.

You can't just ban them. Where there is profit to be made, they will find a way around any regulation.

You have to change the structure of the market so they no longer see these investments as profitable.

One way local areas do this is by "homestead tax exemption" which reduces property taxes if you live in your own home, but this is binary and punishes small landlords equally as big ones.

> which reduces property taxes if you live in your own home

My town is experimenting with allowing this exemption if anybody claims the address as their primary residence, whether it is the owner or not. The main purpose is to cut down on people keeping vacation homes, but it should also make things more expensive for flippers and speculators.

Small landlords are no better than big ones if they’re keeping properties empty.

Those taxes just get added to the rent charged.

Indeed they would, however, the underlying asset value would drop to allow for market rents. That's the point.

In a free market, yes. But not when the demand is so artificially constrained. Rents go up and people are forced to either pay a higher percentage of their income to rent, or move farther away.

Housing is not a free market by any stretch of the imagination, so if you just move one lever you don't always get the response you would in a true free market.

It's a complex problem. Some landlords are great, keep nice homes, and take care of the property. Some homeowners are absolute slobs, and don't take care of their properties. But, in general, "landlord" quality is considered the lowest level of effort/materials for maintenance.

Once an area reaches a certain % of landlords (no idea the actual %, but it's low), it leads to a general decline of the neighborhood. These landlords are buying starter homes (apartments and houses) whether they are PE companies or individual landlords, driving up the cost of "cheap" housing.

It has to be binary, doesn't it? If it's some sort of progressive scheme with tax brackets based on number of properties owned then PE will find a way to structure their holdings so that each legal entity only owns a single property. The only way to prevent that is to mandate that the owner of the property be an individual (not a business or trust) who resides on that property for more than 183 days per year.

Lots of profitable activities are banned and the bans are generally quite effective. For instance, selling cigarettes and liquor to children.

Now you might say those bans aren't 100% effective, but why do they need to be 100% to be justifiable?

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