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Comment by Xylakant | Hacker News Reader

A major problem with property taxes on owner-occupied housing is that the value the owner derives from the house is not dependent on the resale value of the house. An owner occupied house is not primarily a financial investment in most cases. Any increase in housing value (and thus property taxes) is mostly an increase in the cost of living. Any gain in value cannot easily be realized since it’s not a liquid asset. This leads to a fear of being driven out just because the value of the surrounding neighborhood rises doesn’t mean that the owner’s income rises in lockstep.

One way out could be to tax the value gain at the time of sale, or when the house gets rented out, thus no longer being “owner occupied”.

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A major problem with decoupling property taxes on owner-occupied housing from market prices is that it removes the biggest incentive for a homeowner to vote for policies that keep the local real estate market in check. An owner occupied house in a desirable area where there is no disincentive to politically engineering a supply shortage becomes a financial investment. Any increase in housing value becomes profit for the owner (or their descendants). This leads to supply restrictions and escalating prices and an increasingly unhealthy society as the young and the poorer are pushed out of the city, county, or even state.

This is essentially what has happened in coastal California over the last 60 years.

If those places became worse places to live as a result, wouldn't that drive property values down?

According to the massive drop of properly value near a certain Tenderloin quarter, yes.

Why shouldnt coastal property be crazy expensive? It's the most scarce land there is.

The land should be expensive, the housing doesn’t need to be.

With different policy, there could be more housing built on the same land. The most scarce land there is shouldn’t be predominantly zoned for only low density single family homes.

Land value tax solves this

We could easily build apartments on the coast in CA and then non multi millionaires might be able to live there. We have decided that only multimillionaires deserve to own a coastal house by restricting zoning in the coast so heavily

It's funny because it happens at all levels.

The uber wealthy have their gated communities in the hills.

The very wealthy have their lock on places like Carmel.

The upper-middle class in Santa Cruz or Half Moon Bay try to prevent new condos (or student housing) from being built, because it "destroys the community character."

Everyone wants to pull the ladder up behind them.

This then means there is no real fix to anything since basic human greed always prevails. May explain why things move slowly if at all.

Yea, the point of property taxes is to stop that from happening.

Austin has been begrudgingly growing up, not without a raft of complaints from locals, because the property taxes are high enough to make selling to a developer tempting. In return, Austin has remained relatively affordable in comparison to other tech hubs.

Not true, we have infinite coastline.

> One way out could be to tax the value gain at the time of sale, or when the house gets rented out, thus no longer being “owner occupied”.

My local government put exactly this on the ballot: a small percentage transfer tax on the sale price of the home, which would offset some of the costs we currently pay in ad valorem property taxes.

The local real estate community had a meltdown and poured hundreds of thousands of dollars into defeating it, which my neighbors obliged and did.

The problem with transfer taxes is they bolt you to the place.

That is true, but on the other hand if you had to pay a hefty yearly property or wealth tax you might not be able to afford it in the sense that your wealth is bound up in the house.

The counter is of course that when you buy a house you should make sure you have enough income and/or liquid wealth so that you can pay the taxes. And if not, move to a smaller house. Of course, opponents of such taxation will then roll out all kinds of grannies living in mansions on meager pensions. Then again, is it fair that this prices out younger people from the property market?

As difficult as they are, I do think we'll need some form of wealth taxation in order to put a brake on spiraling inequality. Yes, call me a fan of Piketty if you want.

A wealth tax is just a warning shot to your wealthy neighbors, if they can afford to flee, they'll flee.

If you're planning a peasant revolt you should really consider going all-in, bloody revolution, you give the kulaks less time & space to plan for contingencies.

They said millionaires would flee when Massachusetts implemented an income tax surcharge. The amount collected from that tax was in fact more than expected.

If the wealthy in California were willing to give up quality of life to save an amount that's not very meaningful to them, they'd have already moved to Texas. Or North Dakota. Or even Washington, which is an actual small-government state without a personal income tax.

People really want to push wealth taxes to the point of confusing income and wealth taxes, and assuming the willingness to accept an income tax surcharge equates to a willingness to accept a wealth tax, when we have lots of data showing that whenever you tax capital that is mobile (e.g., not real estate) then you get less taxes than you expected as well as capital flight.

It's annoying to list your income, but people do it because the disclosure is limited to one year, and more importantly they can control their income, particularly whatever income is earned in a given state. Only realized income is taxed. But a wealth tax involves questions of valuation - of taxing unrealized gains -- that are in many ways arbitrary and subject to abuse, and a level of disclosure and state control that makes many people feel uncomfortable due to the massive expansion of state power it requires.

I don't know why people are so stubborn about this. Next up, they will argue that because people accepted a higher sales tax, they will accept a higher wealth tax, too. After all, you let the state mandate childhood vaccines, so you should be OK with the state mandating your diet, right? Anyways, we'll see how things work in out in California. The state already has massive deficit problems, so let's see how this addresses their fiscal problems.

Conveniently an article just dropped studying the effects of a new wealth tax in Norway. As usual with these sorts of taxes there were a lot of threats that all the high net worth individuals would emigrate to Switzerland or wherever. In reality, it turned out that threat was mostly hot air and bluster. (And of course, you can combine a wealth tax with some kind of exit tax for those that want to take their ball and go play somewhere else.)

https://www.nber.org/system/files/working_papers/w35854/w358...

But yes, you're certainly right that taxing unrealized gains is difficult for many types of wealth. But e.g. property taxes are often already based on some estimation of the market value of said property anyway, so no change there. And similarly publicly traded stocks and such have a clear market value. For other types of wealth, sure there are difficulties, but usually it's possible to do it in some way, be it by estimating the worth somehow or then delaying the tax until the thing is sold or the owner dies etc.

Yes, in Norway, an oil state with very little mobile capital. Basically what I said about immobile versus mobile capital.

And I guess we will just pretend that Hollande's wealth tax experiment never happened, when 60,000 millionaires left, the state lost $200 Billion in capital, and the wealth tax cost the state twice as much revenue as was generated by the tax. That was for a country, France, whose wealth was not in the ground.

A study from norway? As broadly applicable as studying Saudi.

I think many people would have a hard time believing that a new tax in one area would be offset by lowering taxes in another. Even if they did reduce property taxes shortly after passage, many people would assume they will raise them again later on.

If it wasn’t combined in the same bill, the people will just have two taxes going forward. Effectively every “temporary” tax becomes a permanent tax. During the last local election, our city council was asking people to vote to replace an expiring tax with one at a lower rate and trying to sell it as voting for this reduces your tax.

>> One way out could be to tax the value gain at the time of sale, or when the house gets rented out, thus no longer being “owner occupied”.

>My local government put exactly this on the ballot: a small percentage transfer tax on the sale price of the home,

First comment suggests taxing the gain (income tax), while second comment suggests a tax on sale price (gross receipts tax). Two very different things.

While I grant you that they are two different things, two-thirds of the average sale price in my area is from gains in value accrued over the time the home was occupied prior to sale, almost all of which is currently untaxed.

I own a home in Berkeley which loves transfer taxes. They’re creative about it though they tax at different rates based on the home sales price. Starting 1/1/27 the transfer tax goes from 2.5% to 3.5% based on the selling price of the home.

It’s been attractive to voters since most homes sell in the first tier.

You can reclaim some of the transfer tax by performing seismic upgrades which is actually something I support in a town with some houses that can be 100 years old.

It just becomes part of the sale price

The issue with that is the disincentive to sell (or buy), which leads a lot of people to stay put in their oversized home during retirement, for example.

In the UK, 'stamp duty' is something that buyers pay (as opposed to sellers), but sellers also have to buy, so everyone pays to move and everyone stays put to avoid paying.

(And of course no one builds, which is the biggest issue).

I'd say it's OK to defer your property taxes until you sell (or die), but it shouldn't be the default, only something you apply for if you're in a vulnerable position.

I think it's a great idea to let land taxes create the incentives to build efficiently.

Except they don't, taxing single house owner is just cost of living increase any time area gets gentrified or more desirable

It's basically excuse to get rid of poor that made a mistake of buying a house in area that turned more expensive 2 decades after.

Tax anything after first house, sure, but taxing house by value is terrible idea that never actually worked in a way proponents are saying it would

the incentive is if they sell they realize their gains and are left much richer

You don't need to tax the house value, only the land.

You don't get rid of the 'poor'/less wealthy if you allow building higher and thus have a more efficient use of land as land values increase. All owners would share the cost of their land value tax.

The problem is not building higher in areas with very high demand. Of course they become 'rich only neighbourhoods' or whatever.

If a house is worth £1M, a flat in a 5-story building should be less than 200k in the same location. We can't have houses in city centres! We can't have houses 5 min from the city centre! We could definitely have houses 1h from the city centre in a small town. In London or NY we shouldn't, though!

I always tell my internet friends that they should think hard about second order effects. Stamo duty has very negative second order effects. Land value tax has very positive second order effects. Property taxes sit somewhere in the middle.

European solutions to everything. Just increase taxes.

Then get all surprised Pikachu face when the people who found profitable companies all leave.

At least the name checks out.

Instead of being snarky at random people online, I would suggest reading about land value tax. No worries if not, of course, but it's usually something that conservatives brand as 'communism' and progressives brand as 'capitalism' as an easy way out of any discussion.

Anyone supporting it will most likely support removing other taxes, such as stamp duty or council tax, or lowering income taxes to compensate. A net zero change would be massively positive.

I live in California where real estate taxes are 1%. I currently pay $915 per month in real estate taxes alone. I'm not really sure why I should agree to increase that.

I find all these conversations dumb. Real estate taxes after paying for roads and schools are entirely punitive in nature. They grew from real local needs but now I find people saying that we should increase them only to encourage the current owner to sell to those deemed more worthy somehow. Because our taxes are tied to real estate value the budget has actually ballooned far greater than inflation. The schools here are extremely well funded and the roads get repaved long before their natural life time.

I think our balance works really well right now. So I find suggestions to just fall flat.

Oh the funny thing is we already subsidize healthcare so much in this state that it basically is socialized healthcare but surprise surprise that's actually part of the reason we have a deficit right now.

If you want to have an honest conversation, I'm here. Meanwhile, I will assume you didn't respond to anything I said because you were up at 3-4am California time.

Talking to you is pointless. You haven't said a single intelligent thing.

In Austria it is even worse. The stamp duty is only for literally buying the house in your name. Thus all sufficiently expensive real estate is wrapped in shell companies where the transfer is untaxed.

The result - stamp duty is exclusively paid by middle class people actually buying homes, never by the rentier class. They already used the money up front to buy the votes for this law apparently

Using shell companies to dodge stamp duty has been specifically made illegal in the UK. Of course the rules around it are really complicated, to avoid legitimate companies that own property from being affected. https://www.gov.uk/guidance/stamp-duty-land-tax-corporate-bo...

> value the owner derives from the house is not dependent on the resale value of the house

Value is always relative - even if the experience hasn't changed, the rising house price does mean that same experience is being value more highly relative to other opportunities. (In most cases this is because the experience actually has changed: if your neighborhood gets nicer, you are indeed benefitting!)

The bigger fallacy in rising property taxes is that civic services don't necessarily get better or more expensive just because property rates rise. And the bigger unfairness is that homeowners with rising values but not rising income don't always have efficient access to the equity of their homes.

A fair property tax regime would avoid presuming budget increases just due to rising value of housing stock, and might subsidize HELOCs or similar structures for folks who need to access property value to pay taxes.

"the value the owner derives from the house is not dependent on the resale value of the house"

An owner can derive value from the house in one of three ways:

A) Occupy the whole place.

B) Receive rent from a tenant.

C) Something in between (e.g. airbnb one room).

When property prices double, it's likely that rents roughly double. This may not increase the value the owner can derive from (A) but it will sure change the value they can derive from (B).

So they might decide to switch from living in the place to renting it out. If they don't decide to switch, then it indicates the value they derive from living in the property has either gone up, or it was always way higher than the market rent.

It seems like market rent is a reasonable benchmark to use to calculate property taxes, and property value is a reasonable proxy for market rent.

This conveniently ignores all the gains in property value which they can benefit from by refinancing, selling or renting. If they don’t want to pay property taxes on higher values, and don’t care about the value, then we have a simple solution:

Freeze the property taxes and let the government take the entire value gain in the house when its sold.

> Freeze the property taxes and let the government take the entire value gain in the house when its sold.

I find this so funny, it completely takes the wind out of the sails of the parent comment's argument.

People really really want to have their cake and eat it too, and it's very difficult to convince them that it's not the natural way of things.

Parent comment shouldn't have a problem with it, but beyond rhetorical purposes (as in the reply) we should! Shifting tax structure from an ongoing basis towards transactions incentivizes people to hang onto houses in circumstances where they otherwise would not. E.g. retirement-age downsizing that would otherwise increase supply of family-sized housing. SDLT in UK has this effect.

> One way out could be to tax the value gain at the time of sale

Stamp duty in the UK, horrendous tax. It's better than nothing at offsetting the unearned increase in house (land) value, but far worse than a regular tax.

If you live somewhere for 10 years, then move, then repeat for 40 years, you pay far more than if you never move. This encourages people to live in less suitable houses for longer.

As to your worry about land values increasing -- the owner is deriving benefit. The higher the land value is, the more benefit the owner gets from the land.

> If you live somewhere for 10 years, then move, then repeat for 40 years, you pay far more than if you never move.

This sounds like a problem with the way the particular tax is written, not with the idea of taxing housing gains at the time of sale.

> The higher the land value is, the more benefit the owner gets from the land.

What benefit does a homeowner derive from increased land value before selling?

The increased land value is because the land is more desirable. If I buy some land next to a rubbish dump, it's cheap because living there is terrible. If the dump is then closed my land improves in value, and I derive value from that.

Likewise if I buy somewhere cheap in a backwater town, and the town becomes more desirable because there are better employment opportunities, better shops, better amenities, all of which serve to mean people will pay more for the land, then I benefit from that immediately.

The value is subjective, if you lived in a quaint town and now it’s become a bustling place it may be a nightmare for you , despite the price increases. That is actually a win win situation, though, since you can now move to another quaint town elsewhere while taking a pile of cash with you, with the perhaps important caveat that you do lose your proximity to places and people you may consider more important than the money.

These imaginary scenarios do not align with typical real world experiences. Very few people live near a dump that closes or see their small town unexpectedly boom (and as brabel notes, that’s not necessarily a benefit).

Most people’s home values go up because of 1) increasing housing demand and 2) the collective delusion that home prices can continue to far outpace wage growth indefinitely. Neither of these things necessarily result in an increase in amenities or improved quality of life.

My own home value has gone up something like 70% in the last 10 years. Meanwhile, the amenities near me are essentially unchanged. Same schools. Same number and quality of restaurants and grocery stores. My net worth has jumped a fair bit but my immediate benefit seems pretty much flat.

Increasing demand to live in the town.

Rents will have increased to reflect this increase in desirability, but you just expect to make a profit from it.

I do not benefit day to day from increased demand. That was the point.

The house is more desirable, evidenced from more people willing to spend more money in there. You benefit from the same things which make it desirable to other people.

And yet in 2 days of responding you’ve been unable to articulate how real homeowners benefit day to day from rising prices. My own home was in a highly desirable area long before I purchased it. I receive no clear benefits day to day from rising prices.

Merely insisting it’s true doesn’t make it so.

Stamp duty doesn't tax gains. It's a tax on buyers, not sellers.

It's absolute insanity

Oh, so GP was just incorrect in calling this a tax on gains. That explains why repeat buying and selling incurs more tax.

Large sales tax on home purchases is probably a generally bad idea. Looks like Bay Area pricing would incur a 10-12% tax under the UK scheme which seems pretty crazy.

It's a transaction tax. Setting aside that there's typically a 2% cost on buying and selling a house in the UK anyway due to estate agents and legal costs, and the average house attracts another 1.5% in stamp duty it's not a major obstacle for the majority of transactions, but it's still friction.

It would be far better to replace with a %age tax whether you move or not, but wealthy people in the south east don't like the idea of taxes on unearned wealth.

> Stamp duty in the UK, horrendous tax.

> it's not a major obstacle for the majority of transactions

You simultaneously call it horrendous and also say it’s not a big deal. What is the point of this except to argue?

It's still horrendous, especially at the top end of the market. It reduced movement on the 500k house which trickles down to the 300k where it's an annoyance and then to 150k houses where it doesn't exist other than slowing the current 150k occupiers from moving to 300k, which itself is really treacled because of the move from 300k to 500k.

It's also a major obstacle in the south east, especially for first time buyers

It's a tax on sellers, with some of the proceeds going to FTBs

Lets say two people are after the same house, both are willing to spend 500k on it.

Person A: Next time buyer, has a budget of 500k after legal/moving costs, that leaves 14200 for stamp duty, and that means you can pay 485,500 (plus 14,275 stamp = 499,775).

Person B is an FTB, they have the same 500k budget but can bid upto 490k due to lower stamp

As such person B can bid 486k, thus offering more than Person A, getting the property.

If both were Next Time Buyers the seller would get 500 less

If both were FTBs the seller would get 4500 more

If there was no stamp duty they would both be able to pay 500k, the seller would get 14k more

> A major problem with property taxes on owner-occupied housing is that the value the owner derives from the house is not dependent on the resale value of the house

Your better believe it is when it comes time to sell.

Or would owners not mind having 0% property taxes in return for the state taking all gains at sale time

> Any gain in value cannot easily be realized since it’s not a liquid asset.

Reverse mortgage

"Oh no, someone's given me an extra $500k for doing nothing which I'll get when I (or my kids) sell my house, how terrible"

But they didn’t do nothing. They put up capital for a resource. Generally more capital than anything else until late in career.

And arguably, they already extracted the value of that house by having a place to live without having paid for it up front. They didn’t even put up the capital in most cases. In the US they will have been granted a loan that is backstopped, and therefore subsidized by the government. Don’t forget the mortgage interest deduction, that’s a massive homeowner subsidy.

So someone else put up the capital, the government made that capital cheap, and societal demand with artificial scarcity (in most places) pushed up the asset value.

I’m not saying it’s a bad thing, but let’s not pretend that making capital gains on a house in the US is anything like any other available investment.

They maintained the home and paid taxes on it. Have you ever had a failed septic system? A major water leak? A new roof? There's this whole anger around home ownership you get these days, oftentimes by people who have no experience in the matter.

Yes, mortgages are subsidized by our interest tax deduction system. That part is true. It doesn't turn home ownership into something with no risk, and it certainly doesn't turn it into this subsidized investment. It's a liability, not an investment.

> It's a liability, not an investment.

No it's not.

Just unbelievable gaslighting from the landed class, continuously.

Ohhh no, woe is you, bought a $500k house on 3%, literally lived inside it, but had to repair the septic :(

It’s almost always a liability.

Similar to how cars are liabilities (sure you can have a good eye and turn a profit on some).

House prices might be up 10x from 40 years ago but the SNP500 is up 30x. Houses are not investments. The only utility they have for investing as a “forced savings” mechanism.

“Lower unlevered returns than the hottest stock market in world history” does not make something a liability. Again: astounding gaslighting attempt.

And by the way, you can neither live inside of, nor rent out, your S&P 500 holdings.

Also by the way, you cannot get leverage on the S&P 500 at federally subsidized interest rates.

Gaslighting gaslighting gaslighting.

There’s no leverage in the SNP500. The global market is up like 80x but for a US-centric form it makes more sense to focus on us investments.

There’s almost always leverage in housing. Which worked really poorly for a lot of people in 2008.

It doesn’t matter if you can get housing at say 6% to buy an asset that historically performs poorly. Plenty of people have created rent vs buy calculators. Housing is not a good investment.

Just because wealthy people buy houses doesn’t make it an investment. Wealthy people also buy Ferraris, imagine the cost of those tires compared to a septic tank!

You seem confused about how investments work if you think lack of cheap leverage is a point for S&P500, or that availability of cheap leverage is a point against housing as an investment.

“Global market is up 80x” is literally meaningless without a timeframe.

I’m going to guess that you’re a “real estate investor”/landlord who does okay for themselves, and then complains that you’re just doing okay despite not even having a real job. Besides (gasp!) having to occasionally pay someone to repair your asset – which is actually a distinct job of property management.

But the fact that someone (in fact many people) as unsophisticated as yourself can invest in real estate and avoid destitute poverty is credit to how powerful of an investment vehicle real estate is.

That’s why there’s trillions of dollars in it. You think all these gargantuan real estate firms are doing it for charity? They just love repairing septics? They don’t know they could just open up Robinhood and buy S&P 500?

Of course not. Real estate is one of the largest industries in the country because people can deploy ungodly amounts of capital into it and expect very reasonable risk-adjusted returns across its various cash flow, appreciation, and tax outputs to their portfolio.

Lastly: You've retreated from "real estate is a liability" to "real estate is not currently producing returns above the S&P 500." Completely different claims. Either you're gaslighting people or you're not sophisticated enough to know the difference between them – wrong in either case.

> “Global market is up 80x” is literally meaningless without a timeframe.

Last 40 years.. the same time frame as every other number i’ve been using.

> availability of cheap leverage is a point against housing as an investment.

It is a point against. If housing is your only source of leverage then you get wiped out in an ‘08 event.

> You think all these gargantuan real estate firms are doing it for charity?

No, they’re doing market research and not blindly buying houses. Just like with cars you can identify which ones will go up in value. However the average car just loses money (but you get to use it).

> Lastly: You've retreated from "real estate is a liability"

I haven’t. The comment was “almost always a liability”. The actual stance i had was it’s not an investment. Just because some of the tails do well doesn’t mean the median did well and that’s what you need for investment advice.

The comment was, verbatim, "It's a liability, not an investment." You are incorrect.

Buying a home that appreciates is nothing like buying a car that appreciates. Again, either you are astoundingly unsophisticated or you're lying through your teeth.

Figuring out which of those is true is not relevant to me nor valuable to other readers on this forum. Have a good weekend!

dghlsakjg is not an alternate username of mine.

Can you clarify if this was meant as a personal attack on me, or a complete inability to read?

The claim that "[real estate] is a liability, not an investment" was not made by me. I am refuting it.

For that matter 500K homes and 3 percent interest rates are a thing of historical fiction.

And insurance, repairs, taxes are at an all time high. One day when you get older and you and your parents purchase your first home together, it'll start to make more sense what's being said here. It's not a good investment. If you want an investment stick to your brokerage account.

Historical fiction? Is that a euphemism for "a real thing that happened just a few years ago?" Yeah, it almost certainly won't happen again. But part of that is because – surprise surprise – the thousands-year history of land is that it appreciates in value. Anything that was worth $500k in 2021 will be worth vastly more today, and will almost certainly be worth vastly more in another 10 years.

Periods of cheap money like ZIRP, because land is such a reliable investment, tends to pile into higher land values.

I appreciate the condescension, but I made more than a million dollars in real estate before 30 years old (with no inheritance, trust, or "gifts" to get me started). Also have made significant money in public equity markets and in private venture. Each product type has a role, which is why there are huge amounts of money in each one.

That's wild that someone who is literally 'the gentry' (as in you don't have to work for a living anymore) is blaming random homeowners for being a 'landed class.' Something is off here in how you've calibrated your political perspective.

I own real estate and none of it is anything other than a place for me to live. Nothing is an investment, only a cost. And if I lose my job I have to sell or rent something out. For a loss - interest rates are brutal. Taxes are enormous, and maintenance is through the roof. I'm luckily not in a state like Florida where insurance is the biggest eater.

Historical as in 2.5 percent interest rates are finished forever.

Summary - none of this stuff is evidence of a landed gentry image you're assuming. The alternative is renting - meaning the rent goes up every year.

I see now the issue with your perspective - you're in the privileged class punching down, somehow conflating different types of home ownership, the family wanting to own their own shelter -- and the Duke of Westminster.

No, my calibration is quite simple: a landowner doesn't create, and therefore doesn't earn, and therefore shouldn't keep the appreciation of land values. But there is virtually nothing more certain than appreciation in land values.

That's as true of the Duke of Westminster as it is for you, or me, or anyone else. The fact you think there needs to be a "calibration" that makes the exact same behavior legitimate for one party and illegitimate for another is pretty insane.

The portion of my wealth gained through land value appreciation is absolutely unearned. Same with yours, same with the Duke's, same with an individual homeowner.

Housing specifically (the building) is a liability -- it deprecates, it needs maintaining, just like a car. You pay that and you get utility out of it.

The land its on tends not to be a liability, it increases in value through no work on the owners side. Rarely it will decrease in immediate value, but that's very rare.

Yes, this is correct. However, the 99.999% scenario in the US is that when you buy a house, you are buying the land underneath it. The land is an almost-certainly appreciating asset while the house is depreciating. The land, however, is a growing component of every purchase's factors.

I have replaced my septic. Repaired a roof. Dealt with flooding. I own a home. I have plenty of experience with homeownership. I recognize that maintenance exists and have never said otherwise. You have made assumptions about me to load up an ad hominem attack against a straw man argument. Nothing I said was angry at homeowners. Just pointing out that making 500k on a home isn’t the result of savvy financial moves exclusively, and more a foreseeable outcome of government policy at all levels.

I’m not saying that homeownership is a slam dunk. If you go back and reread, what I’m pushing back on is that the mere act of purchasing and holding a house counts as doing something worthy of a return.

My point is that homeownership, in the US especially, is so heavily favored as an investment vehicle that you perhaps should not act as if you inherently deserve the gains for having “done something”.

As you say: it’s a liability, not an investment (although, I would say it’s entirely possible to be both, and trillions of dollars of smart money agrees)). But it is a liability that has limited downside because of government policy. Because of this, it actually makes a pretty good investment as well. We would do well to recognize where those gains come from (artificially low mortgage rates, and often artificially high scarcity).

>My point is that homeownership, in the US especially, is so heavily favored as an investment vehicle that you perhaps should not act as if you inherently deserve the gains for having “done something”.

By whom? Private equity buying out land in Georgia? Political pundits? Blogs you read? I've heard that too, and it's only true in specific times in history - like since the financial crisis and then covid, where prices only went up.

There's nothing today to suggest that people are eating 6.5 percent interest rates or even staying put out of any calculated investment return. People buy because they're forming a household, they are sick of rents going up, or they want stability. The rest is rhetoric.

There's an entire category of investments called REITs that invest exclusively in real estate. There's a subcategory of REITs that invest in residential real estate that verifiably hold trillions worth of residential housing. There are also PE firms that specialize in residential real estate holding an unknown amount of assets.

Besides all that, owning rental properties and investment properties for individuals is incredibly popular.

Are you really trying to claim that it is a myth that people buy houses for investment purposes? I can't continue a conversation with someone so incredibly out of touch with reality.

They did not create the resource (the land), nor did the person they bought it from.

Many inherited the real estate. Or bought it for a fattened steer.

Exactly. Surely the finance industry can come up with a product that automates this so you automatically sell them a tiny slice of your home to make up the property taxes without it affecting your cash flows.

The private finance industry need not be involved.

Just have government allow taxes to be deferred until time of sale with interest pinned to the cost of borrowing for government. That already exists where I live for people over the age of 65. The government can still get the revenue for free via borrowing and the payback is more or less guaranteed.

This really seems like the most fair situation, if we don't want to a) let retired people stop contributing their fair share, b) kick old people out of their lifetime homes during their most vulnerable years.

I believe you can get a reverse mortgage line of credit that allows you to take out money as needed. That is, a reverse mortgage doesn't have to be a predetermined lump sum or monthly payout.

This doesn't totally automate it, but it takes away the need to manage the proceeds from a reverse mortgage between the time you receive a payout and the time you pay your taxes.

Or just loosen supply side restrictions so much that houses typically don’t go up in value.

It’s really hard to loosen supply side restrictions on “this somehow became a hip neighborhood.” You can in general make more housing available, but not prevent rising prices in specific neighborhoods.

You absolutely can prevent a "hip neighborhood" from becoming the equivalent of a short squeeze. Prices are not only signals of current scarcity, but also future scarcity. Once you've established that any increase in property value will lead to an influx of capital, followed by a swift increase of supply, every increase will partially suffocate itself.

Not everyone needs to live in a hip neighbourhood?

My intuition agrees with the supply side argument. Also higher interest rates to reduce demand? Isn't this how we got here, to these very high house prices worldwide, by a combination of the two? Taxes seem a second order effect here at best.

Of course, the people who already own land in the now-hip neighborhood either don't want it to change and grow at all, or they want the price to go up as much as possible so they can cash out. The existing owner class never have an incentive for ownership to be affordable...

The premise of real estate (above survival) is living somewhere other people don’t.

The funny thing about land and population growth is that land doesn’t. It’s fixed.

and population in developed world is also no longer growing

Immigration means that population will grow in first tier countries.

Only in the most literal sense. In a far more accurate sense what we are talking about is land where people want to live and that does grow, more or less, with population growth. It's only a handful of cities with geography that makes desirable land fixed.

This is always a hilarious idea because like... think one step further amigo...

Residential development already has razor thin margins. Your idea is that people will still do this multi-million (or multi-billion)-dollar projects into an environment of flat or falling sales prices?

The problem is the cost of inputs, full stop. Land and labor (and now materials) are too expensive. Land is the one component that's pretty much a bullshit price, i.e. there's no reason it needs to be high in absolute terms, because the land is all there regardless of the selling price.

That's basic Econ101: households optimize for (subjective) utility, not for profit on some balance sheet. Taxing households for non-realized gains doesn't take into account liquidity nor the (subjective) negative utility and opportunity cost of selling your home and moving away.

> the value the owner derives from the house is not dependent on the resale value of the house

It often is, instead. Eg the resale value of my flat increased because the area where I live became a better place.

What they mean is the day-to-day "value" of having a roof over your head, in contrast to your ability to make money by selling.

If the area around you is improving substantially, then yes that day-to-day value could be improved by better local shops, maybe a closer office building, nicer parks, etc. Generally stuff like that does not happen quickly though, and really big changes like magically teleporting from boring middle of nowhere to a vibrant cultural downtown don't happen at all.

> One way out could be to tax the value gain at the time of sale

This is how it works for sales in Sweden, via the so called "reavinstskatt", or profit realisation tax. Funnily enough, it is mostly applied to individuals in practice. To avoid the taxation, companies package properties in subsidiaries, which can then be sold and traded like any other stock. The tax is then postponed until the de jure sale of the property, which never occurs. Individuals are not eligible because the loophole is closed if the legal owner also occupies the property they own.

This sounds like a plan to make rented properties a more liquid asset and make rent cheaper. Seems like a sound idea to me.

Yes. It's a wealth tax on homeowners.

If I had billions of dollars of stock it would require a change in the law to tax me on its market value. But you can do exactly this to me if it's a house.

> One way out could be to tax the value gain at the time of sale, or when the house gets rented out, thus no longer being “owner occupied”.

Forcing renters and buyers to pay for the local services instead of property owners seems extremely unfair.

> Any increase in housing value (and thus property taxes) is mostly an increase in the cost of living.

So? If the property values go up then cost of living is going up for renters too. Why should property owners be shielded from this by imposing local service costs on renters who generally have even lower incomes than owners.

I disagree. In my country we are currently in a inheritance boom. Everyone who has parents is getting free money.

This will drive rent up, punishing people who lack the credit to purchase.

Fwiw, every municipality I've lived in has had some kind of program to help people who own and live in their house to afford property tax if they can't.

I think they're usually called "homestead exemption" or something like that.

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