Then there are the transaction and opportunity costs associated with buying...locking up a down payment, closing costs, broker costs. I'm sure I'll buy in the future when I'm at a different point lifewise, but for now renting works just fine.
No, because that's not true (federal property taxes would probably be problematic under the Constitution, which restricts non-apportioned federal taxes, but property taxes aren't federal.)
(which makes "wealth" taxes problematic or impractical)
(This is not a rhetorical question.)
And the "externality" in restricting that land to your private use is captured by the housing market. If you're sitting on a plot of land worth a million dollars, it means you value that land at more than a million dollars, because otherwise you would sell it. Sitting on it is costing you access to a million dollars. Living there is costing you the money you could get by renting it out.
If your argument is that the property tax rate on a million dollar home will be lowered until the absolute number of tax dollars paid is the same as that paid on a $250K home, the evidence is to the contrary. Municipalities that see an increase in tax revenues at the same rate more often see it as an excuse to expand the budget than an excuse to lower tax rates, especially in California.
Take a look at local city budgets. When housing prices doubled, the cities tax revenues didn't. They certainly went up overall (I mean, when has a gov't ever not expanded?), but my argument is that often 2house price =/= 2property taxes.
That's an effective cut in the overall property tax rate, but its not a city "adjusting" the rate down to meet the desired budget, its the nominal rate remaining fixed (because that's also capped by Prop 13), and the tax basis value on most properties whose value has increased not reflecting the value increase.
That almost never happens. OTOH, in California, if a home doubles in value in 5 years and doesn't change ownership or have new construction, the assessed value for property tax purposes at the end of that 5 year increase would only be 1.1× the starting tax basis, since Prop 13 limits assessed value to increase at most 2% per year.
Education on the other hand I expect to remain fairly constant on a per unit (child) basis once a school hits 150 children per grade.
Here in London there are whole apartment blocks owned solely by investors with no-one living in them. That's morally repugnant, a deadweight loss, whatever sophist arguments you can come up with for why really the right thing. Property taxes are a nudge in the right direction.
The charge for council tax is set at the 'band C' level, and scaled up/down for bands A-H. (A being the lowest property value.)
Additionally we have 'stamp duty', which is paid when you sell the house, as a percentage of the sale price above a threshold, and if you've lived in the property for less than three years you're also liable for capital gains tax on the sale.
This isn't an ideal system - but it does present an alternative to what's being discussed here. I imagine that a quick trip through Wikipedia would show other alternatives in use throughout Europe.
Basicallly there is no real way to not be a beholden slave to the monetary system and debt.
Yes, if you're buying a house in the US you are typically going to take on some debt.
If you want the services the city provides, you have to pay for them. They are paid from property taxes. As those raise, so does the rent - after all, you live in the city, so you consume those services, so why don't you have to pay for them? That's your return - getting city services. If you don't like taxes being linked to property value - enact fixed taxes, but then you'd have to rein in city budget costs, including salaries, pensions, benefits, entitlements, etc. Somebody has to pay for all that. If not people living in the city, then who? If you want to stop paying for it, then you need to either stop consuming them, or find some other way to pay - what that would be?
I have been renting for last five years, and I see nothing bad in renting. Though my opinion might be irrelevent to the subject, as I do not live in SF and there is no "frozen property taxes" law in UK.
In 30-year mortgages you are realistically paying more than half your monthly payment as interest, and doing that with pre-tax money means you're conservatively looking at 15% total reduction in monthly payments compared to renting.
You are right that the US has two things to advantage owning: (1) mortgage interest tax deduction and (2) 30-year mortgage terms.
If you're lucky enough to lock in a mortgage rate of ~3%, when you add in the mortgage interest tax deduction, you're practically paying nothing for the money you are borrowing.
However, all it takes is a 10%+ drop in the market when you are selling to wipe out any advantage to owning and often you'll come out behind of someone who rents.
Anything over $250k puts you in the top 2% of U.S. households. Your definition of words like "trivial" and "wealthy" might be different from mine.
It's a write-off for someone who's making enough money to find it worthwhile to itemize but not enough to pay AMT.
Wealthy families also have access to higher-quality asset-backed loans which typically come with lower interest rates.
The rub usually comes when you are older and your earning ability deteriorates. Those who own their house get a significant drop in monthly housing costs while those who are still renting to not. Some people plan well for this, others don't.
When you buy a house, you can't just move even if you need to do it. It is a lot more difficult. That's where I see the 2-3 hour daily commutes, which I feel is insane.
> You also pay money but never see any permanent return, as it doesn't matter how long you've been paying, you can never stop
Yes but at the same time, your capital isn't trapped in the place that you're living in. You also have to pay for yearly maintenance in both time and money (I personally hate this part the most). When you don't own a home, you can more easily do things like investing or using it to start something up.
It probably varies by person, but I don't see that the same. If i was paying $2400/mo in rent, then i bought a house for $2400/mo mortgage, the capital in the house is not part of the capital i would have if i had been renting. That would just be gone.
If rent was $2400/m, I can assure you that a house in the same area would be a lot more than $2400/m unless you put %50 or more as a down payment which is at least a few hundred thousand if not a million dollars. That's a lot of capital. If you choose a house in a cheaper area with a mortgage of $2400/m, then I can guarantee that there will be cheaper apartments in the area as well.
> the capital in the house is not part of the capital i would have if i had been renting. That would just be gone.
I'm not sure I understand what you're saying? Are we in agreement or are you disagreeing?
i will have to find a cheaper area to be able to buy a house(or condo more likely).
> I'm not sure I understand what you're saying? Are we in agreement or are you disagreeing?
Rent: pay $2400/mo for 30 years. Spent: $864k. Capital: $0
Buy: pay $2400/mo for 30 years. Spent: $864k. Capital: Whatever the house is worth. Hopefully around the 3-400k the loan was for, but half would still be better than the rent scenario
Together that doesn't sum it up, sure in that cheaper neighborhood maybe a rental would be $600 a month cheaper, $216k over those 30 years and more with compound interest. But rent doesn't stay the same like a mortgage does (baring intervention). An apartment that went for $1800 a decade ago (locally) goes for well over $2400 now.
1. As you've already mentioned, if you were to stay in the same area rent would be cheaper than a mortgage. Rent is always cheaper than a mortgage for equivalent real estate in the same area. So even if you moved, there would still be really strong reasons for renting since it would still be cheaper than buying a place. So your argument of $2400 rent vs $2400 mortgage is just wrong since moving to a different area will result in $1200 rent (or less).
2. Unlike a mortgage, you're not going to be spending anywhere close to $864k upfront. At most it's only going to be $7200 up front. If you were going to buy a place in the same neighborhood, it's probably going to be about $400,000 upfront, not including closing costs and other fees. Not including stuff like renovation or housing insurance either. Don't forget HOA for certain areas as well.
So if you have 500k in cash, if you rented you've about $492,800 for investing or for starting something up. If you bought a place in the same area, you have nothing for investing or starting something. So this "$0k vs Whatever the house is worth" argument is really flawed, especially when you consider that your capital is "stuck" with a huge opportunity cost unless 1) it appreciates a lot and you're willing to BOTH sell and move into a cheaper place that isn't as nice in terms of location or features (if you're not you're just stuck living in a nice expensive place which isn't a bad thing but remember opportunity cost), or 2) you're a professional house flipper (your home really is an investment and not just a place to live), and you repeat this process every 1-4 years.
If you haven't already guessed, I'm not a renter and I just figured that you want something more than normal people since you roam HN.
FHA loans start at 2.5% down, and $2400/mo puts the total loan amount somewhere around $350k. So bare minimum would be 2.5% down and 2.5% closing for $18k to get in the door. I'm shooting for more like $30k-$35k, but $18k is the minimum.
18k minus 7k leaves 11k that could have instead been invested. To me the value of keeping a portion of my rent as capital(even tied up and with risks of loss) combined with certainty about what my monthly cost will be 10 or 20 years down the line is worth a lot more than that $11k in the bank today.
1. It's very hard to get approved on less than %10 down post 2008, unless you're taking out a jumbo loan which is above $450k, and this is assuming you can meet all the new strict standards with income (based on what's reported to the IRS AFTER deductions) and credit history. How do I know this stuff? I bought my house after 2008, and so did a lot of my friends. On the off chance it gets approved, you'll be paying something called PMI which adds about %15 to your monthly payment. So $2400 turns into about $2760.
2. As I've already mentioned, if your mortgage is $2400 I can almost guarantee that there's an apartment in the same area where the rent is approximately $1200.
3. Using your example, putting a $3600 deposit for a rental is very different from $35,000 down which doesn't include any closing costs or house insurance. If you're in the Bay Area you also have to account for monthly HOA which is about $300-$500 and it can increase at anytime. So your $2400 / mo now turns into approx $3200 / month with PMI. With housing insurance, that baloons to about $3350
4. The type of home $350k buys in the Bay Area is most likely not going to appreciate beyond inflation, unless you buy something that isn't gentrified yet which incurs other types of risk.
I'm not saying its easy, but I think its possible. I'm perhaps being overly optimistic on down payments, the only person i know that bought a house recently did it in TX with 10%
If you rent and retire you can go wherever rent is cheaper. Problem solved