a war between home owners and renters! as a person that recently bought a house I don't want my house price to go down too much, I put everything I have in it.
but I really know this is the problem for renters and it needs to be solved.
when a group uses government for personal gain, other groups has to pay the price! it is called democracy, 49% has to pay for 51% !
If I bought a house I would be happy if it's price stayed the same over the years, or even slightly decreased. As long as I come out on top compared to the alternative (renting) I'm OK.
and, thanks to the mortgage interest tax credit, you probably will. Get rid of that though, and suddenly there's no economic incentive to own property.
I must be doing it wrong. We bought a house in AZ with a 15 year, 2.99% interest rate. The MITC made almost no difference, even for the first year where I was paying mostly interest.
You get back roughly 30% of your paid mortgage interest. But yes, you should have taken a 30 year fixed if you wanted a larger credit. Its free leverage.
You'd need to have enough deductions to itemize without the mortgage interest deduction and be making well over six figures for that to be the case. I personally don't come close to itemizing without mortgage interest, so I was seeing far less than that. My wife and I combined were barely in the six figures (taxable) when we actually owned our house as well, so we got back about $1k in taxes on about $12k in interest.
> Get rid of that though, and suddenly there's no economic incentive to own property.
How do you figure that? What about cost stability? What about not losing 100% of your payment (that is, retaining some as equity)?
I'm not saying there is always an incentive; some markets favor renting over buying in spite of the MITD. However, saying the only reason buying is financially attractive makes no sense.
Edit: corrected C (credit) to D (deduction), since it is technically correct and makes a big difference in it's usefulness.
rental rates are exactly the same thing as interest rates (+/- wear and tear and so forth). what you retain in equity, you would equally retain by simply not paying into some other investment. There's nothing special about owning your home, there's no arbitrage to be had beyond the MITC.
It does indeeed. I need to crack the paywall on that FT item, but I've had my own recent epiphany on asset price inflation of maslovian goods (and housing in particular).
Why does the price matter? I recently bought a house. There was "opportunity" in a "up and coming areas." It might have had up sides, but I didn't want the risk either. If the house price goes up I won't realize any of the gains until I sell it. That's likely going into another house. If the market moves as a whole then the price doesn't really matter (it would make "upgrading" more expensive). So I'm not worried about short term fluctuations in price. I, honestly, just want the price to stay the same.
because I can't sell my house and move to another one, I am stuck in this one until I die!!! I owe 80% of my current house value, if prices goes down even 10% I lost half of my down payment !!!
Well, yeah. That's why you can't finance 100% of the house and that's the problem with paying the minimum 20%. If the value drops 10% and that applies to the whole neighborhood, you still have about the same downpayment for a comparable house. You really don't want to be moving around often, anyway. If the house stays the same and you move in a year or two (before you build much more equity) you lose money in fees...not to mention what a pain in the ass moving it.
The only time your'd fully realize any gains or losses (outside of being upside down) is when you downsize or move to an apartment. That's never really anyone's goal. A house is a terrible investment tool and shouldn't be seen as one.
We need a mindset change. Jobs that can be done remotely, should be done remotely. Making people commute to office buildings to fill cubicles is crazy.
They should be able to live where they want and not waste 2 hours a day burning fossil fuel.
> Jobs that can be done remotely, should be done remotely
There are a whole lot of jobs that don't really fit into that. Programmer-sphere is pretty unique there. And not all programmers (certainly a minority) map well to remote work.
It seems though that most people want to live where rents are already the highest (which is why rents are high!). The nurse quoted in the article who drives 2 hours to reach SF wants to work closer to her hospital in the city. That job in particular is hard to do remotely.
From a practical standpoint, it seems like a large percentage of people in the Bay Area would prefer to live in the City or very near it. Yet, this is a physical impossibility. The ways to allocate scarce resources comes down to two methods: let the market decide or let government decide. Either way, folks will be left out.
If there were no zoning regulations, you are absolutely right...and this would've resolved itself long ago. But there are strong zoning and property rights at play. I'm very libertarian, and was priced out of the Bay Area (recently left grad school for Texas), but I'm actually sympathetic to the homeowners there who are using democratic means (i.e. their elected city reps) to support their interests. Society (in the form of the state government) could upend the property rights they are leveraging...but that would have significant incentive repercussions down the line. It would greatly weaken property rights...which is a foundation of Western society. There are far deeper, and interesting, issues aside from mere housing stock.
It's both/and, not either/or. It gives me the right to not have to live next to an oil refinery, at the price of prohibiting my next-door-neighbors from putting an oil refinery on their place.
what about the people using democratic means to strip homeowners of the "right" to prevent development? It sounds like your ideology is pretty scattershot. Aren't libertarianism and democracy fundamentally opposed ideologies anyway?
> Most people I know rationally choose housing based on commute distance for an individual/couple + price.
I suspect that the people you know are not representative of the whole population; there's plenty of evidence people consider factors other than price and commute-to-work distance in setting preference of where to live.
While I agree, it's a huge culture shift. I fought traffic to work at a few places in LA where much of the work could have been remote. At both places we had a remote office, but coordination was terrible. Some people did work remotely, but many times coordination was worse than remote teams. Part of it was culture and part of it was that there weren't tools to facilitate remote collaborative work; one side didn't have phones at their desk, there were 2 or 3 sanctioned chat apps, poor tools for remote meetings (and nothing for small, ad hoc meetings). When I brought up the friction between locations, they focused on the tools to copy data back and forth--ignoring the communication issues.
I don't have all that much experience with remote work, but I'd prefer a company that started around remote work instead of being a remote worker at an established company.
I like idea of taxing higher unoccupied homes. If someone wants to make investment, great make investment and either pay high taxes (support folks who do live there) or have to rent it.
Ridiculous solution. Even pretending there is any taxing authority with jurisdiction "all over the world" using tax code to try to change behaviors just creates a lot of creative avoidance and unintended consequences.
It's what we do though. Mortgage loan interest deductible to get people to purchase homes, capital gains tax is low to encourage longer-term investing....
> Heather Lile, a nurse who makes $180,000 a year, commutes two hours from her home in Manteca to the San Francisco hospital where she works, 80 miles away. “I make really good money and it’s frustrating to me that I can’t afford to live close to my job,” said Ms. Lile.
OK, that's a load of crap. I don't know what you're doing with your money, but you can definitely live in SF on $180k. And if you can't, well, name your destination that's within two hours, it'll be cheaper than most of SF. I'm guessing she needed/found the perfect home.
Yup. And choosing to live in Manteca is utterly insane. It's FAR more than 2 hours at rush hour. Barely 2 hours with no traffic. That is 100% a choice. I don't know why she chooses that, but it's a choice.
> And choosing to live in Manteca is utterly insane. It's FAR more than 2 hours at rush hour.
It's rush hour now. Google Maps, which tends to be pretty accurate, says 2:15, right now.
And rush hour may or may not be actual commute hours for a nurse; not everyone works typical hours and commute decisions based on your actual work patterns rather than average work patterns that aren't actually yours are quite sensible.
It's not a load of crap. I think what she meant was she can't afford to _buy_ close to SF. The closest you can buy a decent home (not apartment) close to SF in that pay (~800Kish home) is Walnut Creek or thereabouts, which is about 45mins away by Bart.
With a salary of $180K you can definitely afford to buy near SF. Banks will sign off on an $900,000 mortgage no problem on that salary. You have to put maybe $100-200K down payment for your million dollar 2BR.
Guess what? You need to save for a few years to get that, which is easy when you're making $15K pre tax a month and living in Manteca.
Have you purchased housing in any of the more desirable areas of California recently? If you have, please tell me where this fantasy of your played out and I will buy there.
What happens to someone with a $100K-200K down payment and a bank willing to cover another $900K on top of that is that they put in a $1.1M offer with the required bank contingencies and then someone puts in a $1.1M offer with no contingencies and the cash offer wins.
Having a bank willing to lend you money has not been sufficient to purchase a home in most areas since the housing collapse because there's so much speculation in cash.
What is this required bank contingencies you speak of?
Just because you are getting a mortgage doesn't mean you need a mortgage contingency in your offer. You are taking on the added risk of actually closing on the loan, but that doesn't mean it had to be in the offer letter. If you know what the house is worth and what your credit score is and how the underwriting works, just make a "cash" offer like everyone else. It's not like you literally show up with a briefcase of cash in any case.
I get the feeling that you have not purchased a home either.
Required banking contingencies usually fall around home inspection and other verification efforts that the bank undertakes to validate the value of the security being offered for the loan (the house).
The bank doesn't just give you a check and say "go for it," they have a set of contingencies (incl. inspections) in order for them to shell out the money. Otherwise people could readily defraud the loan process by borrowing more than the security (the house) is worth.
Typically both parties enter into escrow with the expectation that the contingencies will be met during that period and for that period the money is held in trust along with the deed while all of the contingencies are validated.
A cash offer is a check, it requires no escrow period. Frequently home deals fall apart during escrow for a wide variety of reasons, this is a time-value risk on the appreciation of a million-dollar asset. Any sensible home seller would take the offer with no escrow period and equivalent dollar value.
The house I purchased (in a much less desirable region of California) would've been a lot nicer if it wasn't for this phenomenon.
I've purchased several houses both with and without mortgages. If you are getting a mortgage, the underwriter will need an appraisal in order to calculate your loan-to-value ratio. They will need title insurance (for which you probably want to get Owners coverage anyway) which requires a title search.
I've never had an underwriter ask for a home inspection report.
But in any case that doesn't mean you need to write a contingency into an offer that the house will appraise for a certain amount or else the deal is off.
Even in "cash" offers there is the offer letter with a check with a deposit amount, but there's still a time period for you execute a purchase and sale agreement and make the final payment. This is where you do things like title search, prepare the P&S agreement, prepare other documents like fire certificate, septic certificate, etc. This always takes at least 30 days anyway, so if there's an appraiser ready to go on Day #2 there's time to get your loan closed before closing day even on a "cash" offer with a quick close.
I'm not quite sure what you mean "no escrow period" but in no case does anyone simply show up at Open House day with a check for the full offer amount and expect to close on the house that day... that's simply not what "cash offer" means.
A "cash" offer with no contingencies simply means your offer amount will not change even if the house appraises for less (requiring a larger down payment to achieve the same LTV) or if there are issues discovered by a home inspector (e.g. roof needs to be replaced).
Note even in a "cash" offer there's still plenty of room to negotiate if non-obvious things are discovered about the house because the seller is still providing a property condition statement (at least in any state I've done business in) where they attest to the overall condition and any adverse issues like septic failing certification or prior insurance claim for flooding or things like that which you discover after making a "cash" offer -- all of it the seller had a duty to disclose and frees you from the offer if you decide to walk away before signing the Purchase and Sale and accepting the quitclaim deed.
I guess most of you have never purchased housing in any of the major cities in China.
$180,000 is over RMB 1mm, which is way above what an average Chinese white collar can earn in a year. And an apartment can cost much more than $500,000, with a 30%~60% down payment.
People do afford the apartments, with life's saving from parents. I am not saying it's a good thing, but it is possible that people afford housing even with a ridiculous price.
The way housing and society works is significantly different in the USA and China. It's not really fair to compare the two. I don't know anyone in USA that has used their parent's life savings to purchase a house, because that kind of way of doing things isn't nearly as common there compared to China.
Clearly you don't live here and I'm sorry to say this but I'm not sure you know what you're talking about. Please do the actual math on this, factor in contingencies, other expenses, kids, etc and what you're saying doesn't hold true from a affordability perspective. You can of course find something and buy...but you don't want to be pulling teeth to do it.
The example in the article may be a bit extreme but the article is not much off base.
The thing is you are absolutely correct, but the OP you respond to are the people you are competing with for housing.
I've watched astonished as friends of mine buy homes that end up eating 60%+ of their post-tax income. That is what is being called "affordable" these days.
Renting: 180K isn't enough to survive in SF with just 1 kid. If it is supporting 1 kid: 4k 2 bedroom (run down) + (2k) child care. 15k gross = 10k after tax. Just removing 2 things makes your post tax: 4k monthly pay check left. 4k a month rent let's you walk around at night and let's you do public school. (180k no private). A car with a kid is a must and that is expensive in SF, then add utils + phone + clothes. If you want to eat, or go outside, then you start dipping into savings.
Buying: in SF at 180k? Not a hope. A decent place not TIC, and where you safely put your kid in public school - is low 1.3million. Step one: come up with 260k cash + now your 4k rent is 5200 morgage with nutty property taxes. Plus play the lottery of schools because you can't afford private.
Come on, even if I accept that an apartment and child care is $6000/month in SF (its not, but it is pretty expensive), are you really arguing that $4000 a month "left over" (for non-rent, non-child related expenses) isn't doable? I've lived in the Bay Area for three-and-a-half decades and never made anywhere close to $4000 a month post-tax, much less $10000.
The sensationalism and missing facts/context of this story is truly precious. I'd love to hear the specs on Ms Lile's Manteca house. I'm guessing it's significantly bigger than the median house size in SF or neighboring towns, where she could surely afford to live in a 2BR bungalow or condo.
I don't understand why cities around SF are not building high rise buildings. If there is no space to expand, you should build high rise building which can accommodate more people. I understand there are zoning laws which prevent from building taller buildings, but if you see the landscape in south-bay they are all single story houses. The land could be utilized in a better way and build bigger housing complexes with multi-story buildings. I don't understand why city administrations are not taking this step and rather pushing the rent & house prices which is forcing people to spend 50% of their salary on housing.
Go sit in on a meeting in Mountain View or Cupertino. Existing home owners don't want it and the elected admins don't want it. They are happy to foist the problem off on, well, just about anywhere else. They want wealthy folks in detached single-family homes, and the fact that they host companies that employ more people than can live there means constant upward pressure on home prices and the tax base.
In other words, it is an externality just like pollution that the producers don't want to internalize.
South San Jose are building condos and apartments (maybe 4 stories tall, skyscrapers only in the "Everything's up-to-date in Kansas City" sort of way).
Still, this density of housing is only going to put more pressure on the already strained highways that take people north to the jobs.
Next year the article will read, "California's Commuting Crisis Reaches a 'Breaking Point'."
All of those, plus a mini mall for good measure, on land that used to be a large source of tech jobs for the surrounding area. How many mini malls does a suburb really need? I have a friend-of-a-friend who used to work for a big company decommissioning these old campuses. He claimed they always pushed heavily for commercial because there are fewer lawsuits related to groundwater contamination and such.
A lot of people live in the Bay Area. The 9 county area has 7.68 million people [0], enough that it would be the 102nd (of 234) most populus country in the world if it were its own country [1]. Countries with similar populations include Switzerland, Israel, and Hong Kong (all relatively small and dense).
Anecdotally, I dont see much vacancy in commercial/retail real estate (mini malls or otherwise) in the Bay Area, and with nearly 8 million people living here, there is an obvious need for quite a bit of commercial space.
I'm well aware of the population of the bay area. I speak to South San Jose because I was born and lived there for close to 25 years, basically around the corner from the former Cottle IBM plant. I still visit because my parents live in the same house.
And from my anecdotal experience when visiting, the older mini malls surrounding it have less foot traffic. Which makes sense, because everyone wants to go to the new shiny places. And it's not like these places were overly crowded in the first place.
Not to mention that the "no new development" position simultaneously has vast amounts of money behind it and can present itself as left wing, even radical. Plus also sound "ecological" (except for the gas spent on two hour commutes but hey look at my "green" lawn).
Anarchists in SF don't protest mountain view homeowners, don't demand opening the door to high rises on Potrero Hill but rather block buses taking tech workers to work - morons. Confusion reigns!
Cities don't build anything. People, investors, entrepreneurs build. What cities do is prevent them from building.
I've been researching buying some land to put up affordable housing. I can buy the land. The permits and regulations? Almost impossible to deal with. Every single contractor I've spoken to has advised has echoed my findings.
Who do you mean by "you", when you say "you should"? Do you mean you as in YOU? Or everyone else? Of course people who can't afford housing want cheaper housing. But people who have housing don't want high-rise buildings in their neighborhoods and that's understandable. The solution is not to build more housing. The solution is to create work in other places, too. Why should all companies be in SF? Force companies to move to states with plenty of space.
Or other parts of California with plenty of space such as the Central Valley. Unfortunately, similar to how homeowners don't want high-rise buildings in their neighborhood, companies do not want to build additional campuses or allow remote work.
Yeah - however, politically, it'd be expedient to come up with some kind of 'replacement' for zoning that still allays the (mostly ridiculous) fears that someone is going to buy the house next door and put in a nuclear waste disposal facility in its place.
My guess is that voters who actually care about city level politics or influential people in the city are already home owners. For home owners, building more housing means a decrease in their home value so they have no incentive to push more housing.
Zoning laws aren't handed out by God on stone tablets. If current zoning laws prohibit the apartment buildings the cities need, the cities can and should change the zoning laws.
Seems like those laws come from people that already live there, and it seems kinda reasonable for a community to have those opinions and make their own ordinances. The part I don't understand is why most of the sector doesn't just leave.
High rise housing projects take many years. Just assembling a suitable parcel in a good location from multiple small parcels under separate ownership requires cunning and misdirection and often a couple of decades.
Real estate is slow. Apple has its new spaceship in Cupertino. Apple paid $300 million for HP's 100 acre former campus in 2010. Apple's adjacent parcel was acquired in 2006. Even without regarding how long it probably took to close the first parcel, that's more than a decade ago. For a straight up office building with no need for sales and marketing. And office buildings are what Cupertino wants on its tax rolls.
Suppose that 100 acres went to housing instead. At $3million per acre and 30 units gross per acre, there's $100,000 per unit in land cost. At a low end 4:1 improvement to land cost ratio, the construction of each unit runs out to $400,000 and the unit cost is $500,000. Throw in 20% for carrying costs and 20% for developer profit and units hit the market at $720,000.
Sure a person can play with the numbers and get them lower or higher. But even at 30 dwelling units per acre, that's only an addition of only 3000 units over ten years to the overall Bay Area market. And it took more than $1 billion in capital and a decade worth of work. If it were easy, it would have happened.
I just want to point out that the "Cost of a Hot Economy" headline is baloney - or rather it's part of the story but the least important part of the story, used as a cover for the more important processes at work.
Whatever the unemployment rate, the present level of "economic growth" is very much a product of a lot of money being pumped into the "real economy" and large portion of this money leaking out into investments like houses that are perceived as more solid and reliable than companies engaged in production [1].
The old effect of printing was a consumption-goods price spiral but the new, more hidden effect is capital-good price spiral (housing bubbles etc). But, of course, if wages aren't increasing and costs of living are, a little bit of increase goes a long to making people's lives unlivable.
And it's worth noting that rent-increases are happening in a wide variety of town in the US. Everywhere they're attributed to local factors and that further muddies the wasters concerning the root cause.
You'd be hard pressed to see where quantitative easing began and ended looking at this graph of home prices in California, San Francisco, and Santa Clara County [0] (from a longer report here[1]).
From your linked article, QE in the US lasted approximately 2008-2014, with some of the steepest decrease in home prices occurring during that period, and steepest increases occurring after it ended.
I'm not entirely sure there is compelling evidence QE contributed to housing price increases in California or the Bay Area, but I'd be interested if anyone had data to the contrary.
The processes involved here are much larger scale than the particulars of the California housing market (indeed, if you read my original you'll I already mentioned that California is just one blip in world-wide trend). California just happens to be a place which attracts money when money is being "manufacturer". Whether one has quantitative easing in particular or too-big-to-fail banks issuing bonds or simple bubble-dynamics, you have a process where money flows from productive assets to stores of value.
If someone wished to learn something about the current financial climate, I would refer that someone to Doug Noland's Credit Bubble Bulletin.
According to data from the Census the Quarterly Starts and Completions by Purpose and Design survey, the average and median size of single-family homes that began construction rose during 2013. For the third quarter alone, the average single-family square footage increased from 2,646 to 2,701, while the median rose from 2,446 to 2,491.
In the 1950s, average size of a new home was less than half that, at around 1200 sq ft. It also held, on average, more people.
I strongly suspect this is partly driven by tax incentives that are aimed at upper class families and help create or fuel a growing divide between the Have and Have Nots.
I don't know if that's the case for the large cities in California. As far as I've seen in Los Angeles, it's not new construction. If it is, it's major renovations to old buildings (tearing down a 80yo bungalow that had been extended to 1br and building a modern 2br) and they're limited by the lot size.
In LA there's new luxury condos being built, but I've been in half a dozen apartments in the 12 years I've lived here and the newest was built in the 80's. You can definitely see the living space increases since the 20's, but it hasn't ballooned to the size of new construction in most of the rest of the country.
Looking at my peers in houses, it's fairly similar. They all moved far out of the city, but none of it is new construction.
Funny, I have lived in several California cities over the years. I am routinely appalled at the not terribly old, ginormous houses that I walk past. This has been true every place I have lived.
I am currently at the research stage for trying to buy a house. My magic 8 ball increasingly suggests "not in California -- please move elsewhere, since you have portable income."
If that's the case, I'm pretty sure the rest of the country is the same. My experience is in LA and the little bit I've seen in SF. Both of those places are terrible unless you're quite rich.
I am envious of people with a bedroom for each kid and a back yard, but I have heard anecdotes of people who move from a place perceived as high tax, like California, to a place perceived as low tax, like Texas, and their tax liability went up (because property taxes are much higher even though income taxes are lower).
I've said it before in other threads, but I highly recommend The Color of Law by Richard Rothstein for anyone interested in this topic.
Much of today's housing crisis is a direct result of blatantly racist policies that were implemented to keep out PoC out of white neighborhoods.
Ordinances like minimum lot sizes, heigh restrictions etc. are the very same tools used by NIMBYs to keep new developments out of their neighborhoods, and choking the US economy.
Except the jobs worth moving for are built by, and favor, NIMBYs. The jobs won't leave city centers because they attract employees by exploiting the culture of the city they're based in, which is built on the backs of "undesirables".
Why are none of the 'big 4' based out of middle-of-nowhere-America? Because nobody want's to live in a place where the idea of culture is TGI Friday's and an old navy outlet.
True but a bit chicken and egg. If you brought a large company to a nowhere place - the hipster yoga, expensive wine bars, and snooty farm to table places move in eventually.
Seems silly to allow cities to allow development to add jobs but not housing. It's terrible for the environment, the state, traffic, pollution, etc. Doubly insane is that seems like it's standard procedure to mandate parking space per square foot of commercial space, but not a place for the workers housed within to live. What's more important, a parking space or a bed?
Housing prices reflect decades of public policy decisions. For example, HOPE VI took hundreds of units out of San Francisco [2] and about half a million units of public housing out of circulation across the US. [1] Even if there was a strong shift in public policy, the housing market in California would take decades to express the effects in a way that would be noticeable to most people...and that's assuming that the affordable housing policies don't simply enable more construction that quickly moves upmarket.
[2]: According to James Tracy, training institute coordinator at San Francisco's Community Housing Partnership, only by organizing did North Beach residents win a guarantee from the San Francisco Housing Authority and Bridge Housing that all of the units would be replaced. In fact, North Beach Place actually added units, from 229 units in the original project to 341 units today. (At Plaza East in the Western Addition, 276 high-rise units were replaced by 193 townhouses and flats; Hayes Valley saw 294 units demolished and 193 rebuilt; Bernal Dwellings replaced 208 units with 160.) "The success of Hope VI depends on your standard," Tracy said. "For the housing authority and developer, once a new building is up, that defines success. But from a standpoint of community preservation, losing units in the San Francisco housing market is not a successful project."http://www.spur.org/publications/urbanist-article/2005-03-01...
Housing and Jobs need to be in balance. If there is "not enough housing" what you are really saying is "cities permitted more business capacity than housing capacity." Those two markets really need to be tied to each other. Doesn't matter if your personal view is "too much growth" or "let's keep growing", either way the capacities need to be in balance.
If you go back to read the early classical economists -- Adam Smith, David Ricardo, Robert Malthus (who didn't just talk about births and food), John Stuart Mill (and his father), etc., you'll find a that much discussion is given to the price behaviour of certain economic goods and services, in ways that sounds odd today: commodities, wages, stock, interest, and rent.
Wages and rent most especially.
The reason for the discussion is that the price behaviours are, well, interesting. Economic rent (not quite the same as what you pay for an apartment) in particular, rises to absorb surplus value, whilst wages fall to the bare minimum necessary for survival (if that -- Smith's story of economic decline is bleak).
There's an added dynamic -- one I've only just realised, though I'm sure it shows up in the literature, of the tendency for those holding any given economic asset (some store of value) to do what they can to see that its value increases. And why not: free money!
This becomes quite problematic where those assets are themselves productive, or worse, Maslovian (that is, essential) goods:
The upshot is that the prices of such goods, including housing, tends to increase.
(This applies as well to professional certifications and licenses, taxi medallions (viz: Lyft, Uber), guilds, educational access, etc. etc.)
The classic response suggested has been a land tax: a tax which applies to the unimproved value of a given lot.
The economic notion is that the supply of land is inelastic (that is: suppliers cannot provide more of it, and won't withdraw from the market). The tax increases the costs of carrying unimproved land, or occupying land below its full utilisation. By tweaking the rate of tax reduction as land value falls (based on income-earning potential), it would be possible to encourage or discourage sprawl (slightly underpace value decline to concentrate development, overpace
value decline to encourage wider development).
The idea is most associated with Henry George (who came up with the idea ... faced with skyrocketing rents in San Francisco), but is absolutely grounded in classical economics and economists.
What I'm slowly coming to realise is that what's almost certainly required is a joint policy which targets wages, on the one hand, and rents (or land value) on the other (and probably a few others). In addition to a land tax, some sort of employer of last resort which would pay at least a minimum living wage (possibly then bidding out labour to other entities, or utilising it for itself). Some form of UBI or needs-based support (children, elderly, disabled, students) would cover other cases. Without a land tax, this income is simply pocketed by rentiers. The combination of EoLR/UBI and Land Tax puts the income back into flow within the real (that is, commodities and services) economy.
I've also learnt just earlier today that the Lincoln Institute of Land Policy started as a Georgian Land Tax advocacy organisation, though I'm not sure if they continue to pursue this interest.
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[ 3.2 ms ] story [ 84.0 ms ] threadThe MITC is a hugely regressive policy.
Really comes down to how long you intend to stay in the home.
How do you figure that? What about cost stability? What about not losing 100% of your payment (that is, retaining some as equity)?
I'm not saying there is always an incentive; some markets favor renting over buying in spite of the MITD. However, saying the only reason buying is financially attractive makes no sense.
Edit: corrected C (credit) to D (deduction), since it is technically correct and makes a big difference in it's usefulness.
In what world? I have never seen a market where rents were below P&I for a comparably-priced house[1]. I would love to see a real example of this.
[1] Note that this does not automatically make buying better, as rent factors many costs P&I does not.
For instance, after a 1980s crash, Tokyo's housing norms shifted and the result seems really healthy: https://www.ft.com/content/023562e2-54a6-11e6-befd-2fc0c26b3...
I'm thinking a lot about land tax.
https://www.reddit.com/r/dredmorbius/comments/608w97/asset_p...
https://archive.fo/Pf2Uu
Interesting article. I wonder if any Japanese (or someone familiar enough with the culture) could comment.
The only time your'd fully realize any gains or losses (outside of being upside down) is when you downsize or move to an apartment. That's never really anyone's goal. A house is a terrible investment tool and shouldn't be seen as one.
They should be able to live where they want and not waste 2 hours a day burning fossil fuel.
There are a whole lot of jobs that don't really fit into that. Programmer-sphere is pretty unique there. And not all programmers (certainly a minority) map well to remote work.
From a practical standpoint, it seems like a large percentage of people in the Bay Area would prefer to live in the City or very near it. Yet, this is a physical impossibility. The ways to allocate scarce resources comes down to two methods: let the market decide or let government decide. Either way, folks will be left out.
Personally, I believe that is an artifact of zoning laws + commute distance.
Most people I know rationally choose housing based on commute distance for an individual/couple + price.
I suspect that the people you know are not representative of the whole population; there's plenty of evidence people consider factors other than price and commute-to-work distance in setting preference of where to live.
I don't have all that much experience with remote work, but I'd prefer a company that started around remote work instead of being a remote worker at an established company.
There's no simple solution to this crisis and I'd bet we'll see several more states go through this sooner than later.
There is no sensible logic in why real estate is treated like the stock market.
It's what we do though. Mortgage loan interest deductible to get people to purchase homes, capital gains tax is low to encourage longer-term investing....
OK, that's a load of crap. I don't know what you're doing with your money, but you can definitely live in SF on $180k. And if you can't, well, name your destination that's within two hours, it'll be cheaper than most of SF. I'm guessing she needed/found the perfect home.
It's rush hour now. Google Maps, which tends to be pretty accurate, says 2:15, right now.
And rush hour may or may not be actual commute hours for a nurse; not everyone works typical hours and commute decisions based on your actual work patterns rather than average work patterns that aren't actually yours are quite sensible.
Guess what? You need to save for a few years to get that, which is easy when you're making $15K pre tax a month and living in Manteca.
What happens to someone with a $100K-200K down payment and a bank willing to cover another $900K on top of that is that they put in a $1.1M offer with the required bank contingencies and then someone puts in a $1.1M offer with no contingencies and the cash offer wins.
Having a bank willing to lend you money has not been sufficient to purchase a home in most areas since the housing collapse because there's so much speculation in cash.
Just because you are getting a mortgage doesn't mean you need a mortgage contingency in your offer. You are taking on the added risk of actually closing on the loan, but that doesn't mean it had to be in the offer letter. If you know what the house is worth and what your credit score is and how the underwriting works, just make a "cash" offer like everyone else. It's not like you literally show up with a briefcase of cash in any case.
Required banking contingencies usually fall around home inspection and other verification efforts that the bank undertakes to validate the value of the security being offered for the loan (the house).
The bank doesn't just give you a check and say "go for it," they have a set of contingencies (incl. inspections) in order for them to shell out the money. Otherwise people could readily defraud the loan process by borrowing more than the security (the house) is worth.
Typically both parties enter into escrow with the expectation that the contingencies will be met during that period and for that period the money is held in trust along with the deed while all of the contingencies are validated.
A cash offer is a check, it requires no escrow period. Frequently home deals fall apart during escrow for a wide variety of reasons, this is a time-value risk on the appreciation of a million-dollar asset. Any sensible home seller would take the offer with no escrow period and equivalent dollar value.
The house I purchased (in a much less desirable region of California) would've been a lot nicer if it wasn't for this phenomenon.
I've never had an underwriter ask for a home inspection report.
But in any case that doesn't mean you need to write a contingency into an offer that the house will appraise for a certain amount or else the deal is off.
Even in "cash" offers there is the offer letter with a check with a deposit amount, but there's still a time period for you execute a purchase and sale agreement and make the final payment. This is where you do things like title search, prepare the P&S agreement, prepare other documents like fire certificate, septic certificate, etc. This always takes at least 30 days anyway, so if there's an appraiser ready to go on Day #2 there's time to get your loan closed before closing day even on a "cash" offer with a quick close.
I'm not quite sure what you mean "no escrow period" but in no case does anyone simply show up at Open House day with a check for the full offer amount and expect to close on the house that day... that's simply not what "cash offer" means.
A "cash" offer with no contingencies simply means your offer amount will not change even if the house appraises for less (requiring a larger down payment to achieve the same LTV) or if there are issues discovered by a home inspector (e.g. roof needs to be replaced).
Note even in a "cash" offer there's still plenty of room to negotiate if non-obvious things are discovered about the house because the seller is still providing a property condition statement (at least in any state I've done business in) where they attest to the overall condition and any adverse issues like septic failing certification or prior insurance claim for flooding or things like that which you discover after making a "cash" offer -- all of it the seller had a duty to disclose and frees you from the offer if you decide to walk away before signing the Purchase and Sale and accepting the quitclaim deed.
$180,000 is over RMB 1mm, which is way above what an average Chinese white collar can earn in a year. And an apartment can cost much more than $500,000, with a 30%~60% down payment.
People do afford the apartments, with life's saving from parents. I am not saying it's a good thing, but it is possible that people afford housing even with a ridiculous price.
The example in the article may be a bit extreme but the article is not much off base.
I've watched astonished as friends of mine buy homes that end up eating 60%+ of their post-tax income. That is what is being called "affordable" these days.
Buying: in SF at 180k? Not a hope. A decent place not TIC, and where you safely put your kid in public school - is low 1.3million. Step one: come up with 260k cash + now your 4k rent is 5200 morgage with nutty property taxes. Plus play the lottery of schools because you can't afford private.
If you're serious, show your math.
In other words, it is an externality just like pollution that the producers don't want to internalize.
Still, this density of housing is only going to put more pressure on the already strained highways that take people north to the jobs.
Next year the article will read, "California's Commuting Crisis Reaches a 'Breaking Point'."
A lot of people live in the Bay Area. The 9 county area has 7.68 million people [0], enough that it would be the 102nd (of 234) most populus country in the world if it were its own country [1]. Countries with similar populations include Switzerland, Israel, and Hong Kong (all relatively small and dense).
Anecdotally, I dont see much vacancy in commercial/retail real estate (mini malls or otherwise) in the Bay Area, and with nearly 8 million people living here, there is an obvious need for quite a bit of commercial space.
[0] https://en.wikipedia.org/wiki/San_Francisco_Bay_Area
[1] https://en.wikipedia.org/wiki/List_of_countries_by_populatio...
And from my anecdotal experience when visiting, the older mini malls surrounding it have less foot traffic. Which makes sense, because everyone wants to go to the new shiny places. And it's not like these places were overly crowded in the first place.
Anarchists in SF don't protest mountain view homeowners, don't demand opening the door to high rises on Potrero Hill but rather block buses taking tech workers to work - morons. Confusion reigns!
I've been researching buying some land to put up affordable housing. I can buy the land. The permits and regulations? Almost impossible to deal with. Every single contractor I've spoken to has advised has echoed my findings.
Seems to work well in other countries
https://shift.newco.co/letter-of-resignation-from-the-palo-a...
Best bet is probably statewide initiatives such as those proposed by Scott Weiner. https://twitter.com/scott_wiener
Is it the business people who own businesses there? Yes.
Is it the people who live there? Yes, them too.
Is it the people who don't live there, but want to move there? No, it's not. That's the problem.
Didn't the good folks of Palo Alto vote out the council members that voted for a 60-unit retiree building?
They can bring a bulldozer to Dolores when I can take one to Stanford.
Real estate is slow. Apple has its new spaceship in Cupertino. Apple paid $300 million for HP's 100 acre former campus in 2010. Apple's adjacent parcel was acquired in 2006. Even without regarding how long it probably took to close the first parcel, that's more than a decade ago. For a straight up office building with no need for sales and marketing. And office buildings are what Cupertino wants on its tax rolls.
Suppose that 100 acres went to housing instead. At $3million per acre and 30 units gross per acre, there's $100,000 per unit in land cost. At a low end 4:1 improvement to land cost ratio, the construction of each unit runs out to $400,000 and the unit cost is $500,000. Throw in 20% for carrying costs and 20% for developer profit and units hit the market at $720,000.
Sure a person can play with the numbers and get them lower or higher. But even at 30 dwelling units per acre, that's only an addition of only 3000 units over ten years to the overall Bay Area market. And it took more than $1 billion in capital and a decade worth of work. If it were easy, it would have happened.
Whatever the unemployment rate, the present level of "economic growth" is very much a product of a lot of money being pumped into the "real economy" and large portion of this money leaking out into investments like houses that are perceived as more solid and reliable than companies engaged in production [1].
The old effect of printing was a consumption-goods price spiral but the new, more hidden effect is capital-good price spiral (housing bubbles etc). But, of course, if wages aren't increasing and costs of living are, a little bit of increase goes a long to making people's lives unlivable.
And it's worth noting that rent-increases are happening in a wide variety of town in the US. Everywhere they're attributed to local factors and that further muddies the wasters concerning the root cause.
[1]https://en.wikipedia.org/wiki/Quantitative_easing
From your linked article, QE in the US lasted approximately 2008-2014, with some of the steepest decrease in home prices occurring during that period, and steepest increases occurring after it ended.
I'm not entirely sure there is compelling evidence QE contributed to housing price increases in California or the Bay Area, but I'd be interested if anyone had data to the contrary.
[0] http://www.lao.ca.gov/reports/2015/3305/Bay-Area-Home-Prices...
[1] http://www.lao.ca.gov/Publications/Report/3305
The processes involved here are much larger scale than the particulars of the California housing market (indeed, if you read my original you'll I already mentioned that California is just one blip in world-wide trend). California just happens to be a place which attracts money when money is being "manufacturer". Whether one has quantitative easing in particular or too-big-to-fail banks issuing bonds or simple bubble-dynamics, you have a process where money flows from productive assets to stores of value.
If someone wished to learn something about the current financial climate, I would refer that someone to Doug Noland's Credit Bubble Bulletin.
http://creditbubblebulletin.blogspot.com/p/credit-bubble-bul...
http://eyeonhousing.org/2014/01/average-size-of-new-single-f...
According to data from the Census the Quarterly Starts and Completions by Purpose and Design survey, the average and median size of single-family homes that began construction rose during 2013. For the third quarter alone, the average single-family square footage increased from 2,646 to 2,701, while the median rose from 2,446 to 2,491.
In the 1950s, average size of a new home was less than half that, at around 1200 sq ft. It also held, on average, more people.
I strongly suspect this is partly driven by tax incentives that are aimed at upper class families and help create or fuel a growing divide between the Have and Have Nots.
In LA there's new luxury condos being built, but I've been in half a dozen apartments in the 12 years I've lived here and the newest was built in the 80's. You can definitely see the living space increases since the 20's, but it hasn't ballooned to the size of new construction in most of the rest of the country.
Looking at my peers in houses, it's fairly similar. They all moved far out of the city, but none of it is new construction.
I am currently at the research stage for trying to buy a house. My magic 8 ball increasingly suggests "not in California -- please move elsewhere, since you have portable income."
I am envious of people with a bedroom for each kid and a back yard, but I have heard anecdotes of people who move from a place perceived as high tax, like California, to a place perceived as low tax, like Texas, and their tax liability went up (because property taxes are much higher even though income taxes are lower).
Much of today's housing crisis is a direct result of blatantly racist policies that were implemented to keep out PoC out of white neighborhoods.
Ordinances like minimum lot sizes, heigh restrictions etc. are the very same tools used by NIMBYs to keep new developments out of their neighborhoods, and choking the US economy.
Why are none of the 'big 4' based out of middle-of-nowhere-America? Because nobody want's to live in a place where the idea of culture is TGI Friday's and an old navy outlet.
[1]: http://www.bbc.com/news/magazine-35913577
[2]: According to James Tracy, training institute coordinator at San Francisco's Community Housing Partnership, only by organizing did North Beach residents win a guarantee from the San Francisco Housing Authority and Bridge Housing that all of the units would be replaced. In fact, North Beach Place actually added units, from 229 units in the original project to 341 units today. (At Plaza East in the Western Addition, 276 high-rise units were replaced by 193 townhouses and flats; Hayes Valley saw 294 units demolished and 193 rebuilt; Bernal Dwellings replaced 208 units with 160.) "The success of Hope VI depends on your standard," Tracy said. "For the housing authority and developer, once a new building is up, that defines success. But from a standpoint of community preservation, losing units in the San Francisco housing market is not a successful project." http://www.spur.org/publications/urbanist-article/2005-03-01...
Wages and rent most especially.
The reason for the discussion is that the price behaviours are, well, interesting. Economic rent (not quite the same as what you pay for an apartment) in particular, rises to absorb surplus value, whilst wages fall to the bare minimum necessary for survival (if that -- Smith's story of economic decline is bleak).
https://en.m.wikisource.org/wiki/The_Wealth_of_Nations
There's an added dynamic -- one I've only just realised, though I'm sure it shows up in the literature, of the tendency for those holding any given economic asset (some store of value) to do what they can to see that its value increases. And why not: free money!
This becomes quite problematic where those assets are themselves productive, or worse, Maslovian (that is, essential) goods:
https://www.reddit.com/r/dredmorbius/comments/608w97/asset_p...
The upshot is that the prices of such goods, including housing, tends to increase.
(This applies as well to professional certifications and licenses, taxi medallions (viz: Lyft, Uber), guilds, educational access, etc. etc.)
The classic response suggested has been a land tax: a tax which applies to the unimproved value of a given lot.
The economic notion is that the supply of land is inelastic (that is: suppliers cannot provide more of it, and won't withdraw from the market). The tax increases the costs of carrying unimproved land, or occupying land below its full utilisation. By tweaking the rate of tax reduction as land value falls (based on income-earning potential), it would be possible to encourage or discourage sprawl (slightly underpace value decline to concentrate development, overpace value decline to encourage wider development).
The idea is most associated with Henry George (who came up with the idea ... faced with skyrocketing rents in San Francisco), but is absolutely grounded in classical economics and economists.
What I'm slowly coming to realise is that what's almost certainly required is a joint policy which targets wages, on the one hand, and rents (or land value) on the other (and probably a few others). In addition to a land tax, some sort of employer of last resort which would pay at least a minimum living wage (possibly then bidding out labour to other entities, or utilising it for itself). Some form of UBI or needs-based support (children, elderly, disabled, students) would cover other cases. Without a land tax, this income is simply pocketed by rentiers. The combination of EoLR/UBI and Land Tax puts the income back into flow within the real (that is, commodities and services) economy.
https://en.m.wikipedia.org/wiki/Land_tax
I've also learnt just earlier today that the Lincoln Institute of Land Policy started as a Georgian Land Tax advocacy organisation, though I'm not sure if they continue to pursue this interest.
http://www.lincolninst.edu
And yes, California's Prop 13 legacy is one hell of an albatross.