The first graph is a little hard to read being various shades of grey. The OECD has a color version that is also interactive (select a country, for example): https://data.oecd.org/hha/household-debt.htm
You get a subsidy when you're younger. You can use it to educate and train yourself, and/or to experiment with different options. This creates an educated population (good) and the more entrepreneurial types can start businesses without worrying too much about bankruptcy.
But permanent studenthood is only a good thing for people with academic talent. So it makes sense to reduce subsidies for the capable as they get older, leaving hardcore welfare support for those can't cope (for various reasons).
This kind of mixed approach removes some of the inflationary pressure of full-fat UBI but provides the same social benefits.
The argument against free higher education is that everyone is subsidising the educated half of society, who will likely be earning more. The poor will be subsidising the middle classes.
The UK system is interesting in that you can take out student loans to pay for your education, but you only have to pay it back once you earn a certain amount. If you end up being in a low wage job all your life you never need to pay it back (and you should have probably studied something different).
Except, of course, the middle classes are the ones who're paying most of the taxes in the first place, so they're hardly being subsidised by a lower earner who pays very little tax.
Also, there is no "UK system" for education. There is an England & Wales system, a Scottish system and a Northern Irish system. They're each managed differently.
On the contrary, this enables poor people to go to university and stop being poor. As another person noted, where the money is coming from is a separate issue, namely your tax policies.
In Sweden the more you earn, the higher percentage of your wages goes to taxes, so at least here it's subsidised by the upper and middle classes more than the lower classes(under a certain wage there is no tax at all, though I can't recall the number right now)
I was mostly answering the first half of your comment, about the poor subsidising the middle class.
The UK system is fine, I think subsidies are better, as poor people might feel discouraged to take on more debt, and student debt isn't really desirable for anyone. I don't think people should be in debt by default, neither do I think they should be uneducated by default.
That said in Sweden we actually have a combined system of subsidies and special student loans that very much resemble the UK system you describe.
Probably, does it matter? Most people who do that do it because it seems fun, and then move on once they realize working for tips isn't ideal.
But that's besides the point. The point is the populace is on average better educated, leading to, on average, higher salaries.
Poverty in Sweden is ridiculously low, mostly because of this. (The welfare system helps too).
And yes we export a lot of educated people to other countries, real experts who decide to live abroad, and therefore don't pay taxes on Sweden. That's fine too, being educated shouldn't come at the cost of your freedom.
2.5% of all taxes, but what is their effective tax rate? And it doesn’t matter how much they pay, if they pay and students don’t they are subsidizing them.
But students pay, if you get a higher paying job because of your education you will end up paying more taxes. The danish marginal tax rate of 56% is not hard to hit with a STEM degree.
And why are you assuming that its the middle class that gets most out of this?
The fact that you get free education with a stipend makes it very low risk for people from a poor background to try it out. If they had to take on dept it makes it riskier if you dont complete or dont end up with a high paying job. Its not like UK dept is forgiven if you dont get a high paying job.
From what i remember the interest rate is pegged to the rate of inflation, which is usually artificially lowered by the way it is measured (housing costs are not included, make up a large portion of most peoples expenses and are most definitely subject to inflation). Interest was never something that concerned me with a student loan.
In Finland, it's a combination of two things. First, there's near-free education. Second, an under 25yo person is not eligible for unemployment benefit until they have completed a vocational/college/university degree or are participating in a training program.
Whether that actually works to useful effect, or just cleans up the NEET statistic, is up for debate.
Also in Finland, its really common to see people still in university in their late 20's, so that will really drive down the "Neet 15-29" figure. This is because people start later (partially due to military conscription) and because most people go for a master's degree rather than stopping at a bachelor's degree. Compare this to the USA where its standard to be done around age 22. It would be nice to see comparisons between countries for NEET 30+ to see if the differences remain.
A couple of additions on why people graduate from uni so late here.
First, it often takes multiple attempts to get into one. The most popular programs have admission rates of around 10%, but since "it defines the rest of your life", why not try at least once? Then the next year, or year after that, if you're still not in, you can try something more realistic.
Second, (my experience, 15 years ago, your mileage may vary), the whole thing is just inefficiently organized. Where I went, there was 4 six week lecture periods per year, each followed by a week or two of exams. Many courses would have mandatory coursework you can only do during the lecture periods. In the end you're left with 28 weeks of crunch time per year, and the remaining 24 weeks to just fill with whatever.
Most choose to work that almost half an year, some lucky ones actually find something from their own field, though the odds go up as you're getting more years in. Then at some point you find the job more satisfying (because it's nice to actually get paid) than completing your MSc, which you then finally scrape together before having children at 30-something (if even then; I know I didn't).
On topic: I think most people on this trajectory wouldn't settle in the NEET column anyway, at least for extended periods of time.
It has nothing to do with the article but in general the people of northern Europe feel like they constantly need to help the struggling economies in the south finans their government budgets. Recently the EU borrowed money collectively for the first time to help coutries like Italy. Italy can not borrow at the same low rates as Germany, or Denmark, but if the EU borrow the money on behalf of Italy then they can piggy back on the excellent credit rating of northen Europe.
There’s a grown sense that the southern economies should be allowed to collaps and just deal with their own mess. This is completely ignoring any knock of effect on the rest of the EU and centered on a rather outdate world view, assuming the the economies of the individual EU coutries are completely disconnected.
The EU's model essentially assumes that everyone should be a net exporter, which is clearly insane.
It makes no sense at all to expect Portugal or Croatia to compete with the German industrial establishment. It would take massive infrastructure investment to make that even remotely plausible, even if it was a good idea - which it isn't.
The reality is that the Southern countries are best suited for tourism, leisure, and agriculture, not industry, and so will never be competitive with FR, NL, and DE on those terms.
But there are plenty of mid/long term opportunities for developing Internet and bio/med businesses and related primary research.
The EU could do more to encourage those. (It's making some effort, but more is always possible.)
>>"It makes no sense at all to expect Portugal or Croatia to compete with the German industrial establishment. It would take massive infrastructure investment to make that even remotely plausible, [..]"
What would be necessary for competing with Germany, state investment and some protectionism of new industries, is forbidden inside the framework of the common market and the Euro anyway.
The last thing a net exporter country want is real competition, and the more desirable thing they want is a not-borders market with a not de-valuable currency.
It's funny (actually sad) how so many people think that it's, the less industrialized countries in the Euro, who have the better part of the deal.
You are right, but there is also the issue that a lot of the South Europe countries have structural problems (corruption, bureaucracy, poor infrastructure) that they seem to be unable or unwilling to address. This is also a factor that's holding them back.
There is such unhealthy paternalism in northern European countries based so exclusively on economics that I even find it amusing. Later, we are surprised by the statistics that speak of life expectancy or quality of life and in that case we dont remember southern Europe.
And yes, as a citizen of Southern Europe I am constantly feeling insulted.
Italy was perfectly fine before the 2008 crisis, and Italy's current position would certainly be better without the EU's austerity nonsense post 2008. There just is no intrinsically Italian "mess".
Another interpretation is that Italy historically had run its economy on the basis of periodically devaluing the currency to maintain international competitiveness. Not the "correct" way to do things but it worked for them.
Joining the Euro stopped Italy from devaluing but they didn't change the way they ran their economy (for good reasons - doing so would have been very very hard) to avoid the need to devalue coming again; and 2008 was the first time this bit them.
Can you elaborate? My country (Poland) was in the EU at the time and I didn't notice any "austerity nonsense". Was it related to the eurozone somehow? (we don't have euro in Poland).
I mean things like "Stability and Growth Pact", which Poland simply ignored post 2008, which probably is the reason you didn't notice: Poland breached the deficit/GDP rule from 2008-2014, while Italy only did from 2009-2011.[0] Poland also missed the MTO for every year since 2005 (same as Italy).
The only core difference is that Poland had a lower absolute debt ratio than Italy when entering the crisis. The relative rises in debt in Poland post 2008 were higher than those of Italy.[1] Polands debt to gdp ratio rose 21.5% from 2007 to 2012, and Italy's ratio rose 20.5% during the same period.
The EU is though and the EU gets its money from its member states who in turn take it from its people in the form of taxation. The Nordic countries are major contributors to the EU and have high taxes.
Norway follows the EU regulations without right to vote on them and has access to common market (but not the customs union). It contributes only to EU programs it elected to participate in: largely security, humanitarian and educational.
I said Nordic, not Norway. Also the EU isn't actually something you are either a member of, or not. There are many treaties and Norway is a signatory to many of them. As a result, Norway does in fact contribute to the EU.
The Nordic private debt has nothing to do with the EU; I'm not sure about Iceland and the Danish territories in the Atlantic, but Denmark, Finland, Norway and Sweden have fairly insane housing markets in the urban areas, and the current record-low interest rates are just pouring the proverbial petrol onto the fire at the moment.
A few generations ago, many people paid of their mortgage within 15 years of buying property. Now, it's usually 30-40 years due to the rapidly inflating prices. It's obvious, to me at least, that this contributes to higher private debt.
Sad to see the crap brexit-generated misinformation spreading.
Direct and indirect contributions to EU coffers are minimal as % of state expenditure, particularly once you look at the outsized returns in the wider economy. When German banks lend money to Greece to buy their tanks, public debt exposition grows in theory but in practice German coffers win twice. That's why Northern European countries are the big winners of the Common Market. If you have an issue with how this dynamic allocates the resulting "loot", you should take it up with Northern European leaders who allow most of the returns to stay in the private sector.
First, Nordic households are taxpayers, not a third party just watching the EU giving someone's elses money to yet someone else.
Second, European middle class is already pretty juiced. Total level of taxation is pretty high and real estate is becoming unbearably expensive. This is a huge problem; with some exceptions (Germany), Europeans think of themselves as middle class when they own at least one home or apartment, and this used to be well possible until at least 2015. But a combination of overregulation (not enough being built) and cheap capital is killing this dream.
Individual home ownership is not a good metric for the state of the middle classes, and the exception Germany illustrates it well: With renter-friendly regulations and high shares of public or semi-public (cooperatives etc.) ownership of homes, there often is no need to own housing, neither for financial nor for security reasons. In fact the rising home ownership rates in Germany are a symptom of the detoriating situation of the market, leading to more gentrification and rising rents in many regions.
Why would it? One could easily argue the opposite, because high taxes usually means high social safety and thus lower risk for personal finance catastrophes.
Edit: I looked it up, there is no correlation between high taxes and personal debt: Look at this table and spot low tax countries like Ireland or the US, compared to high tax countries like Germany: https://tradingeconomics.com/country-list/private-debt-to-gd...
(1) There are too many confounding variables to draw that conclusion from that data.
(2) Raise your taxes by 30%, do you have more money or less? Less. And the government has more.
Clearly there are more factors, but there would be no way for the government to keep its spending up without borrowing, without getting money in the form of taxes.
1: Suddenly there are confounding factors? Why didn't that stop you from claiming the correlation in the first place?
2: This isn't how taxes work. High-tax countries essentially do collective purchases with that money, which usually means lower cost per individual for services like education, healthcare, pensions and so on.
Yeah, this. Here in the Netherlands mortgage is for most people their only form of debt and many people have "NHG", an insurance that helps them when they can't pay for their house anymore.
You're forgetting the student dept almost all students have to get into nowadays. And although credit cards are not as common for household expenses, a lot of retailers offer loans to buy appliances and such. I'm curious as how much people actually use these kind of constructs.
Is student debt really in thing in mainland Europe? Certainly some people need to borrow money to cover costs of living, but tuition is very low (from free to a couple thousands a year) in most places I know about.
You said it, cost of living ain’t free. My experience from Sweden is that few people work alongside studies, and even fewer have expenses paid for by well-off parents. Maybe if you’re from the city where you study you stay living and eating at home, but otherwise it’s very common to take out a (fairly cheap) student loan from the Swedish Board of Student Finance to cover your expenses.
I was so surprised when I moved here how few places in the real world take credit cards, even online you just pay straight from your bank account using iDeal (which is the most stupidly simple online payment system and I freaking love it!). I've been in NL for 9 years and don't have a credit card (recently I did take out an account with Revolut so that I could get a MasterCard Debit for buying filament from Prusa as they don't accept PayPal but that's all I use it for, and I have to pre-transfer money from my local bank to Revolut for this purpose). Debt beyond mortgages doesn't seem to be a thing here.
> just pay straight from your bank account using iDeal (which is the most stupidly simple online payment system and I freaking love it!)
The UPI system in India is also really simple.
Yeah it seems kind of obvious. It's also worth pointing out that you can get a 30-year fixed rate loan at just above 1% in interest [1]. Money is cheap, so people are likely to borrow more.
Context may be important here. Mortgage vs credit card debt in the US are a bit different due to the type of assets they back--real estate appreciates, many day to day purchases on a card do not.
However, there are places where mortgage backed assets depreciate [1]. There may be other places this is true, though I don't know enough about markets in northern Europe to say if this is an issue there.
The interesting thing about a mortgage is that it's a leveraged bet on increased housing prices. Having a heavily mortgaged population makes it very politically difficult to decrease housing prices, as small changes in housing price will lead to huge swings in net worth, even as the high prices cause a number of social ills including but not limited to population decrease.
Welcome to the UK! Where the government does everything it can to keep house prices afloat. See Help To Buy scheme for first-time buyers and Stamp Duty Holiday to keep the housing market going during the Covid pandemic.
At least here in The Netherlands, a reasonable explanation for our high debt is the fact that mortgage interest rates are tax deductible; this effectively means this tax benefit increases the cost of a house (as people have more spending power), and mortgages are thus higher.
It’s a silly system, yes, but it’s been like this since forever and it’s slowly being phased out.
In addition to this tax deductibility, there’s also NHG which allows people to pay a one-time fee (included in the mortgage) so that a bank is guaranteed to get their money back in case you are unable to pay your debts (resulting in less risk for the bank and thus lower interest rates). Again, this pushes up mortgage prices, but lower overall risk for everybody.
Personally, I dislike taking the risk of the bank. Assessing the risk and setting the interest rate accordingly is the job of the bank. Taking that risk away eliminates that function of a bank.
A one-time fee also seems to be counter-intuitive, if you want to be more social and enable poorer people not to be further disadvantaged by being naturally in a higher risk group on top of not having the capital to pay such a fee on top. Or is there a social component in that fee?
Although I've loved living here and generally am on board politically with the social welfare program, government policy here really seems to be messing with the housing market! Houses almost inevitably go for exactly the mortgage amount the government insures, with cash on top of that. The median income here is ~36,000 euros but this amount is over 300,000 euros! It's baffling. It has the nice effect of making the loan rates just over 1% or whatever, but it doesn't have to be this way...
I'm sure DFI is keeping the insane bubble going, but I wish they would make this a priority.
Yes, this is very true. Dutch housing is insane now. Most of the recent increase is due to lower interest rates by the ECB, driving up the price as you say. But in the 90s and 00s people would regularly borrow up to 120% LTV with no downpayment whatsoever. It was the norm to just also borrow for a new kitchen or bathroom, and €0 downpayment on it all.
Ridiculous situation that the banks exploited by offering interest only loans or even stock-mortgages where they would put your down payment in stocks in stead of paying down the mortgage.
The government slammed down hard on it all after 2008 and is also building down the interest deduction, luckily.
As a young house-owner I am quite upset at the banks and at the older generation. They reaped all the benefits, whilst I end up with debt out of college and don't have access to cheap housing. We got fucked by the boomers so hard.
Even my grandfather, who bought his house for 75.000 guilder and is now 83 still has outstanding debt due to this system of interest only mortgage. He's lucky that he can sell his house at a huge profit if he wants to live in a care home, but I am sure the bank earned what he borrowed and then some over his lifetime.
Also the fact that the government is killing the NHG is infuriating, they know damn well that housing is too unaffordable for young people to qualify anymore.
Yes, interest only loans only benefit one party: the banks. And they preyed on financially illiterate people for their profits. All while reaping bonuses and then getting bailed out in 2008.
Your grandfather is surely much better off than if he had been renting that house all those years. He would also have paid a huge total amount (to a landlord) and wouldn't have any share in the appreciation of his house value. He also probably has better security of tenure (a landlord could have decided to evict him and sell the property when the price went up).
My understanding, from international friends, and many internet articles (like the recent Bloomberg piece on Berlin rent control), is that housing policy is pretty bad in almost all desirable places globally, be it London, Berlin, Stockholm, Hong Kong, Sydney, San Francisco or Amsterdam.
The economics around housing are usually simple, but the politics seem intractable. Increasing attractiveness of some location always leads to higher prices, which can only be relieved by increasing supply (or decreasing the local attractiveness). But there are almost always forces opposing increased building, so politicians revert to demand side policies such as loans/interest rate policies or price controls, which have many downsides that are less immediately visible.
The politics are they've created a massive, decades long, bubble, and no-one can afford to have it pop during their electoral term for fear of never getting elected again.
> housing policy is pretty bad in almost all desirable places globally
or, perhaps it's that if a place is desirable, the prices are going to be unaffordable since space is always limited. Perhaps policies have nothing much to do with it at all.
In theory. In practice space isn't that limited. As housing gets more expensive it becomes economical to build taller which brings things back down. A 200 sq meter house (not small, though there are plenty larger) could be 1 floor, or 5 floors 40 sq meters for only slightly more money. The latter can fit on a much smaller lot, and so we can fit 5 times as many people in single family houses if we wanted. (at that density public transit works well so the amount of car infrastructure needed is about the same either way, with the later only needing cars for delivery and maintenance)
You can go taller as well, but above about 5 floors the standard house construction isn't strong enough and so there is an additional cost to better engineering to account for.
You are not alone. There are more countries in Europe who sponsor their banks in the same style.
It is disgusting, as suddenly the whole society is paying (part of) the too high interest of a few.
It gets ever worst when you realise the higher the mortgage, the more likely the richer the lender, the higher the tax deduction, the higher the amount society pays.
This is also the reason why nothing will change fast on the 'interest deduction' front.
The NHG only applies to mortgages under a certain value, €325.000. This means that more and more it isn't available as prices go up (though I don't know anything about how or when they adjust that value.)
I don't know the particulars of the other OECD countries, but in the Netherlands, the vast majority of household debts are mortgages (as alluded to in the article).
The main drivers are probably the tax policy: mortgage interest payments were fully deductible (untill the very slow phasing out reforms after the 2008 financial crisis). This sounds similar as in the US, but in the Netherlands/Europe the effect is stronger because marginal tax rates are high (>50%) and the top income tax bracket kicks in much earlier than in the US. It starts around 60k in the Netherlands, so beyond 60k more than half of every extra earned Euro goes to the state. Due to the full deductibility, the common narrative became: if you're in the top tax bracket, the state pays more than half your mortgate interest. For most working households, pensions and mortgages are the only substantial tax relieves, which predictably lead to households maxing out their pensions and mortgages.
In the Netherlands, zero-downpayment (or even negative-downpayment), interest-only mortgages are/were the norm. Before the 2008 crisis, it was very common for respectable financial advisors and banks in the Netherlands to advise households to borrow as much as they can on a 30 year mortgage, never pay down the debt and put everything in the stock market.
(Incidentally, my distaste for the bad incentives that come with the tax gimics in high public-spending regimes is one of the reasons than I, a European welfare state citizen, am probably more right leaning, cold-hearted fiscal conservative than the median young progressive American tech-forum dweller.)
Wait, what?! I recently checked if I can deduce some of the expenses from buying a house, but as long as I buy it myself to live there the state [Germany] says "screw you". If I bought it to rent it out, I could deduce some of the expenses. Now I need to figure out if it makes sensoe to start a housing company to buy a house and rent it out to myself so that I can deduce some of the expenses... (IANAL, but I suppose that might be tax fraud - OTOH I wouldn't be too surprised if it is not).
The problem is that you need to charge market rate, which the state then taxes as income. I would think it's unlikely to save you money. (If you don't charge market rate the tax office will either assume it's a gift and tax the renter on the rent saved or assume a market rate for income tax purposes)
IANAL, but I did some research for Germany: Assuming you need a bank loan to buy your house (and assuming the bank plays along), it seems you're able to deduce the interest on the loan. Same holds for anything you perform to increase the value of the house (e.g. new roof).
Now of course if the company pays e.g. 1000 Euro per month for the loan(s), it has to charge the tenants (=me & my SO) more than that plus taxes. The question is now if the effective tax rate can be pushed down to zero% by deducing the interest. As for the companies earnings, maybe that money could be "reinvested" into the house (better WiFi), so that MIGHT just be as good as putting some money aside. Or you actually buy another house for renting out. Obviously it's a good idea to talk about this to a tax advisor. For me this is only a Gedankenexperiment ;-)
I suppose then there is the whole thing about a company having to have a profit motive to be treated as a company. Otherwise it's 'Liebhaberei' and any income/cost does not have an impact on your taxes. https://www.vlh.de/wissen-service/steuer-abc/liebhaberei-was...
If you buy another house to rent out that might prevent this. But the other thing as well is who benefits from the houses? Because now your friend will own the house you like and vice versa. You probably cannot put in any provisions to ensure your friend will at some point get ownership of his house.
It can make sense to allow offsetting costs of housing (rent and interest) against income tax. That helps those who don't own large amounts of equity and have really high outgoings.
However it also reduces the incentive to reapay mortgage capital at all (is that bad?)
Currently if you have £500k in cash, you can either
1) Buy a house and pay no rent
2) Pay £1500 a month in rent
Why would you pay £1500 a month in rent (which at a marginal rate of 40% means having to earn £3,750 a month, or £45k a year, extra in income.
Effectively you get a 9% roi on that £500k by buying the house (ignoring house price inflation). Someone with £500k in cash and £50k a year is better off than someone with £0 in cash and £90k a year, despite the latter being nearly twice as valuable to the economy.
Now in a situation where £1500 a month is tax free, you'd have to earn £18k extra a year, and that roi on house ownership drops to 3.6%, and that's good. Housing should be somewhere to live, not an investment.
Of course on the flip side, the extra money available would likely push private rents and house prices up anyway. Perhaps the solution would be to ringfence the interest into some form of long term savings (either to use on buying a house, or to fund a pension).
Good points, thank you! I didn't mean to say that it's inherently bad - I am actually puzzled that here companies (who want to make money) can save at least some taxes on buying a house as an investment, while a private person has no such option. This doesn't seem like a fair market to me, as a company can ALWAYS out-compete a private buyer (assuming both having the same cash reserves).
The flip side might be true, but I think it's not as easy. I have a meeting now, so I can't go into detail (and not think about the details; ergo you might still be 100% right!). But if private buyers - those who would rent - can more easily compete with companies on buying, companies need to make renting more attractive. But maybe that effect is negligible.
it's the same situation where a company gets to pay tax on profits, but a human have to pay tax on revenue (their income).
I want to see this equalized - either allow humans to pay tax on profits only (i.e., they can deduct all expenses of their living), or tax a company's revenue like how a human is taxed.
That makes no sense. Current tax systems assumes that only people are taxed at the end - taxes such as VAT are in practice paid only by end consumer. Company taxes disincentivizes "taking profits" out of the company by not taxing expenses - wages, investments, costs of doing business. And they should properly exclude personal tax dodges, such as creating fake company to buy house and live in it.
One justification for this is that the imputed "income" you get from being an owner-occupier (ie the rent you would have otherwise paid but saved) is not taxable.
Although I don't know about Germany specifically, I suspect this is exactly the position you'd be in if you followed through with this plan - the company would have to pay tax on the rent. And you wouldn't be able to get around this by reducing the rent say to zero because it's a related party so the company would likely be taxed on an imputed market rent.
I think you have misunderstood how taxation works. If you rent out a house, the rent is income, which you are taxed on. The deduction means that you don't have to pay taxes on the gross amount, but only on the net income after you've paid the mortgage on the property. In almost all cases the rental income will be higher than the mortgage payment, so you will still pay some tax, more than the person who lives in a property they own with a mortgage.
>In almost all cases the rental income will be higher than the mortgage payment
60% of Australian landlords claimed a rental loss in FY17/18 and that's not an outlier. [0]
In jurisdictions where rental losses can be written off against ordinary income, landlords are happy to collect the tax benefit and just do the capital play.
The sad part is that all these tax gimmicks are there not because the state wants welfare but because they want to put up a free market charade. You don't directly encourage additional supply but 'let the market build housing' and support the demand side. It's the same here in Australia, the amount of shenanigans related to buying a house a insane. Of course this only drives up prices and leads to asset bubbles.
What matters is that the total population is growing, which push the prices up, I think mostly in already attractive and crowded cities ("Over a longer period, the population of the EU-27 grew from 354.5 million in 1960 to 447.7 million in 2020, an increase of 93.2 million people" https://ec.europa.eu/eurostat/statistics-explained/index.php...). That's 93 million people you have to house, and they are not going to the countrysides.
That doesn't matter, what matter is demand for housing going up, which it does because due to net inflow, there is still a growing population; plus households get smaller (more people not partnering up or at least not living together, more divorces); and housing supply is geographically concentrated, those that are new to the EU don't want to live in the countryside of Romania or even the countryside of Germany, they want to live in or near cities, where everybody else also wants to live (and for the same reasons).
It's the same in Norway, and it seems completely indefensible.
1) It's the opposite of progressive taxation, since the tax deduction is higher the larger your mortgage is (and there's no deduction if you don't have a mortgage).
2) It artificially inflates housing prices.
Overall, it's a shifting of cash away from those that want to enter the housing market towards those that are in it, i.e. taking from the poor and giving to the rich. The policy seems like an obviously indefensible mistake, yet no political party dears to touch it because the majority of voters are beneficiaries of it, and the topic is slightly too complicated for there to be an informed public debate about it.
I think it's relatively widely recognised as a bad idea now, but the challenge is that people have made long-term financial plans based on it, and if you were to suddenly cancel it altogether, lots of people would probably get in trouble. They're imposing further restrictions on it in the Netherlands, but it's all gradual and slooooow.
> the challenge is that people have made long-term financial plans based on it, and if you were to suddenly cancel it altogether, lots of people would probably get in trouble
Denmark is in the process of raising the retirement age. This is done gradually to allow people to properly plan for it. This means that the retirement age is based on year of birth. For people born before 1. january 1954 the age is 65.5. For people born in 1996 or later the retirement age is 74. There is a scale between these two points, I was born in the early 80es and my retirement age is 72.
The argument behind this is that the current level of income/taxation can not support people on pension for more than ~12 years on average and as the life expectancy rises the retirement age must rise with it.
There is a fairly big debate happening on 'graduated pensions'. Should a bricklayer who has carried heavy loads all his life be forced to work to the same age as an academic who has spent a large amount of time behind a desk in an office?
No, and that means this is the best time to get this done. The least amount of people will be affected.
The interest rate will go back up at some point and we would have a fairer house market without this tax deduction. It's basically a tax break for people with enough resources to buy their house. And it drives up the housing prices making it harder for first-time buyers.
> the challenge is that people have made long-term financial plans based on it, and if you were to suddenly cancel it altogether, lots of people would probably get in trouble.
This could be solved by just cancelling it. People taking advantage of this scheme:
a) had no reasonable expectation that it would be long-term, and,
b) had to be wealthy enough to initially access the scheme to benefit from it, and have since continued to benefit.
Handling any exceptional cases (which would be relatively very few) would be a lot more effective, in every sense, than continuing the scheme.
Besides, the Netherlands already has a Mortgage Guarantee Scheme which protects people with mortgages and changed circumstances.
People who recently got one might have some reasonable expectation that it wouldn't be long term (although often their mortgage advisor would probably have given them the impression that it would be), but there are still many home owners who would reasonably have believed so. And even the ones who do expect it to not be long-term, would not have expected it to be cancelled overnight.
I would certainly love to be rid of it sooner rather than later, but I do acknowledge that that's going to be disadvantageous to a lot of people, and will have to take them into account as well.
The mortgage guarantee scheme doesn't really apply here, I think: it raises the buying power of people with low incomes, but once you've bought a house, it only means that their bank gets paid if you're forced to sell it - but you'd still be forced to sell it.
Is that so? Like which? Generally, I wouldn't be in favour of suddenly significantly cutting people's benefits without some compensation or other either. Luckily, I don't think that happens a lot.
For example, whereas we need to raise the retirement age, we don't suddenly increase it with a couple of years. It is raised slowly in increments, and less for people who are closer to the retirement age and thus have had less time to plan for it.
Dutch political commentators suggest that there had been a tacit housing policy bargain between the left and right wing parties for many decades: the left delivers large rent subsidies while the right delivers mortgage subsidies for their constituencies. It just seemed much harder to win elections with supply side policies (build, baby, build!).
This sounds much like the situation in Sweden including why things remain the way they have become. If it's brought to a political level, it use to be more about how house owners with very high mortages can be protected, haha... sigh
The UK managed to stop doing this. Also most deductions were limited to basic tax rate not higher rates. At some point the extra tax revenue becomes attractive.
Another important difference compared to the US is that in Sweden you are more or less the bank’s serf. In many US states the home itself is the bank’s only collateral, and the homeowner can “walk away” if its value falls below the mortgage. In Sweden the bank can take everything you own, and even extract a share of your future earnings. Also there is no (quick) personal bankruptcy, only a slow process that takes years and where you have to show that you’ve payed as much as you possibly can. This lowers the bank’s risk and brings interest rates down. In Sweden you pay about 1-2% interest on a mortgage. In Denmark I think you can even get zero rate mortgages. This in turn of course incentives borrowing, since many people just look at the monthly cost of a home.
> banks in the Netherlands to advise households to borrow as much as they can on a 30 year mortgage, never pay down the debt and put everything in the stock market.
You know banks are not in your side, with a unfixed rate that is just stupid to assume that in 30 years rates will always be low. That is why I payed 40 % of my house upfront, got a low 25 year debt with fix rate (it wasn't easy to find) negotiated now. I'm set for life, I'm paying 400 euros to the bank every month and I sleep well every night.
If the bank makes such an offer to you (how much was it? 1%?), doesn't it mean that the bank expects that the interest rate will stay low for the next 10 or 15 years?
No, the bank has hedged everything. As soon as the bank issued your mortgage they sold a few bonds at the current interest rate, they collect your payments and pay off the bonds. The bond holders are betting that stay low, not the bank.
While in theory if rates go up you could find the bond for your house and buy it at a greatly reduced rate, thus paying much less for your house. In practice there is no individual bond for your house so you can't do this.
Due to the full deductibility, the common narrative became: if you're in the top tax bracket, the state pays more than half your mortgate interest
That’s not how it works in Denmark. Here, interest deduction come in the form of increased personal allowance (ie. the annual income bracket below which you pay no taxes), which favor high and low income earners equally. I’m surprised that isn’t also the case in The Netherlands. Are you sure it’s not?
At the moment, interest rate on morgages are low enough that tax deduction doesn't make a big difference, in addition, The Netherlands has a special tax for living in your own house (fake income due to not paying rent), so these cancel each other out to some extent.
The biggest issue at the moment is the shortage of house in most parts of The Netherlands. So people max out what they can spend on a house, and certainly with low interest rate that amount to quite a lot.
As to fiscal reforms, at moment you get only a percentage of the interest you pay back, not the percentage of your highest income bracket. In addition, load need to be paid back in 30 years (linear or annuity) otherwise you don't get the tax credit.
[(edit) one addition, it is interesting that in The Netherlands, the more right wing, conservative parties want to keep this tax deduction the most, the left wing parties want to get rid of it]
Imputed rent tax and mortgage tax deduction make sense together but not separately in my opinion.
Mortgage tax deduction without tax on imputed rent (as in Norway, Sweden and the US) is a subsidy to those who are rich enough to own their own homes. It is also a perverse incentive in that if you pay off your mortgage, you lose the tax benefit. So people take larger mortgages than makes sense, and invest their spare cash in risky assets rather than paying their mortgages down.
An imputed rent tax without a deduction for mortgage interest would be grossly unfair to borrowers, but does not exist anywhere as far as I know.
An imputed rent tax with a deduction lightly taxes mortgage borrowers against the benefits they receive from owning not renting. It has a bigger effect on owner occupiers without mortgages - they pay the full tax without any deduction. So it is progressive. It also levels the playing field between landlords and owner-occupiers - both are taxed on the rental value of their property and receive (roughly similar) deductions. So neither form of ownership has a built-in advantage.
(Probably the right wing parties want to remove the tax deduction because they also want to get rid of the tax on imputed rent?) As pointed out in the reply, this was a misunderstanding.
The right wing parties want to keep the tax deduction.
One thing they did introduce was that the imputed rent tax was limited to the interest tax deduction. To encourage people to pay off their mortgages, but that is now being rolled back.
One thing is that killing the tax deduction is likely to lower the value of houses because people cannot borrow as much without the tax deduction.
The elephant in the room in The Netherlands is not only the shortage of land to build new house but also what it costs to build a new house. You can lower prices by increasing availability, but only if the new objects are actually cheaper than what people pay now.
Building a house in The Netherlands is insanely expensive. Some of it for good reasons, a building code that has lots of requirements. A large part of The Netherlands is effectively a swamp, so foundations are also very expensive. However, contractors, etc. make quite a bit of money, but the worse part is that local governments try to make money of land. To finance the city, but also to have regular house subsidize social housing.
Interesting, in the US the right wing has done the most to get rid of the deduction. Though some of it was probably an unexpected side effect - the tax reform of the 1980s (I can't remember the exact year, 84 comes to mind) lowered tax rates and got rid of a number of deductions, but the mortgage deduction remained. Then Trump's tax changes of a couple years ago raised the standard deduction so high that most people don't qualify to take the deduction at all. I expect the deduction to disappear in the near future as most people discover it doesn't apply to them only the rich. Prior to Trumps's changes that tax deduction was an important factor to the majority of the US.
> I expect the deduction to disappear in the near future as most people discover it doesn't apply to them only the rich.
Nah. Two big reasons I can think of: people don't understand tax policy and wealthy people benefit (just less so in Blue states).
The first point is pretty straight forward. Lots of people talk about how things are "tax deductible" without even considering whether or not the deductions apply to them. Even if the IRS published that 85% (number made up) of people took the new standard deduction, thus used no deductions, you'd be hard-pressed to convince most people to get rid of the mortgage interest deduction. People in general (even smart ones) are just irrational when it comes to tax deductions.
Secondly, the mortgage interest deduction is still used by relatively wealthy people. A $600k mortgage generates >$16k in interest payments in the first year, even at the low rates we have today. That's easily enough to clear the standard deduction (for a single person). For married people, the hitting the SALT limit with that mortgage is enough to cross the threshold.
It's more or less the same in Denmark, with the difference that interest payments for decades have only partially deductible, and that most home purchases include a 5 or 10 percent down payment.
I do not think that this article deserves the 2 place on hackernews front-page.
Is it true that the debt-rate in Denmark is high, but that is debt in DKK, which is very importent.
The majority of the real-estate is owned by huge pensions funds and institutions which are also danish.
As other mentioned the numbers do not seem to be normalized either.
I live in Sweden and though I’m debt free from my understanding most household debt it’s either student loans and/or mortgage.
And by student loans I don’t mean the same as US student loans. Education is free and the state lends you money so you can move out of your parents home when you are 18 and can become independent - https://en.m.wikipedia.org/wiki/Student_financial_aid_(Swede...
One difference is that the student loans in Sweden are controlled by the government and have a very low interest rate (it's 0.05% currently). It'd be foolish not taking that loan.
I think the argument goes something like this: if the state lends money to allow more people to educate themselves, then in the future those people will be earning more money and then be paying higher taxes. Therefore the interest on the loan does not need to pay it of, the increased income to the state from taxes need to pay of the loans.
As another commenter wrote, taking a student loan in Sweden is so beneficial that you would take it even if you don't need it because just taking it and buying funds or stock with it would give you free money.
most household debt it’s either student loans and/or mortgage.
While true in absolute numbers, the amount of unsecured debt in Sweden is among the highest in Europe pr. capita and has been growing very fast for the past decade. Equally the percentage of loan payments going towards paying down loans, as opposed to servicing the interest, is decreasing[1]. There is a reason why seemingly 80% of ads you see here are either for online casinos or loan companies ;)
The number of people in Sweden defaulting on their loans (being sent to Kronofogden) is also growing at an alarming rate.
I think there are some problems with this. Mortgage debt in the Netherlands is fiscally subsidized through an instrument called 'Hypotheekrenteaftrek'. If we want an explanation for high mortgage debt in the Netherlands, that's the cause.
People on welfare can't get a mortgage anyways. So why mortgages would go up because of welfare not only going to pensioners is altogether unexplained. Also I think lumping us in with the Nordics is very questionable. Because although we might fit with the ideal of the 'Nordic model' to a certain extent, it's just easy to leave us out when we don't fit, because we're not a Nordic country geographically or otherwise.
Yes, I heard that with Sweden mortgage you're not really buying your house but kind of renting it to the bank. You know you're never going to pay it off.
Where I live (a city about 2 hours from Stockholm) paying it off over 20-30 years is still doable, at least as long as itnerest stays below 3%. We payed off almost 15% of our house in about 5 years.
Whether it is financially sound is another matter. Interest rates have been low for many years, and investing has been a better choice for some time. Many pay their houses off to about 50% and then leave it there at the default mortgage, only loaning more money when something needs to be done on the house.
Whether it is financially sound is another matter.
Yea, this is a big cause of the current 'problem'. It's not so much that people cannot pay off their mortgage in 30ish years, it's that the current financial climate heavily disincentives people from doing so.
This used to be true, but you are now required to pay down the loan by law. Restrictions are the following:
- Maximum loan is 85% of property value (min down payment 15%)
- Annual pay down 2% until at 75% of property value
- Annual pay down 1% until at 50% of property value
- An additional 1% annual pay down if you have borrowed more than a multiple of your annual income (either 4.5x or 5.5x, can't remember exactly)
Used to be that you just borrowed 100% and paid down nothing, kind of absurd to be honest.
Its tricky to compare debt between countries since it works differently.
In Sweden you can't 'walk away' from your mortgage like in the US for example. This means its much safer for the bank to lend money and that interest rates are very low. Swedish mortgage default rates are very low.
Sweden is among the emptiest countries in Europe, with massive surplusses of wood. How on earth have they managed to create shortage of housing and over century long mortgages? I have an almost certainity that the maybe dozen of aristocratic/oligarch Swedish families owning the economy of the country made a private grange from the entire country.
> How on earth have they managed to create shortage of housing
Because people want to live close to their jobs which in modern society is mostly in cities. It does not really matter how much empty space/forest you have around them if that means living outside of all the services/too long commute.
As far as I know the prices are high only in vibrant areas. You can have houses in middle on nowhere in mid- and north Sweden for very little. So, it's essentially the same as in other countries with low nominal population density, in which the density is concentrated around attractive cities.
My theory: small countries have single-center-syndrome: they can (either through some economic or cultural reason) only support one major center, their capital region. Their (thought to be) to small for multiple centers. This drives up prices in the capital region, because people can't conceive and consequently don't create secondary centers to avoid the issue of land value.
>I have an almost certainity that the maybe dozen of aristocratic/oligarch Swedish families owning the economy of the country made a private grange from the entire country.
Sweden is more hermetic and not that open to inflow of American, Arab, and Chinese cash into their real estate market. For European rich their real estate market is not that attractive. My hypothesis is that the situation is intentionally designed to be stuffy.
Why does this matter if the claim is that the availability of space in a country seriously affects housing prices? I agree that in very very constrained countries like Singapore this is the case, but the space available to a country does not matter for housing prices beyond a certain point.
The original claim was that it does. Why does it matter that Canada sees more foreign money flowing in? The space is essentially limitless, so prices should drop to zero. Except they don't, because it's not about space. It's about living in small, pleasant regions with a good economy where others also want to live. That drives up the prices, be it Toronto or Stockholm. It doesn't matter that both countries have essentially limitless land elsewhere.
Edit: Also, the claim that Sweden is "more hermetic" is also a bit silly. You are aware of freedom of movement in the EU, right?
They are monarchy with well established old-money elite and their own currency, staying outside of NATO. I can easily travel to Sweden (not exactly now though) but not buy real estate there that easy at all.
A parliamentary constitutional monarchy, just like Canada. And why would it matter in the first place?
> with well established old-money elite and their own currency
Canada doesn't have these things?
> staying outside of NATO
How does military alliance memberships matter when discussion house prices in two peaceful, stable democracies who are unlikely to be in defensive wars any time soon?
> I can easily travel to Sweden (not exactly now though) but not buy real estate there that easy at all.
OK. What does it matter? The approximately 500 M EU/EEA citizens can. That makes Sweden very much not "hermetic".
In most of the country (by area) you can still buy a house for few months salary. There have been examples of sea view land given away (If you promise to build and move in)
Land (and thus homes) is expensive near cities, but cheap elsewhere.
Anyhow, I can really say that I have a problem with finance. It's often equating people to numbers, and it's hard to de-obfuscate what is really happening. I don't dislike money as a medium, but I don't like how it seems so opaque and complex, and how it becomes difficult to understand how food/housing/clothing/transport really works at a large scale for a normal citizen.
I'm 35, I love math, and last year I learned that a 5% mortgage of 150000 euros over about 15 years would cost around 85000 euros. It feels so crazy to learn something like that so late in life.
When climate problems kick in, that's where financial complexity seems impossible for me to understand.
It indicates that the previous decade tended to have higher interest rates compared to the past few years.
The table shows 2007 vs 2017 that mortgages as a percentage of disposable income have generally went down.
IIRC there is a strong correlation with higher household debt and areas with higher housing prices relative to income. The UK government do release quite detailed statistics by region for those who are interested.
In addition to the demand side issues of low interest rates leading to bigger mortgages and ballooning real estate values in the nordics, what are the supply side constraints?
When visiting Helsinki, Finland, I was amazed to hear a house for a family of 4 can easily cost near 1M euros even when located in the suburbs outside the city.
This was even more surprising to me after hearing about average salaries and driving around the capitol area—-there was a ridiculous amount of unused land. 15-30 mins outside Helsinki and you’re basically in a forest. I assumed there must be some sort of strict restrictions on building.
Is this the case, or am I assuming too much based on my experience with SF?
Yeah, in trendy areas near the city, a big, modern house can cost 1M euros. But there are much cheaper ones as well in the suburbs. Also agree that I don't understand who can afford to buy such houses with the average salaries being so low here. I guess those are still must be outliers that pop up more from the average houses.
And yes there are a lot of restrictions for building in the city. Overall the "housing code" is quite strict and standards are very high.
The municipalities have to zone it first, and then build basic infrastructure. Whenever they try, they get bogged down by complaints by NIMBYers who really like their forests and the flying squirrels* that live in them.
* Not joking, the environments they live in are protected. And they live almost everywhere where there are enough trees to call a forest and you care to look for them. A lot of zoning plans get cancelled because of flying squirrels.
As many have pointed out the majority of the debt goes into home ownership in the nordics. At least in 3 countries that I have lived.
And the prices are eye watering high for what is offered. In the main urban areas Stockholm/Helsinki/Oslo it is easy to find house blocks consisting of buildings with soviet style looks costing close to 500k USD. Weird floor planning and "dry" walls are the norm here.
One of the apartments I had did not have a window in the bedroom. How is that okay to build it that way? I don't know. Yes, there are laws against this but it does happen.
The construction, while not shoddy, does not justify the price alone and it seems construction companies are doing quite well between the pre-built structures and hiring immigrants to do some of the less qualified jobs.
If you can make a parity between salaries price of apartments/buildings in Southern Europe, Portugal/Spain/France, and in the Americas are better built than the ones here. And they come in other colors than brown or beige.
It's a fire hazard. At least in Sweden (and I think Norway) building codes require that all bedrooms have a window large enough for you to fit through.
Fire code. in the US all bedrooms must have a window large enough that a human can use to get out in case of fire. You don't need to be able to get to the ground - it is enough that you can wave to the firemen who then bring a ladder to get you out. Firemen are also trained to check rooms with a window first for someone who might still be alive but too far gone to get to the window. Any room without a window is not a safe place to sleep.
Sometimes when you are buying real estate you will see "non-conforming bedroom) which means a room that looks like a bedroom and you might use as one at your own risk as you can't get out. (This might also mean it would be a bedroom if there was a closet as well - you have to figure out what it means)
If the "solution" to unequality is to saddle poor people with debt, then the "solution" is nothing more than creating social categories of lenders and debtors. Another caste system.
The real solution to unequality requires much more radical solutions.
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[ 4.3 ms ] story [ 215 ms ] threadInteresting article btw
That's what we do in Sweden, and it seems to work well
You get a subsidy when you're younger. You can use it to educate and train yourself, and/or to experiment with different options. This creates an educated population (good) and the more entrepreneurial types can start businesses without worrying too much about bankruptcy.
But permanent studenthood is only a good thing for people with academic talent. So it makes sense to reduce subsidies for the capable as they get older, leaving hardcore welfare support for those can't cope (for various reasons).
This kind of mixed approach removes some of the inflationary pressure of full-fat UBI but provides the same social benefits.
The UK system is interesting in that you can take out student loans to pay for your education, but you only have to pay it back once you earn a certain amount. If you end up being in a low wage job all your life you never need to pay it back (and you should have probably studied something different).
Also, there is no "UK system" for education. There is an England & Wales system, a Scottish system and a Northern Irish system. They're each managed differently.
In Sweden the more you earn, the higher percentage of your wages goes to taxes, so at least here it's subsidised by the upper and middle classes more than the lower classes(under a certain wage there is no tax at all, though I can't recall the number right now)
The UK system is fine, I think subsidies are better, as poor people might feel discouraged to take on more debt, and student debt isn't really desirable for anyone. I don't think people should be in debt by default, neither do I think they should be uneducated by default.
That said in Sweden we actually have a combined system of subsidies and special student loans that very much resemble the UK system you describe.
> On the contrary, this enables poor people to go to university and stop being poor.
But that's besides the point. The point is the populace is on average better educated, leading to, on average, higher salaries.
Poverty in Sweden is ridiculously low, mostly because of this. (The welfare system helps too).
And yes we export a lot of educated people to other countries, real experts who decide to live abroad, and therefore don't pay taxes on Sweden. That's fine too, being educated shouldn't come at the cost of your freedom.
Given that the lowest 20% of incomes in denmark only pays 2,5% of the income taxes I think its hard to say they are paying for other people. (Ref https://www.berlingske.dk/privatoekonomi/se-hvem-der-betaler...)
It also makes education more easy to access as you dont have any risks in taking out loans.
And why are you assuming that its the middle class that gets most out of this?
The fact that you get free education with a stipend makes it very low risk for people from a poor background to try it out. If they had to take on dept it makes it riskier if you dont complete or dont end up with a high paying job. Its not like UK dept is forgiven if you dont get a high paying job.
Seems unfair.
Whether that actually works to useful effect, or just cleans up the NEET statistic, is up for debate.
First, it often takes multiple attempts to get into one. The most popular programs have admission rates of around 10%, but since "it defines the rest of your life", why not try at least once? Then the next year, or year after that, if you're still not in, you can try something more realistic.
Second, (my experience, 15 years ago, your mileage may vary), the whole thing is just inefficiently organized. Where I went, there was 4 six week lecture periods per year, each followed by a week or two of exams. Many courses would have mandatory coursework you can only do during the lecture periods. In the end you're left with 28 weeks of crunch time per year, and the remaining 24 weeks to just fill with whatever.
Most choose to work that almost half an year, some lucky ones actually find something from their own field, though the odds go up as you're getting more years in. Then at some point you find the job more satisfying (because it's nice to actually get paid) than completing your MSc, which you then finally scrape together before having children at 30-something (if even then; I know I didn't).
On topic: I think most people on this trajectory wouldn't settle in the NEET column anyway, at least for extended periods of time.
There’s a grown sense that the southern economies should be allowed to collaps and just deal with their own mess. This is completely ignoring any knock of effect on the rest of the EU and centered on a rather outdate world view, assuming the the economies of the individual EU coutries are completely disconnected.
It makes no sense at all to expect Portugal or Croatia to compete with the German industrial establishment. It would take massive infrastructure investment to make that even remotely plausible, even if it was a good idea - which it isn't.
The reality is that the Southern countries are best suited for tourism, leisure, and agriculture, not industry, and so will never be competitive with FR, NL, and DE on those terms.
But there are plenty of mid/long term opportunities for developing Internet and bio/med businesses and related primary research.
The EU could do more to encourage those. (It's making some effort, but more is always possible.)
What would be necessary for competing with Germany, state investment and some protectionism of new industries, is forbidden inside the framework of the common market and the Euro anyway.
The last thing a net exporter country want is real competition, and the more desirable thing they want is a not-borders market with a not de-valuable currency.
It's funny (actually sad) how so many people think that it's, the less industrialized countries in the Euro, who have the better part of the deal.
Italy had constantly shrinking debt to gdp ratio since the early 90s, right up to 2008: https://tradingeconomics.com/italy/government-debt-to-gdp
Joining the Euro stopped Italy from devaluing but they didn't change the way they ran their economy (for good reasons - doing so would have been very very hard) to avoid the need to devalue coming again; and 2008 was the first time this bit them.
Full agreement on the importance of the possibility of devaluation, though.
Can you elaborate? My country (Poland) was in the EU at the time and I didn't notice any "austerity nonsense". Was it related to the eurozone somehow? (we don't have euro in Poland).
The only core difference is that Poland had a lower absolute debt ratio than Italy when entering the crisis. The relative rises in debt in Poland post 2008 were higher than those of Italy.[1] Polands debt to gdp ratio rose 21.5% from 2007 to 2012, and Italy's ratio rose 20.5% during the same period.
[0] https://en.wikipedia.org/wiki/Stability_and_Growth_Pact#Memb...
[1] https://tradingeconomics.com/poland/government-debt-to-gdp
No offence intended, BTW! It's hard to speak about things like these without threads devolving into us-vs-them debates.
It in fact does not contribute to the EU programs it didn't elect to willingly, that's one of the perks of EEA.
https://www.regjeringen.no/en/topics/european-policy/Norways...
A few generations ago, many people paid of their mortgage within 15 years of buying property. Now, it's usually 30-40 years due to the rapidly inflating prices. It's obvious, to me at least, that this contributes to higher private debt.
Direct and indirect contributions to EU coffers are minimal as % of state expenditure, particularly once you look at the outsized returns in the wider economy. When German banks lend money to Greece to buy their tanks, public debt exposition grows in theory but in practice German coffers win twice. That's why Northern European countries are the big winners of the Common Market. If you have an issue with how this dynamic allocates the resulting "loot", you should take it up with Northern European leaders who allow most of the returns to stay in the private sector.
Second, European middle class is already pretty juiced. Total level of taxation is pretty high and real estate is becoming unbearably expensive. This is a huge problem; with some exceptions (Germany), Europeans think of themselves as middle class when they own at least one home or apartment, and this used to be well possible until at least 2015. But a combination of overregulation (not enough being built) and cheap capital is killing this dream.
Edit: I looked it up, there is no correlation between high taxes and personal debt: Look at this table and spot low tax countries like Ireland or the US, compared to high tax countries like Germany: https://tradingeconomics.com/country-list/private-debt-to-gd...
(2) Raise your taxes by 30%, do you have more money or less? Less. And the government has more.
Clearly there are more factors, but there would be no way for the government to keep its spending up without borrowing, without getting money in the form of taxes.
2: This isn't how taxes work. High-tax countries essentially do collective purchases with that money, which usually means lower cost per individual for services like education, healthcare, pensions and so on.
> 40% over €34,550 for single, €42,800 for married taxpayers.
>Plus USC(Universal Social Charge)4.5% on income up to €50,170 and 8% on balance.
>Social insurance 4%
Not to mention out VAT is higher than Germany's also..
[1] http://www.nasdaqomxnordic.com/bonds/denmark Select expiry 2053, no deferred amortization.
However, there are places where mortgage backed assets depreciate [1]. There may be other places this is true, though I don't know enough about markets in northern Europe to say if this is an issue there.
1. https://www.rethinktokyo.com/2018/06/06/depreciate-limited-l...
When housing prices are inflated and are at risk of correcting as a whole, it can be worse than credit card debt.
http://appsso.eurostat.ec.europa.eu/nui/submitViewTableActio...
https://ec.europa.eu/eurostat/web/products-eurostat-news/-/E...
It’s a silly system, yes, but it’s been like this since forever and it’s slowly being phased out.
In addition to this tax deductibility, there’s also NHG which allows people to pay a one-time fee (included in the mortgage) so that a bank is guaranteed to get their money back in case you are unable to pay your debts (resulting in less risk for the bank and thus lower interest rates). Again, this pushes up mortgage prices, but lower overall risk for everybody.
A one-time fee also seems to be counter-intuitive, if you want to be more social and enable poorer people not to be further disadvantaged by being naturally in a higher risk group on top of not having the capital to pay such a fee on top. Or is there a social component in that fee?
Basically a hidden interest increase.. Overall maybe cheaper. But i dont think by much..
I'm sure DFI is keeping the insane bubble going, but I wish they would make this a priority.
Ridiculous situation that the banks exploited by offering interest only loans or even stock-mortgages where they would put your down payment in stocks in stead of paying down the mortgage.
The government slammed down hard on it all after 2008 and is also building down the interest deduction, luckily.
Even my grandfather, who bought his house for 75.000 guilder and is now 83 still has outstanding debt due to this system of interest only mortgage. He's lucky that he can sell his house at a huge profit if he wants to live in a care home, but I am sure the bank earned what he borrowed and then some over his lifetime.
Also the fact that the government is killing the NHG is infuriating, they know damn well that housing is too unaffordable for young people to qualify anymore.
The government is not killing NHG, though.
The economics around housing are usually simple, but the politics seem intractable. Increasing attractiveness of some location always leads to higher prices, which can only be relieved by increasing supply (or decreasing the local attractiveness). But there are almost always forces opposing increased building, so politicians revert to demand side policies such as loans/interest rate policies or price controls, which have many downsides that are less immediately visible.
or, perhaps it's that if a place is desirable, the prices are going to be unaffordable since space is always limited. Perhaps policies have nothing much to do with it at all.
You can go taller as well, but above about 5 floors the standard house construction isn't strong enough and so there is an additional cost to better engineering to account for.
It is disgusting, as suddenly the whole society is paying (part of) the too high interest of a few.
It gets ever worst when you realise the higher the mortgage, the more likely the richer the lender, the higher the tax deduction, the higher the amount society pays.
This is also the reason why nothing will change fast on the 'interest deduction' front.
The main drivers are probably the tax policy: mortgage interest payments were fully deductible (untill the very slow phasing out reforms after the 2008 financial crisis). This sounds similar as in the US, but in the Netherlands/Europe the effect is stronger because marginal tax rates are high (>50%) and the top income tax bracket kicks in much earlier than in the US. It starts around 60k in the Netherlands, so beyond 60k more than half of every extra earned Euro goes to the state. Due to the full deductibility, the common narrative became: if you're in the top tax bracket, the state pays more than half your mortgate interest. For most working households, pensions and mortgages are the only substantial tax relieves, which predictably lead to households maxing out their pensions and mortgages.
In the Netherlands, zero-downpayment (or even negative-downpayment), interest-only mortgages are/were the norm. Before the 2008 crisis, it was very common for respectable financial advisors and banks in the Netherlands to advise households to borrow as much as they can on a 30 year mortgage, never pay down the debt and put everything in the stock market.
(Incidentally, my distaste for the bad incentives that come with the tax gimics in high public-spending regimes is one of the reasons than I, a European welfare state citizen, am probably more right leaning, cold-hearted fiscal conservative than the median young progressive American tech-forum dweller.)
Now of course if the company pays e.g. 1000 Euro per month for the loan(s), it has to charge the tenants (=me & my SO) more than that plus taxes. The question is now if the effective tax rate can be pushed down to zero% by deducing the interest. As for the companies earnings, maybe that money could be "reinvested" into the house (better WiFi), so that MIGHT just be as good as putting some money aside. Or you actually buy another house for renting out. Obviously it's a good idea to talk about this to a tax advisor. For me this is only a Gedankenexperiment ;-)
If you buy another house to rent out that might prevent this. But the other thing as well is who benefits from the houses? Because now your friend will own the house you like and vice versa. You probably cannot put in any provisions to ensure your friend will at some point get ownership of his house.
However it also reduces the incentive to reapay mortgage capital at all (is that bad?)
Currently if you have £500k in cash, you can either
1) Buy a house and pay no rent
2) Pay £1500 a month in rent
Why would you pay £1500 a month in rent (which at a marginal rate of 40% means having to earn £3,750 a month, or £45k a year, extra in income.
Effectively you get a 9% roi on that £500k by buying the house (ignoring house price inflation). Someone with £500k in cash and £50k a year is better off than someone with £0 in cash and £90k a year, despite the latter being nearly twice as valuable to the economy.
Now in a situation where £1500 a month is tax free, you'd have to earn £18k extra a year, and that roi on house ownership drops to 3.6%, and that's good. Housing should be somewhere to live, not an investment.
Of course on the flip side, the extra money available would likely push private rents and house prices up anyway. Perhaps the solution would be to ringfence the interest into some form of long term savings (either to use on buying a house, or to fund a pension).
The flip side might be true, but I think it's not as easy. I have a meeting now, so I can't go into detail (and not think about the details; ergo you might still be 100% right!). But if private buyers - those who would rent - can more easily compete with companies on buying, companies need to make renting more attractive. But maybe that effect is negligible.
I want to see this equalized - either allow humans to pay tax on profits only (i.e., they can deduct all expenses of their living), or tax a company's revenue like how a human is taxed.
Although I don't know about Germany specifically, I suspect this is exactly the position you'd be in if you followed through with this plan - the company would have to pay tax on the rent. And you wouldn't be able to get around this by reducing the rent say to zero because it's a related party so the company would likely be taxed on an imputed market rent.
60% of Australian landlords claimed a rental loss in FY17/18 and that's not an outlier. [0]
In jurisdictions where rental losses can be written off against ordinary income, landlords are happy to collect the tax benefit and just do the capital play.
[0] https://www.theguardian.com/business/grogonomics/2020/jul/21...
1) It's the opposite of progressive taxation, since the tax deduction is higher the larger your mortgage is (and there's no deduction if you don't have a mortgage).
2) It artificially inflates housing prices.
Overall, it's a shifting of cash away from those that want to enter the housing market towards those that are in it, i.e. taking from the poor and giving to the rich. The policy seems like an obviously indefensible mistake, yet no political party dears to touch it because the majority of voters are beneficiaries of it, and the topic is slightly too complicated for there to be an informed public debate about it.
Disclaimer: I don't know much about this.
This can be solved with a grandfather clause.
It doesn't have to be cancelled suddenly, it could be removed over a period of 25 years or even more. Similar to what happens with public pensions.
The argument behind this is that the current level of income/taxation can not support people on pension for more than ~12 years on average and as the life expectancy rises the retirement age must rise with it.
There is a fairly big debate happening on 'graduated pensions'. Should a bricklayer who has carried heavy loads all his life be forced to work to the same age as an academic who has spent a large amount of time behind a desk in an office?
The interest rate will go back up at some point and we would have a fairer house market without this tax deduction. It's basically a tax break for people with enough resources to buy their house. And it drives up the housing prices making it harder for first-time buyers.
This could be solved by just cancelling it. People taking advantage of this scheme:
a) had no reasonable expectation that it would be long-term, and,
b) had to be wealthy enough to initially access the scheme to benefit from it, and have since continued to benefit.
Handling any exceptional cases (which would be relatively very few) would be a lot more effective, in every sense, than continuing the scheme.
Besides, the Netherlands already has a Mortgage Guarantee Scheme which protects people with mortgages and changed circumstances.
I would certainly love to be rid of it sooner rather than later, but I do acknowledge that that's going to be disadvantageous to a lot of people, and will have to take them into account as well.
The mortgage guarantee scheme doesn't really apply here, I think: it raises the buying power of people with low incomes, but once you've bought a house, it only means that their bank gets paid if you're forced to sell it - but you'd still be forced to sell it.
I find this argument really strange.
Budgets can (and do) change and cancel categories of benefits for poor people overnight.
But benefits that accrue to wealthy people must not be changed overnight?
This is a function solely of power.
For example, whereas we need to raise the retirement age, we don't suddenly increase it with a couple of years. It is raised slowly in increments, and less for people who are closer to the retirement age and thus have had less time to plan for it.
Another important difference compared to the US is that in Sweden you are more or less the bank’s serf. In many US states the home itself is the bank’s only collateral, and the homeowner can “walk away” if its value falls below the mortgage. In Sweden the bank can take everything you own, and even extract a share of your future earnings. Also there is no (quick) personal bankruptcy, only a slow process that takes years and where you have to show that you’ve payed as much as you possibly can. This lowers the bank’s risk and brings interest rates down. In Sweden you pay about 1-2% interest on a mortgage. In Denmark I think you can even get zero rate mortgages. This in turn of course incentives borrowing, since many people just look at the monthly cost of a home.
You know banks are not in your side, with a unfixed rate that is just stupid to assume that in 30 years rates will always be low. That is why I payed 40 % of my house upfront, got a low 25 year debt with fix rate (it wasn't easy to find) negotiated now. I'm set for life, I'm paying 400 euros to the bank every month and I sleep well every night.
While in theory if rates go up you could find the bond for your house and buy it at a greatly reduced rate, thus paying much less for your house. In practice there is no individual bond for your house so you can't do this.
That’s not how it works in Denmark. Here, interest deduction come in the form of increased personal allowance (ie. the annual income bracket below which you pay no taxes), which favor high and low income earners equally. I’m surprised that isn’t also the case in The Netherlands. Are you sure it’s not?
We are pretty sure it is not, that is, the more you earn, the more you can deduct, starting with the highest brackets.
The biggest issue at the moment is the shortage of house in most parts of The Netherlands. So people max out what they can spend on a house, and certainly with low interest rate that amount to quite a lot.
As to fiscal reforms, at moment you get only a percentage of the interest you pay back, not the percentage of your highest income bracket. In addition, load need to be paid back in 30 years (linear or annuity) otherwise you don't get the tax credit.
[(edit) one addition, it is interesting that in The Netherlands, the more right wing, conservative parties want to keep this tax deduction the most, the left wing parties want to get rid of it]
Mortgage tax deduction without tax on imputed rent (as in Norway, Sweden and the US) is a subsidy to those who are rich enough to own their own homes. It is also a perverse incentive in that if you pay off your mortgage, you lose the tax benefit. So people take larger mortgages than makes sense, and invest their spare cash in risky assets rather than paying their mortgages down.
An imputed rent tax without a deduction for mortgage interest would be grossly unfair to borrowers, but does not exist anywhere as far as I know.
An imputed rent tax with a deduction lightly taxes mortgage borrowers against the benefits they receive from owning not renting. It has a bigger effect on owner occupiers without mortgages - they pay the full tax without any deduction. So it is progressive. It also levels the playing field between landlords and owner-occupiers - both are taxed on the rental value of their property and receive (roughly similar) deductions. So neither form of ownership has a built-in advantage.
(Probably the right wing parties want to remove the tax deduction because they also want to get rid of the tax on imputed rent?) As pointed out in the reply, this was a misunderstanding.
One thing they did introduce was that the imputed rent tax was limited to the interest tax deduction. To encourage people to pay off their mortgages, but that is now being rolled back.
One thing is that killing the tax deduction is likely to lower the value of houses because people cannot borrow as much without the tax deduction.
The elephant in the room in The Netherlands is not only the shortage of land to build new house but also what it costs to build a new house. You can lower prices by increasing availability, but only if the new objects are actually cheaper than what people pay now.
Building a house in The Netherlands is insanely expensive. Some of it for good reasons, a building code that has lots of requirements. A large part of The Netherlands is effectively a swamp, so foundations are also very expensive. However, contractors, etc. make quite a bit of money, but the worse part is that local governments try to make money of land. To finance the city, but also to have regular house subsidize social housing.
Nah. Two big reasons I can think of: people don't understand tax policy and wealthy people benefit (just less so in Blue states).
The first point is pretty straight forward. Lots of people talk about how things are "tax deductible" without even considering whether or not the deductions apply to them. Even if the IRS published that 85% (number made up) of people took the new standard deduction, thus used no deductions, you'd be hard-pressed to convince most people to get rid of the mortgage interest deduction. People in general (even smart ones) are just irrational when it comes to tax deductions.
Secondly, the mortgage interest deduction is still used by relatively wealthy people. A $600k mortgage generates >$16k in interest payments in the first year, even at the low rates we have today. That's easily enough to clear the standard deduction (for a single person). For married people, the hitting the SALT limit with that mortgage is enough to cross the threshold.
Is it true that the debt-rate in Denmark is high, but that is debt in DKK, which is very importent. The majority of the real-estate is owned by huge pensions funds and institutions which are also danish.
As other mentioned the numbers do not seem to be normalized either.
And by student loans I don’t mean the same as US student loans. Education is free and the state lends you money so you can move out of your parents home when you are 18 and can become independent - https://en.m.wikipedia.org/wiki/Student_financial_aid_(Swede...
While true in absolute numbers, the amount of unsecured debt in Sweden is among the highest in Europe pr. capita and has been growing very fast for the past decade. Equally the percentage of loan payments going towards paying down loans, as opposed to servicing the interest, is decreasing[1]. There is a reason why seemingly 80% of ads you see here are either for online casinos or loan companies ;)
The number of people in Sweden defaulting on their loans (being sent to Kronofogden) is also growing at an alarming rate.
[1] fi.se/contentassets/3900398fb47e41d6a6a5d9af378a1f36/konsumtionslan2019ny20190614.pdf
People on welfare can't get a mortgage anyways. So why mortgages would go up because of welfare not only going to pensioners is altogether unexplained. Also I think lumping us in with the Nordics is very questionable. Because although we might fit with the ideal of the 'Nordic model' to a certain extent, it's just easy to leave us out when we don't fit, because we're not a Nordic country geographically or otherwise.
This was because in 2013, the average term was 140 years.
https://www.thelocal.se/20160324/sweden-limits-mortgage-loan...
Whether it is financially sound is another matter. Interest rates have been low for many years, and investing has been a better choice for some time. Many pay their houses off to about 50% and then leave it there at the default mortgage, only loaning more money when something needs to be done on the house.
Yea, this is a big cause of the current 'problem'. It's not so much that people cannot pay off their mortgage in 30ish years, it's that the current financial climate heavily disincentives people from doing so.
- Maximum loan is 85% of property value (min down payment 15%) - Annual pay down 2% until at 75% of property value - Annual pay down 1% until at 50% of property value - An additional 1% annual pay down if you have borrowed more than a multiple of your annual income (either 4.5x or 5.5x, can't remember exactly)
Used to be that you just borrowed 100% and paid down nothing, kind of absurd to be honest.
In Sweden you can't 'walk away' from your mortgage like in the US for example. This means its much safer for the bank to lend money and that interest rates are very low. Swedish mortgage default rates are very low.
Because people want to live close to their jobs which in modern society is mostly in cities. It does not really matter how much empty space/forest you have around them if that means living outside of all the services/too long commute.
Here you go: https://en.wikipedia.org/wiki/Wallenberg_family
The original claim was that it does. Why does it matter that Canada sees more foreign money flowing in? The space is essentially limitless, so prices should drop to zero. Except they don't, because it's not about space. It's about living in small, pleasant regions with a good economy where others also want to live. That drives up the prices, be it Toronto or Stockholm. It doesn't matter that both countries have essentially limitless land elsewhere.
Edit: Also, the claim that Sweden is "more hermetic" is also a bit silly. You are aware of freedom of movement in the EU, right?
A parliamentary constitutional monarchy, just like Canada. And why would it matter in the first place?
> with well established old-money elite and their own currency
Canada doesn't have these things?
> staying outside of NATO
How does military alliance memberships matter when discussion house prices in two peaceful, stable democracies who are unlikely to be in defensive wars any time soon?
> I can easily travel to Sweden (not exactly now though) but not buy real estate there that easy at all.
OK. What does it matter? The approximately 500 M EU/EEA citizens can. That makes Sweden very much not "hermetic".
Land (and thus homes) is expensive near cities, but cheap elsewhere.
Anyhow, I can really say that I have a problem with finance. It's often equating people to numbers, and it's hard to de-obfuscate what is really happening. I don't dislike money as a medium, but I don't like how it seems so opaque and complex, and how it becomes difficult to understand how food/housing/clothing/transport really works at a large scale for a normal citizen.
I'm 35, I love math, and last year I learned that a 5% mortgage of 150000 euros over about 15 years would cost around 85000 euros. It feels so crazy to learn something like that so late in life.
When climate problems kick in, that's where financial complexity seems impossible for me to understand.
It indicates that the previous decade tended to have higher interest rates compared to the past few years.
The table shows 2007 vs 2017 that mortgages as a percentage of disposable income have generally went down.
IIRC there is a strong correlation with higher household debt and areas with higher housing prices relative to income. The UK government do release quite detailed statistics by region for those who are interested.
For example, check this https://www.hitta.se/kartan!~55.67224,13.07713,16.6472242507...
Shows a suburb close to Malmö(3rd largest city in sweden), and their average salary(medelinkomst) and average debt(snittbelåning).
Move the map around to see how it differs.
When visiting Helsinki, Finland, I was amazed to hear a house for a family of 4 can easily cost near 1M euros even when located in the suburbs outside the city.
This was even more surprising to me after hearing about average salaries and driving around the capitol area—-there was a ridiculous amount of unused land. 15-30 mins outside Helsinki and you’re basically in a forest. I assumed there must be some sort of strict restrictions on building.
Is this the case, or am I assuming too much based on my experience with SF?
And yes there are a lot of restrictions for building in the city. Overall the "housing code" is quite strict and standards are very high.
The municipalities have to zone it first, and then build basic infrastructure. Whenever they try, they get bogged down by complaints by NIMBYers who really like their forests and the flying squirrels* that live in them.
* Not joking, the environments they live in are protected. And they live almost everywhere where there are enough trees to call a forest and you care to look for them. A lot of zoning plans get cancelled because of flying squirrels.
And the prices are eye watering high for what is offered. In the main urban areas Stockholm/Helsinki/Oslo it is easy to find house blocks consisting of buildings with soviet style looks costing close to 500k USD. Weird floor planning and "dry" walls are the norm here.
One of the apartments I had did not have a window in the bedroom. How is that okay to build it that way? I don't know. Yes, there are laws against this but it does happen.
The construction, while not shoddy, does not justify the price alone and it seems construction companies are doing quite well between the pre-built structures and hiring immigrants to do some of the less qualified jobs.
If you can make a parity between salaries price of apartments/buildings in Southern Europe, Portugal/Spain/France, and in the Americas are better built than the ones here. And they come in other colors than brown or beige.
What is the issue?
It's a fire hazard. At least in Sweden (and I think Norway) building codes require that all bedrooms have a window large enough for you to fit through.
Sometimes when you are buying real estate you will see "non-conforming bedroom) which means a room that looks like a bedroom and you might use as one at your own risk as you can't get out. (This might also mean it would be a bedroom if there was a closet as well - you have to figure out what it means)
The real solution to unequality requires much more radical solutions.
This is so poorly described. 0, 50, 100... What's that number?
Should I guess "debt as % of annual household income" ?