> While it’s possible that some homes in this category are indeed being kept off-market by an owner holding out for a larger payout down the line, given the breadth of this category it’s implausible that this category represents any meaningful part of that total number.
The article doesn't show that it's a myth, it just says roughly half of the vacancies are market vacancies (lease ended and looking for new tenant), the other half are non-market, and then waves its hands and speculates that the non-market half probably isn't livable anyways. Maybe that's true but the article makes no effort to figure out if that's the case.
The conclusion I came to was that there’s no magic wand, and the only “real” solution is more housing. LA is a very desirable place to live, and the city has failed to deliver on the necessary new housing to economically support the demand.
> the city has failed to deliver on the necessary new housing to economically support the demand.
Less passively, current property owners have successfully lobbied the local government to increase the value of their properties.
This is especially potent in California where Prop 13 heavily favors long-time owners. If you stand to make a fortune when you retire and are going to pay very little until then, you’re probably going to be in frequent contact with your elected officials.
Charging taxes based on market value has been banned in the California constitution, with the passage of the disastrous Prop 13 in the late 1970s. It is the source of many problems in California.
Taxes based on percentage of value are limited to 1% of purchase price, with a maximum increase of tax paid of 2% per year, which is sub inflationary. Presumably if we had a loooong run of time with property values increasing less than 2% per year, newly purchased homes would still be taxed at market value, but that's pretty far outside the normal realm of market behavior.
The question is whether politically there is a greater demand for available housing, or for ROI on already owned properties. Depending on which hypothesis you prefer, there either is a problem today or there isn't.
When one factors in that this situation is decades in the making and present across most of the Western world, I would argue the political interest is in looking out for home owners, not starters, both in sheer voter numbers and the politicians' own group membership.
As far as I can just looking around my neighborhood and looking at a few known-vacant buildings, there are plenty of houses that are vacant for investment reasons.
And the dynamics of the market sort of reinforce this. Real estate is a great investment but land lording is hard. Renting below market lowers the value your investment and so does leaving your investment open as a rental indefinitely.
Sure, just about anything that opens up will get many applications. But most of those will be from people who technically can't afford the location - because house is unaffordable, people making 3x the rent you are charging are scarce and the most desperate people put in the most applications, so any landlord will find most people applying look like bad renters and not want to deal with the situation.
And for the same reason, some portion of the "between renters" category may be actually off-market too. If the landlord is for the perfect renter, they may look forever.
Weirdly, there is great evidence for the author's point, he just didn't mention it! In short, the vacancy rate is incredibly low, ~3.5% [1]. Taking the other data the author mentioned, that means that ~1.5% is non-market vacancies, of which only a subset is the much-ballyhooed investment vacancies.
Although 3.5% might be small compared to the US or California average on that linked site, it still sounds like a lot to me. In a town with 10000 properties, that's 35 empty units. Even if only 15 weren't actively on the market, that could still get over a dozen homeless people off the streets, or provide a refuge for at risk members of the community who currently live with abusive parents or spouses due to not having the means to live alone.
Obviously building more affordable properties is a longer term solution, but that doesn't mean that people who keep empty houses around aren't also part of the problem. Personally, I think there should be a "use it or lose it" tax on vacant properties.
Edit: I realized after posting I'm off by an order of magnitude. It's 150-350 empty units! That would make a huge difference to homeless numbers almost anywhere.
That doesn’t mean 350 units have been sitting empty since last spring. It means at some point each unit waited two weeks for cleaning, viewing, lease approval, and a new tenant moving in.
This doesn't come across as convincing to me. This would require that in any given community of 10000 dwellings, literally every single unit is a rental property, and that every single unit is vacated and has a new tenant move in every year. That might be true in certain specific communities like university residences, but I very much doubt it's the case in any ordinary urban community.
In the US home ownership numbers are around 65%[1] (not 0%), and people on average only move about 11 times in their life[2] (not once per year).
It seems to me entirely reasonable to assume that in a community that touts its low vacancy rate of 3.5%, there must still be a not insignificant absolute number of properties that remain unoccupied for a month or more every year. If that number truly were near-zero, then nobody should have a problem with a vacancy tax, or a squatter's rule designed to grant rights to actual members of the community who want to use a property left vacant for longer than a couple of months.
A quick search says landlords expect to lose about half their tenants every year, and the places with housing shortages probably have more renters. If homeowners are included, they don’t move very often but it can take two months for a house to change hands.
Take Los Angeles where the median home is 900k now, homes sell like lightning, and you move into your apartment the week after you tour it because it's that competitive. There is demand to live here and has been forever, basically, probably always will given that's how it goes for large American cities. It is baffling how backwards the land use is.
It shouldn't be possible for a lot zoned for mixed use commercial and residential could sit as a derelict burned out building for years(1). It was burned out recently, but street view from 2007 shows it's been abandoned for at least 14 years now. This metro station takes you either to hollywood or downtown LA in 10 minutes, massive job centers as well as nightlife areas. Anything built here would get signed leases that week, just like everything else in Koreatown. Other notable pieces of land use for this corner precious steps from the metro station are a gas station, an abandoned hyundai dealership, and a drive thru offering unhealthy food to the community.
If someone quantified all the externalities, I'm sure poor land use alone causes trillions in economic and ecological damage to our cities in this country. This is our hardest problem.
The losses to workers from exclusionary land use are absolutely massive. A paper by Hsieh and Morettis has been the go-to analysis, with GDP growth changing by single digit percentages. However there was recently a simple math error found, and the effect is much higher, to multiple digit GDP changes. GDP has its flaws, but since these changes are due to wages, this is the worst sort of GDP loss since it would even out inequality.
It seems strange to have a tax that is based on the subjective motivations of a property owner. How would you even know why someone wasn't renting out a given property at a given moment in time?
what else would someone be doing with a property that they aren't themselves living in? if you support a punitive tax on people holding out for higher rent, you probably don't care if it also hits people who are merely speculating on real estate.
What's so special about housing that you need an extra special tax like this? We don't have it for cars or machinery or other kinds of capital goods.
I'll answer my own question: the root problem of too high rents is that governments:
1) have outlawed the construction of enough new housing to meet demand.
2) many places (CA especially) have property taxes that are drastically too low (and in CA's case, radically unfair).
Vacancy taxes are a bad hack. As you note in your comment you have to build in all kinds of grace periods or exceptions and even these can often be easily gamed or ignored.
Cities will be much better off if they fix the real underlying problems.
This law was implemented in Vancouver. It worked at reducing vacanies. It wasn't gamed, because the fact that a person can only have one residence and that that confers a lot of rights is enough to dissuade it.
>What's so special about housing that you need an extra special tax like this? We don't have it for cars or machinery or other kinds of capital goods.
Land is not capital. It is not infinitely reproducible. You can't make more land, and as a result there is hard limit to any one kind of housing.
>1) have outlawed the construction of enough new housing to meet demand.
I agree that this should be fixed
>2) in many places (CA especially) have property taxes that are drastically too low (and in CA's case, radically unfair).
That is really far from being the reason for high rents, since most places with high rents don't have Prop 13.
Prop 13 causes all cities in CA to collude against building more housing. Any city that breaks this gets "punished" with the full force of other Californians escaping their poorly planned city.
I cannot manufacture more land downtown, while a car can be manufactured and moved wherever. Land, unlike other capital goods, cannot move to meet demand.
An unused machine sitting in the middle of a busy factory floor gets in everyone's way and quickly finds itself being thrown out so the factory can run more efficiently.
An unused plot of land sitting fenced off in the middle of your city extends everyone's commute and diminishes the services available within walking distance in its neighbourhood. A municipal government interested in a functioning city will want to put that space to better use just like the factory owner did, and structure landowner incentives appropriately.
There are possible reasons but it’s important to remember that there are also costs: empty buildings don’t contribute to the local culture or economy, and can become an eyesore or attract crime.
A tax helps encourage owners to minimize those negatives and could easily be phased in or have an appeal process (e.g. show that you have building permits for a 6 month waiver).
Who cares why? If they can't find a tenant beyond a certain amount of time, they can be made to pay a tax, lower the price to find one faster, or sell.
Lots of laws are based on subjective motivations of relevant people, and determining those is an extremely common and fundamental role of the legal system. Why would such a tax seem strange to you?
That's a good point: the vacancy tax shouldn't be tied to motivation. It should just be applied across the board. No matter how much housing is built, land and housing will be a relatively scarce resource (we can't make more land, per se, and although we can build higher density housing even that has a limit). It shouldn't matter why a property is vacant in these areas.
> Foreclosed properties, condemned buildings and homes being renovated are all included in this category. While it’s possible that some homes in this category are indeed being kept off-market by an owner holding out for a larger payout down the line, given the breadth of this category it’s implausible that this category represents any meaningful part of that total number.
What you’re describing is exactly the myth the article is trying to dispel. It’s a common idea and I feel similar to you, but the reality is we need more housing.
If the tax law were written to permit it, sure. Fortunately even politicians aren't quite that stupid. We can, and should, structure the law to account for that kind of juvenile gamesmanship.
Sure, why not? Vancouver does this. It generates a very small revenue stream, but hasn't changed anything structurally.
The real problem is that we highly constrain building housing, seemingly treating housing as a negative worse than cars or roads or pollution. Every tiny addition of environmentally friendly multi-unit housing faces stiff opposition, prolonged approvals that last years and risk any financing used to build the housing. Meanwhile, environmentally destructive single family homes on green fields faces no opposition, even though it forces people into long commutes, and single units are far less energy efficient, and are far oversupplied compared to multiunit urban living which is hugely undersupplied. This under supply of urban housing has resulted in something like 9% decrease in GDP, in addition to causing far more environmental damage, and in addition to displacing all sorts of people from their homes and families and communities.
> There are, of course, a number of vacant units in any city at a given time. Yet, there are a multitude of reasons for these units to be vacant besides unscrupulous investors or rapacious landlords holding out for a better price.
I really don’t see this as very economical for very long. Property taxes on a ~$1m house are about $1200 a month in LA. Maybe this is the reason there are some empty lots, but it’s not very convincing for empty homes.
Does anyone have a list of specific reasons for why it would be more financially beneficial for a landlord to leave a place empty rather than to rent it? Keeping in mind that while it's empty they earn nothing but still have some amount of cost for the property. A year+ of lost income is going to take a long time to recoup.
The only ones I've found is in NYC where due to rent control it's expensive to convert a controlled rental unit into a co-op/condo so landlords have an incentive to empty out buildings and keep them empty until the conversion.
Very simple - the landlord may have a commercial mortgage that requires re-negotiation if leased under a certain price. Beyond that, avoiding rent control that might durably keep the price low and limit its rise.
depends on the scale of the operation. if you're a small time landlord, one bad set of tenants can easily wipe out several years worth of gains for all your properties. these types of landlords will often hold out for a while, passing over people who are willing to pay the market rent, until they find a tenant they trust not to trash the place.
But that would fall under the relatively short term category of market vacancies from the article. Most people who talk about the issue with vacancies seem to be referring to 6+ month vacancies where a landlord is not even looking for tenants.
Some foreign owners want their money out of 'wherever' and are willing to pay a premium as a store of value. They're not interested in the hassle of 'renting'. Or, the price is not a big deal, they want a home in LA/NYC much the same as the rest of us might want a cottage/second home on the lake.
Keeping properties empty is almost never more profitable than keeping them occupied. If rents are falling such that they're not sufficient to cover the mortgage payments, that's usually a sign than property prices are about to go down, not up.
The exception might be if someone is trying to sell the property in the coming months. Doesn't make sense to find tenants who are cool with being kicked out in a few months.
Well, cap rate analysis is one, and commercial real estate is driven by this.
Say you go for anything but want it leased fast. Maybe you get $2000/mo. Say you wait for a higher paying entity but it takes a year but you get $3000/mo.
Depends on what you optimize for.
The naive person would calc how long it would take to the total cash break even. And in particular look at the loss of $24k that first year!
But if they want to sell at 1.5yr from start date?
The 2k/mo option at a 4% cap is 600k. The 3k option delivers 900k, but subtract the 24k and you still get $276k more.
There are various good-faith reasons that properties can be empty for periods of time. Frequently, landlords may perform maintenance or renovations in between tenants, which can keep the property vacant for months at a time.
Also, finding tenants, performing background checks, and filling properties can take considerable time. Doubly true for smaller landlords doing this on the side while they juggle jobs and families.
In a few cities, some real estate is held as purely speculative investments or as a place to park cash. If you're an investor buying a $3mm property in Vancouver, BC with a goal of flipping it in 6 months, sticking a tenant in there will only get in the way of your plans for minimal gain. This situation is more rare than it's made to sound by some articles, though.
Generally speaking, you're right: Tenants strive to keep their investment properties occupied as much as possible. Unoccupied properties are costly.
Landlords are now dealing with tenants who haven't paid rent in a year with no end in sight as to when they can evict them. It's certainly understandable if this has caused landlords to prefer to wait until there is recourse for non-paying tenants.
The value of commercial property is a function of the cap rate. Cutting the rent thus cuts the principal value, which can often leave the property underwater.
This is also why landlords lately are offering 1-2-3 months free on signing for these empty places, rather than dropping the base rent by 10-25% to get more tenants.
That hardly makes sense with the way SF’s rent control works — units that are currently empty “reset” to market rate when rented again. I’m in a rent controlled apartment paying close to $4k/month. Long-time tenants can see substantial benefit, but it doesn’t make any sense as a reason for places to currently be vacant unless a landlord is gambling that rents are going to substantially appreciate beyond $4k/month.
Unless you mean tenant protections in that owners are hoping to sell the buildings to flip to condos, in which case sure, they’re more valuable without tenants but that’s hardly unique to SF. Many places make it difficult to evict tenants to take rental units off the market.
I wasn’t aware that a fresh lease with a new tenant in a rent-controlled apartment in SF had any sort of “market rate” price restrictions. I know that some units have price increase restrictions between tenants when the outgoing tenant was evicted for certain reasons [0], but can you point me to this “market rate” restriction?
Having a tenant, even paying market rent, will severely depress the value of the building. Yes, SF has "owner move in eviction", but that is a lengthy and costly process and buyers would rather not deal with it, so the value of a place can decrease significantly.
So if you're a landlord with say a 2 unit building, the ideal scenario would be you rent it out, then once you're getting ready to sell, you leave the units empty once tenants leave. Even if you leave them empty for years, you'll get a better return on your investment than if they were occupied by a tenant paying market rate.
A clean eviction history for the building is an advantage for a number of reasons, including subdividing into condos. The cash flow concerns are only part of the reason empty units get a premium.
Another big reason is that a lot of homes are bought as second homes. Just as a reference point a lot of homes in Vegas and Reno have been bought by Bay Area professionals as second homes to visit over the weekend or in the winter.
Sometimes owners do things that don't make financial sense because life is like that sometimes. Some kind of inheritance dispute or another dispute between partners might hold things up.
Older and richer landlords might not do the right thing because they have other problems like poor health.
Commercial real estate does this, because the leases are so long and turnover is expensive with buildout allowances and such, and they sometimes have weird financing schemes that penalize the owner if they lease too low. Residential has none of that, so there's minimal reason to hold properties off the market (and it generally doesn't happen.)
In parts of Los Angeles the price increase can be beneficial enough, especially with the difficulty of evictions. However, judging by the number of $1 million plus homes in my neighborhood that have sat vacant for more than two years, something else may be going on that I’m not privy to. Maybe it’s an easy way to launder money (which FINCEN has been concerned about for years), or it’s like money under the mattress for people who need to park a few million dollars somewhere for a while.
Maybe the banks (and gov't policy) are the problem. Easy loans mean people can take out ever increasing amounts of debt driving property values up and up. People dump all that money and have nothing left to improve or maintain properties (see million dollar+ track homes in the Bay Area). Meanwhile in order to service the ever increasing debt +property taxes, rents are driven up.
The banks are just responding to government policy. To quote the article, the single family homeowners who think of rising property values as a birthright are the problem, along with politicians and regulators who cater to them. The banks are just an instrument.
People keep trotting out a trophe of "SF has zillions of empty units" and time and time again, thats simply not accurate. They lump the greater bay area into SF, its apples and oranges in terms of an actual market. The vacant units in SF are not quantified into useful groups, when you dig in the vacancy rate of habitable dwellings is well under 1%
It's a useful line to trot out if you subscribe to the narrative that there's plentiful resources to go around, if we just make the rich assholes share.
In ideological terms, it's a very convenient position to work from. It means you never have to evaluate if housing policy has played a role, which is handy when you support all the individual policies concerned.
I agree, it doesn't matter whether there is vacant housing or not, long term. If you supply enough housing to drop excess demand, it will pushing housing prices downward, leading to them being a poor investment, and any vacant housing will further sell off, leading to a positive feedback loop of increased housing supply.
When subdividing a lot costs 50k just for paperwork (well there's more than that, but cmon) and takes months... When all imported building materials are spec'd by one company... When there's no competition from foreign labourers and locals doing coke off their fishing boat by 3PM... Yes there's some distortion in market.
I track vacancies in newly-built apartment buildings is Oakland and Berkeley. There just aren't any, is the plain fact of the matter. For example the new building at Telegraph and 51st in Oakland currently has 19 of 204 units available, leasing out at a rate of about 1 per day. The building at 1500 San Pablo (at Jones) in Berkeley has 49 vacancies of 170 units, leasing about 3 per week. Both of these buildings have been open for less than a year and will hit 95% occupancy before they are even a year old. The absorption of these dwellings is so brisk, you don't need any more evidence that there is plenty of demand for new units.
It's not really about vacancies, is it? Vacancies are a convenient, simple, and clear "other" to blame for what is actually a complicated crisis _generations_ in the making.
Only a small minority want to acknowledge that the future of urban centres looks more like Hong Kong and less like Springfield.
We had the same myth of vacancies here in Vancouver, and so the Province instituted a 2% vacancy tax on foreign owners. As evidenced by the ongoing market climb, this wasn't the panacea that many hoped for.
We haven't designed or planned for the growth we're undergoing. It is a zoning and civic planning problem, first and foremost, and not a problem that can be solved by direct price manipulation.
It made a difference for a while. But once those new vacancies were filled, the market seized again and it’s now once again airtight. They just aren’t responding to demand by allowing for enough new development. It’s insanity.
Not being a panacea doesn't make the intended problem being solved a myth. Maybe a fault with overestimating the scope of the problem, but that's about it.
The issue is that using an overinflated figure for the scale of the vacancy problem leads to the incorrect conclusion that meaningful change can happen by solving an alleged vacancy crisis. It can't. The scale is not large enough.
It is a convenient issue to misdirect attention to for groups of diverse political leanings. Progressives and wealthy homeowners both can avoid any of the messy realities of needing to permit new housing while pretending as though there's this more politically palatable thing they can do instead.
I grew up in Vancouver since the 80s.Vancouverites cannot complain about not enough housing. In the 35 years since I came to Vancouver as a kid, there are so many condos everywhere, it looks like a bad joke. The massive amount of new housing made no difference housing prices which have never seen a crash in 40 years.
Seems like maybe it wasn't actually a massive amount of new housing?
Having been to Vancouver, the only thing that seems like a joke is the massive amount of land that is reserved only for multi-million dollar single unit homes, and the lack of space where apartment buildings are allowed. Vancouver is beautiful, has great transit, but needs a lot more apartment buildings.
Noticeable but not a panacea; with the way folks talked about it you'd think the _only_ cause of housing price increase was foreign speculation, when in fact it turned out to be an altogether minor factor.
It turns out the problem wasn't foreign investors, but investors full stop. The real solution is to institute a tax, much higher than 2%, on any second, third, etc purchase and make the very notion of an "investment property" prohibitively expensive. The housing market would look very different if everybody had to live in their property instead of engaging in transparently parasitic activity like speculation/landlording.
If there's still not enough space after these policies are implemented, maybe then we can entertain the YIMBYs' sqwaking.
You will still keep people out of the city that want to live there. Rent increases will be replaced with wait lists.
I really wonder, why are you so opposed to giving people what they want, which just so happens to also meet BC's climate goals? Multi unit housing is much much better for the environment.
> Rent increases will be replaced with wait lists.
That is basically what happened when I lived in Switzerland. Places were let at reasonable prices, but there was so much competition for supply that your best bet was to find something overpriced.
These types of solutions just add more and more band-aids all the way down. You add caps on rent increases, then people can't find new homes because builders will only build for the top end of the housing market due to the rent caps and people won't move out of their current homes because they don't want to lose their capped rent.
If you want housing investments to be less valuable, just build more if it.
There are two sides to a market. For a landlord to charge high rents, there must be someone willing to pay high rent on the renter side. Those people won't go away if you mess with the price signal, if anything, more of them will arrive.
For asset ownership, where ownership involves massive down payments, this seems like a backwards approach. Where are all these first time buyers going to get their down payment? Put yourself in the shoes of somebody who is not already wealthy enough to own a home and see that continual rise in property value, amplified by the 5x leverage of a loan. It's impossible. Taxing landlords may mean for fewer landlords buying, but unless all those young people can somehow buy, it does nothing to solve the problem.
> YIMBYs' squawking
The huge advantage of the "squawking" which you are unfairly biased against is that it eliminates the profits that these speculators are depending upon.
The rise in prices is 100% dependent on a shortage of housing. If there wasn't a shortage, the market would correct. It may take a year or two of surplus housing to flush out those who are holding on for higher prices and teach them the new reality that they can't depend upon massive unearned gains every year, but it is the only way.
The other advantage of building surplus housing is that it gives people what they want. It stops the hoarding of a few wealthy people and opens up a desirable place to more people. This is nearly as big a benefit as lower prices.
Band aids on far downstream symptoms are not going to solve anything. And people are far too happy to only look at the symptoms rather than the underlying cause.
In places like Vancouver and the SF Bay Area, this is no longer true. The down payment amounts are often a multiple of annual household income, and even a drop by 30% will not solve much.
In my ideal world property is decommodified and the rentier class is eliminated, yes. Attempting to reach that arrangement via polite means does introduce some complications, since landlords have the capital for down payments while others don't.
By making landlording prohibitively expensive, you compel them to sell. They can't sell to other landlords, since the new buyer would incur the same penalty, so the most likely customers would be first time owners or the state itself. The government, free of the landlord's profit motive, could in turn offer these properties to the public at lower prices through long term mortgages with little to no down payment. The weekly repayments would be less than rent, and the occupants would eventually own the property instead of lining somebody else's pocket. I don't know what the precise term for this model is, but I don't think it's unprecedented.
Like I said, this is the polite route. It introduces complexity to avoid stepping on too many toes, and therein lie its flaws. I can certainly think of more direct methods.
Introduction of a land value tax or other forms of land wealth redistribution need not necessarily lead to violence but it probably would.
Redistribution of the spoils of unearned income is probably one of the leading causes of violence (e.g. civil war, bay of pigs) and the threat of violence is what helps keep those systems in place.
You know, the easiest way for things to go bad is by giving gifts to people who don't appreciate their new gifts because they are under the mistaken belief that they are the rightful owner.
Based on your posts, I never would have guessed that you wanted to eliminate the rentier class, since everything you propose does little to eliminate their activity, and seems dedicated to maintaining their main source of profits: increased asset values.
In supply-constrained markets, asset appreciation far outpaces the revenue from rents. So if you charge taxes on vacant apartments, the asset owner may try harder to rent out the unit, but that just increases their profits even more.
When profits from asset appreciation eclipse rent revenues, establishing rent caps does little to eliminate rentier profits. Already, loans are predicated on rents not increasing above inflation, so rent caps do nothing to curb asset appreciation, especially as long as rental units can also be owned (for example single unit detached homes).
Limiting the number of properties that somebody can own does little to force "small landlordism," unless you also ban the ownership of property by LLCs or other organizations, which would also ban many better forms of ownership like co-ops.
The core problem is not the profits, even though that is problematic. Rentier profits just a symptom of the real problem: asset price appreciation due to exclusionary practices. That's what must be attacked head on, with socialization of land use so that when lots of people want to live in an area, they are allowed to, and anti democratic landowners are not allowed to exclude new people. Ironically, the pure landlords are less often against such proposals, it's the rentier homeowners that are often the ones who subvert society and in turn force profits to landlords. Though quite often, these exclusionary homeowners have become "small" landlords too, and doubly invested in keeping our new people to maximize their unearned profits.
It's funny and hard to believe for many that it wouldn't matter if such tax on land is 2% or 50% or 90% and still effective.
- at 0% the price ceiling is infinite, so the price tends to climbs up to infinity, up to affordability, which due to close to zero interest rates is also almost unbounded
- at 2% many vacant houses start returning back to the market since it no longer pay off to wait indefinitely for a greater fool to buy it from you. Price starts to equalize, because suddenly the market starts to clear again
- at 50% of land tax, the only thing changes is that the land price is reduced, all else being equal. In such a market you pay 50% tax on the parcel to government and 50% to the land owner (current leassee).
- At 100% of land tax the price of land is further reduced to almost optimal market clearing price. It is now equivalent to renting the land directly from the government. There is no longer any "private tax" paid to the land owner. The land is now rented only if the acticity performed on it outweights the benefit of the tax. The price is now determined purely based on market terms and actually affordable to many.
It helps to understand that real estate prices today are mostly land value dominated. Construction material and labor is highly mobile so price of houses is virtually the same everywhere withing the same country. It's all land price in disguise.
The house crumbles down eventually and eg. in Japan the price of a house is 0 or negative (destruction cost) after only 30years. It's the same in the west, but people choose to pretends it's not, because all their net worth is stored in that crumbling ruin of theirs.
He didn't advocate for a land tax. He advocated for an investment tax that would prevent developers from building more than 6 units at once. The developer would need some sketchy presale arrangement to obtain funding since he is no longer allowed to own the entire building until construction.
He advocated for a fix to a tax on vacant property owned by foreigners by imolementing it also on citizens, but only for second, third and so on properties. Which is just another compromise which will alleviate the problems a bit, but it will not go away fully for the same reasons the first tax didn't solve it fully.
All of these attempts are imperfect but more politically accepted variations of land tax.
>The housing market would look very different if everybody had to live in their property instead of engaging in transparently parasitic activity like speculation/landlording.
Sarcasm on. Yes, I think we should ban renting out properties. Everyone should live in their own property. Sarcasm off.
Toronto rents were getting quite high pre-pandemic, but once tourism dried up, and Airbnb unit owners needed to pay their bills they seem to have released a lot of stock. The overall average rent dropped 16% YoY:
I don't know why many people fail to grasp that prices are signals, they are information. If prices are high, there isn't enough housing for everyone. By messing with the price signal and reducing it artificially through things like rent control you are telling everyone that there is enough housing but there simply isn't.
From the perspective of a politician this is very good for their career. It's the "fake it", mentality except you never intend to do the "until you make it" part.
Little Bill Daggett : I guess you think I'm kicking you, Bob. But it ain't so. What I'm doing is talking, you hear? I'm talking to all those villains down there in Kansas. I'm talking to all those villains in Missouri. And all those villains down there in Cheyenne. And what I'm saying is there ain't no whore's gold. And if there was, how they wouldn't want to come looking for it anyhow.
119 comments
[ 2.9 ms ] story [ 211 ms ] threadThe article doesn't show that it's a myth, it just says roughly half of the vacancies are market vacancies (lease ended and looking for new tenant), the other half are non-market, and then waves its hands and speculates that the non-market half probably isn't livable anyways. Maybe that's true but the article makes no effort to figure out if that's the case.
Less passively, current property owners have successfully lobbied the local government to increase the value of their properties.
This is especially potent in California where Prop 13 heavily favors long-time owners. If you stand to make a fortune when you retire and are going to pay very little until then, you’re probably going to be in frequent contact with your elected officials.
Inplement a small annual fee on the parcel based on market rate and watch the vacant housing appear back on the market in the blink of an eye.
You can't clear the housing market without this. Instead of supply/demand dynamic you get a Greater Fool dynamic on the market.
Taxes based on percentage of value are limited to 1% of purchase price, with a maximum increase of tax paid of 2% per year, which is sub inflationary. Presumably if we had a loooong run of time with property values increasing less than 2% per year, newly purchased homes would still be taxed at market value, but that's pretty far outside the normal realm of market behavior.
When one factors in that this situation is decades in the making and present across most of the Western world, I would argue the political interest is in looking out for home owners, not starters, both in sheer voter numbers and the politicians' own group membership.
And the dynamics of the market sort of reinforce this. Real estate is a great investment but land lording is hard. Renting below market lowers the value your investment and so does leaving your investment open as a rental indefinitely.
Sure, just about anything that opens up will get many applications. But most of those will be from people who technically can't afford the location - because house is unaffordable, people making 3x the rent you are charging are scarce and the most desperate people put in the most applications, so any landlord will find most people applying look like bad renters and not want to deal with the situation.
And for the same reason, some portion of the "between renters" category may be actually off-market too. If the landlord is for the perfect renter, they may look forever.
[1] https://www.census.gov/acs/www/data/data-tables-and-tools/da...
Obviously building more affordable properties is a longer term solution, but that doesn't mean that people who keep empty houses around aren't also part of the problem. Personally, I think there should be a "use it or lose it" tax on vacant properties.
Edit: I realized after posting I'm off by an order of magnitude. It's 150-350 empty units! That would make a huge difference to homeless numbers almost anywhere.
In the US home ownership numbers are around 65%[1] (not 0%), and people on average only move about 11 times in their life[2] (not once per year).
It seems to me entirely reasonable to assume that in a community that touts its low vacancy rate of 3.5%, there must still be a not insignificant absolute number of properties that remain unoccupied for a month or more every year. If that number truly were near-zero, then nobody should have a problem with a vacancy tax, or a squatter's rule designed to grant rights to actual members of the community who want to use a property left vacant for longer than a couple of months.
[1] https://en.wikipedia.org/wiki/Home-ownership_in_the_United_S...
[2] https://fivethirtyeight.com/features/how-many-times-the-aver...
It shouldn't be possible for a lot zoned for mixed use commercial and residential could sit as a derelict burned out building for years(1). It was burned out recently, but street view from 2007 shows it's been abandoned for at least 14 years now. This metro station takes you either to hollywood or downtown LA in 10 minutes, massive job centers as well as nightlife areas. Anything built here would get signed leases that week, just like everything else in Koreatown. Other notable pieces of land use for this corner precious steps from the metro station are a gas station, an abandoned hyundai dealership, and a drive thru offering unhealthy food to the community.
If someone quantified all the externalities, I'm sure poor land use alone causes trillions in economic and ecological damage to our cities in this country. This is our hardest problem.
1. https://www.google.com/maps/@34.0769362,-118.2918114,3a,75y,...
https://www.econlib.org/a-correction-on-housing-regulation/
- Maybe they haven't found a suitable tenant yet.
- Maybe they are holding it open for a friend or family member.
- Maybe they want to do some renovations before renting it out.
- Maybe they want to sell the property and it's easier to sell without an existing tenant.
I can think of lots of reasons.
Then they should lease it meanwhile or pay the tax, it's rare for people to buy houses fully finished, say, a year in advance.
>- Maybe they haven't found a suitable tenant yet.
They can lower the price to find a suitable tenant faster.
>- Maybe they are holding it open for a friend or family member.
Then that friend or family can move there officially while still occupying their current dwelling until the grace period expires again.
>- Maybe they want to do some renovations before renting it out.
These laws in practice have an exemption for rénovations.
>- Maybe they want to sell the property and it's easier to sell without an existing tenant.
Then they should price it as to sell within the grace period, or pay the tax.
I'll answer my own question: the root problem of too high rents is that governments:
1) have outlawed the construction of enough new housing to meet demand.
2) many places (CA especially) have property taxes that are drastically too low (and in CA's case, radically unfair).
Vacancy taxes are a bad hack. As you note in your comment you have to build in all kinds of grace periods or exceptions and even these can often be easily gamed or ignored.
Cities will be much better off if they fix the real underlying problems.
>What's so special about housing that you need an extra special tax like this? We don't have it for cars or machinery or other kinds of capital goods.
Land is not capital. It is not infinitely reproducible. You can't make more land, and as a result there is hard limit to any one kind of housing.
>1) have outlawed the construction of enough new housing to meet demand.
I agree that this should be fixed
>2) in many places (CA especially) have property taxes that are drastically too low (and in CA's case, radically unfair).
That is really far from being the reason for high rents, since most places with high rents don't have Prop 13.
An unused plot of land sitting fenced off in the middle of your city extends everyone's commute and diminishes the services available within walking distance in its neighbourhood. A municipal government interested in a functioning city will want to put that space to better use just like the factory owner did, and structure landowner incentives appropriately.
A tax helps encourage owners to minimize those negatives and could easily be phased in or have an appeal process (e.g. show that you have building permits for a 6 month waiver).
What you’re describing is exactly the myth the article is trying to dispel. It’s a common idea and I feel similar to you, but the reality is we need more housing.
Yes, we do need more housing. We also need to efficiently use the one we already have.
The real problem is that we highly constrain building housing, seemingly treating housing as a negative worse than cars or roads or pollution. Every tiny addition of environmentally friendly multi-unit housing faces stiff opposition, prolonged approvals that last years and risk any financing used to build the housing. Meanwhile, environmentally destructive single family homes on green fields faces no opposition, even though it forces people into long commutes, and single units are far less energy efficient, and are far oversupplied compared to multiunit urban living which is hugely undersupplied. This under supply of urban housing has resulted in something like 9% decrease in GDP, in addition to causing far more environmental damage, and in addition to displacing all sorts of people from their homes and families and communities.
I really don’t see this as very economical for very long. Property taxes on a ~$1m house are about $1200 a month in LA. Maybe this is the reason there are some empty lots, but it’s not very convincing for empty homes.
The only ones I've found is in NYC where due to rent control it's expensive to convert a controlled rental unit into a co-op/condo so landlords have an incentive to empty out buildings and keep them empty until the conversion.
The exception might be if someone is trying to sell the property in the coming months. Doesn't make sense to find tenants who are cool with being kicked out in a few months.
Say you go for anything but want it leased fast. Maybe you get $2000/mo. Say you wait for a higher paying entity but it takes a year but you get $3000/mo.
Depends on what you optimize for.
The naive person would calc how long it would take to the total cash break even. And in particular look at the loss of $24k that first year!
But if they want to sell at 1.5yr from start date?
The 2k/mo option at a 4% cap is 600k. The 3k option delivers 900k, but subtract the 24k and you still get $276k more.
Also, finding tenants, performing background checks, and filling properties can take considerable time. Doubly true for smaller landlords doing this on the side while they juggle jobs and families.
In a few cities, some real estate is held as purely speculative investments or as a place to park cash. If you're an investor buying a $3mm property in Vancouver, BC with a goal of flipping it in 6 months, sticking a tenant in there will only get in the way of your plans for minimal gain. This situation is more rare than it's made to sound by some articles, though.
Generally speaking, you're right: Tenants strive to keep their investment properties occupied as much as possible. Unoccupied properties are costly.
When rent might total $30-40k per year, it would take 10 years of the place being empty to break even.
Unless you mean tenant protections in that owners are hoping to sell the buildings to flip to condos, in which case sure, they’re more valuable without tenants but that’s hardly unique to SF. Many places make it difficult to evict tenants to take rental units off the market.
[0] https://sftu.org/are-you-paying-too-much-rent/
So if you're a landlord with say a 2 unit building, the ideal scenario would be you rent it out, then once you're getting ready to sell, you leave the units empty once tenants leave. Even if you leave them empty for years, you'll get a better return on your investment than if they were occupied by a tenant paying market rate.
Older and richer landlords might not do the right thing because they have other problems like poor health.
We gotta build.
In ideological terms, it's a very convenient position to work from. It means you never have to evaluate if housing policy has played a role, which is handy when you support all the individual policies concerned.
Only a small minority want to acknowledge that the future of urban centres looks more like Hong Kong and less like Springfield.
We haven't designed or planned for the growth we're undergoing. It is a zoning and civic planning problem, first and foremost, and not a problem that can be solved by direct price manipulation.
It is a convenient issue to misdirect attention to for groups of diverse political leanings. Progressives and wealthy homeowners both can avoid any of the messy realities of needing to permit new housing while pretending as though there's this more politically palatable thing they can do instead.
Having been to Vancouver, the only thing that seems like a joke is the massive amount of land that is reserved only for multi-million dollar single unit homes, and the lack of space where apartment buildings are allowed. Vancouver is beautiful, has great transit, but needs a lot more apartment buildings.
Meanwhile, real estate prices are up for the whole country: https://www.cbc.ca/news/business/housing-bubble-small-towns-...
If there's still not enough space after these policies are implemented, maybe then we can entertain the YIMBYs' sqwaking.
I really wonder, why are you so opposed to giving people what they want, which just so happens to also meet BC's climate goals? Multi unit housing is much much better for the environment.
That is basically what happened when I lived in Switzerland. Places were let at reasonable prices, but there was so much competition for supply that your best bet was to find something overpriced.
If you want housing investments to be less valuable, just build more if it.
> YIMBYs' squawking
The huge advantage of the "squawking" which you are unfairly biased against is that it eliminates the profits that these speculators are depending upon.
The rise in prices is 100% dependent on a shortage of housing. If there wasn't a shortage, the market would correct. It may take a year or two of surplus housing to flush out those who are holding on for higher prices and teach them the new reality that they can't depend upon massive unearned gains every year, but it is the only way.
The other advantage of building surplus housing is that it gives people what they want. It stops the hoarding of a few wealthy people and opens up a desirable place to more people. This is nearly as big a benefit as lower prices.
Band aids on far downstream symptoms are not going to solve anything. And people are far too happy to only look at the symptoms rather than the underlying cause.
With a collapse in house prices, this problem is self solving.
Won't this be extremely problematic for anyone who can't afford to buy a house?
By making landlording prohibitively expensive, you compel them to sell. They can't sell to other landlords, since the new buyer would incur the same penalty, so the most likely customers would be first time owners or the state itself. The government, free of the landlord's profit motive, could in turn offer these properties to the public at lower prices through long term mortgages with little to no down payment. The weekly repayments would be less than rent, and the occupants would eventually own the property instead of lining somebody else's pocket. I don't know what the precise term for this model is, but I don't think it's unprecedented.
Like I said, this is the polite route. It introduces complexity to avoid stepping on too many toes, and therein lie its flaws. I can certainly think of more direct methods.
Redistribution of the spoils of unearned income is probably one of the leading causes of violence (e.g. civil war, bay of pigs) and the threat of violence is what helps keep those systems in place.
In supply-constrained markets, asset appreciation far outpaces the revenue from rents. So if you charge taxes on vacant apartments, the asset owner may try harder to rent out the unit, but that just increases their profits even more.
When profits from asset appreciation eclipse rent revenues, establishing rent caps does little to eliminate rentier profits. Already, loans are predicated on rents not increasing above inflation, so rent caps do nothing to curb asset appreciation, especially as long as rental units can also be owned (for example single unit detached homes).
Limiting the number of properties that somebody can own does little to force "small landlordism," unless you also ban the ownership of property by LLCs or other organizations, which would also ban many better forms of ownership like co-ops.
The core problem is not the profits, even though that is problematic. Rentier profits just a symptom of the real problem: asset price appreciation due to exclusionary practices. That's what must be attacked head on, with socialization of land use so that when lots of people want to live in an area, they are allowed to, and anti democratic landowners are not allowed to exclude new people. Ironically, the pure landlords are less often against such proposals, it's the rentier homeowners that are often the ones who subvert society and in turn force profits to landlords. Though quite often, these exclusionary homeowners have become "small" landlords too, and doubly invested in keeping our new people to maximize their unearned profits.
The house crumbles down eventually and eg. in Japan the price of a house is 0 or negative (destruction cost) after only 30years. It's the same in the west, but people choose to pretends it's not, because all their net worth is stored in that crumbling ruin of theirs.
All of these attempts are imperfect but more politically accepted variations of land tax.
https://www.pionline.com/article/20180621/INTERACTIVE/180629...
Edit:
>The housing market would look very different if everybody had to live in their property instead of engaging in transparently parasitic activity like speculation/landlording.
Sarcasm on. Yes, I think we should ban renting out properties. Everyone should live in their own property. Sarcasm off.
No sarcasm: I think we should ban renting.
Toronto rents were getting quite high pre-pandemic, but once tourism dried up, and Airbnb unit owners needed to pay their bills they seem to have released a lot of stock. The overall average rent dropped 16% YoY:
* https://www.torontorentals.com/blog/toronto-gta-march-rent-r...
Toronto has/had a lot of international students as well, and there's a lot fewer of those as well.
From the perspective of a politician this is very good for their career. It's the "fake it", mentality except you never intend to do the "until you make it" part.