Let that sink in for a minute. Got it? They’re using your tax dollars to fuck over the lower and middle class, and its permanent. Not 1 Pres. administration of bullshit. This is a fundamental reorganization of society
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Sure, but that should be land held in the commons, not private home ownership.
Private homeownership is just LARPing owning real capital to placate a new conservatized middle class, completely inefficient as rising prices cannot spur more land production and in fact preclude intensification use since the middle class homeowners don't have real capital to convert to apartments (even if zoning was relaxed), and historically tied up in all sorts of racist shit to boot (redlining, covenants, etc.).
One way that the govt can keep the economy stable is for the Federal reserve to just give the big banks money they call it 'injection'. It's framed as 'lending' but at extremely low interest rates.
The expectation is that the banks will lend this out to companies to stimulate the economy.
Apparently instead of loaning this money out to to small/medium businesses big banks have mastered operating small/medium businesses at scale and are combining their banking with asset acquisition.
So banks having endless capital essentially given to them from the government in our tax dollars...while also having asset and business branches in their own closed system ultimately leads to massive banks owning the world.
People think the government is on their side but it's not.
> Private homeownership is just LARPing owning real capital to placate a new conservatized middle class
If you don’t own real productive capital and depend on it broadly ad much as sale of labor, you aren’t even in the middle class to start with, your in the working class—just LARPing, to use your term, being part of the petit bourgeoisie.
Of course, LARPing as a member of the petit bourgeoisie is the perennial pastime of a substantial portion of the upper income segment of the proletariat, especially the proletarian intelligentsia.
> rising prices cannot spur more land production
Sure they can, both literally (artificial land is a real thing, and its production is spurred by demand running into supply constraints) and more importantly economically (as “land”, the valued commodity, isn’t just raw square footage of the dry surface of the earth, but a product of access to infrastructure which makes it economically useful.)
I personally define middle class as the people with most of their wealth in the form of their home. So yes traditionally those people would be considered part of the working class as you say. I don't disagree.
(My division is supposed to reflect how those people do behave, whereas the traditional Marxist one is supposed to be how they should behave based on the real relations behind the smoke and mirrors. That's fine, different categorizations for different purposes.)
For the second part, well, we'll need to abolish SFH zoning and related things, which is very unpopular because it would undermine landowner's speculation in the short term!
(It's especially annoying because taller buildings would lead to more valuable land area in the end, just cheaper floor area.)
So nevermind there are efficient market-based things to do, like everyone rents land from the state at auction which pays out universal dividend. Our land markets are popular precisely because they are a speculative mess!
This hurts people who already own houses, too - property taxes are assessed on the appraised value of the home, which is a function of what the similarly-sized houses in your area sold for most recently. My property taxes have increased 10% every year for the past several years (and it would have been more if not for a legislative 10% annual cap). I worry that there will come a day when I've paid off my mortgage but won't be able to afford to pay the real estate tax any more.
Once you can't afford to pay the GOVERNMENT any more because property taxes have skyrocketed out of control I'm sure a private company will be happy to swoop in and buy your house out from under you.
So you’d rather have an inefficient use of property that sits languishing just because some one owned it in the past? One of the benefits of taxing property is that it encourages productive use. Use it or lose it. The increasing velocity of property transfers helps increase economic activity.
And are you happy with the concentration of wealth and power that results in fallow land being unused, Inherited and never conveyed to someone that would actually use it?
If it's someone's FIRST and ONLY house then no taxes.
Take the concept of a homestead exemption and make that for everyone's first house so people have shelter once they pay off their house that's not constantly threatened to be taken from them at the whim of government property assessors.
Property taxes do not have to go up because the assessment goes up. I have had assessments go up, but the tax rate go down because the town did not increase its budget.
In the long run it probably will though, since higher land values will probably cause increases in wages and other costs. But it does not have to be proportionally as much as the land value increase.
>Yes, except for places experiencing increasing real property values, real property taxes aren’t increasing.
Unless you're referencing the California instances in which Prop 13 protects homeowners from increases of more than 2%, I'm not sure what you mean. Nationwide property taxes increase over 5% YoY, while general inflation was far less [0]
Your conclusion is based on a series of questionable premises and you assume causation that doesn’t necessarily follow. What support do you have for saying that because the government is influenced by lobbyists and gerrymandering that necessarily means property taxes will go up endlessly.
In fact the evidence is that property taxes don’t go up endlessly they are actually highly stable when adjusted for inflation. Further many states don’t have property tax, or expressly cap them.
Finally everyone always needs more money, individual and companies included. Why should government be any different. Governments are just human organizations like any other. They just have a different role and responsibility.
I am not a tax expert, but my understanding is that each State sets their own formula for property taxes.
In every state I have lived in, the first factor of that "property tax formula" is always "Assessed Value" of said property, and then the formula continues from there based on a slew of criteria (property type, exemptions, etc.).
So you are correct that "Property taxes do not have to go up because the assessment goes up." but it is misleading since property tax is generally going to go increase if assessment increases and all other factors are held equal.
It is more accurate to say property taxes are going up because government expenditures go up. That might be partly caused in the long term due to increases in land prices, since the services your taxes pay for are performed by people that may need to buy land, but it’s not a 1 to 1 relationship in the short term.
I have seen tax rates drop from 1.25% to 1% and the opposite also happens when the tax collections come up short.
I can give an example. I used to have land in NJ a few years ago, and the total property tax went up year after year. If I recall, the tax rate went from ~1.5% to slightly above 2%, and the assessment barely went up. The property tax went up due to government expenses coming in higher than expected due to all the debt NJ is in that was not counted as debt (underfunded DB pensions). In fact, I lost money on that land because it was worth less since prospective buyers know the property tax will continue to rise, so they have to budget for that.
On the other hand, I had land in FL at the same time, which has appreciated a lot and was assessed for more. But the total property tax paid stayed more or less the same, since the tax rate came down since the government’s expenditures did not move as much, and/or were offset by new payers.
The property tax formulas have more to do with what proportion of the government’s expenses is each land owner liable for, but the total tax collected does not need to rise in step with total land value increase.
This is why CA has prop 13 which limits increases to property taxes from year to year specifically because CA had seem property boom/bust cycles kicking people out of homes because of irrational real estate prices.
Well, no, California has Prop 13, because wealthy investors in property used constructed images of that scenario to build support for a law to transfer more wealth to the already wealthy, not because its was a real problem (and, even if it was, Prop 13 doesn’t focus on dealing with that problem.)
There are problems with prop 13, but it does prevent people from being kicked out of their owned homes for temporary market conditions that are out of their control.
Imho the problem was that the politics of the day got it passed to cover commercial properties too, when it really should just cover primary residences. And not secondary homes or rental properties.
These programs often have terrible red tape and even awareness problems. They also ignore people who aren’t seniors but may be going through temporary rough spots. I prefer to have the prop 13 rules fundamentally built in an applied to all primary residences as a measure to provide a more universal stability of a home.
> not because its was a real problem (and, even if it was, Prop 13 doesn’t focus on dealing with that problem.)
California politicians were working on solutions to the property tax problem for years. The same year prop 13 was on ballot, something else was on ballot to fix the problem, which would have done a much better, targeted job - but unfortunately big money poured into prop 13 and that got passed.
My parents bought a new house in 73, and by the time prop 13 passed it was worth around 3x the purchase price. They both worked in tech and were close to having to sell their house (they had 4 kids).
It was a real problem, prop 13 was just a bad solution.
Towns normally set the property tax rate to meet their budget, so appraisals increasing across the board would not increase you property taxes.
Prop 13 leads to perverse outcomes like subsidizing slums and trust fund kids while penalizing new homeowners and people improving their property. It's also simply unjust for two neighbors with similar properties to pay different rates based on their age or even ancestry.
I say it is unjust for a fixed income senior citizen or disability insurance recipient to have their property tax base grow to a point where they must flee their home of decades. The callus answer is to force the person to sell and take their gains and move so a younger person with higher wages can afford their once-home. I think it is unjust to remove an older, less abled, and less employment-opportunitied person from their environment.
I replied elsewhere: nobody is having to flee anything. If they would rather sell and keep gains rather than spend them to continue living there, that's their choice.
It never happens because it the math just doesn't work out. State/local revenues boil down to: property taxes, sales/use taxes, excise taxes, fees and income taxes. The big revenue streams are property taxes (schools, towns), sales taxes (county/state), and income taxes (state). Fees mostly sustain individual programs and have limited revenue potential - you can't make a fishing license $1000.
So when you get rid of property taxes, you get rid of local control of the levy, which sounds great until Little Rock doesn't want to provide state funds to pay your football coach $200k. Even in a middle of the road state like Arkansas, the pressure to meet Medicaid and other other state program dependencies would make it difficult to fund local government. You'll have a revolt if try to levy a 20% sales tax.
The talk radio answer is "shrink the government!". That means layoff cops, firemen, close schools and libraries, eliminate school sports and close public resources like parks, libraries and suspend things like street lighting. That will make reactionaries happy, but employers will leave.
That makes sense but 14 states allow local governments to enact their own income taxes. This seems like an easy fix. The problem with property taxes is that they’re taxing wealth which is not creating monetary value which can be used to pay the fees.
This totally depends on the jurisdiction. In NYS, your taxing authority (town, school district) has some levy that is approved. Your share of the levy is roughly your property's assessed value divided by the total assessed value of properties in that taxing jurisdiction. There are some complicating factors like when a taxing authority like a school district spans multiple assessing authorities (like a town/city); but the basic concept is sound.
I was very surprised when I learned other places charge you some fixed fraction of the property value; and as that value goes up the budget of the municipality goes up.
That's almost never a worry that plays out. Property taxes are usually a levy, allocated prorata based on total assessed value.
If your taxes are going up dramatically as values rise, that's either a sign of issues with equalization rates (the county/town/city needs to periodically reassess), or that other areas in the jurisdiction are declining relative to value. You often see that in cities where property values often mirrors the old "redline" maps... gentrification gets you million dollar condos, but two blocks away some tenement is declining in relative value.
It's a good thing that the value of your house is going up though, right? I suppose it might be upsetting to have to sell your house if it becomes too expensive, but that's a really nice problem to have imo.
Why is it a joke? Your property value went up significantly, you are in fact a winner. Why should you get to shirk your responsibility to your community?
I say it is unjust for a fixed income senior citizen or disability insurance recipient to have their property tax base grow to a point where they must flee their home of decades. The callus answer is to force the person to sell and take their gains and move so a younger person with higher wages can afford their once-home. I think it is unjust to remove an older, less abled, and less employment-opportunitied person from their environment.
They could take an loan against the unrealized gain on their asset if they'd like to continue living there. If they'd rather sell and keep the cash, that's their choice. Letting them both keep the windfall and shortchange their community doesn't make sense.
In addition, California (and I suspect other states) have a means tested property tax postponement program that allows low income homeowners to defer taxes until they move out, sell, refinance, or die as a substitute for obtaining a private loan.
It's still a pain. And once you bought a house, you might like to think of it as an unmovable good (literally, in many languages). Now your cash flow doesn't permit you to live there.
Also, with low/zero IR, PV of tax payments is infinite, it's not like increasing house price is offsetting that.
I mean, you're basically arguing against property taxes. Sure, property taxes are a "pain", but so are all taxes. But yes, that's literally how property taxes work -- you don't get to live somewhere infinitely long without paying property taxes.
In practical terms though, property taxes aren't infinite -- they're only for as long as you're alive. And you can realize your increasing house price while you're alive too (or your kids can). And I know people who have come out very much ahead in that equation in certain gentrifying areas, e.g. turning a $30K investment in 1985 into an $8M sale in 2020.
So within reasonable "non-infinite" time frames, an increasing house price can be very, very, very much offsetting property taxes. That's just a fact.
> I mean, you're basically arguing against property taxes.
Not really. You’re saying it is no issue that tax goes up proportionally to house value, I’m saying it is much more onerous than, say, your income tax increasing with income.
Also, if the end objective is “pay tax to local government and make it so that wealthier people pay more”, there are tons of ways of doing it without this anti-feature. Slice of income tax, tax depending on property size (not price) etc.
> This hurts people who already own houses, too - property taxes are assessed on the appraised value of the home,
Actual asset values increasing aren’t a harm, and there is basically no place in the US with property taxes high enough that them increasing due to market value can possibly offset the utility (and realizable benefit) of the increase in value, even without the (common, if not usually as ridiculously low as California’s) caps on annual assessment increases that assure that properties that don’t change hands are systematically undertaxed when rapid sustained market increases occur.
Modern financing provides plenty of ways to access equity, so this is very much a non-issue. Though its an issue the property-rich like to pretend is real, because it supports policy that cuts them more breaks and makes things that much worse for everyone else, e.g., CA Prop 13.
This can be fixed somewhat by excluding primary residence from such taxes (essentially a tax-free allowance of 1). This cuts at hoarding real estate as investment, is a nice extra tax on people buying second homes, and doesn't (directly) affect 99% of homeowners who only ever own one house.
I'm not sure I support land taxes etc. but this at least deals with your objection.
So the people who live in an area shouldn't be the ones paying the taxes to support the area?
Someone else should pay the taxes for them?
Either your tax would come entirely from income - huge handout to homeowners / cost to non-homeonwers - regressive. OR your sales tax would be so crushing that no one would ever buy anything in your community.
If it’s sarcasm I detect in your otherwise fine post, it doesn’t add to the content.
There are many ways to fund the local area. UK has explicit “council tax”, based on property value, but not as a fixed percentage, rather more linked to the percentage of the house value - so your tax bill doesn’t double just because other peoples houses appreciated. These are paid for all houses, and go to the local government. I think this is indeed one of the main sources of income for local councils.
But for example for capital gains tax, which goes fully to the central government, primary residence is excluded.
This means that people buying property as investments end up paying CGT but not ordinary house owners. If investment properties are rented out, it is the renters that pay council tax, as the actual inhabitants of the properties.
There are so many ways to skin a rabbit with taxes, you could tailor it pretty well to discriminate between homeowners and investors.
Strange argument considering public schools (and in general _many_ public services) in CA are in terrible condition. Maybe I'm missing the point though.
Yet somehow total tax burden for those in the state is well above other places, including those with functional public services. I wish it were easier to figure out where the money goes.
CA school funding per student is above the national median. If some schools are in terrible condition then it's due to incompetent management, not lack of funding. Conditions in my local CA public schools seem reasonably good.
CA cost of everything is above the national median, no surprise dollar spent per pupil is higher. If it were the same that would mean teachers are making significantly less and who knows what other compromises. Prop 13 changed a lot about how schools are funded (local vs state) and has lead to some challenges in certain districts relative to others, and it took decades for education funding to reach parity with pre prop 13 levels.
There is another way it hurts homeowners: the high cost of housing increases the cost of upgrading and maintaining the home you own, mostly via the construction labor market - because the workers need to pay for the roofs over their heads too.
Therefore, just keeping the depreciation of your house at bay ends up becoming expensive. If you are lucky enough to enjoy DIY work like I do, you can avoid this somewhat, but the moment you need to do any major renovation that you don't have the time and skills to do yourself, it costs about the same as a purchase.
Property taxes in most of america are a made up number. The county needs $X and levies Y% in property tax and the auditors use a formula to solve for $Z, which is the value of an individual home. This is exactly why, all over the country, you'll find houses that just sold for $500k which have an "appraised value" of like $120k. Property taxes are dictated by the size of $X, not really the value or volume of houses.
Some areas have legislation that prevents property taxes from increasing at too fast a rate. In those regions, the formula is changed a bit so that newer residences are charged at a high initial rate.
> Property taxes in most of america are a made up number.
Except in States that have property tax and no income tax, the appraised value is close to the sale value, usually slightly under.
So in a 500k example, the appraised value is something like 450k (or more). Then your property tax might be 2% of that appraised value, which results in a $9,000 property tax bill every year, even when you retire.
If speculative buying drives up the price over 10 years, it also drives up the appraised value and also your tax bill
Depends on where you live. In CA property taxes are assessed on the appraised value of the home when you bought it. If you give the deed to your kids they can pay taxes at this rate as well. Plenty of homeowners and landlords in CA are enjoying their locked in 1976 tax rate today. It used to be you'd help your kid get a job at you or your friends company, now you just hand them the deed of the dingbat apartment your father built on the lot of your former single family home in the 1970s before that was illegal, and they are set for life without ever having to work a job again. Getting 5 units of people paying market rate for a 1 bedroom means you are making over 6 figures.
Even with the artificial constraints in many places, in the end property tax should generally be relatively independent of property value in absolute terms. E.g. in Oregon we have a 3% cap on assessed value, and that probably helped some people for a couple years early on after the law was passed, but over the longer term it doesn't really matter. The only effect assessed value has is on the size of your particular slice of the total tax revenue.
Reaching for yield. People will need housing, and assets are inflating because there’s more capital chasing fewer returns. Lock up housing assets, you’re locking in returns.
If you own all options and the renter needs to have some sort of housing, they'll pay anyway. The end result is that the owner will start collecting a larger percent of the renter's earnings.
Both things could be fixed in a day. Also, both of them could be impossible to overcome ever. What's the distinction you're trying to draw. If it comes down to an acute situation where I had to choose, I (and most I think) would choose to eat. I understand in the real world, there probably wouldn't be such a clear choice.
When you make housing too expensive, people just get up and move. People are not surfs and are not trapped or stuck living in a house they can't afford. It might not happen overnight but populations do migrate due to housing costing too much.
The move BlackRock will do, based on their history, is to incentivize increases in adjacencies to drive value. What I mean by that is that they will, for example, encourage new office complexes in locations favorable to their new rental domains. Think SF bay area’s natural and warped logic locating massive complexes on the peninsula or ST instead of Fremont/San Jose.
Right, but the greater the share of the market you own, the less you have to invest in making your offering more attractive, and the more you can start simply increasing rents.
They along with others are trying to build a monopoly/oligopoly in housing. Naturally we would expect regulations against this, but the fact that it's going this far is a bad sign.
Maybe. I'm skeptical it's enough though. Clearly, the intention is to see how much they can get away with as monopolists.
"In 2016, with the real-estate market heating up in metropolitan areas across the country, single-family rental companies also started pushing the limits of how much they could raise rent every year. American Homes 4 Rent raised rents by 11 percent between 2016 and 2018; the average rents in the top 30 markets in the country increased by just 6 percent over the same time, according to Zillow. American Homes 4 Rent owned 70 percent more properties in the first nine months of 2018 than in the same period in 2014, but it collected 150 percent more rent. “It’s up to us to educate tenants in a new way that there will be annual rental rate increases,” David Singelyn, the CEO of American Homes 4 Rent, said at an investor’s forum in 2017. “This has been a very passively managed industry for 30, 40 years, up until the institutional players came in.” [1]
Since land is a limited asset they can effectively corner the market in specific regions and gain pricing power, allowing them to turn that 20% purchase price premium into a hefty profit.
Cities can counter this by allowing more new construction but backfilling Single Family Residences requires land and that may not be readily available within certain commute distances.
It's slightly more complicated than that because what they'll do is keep the properties and rent them. There being few houses to buy increases the demand for rent, and cornering the rental market means you can control rent prices.
They certainly get better mortgage rates than their middle-class competitors or maybe they just buy it outright which would save $100k's in the long-run.
It doesn't make sense because the headline and linked tweets misrepresented the facts of the WSJ article it sourced its info from. I quote "Blackrock is buying every single family house they can find, paying 20-50% above asking price and outbidding normal home buyer..." and then he links to https://www.wsj.com/articles/if-you-sell-a-house-these-days-...
The general thrust that institutional investment groups have increased their purchasing of single-family residential homes over the last decade is true (around 20% to 25% of all such transactions now, IIRC). And it may be true that such buyers are pushing up home prices in many areas. I haven't done any analysis of that so I cannot comment on it.
However, the tweets are ... not quite correct. First off, the transaction in the article was a deal where Blackrock purchased a set of 124 rental properties that was already owned by an institution (D.R. Horton). It was this complex https://www.amberpineshomes.com/floorplans. The seller is quoted as saying "We certainly wouldn’t expect every single-family community we sell to sell at a 50% gross margin", which isn't the same as 50% above asking price. Various groups bid on the complex and, from another linked article, all bids came within a few % of each other. Any seller would hope to sell with some sort of positive gross margin. The seller's statement indicates that 50% may be high for residential real estate and thus is an indicator that the market in that area is quite hot.
The average price per home in the deal was $258k. Perhaps a bit high given the average size in the complex, but... If you examine the location (because real estate is all about location), we're talking about a small town outside of Houston that has grown in population from 56k to 91k between 2010 and 2019. The median family income there in 2016 was $60k. So this looks like a high growth area with upside potential.
The buyers are probably making a bet that the homes there will see substantial appreciation in the future because of this growth. The seller probably either wanted the cash injection, didn't want to manage rentals anymore or otherwise prioritized some short term concerns over long term asset yields.
To sum up, the people at Blackrock is not stupid. They won't pay a premium everywhere. They'll only do it in areas where their analysis shows that they will make it back along with a substantial profit. Is this good for society as a whole? Perhaps not. But that's not their problem.
I'm sometimes afraid of these "mega-corps" that have the effect of really changing things. Sometimes in a bad way. Sadly, once you've got money, you can earn much more. What the limit to t->infinity ? One single corp dominating the world ?
Isn't that the problem in game economies as well? Making virtual money begets making more virtual money leading to exponential growths. Some games solve it by making items more expensive for hoarders. In real life we pretend that growth inequality does not exist.
I like the thought experiment of taking that to its absurd logical conclusion.
I'm sure there are some fun ones. Eg, Once a single corporation is in control of everything, and everything that comes in is profit and everything that goes out is a loss then the only missive left is to cut all losses, no? How do we do that? Burn the planet? Can't lose if there's nothing to lose.
Its worse than that. As a tenant, you cannot have people who are not on the lease stay long term without them going through a background check. This means that you may end up increasing the homelessness of relatives with temporary financial issues and also isolating potential mates with financial issues from living with their significant others until married, forcing the better financially equipped mate to take a hit to their credit/rent risk and lose the ability to rent in a better area. Also, you are severely limited in the things you can do at leased residences. Garden? Maybe not if its in the lease.
It needs to be significantly easier to buy a first house than a second house. Getting a first mortgage is "easy" until you factor in the "mortgage insurance" scam. Rent seeking should not be such an appealing option to make money. The result is a bunch of scummy landlords, essentially utilizing the poors to "keep down" the other poors through rent exploitation. Basically the "upper middle" class is the gatekeeper preventing lower classes from having social mobility by maximizing rent exploitation. It's a great system because it prevents the real upper classes from having to get their hands dirty.
Rent control makes landlords very hesitant to add new people to a lease. Otherwise the unit can just be passed from friend to friend and never get back to market.
> Otherwise the unit can just be passed from friend to friend and never get back to market.
I'm not sure how this is unfair. Considering the way capital gains are taxed after the sale it seems like the grandfathered-in rent controls are just a lever at the opposite end of the spectrum. But of course, we don't want to give any levers to the poors so it has to go.
We can want to support the poor and also recognize that prior attempts have unintended consequences or are ineffective. In this case rent control seems to reduce housing stock. The solution may be building more units so regulation should focus on that.
This is what happens when you keep printing money and keep mortgage rates incredibly low.
All that money's gotta go somewhere. Hey, at least the CPI isn't going up right? Its only the most expensive thing in most people's lives that has doubled in cost in about 10 years. Same thing for stock prices, and slowly other commodity prices are catching up as well.
Non-homeowners are being shafted by this fed/ecb policy. Every year the gap between poor and rich grows larger as a result.
> Its only the most expensive thing in most people's lives that has doubled in cost in about 10 years.
Most people pay for housing by monthly payments, making the nominal value of the house irrelevant if the monthly payment stays the same. Further, you should consider the home owner's "basket of goods" to include the hypothetical rent they'd be paying for an equivalent house. Their mortgage payments and home ownership are then more like taking a loan to buy a fixed-income asset that gets renegotiated annually. A home owner who lives in their home is both a landlord and a tenant.
I'm not a home-owner, and I don't feel shafted. My stock market holdings have kept pace or done better than if I'd purchased a house.
Non homeowners are paying way more whilst getting less in return.
I really dont understand the logic of being OK with paying double for a house, just because the buyer can sell it for the same amount (or higher) afterwards.
I could purchase a 150m2 house with my salary a decade ago. Now I could find a 75m2 house that would be too expensive for me. I dont care about being able to sell the house for more money afterwards, it doesn't matter, because I have to live somewhere anyways. So any profits gained will (probably) be factored into the purchase price of the next house I'm buying.
Some people say "Well, you're paying more but you can also sell it for more afterwards". But non-homeowners are still paying more for less. That's the argument I am trying to make (poorly)
Rent increases are a cause of inflation (as part of the basket of goods that defines inflation), which in turn causes interest rate increases, which then cause home price decreases.
Homes are like fixed-income securities. When interest rates go up, the value of existing securities goes down.
Daily no. But higher interest rates and high inflation absolutely leads to higher rents each year when your lease renews (unless of course your in some rent controlled environment).
> Some people say "Well, you're paying more but you can also sell it for more afterwards".
No, they don’t, even talking about non-homeowners, because non-homeowners aren’t paying that much more (rents aren’t increasing the way purchase prices are, the rstio between them is increasing), and non-homeowners have nothing to sell, unless you are referring to subleasing as selling.
> But non-homeowners are still paying more for less.
I think you mean “first-time homebuyers”, but that just means it is more attractive to invest elsewhere while renting than jump into personal home ownership. No one is losing anything, certain choices are just becoming less favored.
Are you talking about monthly payment or lump sum? When the lump sum doubles yet the monthly payment is the same, has the cost really changed? To me, no. I was never going to buy lump sum, so I only care about monthly payment.
Presumably, owing money for 60 years instead of 30 years will cost you much more in the long run. And more baked in interest early in the loan means less recovered when you sell.
You forgot interest rates changing, which is the primary cause of the recent home price changes. Remember, the mortgage market has a set of standard terms, like a 30-year-fixed.
After all the adjustable rate issues from the last housing crisis, I believe most mortgages since them have been fixed rate. I don't care what interest rates do, my mortgage rate is never going up.
This touches on another point. For home owners like myself, inflation is a good thing as it makes my highest monthly expense relatively cheaper.
In the US 30 year fixed rate mortgages are common (standard?). Rates have also bumped around record low territory for years.
I know people who refied into 15 year fixed, but the rates have typically been so close I didn't see the point. Just pay more each month on your own and avoid the costs of the refi.
Rates might have little to do with whether refinancing from 30-year to 15-year makes sense. The most important factor is how long you plan on living in the house compared to the difference in interest paid between the two amortization schedules during that time. The longer you stay in the house, the larger the difference to where paying refinancing fees is virtually free.
On the typical fixed rate loan, amortization schedules are a function of rate, time, and payment. If someone wants to accelerate the schedule, they just need to pay more principal each month.
So, if someone already has a 30 year and the 15 year rate isn't much different, refing into a 15 isn't necessary. Just start paying monthly like a 15 and it will get close enough.
Also, if I already had a high rate loan and was refing where the 15/30 rates are very close, I would go 30. That way I can pay it like a 15, but have the flexibility to pay less if, for example, I lost my job.
Finally, this is why it's common to make 1 extra payment each year as it will shave ~4 years off the end of the loan.
Your payments go towards both interest and principal in a proportion that varies over the lifetime of the loan, such that your time frame is set by the terms of the loan. If you get a 30-year fixed rate mortgage, you pay it back in 30 years, regardless of the loan amount or interest rate. Look up "amortization table" if you're curious.
You mean the repayment amount? I'm not sure what you're asking.
Of the lump sum price (principal), interest rate, loan term (time), and monthly payment, you can only change three of the four, for a fixed rate loan. The fourth is defined by the combination of the others.
Here's why this matters to you. When the Fed funds rate is at 10%, the mortgage rate is 13% or so. That says that the risk that you have is 3% above the risk free rate.
When the Fed funds rate is 0%, your mortgage rate is 3%, that same difference in the Fed Funds rate.
But wait, think of that like we think of absorption. If I have a capacity to absorb of 1L and can absorb 50% of a liquid, then I will break when 2L is poured. If I bring my absorption rate to 98%, then I now break at 50L. If the government can absorb at 99.99% rates and you absorb at 97% rates, they can absorb 10000L while you can only absorb 33L.
If you want the government to control every decision regarding money in the future, you want the interest rate to be as low as possible. If you want people to use free markets to decide where money flows, you want high interest rates. Why is politics so contentious? Interest rates are dropping.
The differential between mortgage rates and the federal funds rate is only driven in part by regulation. The rest is market forces and the perceived risk of rising inflation. If we had certainty on how inflation would change for the next 30 years, mortgage rates could be pushed to a negligible margin above the federal funds rate.
> If you want the government to control every decision regarding money in the future, you want the interest rate to be as low as possible. If you want people to use free markets to decide where money flows, you want high interest rates.
You haven't explained this assertion. I see it a different way. If we want consumer demand to decide how capital is invested, then we want more inflation. Inflation transfers wealth from creditors to debtors. Debtors spend their money, which indicates what's useful to produce. If we want a handful of bankers to make guesses (and often guess incorrectly) about what people will want to buy, then we want low inflation, transferring wealth from debtors to creditors.
The problem with (excessively) low inflation and supply-side economics in general is that the suppliers must make their choices with a decreasing level of information on what will be demanded. It's only through consumer demand and its pressure on supply that reveals what's important through market forces. Otherwise we may as well go back to central planning.
Note that I'm not advocating for fluctuating inflation. All parties benefit from stable inflation rates. Uncertainty is dead weight loss.
> Most people pay for housing by monthly payments, making the nominal value of the house irrelevant if the monthly payment stays the same.
Except homeowners get price exposure to the value of their home on the market. If you purchase and then go through a downturn which devalues your house, now you’re in the hole: you can’t use the sale price of the home to pay off the loan, so you’re stuck in that home until its value climbs again or you earn enough to pay off the loss.
Higher values means it takes longer for you to cover any % decline with wages, so you lose mobility for longer in a downturn. Irrelevant if you truly want to live in that place for 30 years, but not many people can actually make that commitment.
> Except homeowners get price exposure ... you’re stuck in that home until its value climbs again or you earn enough to pay off the loss.
> ... Higher values
Higher values at the time of purchase or at the time of sale? The latter doesn't jive with the idea of being "underwater" on the loan, since you'd have benefited from the price exposure.
Higher values at the time of purchase is relative to what the home was worth in the past, but our efficient market theory tells us that the price today can be considered neither high nor low (yes, Shiller might disagree).
I guess you're pointing out that interest rates are near zero, so that there's really only one way for them to go. I'm not so sure, because in some ways it's a Zeno's Paradox situation. I don't always care about the number of basis points the interest rate has changed, but the percent change of the interest rate. I get more benefit from the rate going from 4% to 3% than I did when it went from 5% to 4%. We can always get closer to 0%, because there's an infinite number of subdivisions we can make.
Right now interest rates are low, they cannot use them as a tool in a crisis, for this reason they are printing money to lower the overall debt obligation of the US. Inflating away our debt. This will eventually lead to inflation at which point the interest rates will rise again (prediction, at the end of the decade). This is the correct play for where we are in the long term debt cycle. In my opinion, this is happening a little earlier than it should, but it might just be a sneak preview provided by the pandemic.
Stock prices are rising because the interest rates are so low. A ton of institutional money that was in bonds is now out seeking yield. This moves a ton of money into stocks and, as we see in the article, real estate.
The labor class has been shafted for years by the US dollar being the global reserve currency, causing us to run persistent trade deficits. This has off-shored manufacturing and gutted our capabilities. If the US weakens the dollar and rebuilds the manufacturing base, which they appear to be trying to do with the investment in semiconductors, I think we will be in a much better position. I am happy with the stimulus because it does both, weaken the dollar and invest in US capabilities. We just need to make sure it flows to the correct places.
> We just need to make sure it flows to the correct places.
That's the key, and also something that's unsolved. History shows that a lot of the money will be squandered in increasing "clever" ways, and it may take until the end of the decade before the public even realizes that it happened.
They were already used as a tool, and so can't be used further (due to irrational fears of nominally negative interest rates). Printing money is effectively equivalent to lowering rates.
“Printing money” isn’t a literal description, its a metaphor for a bunch of other “loose money” monetary policy choices which increase the money supply including, not alternative to, maintaining low interest rate targets (in fact, most of the other actions are the means by which actual rates are kept near the target rates, rather than actions in addition to acheiving rate targets), which is an ongoing intervention.
> for this reason they are printing money to lower the overall debt obligation of the US
Except the way the US does it, the Treasury issues debt and then the Fed prints to buy the debt. So when we print $1T, we also take on $1T in debt. I know you mean lowering through inflation but as long as it's done this way I don't see how it matters. If the dollar looses 50%, we then need to issue $2T in debt and print $2T the next time.
Yea I guess that's true, I feel like it only matters the first time you do it though. Like if year 1 you do $1T of debt, your debt burden after 1 year is $1T. In year 2, you inflate 50%, but need to borrow $2T. Your debt is now, in year 1 dollars, effectively (1 + 2) * .50 = $1.5T. Year 3 you do it again and take $3T in debt. Now effective debt load (in year 1 dollars) is (1.5 + 3) * .50 = $2.25T. So effective debt continues to increase despite the inflation.
But each time you take more debt on, you presumably get some value from it, and if that value is greater than the interest on the debt in real terms you come out ahead. It's not money for free, it's money for cheap.
Not arguing with you, but are you suggesting that raising mortgage rates and/or stopping the printing of money will get rid of the Blackrocks and make housing affordable to the working class?
The argument might be that in that event, housing becomes less attractive as an investment to the Blackrocks of the world, and they have alternative lower risk sources of return in a higher interest rate environment?
> Its only the most expensive thing in most people's lives
For homeowners, it is the most expensive thing, but homeowners are winning on it because they get the value of the asset appreciating.
For non-homeowners, the reason CPI isn’t going up is that rents aren’t rising with purchase prices, its the purchase:rent ratio going up. So it isn’t hurting them, either.
but homeowners can't actually access that value because they would need to immediately use the money to buy another house. They don't let you continue to live in the house after you have sold it.
You could rent after selling. Or you could move to a cheaper market. Or you could downsize in your current market. There are of course many ways to access the value of the house.
The root cause here isn't really the Fed. We've been under-building housing since 1990, back when rates were 5-8%. If you track new housing starts against adult population, you'll see some pretty terrible things.
Granted this is lower than rates were in the 1980s. But if the answer here is you need to keep rates at 10-15% to build sufficient housing I don't see how that's politically tenable.
Low rates are effectively a demand-side subsidy for housing I think, similar to other policies. But as you point out, if you restrict the supply-side, demand-side subsidy can be counter-productive.
These are building starts (i.e. permits obtained, but construction not having broken ground yet), but the more complete US Census data at the .gov website shows that completions haven't been far behind starts within the last five years.
> This is what happens when you keep printing money
The problem isn't "printing money", inflation is a good thing as it encourages investment and maintains the movement of money. The problem is that printed money is only being put towards one purpose - capital markets - so the capital markets are what inflates (at the expense of everything else). If the printed money was being used on infrastructure payments, or some other distributed investment, the inflation would go to general labor first, which then would spread the inflation across the entire economy as they made individual purchase decisions.
It's tempting to say house prices and interest rates are opposite sides of the same coin, but the situation is messy.
I mean ultimately what I want is to pay 35-40% of my take home salary on a mortgage, just I like I pay now in rent.
The reality is though, here in the UK, that I need to save 2-3 years of take home pay, to put down on a deposit for a mortgage that will see me pay 50% of my take home pay, and I will still end up living in an inferior property to what I'm renting.
Meanwhile my landlord, who bought the place I'm in the 90s, is making a profit.
I don't really agree. Japan has had very easy money and QE for ten years longer than the West. Yet, it's one of the few housing markets in the world where prices have not risen in 25 years.[1] Runaway housing costs are everywhere and always a phenomenon that results supply constraints. Usually entirely zoning/regulatory driven. Usually due to NIMBY activism.
Given supply constraints, I agree that easy money probably does drive up prices. But without artificial constraints, any rise in price would just dissipate back into higher supplies. That's why you see QE result in higher housing costs, but not higher car prices.
Japan's population is declining. What's your point?
Why would you expect house prices to go up when there's a ridiculous oversupply of housing. There's only 55M households in Japan, and there's ~9M vacant homes. That's ~14% of homes.
Housing is an expense unless there's someone to live in it and pay rent.
Tokyo is growing faster than New York, London, or most other major Western metros.[1] (It's true Japan as a whole has slow growth, but Tokyo still has robust growth because or rural to urban migration.) Yet real housing prices have not risen in Tokyo in 25 years.
Even so, normal people can and do buy property in close proximity to the city center all the time, and cheap rent spots are easy to come by. Minato-ku was definitely crazy overspeculated, but go 15 minutes away by train and you get an order of magnitude cheaper housing.
The problem (I think) is that the Fed has dumped too much money into the system. There are no assets left to buy at reasonable prices. So now investors are buying homes.
This is the downside to the current "bailout". I think the last "bailout" was a bit more lean. People were hurt, but in different ways than they are today.
REITs have been doing this for a long time. It accelerated after 2008 because of the housing collapse which was triggered by Banks creating to much money rather than the Fed.
Red herring. Most origination of subprime started with private market actors. GSEs were a fraction of the market; very late to the game and never held anywhere near what investment banks did.
If you want to fuck with landlords all you have to do is repeal your local zoning codes. Institutional money is pouring in because American cities have erected ridiculous barriers to entry in the housing market, making appreciation of home prices state policy. Repeal those barriers and make landlords poor again.
I don't care. Landlords aren't "providing housing" they are just money conduits. It is demonstrably the labor of their tenants which provides the housing, and the pendulum needs to swing back in the tenants' favor for a while.
I think they are. They are purchasing an asset that others may not be able to afford and making it available. Additionally, they're funding construction of more housing wherever possible. Are tenants just money conduits for the corporations they work for?
Call it what you want, but the obvious fallout of this is that valuable assets will be owned by very few people, and rented out. A tenet of the Great Reset is that "you will own nothing and be happy".
I'm concerned not only about the Blackrocks, but also smaller investors fueled by cheap cash and wealth fantasies based on flipping and FIRE/4HWW. The depressed, small city in northern New York featured in this article (https://www.uticaod.com/in-depth/news/2021/04/07/vaccination...) has people buying houses sight unseen from other states, which might be a good thing if they intend to live there, create businesses, build up the city's tax base, and invest in the community. However, I am very skeptical any of that will happen based on the many reasons cited in the article.
The problem is that Blackrock is taking advantage of "free money" to get in on this arbitrage while it can, while normal people don't have anywhere close to the same opportunities to take advantage of "free money". Naturally, Banks eat up all land and houses, and then "you will own nothing and be happy", as per WEF.
I really wish we'd get some innovation in the housing market. 3D printing of houses or something could be epic. "Just" disrupt the current construction companies... It's clear they can't keep up with the demand right now.
Sure, we can't print more ground to build on. But it's another cause of increasing real estate prices here in the Netherlands.
Probably need to zone some of that agricultural land (60% of land usage in the netherlands) into housing, if we want to give young homeowners a chance at owning property.
I think the disruption will come from the civil planning side of the equation. When we can figure out how to build a city on the edge of Arizona that people actually want to live in then we can begin to leverage more efficient and automated building techniques like 3d printing houses and stuff.
It takes more than houses; also entertainment, food, infrastructure, jobs, etc. Otherwise, you're 100% right, location is king and nobody wants to move away from a fun/profitable/valuable city to live in an abandoned mining town in Oklahoma just so they can own a home.
As dystopian as it might sound, I wonder if there is some way to "crowdfund" or "preorder" a new township location. Everyone signs up, pledges like 1,000 USD or something with a lease extending at least 3+ years. And developers can use that money to build an entirely new township in a location with cheaper land. This might help alleviate the problems that come along during a cold start with requiring critical mass adoption before a location is desireable to live in. (Not suggesting this exact course because having an entire town owned by a single developer sounds like a capitalist hellscape; just thinking out loud, I don't know what the actual solution would be)
I believe something similar is already happening with something like the Culdesac project. (I have no affiliation with this project, just so happen to live near it and have heard about it a few times) : https://culdesac.com/
Yes, although in hindsight it's easy to say that was poorly executed. It looks far too big and tried to be more than it should have been in my opinion. I'm thinking more along the lines of small neighborhoods on the edge of a city that can provide stronger logistical support.
Closer to Sun City Arizona.
> ... This caught the eye of the FTC, which said the advertising was deceptive and ordered the city’s developers to stop ...
This is also an interesting point in the article. Was it actually a scam or just overly ambitious and poorly executed?
The bottom line is that local land-use laws are murky and problems with local codes are very difficult to predict and control for at scale - and that's the way existing homeowners want it.
It's interesting too that homeowners are such a powerful lobby, but without a single entity setting policy or giving talking points. It is, essentially, our culture. This is the way we want it to be. At least for now.
Isn't prefab a thing in the US? I have a hunch 3D printing won't solve the issue since you need not just walls, but plumbing, electricity, windows, doors, etc. Then again, imagine Blackrock or someone else just starts buying land. You're screwed anyway.
Lack of housing is not a technology or industrial problem. New homes can be made easily and relatively cheaply if given the go ahead.
Lack of housing is by policy. By ensuring there are not enough houses ensures there is more demand than supply, which means higher housing prices, which means higher mortgages. The mortgage market is based on rising house prices. The banking industry is based on the mortgage industry. Low house prices, would mean a falling mortgage market, which means a banking crises. Given that the banking cartel has more influence on politicians than the populous, we have this current state of affairs.
Remember, in the 1950s a new build home would cost about 1 years salary. Now one year's salary might only buy a nice car. Building technology hasn't gotten worse, it's much better and cheaper. It's not the construction companies that need disrupting.
Edit: Also I should say that that was the state of affairs until just recently. This recent move by Blackrock and the like is the prelude to massive inflation. They are abandoning paper assets (cash, equities etc) and investing in hard assets like housing, farmland and commodities.
Blackrock is not abandoning anything or massively shifting strategy they have always been a real estate focused investor and have a multi decade history of residential single family investment. This is not evidence of coming inflation.
Remember, in the 1950s a new build home would cost about 1 years salary
I'm afraid that is mostly a myth. This source (https://www.longtermtrends.net/home-price-median-annual-inco...) shows that the home price to median household income multiple in 1950 was around 6, or about the same as now. It did fall quite dramatically during the late 1950's, going a bit under 5x by 1960 and nearing an all time low of just over 4x by the late 1990's.
This other source (https://archive.curbed.com/2018/4/10/17219786/buying-a-house...) shows that median household income in 1950 was $3,000 and the median "home value" was $7,400. Which is still 2.45x. By 2000, the multiple had declined to 2.17. I suspect the media home sale price was substantially higher.
Both sources show a surge in home prices during the housing bubble between 2000 and 2010.
Note, you also get a LOT more house now than you did in the 1950's. Much much larger, much higher quality, many more amenities, etc.
Except construction costs are insane nowadays, and there is a massive shortage of trade workers. Your theory could hold true if we just considered existing homes, but the costs to build a new home have went through the roof in the last decade.
Probably worth pointing out this twitter account is promoting the idea that the 2020 election was stolen. To me that casts suspicion on their other assertions.
I follow this account and others like it because it allows one to be exposed to things like the idea that COVID leaked from a lab a year ago.
Skepticism is warranted in all cases, of course, but I think it's extremely healthy to keep in tune with a variety of subcommunities who are in and of themselves skeptics of many mainstream narratives.
I don't understand how you can manage, honestly. The absolute swarm of conspiracies around COVID and the election overwhelmed me and i wasn't even trying to stay informed on them. Furthermore, even if i was trying to stay informed on them it seems like a full time job trying to discern the "maybe not entirely moronic" conspiracies to the completely batshit ones. Most are batshit, it seems.
I find that the times it is exhausting is when I've been overly attached to my own beliefs such that there's an emotional response to being exposed to claims in conflict to them. The best way to overcome this inhibitor to open mindedness in my opinion is to just ensure you have a broad exposure such that it becomes normal and unimpactful to read many things you strongly disagree with regularly.
While I agree that it's healthy to keep a broad set of sources, I find that once a source has shown to be untrustworthy on some topic, I discount them on other topics too. There is a difference between having a certain worldview and twisting facts to your narrative.
Unfortunately, a good chunk of the Republican party in the U.S. is happily ignoring facts around the last presidential election. There is little use in exposing yourself to their faux complaints. Much like it was not useful to read up on the "Russian connection" that was invented to attack Trump. So when people fall prey to these ideas, I discount their opinion. I stop reading them. No reason to willingly absorb noise.
These people you mention aren’t generating these theories nor am I suggesting we take their conclusions into consideration - my point is they have value as relays which are connected to networks you otherwise would not have access to, and as alternative relevancy ranking algorithms over the set of published information. For example, this WSJ article gets an increased weight in being exposed to me as a side effect of not masking out this person who is promoting it based upon their own, more widely scoped, conspiracy theory.
There's no objective measure for one to define what is a "good amount" of skepticism. The trap of using this as an excuse to shield yourself from people who have a higher level of conspiratorial or counter-consensus thinking than you prefer or have yourself is one worth trying to be mindful of. Claiming there are people who "question everything" is a yellow flag, imo, because that literally doesn't exist, though I know you were speaking hyperbolically. But having the capacity to bucket people into a group who "questions everything" despite the reality such a person literally cannot exist, may mean you are over-weighting this mental model.
It sounds like you agree that there is a "bad amount" of skepticism but no way to measure that either?
Then it is as easy for me to say you have fallen into the trap of being overly skeptical but are using an excuse to shield yourself from people that would call you a raving nutter.
I don't worry too much about finding a way to measure what a "good amount" of skepticism is. Like pornography, I know it when I see, er, smell it.
No, I reject the over-simplified model in general, but my argument is that whatever terms you are, in your own model, using to mean "good" and "bad" and "too much" and "too little" are irrelevant to the question of, even if you could define them clearly, if you can also place and measure a valid threshold. Given the problem here specifically is the epistemological value of consuming views you currently disagree with, by setting yourself up as judge and jury of who is considered worth listening to you're just begging the question, regardless of your framework to act as said judge.
At the end of the day, you have scarce attention, so there are necessarily heuristics you need to use to navigate information and consuming it due to opportunity costs. But my argument is that pegging some people and not others as "too skeptical" is low on the list of good heuristics.
Conspiracy proponents act like the lab leak theory being true is some game changer. It's the stupidest thing. Even if it wasn't leaked, China sure did a lot to mess up and exacerbate the early response to the pandemic for the world. Additionally, people have been critical of wet markets in China from early on, one suspected source of where it first spread to humans.
I have no problem with investigating if it was a lab leak or anything else, but enough with trying to turn this into some political wedge issue that people wield as a cudgel against 'the sheeple'. Skepticism here isn't some neutral point of view.
> trying to turn this into some political wedge issue that you wield as a cudgel against 'the sheeple'
This thing you did here is mind-reading - nothing you wrote here is present in my original comment. You may be living in a small set of filter bubbles compared to the average.
I changed "you" to "people" since I meant it in the general sense of how self-proclaimed skeptics treat this topic and say condescending things like this:
> You may be living in a small set of filter bubbles compared to the average.
Understood - I rescind my comment since the way it was written I interpreted it to mean you were accusing me personally of doing this.
I am not sure why, if your original comment was properly interpreted the way I did, it would be unfair to posit the idea of you living in limited filter bubbles. It's nothing to be ashamed of since we are all continually being victimized by social media algorithms into being exposed to information they feel will drive changes in our behavior. Everyone lives in filter bubbles. I don't know how to properly engage someone with the idea they ought to consider they're in a particularly narrow set without them feeling attacked. The best I've seen in some areas of inquiry is a tool you can use to analyze your twitter account to understand the scope of news sources you interact with, but that's limited obviously given the domain constraint. Even then it's hard to convince a person they are living on a overly-constrained information diet.
> Conspiracy proponents act like the lab leak theory being true is some game changer. It's the stupidest thing.
On the virus issue specifically, here are three mainstream narratives that have been largely up-ended, and if you were in tune with a variety of viewpoints you would have been exposed to for your own conclusions before they became mainstream:
- "Coronavirus" was an immense threat and it was wise to prepare for it arriving and turning into a pandemic. Government actions to cut it off eg by banning travel was warranted. (Promoted in Jan 2020 in certain circles, discounted by consensus)
- Being a likely airborne pathogen, wearing masks (particularly N95s) was wise. (Promoted from Jan, in March the surgeon general and others claimed there was no reason to wear masks.)
- Given the proximity to the lab the idea this came from the lab was a worthy explanation worth investigating. (Promoted from March by my recollection)
For me, I was wearing a medical-grade mask in stores and stocking up on supplies in January 2020 due to my exposure to this information with a relatively open mind. I don't discount the possibility that, given that I have advanced lung disease, this priming reduced my prior probabilities of catching and even dying from this pandemic. I was mentally a few weeks ahead of the narratives I read in the media throughout this pandemic and made a variety of decisions around risk management that were in conflict with what felt like the average consensus. This doesn't mean I was confident in these theories per se, but when you're forced into making risk adjusted decisions having a diversity of ideas swirling in your head opens the possibility of having a better risk calculus, esp if the goal is to be conservative.
This is a false mental model because there is no singular calendar. If you are actually exposed to a variety of ideas there is no obvious, universal set of narratives you can point to as having a clean bisection between one or two 'calendars.' Tribalism does cause things to increasingly cut that way, but the mental model is still a false one.
They also push the idea of "The Great Reset" in that thread, which is another conspiracy theory that is tied up with FEMA putting people in camps in abandoned Walmarts, Bill Gates chipping us through the Covid-19 vaccine, and Q-anon.
As soon as they brought up "The Great Reset" I found the whole thread lost credibility.
Dismissing someone because they hold a viewpoint you disagree with is childish and dangerous to our society. By that logic we should all be dismissing CNN reporting because they were peddling Covington kids and russian collusion among other things proven to be false. We should all be striving to take in all sources of information and use our best judgement to judge and interpret them.
There is a host of terms used in that thread that point to the person as a conspiracy theorist. "The Cabal", "The Great Reset". These are terms used in the Qanon community constantly.
It has to do with the person lacking credibility based on their own statements than them holding an opposing viewpoint.
I have no idea what those things are and I'll give you the benefit of the doubt but the twitter post referenced a wsj.com article. I don't think we should shoot him down for linking to a trusted source.
There is really strong evidence that there is Russian Collusion. The Muller report is full of actions by the Trump election team that point to them working in conjunction with Russia and Russian Agents.
Do you cast aspersions like this on people who think the 2016 election was stolen? They tend to be a lot more respected, but they’re just as incorrect.
If only so many people didn't treat land and houses like investments, there wouldn't be such a disastrous hoarding problem. Henry George's Land Value Tax [1][2] seems like an obvious economic fix that would require a large fraction of the population to change how they think about land and natural resources, but most of them are invested in such a way (i.e. owning multiple houses on multiple parcels of land, often without renting anything out) that it is in their economic self-interest to block any such proposals. Although, I suppose this situation isn't unique. The world has long been doomed by coordination problems.
Land value taxes ignore the value of buildings constructed on the land. It’s very different from current property taxes because it incentivizes density.
The usual advocacy point is to reduce most of the other taxes and send the LVT way up. "We should have a land value tax" is usually meant to mean "most tax should be on land".
Many counties in Texas have solved this by setting a 10% maximum year over year increase in property/land tax for people LIVING in their homes. There are also locks and exemptions carved out for those over 65 and disabled veterans.
Yeah there should be exemptions (i.e. standard deductions) to help low-income people (retirees with low savings, such as those dependent on social security or disabled, etc) and for people's primary residence.
What we don't want is a 50 year old who fully owns a $2 mil house and has $15 mil in the stock market and $1 mil in cash to be exempted from most property tax, but a 30 year old with $200k total assets to be on the hook for the full property tax rate. That doesn't make sense.
It will incentivize construction of dense housing, which distributes the same amount of land tax over a larger number of residents. People get displaced by gentrification because current policy encourages landlords to hoard old structures instead of building as much as possible.
I'm not aware of any locality in the US that has a pure Land Value Tax. There are a few localities in Pennsylvania that have a split value tax, with separate rates for land and structures.
There are definitely counties here in Florida that value land and improvements separately. But there's often no separation as far as how they're taxed. It's just all added together. Here's the listing for Tropicana Field, which is owned by the county and therefore qualified as "municipal" use:
Only partially true. You pay a *property* tax, which does sometimes have a land component to it, but mostly is a tax on the purchase price of your home.
A Georgist-style land tax proposes a tax on solely the land, so a 2000sq-ft lot is the same regardless of a $10mil home or not.
This would require an appraiser that regularly re-evaluates the value of the land-- but we already do that! But with homes.
Furthermore, a property tax still leaves open lots of tax-shenanigans. "Look, my home is actually worth half the appraised price, thus I should be taxed half." It's harder to do so with land, since you can't easily "hide"/play tricks with its value from a regulator.
Texas (what the original article in the original post revolves around) has the 5th highest property tax in the country and the urban areas have some of the outright highest property taxes in the country on a per city or county basis. This is both a land value tax and property tax.
> Common property taxes include land value, which usually has a separate assessment. Thus, land value taxation already exists in many jurisdictions. Some jurisdictions have attempted to rely more heavily on it. In Pennsylvania certain cities raised the tax on land value while reducing the tax on improvement/building/structure values.
It's a Property Tax which is significantly worse than a Land Value Tax.
Firstly it encourages urban sprawl, which is bad for the environment and bad for cost of living and housing access.
Secondly it penalizes productive value add. Build something beautiful and you're punished for doing so.
Thirdly it doesn't have the same logical justification as the Land Value Tax, which is to tax ownership of scarce, zero sum, excludable, naturally occurring resources that aren't the product of labor.
You don't know that. There are places on the East Coast, namely Pennsylvania and Delaware that I can think of, that have implemented LVT. Normally they are hybrid approaches though.
> Everybody works but the vacant lot. I paid $3600 for this lot and will hold 'till I get $6000. The profit is unearned increment made possible by the presence of this community and enterprise of its people. I take the profit without earning it. for the remedy read Henry George.
- Billboard posted in an empty lot, Rockford Illinois, 1914
That's a common meme - that asset appreciation is unearned wealth.
But it's not.
That investor could've spent the 3600 on hookers and blackjack.
Investors freezing their money in communities in the form of real estate or other investment is a key part of those communites becoming richer and more complex.
There's a real risk of losing your money - there's no worse financial nightmare than holding real estate that you're trying to sell for years... but no-one is buying
Speculative investment without asset improvements like that is the worst kind, but it still serves to stabilize prices for other investors. At worst, the speculator loses their shirt and a more capable capital allocator gets to work with the money.
I'm sure we can agree the vacant lot never improved itself.
It's not unearned -- it's earned by the surrounding community improving things -- which make that lot more attractive.
The incentives don't align. If that community was to massively regress e.g. unfavorable rezoning -- the value of that lot would plummet.
However in this case it's likely to be partially addressed by paying land value taxes which disincentivizes leaving it vacant -- what Henry George was getting at and wasn't there at the time.
I agree that we need to stop treating houses as investments, because they're a basic fundamental need everyone has.
IMO, the problem could be fixed by having stricter laws prohibiting people who aren't residents from owning homes in another country. The requirement to become a resident is only to live in a country for over 6 months out of the year. Before that, you can just rent. We could also do things like limit the number of houses a person can own, and tax every house sale based on capital gains (even primary residences).
However, another problem we have is that interest rates are too low, and there isn't enough construction. Those are harder problems to solve. I really think we should build more, but we'd need denser construction as well. What do you do if you need land to build and there's already a house there, or someone already owns the land? Maybe it's kind of silly to have this idea that a person can "own" a piece of this planet we all live on, but we probably don't want to live in a communist country where the government owns every home and everyone is renting either.
As for interest rates, this is driven by our current economic policy and money printing. Maybe there's a way to somehow detach the interest rate used for mortgages from that in other areas. Surely, the government could print stimulus money and direct it where it's needed without interest rates being artificially controlled? The main problem with these near-zero interest rates is that they completely kill the free market. We keep zombie companies alive and we allow people to speculate on home prices endlessly. That's not natural. In a "true" free market, there's a natural equilibrium between offer and demand, both home prices and rents will fluctuate but they will balance out. My ex's parents bought a home in the 1970s, they only had high school education and were both making minimum wage. Said home is now worth over a million and out of reach of anyone not making 200K+ household income.
Something like this would effectively bar any person born in India who tried to immigrate to the U.S. in the last ~5 years from ever buying a house, unless they got married to a citizen. Broad strokes, I agree that residency requirements might help with reducing speculative investment, but maybe phrased in terms of how long you're in the country, not literally permanent residency as a legal threshold.
Not necessarily - for example in China foreigners are limited to owning one house. That limits speculation but does not provide hindrance for someone honestly trying to live.
In general, of course not, but GP originally proposed specifically forbidding non-permanent residents from buying houses. How is that not hurting immigrants?
Agreed that the policy doesn't have to be binary, but GP's original phrasing was literally "ban non-permanent residents from buying property," which is what I was responding to.
Yes I agree, I meant residency requirement, requiring that people live in a country for at least 6 months before buying a house, which could be done on a work or student visa.
Maybe? They are a luxury for the upper middle class, and you could easily rent one the same way you rent an airbnb. Those holiday homes do need to belong to someone though, so I suppose it makes no sense to outright ban own multiple homes, but we could structure it so that resale is more highly taxed, particularly resale after a short time (i.e. people "flipping" properties).
Ok...we need more houses so tax the hell out of developers?!
You need people to be able to build and flip properties without being taxed at all. The current taxes are carving a modest profit down to "not worth it" for a lot of people who could otherwise build and revitalize affordable housing.
More taxes on home sales results in less homes for sale.
IMO we should probably reduce taxes on house builders. Maybe even give them tax exemptions. Do what we can to increase supply.
Speculators wanting to buy a house, redo the kitchen, and mark up the price 20% 6 months later though? We could just let older, unrenovated houses be cheap. That opens up deals to new home buyers. You can redo the kitchen after buying the house if you really care. You don't need some middle man to do it and mark up the house.
Lots of people want to buy a move-in-ready house. Many don’t know much about construction, don’t know which end of a hammer to hold, can’t afford to have a house sit idle for 3 months while a renovation happens, and want to have the “Apple” experience for one or two hundred a month more in their mortgage payment.
That’s the service flippers provide, IMO. (I’m not one but I think they’re more helpful than not in terms of providing housing that owner-occupants want.)
There's flippers who truly restore a dilapidated house and help resuscitate a neighborhood, and there are flippers who put a thin veneer of newness on a rotting frame, bury the waste in the backyard, and then still try to charge the same as the first kind. We don't need more of the second kind.
Is that how it works in Singapore? I know in China you lease land from the government for 50 or 100 years. I do think it's important to be open to ideas, and I think there probably ought to be redistribution of wealth, particularly when it comes to land ownership. That has to be balanced with some minimum set of rights so that people can't be randomly evicted because people in power want that land, and that when people are evicted, they receive fair compensation.
It's not so different than how the US operates, except the lease is called a deed and it's term is indefinite. The government can still take "your" land away if you stop paying taxes or they need it for something else.
Not everyone wants to own the place they live in. Lots of people plan on only being in a location for a year or two or four, and would rather just rent.
Some people would just rather rent indefinitely.
The problem is free handouts for homeowners in general.
The handouts entice the landlords, because for the last 30 years with the exception of 3 years (2005-2008) - housing on leverage has absolutely destroyed equities as an investment.
If you got rid of the handouts, this wouldn't be the case. Then you wouldn't have people like Blackrock gobbling up houses. They'd just be buying equities (the things that are supposed to be investments?) instead.
I recently went down the Geoist/LVT rabbit-hole myself. It strikes me as uniquely appealing across the political spectrum, since it reduces tax on wealth-creation AND redistributes wealth from the rich to the poor.
Sadly, this very fact provokes enough superficial resistance to keep it out of the Overton window. Whenever it comes up, shouters on either side have plenty of ammo to blast it, saying things to the effect of "how could you propose giving the other side what they want!?!"
It's less to do with appeal to people on the other side of economic divides, and more to do with the impossibility of selling "the great thing is that it incentivises your next door neighbour to build a high rise" and "sure, your parents will have to downsize because their pension won't cover the tax burden of the house they spent their lifetime saving for, but on the other hand it's great how many investors and companies don't have to pay any tax at all" to the average voter, who cares a lot more about such concrete matters than handwavy claims about efficiency or equity.
> the great thing is that it incentivises your next door neighbour to build a high rise
This is more about NIMBY attitudes and zoning laws, which are separate issues.
> their pension won't cover the tax burden of the house they spent their lifetime saving for
An LVT won't tax the house, only the value of the land. If the plot itself is hyper-valuable, that's not a bad place to be, financially speaking. Beyond that, "won't someone think of the poor landowners?" doesn't strike me as a very compelling argument in this day and age.
> This is more about NIMBY attitudes and zoning laws, which are separate issues.
NIMBY issues and zoning laws are very much not separate issues when one of the chief selling points of LVT is building denser. It's a selling point the public aren't buying because they mostly don't want the value-maximising development next door, and being taxed as if they could develop it whilst still living in a zoned area so they can't is obviously worse. Sure, an LVT can be designed with deductions and exemptions for land use restrictions (and would have to be), but that's conceding away one of its key purported advantages.
> An LVT won't tax the house, only the value of the land. If the plot itself is hyper-valuable, that's not a bad place to be, financially speaking. Beyond that, "won't someone think of the poor landowners?" doesn't strike me as a very compelling argument in this day and age.
"Let's ignore the poor landowners" is a much worse place to be if you're trying to win over the large portion of the electorate which owns some land, which in most cases is probably the second most valuable thing they own after the house they live in (which is separate from the land for tax valuation purposes, but not in the reality that if they can't afford the land it sits on, they're under pressure to sell their home) and not closely coupled to their current income. The general principle of Georgist efficiency is that people on low incomes relative to the value of the land their house are forced to sell and this should drive down land prices for everyone, but the prospect of devaluation or forced sale of very expensive stuff they've already paid for is even less appealing to voters than being taxed on next year's unspent income. (Also, the entities which own the majority of the land turn out to be both less profitable and more relevant to the cost of basic goods like food than the businesses liberated from tax)
Regardless of whether you think these are not insurmountable problems for LVT or not, the thought of being caricatured as the guy who wants the tax system to force people to develop their homes into nice efficient apartment towers or sell in a great hurry to someone with deeper pockets is a much bigger concern for politicians than the thought people with different economic philosophies might actually agree with them for a change.
It's never appealing to make a long time member of a community leave because they can no longer afford the land they've owned for years, because other people say "I want that"
I move to a cheap, small town. I embed myself in the community and help build it up over decades. And then, at the peak popularity, in part due to my presence, I am forced out, because someone who has never been here says that they would like to live here.
> I move to a cheap, small town. I embed myself in the community and help build it up over decades. And then, at the peak popularity, in part due to my presence, I am forced out, because someone who has never been here says that they would like to live here.
Why would you be forced out? Yes, taxes on the underlying land would increase because it is more valuable, but you would be able to move into a new property in the same community, as housing would increase in density. Now if you don't want to live in a denser community, that's fine, but you don't really have a right to prevent the densification.
It sounds to me like GP’s concern is that their LVT would go up (across the entire town) due to popularity and become unaffordable (forcing them out economically), rather than being concerned with increasing density.
So I would need to sell the 2 BR single family home I've lived in for 30 years, and move to some other part of town to live in a 1BR apartment, because someone from some other part of the country can pay more in tax for the property I've lived on?
Most proposals in this direction (e.g. Glen Weyl's "Radical Markets", [1]) make reasonable exemptions for basic personal needs, so people don't get thrown out of their (modest) homes or lose their personal belongings unexpectedly. The point isn't to kick you out of your village, it's to make speculative investments in real estate unattractive.
And then, at the peak popularity, in part due to my presence, I am forced out, because someone who has never been here says that they would like to live here.
This is exactly what is happening in parts of Utah. Planners accounted for natural growth and a standard rate of in-migration, but there has been a flood of people from out of state forcing out the locals who made these places what they are by living in them for decades.
It may be in some areas, not in others - depending on how their tax system works. Prop 13(which has massive flaws and abuses) in CA is an example, as well as states which just generally have low property tax rates because they derive their revenue from other sources like income tax.
You don't think geoism is just naive? This idea that the state can magically assign a value to property and not have it go sideways for the politically disenfranchised (the poor) is pure fantasy. If you haven't gone through the process of buying a house. I suggest trying it (especially during a frothy market), and each step of the way stop and think, "how would geoism get turned around to screw the poor".
In this case, I am saying that political disenfranchisement is the dominant reason for poverty, and how well meaning policies can wind putting in barriers poor people from owning property in the first place. I'm sure you can imagine how this closes the cycle.
It will reduce property prices, ceteris paribus. The only ambiguity is if the extent is such that it fully offsets the opposite impact of higher upkeep cost from the perspective of a poor person. I don't know the answer to that question, do you?
Another factor: it'll encourage apartment construction, which will increase housing supply, which should help poor people.
> 2. If you are poor, which do you think is easier? A higher initial capital expenditure? Or a higher upkeep cost?
Higher upkeep cost is the easier one. Many poor people have a steady an income, but no saved wealth. That's why there are many people able to pay 1800/mo for rent for years, and never able to buy their own home.
And this would make LVT the better option for a poor person, since it would turn "buying" a home into "renting" the land from the state, along with buying the building, which is obviously possible (as seen by the existence of poor renters).
The relevant case is people who have no income, but have a substantial amount of wealth (enough to buy a home). I'm not sure how you can consider that poor.
No. if you are poor, it is a real dynamic to get modestly frequent, but unreliable bumps in income. Of course these days there is no incentive to save that because of inflation, but if that weren't as much of a problem, you could consider saving up to buy a home, but you ABSOLUTELY cannot count on those sorts of things to sustain a mortgage payment, or land taxes. Like I said, you don't understand. Please, do not ever be in a place where you are making policy.
I understand what you’re getting at a bit better now, but you still haven’t explained why the current situation, where one needs to save 20% for the down payment, and then pay a monthly mortgage payment, is better for the poor.
Where are these places where the buying prices of land is cheap, but the land tax would be high? The buying prices is simply the year rent divided by some discount rate, so typically, the buying price would 20x the yearly rent/tax. That’s a large amount to have to save up (assuming a mortgage is out, like you say).
I'll give the standard reply here: this sounds mainly like a criticism of the current system. Are you specifically proposing some loophole in geoism that could be gamed in such a way to make things worse for the poor, beyond how things stand in the current system? Or is this more of a "things will end up badly for the poor no matter what we do" kind of sentiment? I can certainly understand that, but it isn't a good excuse for apathy.
It concentrates an important axis of power (setting prices on a rivalrous good) into the hands of the few. That is necessarily worse for the disenfranchised. I thought that was clear from my comment, I guess not.
My statement is not one of apathy, but a prediction of worse comparative outcomes with mechanistic backing.
This is a fully general refutation of ANY system, because
rich people game every system, including and especially the current one. Why should the current one be favored?
The trick is to find a system that, despite attempts to game it, has an incentive structure that isn't already explicitly tilted in favor of the rich. Geoism is one such system.
I aver that it's more difficult for a rich person to game a decentralized system than a centralized one. A land tax necessarily concentrates an important axis of power into the hands of fewer people.
I’ve ranted about this before but CA Prop 13 not only makes housing a good investment, but one that you’re extremely incentivized to hold onto forever and never move. Two people can be living in houses next to each other valued around 1.5m, and one of them will be paying 1/10th the tax. If anyone wants to buy a house, they have to first be able to afford the property, so the barriers to entry are so much higher for those who didn’t have the foresight to purchase a home 40 years ago.
40 years ago a home in the Bay Area cost about 3x median income. Now it is more than 10x. Buyers in 1981 benefitted enormously from high interest rates. I know they whine about it now, but objectively it was a massive windfall for buyers.
> 40 years ago a home in the Bay Area cost about 3x median income. Now it is more than 10x.
Interest rated have fallen 10x
> Buyers in 1981 benefitted enormously from high interest rates.
They didn’t benefit from paying more for a money loan. They benefited from being able to refinance on always lower rates, and the corresponding rise in asset price
It was a wealth grab. They're the ones that voted for prop 13, and they're the ones benefitting. Meanwhile it's the Millennials and all subsequent generations that are stuck paying for their social security.
You’re saying that old people should be driven out of their houses because younger, richer people deserve to live in their houses. I’m sure your feelings will change as you get older.
You don't get a refund for the intervening years of mania. Oh we're sorry we almost kicked you out of your house because everyone else was paying out the nose for houses because they speculated Amazon would build it's hq there that year so sorry about that. Here's your 50k in taxes back with interest.
In that scenario it sounds like the person "forced out" would have received a huge windfall of cash, and could ostensibly buy their same house back for much less than they sold it for at the height of the mania.
> the person "forced out" would have received a huge windfall of cash, and could ostensibly buy their same house back
Don't assume. That person had to live somewhere, possibly at equally inflated prices. Now add in the the cost of two unnecessary moves.
> and if you sucked it up and paid the state? Maybe you had a sick family member that you were taking care of and the chaos of a move would have been too much to deal with. Sorry, chum. Bad luck of the draw.
What has happened (at least in my locality) is in years of high assessment increases they cut the rates so the increase is buffered. They typically don't set the tax rate until they see how the initial assessments are coming in.
The other program some counties around here do is property tax exclusion for low income seniors.
Or working class people. For a large fraction of people if their taxes are going up faster than their wages are going up they do not have a reasonable way to get higher wages to pay for the tax.
There is very little controversy over not taxing unrealized gains when it comes to income tax [1]. I'm not sure why doing the same thing for unrealized gains in property value is controversial.
It's not like most of the things property taxes pay for are proportional to the value of the property. The changes each year in costs to provide roads, schools, libraries, police and fire, and utilities to my house and my neighbor's houses generally has little to do with the changes in the market value of our homes. So why should the taxes that pay those things be tied to market value of the house?
More sensible would be to take the costs to provide the services the tax pays for, and divide it among the houses that receive the services, equally or taking into account usage (e.g., the amount for sewer might be proportional to the number of bedrooms). If we want it to be a progressive tax, apportion it according to the relative market values of the properties, but determine the total amount for the neighborhood solely by how much money the tax needs to raise to provide the services used by that neighborhood.
[1] There is controversy over tricks and schemes used to effectively realize them while escaping taxation.
> It's not like most of the things property taxes pay for are proportional to the value of the property
Exactly! The extraordinary taxes on property are a result of unfair distribution of cost of services. A city needs to collect for a budget of $X... so they distribute the costs the best they can.
Prop 13 is a limits how much property tax can increase in a year. So hypothetically without prop 13 it would possible that the value of your house jumps 10x and then you're stuck with paying 10x the amount of property tax that year.
I don't think we need to remove it completely but some adjustments like applicable only to a primary residence and not investment or commercial properties would probably go a long way.
In a lot of places, if not most, property taxes are based on the assessed "current market value" of your house and audited annually, which can change a lot from year to year. Property taxes are paid annually, not when the house sells. If the house goes up 10x in a year, the property tax also rises which makes it very hard on a fixed income when you're retired, especially when the gov't artificially calculates inflation at a lower rate so they don't have to pay as much in social security benefits to those seniors reducing their purchasing power over time.
And the fact property taxes are often used as a slush fund makes those of us paying attention very sensitive to their increase. With those taxes comes bureaucratic power and control, often leading to more taxes and less of a say over how one lives one's life.
If the value then drops 10x, you won’t get your property tax refunded. If prices end up going up and down like bitcoin, you’d need to have some protection.
> If the value then drops 10x, you won’t get your property tax refunded.
That's right. And why would it?
But also: your example is imaginary. When was the last time that house values dropped 10x or even 5x? It's counterproductive to make tax policy based on the extreme cases that have never happened.
I'm planning on living in my house for a very long time, it's my home, not an investment. I don't want my home value going up 10x unless I'm planning on selling it. In this market, I couldn't replace my house if I sold it anyway.
The old person would have sold the house a long time ago because of the rise of their property tax. They wouldn’t be millionaires. They would have to sell their home for a small gain and then rent for the rest of their lives. And since they are old they have no income so they need to keep moving to cheaper and cheaper apartments.
Sounds like a great way to live a life, just because younger people feel like they deserve to live in their house.
> just because younger people feel like they deserve to live in their house.
Well, they do deserve those houses. If we expect young people to work, pay taxes and raise new generation. This is yet another middle finger to young people. No wonder birth rate is in toilet.
If their property taxes increased to the point where they cannot afford it, then that means that their property value increased significantly. Excuse me if I don't feel too bad for somebody who just reaped a massive windfall.
The "won't somebody think of granny?" argument doesn't really work when advocating for a policy that disproportionately subsidizes non-grannies.
“Reaped a massive windfall” if and only if they sell their house. The problem is unless they’re both looking to sell and move into a lower COL area, that doesn’t do them much good.
My house today is worth 2x what I paid for it a decade ago. Which is great except for the fact that housing costs around here are closer to 3-4x what they were a decade ago. Even if I wanted to sell, I couldn’t find any livable housing for the same price within the same area.
> Sounds like a great way to live a life, just because younger people feel like they deserve to live in their house.
At one point, I'm fairly sure all those old people you're talking about were young people who felt like they deserved to live in their house. The difference is that, well, they were able to. I don't think you're intentionally saying "You came of age after 1980, kiddo, so suck it," but that's nonetheless the outcome. Proposition 13 certainly isn't the only reason that housing prices in California have skyrocketed, and housing prices have always been more expensive here than the US median -- but the gap between the California median and the US median started increasing immediately after Proposition 13 was passed and just kept accelerating.
> Someone who owns a house in cali is a milionaire
I own a house in California. I have substantially less than $1 million net worth. Not complaining, to be sure, but it simply isn't even remotely true that all California homeowners are millionaires.
That may have been the case when Prop 13 was sold to the public, but at this point it's mostly being used to accumulate wealth, not keep people on fixed incomes in their lifelong homes. If that was the goal, there is a much better solution - let the elderly accumulate the tax bill against the value of the house, and collect from the estate when they pass.
Meanwhile, in many neighborhoods, the older, wealthy, established residents are paying 1/3rd the taxes needed to support infrastructure and services, compared to newer, younger residents who are trying to establish a nest-egg and raise families without the benefits the older generations had. There is no one solution that will work for every neighborhood, but prop 13 is economic warfare on the young. Portraying it as young tech millionaires against poor, old retirees is not true for a large portion of those affected here in the present.
Citation otherwise this is just your biased anecdote.
There’s plenty of turnover in California on par with other states. If prop 13 were somehow so powerful a factor not to sell, you would see a lot less house sales which you don’t.
In my city, half the houses were sold in the last 20 years which sounds pretty good to me. The idea that property taxes are frozen to 30 years ago and governments are starving for money is fiction.
In places like Toronto where property taxes get assessed every year, the property taxes 1/3 for an equivalent house price.
I think this is something that is really under appreciated. When there is inherited property, the cost-basis is reset to when the parents died and the Prop 13 basis is also inherited now if it becomes their primary residence. This is a huge advantage for those people who happen into this sort of situation.
Some of my neighbors are seniors who are on social security. Their houses were bought for about $160k in the 1970s. Which is expensive back then. Now they are worth $2M but they have no intention to move. Where would they live? And how can they afford the $30k/yr property tax?
What stops people from selling their homes isn’t prop 13, it’s the ridiculous rise in house prices in the last 15 years. It creates no mobility. Stop bitching about Prop 13, that is a lazy and short sighted and wrong explanation for house prices. Look at the inventory these days. It’s low because no one wants to sell their homes because where are they going to move to?
You misunderstand - the whole point of the scheme is they don't have to pay the property tax. It gets (partially or entirely) accumulated in a lien against the house, and the seniors stay as long as they want.
When they choose to sell, or their estate sells, the property tax is settled first from the proceeds of the sale.
I'm saying this scheme is in place in other locations to address the same problem you describe, and seems to be working better than prop 13 (at solving that).
Where would they live? With a budget of 2 million dollars- they could own an extravagant home practically anywhere in the US while pocketing hundreds of thousands of dollars.
I have no idea why people who are living off of social security should be in the most desirable housing in the entire country
Nobody is forced to do anything. They can certainly leverage their significant equity in the home to pay those taxes, they can take a lien like many other states allow for in these situations, etc.
But frankly I don't understand why a retiree who is living off of social security would sit on a multi million dollar asset, rather than cashing out and increasing their standard of living many times over by moving. And I don't think they are a victim by having generated 10-20x returns on their home
Why should they get services, that are paid by people with no money?
Also - they wouldn't be paying $30k per year. If you had a rational government cost distribution among people in the area, you wouldn't need to charge people $30k just in property taxes.
And then - they also haven't paid their fair share of taxes in decades, so why do they get to be in a highly privileged position?
Imagine if I didn't pay any income tax for 50 years - would you excuse me, if I turned 60?
> And how can they afford the $30k/yr property tax?
The suggestion is to make them no pay that annually in cash, but rather on the future gains of the house.
Their house (or rather, the land) is going up in value far more than that per year. Asking them to forgo a fraction of their speculative real estate gains, when they never even plan to access it (according to you), does not make sense.
So what it seems like you are really saying is that they deserve to have full speculative real estate gains accessible to them, just because they are wealthier than younger people and were able to get into the capitalism game earlier. That due to their unearned wealth, that they did nothing to create, that comes purely at the expense of others being able to live in the area because land is zero sum. They should have to pay less just because they have greater power? Absolutely not.
Saying "I'm so wealthy that I can't pay taxes, and I'm not willing to even delay paying taxes until sale" is fundamental wrong-headed.
The law should take into consideration those cases and not charge them $30k/yr in cash for property taxes if they don't have the money in cash to pay it. One solution mentioned elsewhere is a lien against the inflation-adjusted value appreciation of the house.
The solution isn't to let wealthy older homeowners get away with not paying proper property taxes though, which is how it is now.
the California Tax Postponment Program protects low income seniors and the disabled. They have 0 risk of being displaced by property taxes no matter what.
I own a house in East Bay, and paying >$10k/yr of property tax. While I don't mind tax in principle, it greatly annoys me that I'm paying much more than my neighbors just because I bought it a few years ago.
And why would my opinion change when I get older? Prop 13 won't do shit to lower my taxes, I'll have less income and still be paying through the nose, because the city needs money and half of its residents are paying virtually nothing. If anything, I'll be even crankier about the whole situation.
>why would my opinion change when I get older?
Your opinion might change if property price around East Bay continue to appreciate and your new neighbors are paying even more.
> And why would my opinion change when I get older? Prop 13 won't do shit to lower my taxes
It will, in real terms, since the assessment increase limit is the lower of 2% or the rate of inflation each year, guaranteeing that over the long term the assessed value and tax go down in real terms.
Which isn’t to say your opinion should change, just that the self-interest equation does.
That's BS. If I pay $10k in property taxes(excl school taxes), that means I cannot invest that money into something more tangible. Thus depriving me of working investments to subsidize wealthier individuals is worse, than steadily increasing taxes.
That taxes compete with other potential uses of money is obviously true, and equally obviously irrelevant to the discussion of whether Prop 13 will or will not lower your real tax bill over the time you own a home.
That's the problem. Prop13 makes your taxes high upfront, with lower taxes later on. This is counter intuitive, when you want to encourage people to buy homes.
> Prop13 makes your taxes high upfront, with lower taxes later on
No, Prop 13’s rate limit makee your taxes low upfront — the 1% cap on nominal rates is far below the national median effective rate, and the nominal rate is before applying the effects of the assessment limits — and the limit on annual assessment increases to the lower of inflation or 2% makes it even lower later on.
A lot of people focus on the second in isolation to say new home buyers subsidize existing owners in CA, but really both types of owners are subsidized by income and sales tax payers, its just new homeowners are slightly less subsidized.
> This is counter intuitive, when you want to encourage people to buy homes.
“Barely taxed now, and even less taxed later” does a very good job of encouraging people to want to buy homes in California, and also of discouraging them from wanting to sell homes in California, as evidenced by price trends.
What it doesn't do is make homes affordable to buy, but then encouraging people to want to buy and making them affordable are goals that are inherently in some tension, given the effect of demand on price.
This was a red herring when prop 13 was passed, and is a red herring now. 49 other states don't have prop 13, and yet seniors aren't priced out of their homes.
There are plenty of other solutions. Some states allow you to just pay the same amount each year and put the difference as a lien on the house until you sell. Some states have something like prop 13, but it is applied to entire counties. ie. They allow the entire county to raise their income from property tax by 1% annually. So everyone's home gets reassessed for its value and then the tax rate is set so that the whole county goes up 1%. This means that in some cases people's property taxes actually go down if one area had a massive increase in value.
Every other state figured out a way to avoid this problem. California just loves its "rent control for the wealthy" which is what Prop 13 is.
Prop 13 is the single worst law in California and must go.
And I say this as someone who owns multiple properties in CA, and in fact for one of them, the profit comes entirely from the fact that the tax rate was set in the 70s. If I had to pay property tax on the current value, I'd just sell it because there would be no profit to be had. And in my primary home, my neighbors subsidize me by paying twice what I do even though their homes are worth less. And I subsidize my neighbor who has been here since the 60s and pays 1/10 of what I do for the same services.
And if you're still really concerned about old people losing their homes, at least support getting rid of Prop 13 for all non-primary homes. There is absolutely no reason a rental property should be protected from property tax increases.
> This was a red herring when prop 13 was passed, and is a red herring now. 49 other states don't have prop 13, and yet seniors aren't priced out of their homes.
Prop 13 is bad in at least half a dozen ways, but I'm not so sure this problem isn't coming elsewhere or even is absent. It seems to me California may have experienced a leading edge of metro dynamics that are going to come for other states soon.
> everyone's home gets reassessed for its value and then the tax rate is set so that the whole county goes up 1%.
That's interesting.
> And if you're still really concerned about old people losing their homes, at least support getting rid of Prop 13 for all non-primary homes
I think something like this is right (and wasn't this attempted by proposition a few years ago?). Residence-first real estate policy needs to include tax that increases on the number of properties owned (and maybe even more steeply in a supply constrained market).
> and wasn't this attempted by proposition a few years ago?
Yes, in the last election. And sadly it was defeated because as usual with state propositions, the side with the most money (developers in this case) were able to convince the public with inaccurate propaganda.
> Residence-first real estate policy needs to include tax that increases on the number of properties owned (and maybe even more steeply in a supply constrained market).
People might try to get around this by forming corporations or trusts that hold max one property each. There is really no need to count how many other properties someone holds. Just do a re-assessment every year and ratchet up the assessed value on all housing that the owner does not occupy, including vacant property and renter-occupied. Seems a lot simpler.
It's pretty easy for the taxman to detect such shenanigans. There are a bunch of corporate laws that only apply when certain limits are met, like minimum revenue or 50 employees, etc. It's illegal to form extra corporations to get around those rules, and the regulators usually catch on.
I'd be especially easy in California because every foreign (out of state) corporation has to register with the state and tell them who the beneficial owners are. It would be fairly easy to trace it back to actual people.
> I think something like this is right (and wasn't this attempted by proposition a few years ago?).
No, a much more limited reform that would have effected some, but not all, commercial and industrial property (but not any, even non-primary, residential) was, and was defeated.
> You’re saying that old people should be driven out of their houses because younger, richer people deserve to live in their houses. I’m sure your feelings will change as you get older.
Or maybe, make it so that property tax increases are limited but only if the owner:
1. Is past retirement age
2. The owner lives in the property.
3. The owner does not have the means to pay the normal property tax rates.
This is how most other States' solve this problem. Instead of freezing property tax rates across the board, they narrowly limit property taxes of old residents that don't have the means to pay the normal property tax rate.
What you're suggesting is that the solution to the problem should be targeted at the actual problem trying to be solved.
Seems like a lot to ask, so clearly the best way forward is to just continue shoveling more wealth onto the already-wealthy at the expense of people entering the workforce and housing market, and even then still not actually solving the original problem we sought out to solve in the first place.
> You’re saying that old people should be driven out of their houses because younger, richer people deserve to live in their houses.
Believing that tax bills should be equal doesn't imply that; one can believe in equal taxation of same-value property and not think that property tax should ever force people out of property they own. Deferrable-by-default property tax (either entirely or increases above base year) are better than assessment increase limits at avoiding people being forced out, but do less to transfer wealth up the to already-wealthy elites.
> I’ve ranted about this before but CA Prop 13 not only makes housing a good investment, but one that you’re extremely incentivized to hold onto forever and never move.
Not “never move”, just never sell. When you are ready and able to upgrade to a new home, you convert the existing one to a rental property with rents to cover costs with a suitable risk premium (but don’t worry about additional profit), and then benefit from the appreciation and protection from full-value reassessment on both properties, rinse and repeat as needed.
Prop 13 is so ridiculously unfair and distortionary. I wonder is there a way to legally challenge Prop 13 on the basis that it confers a kind of durational residency benefit (see Shapiro v. Thompson)?
Prop 13, especially the extensions that preserve tax rates through bloodlines, disparately impacts minorities even though that wasn't the explicit intent of the law. Turns out that intent doesn't matter on issues of race so there's legal precedent to overturn the law.
I agree with Justice Stevens that it's a violation of equal protection, and the state supreme court of Delaware recently did to when they struck down their version of Prop 13, but as you'll see in my Cornell link above the rest of the court upheld the law.
If it's marketed as a revenue neutral tax, where all the savings are passed on to middle-income earners through income-tax cuts, you might have some success.
The biggest thing preventing widespread adoption of a land value tax is the implementation. Someone still needs to decide what the land is worth, there isn't an objectively fair way to separate out the value of the land from the improvements.
Or put another way, many of the same tactics can be used to distort/contest appraisals "dark stores" and deed restrictions that prevent other uses, but without an objective way to combat them
My theory is that bank loans are to blame. When we say someone has "bought" a home, it's rare that they've actually bought it, rather they've just signed a contract promising that they'll pay back a huge sum of money they don't have over a long period of time. This creates a market of buying and selling of -- in the words of Mark in The Wolf of Wall Street -- fairy dust. Big numbers like £500k, £600k are thrown around that nobody actually has.
The ability to loan large amounts of money like this detaches people from the actual buying power of their money and the price of the property they're buying. Two grand in the bank is a nice amount of money. A two grand price increase on a property amortised over 20 years is considered to be nothing because the repayments are almost the same.
The solution to bring prices back down to ground level in my view is to end mortgages. Require the money up front and therefore force prices to drop until an equilibrium of affordability is reached. Needless to say this will never happen because the people who have the power to push for this are the ones benefiting from the status quo.
Strong disagree. If that were the case only the wealthy would own homes. Available financing certainly pushes the prices up a bit as more people can buy homes, but homes really are often worth 500-600k, if you simply do a comparison to renting, and probably even more so if you factor in inflation risk, interest rate risk, and the equity gained in the house.
I'm pro-LVT, but I wish that people would stop conflating it with Georgism. The controversial part about Georgism is that only land should be taxed. This might have been a reasonable position 100 years ago, but not in the digital age.
Georgism in general, that is not only LVT but also analogous concepts for anything which ought to be commons (natural resources, pollution, etc) would go a long way into solving a significant amount of issues.
Part of why I like bitcoin is because the artifical digital scarcity should in theory reduce pressure from the housing market by attracting speculators to a much more liquid, low maintenance, and secure asset. Just anecdotally, I feel more inclined to invest my money into bitcoin than real estate. I wonder if there are others like me?
All the wealth inequality was created by government money printing. They claim they are printing money to help the poor, but are really making them worse off
This is just phase one. The real money will get made when they start artificially constraining housing stock. In my area (central NJ), the big player is Berkshire.
The problem is the government mandated houses be piggy banks for middle class people, all but allowing large institutional investors to take advantage of the rule system put in place to protect and increase prices: low interest rates, local control of land use (to kill new supply), etc. It was a side effect to allow others to benefit from the scheme.
Its fine to blame gov for somethings but for low supply? Really? NIMBYs are the only ones restricting supply in the Bay Area. They are the voters too and millenials don't vote as much on such non-trivial issues.
As for CA prop 13, also voted by people. Don't like it? VOTE AGAINST IT. Else, stop complaining. The system is working exactly as voted by the people who vote. If this is such a big issue then why are people consistently voting for them?
Mortgage rates have been falling for the past 40 years. Now they might start rising (emphasis on might). If they do, could that reverse the continuous rise of housing prices? That is how the bond market works, which has also seen rate drops and prices rises for the past few decades now.
Over are the days where supply and demand controlled allocation of resources to get the goods to every man, woman and child.
Big demand, lack of workers? Price and pay rise to meet the challenge. This part of market economy always made sense to me. Like a muscle growing stronger in response to increased exertion.
Now the wealthy have decided that this is way too boring because what good does it do them if people actually attain wealth for themselves? There'll be no motivation to run faster in their hamster wheels to create more wealth to be siphoned off.
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[ 3.9 ms ] story [ 429 ms ] thread""" Thats right!
FEDERAL RESERVE FUNDED FINANCIAL INSTITUTE.
Let that sink in for a minute. Got it? They’re using your tax dollars to fuck over the lower and middle class, and its permanent. Not 1 Pres. administration of bullshit. This is a fundamental reorganization of society """
Private homeownership is just LARPing owning real capital to placate a new conservatized middle class, completely inefficient as rising prices cannot spur more land production and in fact preclude intensification use since the middle class homeowners don't have real capital to convert to apartments (even if zoning was relaxed), and historically tied up in all sorts of racist shit to boot (redlining, covenants, etc.).
The expectation is that the banks will lend this out to companies to stimulate the economy.
Apparently instead of loaning this money out to to small/medium businesses big banks have mastered operating small/medium businesses at scale and are combining their banking with asset acquisition.
So banks having endless capital essentially given to them from the government in our tax dollars...while also having asset and business branches in their own closed system ultimately leads to massive banks owning the world.
People think the government is on their side but it's not.
https://www.google.com/amp/s/www.pbs.org/newshour/amp/econom...
https://www.investopedia.com/articles/investing/081415/under...
If you don’t own real productive capital and depend on it broadly ad much as sale of labor, you aren’t even in the middle class to start with, your in the working class—just LARPing, to use your term, being part of the petit bourgeoisie.
Of course, LARPing as a member of the petit bourgeoisie is the perennial pastime of a substantial portion of the upper income segment of the proletariat, especially the proletarian intelligentsia.
> rising prices cannot spur more land production
Sure they can, both literally (artificial land is a real thing, and its production is spurred by demand running into supply constraints) and more importantly economically (as “land”, the valued commodity, isn’t just raw square footage of the dry surface of the earth, but a product of access to infrastructure which makes it economically useful.)
(My division is supposed to reflect how those people do behave, whereas the traditional Marxist one is supposed to be how they should behave based on the real relations behind the smoke and mirrors. That's fine, different categorizations for different purposes.)
For the second part, well, we'll need to abolish SFH zoning and related things, which is very unpopular because it would undermine landowner's speculation in the short term!
(It's especially annoying because taller buildings would lead to more valuable land area in the end, just cheaper floor area.)
So nevermind there are efficient market-based things to do, like everyone rents land from the state at auction which pays out universal dividend. Our land markets are popular precisely because they are a speculative mess!
Take the concept of a homestead exemption and make that for everyone's first house so people have shelter once they pay off their house that's not constantly threatened to be taken from them at the whim of government property assessors.
Investment land and whatever else can be taxed.
In the long run it probably will though, since higher land values will probably cause increases in wages and other costs. But it does not have to be proportionally as much as the land value increase.
The government always needs more money.
Why would your property taxes not continue to go up endlessly?
IIUC, you're arguing that we should expect that ^^^ outcome, because of the political/economic dynamics you mentioned earlier.
My understanding is that, except in towns/cities undergoing gentrification, U.S. municipal property taxes are pretty constant (modulo inflation).
So it sounds like the outcome predicted by that theory probably isn't happening. Wouldn't this cast doubt on the theory?
Yes, except for places experiencing increasing real property values, real property taxes aren’t increasing.
But the discussion was about places with sustained real property value increase, so that generality is irrelevant.
The scare scenario is still wrong, but for different reasons.
Unless you're referencing the California instances in which Prop 13 protects homeowners from increases of more than 2%, I'm not sure what you mean. Nationwide property taxes increase over 5% YoY, while general inflation was far less [0]
[0] https://www.marketwatch.com/story/homeowners-are-facing-the-...
[1] https://www.statista.com/statistics/244983/projected-inflati...
In fact the evidence is that property taxes don’t go up endlessly they are actually highly stable when adjusted for inflation. Further many states don’t have property tax, or expressly cap them.
Finally everyone always needs more money, individual and companies included. Why should government be any different. Governments are just human organizations like any other. They just have a different role and responsibility.
I do expect them to go up endlessly, but I expect for everything else to also go up endlessly (in nominal terms).
In every state I have lived in, the first factor of that "property tax formula" is always "Assessed Value" of said property, and then the formula continues from there based on a slew of criteria (property type, exemptions, etc.).
So you are correct that "Property taxes do not have to go up because the assessment goes up." but it is misleading since property tax is generally going to go increase if assessment increases and all other factors are held equal.
I have seen tax rates drop from 1.25% to 1% and the opposite also happens when the tax collections come up short.
I can give an example. I used to have land in NJ a few years ago, and the total property tax went up year after year. If I recall, the tax rate went from ~1.5% to slightly above 2%, and the assessment barely went up. The property tax went up due to government expenses coming in higher than expected due to all the debt NJ is in that was not counted as debt (underfunded DB pensions). In fact, I lost money on that land because it was worth less since prospective buyers know the property tax will continue to rise, so they have to budget for that.
On the other hand, I had land in FL at the same time, which has appreciated a lot and was assessed for more. But the total property tax paid stayed more or less the same, since the tax rate came down since the government’s expenditures did not move as much, and/or were offset by new payers.
The property tax formulas have more to do with what proportion of the government’s expenses is each land owner liable for, but the total tax collected does not need to rise in step with total land value increase.
Imho the problem was that the politics of the day got it passed to cover commercial properties too, when it really should just cover primary residences. And not secondary homes or rental properties.
Prop 13 is $30B (billion!) per year. Surely there are cheaper ways to fix the "red tape" and "awareness problems",
California politicians were working on solutions to the property tax problem for years. The same year prop 13 was on ballot, something else was on ballot to fix the problem, which would have done a much better, targeted job - but unfortunately big money poured into prop 13 and that got passed.
My parents bought a new house in 73, and by the time prop 13 passed it was worth around 3x the purchase price. They both worked in tech and were close to having to sell their house (they had 4 kids).
It was a real problem, prop 13 was just a bad solution.
Prop 13 leads to perverse outcomes like subsidizing slums and trust fund kids while penalizing new homeowners and people improving their property. It's also simply unjust for two neighbors with similar properties to pay different rates based on their age or even ancestry.
[1] https://learn.roofstock.com/blog/states-without-property-tax
It never happens because it the math just doesn't work out. State/local revenues boil down to: property taxes, sales/use taxes, excise taxes, fees and income taxes. The big revenue streams are property taxes (schools, towns), sales taxes (county/state), and income taxes (state). Fees mostly sustain individual programs and have limited revenue potential - you can't make a fishing license $1000.
So when you get rid of property taxes, you get rid of local control of the levy, which sounds great until Little Rock doesn't want to provide state funds to pay your football coach $200k. Even in a middle of the road state like Arkansas, the pressure to meet Medicaid and other other state program dependencies would make it difficult to fund local government. You'll have a revolt if try to levy a 20% sales tax.
The talk radio answer is "shrink the government!". That means layoff cops, firemen, close schools and libraries, eliminate school sports and close public resources like parks, libraries and suspend things like street lighting. That will make reactionaries happy, but employers will leave.
Nonetheless, the content of what you said seems reasonable and sound. Thank you for helping me understand this.
(Wow, I don't understand the public sometimes.)
I was very surprised when I learned other places charge you some fixed fraction of the property value; and as that value goes up the budget of the municipality goes up.
If your taxes are going up dramatically as values rise, that's either a sign of issues with equalization rates (the county/town/city needs to periodically reassess), or that other areas in the jurisdiction are declining relative to value. You often see that in cities where property values often mirrors the old "redline" maps... gentrification gets you million dollar condos, but two blocks away some tenement is declining in relative value.
Not particularly, if every other house is too expensive for a normal person to afford.
If you don't have cash, take out a small mortgage on the house to pay the property taxes. You'll still come out ahead in the end.
I say it is unjust for a fixed income senior citizen or disability insurance recipient to have their property tax base grow to a point where they must flee their home of decades. The callus answer is to force the person to sell and take their gains and move so a younger person with higher wages can afford their once-home. I think it is unjust to remove an older, less abled, and less employment-opportunitied person from their environment.
In addition, California (and I suspect other states) have a means tested property tax postponement program that allows low income homeowners to defer taxes until they move out, sell, refinance, or die as a substitute for obtaining a private loan.
Also, with low/zero IR, PV of tax payments is infinite, it's not like increasing house price is offsetting that.
In practical terms though, property taxes aren't infinite -- they're only for as long as you're alive. And you can realize your increasing house price while you're alive too (or your kids can). And I know people who have come out very much ahead in that equation in certain gentrifying areas, e.g. turning a $30K investment in 1985 into an $8M sale in 2020.
So within reasonable "non-infinite" time frames, an increasing house price can be very, very, very much offsetting property taxes. That's just a fact.
Not really. You’re saying it is no issue that tax goes up proportionally to house value, I’m saying it is much more onerous than, say, your income tax increasing with income.
Also, if the end objective is “pay tax to local government and make it so that wealthier people pay more”, there are tons of ways of doing it without this anti-feature. Slice of income tax, tax depending on property size (not price) etc.
Actual asset values increasing aren’t a harm, and there is basically no place in the US with property taxes high enough that them increasing due to market value can possibly offset the utility (and realizable benefit) of the increase in value, even without the (common, if not usually as ridiculously low as California’s) caps on annual assessment increases that assure that properties that don’t change hands are systematically undertaxed when rapid sustained market increases occur.
Modern financing provides plenty of ways to access equity, so this is very much a non-issue. Though its an issue the property-rich like to pretend is real, because it supports policy that cuts them more breaks and makes things that much worse for everyone else, e.g., CA Prop 13.
I'm not sure I support land taxes etc. but this at least deals with your objection.
Someone else should pay the taxes for them?
Either your tax would come entirely from income - huge handout to homeowners / cost to non-homeonwers - regressive. OR your sales tax would be so crushing that no one would ever buy anything in your community.
Or you could live in a fantasy land.
There are many ways to fund the local area. UK has explicit “council tax”, based on property value, but not as a fixed percentage, rather more linked to the percentage of the house value - so your tax bill doesn’t double just because other peoples houses appreciated. These are paid for all houses, and go to the local government. I think this is indeed one of the main sources of income for local councils.
But for example for capital gains tax, which goes fully to the central government, primary residence is excluded.
This means that people buying property as investments end up paying CGT but not ordinary house owners. If investment properties are rented out, it is the renters that pay council tax, as the actual inhabitants of the properties.
There are so many ways to skin a rabbit with taxes, you could tailor it pretty well to discriminate between homeowners and investors.
How I know you don't live in California.
You would love Prop 13 then that has capped the amount that property taxes can increase per year.
Be careful though, your public schools and other services paid for by property taxes are going to suffer as the cash flow dries up....
He’s making the argument that what you observe is a direct effect of Prop 13.
You may disagree, but it’s very much not a strange argument.
Prop 13 kneecapped the ability for municipalities to fund themselves in the way they traditionally do in the US, and public services got vastly worse.
https://www.ppic.org/content/pubs/op/OP_998JCOP.pdf
Therefore, just keeping the depreciation of your house at bay ends up becoming expensive. If you are lucky enough to enjoy DIY work like I do, you can avoid this somewhat, but the moment you need to do any major renovation that you don't have the time and skills to do yourself, it costs about the same as a purchase.
Some areas have legislation that prevents property taxes from increasing at too fast a rate. In those regions, the formula is changed a bit so that newer residences are charged at a high initial rate.
Except in States that have property tax and no income tax, the appraised value is close to the sale value, usually slightly under.
So in a 500k example, the appraised value is something like 450k (or more). Then your property tax might be 2% of that appraised value, which results in a $9,000 property tax bill every year, even when you retire.
If speculative buying drives up the price over 10 years, it also drives up the appraised value and also your tax bill
Edit: which is common in desirable places with lots of well paying jobs.
There are cheap places to rent and buy in the fly over states but not as much opportunity, hence the price
Lack of food can be fixed in a day. Lack of housing can be impossible to overcome ever.
Both things could be fixed in a day. Also, both of them could be impossible to overcome ever. What's the distinction you're trying to draw. If it comes down to an acute situation where I had to choose, I (and most I think) would choose to eat. I understand in the real world, there probably wouldn't be such a clear choice.
Not when all the jobs in that household are here.
> People are not surfs and are not trapped or stuck living in a house they can't afford.
They are when all the jobs in that household are here.
> It might not happen overnight but populations do migrate due to housing costing too much.
People who are facing homelessness this year aren't thinking about market corrections that are decades away.
They along with others are trying to build a monopoly/oligopoly in housing. Naturally we would expect regulations against this, but the fact that it's going this far is a bad sign.
"In 2016, with the real-estate market heating up in metropolitan areas across the country, single-family rental companies also started pushing the limits of how much they could raise rent every year. American Homes 4 Rent raised rents by 11 percent between 2016 and 2018; the average rents in the top 30 markets in the country increased by just 6 percent over the same time, according to Zillow. American Homes 4 Rent owned 70 percent more properties in the first nine months of 2018 than in the same period in 2014, but it collected 150 percent more rent. “It’s up to us to educate tenants in a new way that there will be annual rental rate increases,” David Singelyn, the CEO of American Homes 4 Rent, said at an investor’s forum in 2017. “This has been a very passively managed industry for 30, 40 years, up until the institutional players came in.” [1]
[1]https://www.theatlantic.com/technology/archive/2019/02/singl...
Cities can counter this by allowing more new construction but backfilling Single Family Residences requires land and that may not be readily available within certain commute distances.
The general thrust that institutional investment groups have increased their purchasing of single-family residential homes over the last decade is true (around 20% to 25% of all such transactions now, IIRC). And it may be true that such buyers are pushing up home prices in many areas. I haven't done any analysis of that so I cannot comment on it.
However, the tweets are ... not quite correct. First off, the transaction in the article was a deal where Blackrock purchased a set of 124 rental properties that was already owned by an institution (D.R. Horton). It was this complex https://www.amberpineshomes.com/floorplans. The seller is quoted as saying "We certainly wouldn’t expect every single-family community we sell to sell at a 50% gross margin", which isn't the same as 50% above asking price. Various groups bid on the complex and, from another linked article, all bids came within a few % of each other. Any seller would hope to sell with some sort of positive gross margin. The seller's statement indicates that 50% may be high for residential real estate and thus is an indicator that the market in that area is quite hot.
The average price per home in the deal was $258k. Perhaps a bit high given the average size in the complex, but... If you examine the location (because real estate is all about location), we're talking about a small town outside of Houston that has grown in population from 56k to 91k between 2010 and 2019. The median family income there in 2016 was $60k. So this looks like a high growth area with upside potential.
The buyers are probably making a bet that the homes there will see substantial appreciation in the future because of this growth. The seller probably either wanted the cash injection, didn't want to manage rentals anymore or otherwise prioritized some short term concerns over long term asset yields.
To sum up, the people at Blackrock is not stupid. They won't pay a premium everywhere. They'll only do it in areas where their analysis shows that they will make it back along with a substantial profit. Is this good for society as a whole? Perhaps not. But that's not their problem.
I'm sure there are some fun ones. Eg, Once a single corporation is in control of everything, and everything that comes in is profit and everything that goes out is a loss then the only missive left is to cut all losses, no? How do we do that? Burn the planet? Can't lose if there's nothing to lose.
[1] https://voxeu.org/article/ai-and-paperclip-problem
I'm not sure how this is unfair. Considering the way capital gains are taxed after the sale it seems like the grandfathered-in rent controls are just a lever at the opposite end of the spectrum. But of course, we don't want to give any levers to the poors so it has to go.
All that money's gotta go somewhere. Hey, at least the CPI isn't going up right? Its only the most expensive thing in most people's lives that has doubled in cost in about 10 years. Same thing for stock prices, and slowly other commodity prices are catching up as well.
Non-homeowners are being shafted by this fed/ecb policy. Every year the gap between poor and rich grows larger as a result.
Most people pay for housing by monthly payments, making the nominal value of the house irrelevant if the monthly payment stays the same. Further, you should consider the home owner's "basket of goods" to include the hypothetical rent they'd be paying for an equivalent house. Their mortgage payments and home ownership are then more like taking a loan to buy a fixed-income asset that gets renegotiated annually. A home owner who lives in their home is both a landlord and a tenant.
I'm not a home-owner, and I don't feel shafted. My stock market holdings have kept pace or done better than if I'd purchased a house.
I really dont understand the logic of being OK with paying double for a house, just because the buyer can sell it for the same amount (or higher) afterwards.
I could purchase a 150m2 house with my salary a decade ago. Now I could find a 75m2 house that would be too expensive for me. I dont care about being able to sell the house for more money afterwards, it doesn't matter, because I have to live somewhere anyways. So any profits gained will (probably) be factored into the purchase price of the next house I'm buying.
A fixed loan doesn't change with interest rates either.
Homes are like fixed-income securities. When interest rates go up, the value of existing securities goes down.
No, they don’t, even talking about non-homeowners, because non-homeowners aren’t paying that much more (rents aren’t increasing the way purchase prices are, the rstio between them is increasing), and non-homeowners have nothing to sell, unless you are referring to subleasing as selling.
> But non-homeowners are still paying more for less.
I think you mean “first-time homebuyers”, but that just means it is more attractive to invest elsewhere while renting than jump into personal home ownership. No one is losing anything, certain choices are just becoming less favored.
Are you talking about monthly payment or lump sum? When the lump sum doubles yet the monthly payment is the same, has the cost really changed? To me, no. I was never going to buy lump sum, so I only care about monthly payment.
This touches on another point. For home owners like myself, inflation is a good thing as it makes my highest monthly expense relatively cheaper.
I know people who refied into 15 year fixed, but the rates have typically been so close I didn't see the point. Just pay more each month on your own and avoid the costs of the refi.
So, if someone already has a 30 year and the 15 year rate isn't much different, refing into a 15 isn't necessary. Just start paying monthly like a 15 and it will get close enough.
Also, if I already had a high rate loan and was refing where the 15/30 rates are very close, I would go 30. That way I can pay it like a 15, but have the flexibility to pay less if, for example, I lost my job.
Finally, this is why it's common to make 1 extra payment each year as it will shave ~4 years off the end of the loan.
https://www.trulia.com/blog/make-one-extra-mortgage-payment-...
Yes of course it has. You've just over doubled (interest rates are low but they're not nil) the time it's taken to pay back that loan.
The only difference is the down payment, which matters because a bigger down payment means more opportunity cost of stock market gains.
You mean the repayment amount? I'm not sure what you're asking.
Of the lump sum price (principal), interest rate, loan term (time), and monthly payment, you can only change three of the four, for a fixed rate loan. The fourth is defined by the combination of the others.
Double what? The price someone paid years ago under totally different market conditions?
In the future prices might be halved or double again - act accordingly
When the Fed funds rate is 0%, your mortgage rate is 3%, that same difference in the Fed Funds rate.
But wait, think of that like we think of absorption. If I have a capacity to absorb of 1L and can absorb 50% of a liquid, then I will break when 2L is poured. If I bring my absorption rate to 98%, then I now break at 50L. If the government can absorb at 99.99% rates and you absorb at 97% rates, they can absorb 10000L while you can only absorb 33L.
If you want the government to control every decision regarding money in the future, you want the interest rate to be as low as possible. If you want people to use free markets to decide where money flows, you want high interest rates. Why is politics so contentious? Interest rates are dropping.
The differential between mortgage rates and the federal funds rate is only driven in part by regulation. The rest is market forces and the perceived risk of rising inflation. If we had certainty on how inflation would change for the next 30 years, mortgage rates could be pushed to a negligible margin above the federal funds rate.
> If you want the government to control every decision regarding money in the future, you want the interest rate to be as low as possible. If you want people to use free markets to decide where money flows, you want high interest rates.
You haven't explained this assertion. I see it a different way. If we want consumer demand to decide how capital is invested, then we want more inflation. Inflation transfers wealth from creditors to debtors. Debtors spend their money, which indicates what's useful to produce. If we want a handful of bankers to make guesses (and often guess incorrectly) about what people will want to buy, then we want low inflation, transferring wealth from debtors to creditors.
The problem with (excessively) low inflation and supply-side economics in general is that the suppliers must make their choices with a decreasing level of information on what will be demanded. It's only through consumer demand and its pressure on supply that reveals what's important through market forces. Otherwise we may as well go back to central planning.
Note that I'm not advocating for fluctuating inflation. All parties benefit from stable inflation rates. Uncertainty is dead weight loss.
Except homeowners get price exposure to the value of their home on the market. If you purchase and then go through a downturn which devalues your house, now you’re in the hole: you can’t use the sale price of the home to pay off the loan, so you’re stuck in that home until its value climbs again or you earn enough to pay off the loss.
Higher values means it takes longer for you to cover any % decline with wages, so you lose mobility for longer in a downturn. Irrelevant if you truly want to live in that place for 30 years, but not many people can actually make that commitment.
> ... Higher values
Higher values at the time of purchase or at the time of sale? The latter doesn't jive with the idea of being "underwater" on the loan, since you'd have benefited from the price exposure.
Higher values at the time of purchase is relative to what the home was worth in the past, but our efficient market theory tells us that the price today can be considered neither high nor low (yes, Shiller might disagree).
I guess you're pointing out that interest rates are near zero, so that there's really only one way for them to go. I'm not so sure, because in some ways it's a Zeno's Paradox situation. I don't always care about the number of basis points the interest rate has changed, but the percent change of the interest rate. I get more benefit from the rate going from 4% to 3% than I did when it went from 5% to 4%. We can always get closer to 0%, because there's an infinite number of subdivisions we can make.
Stock prices are rising because the interest rates are so low. A ton of institutional money that was in bonds is now out seeking yield. This moves a ton of money into stocks and, as we see in the article, real estate.
The labor class has been shafted for years by the US dollar being the global reserve currency, causing us to run persistent trade deficits. This has off-shored manufacturing and gutted our capabilities. If the US weakens the dollar and rebuilds the manufacturing base, which they appear to be trying to do with the investment in semiconductors, I think we will be in a much better position. I am happy with the stimulus because it does both, weaken the dollar and invest in US capabilities. We just need to make sure it flows to the correct places.
That's the key, and also something that's unsolved. History shows that a lot of the money will be squandered in increasing "clever" ways, and it may take until the end of the decade before the public even realizes that it happened.
No, interest rate are low because they are using them as a tool in a crisis.
Except the way the US does it, the Treasury issues debt and then the Fed prints to buy the debt. So when we print $1T, we also take on $1T in debt. I know you mean lowering through inflation but as long as it's done this way I don't see how it matters. If the dollar looses 50%, we then need to issue $2T in debt and print $2T the next time.
For homeowners, it is the most expensive thing, but homeowners are winning on it because they get the value of the asset appreciating.
For non-homeowners, the reason CPI isn’t going up is that rents aren’t rising with purchase prices, its the purchase:rent ratio going up. So it isn’t hurting them, either.
Granted this is lower than rates were in the 1980s. But if the answer here is you need to keep rates at 10-15% to build sufficient housing I don't see how that's politically tenable.
These are building starts (i.e. permits obtained, but construction not having broken ground yet), but the more complete US Census data at the .gov website shows that completions haven't been far behind starts within the last five years.
The problem isn't "printing money", inflation is a good thing as it encourages investment and maintains the movement of money. The problem is that printed money is only being put towards one purpose - capital markets - so the capital markets are what inflates (at the expense of everything else). If the printed money was being used on infrastructure payments, or some other distributed investment, the inflation would go to general labor first, which then would spread the inflation across the entire economy as they made individual purchase decisions.
I mean ultimately what I want is to pay 35-40% of my take home salary on a mortgage, just I like I pay now in rent.
The reality is though, here in the UK, that I need to save 2-3 years of take home pay, to put down on a deposit for a mortgage that will see me pay 50% of my take home pay, and I will still end up living in an inferior property to what I'm renting.
Meanwhile my landlord, who bought the place I'm in the 90s, is making a profit.
More likely is that they have no where else to part their money anymore.
Given supply constraints, I agree that easy money probably does drive up prices. But without artificial constraints, any rise in price would just dissipate back into higher supplies. That's why you see QE result in higher housing costs, but not higher car prices.
[1]https://www.wsj.com/articles/what-housing-crisis-in-japan-ho...
Why would you expect house prices to go up when there's a ridiculous oversupply of housing. There's only 55M households in Japan, and there's ~9M vacant homes. That's ~14% of homes.
Housing is an expense unless there's someone to live in it and pay rent.
[1]https://livejapan.com/en/in-tokyo/in-pref-tokyo/in-tokyo_sub...
It arguably has STILL not deflated.
At one point, the Emperor's Palace alone was worth more than all the real estate in California: https://www.scmp.com/magazines/style/news-trends/article/309...
I guess if you believe those valuations made sense, then sure.
This is the downside to the current "bailout". I think the last "bailout" was a bit more lean. People were hurt, but in different ways than they are today.
I can't see how this ends well.
1. Build more homes.
2. Sell to Blackrock or whatever at 2x or 3x your cost.
3. Profit!
No lot availability. No materials to build the house. No workers available to build the house. Etc.
It's elsewhere.
Probably need to zone some of that agricultural land (60% of land usage in the netherlands) into housing, if we want to give young homeowners a chance at owning property.
It takes more than houses; also entertainment, food, infrastructure, jobs, etc. Otherwise, you're 100% right, location is king and nobody wants to move away from a fun/profitable/valuable city to live in an abandoned mining town in Oklahoma just so they can own a home.
As dystopian as it might sound, I wonder if there is some way to "crowdfund" or "preorder" a new township location. Everyone signs up, pledges like 1,000 USD or something with a lease extending at least 3+ years. And developers can use that money to build an entirely new township in a location with cheaper land. This might help alleviate the problems that come along during a cold start with requiring critical mass adoption before a location is desireable to live in. (Not suggesting this exact course because having an entire town owned by a single developer sounds like a capitalist hellscape; just thinking out loud, I don't know what the actual solution would be)
I believe something similar is already happening with something like the Culdesac project. (I have no affiliation with this project, just so happen to live near it and have heard about it a few times) : https://culdesac.com/
Closer to Sun City Arizona.
> ... This caught the eye of the FTC, which said the advertising was deceptive and ordered the city’s developers to stop ...
This is also an interesting point in the article. Was it actually a scam or just overly ambitious and poorly executed?
The bottom line is that local land-use laws are murky and problems with local codes are very difficult to predict and control for at scale - and that's the way existing homeowners want it.
It's interesting too that homeowners are such a powerful lobby, but without a single entity setting policy or giving talking points. It is, essentially, our culture. This is the way we want it to be. At least for now.
if half of Europe could solve their housing crisis after ww2 thanks to plattenbau, so should the us.
Lack of housing is by policy. By ensuring there are not enough houses ensures there is more demand than supply, which means higher housing prices, which means higher mortgages. The mortgage market is based on rising house prices. The banking industry is based on the mortgage industry. Low house prices, would mean a falling mortgage market, which means a banking crises. Given that the banking cartel has more influence on politicians than the populous, we have this current state of affairs.
Remember, in the 1950s a new build home would cost about 1 years salary. Now one year's salary might only buy a nice car. Building technology hasn't gotten worse, it's much better and cheaper. It's not the construction companies that need disrupting.
Edit: Also I should say that that was the state of affairs until just recently. This recent move by Blackrock and the like is the prelude to massive inflation. They are abandoning paper assets (cash, equities etc) and investing in hard assets like housing, farmland and commodities.
I'm afraid that is mostly a myth. This source (https://www.longtermtrends.net/home-price-median-annual-inco...) shows that the home price to median household income multiple in 1950 was around 6, or about the same as now. It did fall quite dramatically during the late 1950's, going a bit under 5x by 1960 and nearing an all time low of just over 4x by the late 1990's.
This other source (https://archive.curbed.com/2018/4/10/17219786/buying-a-house...) shows that median household income in 1950 was $3,000 and the median "home value" was $7,400. Which is still 2.45x. By 2000, the multiple had declined to 2.17. I suspect the media home sale price was substantially higher.
Both sources show a surge in home prices during the housing bubble between 2000 and 2010.
Note, you also get a LOT more house now than you did in the 1950's. Much much larger, much higher quality, many more amenities, etc.
[0]https://en.wikipedia.org/wiki/Plattenbau
Skepticism is warranted in all cases, of course, but I think it's extremely healthy to keep in tune with a variety of subcommunities who are in and of themselves skeptics of many mainstream narratives.
Sounds exhausting.
Unfortunately, a good chunk of the Republican party in the U.S. is happily ignoring facts around the last presidential election. There is little use in exposing yourself to their faux complaints. Much like it was not useful to read up on the "Russian connection" that was invented to attack Trump. So when people fall prey to these ideas, I discount their opinion. I stop reading them. No reason to willingly absorb noise.
A good amount of skepticism is great. Questioning everything is belligerent and actually close-minded rather than open.
Then it is as easy for me to say you have fallen into the trap of being overly skeptical but are using an excuse to shield yourself from people that would call you a raving nutter.
I don't worry too much about finding a way to measure what a "good amount" of skepticism is. Like pornography, I know it when I see, er, smell it.
At the end of the day, you have scarce attention, so there are necessarily heuristics you need to use to navigate information and consuming it due to opportunity costs. But my argument is that pegging some people and not others as "too skeptical" is low on the list of good heuristics.
https://en.m.wikipedia.org/wiki/Pseudoskepticism
I have no problem with investigating if it was a lab leak or anything else, but enough with trying to turn this into some political wedge issue that people wield as a cudgel against 'the sheeple'. Skepticism here isn't some neutral point of view.
This thing you did here is mind-reading - nothing you wrote here is present in my original comment. You may be living in a small set of filter bubbles compared to the average.
> You may be living in a small set of filter bubbles compared to the average.
I am not sure why, if your original comment was properly interpreted the way I did, it would be unfair to posit the idea of you living in limited filter bubbles. It's nothing to be ashamed of since we are all continually being victimized by social media algorithms into being exposed to information they feel will drive changes in our behavior. Everyone lives in filter bubbles. I don't know how to properly engage someone with the idea they ought to consider they're in a particularly narrow set without them feeling attacked. The best I've seen in some areas of inquiry is a tool you can use to analyze your twitter account to understand the scope of news sources you interact with, but that's limited obviously given the domain constraint. Even then it's hard to convince a person they are living on a overly-constrained information diet.
> Conspiracy proponents act like the lab leak theory being true is some game changer. It's the stupidest thing.
On the virus issue specifically, here are three mainstream narratives that have been largely up-ended, and if you were in tune with a variety of viewpoints you would have been exposed to for your own conclusions before they became mainstream:
- "Coronavirus" was an immense threat and it was wise to prepare for it arriving and turning into a pandemic. Government actions to cut it off eg by banning travel was warranted. (Promoted in Jan 2020 in certain circles, discounted by consensus)
- Being a likely airborne pathogen, wearing masks (particularly N95s) was wise. (Promoted from Jan, in March the surgeon general and others claimed there was no reason to wear masks.)
- Given the proximity to the lab the idea this came from the lab was a worthy explanation worth investigating. (Promoted from March by my recollection)
For me, I was wearing a medical-grade mask in stores and stocking up on supplies in January 2020 due to my exposure to this information with a relatively open mind. I don't discount the possibility that, given that I have advanced lung disease, this priming reduced my prior probabilities of catching and even dying from this pandemic. I was mentally a few weeks ahead of the narratives I read in the media throughout this pandemic and made a variety of decisions around risk management that were in conflict with what felt like the average consensus. This doesn't mean I was confident in these theories per se, but when you're forced into making risk adjusted decisions having a diversity of ideas swirling in your head opens the possibility of having a better risk calculus, esp if the goal is to be conservative.
As soon as they brought up "The Great Reset" I found the whole thread lost credibility.
1: https://www.weforum.org/great-reset
Curious to see the argument _against_ "The Great Reset" tbf.
It has to do with the person lacking credibility based on their own statements than them holding an opposing viewpoint.
There is really strong evidence that there is Russian Collusion. The Muller report is full of actions by the Trump election team that point to them working in conjunction with Russia and Russian Agents.
2000 election stolen? Absolutely.
It's been a strange past 4 years....
[1] https://astralcodexten.substack.com/p/your-book-review-progr...
[2] https://en.m.wikipedia.org/wiki/Land_value_tax
What we don't want is a 50 year old who fully owns a $2 mil house and has $15 mil in the stock market and $1 mil in cash to be exempted from most property tax, but a 30 year old with $200k total assets to be on the hook for the full property tax rate. That doesn't make sense.
https://www.pcpao.org/?pg=https://www.pcpao.org/general.php?...
Just/Market Value: $108,535,551
Land Adjusted Value: $46,160,000
A Georgist-style land tax proposes a tax on solely the land, so a 2000sq-ft lot is the same regardless of a $10mil home or not.
This would require an appraiser that regularly re-evaluates the value of the land-- but we already do that! But with homes.
Furthermore, a property tax still leaves open lots of tax-shenanigans. "Look, my home is actually worth half the appraised price, thus I should be taxed half." It's harder to do so with land, since you can't easily "hide"/play tricks with its value from a regulator.
> Common property taxes include land value, which usually has a separate assessment. Thus, land value taxation already exists in many jurisdictions. Some jurisdictions have attempted to rely more heavily on it. In Pennsylvania certain cities raised the tax on land value while reducing the tax on improvement/building/structure values.
[1] https://en.wikipedia.org/wiki/Land_value_tax#United_States
Firstly it encourages urban sprawl, which is bad for the environment and bad for cost of living and housing access.
Secondly it penalizes productive value add. Build something beautiful and you're punished for doing so.
Thirdly it doesn't have the same logical justification as the Land Value Tax, which is to tax ownership of scarce, zero sum, excludable, naturally occurring resources that aren't the product of labor.
- Billboard posted in an empty lot, Rockford Illinois, 1914
But it's not.
That investor could've spent the 3600 on hookers and blackjack.
Investors freezing their money in communities in the form of real estate or other investment is a key part of those communites becoming richer and more complex.
There's a real risk of losing your money - there's no worse financial nightmare than holding real estate that you're trying to sell for years... but no-one is buying
I'm sure we can agree the vacant lot never improved itself. It's not unearned -- it's earned by the surrounding community improving things -- which make that lot more attractive.
The incentives don't align. If that community was to massively regress e.g. unfavorable rezoning -- the value of that lot would plummet.
However in this case it's likely to be partially addressed by paying land value taxes which disincentivizes leaving it vacant -- what Henry George was getting at and wasn't there at the time.
IMO, the problem could be fixed by having stricter laws prohibiting people who aren't residents from owning homes in another country. The requirement to become a resident is only to live in a country for over 6 months out of the year. Before that, you can just rent. We could also do things like limit the number of houses a person can own, and tax every house sale based on capital gains (even primary residences).
However, another problem we have is that interest rates are too low, and there isn't enough construction. Those are harder problems to solve. I really think we should build more, but we'd need denser construction as well. What do you do if you need land to build and there's already a house there, or someone already owns the land? Maybe it's kind of silly to have this idea that a person can "own" a piece of this planet we all live on, but we probably don't want to live in a communist country where the government owns every home and everyone is renting either.
As for interest rates, this is driven by our current economic policy and money printing. Maybe there's a way to somehow detach the interest rate used for mortgages from that in other areas. Surely, the government could print stimulus money and direct it where it's needed without interest rates being artificially controlled? The main problem with these near-zero interest rates is that they completely kill the free market. We keep zombie companies alive and we allow people to speculate on home prices endlessly. That's not natural. In a "true" free market, there's a natural equilibrium between offer and demand, both home prices and rents will fluctuate but they will balance out. My ex's parents bought a home in the 1970s, they only had high school education and were both making minimum wage. Said home is now worth over a million and out of reach of anyone not making 200K+ household income.
You need people to be able to build and flip properties without being taxed at all. The current taxes are carving a modest profit down to "not worth it" for a lot of people who could otherwise build and revitalize affordable housing.
More taxes on home sales results in less homes for sale.
Speculators wanting to buy a house, redo the kitchen, and mark up the price 20% 6 months later though? We could just let older, unrenovated houses be cheap. That opens up deals to new home buyers. You can redo the kitchen after buying the house if you really care. You don't need some middle man to do it and mark up the house.
That’s the service flippers provide, IMO. (I’m not one but I think they’re more helpful than not in terms of providing housing that owner-occupants want.)
Stable and long term living arrangements are something the government should be incentivizing so primary residences should be taxed minimally.
Vacation houses and income properties should be taxed higher.
Yes, like the famously communist state of, checks notes, Singapore.
Sorry for the snarky reply, but I don't think calling the breaking of monopoly power/taxing unearned rents is communism.
Not everyone wants to own the place they live in. Lots of people plan on only being in a location for a year or two or four, and would rather just rent.
Some people would just rather rent indefinitely.
The problem is free handouts for homeowners in general.
The handouts entice the landlords, because for the last 30 years with the exception of 3 years (2005-2008) - housing on leverage has absolutely destroyed equities as an investment.
If you got rid of the handouts, this wouldn't be the case. Then you wouldn't have people like Blackrock gobbling up houses. They'd just be buying equities (the things that are supposed to be investments?) instead.
A generation ago : trade policy => offshoring of shippable jobs
This generation : monetary policy => institutional ownership of the common home
Sadly, this very fact provokes enough superficial resistance to keep it out of the Overton window. Whenever it comes up, shouters on either side have plenty of ammo to blast it, saying things to the effect of "how could you propose giving the other side what they want!?!"
It's not like you or I get to decide what goes in the window.
This is more about NIMBY attitudes and zoning laws, which are separate issues.
> their pension won't cover the tax burden of the house they spent their lifetime saving for
An LVT won't tax the house, only the value of the land. If the plot itself is hyper-valuable, that's not a bad place to be, financially speaking. Beyond that, "won't someone think of the poor landowners?" doesn't strike me as a very compelling argument in this day and age.
NIMBY issues and zoning laws are very much not separate issues when one of the chief selling points of LVT is building denser. It's a selling point the public aren't buying because they mostly don't want the value-maximising development next door, and being taxed as if they could develop it whilst still living in a zoned area so they can't is obviously worse. Sure, an LVT can be designed with deductions and exemptions for land use restrictions (and would have to be), but that's conceding away one of its key purported advantages.
> An LVT won't tax the house, only the value of the land. If the plot itself is hyper-valuable, that's not a bad place to be, financially speaking. Beyond that, "won't someone think of the poor landowners?" doesn't strike me as a very compelling argument in this day and age.
"Let's ignore the poor landowners" is a much worse place to be if you're trying to win over the large portion of the electorate which owns some land, which in most cases is probably the second most valuable thing they own after the house they live in (which is separate from the land for tax valuation purposes, but not in the reality that if they can't afford the land it sits on, they're under pressure to sell their home) and not closely coupled to their current income. The general principle of Georgist efficiency is that people on low incomes relative to the value of the land their house are forced to sell and this should drive down land prices for everyone, but the prospect of devaluation or forced sale of very expensive stuff they've already paid for is even less appealing to voters than being taxed on next year's unspent income. (Also, the entities which own the majority of the land turn out to be both less profitable and more relevant to the cost of basic goods like food than the businesses liberated from tax)
Regardless of whether you think these are not insurmountable problems for LVT or not, the thought of being caricatured as the guy who wants the tax system to force people to develop their homes into nice efficient apartment towers or sell in a great hurry to someone with deeper pockets is a much bigger concern for politicians than the thought people with different economic philosophies might actually agree with them for a change.
I move to a cheap, small town. I embed myself in the community and help build it up over decades. And then, at the peak popularity, in part due to my presence, I am forced out, because someone who has never been here says that they would like to live here.
You don't see a problem with this?
Why would you be forced out? Yes, taxes on the underlying land would increase because it is more valuable, but you would be able to move into a new property in the same community, as housing would increase in density. Now if you don't want to live in a denser community, that's fine, but you don't really have a right to prevent the densification.
[1] http://assets.press.princeton.edu/chapters/s11222.pdf
This is exactly what is happening in parts of Utah. Planners accounted for natural growth and a standard rate of in-migration, but there has been a flood of people from out of state forcing out the locals who made these places what they are by living in them for decades.
1. Don't assume
2. If you are poor, which do you think is easier? A higher initial capital expenditure? Or a higher upkeep cost?
Another factor: it'll encourage apartment construction, which will increase housing supply, which should help poor people.
Higher upkeep cost is the easier one. Many poor people have a steady an income, but no saved wealth. That's why there are many people able to pay 1800/mo for rent for years, and never able to buy their own home.
And this would make LVT the better option for a poor person, since it would turn "buying" a home into "renting" the land from the state, along with buying the building, which is obviously possible (as seen by the existence of poor renters).
I see you've not been poor.
Where are these places where the buying prices of land is cheap, but the land tax would be high? The buying prices is simply the year rent divided by some discount rate, so typically, the buying price would 20x the yearly rent/tax. That’s a large amount to have to save up (assuming a mortgage is out, like you say).
My statement is not one of apathy, but a prediction of worse comparative outcomes with mechanistic backing.
The trick is to find a system that, despite attempts to game it, has an incentive structure that isn't already explicitly tilted in favor of the rich. Geoism is one such system.
It’s not even residential that’s the most disturbing though. One of the biggest beneficiaries of this tax break is Disney: https://www.ocregister.com/2010/06/03/disneyland-businesses-...
> so the barriers to entry are so much higher for those who didn’t have the foresight to purchase a home 40 years ago.
40 years ago it was still expensive to buy otherwise everyone would have bought, including the investment funds
Interest rated have fallen 10x
> Buyers in 1981 benefitted enormously from high interest rates.
They didn’t benefit from paying more for a money loan. They benefited from being able to refinance on always lower rates, and the corresponding rise in asset price
It was a wealth grab. They're the ones that voted for prop 13, and they're the ones benefitting. Meanwhile it's the Millennials and all subsequent generations that are stuck paying for their social security.
> I’m sure your feelings will change as you get older.
Yes, this is the problem. Extreme self-interest and entitlement to massive windfalls.
And if house prices go down do they get a refund?
Don't assume. That person had to live somewhere, possibly at equally inflated prices. Now add in the the cost of two unnecessary moves.
> and if you sucked it up and paid the state? Maybe you had a sick family member that you were taking care of and the chaos of a move would have been too much to deal with. Sorry, chum. Bad luck of the draw.
The other program some counties around here do is property tax exclusion for low income seniors.
There is very little controversy over not taxing unrealized gains when it comes to income tax [1]. I'm not sure why doing the same thing for unrealized gains in property value is controversial.
It's not like most of the things property taxes pay for are proportional to the value of the property. The changes each year in costs to provide roads, schools, libraries, police and fire, and utilities to my house and my neighbor's houses generally has little to do with the changes in the market value of our homes. So why should the taxes that pay those things be tied to market value of the house?
More sensible would be to take the costs to provide the services the tax pays for, and divide it among the houses that receive the services, equally or taking into account usage (e.g., the amount for sewer might be proportional to the number of bedrooms). If we want it to be a progressive tax, apportion it according to the relative market values of the properties, but determine the total amount for the neighborhood solely by how much money the tax needs to raise to provide the services used by that neighborhood.
[1] There is controversy over tricks and schemes used to effectively realize them while escaping taxation.
Exactly! The extraordinary taxes on property are a result of unfair distribution of cost of services. A city needs to collect for a budget of $X... so they distribute the costs the best they can.
I don't think we need to remove it completely but some adjustments like applicable only to a primary residence and not investment or commercial properties would probably go a long way.
Properly distributed, they should not be high.
Property taxes are not a slush fund for the government, nor should they be deferrable. They are intended to be running expenses.
That's right. And why would it?
But also: your example is imaginary. When was the last time that house values dropped 10x or even 5x? It's counterproductive to make tax policy based on the extreme cases that have never happened.
Oh great! I'll take one of those. Maybe two. Where do I sign up?
Sounds like a great way to live a life, just because younger people feel like they deserve to live in their house.
Well, they do deserve those houses. If we expect young people to work, pay taxes and raise new generation. This is yet another middle finger to young people. No wonder birth rate is in toilet.
The "won't somebody think of granny?" argument doesn't really work when advocating for a policy that disproportionately subsidizes non-grannies.
My house today is worth 2x what I paid for it a decade ago. Which is great except for the fact that housing costs around here are closer to 3-4x what they were a decade ago. Even if I wanted to sell, I couldn’t find any livable housing for the same price within the same area.
Buy. Borrow. Die.
At one point, I'm fairly sure all those old people you're talking about were young people who felt like they deserved to live in their house. The difference is that, well, they were able to. I don't think you're intentionally saying "You came of age after 1980, kiddo, so suck it," but that's nonetheless the outcome. Proposition 13 certainly isn't the only reason that housing prices in California have skyrocketed, and housing prices have always been more expensive here than the US median -- but the gap between the California median and the US median started increasing immediately after Proposition 13 was passed and just kept accelerating.
I own a house in California. I have substantially less than $1 million net worth. Not complaining, to be sure, but it simply isn't even remotely true that all California homeowners are millionaires.
There’s plenty of turnover in California on par with other states. If prop 13 were somehow so powerful a factor not to sell, you would see a lot less house sales which you don’t.
In my city, half the houses were sold in the last 20 years which sounds pretty good to me. The idea that property taxes are frozen to 30 years ago and governments are starving for money is fiction.
In places like Toronto where property taxes get assessed every year, the property taxes 1/3 for an equivalent house price.
In the current tax climate, we will never sell our houses. It's an amazing way to transfer wealth while avoid capital gains.
And if they don't want to sell, the kids keep the original prop 13 tax limitations as well. The current housing policies and tax system is a disaster.
Some jurisdictions allow you to defer property tax indefinitely in the form of a lien against the house which seems like a reasonable way to do it.
What stops people from selling their homes isn’t prop 13, it’s the ridiculous rise in house prices in the last 15 years. It creates no mobility. Stop bitching about Prop 13, that is a lazy and short sighted and wrong explanation for house prices. Look at the inventory these days. It’s low because no one wants to sell their homes because where are they going to move to?
When they choose to sell, or their estate sells, the property tax is settled first from the proceeds of the sale.
I'm saying this scheme is in place in other locations to address the same problem you describe, and seems to be working better than prop 13 (at solving that).
I have no idea why people who are living off of social security should be in the most desirable housing in the entire country
But frankly I don't understand why a retiree who is living off of social security would sit on a multi million dollar asset, rather than cashing out and increasing their standard of living many times over by moving. And I don't think they are a victim by having generated 10-20x returns on their home
Also - they wouldn't be paying $30k per year. If you had a rational government cost distribution among people in the area, you wouldn't need to charge people $30k just in property taxes.
And then - they also haven't paid their fair share of taxes in decades, so why do they get to be in a highly privileged position?
Imagine if I didn't pay any income tax for 50 years - would you excuse me, if I turned 60?
With proposition 19, approved in last election, seniors can move to a different place and carry their original property taxes with them.
https://ballotpedia.org/California_Proposition_19,_Property_...
The suggestion is to make them no pay that annually in cash, but rather on the future gains of the house.
Their house (or rather, the land) is going up in value far more than that per year. Asking them to forgo a fraction of their speculative real estate gains, when they never even plan to access it (according to you), does not make sense.
So what it seems like you are really saying is that they deserve to have full speculative real estate gains accessible to them, just because they are wealthier than younger people and were able to get into the capitalism game earlier. That due to their unearned wealth, that they did nothing to create, that comes purely at the expense of others being able to live in the area because land is zero sum. They should have to pay less just because they have greater power? Absolutely not.
Saying "I'm so wealthy that I can't pay taxes, and I'm not willing to even delay paying taxes until sale" is fundamental wrong-headed.
The solution isn't to let wealthy older homeowners get away with not paying proper property taxes though, which is how it is now.
Prop 13 is wholly unnecessary
And why would my opinion change when I get older? Prop 13 won't do shit to lower my taxes, I'll have less income and still be paying through the nose, because the city needs money and half of its residents are paying virtually nothing. If anything, I'll be even crankier about the whole situation.
It will, in real terms, since the assessment increase limit is the lower of 2% or the rate of inflation each year, guaranteeing that over the long term the assessed value and tax go down in real terms.
Which isn’t to say your opinion should change, just that the self-interest equation does.
No, Prop 13’s rate limit makee your taxes low upfront — the 1% cap on nominal rates is far below the national median effective rate, and the nominal rate is before applying the effects of the assessment limits — and the limit on annual assessment increases to the lower of inflation or 2% makes it even lower later on.
A lot of people focus on the second in isolation to say new home buyers subsidize existing owners in CA, but really both types of owners are subsidized by income and sales tax payers, its just new homeowners are slightly less subsidized.
> This is counter intuitive, when you want to encourage people to buy homes.
“Barely taxed now, and even less taxed later” does a very good job of encouraging people to want to buy homes in California, and also of discouraging them from wanting to sell homes in California, as evidenced by price trends.
What it doesn't do is make homes affordable to buy, but then encouraging people to want to buy and making them affordable are goals that are inherently in some tension, given the effect of demand on price.
There are plenty of other solutions. Some states allow you to just pay the same amount each year and put the difference as a lien on the house until you sell. Some states have something like prop 13, but it is applied to entire counties. ie. They allow the entire county to raise their income from property tax by 1% annually. So everyone's home gets reassessed for its value and then the tax rate is set so that the whole county goes up 1%. This means that in some cases people's property taxes actually go down if one area had a massive increase in value.
Every other state figured out a way to avoid this problem. California just loves its "rent control for the wealthy" which is what Prop 13 is.
Prop 13 is the single worst law in California and must go.
And I say this as someone who owns multiple properties in CA, and in fact for one of them, the profit comes entirely from the fact that the tax rate was set in the 70s. If I had to pay property tax on the current value, I'd just sell it because there would be no profit to be had. And in my primary home, my neighbors subsidize me by paying twice what I do even though their homes are worth less. And I subsidize my neighbor who has been here since the 60s and pays 1/10 of what I do for the same services.
And if you're still really concerned about old people losing their homes, at least support getting rid of Prop 13 for all non-primary homes. There is absolutely no reason a rental property should be protected from property tax increases.
Prop 13 is bad in at least half a dozen ways, but I'm not so sure this problem isn't coming elsewhere or even is absent. It seems to me California may have experienced a leading edge of metro dynamics that are going to come for other states soon.
> everyone's home gets reassessed for its value and then the tax rate is set so that the whole county goes up 1%.
That's interesting.
> And if you're still really concerned about old people losing their homes, at least support getting rid of Prop 13 for all non-primary homes
I think something like this is right (and wasn't this attempted by proposition a few years ago?). Residence-first real estate policy needs to include tax that increases on the number of properties owned (and maybe even more steeply in a supply constrained market).
Yes, in the last election. And sadly it was defeated because as usual with state propositions, the side with the most money (developers in this case) were able to convince the public with inaccurate propaganda.
People might try to get around this by forming corporations or trusts that hold max one property each. There is really no need to count how many other properties someone holds. Just do a re-assessment every year and ratchet up the assessed value on all housing that the owner does not occupy, including vacant property and renter-occupied. Seems a lot simpler.
I'd be especially easy in California because every foreign (out of state) corporation has to register with the state and tell them who the beneficial owners are. It would be fairly easy to trace it back to actual people.
No, a much more limited reform that would have effected some, but not all, commercial and industrial property (but not any, even non-primary, residential) was, and was defeated.
Or maybe, make it so that property tax increases are limited but only if the owner:
1. Is past retirement age 2. The owner lives in the property. 3. The owner does not have the means to pay the normal property tax rates.
This is how most other States' solve this problem. Instead of freezing property tax rates across the board, they narrowly limit property taxes of old residents that don't have the means to pay the normal property tax rate.
Seems like a lot to ask, so clearly the best way forward is to just continue shoveling more wealth onto the already-wealthy at the expense of people entering the workforce and housing market, and even then still not actually solving the original problem we sought out to solve in the first place.
Believing that tax bills should be equal doesn't imply that; one can believe in equal taxation of same-value property and not think that property tax should ever force people out of property they own. Deferrable-by-default property tax (either entirely or increases above base year) are better than assessment increase limits at avoiding people being forced out, but do less to transfer wealth up the to already-wealthy elites.
Not “never move”, just never sell. When you are ready and able to upgrade to a new home, you convert the existing one to a rental property with rents to cover costs with a suitable risk premium (but don’t worry about additional profit), and then benefit from the appreciation and protection from full-value reassessment on both properties, rinse and repeat as needed.
AKA "segregation with extra steps"
https://harvardcrcl.org/wp-content/uploads/sites/10/2018/11/...
Norlidger v. Hahn (worth a read https://www.law.cornell.edu/supct/html/90-1912.ZD.html) didn't make it but also didn't address the Fair Housing Act.
Prop 13, especially the extensions that preserve tax rates through bloodlines, disparately impacts minorities even though that wasn't the explicit intent of the law. Turns out that intent doesn't matter on issues of race so there's legal precedent to overturn the law.
https://duckduckgo.com/?q=site%3Aeconomist.com+land+value+ta...
Or put another way, many of the same tactics can be used to distort/contest appraisals "dark stores" and deed restrictions that prevent other uses, but without an objective way to combat them
The ability to loan large amounts of money like this detaches people from the actual buying power of their money and the price of the property they're buying. Two grand in the bank is a nice amount of money. A two grand price increase on a property amortised over 20 years is considered to be nothing because the repayments are almost the same.
The solution to bring prices back down to ground level in my view is to end mortgages. Require the money up front and therefore force prices to drop until an equilibrium of affordability is reached. Needless to say this will never happen because the people who have the power to push for this are the ones benefiting from the status quo.
NB: I am not an economist.
All the wealth inequality was created by government money printing. They claim they are printing money to help the poor, but are really making them worse off
As for CA prop 13, also voted by people. Don't like it? VOTE AGAINST IT. Else, stop complaining. The system is working exactly as voted by the people who vote. If this is such a big issue then why are people consistently voting for them?
I'm curious why Blackrock thinks these homes are worth this much if the rest of the market currently doesn't.
Big demand, lack of workers? Price and pay rise to meet the challenge. This part of market economy always made sense to me. Like a muscle growing stronger in response to increased exertion.
Now the wealthy have decided that this is way too boring because what good does it do them if people actually attain wealth for themselves? There'll be no motivation to run faster in their hamster wheels to create more wealth to be siphoned off.
Works as intended.