Owning residential land without living on it, sometimes without even having the right to live on it in the case of foreign companies, seems perverse to me. It feels like claiming exclusive ownership over an acre of the ocean or a cubic kilometer of the sky.
Except it's worse, because no one could otherwise use that cubic kilometer of the sky as a place to live.
Owning residential land that you can't or won't live on, in a country with a significant homelessness problem, is depriving other people of shelter, a basic need.
The simple solution is if you purchase a property and are not living in it - i.e. its an investment property - you get taxed at a substantially higher rate. Both in property taxes and taxes on the profit made.
The rebuttal you're probably going to hear about this is how this will inordinately punish the private citizen buying a second home as an investment property. We do ultimately need some amount of rentals and those need to be affordable - if the investment property has the hell taxed out of that's going straight to the renter. I say this in an effort to try to point out it's a complicated issue, I in no way support the current large investor predatory housing market.
That would be disastrous for families with multiple kids. They may not be able to afford to buy, but able to rent. Forcing them all into an apartment can be chaotic.
Nobody said "the hell" taxed out of anything. Conversation is completely shut down by these dumb Devil's advocate takes before anyone talks details such as a graduated tax rate.
Ok, so my choice of wording is poor, but I'm not trying to do a devil's advocate take, I'm trying to talk about the breadth of the issue. What would you like to see with this? Do you think people should own second rental properties? If so, what does "a substantially higher rate" mean to you that stops investors with deep pockets from investing but not regular people? If people shouldn't own a second property, then why not flagrantly tax them? But then where do renters go?
> If the investment property has the hell taxed out of that's going straight to the renter
Not if you exempt the value of the building from taxation and focus the tax exclusively on the value of the underlying land. This has been empirically demonstrated in multiple studies:
The government should step in when the rental market is failing to deliver for the people i.e. when rents become unaffordable due to lack of supply. They can step in with zoning law changes but they can also step in with direct competition.
> The rebuttal you're probably going to hear about this is how this will inordinately punish the private citizen buying a second home as an investment property.
Why would it be desirable to encourage private citizens to use property as an investment? I mean, they'd perhaps need to be a one-time easing to ensure that people who have already planned their retirement around such a scheme aren't completely fucked over. But long term it seems to me that there's no downside to this being punished.
Ultimately some people do need a place to rent to live. I saw someone else suggest that rentals are only allowed in apartments, maybe that solves this, but rentals are a vital part of the housing equation.
Right, but people don't need to be making money out of that. I think you could set the tax rates so that people basically break even (make a small profit) from renting a house out, and they actually lose money if they hold on to a house they're not renting out (with some carefully worded time-limited exceptions for houses under renovation). That would drive down house prices sharpish!
You could also allow the state to step in as owners of rental housing where private landlords aren't making enough rental houses available. And if the state actually built houses for rental you likely wouldn't need as harsh taxation because the rental prices would drop purely through the increased supply.
Nobody would ever rent to tenants if there weren't profit in it. Take away the profit and all the tenants who need to rent are totally out of luck because nobody has any reason to rent to them. :(
Same as mortgages wouldn't exist if banks didn't make a profit off them.
> Take away the profit and everybody who needs to rent is out of luck.
How does that follow?
Take the situation as it exists today—X amount of "housing units" exist, and Y of those "housing units" are owned by investors as rental properties.
Now, change the situation so that it becomes unprofitable to own properties you are not occupying. All X of those housing units still exist. They won't be destroyed (well, maybe a few will, but not enough to seriously change the calculations), and if it's not profitable to rent them, it's going to be even less profitable to hang onto them sitting empty.
What happens in that scenario? Well, they should be sold.
Who would they be sold to? People who need a place to live (because no one's going to be buying them as investment or rental properties anymore).
How much are they going to be sold for? The amount these people are willing and able to pay. Why would they be sold for significantly more than they would be rented out for before? Sure, some current owners would be in denial and unwilling to accept that they'd lose a bunch of money on it (or maybe, as nicoburns suggests, there would be some kind of one-time bailout/incentive/whatever to make sure that the current owners would sell, and wouldn't lose their shirts). But while it would certainly change the economics of the situation somewhat from what they are today, and it would take our society a few years to reorganize around it, ultimately, I don't believe removing the middleman landlord class from the equation would harm the people who are currently renting in the long term. Indeed, I think it would benefit them, because instead of being in a situation where they're basically guaranteed to have a significant portion of their earnings siphoned off purely to be allowed to have a place to exist, they would be building up equity in something through those payments...and once they finished paying the purchase price, they would own the place, no longer have to make payments, and be able to sell it on when they decided it was time to move.
> What happens in that scenario? Well, they should be sold.
Exactly. They'll be sold to people who will live in them, and they won't be rented anymore.
So if you want to move to a city for two years for a temporary job contract and rent a house... you literally can't. Because nobody will rent to you, because all the houses are occupied by owners living in them. Which is a disaster for rental demand.
Remember that a lot of people want to rent. They prefer to rent instead of buy, for various reasons from flexibility to it just making more financial sense for various reasons.
This is why if you take away the profit from renting, people who want to rent will be out of luck.
Ugh, I definitely wouldn't want that. Have you seen the state of government-owned housing projects?
I want landlords who are incentivized to keep their properties well-maintained and configured for what the rental market wants in terms of both functionality and aesthetic taste.
For-profit landlords do a vastly better job at meeting market demand than a government bureaucracy. Which is why, of course, we're a capitalist economy rather than a socialist command economy.
Government-owned rental housing sounds like a nightmare. The same nightmare as nationalizing industry in general.
> For-profit landlords do a vastly better job at meeting market demand than a government bureaucracy.
Do you actually have evidence of this? Or is your only concept of "government-owned housing" racially-segregated ghettos called things like "The Projects"?
Because every renter I know rents from a for-profit landlord, and almost every single one of them has had massive problems with one landlord or another screwing them over either by neglect or by active malice. When there are more people looking for housing than there are housing units on the market—hey, look, another problem caused by allowing excessive numbers of vacant investment properties—all the landlords have to do is make sure the cockroaches don't scuttle by right in front of your face before you've signed the lease.
If the government is failing to properly maintain its rental properties, you have a recourse: the government legally answers to the people, which for-profit landlords do not, and if the problems are serious enough, you can vote in local government officials who will do something about it.
Yes, it's a basic tenet of economics that market economies meet consumer demand more effectively than government command economies. The entire 20th century is your evidence.
And for all of your anecdotes of terrible landlord stories, I can share all the great experiences of me and my friends. But at the end of the day, you kind of get what you pay for. E.g. renting a $1,500/mo. 1-bedroom vs a $3,500 1-bedroom in NYC will result in vastly different experiences with quality of maintenance and how responsive your landlord is.
But at the end of the day you're basically arguing for government ownership of the economy (because why stop at rentals?), and I don't really know what to tell you, except thank goodness that's not the country we live in.
> Yes, it's a basic tenet of economics that market economies meet consumer demand more effectively than government command economies
It's a basic tenet of fairly extreme capitalist economics. A more balanced view would be that this is often the case but that it only really works when the market is competitive. And that it is hard for a market to be competitive when it's constrained by a limited resource (in this case, land in desirable locations).
As a counterexample to your tenet, municipal internet providers almost always provide better service and cheaper prices than private alternatives.
> So if you want to move to a city for two years for a temporary job contract and rent a house... you literally can't.
That still doesn't follow.
The total amount of housing stock will not change, and nor will the total amount of people needing housing of whatever type (besides some movement on the margins of both).
There is no reason to believe that, in an environment where renting is no longer a viable option, everyone will just shrug their shoulders and say, "Well, I guess all of this is necessarily going to be long-term purchase property, handled exactly the same way we handled homeownership before this change—big closing costs and all."
Yes, obviously, by definition, if renting is not an option, people who want to rent will be out of luck—but that doesn't mean that the people who want to rent today would have no viable options for housing after such a change took place. I don't know exactly what the solution would look like, because it would depend heavily on what specific changes we made that made renting properties out no longer viable, but it's really not that hard to imagine them.
> I don't know exactly what the solution would look like
And that's exactly the problem. If you're not proposing a solution for how to continue providing rentals to the people who need them, then you're not proposing any workable solution at all.
Your solution was "convert it all to owner-occupied housing" and I was pointing out that doesn't work because it ignores the needs of renters.
I explicitly said I don't know what the solution would look like because the change proposed is generic.
Give me a specific proposal for how to break the rentier economy, and I can probably give you a specific proposal for how to solve the problems it raises.
> But long term it seems to me that there's no downside to this being punished.
It would punish people who need/want to move now, but don't want to sell their current home at a loss or can't sell their home due to market conditions, etc.
You could potentially not apply the punitive taxation so long as only one house is owned, regardless of whether they are actually living in it (so renting one property while renting another one would be fine).
You can avoid elements of the proposal by the OP by selling and moving and then claiming the new primary residence like you do now.
I don't think we should care if someone has to sell their current home at a loss due to market conditions because taken to its logical conclusion you're saying people shouldn't lose money which to have a functioning economy you have to reject.
> I don't think we should care if someone has to sell their current home at a loss due to market conditions
But they are only selling at a loss because under the proposal they would be heavily taxed if they wanted to hold on to the house and rent it out while they wait for the market to get better.
> taken to its logical conclusion you're saying people shouldn't lose money which to have a functioning economy you have to reject
No, they are saying that you should let people decide when they want to sell instead of making them sell when they will take a loss. That doesn't mean they won't lose money when they sell. It just means they can decide based on market conditions when to sell--which is what you want if you want a well functioning economy.
> But they are only selling at a loss because under the proposal they would be heavily taxed if they wanted to hold on to the house and rent it out while they wait for the market to get better.
Then don't sell, or don't rent it out, or just deal with it? I'm not sure why we should further subsidize homeowners.
> No, they are saying that you should let people decide when they want to sell instead of making them sell when they will take a loss. That doesn't mean they won't lose money when they sell. It just means they can decide based on market conditions when to sell--which is what you want if you want a well functioning economy.
Apply this same reasoning to stocks and let me know if you still agree with it.
This would be easy to make exceptions for. Say a year to sell your previous home before the extra tax rate kicks in. But you can't stack them and do it again and have two homes you just moved out of, then three and four. Just one.
Because the financial inefficiencies produced by individual owners currently take the place of trillions of dollars of subsidized housing that would be paid by the government to institutional investors to build and maintain housing affordable to teachers, retail workers, police, and firemen that institutional investors DON'T WANT TO OWN MAINTAIN OR BUILD.
I am an individual property investor. I'm a landlord of a single 2-flat up-down duplex. I don't make as much money as I COULD make if I had endlessly deep pockets. It was sold to me by another individual real estate investor who owned and maintained it for 25 years.
Do you know why he sold it? He wanted to buy a luxury property that he would make more profit on and require less maintenance.
Without individual investors with limited pools of money investing in lower margin properties, simply hoping to augment a retirement account or 401k...
Why would governments subsidise institutional investors rather than simply buying and renting out the housing themselves? (which could be done at cost) I am sympathetic to the idea that individual landlords are better than large profit making businesses though.
Because governments don't want to be landlords. They don't want to have to orchestrate painting, drywall, gutters, electrical, plumbing, evictions, improvements, picking out tile, providing services that tenants grouped together with limited income might need like domestic abuse resolution and support, job training, food box distribution.
Institutions don't want to be in this business either. My wife works for one of the largest ones in the midwest, and trust me, they value the land and developments much more than the rents. Government subsidy is AN incentive to maintain the above services at the MINIMUM viable and provable state to get their handout, but they are NOT landlords.
Like McDonalds isn't a food company.
They are real estate developers.
And the experience of living in a 2-flat or a 4-flat is VERY different from a unit in a 500 person building.
The ONLY way institutions would be willing to provide affordable housing would be a constant squeeze on tenants and government and every lever possible to try to make the margins meet that of a luxury apartment. It never will.
And middle to low income families WILL SUFFER. A lot.
When given the option of direct cash payments to folks who need it, or giving that cash to an ineffectual corrupt business interest to fail to solve the problem in perpetuity... In America we always choose the later. Especially government.
>Institutions don't want to be in this business either. My wife works for one of the largest ones in the midwest, and trust me, they value the land and developments much more than the rents.
The rent is what determines the value of the land and developments.
>Government subsidy is AN incentive to maintain the above services at the MINIMUM viable and provable state to get their handout, but they are NOT landlords.
This subsidy can directly be given to people as cash. No need for a middleman to take a cut.
Plenty of governments do want to be landlords. If yours doesn't then perhaps you should consider electing a different one.
> They don't want to have to orchestrate painting, drywall, gutters, electrical, plumbing, evictions, improvements, picking out tile.
Why not? Governments ultimately want to serve there electorate. If there electorate wants decent quality affordable housing, then why would a government not want to provide that. Conceptually it's no different to the government running say a police force.
> providing services that tenants grouped together with limited income might need like domestic abuse resolution and support, job training, food box distribution.
Then don't group together tenants with limited income! You don't necessarily even need to group together government owned/run properties at all. There's no reason why a regular house on a regular street couldn't be government owned/run, mixed in with others that are privately owned.
Why are you assuming that government properties or tenants of government properties would be any different to privately owned properties or tenants of private landlords? That's only the case when the government only provides housing as a last resort, but if the government took a wider role in housing many of those problem would go away as the tenants would just be the general population.
> Then don't group together tenants with limited income! You don't necessarily even need to group together government owned/run properties at all. There's no reason why a regular house on a regular street couldn't be government owned/run, mixed in with others that are privately owned.
This model was tried in the 70's by institutional affordable housing real estate developers. IMHO this is a great model. Refugees and middle class engineers living side by side sharing schools and pot lucks. It is now anathema to the affordable housing model. I don't know why, but where large affordable housing portfolios had 100s of such properties in their portfolio, they now have 5. Don't know why.
Institutions used to invest in 2 and 4 unit affordable housing. They’ve spent the last 30 years selling it. To suckers like me.
Now they want it back? They don’t want to own it. They want to flip it.
Rents (just to pay the mortgage) go up. The profit is in institutions pocket. The ongoing maintenance sits where it always has. Individual landlords.
And yes, if an institutional owner can't make 250k profit with a kitchen remodel and a couple buckets of slate grey exterior paint, they do tear it down. And replace it with a luxury unit at twice the local real estate price. It sits empty until the area gentrifies. Or they leave a vacant dirt lot for 10 years. See Chicago.
> punish the private citizen buying a second home as an investment property
Second property should be taxed a little bit more. 3rd much more, 4th much much more etc.
> has the hell taxed out of that's going straight to the renter
That can be said about anything that has taxes on it: it goes back to punish the final consumer, but in the end it's worth trying to correct the market, be it cigarettes or homes for investment.
I suppose the difference there is that by and large people who find the new tax too onerous can reduce their cigarette consumption or even stop smoking altogether, but people can't just stop renting their home.
well yes, but you're still allowing cheap second house, but not third. This means more middle class people can buy an investment home, but they will have to stop there, discouraging landlords with a huge stock of houses. You don't want to discourage investment in houses, just oligopolies/monopolies on the housing stock, and also unoccupied houses.
That’s not a solution. If you do this then rent will just increase to make up for the tax increases. It’s a big Fuck You to the tenants. Taxes ALWAYS pass on to the consumer.
The best solution would have been to built more euro-style cities that are walkable and with much more dense, but that's almost impossible for most of the US now.
The recent manufactured outrage and conspiracy theories over 15-minute cities is astounding though. From where did it come? Why? I used to live in a 15-minute city. It was awesome! People from all over the world gush at how great it is when they visit. And it's supposed to be a bad thing? Wow.
If you're used to be part of the recreationally remote, the idea of not having ample space to yourself feels weird. Some people are used to having a backyard, a garage, and lots of space to spare, however useless it is to them, and unsustainable in general.
The benefits of living in the city are a lot less obvious. Some people perceive it as a cramped space where you're forced to endure the company of strangers.
If their lifestyle wasn't subsidized by city dwellers, and causing all sorts of negative externalities, I'd say "to each their own".
>While many cities have implemented policies along the 15-minute city concept, disagreement remains over whether the model benefits residents. Critics point out that the creation of dense, walkable cores like a 15-minute neighborhood often leads to gentrification and displacement. Further, price increases, like those associated with gentrification, could be harmful to marginalized groups like people with disabilities, forcing move-outs.[53] Similarly, as the concept's origin is largely European, critics have argued that implementing the model could be colonialist and perpetuate harm to marginalized communities.
If cities are deciding on these taxes themselves, not central government, they can adjust it dynamically until the need for rentals and the need for affordable homes balance out. They could even do it per neighbourhood.
If it never balances out - that is a sign that there are simply not enough houses, and they need to start building.
It's not so complicated to judge whether rents are too high or house prices are too high or both. It might be somewhat subjective, but that's government's job - to make those calls.
But the market adjusts automatically so why do you even need a government to make a call?
That's like saying the government should be involved in making a call as to whether apples and oranges are too expensive relative to each other in the supermarket.
There's a simpler solution: let people build. Relax zoning restrictions. If you don't constrain the housing supply, real estate will cease being a good investment. Houses should depreciate in value in time, just like cars. When this happens investors will not elbow out anyone, because there will be no investors, just like there are no investors in cars.
Yes, for sure. But if you can easily build 20 or 10 or even just 2 stories on top of it, land value decouples from housing value (not all the way, but substantially). And for most people, housing value is what really matters; land value is secondary.
Land value is actually enormously important in the economy -- it's 1/3 of the value of all real assets and probably represents a similar amount of bank loans (real estate itself is 2/3 or real assets and about 2/3 of bank loans).
Relaxing zoning laws and allowing for significantly more supply IS very important -- but it's not sufficient by itself. (For the record, neither are Land Value Taxes sufficient). The true solution is to enact both:
> Land value is actually enormously important in the economy -- it's 1/3 of the value of all real assets and probably represents a similar amount of bank loans (real estate itself is 2/3 or real assets and about 2/3 of bank loans).
That's just consequences of the artificial scarcity of real estate. Real estate should be a much smaller fraction of the economy, and land value too. Once real estate stops being an investment, mortgage debt will be just like car loans, an important segment of the credit markets, but by no means the gargantuan size that it is today.
And once land value drops from 1/3 to 1/10 of the real estate assets, then the difference between Georgism, Marxism and Neoclassicism will become academic (as it should be).
Does this help provide more housing? Or is it merely a justification to charge higher rents? It seems better for everyone if these houses could be torn down and replaced with multi-family units (apartments, row homes).
These homes are good investments because the area is in need of higher density and the land values will appreciate commensurate with that need. If property taxes are ratcheted up, it might make sense to just demolish the building and hold the land for its appreciation alone. Thus, further reducing housing stock and driving up rents.
If taxes are substantially higher - that will get passed down to the renter.
Should renting be a privilege only for the rich?
What happens when you're <30 and moving around for school & to get your first few years of experience?
What happens when your credit is awful and no one will lend you money for a house even if housing is 3% cheaper because there's less investors elbowing you out?
I'll go a step further and argue that residential zoned property should be owned by residents, i.e., actual people that live on that property. By allowing the wealthy, and especially investment firms, to buy residential property as an investment... we are hastening a return to feudalism.
Also real estate investment is the basest, dumbest form of investment. It takes little to no intelligence to make money in residential real estate. I personally refuse to touch it on principle.
There are other countries who have laws that corporations cannot own residential property and legal residents are only allowed to own one residential property at a time. I do think there should be some relaxation of this law in the US so that folks can own a city property and a vacation cabin, or something, but I like the notion.
Why are you trying to make renting so unaffordable? Dislike renters in your neighborhood?
(To be clear I am not saying this is right or wrong, I’m asking. I have used renting to increase my flexibility and to live places I couldn’t afford to or wouldn’t want to own for fun / access to jobs. I can see not wanting someone that doesn’t intend to stick around long term in your neighborhood I suppose).
A similarly simple solution would be to ease the regulatory nightmare that has made low-end houses unprofitable to build, and all new housing much more expensive.
Not too many days ago there is an article showing that productivity in home construction has been almost nil for decades because the government inefficiency overpowers any construction gain.
There are structural reasons why this would happen:
Bigger companies can get better financing enabling them to pay more.
Bigger companies can claim depreciation vs individual owners who can't.
Companies don't have to sell and pay transfer, estate, and capital gains taxes.
Property taxes are deductible against rents, but not on individual returns.
So basically, the tax code favors rentals over ownership, and now that the private equity guys have figured out how to cost effectively manage the properties, you are starting to see the inevitable result.
You have it completely backwards with respect to taxes. The tax code heavily favors ownership over rentals because owners aren't taxed on the "rent" they would have paid to themselves.
Big rental companies exist despite tax disadvantages, not because of them.
Landlords can deduct mortgage payments, interest, expenses, as well as depreciation from income. If you're only income is the rent, then all expenses are deducted.
As a home owner, you can only deduct mortgage interest from your income.
now that the private equity guys have figured out how to cost effectively manage the properties
Anyone renting from one of this big corporations knows that this game can only go on for so long with this "cost effective" management. Pretty much every apartment I've rented from a big soulless corporation has had insect and rodent problems, dripping ceilings, poor ventilation, mold problems, and a whole lot more. When you build cheaply, maintain lazily, and extract as much profit as possible, you're effectively destroying the rental unit in the long term for short term gains. At some point these buildings will literally collapse due to poor maintenance. I can only hope that the government fights lobbyist attempts to "step in and correct the situation" with massive corporate bailouts.
You left out the housing shortage. In a market with no other options you can make people leave in filth if the only other option is living in their car. The more property you buy up and let decay, the higher rents you can charge.
It's about location, location, location but you're right, a lot of people should not mess with it. How will cost of repairs look like if inflation keeps up and demographics keep worsening?
Most of your 5K “expenses” are not really expenses, you’re buying equity in your home, which is worth money. When you die or move, somebody will sell your house and get a bunch of cash
When the renter moves or dies, they’ll cross their fingers they get their security deposit back
Principal; of a $5k mortgage payment, $1.5k is likely going towards the principal; meaning, they are paying $3.5k versus $3k rent; Add in that the $3.5k is interest or property tax expenses, and will save 25% ($875) on a significant portion of that.
So, after doing the math; $5k is actually costing $2.625k versus renting $3k.
If it costs 2k/mo just to insure, maintain, and pay taxes on your property, how is somebody renting something comparable for 3k?
the landlords in your neighborhood are only taking 1000 a month to service their loans, their overhead, and then take profit? Sounds like a tough business
>> I bought a 4br house last year. My monthly costs are $5k. Renting a comparable home is about $3k/mo.
1. Your rents will not be $3k/mo in 10yrs and almost definitely wont be in 20yrs. Your mortgage, assuming fixed rate, will be locked for 30yrs. After that, you'll still have property taxes, but no mortgage at all.
2. You'll be forced to save each month. Post interest, you are "building equity" though that is highly variable in the short term.
3. You'll get tax benefits on the mortgage payment that you do not get for rents
4. You'll get tax benefits on your property taxes (tenuous given SALT changes) that you would not get on renting
5. You're forced to form bonds locally since it isnt easy to move as a homeowner (txn costs eat thru a lot of $). You'll invest in your community, relationships, schools, Parent Teacher Organization, etc.
None of this is universal of course. If you own a house with huge issues that becomes a money pit, the equation turns against you.
You bought at the current peak. (and even still, very likely, though not 100% guaranteed, you'll be ahead in 5-10 years) Real estate is a long term play to come out on top. If you bought a house 20 years ago, you're sitting on a hefty profit right now. Maybe not generational wealth, but def 3-4X your original investment. And if you had the funds to purchase multiple properties between 2009-2011, you could very easily be sitting on enough wealth to comfortably retire and never work a day in your life again. Which is what was happening around that time. I remember trying to buy my first starter home and getting outbid for over a year straight by investors and all-cash buyers.
I'm now solidly in team 'buy' after spending a decade on team 'rent', but one has to recognize that there are certain markets in high priced cities where it makes a lot more sense to rent and invest in the stock market than it does to buy.
Housing usually keeps up with inflation. We seem to have forgotten that in the last decade or so, but eventually gravity will pull the housing market back down to earth. It's not an investment, it's a place to live.
I used to think like you but there are quite a few things that justify this
* Out of the 5K some fraction, say 2K, is going towards the principal (i.e. it is building your wealth). So now we are down to the same 3K you were paying for rent
* The government encourages home ownership with tax breaks. Out of the 3K left some part becomes tax deductible (mortgage interest and property taxes) until a cap. Say this is ~800 per month. So now you are already down below 3K
* The amount you pay is fairly fixed over long periods (10, 15, 30 years) based on your mortgage while the rent keeps going up.
* Finally, you get to pass this on to your heirs without paying any taxes on the gains (hence building generational wealth)
It’s because every dollar you pay off your mortgage is a dollar you get back when you sell the house. All of that 3K you paid renting is lost every month, but a sizeable chunk of the 5K you’re paying is effectively going into a high-yield investment account which you will “withdraw” by liquidating the asset (ideally). Even if the home value doesn’t grow incredibly, so long as it doesn’t lose value you’re still saving a ton of money over a long-term horizon.
Just ballparking the value of the house at around $1.5mil (you said last year, which I'm averaging out an interest rate of 4.5% and then rounding down. Assuming a 30 year mortgage) then in 30 years time, you'll have an asset with a value likely to be greater than $1.5 million.
Assuming you eventually have children, they may inherit this asset. That is wealth, and that wealth will transcend your generation.
That covers the literal definition.
On the other hand, the people who are lifetime renters will have spent (assuming rates stay static, which is unlikely) just over a million for which they have received no assets.
Your assumption is that they're pocketing $500k, and are ahead, but even if we ignore that their rents are likely to rise, while your mortgage is likely to stay the same, and the most likely outcome is that rental rates increase over time. Likely double. At which time they'll have spent the same, or more, or maybe slightly less, but still have nothing.
Meanwhile you'll likely make improvements, perhaps refinance if and when rates are lower, and the value of your home will almost certainly increase as well.
No doubt that it'll fluctuate in the meantime, and for sure there are plenty of maladies that can occur between now and 30 years from now, but at the end of the day, comparatively you are building wealth and stability for someone to inherit (or for you to capitalize into dollars, which is also inheritable) while lifelong renters are not. Assuming no meaningful changes (a big assumption) you will likely end up $3 million ahead of the renters on this timescale.
If you rent, the extra money is saved doesn't just evaporate. That money would go towards a IRA, 401k, or trust that can also be inherited. Property taxes, mortgage, home repairs, depreciation is money evaporating.
How much of that 5k is you paying amortization though? If you're just patiently waiting for your mortgage to naturally end itself after 20+ years instead of actively making extra payments to reduce how much money you'll pay to the bank in the long run then yeah, it's just renting with extra steps.
(Note: This might differ greatly depend on where you live. I'm in the EU, not sure how this scenario works in the US.)
I live in Canada, things don't quite work like the US in terms of ownership incentives, but generally nobody is renting a house here for less than what it costs to finance and maintain it, so rather than "renting with extra step", an entire generation of people are being told they can not afford to own the home, but they can go ahead and pay the bills of the person who does.
Buying a house ten years ago has added about $450,000 to my net worth, without me making any extra payments. Had we stayed renting an apartment, saving the difference would have produced about $57,000 at 8% annualized, and had we rented a house that was comparable, would have yielded nothing.
Buying a house here can be highly leveraged - you start off only having to pay 5, 10, 20 percent of the price, but until very recently houses appreciated more than the interest on the mortgage, furthermore, as you pay your mortgage off, you can take a loan out against a certain portion of the value of the house and use that money to invest in other things, while tax deducting the interest from that loan. Never actually paying your house off is a thing for both the rich and the poor, but with very different outcomes.
You pay $5k monthly in mortgage and other expenses, I assume you include home maintenance in this. 30 years later the mortgage part no longer factors in, and you only pay a much smaller portion of that (just the tax and maintenance). I don't know what the proportion of it is typically but principal and interest payments are usually the majority of the mortgage, so at that point your payments should shrink.
So there's wealth in a few areas. One, once your mortgage rate is locked in it's usually not going to randomly go up, while with rent you can be sure the rent will always go up over time. Two, after your mortgage is paid off you have significantly lowered your living expenses, and any inheritor who continues to live on the same property will receive that benefit as long as they live there. Three, if/when you or your inheritor no longer want to live there, you have a house you can sell to someone else for a large chunk of cash. Owning a high value asset that's easy to sell is basically the definition of building wealth.
If the difference between home buying and renting is as big as you describe, then maybe it doesn't make sense. But it isn't always such a big difference; usually rent is more like 0.8x-0.9x the mortgage payment.
>The people before me 3x their money over 20 years, but they also did 2 renovations, including adding extra rooms. Where is this generational wealth I’m supposedly building by paying $2k extra per mo than if I rented?
With the numbers given, over 20 years the renters will have saved $480k compared to the buyers. But they also don't own anything by the end of it. So if your house you bought is worth more than $480k at the end then you effectively made money by buying the house. Then for every year after that, the deal only gets better for you, as your payments plummet and the rent only continues to climb. This is simplifying things a lot of course, the renters could invest the money they saved, their rent will go up over time, your house could go up in value or it could burn in a disaster, etc. But it's a good starting point for evaluating where it becomes worth it.
> With the numbers given, over 20 years the renters will have saved $480k compared to the buyers.
Your math is wrong. After 20 years the renters will have more like $1.5M, inflation adjusted, depending on how you model it. Basically, financial outcomes will roughly track the value the house, the only difference is in how the assets are invested. The idea that renters are "losing" anything is fundamentally misunderstanding finance.
This is not a surprising outcome since financial markets are relatively efficient.
In your case, it won't. You would be better off renting and investing the extra $2k in assets that are productive rather than speculative. This should be obvious, but the West as a whole has bought into the housing as a form of wealth and can't let the music stop now without ruining millions of lives.
Housing as a form of generational wealth is a trick that works for the population as a whole for a generation or two. The majority of rentals come from regular people who bought long before you and have significantly lower mortgages or no mortgages at all, or large firms who have access to lower rates and more accounting tricks like depreciation. In either case, what they can afford to accept as rents is a lot less than what you can afford to accept as rent. The best you can hope for is significant appreciation or significant rent increases in the face of stagnant wages. High demand markets like NYC and SF can sustain ever increasing prices for a long time, but most markets cannot.
It is crystal clear no-brainer that municipalities need to disincentivize non-resident ownership of single, double and triple-unit residential properties with massive taxes.
TL;DR If you don't live there, you pay big massive taxes. If you live there, you don't.
Investors are investing in existing housing because it’s an excellent investment with good returns. The primary reason it’s a good investment is because local municipalities ban the construction of most new homes despite the high demand. Low supply combined with high demand leads to increasing prices on the existing units.
A solution is to reform zoning and allow developers to build plentiful new homes, especially multi family homes near transit. The new supply will provide competition on older units, reducing price pressure on older units. That’s the beauty of new homes: even if expensive they provide competition to existing landlords.
Sounds like exactly what's happening basically everywhere in the USA.
Here in New England, I see a lot more short term rentals (AirBnB, mostly, but in places like Burlington, they're switching to "furnished rentals for travelling nurses" to dodge regulation). But the effect is the same: it's nearly impossible to find a livable starter home beneath 400k. Property taxes, let alone interest rates, let alone deposits, make that out of reach of all but the highest earning renters.
I frequently see claims that we "just need to build more," but when I see hundreds of AirBnBs available in every small town, no rentals, and only the most expensive houses for sale, I start to wonder if we need to address some systemic issue first.
This article says that 1 out of every 3 houses sold between July 2021 and July 2022 were purchased by corporations. Obviously that's going to skew the market (particularly when those corporations have access to cheaper rates and more tax loopholes than individuals). But it's interesting to think that that's just corporate purchases. Around here, it's common to see individuals who own 2-5 "investment properties" personally, rented out on AirBnB for $200+ a night. I suspect not all of those investors show up as corporate purchases, even if some of them use LLCs and such for tax avoidance.
This really pisses me off. I want to buy a home. There are millions of people in the USA living on the street, with cities and states spending hundreds of billions of dollars a year to provide crappy shelters and clean trash of sidewalks. And when I walk around my town at night, I see so many houses with no lights on, that only occasionally host a single car with out-of-state or rental plates. This behaviour cannot be allowed to continue, it's pulling the rug out from under anyone who isn't making hundreds of thousands of dollars a year and rotting out our communities.
But what can we do? Our government seems completely powerless to stop it. Even when cities try to clamp down on investment properties and short term rentals, it takes so long -- and so much NIMBY combat -- to put laws in place, the bad actors just find a loophole to keep things going. To quote 1990s infomercials, there has to be a better way.
Absolutely agreed. The tax rate in the Bay Area (and also NYC) alone makes me blink. Toss in inflated costs for rent (and inflated food, grocery, parking, and everything else because the rent is so high) and it just doesn't make any sense. Not to mention the property tax you'd owe on a 2023 purchase of a 1MM+ "starter home."
But just because it's a bit cheaper in other parts of the country doesn't mean the pricing is good for locals. Most of the world doesn't work in tech, and makes nowhere near tech salaries. We're already starting to see the problems (homelessness is a major one) that stem from prices exceeding what the poorest in society can afford. And when you can't find people to work basic jobs, and people have to find a way to live outside the system, it'll only get worse.
>This really pisses me off. I want to buy a home. There are millions of people in the USA living on the street
In January 2020 , there were 580,466 people experiencing homelessness on our streets and in shelters in America. Only 226,000 were unsheltered and on the streets. This is nearly an order of magnitude less than the claim above. Homelessness is a big problem, and we need to work on it, but lets do so with a clear-eyed understanding of the problem.
This is a serious problem. I have lost bids on many houses to cash investors that then turn around and list the property for rent. Investors are creating armies of rental properties and locking people out of affordable home ownership.
If the residents want to fight back, they could really stick it to those investors by allowing a lot of new homes to be built, along with lots of upzoning to higher densities.
They could also streamline approval and permitting.
This would drive down the rents and property values of the homes those investors own making it easier for average people to buy.
Whew - we really got 'em this time! They nearly got away with putting a bunch more housing near us. Now where do they think they're going to spend that Billion Dollars, huh? Take a hike! Good riddance!
Imagine a world in which the government caps the number of new cars that can be manufactured in a given year to 1,000. The price of cars would skyrocket across the board. People would respond to this new reality in predictable ways. They would buy cars and sit on them for the resale value. Car rentals would become the norm and car ownership would be exclusively for the well off. Bandit signs would pop up in every city offering cash for used cars. Investors, foreign and domestic, would start sinking large percentages of their funds into this new “safe” asset. ETFs and REITs would be created to give regular people access to this amazing new investment opportunity.
In this hypothetical world, it would be foolish to blame individual actors for the price of cars being so high, when the root of the problem is obviously the artificial cap on the number of new units that can be manufactured.
It’s the same with real estate. It’s foolish to blame AirBnB, landlords, investment groups, foreign investors, and Boomers for the price of real estate. These individual actors are merely responding to the reality that local governments make it nearly impossible to build new housing.
I don’t have much faith in legislation solving this, so from a potential-homeowner point of view, the solution seems to be: move to places that aren’t “hip” and fly under the radar of the investor class. Move to the Midwest, the South, the Rust Belt. Get away from the Austins and Atlantas.
This is only happening because our long term commitment to highly restrictive building zoning, building codes, and local ordinances has greatly limited the amount of housing available. If the amount of housing available were around what is necessary to generate what is known as market clearance where there is plenty of supply for demand at all levels then this would not happen.
In northwest MT, our rents almost doubled after a COVID population influx. Many new residents actually moved to live here, but a lot just bought summer places they also use as short-term rentals.
My parents were paying $1400 for a 2BR but when they moved out, the landlord charged $2400 and got a renter from CA.
People here used to afford housing on low wage jobs that "Americans won't do" such as office cleaning, landscaping, janitorial, nursing home care. Teens work all the fast food jobs.
Besides many people leaving, there has been a spike in homelessness, and a labor shortage on service industry jobs.
Immigrants will replace the low-wage jobs because they are willing to live multiple families per unit, leading to further overcrowding, and another reason why the rents won't go down.
They are building a lot of unsightly apartment towers now and are beginning to fill the beautiful farmland area with tightly packed clone home developments.
I've seen this happen everywhere I have lived including Arizona and California.
I'm pessimistic anything will ever change because big money always wins.
House prices and rents have also skyrocketed across the Northeast. This is especially crazy (to me) in rural areas and small towns, where I'm starting to see one bedrooms skyrocket above 2k/mo. Whole houses with even a single bathroom rarely drop below 3k/mo. When the average wage in your town is 40-60k, that's clearly unsustainable. These prices aren't that different from what I used to see in the outer boroughs of NYC in 2019!
I'm pessimistic for the same reason as you -- Big Money got a heavy hand. But in the longer term... I don't know, if half the country can't afford rent, at some point you'll see a legitimate revolution. Considering how dangerous those are for the average citizen I would rather the government fixed the situation before it spirals out of control.
This article made its rounds in the Atlanta subreddit and everyone was predictably outraged. But it fails to answer the most basic question. Is the percentage of homes owned and rented out going up or down? Because nationally it's not and the % of owner-occupied homes is more or less the same as it was in 1960.
The article doesn't address the Elephant in the room. During COVID courts shut down, evictions were banned, and some people stopped paying rent. That obliterated small time landlords who depended on rent to pay their mortgage.
The ones that found themselves in that situation had no real choice but to sell. And lots of other landlords who saw that happening also decided to sell. In that scenario who else is going to buy these homes except for large corporate buyers? Owner-occupiers can't get a mortgage on a house with a tenant in it and capital for small time landlords dried up.
While almost everyone seems to be fixated on various housing market minutia in justifiably passionate anger/frustration at the entire situation, very little attention is given to the causational elephant in the room:
The Federal Reserves monetary policy as a whole, but more specifically their authorization by the Federal Open Market Committee to buy Mortgage Backed Securities (MBS) directly from the banks. The Fed had ZERO MBS on their balance sheet prior to 01/05/19 (1) and now hold an staggering $2.7 trillion dollars worth, which represents 22% of the entire MBS market in the US (3).
This is the dirty secret in the modern US housing market, we never actually saw the true bottom of the 2008 housing crash due to the FEDs MBS interventions.
We know that monetary factors (like the federal reserve) can't be the main casual factor because rents are increasing at very low vacancy rates at the same (if not higher) rate as the price of housing.
If the fed was the primary factor we would see a divergence between housing prices and rent since the fed has minimal direct effects on rent.
Looking at the data, the primary driver is simply that more people are competing to live in urban centers as we have banned the construction of additional housing in most cities.
Why not both? Building fewer houses artificially constrains the supply, driving prices up. Investors prey on the market opportunity. We should definitely build more (IMO "missing middle" walkable mixed-use housing), but we also have to deal with the strong, moneyed, vested interest in keeping housing costs artificially inflated. This literal rent-seeking behaviour is so lucrative they won't just let us fix the problem without a fight. And even if we started to build dramatically more housing today, it would take years to catch up to market demands. So it might be a good idea to get the investors out of the game sooner to take some pressure off the market faster. And not just investors: individuals hoarding vacation homes and short term rentals should be disincentivized, too.
I don’t believe single family homes should be allowed to be owned by investors. With any regulation I’m sure there are loopholes but we can implement some basic checks to make it much more difficult. Right now there are zero barriers if you have cash.
There was a paper about an agent simulation in Nature or Science about 20 years ago. A large number of agents are assigned random amounts of wealth. They interact randomly one-on-one. In the interaction, on average, the wealthier agent gets some of the wealth of the poorer one.
After a long simulation, all the wealth is concentrated to two agents, and after further simulation to one.
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[ 3.5 ms ] story [ 195 ms ] threadOwning residential land that you can't or won't live on, in a country with a significant homelessness problem, is depriving other people of shelter, a basic need.
There are plenty of legitimate reasons to rent a home.
Some people are also just unlucky on market timing.
Is a nice way of saying "tax the hell out of it".
Not if you exempt the value of the building from taxation and focus the tax exclusively on the value of the underlying land. This has been empirically demonstrated in multiple studies:
http://gameofrent.com/content/can-lvt-be-passed-on-to-tenant...
Good. Properties should not be investments.
Why would it be desirable to encourage private citizens to use property as an investment? I mean, they'd perhaps need to be a one-time easing to ensure that people who have already planned their retirement around such a scheme aren't completely fucked over. But long term it seems to me that there's no downside to this being punished.
You could also allow the state to step in as owners of rental housing where private landlords aren't making enough rental houses available. And if the state actually built houses for rental you likely wouldn't need as harsh taxation because the rental prices would drop purely through the increased supply.
Nobody would ever rent to tenants if there weren't profit in it. Take away the profit and all the tenants who need to rent are totally out of luck because nobody has any reason to rent to them. :(
Same as mortgages wouldn't exist if banks didn't make a profit off them.
How does that follow?
Take the situation as it exists today—X amount of "housing units" exist, and Y of those "housing units" are owned by investors as rental properties.
Now, change the situation so that it becomes unprofitable to own properties you are not occupying. All X of those housing units still exist. They won't be destroyed (well, maybe a few will, but not enough to seriously change the calculations), and if it's not profitable to rent them, it's going to be even less profitable to hang onto them sitting empty.
What happens in that scenario? Well, they should be sold.
Who would they be sold to? People who need a place to live (because no one's going to be buying them as investment or rental properties anymore).
How much are they going to be sold for? The amount these people are willing and able to pay. Why would they be sold for significantly more than they would be rented out for before? Sure, some current owners would be in denial and unwilling to accept that they'd lose a bunch of money on it (or maybe, as nicoburns suggests, there would be some kind of one-time bailout/incentive/whatever to make sure that the current owners would sell, and wouldn't lose their shirts). But while it would certainly change the economics of the situation somewhat from what they are today, and it would take our society a few years to reorganize around it, ultimately, I don't believe removing the middleman landlord class from the equation would harm the people who are currently renting in the long term. Indeed, I think it would benefit them, because instead of being in a situation where they're basically guaranteed to have a significant portion of their earnings siphoned off purely to be allowed to have a place to exist, they would be building up equity in something through those payments...and once they finished paying the purchase price, they would own the place, no longer have to make payments, and be able to sell it on when they decided it was time to move.
Exactly. They'll be sold to people who will live in them, and they won't be rented anymore.
So if you want to move to a city for two years for a temporary job contract and rent a house... you literally can't. Because nobody will rent to you, because all the houses are occupied by owners living in them. Which is a disaster for rental demand.
Remember that a lot of people want to rent. They prefer to rent instead of buy, for various reasons from flexibility to it just making more financial sense for various reasons.
This is why if you take away the profit from renting, people who want to rent will be out of luck.
Or you have social (government owned) rental housing.
I want landlords who are incentivized to keep their properties well-maintained and configured for what the rental market wants in terms of both functionality and aesthetic taste.
For-profit landlords do a vastly better job at meeting market demand than a government bureaucracy. Which is why, of course, we're a capitalist economy rather than a socialist command economy.
Government-owned rental housing sounds like a nightmare. The same nightmare as nationalizing industry in general.
Do you actually have evidence of this? Or is your only concept of "government-owned housing" racially-segregated ghettos called things like "The Projects"?
Because every renter I know rents from a for-profit landlord, and almost every single one of them has had massive problems with one landlord or another screwing them over either by neglect or by active malice. When there are more people looking for housing than there are housing units on the market—hey, look, another problem caused by allowing excessive numbers of vacant investment properties—all the landlords have to do is make sure the cockroaches don't scuttle by right in front of your face before you've signed the lease.
If the government is failing to properly maintain its rental properties, you have a recourse: the government legally answers to the people, which for-profit landlords do not, and if the problems are serious enough, you can vote in local government officials who will do something about it.
Yes, it's a basic tenet of economics that market economies meet consumer demand more effectively than government command economies. The entire 20th century is your evidence.
And for all of your anecdotes of terrible landlord stories, I can share all the great experiences of me and my friends. But at the end of the day, you kind of get what you pay for. E.g. renting a $1,500/mo. 1-bedroom vs a $3,500 1-bedroom in NYC will result in vastly different experiences with quality of maintenance and how responsive your landlord is.
But at the end of the day you're basically arguing for government ownership of the economy (because why stop at rentals?), and I don't really know what to tell you, except thank goodness that's not the country we live in.
It's a basic tenet of fairly extreme capitalist economics. A more balanced view would be that this is often the case but that it only really works when the market is competitive. And that it is hard for a market to be competitive when it's constrained by a limited resource (in this case, land in desirable locations).
As a counterexample to your tenet, municipal internet providers almost always provide better service and cheaper prices than private alternatives.
That still doesn't follow.
The total amount of housing stock will not change, and nor will the total amount of people needing housing of whatever type (besides some movement on the margins of both).
There is no reason to believe that, in an environment where renting is no longer a viable option, everyone will just shrug their shoulders and say, "Well, I guess all of this is necessarily going to be long-term purchase property, handled exactly the same way we handled homeownership before this change—big closing costs and all."
Yes, obviously, by definition, if renting is not an option, people who want to rent will be out of luck—but that doesn't mean that the people who want to rent today would have no viable options for housing after such a change took place. I don't know exactly what the solution would look like, because it would depend heavily on what specific changes we made that made renting properties out no longer viable, but it's really not that hard to imagine them.
And that's exactly the problem. If you're not proposing a solution for how to continue providing rentals to the people who need them, then you're not proposing any workable solution at all.
Your solution was "convert it all to owner-occupied housing" and I was pointing out that doesn't work because it ignores the needs of renters.
Give me a specific proposal for how to break the rentier economy, and I can probably give you a specific proposal for how to solve the problems it raises.
It would punish people who need/want to move now, but don't want to sell their current home at a loss or can't sell their home due to market conditions, etc.
Landlord(s)-by-necessity, if you will.
I don't think we should care if someone has to sell their current home at a loss due to market conditions because taken to its logical conclusion you're saying people shouldn't lose money which to have a functioning economy you have to reject.
But they are only selling at a loss because under the proposal they would be heavily taxed if they wanted to hold on to the house and rent it out while they wait for the market to get better.
> taken to its logical conclusion you're saying people shouldn't lose money which to have a functioning economy you have to reject
No, they are saying that you should let people decide when they want to sell instead of making them sell when they will take a loss. That doesn't mean they won't lose money when they sell. It just means they can decide based on market conditions when to sell--which is what you want if you want a well functioning economy.
Then don't sell, or don't rent it out, or just deal with it? I'm not sure why we should further subsidize homeowners.
> No, they are saying that you should let people decide when they want to sell instead of making them sell when they will take a loss. That doesn't mean they won't lose money when they sell. It just means they can decide based on market conditions when to sell--which is what you want if you want a well functioning economy.
Apply this same reasoning to stocks and let me know if you still agree with it.
I am an individual property investor. I'm a landlord of a single 2-flat up-down duplex. I don't make as much money as I COULD make if I had endlessly deep pockets. It was sold to me by another individual real estate investor who owned and maintained it for 25 years.
Do you know why he sold it? He wanted to buy a luxury property that he would make more profit on and require less maintenance.
Without individual investors with limited pools of money investing in lower margin properties, simply hoping to augment a retirement account or 401k...
Affordable housing would cease to exist.
Institutions don't want to be in this business either. My wife works for one of the largest ones in the midwest, and trust me, they value the land and developments much more than the rents. Government subsidy is AN incentive to maintain the above services at the MINIMUM viable and provable state to get their handout, but they are NOT landlords.
Like McDonalds isn't a food company.
They are real estate developers.
And the experience of living in a 2-flat or a 4-flat is VERY different from a unit in a 500 person building.
The ONLY way institutions would be willing to provide affordable housing would be a constant squeeze on tenants and government and every lever possible to try to make the margins meet that of a luxury apartment. It never will.
And middle to low income families WILL SUFFER. A lot.
Read this, but replace "burgers" with "rent": https://1851franchise.com/why-is-mcdonalds-considered-a-real...
When given the option of direct cash payments to folks who need it, or giving that cash to an ineffectual corrupt business interest to fail to solve the problem in perpetuity... In America we always choose the later. Especially government.
The rent is what determines the value of the land and developments.
>Government subsidy is AN incentive to maintain the above services at the MINIMUM viable and provable state to get their handout, but they are NOT landlords.
This subsidy can directly be given to people as cash. No need for a middleman to take a cut.
Plenty of governments do want to be landlords. If yours doesn't then perhaps you should consider electing a different one.
> They don't want to have to orchestrate painting, drywall, gutters, electrical, plumbing, evictions, improvements, picking out tile.
Why not? Governments ultimately want to serve there electorate. If there electorate wants decent quality affordable housing, then why would a government not want to provide that. Conceptually it's no different to the government running say a police force.
> providing services that tenants grouped together with limited income might need like domestic abuse resolution and support, job training, food box distribution.
Then don't group together tenants with limited income! You don't necessarily even need to group together government owned/run properties at all. There's no reason why a regular house on a regular street couldn't be government owned/run, mixed in with others that are privately owned.
Why are you assuming that government properties or tenants of government properties would be any different to privately owned properties or tenants of private landlords? That's only the case when the government only provides housing as a last resort, but if the government took a wider role in housing many of those problem would go away as the tenants would just be the general population.
This model was tried in the 70's by institutional affordable housing real estate developers. IMHO this is a great model. Refugees and middle class engineers living side by side sharing schools and pot lucks. It is now anathema to the affordable housing model. I don't know why, but where large affordable housing portfolios had 100s of such properties in their portfolio, they now have 5. Don't know why.
Because the guy you bought it from would have torn down the valuable house and then the kit would be left empty forever?
That makes no sense. The unit would exist either way.
Now they want it back? They don’t want to own it. They want to flip it.
Rents (just to pay the mortgage) go up. The profit is in institutions pocket. The ongoing maintenance sits where it always has. Individual landlords.
And yes, if an institutional owner can't make 250k profit with a kitchen remodel and a couple buckets of slate grey exterior paint, they do tear it down. And replace it with a luxury unit at twice the local real estate price. It sits empty until the area gentrifies. Or they leave a vacant dirt lot for 10 years. See Chicago.
Second property should be taxed a little bit more. 3rd much more, 4th much much more etc.
> has the hell taxed out of that's going straight to the renter
That can be said about anything that has taxes on it: it goes back to punish the final consumer, but in the end it's worth trying to correct the market, be it cigarettes or homes for investment.
Rental Yield is twice higher in London than in Prague.
The benefits of living in the city are a lot less obvious. Some people perceive it as a cramped space where you're forced to endure the company of strangers.
If their lifestyle wasn't subsidized by city dwellers, and causing all sorts of negative externalities, I'd say "to each their own".
What is a "15-minutes city"? What is the outrage?
Edit: was an easy google. [1]
>While many cities have implemented policies along the 15-minute city concept, disagreement remains over whether the model benefits residents. Critics point out that the creation of dense, walkable cores like a 15-minute neighborhood often leads to gentrification and displacement. Further, price increases, like those associated with gentrification, could be harmful to marginalized groups like people with disabilities, forcing move-outs.[53] Similarly, as the concept's origin is largely European, critics have argued that implementing the model could be colonialist and perpetuate harm to marginalized communities.
Yeah, the "outrage" is a gaslighting exercise.
[1] https://en.wikipedia.org/wiki/15-minute_city
BTW as a general rule any simple solution to a complex problem is always wrong.
If it never balances out - that is a sign that there are simply not enough houses, and they need to start building.
As long as taxes are the same between the two, the market will balance them.
Building is a separate issue.
That's like saying the government should be involved in making a call as to whether apples and oranges are too expensive relative to each other in the supermarket.
http://gameofrent.com/content/is-land-a-big-deal#is-land-a-r...
Relaxing zoning laws and allowing for significantly more supply IS very important -- but it's not sufficient by itself. (For the record, neither are Land Value Taxes sufficient). The true solution is to enact both:
https://progressandpoverty.substack.com/p/land-and-the-liber...
If you want to be able to consistently decouple housing value from land value, you'll need both of these policies.
That's just consequences of the artificial scarcity of real estate. Real estate should be a much smaller fraction of the economy, and land value too. Once real estate stops being an investment, mortgage debt will be just like car loans, an important segment of the credit markets, but by no means the gargantuan size that it is today.
And once land value drops from 1/3 to 1/10 of the real estate assets, then the difference between Georgism, Marxism and Neoclassicism will become academic (as it should be).
These homes are good investments because the area is in need of higher density and the land values will appreciate commensurate with that need. If property taxes are ratcheted up, it might make sense to just demolish the building and hold the land for its appreciation alone. Thus, further reducing housing stock and driving up rents.
Should renting be a privilege only for the rich?
What happens when you're <30 and moving around for school & to get your first few years of experience?
What happens when your credit is awful and no one will lend you money for a house even if housing is 3% cheaper because there's less investors elbowing you out?
Also real estate investment is the basest, dumbest form of investment. It takes little to no intelligence to make money in residential real estate. I personally refuse to touch it on principle.
There are other countries who have laws that corporations cannot own residential property and legal residents are only allowed to own one residential property at a time. I do think there should be some relaxation of this law in the US so that folks can own a city property and a vacation cabin, or something, but I like the notion.
(To be clear I am not saying this is right or wrong, I’m asking. I have used renting to increase my flexibility and to live places I couldn’t afford to or wouldn’t want to own for fun / access to jobs. I can see not wanting someone that doesn’t intend to stick around long term in your neighborhood I suppose).
Not too many days ago there is an article showing that productivity in home construction has been almost nil for decades because the government inefficiency overpowers any construction gain.
Bigger companies can get better financing enabling them to pay more. Bigger companies can claim depreciation vs individual owners who can't. Companies don't have to sell and pay transfer, estate, and capital gains taxes. Property taxes are deductible against rents, but not on individual returns.
So basically, the tax code favors rentals over ownership, and now that the private equity guys have figured out how to cost effectively manage the properties, you are starting to see the inevitable result.
Big rental companies exist despite tax disadvantages, not because of them.
Landlords can deduct mortgage payments, interest, expenses, as well as depreciation from income. If you're only income is the rent, then all expenses are deducted.
As a home owner, you can only deduct mortgage interest from your income.
Owner occupied units also don’t pay 10% of revenue to a management firm.
It pencils out as a wash, otherwise people would simply buy their home as a corporation and rent it to themselves.
It's a harvesting/consuming model more like a carnivore than a producing model like a plant.
Can someone explain to me how home ownership brings generational wealth?
I bought a 4br house last year. My monthly costs are $5k. Renting a comparable home is about $3k/mo.
The people before me 3x their money over 20 years, but they also did 2 renovations, including adding extra rooms.
Where is this generational wealth I’m supposedly building by paying $2k extra per mo than if I rented?
outside of property taxes homeownership better stability of expenses
That doesn't make sense; so how are landlords surviving in your market then?
When the renter moves or dies, they’ll cross their fingers they get their security deposit back
Big difference
So, after doing the math; $5k is actually costing $2.625k versus renting $3k.
$2800/mo interest on my 5.5% $600k mortgage
$1000/mo repairs.
$500/mo insurance.
$200/mo equity on the loan.
I'm spending $57,600 to buy $2,400 of equity.
the landlords in your neighborhood are only taking 1000 a month to service their loans, their overhead, and then take profit? Sounds like a tough business
1. Your rents will not be $3k/mo in 10yrs and almost definitely wont be in 20yrs. Your mortgage, assuming fixed rate, will be locked for 30yrs. After that, you'll still have property taxes, but no mortgage at all.
2. You'll be forced to save each month. Post interest, you are "building equity" though that is highly variable in the short term.
3. You'll get tax benefits on the mortgage payment that you do not get for rents
4. You'll get tax benefits on your property taxes (tenuous given SALT changes) that you would not get on renting
5. You're forced to form bonds locally since it isnt easy to move as a homeowner (txn costs eat thru a lot of $). You'll invest in your community, relationships, schools, Parent Teacher Organization, etc.
None of this is universal of course. If you own a house with huge issues that becomes a money pit, the equation turns against you.
Housing usually keeps up with inflation. We seem to have forgotten that in the last decade or so, but eventually gravity will pull the housing market back down to earth. It's not an investment, it's a place to live.
* Out of the 5K some fraction, say 2K, is going towards the principal (i.e. it is building your wealth). So now we are down to the same 3K you were paying for rent
* The government encourages home ownership with tax breaks. Out of the 3K left some part becomes tax deductible (mortgage interest and property taxes) until a cap. Say this is ~800 per month. So now you are already down below 3K
* The amount you pay is fairly fixed over long periods (10, 15, 30 years) based on your mortgage while the rent keeps going up.
* Finally, you get to pass this on to your heirs without paying any taxes on the gains (hence building generational wealth)
Assuming you eventually have children, they may inherit this asset. That is wealth, and that wealth will transcend your generation.
That covers the literal definition.
On the other hand, the people who are lifetime renters will have spent (assuming rates stay static, which is unlikely) just over a million for which they have received no assets.
Your assumption is that they're pocketing $500k, and are ahead, but even if we ignore that their rents are likely to rise, while your mortgage is likely to stay the same, and the most likely outcome is that rental rates increase over time. Likely double. At which time they'll have spent the same, or more, or maybe slightly less, but still have nothing.
Meanwhile you'll likely make improvements, perhaps refinance if and when rates are lower, and the value of your home will almost certainly increase as well.
No doubt that it'll fluctuate in the meantime, and for sure there are plenty of maladies that can occur between now and 30 years from now, but at the end of the day, comparatively you are building wealth and stability for someone to inherit (or for you to capitalize into dollars, which is also inheritable) while lifelong renters are not. Assuming no meaningful changes (a big assumption) you will likely end up $3 million ahead of the renters on this timescale.
(Note: This might differ greatly depend on where you live. I'm in the EU, not sure how this scenario works in the US.)
Buying a house ten years ago has added about $450,000 to my net worth, without me making any extra payments. Had we stayed renting an apartment, saving the difference would have produced about $57,000 at 8% annualized, and had we rented a house that was comparable, would have yielded nothing.
Buying a house here can be highly leveraged - you start off only having to pay 5, 10, 20 percent of the price, but until very recently houses appreciated more than the interest on the mortgage, furthermore, as you pay your mortgage off, you can take a loan out against a certain portion of the value of the house and use that money to invest in other things, while tax deducting the interest from that loan. Never actually paying your house off is a thing for both the rich and the poor, but with very different outcomes.
So there's wealth in a few areas. One, once your mortgage rate is locked in it's usually not going to randomly go up, while with rent you can be sure the rent will always go up over time. Two, after your mortgage is paid off you have significantly lowered your living expenses, and any inheritor who continues to live on the same property will receive that benefit as long as they live there. Three, if/when you or your inheritor no longer want to live there, you have a house you can sell to someone else for a large chunk of cash. Owning a high value asset that's easy to sell is basically the definition of building wealth.
If the difference between home buying and renting is as big as you describe, then maybe it doesn't make sense. But it isn't always such a big difference; usually rent is more like 0.8x-0.9x the mortgage payment.
>The people before me 3x their money over 20 years, but they also did 2 renovations, including adding extra rooms. Where is this generational wealth I’m supposedly building by paying $2k extra per mo than if I rented?
With the numbers given, over 20 years the renters will have saved $480k compared to the buyers. But they also don't own anything by the end of it. So if your house you bought is worth more than $480k at the end then you effectively made money by buying the house. Then for every year after that, the deal only gets better for you, as your payments plummet and the rent only continues to climb. This is simplifying things a lot of course, the renters could invest the money they saved, their rent will go up over time, your house could go up in value or it could burn in a disaster, etc. But it's a good starting point for evaluating where it becomes worth it.
Your math is wrong. After 20 years the renters will have more like $1.5M, inflation adjusted, depending on how you model it. Basically, financial outcomes will roughly track the value the house, the only difference is in how the assets are invested. The idea that renters are "losing" anything is fundamentally misunderstanding finance.
This is not a surprising outcome since financial markets are relatively efficient.
Housing as a form of generational wealth is a trick that works for the population as a whole for a generation or two. The majority of rentals come from regular people who bought long before you and have significantly lower mortgages or no mortgages at all, or large firms who have access to lower rates and more accounting tricks like depreciation. In either case, what they can afford to accept as rents is a lot less than what you can afford to accept as rent. The best you can hope for is significant appreciation or significant rent increases in the face of stagnant wages. High demand markets like NYC and SF can sustain ever increasing prices for a long time, but most markets cannot.
TL;DR If you don't live there, you pay big massive taxes. If you live there, you don't.
A solution is to reform zoning and allow developers to build plentiful new homes, especially multi family homes near transit. The new supply will provide competition on older units, reducing price pressure on older units. That’s the beauty of new homes: even if expensive they provide competition to existing landlords.
Here in New England, I see a lot more short term rentals (AirBnB, mostly, but in places like Burlington, they're switching to "furnished rentals for travelling nurses" to dodge regulation). But the effect is the same: it's nearly impossible to find a livable starter home beneath 400k. Property taxes, let alone interest rates, let alone deposits, make that out of reach of all but the highest earning renters.
I frequently see claims that we "just need to build more," but when I see hundreds of AirBnBs available in every small town, no rentals, and only the most expensive houses for sale, I start to wonder if we need to address some systemic issue first.
This article says that 1 out of every 3 houses sold between July 2021 and July 2022 were purchased by corporations. Obviously that's going to skew the market (particularly when those corporations have access to cheaper rates and more tax loopholes than individuals). But it's interesting to think that that's just corporate purchases. Around here, it's common to see individuals who own 2-5 "investment properties" personally, rented out on AirBnB for $200+ a night. I suspect not all of those investors show up as corporate purchases, even if some of them use LLCs and such for tax avoidance.
This really pisses me off. I want to buy a home. There are millions of people in the USA living on the street, with cities and states spending hundreds of billions of dollars a year to provide crappy shelters and clean trash of sidewalks. And when I walk around my town at night, I see so many houses with no lights on, that only occasionally host a single car with out-of-state or rental plates. This behaviour cannot be allowed to continue, it's pulling the rug out from under anyone who isn't making hundreds of thousands of dollars a year and rotting out our communities.
But what can we do? Our government seems completely powerless to stop it. Even when cities try to clamp down on investment properties and short term rentals, it takes so long -- and so much NIMBY combat -- to put laws in place, the bad actors just find a loophole to keep things going. To quote 1990s infomercials, there has to be a better way.
Bay Area salaries look good on paper, but it’s an illusion.
But just because it's a bit cheaper in other parts of the country doesn't mean the pricing is good for locals. Most of the world doesn't work in tech, and makes nowhere near tech salaries. We're already starting to see the problems (homelessness is a major one) that stem from prices exceeding what the poorest in society can afford. And when you can't find people to work basic jobs, and people have to find a way to live outside the system, it'll only get worse.
>This really pisses me off. I want to buy a home. There are millions of people in the USA living on the street
In January 2020 , there were 580,466 people experiencing homelessness on our streets and in shelters in America. Only 226,000 were unsheltered and on the streets. This is nearly an order of magnitude less than the claim above. Homelessness is a big problem, and we need to work on it, but lets do so with a clear-eyed understanding of the problem.
Source: https://endhomelessness.org/homelessness-in-america/homeless...
Land. Value. Tax.
They could also streamline approval and permitting.
This would drive down the rents and property values of the homes those investors own making it easier for average people to buy.
In this hypothetical world, it would be foolish to blame individual actors for the price of cars being so high, when the root of the problem is obviously the artificial cap on the number of new units that can be manufactured.
It’s the same with real estate. It’s foolish to blame AirBnB, landlords, investment groups, foreign investors, and Boomers for the price of real estate. These individual actors are merely responding to the reality that local governments make it nearly impossible to build new housing.
My parents were paying $1400 for a 2BR but when they moved out, the landlord charged $2400 and got a renter from CA.
People here used to afford housing on low wage jobs that "Americans won't do" such as office cleaning, landscaping, janitorial, nursing home care. Teens work all the fast food jobs.
Besides many people leaving, there has been a spike in homelessness, and a labor shortage on service industry jobs.
Immigrants will replace the low-wage jobs because they are willing to live multiple families per unit, leading to further overcrowding, and another reason why the rents won't go down.
They are building a lot of unsightly apartment towers now and are beginning to fill the beautiful farmland area with tightly packed clone home developments.
I've seen this happen everywhere I have lived including Arizona and California.
I'm pessimistic anything will ever change because big money always wins.
I'm pessimistic for the same reason as you -- Big Money got a heavy hand. But in the longer term... I don't know, if half the country can't afford rent, at some point you'll see a legitimate revolution. Considering how dangerous those are for the average citizen I would rather the government fixed the situation before it spirals out of control.
The article doesn't address the Elephant in the room. During COVID courts shut down, evictions were banned, and some people stopped paying rent. That obliterated small time landlords who depended on rent to pay their mortgage.
The ones that found themselves in that situation had no real choice but to sell. And lots of other landlords who saw that happening also decided to sell. In that scenario who else is going to buy these homes except for large corporate buyers? Owner-occupiers can't get a mortgage on a house with a tenant in it and capital for small time landlords dried up.
The Federal Reserves monetary policy as a whole, but more specifically their authorization by the Federal Open Market Committee to buy Mortgage Backed Securities (MBS) directly from the banks. The Fed had ZERO MBS on their balance sheet prior to 01/05/19 (1) and now hold an staggering $2.7 trillion dollars worth, which represents 22% of the entire MBS market in the US (3).
This is the dirty secret in the modern US housing market, we never actually saw the true bottom of the 2008 housing crash due to the FEDs MBS interventions.
(1) - https://fred.stlouisfed.org/series/WSHOMCB (2) - https://www.federalreserve.gov/releases/h41/current/h41.pdf (3) - https://www.sifma.org/resources/research/us-mortgage-backed-...
If the fed was the primary factor we would see a divergence between housing prices and rent since the fed has minimal direct effects on rent.
Looking at the data, the primary driver is simply that more people are competing to live in urban centers as we have banned the construction of additional housing in most cities.
https://www.theatlantic.com/ideas/archive/2023/01/housing-cr...
After a long simulation, all the wealth is concentrated to two agents, and after further simulation to one.
Couldn't find the paper anymore.