Even the Rich Are Being Priced Out of Central London • Hacker News Board

Re: Even the Rich Are Being Priced Out of Central London

#141

Post by davidf18 » Fri, Sep 02, 2016, 9:07 PM UTC

The reason that housing is increasing in cost is because of a market failure where politics is used to create housing scarcity, called "economic rents." In this case, the use of politics to create zoning laws that place artificial restrictions on housing density. As in any form of "economic rents", this benefits a special interest group -- in this case the landlords over the general population of rents and buyers of houses.

In another case of politics creating scarcity was the artificial limit of 13,000 taxi medallions in NYC. Uber/Lyft fixed this scarcity by increasing the supply of taxi-like vehicles while lowering the cost of taking these vehicles. The price of a taxi medallion was $1.2 million prior to Uber/Lyft is now $700,000. With the political restriction on taxi medallions effectively eliminated, the "taxi landlords" lost out and the consumer gained.

London, NYC, DC, Boston, LA, SD, SF and other cities all have these restrictive zoning laws that artificially limit density to increase housing costs.

Economics Nobelest and NYTimes columnist Paul Krugman has discussed this.

Harvard Economist and city expert Edward Glaeser has written extensively on this topic. Financial Times columnist (with a BS and MS in Economics from Oxford) addresses this topic in "The Undercover Economist." He discusses how in the 1930's London had Green Belt (park) surrounding the city installed which has resulted in increased housing prices for landlords. But bad zoning laws that limit housing density has also contributed.

See: Edward Glaeser: Build Big Bill http://www.nydailynews.com/opinion/build-big-bill-article-1....

Tim Harford: The Undercover Economist (2nd Ed). This book has sold over 1 million copies https://www.amazon.com/dp/0199926514/

David Ricardo explained this in 1817. David Ricardo: On the Principles of Political Economy and Taxation http://www.econlib.org/library...

See Ch 2.3 - 2.5

Re: Even the Rich Are Being Priced Out of Central London

#142

Post by largote » Fri, Sep 02, 2016, 9:10 PM UTC

ferentchak wrote: post #138

randyrand wrote: post #136

Earlier quoted context omitted.

Foreign investment money is a good thing for a city and country. Empty buildings are not ideal though (though its still better than less investment). I think maybe there should be a requirement to rent out your investments if it's in a high density area.

I guess I am confused why they would not want to collect the money from renting the buildings out. Any ideas?

A lot of these cities have renting laws that basically give the renter more rights over the property than the owner.

This causes it to make more sense to not rent it out.

Re: Even the Rich Are Being Priced Out of Central London

#143

Post by Tiktaalik » Fri, Sep 02, 2016, 9:13 PM UTC

ethbro wrote: post #128

Tiktaalik wrote: post #116

Earlier quoted context omitted.

"Foreigners [not permanent residents] who buy residential property in the Vancouver area will have to pay an extra 15-per-cent tax as part of a B.C. government plan to slow the foreign speculation that many blame for making the region’s homes the most unaffordable in Canada." http://www.theglobeandmail.com/news/british-columbia/bc-to-t... The tax is new and was enacted just before August so the impacts are still unce…

Is there a reason they didn't tax non-use? The "foreigner exclusion" sounds like fighting a symptom. Simply require proof of residency in the property (or an active lease agreement / market listing) to qualify for a tax break. Otherwise, if you're parking-and-holding-without-using, you get slapped with a higher tax rate.

>Is there a reason they didn't tax non-use? The "foreigner exclusion" sounds like fighting a symptom.

The cynical answer to this by the way is that there's a Provincial election in early 2017, so in the near term appearing to address the problem is more important than addressing the problem in an effective way.

Re: Even the Rich Are Being Priced Out of Central London

#144

Post by sparklesunshine » Fri, Sep 02, 2016, 9:15 PM UTC

ferentchak wrote: post #138

randyrand wrote: post #136

Earlier quoted context omitted.

Foreign investment money is a good thing for a city and country. Empty buildings are not ideal though (though its still better than less investment). I think maybe there should be a requirement to rent out your investments if it's in a high density area.

I guess I am confused why they would not want to collect the money from renting the buildings out. Any ideas?

I believe they keep them empty so they can visit at any time. They are their holiday homes.

Some investors buy flats and keep them empty and in bubble wrap for a couple of years until prices increase, then sell. Not "buy-to-let" investors, but "buy-to-sell"!

Re: Even the Rich Are Being Priced Out of Central London

#145

Post by ddalex » Fri, Sep 02, 2016, 9:17 PM UTC

ferentchak wrote: post #138

randyrand wrote: post #136

Earlier quoted context omitted.

Foreign investment money is a good thing for a city and country. Empty buildings are not ideal though (though its still better than less investment). I think maybe there should be a requirement to rent out your investments if it's in a high density area.

I guess I am confused why they would not want to collect the money from renting the buildings out. Any ideas?

They don't care. When you have billions in the personal bank accounts, the few tens of thousands you would collect per month from a luxury house in London means nothing.

It would be more of a nuisance - the tenants need registering, then you have to pay taxes, for what gain?

Re: Even the Rich Are Being Priced Out of Central London

#146

Post by sparklesunshine » Fri, Sep 02, 2016, 9:19 PM UTC

TheOtherHobbes wrote: post #122

monknomo wrote: post #79

Earlier quoted context omitted.

I see similar comments on all of these articles and I am really curious which UK/USA/Canada cities that artists and musicians and the like go to. I'm going to throw out Nashville as a thought for musicians, and maybe Pittsburgh for tinkerers.

UK artists are heading to Berlin, Paris, Barcelona and Warsaw - at least they were, until Brexit. Now there's some interest in the cheaper seaside towns - Margate, even Bournemouth. Brighton used to be on that list but it's almost as expensive as London now. Likewise Bath and Bristol. (Not seaside towns, but a big arts scene in the 60s and 70s, now very much gentrified.) I suspect if people can't get out they'll head…

Yes you are right about Margate. It's becoming really popular with artists and artisan craftsman. I don't live there but I can see the growth as more people are moving there from London.

Re: Even the Rich Are Being Priced Out of Central London

#147

Post by randyrand » Fri, Sep 02, 2016, 9:20 PM UTC

ferentchak wrote: post #138

randyrand wrote: post #136

Earlier quoted context omitted.

Foreign investment money is a good thing for a city and country. Empty buildings are not ideal though (though its still better than less investment). I think maybe there should be a requirement to rent out your investments if it's in a high density area.

I guess I am confused why they would not want to collect the money from renting the buildings out. Any ideas?

Eviction can be very difficult (1 year +) when it comes time to sell.

Also, it's risk. They can fuck up the place, and if their rent is not much, then the insurance will be more than the rent.

Re: Even the Rich Are Being Priced Out of Central London

#148

Post by natrius » Fri, Sep 02, 2016, 9:22 PM UTC

ferentchak wrote: post #138

randyrand wrote: post #136

Earlier quoted context omitted.

Foreign investment money is a good thing for a city and country. Empty buildings are not ideal though (though its still better than less investment). I think maybe there should be a requirement to rent out your investments if it's in a high density area.

I guess I am confused why they would not want to collect the money from renting the buildings out. Any ideas?

In any city with a high price-to-rent ratio, rent isn't really a factor in prices. Investors are buying homes in those places because it's really hard to make more of them, just like gold and high-end art. The price is determined by what other rich people will pay for them to hold as a speculative asset, just like gold and art. Collecting rent is possible, but it makes an illiquid asset even less liquid: many home buyers want to live in the home they buy, which is hard when there's an active lease.

This does not happen in cities where it's easy to build more homes in desirable areas. They have lower price-to-rent ratios because prices are determined by the value of the rental income stream. We can make it easy to build more homes in every city by repealing laws that push lower income families out of desirable places—that's what density restrictions were invented to do.

Re: Even the Rich Are Being Priced Out of Central London

#149

Post by paganel » Fri, Sep 02, 2016, 9:23 PM UTC

r00fus wrote: post #19

And... this is what happens when you don't tax foreign cash infusions. For those who think we should get rid of taxes on cash repatriations - this is likely an outcome.

> And... this is what happens when you don't tax foreign cash infusions.

Why would you do that?! It's basically free cash flowing into the local economy, it would be absurd to "tax it". Am I missing something?

Re: Even the Rich Are Being Priced Out of Central London

#150

Post by randyrand » Fri, Sep 02, 2016, 9:24 PM UTC

ddalex wrote: post #145

ferentchak wrote: post #138

Earlier quoted context omitted.

I guess I am confused why they would not want to collect the money from renting the buildings out. Any ideas?

They don't care. When you have billions in the personal bank accounts, the few tens of thousands you would collect per month from a luxury house in London means nothing. It would be more of a nuisance - the tenants need registering, then you have to pay taxes, for what gain?

A $5 million home rents for roughly $20k a month, or $240k a year.