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How I won the housing market without trying

theguardian.com

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Re: How I won the housing market without trying

#81

Post by duckingtest »

Real estate is so expensive around the world now because of unfair tax policies. True wealth creation is taxed mercilessly via a multitude of income taxes, while gains from real estate are often not taxed at all, even though they're completely unproductive. A person holding a land in the city for 25 years didn't make anything new, their profit is a direct zero-sum transfer from someone else. How is that fair?

The net result is an enormous redistribution from productive young people to (mainly) older owners and inefficient land use, a growth-killing policy.

The solution is simple. Abolish all personal income taxes (or at least reduce their levels) and replace them with land value taxes (not property), something like 30% of value annually. Unproductive use of land would disappear. Retiring people with homes close to jobs would move out fast somewhere else, as short commute times have no value to them. Uneconomical building limits would disappear (more efficient use of land - multilevel housing - would have much smaller land tax per living surface area) which would reduce transport costs and time wasted. It's easy to imagine many more positive effects.

Sadly that's never going to happen.

edit: After some thought, never is too strong. If aging gets cured, something like that will be a certainty, because the alternative is the world in which - more numerous - generations after the invention don't own almost anything, which won't work for long.

Re: How I won the housing market without trying

#82

Post by [deleted] »

nl wrote: post #77
yummyfajitas wrote: post #57

Earlier quoted context omitted.

Negative gearing is not a banking regulation, it's a tax subsidy.

I suspect the parent was replying to the second part of your question: What specific regulation do you propose that would prevent housing investments? . The parent's response is (presumably): "remove negative gearing".

[deleted]

Re: How I won the housing market without trying

#83

Post by ptaipale »

justincormack wrote: post #39
matthewmacleod wrote: post #33

Earlier quoted context omitted.

I don't think you achieve much by 'letting it burn,' as it were. All you do is force a large number of people into a bad financial situation – that's not good for anybody. The market needs correction, but it needs to be well-managed. That basically means long-term house price stagnation and investment in social housing to remove the incentives for buy-to-let landlords and multiple property owners.

Property is a zero sum game. People without houses lose the equivalent in future spending as homeowners gain. So propping up a market is directly taking money from the young and increasingly old non homeowners. So not doing anything is putting a large number of people in a bad situation.

> Property is a zero sum game

No it is not. Properties - houses - can be built. When prices go up, the incentive to build more increases.

It could be argued that land ownership is a zero sum game, because you cannot manufacture land. But even that is not quite true, as can be seen in areas where more land is claimed from sea [0], effectively manufactured. Elsewhere, new land may emerge due to land rising after the recent Ice Age [1].

More importantly, land use - zoning - is something that can be changed, and it’s where economic incentives have an impact. For instance, in UK there's a lot of discussion about building on the green belt around London. And there are other factors here than just money, of course. It could be that money cannot buy a plot to build, but a racial or cultural identity can justify constructing what eventually become new properties. This does not always happen without conflict [2].

[0] https://news.ycombinator.com/item?id=8940235

[1] http://en.wikipedia.org/wiki/Post-glacial_rebound

[2] http://en.wikipedia.org/wiki/Dale_Farm

Re: How I won the housing market without trying

#84

Post by collyw »

nl wrote: post #72
stana wrote: post #22

Thanks to banking deregulation housing has become an investment commodity. In major cities in Australia at the moment half the purchases are for investment rather than owner-occupier. Government incentives like first-home buyer grants (if you can't save for a deposit) have only lifted the prices and helped vendors. Another one is negative-gearing introduced a couple of decades ago allowing tax deduction for investmen…

I think blaming banking deregulation for making housing an investment is a pretty difficult case to make. Negative gearing, and the flight to safety by overseas investor do have significant impact though. I suspect many people who think that governments should act to try to cut prices miss the fact how hugely unpopular this would be with the majority of the population. Many (most?) people have the majority of their s…

Its basically transferring wealth for those who don't own to those who do.

My parents house has quadruple in price over the last 20 years, (while wages have gone up maybe 50%). Where does that money come from? The younger generation that have to buy it from them when they sell up of course.

Re: How I won the housing market without trying

#85

Post by prawn »

Omniusaspirer wrote: post #62
lars512 wrote: post #58

Earlier quoted context omitted.

Well, picking a shorter commute is a reasonable choice to make. Longer commutes don't take time from work, they take time from family, and are associated with higher divorce rates, at least amongst Swedes. In a city like Melbourne, where I live, there's a lot of development which could still be done to reach a reasonable medium-density of 3-4 story apartment buildings in the suburbs immediately circling the CBD. It i…

My personal opinion is that the need to physically be at your job will only diminish in the future. I honestly believe that VR will eventually offer a lot of potential for virtual office spaces that give you the illusion of being there but let you sit comfortably at home. Of course I may just be a dreamer and we'll continue to see housing prices skyrocket as we try to cram 10's of millions of people into small geogra…

I agree with you about virtual offices, but I think social lives will still mean that people want to live near their family or friends. In an office with desk jobs, physical contact is almost never required, and so virtual spaces will be realistic far sooner. When it comes to friends and family where there is far more nuance in our interactions, I think it will take longer.

Re: How I won the housing market without trying

#86

Post by ptaipale »

amirmc wrote: post #67
Omniusaspirer wrote: post #62

Earlier quoted context omitted.

My personal opinion is that the need to physically be at your job will only diminish in the future. I honestly believe that VR will eventually offer a lot of potential for virtual office spaces that give you the illusion of being there but let you sit comfortably at home. Of course I may just be a dreamer and we'll continue to see housing prices skyrocket as we try to cram 10's of millions of people into small geogra…

We were promised paperless offices decades ago and we're still nowhere close. Right now we can barely get video-conferencing done properly. Hence, I doubt VR will help us anytime soon.

I don't think it was a promise, more like a prediction. And it is becoming true, I think. At least in my line of work (engineering, software, telecoms, security) shuffling papers has decreased a lot over the past 15 years.

National legislation sometimes slows this development, e.g. by insisting on having a paper with a signature and possibly even a stamp.

As usual, we tend to overestimate how quickly the changed happens in short-term (hence "the broken promise"), but we also underestimate the social impact this change has (we don't just replace paper with electronic forms, we change the way we work and it changes businesses profoundly.)

Re: How I won the housing market without trying

#87

Post by jussij »

nl wrote: post #77
yummyfajitas wrote: post #57

Earlier quoted context omitted.

Negative gearing is not a banking regulation, it's a tax subsidy.

I suspect the parent was replying to the second part of your question: What specific regulation do you propose that would prevent housing investments? . The parent's response is (presumably): "remove negative gearing".

That is correct.

The original parent said "housing has become an investment commodity" and that it very true here in Oz.

Thanks to a climate of very low interest rates and "negative gearing" it means only those with high taxable income and a high tax burden can afford to invest in housing and in the process pushing housing prices ever higher.

But this is a bubble and it is unsustainable. If the world economy ever gets over the problems of the 2007 GFC and we finally see any form of real growth, interest rates will have to increase from their near zero position.

When that happens it will cause yet another crisis when that housing bubble is pricked.

By removing that unhealthy gearing tax, the Oz government could at least take some of the heat out of what is an already overheated property market.

Edit: Before someone points out Oz interest rates are actually not zero but rather high, unlike the majority of the developing world. Last Tuesday the overnight cash rate came down to it's lowest level since the 1950's.

And since the Oz economy is not running as well as it should, all predictions are we'll be seeing several more rate cuts in the future.

And with the current tax settings, that means we're in for a booming of house prices. We only have to go back to 2007 to see how over inflated house prices can destroy a world economy.

Re: How I won the housing market without trying

#88

Post by ptaipale »

collyw wrote: post #84
nl wrote: post #72

Earlier quoted context omitted.

I think blaming banking deregulation for making housing an investment is a pretty difficult case to make. Negative gearing, and the flight to safety by overseas investor do have significant impact though. I suspect many people who think that governments should act to try to cut prices miss the fact how hugely unpopular this would be with the majority of the population. Many (most?) people have the majority of their s…

Its basically transferring wealth for those who don't own to those who do. My parents house has quadruple in price over the last 20 years, (while wages have gone up maybe 50%). Where does that money come from? The younger generation that have to buy it from them when they sell up of course.

> Where does that money come from?

I think the question is more about where does that demand come from, as it clearly increases faster than supply.

Where does that demand come from? Population growth, particularly immigration, as well as migration of people within nations.

Re: How I won the housing market without trying

#89

Post by doc_holliday »

duckingtest wrote: post #81

Real estate is so expensive around the world now because of unfair tax policies. True wealth creation is taxed mercilessly via a multitude of income taxes, while gains from real estate are often not taxed at all, even though they're completely unproductive. A person holding a land in the city for 25 years didn't make anything new, their profit is a direct zero-sum transfer from someone else. How is that fair? The net…

Exactly, capital over the past couple of decades has been unfairly undertaxed vs labour which has been overtaxed to some degrees in places.

If we don't alter this course we, I fear will end up at early 1900s distribution of ownership with a crippling economy because actual growth driven by labour will significantly decrease.

Re: How I won the housing market without trying

#90

Post by nextw33k »

duckingtest wrote: post #81

Real estate is so expensive around the world now because of unfair tax policies. True wealth creation is taxed mercilessly via a multitude of income taxes, while gains from real estate are often not taxed at all, even though they're completely unproductive. A person holding a land in the city for 25 years didn't make anything new, their profit is a direct zero-sum transfer from someone else. How is that fair? The net…

I am fully with you on a capital tax. It would ensure a system of constant high utilisation.

Where it gets shouted down is from old people that have lived in their homes for 50 years and seen their property prices rise to make them millionaires on paper but with no real income. They claim its unfair to force someone from their home.

Having studied Alzheimer's disease, it's easier on the mind to live in one place for the majority of your life. Being forced to move later in life can be traumatic.

Once you start taxing capitol you'll end up with no more overpriced valuations, conservative banking will be back in vogue.

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