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Housing is at the root of many of the rich world’s problems (2020)

economist.com

191–200 of 817 posts

Re: Housing is at the root of many of the rich world’s problems (2020)

#191

Nothing will change while the homeowners have more political power than the renters. Even in the cities where the renter population is bigger than the homeowners, such as in Seattle, half of the votes come from people of > 65 years old (all of whom are homeowners, likely more than one home). Young people simply won't vote at all. There is very little incentives for the young people to vote. Even if you cancel all the…

If you are free and able to vote but won't do it, it's hard for me to feel too much pity for your situation. I started voting when I was 16 (my birth country allows that) and voted on every single election until I immigrated to the US - and then voted on every US election since becoming a citizen.

> If you are free and able to vote but won't do it, it's hard for me to feel too much pity for your situation.

What if I vote, but people with interests aligned with mine tend not to? What if those people not voting are acting as rationally as the people who vote frequently?

Consider these two groups, who get the same number of votes, live under the government for the same amount of time, but rationally have different incentives to vote:

Home-owner:

* Bob moves in, lives there ten years.

Renters:

* John moves in, lives there two years, moves out.

* Phil moves in, lives there two years, moves out.

* Mike moves in, lives there two years, moves out.

* Jess moves in, lives there two years, moves out.

* Fred moves in, lives there two years, moves out.

If we assume these people are self-interested, Bob will, on average, vote more than the renters, because Bob values future-Bob's well-being more than John values Fred's. It's only through the altruism of John, Phil, Mike, and Jess that Fred will get to benefit from a government that accounts for his interests.

It's also true that each renter has an incentive to vote for things of short-term value and to discount long-term benefits, so maybe it's okay that Bob ends up more represented. But "John isn't voting as much as Bob" isn't a case of John being less responsible than Bob. It's that they legitimately have different incentives.

Re: Housing is at the root of many of the rich world’s problems (2020)

#192

Housing in the US has gotten to where it is due to horrible laws effectively allowing total tax avoidance for landlords. Take some investment property. You buy it at some basis price, let's say 500k. You rent it out for 15k a year. Each year you can offset your rental income against deprecation of the property and property taxes - meaning, you pay no income tax on your rental income. ~30 years later, you've deprecate…

You don't write off your rental income. You depreciate the rental property over 27½ years and write that off against your rental income. Few rental properties will have under a 3.7% ROI where depreciation would cover all the income. At best you might be paying half tax. In your example, you'd pay no tax, but you'd lose out on the potential income you could have had with better investments (and lose about 6 years' worth of depreciation by the depreciation then being too fast).

And flipping to more and more expensive properties through 1031s requires more and more capital and only makes it cover less taxes. There's no tax benefits versus just keeping the first property and paying all the taxes and buying a separate property to depreciate.

If you sell a $500k property earning $40k/year where the depreciation covered 45% of your income, and you buy a $1 million property earning $80k/year, you get a new $500k to depreciate $18k/year. Then the depreciation only covers 22% of your income.

Depreciation is very fundamental to business tax law. I'm not sure how you'd "fix" that without penalizing non-rental companies for expanding.

Re: Housing is at the root of many of the rich world’s problems (2020)

#193

I just think about this letter to the Atherton (median sold home price: $7.6M) Mayor and City Council: === Subject line: IMMENSELY AGAINST multifamily development! I am writing this letter to communicate our IMMENSE objection to the creation of multifamily overlay zones in Atherton … Please IMMEDIATELY REMOVE all multifamily overlay zoning projects from the Housing Element which will be submitted to the state in July…

What gets me is the dramatic language. I don't think home values would "massively" decrease with a few multi-family residences in the area. What's funny too is that even if they did, the Andreessen family is one that could easily afford to eat the loss. Meanwhile no one blinks twice when home prices increase 20% over just a few years and put housing out or reach of even more families.

My personal belief is that the housing supply scarcity is having the opposite effect and is actually holding property values down. Let’s say there’s two 1 acre lots that have a market value of $1m each. A developer can buy them and turn them into 8 condos and sell them each $600k yielding $4.8m. Is it possible the developer would pay more than $1m apiece for these properties? Obviously, these numbers are made up someone who has no real estate experience. with current prices the way they are largely due to zoning and external factors, the base economic case for these things holding down property values seems at the least a defensible argument.

Re: Housing is at the root of many of the rich world’s problems (2020)

#194
post #189

Earlier quoted context omitted.

Let's have this thought experiment played out. What did it look like for you to get registered to vote?

Well, I get a form every year from my town to confirm my particulars. I sign it and send it back. I guess if I weren't registered I'd go down to the town hall and do so. If I couldn't for some reason, I assume I could call the town clerk, and they'd send me a form in the mail. When I go into Cambridge around election time, I frequently see various tables set up to register people. Obviously registering (and voting) i…

>I guess if weren't registered I'd go down to the town hall and do so.

What if your job wouldn't let you off during the town hall's regular hours? What if you don't have transportation? What if you don't have the necessary forms of identification?

> I assume I could call the town clerk, and they'd send me a form in the mail

What if you're not already registered and cannot just fill out a form to send in? What if you have to provide proof of residency in the form of a bill in your name and current address that matches your ID? What if you don't have an ID because you can't get to the DMV because you can't get time off work to go get it, or you don't have transportation, or you don't have internet access to set an online appointment with the DMV, or your credit is bad enough that the bills are only in your roommate's name to avoid headache with those companies?

I guess my point is, it's very flippant to just say, "well it's easy for me, so it's probably pretty easy for everyone else, so it must be apathy as the only solution."

Re: Housing is at the root of many of the rich world’s problems (2020)

#195
post #80
post #17

Earlier quoted context omitted.

> Housing is (along with healthcare in the US) a big part of why most people in the so-called "rich world" are in fact dismally poor, only one missed paycheck or turn of bad luck away from life becoming unlivable. Not really. Let's set up a quick boundary condition. Since you mentioned most people, you're talking about the lower-middle and middle classes. Let's keep the discussion on them. The working poor have it ba…

People will naturally spend beyond their capabilities, and the entire market is built around this (loans for everything is standard now). The ONLY way to prevent this is to either stop offering loans or force savings in some way (taxes, etc). But apparently both those options are off the books.

Anti-usury laws of some kind might help too. Anything over an effective 25% APR (including one-time fees) seems like a trap.

But you're right, there's no political will to do anything like this since consumer debt helps to fuel the economy.

Re: Housing is at the root of many of the rich world’s problems (2020)

#196
post #169

Housing in the US has gotten to where it is due to horrible laws effectively allowing total tax avoidance for landlords. Take some investment property. You buy it at some basis price, let's say 500k. You rent it out for 15k a year. Each year you can offset your rental income against deprecation of the property and property taxes - meaning, you pay no income tax on your rental income. ~30 years later, you've deprecate…

It is easy to pick an example like this to show the “bad” sides. But what is the alternative? If people had to pay inheritance tax on their family home, how many could not afford such a tax bill and would have to get rid of their family home to please the tax man. Regarding the cost basis rest that is so people can upgrade their house without having to pay a tax bill. This is just deferring the tax not avoiding it. W…

> It is easy to pick an example like this to show the “bad” sides.

You're saying this as if the example is a cherrypicked outlier rather than ubiquitous.

> If people had to pay inheritance tax on their family home, how many could not afford such a tax bill and would have to get rid of their family home to please the tax man.

At some point in the value of a home, we're not really worried about that. We do not sympathize when someone can't keep their parent's $50 million dollar home tax-free. We've set that cap at around $12 million. It's a very high cap.

edit: we're happy to grab the estates of working people who end their lives in intensive care, nursing homes and hospices, before the Medicare kicks in.

Re: Housing is at the root of many of the rich world’s problems (2020)

#197

Have we considered just building new cities? It would be cool if the state could run a contest, have a rural county sign up to reform their zoning laws, and in exchange receive 100 year tax relief guarantees from the state to build a new city. America used to build new cities from scratch all the time up until WW2. This creates competition between cities (new entrants) resulting in better policies all around. And the…

Most cities are where they are because all the good spots have been taken.

Any new significant city will need billions if not tens of billions of dollars on transport links, water, sewer, etc, if there is even a way to bring a city sized amount of potable water.

And then you have to convince people to actually move their residences and jobs there. Most people don‘t like betting uprooting their whole family and social lives on a total unknown. History is littered of examples of new failed cities that in the best case scenario became really far bedroom communities, or in the worst case didn‘t get off the ground.

Re: Housing is at the root of many of the rich world’s problems (2020)

#198
post #31

I think this a problem in everywhere. Take for instance, Dhaka, the capital city of Bangladesh. Housing is a disaster. The home ownership percentage is so negligible it is a shame. Land and housing price is so high, it is almost impossible for most people to own a house in one life time. I hear the same kind of scenario in many other developing countries.

American companies are working on doing that in the US: buying up the liquid housing, and driving up prices, only to turn around and rent it back to people who could have afforded it if they hadn't driven up prices by trying to monopolize markets.

"You will own nothing, and be happy."

Re: Housing is at the root of many of the rich world’s problems (2020)

#199
post #36
post #31

I think this a problem in everywhere. Take for instance, Dhaka, the capital city of Bangladesh. Housing is a disaster. The home ownership percentage is so negligible it is a shame. Land and housing price is so high, it is almost impossible for most people to own a house in one life time. I hear the same kind of scenario in many other developing countries.

If the ownership percentage is negligible, does that mean that most real estate is owned by a few super-wealthy, or who owns it then?

Who else would own it? The government?

Re: Housing is at the root of many of the rich world’s problems (2020)

#200

It's a simple problem, we turned housing into an investment. Now everyone who owns a home is incentivized to ensure their investment is maximized and that results in a lot of NIMBYism. The simple solution is we need more housing in cities and suburbs. How we get there is an exercise that's taken on by local housing authorities and they are not incentivized to solve the problem. That's because they work for voters who…

So I think folks overlook just how wealthy certain investors are when they propose the fix is to just build new properties. Those will also get snapped up by investors. To fix the problem, investing in housing needs to be either banned or made very unattractive. You only need one house to live in.

I agree with you, that's a whole other problem. But housing like many goods is still subject to supply and demand. The investors buy the properties because they are actually good investments in situations where housing is in demand, and that's true in all the major cities where we're not building enough housing and appropriately sized housing. If we increase the supply, if we make smaller housing units so there are also affordable units for poorer renters. The investors will move on to more lucrative investments. They can only extract so much wealth from housing before people move for alternatives.
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