Everybody who has been renting or has been buying a home in the last 10 years knows this...
All the cash that's been "pumped into the economy" has only fueled inequalities. It's gone in the pockets of those who were already wealthy enough to secure a loan. And yes, they did buy houses, and bitcoins, and stocks. Oh and then that caused the prices to go up, so whoever forgot to invest started doing it, pumping the early birds' wealth up, allowing them to borrow even more. The whole economical landscape is bubbles everywhere.
And now the FED can't really reverse it. If you start raising rates, and stopping QE, you're not actually getting the money back from the people you gave it to, you'll just get a lot of businesses to close.
We need to erode all that capital concentration, and the only way to do it without hurting the regular guy is through heavy taxation.
> We need to erode all that capital concentration, and the only way to do it without hurting the regular guy is through heavy taxation.
Bob bought a house this year. He paid $500,000 even though it should've been $200,000. He's paid $100,000 and still owes $400,000. If you cause his house to be worth $200,000, as it ought to be, regardless of the method, he's going to default on the loan and you'll have screwed him out of $100,000 and (at scale) bankrupted all the banks.
How is raising somebody else's taxes going to fix that?
> And now the FED can't really reverse it. If you start raising rates, and stopping QE, you're not actually getting the money back from the people you gave it to, you'll just get a lot of businesses to close.
The solution is to move the incentives back the other way.
Raise interest rates on debt. This will cause people to pay back existing debts. At the same time, print money and give it out to everyone. This will give people the money to use to pay back their debts, without screwing over the people who didn't take out debts to begin with, because they still get the money.
Now asset prices come down in real dollars, because people aren't as willing to borrow money to invest when interest rates are high. We need that not to happen in nominal dollars or everybody will be underwater on their mortgage, but that's okay, because we're printing a lot of money and all the people who didn't have debts to pay back are going to spend it. We get inflation, which counteracts the nominal fall in asset prices.
Instead of having asset prices fall to parity with wages and consumer prices and causing everyone to default on their mortgages, we need wages and consumer prices to rise to parity with asset prices.
You have to avoid moral hazard. In a just world, Bob would get screwed because he took a risky bet. If you don't allow Bob to fail, you tell people they need to be more like Bob. Then you have a nation of Bobs and the game can never end.
We need to let risk takers fail. They gambled and lost. That should serve as a warning to other risk takers to better calculate their exposure.
Bob didn't pay $500,000 for a house because he was trying to speculate in the housing market. He did it because he needed somewhere to live and that's how much houses cost when interest rates are held at 0% by the government. What is it that we were trying to get all the Bobs to do in the alternative?
Like it or not, Bob is an investor. He had a choice to rent or stay in his current residence. He is not compelled by any force to participate in an inflated housing market. He should do his due diligence and not assume risky bets that he is unable to handle.
While I like this comment since it’s concise and pretty accurate in some way, I’d like to point out that you don’t have to buy a house to cover your „short“ (a roof over your head).
You can rent it instead.
When buying a house, bob becomes heavily invested.
Now you're paying a form of interest to borrow someone else's house on a floating rate. The price of the underlying asset continues to increase, which applies upward pressure on the cost to borrow the asset.
When the market is overinflated, that's exactly what you should do. And the underlying asset doesn't necessarily increase. Further, the price of the house (underlying asset) doesn't raise rent (apply pressure on the cost to borrow the asset) unless the demand is already present. There are many real estate markets where rent is a bargain compared to home ownership.
> When the market is overinflated, [taking a short position] is exactly what you should do.
Now we're talking. Related: how do you feel about shorting TSLA? Or GOOG? If you think its appropriate to do so, what fraction of your net income or worth are you willing to place on that bet? I'm pretty sure they're overpriced, but I'm not kilobucks/month sure.
This exactly sums up my position on housing. I bought 3 years ago in a major metro at exactly the cost of my rent. Somehow prices and rents have continued rising at 8% per year, if the market crashed 50% I’d be under water - otherwise I’m still up. Regardless I’ll have a house 27 years from now.
Now the real crux of it is that I do not have unlimited cash flow to pay peak rent. The previous rental I moved out of has somehow gone up by 85%, a number which would push me into savings or have me calling my boss for a raise.
Shorting housing by renting risks you burning savings or moving to stay out of the bubble. Buying when the market is high is a hedge against the market going higher.
> Now the real crux of it is that I do not have unlimited cash flow to pay peak rent.
Yeah. But you only look at it from the perspective at staying at one place.
What if you want or have to move somewhere else, but in the meantime your house lost its value ("marked crashed"). Now you have to pay both rent in the new place as well as your mortgage (that his now way to high for what you have).
In other words: you can't afford to move anywhere anymore, because of your high mortagage. If you had just rented, you would still be flexible and could move whereever your current pay allows.
Don't fall for survivorship bias. Prices rise for a longer time, but in the short times when they fall, they fall much faster.
Mumbai is a good example of rental yield not following property price.
I use the yield to determine if a given property market is speculative or not because rent represents real utility (“yes I would like to live there at that price”)
Interesting, I thought yields should be 7% of capital allocated. Otherwise put it in the stock market. This might mean that 2% yield means leverage, if you borrowed 83.34% of purchase price to buy a property and put in 16.66% of your own money then I guess an allowed 2% yield translates I to 7% yield on the capital you deployed. Provided interest on the loan was 1%...this no doubt contributes to Evergrande potential defaulting.
The Chinese stock market has way too much insider trading for it to be considered a reliable source of investment, unless you have inside information. Your only option to wealth building is to start a company or buy a house.
I don't know about Bob, but I can explain my case.
10 years ago my first real job was a research assistant position in Copenhagen. Housing was very reasonably priced, and I could buy an apartment in the suburbs with just 3 years of salary. I rented a nice place with 1/4 of my salary. It was great.
I then moved to Cambridge, and while the university is cool, real estate took most of my free income. It was a nightmare. More than 1/2 of my salary went to renting a small flat in the middle of nowhere. During the course of several years, my I had to move houses six times because landlords wanted more money, or because agents wanted to generate fees and the house actually sat empty without a tenant for pretty long.
Now, looking back at Copenhagen, and mostly anywhere else in the EU, is a nightmare. Salaries paid by the government have barely increased because inflation is said to have been really low. But buying or renting is easily 2.5x more money. If you live alone, it's hard to make both ends meet.
> buy an apartment in the suburbs with just 3 years of salary. I rented a nice place with 1/4 of my salary
these numbers aren't directly comparable.
The rent should be compared with the interest cost of the mortgage plus the capital cost of the deposit (which at minimum is the risk-free rate).
So if you paid 1/4th of your salary as rent, but the apartment costs 3x of your salary, this means you're paying 1/12th of the cost of the apartment as rent, aka, an 8% rental yield. This is an amazingly good yield - greater than the stock market expected yield (of 7%-ish). No wonder investors would want to buy.
The general consensus is that if the rental cost is greater than 5% of the property, you're better off paying the mortgage (and conversely, if the rental cost is less than 5%, then rent is cheaper, and invest the difference would yield more financial returns).
This. If you rent a place for $1000/month that would sell for $1 million (the case usually in Beijing), a 1.2% yield (assuming no other costs, which isn't likely), things are really out of whack. Buying in Beijing never made sense, but landlords weren't banking on rents to make money anyways.
Until recently, renter rights in big Chinese cities have been miserable. Even though this had been artificial, it provided enough incentive / premium to tip the scales towards buying, even at unrealistic leverage.
That was more of a problem at the low end than the higher end of the market. I never personally had a problem with a landlord, and never heard of any other foreigner that did.
I lived in Beijing for 9 years and never thought "hey, my rent is too expensive!". I started paying 4000 RMB in 2007 and ended at 9,500 RMB in 2016 (on a slightly bigger place, in between I was at 6500-9000 on a much bigger place than what I ended at). Rental yields in Beijing are horrible (1-2%, the home I was paying 9000RMB a month on maybe would have gone for 7-8 million RMB at the time I was paying the rent), but most landlords didn't buy at current market prices.
the landlord would only increase if they know that the market can bear that price - aka, you cannot find an equivalent (or at least very similar) place for cheaper.
This does ignore the fact that rents are also, in fact, going up. Before the interest rate rose most people could not afford their own place in most cities on minimum wage. In SF we've been living with roommates well into our 30s. Lovely but not exactly how it used to be generally.
At the same time some of us salaried folks have gotten small windfalls this year, but most jobs haven't seen a comparable rise in salaries.
I think it's all well and good to have discussions about taxation and interest rates, but as a fellow San Franciscan, I can't ignore the fact that I no longer find it unusual to learn that more than a few of my neighbors are making multiple millions of dollars per year. "Normal" jobs, even as a senior software engineer, can't compete with the wealth gap, regardless of the tax rate. I don't pretend to believe that there is a solution to this reality.
I‘m from Europe and never been to SF, but imo taxation isn’t necessarily needed. Instead the „american dream“ should be adjusted.
Not every human needs their own family home. Build more apartment complexes.
I’ve recently seen in a youtube video by the NYT that there are actual lobbies against changing low density housing zones to high density housing zones:
https://youtu.be/hNDgcjVGHIw?t=253
I’d recommend to give it a watch :)
Imo the soviet apartment complexes are a good idea. I live in one as well (Germany), and I can afford rent without hassle.
I also live in Germany and pay low rent, but keep in mind this is because the contract isn't new and rent/tenants rights are highly regulated in Germany. If you tried to rent a new apartment in Berlin/Hamburg/Munich/any of the attractive cities with jobs today you'd pay a lot more in rent than you do on an old contract.
One must want to live in Soviet apartment complex. I saw them in ex Soviet Union states, I saw them and lived there in Germany. They were in better shape in Germany. But personally I like wealthier neighborhoods with more Germans living there.
Landlords and scalpers seem very much not equivalent. I would compare scalpers to property flippers. Someone who sees an asset for sale for less than its market value and purchases it with the intent to sell it very soon after.
Landlords provide flexibility to the market. They take on the risks of owning. In a fully healthy system, it would still be very good to have landlords and rental properties, people would just pick them because they are the best option, rather than the only option.
If Bob is renting, then when the situation changes he risk losing a house over his head. That could be:
1. if the landlords decide no longer to rent the property (e.g. if they retire or move abroad);
2. if he is priced out of the current area due to increased rent;
3. if he retires and no longer has the monthly income to sustain paying rent;
4. if he gets a girlfriend or boyfriend and they want a bigger place, or if he has a child;
5. if he wants to modify the house in some way (e.g. change a room into a child's bedroom, or redo the kitchen/laundry area to add a new device, or replace the shower or boiler with a more eco/environmentally friendly one).
> If Bob is renting, then when the situation changes he risk losing a house over his head
I hope you don't want to claim here that buying a house means that you cannot ever "lose a house over your head"? Because that would be plain wrong. And if you just wanted to say that it reduces the chance, then you should have some good arguments.
Also, some of your points are strange:
> 4. if he gets a girlfriend or boyfriend and they want a bigger place
Well then it's much easier to move to a different place, rather than buying a new house and selling the current one, don't you agree?
Ehhhh like I get where you’re coming from but it would be fantastically bad policy for a nation to treat housing like this. A person’s primary residence needs to play by different rules if you’re gonna crash the market semi purposely.
When the forces that cause the market to crash are the feds monetary policy it’s a tough sell that it’s actually a free market. To first order individuals should be able to purchase shelter assured that it’s fairly priced. The concerns should be like “the foundation is cracked” not “JP Morgan is pumping house prices.”
If you cause Bob's house to go back to being $200k then it only screws the Bobs. It doesn't screw the Mary's who bought at or below $200k. Your logic is what gets us into these messes, because it removes moral hazard by telling speculators that housing is special and therefore immune to risk.
Of course it's not a free market. Has America ever had a free market? When is the last time that the real estate market hasn't been manipulated in some way?
This would make sense if we were running out of land, or if we were anywhere near housing density limits, but we are not. Housing can be created by running utilities and roads to land without it or building higher on land with it.
Markets for a fixed number of goods work fine in general; concert tickets, limited edition shoes, rare antiques. The housing market is heavily absolutely distorted but not because land is a fixed quantity.
What have you measured to determine that these markets 'work fine'? These are terrible markets, speculation is higher than productivity, fraud is endemic, prices are volatile and liquidity is low. Antiques and arts are infamous for fraud and enabling tax evasion.
People don't need limited edition shoes to survive, so we can just ignore the problem.
> The housing market is heavily absolutely distorted
i still don't understand what these distortions being claimed are. "artificially low" interest rates isn't a distortion - it affects everything, and the rates may not be that low, compared to the growth. As for taxation, real estate isn't treated too differently from any other forms of investment.
Ability of third parties (politicians, bureocracy, NIMBY groups) to block or retard production of new assets. From what i heard from developers, getting permissions for a new appartment complex takes many years, several times longer than actually building the complex.
Inability of third party to capture value they create - an apartment complex in the middle of the forest is worthless.
It needs utilities, shopping centre, major metro line, highway, arts, jobs, good schools, and general 'nice area' vibes created by artists on the verge of bankruptcy. None of those things area created by the construction company.
In fact randomly building houses leads to congestion, lack of places in schools and other facilities, and miserable living conditions.
> He is not compelled by any force to participate in an inflated housing market.
But he _is_ forced to participate in that market, even if he doesn't know it; whether that's by renting or buying is another question. Renting is less risky but it's still a bet, no?
We all need a place to live but we all didn't take a risk in taking out a mortgage like Bob did.
Bob's risks shouldn't negatively influence people who have more risk aversion to the point where it's less risky to take risks like Bob because then we'll all take risks like Bob and then end up in the situation where we are now.
taking a mortgage is less risky, because it removes uncertainty over the future cash outflows for housing. It fixes your house payment and interest payment.
renting is actually more risky, because you are left exposed to interest rate risk, and housing market risk, etc in form of ever increasing rent prices.
in my opinion the proper solution would be increasing property taxes across the board and spending that money locally on schools and other community reinvestments, applying them on market prices and heavily taxing investment properties in single family homes (second and third house, house in title of LLC/S-corp, etc).
also tax heavily houses located in restricted zoning areas, like Palo Alto, CA. If NIMBYs don't want to see new housing in their backyard, they gotta pay up even more on market prices of their homes.
provide tax incentives for YIMBYs
In some ways it is less risky, as you describe. In others, owning is more risky.
If you take a variable interest rate mortgage, as many people do, there is a risk of increased interest payments.
If you buy to live, and something changes in your life that requires you to move, you may be forced to sell in unfavorable market conditions. This is another risk of ownership.
Because the discussion was centered around the decision of whether policymakers should create said risk by reversing previous policies. The risk came from the choice of policy, not from the environment Bob was originally playing in.
Implied volatility on buying a house is lower than on renting, we are discussing policy changes that cause realized volatility to be different. If you use the government to change the market then you cant claim “free market.”
It's not all Bob's fault though. He had to live in somewhere and the only way for him to afford a house (theoretically worth $200K, inflated to $500K in the above example) even if he had $200K in savings was to get a $300K loan. Now if you reduce the house prices back to $200K levels he won't be able to refinance it anymore and his current bank will screw him even more.
It’s not the first time this happened. Houses lose desirability due to jobs moving out of town, crime rising, and so on. Buying an overpriced house shouldn’t guarantee you a solid return in the future.
We’re at a point where we’d rather Bob secure his “investment” while younger generations can’t afford a home to live in.
That's a bit out of context. My comment was a reply to:
> We all need a place to live but we all didn't take a risk in taking out a mortgage like Bob did.
My point is it wasn't necessarily a risk Bob has voluntarily taken. I'm not saying that we shouldn't do something to fix this but we shouldn't cause Bob to go bankrupt while trying to help younger generations as Bob may not be the opportunist here.
This is the part most people don't know or understand. We should fix the banking system first. Only one entity should be able to print money, not all banks.
One man's debt is another's asset. If the banks don't collect their mortgages they might collapse. Will I trust a bank to save my money if I knew their balance sheet is negative?
Risk folks. The availability of that loan due to artificially low interest rates propped up the bubbled price. The fact is, a seller is shopping for someone with more capital or less risk aversion to take a liability off their hands. My issue with this, is younger people are on the hook for it and many are not even advised on how they can vote with feet/wallets. That's wrong.
Without refusal to participate, there is no braking effect on Asset inflation. Someone quite literally has to lose their ass for things to correct so that the next generation has a sane foundation to build from, and Lord only knows, the centralization hacks pulled off by the last handful of folks have been so stupidly effective, we're even having this conversation. So, who is in the best spot to take haircuts? I assure you, it isn't the people on the lower side of the income/wealth curve.
Bob should stop treating real estate as an investment vehicle and instead just use as you would a car. It depreciates, it appreciates, you extract benefit from it regardless of its speculative value.
Except his mortgage is still under water and the banking system will fail (also rational Bob should just walk away from the house to lower his debt through bankruptcy and house repurchase). This is kind of similar to what happened in 2008, except 2008 was still “small” scale.
So? The house is as livable the day before the mortgage went underwater as the day after mortgage went underwater. It only matters if Bob care about selling the house. If Bob's primary intent is to live in the house as opposed to selling it, it wouldn't be a problem.
At the very least you are screwing the owners of the mortgage who will have to write off lots of loans as Bobs everywhere walk away from the underwater mortgages (which is oftentimes the right thing to do even if one didn’t intend to use the house as an investment).
But also it significantly limits Bob’s options in life. They can no longer refinance to repair the roof, they can’t move to a different city for a better job, etc.
So? They wrote a 500k mortgage on a 200k house and they knew that. Bob had no real choice, but they chose to profit off that 300k error. That is not "screwing" it is "correcting".
>At the very least you are screwing the owners of the mortgage who will have to write off lots of loans as Bobs everywhere walk away from the underwater mortgages
Yes, that's the point...
>But also it significantly limits Bob’s options in life. They can no longer refinance to repair the roof, they can’t move to a different city for a better job, etc.
If everyone is a bob it’s the banks problem rather than a bob problem.
Within the legal system remedies Bobs everywhere are going to bankrupt. Banks can arrest the bankruptcy by changing the legal system, and Bobs everywhere can change the legal system to make bankruptcy more lenient.
At the end of the day a large portion of the population is not going to simply accept that they need to shoulder the losses for a bubble they didn’t make and had no perceived choice but to participate in. Particularly not when it occurs twice in two decades.
>At the end of the day a large portion of the population is not going to simply accept that they need to shoulder the losses for a bubble they didn’t make and had no perceived choice but to participate in.
They (you?) don't have to accept it. That's not a factor at all. Your acceptance is not required.
Who takes the loss is a matter of societal acceptance. There are many historic examples of societies clearing debts through jubilees, negotiated settlements, nationalization, revolution, and economic restructuring.
In Sweden, people definitely buy houses/apartments on speculation. People don't think about it like that though, they think "prices will continue to rise forever, so I need to get into the housing market as soon as possible so I don't miss out on getting wealthy." This has made the Swedes the second most indebted people in the world.
If rates here where to go up with, say, 2 percent units then it would be a blood bath.
If Bob was buying a second property to rent out to someone else to keep his wealth in a non-depreciating asset class, that is not the case.
If Bob was a first-time homebuyers, then he just got royally screwed because of all the speculation propped up by nigh interest-free lending, which was absorbed via inflated ask prices. There really is nothing natural about the economy of the last 15 years. At all.
That housing is an appreciating asset is the problem.
That's a big red flag that something is wrong, and that's because houses wear out. Therefore they should depreciate like a car.
The problem is not solved by messing about trying to control "Domestic Credit Expansion". Limiting the supply of money causes the problem by limiting the funding of housing production.
The problem is the power of exclusion. Housing should be used for housing services, not hoarding. If the price of it is going up, all that is telling you is that there are insufficient housing services available, and there is some market failure that is stopping it being produced.
The solution is anti-trust action and, if necessary, government intervention to limit the power of exclusion and directly produce more housing services until houses start to depreciate.
Address the root cause, not the symptoms. The solution to asset prices going up is produce more of the required assets and stop people trying to corner the market in them.
Nobody is suggesting that the price of used cars suddenly going up should be solved by reducing the loans available to buy them. It should be solved by sorting out the production issues for cars to put the market back where it normally is.
Houses go down in value, land goes up in value on average, partly due to scarcity. Best example is Manhattan. Additional land is non existent, and any existing land becomes more valuable as more people and businesses move there.
its not the land that has value, it is the community on that land (police, public services, schools, parks, beautiful nature, access to jobs, etc) that has enormous value.
Take Detroit for example, nothing has changed to the land itself, but the community has changed and caused land (and housing) prices to change.
the way to solve it, I think is to build better communities, help with more construction of houses, parks, and building better public services (police, fire, public education, parks&recreation, etc).
What should be the source of such funding? I dont know, but the American approach seems to be to use local funding from property taxes, but this approach only sustains status-quo, and does not help to improve struggling communities
I would take it a step further and say that it isn’t the community services that has value at all. It is the production of the community that has value. Detroit stopped producing things so it could not trade/earn money for all those public benefits. You could raise property taxes as much as you want but if people can’t pay then because they haven’t earned money the city will just go bankrupt, like the Detroit did. A community doesn’t have to produce physical goods, it can produce services for those that do produce physical goods, or digital services. But when the community can’t produce even enough to cover your food costs, community services don’t matter. To increase value in an area there must be a surplus somewhere. San Francisco area is a perfect example of the opposite. The myriad of tech companies are able to scale on a massive level because software scaling has practically zero cost and end up with a surplus.
More like Bob bought 10 houses at $500k/each, hoping to flip them in a year for $1m/each. If you cause his houses to be worth $200k, as they ought to be, he is really screwed.
Raising taxes and/or raising interest rates decreases speculative forces. Property tax is especially effective in combating speculation, since you have to pay it even if you let the house sitting around waiting to appreciate and be sold (and worse, as it appreciates, you might have to pay more of it). Taxation that discourages speculation to the benefit of people actually looking for housing (and not assets that will appreciate) is a good idea.
> Instead of having asset prices fall to parity with wages and consumer prices and causing everyone to default on their mortgages, we need wages and consumer prices to rise to parity with asset prices.
Either housing prices fall back to earth, or the earth expands so that housing prices don't seem that high anymore :). The latter is obviously just old fashioned universal inflation (wages and consumer prices rise), and really screws someone saving for a housing downpayment (not to mention, loans would be harder to get as inflation picks up).
> More like Bob bought 10 houses at $500k/each, hoping to flip them in a year for $1m/each. If you cause his houses to be worth $200k, as they ought to be, he is really screwed.
That Bob is indeed really screwed, and so is the bank. But if we're printing a bunch of new money and giving it to everyone equally, that Bob doesn't get any more than the original one.
Raising interest rates especially, and that's the one I'm suggesting.
The problem with raising property taxes is that it equally impacts people who aren't speculating. You have to pay the same amount even if you only bought a house because you needed somewhere to live; even if you're not borrowing the money.
It also doesn't solve the general problem, because then people move money into things that aren't subject to property tax, like stocks. We don't need to deflate the housing bubble by creating a stock bubble the size of the sun.
> Either housing prices fall back to earth, or the earth expands so that housing prices don't seem that high anymore :).
Right, exactly. And housing prices falling screws people with mortgages and causes defaults, which is so bad that we haven't been able to solve it since 2008.
> The latter is obviously just old fashioned universal inflation (wages and consumer prices rise), and really screws someone saving for a housing downpayment
Their existing savings will be the same percentage of the house as it was before, because the nominal housing prices are staying the same -- inflation offset by higher interest rates. Then their nominal wages go up, so they can save the rest of it more quickly, which is the entire point.
> (not to mention, loans would be harder to get as inflation picks up).
Not harder to get, just higher interest rates. Which is, of course, the idea.
If you want to make it easier to buy a house, fix zoning so we can build more housing.
> The problem with raising property taxes is that it equally impacts people who aren't speculating. You have to pay the same amount even if you only bought a house because you needed somewhere to live.
Property taxes is simply rent you pay to your locality based on the value of your property. But it acts to reduce speculation because you have to pay it whether you are using the property or just holding it for the appreciation.
> because then people move money into things that aren't subject to property tax, like stocks.
And they aren't keeping it in real estate...so at least we don't have to compete with Bob Speculator when trying to buy a house.
> Their existing savings will be the same percentage of the house as it was before, because the nominal housing prices are staying the same -- inflation offset by higher interest rates.
But then why did I save for that downpayment in the first place? If I saved $200k over 10 years...and then houses double to $2 million while I go from making $100k to $250k/year...well, I was really stupid those first 10 years. And not only that, but my downpayment of 20% is no longer viable...I have to pay 40% to make the loan officer comfortable with the loan. Ugh, now I need to save $800k. Ugh. Maybe I can save that in the next 10 years with my higher salary.
> If you want to make it easier to buy a house, fix zoning so we can build more housing.
Yes, because every mega city in the world that has focused on density is affordable? Yes, Shanghai, Hong Kong, Paris are plenty dense, but they are not affordable by any measure of the word. Zoning isn't the only thing that needs to be done, you need to deal with the speculators, and you need a sane inflation rate so that people can afford to buy those houses eventually.
> Property taxes is simply rent you pay to your locality based on the value of your property. But it acts to reduce speculation because you have to pay it whether you are using the property or just holding it for the appreciation.
Interest rates only apply to people borrowing money, which is the thing that promotes speculation. It even promotes speculation among people who are living in the houses, because then they try to buy a bigger one until so does everybody else. With the result that everyone ends up in the same house they would have before, but pays more for it.
Property taxes apply even to people paying their own money for their homes, which is an undesired side effect. It makes it more expensive to own a home, which is the thing we were trying to prevent.
> And they aren't keeping it in real estate...so at least we don't have to compete with Bob Speculator when trying to buy a house.
So then you can buy a house, which won't have a very high resale value because of the high property taxes, but then you can take the money you saved to save for retirement by investing in other assets like stocks and bonds. Which you just made unaffordable.
> But then why did I save for that downpayment in the first place? If I saved $200k over 10 years...and then houses double to $2 million while I go from making $100k to $250k/year...well, I was really stupid those first 10 years.
Let's compare our alternatives here. You spent ten years to save up a 20% downpayment, now you're ready to buy a house. Suddenly a change occurs.
If a change is that the nominal value of the house is cut in half, whether you get screwed or not depends entirely on whether you buy your house the day before or the day after the change. That isn't really ideal. This is also, effectively, deflation -- an incentive to hoard cash. That's bad.
If the change is that your nominal wages double, it doesn't matter if you bought the house yet because the nominal price of the house stays the same. It just gets easier to earn that amount of money going forward. It would be nice if we would have done this ten years ago, but we didn't.
> And not only that, but my downpayment of 20% is no longer viable...I have to pay 40% to make the loan officer comfortable with the loan.
The price of the house is the same and now you're making twice as much money, so the loan officer is more comfortable giving you the loan, not less.
> Yes, because every mega city in the world that has focused on density is affordable? Yes, Shanghai, Hong Kong, Paris are plenty dense, but they are not affordable by any measure of the word.
It's not a question of absolute density. What you need is more housing than you have people, so that you're only paying the construction cost and not competing over artificial scarcity because further increases in density are illegal. The amount of density needed for that in San Francisco is different than it is in Houston.
> Zoning isn't the only thing that needs to be done, you need to deal with the speculators, and you need a sane inflation rate so that people can afford to buy those houses eventually.
If you deal with zoning then you deal with speculators, because increasing the housing supply by a sufficient amount prevents prices from skyrocketing, which drives away speculators. Nobody expects the price of housing to double if a 20% increase in price induces enough construction to cause it to fall back to the original price in five years, and nobody speculates unless they're expecting prices to rise.
> Interest rates only apply to people borrowing money, which is the thing that promotes speculation. It even promotes speculation among people who are living in the houses, because then they try to buy a bigger one until so does everybody else. With the result that everyone ends up in the same house they would have before, but pays more for it.
Yes, interest rates also promote speculation. But they aren't the only thing: if you amassed capital, you wouldn't need loans but could still speculate on the property market. Property taxes then act against such un-leveraged speculation.
> Property taxes apply even to people paying their own money for their homes, which is an undesired side effect. It makes it more expensive to own a home, which is the thing we were trying to prevent.
Property taxes represent the reality that living somewhere costs money beyond the initial outlay to buy the property. They also makes it more expensive to rent a home, but it is money that needs to be paid anyways. Roads, schools, and other city/county services don't fund themselves. By tying it to property ownership rather than use fees, it creates a built in disincentive to hold property and not use it productively (because those taxes have to paid if you use it or not).
> The price of the house is the same and now you're making twice as much money, so the loan officer is more comfortable giving you the loan, not less.
If inflation is high, the loan officer isn't really comfortable giving you that loan at all. If the high inflation happens overnight and then stops...that's a different story, but that usually causes a free fall in confidence anyways.
> The amount of density needed for that in San Francisco is different than it is in Houston.
Dense cities are more expensive than less dense cities. Not because they are more dense, but because they are more desirable. Increasing SF density doesn't make it cheaper to live there if it also increases its desirability. More demand just springs up to account for the new units. You have to do something like Singapore has done instead: make housing production and distribution more public (ironic, given that Singapore is often considered the most libertarian country out there).
> If you deal with zoning then you deal with speculators, because increasing the housing supply by a sufficient amount prevents prices from skyrocketing,
That has never shown to be true at all. The Chinese have tried this, and...without a property tax anyways, it has just led to a lot of bought for but empty apartments. A better alternative might be Japanese style depreciation (require that housing be rebuilt every 30 years, hey, it also means a lot of construction jobs).
> But if we're printing a bunch of new money and giving it to everyone equally, that Bob doesn't get any more than the original one
Except your policy is inflationary and Bob with 10x homes is highly in debt with likely fixed interest rate, so inflation likely is very good for him (ie you dramatically increased his net present value/gave him a lot of money in real terms).
You can tax unoccupancy, which is what Vancouver does. Having a tenant in the house actually makes it more difficult to sell and has overhead (risk in damage and non-payment, often both), so taxing empty houses puts some pressure on speculators to rent the places out at least.
That's a bit of a stretch, isn't it? Being underwater on a loan doesn't instantly bankrupt you.
As long as Mr. Bob is actually living in his house and not just speculating on the market, he's still quite likely to come out ahead in the long run, despite the unfortunate setback.
This is kind of my mentality. I want to buy a house to live and die in it I don’t care if price goes up or down I just want my own place. Can someone explain why a market crash would be bad for someone like me who was poised to buy when the pandemic priced me out of the market? Why do I car if someone has multiple houses loses all their investments? This is a genuine question I would like to understand. Thanks
Because “life happens”. You may need to move jobs, stay closer to your parents to help them as they get older, downsize after kids go to college, you may have grandkids that you want to be closer to. You may even have to move because your neighborhood demographics change and crime begins to rise. Climate change also will seriously mess things up since it’s not easily predictable at a local level.
When that life change happens, if you try to sell your house in a market downturn, it would be at a tremendous loss where you would have to cover that shortfall in one single payment. Ex: you owe $500k mortgage on a house that’s only worth $300k, you would have to find $200k in cash (and no bank will lend this) to be able to sell your property. And if you can’t do that, well…then you can’t move.
Alternatively, in a hot market, you could sell your house for 650k, and since you only owe 500k on it, you would get a $150k lump sum (tax free here in the USA). Even if you didn’t want to sell the place, you could still rent it out, and also take out a home equity line of credit, where you still could get nearly 80% of that 150k in a tax-advantaged lump sum and still have the rental cash flow coming in to pay for that loan while you’re living that lavish lifestyle. Since it’s a line of credit, you can extend this lavish lifestyle for quite a while until… you guessed it, the market tanks and you’re back underwater on your mortgage.
There was a show on national television in my country that had a bunch of cases like this after the 2008 crash. The typical scenario was a couple buying a house pre-crash to start a family, then breaking up after the crash and having to deal with that and a house that neither of them could afford on their own, and with the prospect of ending up with a high-interest mutual consumer loan if they sell to cover the rest of the loan.
I remember reading a forum post from a dude who was being forced by the bank to start paying his ex-wife's share of that consumer loan because the bank had given up on her.
Now, there are some theoretical ways out. They could haved stayed together for perhaps 10 years more, even if not romantically. Perhaps easier said than done. They could try renting out - but not all people have what it takes to do that on top of a full-time job. And it requires coordination between two people who may be fighting. They could try to make the bank write off some of the debt, or lower the interest. Actually, that solution sort of worked in some cases, not that they managed to do it on their own, but the show had a financial expert who negotiated on behalf of them.
It impacts your evaluation by lenders. If you are underwater on your house, even if you can afford the payments, carrying a net-negative balance on your house (owing 500k on a house valued 350k resulting in net assets of negative 150k), it can make it harder to buy a vehicle or cosign loans for your children etc etc.
Source? I have been underwater on a home, and it's current value was never considered for anything not related to that property. It's not like banks send appraisers to your house everytime you apply for a credit card or auto loan.
It takes a lot of mental effort to pay off a $400,000 loan on a house worth $200,000, especially knowing you could default and drastically reduce your monthly expenses.
As someone who doesn't own a home yet because of insane competition, if I were to buy a home tomorrow and afford the mortgage, and suddenly the value dropped by $300k, I wouldn't care. I'm not looking for a home as an investment, which is the problem. I would still have that same home to live in and raise my family in. If anything, I might be able to reduce that fictional mortgage.
I'm not in favor of homes dropping in value either, but if the argument is it's going to hurt investors, then let's do it.
I think you're seriously underestimating the problems a homeowner faces if they purchase a home (with a mortgage) and it later experiences a large reduction in value. This, by the way, is going to happen to a lot of people who have recently bought houses.
First of all, buying a house for $1 million that is later worth $700,000 has no bearing on what is owed to the mortgage company. The mortgaged amount has already been paid to the original seller, that money is gone and the buyer has agreed to repay it. Defaulting on the mortgage can be done, but any money already paid will be lost and the borrower won't be able to obtain another mortgage for 7 years.
Or the homeowner can continue to live in the home, but there are a few potential problems:
1. They cannot sell the house should their life situation change. Depending on the overall real estate market, they may also not be able to rent the house out for an amount that covers the mortgage payment.
2. Not only did they agree to pay $300,000 too much at purchase time, they also are continuing to pay interest on that amount. $1 million for 30 years at 3.5% is $616,000 in interest; $700,000 is $431,000 in interest.
3. The loan cannot be refinanced, because they don't have at least 20% equity in the house. Say that interest rates drop from 3.5% to 3.0% -- that would save $100,000 in interest over 30 years. But in order to refinance, they would need to pay the mortgage down to the point that they have 20% equity in the house (in this example pay the mortgage down to $440,000).
4. Since they have no equity, they cannot obtain a HELOC to help finance home repairs or life events in an emergency.
So yes, investors and speculators will be hurt when their portfolio value drops and those are the risks you take when investing. Homeowners, however, are also hurt by the decline of home values.
Your points (2) and (3) doesn't apply. In this hypothetical, the price of Bob's house went down because interest rates soared. That means he's never going to be able to refinance. It also means that even if interests rates just went up to inflation in the past year, Bob is paying less interest on his locked in hypothetical 3.5% rate than his neighbor who bought the next day at only 70% of what he paid.
(1) and (4) are valid concerns. However, if Bob stays there for a long period of time until prices rise again, he'll sell with less capital gains taxes.
So, like in many situations, and how it should work, buying a house works if you stay still for a while, and is worse then renting short term.
But what about me a non home owner waiting to get into the market? Why should I care if the market crashes? Why do I care if all those $1mil houses are now $750k? Won’t a market crash be good for those recently priced out of the market trying to get in? I assume if the market crashes it will be harder to get a mortgage in the first place but that is why I am saving a decent down payment. Thanks for your thoughts
If the market declines, then it may be a good time for you to buy. Over a long enough period of time, the average house price in modern history only increases.
The concerns for you in this scenario may be:
1. Has the property been poorly maintained for some time because the previous owner could not afford repairs after buying at a high price?
2. Has the property recently been poorly maintained because the owner knows it will be foreclosed on?
3. Will prices continue to drop, potentially putting you into the same situation as the current owner, or is now the right time? It's generally impossible to time the exact bottom of the market -- and what seems like the bottom may be far from it.
As someone who just bought a home, I'm with you. If the bubble pops tomorrow and my home price halves, that's fine - I don't plan on selling soon so it's just numbers on paper, and I could get it reassessed and pay less in taxes.
> and suddenly the value dropped by $300k, I wouldn't care
You are saying that now but when it actually happens to you then it becomes real and different people react differently when it actually happens to them.
The point here was that the value is not so important when you're not looking at your home as an investment. This is a very real argument. A house has many functions to the owner who actually lives in it vs am investor. Ofc you might want to sell at dinner point and then the value matters but it's not unreasonable to picture a hike owner who will never sell for as long as they live
> Raise interest rates on debt. This will cause people to pay back existing debts. At the same time, print money and give it out to everyone. This will give people the money to use to pay back their debts, without screwing over the people who didn't take out debts to begin with, because they still get the money.
This absolutely does screw over people who didn't take out debt. Yes you gave them money, but you also devalued the money they already had. And you have just driven up the price of houses and assets even more.
> Instead of having asset prices fall to parity with wages and consumer prices and causing everyone to default on their mortgages, we need wages and consumer prices to rise to parity with asset prices.
You can't just raise wages and consumer prices without raising asset prices - the people who are getting more wages would either loose that money on higher prices of goods or invest in assets - driving up their prices.
> Raise interest rates... At the same time, print money
So basically, take everyone sitting on mountains of cash (e.g. Apple) and start to pay enormous returns for keeping that money stationary, instead of investing it in the productive economy?
> Now asset prices come down in real dollars, because people aren't as willing to borrow money to invest when interest rates are high
The economy isn't composed of only "people". There are businesses too. Rising interest rates means that businesses borrow less money to build new factories, hire new people, and expand. Corporate finance takes available interest rates into consideration; it is literally one of the factors on which CFOs decide whether to start a given project or not. That ultimately translates into whether business start to lay people off or not.
Look, I also think that interest rates should be brought up. But I also appreciate that it's not that simple.
The problem with raising interest rates is that there are many mechanisms by which exceptionally wealthy cash out borrowed dollars. Owing to how wealth is distributed the majority of QE has gone in this direction.
Consider leveraged stock buybacks, leveraged dividends, selling to a greater fool, and simply owning corporations which are too big to ever go chapter 8/11 without taking the economy with them.
Increasing rates will simply mean that these individuals can get paid by interest rates ( you have to borrow from someone after all ).
The only strategies to break this wealth concentration involve punishing capital accumulation. Meaning inflation or taxation.
> How is raising somebody else's taxes going to fix that?
Just raise the taxes on peoples 3’rd or 4th home. It will definitely screw over a lot of real estate investors and banks, but that’s sort of the deal with investment risk, and after more than a decade of state guaranteed return on this investments it’s about time for and quite fair with a state guaranteed shakedown.
This will cause the market to drop, and the unfortunate ones who overspent on their primary recode are will have a big loss, which you help reduce through tax breaks for people owning no more than one home.
> Bob bought a house this year. He paid $500,000 even though it should've been $200,000. […] If you cause his house to be worth $200,000, as it ought to be […]
An honest question: why “should” or “ought” the price have been $200k, instead of the actual selling price (assuming that this was a typical price for a comparable home in the area over the same time period)?
Who gets to determine the canonical value of real estate, and how is this somehow more fair than market consensus?
In an ideal world, housing would be a depreciating asset class - other than scarcity there isn’t any reason for housing not to have a price comparable to its construction cost minus depreciation/renovations.
We have many policies that for good and ill restrict housing supply and increase the marginal price for shelter. There isn’t any strong reason to believe that this pattern should or will continue indefinitely.
Saying that “in an ideal world” housing prices should be cost plus minus depreciation seems begging the question.
Why is this ideal? Ideal for whom? Should all goods and services be priced using a cost plus model? What, then, would be the incentive for efficiency? Goods made by inexpensive means would be low priced by fiat, regardless of performance.
I’m not saying that nothing should be cost plus, but there needs to be a strong justification for it.
In a standard market economy with many participants the incentive for efficiency is in productive portions of the economy being able to deliver more for the same cost. In a cost+ model of value the cost is typically assessed in terms of building new today. If the original builder was particularly inefficient then it will lead to a lower valuation for the home as new buyers consider the cost of building new.
This process incentivises more efficient means of production, when goods become very cheap relative to performance then consumers of that good can spend money elsewhere. In practice most material goods should be on a cost plus pricing model for this reason. The alternative is scarcity economics which hardly incentivizes efficiency but instead rewards market timing, monopolies, and other activities which don't do a lot to make the world better in the future.
Producing more is not always an option, sometimes it is not even desirable. Obesity is already a major health hazard throughout much of the First World, and overconsumption in many forms drives our unsustainable stripping of planetary resources.
Consider two people who make violins, where their costs are comparable but one is widely deemed vastly superior to the other. Musicians would be willing to pay a hundred times more for the superior instrument, but the cost plus mandate requires they be sold at roughly the same price. The incentive to achieve this much higher level of skill at violin making is far lower than if we allow willing customers to vote with their wallets.
That's what people do when they have deeply underwater loans. Who is going to pay a $350,000 loan secured by a $200,000 house when they could just walk away and then go buy a $200,000 house for $200,000?
So the solution you propose is raising interest rates even though the we couldn't afford the interest in our national debt? Then we ruin the value of household savings with inflation, raise taxes so that our economy falters from both lack of demand and higher costs for producers, thus ensuring neither individuals or companies can meet this higher tax burden?
I like your thought process and it might be a good way to go.
> Raise interest rates on debt. This will cause people to pay back existing debts
But this is risky for the stock market right? interest rates on debt are connected to the fed's interest rate and to bonds yields. Higher bond yields = stocks are less appealing. That could be fine during normal times but the stock market is very very high so the risk for a huge crash is high.
Who knows what the result of a stock market crash might be, the 30s were one huge depression. During the current political climate I can see why the high-ups want to avoid that.
But It's something to think about what you're suggesting and it's very possible what you're suggesting will happen in some form or another.
Bob bought a house this year. He paid $500,000 even though it should've been $200,000. He's paid $100,000 and still owes $400,000. If you cause his house to be worth $200,000, as it ought to be, regardless of the method, he's going to default on the loan and you'll have screwed him out of $100,000 and (at scale) bankrupted all the banks.
-- The gp actually make this clear and is grasping for alternatives to this scenario rather than advocating. So you reply is either ignorant or disingenuous.
Edit: Gp's quote before your quote - "If you start raising rates, and stopping QE, you're not actually getting the money back from the people you gave it to, you'll just get a lot of businesses to close." The same clearly goes for individuals.
If interest rates go up, homeowners are instantly underwater on their mortgages.
Purchase cost on housing is very, very tightly correlated with the interest rates, because shoppers' budgets are determined by their monthly payments, not by the total cost of the house.
When interest rates go up, potential buyers can't afford to borrow as much money, and prices have to fall.
Raising targeted taxes on very wealthy individuals and corporations is assuming that this wealth is going to be redistributed at the bottom somehow, effectively helping Bob not default on his loan.
Printing money and giving it to everyone also risks causing more bubbles…
In my opinion, you move the prices back to $200k and reprice the loans to the $200k price level. The banks take the haircut, Bob gets to continue to live in his house. Of course, this causes the financial system to fail, but fuck em. Let the government take over the financial sector.
Well, I'm pretty sure the banks do in fact originate mortgages but if they are ultimately owned by the government, then given we print our own money and collect taxes, such things can be adjusted easily.
The government inflated the price of speculative assets (housing and stocks) using long-term low interest rates. They're now totally out of whack relative to consumer goods and wages.
Deflation causes defaults, the disproportionate wiping out of the wealth of the middle class (because mortgages are leveraged) and a financial crisis. Inflation, if done by printing money and giving it directly to individuals, reduces wealth inequality.
To get things back into alignment, your choices are: deflate the price of those assets, or inflate the price of everything else. Which do you choose?
Tax what exactly in the specific context of real estate?
If you tax the ownership, that's property tax, it already exists, and
1) It's already high in the most HCOL states (imagine paying 30K a year for a property worth 750K, that's Westchester, NY or many parts of NJ, and a handful of other states)
2) Imagine you're 75, retired, and suddenly your property tax spikes and the house you bought 20 years ago for 150 is now worth 750K, and now you're on the hook for 30K.
So that's out. Next we have taxing transactions. OK, so we up flip taxes (ownership less than X months), we increase transaction taxes on a sale, we can even rid ourselves of the cap gains tax exclusion for single and married couples, and perhaps even tax everything as short-term cap gains.
So now people will never sell.
What have you accomplished?
Or were you just expressing your emotions and letting others figure out the incredibly complicated logistics of your suggestions?
> Imagine you're 75, retired, and suddenly your property tax spikes and the house you bought 20 years ago for 150 is now worth 750K, and now you're on the hook for 30K.
Easily solved by not hitting people who own one property which is their primary residence.
I'd go easy on two-property people; some people need two places for various reasons, and they occupy both.
The tax rules can be crafted such that heavy penalties are imposed on people with three or more properties, and on house flipping activity.
Only reason you don't see more of that is because, doh, the rules are written by the rich. The politicians themselves or their rich chums are doing a lot of that speculating.
> Easily solved by not hitting people who own one property which is their primary residence.
This would discourage individuals from renting out their property for a small profit, which is exactly what you want to see more of to increase affordability (and liveability — not everyone likes renting from big investment firms and property management companies).
No, someone renting out their one property, which is their primary residence, does not increase affordability.
That is because they themselves have to live somewhere. If they have to rent, then what have we achieved?
Harassing these people is entirely regressive.
People doing something entirely normal, like buying a place and living in it, are not the root cause of any problem.
(OK, I've heard of the practice of sleeping under the desk at work and using the company kitchen and shower, while AirBnB'ing your apartment for $. Good luck with that if you have a family.)
Making it costlier to own a second or third property discourages small time investors from renting out those properties, which decreases the availability of rental units, and raises rents.
Alternatively, and worse still, it might erode profit margins such that rentals become exclusively the domain of big investment firms. How is this of benefit to ordinary renters?
My remark about "not hitting people who own one property which is their primary residence" doesn't say anything about second or third property owners. I'm against harassing two-property owners with taxes and even three. Some people have reasons for living in two places and don't want to rent: they have their things there. (I think I said something to that effect in my original comment.)
I'm with you about the undesirability of these investment firms who hog up properties; the tax structure could easily be set up to squeeze them out, while encouraging the small owner rentals: people who have two or three places.
These firms are basically parasites who contribute to the housing problem as much as home flipping speculators. It should be entirely unprofitable for someone to have like twelve properties. We simply cannot have that in cities where affordability is spiraling out of control.
Maybe once upon a time chains of managed condo buildings and such owned by big companies wasn't a problem; it could be high time to crack down on it.
> I'm with you about the undesirability of these investment firms who hog up properties; the tax structure could easily be set up to squeeze them out, while encouraging the small owner rentals: people who have two or three places.
But that tax structure would put downward pressure on rental unit availability, which would very likely raise rents. Wasn’t the goal of all this to solve housing affordability?
> It should be entirely unprofitable for someone to have like twelve properties.
Someone, as in ... a human? What about LLCs? It’s easy and simple to form several of them.
As someone who owns no real estate, and strongly prefers renting from individuals, my concern is all these plans to make it harder for individuals to own several properties will make it even harder than it already is to find a good deal as a renter.
You mean, what’s the fallout of banning anyone or any business regardless of the circumstances from owning more than one property?
Starting with the obvious one, it incentivizes investors to form multiple legal entities to own multiple properties — thereby entirely defeating the proposed regulations. This is already how it works today amongst informed property investors (though for reasons of legal liability, privacy and wealth protection rather than skirting regulations).
But assuming you could close this (realistically impossible to close) loophole... I’m guessing people in this hypothetical fantasy would prefer buying huge tracts of land, and building ADUs? Rentals would likely become a lot more scarce. Maybe corruption would rise due to the general ridiculousness of the proposed regs. Dunno. What do you think?
> it incentivizes investors to form multiple legal entities to own multiple properties
How it could work is that a residential property must be registered to an individual's social insurance number, not to a corporation.
So then they will have to start inventing people if they want to shelter their activities.
These people can be audited. How did you get the title to this property? From whom? Where is the mortgage in your name? How come you're not actually paying the mortgage? Etc.
You can't hide the fact that you didn't buy that property from the tax man.
How would property development work? How are the much needed and widely adored characterful European style duplexes and lowrises in city centers going to get built if one person can only own one property?
Nobody is entitled to live in the same space forever. It’s perfectly reasonable and expected for for someone on a fixed income to sell their appreciated home rather than paying the higher upkeep. If the value proposition makes sense for someone with a higher income then they’ll fill the void. If not, the price will drop and it will all adjust anyway.
The alternative is to end up like CA and we all know the shit show that has become.
Exactly. Around here say you get old and need a nursing home they(public health) will asses all you own. If you have a house they will say gosh we are very sorry. It looks like you own a house, a boat, a property or what ever and this guy over here has nothing. You can afford private care so look into that. The public spaces goes to those who most need it and if you have assets then you don’t need it you can pay elsewhere. They say but that isn’t fair I saved my whole life and was going to give my assets to my children. Who cares not public health. I’ve seen this countless times working in a care home. They are told to sell their house and pay for their own bills while the broke person is subsidized. The secret is to give your children your assets before you need to ask for help or expect to be told to look for private care. Private care is about $6000-$10000 per month. Once you spend all your money you now qualify for subsidized care.
> The secret is to give your children your assets before you need to ask for help or expect to be told to look for private care. Private care is about $6000-$10000 per month. Once you spend all your money you now qualify for subsidized care.
The Medicaid look back period for assets is five years.
The real “trick” is to have kids, raise them right, and then get old knowing that they’ll do what’s right. Whether that’s taking you in, putting you in a home, or kicking you to the curb is all a matter of what you teach them.
It doesn’t matter how well you raise your children if your health declines they with there best intentions won’t be able to help you. I see it all the time. When all of a sudden the person needs 24/7 care to use a lift to take a poo or can’t physically get out of bed into their wheel chair or a hundred other issues the family can no longer cope. You say do what is right, for me that would be riding myself off assets to my children so they can have a life just a little easier then me. I’ve raised my kids right I know I could at 50 years old put all my assets in their name and it would be fine. Not everyone can do that. Some may say that is cheating the system but it is still following the law and that is good by me.
Of course it should. Rent control is a glorified government lottery. If you’re born with a winning ticket (ie your parents have it already) or you get one of the extremely few openings, you’re a winner. Everybody else pays.
That's black and white thinking, though. The answer isn't "freeze taxes forever v. kick the grandparents out by making their taxes go up faster than their social security checks."
» Imagine you're 75, retired, and suddenly your property tax spikes and the house you bought 20 years ago for 150 is now worth 750K, and now you're on the hook for 30K.
I propose a complete overhaul to this tax. We make this tax a federal tax, no exclusion allowed for any reason. Increase this tax rate to about 8% of the property value meaning if the property is worth USD 1M, you owe USD 80k in property tax each year. No exclusions for anyone. Walmart pays. Megachurches pay. Amazon.com pays. Yes, even the state capitol pays and public schools pays.
Now, to make the math work, we must make a calculation we revise each year. What is the median price of a two bedroom unit in the nation? Every adult gets this allowance for the year. Ideally, this more than offsets the cost of the property tax for this person. If it doesn't, the person is responsible for the difference.
The beauty of this scheme is every building pays and failure to pay for about five to ten years is enough to confiscate the property and put it back in circulation. Everyone has some money for housing. If some place is too expensive, move elsewhere and make money.
Well not entirely and there are a lot of factors. One quick thing id mention is this should apply to residential dwellings only. I’ve heard stories (rumors?) of places like golf courses being locked into low property taxes too which isn’t great.
But you don’t want to kick someone out of a house they bought because property taxes went up. That property taxes have increased so much that this is even possible is concerning. They shouldn’t go up that much.
The housing issues in California come down to regulation making it expensive and difficult to build, and just way too many people wanting to move somewhere with some of the best weather and natural features and jobs in the world. That California is inherently expensive shouldn’t be controversial or surprising.
As a naturalized US citizen whose family doesn't own a home anywhere on Earth and is actively trying to build wealth- FUCK NO to heavier taxes.
Y'all got yours, now what - screw me?
I want to build my wealth - give people like me a 5 year tax break or something instead. I can't afford to live where I work (California) unless I'm willing to live in a shitty area with high crime and terrible schools.
* $9,951 to $40,525 - $995 plus 12% of the amount over $9,950
* ...
* $523,601 or more - $157,804.25 plus 37% of the amount over $523,600
Problem? There is effectively no taxes on wealth, only income/capital gains.
This system really screws over the middle class and immigrant families because we generally accumulate wealth through income... meanwhile Bezos can passively "earn" billions per year through his prior ownership of Amazon shares, with an effective tax rate of 0%.
The low interest rates further benefit the rich because they can take out low-interest loans collateralized by assets (that is, Jeff can take out a $100M loan to get liquidity, without liquidating $100M in shares - he only needs to sell enough to pay off interest [the portion sold is taxed as income]).
because the wealth is already taxed - how else did you acquire that wealth without paying taxes first?
To tax wealth is to prevent accumulation of wealth, and i think that has bad, unintended consequences. On paper it sounds good, but like all things, this hurts some group of people more than others, and just because that group being hurt isn't "your" group of people, it doesn't mean they deserve it.
Taxing income (of which capital gains is one type) is fine - adjusting the brackets is fine too. But a lot of times, people come into the more-taxation side assuming that more taxation means better society - but i can tell you it isn't true. Better politicians comes first.
> how else did you acquire that wealth without paying taxes first?
The very wealthy minimize taxes paid by taking deferred compensation in the form of equity held past the long term capital gains threshold, and then only selling a small portion at the low long term capital gains rate.
The next level tax avoidance approach is as the GP described: don't sell your equity, thereby not realizing any taxable gains, but get cash flow by borrowing against it. This requires you to have so much equity that borrowing a small percentage against it is all you need to pay for your daily life, a position that few people are in.
That's just scratching the surface of tax avoidance mechanisms, but the result is as Warren Buffett described: he pays a lower tax rate than his secretary.
but they'd have to pay interest on that borrowing, and presumably, these interest from borrowings for daily life and consumption is not tax deductible (or only the portion related to an investment expense could be deducted).
Therefore, to pay that interest, they'd either have to borrow even more, or sell some equity to pay. The current taxation scheme encourages this, because if the person's consumption is lower than their wealth's growth, they would want to reinvest their excess, and this is the most efficient way to do so without the state taking away a large portion from taxation.
> Therefore, to pay that interest, they'd either have to borrow even more, or sell some equity to pay
Or take a minimal salary or use equity sold at the low long term capital gains tax rate to pay for it.
Also consider that when you have huge amounts of assets - far greater than the loan principal itself - you can negotiate an interest rate that regular people can't. Borrowing 20M for living expenses against assets worth 200M is a very low loan to collateral value ratio.
> just because that group being hurt isn't "your" group of people, it doesn't mean they deserve it.
When the group is "the most successful in the current system", it's not exclusionary / discriminatory or exploitable. Whether their success is due to luck or smarts or inheritance, they succeeded in the current system by definition, because there is only one system. Therefore, they can be asked to pay proportionally more to maintain it. Furthermore, the bargain "to pay less tax, be less successful" is not one that any rational actor would make. It's inherently fair.
The only part you could reasonably quibble with imo is using wealth as a measure of success, but since it is the currency that taxes deal in -- one alternative: government takes some of your children -- it's the one that makes the most ssense. Still, those in society that find some way to life satisfaction without accumulating wealth do have an advantage in the proposed system. Maybe that's something we should encourage?
> pay proportionally more to maintain it. Furthermore, the bargain "to pay less tax, be less successful" is not one that any rational actor would make. It's inherently fair.
if it were really true that paying more taxes leads to more success, then they would pay more. But it isn't true - patently not true. The less tax you pay, the more you get to keep for yourself, and reinvest, and the more likely you reach higher "success".
> because the wealth is already taxed - how else did you acquire that wealth without paying taxes first?
Thiel bought a lot of PayPal equity for basically zero dollars in a tax-free account. The tax exclusion for inheritance is enormous, allowing children to inherit millions and millions without paying taxes and receive a step-up in basis.
> Thiel bought a lot of PayPal equity for basically zero dollars in a tax-free account.
so he did pay his taxes - he paid the amount required by the financial instrument setup by the gov't (which happens to be zero here).
And his situation is fairly unique and rare - very few people invested in a startup via their retirement account, and have massive success.
For most people, their wealth would already have been taxed; e.g., people with excess savings that they put into investments such as property or shares.
> Problem? There is effectively no taxes on wealth, only income/capital gains
Why do you see this as a bug rather than a feature? Sure, it disproportionally benefits rich people but it's still beneficial for not-so-rich people.
I find it unlikely that there is a system in which rich people don't benefit more unless you create an arbitrary definition of "rich" (I.e. $10M net worth) and tax "rich" people more. Even then they'd probably be able to get around it.
> This system really screws over the middle class and immigrant families because we generally accumulate wealth through income
I disagree. Almost no one gets wealthy without owning assets that appreciate in value.
Wouldn't a land value tax hit the older poorer seniors the hardest? Those without an income and by not fault of their own they are forced to sell because the value of their house raised?
Taxing capital gains on principle residences means people are less likely to move up to a better home which creates a problem for first time home owners trying to enter the market as no supply exists.
Wealth tax requires you to know everyone's wealth. How are you going to get that information / verify on a yearly basis.
wealth tax, it’s literally in the name… maybe they should call it “absurdly rich person tax”… are you absurdly rich? if you aren’t… don’t worry about it, and if you are… pay more taxes and continue being richer than 99.9% of the planet
Serious question, would that be realized wealth or on paper wealth? If some startup founders equity is worth a billion but isn’t liquid, do we tax that too?
needs to be both to avoid the hoarding issues we have today, x% of assets should be liquidated for tax annually (assuming its value is over some high threshold)
obviously this would be difficult and would require new rules, but it doesn’t seem at all impossible
Right. You got in late, and... you're going to catch up, how?
I'd really like to understand your wealth accumulation algorithm here because, having lived in CA, I wrote a bunch of programs to model my family's guessed at expected inflation, house appreciation, income appreciation, and tax scenarios, and I bailed.
The people ahead of you are not going to let you climb that ladder, is what I decided. Twenty-five years later, yup.
And I won that game. Survivor bias for sure, but now I'm sitting on what I didn't expect: prime real-estate for CA remote workers + retirees.
The vast majority of government policy is written by and intended to benefit those that already have theirs. People these days seem to think politics is some kind of moral battle, when it’s really mostly just people trying to protect their wealth.
Well yeah but the struggle is still those with incredible amounts of money locked away in static capital. We can't rightly liquidate capital assets can we?
Dude, I am never suggesting that people like you pay more taxes. Rather you should benefit from tax retrieved from the wealthiest. And by wealthiest I mean a lot wealtheir than you.
Are they? From what I read they’d heavily mess with anyone that bought a family home anywhere near a city more than 10 years ago.
You can argue that their net worth has increased, but their salary is still the same, so increasing their taxes based on the current value of their house just makes them lose the house (and forces them to buy a new house much further from city center).
Alas, that would be a terribly idea, because all of a sudden you have the government snooping into your living arrangements. Especially for grey areas where people share their time between multiple apartments. Way too complicated.
And, people living in bigger places would get effectively get a discount this way.
Your argument does highlight a problem with the transition phase of the introduction of the tax, though. There's a few ways to solve this, eg by slowly phasing the tax in over a decade or more.
(It's not a problem in the long run, because land prices will drop until the financial burden of tax plus mortgage payment is the same as today.)
"Alas, that would be a terribly idea, because all of a sudden you have the government snooping into your living arrangements. Especially for grey areas where people share their time between multiple apartments. Way too complicated."
... not really. Most folks only own one house, so nothing complicated.
A few folks own multiple houses. These folks already need to establish residency in one house for tax purposes in a lot of places: Taxes vary from city to city and state to state. It isn't a new grey area, and we can use this established system to tax. The folks can, in general, just use one house or apartment or pay more for more than one house.
Not really any more than you already have. In Indiana, they already tax folks higher for homes you don't personally live in (no discounts here). Not only that, but rental income is income: This is a business you are running, after all, and you already have to file taxes on that income (and expenses). It truly wouldn't be that difficult to register a house as a rental and giving it the discount if you think it should apply.
I'd personally only give it out to folks with longer terms: The place should still be someone's primary residence, and only give a discount if it has been rented out x months out of the year. This would be to discourage airBNB units (for example) and encourage landlords to make their units affordable and attractive to the residents of the area.
If land price rises there, then it is inefficient to use the land just for a family house, instead it make sense to build there an aparment building. So land value tax works by pricing out as supposed.
Land value taxes don't make any difference there at all.
Your scenario plays out just the same. The opportunity cost difference between any two uses is exactly the same.
There's a small difference in a detail of accounting: in one case you see a higher LVT bill, in the other case you pay more for your mortgage. (Or alternatively, if you own out right, your opportunity cost for holding onto the land increases.)
> > We need to erode all that capital concentration, and the only way to do it without hurting the regular guy is through heavy taxation.
> Land Value Taxes are pretty neat
...if you want to encourage concentration of land in the same hands in which capital is concentrated, yes. (Heavy LVT harshly punishes any land use that isn't maximally efficient at financial value extraction, which is often extremely capital intensive—encouraging upward transfer of land to those able to apply the most capital to it to optimize extraction.)
LVT doesn't punish or reward any land use. That's the whole point of the argument behind it not having any deadweight losses. LVT is the same, no matter how you use the land.
The opportunity costs between different land uses is exactly the same with LVT as without.
To illustrate more:
Without LVT, when you use a plot of land costing x dollars that you own outright, you 'pay' the opportunity costs of not being able to employ those x dollars elsewhere (or rent the land out etc).
With LVT, the price of that plot of land will adjust to y << x, so that the total of LVT on a plot of land costing y and the opportunity cost of y, will equal the opportunity cost of x amount of capital.
(This discussion ignores risk and other taxes for simplicity.)
Slightly off-topic: I'm also against capital gains taxes. We want more capital employed, so that workers become more productive, and so that the different providers of capital compete. So if anything we should encourage more deployment of capital, and capital formation rather than consumption of wealth.
(Also thanks to international mobility of capital, I suspect that a big part of the burden of capital gains taxes mostly falls on the users of capital, less on the providers. But I am not sure there.)
Well, no, its very different than having no LVT, and in a way which encourages, rather than discourages, wealth concentration; given the context in which it was suggested (specifically, in response to options for reducing wealth concentration being sought), that's a pretty salient difference.
> The government is still free to ban or tax certain uses they don't like.
A tax that makes certain uses generally economically impractical, as a heavy LVT would be, is effectively identical to a ban on those uses.
> Well, no, its very different than having no LVT, and in a way which encourages, rather than discourages, wealth concentration; given the context in which it was suggested (specifically, in response to options for reducing wealth concentration being sought), that's a pretty salient difference.
Could you please explain that?
LVT doesn't make any difference to land use. But it does make land owning expensive. So you could suggest it as a way to reduce wealth concentration. I don't see the contradiction?
> A tax that makes certain uses generally economically impractical, as a heavy LVT would be, is effectively identical to a ban on those uses.
Huh? Eg a moderate tax on petrol stations would certainly lead to fewer petrol stations, wouldn't it? Things happen at the margins.
The solution is sound money, money not based on thin air like the current fiat system. So that nobody can "pump into the economy" and reinforce the Cantillon effect over and over.
Seconded. Currency debasement plays an instrumental role in real estate speculation. If investors could just count on their cash to retain and increase in value over time, their insatiable appetite to own real estate as an inflation-resistant asset would relent.
Fix the money, and fix the housing affordability crisis. Slash the demand to buy housing as an investment.
If you make money more expensive nominal house prices might drop but you also made it harder to acquire money in the first place. Ultimately the only difference is that more money goes to the banks instead of the land owner. It doesn't create more land or housing. The supply and demand mismatch hasn't been solved.
> If you make money more expensive nominal house prices might drop but you also made it harder to acquire money in the first place.
In a deflationary environment, as housing/rent prices drop, savers are rewarded.
Renting doesn’t entail taking out a mortgage.
> It doesn't create more land or housing.
Nor does building more housing in an inflationary environment necessarily satiate investor demand for inflation-resistant assets in the form of residential property.
The cantillon effect only exists for taxes and government spending. You have a bank in every city, private money creation is fully geographically decentralized.
Also, "sound money" is anti democratic because the whole point of a fixed supply is to make money exclusive and let existing social classes maintain their status (kings and aristocrats owned a lot of gold mines and thereby controlled the economy)
What even is “democratic money”? We live in a plutocracy, do we not [1]?
> whole point of a fixed supply is to make money exclusive
In this case, it’s to obviate the need to take your inflationary funbucks to what is essentially a casino, or otherwise park it in residential property in the hopes of not getting debased.
“The whole economical landscape is bubbles everywhere.”
This is why measuring CPI doesn’t work anymore to track inflation and why the quoted rates are nonsense.
When people had less income you could measure their spending at the till to see how much it’s increasing. In 2021, people aren’t spending more at the till because they largely don’t need to right now so these asset bubbles are serving as many people’s emergency fund. If/when things start to turn the rush of forced selling could be unprecedented.
Especially if any alternative is buying stocks ... everyone knows stocks is just another paper and real estate is ... real deal.
Not going into bitcoins as still for normal people it is not something they can grasp and for me it is pure ... how to say a pyramid scheme but less offensive... Stocks are pyramid scheme currently as much as bitcoin is. With P/E ratios waay over what is healthy it is just "there will suckers in the future that will pay more for that". If all goes to the ground real estate will still have at least some value even if people also use it in a way where "there will be suckers in the future that will pay more for that".
That would be only temporary. Building more houses decreases prices like building more roads decreases traffic. It doesn’t. Humans are animals and, like any animal, will breed into any available habitat until it is full.
Income tax makes it difficult for workers to accumulate any wealth, but leaves existing portfolios intact and free to grow. If you look at really wealthy people, they are not squirreling away fat paychecks; they may not have paychecks at all. What they do is own assets that perform well. Their wealth grows totally immune to taxation.
The claim was "are", not "were" or "typically". I don't have a sense of the actual numbers but you say yourself that "recently they started going up", which if accurate matches the claim you respond to.
And even if the claim is entirely off base, isn't it sort of the opposite of FUD? (being unrealistically rosy, rather than motivating "fear, uncertainty, and doubt")
The implicit point was that the current increases are insufficient to catch up to the value lost due to inflation over the past decade due to compounding effects.
As a side note, during the pandemic, I drove from NYC to SF by car and when being confronted with the non-coastal real America reality, I don’t think a one off 10% wage raise from $20/hr to $22/hr will make a lot of difference to a lot of people who are in a whole lot of serious economic need. As a simple example, the prices of wheat this year increased by more than 50% which translates directly into cost of food.
I think for the purposes of this question we're interested in the past couple years, not 2010. I don't see a way to do longer (as opposed to month-over-month) comparisons on that page, but some analysis is offered here: https://cepr.net/the-medias-war-against-biden-over-inflation...
> The average hourly wage for production and non-supervisory workers is up 5.8 percent over the last year. It’s up 10.3 percent if we want to go back two years.
> The increases are even larger towards the bottom end of the wage distribution. The average hourly wage for non-supervisory workers in restaurants has risen 12.4 percent over the last year and 13.5 percent over the last two years.
This is pretty substantial.
But it even goes further than this, because what policy tools does the government have on-hand to curb inflation besides raising interest rates until they induce a recession, and won't this be much more harmful to a normal family's bottom line than inflation is?
There are a lot of tools. Here are some random ideas (not exhaustive)
1. Enforce no-hoarding by businesses to release inventory into markets. Hoarding leads to price increases.
2. Expand infrastructure (in progress) to alleviate bottlenecks in the supply chain
3. Remove some of the not-so-smart tariffs instituted by the previous administration. Import tariffs are paid by, well, importer which leads to price increases.
4. Instead of continuously selling oil from reserves to foreign governments, keep some at home and release continuously to keep energy prices low. Energy cost is the single most important factor in consumer prices (because it takes energy in form of various fuels to: cool, transport, etc)
5. Break down monopolies that stifle innovation and lead to increase in value extracting behaviors by monopolists, instead of real innovation and new business formation.
6. Create new business federal subsidies of some sort?
7. Criminalize scalping (as is done in some countries)
What about just abolishing fractional banking and letting the credit balance itself. Heavy taxation always hurt low income families the most.
If you are wealthy enough, you can just leave or find a way to bypass taxes. In the end Laffer curve dictates there will be less money to give to freshly unemployed low income families whose employers just moved to more friendly markets.
Stop the money printing machine. It was supposed to be stopped earlier and it will hurt now more than ever. But the more credit you create, the more will assets that are usually bought on credit cost.
That means no more landing fairy tale money and pushing interests even to a negative numbers just to keep people borrowing in hope their spending will recover the economy.
We are beating a dead horse.
If we could just let market decide the interests and not money printer, the economy would stop inflate itself. The only money banks could lend would be those that the bank really owns.
> The only money banks could lend would be those that the bank really owns.
while this is sound in theory, the past has shown that if you do it this way, there would be possible run on banks, as well as credit crunches that hurt more than help.
If money is tight, because lots of lenders fear lending out (who would lend money out that they can't guarentee a return of?), then people who really need to borrow would pay dearly for it (and may be not be able to afford to pay). This would hurt, and probably hurt a lot more than the current "inflationary" printing. You just don't see it because the current system is actually good enough, and all you can see are the minor flaws.
If money is tight, interest rates rise. There is always a cost that will persuade someone to risk their money.
These are not minor flaws. We are creating money from nothing which means pereptual inflation which means your savings are no longer safe. It's much more sound to just borrow money, which makes you dependent on the mercy of state regulations.
My interpretation of the current economic situation is that we dodged the great depression because our money supply is more flexible than a gold standard but now confidence tanked and the recovery is massively delayed.
Yeah people would find another way to invent it. Like MLM pyramid schemes. The issue is the bank doesn't borrow money I have. Banks borrow money I have and money I don't have. Yet who is taking the risk? If something fails government will bail them out with money I no longer have as it was taken from me by taxation long before I deposited it into bank.
But government runs the same scam because they also don't have enough money to lend so they borrow money from another bank, namely FED. This bank also doesn't have the money so they start up the printers and act like government owns them.
The government debt is so high that if you sum up all the debt government owes and add what government promised (social security etc.) you will find out it pays so much in interest that it's basically bankrupt.
Somehow we ended in system where no one has money, everyone owes each other and we all act like it's okay.
We all know this will implode and the longer we wait the worse it will be.
While there are well-known risks of e.g. bank runs, manias, panics and crashes, banking has been around since medieval Florence. I believe it will still be around for a long while.
Well tax cuts were implemented so lower income people would not lose jobs. For example private jets were made tax deductible so the industry would not burn to dust when thanks to tax increase people stopped buying them.
Unless your laws are dictating how much people work, individual behavior dictates "the Laffer curve" in the generalized sense most people mean it. If you tax zero, you get zero revenue. If you tax 100% you get... zero revenue because no one works if you take all of the earnings. Between the two we know we find positive values. The particular shape of the curve in a particular environment is an empirical question.
Where it is a political tool is where it was applied before doing that empirical work, and where it is presented with unrealistic shapes (including, notably, most of search results when I search for "Laffer curve"!)
No, human behavior enables things like the Laffer curve to be defined and held up like a shiny bauble by a politically motivated half-wit.
Laffer has never had and never will have anything to do with pre-existing human behavior itself.
He never defined any of the math objects he used. As far as I can see he’s not invented any net new value, he translated English economic babble into math. It’s elementary abstraction by today’s standards. Since most people could barely balance a checkbook in his day, he’s a genius for life.
It’s like taking a child’s drawing of a tree and acting like the child gave life to the tree.
It’s ridiculous to foist prestige on idiots wielding arithmetic. Look at the misogynistic, misandrist, classist, racist, culture our elders grew up in and chuck their prestige in the bin; they’re human like everyone else.
You want to put a number value on others? Here’s yours; 1 of 7 billion+.
Rich people are rich because everyone else worries if we tax them, everyone can’t magically become rich. They’re aren’t actually smarter, stronger, better; it’s just propaganda; aka today as data science.
If you refuse to refer to the underlying dynamic with the name the rest of us are using that's fine, just be clear about it or we'll all be arguing against positions the others aren't actually presenting.
IMO this is the single biggest malaise in society. “Investing” (speculating) in real estate creates nothing of value to society and instead serves only to artificially drive up the cost of shelter, a basic necessity. It also directs capital away from investing in technology and businesses.
Due to the zero-sum nature of real estate, it fundamentally breaks the positive sum theory of capitalism. Adam Smith even called landlord’s right “theft”.
TL;DR: things that people produce such as labor, products, and services are not taxed at all. No payroll taxes, no sales tax, no income tax, and no capital gains tax on investments in productive activity or human-made capital.
Things that people did not produce such as land or the right to extract natural resources are taxed. For land the land value is taxed, but this does not include the value of things built on the land.
You're basically billed for the right to "own" things that existed before any of us were born. Since not much else is taxed, these taxes could be rather steep.
This strongly incentivizes efficient use of land and natural resources and discourages non-productive squatting on them. You would not see, for example, a bunch of self-storage places and gigantic sprawling car washes in Silicon Valley. The land value taxes in such an area would be far too high to justify anything but highly efficient productive uses of the land such as housing, manufacturing, offices, etc. Vertical construction would be highly incentivized in high value areas.
Yeah I’m personally a fan of Georgism but realistically something like a LVT is too radical to implement. I think that a carefully thought out property tax code (eg higher taxes for lower density buildings) can get you 80% of the way to the effects of a LVT while being pragmatic enough to implement today.
You could actually do a lot to adapt existing property tax regimes into something like a very close approximation of an LVT. Step 1 would just be improving the quality of assessments to take advantage of the state of the art of the latest mass appraisal methods (which requires no change in law, just requires you to influence the training and/or appointment/election of local assessors) from the last 15 years. Step 2 would be lowering the tax rate on improvements and shifting the burden off of buildings and onto land; this is barred in certain states but is perfectly legal in others.
Lowering the tax rate on improvements would probably have the side effect of having more remodeling work be inspected. Much of the avoidance of building permits (and associated inspections) is about avoiding increased assessments and associated taxes. This in turn would likely lead to less totally slipshod remodeling work, at least by people who weren’t aiming for that outcome.
Wait why would LOWERING the tax rate on improvements INCREASE the amount of building inspections? Are you assuming that this would lead to an increased reliance on the cost approach for assessments?
With a high tax on improvements (as is the case today), there is incentive to make improvements in a way that the municipality won’t know about (as is the case today). The easiest way for the municipality to learn about improvements is via the building department permitting and inspections process, so a lot of work is done without pulling permits.
Lowering or removing this disincentive would increase the amount of work that gets inspected.
As an owner-occupant, I want the inspections and am willing to pay one-time for an impartial second set of eyes.
As an owner-occupant, I do not want to pay a recurring subscription fee (in the form of higher property tax) as a result of the inspection.
Given how many properties have obviously recent remodels and no permits pulled in the last 30 years, it’s fair to say that at least some of the market has decided that permits aren’t worth the tax increases.
that’s right, appraisal/assessment methods can be changed more easily than tax law, and could be a potential avenue for more equitable/productive taxation. the barrier is, of course, working with the ~5000 property taxing jurisdictions in the US, each its own special form of opaque bureaucracy, averse to any and all risk-taking (not saying this to discourage, but to show the magnitude of the challenge).
lars's article is what made it fully click for me on how important this topic is, so I'm going to mostly leave it to him here, but I just want to stress one thing.
One thing the Bitcoin issue has shown me is just how pivotal that 'number go up' is to society. When 'number go up', that thing gets bought in, which brings more people to it. I think many look at the LVT like medicine, yes, this thing is good and important, but it tastes bad, so we can't get the collective buy-in, and never will. But we all know what's going to happen to Bitcoin, it's a bubble, and it will crash, crash hard. But so is the real estate market.
Real estate has gone up as interest rates have come down. With our interest rates at 0%, there is now no more room for the interest rates to go down, and thus real estate market to go up. We've reached the end, as we come out of CO-VID they might go up another 10% or so, but the easy money is gone - but the downside is now massive. If rates go back to 5% we will see real estate prices go back to where they were at when interest rates were last at 5%. Investors have a huge risk disparity.
And this is where the Land Value Tax can help. If we can implement the Land Value Tax, and at the same time implement a one-time tax credit equal to the price of the land, not only will no one lose out, but those that have the most at risk will now de-risk, and have the most to gain. All in the meantime instantly incentivizing the correct behavior.
yes, but like most things worth pursuing, its a thorny problem, largely for economic and sociopolitical reasons, but also technical.
as you probably know, AVMs (automated valuation models) have been the hotness over the past few decades, but zillow (recently, but all along too) has shown the real limitation of AVMs. in theory, the likes of google and apple have enough geospatial data to create good land value AVMs, but you really still need appraisers on the ground for hyperlocal adjustments that just don't get captured in the AVM data and/or model. and that's all before the politicians, bureaucrats, and competing public interests get involved.
The current federal property tax was deemed unconstitutional in Germany. The new law has an opening clause for states to regulate the property on their own. The state of Baden-Württemberg has introduced a land value tax.
> realistically something like a LVT is too radical to implement
That's what they said about the French Revolution, American democracy, the abolition of Russian serfdom, the abolition of US slavery, the Paris Commune, the Bolshevik Revolution, Prohibition, the Holocaust, the establishment of the State of Israel, the Great Leap Forward, the Iranian Revolution, etc.
I mean, that's also what they said about lots of other changes that actually didn't get implemented. And, as the examples above illustrate, it's easy for radical changes to have unintended effects...
> TL;DR: things that people produce such as labor, products, and services are not taxed at all. No payroll taxes [..]
This is actually very logical. Never understood why salaries are taxed so high. Always seemed to me like the governments are punishing workers for actively working.
The government also spends the money on things like hospitals which raises the value of the land so you end up paying twice. Pay taxes and then pay increased rent to get access to the things your tax money was spent on. It's highly inefficient.
> The land value taxes in such an area would be far too high to justify anything but highly efficient productive uses of the land such as housing, manufacturing, offices, etc.
Wouldn't that just mean those lots would stand empty? Its not like the car washes are there because there is a higher revenue option but people just dont want to do it.
If the lots are of value then someone will buy them and develop them to return a profit. Under a land value tax you expect land to be used more efficiently, not less.
In this specific example, what's preventing the land from being used for something more valuable than a car wash currently? I get that a land value tax would disincentivize hoarding land, but urban-sprawl-car wash hardly seems like a case of land hoarding. I think the parent was suggesting that these car washes would no longer exist because taxes would be too high under a land value tax regime - but that raises the question of what the more valuable usage is? Does there exist one, why isn't it currently being used that way, and is the reason something that lvt would rectify? If car washes are the most valuable usage, then they will either continue to exist or if the tax burden is too high in the new regime, they will stop existing and nothing will replace them.
I'm sure there are plenty of examples where lvt would encourage more efficient land usage, i'm just confused why this would be one of them.
Car washes are low maintenance, so it's an easy way to make a little cashflow whipe primarily owning the land for landbanking purposes. With the land freed up for something more productive, other businesses will be set up which are higher effort but higher returns.
Basically car washes are the slightly-harder version of land banking, but there is still enough value in the land that if the land was put up for sale, some other business would purchase it and utilise the land better.
If the car wash owner wanted to maximize returns they could set up a more profitable business today, sure. It's just more effort than they can be bothered with.
Well, maybe, but think of the flip side of this. I've worked very hard to earn X amount of dollars, however the monetary policies of banks around the world have pushed inflation up, essentially eating up my savings, all the while pushing the interest rate on deposits to zero and below. I would like to not lose the purchasing power that I've earned, so my only choice is to invest in something. I also want to invest in something as low risk as possible; if my hand wasn't forced, I'd be happy to keep my money at the bank at 2%.
Right now, investing in public companies and tech is very risky, as valuations are at record highs. Many experts estimate near-zero returns for decades from public markets. And, as a small-time investor, I don't have access to private deals or markets.
So, that leaves real estate. I don't put my money there because I want to drive up the cost of shelter for anyone, I do it because I don't have any other reasonable way to protect my savings.
> Right now, investing in public companies and tech is very risky, as valuations are at record highs. Many experts estimate near-zero returns for decades from public markets. And, as a small-time investor, I don't have access to private deals or markets.
> So, that leaves real estate.
That’s a huge leap to jump to real estate as somehow safer than public market investing. Real Estate can also be highly volatile and is also prone to significant drawdowns.
Real Estate also has very high carrying costs relative to other investments. Especially if you’re trying to rent it out, at which point it becomes a business with not insignificant labor requirements, either from you or someone you hire. It’s more of a side job than an investment.
If you’re serious about investing, you shouldn’t be choosing between a bank account or real estate. Those are on opposite ends of the risk spectrum and opposite ends of the work-required spectrum.
Instead, you’d want to do things like dollar cost averaging into equities over time (nobody really invests by keeping it all in cash and then flipping it all into specific stocks in the middle of a frothy market). Or you should be looking into ladder if CDs, or bonds, or something like I-bonds to invest an asset specifically indexed to inflation.
But choosing between a 0% bank account or real estate investing is a major false dichotomy.
>But choosing between a 0% bank account or real estate investing is a major false dichotomy.
Ok, so interest rates are near zero. A ton of money is leaving the bond market and going to stocks. Price of stocks is being pushed up due to the increase in money chasing yield there. These companies didn't get more valuable, your earnings per share just went down. Now you're anticipating inflation as printing money is a great way to get out of the next crisis when your interest rate can't get any lower. This personally leads me to real estate.
Not sure if this is what the parent was talking about, but the risk equation changes significantly for real estate that you own to live in it, both because of government incentives and because you can always derive value from the asset through living in it, regardless of what happens to the resale value.
not to dispute your point, because it makes sense from the individual's perspective, but this...
> Right now, investing in public companies and tech is very risky, as valuations are at record highs. Many experts estimate near-zero returns for decades from public markets.
...is a big red arrow pointing to the fact that we're living in a castle made of sand
if we continue to let pathological incentives drive economic decisions the tide will wipe it all away
purchasing power is a mutually constructed fiction and remains a useful social technology only while material productivity can plausibly support the web of lies we tell each other
now that people have noticed the foundation caving in, it would be nice if we could formulate and incentivize a positive sum response, otherwise we get zero or negative sum dogfights over scraps as you describe
The difference is the USD is the global reserve currency. And that’s not changing anytime soon. It’s a totally different game when the entire planet wants to (or has to) transact in your money.
It’s also justified as the USA is by far the most dynamic economy in the world and has the most advanced military there to protect your investment in USD.
Such an overblown and baseless talking point. The USA has never been in a stronger position. Literally just printed 40% more money than has ever been created and the demand for her bonds is insatiable.
I’m happy for China and Chinese people having a better quality of life. But their economy is based on humans doing things inexpensive. It’s essentially a services business, not a SaaS business. It doesn’t scale well but they have so many poor people to exploit that they can make a thing of it.
When the seriously export culture, novel technology, or medicines then sure. When they aren’t a net importer of food then sure. But the yuan is not a serious threat to usd. It’s pegged to it.
Behind the cheap workers is whole industries and ecosystems and know-how, it's not a cheap labor problem. Bangladesh is cheap labor but if you wanted to start building phones there you will not have the ecosystem to support you..
This analysis frames the problem as though it’s concurrent with current inflation rates.
The problem goes back for much longer though. Interest rates hav been near zero since the Great Recession, and for most of that period, inflation was also below 2% almost the entire time. Add to that a lot of the year over year inflation we are experiencing is due to base effects eg the collapse of oil prices last year. Current oil prices are hardly elevated from their historical norms.
You’re trying to store purchasing power as structural macro economic and demographic changes occur. This is challenging, at best. Look to Japan for what the future holds.
Not every country is, or ever will be, like Japan. I would say most of them won't during our lives.
I agree with OP, if you just leave hard earned money of us middle class sit in the bank, it will be eaten away by inflation and fees. Its what our parents did, and its properly dumb. Risk with markets which most don't understand, or invest into real estate which everybody does at least a bit. Most folks consider only these 2 options.
Also, if SHTF, in most cases you will have physical places or even land to live off, instead of few bank statements. People will still have to live somewhere, and there is constantly more of us.
All countries eventually end up as Japan. India and Africa will race to be last. China is already somewhere between 1.1 and 1.3 total fertility rate. Sustained sub replacement rates (<2.1 fertility rate) locks in population momentum.
This is important because age of labor and consumers directly influences macro economic conditions, which trickles down to investment returns.
The end of history has not been reached. Just because we haven't seen it yet doesn't mean fertility trends won't reverse in certain places at some point. Governments have by no means exhausted their means to effect such a change, for example.
On the world scale maybe, but the USA is still one of the most desirable places to immigrate to. So while some countries will be abandoned, the US can just increase immigration which creates the necessary future demand for assets.
I agree with your point about systemic issues pushing people towards real estate or to carry cheap debt (particularly in the form of mortgages). But the leap from:
> investing in public companies and tech is very risky, as valuations are at record highs
To real estate where valuations are also insanity and at record highs doesn't make any sense.
> investing in public companies and tech is very risky, as valuations are at record highs
> To real estate where valuations are also insanity and at record highs doesn't make any sense.
The difference for me is that I saw what was happening in public markets and I bought real estate in a country where this wasn't yet the case. It is now though, so your point is valid.
It’s not the house that’s worth more. It’s the land. If cities and towns develops, land prices should go up. Buildable land near an office, supermarket and bar should be worth more than the same piece in the middle of nowhere.
I slightly disagree. The land definitely factors; I don't think we can argue that. But there's also a lot of value of a house just being on the land, no matter its quality (ignoring complete dilapidation).
If labour and material costs are also high that increases the value of houses that are pre-existing. It means the buyer does not have to pay extra for and wait for a house to be built, which has some value. Also, there's a certain tolerance that I'm sure many people, if I may project, have for how crappy of quality a house actually is. They just want a damn place to live and call their own. Especially when the market is not in the buyer's favour.
At least that's how it all seems in Toronto. In the city of Toronto proper, a detached house selling around $1,000,000 is almost guaranteed to be of relatively bad quality right now.
Yes but if prices rise, its 90-100% of the land price increase, and 0-10% of the house itself. That is land with all network connections and permit to build the house. It basically goes up only with material and labor costs.
House is often a necessary evil - its never what buyers imagine as ideal, but in comparison with going through the hell of building one's own (or also adding tearing down the old) its an acceptable compromise for many.
Life is too short, and no house is worth destroying a marriage.
This depends on where you live. In rural areas, and dying towns (most of america geographically), land prices have stayed about the same over the last decade or so. However, materials and labor have increased a lot. So there are certainly situations where the building itself inflates in value more than the land.
I heard an anecdote from a rural insurance agent that the fire insurance is crazy because repairing/rebuilding a house after a fire costs much more than the market price of the house + land, or an equivalent house + land nearby - the issue is that (in some areas) the rural house prices there are way down as there's no demand and everyone's leaving, while the costs of construction are sky high.
So if they offer a policy that covers the market value of the house, that's much less than what it would cost to repair/rebuild (so insured people can't afford to get their house back after a fire), and they don't want to offer full repair/rebuild value, as that incentivizes people to just burn the house down because in that case the insurance payment would be much more than what they can sell the house for.
Slight correction - people don't want to live in vertically built accommodations. Everyone wants a nice little house they don't share with anyone. Can't exactly blame them.
i just have trouble understanding this angle. i grew up in the suburbs and moved into the city during year 2 of my career. i rent a home with 3 roommates even though i could afford that SFH you’re describing. why does a person desire to live in the city for any reason besides for the density?
“jobs”, “good food”, “nightlife”, “dating” and “social opportunities” are all things i hear. the last two are a direct result of density. the first 3 are only possible as indirect results.
anecdotally, the price per sqft of townhomes exceeds that of detached homes in several Seattle neighborhoods. several confounding factors, including the year of the building, but in general that suggests a preference opposite to what you claim. or at least, that, in the face of constricted supply we can’t really tell where the preferences truly lie.
If we're looking statistically, detached homes are more expensive than apartments pretty much everywhere once you take into account location. And having a family with a toddler myself, trust me, apartments are not the best fit for that situation.
Anecdotally, in Australia, post COVID both rent and real estate in regional areas have gone up dramatically - much more than in cities - rapidly pricing locals out and forcing them to move elsewhere and sometimes find temporary accommodation. Now that WFH is more normalised and either want a quiter lifestyle or straight up can't afford houses in major cities, so they are moving to smaller towns instead.
My own preferences are fairly different but I can't argue with data.
You requirements for a good life change as your age changes - what you value during your 20's is not the same as what you value in your 40's, in the same way what you value in your 20's isn't the same as what you valued in your toddler years.
But factor in hybrid remote and the palatial mansion has become an option again - what's 2 days a week of a hellish commute if you can stretch out on a lawnchair the other 3?
Eh, I don't think that's true. Maybe for older generations, but for people in their 20s and 30s I suspect the opposite is true. People want to live in cities and if they've done any research at all don't want to live in suburbia since it's a living hell.
People in their 20's and 30's eventually reach their mid to late 30's and realize living as a couple with a child or two running around in an apartment, taking elevators to walk the dog or have the kids play in a park (a park probably with homeless people laying on benches if it's the parks I'm thinking of), and folding a stroller to walk down the subway is -- a giant pain in the butt.
And eventually those people visit friends or see pictures on social media of people similar to them with large back yards, land and big kitchens - and say, shit, maybe we should look into this.
As it happens, just possibly a black swan pandemic event keeps those folks indoors with their kids and dogs, with their nonplussed neighbors, children running around behind Zoom conference calls, and pictures on social media of people with houses and backyards causing massive envy...
And welcome to today.
That's the housing situation in the suburbs and exoburbs. This is BEFORE even even talk about the insanely low interest rates on offer during this time.
If we’re going to ban things because “trust us, you don’t know your own preferences” or “you’ll change your mind later” then we’d better start with alcohol and cigarettes. Apartments would be pretty far down the list.
This is mostly true in the US. There is, and has always been for the last century, a population of city dwellers who don’t care to ever own a house. But outside of the cities in the suburbs and rural areas owning your own home is seen as the thing that makes you an established member of a community.
Living in the city only implies renting because condos are so rare, only the richest few can afford them. Allow condos to be as abundant as single family homes - what we’re asking here - and that would easily change.
Depends on upbringing. I grew up in tall buildings, and am comfortable in that environment. When I had an opportunity to buy a detached house, I saw how much work it is, and it felt a bit lonely there, so I decided it's not for me.
I don't think that's true. Obviously a lot of people pay a lot of money for them. I think even the most craven NIMBY would adore a high rise condo if it had comparable square footage.
It's everyone else's vertically built accommodations that attract the hatred.
Somewhat true if you mean not adjusted for inflation. But that means you can buy more too with higher wages (except low-wage jobs haven't kept up). If you mean rare woods and stuff, maybe so. But compare the labor part of modern forrestry to the stuff 130 years ago:
to build an old house like the old one will be impossible because you can't put asbestos in your walls and and have to comply with other build codes that were introduced over the last 120 years.
On the contrary, it’s demographics. If you had any land, as long as more people want to live on it, the price goes up. If there are more people full stop, land goes up more, because there’s more people to at the bid.
Now whether anyone should be allowed to own land is a good question. Lots of folks can’t even imagine a world where that’s impossible, but ownership is just law, a social construct.
I'd disagree that houses are the same as they used to be. There's a spectrum of housing from from degraded to new to renovated. But the ideal house today, compared to the past, today's house has so many more luxuries and conveniences: appliances, energy efficiency, air quality, amount and variety of lighting, safety standards and knowledge of advanced materials, there's literally no system that you can't improve in a house. Even the humble hand made log cabin could be outfitted with an efficient modern solar battery system with a precisely engineered woodstove to boot.
All this to say, many houses are upgraded over time, not merely degraded. I'd much rather live in my house now after the decades of upgrades than when it was freshly made in the 70s.
If everyone lived with their siblings in the same house they grew up in, we wouldn't have a problem.
As is, people have children who occupy a cumulative more houses with or without others than their parents/grandparents did, and there's not more land being made. So that's why the old land and what's on it go up in value.
Basically, the increasing population (demand) is the cause of an asset increasing in value despite not increasing in quality.
One can make policies which reduces the number people who wish to use homes in the domestic market of a given country if they want to prevent that from happening without expanding the supply massively instead, that may lead to other negative externalities though based on which method is chosen (birth limits, immigration controls, ect.).
>"The land is a finite resource, thus it can only appreciate in value."
This is a non-sequitur; lots of things are limited, but often collapse in value. As a former Saudi energy minister once said: 'the stone age ended, but not for lack of stones'.
land is the one thing almost never goes down because we can't create more of it. for almost every other aspect of our lives, they are alternative solution to the problem but you can't create more land. Building vertical to increase density is only kicking the can down the road in a context where the humain population is always increasing.
Well, apparently worldwide population will peak sometime and then slowly fall. The mitigating factor being that it probably won't happen in most of our lifetimes yet. That said, some countries might experience their population plateauing sooner than others. So perhaps if we kick the can down the road for a while longer, it will indeed have been enough.
> That said, some countries might experience their population plateauing sooner than others
And all of these countries (except japan/Switzerland) are planning to bring more immigrants in to make sure the population is always increasing faster. Something that most people in first world countries don't realise is that the entire population of their country is smaller than the number of millionaires in china+india. Even if all if america+EU became sterile, there would still be enough foreigners to buy more unit and push the bubble further if they open borders. And they would, because the entire economy depends on it.
Only if the capital is available. Speculators tend to use borrowed money to do their thing and drive prices up. Good times until they’re not, then boom.
I have family who made a fortune off the backs of people living under this delusion in the 1980s and the 1960s.
To add to this, it's not even necessarily true that the value of land itself is up 10x. It could very well be that the value of dollar is DOWN 10x. The effect on price tag is exactly the same.
In most cases every 20 year increment backward yields a higher quality house. Newer houses are garbage in many dimensions.
An older home requires a little more capital investment, but if it has lasted 130 years, it’s sound and could be remade/modernized at a cost well below any new construction.
Japan is different in this regard: housing actually depreciates, it is understood that it will be rebuilt every 20-40 years, and if it is a condo or some kind of apartment, there isn't much share of land appreciation to count on. That is why Tokyo is considered to be more affordable than NYC.
Others have mentioned the underlying land values is the most important thing that is driving valuation increases, but beyond that the existing 130 year old house is worth more because the cost to rebuild it from scratch is increasing as construction costs increase.
Investing in real estate is a real investment when it results in houses being built. In fact it is maybe one of the most timeless and obvious form of investment. People have built and traded dwellings through the ages. Prices have to rise when good land gets scarce and labor gets more expensive.
Low interest rates _also_ boost investment in technology and businesses.
Raising rates, if you mean central bank rates, would reduce investment in both houses and technology. Raising interest rates is a signal and incentive from central banks to not invest in anything and instead hold on to government paper.
Raising rates means funding the wealthy's savings by providing them a backstop. When they can't find assets that retain sufficient value on the private markets, they can just hold to government paper having above market returns. I wrote more here a while back: https://medium.com/@b.essiambre/the-world-deserves-a-pay-rai...
The bidding up of existing ones is a side effect that happens however central banks are more about controlling investment in new ones than the price of existing ones.
Higher prices of houses means there is more incentive for them to be built (or repaired) and for the builders to be paid well. Central banks stimulation is meant to make sure this happens to a sufficient degree, just not so much that builders (and workers more generally) are paid too well that it would drive inflation too high.
Both you and the GP are correct, in different ways. Investing in housing development results in houses being built, but investing in land does not. Land values going up are the real problem here, not so much house values. Houses generally depreciate in value, as they deteriorate. In general, no one is opposed to investors who build new dwellings or improve and maintain existing dwellings. The issue is that land ownership is a monopoly which results in land-owners being able to extract economic rents from society without doing anything to improve or maintain or add value to society.
Land-lording and economic, monopoly rents are bad, housing developments and rentals being hired out are good.
Houses are not zero-sum, as it's possible to build more.
Even for land, the value is all about how developed it is, which is not zero-sum: one can always develop more land.
In England for example, known as a densely-packed country, only about 2% of land is actually built on, and of that 2% only a tiny fraction is actually dense.
Housing doesn't need to be this way, but in much of the developed world we've artificially turned it into a zero-sum game with development restrictions, zoning rules, height limits, historic districts, green belts, and tons of other rules. None of those things is inherently bad on its own, and some are even a net good for society like a well managed green belt. Zoning in north america has an awful racist history and needs to be first on the chopping block. In combination all these restrictions have made adding density and housing units in areas with economic opportunity nearly impossible.
Those who already own property (myself included) are participating in a system that is increasingly pulling up the ladder on those who wish to join. The housing market is one of the least free. Rules requiring bedrooms have 2 points of egress and that building have minimum fire resistance are fantastic and need to stay. Rules that do things like prevent 2, 3 and 4-plexes, mandate a whole city can't go above 4 stories, and require 1:1 parking for every adult need to get tossed out right away.
> Rules that do things like prevent 2, 3 and 4-plexes, mandate a whole city can't go above 4 stories, and require 1:1 parking for every adult need to get tossed out right away.
Under Supreme Court precedent such ex post facto community "vetoes" are unconstitutional. The community votes by passing laws a priori, not through ad hoc, targeted manipulation of the regulatory review process. But for complex procedural and policy reasons the Supreme Court has unfortunately been too reticent to police violations of this principle. My disposition is toward federalism and local control, but in many cases the system is violating fundamental principles in our society about the creation and application of law. Principles even more basic and fundamental than property, free speech, or personal liberty rights.
This is why it is sometimes referred to as "location value" rather than land value. The dirt is approximately worthless, but the location is worth a lot due to the surroundings (usually, because of human development of the surroundings).
Advocates of a land value tax therefore often call it a location value tax, or a site value tax, because it is the location and the society around the location that has value, not the dirt itself.
Yes, that was my point. That is exactly how land appreciation works. The owner of the land gains value from the work of his neighbors, whether he contributes or not.
It's possible to build more houses... up to a limit.
Cities need to be supported by enough resources -- that includes enough water, proximity to arable land, hospitable climate, and ease of access. The 2% figure you quoted can be a bit misleading because we can never develop 100% of the land into houses.
But as Japan/China/Korea has shown, it is probably still very possible for England to become much denser than it currently is. It would require all the residents to change their lifestyles to match though.
This is purely a result of the fact that water is so cheap and water rights don’t incentivize water saving technologies.
There are residential and agricultural technologies that dramatically reduce water usage. For instance drip irrigation. Also the city of Las Vegas recycles almost all the recyclable water and consequently is extremely efficient at using water
Can you elaborate? I agree water cost does not tend to incentivize conservation and leads to what seems to be inappropriate choices of crops for example. It’s also interesting how the idea of water rights in the East/West evolved differently because of scarcity. Is your point that the problems in the West would be solved by more expensive water?
I’d worry that it would upend agrarian economies (in the short and medium term, at least $
The GGP post was claiming housing was zero-sum. Posts responding to it seem to be trying to contradict it.
My point is that in a world of finite resources, it's going to be zero-sum at some point whether that's land, water, money, labor, or something else. It's not good or bad, but you do have to pick your poison to a certain extent.
To what end? How many houses do we need before we’re just making houses to enrich people rather than create shelter?
States like Oregon and Washington that greatly limit supply are widely praised for their natural beauty and conservation precisely because they don’t chop down forestry to build cheap homes to sell to the CCP.
Fools have created an acronym - NIMBY - to denigrate those who don’t want to waste land just for personal financial gain. However, there remain very real benefits to conserving forests and very real consequences to turning every square mile of land into an AirBNB. The landlord won’t live in that area and the renter won’t stay in the area long enough to care about the area but the long-term residents will pay the price regardless.
If you can afford to live in one of those places it's great. If your homeless you'd probably be ok with a little less green space if it meant you had a home to live in.
Also very little of the NIMBY vs YIMBY debate is whether or not to turn forests into condos, it's almost also SFH vs denser construction.
> Fools have created an acronym - NIMBY - to denigrate those who don’t want to waste land just for personal financial gain.
Coming at this from a UK perspective, housing is a nightmare here too. But our green belt is at an all time low and London is an unbelievable sprawl. No, I'd rather rent forever than ruin the countryside.
The value is very much about the location of the land. The neighborhood, school district, proximity to parks or transit. The actual structure matters less and less these days. It is "possible" to build more, but rarely politically viable.
You say this as if it's fast or easy. All of these can easily take 10s of years build from conception to completion due to a myriad of reasons. Land acquisition, federal state and local funding, environmental review, court cases, zoning changes, public review proceses, etc. It's not like someone decrees that a school should be built and 6 months later it's up and running. And the school is the easy one on that list :)
I agree with your comment in theory but I'd say that only applies over a long-enough horizon. At any given point in time when someone enters the market, there's a fixed supply. Sure, someone could commission the construction of their own home, but good luck with that in an urban area.
> Houses are not zero-sum, as it's possible to build more.
Every newly-built house lowers the value of every already-built house. It is straightforward to specify initial conditions where the result is negative-sum.
> Every newly-built house lowers the value of every already-built house.
Do you mean every already-built house nearby or every already-built house in the world?
If you mean nearby then your theory would predict that places like San Francisco, Manhattan, and Paris would be among the cheapest places in the world to buy housing. This is very much the opposite of the truth, so if that's what you mean, then either your theory is completely wrong or the effect it describes is swamped by other effects that are much more important determinants of housing value.
If you mean in the world then I suppose it's possible that you're correct in a market-value sense, since the effect on the price of my house due to someone in Shanghai building a nice new condo would be to drop the price by, say, US$0.00003. But if we're talking about use-value rather than exchange-value (which is the sense in which it really matters whether things are zero-sum, positive-sum, or negative-sum) it's hard to see how that could be true. Perhaps you think the use-value of my house is primarily that it enables me to laugh at the suffering of the homeless beggars of Dhaka? I assure you I spend zero time on that activity.
So I think it's clear that your theory is just completely bogus.
It's not bogus. It really is as simple as supply and demand. Yes, SF and NYC etc. are super expensive despite their density, however, what you're missing is that 1: Supply hasn't kept up with demand, and 2: SF/NYC would be even more expensive if they weren't as dense as they are now, and continuing to build (however slowly).
(I notice that you didn't answer the two questions I asked, an omission I deem discourteous.)
So evidently the main determinant of housing prices is "demand", not your hypothetical effect of houses getting cheaper because other houses are nearby.
What do you think produces "demand"? Why is there more demand for houses in Phoenix than for houses 200 km to the northwest? In some cases, of course, there are real differences in land quality: land that is close to waterways or railroads is more valuable for industry than land that isn't, land that's close to iron ore deposits is more valuable for automotive manufacturing, land that's frozen cold 9 months out of the year is less valuable for human habitation, and so on. But none of these explains the universally observed price premium for land in cities over land in the nearby countryside, which often amounts to three orders of magnitude.
It turns out that the main driver of demand for housing is being close to other housing. So building houses drives up the price of land nearby. Not down, as your theory predicts.
> (I notice that you didn't answer the two questions I asked, an omission I deem discourteous.)
One of your questions was “Perhaps you think the use-value of my house is primarily that it enables me to laugh at the suffering of the homeless beggars of Dhaka?”
I think omitting a proper response to that question is more courteous than discourteous.
How am I supposed to rationally engage with their thesis, given that their theory of value is so ambiguous that I can't even tell if they think the value of my house is primarily a use-value in that it enables me to laugh at the suffering of the homeless beggars of Dhaka? The fact that they refused to answer even such basic questions makes me think that, rather than attempting to engage in reasonable discourse, they are playing some kind of sadistic mind game.
I'm not really sure what point you're trying to prove. You're using land and housing prices interchangeably, when the problem being discussed is about real estate prices not land prices specifically. Yes land prices are part of real estate costs, but that's not all of it by a long shot.
Building codes, bureaucracy, and NIMBYism all contribute to construction costs, which in many cases severely constrict supply (SF being a shining example), and thus make existing units more expensive. Focusing solely on land prices is missing the forest for the trees. The problem is that there isn't enough supply to meet demand, so prices are skyrocketing.
Building more housing will drive prices down at best, or slow price increases at worst, but it doest affect housing affordability, which is the original statement I was commenting on.
>It turns out that the main driver of demand for housing is being close to other housing.
This seems to be conflating the symptom with the cause. I doubt housing is more attractive because there are more houses nearby; they're attractive because more services are nearby. Granted, they are going to correlate strongly but I think it's a mistake to conflate the two.
Consider the following:
1) A house with no neighbors within a 100 mile radius. But it has all the best restaurants, utilities, schools etc. within walking distance.
2) A neighborhood with hundreds of houses, but none of those services within 100 mile radius. It's a little isolated island of housing.
I think this is an interesting thought experiment. I suppose the restaurants, utilities, and schools are all fully automated, like Automats or Skinner's Teaching Machine? (Or perhaps they have employees, but they all commute from over 160 km away?) And my family is the only consumer of those automated services?
It seems like the price of each meal at the restaurants would need to be sufficient for the restaurant to operate for a month or two, perhaps a few thousand dollars. That seems like it would discourage eating at these wonderful restaurants.
That requires a somewhat radical shift in the societal perceptions of property rights. When the U.S. Constitution specifically mentions intellectual property rights, I don't think it could ever be construed as a "simple solution" to change that definition.
And as much as I love georgeism in theory, it is in practice very difficult to calculate an accurate land value separate from what is built on that land.
Yes, there are often undeserved windfalls. But I think you're missing something? Buildings don't come out of nowhere and they don't maintain themselves. Abandoned buildings deteriorate. They need to be protected.
(Sometimes, unfortunately, from the tenants.)
There is a social role to be played here, whether homeowners do it themselves or landlords do it.
At least 1/3 of people rent in most developed economics. Investing in real estate creates dwellings for them to rent.
Food, clothing and shelter are basic needs. Providing one of them is most certainly creating value.
Real estate is not zero sum. Having shops, schools, offices, factories and whatnot around your real estate makes it more valuable, not less.
There is a problem now around the world in many cities where a great deal of value is created in that government has made it too hard to build new dwellings and the price of dwellings has been rising.
However, there are also cities around the world that have had a lot of growth while having reasonably priced houses.
In 2000, Houston had a population of 3.8M in 2020 it was 6.3 M. From
You can build houses all day long but that doesn't automatically make them places anyone can thrive in.
Sydney (some of the highest house prices in the world) has a few new estates built outside the city but they suffer from no schools, no shops (except a strip mall equivalent), no parks, no tree cover, and general shoddy building work.
In an ideal world you're right, but in this world where the reality is extreme supply suppression by nimby house owners, real estate is almost zero sum.
" It also directs capital away from investing in technology and businesses."
Empirically this does not seem like a problem in the US at the moment. Large US banks are starved for lending opportunities, and turning away deposits for lack of balance sheet. The Federal Reserve bought corporate bonds. Lending conditions are loose (see links)
>n real estate creates nothing of value to society and instead serves only to artificially drive up the cost of shelter
And yet there is literally millions of people begging for a opportunity to get a unit in large/rich cities. If there was no value to it, why does everyone cares so much about living there?
If you truly believe what you say, than you better never ever complain about home prices. Paying 100$/ft² for a massive modern house in a shithole place is an option that is always there for you if you think location doesn't matter. But let me guess... you want to live in [insert big city near your location] but people richer than you also want to and they priced you out
Storing wealth doesn't redirect capital away from businesses. It represents the possessor deciding to temporarily step away from the continuous auction process to allocate productive capacity ("the market") which increases the purchasing power of those who remain, to either invest in capital goods or consumable goods. Buying monetized assets (real estate, gold, bitcoin) is not economically harmful - in fact, it's better than reflexively buying index funds, which is basically the other option.
The ability to transfer property quickly thanks to investors does provide some value. However, sitting on property and collecting rent is essentially theft. To fix this we need more incentives that reward the use of property more then the ownership of it.
I have a 4 unit apartment building. I live in one unit and make the others available for people to rent out. My alternative, which I am strongly considering due to what a pain in the ass this is, is to convert it to a single family home. Would you prefer me to take these units off the market?
I can afford the mortgage by myself. I won't have to deal with the city over problems $600 / month rent control tenants create when they were mad at the last owners. I won't have to pay $6k going on $20k to evict a tenant who requests a jury trial, not to mention house them for free for 6 months. My city already has a housing shortage and I am strongly considering just having an awesome SFH instead of this.
Every incentive seems to be against the use of this property. Rent control causes individual landlords to subsidize the poor societal zoning policies. Legacy rent control tenants also distort the market, raising the price of other units at market rate. It also lowers the income that would be put toward building more units. This property is zoned for 15 units and I would love to build those. Any extra income would be going toward that (as is my personal income). Instead the incentives are for this property to limp along so no one has to move ever.
> Due to the zero-sum nature of real estate, it fundamentally breaks the positive sum theory of capitalism.
From World War II to the early 1970s, the utilization of existing US capital equipment rarely dipped during the worst of a deep recession, to what have been the highest levels of capital capacity utilization rate since the 2008 financial crisis. The old lows have been about what the new highs have been. This indicates an overabundance of capital investment and overproduction, which was the opinion of former GE CEO Jack Welch.
how would you direct private capital to maintain/build living spaces then? Unless you are thinking to have government to be responsible to do that, building more to keep up with the demand + maintenance of the existing ones. It does work in places like Singapore, but I am not sure I would trust the US Gov's execution.
Rent seeking isn’t parasitic. It provides liquidity to the housing market where it wouldn’t otherwise exist. You want to move to a different city, renting doesn’t exist, then what? How does that work for anyone who can’t make a downpayment, or anyone who is in a hurry, or at all really? Nationalized housing in the US tends is even more dystopian than the private sector.
If you want a vibrant, sane, and fair rental market, we’d need an actual free and fair market in the first place.
rent-seeking is the economic concept of income being captured from simply owning an asset rather than from productivity. its literally anti-capitalistic, as it's always a market distortion that creates the coercive force necessary to inefficiently funnel income this way. fair markets would compete away rent-seeking in short order.
that's different from providing rental housing, whereby owners earn rent by constantly working to provide safe and desirable housing. capitalism is premised on the idea of using markets to drive down prices to the marginal cost of production plus a small industry-/market-specific risk premium. rent-seeking is entirely counter to that.
This is not an innate trait of capitalism. This is due to tax favorability of land speculation compared to other options. Add zero interest rates to it and accelerate flows of all the extra money to into further land speculation.
I can easily imagine a society, capitalistic or not, that doesn't subsidise land speculation, which doesn't suffer from real estate bubbles.
Capital flows to where it can grow. I don't see this against the principle of capitalism. IMHO capitalism has one and only one rule: grow your capital as fast as you can. That said, if the return rate of investing in real estate is lower than the rate in technology, then naturally more money will pour into technology.
This is 100% correct and caused by artificially keeping interest rates low. If the price of money was allowed to find it’s natural equilibrium, these distortions wouldn’t be present. It’s anti-capitalist, market intervention by the fed that’s causing inflated asset prices everywhere. Unfortunately, it ends up most hurting the most venerable in society.
According to the McKinsey study mentioned in the article[a]:
* Two-thirds of global paper wealth is tied up in real estate valuations (residential and commercial).
* Paper wealth is now nearly 50% higher (!) than its long-run average relative to income, globally.
* Paper wealth and economic growth are no longer moving in sync, as they had in the past for a long time at the global level, albeit with some country-specific deviations.
Asset prices around the world, including property prices, are now in unprecedented territory; there is no doubt about that.
There are many possible explanations for this deviation from long-term norms, but they come broadly from two camps. In one camp are those who are not sure why they should even worry about this, because they believe the global economy is about to shift to much faster economic growth, driven by new technologies like AI, quantum computing, cheap sustainable energy, and space exploration. In the other camp are those who are quite concerned about the financial, economic, and political consequences if paper wealth reverts to historical norms in relation to global income.
Some of the smartest people I know are either in one camp or the other, with little overlap between camps. My perception is that there's no shared agreement as to what any of this means, or whether anything should be done about it.
>faster economic growth, driven by new technologies like AI, quantum computing, cheap sustainable energy, and space exploration.
It always blows my mind a bit when people talk about the productivity gains of the future coming from cutting-edge "sci-fi" technology.
I've seen with my own eyes the insane productivity gains some knowledge workers can get simply through the use of hacky-but-effective domain-specific Python scripts. We're talking one person producing more benefit than an entire team by an order of magnitude.
I'm sure there are other tried-and-true technologies that simply aren't rolled out widely enough and constitute a massive amount of economic low-hanging fruit (especially in the developing world).
I'd push for them before I look to the stars for the next miracle technology.
I know that Python exists for a long time already but I tend to find it exactly one of those sci-if technologies in combination with the extremely powerful hardware everyone has these days. It’s a matter of time until the real big masses start using it and contributing. I’m pretty sure that whatever big solution there will be, that it will be made in or with Python.
Yeah, specifically in my business (e-commerce, selling used video games) we have a set of scripts that can create a full eBay listing simply by scanning a game's barcode, another one that generates sales reports and breaks them down with exactly the information that I want, one that interfaces with some hardware to automatically test the save function in Game Boy games, and some more to come in future (we're new!).
I saw some similar things in the accounting department at my previous employer, and on the flip side I've met many people who seem to spend an inordinate amount of time doing steps that a computer could do, but worse.
I think the important bit is to have tight integration between the person writing the code and the person with the domain-specific knowledge that the code is performing - ideally they should be the same person.
As we move away from seeing computer programming as a specialised skill for a class of elite engineers and towards something just generally useful like reading and writing, I can see this yielding huge dividends economically.
Being able to code puts you in the top 10% of the IQ bell curve. Being able to see the value in automating something and being able to implement it puts you in the top 1%.
That’s not meant as flattery, it’s just pointing out that the efficiency gains of universal computer literacy will not be realized.
At a high level maybe, but basic coding is succesfully taught in middle schools. If you needed to be "10%" for that, those classes would fail horribly.
> will not be realized.
Not quickly, but give it a few decades. In particular, you will probably have to wait for another generation of teachers.
>At a high level maybe, but basic coding is succesfully taught in middle schools.
Exactly this.
Not everyone can work for Google (or even for a B-grade software firm!), but in many instances all you need to do is string a couple of libraries together in order to get order-of-magnitude productivity gains.
"They used to say you could not teach women to read"
I disagree - we spend years from age two teaching literacy. It's a skill that needs practise, but it's a relatively new invention that has enormous benefits. Software is too.
(Mind blowing fact: The walls of jericho were built 2,000 years before writing was invented)
As an intern at my first job a few years ago I basically did something like that.
We had a data hunting that would go out into supermarkets and collect data, but oftentimes with errors. Supervisors would sift through all of them and spend 4-5 hours a day removing/fixing/joining faulty entries.
I saw that, wrote two Python scripts to automate it (~2 weeks from start to deployment). All that workload automated immediately, and to my knowledge it's still in use today.
I often use this story as an example for people of how programming can save them time and make them more efficient. It's from the introduction to Automate the Boring Stuff with Python, which is also a good resource for them if they decide they do want to pursue such benefits: https://automatetheboringstuff.com/2e/chapter0/#calibre_link...
---
“You’ve just done in two hours what it takes the three of us two days to do.” My college roommate was working at a retail electronics store in the early 2000s. Occasionally, the store would receive a spreadsheet of thousands of product prices from other stores. A team of three employees would print the spreadsheet onto a thick stack of paper and split it among themselves. For each product price, they would look up their store’s price and note all the products that their competitors sold for less. It usually took a couple of days.
“You know, I could write a program to do that if you have the original file for the printouts,” my roommate told them, when he saw them sitting on the floor with papers scattered and stacked all around.
After a couple of hours, he had a short program that read a competitor’s price from a file, found the product in the store’s database, and noted whether the competitor was cheaper. He was still new to programming, so he spent most of his time looking up documentation in a programming book. The actual program took only a few seconds to run. My roommate and his co-workers took an extra-long lunch that day.
This is the power of computer programming. A computer is like a Swiss Army knife that you can configure for countless tasks. Many people spend hours clicking and typing to perform repetitive tasks, unaware that the machine they’re using could do their job in seconds if they gave it the right instructions.
I worked at an international company with its own terrible email marketing system.
I wrote my own email builder based on their templates that allowed me to visually build emails and then just copy and paste in the code!
I also wrote a Ruby script that iterated over a CSV/Excel spreadsheet file supplied on a regular basis to generate HTML page, which I then pasted into their horrible CMS!
The previous person in my job used to have to do all those things manually and it took forever!
The key win for me was convincing the head of IT to enable WSL on my work supplied Windows 10 Laptop!
Wrote a python script to extract data and produce spreadsheets/reports from the database of an ancient, custom, closed source FoxPro-based ERP software. By being able to create custom reports, I easily reduced the workload during tax time by a factor of 10. This replaced a process that involved manual review of hundreds of sheets of dot-matrix printouts for certain edge cases.
Not the one you're replying to, but I'm my experience this means writing your own tools and automation for the job you do when none exist. (Or are too expensive.)
I've seen many shops where the amount of code for dev and QA tools significantly exceeds whatever product they ship.
> In the other camp are those who are quite concerned about the financial, economic, and political consequences if paper wealth reverts to historical norms in relation to global income.
What about the camp that is worried that paper wealth doesn't revert to norms? I mean, if a person doesn't already own a house, then inflated prices work against them.
Yes this is a big problem in the west because the government has incentive to ensure the price of houses continue to go up. This is, apparently, especially an American problem where there’s a social stigma about renting (though it’s going away)
It's exactly the other way around. "Paper wealth" is nothing, everyone can get enormous wealth by adding five zeros to the dollar bills. It has no relation to the real world means of production, to the GDP. If house prices lose 80% tomorrow all factories will be intact, all people will still have the same skills to perform their work. The impact would be artificial. On the other hand, not being able to find ample living space is a real problem and a drag on the economy.
A class of people unable to afford housing is a societal problem. Unable to purchase a home in a specific city is not nearly so obviously a problem. (Much of Europe seems happy to rent for life.)
But if economic opportunity is concentrated in cities that are too expensive for average working people to live in (even when renting instead of buying), then this is a societal problem. Even if the shift to working from home for some occupations becomes permanent, not all jobs can be performed from home.
While some metropolises such as Tokyo seem to be set up well for providing housing at a wide range of price points, others such as the San Francisco Bay Area and Los Angeles do a much worse job; there are some people who regularly commute 2-3 hours each way from these metro areas because this is all they can afford, yet the job markets in the Central Valley (near the Bay Area) or the Inland Empire and Antelope Valley (both near Los Angeles) areas are rather anemic at best. For many of these people, the choice isn't between a condo in Fremont versus a single-family house in Tracy. Instead, it's an apartment in a place like Stockton or Modesto versus moving outside of the orbit of the Bay Area; that's how bad the housing crisis has gotten for many people.
The chief cause of this is zoning regulations and other policies in the Bay Area and Los Angeles that discourage denser development, thus encouraging sprawl further and further out; hence, the "drive until you qualify" phenomenon. The normalization of mega-commuting has social and environmental consequences.
Yes, there are cheaper metro areas, but these cheaper metro areas tend to offer fewer job opportunities compared to the more popular metro areas. Part of what fueled the social divide between "blue state" and "red state" America is economic opportunity being increasingly concentrated in a handful of coastal metro areas, while these opportunities have largely failed to trickle down to much of rural America and the Rust Belt.
What's needed are two solutions:
1. Change the zoning policies of certain metro areas in order to accommodate the demand through densification instead of sprawl.
2. Find ways to encourage the economic development of areas outside of the coasts.
> there are some people who regularly commute 2-3 hours each way from these metro areas because this is all they can afford, yet the job markets in the Central Valley (near the Bay Area) or the Inland Empire and Antelope Valley (both near Los Angeles) areas are rather anemic at best.
Just move. If you don’t, I find it hard to be sympathetic. Family w/e you can make it work. This is peak American bullshit to drive 2 hours each way to work and if you are putting up with that it’s on you.
Yeah, there comes a point where someone must accept defeat regarding the Bay Area's unaffordability. Mega-commuting for more affordable housing sounds appealing on paper but quickly gets draining and is unsustainable, from both a personal and environmental standpoint. I used to commute 50 miles each way every day for a few months back in 2015 and ended up sucking it up and paying the higher rent to live closer to the office due to the effects the commute were having on me. I believe part of the reason why San Joaquin County had so many foreclosures in 2008 was because of mega-commuters dealing with $4+/gal gas for the first time.
I don't mind doing a long commute once or twice a week, especially when I have flexible work hours, but anything more often than that becomes draining.
What about a Singapore style solution? As a city state, they don't have the benefit of having anywhere else to go, so public housing schemes (government provides affordable apartments to rent, no short term speculations allowed) are the main way to go. Or we could make housing depreciate like in Tokyo (and allow for low end small rooms without central heating).
Sadly public housing in the United States has been a policy failure that's tied to our issues regarding poverty and race. The only way I see public housing working in an American context is if it was seen to benefit the middle class, kind of like how FHA loans and the Fannie Mae and Freddie Mac programs exist to help middle class households get mortgages with low down payments. I also know that some Bay Area municipalities have below-market rentals and for-purchase developments; some municipalities require all significant housing developments to set aside some below-market units.
Disclaimer: I grew up poor and I have relatives who lived in public housing; the environments they lived in were very rough, not only in terms of the quality of housing, but also in terms of living in crime-ridden neighborhoods. Now, I'm not saying that public housing has to be that way; I've heard good things about Singapore's public housing.
I don't think "public housing in the USA" and "public housing in Singapore" are the same thing at all. The former was rent subsidized or even free housing given to the poor. The latter is probably subsidized socially, but is aimed at the middle class and involves letting people "buy housing" from the government, they aren't slums that are given away.
The only thing that Americans might hate about it is that they are universally 30 story concrete apartment buildings that Singapore is selling to its citizens at affordable costs. If you want detached, that is the private market and will cost a lot.
Singapore's public housing system is out of control as well. If you meet income requirements you can buy an HDB. Currently backlog for new HDBs is ~4-5 years. You can't buy one unless you are married or over 35 years old. One new HDB development was 10x oversubscribed. Highly desirable HDBs are like winning a lottery, after 5 years you can sell and keep the appreciation (gov't is looking to clawback in the future). People "COV = cash over value" to get HDBs on the secondary market. 1000 sq ft HDBs can cost $1M SGD.
- For those headed to Silicon Valley, the Altamont Commuter Express runs from Stockton to San Jose (https://acerail.com)
I'm looking forward to the California High Speed Rail project being completed. This will make a commute from places like Merced, Madera, and Fresno much more feasible. Currently it's possible to drive from San Jose to Fresno in less than three hours; the bullet train will likely cut the duration of this trip by half.
I agree with you; it would be nice to see some nice transit-oriented developments spring up around train stations in the Central Valley.
I’ve got a couple close friends who relocated to Europe and many colleagues. All are in high-tech and all seem perfectly content to rent (which I don’t understand but my close friends assure me it’s the case [and when something breaks or leaks in my house, I do understand some of the appeal]).
2008 showed us where this road goes. The wealthy are the tiniest sliver of the group of people whose lives will be ruined. If anything, when the dust settles the truly wealthy (those whose wealth isn't riding on leverage) will end up even wealthier because they'll be sitting on capital that they can use to buy up even more assets at fire sale rates.
- retirement plans often rely on equity from real estate, and so do some nursing home admissions
- as per 2008, when people have more money remaining on a mortgage than the underlying asset (home) is worth, some of them will declare bankruptcy
- when rich people suddenly have a lot less nominal cash, they can't fund their businesses by liquidating assets, so they cut costs, and then those costs have to find new jobs, which can take years and is hugely disruptive for everyone[0]
Overall there's an argument to be made for doing it anyway, but there are pretty clear downsides to causing an economic crisis, even if the economy eventually reaches a better equilibrium state.
[0] note that I'm not supporting trickle-down economics, just warning about the disruption that suddenly changing the distribution of wealth will cause
A fair few pension funds and charitable endowments have wealth locked up in property. Not saying that alone justifies protecting asset values, but it does have societal significance worth bearing in mind.
I don't think that's so bad unless you need that ownership to build wealth. In this country, it seems a lot of our wealth was built up via land ownership. Contrast the US, which encouraged wider land ownership, with Mexico which granted land to a wealthy few and excluded the lower classes.
If we can come up with a consistent policy scheme(taxation and incentives) which can undo land ownership as being a sure-fire way to build wealth(maybe a land value tax?) then it's perhaps not so bad to have a nation of renters.
One thing to keep in mind is that when values of an asset are inflated, the nominal price of the asset can change to match the underlying value of the asset (ie price falls)or the value of currency can change to justify the current price of the asset (ie price stays the same and the currency weakens).
I think people are biased towards assuming the first one whereas the are structural reasons relating to Ray Dalio's long term debt cycle argument why the latter is more likely at this specific moment even though historically the former happens more than the latter.
Inflating the currency is much more likely. It is how the government will escape a crisis when they cannot lower interest rates any more. That said, I think land is finite and will keep pace with inflation.
"Paper wealth" is an odd term that's not used in the study. It seems particulary odd to call real estate investments "paper wealth." After all, land and buildings are pretty darn real, hence the name.
These investments may be overvalued and if prices change, owners will find they're not as wealthy as they thought, but they'll own the same thing.
Also, what does it mean to say that wealth is "tied up" in real estate? Prices going up doesn't change anything real. The effect might be more resources going into construction and renovation, though.
Debt and financial derivatives backed by inflated asset prices might be the problem, as in 2008. Those income streams might be less solid than they look.
If you have to spend 5x your net worth on a house, that’s capital that is not spent on building businesses, whether through direct investment (buying tools or paying workers at your own business) or indirect (through stocks or other securities).
Well yes, in a sense it has to be that way, because people aren’t born owning anything but eventually younger people will end up with everything when older people die.
However, sometimes the transfer is via inheritance and sometimes it’s by selling property. I wonder to what extent retirement could be considered to be funded by real estate sales? It’s certainly something people do: sell the house and move somewhere cheaper.
Asset prices are merely a function of discounted future cash flows. As interest rates are lower, the discount on future cash flows decreases. The world is also much more stable than it was in the 1950s-1980s - look at the state of Asia now and then. That means there is a lower risk discount on future cash flows.
If paper wealth takes a shit the people that will be impacted will be retirees and the wealthy, not your average joes.
I’m not sure I agree with you here. Average Joe has been investing in houses just as eagerly as Rich Ralph. The difference is that Average Joe will be brought to his knees if house prices should fall. Rich Ralph will still be rich, just a little less so.
I think that in the fullness of time, it will be seen that today’s high asset prices were directly and unambiguously a consequence of extremely low interest rates and the creation of money by central banks and nothing more than that. When returns on lending are low, investors have to switch to riskier asset classes in order to generate the returns that they need to service their future cash flow requirements. For example, pension funds have to generate a certain amount of cash flow to cover their future pension liabilities, which are fixed and unchangeable. When central banks make money cheaper by lowering interest rates, pension funds have to shift to classes of assets that generate higher cash flow, even if that means taking on more risk. They don’t really have a choice in the matter.
There is a positive feedback loop here. Low interest rates cause large investors like pension funds to shift to riskier assets. This stimulates the risk appetite of retail investors, who pile in when they see the trend of increasing prices in these riskier assets, such as stocks and houses. The increase in asset prices reduces the effective returns on those assets, forcing pension funds another large investors to shift to even riskier things, like venture capital. Rinse and repeat.
I suppose nobody can say for sure that there hasn’t been some kind of long-term shift in global economic growth because of changes in technology, but it sure seems to me like cheap money is a more reasonable explanation for all of the craziness we have been seeing in the past year or two.
Average Joe will be brought to his knees if house prices should fall
I'm not so sure - it depends on how heavily leveraged buyers are and what % of them have used price increases to secure more capital. If your home has significantly appreciated in value but you haven't taken equity out of it, it could be said that you were leaving money on the table but only if you knew of a better investing opportunity. If you just let the property appreciate and didn't securitize that gain, a decline from peak values doesn't hurt because you have no loan to service.
I had the same thought but would add there aren't many variable interest rate home loans anymore? If any?
This source [1] also says HELOCS or 2nd mortgages are only 8% of owners, 1/2 of what they were in 2009. But that was 2018 maybe pandemic upped the %.
So to get another 2007 meltdown this thesis would be that a lot of people would have to lose their jobs first. Interest rates going up wouldn't matter if they make the same (or more) money.
But could argue collapsing real estate values would cause weak job market.
But all the savvier investors will sell the inflated assets at higher prices before the dip/fall and go on to use their increased capital to over-inflate the next hot asset class to the detriment of the average Joe.
I think you have pension funds exactly backwards. They are typically managed with the goal of reaching their assumed rates of return at minimal risk. With performance so far above assumed returns, if anything pension funds can afford to take on less risky assets and still meet their goals.
You're not thinking far enough. Of asset prices crater, then we'll have an acute deflationary shock, which will prompt the fed to inflate, and that is what will screw the poor.
> Of asset prices crater, then we'll have an acute deflationary shock, which will prompt the fed to inflate, and that is what will screw the poor.
The problem with this is in what the Fed does with the new money. They currently use it to buy back government debt, which goes to the rich, i.e. existing bondholders. What they should do is to give it out to all citizens equally, which is the opposite of screwing the poor.
Inflation screws the rich, not the poor. Statistically, the wealthy have way more cash than the poor, while the wage-earning population will get increased income along with inflation.
> when you have very low inflation, getting relative wages right would require that a significant number of workers take wage cuts. So having a somewhat higher inflation would lead to lower unemployment
By its very nature, giving laborers inflation-matching pay raises counters the explicit, intended policy effect of using inflation to increase employment. Or, your employment model could be relying on "let's use increasing prices to light a fire under people's asses to get them to look for jobs". Which, if you ask me, as a neoliberal programme is far crueler, far more pernicious, than any slash-public-services scheme that fiscal conservatives dream up.
> By its very nature, giving laborers inflation-matching pay raises counters the explicit, intended policy effect of using inflation to increase employment.
Suppose we print a bunch of new money and hand it out to everybody. Now people have money in their pockets and want to spend it, so demand goes up, so prices go up, and we get inflation.
But most goods and services have elastic supply. We can make more of most things given higher demand. So companies make more of stuff and have to hire more people to do it; unemployment goes down. Hiring people is supply and demand again. Demand goes up, wages go up.
Then, if you stop printing money, the demand (in real dollars) goes back to the original level once prices and wages have both increased. If you continue to do so (i.e. a constant rate of inflation), the extra demand is sustained by the continuous infusion of money.
Now suppose you do the same thing, but instead of giving the new money to individuals, you give it to the rich, or to borrowers in the form of low interest rates. They use it to bid up housing prices. Then people have to work more to afford the same house or apartment, which lowers unemployment. This is obviously bad and screws the poor.
The most important thing is who gets the new money. It needs to go to individuals, not borrowers, not institutions.
> The most important thing is who gets the new money. It needs to go to individuals, not borrowers, not institutions
Government by its very nature must generally give out newly created money to the wealthy (handing out money to the public directly does not get low income housing built, or highways, or military bases, or warships, or scientific research... To "get shit done" you must give it to already-wealthy contractors), and by its current construction, the interest payments to create that money goes to banks. Now if you want to argue that "government maybe should not be doing a lot of that shit", perhaps you do have a concrete proposal for reducing the wealth divide.
Sure, they can do that sort of thing from time to time to make people like you happy, but the primary spending of government, as in, "to do shit", cannot be structured like that.
Are you arguing that 100% of government spending should be stimulus checks?
so, just to be clear: what you are saying, is all government services, bureaucratic expenditures, military budget, FBI budget, Education, Energy, social services, social security shortfall, disaster relief, interest payments on the debt, medicare, universal health care, and so forth should come entirely from the collected tax base. Perhaps we can even be very careful about this, to avoid politicians abusing "projected revenue" by mandating all of these line-item expenses of the government in any given year cannot exceed the previous year's tax revenue? And if the government decides to exceed that figure, 100% of the overshoot must be somehow redistributed to the people, directly.
When inflation is low, yes. But as inflation goes up, interest rates will increase to fight it while at the same time, households reallocate their wealth.
That's funny; my wages didn't increase to match inflation this year when I received my performance review. None of my family members or friends also received such raises. Yet the prices of everything else went up around me, especially housing. Heck, even the Dollar Tree wants 25% more.
Cash-flow producing assets become more valuable during inflation.
The rich own assets, they financed these assets with debt. Debt becomes less burdensome with inflation, increasing their equity.
At the same time, lendors lose with inflation. But who are the predominant lendors now? Life insurance companies, pension funds, mutual funds, household / nonprofits, state and local govts., etc.
All of these institutions seem to be an aggregation of middle-class / poorer people vs. elites.
If you're Elon Musk you own Telsa. You're main source of liquidity is likely cash from a revolver[1]. During inflation, your debt becomes relatively smaller to your Tesla equity. Your net equity becomes larger.
I think this just leads to more inequality, more corporate control, and weaker labor bargaining power.
We'll see - hope its ok.
[1] form of debt, where Elon is the lendee and is using Tesla stock as the collateral
This is a pretty bold statement given that it is the opposite of all conventional wisdom, and historically those concerned with the poor have argued that inflation is a way for the rich to rob the poor. For example, the "misery index" in the 70s was the sum of inflation and unemployment, because it tracked how much wages were falling and how much unemployment there was.
So this "new economics" that says inflation is good for the poor is pretty stunning -- is it something you figured out on your own or do you have a reference for statisticians or economists making this case?
> Statistically, the wealthy have way more cash than the poor, while the wage-earning population will get increased income along with inflation.
Let's take a look at what is going on:
Over the past year inflation is up 6.2%, so let's deflate:
- real SP500: +25%
- real bonds: -7.8% (PIMCO total return)[2]
- real wages: -1.2% (using BLS data)[1]
"Real average hourly earnings decreased 1.2 percent, seasonally adjusted, from October 2020 to October
2021."[1]
Now definitions of "rich" are always arbitrary, but if you are rich you have most of your wealth in the form of assets -- stocks, bonds, etc. If you are poor, most of your wealth is your future labor - wages. That's another way of saying that the rich make money from passive income while the poor have to work.
So inflation reduces wages but the effect on passive income is mixed. Stocks go up and bonds go down. A typical wealthy person will own a mix of stocks and bonds and will generally own more stocks than bonds, so on balance their holding of equity protects them and their wealth still increases. But that's not true for the poor, who have only their wages.
This is why conventional wisdom about inflation mostly hurting the poor is correct, and the galaxy-brain takes that inflation helps the poor and hurts the rich is incorrect. Wealthy people can shield themselves from the rising cost of consumption while the poor cannot.
The world was more stable 1990-2020 than it was 1950-1980, yes. I don't think it's a good bet to assume that stability will continue. The pandemic will peter out, sure. But the US is shifting toward isolationism, China is heading for a population crash, Japan is rearming, and Europe is rethinking its strategic position in light of all that. That doesn't necessarily add up to increased conflict, but it does point to a lot of uncertainty.
> If paper wealth takes a shit the people that will be impacted will be retirees and the wealthy, not your average joes.
Also the elephant in the room is that property taxes are a derivative of your net worth, not your income. So if paper wealth (due largely to RE) continues to outpace income then we're in for a big hurting soonTM.
This is the hilarious part about critics against a wealth tax - we already have a wealth tax. I live Texas and people are about to have a brutal wake up call when they can't afford $10k/year in taxes because their $200k ranch they bought 5 years ago (and cost them $40k down) is now worth $500k.
Note - I have mixed feelings about the proposed wealth tax. The proposed implementation was misguided.
Oh that makes sense, thank you. In Texas they drive around and reassess your house in the springtime. Which is why all of the improvements to my house will be on the backside! Meanwhile the both of us are very recent homeowners, so the reassessment hasn't happened yet.
I do have a friend that has 100% service-connected disability... And Texas has a 0% property tax for veterans with that categorization. He's thinking about moving
Two-thirds of paper wealth is in real estate. For most families that have any wealth, the biggest component of that wealth is the current valuation of the home in which they live. If the valuation of real estate in relation to income globally reverts to long-term historical norms, a lot of regular people would be affected, not just the wealthy.
For someone for whom the biggest component of that wealth is the current valuation of the home in which they live, the fluctuations of that price affects only the theoretical number, but does not affect their life in any meaningful way; they own and use the exact same asset as before, they are not trading it.
These price fluctuations matter for people who either want to invest into real estate or withdraw previous investment, not for people who want to live in their current house.
That's true except for cash out refinancing. Lots of middle class folks take out home equity loans to pay down credit card debt. This was a big component of the 2008 financial crisis. That and banks leveraging 40-1 and betting big that housing would never decrease in value.
> take out home equity loans to pay down credit card debt
I'm sure I'm preaching to the choir, but this is a terrible strategy. In a perfect world it cuts the interest payment a lot, but the risks are significant.
> If the valuation of real estate in relation to income globally reverts to long-term historical norms […]
a lot of everyday people will tell you that just won’t happen. that governments perceive the risk of falling home values to be so large that they will do everything in their power to prevent that from happening.
That does seem to be what happens. In Australia, if the prices of houses even look to be standing still, the government will hand out taxpayer money to buyers to prop the prices up. Or they will let people withdraw from their retirement funds to buy.
> As interest rates are lower, the discount on future cash flows decreases
That is one of the causes of high asset prices. Another is that cheaper debt allows more people to borrow money to buy assets.
> If paper wealth takes a shit the people that will be impacted will be retirees and the wealthy, not your average joes.
If paper wealth drops average joes will also be affected. Employment depends on consumer spending, and a big drop in asset prices can have a significant impact on spending through wealth effects (https://en.wikipedia.org/wiki/Wealth_effect)
One camp is the "this time is different" camp and the other camp is the camp that has been proven correct (eventually) in every historical instance of an asset price bubble. It should be noted that the first camp ALWAYS has a very good argument (usually involving technological change) about why this time is in fact different, but it always turns out to not be different.
Money doesn't disappear when you buy real estate. It goes to the person that sold you the real estate, and they can choose where to put that resulting capital.
Money isn't capital. Money represents capital. When they try to spend that windall money, in aggregate, it will cause inflation, and the money will be proven to represent less capital than previously assumed. The seller will thrive, but non-sellers will suffer higher prices.
My point is that one industry isn't starved because an allocator buys assets in a given asset class such as real estate. The money doesn't disappear, it keeps moving.
>[...] they believe the global economy is about to shift to much faster economic growth, driven by new technologies like AI, quantum computing, cheap sustainable energy, and space exploration.
>Some of the smartest people I know are either in one camp or the other, [...]
> Now, wealth and growth are completely disconnected. This is, of course, behind much of the populist anger in politics today. Affordable housing in particular has become a rallying cry for millennials who can’t afford to buy homes and start families as early as a previous generation did.
I am one of those millennials that is forever priced out of the housing market. And that to a large extent has shifted my political belief away from hard left that I once used to be. Especially seeing how the local mostly leftist politicians in SF have basically helped fuel the crisis even further and basically have done nothing. And many neoliberal leftist economist and media outlets even defending the status quo monetary policy that is clearly behind this wealth divide.
To my disappointment though as much of a victim clearly as millennials and GenZ are, their political beliefs don’t acknowledge they want a change. It’s as if they expect the same group of people that are largely behind some of the bad policies causing the wealth disconnect are suddenly going to reverse course. A case in point is SF where they keep voting the same old eggheads who have virtually made it possible for the boomers to retire extremely wealthy at the expense of prices out millennials like me. If you vote for the same people expecting some sort of change will happen then spoiler alert. It won’t.
It's less a political delineation and more of a class one. In nearly any city, whether it's left- or right- leaning, there's a class of landowners who intentionally reject rezoning to artificially restrict the supply of homes. If we followed the logic in your comment, a millennial in a southern red city would reject the right, and choose the left, for your reasoning: their conservative leaders failed their ability to get on the housing ladder. Make no mistake, it's about wealthy protecting their wealth.
Conservatives and liberals in cities nationwide block the construction of new housing. And it's perfectly rational for people to do so, without it being a judgment of their broader political beliefs. People like their private property and they want it to appreciate. You have to realize that ideal is present in both well-to-do left and right leaning areas.
No you totally missed my point. Places I was giving example as are places where you as a politician literally have to do nothing and you would still be winning elections. So my point was if millennials and GenZ are the victims of the policies or lack thereof and want these politicians to do something, why do they keep voting for them when these same politicians have fueled the price growth and continues to do nothing? The example I gave was SF which happens to be left (much like most of the HCOL cities) but the same would be applicable to right as well.
My point is the moment politicians realize they don’t actually have to make any efforts to improve the quality of life for their constituents, and can rather keep them busy driving culture war outrage and making them single issue voters is the moment people as a whole lose. For example I don’t like Joe Manchin or Kristin Synema. But they are hell of a better choice for the people they are serving than Nancy Pelosi or Ted Cruz. Knowing your action can cost you elections is how democracy is supposed to work.
> If we followed the logic in your comment, a millennial in a southern red city would reject the right, and choose the left
If it means that the right is virtually winning every election cycle and not doing anything to improve their quality of life and major pressing issues, then yes they should. Democracy is all about keeping people in power in check so when it comes to re-election we can vote them
Out if they didn’t do a good job. at least in my book.
With all due respect, it seems you're so deep into the culture war that you can't see the forest for the trees.
The left vs right distinction hasn't existed in San Francisco for decades at this point - it barely exists in California metros at all anymore beyond the old party fundraising machinery. The Republican party is already practically irrelevant state wide. The same can be said of Democrats in rural California or even many states. In those scenarios, the second you make it about political ideology, you shut yourself out of the process, either by refusing to engage with it because they're the "others" or failing to understand what the constituents actually care about.
For example, you're negatively comparing Nancy Pelosi, the House Rep of one of the wealthiest districts in the country, to three senators of diverse states. I don't see what led you to that conclusion other than a ideological blind spot - all the SF homeowners who put her in office for nearly 40 years have benefited wildly from the national policies she has supported. She has so much power in Congress because she represents that district so well that she can spend all her time fundraising for other members of Congress and fighting the culture war (which, in my experience, rarely bleeds into her actual campaign because her constituency doesn't give one shit as long as their two bedroom condo is worth 7 figures). These are the "wealthy" that the GP is talking about and they've stuck with her for nearly four decades through several boom and bust cycles. Say all you want about her politics, but her constituents overwhelmingly chose her over and over again. Are they idiots?
Most striking is that all of your complaints seem to be about the local politics of San Francisco - so what do Pelosi, Cruz, Sinema, or Manchin have to do with it? If they had any more than a passing, indirect influence on San Francisco decision makers, it would be a major breach of the Federal/state/local separation of powers. Likewise with monetary policy. A focus on national politics makes one completely blind to what's actually going on at a local level.
>So my point was if millennials and GenZ are the victims of the policies or lack thereof and want these politicians to do something, why do they keep voting for them when these same politicians have fueled the price growth and continues to do nothing?
That's actually the problem! Spoiler: They don't vote (enough, compared to older cohorts). Older people are generally wealthier, and they also tend to vote in greater numbers and for their own interests, but younger people don't. It really is tragic, but not for the reasons you listed.
Zoning in right leaning states seems much more permissive on average.
In Austin they are tearing down old homes left and right and replacing with 2-3 on same plot. Never seen this done in Maryland, California or New York when I lived there.
Construction and zoning seems much less of an issue in Texas vs California. I believe it's the same in Arizona, Florida etc. But no firsthand experience in those markets.
Simply rezoning SFH plots to allow for multi-family construction and allowing the free market to work will very quickly produce new housing stock. It also immediately benefits existing homeowners by increasing the utility/value of their land. e.g. you now own a plot that can produce a 4 unit home, inherent value is higher
Yet Texas (one of the leading energy economies in the nation I'll add) can't seem to figure out having an energy grid that doesn't shut off when it gets dangerously cold. Let's just be honest that no single political alignment has a monopoly on good ideas.
> there's a class of landowners who intentionally reject rezoning to artificially restrict the supply of homes
I don't understand this, where I live rezoning means your land becomes 3x more valuable overnight and every house landowner dream of it. Opposition is either sentimental or for environmental concerns (which can be justified).
If you'll indulge me, I have a concrete story on this. In San Diego County, in the city of Del Mar, there is one final plot of 17.45 acres of oceanfront land. What was to happen to it? The proposal was the "Marisol Specific Plan". It was to developed into a resort, easily a high 9-figure project, producing revenue, creating jobs, economic activity. When voters unsurprisingly rejected it, the land was subdivided into 5 ultra-luxury lots, each going for $10-20 million. The inadequate zoning is leaving hundreds of millions dollars gone because the land can't be put to its full productive use.
There are exceptions. In a blue state: you have San Clemente and Newport Beach (Orange County), Huntington Beach (Los Angeles County). In red states: Bismarck, North Dakota (2nd largest city in ND); Provo, Utah; and Cape Coral, Florida. and if you dissect further you'll find red neighborhoods in blue cities like University Park in Dallas.
I cannot fathom why Millennials of modest means would ever choose to live in San Francisco. It's a city run by incompetent elitists for the benefit of childless wealthy people. Maybe it shouldn't be that way, but that's the reality and it won't change any time soon. So why subject yourself to that kind of punishment?
It's a big country. There are plenty of cities where it's possible to buy a home and start a family on a regular salary. Have you been to Cleveland lately?
As someone born and raised in the bay area it's not that easy. All my friends and family live here. I have a well paying job that I like here and I like my co workers. I have accepted that for as long as I live in SF, I will have to rent. I will never be able to own a home remotely close to SF or to my office.
I don't want to just run to a low COL city and start over. I would rather fight for lower housing prices so that one day I might be able to own a home and start a family where I grew up myself.
Nothing worth doing is easy. My grandparents moved from another continent and left all their friends and family behind in search of a better life. Sometimes you have to leave your comfort zone and take a risk.
It's great that you want to fight for lower housing prices. But what happens if you fail? In 30 years if you're still stuck renting a tiny apartment will you have regrets? Pick your battles wisely.
>My grandparents moved from another continent and left all their friends and family behind in search of a better life.
Not OP but on the other hand my own parents did that, and that's exactly why I don't want to move away. I'd rather stay close to the family I cherish, my time with them is literally priceless. Luckily housing prices aren't so bad here, but my point stands
The wealthy SF landowners are geniuses. They collect billions in rent each year - they suck up all those sweet sweet tech dollars. All they have to do is show up to city meetings and vote down more building (except commercial zoning of course!!). SF landlords are super progressive too (lol) -- they want to keep that "rent control" going. Rent control ensures no new housing, massive demand, no need to renovate, and sky high rental prices.
Peter Thiel recognized that problem in 2018 and cut his SF Bay Area investments: "One thing I’ve been thinking about as a venture capitalist in Silicon Valley is the vast majority of the capital I give to the companies is just going to landlords. It’s going to commercial real estate and even more to urban slumlords of one sort or another."
1. Build great transportation infrastructure so it is easy to get to work from outlying suburbs. That takes the pressure off on the need to buy centrally. This doesn't have to be (and probably shouldn't be) just freeways, it could be subways and urban rail.
2. Build very dense housing so people can live near their jobs, thus not needed as much infrastructure.
It's an easily addressable issue. We've had the technology since the 19th century, but just as there are the nimbys disingenuously working hard to their benefit to ensure that new housing for workers isn't created, you have people like Elon Musk and others in the car/oil industry working hard to defeat rapid public transit and other public works.
I don't think this is true whatsoever. Young people are voting for progressives, who are running on platforms of expanded social welfare and reducing wealth/income inequality. I mean look at the last democratic primary super-Tuesday exit polls. Ages 18-29, +46 to Bernie. Ages 30-44 +19 to Bernie.
It's not that young people aren't voting for their interests (which in my biased opinion is in the best interest for the country overall), it's that we don't have the numbers yet. I presume the story is similar in local SF politics.
Except a lot of the advocated policies increase wealth inequality.
E.g. easy monetary policy, bringing back the SALT deduction, NIMBYism, rent control.
Where is the strong push to kill exclusionary zoning?
Housing problem is very easy to solve by changing zoning laws and allowing free market forces to work. Also by the Fed not inducing FOMO buying sprees by keeping rates artificially low for long periods of time.
You can buy a decent starter house for under 100k in Mississippi, Missouri, Virginia, Kansas, and a bunch of other places. Real estate is mostly only inflated in top cities and competitive vacation/retirement towns.
Look at Laurel and Hattiesburg MS for example. Decent towns with families, schools, breweries, hipster cafés, largely all the jazz people clamor over in expensive towns. And look at the real estate prices over there.
I don't know if you're joking, but most people in CA don't want to move to places that are still deciding to keep confederate monuments in front of courthouses.
I live in CA and have never met a single person who has ever given a single thought to the idea of confederate monuments. This is an idea spawned by a fringe group and amplified by the media for tribal political reasons.
eh, some truth, but media bleeds into IRL. to the contrary, i have met people who care about statues and monuments. perhaps somewhat surprisingly, the number of retirees around me who have initiated discussion around such things (or even taken action like parading/protesting local confederate-related statues) exceeds the number of millennials who have done so.
but yes, overall only a small proportion of people i know really care about these things
I’m not joking. But California is a really bad example because it still ignorantly celebrates the Spanish conquests that murdered, displaced, and whitewashed American Natives — see all the parks and roads named after Spanish conquistadors with plaques and monuments. E.g., De Anza.
Yes, political belief is the only possible reason I can think of that someone would be weary of moving to a state that celebrates the confederacy... no other personal attribute could possibly explain that preference... /s
Also, as someone who grew up in the rural midwest: the statue thing is kind of silly and a distraction. The real problem with the southern midwest is that you get what you pay for.
The schools are god-awful; often you can't even buy a good education with infinite money. Even the "good" schools are only parochially good; transfer them to a coast and they're embarrassingly bad.
The local employers don't provide interesting work, and professional networking opportunities are niche to non-existent.
(Crime too. Contrary to popular perception, the wealthier coastal cities have a far better handle on crime at least in the areas where wealthy tech workers typically live. SF might be an exception, not sure. Thinking mostly of the northeast and PNW. In the rural midwest, you'll get meth heads with shotguns even in nicer suburbs. Cheap housing is a great equalizer, for better and for worse.)
If people in CA and NY don't want to keep being upset that they lost another presidential election then they need to consider moving to a less comfortable state and voting.
Liberals concentrate in a few enclaves and then get upset when the rules they have to play by don't give them what they want. The US is arranged to empower the flyover states and complaining about it won't change it.
CA has prop 13 and we currently have incredibly low mortgage interest rates. SF has an amplified effect, but housing is going up faster than wages pretty much everywhere. Prices are up more than 40% in the desirable cities and town outside of SF (Austin, TX for example).
I don't see any simple ways to fix this, interest rate hikes will slow price growth, but payments will still go up. Some incremental changes (additional taxes on empty houses, rezoning, etc.) may have small changes, but do not seem likely to bring down affordability. Any small dip in affordability in the desirable places will likely see more migration there, unless we hit a huge recession, which based on my experience in 2008, still means most of us will miss out, as the price won't dip enough and the major asset holders just get to buy at a discount.
> I don't see any simple ways to fix this, interest rate hikes will slow price growth, but payments will still go up. Some incremental changes (additional taxes on empty houses, rezoning, etc.) may have small changes, but do not seem likely to bring down affordability.
That’s not how asset owning class uses low interest rate environment in their favor. Say you bought a house in SF in 2010. Well your market value of the house has already doubled if not more. So 5yrs later you borrow against that asset to buy another rental unit in even lower interest rate. Which in turn has doubled.
Meanwhile if a first home buyer like me wants to get in I have to not only have 20% down payment, but also clean credit and a secure job. Do I get to use the low interest rate in my favor? Let’s see credit card interest rates are still 10%+.
>I have to not only have 20% down payment, but also clean credit and a secure job
Have you talked to a mortgage broker lately? In my locale, very few first time buyers are going to be in a place where they have to put down 20%. There are so many state programs available for first-time buyers and so many different loan options. I understand you are in SFO, but a lot of the frustrations you are expressing in your posts above are very localized to California and to SFO and don't really match the left/right politics of the rest of the country.
I mean for primary residence buyers, payments will still go up with interest, even though the asset price increase may slow or even decrease in value. So no, low interest rates are not really in your favor unless you already own the asset and are seeking new financing. Yes, people owning units and using them to buy new units while still being able to cover all their payments is seems like a problem, but it's almost a self-sustaining loop as long as they are able to keep increasing rents. It seems like this loop only stops in recessions. Some moves to make rents less attractive long-term might be helpful, but then you get the problem of who builds new housing if there isn't much profit in it?
I think phasing out mortgage interest deductions over time beginning with a cap would be one positive, but as we saw with the recent SALT cap, that effect is mostly overridden by other factors at least today.
I don't think there is a single entity or action that can be pointed at, there are many inputs, with only recession (in one city or the whole country) seeming to have a strong enough signal to override all the other inputs for the most part. Hiking interest rates to 15% ala the 80's also might work, but I don't expect to see anything near that.
There's a simple solution: move to a less desirable area. But for some reason people don't want to compromise and think they're entitled to live anywhere they want. I don't get it.
Why exactly are you forever priced out of the housing market? There’s a ton of excellent homes/units available in the 300k range.
There’s more to the country than the bay area. I have no idea why millennials feel they deserve to own property in extremely expensive areas for cheap.
> I have no idea why millennials feel they deserve to own property in extremely expensive areas for cheap.
All areas are more expensive now.
Boomers may have suffered other high costs over the decades, and higher interest rates and inflation, but there were folks in London over the last 20-30 years putting mortgage deposits on their credit cards, paying them out of a single annual bonus, or simply putting down nothing. Well paid professionals who bought property in London in the 90s can easily be multi-millionaires now. These people have seen asset appreciation that has almost beaten the global stock market. That's without considering the effects of their leverage. And unlike the stock market those capitals gains are absolutely 100% tax free (on primary residences of unlimited value).
Relative to median incomes the average house is now 3x as expensive as it was in the 80s and 90s. Low rates only help if you can get a deposit and a mortgage together to get on the ladder. When houses are 10x median income it's just really really hard to do that, even for the well-paid.
The idea that every area is HCOL is just wrong. You can get property for as little as 3% down. You can rent out extra rooms.
It’s remarkable that our generation willingly takes out 6 figure loans for worthless college degrees but can’t save 10k for a down payment on a condo in Atlanta.
People spend more money on their homes nowadays. Especially now that remote work is widely accepted.
I am so confused by this use of political labels. I understand your argument, just not the political labels. Not siding with any specific label, I just want to make sense of these labels.
I understand that left and right mean very different things in Europe or in the US, for instance.
Inequality on access to housing has shifted you away from hard left. And neoliberal leftist economists and media are defending the status quo.
What are leftist politicians for you? the Democrat party?
What are some examples of neoliberal leftist economists? I cannot think of anything neoliberal that it is not center-right to hard-right.
Probably it is because I am not from the US, and would be curious to know. To me, hard left is anarchist/communist and neoliberals are always right/hard-right/center-right depending on how much one likes them :)
Leftist politics in the US is completely dominated at the moment by a certain brand of zealous progressive agenda that has done very little practically for wealth inequality and is solely focused on specific social issues. It still appears that neoliberal politics still drive most of the meaningful economic agenda on the left. I agree this is not really what people usually consider to be the "hard left", but when you're essentially left with two choices and one of them is leaning so heavily into a particular brand of politics it distorts your view of what "hard left" means compared to typical political ideologies.
I think your understanding is generally correct, it's American politics that is tipped a little bit sideways at the moment.
Yes I was mostly talking about the US. And at local level. Federal govt can do very little if anything to things such as zoning laws and nor they should. The example I provided was to do with California and it is much like the same way in many other parts of the country.
Neoliberal economists would be any mainstream economist who are still living in their la la land thinking QE is done for greater good of middle and working class and lower interest rate has nothing to do with investor class using their inflated market value of assets to borrow more and buy more assets that in turn also keeps going up. Meanwhile credit card interest rates are still averaging 10%+.
> Especially seeing how the local mostly leftist politicians in SF have basically helped fuel the crisis even further and basically have done nothing. And many neoliberal leftist economist and media outlets even defending the status quo monetary policy that is clearly behind this wealth divide.
I laugh every time I hear that. Especially proposition 13 which is basically age-based redlining.
>And that to a large extent has shifted my political belief away from hard left that I once used to be.
I thought you would be left because you want government intervention for the housing market? I know SF has some weird rules about something called zoning? But shouldn't you still be on the left side of the spectrum?
The statement is fairly odd, as someone in the US who cares a lot about housing I did not understand it. They might have become more capitalistic / free market / libertarian, as many of those areas are heavily restricted and deregulation would allow people to build.
The available option for "left" in the US is the Democrat party. They are very establishment, very corporate, very status quo. They also still cater to the baby boomers as they are the largest voting block.
> as many of those areas are heavily restricted and deregulation would allow people to build.
Thank You that make some sense.
>The available option for "left" in the US is the Democrat party.
And thanks for the explanation, I always knew it was different between left from EUR and left in US. But your explanation put it in much better prospective.
SF has done something, heavy rent controls. It’s far from nothing and it also exacerbates the housing crisis.
Mostly short term solutions from an empathic, reactionary, and transient voting bloc that does not stay long enough to experience any consequence of their actions.
> I am one of those millennials that is forever priced out of the housing market.
> in SF
Perhaps you may be priced out of the housing market in SF specifically. That doesn't mean the housing market as a whole. There is cheaper housing elsewhere.
I'm GenX, in my 20s I wanted nothing more than to live in NYC. Could never make it happen, too expensive. I was literally priced out forever of the NYC housing market. I gave up on that, moved to California which was back then still a lot cheaper.
If you're young, no point in banging your head against the established old money and demand they change for you. Shift targets and build the next great thing/place.
> And many neoliberal leftist economist and media outlets even defending the status quo monetary policy that is clearly behind this wealth divide.
I don't think it's clear at all that loose monetary policy causes a wealth divide. Most evidence points to the fact that the bottom quartile's income is the most sensitive to labor market slack.
you are priced out of specific locations, not the whole housing market and those people who are pricing you out of those locations, they themselves are also priced out from other certain high priced locations.
This the classic “pack your bag and move” type of argument much like “learn to code”. For many this is not an option due to job, family and a host of other things.
The point in the article I was highlighting was about prices outpacing growth. And that’s a problem. When you have prices doubling almost every 5-10yrs and no chances of slowing down then why even work?
Also, in usual capitalistic fashion, it completely removes the human aspect of living somewhere. You belong to a certain community. People are being priced out of their community and social neighbourhood by speculation and rent seeking.
This is a deliberate political choice, and it shows, especially if we account for the mass individualisation of (american) society.
I like how when this happens to poor black people, we don't care because we middle-class white people deserve to live wherever we want. When it happens to middle-class white people, suddenly it's unfair.
It's not specific locations, it's cities as a whole. There is so little urbanism in this country. You've got Manhattan, the Loop, and a few dozen downtown blocks across the rest of the top ten. Of course they're going to be insanely expensive.
If even one city embraced Manhattanization the way America has embraced sprawl for the last 75 years, you could direct the complainers there. But there isn't one.
I wish low interest rates were the only thing incentivizing people to invest in real estate. It's tax treatment, it's bailouts, it's government buying underwater real estate and selling it at a loss to the same bank they bought it. It's Fanny and Freddy, ready to take those high risk mortgages off your hands>
And as real estates absorbs all the investment capital, a lot of buildings are built that sit partially or even fully empty, just appreciating. But not really producing anything.
Sometimes, even the shelter a house was designed to provide is not used. People literally buy larger houses for the tax advantages, not because having the space is worth the investment.
Meanwhile, other investments actually produce good and services people are willing to buy and often turn a profit. These kinds of investments are the real source of wealth. A house is something that can only be built using existing wealth, whether yours or borrowed.
All of this is done because someone convinced policy makers that consumption is somehow what causes prosperity. This is incorrect.
It's actually PRODUCTION that creates prosperity. To consume something, someone has to produce it first. Everybody may want a car but until Henry Ford figures out how to produce it cheaply enough, they won't get one.
And that's over investment in real estate is a problem: it takes capital away from innovation. It DELAYS innovations. And those delays cost trillions, depending on what time period you're looking at. Certainly delaying the invention of the assembly line by a century would have cost trillions.
There's no shortage of capital, there is a shortage of risk taking.
It's a coordination problem. The mechanisms that regularly work on this (politics, markets) are not as effective as they could be, because of interdependencies, blockages, ideologies, etc.
If your mortgage rate is 2.5% and inflation is 4.5%. You're getting 2% real returns. But you're also getting leverage since most buyers put 20% down or less. 4:1 leverage on 2% is 10% real returns.
This is BEFORE asset appreciation. That is, if the house stays the same in value in 30 years you're still outperforming the stock market's historical average.
This is a common misconception that originated from the inflation in the 70s and 80s where wages increased with the inflation. Actually the inflation WAS salary inflation (caused by rising interest rate when most money was not debt) much different from todays energy inflation (and debt as money).
If your salary does not increase with the inflation, you don't get the additional 4.5% in salary and then you are NOT getting 2% real returns.
Combine that with all energy costs going up and you have a real problem because the governements cannot raise interest rates (without crashing everything), that leaves banks to compensate for energy (which you cannot print) which means people are going to get hurt (the interest spread, the difference between what a bank pays to the central bank and what you pay to the bank, is going to grow until things get out of hand).
My prediction is that house prices cannot increase more than general inflation now since the margin of the central banks is now permanently zero (we have had official zero interest rate for some time, but not for the banks, only last year did the central banks remove the spread for banks to borrow money from or hold money at the central bank, but now they cannot increase the incentive to borrow ever again for this civilization) this means the debt collateral (it's not an asset if you have debt on it) wont be able to appreciate either!
And energy inflation is VERY deflationary for housing because you need to buy heat, water and food before you pay rent/interest.
One easy way to see this trainwreck in motion is to watch the state of houses that need repairs, the second you cannot borrow to repair a house the music stops. In fact, that you can borrow to do maintenance in the first place should have been enough warning.
We're living through the biggest margin call possible right now (a margin call on money itself, or as you should call it "housing backed debt" because thats 99% of it) and there is nothing anyone can do about it!
The end game is that there is a split between debt money and non-debt money in terms of what interest rate they have, and again the spread will increase until things get out of hand, they allready are; in some countries you pay negative rates on your savings above a certain amount and at the same time the loan rates will increase in the other direction!
I'm not sure, especially if everyone's house drops in value in a locality. Services like garbage, police, fire, and schools would still would cost the same, right? So the municipality would need the same amount of money, I'd assume.
This is one of the main reasons I bought a house this year. Low interest rates combined with high inflation and leverage mean buying real estate is one of the best things you can do with your money right now.
Whatever benefit you perceive in gaming the current inflation rate is most likely cancelled by the massively inflated house prices from everyone else having the same idea. Market is efficient, remember?
So you sold the bank a bond with an inflated par value, figuring interest rates will rise soon (lowering the bond value) and snatched a good deal. Except the banks are almost certainly better at predicting the future interest rates, and they demand a coupon rate significantly higher than the risk-free rate to compensate.
The short of it is that the banks aren't stupid; the potential for a future interest rate hike is priced in.
The exception is if the banks are selling on their mortgage bonds to someone else-- then they don't care if they're paying too much for them, and they'd be happy with the additional demand.
Isn't that how the 2008 Global Financial Crisis happened...?
Banks don’t plan to hold that mortgage very long and so aren’t concerned about interest rate risk. They quickly flip it to the secondary market, which is backstopped by Fannie Mae, who can afford to overpay.
I'm aware of those concerns. Of course there are more reasons why I decided to buy than what I said and there are risks in doing so. Inflation and low interest rates were important in my decision though.
Did you know that the "Life, Liberty and the pursuit of Happiness" from the Declaration of Independence is said to be inspired from John Locke, who said that "life, liberty, and estate" are the essentials a political body has to protect for each citizen[0]?
I think Californians know about expensive houses but most of the USA is pretty cheap. Places like Europe/Canada/Australia didn't go down in price in the 2008 crash like the US did - its been straight up for decades.
Mind you though, prior to the 1980's, most housing in (western) europe was either socially or state owned. Mainly because housing was build as a solution to the mass housing crisis after world war 2.
The economic theory arguments are important, but I think it's also worth noting that the internet's facilitation of preferential attachment (asymptotically) fosters bimodal distributions in everything and the effect of the spikes swamps the hoped-for benefits of long tails.
Economic distributions that are massively skewed aren't sustainable, any more than organic distributions are; either you end up with chronic bad conditions (like diabetes) or abrupt discontinuities (like heart attacks and strokes, parallel to authoritarian crises or revolutions). I think moderate (2-3%) inflation might actually be a good thing in the short-medium term as long as its led by wage increases. Much of the inflation we're seeing now is result of demand shocks following the pandemic and thus economically rational.
This quote seems disconnected from recent observations:
> the big government spending programmes of the post-Covid era present a new
opportunity to try and push money into more productive sectors, which could ultimately bring wealth and growth back into alignment
We've seem some huge big government spending programs recently (monetary expansion and fiscal stimulus) and it's pretty clear the money has flowed into speculative asset classes, equities, and real estate. The conclusion is a non sequitir. Government spending programs have arguably caused the real estate bubble, not sure why more of them would have a different impact.
Here are some government programs that would probably help lowering housing prices:
* allow for multifamily housing
* remove the mortgage interest deduction
* implement land taxes instead of property taxes
* have the Fed stop purchasing mortgage backed securities (in the midst of a housing bubble)
* get the government out of the mortgage securitization business
Perhaps it's because I'm one of those dirty rotten real estate agents, but I'm not understanding your motivation with this set of recommendations you posit.
>* allow for multifamily housing
Zoning is entirely a local matter, so sure, talk to your local city / county / state if you prefer there to be more allocation for multifamily. It isn't something that the feds have any control over.
>* remove the mortgage interest deduction
So what's your goal here, given that historically this was the single biggest tax benefits to the (ever-declining) middle class.
>* implement land taxes instead of property taxes
Real estate is predicated on the concept that adding value to the land increases its value. So... what exactly become the merit of taxing land over property? If you tax property, the value of the land is included in that tax.
>* have the Fed stop purchasing mortgage backed securities (in the midst of a housing bubble)
Real estate is local. I'm sure there are markets that are in a bubble, but that doesn't mean that every market is experiencing that.
>* get the government out of the mortgage securitization business
These programs by and large benefit the non-wealthy by providing a degree of stability in the mortgage market that make it worthwhile for lenders to lend. Wealthy investors generally don't care - they are paying cash, working out seller financing arrangements, borrowing from hard money lenders, or have long-term bank relationships such that they have all the access to conventional money they need. It's the less fortunate and middle-class that get hurt when government programs are restricted.
> Real estate is predicated on the concept that adding value to the land increases its value. So... what exactly become the merit of taxing land over property? If you tax property, the value of the land is included in that tax.
An issue with property taxes as they are currently implemented is that they discourage development. Someone who owns a parking lot in downtown Los Angeles will pay very low property taxes on that land relative to someone who has built a large apartment building (even setting aside Prop 13). If the owner of the parking lot decides to build an apartment building on it, their property taxes will go way up. So the county is punishing the property owner for developing on that land, even though it's socially desirable.
The idea is that the land value is value that is created by the property's location, not anything the owner has specifically done. In other words, it's value created by the rest of the society that the owner has captured. However, development on the land is produced by the owner. A land value tax captures some of the value produced by society as a whole and does not tax value that was created by the owner. This incentivizes owners to develop on their land. (Or more properly, doesn't disincentivize development.)
> So... what exactly become the merit of taxing land over property? If you tax property, the value of the land is included in that tax.
If land--but specifically not improvements to that land--is taxed then there's relatively more incentive to make productive use of the land. $1 of investment to improve the productivity of land by building housing or whatever is tax advantaged over $1 of investment to try to hold onto appreciating land in hopes it goes up.
> Real estate is predicated on the concept that adding value to the land increases its value. So... what exactly become the merit of taxing land over property? If you tax property, the value of the land is included in that tax.
Removing the mortgage interest deduction (for owner-occupants) would widen the gap between commercial landlord’s ability to buy a property and an owner-occupant’s ability to buy that same property. (It’s spectacularly unlikely that mortgage interest for commercial landlords would become non-deductible as a general principle of tax code allows the deduction of ordinary and necessary business expenses in pursuit of profit. Mortgage interest for commercial landlords is clearly such a business expense.)
So, if you would like to favor owner-occupants over commercial landlords, you should be in favor of, not opposed to, the mortgage interest deduction for the former.
> To be deductible, a business expense must be both ordinary and necessary. An ordinary expense is one that is common and accepted in your trade or business. A necessary expense is one that is helpful and appropriate for your trade or business. An expense does not have to be indispensable to be considered necessary.
This all has to do with the post-COVID crashes that many countries experienced.
Their central banks literally flooded the economy with cash. Buying bonds, stocks, real estate, whatever it took to stabilize markets.
This is their "role". Call it "quantitative easing" or whatever fancy term they come up with this week.
What it means is devaluing the currency. In this scenario, if you hold assets (houses, stocks, etc) you gain "wealth". If you don't, you are on the short end of the stick.
In the US, the Federal Reserve now has to "unwind" this, because they don't exactly want to be holding $8.5 trillion in securities. It's not what they "do".
They can take this on the "books" because they have literally unlimited money and can buy anything they want. But at some point, the Fed banks don't want to be in the securities game and have to move them back off the books.
Because they can move the markets so dramatically, they will likely turn a profit for the US Government. That will get them closer to the goal of low unemployment and interest rates in check.
But at what cost? 2008 was the first time we tried this, and here we go again.
Congratulations to everyone who was on the upside of this. Now we wait for the downside.
Another potential solution I haven’t seen discussed much is limiting/eliminating the deductibility of interest.
Assets tend to become inflated when interest rates are low or lots of financial leverage is used to acquire them.
To counteract this, one solution might be to eliminate the deductibility of interest for tax purposes, which for mortgages in particular, is a regressive tax subsidy that benefits higher earners.
It could be implemented gradually (e.g., reduce the deductibility by 1-2% per year until it reaches zero) to avoid immediate shocks to the system and provide investors with the ability to plan.
It could also be implemented to apply only to non-primary residences if we want to keep a popular middle class tax subsidy. This would target 2nd, 3rd, etc. homes and property and assets owned by corporations.
Off topic but I noticed while reading the archive.md article I highlighted some text by accident and noticed that the URL was updated to point to that text, https://archive.md/REmb8#selection-2437.0-2437.5. I've never seen this before. I know Chrome has 'Copy Link to Highlight' but this appears to be different and cross browser compatible. Does someone have any info on how this works? I'm assuming that URL is updated via JavaScript. What about when browsing to the URL? I think this is handy and something I'd like to incorporate into a blog site I'm building.
It shows that in the USA "net worth relative to nominal GDP" is actually pretty stable. The US has the lowest multiple of all the countries under analysis. Indeed the graph shows the US being almost exactly at the historical average.
I'm not sure what this means, but I certainly found it surprising.
This is what I find interesting. No one seems to complain about house prices more than people in the US - and yet on average - housing relative to rents & wages is much more affordable in the US than almost every other country in the world.
Could that because of of the USA's slums dragging down the average?
Say that your income is at the 0.75 quantile, nationally: you're just barely in the top quarter.
Now arrange the housing from least desirable to most and look at the 0.75 quantile of that: how affordable is the entry to the 25% most desirable places to live?
How close are those places to where you earn your 0.75 quantile living?
its not about slums. the US has abundant land and houses are cheap in most of the country. It's just big (especially coastal) cities where the prices are insane. Alot of americans do in fact live in "fly over country" where prices are 300k or sometimes less. In addition, we are lucky that we have a lot of cities, not just one major one.
Contrast this to a tiny country like britain or japan with only one major city london/tokyo where everyone wants to live. Where land actually is a limiting factor.
I am priced out of the market. What does the collective hivemind of HN suggest? Do I take out loans from family and friends and put up the down payment or wait for the prices to "normalize" is it going to take 2,5,10 years ?
Being deeply in debt on fixed rate interest loans is a good way to make money during an inflationary period. The balances on the loans evaporate while wages increase relative to interest payments.
This is a symptom of the "gradual disappearance of a rate of return on accumulated wealth" that Keynes daydreamed about in 1936, and we're going to witness more and more of the social changes that result from it.
> “Lenin is said to have declared that the best way to destroy the Capitalist System was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security, but at confidence in the equity of the existing distribution of wealth. Those to whom the system brings windfalls, beyond their deserts and even beyond their expectations or desires, become “profiteers,” who are the object of the hatred of the bourgeoisie, whom the inflationism has impoverished, not less than of the proletariat. As the inflation proceeds and the real value of the currency fluctuates wildly from month to month, all permanent relations between debtors and creditors, which form the ultimate foundation of capitalism, become so utterly disordered as to be almost meaningless; and the process of wealth-getting degenerates into a gamble and a lottery.”
> “Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.”
J. M. Keynes - "The Economic Consequences of the Peace"
We figured all this out nearly 8 months ago on Reddit - r/superstonk. Low interest rates will start to go away starting Jan 1 2022 and eliminated by Jun 2023
US has plenty of space. And unlike Europe, you can easily find a large "mostly empty" patch of land.
But for some reason new cities are not built anymore.
And when someone proposes building a new city inevitably the press fills up with dystopia/rent-seeking/we-should-make-existing-housing-cheaper/... articles.
Cities grow around something. In the past, that "something" has generally been a point-specific natural resource that can be exploited. Natural harbors, confluences of rivers, mines, etc. Sometimes cities grow around point-specific artificial resources like crossroads.
Sometimes there are resources that are exploited but everyone knows that the resource is very temporary so a city doesn't really grow. Instead, a town forms but never plants roots. For example, the small cities across the Bakken Formation which grew huge transitory populations but no one stays because everyone there knows when the price of oil shifts the Bakken will become unprofitable.
The important thing is attempting to plant a city in the middle of nowhere almost always fails absent very strong government incentives. Washington DC is sort of like that, where it was put where it is because of very strong political incentives (Virginia and Maryland didn't want that land). Brasilia is the other example that jumps to mind, where they wanted the seat of government away from Rio and forced the issue.
>Cities grow around something. In the past, that "something" has generally been a point-specific natural resource that can be exploited. Natural harbors, confluences of rivers, mines, etc. Sometimes cities grow around point-specific artificial resources like crossroads.
They can also grow around political and religious motivations like the Massachusetts Bay Colony, Las Vegas, Salt Lake City, the utopian experiment of New Harmony, Indiana, etc.
my dad lives in a "master planned" community in the middle of nowhere in the desert centered around a man made lake that needs to get refilled periodically. the weird thing is that 20 years later its actually much more populated and thriving
just a development for families, with some amenities like community center, pools etc. you can get a very large house for not so much money. it honestly is fairly nice, visiting used to seem depressing when I was younger but now when I visit with my kids it seems like not a bad place for a family to grow up in.
Last I checked, those resources are water and roads (or promises of roads). But people can't live without water and don't keep building where they can't get it.
All of us, but the Swedish are doing it without using coal or other fossile fuels. [0] Iron's going to be a bit harder to remove from the process though ;)
You can have all the empty space you want to build on, but if it doesn't have water or electricity, it will continue to be empty. Modern societies rely on modern infrastructure.
That's exactly the point. Where do you think water comes from? You can't just build a city in the middle of the desert. In order for it to be sustainable you need it located next to a lake or river or other large source of freshwater that's easily exploited. Water is a natural resource just like any other.
They will certainly try, but if they pick the wrong spot it will be prohibitively expensive compared to other locations and so they will be more inclined to pick another location, and the market price of the land will price this all in
The reason that major cities are where they are is because either there's a ton of traffic that flows through the area OR because they were the highest, easiest point to build on near a major source of fresh water. So no, they're not going to just appear because you build a city there. That's not how cities or infrastructure work.
Not all space is the same, nobody wants to live in Gerlach, Nevada because there's nobody there and also because it's the middle of the desert, which in turn is why there's nobody there:
Nearby Gerlach is Reno, the biggest little city in the world. It's 100 miles or 1 hr:45 mins away by car, 51 weeks of the year. With no income tax and a Tesla plant, Reno is thriving. Northern Nevada may have a lot of desolation, but the same rules of real estate apply - the three most important things are location, location, location. Land in Reno is expensive compared to Gerlach but cheap compared to downtown SF, at $270/sq ft (of course, SF being one of the most expensive cities in the US means everywhere is cheaper).
Yup! I actually forgot about Gerlach being associated with Burning Man (never been, myself). It just comes up when you search for "cheapest land in America."
And yeah, my point is the same as yours -- it's always the location that matters. If you can somehow bootstrap yourself a desert-mega city in the world's worst location, then agglomeration effects take over and the land becomes valuable because people want to be next to other people. But typically desert cities get off the ground because there's something about the initial conditions of that particular piece of desert that's more interesting than everything around it (that's what happened with Phoenix with regards to the canals/water).
Of course, once a critical mass of settlers shows up and sticks around long enough, wherever they happened to congregate is the most valuable location in the local area from then on.
Phoenix was not just some random place in the desert that was as good as any other, it was founded because of a pre-existing canal system that the founders expanded upon that gave it much better access to water
Phoenix has some location advantages (large rivers flow into the valley, warmer climate, better soil for agriculture) than northern Nevada that makes it more desirable and spurred growth.
I don't understand "new cities are not built anymore". Villages become towns and towns become cities all over the place. There isn't likely to be new planned cities in the middle of nowhere. Cities need infrastructure like power, roads, water, airports, etc. These things happen organically except in state created cities like in China or Saudi Arabia.
Is “building a new city” meaningfully different from just expanding or growing the current city or introducing medium density?
I’m supportive of new cities as experimentation projects - think that’s great actually. If it’s take a sprawling suburb and build another one it’s like why would you bother doing that versus just doing the same thing you’re doing now in current cities?
I agree with you, expanding cities should be preferred.
But that doesn't happen either, maybe because existing cities are surrounded by private lands, or other stuff that is hard to displace, in a litigious place like US.
Yeah, building a city from scratch opens up new possibilities for governance, institution building, city zoning and layout. I'm for a lot of small cities, each experimenting.
Adding to an existing city plugs you into all these incumbent systems, including existing hierarchies and notables.
It's not 'profitable' and it requires actual competence.
It's the same reason you have meetings where nobody will commit to anything, hoping that some other fool will commit to take on extra responsibility for no extra pay. Politics is exactly like that.
Why don't we build new cities? Because we don't have pioneers anymore. This is actually a really intriguing idea. We should crowdfund the creation of new cities, pioneered by a new generation of dissatisfied priced-out hyper-techified metrosexual young people.
Cities are built from less intense settlements. We don't build cities anymore because we systematically declare them "done" when they're just getting started.
This headline doesn’t seem all that surprising (nor does the article drop any particularly deeper revelations).
As soon as “indoors” was invented, humans preferred to live that way, even though it was expensive as compared to outdoors. I don’t see a reason to think that would change and, especially with people spending more time in their home and less money on services and experiences, would expect that more money would flow into improving the at-home experience, bidding up housing.
Twenty years from now, when 10,000 baby boomers are dying every day, housing prices will be in free fall, with no end in sight. That's too late for most of us, but today's small children will have no problem buying a house as adults, if they even want one.
I work in real estate so I'm alway interested in people's hypotheses... knowing that the Millennial and Z generations are both bigger than the Baby Boomers, I'm curious why your hypothesis is that housing prices will be in a free fall rather than continue to be a case of less (desirable) supply relative to demand.
Nah, large companies will continue to buy up all the dying boomers' homes like they do today. The companies will then jack up the rent on all property in the area. Small kids today will never know ownership unless its through their daddy's company.
I think it's a generational thing. Old generation wants to sell its wealth at the highest possible prices. Newer generations are not biting completely (and have no problem living in small spaces), hence crypto.
