In large cities across the US (and probably most of the world), there is some very large scale foreign speculation in the housing market going on. This is leading to rising rents and rising home prices.
In Seattle, for example, many (newly) wealthy Chinese people are buying houses purely for investment purposes. I know some of them. One of them has purchased 10 houses, and lives in only one of them (when they are in the states). They've made millions on just this speculation.
In the short term, this means housing prices are absurd. In the long term, when these houses are no longer appreciating in value at such large scales, we can expect a crash in the housing market. Which will likely mean something similar to the housing crisis of 2008.
The Seattle city council has wanted to pass a law that would make it visible to the public which houses were being bought by foreign investors, but it was deemed illegal.
To me, this is absurd. This is a human rights issue (homelessness is growing by a large amount). This is also a national security issue; this speculation cannot happen forever, and when it ends, I forsee an awful crash.
I sincerely doubt foreign purchases are the main driver of rent increase, and no study has ever demonstrated as much. The anti-foreigner mindset is extremely dangerous.
Rising rents are almost entirely because of local restrictions on creating more housing. The beneficiaries of restricted supply are existing owners and landlords.
The real estate market is not like most other markets in that the turnover of "inventory" is very low. Any speculation, foreign or otherwise, can have a huge effect on the price. On top of that, you can't just create a new livable house or apartment out of thin air, so it takes time for the supply to catch up to demand even setting aside zoning and other considerations. Conversely, if everyone tries to leave a single market at the same time, the price can also drop very quickly relative to what they paid for it.
Rent is a strict substitute for buying property so the rental prices in most cases track the real estate prices fairly closely. In fact, rental prices tend to change much faster than property as rent can be raised every year while a mortgage doesn't necessarily change once the sale has been finalized.
It's not anti-foreigner, it's anti-speculation. It's easy to see that home purchase prices are well beyond what any reasonable family would want to pay, and yet the prices keep rising. The problem isn't that it's foreign money coming in, it's that there's so much of it.
Well it's either greedy, scheming tech workers or greedy, scheming Chinese speculators. Isn't there a pattern here? The problem simply must be caused by powerful, scheming outsiders. Despite lack of evidence, as this comment is a great example, defying the claim of lack of such by GP as if it simply hadn't been heard.
A lot of it is greedy, scheming local slumlords, to be honest.
If we abolished Prop 13 statewide, did some minor up-zoning throughout the Bay Area (and had more mixed use zones), made new housing easier to construct (less drawn out process for people to block development, etc.), reduced parking requirements, worked on improving public transit, and taxed unlived-in buildings [or better, switched toward land-value taxes], did more planning at a regional rather than municipal level, we could take a lot of incremental bites out of the housing quagmire.
Unfortunately most of those are politically infeasible.
If the zoning laws werent there, they would be building new buildings(like they currently do in china. Hence the term ghost cities) instead of investing in overpriced existing stock.
That's not always the case. In places like SF, the only way to build is up, which is expensive, requires alot of capital, and is risky by itself even if you don't have NIMBY people fighting it. In this case, Monopoly has it exactly right as far as the costs and values of putting a new hotel on Boardwalk vs. putting 4 hotels on Mediterranean Ave.
What data do you have that building a high rise in San Francisco is financially risky? To the contrary cities like San Francisco is a gold mine for rent seeking as there is such a pent up demand for housing after many decades of under building and the rents are so high that building a high rise is unlikely to carry much risk at all compared to other asset classes.
>Rising rents are almost entirely because of local restrictions on creating more housing.
If those restrictions are a constant, then foreign purchases can still play a huge role in pent up demand.
Plus, there are limits to how much you can (and want to) built. You don't want to cover every inch of land with buildings, or grow into sprawling third-world style megacities...
And low interest rates. There is a complex dynamic between the decision to buy vs rent and a prolonged low interest rate can lead to expectations of rising housing prices, which lead to a boom cycle.
perhaps not directly, but you have to have some debt to back all the us t-bills that you are printing to make your int'l balance of payments seem credible and prevent the dollar from collapsing..
This is bad but much more significant is restrictive zoning laws.
I live in downtown chicago where rents are reasonable and skyscrapers for living at everywhere.
Meanwhile, you gotta move heaven and earth to build high density housing in some cities like SF. Even suburbs will fight 4 story apartment buildings. It's not rocket science.
Let the foreigners invest in building more of them. When the crash happens, the locals get to buy them back on the cheap.
What shouldn't happen is foreigners investing in sitting stock as a bank to store funds....zoning laws are like NIMBY on steroids with a long history of racism and classicism.
That's what really is what we should be angry about.
These are the same issue. If housing is regulated as a commodity then there will be plenty for consumers and prices will tend to be low and stable. If housing is regulated as a premium product with limited supplies and implicit links to schools and other critical resources then available units will dwindle, prices will rise without rational bounds, and we see the rise of people without homes along with homes without people.
At least in downtown areas, Seattle is infamous for having some of the least restrictive zoning laws in the country. I was advised not to pay any premium for a condo with a nice view, for example, because there is almost no such thing as a "protected view" in the city, unless you're physically situated such that no theoretical future building project could obstruct it.
While this might be accurate of downtown, you've lost the forest for the trees. Seattle absolutely has protected views for many of the single family houses. If they expire, it's on 30-40 year time horizons. Most of the city's land is single family housing (often with large minimum lot size).
Do you have a reference for "reasonable" rents in Chicago or can you break that down at all?
I'm genuinely curious. Coming from Vancouver where rents compared to salaries are considered beyond insane, what I found on Chicago's craigslist seem to be comparable. That is, accounting for exchange rate but not salaries.
I had found 1 room shared by bunkbed airbnb's for ~$1500/mo in SF, in a shitty location but forget where specifically about a year ago; and that was pretty cheap for near the heart, afaict
$1900/mo got me a 2-story townhouse in chicago just south of the south loop; maybe 15 min by train to the heart of the city, 20 min walk to chinatown
Had 3 proper bedrooms and an attic, so with 3 roomates it was more like $450/mo
Funny, I had an airbnb(I hosted) in nashville's downtown that made that rate look dirt cheap.
Reason?
Outdated zoning laws and hotels were slow to catch up with the tourist industry.
It was crazy watching my nearby competitors(the major hotels) adjust prices like the stock market.....
$1800 a night for the last suite at the sheraton up from $250-500 normally. Bonoroo and Country Music festival held the same week is what I called "Second christmas".
Most of that is the poorer side. Due to violence in poorer neighborhoods, less blue collar work, and ironically higher rents in some poorer "hip" neighborhoods.
Many high rises under construction here....they aren't building them for tax breaks.
> To me, this is absurd. This is a human rights issue (homelessness is growing by a large amount). This is also a national security issue; this speculation cannot happen forever. Our economy will very likely crash when this speculation is no longer profitable.
This is my biggest concern with wanting to dip my families toes into their first home purchase. We lived in Seattle last few years and the market is stupid, we recently moved to Bay area and this market is even more silly. (I know we pick some great places for first time home buyer but careers and education take you where they take you, that's another discussion.)
Yep, your career really does take you where it takes you. I'm in the same boat.
I've lived here for 5 years and have been saving, was getting pretty close to being able to afford a house, and the last year or so has seen such a huge increase in home prices and a decrease in availability that I've given up hope.
I'm not sure why it matters if the buyer is foreign or American. You would get the same issue if an investor from Texas decided to buy 10 houses and live in 1.
The key issue here is that there's housing that's unoccupied, even under lots of demand. The fix for that is to tax or ban unoccupied housing, not ban foreign housing.
>if an investor from Texas decided to buy 10 houses and live in 1
An investor from Texas can simply open a Vanguard account. The theoretical mechanism for Chinese speculation is that real estate is the path of least regulatory resistance compared to stock markets, etc. under Chinese law.
Nothing to do with regulatory resistance. Chinese culture generally views the stock market as gambling in a way that US culture does not. Real estate is a safe investment. It is also protected against seizure by the Chinese government.
We saw this before with Japan, it didn't end well.
If you think the states property markets are crazy, well, the Chinese ones are crazier by an order of magnitude. It's no wonder that many wealthy Chinese see the states (or other countries) as a safer bet. The upside is that rents in china are still reasonable (so that 7 million yuan apartment is only renting for 10k RMB/month).
However, the same was true with Japan, and when their asset bubble crashed, it took many foreign markets with it (taking about a decade to recover, heck, even California, especially California, suffered).
I think a similar thing would have happened in the US during the Great Recession of 2007, however, the US government was willing to back all of the banks who were holding underwater mortgages. Had the government not done this, the banks would have been forced to unload property at fire-sale prices.
10 years later in major metropolitan areas, property prices are even higher than they were in 2007. Most likely the Federal government would pursue another bailout during a housing "collapse".
The core issue is real estate as investment regardless of where it's coming from. Right now the most visible are overseas Chinese people with money buying property, but REITs have been picking up rental property for ages, and there are also PEREs (private equity real estate firms).
If governments are to serve their people, then they should curtail this speculation. Of course in America, corporations are people.
In English common law corporations are people, hence the name. They are a synthetic "body" for business purposes. This isn't a new concept created by Citizens United.
It's usually better to say that they have "legal personality". They're not people, but like people, or charities, incorporated associations etc, they have an attribute that gives them legal existence a court will recognise.
What Citizens United established was that free speech applied to legal personality generally, not humans in particular. Folk forget that this includes organisations they like, as well as the many they don't. It's easy to dislike the situation (as I do), but trickier to explain how to define a way out of it.
Build sufficient housing and they won't see it as a sure-thing investment anymore. They're betting that local politics will never allow this to happen.
You're right, and they're right. It would take a monumental shift in politics for local governments to give up their ability to buy favor with local residents through land use code.
Very true. A friend in Seattle tells me that Seattle locals are buying second and third homes as investments, a new way of becoming rich through leverage.
Disagree. It costs much more to build a house or apartment than it did 50 years ago. This is primarily because of changes in city requirement to make the houses safer.
I recently had a house burn down in a neighborhood with numerous $150k houses. Cost to rebuild a similar structure was over $200k. I got three bids and every contractor told me the cost was much higher than nearby existing properties because legally, the house would need to be built with different materials and different building requirements.
> I recently had a house burn down in a neighborhood with numerous $150k houses. Cost to rebuild a similar structure was over $200k
My home insurance company made this very clear when I started a policy with them - they discussed the price of the house (e.g. in tax roll estimates of "land improvement") vs their estimated replacement cost. Even with new requirements though, no one talks about the productivity improvements in construction - from faster to put up materials, to the abundance of various tools .. is it really regulations or a form of cost disease...
The population growth in Seattle each year exceeds the growth in housing supply required to house them, despite the level of new construction in Seattle. This has been the case for some time and will continue for the foreseeable future. There are not many cities that could absorb ~2% population growth year after year.
Even absent any non-resident speculators, the demand is still going to significantly exceed supply such that the prices increase given that housing is not growing at the rate of population. Foreign speculators may or may not make it worse but they aren't the primary cause of price increases; simple supply and demand is sufficient to explain it.
It's easy to jump on the bandwagon and blame foreign investors. But aren't locals voting as fast and as hard as they possibly can to prevent development of the new housing we need? And aren't locals making tons on real estate speculation, too, or are you saying there's some great secret that only the Chinese know here?
Seems more sane than extreme. I think it's a pretty reasonable policy given real estate speculation trends in the last few years. It seems reasonable for countries should have strong policies for protecting domestic housing stock, whether those are outright bans or massive taxes.
"To me, this is absurd. This is a human rights issue (homelessness is growing by a large amount)."
Homelessness is a mental health issue. Nobody is homeless because of foreign speculators.
Yes, people are indeed incentivized to relocate to housing markets that Chinese people have never heard of like, for instance, Tacoma.
If those people spent half their time working and saving (like their parents did) as they spent bitching about their basic human right to live in a walkable neighborhood with artisanal foodstuffs they would then have a nice down payment when the inevitable crash comes to the hot housing market in question.
Mental health is one reason why people are homeless but it's not the only one.
The reasons you're bringing up are strawmen at best. The people who are homeless or on the brink of homelessness are not complaining about artisanal food stuffs.
In Oakland, a family of 4 has been living in a single family home for 15 years. This year, after new owners purchased the property, the rent went up 100% in one year. Needless to say, they are facing a housing crisis where they will be homeless.
If you want to understand the severity of the situation, I suggest just literally googling "homelessness housing crisis bay area" and read all the both qualitative and quantitive reporting done on the issue.
"If you want to understand the severity of the situation, I suggest just literally googling "homelessness housing crisis bay area" and read all the both qualitative and quantitive reporting done on the issue."
As a resident of the bay area I assure you that I read about this topic every single day - and consume a wide range of reporting and editorial.[1]
"... the rent went up 100% in one year. Needless to say, they are facing a housing crisis where they will be homeless."
That's not obvious at all. Certainly that's a very difficult situation and I suppose it is technically true that they will indeed be homeless as they physically move their bodies to their new home ... but there is nothing at all new or noteworthy about people making rational economic decisions about what they can and cannot afford - and voting with their feet for new locales.
The only thing that's new (and this is something I encounter more and more frequently, especially in the bay area) is the idea that not only is housing a basic human right but housing in an arbitrary location without any consideration of ones actual economic status is a basic human right. This is, I am afraid, absurd.
I am open-minded about the notion of housing as a human right. I completely reject the notion of housing wherever one most prefers[2] as a basic human right (or any kind of right whatsoever).
[1] 48 Hills, for example.
[2] Where you grew up, where you raised your kids, where the cool restaurants are, where the artists are at ... etc.
The notion of "a fundamental right to housing" isn't about "where cool restaurants are." It's a starting point and a framework for how you solve the problem. There are complications that we definitely have to figure out (including where etc) but the conversation always comes back to the strawman of "well it's just not fair to buyers, and those people need to make better economic decisions."
If a person is paying $1000 a month, and sees a 2% increase every year and can afford it, but then can't afford a 100% increase in one year, are you saying they made bad economic decisions? OR that they should have anticipated the housing market to shift so drastically?
Of course not, because, as you said, it is absurd to not consider ones actual economic status.
Wrt to the newly homeless who have been evicted - i think it is convenient to chalk this up to market economics, but the truth is that zoning, housing, and rental laws have created an environment where you are seeing mass displacement of people. You may say "well that's the market" but you might feel different if it was you and yours. It also trivializes the value those people bring to their communities, and the lag effect in economic production their displacement will invariably produce. Longer commutes = less productivity (http://www.cityam.com/265145/heres-just-much-impact-long-com...).
I don't disagree that you need to consider economic status, but in that vein, it's worth considering that housing laws help us define the values we want in a community and sometimes those are not always economic.
At the end of the day, there is pretty conclusive evidence that building more affordable housing is good for cities.
Honestly, counting on being able to rent a single family home for an extended period of time is insane. That they were able to live there for over a decade makes them an outlier. Most single family homes are owned by individuals. Individuals and/or their heirs often need liquidity, so rental houses are way more likely to change hands than apartment buildings.
Who said they were counting on it? The point is that this is a problem that could be ameliorated by simple regulations. In NYC, for example, it would not be possible to increase someone's rent by 100%.
> I am open-minded about the notion of housing as a human right. I completely reject the notion of housing wherever one most prefers[2] as a basic human right (or any kind of right whatsoever).
I won't make the overly broad claim that nobody ever demands housing in popular districts, but I don't think this reflects the reality of many housing decisions; usually it's about convenience; convenient commute to work, convenient access to schools and hospitals, convenient shopping for necessities (food, etc), convenient utilities. I know that some people get a thrill out of living in hip areas (my brother lived in a popular section of Chicago for years and paid outrageous prices for a hole in the wall), but more often than naught people just want a convenient location with the ability to perform their daily tasks without undue stress.
Living abroad, it's possible for me to have an hour commute because the public transportation is reliable and cheap and there are ample options for shopping at virtually every transit stop. This was not the case when I was in the US and my car was destroyed by a drunk driver; having lived in Tacoma, I enjoyed their transit system, but it was not convenient, as missing your bus even slightly after peak hours meant a 45 minute wait in the rain just for an hour commute and then another 15-30 minutes walking.
The cost of living in the US isn't just reflected in the rental price on the apartment or the cost of the house/condo; it's also with how livable the area actually is and what you need to live well in an area.
My experience is that typically this is what people are frustrated with and concerned about, not so much having fantastic apartment or homes at the coolest place. Bringing up such a concern just seems like focusing on an edge case and diluting the main concerns when it comes to difficulties with housing. I was lucky enough that the worst rent increases I had were to the tune of $30 every other year - that was as simple as deciding not to get takeout once or twice a month when I may otherwise had done so. This was in Tacoma in a relatively stable part of the city; but as Tacoma continues to try and shake off it's former reputation, many of the neighborhoods at the time were being bought up and rebuilt, and I had friends who lived near such areas whose rent shot up much more, and what was a place where they could live rapidly became beyond their means and they had to seek new housing. It's easy (relatively) to move when you have even a small amount of financial freedom, but when you are restricted financially, adjusting to rapidly increasing rental prices is very difficult. It has long reaching effects and leaves an already trouble part of the population without options as they are forced to move further and further away from the things they depend on into situations which aren't good for their situation.
It probably was the case 5 years ago that most homeless people in the US has some kind of mental problem. These people were almost all men and you would see them sleeping on the sidewalks or parks with almost nothing in the way of possessions. Now, at least in Oakland, there are tents everywhere. From single ones trying not to get noticed to tent cities with 10-50 tents all in one area. Many of these people have a piles of possessions and some still have jobs. Maybe not quite on the scale of Hoovervilles in the Great Depression, but getting there.
I truly have no idea what the situation actually is, but here is an, IMO, plausible explanation: policing practices around homelessness have changed as a result of changing attitudes toward the homeless (toward increasing acceptance) and this has created an environment in which the homeless are now able to accumulate possessions and erect semi-permanent shelters. Another, plausible scenario (again, IMO): if certain liberal cities have a reputation for being relatively accepting toward the homeless, there may be a simultaneous net migration of homeless from less accepting parts of the country to these cities.
Not at all. I even stated directly that in the recent past most homeless people had mental health issues. Now added to this first group are people that just can't afford the rent and have been evicted or pushed onto the street.
What about people who have lived in neighborhoods for decades, but were since evicted (i.e. their SRO was converted to luxury whatever)? Sure they may be near the economic fringe, but the poor will always be with us. How can we enable the poor to participate in the rich economy that cities create? Or should cities become only playgrounds for the upper middle class and wealthy?
Yup. Totally because people aren't hard workers. Nothing at all to do with the fact that wages have been stagnant at best over the last 30 years, and housing prices have ballooned.
>basic human right to live in a walkable neighborhood
Somehow we have a societal consensus that it's your basic human right to live in a quiet neighborhood free of traffic, shadows, or other humans. It's good to see some push in the opposite direction.
I own in OC. I remember when I bought, it felt like I was dodging between all-cash offers for a lot of places. It was difficult to find somewhere move in ready that was within my budget and didn't have an over-listing all-cash offer on it already (and this was years ago).
Eh.. I saw it more as a symptom of humans breeding. Human population has always been bound by some constraint, and now it seems that shelter is more of a limiting factor than food supply, in western countries at least.
That, and a cultural shift toward wanting to live in cities, even though many of these financially struggling millennials would do just fine financially in more distant suburbs.
It's restrictive zoning laws. Home and property owners have a zeal for politics unmatched when it comes to keeping values up.
The movement away from cities had a lot of reasons that have been solved(jobs came back, riots, red lining, less pollution, less crime) so I'd say the cultural shift was justified to return.
High density zoning is only a short term solution, and it seems with current policy enactment speed, technology (and especially building regulations), demand will always outpace supply for the foreseeable future.
Naw, take a look at nashville which was expanding insanely fast in population. Rent rose 25% in a low CoL city.
They had a housing shortage for the past few years and removed a lot of restrictions. Recently they actually overbuilt despite a shortage of skilled construction workers.
You can build hella fast when the demand is there and the government wants buildings fast. We're talking skyscrapers in 12-14 months.
Seems the economy is finding the sweet spot where education, housing and health extract the maximum amount of money from people right before they break. Finding that spot while a avoiding a revolution has been the biggest challenge for ruling classes throughout all of history.
Calls to mind my favorite Colbert‡ quote: "The art of taxation consists in so plucking the goose as to procure the largest quantity of feathers with the least possible amount of hissing."
Taxes were privatized under the ancien régime (a tax collector committed to handing over a fixed sum and then was welcome to use whatever means he wished to go collected it -- and was free to keep the profits). The integration of many big businesses with government in the US (not just military-industrial but telecoms, banking etc) through regulatory capture and quid pro quo really resembles this system.
‡ Jean-Baptiste Colbert, I mean, Louis XIV's finance minister after the 30 years war. Probably more popular around here for the story that "laissez-faire economics" came from a conversation he had.
I absolutely agree, money solves a lot of problems. Knowing that you can afford to pay your bills, knowing you can eat out and stretch your budget without breaking the bank next paycheck removes so much stress and frees you to focus on other things.
Constantly worrying about money, bills and what you can and cannot afford to do is brutal. Watching peers enjoy life makes it easier for you to stretch your credit card a bit more to "enjoy" a temporary moment of time you will undoubtedly pay heavily for in future.
It seems to be a vicious cycle and makes it more easy to neglect long term like retirement planning and savings.
I'd guess this problem will compound itself in about 20 years when this large swath of people reaches retirement age with no equity, no retirement and perhaps still lots of debt.
I think some of this stems from income inequality and access to a lot data. so those with extra money are looking to real estate as an investment, and the data allows them to extract maximum money from people till they break.
I'm in the Boston area. Living in a place I couldn't afford if I hadn't bought it 10 years ago. I'm wondering how much of this squeezing maximum profit from renters hurts local businesses as they're profits go to rents, and the people living in the area can't afford things because of high rents.
For positional goods where there is a fixed supply people will tend to bid up the cost until it can't go any higher. I mean, in theory we could just build giant apartment towers all over SF but nobody wants to make that legal. And the number of medical residency slots, the construction of new hospitals, etc are very restricted. But fundamentally with higher education the number of slots of prestigious institutions has to be limited or they wouldn't be prestigious any more.
The simpler the insight, the more valuable and powerful it is -- if correct.
I think it does capture a key basic principle underlying current trends. In any economic system, there is some total amount of "welfare" or value generated, and it gets split in some way.
So maybe you have a constant value of $2,000 per month for having a place to live. 10 years ago your rent was $1,000 per month and so of the $2,000 worth of utility generated by you living there, you got half and your landlord got half.
Now your rent is $1900 and you still would rather pay it than be homeless, and by many reasonable metrics the economy is better than ever, but your landlord is capturing almost all of the value in the system and you are reaching the breaking point.
And I personally don't think it's too simplistic to be true that, as powerful companies optimize (including politically), this kind of transfer is occurring in a lot of sectors in the US this decade.
Rent is an amazingly effective means of redistributing wealth upwards. I have easily paid over £100k rent in my life, always to people substantially richer than I am.
Always enjoyed this Churchill quote - from 1909!
Roads are made, streets are made, services are improved, electric light turns night into day, water is brought from reservoirs a hundred miles off in the mountains -- and all the while the landlord sits still. Every one of those improvements is effected by the labor and cost of other people and the taxpayers. To not one of those improvements does the land monopolist, as a land monopolist, contribute, and yet by every one of them the value of his land is enhanced. He renders no service to the community, he contributes nothing to the general welfare, he contributes nothing to the process from which his own enrichment is derived.
> He renders no service to the community, he contributes nothing to the general welfare, he contributes nothing to the process from which his own enrichment is derived.
The value landlords provide is the assumption of risk. The premium you pay to rent is in exchange for vastly limiting your exposure to said risk.
This is why offloading the risk onto creditors (ie purchasing real estate with borrowed money under an LLC) is so lucrative. You reap all of the rewards of property ownership, but none of the downside. In a failure scenario your creditors are on the hook, not you.
I should probably add that banks are not stupid and it is very difficult, but not impossible, to get a loan for real estate investment under an LLC.
> The value landlords provide is the assumption of risk. The premium you pay to rent is in exchange for vastly limiting your exposure to said risk.
In hot housing markets, the value they provide is having access to the capital necessary to own property.
A 30 year old hairdresser in Seattle isn't renting because they don't want to deal with risk - they are renting because they can't save up a $XY,000 downpayment, and tie their entire salary into interest payments.
Mind you, the capital requirements for property ownership are pretty insane, and our low interest rates really don't help matters any (Home prices have ballooned, in part, thanks to them.)
Hot housing markets are extremely high risk high reward investments.
Buying NYC real estate for example, it is practically impossible to use a traditional "buy and hold" strategy and have the rents cover the cost of investment (typically rent covers more like 50% of operating costs in NYC). You pretty much only make money in NYC REI via speculation (ie the property goes up in value) not from paying down the mortgage with rents.
The solution to high pricing is to increase supply of housing. Mind you _this_ is an area where landlords do have high rent-seeking behavior in the political sense. Landlords are incentivized to push for increased regulation that limits new development whenever possible. As much as I hate to use him as an example due to his "lightning rod effect," Trump, for example would see his net worth plummet if NYC development regulations were relaxed.
Last I heard, NYC is literally running out of pavement space for pedestrians, let alone vehicles, and increasing the supply of housing still hasn't brought prices down.
NYC has tons of regulations that _drastically_ limit the supply of new housing. New supply hasn't even come close to keeping up with new growth. New supply is a drop in the bucket.
> Last I heard, NYC is literally running out of pavement space for pedestrians, let alone vehicles
That's news to me, as someone who lives and works in the two busiest and most crowded neighborhoods in the city
> and increasing the supply of housing still hasn't brought prices down.
Yes, but that's because of the way new housing has been constructed (skewed towards luxury buildings, which are purchased by foreign speculators as ways to park money essentially tax-free). That means that many of these new units that are constructed don't actually increase the supply of housing, because speculative purchasers tend not to rent out the units (it's not worth it, given their goals).
> (NYC running out of space for pedestrians) is news to me, as someone who lives and works in the two busiest and most crowded neighborhoods in the city
> A 30 year old hairdresser in Seattle isn't renting because they don't want to deal with risk - they are renting because they can't save up a $XY,000 downpayment, and tie their entire salary into interest payments.
If you're talking about cities like Seattle, the reason that a 30-year-old hairdresser would have a difficult time purchasing a place is because prices have been pushed absurdly high due to two factors:
a) a housing shortage (primarily in the SF Bay Area, but Seattle has similar problems, and the SF housing problems spill over into other nearby cities)
b) speculative purchasing by foreign entities
The second point is less relevant Seattle than it is to nearby Vancouver - and nowhere is it more true than in New York City - but it still has a huge inflationary impact on property values in a way that doesn't benefit any local residents at all (the properties are used as places to park money by people who don't live there, and may never even have visited the US).
I'm starting to think it is less about foreign investments, like a few other comments have noted, and more about changes at the top end of the middle class.
Along with the large amounts of growth, wages in the upper middle class have really increased a lot. If you look at tech workers, it was pretty common to see average tech employees pulling in $75k-$150k a decade ago; today employees at a similar level and set of skills are pulling $200-350k. As a result, there's a ton of money in the high end available to purchase housing in the area.
Saving for a down payment is a challenge, but less so if it's relatively easy to tuck away an extra $100k a year. This is likely available to a tech earner but not the Seattle hair dresser, unless they have also increased their asking rates for a haircut the last few years.
Were 30 year old hairdressers ever able to afford a home inside a major metro area? I'm sure one could have afforded a home in Seattle 40 years ago, but the Seattle metro area wasn't even among America's top 20 largest metros until the 70's.
The problem with the assumption that something is wrong with Seattle's housing market is that people's perceptions of what Seattle "is" haven't changed to reflect the fact that Seattle today is as large as Chicago was in 1930. No one expects a hairdresser to be able to have been able to afford property within Chicago's city center at any point in modern history. That's because everyone alive has always known Chicago to be a massive metropolis whereas many long term residents of Seattle still remember a time when the city was an also-ran in terms of size and economic prosperity. Just think of all the towns that were absorbed into what is now called Chicagoland.
People who live as far as 85 miles away from downtown Chicago (Kentland Indiana is part of the Chicago MSA) still consider themselves to live "in" Chicago and they are even included as such in Chicago's Metropolitan Statistical Area. People's perceptions of what constitutes "Seattle" need to change to reflect the current reality of the city's size and influence.
Sure, probably. The hairdresser who cut my hair when I was a child managed to buy a home in the Chicago metro area about 20 years ago. Maybe she had another source of income but I don't think so.
> A 30 year old hairdresser in Seattle isn't renting because they don't want to deal with risk - they are renting because they can't save up a $XY,000 downpayment, and tie their entire salary into interest payments.
The same applies to a 30 year old doctor in Vancouver, and I would imagine other Canadian cities soon enough.
what if the hairdresser wants to move in with a roommate? or gets married? or has kids? Or open a new shop somewhere else? There are many reasons why someone may not want to own their property, and have to deal with transacting it.
A renter's financial risk is limited to his/her lease agreement. This could be the remainder of the rent due according to the lease (ie if there are 6 months left on the lease agreement you will need to pay 6X rent). In practice typically a renter is usually on the hook for the security deposit or a month's rent, so long as they can find another renter to take over their lease.
The owner assumes the total risk for the property.
As a basic example, consider starting a lease vs buying a property in 2007. If you were a renter when the real estate market collapsed in 2008 you were stuck paying higher than the market rate (most likely) until your lease ended, at which point your rent probably dropped to market rate. No biggie.
If you bought property at the top of the market in 2007 for say $500k, and the value of that property dropped to $250k in 2008, you are now paying a $500k mortgage payment for a property worth half that amount. Rent used to cover your mortgage payment but now the market rate for rent in the same property has halved so now instead of breaking even every month on your property you have to pay $1,000 a month for someone else to live in your property just to not default on the mortgage. Odds of having to declare bankruptcy in this scenario are high.
> Odds of having to declare bankruptcy in this scenario are high.
Not at all. If you could not afford your property because of a loss of income, you are eligible for another mortgage after a short sale or foreclosure within a year. If you can't document a loss of income, its only 3 years to get another mortgage.
Temporary credit damage? Indeed, but not necessarily bankruptcy.
You risk negative returns on the property, or losses compared to your opportunity cost.
If you had $1 million in 2007, it would have been more profitable to invest it in Google than to buy a two houses in Mt View and rent them out. That is the risk the landlord is assuming. There are examples where you have a negative return as well.
That the value of the land might go down? Risk means financial downside, you can lose money on real estate on a multitude of things, millions of investors do every year.
Real estate is not as easy to diversify as stocks and bonds, certain unexpected and uninsurable external shocks can have disastrous effects on the profitability of your investment. Things such as new rent control, property tax increase, termite damage, spiteful tenants, corrupt HoA, and sudden market volatility can all cause you to lose significant money.
I'm not getting the message behind the Churchill quote, landlords clearly have operating expenses to commit towards keeping a plot of land and shelter in useful or livable condition.
If farmer renting land can decide year-to-year whether it is worth it to him to farm the land. If the renter determines that a particular lease is not profitable, he is free to do something else. The landowner has no such option; he's stuck with the land.
The renter generally pays a higher price per year than an owner but has greater options and less risk.
This is generally true of renting vs buying. If you go to distant city for a one-week vacation, you are likely to rent accommodations and a car rather than buy them. At the end of the week you can just walk away, whereas the owner must concern himself with generating an income with his property.
What risk? I bought the flat I live in to make risk lower. If you live on somebody else's property, you are more vulnerable and owner can limit how you treat the property.
I have a place to live in, while if I would be renting, I would have no more money for rent and had to move. I am not speculating on that flat with intention to sell. I live in it.
You've lost your job and were only able to get a job that paid half, how do you make your mortgage payment? If you are renting you are not locked into the property, you have the flexibility to move to a lower cost flat.
The monthly mandatory payment on my mortgage is now a lot lower then typical rent (I have freedom to pay more if I wish to). It was roughly same as rent for few years, but it went down as I paid the debt.
If my salary would go down to half and my husband would got unemployed, we would still be able to pay it. You don't have to buy the most expensive flat there is in the city. And if we were not, that would still be not that much different then not being able to pay rent.
In really really the worst case, you move to that lower cost flat and have bank take away your flat (since you aint paying mortgage it is theirs). But it is less likely to happen then being unable to pay rent because we got sick simultaneously with economy tanking.
What I'm describing is a generalization since you asked about the differences in risk between renting and ownership.
It sounds like you have taken a series of (wise) steps to significantly limit your exposure to the risk involved with property ownership. This doesn't make the rule invalid though it makes you the exception to the rule.
> In really really the worst case, you move to that lower cost flat and have bank take away your flat (since you aint paying mortgage it is theirs).
In the event of the real estate market tanking, like it did in 2008, this is not what happens in a worst case scenario. You are still liable for the cost of the mortgage you owe, if the property loses more value on the open market than the amount left that you owe on the mortgage you can't just give back the property to cancel the mortgage. You might owe $300k left on the mortgage (because you originally bought the house for $500k for example) but now the property is only selling on the market for $250k. In this scenario you can't "give back" the property because even then you still owe the bank $50k. If you can't pay, you must declare bankruptcy in addition to losing the property. So now you have no home and also your credit is so destroyed that landlords refuse to rent to you. This is a very real scenario and happened to a LOT of people during the US real estate crisis.
It’s not uncommon to find fixed-rate mortgages that are significantly cheaper than the corresponding rent for the same home. The risk is only high the first decade, and then it becomes a huge safety net.
I guess we should also consider what happens when the economy collapses and the value but not the cost of your rented living space is worth half what the landlord paid for it and you lose your job.
It depends on where you are renting. Some jurisdictions have extremely tenant friendly laws [ which is how you end up with people paying $400/mo rents for 3 bedroom apartments in West Village or in Upper East Side ], while others don't.
So what's your point? Do you want to eliminate rent? Should people who either can't afford to purchase a house, or who simply don't want to, be forced into homelessness?
Personally I've paid over $115,000 in rent over the past 12 years, but I don't begrudge my landlord their money. I attained utility in exchange for the rent I paid, and have no problem with the arrangement. Not, of course, to say that I'm happy when rent goes up. But it's a conscious choice I make to live this way, not some sort of exploitation.
He renders no service to the community, he contributes nothing to the general welfare
Housing isn't a service that contributes to the general welfare? I call bollocks.
This is distinct from a property tax in that it only measures the value of the soil it sits on, so doesn't punish the landlord for improvements. The value of the land itself is almost entirely outside of the landlord's control, it's determined by the community around it. As a result, this is one of the least distortive taxes.
> This is distinct from a property tax in that it only measures the value of the soil it sits on, so doesn't punish the landlord for improvements. The value of the land itself is almost entirely outside of the landlord's control, it's determined by the community around it. As a result, this is one of the least distortive taxes.
When land value is taxed at a higher rate than property value, it creates a perverse incentive for landlords - especially those who don't live in the area in which they own property - to encourage blighting and sabotage the value of the land, while instead reinvesting this money into improvements on the property itself. That concentrates wealth even further in the hands of people who can afford to own these insular properties in otherwise "undesirable" areas.
Actively blighting a neighborhood to depress values and make it easier to purchase land for new properties (either on the market or via eminent domain) is already a problem, and one that significantly skews power towards the extremely wealthy and massively-capitalized institutions. Taxing the value of the land separately from the property that sits on it (and at a higher rate) would exacerbate this unbelievably.
> How have all the economists missed this obvious point?
They haven't. That's why taxing land value at a higher rate than property values doesn't have support from mainstream economists.
> Murder also hurts property values. Fortunately, we have the ability to create laws to punish destructive behavior.
Murder is a lot easier to identify and prosecute than blighting. We already have laws against blighting. They don't seem to work. Increasing the incentive to blight is unlikely to make blighting less attractive.
> Why would a landlord destroy the value of their own property, harming their own ability to draw rent?
You're missing the point. They wouldn't destroy the value of their property; they'd extract value from the land (and neighboring land) to build up the value of their property. Land-value taxes encourage consolidating wealth in improvements to private property that have zero impact on anybody other than the property owner (or tenant). That's the exact opposite of the desired outcome, because it clearly works against the public benefit.
There are plenty of areas where this already happens, because there's enough of an incentive for property owners to do this even without skewing the tax code specifically to reward them for this behavior.
In some areas , it is much easier (profitable) to stuff a bunch of people into Section 8 housing, instead of trying to rent to doctors, lawyers, or software developers (i.e. people that can afford attorneys).
I admire the cashflow of trailer parks, and the ease to remove and replace distressed properties.
I would rather find some mechanism that separates everyone who wants to just earn towards a shelter that they can stick around in when they reach their old age, all into one market, and ring-fence everyone else with a profit motive into their own market where they can duke it out among themselves the real estate game.
For example, the capitalization and sophistication of commercial players lets them efficiently and systematically harangue tax assessors into lowering property taxes far below what normal individuals with just their own residential property can accomplish. Those kinds of advantages accrue in many other areas, and are out of reach of individuals due to sheer scaling differences. But it's the individuals that incur lots of collateral damage over the course of a long period.
LVT is part of a solution, but I'm still looking for a way to address that scaling differential. I think housing co-ops are onto the start of such a solution, but I'm not convinced in their current form that they are appropriate to use for addressing the scaling issue.
So, where exactly does the wealthy landlord get the money to pay the land-value tax? From their own labor? From their savings? From after-tax interest earned on their other investments? Of course not! They're going to raise the rent to cover the additional tax, and if the renter can't afford it screw them; they'll be kicked out and replaced with someone who can.
This comes up a lot in discussions involving income inequality. If the proposed solution is "tax the rich", you have to be really careful to tax them in a way that's not trivially easy to pass back onto the less-rich.
The effect of a tax on land works differently than other taxes do. Because the land value tax will free up supply (which was previously held for speculation), the result could just as easily be that rents drop. This is the entire reason that this tax is attractive, and you are right that without this feature, the tax would not make sense.
That link is talking about the effects an LVT would have on unused land that's being held for appreciation, and land that's being held as an investment. I'm talking about landlords renting property to tenants. Increasing the taxes on the landlord increases their cost, which would force them to raise the rent they charge. This is just like anything else that would raise their costs: higher insurance rates, increased maintenance costs, increased homeowners fees, etc.
Those other increases in cost do not simultaneously open up supply, though. When there can be more landlords renting out their properties, prices will fall in response. I agree it is counter-intuitive.
"Because the supply of land is essentially fixed, land rents depend on what tenants are prepared to pay, rather than on landlord expenses, preventing landlords from passing LVT to tenants."
Landlords do not set market rents. Renters and their employers do. Tax changes do not raise or lower rents. They make it more or less likely that new housing will be built, which affects future rents.
Land value taxes are so attractive because they avoid changing the incentives to build.
Of course landlords set the rent they're going to charge for their property. They're free to do so, within certain bounds established by the market and based upon the value of the property they are renting. A land value tax, which would be applied to ALL landlords in the area, increases ALL of their costs at the same time, which forces ALL of them to raise their rents at the same time. It would shift the entire market up, raising the cost of living for everyone who lives there.
Some employers might try to raise compensation accordingly, but they're going to have higher rental costs too since most employers have to rent their office space. So it's more likely that they'd be forced to reduce the size of their workforce to reduce costs and spread compensation among fewer, somewhat better-paid employees.
The impact on landlords would be immediate, and the impact on renters would be as soon as they get or renew a lease. Employers and employees would see an impact somewhat later, since it takes a while before a business is forced to downsize. Any new housing would be a long way off, well after all of the negative impacts have occurred. New housing may never come, if businesses and workers are forced out of the area to someplace that doesn't have an LVT.
Your premise doesn’t make sense. A land value tax would not “increase all of their costs at the same time”, unless the tax was implemented in such a way. More realistic would be that the tax would be revenue neutral, such that taxes would increase per unit dwelling on land with poor utilization, but decrease on land with better utilization (i.e denser). This would be reflected in rents and would encourage people to move to denser neighborhoods because the rents would be cheaper.
I don't understand how a land value tax is supposed to make rents lower. It doesn't really compute.
As a landlord, I have a mortgage of $X and taxes of $Y, and insurances, maintenance and other liabilities that total up to $Z, for operating costs on a piece of property.
For this to make any sense at all, $Rent >= $X + Y$ + $Z.
If you increase the taxes $Y (and this would, realistically, be done more or less uniformly across a town or municipal region, so all properties are going to be in the same boat), all you've done is make me have to charge a correspondingly higher rent. Rounded up to the nearest $25 or $50, because that's how it is always done. Meanwhile all the other owners of rental properties are in the same position.
Here's a brief description of how the increase in land value is calculated: "Under this system, when real property is purchased, the county assessor assigns it an assessed value that is equal to its purchase price, or “acquisition value.” Each year thereafter, the property’s assessed value increases by 2 percent or the rate of inflation, whichever is lower."
I think what the 2% appreciation cap is attempting to mitigate is if all your tech millionaire IPO neighbors decide to remodel their houses at once, you won't be stuck with a huge tax bill and have to move.
What you describe is California’s Proposition 13. It does essentially the opposite of the Land Value Tax that the parent is advocating. The acquisition value system and 1% cap ensure that land investors (rather than local governments) capture the windfalls from the appreciation while they own the property. The split roll for land vs. new construction taxes new construction at a higher rate (rather than the lower 0% under the Land Value Tax) so Proposition 13 discourages (rather than encourages) investing in improvements.
Agreed. Just highlighting to some degree it exists already and as not a novel untested concept. It just needs refinement.
A phased, gradual raising of the 2% cap probably would make sense over a couple of decades. That way homeowners and developers can adequately prepare and build in that rate increase into their economic models. Building lifetimes span multi-decades.
Please explain how this additional tax isn't immediately (at the next least signing) passed on to renters. If I rent out a property and the taxes go up $X, I will raise rent at least 1x.
Econ 101 supply and demand.
Why haven't you _already_ raised rent $X? Because you love your tenants? If landlords kept down rents out of _charity_, we wouldn't have a rent problem in the first place.
Except all rental properties in the region would have to pay similar amount of land tax, so they would all raise the rent and the renter would have to choose either pay the higher rent or move to a cheaper area.
In California at least, the property tax bill is already split into two components:
1.) Tax on land value
2.) Tax on improvements (building, landscaping)
so Georgism already exists somewhat.
An land value tax increase would need to be phased over decades to account for the building lifetimes which can span 50 or more years. Developers use multi-decode economic models for their developments based on assumptions including worst case property tax scenarios. But if that can change at moment's notice.
It also would need to account for zoning restrictions. If some parcels get re-developed as ultra high density housing but NIMBY's block similar developments in neighboring parcels, that could lead to lawsuits against the county.
My property tax bill in California does have the breakdown of the land value and improvements, but they are just added together and a single rate is applied to the total (~%1.3 in my case). So one could implement Georgism pretty easily, by just taxing the land value, but that is not how it works at the moment.
EDIT: @ mcbruiser3: When I say "we" (which I removed above), people who share my progressive political view that people/humans/"labor" should be treated with priority over capital and rentseeking.
As a landowner, I would happily discard the mortgage interest deduction. And 1031s and depreciation allowances. Oh and toss California's Proposition 13 as well.
In exchange, I would request a dramatically simplified tax code that avoids mechanisms such as these across the board. And reduced zoning regulations to allow more housing supply.
Coops acquiring property for renting to citizens when possible
Yes, this sounds like a good idea. As a Libertarian, I like this model because it is compatible with private property rights, and doesn't demand some sort of government intervention.
They already do, at least in NYC. That's just part of the deal you sign when you join. If you don't like it, there are a lot of other options, each with their own tradeoffs.
Perhaps, but as long as participation is voluntary, I can live with that. That said, if I ever buy a house, it will very pointedly be in an area with no HOA. :-)
please feel free to start up a coop then. nothing is stopping you and your friends from doing that. have at it, and good luck.
edit: apparently some people don't like this comment because it means you have to help yourself instead of the gov't giving you other people's money. get a life.
Allow people to deduct rents paid from their income taxes if they report the location of the property and the identity of the party receiving the payments (in addition to the standard deduction).
Tax income from rents at a higher rate than wage and salary incomes.
The landlords will obviously just raise rents to pay the tax, but this allows you to gather data on who owns/manages all the rental properties, which are the sort of data you need to determine if rents or absentee-landlordism is even a problem anywhere.
In response to the parent, the landlord is not providing housing. The people who live in the housing provide the demand for housing. The home construction industry provide new supply, and owners of existing housing stocks may be enticed to sell once their price point is reached. A landlord that buys a house with the intention to rent to someone else is acting as a middleman. If they did not bid up the price of that particular house, the price might have remained low enough for someone who intended to live in it to buy it.
So what the landlord actually provides is the ability to buy a small interval of living in a home, rather than having to buy all the years of living there--from now until the fall of civilization--all at once. Mortgages are a different sort of middleman. They provide the ability to spread out that payment for all the remaining years over a fixed number of years. But the interest on a home mortgage is mostly just another form of rent-seeking. Without the availability of the mortgages, the houses would have to sell at lower prices, to those who could afford to pay for them.
The problem, if there is one, is not that rent-seekers take rents, but that they do not spend those rents close enough to the people who give them for them to easily earn them back. If you rent out the loft above your garage to a single student, you're likely to spend some of that money at the restaurant where they bus tables part-time. That money circulates back through the local community. If you live in St. Louis and own a 3/2 in Tulsa, maybe the customer support line of the juice press you bought runs its call center out of there. That money leaves faster than it comes back. And if your retirement plan owns part of a REIT that owns rental property all over, and also has a bit invested in Freddie Mac and Fannie Mae, that's basically a diffuse sucking of money out of the entire rest of the country to feed a diffuse scattering of investors that don't necessarily live anywhere near the sources. The circulation loop is totally broken. People stand at the nexus ("Wall Street") and skim off the top, then don't spend that money back into the communities where the rents come from.
This is how an Appalachian ex-miner family can rent a drafty barn with no furniture for $300 a month, and not see any local jobs available to recirculate that money back to them. The owner doesn't live there, or spend money there, or even spare a single thought when their plane flies overhead. The only reason they own the barn is to extract the Social Security Disability money that flies in from Washington, DC, briefly touches earth, and then immediately flies away to a community where people own things for their living.
Something like a Georgist land-value tax does not meaningfully distinguish between a landlord that lives next door and spends all their rent locally and one that lives 12 time zones away and spends it all to people much more distant on the money-circulation graph. Perhaps it would be more appropriate to tax rents based on the distance between the beneficial owner's legal domicile and the property? Composite entities like corporations and partnerships would then have to report their domicile and distance calculations for distributions and dividends though. Seems like a mess for reporting.
This comment doesn't stand up to scrutiny. There aren't a lot of available statistics on how wealthy landlords are, but for instance, according to a San Francisco property owners survey[1], median income for landlords is $90k, only 15% higher than the overall San Francisco median income ($77k). And of course a software engineer's median income in San Francisco is higher ($92k). Either way, there is little evidence that in one of the hottest real estate markets in the country, landlords would be 'substantially' richer than tenants on average.
Of course, income is only a component of wealth--no doubt the property owned is worth quite a bit--but, according to the same report, at least 75% of these landlords are still paying mortgages on their properties, and over 10% spend more than their rental income on their mortgages!
Since most landlords borrow money to buy property, then attempt to sell access to that property profitably over time, they are more like entrepreneurs than the land baron 'monopolists' portrayed by the Churchill quote above.
This isn't wealth redistribution in any direction. It's a trade. Renters get access to property without having to own it. Owners, if they are smart and/or lucky, can profit from property, but of course take a substantially larger up front risk.
And, I would be remiss if I didn't point out that Winston Churchill was from one of the wealthiest British aristocratic (read: rentier landowning) families and was born in the family home, this palace[2].
You didn't challenge the statement to GP made, but one he didn't make. He didn't say that landlords are vastly richer than workers. He said that landlords make little or no contribution to the general welfare.
Your own comment points out that in SF, the median landlord makes roughly what the median software developer makes. But a software developer in the Bay Area is one of the most productive workers on the planet, with a literally unparalleled opportunity to generate value, both for the company he works for, and for global society/consumers in general. In contrast, the landlord does not produce anything.
Because the community has agreed to honor their exclusive real property claim, even if another person might have made better use of it.
Property owners do occasionally have their property seized by the community that it may be used more appropriately to the community's desires. It may be by eminent domain, or civil forfeiture, or adverse possession, or by regulatory taking, or some other means, but it is more likely to happen to those that do not actively demonstrate value to their community (perhaps in the form of financially supporting the local lawyering economy, if nothing else) than those who do not.
It's a fact of existence from the Pauli Exclusion Principle all the way up to "wherever you go, there you are" that everything has to have a place to be. You can't have a general welfare without a place to put it, and wherever you put it has to be adjacent to other places.
So that special obligation is basically to not abuse the inevitability of adjacency and the tyranny of distance in a way that is too obviously selfish.
I'm having trouble understanding your comment. The entire principle of private property ownership on which (arguably) our entire civil society and economy is based is that one may use said property as one wishes. It doesn't really matter if another person might have made "better use of it". The only opinion that matters on how the property might best be used is the person who owns it. It's not a community decision, excepting the narrow cases you outlined.
Private individual ownership has never been absolute for anyone, except for those despots and monarchs with a large and loyal military. There have always been ways for a large group of people to strip an intransigent and selfish person of his property, and some of those ways don't involve murdering him in a public and humiliating way. If nothing else, a series of successful civil suits can force the transfer of real property to the plaintiffs.
Eminent domain is one establishment-sanctioned way in the US, wherein the owner is forced to sell to the government. The purpose is supposedly to enable construction of public infrastructure such that private owners cannot obstruct for personal profit, but the controversial Kelo v. New London case involved the use of eminent domain to transfer property from one private party to another.
If your style of ownership is a clear burden on the surrounding community, they will eventually strip you of your property. But the bar is set rather low, even for the minorities in a racist community. As long as you pay your property taxes, obey the most literal interpretation of the law, and don't allow the property to look too bad from the curb, people will generally leave you alone.
So the duty of the landlord is to not be such an enormous ass that the community notices it, and comes after them. It isn't difficult, let some people can't even manage that.
Yes, if only history could stop in 1776. Then we can all make overarching general comments on how things are and will forever be. 240 years are a joke.
The landlord produces a place for people to stay. Why is that "nothing"? I've rented. I didn't like paying rent every month, but it beat sleeping in my car.
Do you think the landlord should provide apartments for free?
Returning to Churchill's statement: Every one of those improvements improves every landowner, whether a landlord or a homeowner. For every one of them, they have done nothing - except pay taxes. (But note that the landlords pay taxes too.) So why single out the landlords?
The investor capitalized the builder, and the builder constructed the housing, and the lender capitalized the landlord, and the landlord bought the building, all because they knew that people need to have a place to exist, and that the spot they picked was a likely spot.
If renting were somehow not allowed, none of them would have any use for that spot. There would not be that same building there, but there is the possibility that there would be a 12 bed + 1 outhouse shanty/bunkhouse there instead, which would also be better than sleeping in your car, but only just barely. And the cost of your kip would be much less.
There is also the possibility that instead of just one 3200 sq.ft. house with grass-covered yard, there would be a low-rise tenement-style condo-plex with 8 units at 1600 sq.ft. each, with limited covered parking and no lawn. With enough of those on the same street, there might also be a bus stop nearby, and competition among local utilities.
But by defining that plot as one place for one family to live, the landlord and his financiers has ensured that no matter how big it is, it is too expensive for the renter to easily buy it. If the landlord did not exist, that plot would have to be divided into as many places as is necessary to bring the price down to what those who will be occupying those places can afford to pay each other to stay out of someone else's spot.
Renting is a service, of course they don't produce anything. If they weren't providing a service people found valuable (i.e. improving their general welfare) much fewer people would be renting.
The point is that the landlord becomes wealthier through improvements to the area, for which s/he is not responsible. i.e. they are capturing public investment.
Put concretely, my taxes go towards upgrading the Overground Line which improves the area I live in which increases my rent. I have paid for this improvement twice, my landlord, zero times (their get back their taxes through uplift in property value).
Solution - as others have pointed out - is Land Value Tax.
The landlord has to pay higher property taxes as their property becomes more valuable, which often go in turn to paying for those improvements. It's not a one-way transfer, there's a quid pro quo. Now you may argue landlords get more than they give, but that's an entirely different point.
True in most places. California's prop 13 caps property value increases for tax purposes to 2% per year. This includes land held by corporations, not just grandma.
I don't think medians are the right thing to look at here. The majority of individual landlords will be small-time, but it's the behavior and impact of the largest landlords that is important.
That quote is the exact reason that land needs to be taxed at a much higher rate than it's currently taxed. Notice I say "land", so that doesn't include anything built on that land.
The value of land is directly tied to the desirability of the land around it. Land in Manhattan is more valuable than land in the middle of South Dakota because of all the network effects of other people (and the government) building things in Manhattan.
> That quote is the exact reason that land needs to be taxed at a much higher rate than it's currently taxed. Notice I say "land", so that doesn't include anything built on that land.
>
> The value of land is directly tied to the desirability of the land around it. Land in Manhattan is more valuable than land in the middle of South Dakota because of all the network effects of other people (and the government) building things in Manhattan.
I'm glad you mentioned Manhattan.
Land-value taxes encourage property owners (or aspiring property owners) to take actions to decrease the value of land, in order to make it cheaper to acquire and maintain (read: pay taxes on) that land. Those actions have significant network effects, much more so than actions that increase (or decrease) property values, by definition: the value of land is more strongly correlated with the value of neighboring land than the values of properties are.
Taken to the extreme, this will cause massively capitalized institutions to blight land - and, in some cases, even buy up land for the specific purpose of blighting it and reducing its value (thereby reducing the value of neighboring land). That results in a massive wealth transfer from the poor and middle class to wealthy institutions - namely banks and universities with large endowments, though sometimes wealthy individuals too.
I'm glad you mentioned Manhattan, because it's one place where this exact practice already happens in a very public and visible way. It happens in Manhattan even without the existence of specific tax incentives to encourage this behavior because the economics of real estate in the area (along with other aspects of real estate acquisition in NYC) make it profitable for institutions like NYU and Columbia to do this[0]. If you started taxing land at a higher value than the property that sits on the land, it would make it lucrative for "smaller" institutions (ie, other well-capitalized institutions) to start doing it as well.
[0] NYU and Columbia are two of the top three holders of real-estate in the city, by value. They have both engaged in this practice in very visible and documented ways.
Part of your premise here seems logically incorrect. If land-value taxes is more heavily affected by neighboring properties then they should actually be harder, not easier, to manipulate since this is a two way asymmetrical situation. For any given amount of blight property values should lower by a larger percent than land values
Do you have proof of this? What are these visible and documented ways?
I'm not certain I completely understand your argument. Basically every explanation of LVT that I've come across says that it will decrease the amount of blighted land, as a land-value tax increases the incentive for landowners to improve their land.
And what you received in exchange for that was a lifetime of not being homeless, having no maintenance or (immediate or direct) tax responsibilities, and the freedom to leave without having to sell an expensive, illiquid asset.
If you bought your home 5 or 6 years ago, then your mortgage is most likely lower than the market rent for it. I have friends in this exact situation. New job and moving in 30 days. Off to a property management company where somebody else will pay the mortgage for you.
I don’t think many landlords get rich from rent but housing appreciation. Real estate cap rates are generally very low, especially in places where rents are high. Take nyc for example. If you look at what someone pays for rent and take an estimate as to what the apartment is worth and estimate mortgage and taxes you’ll see that the rent often doesn’t even cover the mortgage.
For instance in manhattan you can get a cheap studio for maybe 2,200 a month. That studio would cost easily 600k, and at 4% interest (higher for investment property) the monthly payment not including taxes and maintenance is nearly 3k. That’s not even mentioning other barriers like the fact that a condo would likely be double the price and a co op would likely prevent you from renting and require a large down payment.
Sure, but to make money on housing appreciation you also run the risk of losing money on housing depreciation. Given that owning property is a risk, it's not a fair characterization to look at landlords as some sort of leech on society that just get rich at the expense of everyone else. That's survivorship bias looking at only the successful landlords and ignoring the real risk involved in owning property.
> Given that owning property is a risk, it's not a fair characterization to look at landlords as some sort of leech on society that just get rich at the expense of everyone else.
Every landlord I've paid rent to or some acquaintances of mine who own rental properties seem to all have more than a few rental properties. And I've never seen/heard of rental property owners going bankrupt. Yes some do, but they do so because they stretched themselves way too thin.
It's an anecdote but pretty much any family that seems to live well without the breadwinner working 70-80 work week as a doctor/lawyer seem to have rental properties. It is the most stable/lucrative use of one's wealth. It's been that way for a long time.
You obviously don't own a home. There absolutely are financial implications for the value of your home dropping after you buy it.
A) An already illiquid asset is more illiquid. Not only do you need to find someone willing to buy it, you either need to pay to sell it, or find someone willing to pay above market.
B) Decreased access to capital. HELOCs are one of the few ways the middle class has to access six figures of credit easily and cheaply, and this is eliminated when banks won't go above 60-80% LTV but you live in a house with $x with a mortgage balance of 1.5x.
Regarding A, do banks ever make "margin calls" when homes drop in value? I mean, force people to sell even though those people have an income and are making mortgage payments? (If so, why, when the mortgage income, if it continues, is worth more than what they can get from the foreclosure?)
I can't speak for every situation, but I know that my mortgage doesn't include any terms like that. The bank could foreclose and sell the property only if I stopped making mortgage payments.
I think that what you're describing would be termed a "technical default", and would require a clause called an "affirmative covenant".
Municipal tax based on the value of the property, due every year
But then again, if people they can't afford the rent, they won't pay (or they find different arrangements), landlords who think their tenants have infinite money are in for a (bad) surprise
If this is true, why is the return on owning land not better than the return on the stock market, at least in the estimation of most economists? Unless you have some comparative advantage in owning/administering to land, it's not actually such a sweet deal relative to normal investing.
Owning land is "free money" in that you tie up your wealth and in exchange get interest. Same deal with owning stocks. Land isn't special, nor is it really helpful to view it as a "redistribution of wealth upwards" in my opinion.
http://www.investopedia.com/ask/answers/060415/what-average-... "By any measurement, the real estate sector has outperformed the overall market, even factoring in the drastic collapse in housing prices during the 2008 financial crisis." (I'm not an expert but I recall hearing that much of the recovery from the recession went to real estate owners.)
Granted, every investment vehicle under the sun will have its ups and downs. It's a plausible case that real estate is worth having for its purported counter cyclical properties in some sort of advanced and complicated investment portfolio. From none of that does it follow that owning real estate is some sort of reverse scam where the owners are reaping incredible and reliable riches off the backs of the poor renters as the person I was replying to implied.
Because this truism is based on a long period of history, whereas real estate blowing most every other investment out of the water especially when you consider you're usually working on 90% leverage, is a relatively recent phenomenon. I continue to be of the opinion that a major driver of this is the rise of China.
If I understand correctly, in the United Kingdom, there are no property taxes. Instead, there are council taxes - but they are paid by the tenant, not the landlord!
Now, while most of the rest of the world has property taxes, I would argue that they are far too low.
Yeah, it's a stupid situation. There's a property transaction tax, "stamp duty", which can be surprisingly high ( http://www.knightfrank.co.uk/stamp-duty-calculator ) but of course that really ends up protecting incumbents rather than taxing them.
Why would you want to tax sales of property? That just makes the market more illiquid, as well as making it more expensive to increase density (because you now to pay an extra a fee if you want to buy a single family house to replace with an taller building).
"Always enjoyed this Churchill quote - from 1909!"
(long quotation from 4 years prior to the 16th amendment[1])
This is not an accurate assessment of the present state of affairs. Rental income in the United States is taxed at the federal and state level and rental licenses (as well as other licensing) is levied at the local level.
This is not to mention the property taxes that are paid by the landlord - which can be significant.
Your landlord is contributing to the general welfare in a great many ways.
The renter actually pays the property tax, it's included in the rent that is charged. There are very few landlords who rent out their property for less than the cost of property tax.
Further many residential properties are owned by LLCs and other corporations that allow them to lock in low taxes by never selling the actual property, but merely the holding company of the property.
"Further many residential properties are owned by LLCs and other corporations that allow them to lock in low taxes by never selling the actual property ..."
I think you are talking about prop 13 and the ability of corporate entities to benefit from the provisions of prop 13 which I agree, is completely insane.
But prop 13 is limited to California and I know of no other states that have anything comparable.
The £ sign tells me you are trapped in the overpriced housing country, forced to watch Kirstie Allsop be all smug about house prices.
I wonder what if lots of people said f the rent, f the prices let's just go travelling, live in a caravan, enjoy life. Settle in an affordable country. Not be a sheep toiling away to pay for someone else's Ferrari.
Yes, but you need to realize that land plays a crucial role in our environment and rich people are in a better position to utilize resources with attention to environment than poor people. All the zoning laws that make rents high are actually good for environment and help us fight climate change.
Do you not also buy food and clothing from companies owned by people richer than you? I feel like the main difference with rent is that the owners aren't that much richer than we are, and sometimes we meet them face-to-face, so the relationship is more comprehensible.
I love how some folks complain about paying rent as if they have no choices, as if they're somehow indentured servants or serfs beholden to the landed gentry or something.
The truth is you do have choices, even in tough times. Find a way to save money for a down payment and buy some property. Maybe even become a landlord yourself.
If you've got a way to save up some 10's of thousands of dollars for a down payment in a reasonable time, and be able to pay the mortgage for the loan, that doesn't sound like "tough times" to me.
I bought 7 years ago, when the market in my area was at its lowest. Saving for years, on an income significantly above median (for the area), I was just able to afford a down payment on a starter home.
Most people in my area make less than me, and the market has significantly picked up. My next door neighbor just sold their place, smaller and less upgraded than mine, for about 1.5x what I paid for mine. And the people that couldn't pay 2/3 that price 7 years ago should have just tried harder to save up to afford it now, right?
Well, people have to live somewhere. And it is fair to complain if you think the land holders who came before them are not paying enough property tax, which seems to have caused the housing prices to get so high. "Every proprietor owes to the community a ground rent for the land which he holds" - Thomas Paine
I really hope the economy shifts toward remote work as the standard (at least in the career tracks where it is possible). The ever increasing share of higher jobs moving to metropolitan regions will continue to make the places on this list worse off. More remote work might also even out the salaries across the US a little bit. One can dream...
Even though flying throughout the US is much easier and cheaper than to India and back? Tons of companies already use talent from other countries to create products, the lack of remote work hasn't stopped them.
The solution is to build more. The free market should take of it. But the market is not free, local economic interests wield sufficient political power to prevent this.
This is happening in almost every medium and big cities in the U.S. It is capturing a big chunk of the productivity gains in the whole economy. It is a tax from one generation to the next. A national solution is needed.
Where I live (Orlando) monthly rent has been rising at a rate of 8 percent per year while wages have essentially stayed still. In the long run this is an unsustainable trend.
If a low income individual is able to rent a house while working a full time job and just make it every month, at the end of their current lease when rent adjust upwards they will be forced out. Moving costs alone will cost them several hundred to a thousand dollars. On top of that they need to find another place to live which may not be possible due to the upwards pricing trend. With little in the way of increased income, what is that person to do, especially if they cannot afford to move and don't have a family able to assist them?
I have no solution for this issue and certainly don't want to curtail anyone's ability to purchase and profit from property but the future prospects of those on the lower spectrum of incomes does not look good.
I live in eastern europe, in a city where the life quality is supposed to be the best in my country, working as a software engineer, making ~4 times more than the average salary and the rent and houses grew more than 100% in under 3 years. The problem is that the market adapted to us, the IT workers who can afford a decent rent or buy a house but what happens to students (which are a lot of them here) and people who make the minimum salary (which is ~250 euros / month) ? They are forced to live 3 or 4 in the same apartment or stay in a nearby location outside the city and then commute a longer distance. I expect a market crash in a few years and I'm wondering what will happen. My landlord did borrow a crazy amount of money to pay for an apartment and if the market crashes I expect my rent to go down but that won't happen anyway since the bank probably won't lower his rate. We are all fucked really. This is something that will happen in all growing cities, at one point something will explode.
Heavily regulated (construction) market => high cost of building new (housing) units => low supply => high sale prices + heavily regulated (rental) market => high rents
Sale prices aren't coupled to rents like you think. Landlords charge what the market will bear - how high housing prices increase rents is through making purchasing housing impossible for more people, who are then force to bid up rents.
It should come as no surprise that housing is appreciating as rapidly as it is. If someone is going to loan you $500,000 at 3% and that property is going to appreciate at 8% a year, you'd be a fool not to take that deal.
We really need interest rates to get back in line with what it costs to loan people money.
The problem is getting worse as new jobs are mainly created in cities. They also offer a more attractive infrastructure such as fast internet speeds and shorter commutes, than rural areas. There are of course many other advantages, but I think these are some of the most significant ones. This creates an unhealthy growth, which we see now manifests in the completely out-of-control rents worldwide. The only way this problem can be tackled is to invest massively in the rural infrastructure and stop this disturbing trend towards growing megacities and sparsely inhabited rural areas. Rising rents contribute to an large extent on social inequality. As a renter will only get living space for each month but nothing else of value in return, as opposed to buying a house/flat. The calculation for renting has been fine in the past decades as renting was often cheaper than buying a house, but this changed as we see now.
I agree with all of this, and I think megacities would be fine if the US had adequate public transit that actually goes to places where people live and work.
I'm so tired of seeing these articles, and then seeing nothing done to fix the problem.
I feel like we've been seeing "HOUSING COSTS PROHIBITIVELY HIGH" and "RENTS OUT OF CONTROL" for years now in California and yet can anyone point to meaningful progress on a solution?
The legislature is inept and completely unable or unwilling to address the issue head on.
SB-2 for example. This is the kind of legislation we're getting in 2017, when the median home price in CA is twice the national average, and less than a third of CA households can afford a median priced home?
Most reform I've seen focusses solely on building more affordable housing (i.e. government programs for low income), but never addresses the fact that even market rates are stratospheric in some areas. Asking for better market rates does not mean we can't also solve low income housing.
That article describes the process but it doesn’t actually say how much property was purchased or whether this affected the real estate market.
It might be other Canadians performing the real estate purchases. Until BC actually publishes some stats about what percentage of places are foreign-owned, we won’t really know.
right now i spend 80% percent of my money on rent. through a lot of thought and iteration, ive been able to reduce all of my expenses quite dramatically. but rent absolutely resists my efforts to reduce. it is unmitigated greed. i was talking to my previous landlord and i very carefully broached the subject of why he charges so much and his response was kind of a mental double-think -- he charges what the market can bare. he gets way more money than he needs, and so i call it greed.
i find it very strange to look at the situation in renting -- you have some people who are called "owners" who own the land and they make other people, "renters," pay to stay on the land. what is the difference between renter and owner? why do owners get to sit back and sit on their asses, contributing absolutely nothing, having all their bills paid, not working more than a few days in a month? why do renters have to break their backs all day long just to afford to be able to sleep underneath a roof at night? i just find it very strange that nobody thinks this is unfair -- it is unfair isnt it? one guy does no work and another does tons of work and the guy who works is worse off?
anyway, the whole system is completely unfair and insane, so i decided that i should get out of it. im planning on buying land within 100 to 200 miles of the city. im going to build an icf house with metal roofing and near passive climate control. interestingly, doing this can cost less than buying a new suv, which i would have never guessed before doing the calculations. if you add a healthy solar system and trade your car in for a chevy bolt, one might even commute 150 miles both ways for free quite regularly. as is usual, i expect there to be many people who will call me an idiot and say none of this is possible -- i am looking forward to scrutinizing actual arguments or evidence if they bring any to the table. for those who arent triggered by the concept of cheap, low maintenance living, i would love to connect and exchange tips. check out these awesome websites while youre at it.
Rising rents doesn't seem to effect the number of applicants though, every time I've viewed a place here there was a lineup of 20+ other renters there waiting as well. They pushed us through in under 10 minutes then another 20+ people showed up for the second appointment already gathering outside. There was no time to dispute the lease they dangled which stipulated you had to vacate the day the lease expired in order they could bypass provincial rent increase limits of 3.7%, and make you sign a new lease with any increase they wished.
If the rents are high everywhere but you can still pay and you have no other options, what other choice do you have? I think in a lot of cases the choice people make is to suffer through the rent until they can either afford property or maneuver their career to let them live in lower cost areas.
In urban centers, you'll just see three or four professionals per family home or apartment. The families will leave town, either to the suburbs with a soul-crushing commute or to a smaller city.
"Take now... some hard-headed business man, who has no theories, but knows how to make money. Say to him: "Here is a little village; in ten years it will be a great city—in ten years the railroad will have taken the place of the stage coach, the electric light of the candle; it will abound with all the machinery and improvements that so enormously multiply the effective power of labor. Will in ten years, interest be any higher?" He will tell you, "No!" "Will the wages of the common labor be any higher...?" He will tell you, "No the wages of common labor will not be any higher..." "What, then, will be higher?" "Rent, the value of land. Go, get yourself a piece of ground, and hold possession." And if, under such circumstances, you take his advice, you need do nothing more. You may sit down and smoke your pipe; you may lie around like the lazzaroni of Naples or the leperos of Mexico; you may go up in a balloon or down a hole in the ground; and without doing one stroke of work, without adding one iota of wealth to the community, in ten years you will be rich! In the new city you may have a luxurious mansion, but among its public buildings will be an almshouse."
Govt should adopt a policy of gradually increased property tax based on the number of housing units (or total assessed value of all housing property) one person/business owns.
It should be to the point where one cannot use buying/selling/holding housing property as a way to amass wealth infinitely. Maybe to a certain point, but not to the extent allowed now.
To me, holding a vast number of rental units and amassing a huge income (not for one's living expense but for increasing wealth) is not much different from extracting oil from the ground. Maybe even worse, because high rent/housing is negatively affecting a regular citizen even more directly than dirty oil.
I'm under the impression that New York City does this. Effective property tax rates in the 5 boroughs are strikingly low contrasted with surrounding counties, but only for a certain number of units. After a certain number, your property tax notches up to a rate I believe is comparable to surrounding areas.
Not saying this particular policy ameliorates the issues you're talking about, just that a precedent for it exists in taxation policy in the US.
These comments underscore the fact that real estate is increasing everywhere, not just city centers. However, it is magnified in city centers, and here are the (apparently not) obvious primary causes:
- A higher proportion of people want to live in small city centers.
- There are more people, and the same amount of land.
This is one of those things that can never truly be solved, without questionable eugenics programs, some other rate-limiter on population (like famine), or expansion into space.
Please, tell me I'm wrong and continue to blame it all on foreign speculators, corporations, and landlords, like most of these existing comments do.
Can't such a story be written pretty much any time?
When landlords can't find people to pay the rent, they'll lower the price (relative to inflation).
Inequality on the other hand leads to speculators usurping the use price of houses and other things for investment purposes.
That was the real cause of the financial crash, not NINJA loan recipients as many conservatives have claimed. Remember all those seminars on how to "flip your house"? Many of those speculators declared bankruptcies.
These days, though, speculation on that scale can only be done by the top percentiles of people.
It's not so simple as "luxury housing" vs "affordable housing". Location dominates every other factor when it comes to how much a place should rent for, including fancy amenities. Why else does a shoebox in SF cost twice as much as a modern 2-bedroom apartment in downtown Atlanta?
If developers build more luxury units then the prices of the older apartments will drop. At worst it's better than having no new housing stock at all.
Yeah... it's also tough, many real estate investment trusts and companies have a fiduciary responsibility to their shareholders to seek a great return on investment. If there's no margin in the affordable housing game, it's not going to fulfill that obligation. :/
I'm talking about the headline, which makes it sound like rents being past people's breaking point (0) is something that could happen to the population at large, and (1) hasn't always been the case for some.
Most likely before taxes. In my experience (in the US) the usual rule of thumb has been to spend about 25% of your before-tax income on rent. But in the San Francisco Bay Area today, it's not uncommon for people to be spending 30-35% or more. I've seen apartment listings recently asking for an income of only 2.3x the rent.
A friend today listed an ocean view property where the owner bought it sight unseen, never visited from overseas and is selling it at double digit gain. It was empty the entire time.
In Seattle, for example, many (newly) wealthy Chinese people are buying houses purely for investment purposes. I know some of them. One of them has purchased 10 houses, and lives in only one of them (when they are in the states). They've made millions on just this speculation.
In the short term, this means housing prices are absurd. In the long term, when these houses are no longer appreciating in value at such large scales, we can expect a crash in the housing market. Which will likely mean something similar to the housing crisis of 2008.
The Seattle city council has wanted to pass a law that would make it visible to the public which houses were being bought by foreign investors, but it was deemed illegal.
https://www.seattletimes.com/seattle-news/politics/proposed-...
To me, this is absurd. This is a human rights issue (homelessness is growing by a large amount). This is also a national security issue; this speculation cannot happen forever, and when it ends, I forsee an awful crash.