[always4getpass]

Real estate and primary residences should not be a market and an investment opportunity imo.

A company buying thousands of homes and then milking workers through rent for decades seems unethical.

While I do not have a solution, I think this is an issue we should work on

[lotsofpulp]

Masking the true price (cost) of something is what causes the market to be inefficient, resulting in excess or insufficient supply.

If anything, rents indicate true cost compared to mortgage costs which can accurately signal for more (or less) construction needed. In the US, ownership costs are masked by subsidizing interest rates, loan repayment periods, down payment amounts, and mortgage interest tax deductions. Also, property tax limits subsidize existing owners.

There is a bit of a conflict in the mechanics of democracy with zoning laws and taxes, with existing owners having an incentive to limit supply, especially in booming markets. It’s a very tough problem to solve, but making clear the costs of all the subsidies would help.

[bobthepanda]

Homeowners don’t really care about the cost of subsidies since they benefit the most from it.

The real problem is that zoning is decided at the local level; local turnout is not very high, so it doesn’t take that many concerned homeowners to overthrow someone who is too pro-growth. And usually local municipalities are balkanized subsets of the region, who want all the upside of regional growth but none of the downside. In the most extreme example, the Bay Area, this leads to lots of permits for job expansion in small localities but not for housing, since residents need a lot more in the way of services.

It would be much more healthy to have zoning laid out at the state or regional level, but regional level governments don’t even really exist in the American context, and only a few cities in America have continued annexing suburban areas into the 21st century.

[asdff]

Power is completely fucked at the local level in a lot of places. In LA councilmen have basically unilateral power on what gets built in their district, and of the people who vote something crazy like 70% are homeowners (which only make up 30% of the population of LA iirc). So NIMBYism in LA ends up with grossly disproportionate representation that isn't going to ever change until the city charter does, probably long after the city is completely fucked from being unable to build housing supply or transit needed to sustain economic development. It's hard not to be a cynic when these people have just so much entrenched power.

[lotsofpulp]

>The real problem is that zoning is decided at the local level; local turnout is not very high, so it doesn’t take that many concerned homeowners to overthrow someone who is too pro-growth.

Hence removing the subsidies or at least making explicit the cost of subsidies, so people are incentivized to go out and vote for increases in supply. Another option is to hand over ownership to government and make everyone do land leases to make them participate in the market and therefore vote the “right” way. Not a perfect solution of course.

[bobthepanda]

The problem is that, in general, wealthy and older people are more likely to turnout and vote, and more likely to participate in lower level elections, and this class of people is well-correlated with owning homes. So homeowners have quite a lot of power even compared to renters, and they are more than happy to flex it. They don't really care that there are subsidies, because they're the primary beneficiaries.

[dsfyu404ed]

>It would be much more healthy to have zoning laid out at the state or regional level, but regional level governments don’t even really exist in the American context, and only a few cities in America have continued annexing suburban areas into the 21st century.

Not just zoning, soooooo much shit would be better done at the regional level because it would allow the urban areas to do what they think is best for them without pissing off the rural areas (or needing their approval) and vise versa.

[pytester]

>Masking the true price (cost) of something is what causes the market to be inefficient, resulting in excess or insufficient supply.

This is why the Land Value Tax is such an effective solution to this problem. It's fair, economically efficient and reduces inequality:

https://en.wikipedia.org/wiki/Land_value_tax

[apexalpha]

The true cost of something depends on the market, and the market is created and shaped by law. If the law changes to disallow foreign direct investment in residential housing and the prices drop then this IS the new true price.

Not the other way around.

[Retric]

True cost in economic terms is not the market price. It includes negative externalities that are not included in the market price. https://www.investopedia.com/terms/t/truecosteconomics.asp

[lotsofpulp]

I agree, but my intention was to point out downsides of current US home ownership mechanisms.

[TomMckenny]

The equilibrium market price will displace owner-residents because the return on a property that is bought and rented is always greater than one which is bought and lived in (ie not rented).

There was very little urban home ownership until twentieth century incentives and regulation directly changed that. Efforts made by people like FDR, William Beveridge and influenced by Keynes who would all be called vociferously denounced as socialist today.

So unless we want to return to that historic lack of home ownership, those are the kinds of policies needed. This because the eventual outcome of an uncontrolled hosing market is as problematic as an uncontrolled market is to climate.

[rayiner]

> There is a bit of a conflict in the mechanics of democracy with zoning laws and taxes

There’s really not. All extant democracies recognize private property, with certain limits for the public interest. Zoning is an extreme imposition on private property rights, of a sort that ordinarily would only be consciences in light of equally compelling public interests. Unfortunately, we had a few bad Supreme Court decisions at the height of white panic about desegregation that normalized such impositions. You’d hesitate greatly before taxing someone half the value of their property, but local governments think nothing of eliminating half the value (or more) of private property through zoning or historical preservation ordinances.

[lotsofpulp]

The extremely high prevalence of HOAs in the US indicate to me the population not only wants zoning, they want to go further than what normal zoning does. The conflict I’m talking about though is two fold: the voter voting in their own interest which is opposite to those of society as a whole, and the voter voting for gain in the short term while sacrificing the long term.

[TomMckenny]

All democracies allow personal property but this does not extend to land. In fact, all democracies have always put controls on land ownership and treatment of tenants. Even the US itself taxed land before income.

The only places with no protections were medieval societies and their resultant immense inequality.

[precisioncoder]

It is being worked on in many european cities. Berlin for instance has a public housing buyback plan in place and many European cities are looking at or have already placed rules in place making foreign ownership or running of massive rental companies more expensive or difficult. Generally commodification of essential needs such as housing and food does need some regulation in order to prevent victimization of the poorest citizens.

[jefflombardjr]

I am completely against a 'landed class' collecting malthusian rents. But, if these companies are adding value that shouldn't be overlooked. Not all people want to maintain a property, and not all people want to "rent for decades" in the same place.

I rented in a larger city last year. Had I bought instead of renting I would have had transaction costs that would be 3x the amount I paid in rent. Not only that, if something broke in the apartment I had someone I could call to take care of it. I didn't even have to think through the logistics of getting contractors to my apt and getting bids on jobs.

Not all landlords are slumlords.

[asdff]

I think a lot of landlords are slumlords without even realizing it then. Landlords whine and scream and sound the alarm that shit will hit the fan when cities try to limit rent increases to a generous 5% to keep pace with actual wage growth. Yet to the landlord, did their costs even increase at all the year they jacked the rent? In CA, their taxes remained the same as when they bought the place. Hiring laborers to upkeep the property has always been about hiring from the very bottom of the handiman market, a market that also has not seen wage growth.

So if all the landlords costs do not rise all that much, why do they feel justified to raise rents sometimes well over 10% a year? The only reason is to fatten the wallet by milking the tenants, and we've hit a point where in some cases the working class has to commute 4 hours a day in desperate effort to find a job that pays the exorbitant rent.

[charlesdm]

I rent for the exact same reason, and can agree. The second reason is that there is minimal opportunity for capital appreciation where I am, and I do not feel like locking up a significant deposit in such an illiquid asset. I get much better returns on my money elsewhere.

[C1sc0cat]

Where in the world are transaction costs that high for buying a property

[jaclaz]

I will give you an example for Italy.

The real estate agent wants between 2% and 3% of the actual value of the building from both the seller and the buyer.

Taxes (unless it is a "first house" designed and actually used as your "primary residence" AND provided that you are not going to resell it within 5 years, in which case will be around 2% of nominal value) will be around 9% of nominal value (usually much lower than market value). Then there is the notary fees.

So, example, you buy an apartment paying it 200,000 Euro, something that would be rented between 600 and 800 Euro/month (if you are lucky):

Estate agent (buying) 6,000 (0.03x200,000)

Taxes (buying) 10,800 (0.09x120,000)

Notary 2,000

Estate agent (re-selling) 6,000 (0.03x200,000)

That is 24,800 Euro to which you add the equivalent of 1 year land tax probably some 800 Euro, and some repairs/refurbishing making it more than 26,000 Euro (and without considering what the 226,000 Euro could have produced if invested).

Compare this with 12x800=9600

Maybe it is not exactly 3x, but it is at least 2.5x.

If you prefer, unless there is a huge increase in house value in the (short) period of ownership, the breaking even point is past more than three years.

[C1sc0cat]

Ah like France with its corrupt lawyer cartel then.

[jaclaz]

>Ah like France with its corrupt lawyer cartel then.

I am not following you, in the example I posted there is no "lawyer" (corrupt or belonging to a cartel or not) involved (as normally there are no lawyers involved in "normal" real estate transactions).

What I posted ar only usual fees and taxes.

[C1sc0cat]

Usual for Italy buying a house is a lot cheaper in the UK - France is even worse lawyers can charge 12% or so.

[bardam]

In NYC the cost of buying/selling an coop/condo can be more than 10% of the total purchase/sale price. See for reference:

https://www.brickunderground.com/blog/2015/03/closing_costs

So the cost to buy/sell a $1mm apartment could be in the range of $110,000 after broker fees and all taxes are accounted for. An apartment at that price would rent for maybe $4k for month, though that will rise at a faster price over 30 years than a fixed mortgage + common charges. Unless the value rises at a pace much faster than the rate of inflation, you're going to lose money if you don't hold on to the place for a few years. See this fun calculator to find the inflection point:

https://www.nytimes.com/interactive/2014/upshot/buy-rent-cal...

[mevile]

> A company buying thousands of homes and then milking workers through rent for decades seems unethical.

Providing homes for rent is a service provided to people that they can pay for if they want to make use of it. An economic transaction involves an exchange for money. It is not milking someone. Is a grocery store milking you for food you buy?

A house has value. The people who built it had to feed themselves and their families. Land has value. It is not free. I have to pay expensive annual property taxes to maintain ownership. The services a bank provides are not free. Living expenses are a real thing and even if you can't afford it then someone else is going to have to pay for your housing.

[MrBuddyCasino]

The difference is that housing is a market where you can't increase supply much, because of location. This makes it an accelerator of inequality, unfairness and hereditary wealth. Also, regulatory capture.

[lotsofpulp]

We can increase supply by a lot in most places, just not single family homes with garages.

[MrBuddyCasino]

Theoretically, it could be done. Practically, home ownership makes everyone a Nimby, pulling up the ladder for everyone who doesn't.

[pytester]

>Land has value. It is not free.

And if you derive any rental income from the land value whatsoever, you are milking money from something valuable you did not create and did not make valuable. It's a purely parasitic form of value extraction from something that isn't free.

This is why the value of land improvements (e.g. having a nice house) should be untaxed, separated from the value of the land while the rental value of the land should be taxed at 100%.

And, until we do do that, we shouldn't pretend that rent isn't largely (i.e. ~60%) parasitic value extraction.

[mevile]

LVT seems like a positive change, I agree.

[TomMckenny]

>Land has value

Then consider the "value" of an empty lot, the archetype of land in itself. Its _price_ is based solely on the the _value_ that those near it produce. A high productivity region increases the value of neighboring empty lots. The lots themselves have produced nothing and whatever price they command is solely a drain on the productive part of the economy.

>Is a grocery store milking you for food you buy?

Value added by building or improving a resource like food or a structure is fundamentally different and obviously needs to be compensated and encouraged. But profit from an unchanged property is entirely a zero-sum gain moving wealth from productive parts of an economy to unproductive.

[tim333]

You can tip the balance a bit by having an annual property tax with a discount/exemption if it's your main residence.

[paulgb]

The cost of this would just be passed on to people who rent rather than own, since the extra tax would apply to any property they could rent.

[sly010]

You could charge exponentially more tax based on the number of units rented. That way even if the cost is passed on, renters are incentivized to rent from small landlords.

[lsaferite]

Then you simply have a web of LLCs so that each corporate entity only owns a single unit.

[sly010]

Administrative costs are costs too.

[asdff]

Then tax and cap rent increases county wide on every building no matter when it was built or if a tenant moves out. Then again, I'm pretty far left on housing issues. In my ideal world, the rent formula would be:

monthy rent = 0.3(minumum hourly wage * 160 hours) * n bedrooms; with studios being n = 0.5

That way if landlords want to lobby for higher profit margins, the only way to do it would be to also ensure the working class can actually afford to supply those higher profit margins for the landlords.

[tim333]

Depends on the details - the tax could be paid by the occupants a bit like the council tax in the UK. And then discounts applied. Or by the owner if the property is unoccupied.

[ericmcer]

The rule in china:

'Foreigners who have studied or worked in China for a minimum of one year are permitted to buy property. ... Unfortunately, a foreigner can only own one property and it has to be residential. Again, the foreigners are banned from renting the property as you are supposed to use it for dwelling purposes.'

[baybal2]

Thanks for bringing it up. I see it being perfectly rational for countries to mirror asset possession rules that are instilled on their citizens abroad.

There is so much draconian regulations of foreign bank account holding all around the world, but none regulating foreign possessions of the said bank. Same for real estate.

[dgzl]

If there's no market, how can you buy or sell a home? Why should I not invest in my property?

[rwmj]

I suppose it might work like council housing (used to) work in the UK. The council builds large numbers of homes and houses people in them for lower than market rentals. Of course people are still free to build and buy homes privately if they want.

The problem with this in the UK was that the stock of council housing became immensely valuable and as soon as we had a right wing government they started to sell it off. Selling it off created home owners (who are more likely to vote for that government) and raised "free" money which could be given out in tax cuts, so it was a natural target.

In the UK an alternate system - housing associations (HA) - survived a little bit better. Here the houses are either built with public money and handed to a housing association (a private trust) or built by the HA. The HA then rents them out on similar terms to council houses. Because they aren't publicly owned the government couldn't sell them off. Except that because some HAs built using government loans or assistance the government was able to extend the right of tenants to buy to those homes too.

[apexalpha]

In the Netherlands we have the good tendency to take these away from politicians: any extra budget MUST be used to lower our national debt, not to lower taxes or 'buy votes' for the current people in charge.

This takes away the incentive to sell off public goods for their own short term profit.

[CryptoPunk]

An investment opportunity just means a shortage that you can profitably fill.

Preventing people from making money by investing in real estate just means housing shortages are less effectively filled.

That's essentially what rent control does, and economists are almost unanimous about the harm it has done to housing affordability:

https://www.econlib.org/library/Enc/RentControl.html