The simple solution is if you purchase a property and are not living in it - i.e. its an investment property - you get taxed at a substantially higher rate. Both in property taxes and taxes on the profit made.
The rebuttal you're probably going to hear about this is how this will inordinately punish the private citizen buying a second home as an investment property. We do ultimately need some amount of rentals and those need to be affordable - if the investment property has the hell taxed out of that's going straight to the renter. I say this in an effort to try to point out it's a complicated issue, I in no way support the current large investor predatory housing market.
> The rebuttal you're probably going to hear about this is how this will inordinately punish the private citizen buying a second home as an investment property.
Why would it be desirable to encourage private citizens to use property as an investment? I mean, they'd perhaps need to be a one-time easing to ensure that people who have already planned their retirement around such a scheme aren't completely fucked over. But long term it seems to me that there's no downside to this being punished.
> But long term it seems to me that there's no downside to this being punished.
It would punish people who need/want to move now, but don't want to sell their current home at a loss or can't sell their home due to market conditions, etc.
You can avoid elements of the proposal by the OP by selling and moving and then claiming the new primary residence like you do now.
I don't think we should care if someone has to sell their current home at a loss due to market conditions because taken to its logical conclusion you're saying people shouldn't lose money which to have a functioning economy you have to reject.
> I don't think we should care if someone has to sell their current home at a loss due to market conditions
But they are only selling at a loss because under the proposal they would be heavily taxed if they wanted to hold on to the house and rent it out while they wait for the market to get better.
> taken to its logical conclusion you're saying people shouldn't lose money which to have a functioning economy you have to reject
No, they are saying that you should let people decide when they want to sell instead of making them sell when they will take a loss. That doesn't mean they won't lose money when they sell. It just means they can decide based on market conditions when to sell--which is what you want if you want a well functioning economy.
> But they are only selling at a loss because under the proposal they would be heavily taxed if they wanted to hold on to the house and rent it out while they wait for the market to get better.
Then don't sell, or don't rent it out, or just deal with it? I'm not sure why we should further subsidize homeowners.
> No, they are saying that you should let people decide when they want to sell instead of making them sell when they will take a loss. That doesn't mean they won't lose money when they sell. It just means they can decide based on market conditions when to sell--which is what you want if you want a well functioning economy.
Apply this same reasoning to stocks and let me know if you still agree with it.
You could potentially not apply the punitive taxation so long as only one house is owned, regardless of whether they are actually living in it (so renting one property while renting another one would be fine).
This would be easy to make exceptions for. Say a year to sell your previous home before the extra tax rate kicks in. But you can't stack them and do it again and have two homes you just moved out of, then three and four. Just one.
Because the financial inefficiencies produced by individual owners currently take the place of trillions of dollars of subsidized housing that would be paid by the government to institutional investors to build and maintain housing affordable to teachers, retail workers, police, and firemen that institutional investors DON'T WANT TO OWN MAINTAIN OR BUILD.
I am an individual property investor. I'm a landlord of a single 2-flat up-down duplex. I don't make as much money as I COULD make if I had endlessly deep pockets. It was sold to me by another individual real estate investor who owned and maintained it for 25 years.
Do you know why he sold it? He wanted to buy a luxury property that he would make more profit on and require less maintenance.
Without individual investors with limited pools of money investing in lower margin properties, simply hoping to augment a retirement account or 401k...
Institutions used to invest in 2 and 4 unit affordable housing. They’ve spent the last 30 years selling it. To suckers like me.
Now they want it back? They don’t want to own it. They want to flip it.
Rents (just to pay the mortgage) go up. The profit is in institutions pocket. The ongoing maintenance sits where it always has. Individual landlords.
And yes, if an institutional owner can't make 250k profit with a kitchen remodel and a couple buckets of slate grey exterior paint, they do tear it down. And replace it with a luxury unit at twice the local real estate price. It sits empty until the area gentrifies. Or they leave a vacant dirt lot for 10 years. See Chicago.
Why would governments subsidise institutional investors rather than simply buying and renting out the housing themselves? (which could be done at cost) I am sympathetic to the idea that individual landlords are better than large profit making businesses though.
Because governments don't want to be landlords. They don't want to have to orchestrate painting, drywall, gutters, electrical, plumbing, evictions, improvements, picking out tile, providing services that tenants grouped together with limited income might need like domestic abuse resolution and support, job training, food box distribution.
Institutions don't want to be in this business either. My wife works for one of the largest ones in the midwest, and trust me, they value the land and developments much more than the rents. Government subsidy is AN incentive to maintain the above services at the MINIMUM viable and provable state to get their handout, but they are NOT landlords.
Like McDonalds isn't a food company.
They are real estate developers.
And the experience of living in a 2-flat or a 4-flat is VERY different from a unit in a 500 person building.
The ONLY way institutions would be willing to provide affordable housing would be a constant squeeze on tenants and government and every lever possible to try to make the margins meet that of a luxury apartment. It never will.
And middle to low income families WILL SUFFER. A lot.
When given the option of direct cash payments to folks who need it, or giving that cash to an ineffectual corrupt business interest to fail to solve the problem in perpetuity... In America we always choose the later. Especially government.
Plenty of governments do want to be landlords. If yours doesn't then perhaps you should consider electing a different one.
> They don't want to have to orchestrate painting, drywall, gutters, electrical, plumbing, evictions, improvements, picking out tile.
Why not? Governments ultimately want to serve there electorate. If there electorate wants decent quality affordable housing, then why would a government not want to provide that. Conceptually it's no different to the government running say a police force.
> providing services that tenants grouped together with limited income might need like domestic abuse resolution and support, job training, food box distribution.
Then don't group together tenants with limited income! You don't necessarily even need to group together government owned/run properties at all. There's no reason why a regular house on a regular street couldn't be government owned/run, mixed in with others that are privately owned.
Why are you assuming that government properties or tenants of government properties would be any different to privately owned properties or tenants of private landlords? That's only the case when the government only provides housing as a last resort, but if the government took a wider role in housing many of those problem would go away as the tenants would just be the general population.
>Institutions don't want to be in this business either. My wife works for one of the largest ones in the midwest, and trust me, they value the land and developments much more than the rents.
The rent is what determines the value of the land and developments.
>Government subsidy is AN incentive to maintain the above services at the MINIMUM viable and provable state to get their handout, but they are NOT landlords.
This subsidy can directly be given to people as cash. No need for a middleman to take a cut.
Ultimately some people do need a place to rent to live. I saw someone else suggest that rentals are only allowed in apartments, maybe that solves this, but rentals are a vital part of the housing equation.
Right, but people don't need to be making money out of that. I think you could set the tax rates so that people basically break even (make a small profit) from renting a house out, and they actually lose money if they hold on to a house they're not renting out (with some carefully worded time-limited exceptions for houses under renovation). That would drive down house prices sharpish!
You could also allow the state to step in as owners of rental housing where private landlords aren't making enough rental houses available. And if the state actually built houses for rental you likely wouldn't need as harsh taxation because the rental prices would drop purely through the increased supply.
Nobody would ever rent to tenants if there weren't profit in it. Take away the profit and all the tenants who need to rent are totally out of luck because nobody has any reason to rent to them. :(
Same as mortgages wouldn't exist if banks didn't make a profit off them.
> Take away the profit and everybody who needs to rent is out of luck.
How does that follow?
Take the situation as it exists today—X amount of "housing units" exist, and Y of those "housing units" are owned by investors as rental properties.
Now, change the situation so that it becomes unprofitable to own properties you are not occupying. All X of those housing units still exist. They won't be destroyed (well, maybe a few will, but not enough to seriously change the calculations), and if it's not profitable to rent them, it's going to be even less profitable to hang onto them sitting empty.
What happens in that scenario? Well, they should be sold.
Who would they be sold to? People who need a place to live (because no one's going to be buying them as investment or rental properties anymore).
How much are they going to be sold for? The amount these people are willing and able to pay. Why would they be sold for significantly more than they would be rented out for before? Sure, some current owners would be in denial and unwilling to accept that they'd lose a bunch of money on it (or maybe, as nicoburns suggests, there would be some kind of one-time bailout/incentive/whatever to make sure that the current owners would sell, and wouldn't lose their shirts). But while it would certainly change the economics of the situation somewhat from what they are today, and it would take our society a few years to reorganize around it, ultimately, I don't believe removing the middleman landlord class from the equation would harm the people who are currently renting in the long term. Indeed, I think it would benefit them, because instead of being in a situation where they're basically guaranteed to have a significant portion of their earnings siphoned off purely to be allowed to have a place to exist, they would be building up equity in something through those payments...and once they finished paying the purchase price, they would own the place, no longer have to make payments, and be able to sell it on when they decided it was time to move.
Nobody said "the hell" taxed out of anything. Conversation is completely shut down by these dumb Devil's advocate takes before anyone talks details such as a graduated tax rate.
Ok, so my choice of wording is poor, but I'm not trying to do a devil's advocate take, I'm trying to talk about the breadth of the issue. What would you like to see with this? Do you think people should own second rental properties? If so, what does "a substantially higher rate" mean to you that stops investors with deep pockets from investing but not regular people? If people shouldn't own a second property, then why not flagrantly tax them? But then where do renters go?
> punish the private citizen buying a second home as an investment property
Second property should be taxed a little bit more. 3rd much more, 4th much much more etc.
> has the hell taxed out of that's going straight to the renter
That can be said about anything that has taxes on it: it goes back to punish the final consumer, but in the end it's worth trying to correct the market, be it cigarettes or homes for investment.
I suppose the difference there is that by and large people who find the new tax too onerous can reduce their cigarette consumption or even stop smoking altogether, but people can't just stop renting their home.
well yes, but you're still allowing cheap second house, but not third. This means more middle class people can buy an investment home, but they will have to stop there, discouraging landlords with a huge stock of houses. You don't want to discourage investment in houses, just oligopolies/monopolies on the housing stock, and also unoccupied houses.
The government should step in when the rental market is failing to deliver for the people i.e. when rents become unaffordable due to lack of supply. They can step in with zoning law changes but they can also step in with direct competition.
That would be disastrous for families with multiple kids. They may not be able to afford to buy, but able to rent. Forcing them all into an apartment can be chaotic.
> If the investment property has the hell taxed out of that's going straight to the renter
Not if you exempt the value of the building from taxation and focus the tax exclusively on the value of the underlying land. This has been empirically demonstrated in multiple studies:
There's a simpler solution: let people build. Relax zoning restrictions. If you don't constrain the housing supply, real estate will cease being a good investment. Houses should depreciate in value in time, just like cars. When this happens investors will not elbow out anyone, because there will be no investors, just like there are no investors in cars.
Yes, for sure. But if you can easily build 20 or 10 or even just 2 stories on top of it, land value decouples from housing value (not all the way, but substantially). And for most people, housing value is what really matters; land value is secondary.
Land value is actually enormously important in the economy -- it's 1/3 of the value of all real assets and probably represents a similar amount of bank loans (real estate itself is 2/3 or real assets and about 2/3 of bank loans).
Relaxing zoning laws and allowing for significantly more supply IS very important -- but it's not sufficient by itself. (For the record, neither are Land Value Taxes sufficient). The true solution is to enact both:
> Land value is actually enormously important in the economy -- it's 1/3 of the value of all real assets and probably represents a similar amount of bank loans (real estate itself is 2/3 or real assets and about 2/3 of bank loans).
That's just consequences of the artificial scarcity of real estate. Real estate should be a much smaller fraction of the economy, and land value too. Once real estate stops being an investment, mortgage debt will be just like car loans, an important segment of the credit markets, but by no means the gargantuan size that it is today.
And once land value drops from 1/3 to 1/10 of the real estate assets, then the difference between Georgism, Marxism and Neoclassicism will become academic (as it should be).
I'll go a step further and argue that residential zoned property should be owned by residents, i.e., actual people that live on that property. By allowing the wealthy, and especially investment firms, to buy residential property as an investment... we are hastening a return to feudalism.
Also real estate investment is the basest, dumbest form of investment. It takes little to no intelligence to make money in residential real estate. I personally refuse to touch it on principle.
There are other countries who have laws that corporations cannot own residential property and legal residents are only allowed to own one residential property at a time. I do think there should be some relaxation of this law in the US so that folks can own a city property and a vacation cabin, or something, but I like the notion.
Does this help provide more housing? Or is it merely a justification to charge higher rents? It seems better for everyone if these houses could be torn down and replaced with multi-family units (apartments, row homes).
These homes are good investments because the area is in need of higher density and the land values will appreciate commensurate with that need. If property taxes are ratcheted up, it might make sense to just demolish the building and hold the land for its appreciation alone. Thus, further reducing housing stock and driving up rents.
If taxes are substantially higher - that will get passed down to the renter.
Should renting be a privilege only for the rich?
What happens when you're <30 and moving around for school & to get your first few years of experience?
What happens when your credit is awful and no one will lend you money for a house even if housing is 3% cheaper because there's less investors elbowing you out?
That’s not a solution. If you do this then rent will just increase to make up for the tax increases. It’s a big Fuck You to the tenants. Taxes ALWAYS pass on to the consumer.
If cities are deciding on these taxes themselves, not central government, they can adjust it dynamically until the need for rentals and the need for affordable homes balance out. They could even do it per neighbourhood.
If it never balances out - that is a sign that there are simply not enough houses, and they need to start building.
It's not so complicated to judge whether rents are too high or house prices are too high or both. It might be somewhat subjective, but that's government's job - to make those calls.
But the market adjusts automatically so why do you even need a government to make a call?
That's like saying the government should be involved in making a call as to whether apples and oranges are too expensive relative to each other in the supermarket.
The best solution would have been to built more euro-style cities that are walkable and with much more dense, but that's almost impossible for most of the US now.
The recent manufactured outrage and conspiracy theories over 15-minute cities is astounding though. From where did it come? Why? I used to live in a 15-minute city. It was awesome! People from all over the world gush at how great it is when they visit. And it's supposed to be a bad thing? Wow.
If you're used to be part of the recreationally remote, the idea of not having ample space to yourself feels weird. Some people are used to having a backyard, a garage, and lots of space to spare, however useless it is to them, and unsustainable in general.
The benefits of living in the city are a lot less obvious. Some people perceive it as a cramped space where you're forced to endure the company of strangers.
If their lifestyle wasn't subsidized by city dwellers, and causing all sorts of negative externalities, I'd say "to each their own".
>While many cities have implemented policies along the 15-minute city concept, disagreement remains over whether the model benefits residents. Critics point out that the creation of dense, walkable cores like a 15-minute neighborhood often leads to gentrification and displacement. Further, price increases, like those associated with gentrification, could be harmful to marginalized groups like people with disabilities, forcing move-outs.[53] Similarly, as the concept's origin is largely European, critics have argued that implementing the model could be colonialist and perpetuate harm to marginalized communities.
A similarly simple solution would be to ease the regulatory nightmare that has made low-end houses unprofitable to build, and all new housing much more expensive.
Not too many days ago there is an article showing that productivity in home construction has been almost nil for decades because the government inefficiency overpowers any construction gain.
Why are you trying to make renting so unaffordable? Dislike renters in your neighborhood?
(To be clear I am not saying this is right or wrong, I’m asking. I have used renting to increase my flexibility and to live places I couldn’t afford to or wouldn’t want to own for fun / access to jobs. I can see not wanting someone that doesn’t intend to stick around long term in your neighborhood I suppose).