[design-of-homes]

A UK perspective: over the past decade there has been an enormous growth in the buy-to-let market and the UK is now overun by the worst type of property owner: the buy-to-let (buy-to-rent) landlord or "property investor". They treat housing as a pure profit-making exercise. When more and more homes in your area get bought by property investors and buy-to-let landlords it can have a detrimental effect (I've seen it happen to my street). The neighbourhood feels more anonymous as people come and go more frequently. Neither the absentee landlord or the tenants have a commitment to the area. If buy-to-let comes to dominate a neighbourhood, can you ever build a community around such a neighbourhood?

Buy-to-let is rampant in the UK. Other European countries sensibly restrict it's growth or they enact strict tenancy laws to deter the worst type of buy-to-let landord (UK laws are weighted in favour of landlords). In the UK, we've lost any sense that housing has a social component.

I write a blog about housing in the UK and wrote about this topic five years ago. Depressingly, the situation is even worse today.

http://designofhomes.co.uk/016-damaging-effects-of-buy-to-le...

[rahimnathwani]

Are you suggesting that people shouldn't have the flexibility to move easily if they get a new job/partner or have a change in circumstances? That's what happens if every home must be owner-occupied and there isn't a liquid rental market.

I moved to China a few years ago. I am glad that I was able to let my flat (to responsible tenants who have paid the rent on time for >3 years) and that I was able to rent an apartment in Beijing. Selling my flat in London and buying one on Beijing would have been impossible and, even if it had been possible, why should I invest in a property in Beijing just because I want to live here for a few years? And why should I sell my flat in London?

EDIT: s/chance/change

[cynicalkane]

The economic middle road is to penalize the externality. If a community is concerned about non-resident property owners, they might consider taxing them at a higher rate and longer-term full-time residents at a lower rate. I don't know if there's anywhere that actually does this, however.

[rahimnathwani]

Studies [0][1] suggest that high levels of home ownership increase friction in the labour market, and thereby increase unemployment.

Perhaps we should penalize home ownership?

[0] http://qed.econ.queensu.ca/working_papers/papers/qed_wp_1197...

[1] http://www.iut.nu/Literature/2013/HomeOwnership_Unemployment...

[tonyedgecombe]

Jobs aren't everything.

[gohrt]

Eating isn't everything.

[tonyedgecombe]

Are you saying people are starving because they own their own home?

[nroets]

Buy-to-let is penalized because rental income is taxable. (As a thought experiment just consider the extra income tax liability if two owner-occupiers with identical houses started renting from each other).

This is on top of the fact that CGT applies to non primary residences in the UK and other countries (as rahimnathwani mentioned).

[igonvalue]

In the US, the government already heavily subsidizes home ownership via the mortgage-interest tax deduction[0]. From Wikipedia, it seems that similar programs exist worldwide as well[1]

[0] http://www.npr.org/blogs/money/2012/06/14/154344781/why-does... [1] http://en.wikipedia.org/wiki/Home_mortgage_interest_deductio...

[rahimnathwani]

The UK abolished this in 2000: http://en.wikipedia.org/wiki/Mortgage_interest_relief_at_sou...

[rahimnathwani]

In the UK, there is no capital gains tax (CGT) on the sale of your 'principal private residence', i.e. the place where you live. So, yes, non-resident property owners are already taxed differently.

[wbillingsley]

CGT only applies on the sale of the property. As the property value rises, buy-to-let landlords will often use the equity generated to leverage another loan on another buy-to-let property, rather than sell the first property. So as they keep on collecting properties, they're not paying CGT because they aren't selling.

Especially as CGT is typically lower than income tax, so investors would prefer capital gains over rental profit. (And if their rentals are generating profit, might be tempted to buy more rentals that are not profitable but rising in capital value, so that their rental profit is lower but capital gains are higher).

You hear stories of investors who keep on acquiring and end up with dozens of buy-to-let properties and are leveraged up to the hilt.

Bradford & Bingley, which was the UK's buy-to-let mortgage specialist, was particularly hard hit by the GFC.

[cynicalkane]

If UK taxes work like US taxes, then the community in question doesn't capture this externality (it goes to the state/Feds), so that's small comfort to them.

[rahimnathwani]

Taxing an externality can change behaviour, and the impact is not diminished even if you just burn the cash, rather than redistributing it.

(Unless you're taxing carbon emissions, in which case burning the cash would obviously contribute to the problem.)

[steanne]

"The City of Philadelphia is offering a new tax relief program for homeowners called the Homestead Exemption, which will reduce the taxable assessed value used for calculation of homeowners’ Real Estate Tax bills by $30,000 (exemption amount may be subject to change) starting in Tax Year 2014. A person must simply own their home and live in it as their primary residence."

[gohrt]

It's quite common in USA

http://en.wikipedia.org/wiki/Homestead_exemption

[collyw]

I don't think he is suggesting that. The fact is that many people under 40 are priced out of the market. 20 years ago, a graduate could easily buy a flat or house, rates of owner occupation were higher, and we still had the option to rent. This tended to suit people at the start of their careers, when they were more likely to move for work. After a certain age, you start wanting to settle somewhere.

[67726e]

Your parent post is not talking about some schmuck moving abroad for a few years. He is talking about the type of person who buys up property with the sole intention of making money by renting it off to others.

[Sophistifunk]

Where the hell else will rental properties come from?

[sliverstorm]

Perhaps you buy a second home and have enough income to keep & rent your first home. Perhaps it is a vacation home for you, so you timeshare.

[eru]

How is buying a second home and renting out the first one different from buying a second home and renting out the second one?

[sliverstorm]

Oh, I can't prove anything, but to explain what I mean a little better, renting the first is a much more natural progression. Like a hermit crab moving up in shell sizes. You rent the first property as a consequence of buying a new house, rather than as the entire purpose of the second purchase.

[tonyedgecombe]

I think we would be better off with more businesses and less private landlords in the UK. The current situation doesn't work very well for many tenants.

[DanBC]

How do you define "business"? BtL landlords with a property portfolio are businesses.

Excluding those there are very few businesses that rent homes. The few that exist work at the lower end renting social housing.

There have been severe criticisms of business-landlords. I'm trying to find some cites but business landlords have been implicated in poor maintainence, leading to deaths from carbon monoxide.

Letting agents don't own the properties, they just handle the details for the landlords.

[rahimnathwani]

How would fewer private landlords help?

[tonyedgecombe]

Not all but many private landlords can be fickle, turfing you out on a whim, getting into the business without realising the costs, basically having an amateur attitude to the endeavour.

[kghose]

In suburbs of Boston this is a very common thing. They are "all cash buyers" and often beat out regular folk who want to buy a home via a mortgage.

[jseliger]

In suburbs of Boston this is a very common thing. They are "all cash buyers" and often beat out regular folk who want to buy a home via a mortgage.

Boston's extensive housing development limits enable this behavior; in a functioning market we'd see supply rise to meet demand. See Yglesias's The Rent is Too Damn High (http://www.amazon.com/dp/B0078XGJXO) for more.

[cbd1984]

> in a functioning market we'd see supply rise to meet demand

So, tear down existing buildings to build higher, dig more basements, or subdivide existing properties? Because you can't assume there's always free land to build new buildings on.

Even if you assume the city is in the middle of a desert and there's essentially infinite room to grow horizontally, eventually you lose the reason people came to the city in the first place: The city itself, which you aren't really living in if you're commuting from a neighborhood more than an hour away from the city proper, or the city before it added on a dozen outlying regions.

[eru]

The less mortgages the better. No mortgage, no fear of underwater mortgage.

[cletus]

In Australia, investment residential property is seen as almost an inalienable right and a cultural norm.

I've lived in the UK and opinions there vary a lot. In London, it doesn't really have a negative connotation that I can recall. In rural parts, it tends to be viewed very negatively. I seem to remember reading a story about anger against "Londoners" driving up local property prices (with weekend homes) resulting in someone burning one down.

Weekend homes are a different beast of course but the anger comes from basically the same place: the perception that "outsiders" are making housing unaffordable for "locals".

This seems to be a very Luddite view. If it weren't for people letting out property rental homes wouldn't exist outside of, say, council-run rental buildings. I don't see that as a good thing.

Some places have tackled this problem with regulation eg making it difficult for foreigners to buy real estate or punitive capital gains taxes on short-term property sales like in Switzerland.

In NYC we have a different problem: rich people parking money in real estate leading to what are known as "ghost buildings". This is mainly a Manhattan issue.

Historically NYC had rent control that ended in the early 70s (meaning no new rent control leases were issued, existing ones remained while the tenants remained). Reforms were enacted to allow tenants to buy their apartments leading to the "coop", which accounts for the vast majority of Manhattan apartments.

A coop is an interesting beast. Technically you own shares in the coop. The coop owns the building. Your shares entitle you to reside in a given apartment. You must comply with the coop's rules. Coops are typically for primary residences and, to a lesser extent, pied-a-terres.

You can sublet coops you own in some cases but it tends to be pretty restrictive (eg only for 2 years out of every 5 and you have to own it for at least 2 years).

The effect of this is that coops tend to have very high occupancy rates (in real terms) and relatively low turnover.

Most new builds are condos, where you own your property outright and are a member of an HOA (Home Owners Association). Buying a coop will involve getting approval by the board, which can place wildly varying limits on mortgage amounts, income to debt ratios, requiring personal and professional references and so on. Condos however require only finance approval (the building has a right of first refusal).

So a lot of condos are owned by wealthy people who might visit for a few days a year if at all. I don't think this ghost building phenomenon is healthy for a community and is certainly a problem if all construction falls into that category.

Buy-to-let isn't the problem here. Unchecked buy-to-let might well be. Banning it is throwing the baby out with the bathwater. A more nuanced scheme might give tax abatements for owner-occupied properties in the coop model. Or put quotes on investment property in a given area. You can even create markets for such things eg NYC has a market for "air rights" above buildings to allow really tall buildings.

As far as "crappy" rental property goes, that's pretty much rental property all over.

[collyw]

>Weekend homes are a different beast of course but the anger comes from basically the same place: the perception that "outsiders" are making housing unaffordable for "locals".

So in parts of England, Cornwall for example, the house prices are over ten times the average local wage (due to Londoners buying them up as holiday homes). I don't see how that can be viewed as a positive thing.