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Most people making money on real-estate are doing so not on yield but on capital gains. The rise in land prices make the cash. With proper taxes discouraging s

Most people making money on real-estate are doing so not on yield but on capital gains. The rise in land prices make the cash. With proper taxes discouraging speculation, like land value tax, income taxes could be far lower and we'd have a world where working actually got you somewhere instead of leveraging up on land to build a property mini-empire. Would love to know how many people made very little from their failed SF startup but overall made out good due to land prices appreciation. HN is full to the brim with people complaining about high rents. You are not the common case.

jackcosgrove 11y ago
"Most people making money on real-estate are doing so not on yield but on capital gains." If this were true, why would you have a problem with landlords in general? They are providing a service at cost. If a landlord is not buying land in a speculative market, what is your criticism of them?
- branchless 11y ago
  It's a huge game played by the banks to extract economic rent. Landlords are taking a slice and providing a risk buffer for the banks. I find the whole practice, which as you noted in SF is taking up all spare income, disgusting. Your comment is worded strangely also - I'm saying they are speculating on land. If they are buying and making a little just by providing a service I have less of a problem with them, but this simply isn't possible in the current environment of unlimited fiat issuance. The bank lending and endless speculation means wealth producers are squeezed to the limit.
  - esja 11y ago
    It's worth noting as well that houses don't disappear when landlords sell them. Most landlords don't build new homes to house people. More commonly they compete with owner-occupiers to buy existing property. Remove the landlord from the story and the renter may well become a buyer, at a lower price. p.s. Thank you for your comments in this thread and elsewhere - you have inspired me to finally read Henry George.
    - branchless 11y ago
      Really truly do it. The best thing about Henry George is the way his love of fairness and humanity shines through. It's really rare now to read someone who is actually altruistic and an intellectual force. It's inspiring. ps you can tell he's a nice guy because he has utter disdain for rentiers, the enemy of all working people everywhere!
aianus 11y ago
As someone else pointed out in this thread, you would have made a lot more money dumping $70,000 into S&P index funds in 1975 than buying a $70,000 bay area house at the same time and holding it empty to 2016. So I disagree with your premise, no rational investor purchases houses and leaves them empty. And the ones who don't are providing a valuable economic service by assuming all capital loss risk, interest rate risk, maintenance, opportunity costs, etc. involved in owning property in exchange for a tenant's cash.
- diogenescynic 11y ago
  The difference is you could have lived in that house or rented it out and created additional income. In the book 'Ascent of Money' Niall Ferguson does a breakdown on the housing market in London vs investing in the stock market through index funds and shows how housing really was one of the better investments. It's worth checking out the book for that section. The issue I see is that hindsight is always 20-20 so even if housing was the better investment in the past, I still wouldn't want most of my savings/wealth to be invested in an asset that isn't very liquid and is susceptible to swings in the market. However, if you buy in a place like London or San Francisco those swings are probably only minor setbacks if you're in it for the long haul.
- branchless 11y ago
  Most people don't have $70k. This is the thing about land. You can borrow against it from the banks. Go to your bank and ask for $70 to mess about on stocks because "you think they will go up". Yes there are margin accounts but these are not in common use. All roads lead to land speculation and the banks are waiting with a big hat to capture all the surplus.
  - aianus 11y ago
    It's cheaper to borrow against a stock portfolio than real estate (since it's much easier for a broker to liquidate your stocks than for your bank to foreclose on your home): https://www.interactivebrokers.com/en/index.php?f=1595 https://www.interactivebrokers.com/en/index.php?f=1595 Although they only give you 4x leverage vs. the 5x-20x common in residential real estate. Anyways, I think you're grossly overestimating how good of an investment real estate is. Unless you have some kind of edge (like you're a developer and your friend is on the zoning board or whatever) you're not going to magically get rich doing it. It's just another asset class.
zo1 11y ago
Genuinely, how "high" do you want this land value tax to be? I currently pay about 1% of the market-valuation of my property per year in "land value tax", or whatever it's called. And that's with some sort of "small-property" rebate, so it's probably more than that. You make it seem like it'll be this panacea for all of the ills relating to property renting and ownership. The market will most likely "absorb" the distortion caused by your proposed tax. What you'll then be discouraging is property investment/development into areas that don't have immediate and/or predictable returns that justify the investment for whatever period the capital owner wants. Not only that, but you'll make it even more difficult for small/medium business to do the same.
- branchless 11y ago
  Land value tax would replace other taxes such as income tax. I don't see how the market would absorb this tax. Rent is set at what the market can bear. If you raise further in light of being taxed more your renter cannot pay. Rents are set by wages. Land values are set by the ability of banks to lend against land based on the price they just lend on ... land, all "financed" by fiat money created by banks. http://www.economist.com/blogs/economist-explains/2014/11/economist-explains-0 http://www.economist.com/blogs/economist-explains/2014/11/ec... "Land value taxation is so beloved of economists because, in theory, it does not distort decision making. Suppose a land value tax of one per cent on land value is introduced tomorrow. There can be no supply response: there would still be as much land as there is today. Neither would consumers’ preferences change, as land would be no more useful, either. So if the market for land is competitive, no transactions would be deterred or encouraged. All that changes is the price, which falls until it exactly offsets the discounted cost of paying the tax forever. The buyer assumes the burden of paying the tax, so all things considered is no better or worse off. Landlords are unable to pass the tax on to tenants, because the supply and demand of rented land is unchanged too. Furthermore, if LVTs replaced property taxes, incentives against improving homes and developing land would be removed. Yet LVT would continue to account for "undeserved" gains landowners make on the investment of others, such as the government improving nearby transport links (this feature of the tax appealed to Winston Churchill)."
  - 11y ago

jackcosgrove 11y ago

"Most people making money on real-estate are doing so not on yield but on capital gains." If this were true, why would you have a problem with landlords in general? They are providing a service at cost. If a landlord is not buying land in a speculative market, what is your criticism of them?

branchless 11y ago
It's a huge game played by the banks to extract economic rent. Landlords are taking a slice and providing a risk buffer for the banks. I find the whole practice, which as you noted in SF is taking up all spare income, disgusting. Your comment is worded strangely also - I'm saying they are speculating on land. If they are buying and making a little just by providing a service I have less of a problem with them, but this simply isn't possible in the current environment of unlimited fiat issuance. The bank lending and endless speculation means wealth producers are squeezed to the limit.
- esja 11y ago
  It's worth noting as well that houses don't disappear when landlords sell them. Most landlords don't build new homes to house people. More commonly they compete with owner-occupiers to buy existing property. Remove the landlord from the story and the renter may well become a buyer, at a lower price. p.s. Thank you for your comments in this thread and elsewhere - you have inspired me to finally read Henry George.
  - branchless 11y ago
    Really truly do it. The best thing about Henry George is the way his love of fairness and humanity shines through. It's really rare now to read someone who is actually altruistic and an intellectual force. It's inspiring. ps you can tell he's a nice guy because he has utter disdain for rentiers, the enemy of all working people everywhere!

aianus 11y ago

As someone else pointed out in this thread, you would have made a lot more money dumping $70,000 into S&P index funds in 1975 than buying a $70,000 bay area house at the same time and holding it empty to 2016. So I disagree with your premise, no rational investor purchases houses and leaves them empty. And the ones who don't are providing a valuable economic service by assuming all capital loss risk, interest rate risk, maintenance, opportunity costs, etc. involved in owning property in exchange for a tenant's cash.

diogenescynic 11y ago
The difference is you could have lived in that house or rented it out and created additional income. In the book 'Ascent of Money' Niall Ferguson does a breakdown on the housing market in London vs investing in the stock market through index funds and shows how housing really was one of the better investments. It's worth checking out the book for that section. The issue I see is that hindsight is always 20-20 so even if housing was the better investment in the past, I still wouldn't want most of my savings/wealth to be invested in an asset that isn't very liquid and is susceptible to swings in the market. However, if you buy in a place like London or San Francisco those swings are probably only minor setbacks if you're in it for the long haul.
branchless 11y ago
Most people don't have $70k. This is the thing about land. You can borrow against it from the banks. Go to your bank and ask for $70 to mess about on stocks because "you think they will go up". Yes there are margin accounts but these are not in common use. All roads lead to land speculation and the banks are waiting with a big hat to capture all the surplus.
- aianus 11y ago
  It's cheaper to borrow against a stock portfolio than real estate (since it's much easier for a broker to liquidate your stocks than for your bank to foreclose on your home): https://www.interactivebrokers.com/en/index.php?f=1595 https://www.interactivebrokers.com/en/index.php?f=1595 Although they only give you 4x leverage vs. the 5x-20x common in residential real estate. Anyways, I think you're grossly overestimating how good of an investment real estate is. Unless you have some kind of edge (like you're a developer and your friend is on the zoning board or whatever) you're not going to magically get rich doing it. It's just another asset class.

zo1 11y ago

Genuinely, how "high" do you want this land value tax to be? I currently pay about 1% of the market-valuation of my property per year in "land value tax", or whatever it's called. And that's with some sort of "small-property" rebate, so it's probably more than that. You make it seem like it'll be this panacea for all of the ills relating to property renting and ownership. The market will most likely "absorb" the distortion caused by your proposed tax. What you'll then be discouraging is property investment/development into areas that don't have immediate and/or predictable returns that justify the investment for whatever period the capital owner wants. Not only that, but you'll make it even more difficult for small/medium business to do the same.

branchless 11y ago
Land value tax would replace other taxes such as income tax. I don't see how the market would absorb this tax. Rent is set at what the market can bear. If you raise further in light of being taxed more your renter cannot pay. Rents are set by wages. Land values are set by the ability of banks to lend against land based on the price they just lend on ... land, all "financed" by fiat money created by banks. http://www.economist.com/blogs/economist-explains/2014/11/economist-explains-0 http://www.economist.com/blogs/economist-explains/2014/11/ec... "Land value taxation is so beloved of economists because, in theory, it does not distort decision making. Suppose a land value tax of one per cent on land value is introduced tomorrow. There can be no supply response: there would still be as much land as there is today. Neither would consumers’ preferences change, as land would be no more useful, either. So if the market for land is competitive, no transactions would be deterred or encouraged. All that changes is the price, which falls until it exactly offsets the discounted cost of paying the tax forever. The buyer assumes the burden of paying the tax, so all things considered is no better or worse off. Landlords are unable to pass the tax on to tenants, because the supply and demand of rented land is unchanged too. Furthermore, if LVTs replaced property taxes, incentives against improving homes and developing land would be removed. Yet LVT would continue to account for "undeserved" gains landowners make on the investment of others, such as the government improving nearby transport links (this feature of the tax appealed to Winston Churchill)."
- 11y ago