5 ms·

As long as we're using capitalism to explain what is happening, then by all means let's use more capitalism in the US housing market. 1. Remove all government

As long as we're using capitalism to explain what is happening, then by all means let's use more capitalism in the US housing market. 1. Remove all government sponsorship of mortgages, gradually spool off all existing GSE mortgages into private markets. Possible exception: owner-occupied homes, limit one per 2. Remove all implicit government backing of insurers and re-insurers of anything having to do with mortgages. 3. Remove mortgage interest deduction. 4. Valuations reported to IRS, property insurers, permitting offices and bank loans link back to publicly-available property tax records. 5. Property developers, not taxpayers, pay for initial costs to extend infrastructure, foot the bill for floating the bonds to maintain the extensions, and residents moving in must pay into the bond fund over time, gradually paying off the initial buyers of the bond; bonds are reissued as old bonds mature. 6. Bill back costs of developing (up to inner core density, with adjustments to purchase fast public transport into inner core) further out from urban core back to inner core residents as increased property taxes spread over 7 years, if inner core residents vote down densification, and rebate some of the collected funds to developers of outer core. 7. Standardize all government building codes to a single set, specifying function/intent/goal and not form, thereby allowing offshore for example factory-built modules to access a contiguous national market, or alternative construction techniques without lengthy permitting. These and other measures that open up competition for real estate development would be wildly politically unpopular in most areas and constituencies of the US. The US real estate market is superficially capitalist for a number of very interconnected reasons, and I've observed similar dynamics in other nations I've enquired about property within. Property is an extremely special-case asset, with privileged market protections/distortions few other asset categories enjoy.

fennecfoxen 10y ago
While the rest are generally sound, Number 6 abandons the market and capitalism in favor of government intervention again, which is unfortunate and invites the system to be abused and gamed by the usual set of cronies. I'm against it. Number 1 should avoid use of the proposed exception for the same reason that mortgage interest shouldn't be deductible: it's a subsidy that distorts the market and is unfair to the good people who are still renting (who are, broadly speaking, probably not as well off in general, so it's a regressive subsidy where we pay the rich). You should add a #8 to remove all government subsidies of flood insurance and similar vehicles, especially along rivers and coasts, as they're basically paying people money to build homes (often luxury or vacation homes) in dangerous places.
- yourapostasy 10y ago
  Agreed on all points. I put in #1 because a substantial number of HN readers are highly invested in the US residential property market, and in past conversations with people who were similarly invested, not mentioning that exemption turned into a dismissive non-starter conversation. My concession to even get a conversation started at all with those folks. Upton Sinclair comes to mind: It is difficult to get a man to understand something, when his salary depends on his not understanding it. #6 is an attempt to reconcile the following challenge. Well past the point when developers could foot the bill for infrastructure expansion, we continue levying taxpayers to pay for it all while property developers reaped the majority cash benefits the soonest from the expansion. This heavily subsidizes inner core residents who get there earliest, and regressively penalizes later generations and residents settling the outer rims with increased infrastructure costs that increase as the square of the distance from the core, while outer rim density-based tax revenue functions more linearly. We're saddled with the legacy, but how do we allocate the true infrastructure expansion costs of growing outwards instead up/downwards, not to speak of remedying past distortions that have magnified effects today? I'm fine with not going with my #6 as I'm highly dissatisfied with it as well, but would welcome other cost allocation mechanism ideas, any to offer? #9 Remove all subsidies, deductions, and tax credits. Including those involving land banking. [1] #10 All commercial property tax subsidies/waivers/rebates/etc. must pass by a super-majority vote of the ones who pick up the tab for the gap. [1] http://usa.streetsblog.org/2013/01/09/450-billion-in-federal-subsidies-tilt-u-s-real-estate-market-toward-sprawl/ http://usa.streetsblog.org/2013/01/09/450-billion-in-federal...
- mattferderer 10y ago
  I don't have data to back this up but in regards to #1, wouldn't most people who are paying mortgage interest be middle class? Wealthy enough to own a house but not to buy it outright? I also believe that if you own multiple homes, you can only deduct this on your primary residence. I've always felt this is a small tax break for middle class.
  - jdavis703 10y ago
    Then lower the middle class taxes so people can choose how to keep the savings, instead of being forced to buy a house to take advantage of a specific tax break. (I'm being the devil's advocate here, I realize some taxes (or breaks) exist to incentivize behaviour.
lend000 10y ago
One more: stop directly manipulating the Fed Funds rate -- in fact, get rid of it altogether. You could argue that the Fed can safely provide a backup reserve fund with an above-market interest rates for banks, but to set direct price controls on the rate at which private banks lend to one another is absolutely ridiculous -- on par with failed Soviet-era command economies (or Venezuela). Eight years of near 0% interest rates has put us in the same situation that we were in back in 2007. The interest rate problem is actually worse, although we don't have Fannie Mae snatching up bad mortgages like they were during the last boom.
- foota 10y ago
  It sounds like you have a misunderstanding of how the Fed manipulates the rate that banks lend to each other at. For a summary, the Fed tries to influence it by changing the rate that banks required reserves pay, but banks themselves negotiate the rate they lend to each other at. See: https://en.wikipedia.org/wiki/Federal_funds_rate#Mechanism https://en.wikipedia.org/wiki/Federal_funds_rate#Mechanism
  - pc86 10y ago
    Someone who equates the Fed to Soviet-era economic planning misunderstands more than just how the Fed manipulates rates.
    - lend000 10y ago
      Mechanism aside, do you actually believe it's different? A price control is a price control, and it distorts information in the market, which is normally represented by price. I'd highly recommend you read up on the influences of the last boom and bust: https://admin.fee.org/files/doclib/houseunclesambuiltbooklet.pdf https://admin.fee.org/files/doclib/houseunclesambuiltbooklet...
  - RobertoG 10y ago
    You are right. Another common misconception is that banks are limited by they reserves in the quantity of money that they can "create". Banks search for reserves after finding customers to lend. If they are not able to find it in the interbank market, they always can go to the central bank. It's by manipulating that rate that the central bank have some control in how "hot" the economy is. If the central bank wants to cool the economy it will make money more expensive to the private banks. Selling bonds to the private banks have also this effect. It's the responsibility of private banks to grant that the new created credit is used in solid business. If there are not demand for credit or there are not solid business, never mind how much reserves there are in the system.
manyxcxi 10y ago
There are practical issues with #7, to standardize on a set of building codes across the entire US would make all construction needlessly more expensive for anything but offshore pre-fab modules. If you have to do California earthquake slab treatment in Missouri, that's not economical. If you need to support all the drainage, roof, and siding rules of the Northwest in Arizona, you're probably unable to efficiently handle all the plaster and cooling efficiency rules in place down there. I'm sure there's a large core subset of rules that would allow prefabicratiom of framing, for instance, but as a guy who JUST finished building a house, I can tell you that it isn't the framing that gets you. Permits and land are by far the single biggest line item expenses.
- VLM 10y ago
  I suspect they said the same thing about cars in the old days, and mass production kind of papers over those little differences. Besides no one mass produces foundation slabs which would vary on frost depth, they mass produce kitchens and living rooms and bedrooms. Also for sheer cost of truck shipment reasons most houses would be manufactured near where they stand, perhaps across a state line maybe two small ones at most, sure. I would agree with the "its mostly a money grab by the system" as being accurate. $25K of wear and tear on that planning commission rubber stamp, uh huh. Cable company can connect service for free in a couple hours of labor but the electric company is required for an occupancy permit, and they know it, and they think they can squeeze $10K out for new service installation, uh huh.
  - manyxcxi 10y ago
    Mass production definitely papers over the inefficiencies, but I wonder if it would be needlessly burdensome to try and make building products and rules that are everything for everyone. We've already seen huge debacles with things like LP siding that would last decades in the southwest that started breaking down and growing mushrooms in the Northwest after like two years. The difference with cars is that save for some small tweaks, you're not dealing with completely different driving environments for decades or centuries on end. California has their own emissions standards, which they manage to meet (or cheat). But largely fuel efficiency is fuel efficency. Safety is safety. A seatbelt works the same whether it's rainy or sunny. Houses should be designed to emphasize the local environment needs. I don't want a flat roofed stucco house in Portland. That would be a freaking nightmare. I'm sure there's a set of federal regulations that could be applied to new construction, plumbing and electrical codes could probably mostly apply. General safety and minimum wind shear requirements. But the vast majority of the codes we had to deal with were regional and dealt with water runoff, moisture build up prevention, soil erosion, and a list of other things that I could see as being entirely not applicable to other areas of my state, let alone the rest of the country.
bzbarsky 10y ago
If you do #3, you'll just have people forming companies for the sole purpose of buying a home and getting the same exact deduction, since interest on debt is not taxable for companies (it's a business expense like any other, and taxes are levied on profits, not revenue). This will be especially easy for people who are not on a salary (contractors, etc) to start with.
davidf18 10y ago
The high cost of housing is simply cause by the market failure or market inefficiency of zoning density restrictions which benefits landlords/land holders over the renters and those who wish to buy housing. Prices are higher because of scarcity and the scarcity is politically induced called "rent seeking". This rent seeking was first explained by David Ricardo regarding the "Corn Laws" which were a tax on imported grain causing workers to pay more for food/bread. Farmers received more money for their grain, but the landholders of the land the famers used simply charged higher prices. Fix the market failure and free markets will create more housing. Renters will pay less for housing, there will be less commuting which causes less pollution. There will be more disposable income which can be used to pay for goods and services thus stimulating the economy and employing more people.
nsxwolf 10y ago
#3 would actually be pretty devastating to a lot of middle class people if you didn't give them some other tax cut or credit. You'd at least want to phase it out gradually so people can adjust for its impact.

fennecfoxen 10y ago

While the rest are generally sound, Number 6 abandons the market and capitalism in favor of government intervention again, which is unfortunate and invites the system to be abused and gamed by the usual set of cronies. I'm against it. Number 1 should avoid use of the proposed exception for the same reason that mortgage interest shouldn't be deductible: it's a subsidy that distorts the market and is unfair to the good people who are still renting (who are, broadly speaking, probably not as well off in general, so it's a regressive subsidy where we pay the rich). You should add a #8 to remove all government subsidies of flood insurance and similar vehicles, especially along rivers and coasts, as they're basically paying people money to build homes (often luxury or vacation homes) in dangerous places.

yourapostasy 10y ago
Agreed on all points. I put in #1 because a substantial number of HN readers are highly invested in the US residential property market, and in past conversations with people who were similarly invested, not mentioning that exemption turned into a dismissive non-starter conversation. My concession to even get a conversation started at all with those folks. Upton Sinclair comes to mind: It is difficult to get a man to understand something, when his salary depends on his not understanding it. #6 is an attempt to reconcile the following challenge. Well past the point when developers could foot the bill for infrastructure expansion, we continue levying taxpayers to pay for it all while property developers reaped the majority cash benefits the soonest from the expansion. This heavily subsidizes inner core residents who get there earliest, and regressively penalizes later generations and residents settling the outer rims with increased infrastructure costs that increase as the square of the distance from the core, while outer rim density-based tax revenue functions more linearly. We're saddled with the legacy, but how do we allocate the true infrastructure expansion costs of growing outwards instead up/downwards, not to speak of remedying past distortions that have magnified effects today? I'm fine with not going with my #6 as I'm highly dissatisfied with it as well, but would welcome other cost allocation mechanism ideas, any to offer? #9 Remove all subsidies, deductions, and tax credits. Including those involving land banking. [1] #10 All commercial property tax subsidies/waivers/rebates/etc. must pass by a super-majority vote of the ones who pick up the tab for the gap. [1] http://usa.streetsblog.org/2013/01/09/450-billion-in-federal-subsidies-tilt-u-s-real-estate-market-toward-sprawl/ http://usa.streetsblog.org/2013/01/09/450-billion-in-federal...
mattferderer 10y ago
I don't have data to back this up but in regards to #1, wouldn't most people who are paying mortgage interest be middle class? Wealthy enough to own a house but not to buy it outright? I also believe that if you own multiple homes, you can only deduct this on your primary residence. I've always felt this is a small tax break for middle class.
- jdavis703 10y ago
  Then lower the middle class taxes so people can choose how to keep the savings, instead of being forced to buy a house to take advantage of a specific tax break. (I'm being the devil's advocate here, I realize some taxes (or breaks) exist to incentivize behaviour.

lend000 10y ago

One more: stop directly manipulating the Fed Funds rate -- in fact, get rid of it altogether. You could argue that the Fed can safely provide a backup reserve fund with an above-market interest rates for banks, but to set direct price controls on the rate at which private banks lend to one another is absolutely ridiculous -- on par with failed Soviet-era command economies (or Venezuela). Eight years of near 0% interest rates has put us in the same situation that we were in back in 2007. The interest rate problem is actually worse, although we don't have Fannie Mae snatching up bad mortgages like they were during the last boom.

foota 10y ago
It sounds like you have a misunderstanding of how the Fed manipulates the rate that banks lend to each other at. For a summary, the Fed tries to influence it by changing the rate that banks required reserves pay, but banks themselves negotiate the rate they lend to each other at. See: https://en.wikipedia.org/wiki/Federal_funds_rate#Mechanism https://en.wikipedia.org/wiki/Federal_funds_rate#Mechanism
- pc86 10y ago
  Someone who equates the Fed to Soviet-era economic planning misunderstands more than just how the Fed manipulates rates.
  - lend000 10y ago
    Mechanism aside, do you actually believe it's different? A price control is a price control, and it distorts information in the market, which is normally represented by price. I'd highly recommend you read up on the influences of the last boom and bust: https://admin.fee.org/files/doclib/houseunclesambuiltbooklet.pdf https://admin.fee.org/files/doclib/houseunclesambuiltbooklet...
- RobertoG 10y ago
  You are right. Another common misconception is that banks are limited by they reserves in the quantity of money that they can "create". Banks search for reserves after finding customers to lend. If they are not able to find it in the interbank market, they always can go to the central bank. It's by manipulating that rate that the central bank have some control in how "hot" the economy is. If the central bank wants to cool the economy it will make money more expensive to the private banks. Selling bonds to the private banks have also this effect. It's the responsibility of private banks to grant that the new created credit is used in solid business. If there are not demand for credit or there are not solid business, never mind how much reserves there are in the system.

manyxcxi 10y ago

There are practical issues with #7, to standardize on a set of building codes across the entire US would make all construction needlessly more expensive for anything but offshore pre-fab modules. If you have to do California earthquake slab treatment in Missouri, that's not economical. If you need to support all the drainage, roof, and siding rules of the Northwest in Arizona, you're probably unable to efficiently handle all the plaster and cooling efficiency rules in place down there. I'm sure there's a large core subset of rules that would allow prefabicratiom of framing, for instance, but as a guy who JUST finished building a house, I can tell you that it isn't the framing that gets you. Permits and land are by far the single biggest line item expenses.

VLM 10y ago
I suspect they said the same thing about cars in the old days, and mass production kind of papers over those little differences. Besides no one mass produces foundation slabs which would vary on frost depth, they mass produce kitchens and living rooms and bedrooms. Also for sheer cost of truck shipment reasons most houses would be manufactured near where they stand, perhaps across a state line maybe two small ones at most, sure. I would agree with the "its mostly a money grab by the system" as being accurate. $25K of wear and tear on that planning commission rubber stamp, uh huh. Cable company can connect service for free in a couple hours of labor but the electric company is required for an occupancy permit, and they know it, and they think they can squeeze $10K out for new service installation, uh huh.
- manyxcxi 10y ago
  Mass production definitely papers over the inefficiencies, but I wonder if it would be needlessly burdensome to try and make building products and rules that are everything for everyone. We've already seen huge debacles with things like LP siding that would last decades in the southwest that started breaking down and growing mushrooms in the Northwest after like two years. The difference with cars is that save for some small tweaks, you're not dealing with completely different driving environments for decades or centuries on end. California has their own emissions standards, which they manage to meet (or cheat). But largely fuel efficiency is fuel efficency. Safety is safety. A seatbelt works the same whether it's rainy or sunny. Houses should be designed to emphasize the local environment needs. I don't want a flat roofed stucco house in Portland. That would be a freaking nightmare. I'm sure there's a set of federal regulations that could be applied to new construction, plumbing and electrical codes could probably mostly apply. General safety and minimum wind shear requirements. But the vast majority of the codes we had to deal with were regional and dealt with water runoff, moisture build up prevention, soil erosion, and a list of other things that I could see as being entirely not applicable to other areas of my state, let alone the rest of the country.

bzbarsky 10y ago

If you do #3, you'll just have people forming companies for the sole purpose of buying a home and getting the same exact deduction, since interest on debt is not taxable for companies (it's a business expense like any other, and taxes are levied on profits, not revenue). This will be especially easy for people who are not on a salary (contractors, etc) to start with.

davidf18 10y ago

The high cost of housing is simply cause by the market failure or market inefficiency of zoning density restrictions which benefits landlords/land holders over the renters and those who wish to buy housing. Prices are higher because of scarcity and the scarcity is politically induced called "rent seeking". This rent seeking was first explained by David Ricardo regarding the "Corn Laws" which were a tax on imported grain causing workers to pay more for food/bread. Farmers received more money for their grain, but the landholders of the land the famers used simply charged higher prices. Fix the market failure and free markets will create more housing. Renters will pay less for housing, there will be less commuting which causes less pollution. There will be more disposable income which can be used to pay for goods and services thus stimulating the economy and employing more people.

nsxwolf 10y ago

#3 would actually be pretty devastating to a lot of middle class people if you didn't give them some other tax cut or credit. You'd at least want to phase it out gradually so people can adjust for its impact.