5 ms·

Gotta say, housing is one good that the free market seems to not really be amazing at. Here in Australia, it has become an investment vehicle; a huge amount of

Gotta say, housing is one good that the free market seems to not really be amazing at. Here in Australia, it has become an investment vehicle; a huge amount of housing stock is empty while a third of the population are living in very poor accommodation.

michaelscott 6y ago
The approach that seems to work is to give economically elastic things to the free market, and make economically inelastic things (housing, medical care, etc) a responsibility of the state. It's difficult to tell if this is the case as we can only look at macroeconomic effects in hindsight, and this approach would have many problems at scale, but this seems to be the most beneficial approach for society long term?
- ethanbond 6y ago
  You can get identical effects as Singapore’s state owned land without actually making it state owned/managed/priced by simply instituting a very high Land Value Tax. Rent collected for buildings/management/amenities goes to landlord, rent collected for the physical land upon which the building exists (which is valuable not because of the landlord) is recouped by the community as tax.
  - thehappypm 6y ago
    Higher taxes also directly cause higher rents passed on to renters.
    - taktoa 6y ago
      That is uniquely not the case for LVT, because the supply of land is fixed, whereas the demand for housing is variable. EDIT: to be clear, I meant the "passing on to renters" part, not the "property may become more expensive" part.
      - deleted 6y ago
        [deleted]
    - ethanbond 6y ago
      Reiterating the other comment: this is not true of LVT. LVT cannot be passed on to renters. Essentially every other tax can be and is passed to consumers. No economist disputes LVT’s inability to be passed on.
    - seanmcdirmid 6y ago
      Lower taxes means more money people can devote to housing, which in turn can also bid up prices. This is why the USA provides for a foreign housing deduction, or Americans could never practically live in Singapore without running into double taxation.
- zhdc1 6y ago
  With a couple of exceptions, how is housing inelastic sans government zoning and other policy restrictions? We're long past the point where the private sector can estimate housing demand on a long enough time scale for single and multi-family housing in most environments. Outside of cases like Manhattan or London, where demand is driven more by wanting to 'live in...' than actual economic necessity, I don't see why housing needs to be overly regulated when it only takes one-two years (or less) to build new capacity once you remove all of the unnecessary red tape.
  - michaelscott 6y ago
    Since we're on HN I guess it's safe to assume that you live in the general Bay area, and probably have for most or all of your life, which is only relevant in that if true it's a location which is particularly prone to problematic housing policy and not much else in the way of housing supply (from what I can tell?). However the view that policy is the only issue to housing just isn't appropriate in many places outside of SF and Singapore is actually a very good example (as is London to a certain degree, expanding inland burroughs notwithstanding): you only have so much space on which to build housing, but the population is variable. If we take the available housing space to be the supply and the population requiring housing to be the demand, you have a textbook case of economic inelasticity. In Singapore they have ironically solved this with policy, as opposed to exacerbating it, and since this was planned early in the country's developmental phase as an economic policy I can assume they understood this problem as economic one very early on.
throwiway97r 6y ago
Having embarked on a house hunt in an Australian city, I’m surprised by how many of the houses I see (especially the more “affordable” homes) are empty on inspection. I assumed they were vacant post-lease, but your point about the houses being empty as a result of speculation is quite plausible. That’s crazy.
ginko 6y ago
>Here in Australia, it has become an investment vehicle Which is a pity, really. IMO housing policy should target property prices to follow inflation.
IdiocyInAction 6y ago
Non-free market housing isn't that great either though, like in Berlin.
- azmodeus 6y ago
  My impression is housing is good for tenants in Berlin. What isn't so good about it?
  - biztos 6y ago
    It's good for many tenants who have longstanding leases, but rent increases have outstripped salary increases in all the better neighborhoods, by an almost laughable margin, for more than ten years. A fair amount of that was fueled by long-term tenants getting kicked out by their new landlords who "needed" to reside in the flats. Similar gentrification model to parts of San Francisco. So yeah, some things in Berlin are very tenant-friendly, but finding what used to be a typical flat in, say, Mitte on what is still a typical salary is pretty much impossible. Edit: I get the impression that a lot of new housing is being built in Berlin, but I have yet to see any downward pressure on rents or for that matter purchase prices coming from it. The more they build, the more things cost.
    - LargoLasskhyfv 6y ago
      Don't be so picky, move to Marzahn!
  - throwaway85858 6y ago
    The Mietendeckel has effectively triggered the death spiral of Berlin's housing market, it's the product of a reactionary local politics and the intransigence of the main political parties at a federal level to either fund housing development or loosen planning restrictions. I came to berlin in 2011 and almost a decade later the problem has only gotten worse, which goes to show that the direction of cracking down on private landlords whilst making negligible efforts to either zone new housing areas or speed up planning permission is ineffective at creating more living space for the 140,000 people who are under-housed. The death spiral is accelerated by two factors, firstly private landlords have had their income curtailed and are selling up, secondly prospective private investors in rental housing, wary of further unilateral retrospective changes in the future, are walking away. For those that don't know what the Mietendeckel is, rents in Berlin have been reset to circa 2013 levels, where buildings built before 2014 cannot be rented above 6-10 euros per sqm, existing contracts and renovation investments be damned. For example a building in Friedrichshain built in 1890 but completely renovated < 10 years ago can only fetch 6-8 Euros per sqm, if an elevator is present, underfloor heating and a high quality finish to living areas is provided you could at a maximum charge an extra 1 Euro per sqm. Failure to retroactively lower the rent for your existing tenants is punishable with fines up-to 250,000 Euros, there are practically no loopholes. So this legislation has lead to the current situation where landlords are preferring to sell their properties when they become empty or when that's not foreseeable, selling them with the tenants in them (which can reduce the final sale price by up to ~30%) or just hold off on renting empty properties for now or even rent them on the booming black market. This is evident in the 47% drop in rental listings for apartments in old buildings and the moderate rise in condominium sales. German tenancy laws read like the wish list of rental activists in America or the UK, they provide comprehensive protection from no fault terminations and are backed by a lethargic court system, the sole reason that can be given for terminating a contract is when the apartment is needed for you or your relatives own use, a lot of people like to imagine that this is abused but the consequences are so severe I can't see any logical person making that choice. A long term tenant who fights this kind of termination can expect to stay in their apartment for up-to 2-3 years, but in the end will face certain eviction and ruinous costs in excess of 15-40,000 euros. Whilst there are clauses to protect vulnerable tenants from eviction, they are not evident in practice, just recently a 82 year old woman with advanced dementia was evicted as the court determined after 3 years that she could be physically lifted out the apartment by her daughters and so is therefore capable of moving elsewhere. There is nothing to rent here, your sole choice is to buy a place, but you won't be able to afford an apartment which is unoccupied as the banks' valuations don't match that of the realtors. Which leaves you with finding soft targets for eviction, the easy to persuade will have accepted an offer, so take a pick between the elderly or single earner families with kids.
ekianjo 6y ago
> Gotta say, housing is one good that the free market seems to not really be amazing at. Most developed countries don't even have anything close to a Free Market anyway, with restrictions on the construction of new housing, zoning, and rent controls in many places.
roenxi 6y ago
> Here in Australia... House prices in Australia are driven by two forces - immigration and monetary policy (ie, interest rates). Neither of those drivers are linked to a free market. The equilibrium in both is set by government decree (immigration numbers) and interest rates are set by the RBA (effectively part of the government bureaucracy) to a first approximation. The government doesn't have an explicit policy of pushing up house prices, but there is a very strong implicit policy to the same effect. Giving them more direct control over housing wouldn't change much.
- zzzzzzzza 6y ago
  missed some forces... building regulations, tax policy...
barry-cotter 6y ago
The population of Tokyo has grown 50% over the last two decades while house prices and rents have stayed flat. The reason housing prices go up is almost always because zoning makes building more housing illegal. See San Francisco. Contrast with Seattle and Houston. When more housing is built prices go down, or at least go up slower.
- odiroot 6y ago
  > almost always because zoning makes building more housing illegal That's usually the case in Western Europe. Or other artificial limitations put on construction projects.
- wonnage 6y ago
  There are cultural differences here. Japanese houses are seen as depreciating assets, as nobody wants to live in an old house. See https://www.economist.com/finance-and-economics/2018/03/15/why-japanese-houses-have-such-limited-lifespans https://www.economist.com/finance-and-economics/2018/03/15/w... As a result, the phenomenon of hoarding real estate for profit simply doesn’t exist. And the regular tear down of old houses allows density to increase rapidly, at the expense of building waste.
  - Aperocky 6y ago
    This might just be the psychological aftermath of the Japanese bubble. Land prices in Japan was insane in early 1990s, and then it burst, losing almost 60% of the value. it doesn't get that high without people believing it will appreciate - and now they don't.
refurb 6y ago
I don’t know about Australia, but one of the reasons that the housing market is so distorted in the US is due to gov’t intervention. 30 year mortgages, FHA loans, tax deduction of mortgage interest, etc, have been major drivers of real estate price inflation. Add in single family home zoning and it shouldn’t be that surprising we are where we are.
pdonis 6y ago
> housing is one good that the free market seems to not really be amazing at Housing isn't a free market if the government's central bank puts its thumb on the scale by printing money for mortgage loans. The Fed does that in the US.

michaelscott 6y ago

The approach that seems to work is to give economically elastic things to the free market, and make economically inelastic things (housing, medical care, etc) a responsibility of the state. It's difficult to tell if this is the case as we can only look at macroeconomic effects in hindsight, and this approach would have many problems at scale, but this seems to be the most beneficial approach for society long term?

ethanbond 6y ago
You can get identical effects as Singapore’s state owned land without actually making it state owned/managed/priced by simply instituting a very high Land Value Tax. Rent collected for buildings/management/amenities goes to landlord, rent collected for the physical land upon which the building exists (which is valuable not because of the landlord) is recouped by the community as tax.
- thehappypm 6y ago
  Higher taxes also directly cause higher rents passed on to renters.
  - taktoa 6y ago
    That is uniquely not the case for LVT, because the supply of land is fixed, whereas the demand for housing is variable. EDIT: to be clear, I meant the "passing on to renters" part, not the "property may become more expensive" part.
    - deleted 6y ago
      [deleted]
  - ethanbond 6y ago
    Reiterating the other comment: this is not true of LVT. LVT cannot be passed on to renters. Essentially every other tax can be and is passed to consumers. No economist disputes LVT’s inability to be passed on.
  - seanmcdirmid 6y ago
    Lower taxes means more money people can devote to housing, which in turn can also bid up prices. This is why the USA provides for a foreign housing deduction, or Americans could never practically live in Singapore without running into double taxation.
zhdc1 6y ago
With a couple of exceptions, how is housing inelastic sans government zoning and other policy restrictions? We're long past the point where the private sector can estimate housing demand on a long enough time scale for single and multi-family housing in most environments. Outside of cases like Manhattan or London, where demand is driven more by wanting to 'live in...' than actual economic necessity, I don't see why housing needs to be overly regulated when it only takes one-two years (or less) to build new capacity once you remove all of the unnecessary red tape.
- michaelscott 6y ago
  Since we're on HN I guess it's safe to assume that you live in the general Bay area, and probably have for most or all of your life, which is only relevant in that if true it's a location which is particularly prone to problematic housing policy and not much else in the way of housing supply (from what I can tell?). However the view that policy is the only issue to housing just isn't appropriate in many places outside of SF and Singapore is actually a very good example (as is London to a certain degree, expanding inland burroughs notwithstanding): you only have so much space on which to build housing, but the population is variable. If we take the available housing space to be the supply and the population requiring housing to be the demand, you have a textbook case of economic inelasticity. In Singapore they have ironically solved this with policy, as opposed to exacerbating it, and since this was planned early in the country's developmental phase as an economic policy I can assume they understood this problem as economic one very early on.

throwiway97r 6y ago

Having embarked on a house hunt in an Australian city, I’m surprised by how many of the houses I see (especially the more “affordable” homes) are empty on inspection. I assumed they were vacant post-lease, but your point about the houses being empty as a result of speculation is quite plausible. That’s crazy.

ginko 6y ago

>Here in Australia, it has become an investment vehicle Which is a pity, really. IMO housing policy should target property prices to follow inflation.

IdiocyInAction 6y ago

Non-free market housing isn't that great either though, like in Berlin.

azmodeus 6y ago
My impression is housing is good for tenants in Berlin. What isn't so good about it?
- biztos 6y ago
  It's good for many tenants who have longstanding leases, but rent increases have outstripped salary increases in all the better neighborhoods, by an almost laughable margin, for more than ten years. A fair amount of that was fueled by long-term tenants getting kicked out by their new landlords who "needed" to reside in the flats. Similar gentrification model to parts of San Francisco. So yeah, some things in Berlin are very tenant-friendly, but finding what used to be a typical flat in, say, Mitte on what is still a typical salary is pretty much impossible. Edit: I get the impression that a lot of new housing is being built in Berlin, but I have yet to see any downward pressure on rents or for that matter purchase prices coming from it. The more they build, the more things cost.
  - LargoLasskhyfv 6y ago
    Don't be so picky, move to Marzahn!
- throwaway85858 6y ago
  The Mietendeckel has effectively triggered the death spiral of Berlin's housing market, it's the product of a reactionary local politics and the intransigence of the main political parties at a federal level to either fund housing development or loosen planning restrictions. I came to berlin in 2011 and almost a decade later the problem has only gotten worse, which goes to show that the direction of cracking down on private landlords whilst making negligible efforts to either zone new housing areas or speed up planning permission is ineffective at creating more living space for the 140,000 people who are under-housed. The death spiral is accelerated by two factors, firstly private landlords have had their income curtailed and are selling up, secondly prospective private investors in rental housing, wary of further unilateral retrospective changes in the future, are walking away. For those that don't know what the Mietendeckel is, rents in Berlin have been reset to circa 2013 levels, where buildings built before 2014 cannot be rented above 6-10 euros per sqm, existing contracts and renovation investments be damned. For example a building in Friedrichshain built in 1890 but completely renovated < 10 years ago can only fetch 6-8 Euros per sqm, if an elevator is present, underfloor heating and a high quality finish to living areas is provided you could at a maximum charge an extra 1 Euro per sqm. Failure to retroactively lower the rent for your existing tenants is punishable with fines up-to 250,000 Euros, there are practically no loopholes. So this legislation has lead to the current situation where landlords are preferring to sell their properties when they become empty or when that's not foreseeable, selling them with the tenants in them (which can reduce the final sale price by up to ~30%) or just hold off on renting empty properties for now or even rent them on the booming black market. This is evident in the 47% drop in rental listings for apartments in old buildings and the moderate rise in condominium sales. German tenancy laws read like the wish list of rental activists in America or the UK, they provide comprehensive protection from no fault terminations and are backed by a lethargic court system, the sole reason that can be given for terminating a contract is when the apartment is needed for you or your relatives own use, a lot of people like to imagine that this is abused but the consequences are so severe I can't see any logical person making that choice. A long term tenant who fights this kind of termination can expect to stay in their apartment for up-to 2-3 years, but in the end will face certain eviction and ruinous costs in excess of 15-40,000 euros. Whilst there are clauses to protect vulnerable tenants from eviction, they are not evident in practice, just recently a 82 year old woman with advanced dementia was evicted as the court determined after 3 years that she could be physically lifted out the apartment by her daughters and so is therefore capable of moving elsewhere. There is nothing to rent here, your sole choice is to buy a place, but you won't be able to afford an apartment which is unoccupied as the banks' valuations don't match that of the realtors. Which leaves you with finding soft targets for eviction, the easy to persuade will have accepted an offer, so take a pick between the elderly or single earner families with kids.

ekianjo 6y ago

> Gotta say, housing is one good that the free market seems to not really be amazing at. Most developed countries don't even have anything close to a Free Market anyway, with restrictions on the construction of new housing, zoning, and rent controls in many places.

roenxi 6y ago

> Here in Australia... House prices in Australia are driven by two forces - immigration and monetary policy (ie, interest rates). Neither of those drivers are linked to a free market. The equilibrium in both is set by government decree (immigration numbers) and interest rates are set by the RBA (effectively part of the government bureaucracy) to a first approximation. The government doesn't have an explicit policy of pushing up house prices, but there is a very strong implicit policy to the same effect. Giving them more direct control over housing wouldn't change much.

zzzzzzzza 6y ago
missed some forces... building regulations, tax policy...

barry-cotter 6y ago

The population of Tokyo has grown 50% over the last two decades while house prices and rents have stayed flat. The reason housing prices go up is almost always because zoning makes building more housing illegal. See San Francisco. Contrast with Seattle and Houston. When more housing is built prices go down, or at least go up slower.

odiroot 6y ago
> almost always because zoning makes building more housing illegal That's usually the case in Western Europe. Or other artificial limitations put on construction projects.
wonnage 6y ago
There are cultural differences here. Japanese houses are seen as depreciating assets, as nobody wants to live in an old house. See https://www.economist.com/finance-and-economics/2018/03/15/why-japanese-houses-have-such-limited-lifespans https://www.economist.com/finance-and-economics/2018/03/15/w... As a result, the phenomenon of hoarding real estate for profit simply doesn’t exist. And the regular tear down of old houses allows density to increase rapidly, at the expense of building waste.
- Aperocky 6y ago
  This might just be the psychological aftermath of the Japanese bubble. Land prices in Japan was insane in early 1990s, and then it burst, losing almost 60% of the value. it doesn't get that high without people believing it will appreciate - and now they don't.

refurb 6y ago

I don’t know about Australia, but one of the reasons that the housing market is so distorted in the US is due to gov’t intervention. 30 year mortgages, FHA loans, tax deduction of mortgage interest, etc, have been major drivers of real estate price inflation. Add in single family home zoning and it shouldn’t be that surprising we are where we are.

pdonis 6y ago

> housing is one good that the free market seems to not really be amazing at Housing isn't a free market if the government's central bank puts its thumb on the scale by printing money for mortgage loans. The Fed does that in the US.