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This isn't discussed much, but I think homes would become noticeably more affordable for families just by having the government stop subsidizing the mortgages o

This isn't discussed much, but I think homes would become noticeably more affordable for families just by having the government stop subsidizing the mortgages of investment properties (e.g. only one mortgage subsidy is available for each family). This isn't even getting into tax write offs which are too complicated for me to understand the consequences of changing. As it stands, mortgage rates being below the rate of inflation make housing a very attractive investment. The sources of mortgage subsidy that I am aware of are secondary market purchases: * Federal reserve mortgage purchases * Fannie Mae/Freddie Mac mortgage purchases A big portion of quantitative easing by the Federal Reserve is buying billions of mortgages every month. The Fed is trying to start unwinding this now, but they have had trillions of mortgages on their books since the GFC.

Retric 5y ago
That would require a much larger change to the tax code as currently interest on business loans are tax deductible. I suspect changing this would be a good idea, but it’s a huge change. The obvious fix is a nationwide property tax that doesn’t apply to primary residences, but again it’s hard to say what that would do.
- UncleOxidant 5y ago
  Somehow there need to be less incentives for investors/hedgefunds to buy up homes and more help for people who need housing and are increasingly priced out of the market. Housing affordability is a serious crisis right now and neither political party seems to be recognizing it. The party that makes this a priority and actually addresses the underlying problems could do well, but neither of them are taking it as seriously as it needs to be taken.
  - mywittyname 5y ago
    > Housing affordability is a serious crisis right now and neither political party seems to be recognizing it. Why do you say this? There have been numerous bills introduced at the local, state, and federal levels which specifically aim to address housing affordability. Seriously, just type in "affordable housing bill" into your favorite search engine and look at all the articles coming up from the past six months. My local city council has affordable housing on the agenda for several of the committee meetings.
    - UncleOxidant 5y ago
      None of the local "affordable housing" actions I'm seeing seem like they actually address the problem at the level it needs to be addressed. They give incentives to developers to build a certain number of "affordable" units which must stay "affordable" for X number of years for them to get their tax breaks. In the meantime they build a lot more high-end units and very few mid-level units. Mostly this seems like a gift to the developers. Do we get some more affordable units? Yeah, but it's a drop in the bucket and after some number of years they can go back to market rate. People are on waiting lists for these "affordable" units for years. These units are reserved for people making some percentage of the poverty level income. People in the middle get nothing. In my area/state they've dropped most of the zoning restrictions for locating apartments and ADUs. So you can add an ADU (a small dwelling that can be rented out), but that takes capital that most residential homeowners don't have. Add to this the fear that by building an ADU your property tax will likely go up very substantially and there aren't a lot of takers. tl;dr Most affordable housing efforts are currently aimed at people who make poverty level incomes (and that's great). I don't see much locally aimed at providing housing that's affordable to folks in the middle. And as rents rise, more and more folks in the middle are not able to afford housing.
      - danaris 5y ago
        That indicates a lack of understanding of how to solve the problem (or, at the very least, a disagreement with you about how to solve it), not a lack of recognition that there is a problem.
        UncleOxidant 5y ago
        Or it indicates a lack of taking the problem as seriously as it should be taken.
    - Retric 5y ago
      You get affordable housing by building more housing not simply designating a percentage of housing to be affordable. If anything current affordable housing initiatives just make things worse by discouraging new development. Building 10,000 new apartments is strictly better than building 5,000 apartments even if you designate 30% of them to be affordable. The ideal solution is to designate minimum density, so for every acre of land you must have at least X homes.
- asciimov 5y ago
  Unfortunately that would just raise the cost of rent. That said I would support a hard progressive tax on non-primary residence homes. It should really hurt for them to own multiple homes.
  - Retric 5y ago
    It’s a lot more complicated than that with a mix of short and long term effects. It should make home ownership more desirable, but taxes don’t destroy wealth so lowering income taxes for example could largely offset any increases in rent. Further the value of property would decrease, but the cost of empty properties would increase. That would put downward pressure on rental costs.
- mprovost 5y ago
  They've eliminated this deduction in both the UK and NZ in the past couple years, at least for individual landlords. NZ does allow it for new builds to incentivise construction of new housing.
  - nly 5y ago
    Big landlords already incorporated in the UK. Small landlords (the majority), who haven't yet, just move in that direction and get screwed with legal and accounting costs, but otherwise nothing changes. Most limited company buy to let mortgages in the UK are underwritten by a directors personal guarantee. It's just a technicality compared to a personal mortgage and so only shakes out the laziest of landlords
- cobookman 5y ago
  Wouldn't the obvious fix be elimination of 1031b exchange, capital gains on all house appreciation, and only allowing 1 active federally backed mortgage at a time (with some consideration for allowing a purchase of a new place & selling the old place).
  - VirusNewbie 5y ago
    You want capital gains on land appreciation. We want to encourage investment into new developments.
    - 8note 5y ago
      The land appreciates without development on it. If anything, we want only appreciation from developing. If you don't do something to the property, you shouldn't get a profit from it
      - Retric 5y ago
        I think that’s what they where suggesting, however that’s really expensive and hard to implement. If you simply calculate based on the value of the land then a 200 year old house counts as “new” development etc. Worse it doesn’t actually help. The incentives are there to develop land it’s only local zoning that prevents it.
TomVDB 5y ago
Other than deducting mortgage interested from your taxes, is there currently any government subsidy for investment property mortgages?
- deleted 5y ago
  [deleted]
- ejstronge 5y ago
  On the smaller scale, and for certain kinds of multi family purchases, government-backed financing is available and it is usually cheaper than what one might find on the private market
- VirusNewbie 5y ago
  CA's property taxes along with 1031 exchanges mean housing investments are favorable to other types, when it should be the other way around.
- rcpt 5y ago
  You get $500k in capital gains waived when you sell your house in California. You don't get that with GameStop stock
  - pkaye 5y ago
    Doesn't that exclusion also exist at the federal level? https://www.irs.gov/taxtopics/tc701 https://www.irs.gov/taxtopics/tc701
  - TomVDB 5y ago
    That’s for principal residence, not investment properties: https://www.nolo.com/legal-encyclopedia/the-250000500000-home-sale-tax-exclusion.html https://www.nolo.com/legal-encyclopedia/the-250000500000-hom....
- dminor 5y ago
  Not for the mortgage itself, but real estate investors typically pay very little tax on their rental income. You can take depreciation, and deduct maintenance/repairs, property management fees, property taxes, insurance, etc. in addition to mortgage interest.
namlem 5y ago
The subsidies aren't the root of the problem. It's municipal zoning laws. Just look at Japan. Went from having the worst housing bubble in world history to affordability in 20 years thanks to sweeping zoning reform.
- notch656a 5y ago
  Here here. My plan to cheap housing 1) Unfuck Zoning. Be like Texas. 2) Unfuck building codes. Person signs their own death warrant? Let them live in a yurt or a the kind of shack people keep their garden tools in. There's a county east of Tucson like this, guess what, people no ded. 3) End all subsidies and government involvement in mortgages. Best way for skyrocketing price is for government to guarantee loans in a way a relatively free market would not. 4) Permit fees dropped for building housing. Cost of evaluating permits should drop without zoning or building codes. Only examine development to make sure it doesn't cause imminent harm to those outside the property line.
  - padobson 5y ago
    This is a good list. 2) Unfuck building codes. I think it could be greatly simplified by holding the building owner/manager criminally liable for defects that lead to major injury or death, and civilly liable for smaller defects. There's no reason for the government to have an opinion about what type of concrete you're using or how many feet of wire you're using. They should be policing outcomes, not hiring and sending inspectors all over. If a building collapses, the people who own it and the people who built it should go to jail. And insurance companies can come after the owners for the smaller problems.
    - spiderice 5y ago
      This makes absolutely no sense. How is "let the building collapse then send the owner to jail" an improvement over "don't let the building collapse"? Why would we get rid of building codes, but then still jail people who don't follow the old building codes that we just got rid of. All this would accomplish is sending well-meaning people to jail, just because they didn't know their house had a serious problem, because we got rid of the building codes. I am so confused by your rational.
tootie 5y ago
Idk how this translates into policy if it's even possible, but people just shouldn't be so attached to home ownership. It's a not a great way to invest your money and it doesn't make any sense at all to tie your personal net worth to a piece of real estate you rely on to live. In high cost areas especially, renting is usually more fiscally sensible.
- nsv 5y ago
  Someone has to own the property, why not the person who lives in it?
- buck4roo 5y ago
  An seller walks away with profit after the sale... and the surrounding neighborhood sees $0 of it. That's the problem. The neighborhood supported the increase in value, but gets nothing in return.
maire 5y ago
> having the government stop subsidizing the mortgages of investment properties (e.g. only one mortgage subsidy is available for each family). I think you are confusing home loans (which are subsidized) and business loans which are not subsidized). Fannie Mae/Freddie Mac loans are only on 1 primary home and 1 secondary home for individuals. These loans are limited and really don't work in high property value states. You should google the difference between "conforming" and "non conforming" loans. You might be thinking of the mortgage deduction on the income tax. Trump already did this. This only hurt young people in high property value states. Business real estate loans are more expensive because they are not subsidized. However, businesses do pay taxes only on earnings (income-expenses). Loan payments are expenses that reduce the earnings. Good luck on getting rid of business expenses. Yang proposed changing the tax law because of this. All this means your proposal would have a very limited impact. It would only hurt individuals who live in an expensive property where the homeowner has mostly paid off their mortgage (old people) and used the principal to buy a rental (up to 750k).
- gregwebs 5y ago
  For Freddie/Fannie: some sources say that they support investment properties for conforming loans [1]. They have information about loans for investment properties that I am still trying to make sense of [2]. I have seen other sources say they support loans for 10 properties. Even if the support were only for 1 secondary home, why should the government be subsidizing this? I understand these policies work differently in expensive markets. But as per this article, investors are targeting rentals in less expensive markets. [1] https://www.quickenloans.com/learn/conforming-loan-limits https://www.quickenloans.com/learn/conforming-loan-limits [2] https://sf.freddiemac.com/working-with-us/origination-underwriting/mortgage-products/investment-property-mortgages https://sf.freddiemac.com/working-with-us/origination-underw...
footlose_3815 5y ago
[dead]
AtlasBarfed 5y ago
So if they increase interest rates, buyers won't buy the homes that would liquidate their balance sheet and prices would drop as well, undercutting the value of their balance sheet. So what is the Fed's motivation to raise interest rates to curb inflation in this case?
bradgessler 5y ago
I’ve developed a heuristic where anytime I hear phrases like “affordable housing”, “make college affordable”, “affordable healthcare” I simply translate it to “unaffordable”. Inevitably when these become government programs, they simply throw money at the problem without addressing fundamental supply and demand issues and accomplish very little except drive up prices. Then, when investors see prices going up and to the left, they rationally throw money at it in a way to make even more money, which drives up prices even more. There’s so many charts like https://ritholtz.com/wp-content/uploads/2018/02/pricechanges.png https://ritholtz.com/wp-content/uploads/2018/02/pricechanges... that clearly show the trend. It’s insane. There’s a really good book I recommend called “Systems Bible” [https://www.amazon.com/Systems-Bible-Beginners-Guide-Large/dp/0961825170/ https://www.amazon.com/Systems-Bible-Beginners-Guide-Large/d...] that beautifully articulates this phenomenon in a way that applies to government policy, software systems, management, org structures, or any complex system of people or machines.
- walkhour 5y ago
  It's insane how these once affordable services like healthcare or university, that you could pay with a summer job, now take years off your life. You may enjoy this article [0]. To quote from it: > In the past fifty years, education costs have doubled, college costs have dectupled, health insurance costs have dectupled, subway costs have at least dectupled, and housing costs have increased by about fifty percent. US health care costs about four times as much as equivalent health care in other First World countries; US subways cost about eight times as much as equivalent subways in other First World countries. Of course adjusting for inflation. Thank you for the book recommendation. [0] https://slatestarcodex.com/2017/02/09/considerations-on-cost-disease/ https://slatestarcodex.com/2017/02/09/considerations-on-cost...

Retric 5y ago

That would require a much larger change to the tax code as currently interest on business loans are tax deductible. I suspect changing this would be a good idea, but it’s a huge change. The obvious fix is a nationwide property tax that doesn’t apply to primary residences, but again it’s hard to say what that would do.

UncleOxidant 5y ago
Somehow there need to be less incentives for investors/hedgefunds to buy up homes and more help for people who need housing and are increasingly priced out of the market. Housing affordability is a serious crisis right now and neither political party seems to be recognizing it. The party that makes this a priority and actually addresses the underlying problems could do well, but neither of them are taking it as seriously as it needs to be taken.
- mywittyname 5y ago
  > Housing affordability is a serious crisis right now and neither political party seems to be recognizing it. Why do you say this? There have been numerous bills introduced at the local, state, and federal levels which specifically aim to address housing affordability. Seriously, just type in "affordable housing bill" into your favorite search engine and look at all the articles coming up from the past six months. My local city council has affordable housing on the agenda for several of the committee meetings.
  - UncleOxidant 5y ago
    None of the local "affordable housing" actions I'm seeing seem like they actually address the problem at the level it needs to be addressed. They give incentives to developers to build a certain number of "affordable" units which must stay "affordable" for X number of years for them to get their tax breaks. In the meantime they build a lot more high-end units and very few mid-level units. Mostly this seems like a gift to the developers. Do we get some more affordable units? Yeah, but it's a drop in the bucket and after some number of years they can go back to market rate. People are on waiting lists for these "affordable" units for years. These units are reserved for people making some percentage of the poverty level income. People in the middle get nothing. In my area/state they've dropped most of the zoning restrictions for locating apartments and ADUs. So you can add an ADU (a small dwelling that can be rented out), but that takes capital that most residential homeowners don't have. Add to this the fear that by building an ADU your property tax will likely go up very substantially and there aren't a lot of takers. tl;dr Most affordable housing efforts are currently aimed at people who make poverty level incomes (and that's great). I don't see much locally aimed at providing housing that's affordable to folks in the middle. And as rents rise, more and more folks in the middle are not able to afford housing.
    - danaris 5y ago
      That indicates a lack of understanding of how to solve the problem (or, at the very least, a disagreement with you about how to solve it), not a lack of recognition that there is a problem.
      - UncleOxidant 5y ago
        Or it indicates a lack of taking the problem as seriously as it should be taken.
  - Retric 5y ago
    You get affordable housing by building more housing not simply designating a percentage of housing to be affordable. If anything current affordable housing initiatives just make things worse by discouraging new development. Building 10,000 new apartments is strictly better than building 5,000 apartments even if you designate 30% of them to be affordable. The ideal solution is to designate minimum density, so for every acre of land you must have at least X homes.
asciimov 5y ago
Unfortunately that would just raise the cost of rent. That said I would support a hard progressive tax on non-primary residence homes. It should really hurt for them to own multiple homes.
- Retric 5y ago
  It’s a lot more complicated than that with a mix of short and long term effects. It should make home ownership more desirable, but taxes don’t destroy wealth so lowering income taxes for example could largely offset any increases in rent. Further the value of property would decrease, but the cost of empty properties would increase. That would put downward pressure on rental costs.
mprovost 5y ago
They've eliminated this deduction in both the UK and NZ in the past couple years, at least for individual landlords. NZ does allow it for new builds to incentivise construction of new housing.
- nly 5y ago
  Big landlords already incorporated in the UK. Small landlords (the majority), who haven't yet, just move in that direction and get screwed with legal and accounting costs, but otherwise nothing changes. Most limited company buy to let mortgages in the UK are underwritten by a directors personal guarantee. It's just a technicality compared to a personal mortgage and so only shakes out the laziest of landlords
cobookman 5y ago
Wouldn't the obvious fix be elimination of 1031b exchange, capital gains on all house appreciation, and only allowing 1 active federally backed mortgage at a time (with some consideration for allowing a purchase of a new place & selling the old place).
- VirusNewbie 5y ago
  You want capital gains on land appreciation. We want to encourage investment into new developments.
  - 8note 5y ago
    The land appreciates without development on it. If anything, we want only appreciation from developing. If you don't do something to the property, you shouldn't get a profit from it
    - Retric 5y ago
      I think that’s what they where suggesting, however that’s really expensive and hard to implement. If you simply calculate based on the value of the land then a 200 year old house counts as “new” development etc. Worse it doesn’t actually help. The incentives are there to develop land it’s only local zoning that prevents it.

TomVDB 5y ago

Other than deducting mortgage interested from your taxes, is there currently any government subsidy for investment property mortgages?

deleted 5y ago
[deleted]
ejstronge 5y ago
On the smaller scale, and for certain kinds of multi family purchases, government-backed financing is available and it is usually cheaper than what one might find on the private market
VirusNewbie 5y ago
CA's property taxes along with 1031 exchanges mean housing investments are favorable to other types, when it should be the other way around.
rcpt 5y ago
You get $500k in capital gains waived when you sell your house in California. You don't get that with GameStop stock
- pkaye 5y ago
  Doesn't that exclusion also exist at the federal level? https://www.irs.gov/taxtopics/tc701 https://www.irs.gov/taxtopics/tc701
- TomVDB 5y ago
  That’s for principal residence, not investment properties: https://www.nolo.com/legal-encyclopedia/the-250000500000-home-sale-tax-exclusion.html https://www.nolo.com/legal-encyclopedia/the-250000500000-hom....
dminor 5y ago
Not for the mortgage itself, but real estate investors typically pay very little tax on their rental income. You can take depreciation, and deduct maintenance/repairs, property management fees, property taxes, insurance, etc. in addition to mortgage interest.

namlem 5y ago

The subsidies aren't the root of the problem. It's municipal zoning laws. Just look at Japan. Went from having the worst housing bubble in world history to affordability in 20 years thanks to sweeping zoning reform.

notch656a 5y ago
Here here. My plan to cheap housing 1) Unfuck Zoning. Be like Texas. 2) Unfuck building codes. Person signs their own death warrant? Let them live in a yurt or a the kind of shack people keep their garden tools in. There's a county east of Tucson like this, guess what, people no ded. 3) End all subsidies and government involvement in mortgages. Best way for skyrocketing price is for government to guarantee loans in a way a relatively free market would not. 4) Permit fees dropped for building housing. Cost of evaluating permits should drop without zoning or building codes. Only examine development to make sure it doesn't cause imminent harm to those outside the property line.
- padobson 5y ago
  This is a good list. 2) Unfuck building codes. I think it could be greatly simplified by holding the building owner/manager criminally liable for defects that lead to major injury or death, and civilly liable for smaller defects. There's no reason for the government to have an opinion about what type of concrete you're using or how many feet of wire you're using. They should be policing outcomes, not hiring and sending inspectors all over. If a building collapses, the people who own it and the people who built it should go to jail. And insurance companies can come after the owners for the smaller problems.
  - spiderice 5y ago
    This makes absolutely no sense. How is "let the building collapse then send the owner to jail" an improvement over "don't let the building collapse"? Why would we get rid of building codes, but then still jail people who don't follow the old building codes that we just got rid of. All this would accomplish is sending well-meaning people to jail, just because they didn't know their house had a serious problem, because we got rid of the building codes. I am so confused by your rational.

tootie 5y ago

Idk how this translates into policy if it's even possible, but people just shouldn't be so attached to home ownership. It's a not a great way to invest your money and it doesn't make any sense at all to tie your personal net worth to a piece of real estate you rely on to live. In high cost areas especially, renting is usually more fiscally sensible.

nsv 5y ago
Someone has to own the property, why not the person who lives in it?
buck4roo 5y ago
An seller walks away with profit after the sale... and the surrounding neighborhood sees $0 of it. That's the problem. The neighborhood supported the increase in value, but gets nothing in return.

maire 5y ago

> having the government stop subsidizing the mortgages of investment properties (e.g. only one mortgage subsidy is available for each family). I think you are confusing home loans (which are subsidized) and business loans which are not subsidized). Fannie Mae/Freddie Mac loans are only on 1 primary home and 1 secondary home for individuals. These loans are limited and really don't work in high property value states. You should google the difference between "conforming" and "non conforming" loans. You might be thinking of the mortgage deduction on the income tax. Trump already did this. This only hurt young people in high property value states. Business real estate loans are more expensive because they are not subsidized. However, businesses do pay taxes only on earnings (income-expenses). Loan payments are expenses that reduce the earnings. Good luck on getting rid of business expenses. Yang proposed changing the tax law because of this. All this means your proposal would have a very limited impact. It would only hurt individuals who live in an expensive property where the homeowner has mostly paid off their mortgage (old people) and used the principal to buy a rental (up to 750k).

gregwebs 5y ago
For Freddie/Fannie: some sources say that they support investment properties for conforming loans [1]. They have information about loans for investment properties that I am still trying to make sense of [2]. I have seen other sources say they support loans for 10 properties. Even if the support were only for 1 secondary home, why should the government be subsidizing this? I understand these policies work differently in expensive markets. But as per this article, investors are targeting rentals in less expensive markets. [1] https://www.quickenloans.com/learn/conforming-loan-limits https://www.quickenloans.com/learn/conforming-loan-limits [2] https://sf.freddiemac.com/working-with-us/origination-underwriting/mortgage-products/investment-property-mortgages https://sf.freddiemac.com/working-with-us/origination-underw...

footlose_3815 5y ago

[dead]

AtlasBarfed 5y ago

So if they increase interest rates, buyers won't buy the homes that would liquidate their balance sheet and prices would drop as well, undercutting the value of their balance sheet. So what is the Fed's motivation to raise interest rates to curb inflation in this case?

bradgessler 5y ago

I’ve developed a heuristic where anytime I hear phrases like “affordable housing”, “make college affordable”, “affordable healthcare” I simply translate it to “unaffordable”. Inevitably when these become government programs, they simply throw money at the problem without addressing fundamental supply and demand issues and accomplish very little except drive up prices. Then, when investors see prices going up and to the left, they rationally throw money at it in a way to make even more money, which drives up prices even more. There’s so many charts like https://ritholtz.com/wp-content/uploads/2018/02/pricechanges.png https://ritholtz.com/wp-content/uploads/2018/02/pricechanges... that clearly show the trend. It’s insane. There’s a really good book I recommend called “Systems Bible” [https://www.amazon.com/Systems-Bible-Beginners-Guide-Large/dp/0961825170/ https://www.amazon.com/Systems-Bible-Beginners-Guide-Large/d...] that beautifully articulates this phenomenon in a way that applies to government policy, software systems, management, org structures, or any complex system of people or machines.

walkhour 5y ago
It's insane how these once affordable services like healthcare or university, that you could pay with a summer job, now take years off your life. You may enjoy this article [0]. To quote from it: > In the past fifty years, education costs have doubled, college costs have dectupled, health insurance costs have dectupled, subway costs have at least dectupled, and housing costs have increased by about fifty percent. US health care costs about four times as much as equivalent health care in other First World countries; US subways cost about eight times as much as equivalent subways in other First World countries. Of course adjusting for inflation. Thank you for the book recommendation. [0] https://slatestarcodex.com/2017/02/09/considerations-on-cost-disease/ https://slatestarcodex.com/2017/02/09/considerations-on-cost...