5 ms·

Not being snarky but if a rich person owns multiple flats that she is renting out, and you force her (say by jacking up wealth tax or banning buy-to-let) to sel

Not being snarky but if a rich person owns multiple flats that she is renting out, and you force her (say by jacking up wealth tax or banning buy-to-let) to sell the majority of them, how is that not helping with house price and rent inflation? My point is that you are right the rich don’t consume that much in terms of buying eggs, but they buy a hell of a lot of assets that eventually drive inflation (the more real estate they buy, the higher house prices go, the higher lumber and copper prices go,…) Am not an economist just trying to reason using common sense so might have missed something…

dragontamer 4y ago
Increase interest rates. A property that makes 5% of its value a year, when interest rates are paying 6%, is a bad investment. Instead of 3-properties at $1 million (total) returning 0.05 million / year, you should sell those three properties and put $1 million into the bank and get 0.06 million/year.
- klipt 4y ago
  That only works if the interest rates are higher than inflation. Real estate is an excellent inflation hedge since as inflation goes up, the value of the real estate and the rent you can get for it both go up in tandem. Another way to discourage rent seeking is to tax ownership of land more.
  - dragontamer 4y ago
    > That only works if the interest rates are higher than inflation. Not necessarily. Raising interest rates lowers inflation. So increasing interest rates is a double-whammy on housing. The increased mortgage prices lowers home values, fighting inflation _AND_ causes future profits to be discounted (relative to the risk-free bond rate). The housing market was overheating earlier this year because low 2.5% interest rates meant that people's monthly payments were much lower than people expected. But now that we have 6% mortgage prices, the monthly mortgage price is increasing (which will eventually force housing prices down). -------- This is why rising interest rates is the main tool of the Fed right now. Its not the perfect solution, but its sufficient until Congress enacts lasting change (ie: policy changes that lead to an increased supply of our luxury goods). The bank can only change interest rates so much before it becomes unreasonable.
    - ralph84 4y ago
      We haven’t had runaway inflation like this in the US since the late 70s/early 80s. At that time it did indeed require interest rates higher than inflation to stop it. It took a fed funds rate of 20% to reverse 14% inflation.
      - dragontamer 4y ago
        It's not so much the absolute value of interest rates that matters, as much as the increase or decrease relative to earlier prices that matters. Going from 1% rates to 2% is in many ways a bigger change than say a 15% to 16% increase.
    - slaw 4y ago
      Why Fed is not fighting with inflation? With 1.5% interest rate and 9.3% inflation it is clear Fed wants to keep high inflation, but why?
      - jazzyk 4y ago
        The Fed want inflation to diminish (in real terms) the mountains of debt the US government and consumers incurred in the past 20 years. At the expense of the poorest people and savers (because wage inflation is much lower than the goods/services inflation, not to mention bank savings interest rates, which are laughable). Make no mistake, the Fed are not idiots, they have been trying to introduce inflation for a long time, but initially they succeeded in asset inflation only. With the help of Covid and the war, they got their wish. But wage inflation needs to match the goods/services inflation, because without it, borrowers will be even less able to pay their debts. In order to really stamp out inflation, the Fed would need to raise the interest rate to 10%, essentially forcing the US to declare bankruptcy. The Fed is hoping to introduce a mild recession, which, they hope, would reduce all kinds of inflation, without them having to raise the rates above 3.5% or so.
        deleted 4y ago
        [deleted]
- yellowapple 4y ago
  Or you do more with the current properties, such that they make more than 5% of their value per year. Of course, the idea of land as an investment in the first place is one of the root causes (if not the root cause) of endlessly-rising cost of living, and we're long overdue to address that root cause (namely: by instituting land value taxes).
  - SantalBlush 4y ago
    Which would be great, but will upset way too many voters, so politicians won't dare touch it. "My political opponent is attacking the middle class and their investments!"
    - yellowapple 4y ago
      Not much room to be upset when replacing just about any tax with LVT would represent a tax savings for the vast majority of the middle class (and just about the entirety of the lower class).
      - hackerfromthefu 4y ago
        But in the real world the old taxes are never removed, despite promises.
        yellowapple 4y ago
        The old taxes suppress LVT revenue (since non-LVT taxes suppress economic activity and thus demand for land), so adopting LVT would be further motivation to abolish non-LVT taxes.
- imtringued 4y ago
  Increasing interest rates makes buildings more expensive and land cheaper. Once you add the interest payments you didn't really gain anything unless you are buying everything with cash aka the rich.
scatters 4y ago
> how is that not helping with house price and rent inflation? Assuming they're sold to owner-occupiers who were previously renting, you've increased housing supply in that segment of the market, but you've reduced supply in the letting market, so the net effect will be zero. It won't change net demand or supply across the market as a whole. If they were keeping those flats empty, that would be a different story.
- arturkane7 4y ago
  Wouldn’t house prices go down if you make it harder to monetise RE via rental? Say by increasing rental income tax or banning buy-to-let?
  - xwdv 4y ago
    Nope. Houses price will shoot up. The only thing that really brings down prices is build a lot more homes that people want. Increase supply.
    - aaomidi 4y ago
      Removing any and all gains from “real estate investment” would heavily bring down pricing. Housing can not be seen as an investment. We can not have it be an investment, and a necessity, at the same time. Housing can not, and should not ever produce more returns than the most basic index fund. If it does, no matter how many you build it will still be inaccessible to many. You may argue that well, if there is more housing then there will be less money to make from investing in it. But here’s the kicker: what do top share holders do if they suspect the operations of the company they have shares in is going to make their shares worth less? They work as hard as they can to change the operations and minimize what they can do. The same is true when housing is an investment. A property owner will act in their own best interest to reduce the ability for their investment to become worth less money. This could mean toxic environmentalism, where you don’t actually care about the environment, but you’re using it as an argument against building houses. It could mean actively not giving permits to new constructions. It could mean actively lobbying the government to prevent certain classes of homes being built. Heck it goes all the way to actively reducing side walks, public transportation, etc. And this is why we can’t just say “uh build more”. The “lack of supply” is a symptom. Not a cause. The cause is simply that we accept that real estate can be an investment vehicle.

dragontamer 4y ago

Increase interest rates. A property that makes 5% of its value a year, when interest rates are paying 6%, is a bad investment. Instead of 3-properties at $1 million (total) returning 0.05 million / year, you should sell those three properties and put $1 million into the bank and get 0.06 million/year.

klipt 4y ago
That only works if the interest rates are higher than inflation. Real estate is an excellent inflation hedge since as inflation goes up, the value of the real estate and the rent you can get for it both go up in tandem. Another way to discourage rent seeking is to tax ownership of land more.
- dragontamer 4y ago
  > That only works if the interest rates are higher than inflation. Not necessarily. Raising interest rates lowers inflation. So increasing interest rates is a double-whammy on housing. The increased mortgage prices lowers home values, fighting inflation _AND_ causes future profits to be discounted (relative to the risk-free bond rate). The housing market was overheating earlier this year because low 2.5% interest rates meant that people's monthly payments were much lower than people expected. But now that we have 6% mortgage prices, the monthly mortgage price is increasing (which will eventually force housing prices down). -------- This is why rising interest rates is the main tool of the Fed right now. Its not the perfect solution, but its sufficient until Congress enacts lasting change (ie: policy changes that lead to an increased supply of our luxury goods). The bank can only change interest rates so much before it becomes unreasonable.
  - ralph84 4y ago
    We haven’t had runaway inflation like this in the US since the late 70s/early 80s. At that time it did indeed require interest rates higher than inflation to stop it. It took a fed funds rate of 20% to reverse 14% inflation.
    - dragontamer 4y ago
      It's not so much the absolute value of interest rates that matters, as much as the increase or decrease relative to earlier prices that matters. Going from 1% rates to 2% is in many ways a bigger change than say a 15% to 16% increase.
  - slaw 4y ago
    Why Fed is not fighting with inflation? With 1.5% interest rate and 9.3% inflation it is clear Fed wants to keep high inflation, but why?
    - jazzyk 4y ago
      The Fed want inflation to diminish (in real terms) the mountains of debt the US government and consumers incurred in the past 20 years. At the expense of the poorest people and savers (because wage inflation is much lower than the goods/services inflation, not to mention bank savings interest rates, which are laughable). Make no mistake, the Fed are not idiots, they have been trying to introduce inflation for a long time, but initially they succeeded in asset inflation only. With the help of Covid and the war, they got their wish. But wage inflation needs to match the goods/services inflation, because without it, borrowers will be even less able to pay their debts. In order to really stamp out inflation, the Fed would need to raise the interest rate to 10%, essentially forcing the US to declare bankruptcy. The Fed is hoping to introduce a mild recession, which, they hope, would reduce all kinds of inflation, without them having to raise the rates above 3.5% or so.
      - deleted 4y ago
        [deleted]
yellowapple 4y ago
Or you do more with the current properties, such that they make more than 5% of their value per year. Of course, the idea of land as an investment in the first place is one of the root causes (if not the root cause) of endlessly-rising cost of living, and we're long overdue to address that root cause (namely: by instituting land value taxes).
- SantalBlush 4y ago
  Which would be great, but will upset way too many voters, so politicians won't dare touch it. "My political opponent is attacking the middle class and their investments!"
  - yellowapple 4y ago
    Not much room to be upset when replacing just about any tax with LVT would represent a tax savings for the vast majority of the middle class (and just about the entirety of the lower class).
    - hackerfromthefu 4y ago
      But in the real world the old taxes are never removed, despite promises.
      - yellowapple 4y ago
        The old taxes suppress LVT revenue (since non-LVT taxes suppress economic activity and thus demand for land), so adopting LVT would be further motivation to abolish non-LVT taxes.
imtringued 4y ago
Increasing interest rates makes buildings more expensive and land cheaper. Once you add the interest payments you didn't really gain anything unless you are buying everything with cash aka the rich.

scatters 4y ago

> how is that not helping with house price and rent inflation? Assuming they're sold to owner-occupiers who were previously renting, you've increased housing supply in that segment of the market, but you've reduced supply in the letting market, so the net effect will be zero. It won't change net demand or supply across the market as a whole. If they were keeping those flats empty, that would be a different story.

arturkane7 4y ago
Wouldn’t house prices go down if you make it harder to monetise RE via rental? Say by increasing rental income tax or banning buy-to-let?
- xwdv 4y ago
  Nope. Houses price will shoot up. The only thing that really brings down prices is build a lot more homes that people want. Increase supply.
  - aaomidi 4y ago
    Removing any and all gains from “real estate investment” would heavily bring down pricing. Housing can not be seen as an investment. We can not have it be an investment, and a necessity, at the same time. Housing can not, and should not ever produce more returns than the most basic index fund. If it does, no matter how many you build it will still be inaccessible to many. You may argue that well, if there is more housing then there will be less money to make from investing in it. But here’s the kicker: what do top share holders do if they suspect the operations of the company they have shares in is going to make their shares worth less? They work as hard as they can to change the operations and minimize what they can do. The same is true when housing is an investment. A property owner will act in their own best interest to reduce the ability for their investment to become worth less money. This could mean toxic environmentalism, where you don’t actually care about the environment, but you’re using it as an argument against building houses. It could mean actively not giving permits to new constructions. It could mean actively lobbying the government to prevent certain classes of homes being built. Heck it goes all the way to actively reducing side walks, public transportation, etc. And this is why we can’t just say “uh build more”. The “lack of supply” is a symptom. Not a cause. The cause is simply that we accept that real estate can be an investment vehicle.