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There are two very simple policy strategies for ensuring housing is affordable: (1) make it easier to build high density housing (2) make housing an unattract

There are two very simple policy strategies for ensuring housing is affordable: (1) make it easier to build high density housing (2) make housing an unattractive financial asset Many have already talked about (1) but few understand (2) and what types of policies would promote it. This would include - heavily taxing capital gains owning land (not taxing the improvements) - limiting ownership to a very long lease (e.g. 99 yrs) similar to what they do in Singapore. Both would be highly politically unpopular for the majority of Americans and therefore they do not get implemented. What people don't realize is that fixing the housing problem actually requires certain people to GIVE UP something: - giving up the quality of your nice neighbourhood because a giant complex was built next door - giving up much of the capital appreciation in your house because it appreciated Both would be be highly unpopular for the majority of existing home owners. As a result everyone complains but politicians don't actually do anything and nothing changes. There is no such thing as additional affordable housing without any cost. There is a price to be paid. Most are not willing to pay it.

jjcon 4y ago
> fixing the housing problem actually requires certain people to GIVE UP something That sounds like just introducing new problems not fixing the problem, I'd rather extremely expensive housing over either 1 or 2
- SQueeeeeL 4y ago
  >I'd rather extremely expensive housing over either 1 or 2 Damn I love hacker news. Can't wait for the ballooned tech salaries to pop in the USA when that next generation of engineers graduate
  - jjcon 4y ago
    Huh? What’s that have to do with things? I’m not even working in the USA
maximilianroos 4y ago
How would (2) change rental prices? Show its effect on the supply & demand of rental housing.
- varenc 4y ago
  If buying a home only costs the equivalent of 7 years rent instead 30+ years rent, it seems that would make buying a home more appealing and reduce the market's overall demand for rental housing. And similarly, property owners won't want to sell their property if the price just dropped, so instead they'll be more interested in rental income, increasing the rental housing supply.
- LesZedCB 4y ago
  https://scholar.harvard.edu/files/zwick/files/jmp_111213.pdf https://scholar.harvard.edu/files/zwick/files/jmp_111213.pdf > This paper incorporates speculation into the standard supply-and-demand frame- work used to analyze housing booms and busts. Speculation reverses the common intu- ition that elastic housing supply attenuates housing booms. Housing market frictions make land a more attractive speculative investment than housing. As a result, unde- veloped land both facilitates construction and intensifies the speculation that causes booms and busts in house prices. This insight explains the frequent housing booms and busts that coincide with high construction activity (e.g. Las Vegas, 2000-2010). These episodes are most likely to occur when a housing market nears but has not yet reached a long-run development constraint. Consistent with the recent U.S. housing experience, the model predicts higher price volatility in neighborhoods where housing is more easily rented. Land is an asset whose price volatility can increase with its float.
- lifeisstillgood 4y ago
  Post WWII till about 1952, the UK had a 100% capital gains tax on land. In this period two whole new cities were built from the ground up (Homes for Heroes style). After ending the tax, no government ever could afford the cost of a new town. The idea is that if a farmer has a field it's worth its agricultural value - something like 5-10,000 per acre currently. If government turns up and says this field is where we shall build a railway station, hospitals, schools and permission for 50,000 houses, then the farmer is a fool to sell for 10k, and instead sells for 100k. Meaning the cost of the hospital just became untenable and frankly nothing gets built. But, if there is 100% capital gains, then the land stays at the agricultural level because no matter who buys the land, the government says "it was worth 10k last month, if you sell it to us for hospital at 300k you owe 290k in tax" And thus no-one feels a fool for selling at agricultural prices, and capital gains remains normal for non-land improvements (ie actual bricks and mortar) Of course the towns built was Milton Keynes, a concrete monstrosity of roundabouts and soulless planning. But hey. People live there
millimeterman 4y ago
By what mechanism would (2) make housing cheaper?
- ako 4y ago
  Reduce demand for housing, if appreciation is low enough, investors will invest their money other things than housing. With equal supply and reduced demand, this should normally lead to lower prices.
  - mannerheim 4y ago
    Could backfire if investors then decided not to invest in building new housing, but I guess that doesn't happen anymore anyway.
- fabianhjr 4y ago
  By reducing instances of private equity firms buying all housing stock en masse and "maximizing profit" by squeezing every last cent their tenants could give. Example: https://www.propublica.org/article/when-private-equity-becomes-your-landlord https://www.propublica.org/article/when-private-equity-becom... Also Adam Smith has a lot of rants against rent seeking behavior and landlords if you want to go with that "communist" writing. > The rent of land, therefore, considered as the price paid for the use of the land, is naturally a monopoly price. It is not at all proportioned to what the landlord may have laid out upon the improvement of the land, or to what he can afford to take; but to what the farmer can afford to give Funnily enough, check how far back the 1/3 income for rent comes from and the context on which it is mentioned: > The rent of an estate above ground commonly amounts to what is supposed to be a third of the gross produce; and it is generally a rent certain and independent of the occasional variations in the crop. [..] This rent “is seldom less than a fourth ... of the whole produce.”
  - astrange 4y ago
    Private equity firms are nothing compared to the power of average homeowners using land appreciation as their retirement plan. A simple rule is that nothing people blame on corporations is ever caused by corporations. People and governments are legitimately more powerful than corporations! And they often use that for evil.
notch656c 4y ago
I would add a third which is allow more dangerous housing. You heard it. We all agree to risk, just a little more, we all die in a horrible fire so that the least among us have a better chance of owning a home through something other than charity.
- perilunar 4y ago
  The shortage of cheap housing has more to do with land prices, and very little to do with the cost of making houses safe to live in.
  - notch656c 4y ago
    I could pitch a yurt here on a deck all in with land included for about $150k. https://www.realtor.com/realestateandhomes-detail/1882-Quesada-Ave_San-Francisco_CA_94124_M21903-35716 https://www.realtor.com/realestateandhomes-detail/1882-Quesa... What's the cheapest legal free standing residence in san francisco? I couldn't find anything under half a million. That's an easy 1/3 the price of any legal freestanding structure.
  - astrange 4y ago
    You could use expensive land much more efficiently if you could build smaller, taller, and worse housing. SF has both banned new SROs (flophouses) and made it illegal to tear down the old ones.
    - ako 4y ago
      Slums: https://en.wikipedia.org/wiki/Slum https://en.wikipedia.org/wiki/Slum
      - notch656c 4y ago
        Slums are unfortunately the shitty alternative to having no home at all, when you live in a world where no one gives a fuck about the poor. If we must live in a world where no one gives a fuck about the poor I honestly am not so sure they should be denied at least their slum house rather than freezing to death behind a dumpster.
freitzkriesler 4y ago
You're over thinking it. 1. Eliminate the investor and land lord element from real estate and you reduce a significant reason as to why housing is so expensive. Do it with taxes, codes, whatever. You can own two houses and any more than that the taxes go way up. Landlords don't build houses, developers who sell their new builds do. 2. Eliminate foreign ownership of American real estate and limit it to American citizens and legal immigrants. -> see Thailand 3. Unpopular but true: eliminate the influx of illegal immigrants and remove the ones already present. More people + limited stock = high prices
- ako 4y ago
  Do you have any data to show the actual effect of illegal immigration on housing demand?
  - freitzkriesler 4y ago
    Mate, its 2023. Use google. It's also econ 101. Where are all those illegal immigrants going to live? In houses and apartments. https://www.google.com/search?q=illegal+immigration+effect+on+housong&ie=UTF-8&hl=en https://www.google.com/search?q=illegal+immigration+effect+o...
    - ako 4y ago
      From your google search result: https://www.newamericaneconomy.org/housingmap/ https://www.newamericaneconomy.org/housingmap/ "Importantly, the research finds that immigrants revitalize less desirable neighborhoods in costly metropolitan areas, opening up new alternatives for middle- and working-class Americans to buy homes, and immigration supports the housing market without exacerbating the nation’s worst affordability problems, because immigrants themselves tend not to settle in the most expensive places."
      - freitzkriesler 4y ago
        NAE is about as trust worthy as the US Chamber of Commerce. Their biases seep through their text. Where do those existing residents in those working class neighborhoods go when immigrants move in? They get priced out and either end up homeless or on section 8, that's what happens. No new housing units in the low end ever get made, only the high end gets new builds. See this https://www.newsweek.com/why-are-we-spending-millions-housing-illegal-migrants-while-americans-go-homeless-opinion-1770207 https://www.newsweek.com/why-are-we-spending-millions-housin...?
navi0 4y ago
On #2, the role tax deductibility of interest plays is often overlooked IMHO. The mortgage interest tax deduction (and all deductions of interest) are a massive subsidy to relatively wealthy members of society and which serves to encourage the use of debt to increase the nominal value of assets more generally, not just property. The way out is a gradual reduction in the amount of. Interest allowed to be entered (e.g., 1-2% reduction per year) to avoid spooking markets.
- xnx 4y ago
  I believe the Tax Cuts and Jobs Act ("TCJA") of 2017 raised the standard deduction so much that there's not nearly as much tax benefit to carrying a mortgage.
  - reducesuffering 4y ago
    Standard deduction for singles 2022 was ~$13k. For itemizing, you are able to deduct $750k federally. At 5% interest, that's $37.5k, and now you can itemize SALT for $10k, and some others like registration. We'll call it $48k deduction. (CA you can deduct even more) That's an extra $35k deduction, at typical 40% marginal tax rates, that saves an individual $14k/yr in their bank account, almost $1.2k a month. Yes, the benefit is less for married, because standard deduction becomes $26k so marginal deduction is an extra $22k, $9k/yr in the bank, $750/mth.
- trashtester 4y ago
  Would this apply to businesses too, or just individuals? If businesses are not allowed to deduct interest expenses, that going to strongly constrain how much they will be willing to invest. And if business ARE allowed to deduct interest expenses, but individuals not, then rich people will just have their company own their house, and rent it from themselves (or some similar adaptation). In particular, for real estate, if loans become more expensive, fewer people will want to build housing, making the market even more constrained. (Now, I do see reasons for making lending more expensive, but that would be for financial stability reasons, not housing.) To "solve" housing, I think the main approach should be to encourage the supply side. Make it easier and cheaper to build, and harder for local communities to enforce their NIMBY inclinations. Within reason, though, because if take to the other extreme, you may end up with an oversupply of housing in many areas, which can lead to slums forming.
loveparade 4y ago
That's the ever-repeating story of the disconnect between economics and politics. From an economic optimization standpoint it's pretty obvious what needs to happen, but those things will be painful for a subset of citizens, which means less votes for the next election, which means no politicians want to do it. That's not just the case for housing, but a whole range of regulations, many of which only still exist because removing them will lead to voters becoming upset about short-term changes, even though it may benefit the economy in the long run.
- notch656c 4y ago
  Yeah it's kind of depressing because at least a few key points the vast majority seem to agree on but it's just totally untenable to implement. There are a lot of choices nations can make that serve as a sort of one way valve with no going back and I fear this could be one of them. Another example of a bad mistake we made was our voting system which assures two parties, and that can never be undone because the parties will never vote to alter the representation system in a way to suicide their own parties. I've pretty much resigned myself my game plan is to suck all the capital I can out of the united states and then play the same game somewhere else where I can be the big bad foreign investor buying housing.
  - ikekkdcjkfke 4y ago
    Then what is stopping the market from working? If housing is so profitable, then why isn't it popping up housing at a higher rate? If anything is stopping this then it should be deemed anti-competitive mechanisms and deemed illegal. For capitalism to work anti-competitive behaviours need to be regulated. Just like racism can be systematic, anti-competitism can also be systematic and illegal.
    - notch656c 4y ago
      I'm a little lost. Not because I think you've said somethin wrong because I'm not sure what you're replying to. Can you quote what you're responding to?
  - 4y ago
jbigelow76 4y ago
(2) make housing an unattractive financial asset I think this should be revised to "make housing an unattractive financial asset if you don't live there" Both would be be highly unpopular for the majority of existing home owners. "Homeowners" as a concept needs to be substrated. Is Blackrock Capital a "homeowner"? Yes, the corporate entity owns and rents out domiciles people think of as homes. Are they the same as the person(s) wanting to "buy" the enclosure that provides privacy and puts a roof over their head in a neighborhood with a decent school for their kids[1]? No. For this particular niche of economic policy, we need to start talking about things as a "homeowner-resident class" and a "land(lord/owner) class" and crafting public policy around that. [1] I'm trying not to pigeon hole this point to single occupancy dwellings, it's part of how they divide us ;)
- BirdieNZ 4y ago
  Why should it be an attractive financial asset if you do live there? Why shouldn't it just be a depreciating asset like a car (which it would be if land was taxed effectively)? That way, we could invest in productive assets instead of land.
  - trashtester 4y ago
    > That way, we could invest in productive assets instead of land. Housing is worse than "land". The building itself is inherently depreciating, yet many think that they "invest" when they get a new kitchen or bathroom.
    - true_religion 4y ago
      You can invest in depreciating assets, if you sell them for higher than the cost of your investment. For example, if one buys flour, and bakes a cake that a classic depreciating asset. In two or three days, that cake will be worth less than the flour that went into it. However, if you sell it today to someone having a birthday party then you may make 3x on your investment. Buildings work the same way but with a longer timeline. That’s why developers build houses then sell them with the land, and don’t just sell land. It’s also why home owners invest in their own houses. If one builds a kitchen in their own house, they get to use it during part of the depreciating timeline. Let’s say kitchen costs 10k, they use it for 5 years and it’s depreciated to 5k worth. Now so long as it doesn’t cost 5k to raise it back up to 10k worth, then they have gained if they sell the house. Alternatively, they could rent out the house for 5 years at a higher rate because it has a kitchen. Like the cake, housing is an asset class where more strategies apply to it than “buy and hold”.
tsimionescu 4y ago
Your (2) proposal is never going to work without an authoritarian government, such as the one in Singapore. People like owning and passing on their homes. Also, one thing that I have never seen being talked about that has increased the demand for housing many fold in the last 50-100 years is the fashion of people leaving their family homes in their twenties. In traditional societies, it was common for at least one child to continue living with their parents for their entire life. It was thus very common for every household to include three families - a pair of grandparents, one of their children with their spouse, and one of their children with their spouse. Instead, today, people tend to live with their parents only until around 20-30. Getting married while living with your parents is virtually unthinkable. This means that the supply of houses has to be at least three times greater than in a traditional society, with a higher percentage of temporarily occupied housing as well (since even though you can eventually reuse your parents' and grandparents' home, you need to live somewhere while they are still alive. Of course, there are tradeoffs, and I would be extremely hypocritical to claim that I'd like to live with my parents and grandparents as an adult. But, such preferences are formed by fashion and social expectations. The millenia of this being the norm at the very least show that it is workable.
- astrange 4y ago
  > Your (2) proposal is never going to work without an authoritarian government, such as the one in Singapore. People like owning and passing on their homes. This is the policy in Japan, which is not an authoritarian government… well, not in terms of housing anyway. You just can't get a mortgage for a used home and they don't let local governments control zoning.
  - midoridensha 4y ago
    >You just can't get a mortgage for a used home and they don't let local governments control zoning. Huh? Yes, you can get a mortgage for a used home. People do it all the time. Where did you get that crazy idea? Yes, zoning is controlled at the national level, and in a very permissive way, so that works really well (you can legally build new housing almost anywhere).
- 4y ago
throwaway0x7E6 4y ago
>limiting ownership to a very long lease (e.g. 99 yrs) similar to what they do in Singapore. ...and China. I wholeheartedly agree with (2), but this is not the way to do it, for a number of reasons.
brianl047 4y ago
A lot of people will never make enough money. Therefore the only way to make housing affordable for everyone in the long run is to guarantee housing. That means social housing or rent-geared-to-income housing in combination with cooperative housing and market housing. No one solution will fix the problem. For example for the mental health problem if you give an apartment to someone really far gone they will just destroy the apartment and walk outside to live on the street. You need supports for them maybe communal living. So the right type of housing matters for each person. For someone who will never make enough money, the housing has to be free.
WalterBright 4y ago
> heavily taxing capital gains owning land Creating a large disincentive to ever sell it.
- Grimburger 4y ago
  Land tax is far better. https://en.wikipedia.org/wiki/Land_value_tax https://en.wikipedia.org/wiki/Land_value_tax
friend_and_foe 4y ago
Why would you not tax the improvements? An empty lot isn't housing, if you're trying to disincentivize the hoarding of houses, wouldn't you want to target houses and not land property?
- Falkon1313 4y ago
  Opposite effect. Tax the land high enough, and you'd be losing money to just sit on it hoping it appreciates in value. You'd need to build something (like housing) to make a positive return, so you're incentivized to do so. If you tax houses higher, people are directly incentivized to not build any, and instead just hold vacant land.
- BirdieNZ 4y ago
  People don't hoard houses, they hoard land. Taxing houses results in fewer houses, but taxing land doesn't result in less land. Check out https://astralcodexten.substack.com/p/your-book-review-progress-and-poverty https://astralcodexten.substack.com/p/your-book-review-progr...
  - friend_and_foe 4y ago
    people hoard houses. This is why you have landlords, this is why the value of a property is significantly improved if there's a house on it, if you can rent it to people. I like the idea of a different incentive structure: no taxes on the sale of a newly built housing, high property taxes on houses with an exemption for primary residence, and leave the existing property tax structure for business and fallow properties alone. This way you encourage new housing being built, encourage ownership and not renting out housing as a business or sitting on houses to flip them.
WalterBright 4y ago
A better idea: 1. remove restrictions on building low cost housing like dormitories 2. allow people to turn their homes into boarding houses This allows for things in between an apartment lease and living on the street.
- reocha 4y ago
  https://en.wikipedia.org/wiki/Workhouse https://en.wikipedia.org/wiki/Workhouse
zamfi 4y ago
> - giving up the quality of your nice neighbourhood because a giant complex was built next door > - giving up much of the capital appreciation in your house because it appreciated > Both would be be highly unpopular for the majority of existing home owners. As a result everyone complains but politicians don't actually do anything and nothing changes. There is no such thing as additional affordable housing without any cost. There is a price to be paid. Most are not willing to pay it. This is a pretty limited view, frankly. Your first point is spot on -- housing density needs to increase. But this does not mean worsening quality of life. For decades density increases barely touched quality of life; a couple houses would be replaced with a tasteful 3-story apartment building, not "a giant complex was built next door" -- neighborhoods changed relatively slowly. Like Rome, Manhattan wasn't built in a day. These days, in many places, there are exactly two practical options for construction: detached single-family homes, and massive complexes. Why? At least in California, because any kind of development not by-right will face years, and potentially a decade or more, of citizen action against it in every venue imaginable. If you're going to incur that kind of delay/anger anyway, you might as well build a giant thing and make your pile; there's no room for smaller buildings because they're not profitable enough to pay for the years of fighting the neighborhood groups. Look at San Francisco, for example. Even if the population were to double, all you'd need is to double the housing units. This does not require massive complexes, it would be enough to convert single-family homes to duplexes, build ADUs, small apartment buildings where townhomes are, etc. -- except that those activities are more or less impractical. So, we get today's dichotomy: single family homes, allowed by zoning, and massive complexes, conditionally allowed (requiring approval) because that's the only new housing that is worth pushing through the extreme regulatory environment. Allow just a doubling of density in any SFH zone, and watch how quickly you end up with reasonable duplexes, ADUs, etc., that increase housing stock without a giant complex next door. The only thing you have to give up is the fetishization of the single family home inside the urban core. Your neighborhood will stay beautiful and nice. And your existing home will continue to appreciate, because it will still be more desirable than the duplexes being built, which are in turn more affordable.
- danaris 4y ago
  Ehhh...I'm a bit skeptical. Isn't one of the other reasons for building the massive complexes because as long as you're going to be building something there, you might as well build what will get you the biggest profit? I've heard of this being the case in several areas in recent years, and it seems to me to be just another casualty of the increasing obsession with maximizing profits at all costs on the part of far too many companies.
hackerlight 4y ago
> - giving up the quality of your nice neighbourhood because a giant complex was built next door Streets with less poo and needles, lower amounts of civil unrest, more green spaces due to less sprawl, and less noise & emissions pollution from cars is a net win on this front. The resistance from NIMBYs is almost squarely financial. Homeowners like the fact that they're subsidized by the government (due to lenient tax policy and the like). As with all people who receive unjustified subsidies, they will fight until the bitter end to prevent the gravy train from being disrupted.
SkyMarshal 4y ago
I'm sure there are better tax strategies than taxing capital gains on the house. That harms home owners and savers too. Most people's biggest source of savings is their house. Instead figure out some way of differentiating between a house as primary residence and a house as investment, and tax former less and the latter more.
- trashtester 4y ago
  > That harms home owners and savers too. Most people's biggest source of savings is their house. This, and the expectation of this, is the main problem. It causes a lot of economic misallocation. Also the long term risk is massive. Buy a property in SF today, and it may be the best investment you ever made. But if SF goes the way of Detroit, it could be the worst one, especially given the leverage often used in such "investments". And since people see the property as their main economic security, it strongly reinforces any NIMBY tendencies, creating incentives to make it harder for non-owners to find a place to live. Imo, housing should be seen as depreciating asset, just like a car. People should build houses to live in them, not as security for their retirement, and it should be allowed to be cheaper when possible (remove regulations that jack the price up, whether it's zoning or excessive requirements to the standard, as well as limit how much local communities can prevent land owners to build on their own land). Whether people want to own or lend/lease should be up to them, just as with cars. And if housing gets cheaper, any funds freed up should be invested elsewhere. For long term investments, I think index funds or conservatively managed (and low fee) managed funds are ideal. They allow people to grow capital at approx the same rate as the economy grows, and protects against local fluctuations, and they also provide some protection against inflation risk.
inglor_cz 4y ago
In your simple proposal, you are concentrating too much on the "brick and mortar" and not enough on the wider economic context. One of the reasons why so much money pours into real estate is civilizational pessimism. People suspect that the recent inflationary episode wasn't the last one and don't want to hold much value in currency. The stock market has cooled too, even the Silicon Valley is going through the downward part of the cycle. Plus, the newly rich Chinese want to get their money out of reach of Beijing at almost any cost. So where does all the superfluous money go? Into brick and mortar, because those do not lose their value anywhere as quickly as cash does, especially in highly coveted places. (Real estate is by no means expensive everywhere in the West. You can buy an entire house in a depopulated Italian village for 1 euro. Real estate is expensive in attractive places.) If you somehow block the influx of money searching preservation into brick and mortar, there will be consequences somewhere else, much like blocking a massive flow of water will cause it to divert, not disappear or stop.
rich_sasha 4y ago
> (2) make housing an unattractive financial asset I think about it a lot, and I'm not sure this is the problem, more like a symptom of something else. Building a house is a capex exercise. Someone needs to provide the capital to get the house built. This can be someone who has outright cash, or a stable salary to get a mortgage (rent the capital for a fee) or an investor with their own capital, looking to charge rent. What happens if you make the last category unattractive? Well a few things, possibly: - Ideally, home builders would start charging less money for new houses, as the supply of buyers has dropped. The highest bidder has less money so prices will drop. - But presumably, also less homebuilders would stay in this business. Inasmuch as they do build new homes, it is because the market price is attractive. Some will stay, but some will be pushed out. This in turn will drop supply of housing. My fear would be that the net result would be prices staying where they are, supply of housing dropping, and the renters being pushed out. If anything, what we need is just more houses, built by someone, anyone.

jjcon 4y ago

> fixing the housing problem actually requires certain people to GIVE UP something That sounds like just introducing new problems not fixing the problem, I'd rather extremely expensive housing over either 1 or 2

SQueeeeeL 4y ago
>I'd rather extremely expensive housing over either 1 or 2 Damn I love hacker news. Can't wait for the ballooned tech salaries to pop in the USA when that next generation of engineers graduate
- jjcon 4y ago
  Huh? What’s that have to do with things? I’m not even working in the USA

maximilianroos 4y ago

How would (2) change rental prices? Show its effect on the supply & demand of rental housing.

varenc 4y ago
If buying a home only costs the equivalent of 7 years rent instead 30+ years rent, it seems that would make buying a home more appealing and reduce the market's overall demand for rental housing. And similarly, property owners won't want to sell their property if the price just dropped, so instead they'll be more interested in rental income, increasing the rental housing supply.
LesZedCB 4y ago
https://scholar.harvard.edu/files/zwick/files/jmp_111213.pdf https://scholar.harvard.edu/files/zwick/files/jmp_111213.pdf > This paper incorporates speculation into the standard supply-and-demand frame- work used to analyze housing booms and busts. Speculation reverses the common intu- ition that elastic housing supply attenuates housing booms. Housing market frictions make land a more attractive speculative investment than housing. As a result, unde- veloped land both facilitates construction and intensifies the speculation that causes booms and busts in house prices. This insight explains the frequent housing booms and busts that coincide with high construction activity (e.g. Las Vegas, 2000-2010). These episodes are most likely to occur when a housing market nears but has not yet reached a long-run development constraint. Consistent with the recent U.S. housing experience, the model predicts higher price volatility in neighborhoods where housing is more easily rented. Land is an asset whose price volatility can increase with its float.
lifeisstillgood 4y ago
Post WWII till about 1952, the UK had a 100% capital gains tax on land. In this period two whole new cities were built from the ground up (Homes for Heroes style). After ending the tax, no government ever could afford the cost of a new town. The idea is that if a farmer has a field it's worth its agricultural value - something like 5-10,000 per acre currently. If government turns up and says this field is where we shall build a railway station, hospitals, schools and permission for 50,000 houses, then the farmer is a fool to sell for 10k, and instead sells for 100k. Meaning the cost of the hospital just became untenable and frankly nothing gets built. But, if there is 100% capital gains, then the land stays at the agricultural level because no matter who buys the land, the government says "it was worth 10k last month, if you sell it to us for hospital at 300k you owe 290k in tax" And thus no-one feels a fool for selling at agricultural prices, and capital gains remains normal for non-land improvements (ie actual bricks and mortar) Of course the towns built was Milton Keynes, a concrete monstrosity of roundabouts and soulless planning. But hey. People live there

millimeterman 4y ago

By what mechanism would (2) make housing cheaper?

ako 4y ago
Reduce demand for housing, if appreciation is low enough, investors will invest their money other things than housing. With equal supply and reduced demand, this should normally lead to lower prices.
- mannerheim 4y ago
  Could backfire if investors then decided not to invest in building new housing, but I guess that doesn't happen anymore anyway.
fabianhjr 4y ago
By reducing instances of private equity firms buying all housing stock en masse and "maximizing profit" by squeezing every last cent their tenants could give. Example: https://www.propublica.org/article/when-private-equity-becomes-your-landlord https://www.propublica.org/article/when-private-equity-becom... Also Adam Smith has a lot of rants against rent seeking behavior and landlords if you want to go with that "communist" writing. > The rent of land, therefore, considered as the price paid for the use of the land, is naturally a monopoly price. It is not at all proportioned to what the landlord may have laid out upon the improvement of the land, or to what he can afford to take; but to what the farmer can afford to give Funnily enough, check how far back the 1/3 income for rent comes from and the context on which it is mentioned: > The rent of an estate above ground commonly amounts to what is supposed to be a third of the gross produce; and it is generally a rent certain and independent of the occasional variations in the crop. [..] This rent “is seldom less than a fourth ... of the whole produce.”
- astrange 4y ago
  Private equity firms are nothing compared to the power of average homeowners using land appreciation as their retirement plan. A simple rule is that nothing people blame on corporations is ever caused by corporations. People and governments are legitimately more powerful than corporations! And they often use that for evil.

notch656c 4y ago

I would add a third which is allow more dangerous housing. You heard it. We all agree to risk, just a little more, we all die in a horrible fire so that the least among us have a better chance of owning a home through something other than charity.

perilunar 4y ago
The shortage of cheap housing has more to do with land prices, and very little to do with the cost of making houses safe to live in.
- notch656c 4y ago
  I could pitch a yurt here on a deck all in with land included for about $150k. https://www.realtor.com/realestateandhomes-detail/1882-Quesada-Ave_San-Francisco_CA_94124_M21903-35716 https://www.realtor.com/realestateandhomes-detail/1882-Quesa... What's the cheapest legal free standing residence in san francisco? I couldn't find anything under half a million. That's an easy 1/3 the price of any legal freestanding structure.
- astrange 4y ago
  You could use expensive land much more efficiently if you could build smaller, taller, and worse housing. SF has both banned new SROs (flophouses) and made it illegal to tear down the old ones.
  - ako 4y ago
    Slums: https://en.wikipedia.org/wiki/Slum https://en.wikipedia.org/wiki/Slum
    - notch656c 4y ago
      Slums are unfortunately the shitty alternative to having no home at all, when you live in a world where no one gives a fuck about the poor. If we must live in a world where no one gives a fuck about the poor I honestly am not so sure they should be denied at least their slum house rather than freezing to death behind a dumpster.

freitzkriesler 4y ago

You're over thinking it. 1. Eliminate the investor and land lord element from real estate and you reduce a significant reason as to why housing is so expensive. Do it with taxes, codes, whatever. You can own two houses and any more than that the taxes go way up. Landlords don't build houses, developers who sell their new builds do. 2. Eliminate foreign ownership of American real estate and limit it to American citizens and legal immigrants. -> see Thailand 3. Unpopular but true: eliminate the influx of illegal immigrants and remove the ones already present. More people + limited stock = high prices

ako 4y ago
Do you have any data to show the actual effect of illegal immigration on housing demand?
- freitzkriesler 4y ago
  Mate, its 2023. Use google. It's also econ 101. Where are all those illegal immigrants going to live? In houses and apartments. https://www.google.com/search?q=illegal+immigration+effect+on+housong&ie=UTF-8&hl=en https://www.google.com/search?q=illegal+immigration+effect+o...
  - ako 4y ago
    From your google search result: https://www.newamericaneconomy.org/housingmap/ https://www.newamericaneconomy.org/housingmap/ "Importantly, the research finds that immigrants revitalize less desirable neighborhoods in costly metropolitan areas, opening up new alternatives for middle- and working-class Americans to buy homes, and immigration supports the housing market without exacerbating the nation’s worst affordability problems, because immigrants themselves tend not to settle in the most expensive places."
    - freitzkriesler 4y ago
      NAE is about as trust worthy as the US Chamber of Commerce. Their biases seep through their text. Where do those existing residents in those working class neighborhoods go when immigrants move in? They get priced out and either end up homeless or on section 8, that's what happens. No new housing units in the low end ever get made, only the high end gets new builds. See this https://www.newsweek.com/why-are-we-spending-millions-housing-illegal-migrants-while-americans-go-homeless-opinion-1770207 https://www.newsweek.com/why-are-we-spending-millions-housin...?

navi0 4y ago

On #2, the role tax deductibility of interest plays is often overlooked IMHO. The mortgage interest tax deduction (and all deductions of interest) are a massive subsidy to relatively wealthy members of society and which serves to encourage the use of debt to increase the nominal value of assets more generally, not just property. The way out is a gradual reduction in the amount of. Interest allowed to be entered (e.g., 1-2% reduction per year) to avoid spooking markets.

xnx 4y ago
I believe the Tax Cuts and Jobs Act ("TCJA") of 2017 raised the standard deduction so much that there's not nearly as much tax benefit to carrying a mortgage.
- reducesuffering 4y ago
  Standard deduction for singles 2022 was ~$13k. For itemizing, you are able to deduct $750k federally. At 5% interest, that's $37.5k, and now you can itemize SALT for $10k, and some others like registration. We'll call it $48k deduction. (CA you can deduct even more) That's an extra $35k deduction, at typical 40% marginal tax rates, that saves an individual $14k/yr in their bank account, almost $1.2k a month. Yes, the benefit is less for married, because standard deduction becomes $26k so marginal deduction is an extra $22k, $9k/yr in the bank, $750/mth.
trashtester 4y ago
Would this apply to businesses too, or just individuals? If businesses are not allowed to deduct interest expenses, that going to strongly constrain how much they will be willing to invest. And if business ARE allowed to deduct interest expenses, but individuals not, then rich people will just have their company own their house, and rent it from themselves (or some similar adaptation). In particular, for real estate, if loans become more expensive, fewer people will want to build housing, making the market even more constrained. (Now, I do see reasons for making lending more expensive, but that would be for financial stability reasons, not housing.) To "solve" housing, I think the main approach should be to encourage the supply side. Make it easier and cheaper to build, and harder for local communities to enforce their NIMBY inclinations. Within reason, though, because if take to the other extreme, you may end up with an oversupply of housing in many areas, which can lead to slums forming.

loveparade 4y ago

That's the ever-repeating story of the disconnect between economics and politics. From an economic optimization standpoint it's pretty obvious what needs to happen, but those things will be painful for a subset of citizens, which means less votes for the next election, which means no politicians want to do it. That's not just the case for housing, but a whole range of regulations, many of which only still exist because removing them will lead to voters becoming upset about short-term changes, even though it may benefit the economy in the long run.

notch656c 4y ago
Yeah it's kind of depressing because at least a few key points the vast majority seem to agree on but it's just totally untenable to implement. There are a lot of choices nations can make that serve as a sort of one way valve with no going back and I fear this could be one of them. Another example of a bad mistake we made was our voting system which assures two parties, and that can never be undone because the parties will never vote to alter the representation system in a way to suicide their own parties. I've pretty much resigned myself my game plan is to suck all the capital I can out of the united states and then play the same game somewhere else where I can be the big bad foreign investor buying housing.
- ikekkdcjkfke 4y ago
  Then what is stopping the market from working? If housing is so profitable, then why isn't it popping up housing at a higher rate? If anything is stopping this then it should be deemed anti-competitive mechanisms and deemed illegal. For capitalism to work anti-competitive behaviours need to be regulated. Just like racism can be systematic, anti-competitism can also be systematic and illegal.
  - notch656c 4y ago
    I'm a little lost. Not because I think you've said somethin wrong because I'm not sure what you're replying to. Can you quote what you're responding to?
- 4y ago

jbigelow76 4y ago

(2) make housing an unattractive financial asset I think this should be revised to "make housing an unattractive financial asset if you don't live there" Both would be be highly unpopular for the majority of existing home owners. "Homeowners" as a concept needs to be substrated. Is Blackrock Capital a "homeowner"? Yes, the corporate entity owns and rents out domiciles people think of as homes. Are they the same as the person(s) wanting to "buy" the enclosure that provides privacy and puts a roof over their head in a neighborhood with a decent school for their kids[1]? No. For this particular niche of economic policy, we need to start talking about things as a "homeowner-resident class" and a "land(lord/owner) class" and crafting public policy around that. [1] I'm trying not to pigeon hole this point to single occupancy dwellings, it's part of how they divide us ;)

BirdieNZ 4y ago
Why should it be an attractive financial asset if you do live there? Why shouldn't it just be a depreciating asset like a car (which it would be if land was taxed effectively)? That way, we could invest in productive assets instead of land.
- trashtester 4y ago
  > That way, we could invest in productive assets instead of land. Housing is worse than "land". The building itself is inherently depreciating, yet many think that they "invest" when they get a new kitchen or bathroom.
  - true_religion 4y ago
    You can invest in depreciating assets, if you sell them for higher than the cost of your investment. For example, if one buys flour, and bakes a cake that a classic depreciating asset. In two or three days, that cake will be worth less than the flour that went into it. However, if you sell it today to someone having a birthday party then you may make 3x on your investment. Buildings work the same way but with a longer timeline. That’s why developers build houses then sell them with the land, and don’t just sell land. It’s also why home owners invest in their own houses. If one builds a kitchen in their own house, they get to use it during part of the depreciating timeline. Let’s say kitchen costs 10k, they use it for 5 years and it’s depreciated to 5k worth. Now so long as it doesn’t cost 5k to raise it back up to 10k worth, then they have gained if they sell the house. Alternatively, they could rent out the house for 5 years at a higher rate because it has a kitchen. Like the cake, housing is an asset class where more strategies apply to it than “buy and hold”.

tsimionescu 4y ago

Your (2) proposal is never going to work without an authoritarian government, such as the one in Singapore. People like owning and passing on their homes. Also, one thing that I have never seen being talked about that has increased the demand for housing many fold in the last 50-100 years is the fashion of people leaving their family homes in their twenties. In traditional societies, it was common for at least one child to continue living with their parents for their entire life. It was thus very common for every household to include three families - a pair of grandparents, one of their children with their spouse, and one of their children with their spouse. Instead, today, people tend to live with their parents only until around 20-30. Getting married while living with your parents is virtually unthinkable. This means that the supply of houses has to be at least three times greater than in a traditional society, with a higher percentage of temporarily occupied housing as well (since even though you can eventually reuse your parents' and grandparents' home, you need to live somewhere while they are still alive. Of course, there are tradeoffs, and I would be extremely hypocritical to claim that I'd like to live with my parents and grandparents as an adult. But, such preferences are formed by fashion and social expectations. The millenia of this being the norm at the very least show that it is workable.

astrange 4y ago
> Your (2) proposal is never going to work without an authoritarian government, such as the one in Singapore. People like owning and passing on their homes. This is the policy in Japan, which is not an authoritarian government… well, not in terms of housing anyway. You just can't get a mortgage for a used home and they don't let local governments control zoning.
- midoridensha 4y ago
  >You just can't get a mortgage for a used home and they don't let local governments control zoning. Huh? Yes, you can get a mortgage for a used home. People do it all the time. Where did you get that crazy idea? Yes, zoning is controlled at the national level, and in a very permissive way, so that works really well (you can legally build new housing almost anywhere).
4y ago

throwaway0x7E6 4y ago

>limiting ownership to a very long lease (e.g. 99 yrs) similar to what they do in Singapore. ...and China. I wholeheartedly agree with (2), but this is not the way to do it, for a number of reasons.

brianl047 4y ago

A lot of people will never make enough money. Therefore the only way to make housing affordable for everyone in the long run is to guarantee housing. That means social housing or rent-geared-to-income housing in combination with cooperative housing and market housing. No one solution will fix the problem. For example for the mental health problem if you give an apartment to someone really far gone they will just destroy the apartment and walk outside to live on the street. You need supports for them maybe communal living. So the right type of housing matters for each person. For someone who will never make enough money, the housing has to be free.

WalterBright 4y ago

> heavily taxing capital gains owning land Creating a large disincentive to ever sell it.

Grimburger 4y ago
Land tax is far better. https://en.wikipedia.org/wiki/Land_value_tax https://en.wikipedia.org/wiki/Land_value_tax

friend_and_foe 4y ago

Why would you not tax the improvements? An empty lot isn't housing, if you're trying to disincentivize the hoarding of houses, wouldn't you want to target houses and not land property?

Falkon1313 4y ago
Opposite effect. Tax the land high enough, and you'd be losing money to just sit on it hoping it appreciates in value. You'd need to build something (like housing) to make a positive return, so you're incentivized to do so. If you tax houses higher, people are directly incentivized to not build any, and instead just hold vacant land.
BirdieNZ 4y ago
People don't hoard houses, they hoard land. Taxing houses results in fewer houses, but taxing land doesn't result in less land. Check out https://astralcodexten.substack.com/p/your-book-review-progress-and-poverty https://astralcodexten.substack.com/p/your-book-review-progr...
- friend_and_foe 4y ago
  people hoard houses. This is why you have landlords, this is why the value of a property is significantly improved if there's a house on it, if you can rent it to people. I like the idea of a different incentive structure: no taxes on the sale of a newly built housing, high property taxes on houses with an exemption for primary residence, and leave the existing property tax structure for business and fallow properties alone. This way you encourage new housing being built, encourage ownership and not renting out housing as a business or sitting on houses to flip them.

WalterBright 4y ago

A better idea: 1. remove restrictions on building low cost housing like dormitories 2. allow people to turn their homes into boarding houses This allows for things in between an apartment lease and living on the street.

reocha 4y ago
https://en.wikipedia.org/wiki/Workhouse https://en.wikipedia.org/wiki/Workhouse

zamfi 4y ago

> - giving up the quality of your nice neighbourhood because a giant complex was built next door > - giving up much of the capital appreciation in your house because it appreciated > Both would be be highly unpopular for the majority of existing home owners. As a result everyone complains but politicians don't actually do anything and nothing changes. There is no such thing as additional affordable housing without any cost. There is a price to be paid. Most are not willing to pay it. This is a pretty limited view, frankly. Your first point is spot on -- housing density needs to increase. But this does not mean worsening quality of life. For decades density increases barely touched quality of life; a couple houses would be replaced with a tasteful 3-story apartment building, not "a giant complex was built next door" -- neighborhoods changed relatively slowly. Like Rome, Manhattan wasn't built in a day. These days, in many places, there are exactly two practical options for construction: detached single-family homes, and massive complexes. Why? At least in California, because any kind of development not by-right will face years, and potentially a decade or more, of citizen action against it in every venue imaginable. If you're going to incur that kind of delay/anger anyway, you might as well build a giant thing and make your pile; there's no room for smaller buildings because they're not profitable enough to pay for the years of fighting the neighborhood groups. Look at San Francisco, for example. Even if the population were to double, all you'd need is to double the housing units. This does not require massive complexes, it would be enough to convert single-family homes to duplexes, build ADUs, small apartment buildings where townhomes are, etc. -- except that those activities are more or less impractical. So, we get today's dichotomy: single family homes, allowed by zoning, and massive complexes, conditionally allowed (requiring approval) because that's the only new housing that is worth pushing through the extreme regulatory environment. Allow just a doubling of density in any SFH zone, and watch how quickly you end up with reasonable duplexes, ADUs, etc., that increase housing stock without a giant complex next door. The only thing you have to give up is the fetishization of the single family home inside the urban core. Your neighborhood will stay beautiful and nice. And your existing home will continue to appreciate, because it will still be more desirable than the duplexes being built, which are in turn more affordable.

danaris 4y ago
Ehhh...I'm a bit skeptical. Isn't one of the other reasons for building the massive complexes because as long as you're going to be building something there, you might as well build what will get you the biggest profit? I've heard of this being the case in several areas in recent years, and it seems to me to be just another casualty of the increasing obsession with maximizing profits at all costs on the part of far too many companies.

hackerlight 4y ago

> - giving up the quality of your nice neighbourhood because a giant complex was built next door Streets with less poo and needles, lower amounts of civil unrest, more green spaces due to less sprawl, and less noise & emissions pollution from cars is a net win on this front. The resistance from NIMBYs is almost squarely financial. Homeowners like the fact that they're subsidized by the government (due to lenient tax policy and the like). As with all people who receive unjustified subsidies, they will fight until the bitter end to prevent the gravy train from being disrupted.

SkyMarshal 4y ago

I'm sure there are better tax strategies than taxing capital gains on the house. That harms home owners and savers too. Most people's biggest source of savings is their house. Instead figure out some way of differentiating between a house as primary residence and a house as investment, and tax former less and the latter more.

trashtester 4y ago
> That harms home owners and savers too. Most people's biggest source of savings is their house. This, and the expectation of this, is the main problem. It causes a lot of economic misallocation. Also the long term risk is massive. Buy a property in SF today, and it may be the best investment you ever made. But if SF goes the way of Detroit, it could be the worst one, especially given the leverage often used in such "investments". And since people see the property as their main economic security, it strongly reinforces any NIMBY tendencies, creating incentives to make it harder for non-owners to find a place to live. Imo, housing should be seen as depreciating asset, just like a car. People should build houses to live in them, not as security for their retirement, and it should be allowed to be cheaper when possible (remove regulations that jack the price up, whether it's zoning or excessive requirements to the standard, as well as limit how much local communities can prevent land owners to build on their own land). Whether people want to own or lend/lease should be up to them, just as with cars. And if housing gets cheaper, any funds freed up should be invested elsewhere. For long term investments, I think index funds or conservatively managed (and low fee) managed funds are ideal. They allow people to grow capital at approx the same rate as the economy grows, and protects against local fluctuations, and they also provide some protection against inflation risk.

inglor_cz 4y ago

In your simple proposal, you are concentrating too much on the "brick and mortar" and not enough on the wider economic context. One of the reasons why so much money pours into real estate is civilizational pessimism. People suspect that the recent inflationary episode wasn't the last one and don't want to hold much value in currency. The stock market has cooled too, even the Silicon Valley is going through the downward part of the cycle. Plus, the newly rich Chinese want to get their money out of reach of Beijing at almost any cost. So where does all the superfluous money go? Into brick and mortar, because those do not lose their value anywhere as quickly as cash does, especially in highly coveted places. (Real estate is by no means expensive everywhere in the West. You can buy an entire house in a depopulated Italian village for 1 euro. Real estate is expensive in attractive places.) If you somehow block the influx of money searching preservation into brick and mortar, there will be consequences somewhere else, much like blocking a massive flow of water will cause it to divert, not disappear or stop.

rich_sasha 4y ago

> (2) make housing an unattractive financial asset I think about it a lot, and I'm not sure this is the problem, more like a symptom of something else. Building a house is a capex exercise. Someone needs to provide the capital to get the house built. This can be someone who has outright cash, or a stable salary to get a mortgage (rent the capital for a fee) or an investor with their own capital, looking to charge rent. What happens if you make the last category unattractive? Well a few things, possibly: - Ideally, home builders would start charging less money for new houses, as the supply of buyers has dropped. The highest bidder has less money so prices will drop. - But presumably, also less homebuilders would stay in this business. Inasmuch as they do build new homes, it is because the market price is attractive. Some will stay, but some will be pushed out. This in turn will drop supply of housing. My fear would be that the net result would be prices staying where they are, supply of housing dropping, and the renters being pushed out. If anything, what we need is just more houses, built by someone, anyone.