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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

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