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If the government wanted to set off some fireworks they could tax homeowners with <4% mortgages such that it makes their "effective mortgage" somewhere around 4

If the government wanted to set off some fireworks they could tax homeowners with <4% mortgages such that it makes their "effective mortgage" somewhere around 4% (2019 rates). This would effectively undue the "gift" of the magical 2% mortgage and crush those who chased the low rates during 2021. If they really wanted to rub salt in the wound, they could use the proceeds to fund a home builder subsidy program, giving home builders access to special low interest loans. And if they went full masochist, they could use eminent domain to seize vacant commercial proprieties and build high density housing on it, regardless of local zoning. All this would never happen though. So rest easy homeowner. Just a mental exercise in how the government could use the tools it has to unstick the housing market.

mdorazio 3y ago
The "easy" way to do this would be to drop the mortgage interest tax deduction for mortgages under a certain % rate. It'll never happen, though, the US has been artificially incentivizing single family home ownership since the 1910s. A better, and equally unpopular, way would be a land value tax at a rate high enough to discourage single family home ownership in high COL areas.
whimsicalism 3y ago
Your proposal around taxing people because they got a lower interest rate will undermine interest rate price discovery & the future effectiveness of interest rate policy. Every policy action you take impacts peoples expectations. Taxing people with low rates will not "unstick the housing market."
- Workaccount2 3y ago
  Oh it would, because many people would lose their home. And price discovery is already completely fucked, banks would never give out 30 year fixed rate loans if the fed wasn't buying them all up. If we had all ARM loans then the problem would be unfucking itself right now as the fed raised rates. Instead past mortgages are insulated from the market....unless the market is in the mortgagee's favor, in which they refinance. This is why things are so bad right now. Especially when you factor in the rise of remote work for white collar workers (read: homeowners). There is no reason for them to ever give up their 2% rate. Hence inventory is in the dirt.
wwweston 3y ago
Generally the philosophy I think works best is to tax activity you might well allow but want less of to close incentive gaps for things you want more of. So, I'm pretty interested in vacancy taxes, because that's something we definitely want less of. I can't think of how that would apply to people who got <4% mortgage rates. If you want fewer low-interest mortgages, you can just raise mortgage rates, which has happened. And I can't think of any behavior associated with past low-interest mortgages that is a problem that wouldn't be better addressed directly, especially without hitting people who are just living in their home they were lucky enough to get a good rate on. Punitive and unfocused stuff like that probably would never happen. But I think vacancy taxes are politically viable, along with things like property taxes that increase with regional volume of ownership or rent prices above a standard deviation from median.
- whimsicalism 3y ago
  I would absolutely be in favor of a vacancy tax where we are redirecting the money to some sort of building subsidy, but a vacancy tax on its own penalizes development. SF, for instance, just imposed a vacancy tax that exclusively targets apartment buildings rather than SFH (ie. excluding most of the actual housing stock but targeting new construction housing stock). I voted for it, but I don't think targeting new development in this way is productive.
  - wwweston 3y ago
    > a vacancy tax on its own penalizes development. I'm not sure I understand the dynamic you have in mind. Maybe the idea that developers are scared away from construction where vacancy taxes might be among their liabilities? I guess I could see that if they think they're leading demand by a fair ways (and you could probably fix that by waiving them for buildings under say ~3 years and grading them with time) but I'm not sure how it'd discourage development otherwise. > SF, for instance, just imposed a vacancy tax that exclusively targets apartment buildings rather than SFH (ie. excluding most of the actual housing stock but targeting new construction housing stock) So it doesn't make a lot of sense to me to leave out existing housing stock, but I can kinda see why people would apply it to new construction: if my experience in LA is any indication, new high profile development skews "luxury" and it's not hard to find examples of situations where new units come onto the market at rents over a standard deviation about market average and you see them wait to fill spots rather than lower the price to clear more quickly. Not sure that justifies them hitting new development harder than the rest of the market, but I can see people observing this dynamic and thinking "why are we going to the effort of trying to accommodate new building sometimes even waiving regulations that do an important job if all we're going to get is units that sit empty while most people are priced out?"
dahwolf 3y ago
Taxing debt, the opposite of income, for sure is "innovative".
- Workaccount2 3y ago
  It's still taxing an income. The income is the difference between the markets debt price and the mortgage holders debt price. This difference is artificial and is only possible because of the feds money printer.
  - dahwolf 3y ago
    If you consider paying less an income, then all of our consumption culture would be income, as its all artificially boosted with cheap money.

mdorazio 3y ago

The "easy" way to do this would be to drop the mortgage interest tax deduction for mortgages under a certain % rate. It'll never happen, though, the US has been artificially incentivizing single family home ownership since the 1910s. A better, and equally unpopular, way would be a land value tax at a rate high enough to discourage single family home ownership in high COL areas.

whimsicalism 3y ago

Your proposal around taxing people because they got a lower interest rate will undermine interest rate price discovery & the future effectiveness of interest rate policy. Every policy action you take impacts peoples expectations. Taxing people with low rates will not "unstick the housing market."

Workaccount2 3y ago
Oh it would, because many people would lose their home. And price discovery is already completely fucked, banks would never give out 30 year fixed rate loans if the fed wasn't buying them all up. If we had all ARM loans then the problem would be unfucking itself right now as the fed raised rates. Instead past mortgages are insulated from the market....unless the market is in the mortgagee's favor, in which they refinance. This is why things are so bad right now. Especially when you factor in the rise of remote work for white collar workers (read: homeowners). There is no reason for them to ever give up their 2% rate. Hence inventory is in the dirt.

wwweston 3y ago

Generally the philosophy I think works best is to tax activity you might well allow but want less of to close incentive gaps for things you want more of. So, I'm pretty interested in vacancy taxes, because that's something we definitely want less of. I can't think of how that would apply to people who got <4% mortgage rates. If you want fewer low-interest mortgages, you can just raise mortgage rates, which has happened. And I can't think of any behavior associated with past low-interest mortgages that is a problem that wouldn't be better addressed directly, especially without hitting people who are just living in their home they were lucky enough to get a good rate on. Punitive and unfocused stuff like that probably would never happen. But I think vacancy taxes are politically viable, along with things like property taxes that increase with regional volume of ownership or rent prices above a standard deviation from median.

whimsicalism 3y ago
I would absolutely be in favor of a vacancy tax where we are redirecting the money to some sort of building subsidy, but a vacancy tax on its own penalizes development. SF, for instance, just imposed a vacancy tax that exclusively targets apartment buildings rather than SFH (ie. excluding most of the actual housing stock but targeting new construction housing stock). I voted for it, but I don't think targeting new development in this way is productive.
- wwweston 3y ago
  > a vacancy tax on its own penalizes development. I'm not sure I understand the dynamic you have in mind. Maybe the idea that developers are scared away from construction where vacancy taxes might be among their liabilities? I guess I could see that if they think they're leading demand by a fair ways (and you could probably fix that by waiving them for buildings under say ~3 years and grading them with time) but I'm not sure how it'd discourage development otherwise. > SF, for instance, just imposed a vacancy tax that exclusively targets apartment buildings rather than SFH (ie. excluding most of the actual housing stock but targeting new construction housing stock) So it doesn't make a lot of sense to me to leave out existing housing stock, but I can kinda see why people would apply it to new construction: if my experience in LA is any indication, new high profile development skews "luxury" and it's not hard to find examples of situations where new units come onto the market at rents over a standard deviation about market average and you see them wait to fill spots rather than lower the price to clear more quickly. Not sure that justifies them hitting new development harder than the rest of the market, but I can see people observing this dynamic and thinking "why are we going to the effort of trying to accommodate new building sometimes even waiving regulations that do an important job if all we're going to get is units that sit empty while most people are priced out?"

dahwolf 3y ago

Taxing debt, the opposite of income, for sure is "innovative".

Workaccount2 3y ago
It's still taxing an income. The income is the difference between the markets debt price and the mortgage holders debt price. This difference is artificial and is only possible because of the feds money printer.
- dahwolf 3y ago
  If you consider paying less an income, then all of our consumption culture would be income, as its all artificially boosted with cheap money.