4 ms·

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

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?"
  - whimsicalism 3y ago
    > I guess I could see that if they think they're leading demand by a fair ways It's marginal - there is no substantial regime change from 'leading demand' to not in terms of the incentives applied to building. If you impose a cost, builders will build less - even if they are already behind on demand. I guess you are saying that they will easily fill the units because demand is ahead so the vacancy tax doesn't matter, but it still matters here because the buyers (who might want to become landlords) will price lower if they know there is a vacancy tax in anticipation of future vacancies. > 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 Most new units come above market average. This is not a new trend, this was also true of the market average rates for old housing stock when it was new. It turns out that newer stock is more expensive, you have cause & effect backwards. Moreover, even if it were true that developers are only building permanent luxury/new stock, that would still be key to shifting the price down because the people inhabiting those luxury units would have otherwise been using their substantial bidding power to spend on other, less luxury homes. Finally, I promise you that none of the individual units being built by apartment developers are more luxury than owning your own SFH in San Francisco, which is worth probably upwards of $1.5-2 million. Many, many more of those homes sit empty as second homes than units in apartment buildings.
    - wwweston 3y ago
      > buyers (who might want to become landlords) will price lower if they know there is a vacancy tax in anticipation of future vacancies Prices will... lower, you say? Sounds like the policy working as intended. > It turns out that newer stock is more expensive Not news to me, and in fact this is one of the first dynamics I considered years ago when trying to figure out why new supply doesn't drive costs down. Especially combined with price feedback (landlords looking at how others are setting prices) I still expect it plays a role. > you have cause & effect backwards. Cause for what? Overrepresentation of "luxury" units in new buildings? Building costs are nearly orthogonal to the question of which economic strata new units get aimed at, except to the degree that they're gently sloped across markets enough that they encourage chasing higher margins at the higher end. > even if it were true that developers are only building permanent luxury/new stock, that would still be key to shifting the price down I'm just barely not skeptical about this. I've seen at least two studies that suggest it, although I have questions about how well they controlled for how much of the downmarket pressure was relieved by people leaving, but it's plausible. What's also plausible is that which price points new stock comes on to the market at what volume affects how the rising cost curve bends. You can dump an extra 5% of stock priced above the top of the market, and you'll have nearly all the potential occupants priced out, and even those with disposable income they could use for that will have to decide the new units have more utility to the point that overcomes the costs in time/money/stress of moving, which makes some things sticky indeed, so the filtering "up" the market will be slow. What might accelerate the disposable income crowd out? Rent increases... but those aren't going to speed the motion of the downmarket into the units they leave behind. It'll filter through eventually, but it will be glacial. Especially compared to what could happen if you dumped the extra 5% of stock in at price points that can work for the average regional income. Those are extremes, in reality I'd expect that developers distribute which income they're targeting a little more carefully, but they illustrate some impact dynamics that probably mean building at the high end doesn't provide cost relief as quickly. > none of the individual units being built by apartment developers are more luxury than owning your own SFH in San Francisco... many more of those homes sit empty as second homes than units in apartment buildings. Oh I'm sure that's a greater luxury, and I see no reason why they should receive any exception to vacancy taxes. In fact, I could see a reason for having them weighted by vacant area.

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?"
- whimsicalism 3y ago
  > I guess I could see that if they think they're leading demand by a fair ways It's marginal - there is no substantial regime change from 'leading demand' to not in terms of the incentives applied to building. If you impose a cost, builders will build less - even if they are already behind on demand. I guess you are saying that they will easily fill the units because demand is ahead so the vacancy tax doesn't matter, but it still matters here because the buyers (who might want to become landlords) will price lower if they know there is a vacancy tax in anticipation of future vacancies. > 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 Most new units come above market average. This is not a new trend, this was also true of the market average rates for old housing stock when it was new. It turns out that newer stock is more expensive, you have cause & effect backwards. Moreover, even if it were true that developers are only building permanent luxury/new stock, that would still be key to shifting the price down because the people inhabiting those luxury units would have otherwise been using their substantial bidding power to spend on other, less luxury homes. Finally, I promise you that none of the individual units being built by apartment developers are more luxury than owning your own SFH in San Francisco, which is worth probably upwards of $1.5-2 million. Many, many more of those homes sit empty as second homes than units in apartment buildings.
  - wwweston 3y ago
    > buyers (who might want to become landlords) will price lower if they know there is a vacancy tax in anticipation of future vacancies Prices will... lower, you say? Sounds like the policy working as intended. > It turns out that newer stock is more expensive Not news to me, and in fact this is one of the first dynamics I considered years ago when trying to figure out why new supply doesn't drive costs down. Especially combined with price feedback (landlords looking at how others are setting prices) I still expect it plays a role. > you have cause & effect backwards. Cause for what? Overrepresentation of "luxury" units in new buildings? Building costs are nearly orthogonal to the question of which economic strata new units get aimed at, except to the degree that they're gently sloped across markets enough that they encourage chasing higher margins at the higher end. > even if it were true that developers are only building permanent luxury/new stock, that would still be key to shifting the price down I'm just barely not skeptical about this. I've seen at least two studies that suggest it, although I have questions about how well they controlled for how much of the downmarket pressure was relieved by people leaving, but it's plausible. What's also plausible is that which price points new stock comes on to the market at what volume affects how the rising cost curve bends. You can dump an extra 5% of stock priced above the top of the market, and you'll have nearly all the potential occupants priced out, and even those with disposable income they could use for that will have to decide the new units have more utility to the point that overcomes the costs in time/money/stress of moving, which makes some things sticky indeed, so the filtering "up" the market will be slow. What might accelerate the disposable income crowd out? Rent increases... but those aren't going to speed the motion of the downmarket into the units they leave behind. It'll filter through eventually, but it will be glacial. Especially compared to what could happen if you dumped the extra 5% of stock in at price points that can work for the average regional income. Those are extremes, in reality I'd expect that developers distribute which income they're targeting a little more carefully, but they illustrate some impact dynamics that probably mean building at the high end doesn't provide cost relief as quickly. > none of the individual units being built by apartment developers are more luxury than owning your own SFH in San Francisco... many more of those homes sit empty as second homes than units in apartment buildings. Oh I'm sure that's a greater luxury, and I see no reason why they should receive any exception to vacancy taxes. In fact, I could see a reason for having them weighted by vacant area.