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It is a very typical problem in the US, but it's not really the only issue. Go look at Spain, a country that has, historically, had little issue building housin

It is a very typical problem in the US, but it's not really the only issue. Go look at Spain, a country that has, historically, had little issue building housing: Very dense housing too by most standards. After you liberalize housing, you still run into the trouble of economic forces trying to turn housing into a sensible investment: Buy an apartment, pay your mortgage for 20 years, and then you have a pile of leveraged money on top of the basic savings! But then you run into current housing in Spain: Said primary housing has huge tax savings over anything else. Taxes at sale time overwhelm property taxes (which are very good, yet seen as unfair by owners, so they stay low), so it's also better to keep the housing underused. So ultimately you end up with a situation where the building that before had an average of 5 or 6 occupants per flat in the 1980s, is now sitting at one and a half. So you end up having to massively overbuild, as to make sure nobody that bought in a good location does anything but make money on their "investment" The US could build more, thanks to so many inner suburbs that should really be filled to the brim and 8 stories tall, but ultimately it's just kicking the can down the road until residential investment is not so important, and the price of housing lines up with its utility, not the ever-growing value of the land it sits on top of. The Georgists that want to just LVT as the one tax in the world are going too far, but I don't see long term solutions to all the problems downstream from housing if, along of making it easy to build, we don't make sure that speculating on the value of the land is actually risky.

csomar 2y ago
Spain (since it's in Europe, though you could say the same about ME countries) is an example that housing does not drive growth. Growth can drive housing and housing shortages can hamper growth but housing on its own does not drive growth.
- matt-p 2y ago
  I think that's a bit debatable. In Barcelona there's a shortage of housing and more would grow growth. In a random town building more houses does promote construction led economic growth even if not other growth.
smallmancontrov 2y ago
Yep. Housing can be affordable or it can be a good investment. Not both. Not for long. Home owners are heavily incentivized to "not understand" this, so the cycle of abuse continues.
- kiba 2y ago
  It's also true that people are also economically illiterate. I don't think I am economically literate. I have only taken one semester of macroeconomic in high school.
- kurthr 2y ago
  See also China, which has seen massive overbuilding (50M empty units and 20M paid for but unbuilt), many empty buildings, and now the beginnings of a crash. Why? Because everything was financialized. Houses became an investment rather than a place to live. "If you move in, it loses value!" One thing there, though is that even though a 100m2 in Beijing/Shanghai/Shenzhen may cost $1M (30x urban educated middleclass income), the monthly rent will be under $1k (<30% income). That's still horribly expensive, but nothing compared to Spain or US. Maintenance suffers and there's even less reason for owners to fill "pristine" apartments, but it's a less bad form of malinvestment.
- AnthonyMouse 2y ago
  > Housing can be affordable or it can be a good investment. Not both. Not for long. This isn't really true. Suppose that housing is extremely affordable. Cost is only the construction cost, no scarcity component, and construction costs haven't been bureaucratically inflated. You get a house for $25,000. Then local rents are low, but they're not zero, because they'd still have to yield a return consistent with a $25,000 investment. Rents in that case are a lot lower than they would be if they had to yield a return consistent with a $500,000 investment, but the ROI is the same. It's just that if you invest $500,000 in housing you'd get 20 units and then e.g. rent them each for $250 (so $5000 in total) instead of paying the same amount for one unit and renting the one unit out for $5000. And it's not different if you live in it because living in it is an opportunity cost. In fact, the higher price is worse for you if you live in it, because then you're losing the much higher value of the imputed rent. Suppose you can get a loan for $500,000 and you want to invest that in housing. If that's the price of one unit and you live in it, you have to pay the whole mortgage out of your pocket and get $0 in rental income. If that's the price of 20 units, you live in one (which costs you $250/mo in opportunity cost) and then rent out the other 19 and get $4750 in rent every month you get to stick in your pocket.
amluto 2y ago
It sounds like both Spain and the US have tax systems that cause it to be expensive to sell a house and buy a less expensive house. In the US, this takes the form of a nonsensical capital gains tax system: personal residences are not eligible for 1031 exchanges, so taxes on gains are due immediately, those taxes are not indexed to inflation, the exemption is too small to make much difference in any high-property-value area, and the basis step-up at death strongly incentivizes children to encourage their parents to keep their house until they die. California puts icing on the cake with Prop 13, so you can trade for a cheaper house and your property taxes increase. At least some recent changes in CA take baby steps toward improving this.
AnthonyMouse 2y ago
> property taxes (which are very good, yet seen as unfair by owners, so they stay low) Property taxes aren't actually good. Consider the economics of new construction: If the net present cost of building new housing is less than its net present value, it gets built. Net present value is the value of future rents (or rents avoided if you live in it yourself) minus future costs, each discounted by the time value of money. Property tax is a future cost, so it reduces net present value, so you get less construction until rents increase to cover the cost of the property tax. If you don't like high rents, you don't like property tax. > Taxes at sale time This too is a problem if you want people to downsize once they no longer need a piece of property, but e.g. raising the exemption amount so that approximately nobody is paying this tax would then not cost a lot in terms of revenue because as it is the problem is that people are already avoiding the tax by not selling. If you tax something you get less of it. It's not different when you tax housing.
- amadeuspagel 2y ago
  Property tax are mostly taxes on the land. If you want to build housing, you get the necessary land cheaper, thanks to the property tax. I agree that the sales tax is bad though.
  - AnthonyMouse 2y ago
    Land value tax would be on the land. Property tax includes the buildings, which is naturally the issue. If you want to replace a single family home with a 6-unit structure that each provide as much housing as the original unit, your property tax is going up, providing a corresponding deterrent to anybody doing that until the rent or market price of the building has gone up by the same amount.
- fc417fc802 2y ago
  The observations about effects of tax seem fair enough, but perhaps miss the point of taxes. The local government presumably needs to balance the budget somehow. The income has to come from somewhere, and that's presumably going to be a tax of some sort. Whatever is taxed, there are going to be drawbacks and market distortions as a result. The issue shouldn't be "property tax raises rent" but rather "is the current structure the least bad option". Assessing the latter is going to include a lot more than just real estate.
autobodie 2y ago
> After you liberalize housing, you still run into the trouble of economic forces trying to turn housing into a sensible investment. Karl Marx made this crystal clear 150 years ago. You have to socialize housing, not "liberalize" it, whatever that means. And the Georgist solution will face a similar problem - the political one. The rich will always undermine mere tax law. You have to get rid of the rich, plain and simple.
Telemakhos 2y ago
If taxes at sales time (capital gains on real estate) are keeping people from selling houses, why not eliminate those taxes to free up the frozen housing market?
andrepd 2y ago
I don't think slapping a Georgist LVT will magically solve everything, but it will point market forces towards a desirable path, which is already a huge huge help compared to the state of things now.
matt-p 2y ago
Like all these things even in a market like Spain thn solution for one area can create issues in others. Barcelona suffers very different problems to Santander. I think it would actually make it easier if I could just pay 100K tax to have permission to erect any new 2 bed house anywhere in the country. There can even be a price list linked to local salleries or something.
no_wizard 2y ago
Note: I’m summarizing a very complex topic as best I can. There is a lot of nuance and thought that goes into a properly implemented land value tax (LVT) that I’m not covering here. The reason for the LVT is because land doesn’t otherwise follow market dynamics. In a functioning market you have pressures to sell things. If you can sell something at a reasonably high enough profit margin there is every incentive to do so. There is no benefit to waiting or holding if the price is right. This also encourages competitors who may try to sell a superior version of a widget at the same price or lower, and thus we have basic functioning market dynamics that help achieve relative price stability. It also achieves maximal utility for said market Real estate however doesn’t work this way. Once someone owns a plot of land there is no incentive to sell. We can’t simply make more, and the things that make said land more or less valuable aren’t inherent to the land but rather where it is located and/or what’s on top of said land. An LVT is a way to introduce a functioning market dynamic on land. It puts pressure either selling the land or utilizing it maximally. It becomes more expensive over time to hold land that is under utilized. This forces land owners into a set of choices: hold as is but pay an inevitably increasing tax on the holdings, sell part of the land to reduce the holdings, or further develop the land to offset the cost. Without this function, there is no functioning marketplace for land. Once you own it you can largely hold it forever, without any regard to the actualized value of the land. So for example, a 4 acre lot sitting on “prime” (lack of a better term) real estate with only 1 suburban style house has zero incentive to become maximally utilized even though its value has increased exponentially relative to its utilization. A LVT is one (and full disclosure I’m a big fan of the land value tax) such proposal to that problem
jdeibele 2y ago
We stayed with friends outside Madrid who owned a home. They had bought it officially for 400,000 Euros. They also paid a similar amount "on the black", meaning that they had to pay the sellers in cash so the sellers would only pay tax on the official amount. This was 15 years ago. It seems hard to imagine something like this happening in the US with the Know Your Customer and Anti-Money Laundering laws but maybe it does. And it might not happen in Spain anymore.

csomar 2y ago

Spain (since it's in Europe, though you could say the same about ME countries) is an example that housing does not drive growth. Growth can drive housing and housing shortages can hamper growth but housing on its own does not drive growth.

matt-p 2y ago
I think that's a bit debatable. In Barcelona there's a shortage of housing and more would grow growth. In a random town building more houses does promote construction led economic growth even if not other growth.

smallmancontrov 2y ago

Yep. Housing can be affordable or it can be a good investment. Not both. Not for long. Home owners are heavily incentivized to "not understand" this, so the cycle of abuse continues.

kiba 2y ago
It's also true that people are also economically illiterate. I don't think I am economically literate. I have only taken one semester of macroeconomic in high school.
kurthr 2y ago
See also China, which has seen massive overbuilding (50M empty units and 20M paid for but unbuilt), many empty buildings, and now the beginnings of a crash. Why? Because everything was financialized. Houses became an investment rather than a place to live. "If you move in, it loses value!" One thing there, though is that even though a 100m2 in Beijing/Shanghai/Shenzhen may cost $1M (30x urban educated middleclass income), the monthly rent will be under $1k (<30% income). That's still horribly expensive, but nothing compared to Spain or US. Maintenance suffers and there's even less reason for owners to fill "pristine" apartments, but it's a less bad form of malinvestment.
AnthonyMouse 2y ago
> Housing can be affordable or it can be a good investment. Not both. Not for long. This isn't really true. Suppose that housing is extremely affordable. Cost is only the construction cost, no scarcity component, and construction costs haven't been bureaucratically inflated. You get a house for $25,000. Then local rents are low, but they're not zero, because they'd still have to yield a return consistent with a $25,000 investment. Rents in that case are a lot lower than they would be if they had to yield a return consistent with a $500,000 investment, but the ROI is the same. It's just that if you invest $500,000 in housing you'd get 20 units and then e.g. rent them each for $250 (so $5000 in total) instead of paying the same amount for one unit and renting the one unit out for $5000. And it's not different if you live in it because living in it is an opportunity cost. In fact, the higher price is worse for you if you live in it, because then you're losing the much higher value of the imputed rent. Suppose you can get a loan for $500,000 and you want to invest that in housing. If that's the price of one unit and you live in it, you have to pay the whole mortgage out of your pocket and get $0 in rental income. If that's the price of 20 units, you live in one (which costs you $250/mo in opportunity cost) and then rent out the other 19 and get $4750 in rent every month you get to stick in your pocket.

amluto 2y ago

It sounds like both Spain and the US have tax systems that cause it to be expensive to sell a house and buy a less expensive house. In the US, this takes the form of a nonsensical capital gains tax system: personal residences are not eligible for 1031 exchanges, so taxes on gains are due immediately, those taxes are not indexed to inflation, the exemption is too small to make much difference in any high-property-value area, and the basis step-up at death strongly incentivizes children to encourage their parents to keep their house until they die. California puts icing on the cake with Prop 13, so you can trade for a cheaper house and your property taxes increase. At least some recent changes in CA take baby steps toward improving this.

AnthonyMouse 2y ago

> property taxes (which are very good, yet seen as unfair by owners, so they stay low) Property taxes aren't actually good. Consider the economics of new construction: If the net present cost of building new housing is less than its net present value, it gets built. Net present value is the value of future rents (or rents avoided if you live in it yourself) minus future costs, each discounted by the time value of money. Property tax is a future cost, so it reduces net present value, so you get less construction until rents increase to cover the cost of the property tax. If you don't like high rents, you don't like property tax. > Taxes at sale time This too is a problem if you want people to downsize once they no longer need a piece of property, but e.g. raising the exemption amount so that approximately nobody is paying this tax would then not cost a lot in terms of revenue because as it is the problem is that people are already avoiding the tax by not selling. If you tax something you get less of it. It's not different when you tax housing.

amadeuspagel 2y ago
Property tax are mostly taxes on the land. If you want to build housing, you get the necessary land cheaper, thanks to the property tax. I agree that the sales tax is bad though.
- AnthonyMouse 2y ago
  Land value tax would be on the land. Property tax includes the buildings, which is naturally the issue. If you want to replace a single family home with a 6-unit structure that each provide as much housing as the original unit, your property tax is going up, providing a corresponding deterrent to anybody doing that until the rent or market price of the building has gone up by the same amount.
fc417fc802 2y ago
The observations about effects of tax seem fair enough, but perhaps miss the point of taxes. The local government presumably needs to balance the budget somehow. The income has to come from somewhere, and that's presumably going to be a tax of some sort. Whatever is taxed, there are going to be drawbacks and market distortions as a result. The issue shouldn't be "property tax raises rent" but rather "is the current structure the least bad option". Assessing the latter is going to include a lot more than just real estate.

autobodie 2y ago

> After you liberalize housing, you still run into the trouble of economic forces trying to turn housing into a sensible investment. Karl Marx made this crystal clear 150 years ago. You have to socialize housing, not "liberalize" it, whatever that means. And the Georgist solution will face a similar problem - the political one. The rich will always undermine mere tax law. You have to get rid of the rich, plain and simple.

Telemakhos 2y ago

If taxes at sales time (capital gains on real estate) are keeping people from selling houses, why not eliminate those taxes to free up the frozen housing market?

andrepd 2y ago

I don't think slapping a Georgist LVT will magically solve everything, but it will point market forces towards a desirable path, which is already a huge huge help compared to the state of things now.

matt-p 2y ago

Like all these things even in a market like Spain thn solution for one area can create issues in others. Barcelona suffers very different problems to Santander. I think it would actually make it easier if I could just pay 100K tax to have permission to erect any new 2 bed house anywhere in the country. There can even be a price list linked to local salleries or something.

no_wizard 2y ago

Note: I’m summarizing a very complex topic as best I can. There is a lot of nuance and thought that goes into a properly implemented land value tax (LVT) that I’m not covering here. The reason for the LVT is because land doesn’t otherwise follow market dynamics. In a functioning market you have pressures to sell things. If you can sell something at a reasonably high enough profit margin there is every incentive to do so. There is no benefit to waiting or holding if the price is right. This also encourages competitors who may try to sell a superior version of a widget at the same price or lower, and thus we have basic functioning market dynamics that help achieve relative price stability. It also achieves maximal utility for said market Real estate however doesn’t work this way. Once someone owns a plot of land there is no incentive to sell. We can’t simply make more, and the things that make said land more or less valuable aren’t inherent to the land but rather where it is located and/or what’s on top of said land. An LVT is a way to introduce a functioning market dynamic on land. It puts pressure either selling the land or utilizing it maximally. It becomes more expensive over time to hold land that is under utilized. This forces land owners into a set of choices: hold as is but pay an inevitably increasing tax on the holdings, sell part of the land to reduce the holdings, or further develop the land to offset the cost. Without this function, there is no functioning marketplace for land. Once you own it you can largely hold it forever, without any regard to the actualized value of the land. So for example, a 4 acre lot sitting on “prime” (lack of a better term) real estate with only 1 suburban style house has zero incentive to become maximally utilized even though its value has increased exponentially relative to its utilization. A LVT is one (and full disclosure I’m a big fan of the land value tax) such proposal to that problem

jdeibele 2y ago

We stayed with friends outside Madrid who owned a home. They had bought it officially for 400,000 Euros. They also paid a similar amount "on the black", meaning that they had to pay the sellers in cash so the sellers would only pay tax on the official amount. This was 15 years ago. It seems hard to imagine something like this happening in the US with the Know Your Customer and Anti-Money Laundering laws but maybe it does. And it might not happen in Spain anymore.