6 ms·

>Cities are expensive because space is constrained (artificially in many cases) and lots of people want to live there. That has ALWAYS been true, so cannot pos

>Cities are expensive because space is constrained (artificially in many cases) and lots of people want to live there. That has ALWAYS been true, so cannot possibly account for today's prices. The last decade's price increases have been driven by the lack of other perceived safe haven investments. Treasuries/Gilts pay below inflation now. That money found a new home: property in tier one global cities. >The author makes note of the low "property taxes" in London which is just spurious. Oh come on. Would high taxes on a house make it a more or less attractive investment? >A £5m house does not generate 10x the garbage of a £500k house. THIS is spurious. Irrespective of whether that's true or not (it's not: a £5m house probably takes up more valuable land, which is made valuable by everything surrounding it - transportation, shops, parks, etc.), it still doesn't change the fact that low taxes make property a much more attractive investment. >It's true that the current state of the global economy has meant that fearful foreigners have brought their money and bought property It's foreigners who have checked out every other safe investment and seen how pathetically they pay. Seen the interest rate on Gilts? Some are also (rightly) fearful of their home governments (Russians, Chinese, Arabs), and want to park their money in a country where the government is unlikely to decide to confiscate it one day. >this tends to be at the very high end of the market which shouldn't be affecting the middle class that he's referring to. Except: A) It does affect the middle classes too. Prices filter down. Everybody who was buying at the high end of the market and gets priced out buys something lower down, which prices them out and so on. Land used on expensive properties is not available for the middle classes. B) It's not just the very high end of the market. London property is being shopped all around the world, from Singapore to Hong Kong to the US as a safe investment for upper middle classes. I could show you a hundred glossy foreign magazines advertising property which is "close" to some tube station on the Piccadilly or Northern line 13-15 stops from the center.

mjn 13y ago
Copenhagen has traditionally (a bit less recently) fought this kind of effect by restricting absentee investment ownership through several mechanisms. For one, a large percentage of property in the city has ownership that requires residency in Denmark, usually because it's structured as a residents' cooperative. Another significant portion is owned by nonprofit organizations that will only rent the property to residents. And beyond that, much rental property has renter-friendly laws with a view towards ownership, where if you have been renting the property to someone for three years, you are required to sell it to them if they want to buy. The general idea is to reduce the impact of absentee landlords/investors on the local housing market, by trying to restrict it to only people who physically live in Copenhagen. The high taxes help make this work as well, by trapping would-be cheats in a situation where they can't have it both ways. Do they want to claim that they live in Denmark? Then their property is fine, but they are liable for Danish income taxes. Do they want to claim that they live elsewhere? Then they avoid Danish income taxes, but must sell their property.
- rwmj 13y ago
  Why don't the real owners employ proxy Danish residents to act as "owners"?
  - xyzzy123 13y ago
    I suppose that if the Danish residents hold title it might be hard to prevent them from disposing of the property.
- MrBuddyCasino 13y ago
  Very interesting! The more I know about scandinavian countries, there more impressed I am.
- roel_v 13y ago
  How is that even legal? It's a direct violation of several European and human rights laws. Are these laws being challenged in court?
  - mjn 13y ago
    Denmark has several EU opt-outs in its accession treaty. Equal treatment of non-resident non-nationals for the purposes of property ownership is one of them, mostly because they were worried about Germans buying up all the summer homes (joining the Euro and joining the European military command are two others). I believe Malta has the same opt-out, and Finland had a temporary one that's being phased out. However the coops are where the residency catch-22 hits most often, and those are just structured with contract law. They have the typical owner-occupied-only rules that most coops worldwide have (some NYC coops are similar). When you buy a coop share you sign a contract agreeing that you, the share owner, are buying the coop share because you plan to reside there. You agree in the contract not to sublet it, and to sell your share if in the future you no longer reside there (usually with a 2-year grace period). What's different from the U.S. is that it's fairly easy for the coop to enforce the owner-occupied requirement, because there is a central register of residence addresses. Every person resident in Denmark declares themselves legally resident at exactly one address. So the coop can trivially check if you have declared yourself resident at the coop or not. If you move out of the country, then to avoid Danish taxes you must declare yourself a nonresident, which removes you from the register, which the coop then sees. It also means that you can't own shares in two coops, since you can't register yourself at both. (Though in either case, some games can be played by spouses.) The nonprofit housing associations are just regular landlords, who own large parts of the city and rent out, again with no-subletting contracts.
yummyfajitas 13y ago
That has ALWAYS been true, so cannot possibly account for today's prices. It's not as true as it used to be. Due to population growth and increased geographic mobility, there are more people who want to live in London/NY/etc than in the past. Demand is up. Supply of housing in these regions has not increased commensurately. I'm in London right now and it looks like London has the same problem as NY and SF. Supply is capped. If you want to make housing more affordable, increase supply. Fill the 2-3 block radius surrounding each tube stop with 20 story apts (tower blocks, I think they are called here). That will allow a lot more people to live close to work. A great way to fund it: allow those foreigners seeking investments to fund them and rent them out.
- aranw 13y ago
  > A great way to fund it: allow those foreigners seeking investments to fund them and rent them out. Your missing the point of this post, and the point of a lot of these comments. People don't want the foreigner investors funding these things as they then own the property stopping people who actually want to live there owning them. That's why people are moving out of London, that's why property is so expensive. Rich foreigners are buying the property for investments, making other properties more expensive.
  - yummyfajitas 13y ago
    So allow those foreign investors to invest in condos for resale. Better yet, allow both - then both local real estate speculators and housing consumers can have a supply which will meet their demand.
    - eli_gottlieb 13y ago
      But the problem is precisely that the flats aren't even rented out; they're just left sitting empty. Real-estate has apparently become the new gold bullion.
      - yummyfajitas 13y ago
vidarh 13y ago
The returns are high because rents are high. The rents are high because demand is high. Property investors might drive up the purchase prices, but the high rental prices demonstrate that they are not responsible for the overall housing situation.

mjn 13y ago

Copenhagen has traditionally (a bit less recently) fought this kind of effect by restricting absentee investment ownership through several mechanisms. For one, a large percentage of property in the city has ownership that requires residency in Denmark, usually because it's structured as a residents' cooperative. Another significant portion is owned by nonprofit organizations that will only rent the property to residents. And beyond that, much rental property has renter-friendly laws with a view towards ownership, where if you have been renting the property to someone for three years, you are required to sell it to them if they want to buy. The general idea is to reduce the impact of absentee landlords/investors on the local housing market, by trying to restrict it to only people who physically live in Copenhagen. The high taxes help make this work as well, by trapping would-be cheats in a situation where they can't have it both ways. Do they want to claim that they live in Denmark? Then their property is fine, but they are liable for Danish income taxes. Do they want to claim that they live elsewhere? Then they avoid Danish income taxes, but must sell their property.

rwmj 13y ago
Why don't the real owners employ proxy Danish residents to act as "owners"?
- xyzzy123 13y ago
  I suppose that if the Danish residents hold title it might be hard to prevent them from disposing of the property.
MrBuddyCasino 13y ago
Very interesting! The more I know about scandinavian countries, there more impressed I am.
roel_v 13y ago
How is that even legal? It's a direct violation of several European and human rights laws. Are these laws being challenged in court?
- mjn 13y ago
  Denmark has several EU opt-outs in its accession treaty. Equal treatment of non-resident non-nationals for the purposes of property ownership is one of them, mostly because they were worried about Germans buying up all the summer homes (joining the Euro and joining the European military command are two others). I believe Malta has the same opt-out, and Finland had a temporary one that's being phased out. However the coops are where the residency catch-22 hits most often, and those are just structured with contract law. They have the typical owner-occupied-only rules that most coops worldwide have (some NYC coops are similar). When you buy a coop share you sign a contract agreeing that you, the share owner, are buying the coop share because you plan to reside there. You agree in the contract not to sublet it, and to sell your share if in the future you no longer reside there (usually with a 2-year grace period). What's different from the U.S. is that it's fairly easy for the coop to enforce the owner-occupied requirement, because there is a central register of residence addresses. Every person resident in Denmark declares themselves legally resident at exactly one address. So the coop can trivially check if you have declared yourself resident at the coop or not. If you move out of the country, then to avoid Danish taxes you must declare yourself a nonresident, which removes you from the register, which the coop then sees. It also means that you can't own shares in two coops, since you can't register yourself at both. (Though in either case, some games can be played by spouses.) The nonprofit housing associations are just regular landlords, who own large parts of the city and rent out, again with no-subletting contracts.

yummyfajitas 13y ago

That has ALWAYS been true, so cannot possibly account for today's prices. It's not as true as it used to be. Due to population growth and increased geographic mobility, there are more people who want to live in London/NY/etc than in the past. Demand is up. Supply of housing in these regions has not increased commensurately. I'm in London right now and it looks like London has the same problem as NY and SF. Supply is capped. If you want to make housing more affordable, increase supply. Fill the 2-3 block radius surrounding each tube stop with 20 story apts (tower blocks, I think they are called here). That will allow a lot more people to live close to work. A great way to fund it: allow those foreigners seeking investments to fund them and rent them out.

aranw 13y ago
> A great way to fund it: allow those foreigners seeking investments to fund them and rent them out. Your missing the point of this post, and the point of a lot of these comments. People don't want the foreigner investors funding these things as they then own the property stopping people who actually want to live there owning them. That's why people are moving out of London, that's why property is so expensive. Rich foreigners are buying the property for investments, making other properties more expensive.
- yummyfajitas 13y ago
  So allow those foreign investors to invest in condos for resale. Better yet, allow both - then both local real estate speculators and housing consumers can have a supply which will meet their demand.
  - eli_gottlieb 13y ago
    But the problem is precisely that the flats aren't even rented out; they're just left sitting empty. Real-estate has apparently become the new gold bullion.
    - yummyfajitas 13y ago

vidarh 13y ago

The returns are high because rents are high. The rents are high because demand is high. Property investors might drive up the purchase prices, but the high rental prices demonstrate that they are not responsible for the overall housing situation.