In the economically ideal case we'd have a fair Land Value Tax to encourage as much building as necessary.
It seems absurd that a vacant parking lot pays basically nothing in property taxes while a hotel of the same size pays tens of thousand a month, but both take up the same amount of space and have the same potential. This kind of tax would certainly lead to better utilization.
LVT says the state should not only stop protecting these things, it should do a 180 and actively kill the uses by levying taxes they can't afford. Rather than slowing/blocking the transition to condos and formula retail, accelerate it.
In principle, the new denser buildings could have space for the old low-value uses, but new construction is expensive. The new buildings would have to age a while before those marginal uses could afford them, and in the meantime the tenant organizations would all die. Maybe this could be averted using some central-planning scheme, maybe not. But you can imagine how the electorate might not want to risk it. The trends LVT would tend to accelerate are the ones most residents lament.
I think we should allow sites that are already dead or are transitioning voluntarily to drastically increase density. Letting owners do this forces tenants' hands, which is a sad tradeoff (and to the left-NIMBYs, a dealbreaker). LVT goes even further and forces owners' hands, which I'm less wild about.
> LVT says the state should not only stop protecting these things, it should do a 180 and actively kill the uses by levying taxes they can't afford.
Do all of those things have to be at ground level? Remember space is not taxed (the marginal tax on building up more space vertically is 0), only land. If a theater is on the 5th floor of a larger building, does it stop being a theater?
Can any theater afford a ground level space at current San Francisco prices?
If a theater can only afford to be in San Francisco because of Prop 13 then we should recognize that as a form of taxpayer subsidy for the theater.
If there is the political will for taxpayers to subsidize theaters (why not, art is nice), then why not subsidize a theater's lease on the 5th floor of some building, instead of preventing building up by subsidizing a one storey theater on the ground floor?
But I think there's a good argument to be made that the taxpayer subsidy process should be more transparent and less arbitrary than "whichever theater bought its land longer ago gets a bigger subsidy".
Your proposal would force this woman from her home as her land value tax rose (As she has no ability to pay for this increasing tax burden)
Property taxes pegged to market value are an incentive for liquidity in the real estate market.
In both cases (SFH on less valuable land, condos on more valuable land) the land shouldn't end up being the majority of the value, since with condos the land value is effectively split among all units in the building.
You can provide land tax subsidies or rebates to targeted individuals (eg the disabled, the retired) without providing massive tax breaks to everyone else.
What's more, this system makes it impossible for, say, retired people to downsize or move because that resets their tax base to a much higher level on their new property (in the Prop 13 case).
I assume there would be limited capacity for abuse just so long as the break only applies to your primary residence.
The tax break wouldn't be so bad if it only applied to primary residence, was means-tested, and couldn't be passed down to children. Regardless, though, homeowners tend to be more well-off than tenants; they shouldn't be receiving tax breaks in the first place.
Prop 13 empowers NIMBYs to vote to kill new construction, strangling supply and pushing prices up, without facing any of the consequences of those rising prices.
Actual valuation methods used in real world by countries like Taiwan, Estonia, and Singapore to levy lvt (all countries with 90% plus home ownership) are more sophisticated than that though
Ultimately, why should the owner of a vacant lot be compelled to sell or develop on the basis of the potential value?
And who decides the potential value? Should a 10 story hotel be taxed like a 100 story office tower? Should my $200k home be taxed like half of a 30 unit apartment block?
Property rights are important, but they aren't the end-all-be-all. Eminent domain, blight laws, zoning laws, tenant rights, and a variety of other property-related laws arguably disrespect property rights, but they have been a staple for hundreds of years. Property rights were never some sacred ground.
Cities are (or should be) for the people in them. Not simply a vehicle for the ultra-wealthy to park wealth.
Ultra-wealthy aren't laundering money in real estate because property taxes are too low. The situation we have today is a obvious result of fiscal policy made in the 80s, that was predicted then.
Highly recommend you read Progress and Poverty, it's still very relevant today.
The housing market moves so much faster than wages ever will, and it seems having only some units rent controlled exacerbates the problem for units that aren't, so why not make every unit in the state a rent controlled unit? The landlords are already insulated from the whiplash of the housing market from statewide property tax control in the form of prop 13, why not let renters enjoy that isolation as well?
No-one would move, ever. People wouldn't be able to change jobs even for much higher salaries or better conditions. Children would live with their parents forever. Many people would live precariously in illegal sublets with inadequate fire exits etc. Developers would stop building. Landlords would stop doing maintenance and let their buildings rot. Everyone would be miserable.
> Many low income renters are paying 50% or more of their income on rent, that's not sustainable for the wider economy that relies on low skill labor to function, and the solution is not to have people commute 4h every day to clean an office, teach a class, or fight a fire.
Rent control creates longer commutes. To the extent that the economy actually relies on low skill labour, it can pay the actual cost of having that labour where it needs it. In fact by having rent control you artificially depress wages and encourage companies to employ humans in bad jobs rather than finding ways to make things better.
It's also a problem that's essentially invisible to anyone who bought into the market at a good price, or is wealthy enough to pay market-rate rents. But for the rest of us, it hurts.
I feel like this post should feature at the top of any discussion on housing.
The really problematic rent control is in San Francisco, where rent increases are capped at 60% of CPI (well below inflation). This results in massive giveaways to the rich that grow every year.
inflation + 3% is an investment that I'd make.
I don't think you could just set the cap and say job done, there's enough money there to ensure everyone benefits though.
Why?
If the policy were to apply to all leases, new as well as existing ones, would the problem be somewhat mitigated?
(That's basically how things work here for student housing. Far from perfect, but more sane than housing in the Valley)
The unpredictability this would entail would probably be worse than a functioning price mechanism. Imagine you get a job in San Francisco but there’s only a 20% chance you’ll be able to “win” a housing unit where you want. Versus the current reality of for sure being able to find housing given you’re willing to pay enough.
This does not happen, nor is it remotely desirable. Having a life involves much more than having a decent job. It entails living where the person chooses to live according to their personal tastes and desires.
If you force the decision on where to live based on a single constraint that in theory is only a major part of your life so that you can fund your personal life and personal interests then this leads to poor quality of living for all (including spouces, offsprings and immediatr family) just to cater to a company's bottom line.
You're confounding your observations. People with money choose to live in areas that maximize their quality of life, and they don't mind paying a premium for that.
Quality of life matters to all, whether rich or poor. Poor people aren't masochists.
The main driver of price is not "demand" imagined as how much people willing to pay for a particular house but demand as how much people are capable of paying, which is mediated by access to debt. If access to debt is clamed down on across the board, then prices will fall accross the board. People will still compete on price but as a society a smaller fraction of income will be spent on housing.
it's not the whole story however. In order to increase Supply, it has to be profitable to build new homes. If building new homes is not profitable, none will be built, and the price of existing homes will be forced upward until it matches the cost of new construction.
So I agree with you that access to debt is a very important factor, but I disagree that it is more important than demand when you look at the whole picture.
No they wouldn't. I lived in an european city with a socialist municipal government who enforced social housing programs which, on the brochure, meant that window cleaners would have a similar chance of getting an apartment as their boss, and when the program was put to practice... Surprise, surprise: the apartments were distributed throught the party's ranks and through minions in the local and national media.
In the end the municipality started dismantling the program due to the backlash and their solution was to sell the apartments to the current tenants at a firesale price (1/5th to 1/10th of the market value) which,again, led to some amusing anecdotes.
Sweden has had rent control since the 1940's, and as a result the rental housing market is completely dysfunctional by international standards.
In Stockholm, demand for central inner city apartments is way, way, way higher than supply. The rationing method used is a queue administered by the city, and the queue time for the most sought-after areas is on average 17 years. Even the most remote areas have a queue-time of at least a year.
SEVENTEEN YEARS. GOOD LUCK, COMRADE.
This means that if you want to move to Stockholm from outside the city or outside the country, you will not get a rental apartment, unless you rent one second-hand or third-hand, unless you buy a rental apartment under the table, unless you have "contacts", or unless you buy a condo on the perfectly functional condo market.
Since there's a functioning market for condos, but a dysfunctional market for rental complexes, the ROI on building a condo complex is decent, but the ROI on building a rental complex is abysmal. You're better off setting your pile of money on fire than invest in building rental apartments. No private for-profit company will voluntarily build new rental apartments. So the only actors left that could do that is the city itself. However, the city government changes politically every four years, and even if there's a left-wing majority, there is absolutely no budget to increase supply meaningfully.
In addition, there's political and economical pressure to convert the city's housing stock to condos. Current renters love it, because it means they can realize the value of their rental into cold hard cash, and the city council loves it because they get a temporary cash infusion. It's zero-sum for the housing stock, and the long-term effects are shit, because the rental supply diminishes, making the queues worse.
The net result is that it is incredibly hard for companies to attract outside talent, because finding a place to live if you don't already live in Stockholm, is incredibly hard. If you're a transient worker or simply doesn't want to buy an apartment, and if you don't have a decade of accumulated queue time, you have to rent from the much more expensive second-hand weird market, which means that companies have to pay you much more than they would have to pay a local for the same job.
Compare this with SF, or any other large city with a functional housing market, where every company has to pay their employees a wage that covers the housing market rate, which means that there's no difference between local workers and outside workers, and it means that the city has a much easier time attracting new people who want to come there and live there. Because anyone can live there, if they just show up with enough cash to pay the market rate.
Yes, market rates means you get a host of problems, gentrification most of them, but that's a positive problem compared to all the horrible problems that rent control bring.
What is pretty unique is the 100 year mortgages with no default.
You fail to show how that's worse than the version in other places. All you have is an "appeal to anti-communism"(1). Not having to fear that you loose your living space because some investor decided to price you out of it seems valuable and something that should be weighted against the hardships of being able to rent something easily in Stockholm.
(1) Is there a fallacy name for that? I think there should be, it's one of the most popular fallacies here in any financial discussion.
When I moved from Stockholm to SF and told my friends, the first question every single one of them asked was "But how will you find somewhere to live?"
Because if you've only ever lived in Sweden and experienced its rent-controlled market, it's really hard to envision a different system, an actual free rent market, so all of my friends were really surprised that my answer was "I'm just gonna open craigslist and pick something."
In Sweden things are getting deregulated, income taxes are lowered and the social safety net is made less generous. The housing market is now mainly competitive. But for some reason people think they aren't the ones that are going to be affected, (partly because they aren't). If you don't have wealth or are willing to pay up your are a bit fucked, like myself. It is of course hard overstate how bad it is overall, especially for a smaller city. But the market itself isn't uniquely bad. It is mostly like everywhere else.
Yes, but these are not rent-controlled apartments! These are second-hand apartments or houses that you rent from someone who either owns the place, or is already renting it from someone else. You are paying market rates for these, not rent-controlled rates.
Deregulation that allows people to rent out homes they own or rent is what has allowed this market to grow in the past few years, this is the very opposite of rent control!
I started this subthread to argue that rent control is shit, it has shit consequences, it has shit second-order consequences, it has shit third-order consequences. Maybe Stockholm isn't a shining example of how shit it is these days since deregulation and condo-conversions have effectively removed a lot of rent controlled stock, but that just proves my point!
1. Subsidies for building rent controlled units were removed. 2. Publicly owned apartments were sold at below market value. Meaning those who already owned apartments got a discount in the market. 3. The profits weren't used to build new apartments, but to lower taxes. 4. Co-ops were favored by keeping deductions for mortgages, creating new ones for renovations. 5. Property taxes were removed for co-ops. 6. Credit remained largely unregulated and was then regulated to a hundred years. 7. Interest rates are being kept low by the central bank. 8. Taxes were lowered in general.
Of course this new market will never be able to produce affordable housing, so the rent controlled market doesn't "work". The whole thing is set to implode though. Already if you bought an apartment ~"two years ago" you have now lost your down payment.
This means you can't grab quick opportunities, you can't move to Stockholm on a whim to try your luck, so local companies and the local economy suffers. Fewer people move to Stockholm than who otherwise would, which means the city misses out on potential growth. It's an inefficient allocation of the work force on a national level.
There might be some social good to artificially restricting the growth of your most important economical urban centers, but I highly doubt it.
The supposed benefit of rent control is that attractive inner-city apartments are cheap. Sure. But since rents are based on utility value instead of location or attractiveness or market value, this means that unattractive apartments two hours from the inner city cost as much to rent as comparable ones in the inner city. It's impossible to save money by renting in a less attractive area. Normal cities have some sort of parity between cost-to-own and cost-to-rent, regardless of area. In Stockholm instead, this parity changes dramatically depending on your distance from the inner city!
Another second-order effect from rent control is that having an attractive rental apartment in Stockholm suddenly has value. This makes people reluctant to let go of an apartment once they have it, which makes them reluctant to move away to pursue other opportunities elsewhere, even if that would be the better choice. Still, if you have one, you can rent it out on the second-hand rental market, so now you've created a class of rentiers, the people that have gone through the Soviet bread-queue can now cash in on that scarcity. But I thought rent control was about fairness?
AB 36 will allow cities to enact rent control on older buildings. AB 36 would not apply to new construction, only to buildings older than 10 years. This should help to prevent supply crunches, or at least not make them worse.
AB 1482 would set a state-wide cap on rent increases, for example inflation + 10%. The idea is to stop massive rent increases that lead to evictions. The exact number hasn’t been determined yet, the bill sponsors are trying to figure out a good number that protects tenants and gives landlords a legally guaranteed return on investment.
These bills will face a lot of corporate opposition. It’s important that our electeds here from renters, homeowners and “mom & pop” landlords as they consider these bills.
In my experience, pass throughs are a theoretical concession instead of a practical one.
As Walter E. Williams said in 1987: "Short of aerial saturation bombing, rent control might be one of the most effective means of destroying a city."
Is that true everywhere? Or are you just focusing on one-off locations like the Bay Area ?
According to Schiller housing has tracked inflation in the US for 100+ years
Consider Shanghai as described below. Consider following the link.
"In 1996: After the mayor boasted that 18% of the world’s construction cranes were at work in Shanghai, international media widely reported – and exaggerated – the statistic. Reports described the crane as China’s national bird. The figure on how many cranes were working in Shanghai got rounded up to “a fifth,” “a quarter” and, in more than one publication, “half” the world’s total. "[https://blogs.wsj.com/chinarealtime/2011/12/21/china-shangha...]
BTW, people who call SF "charming" have not visited it recently!
You’d lose some neighborhoods composed of endless streets dominated by garage doors at the ground level, and all those surface parking lots, but I think you guys could figure out how to cope.
I had a good discussion with one of my dad's friends recently (who is a realtor), and mentioned that one of the biggest costs we never talk about is the cost of compliance.
Basically, his argument is that the cost of existing housing is driven by the cost of building new housing, of which places like San Francisco have been very effective at limiting! But as well as that, what are the development fees for example?
When politicians virtue signal about what percentage of a housing development will be below market rate for example, you have to remember that this sort of thing will be factored into the price you pay. Or the endless studies that city governments (again looking square at you San Francisco) commission. The buyer and the renter pay for these.
America actually has relatively cheap housing across the vast majority of the country, so it's not as if the buildings themselves are the major factor in jacking up the prices.
The general gist is that building requirements (parking in particular) make anything other than luxury condos financially infeasible.
https://www.reddit.com/r/LosAngeles/comments/6lvwh4/im_an_ar...
No. Housing that appreciates at exactly the rate of inflation can still be a good investment and a great tool for building wealth.
If cities doubled the number of houses built any year the average price went up by 5% or more, this wouldn’t be a problem.
The tax rate could even be negative.
With how small polities are in the Bay Area this leads this to everyone pushing the burden onto someone else. With a large enough polity responsible for zoning (e.g. New York City's five boroughs) the pressure to add housing becomes too large to completely ignore.
If the government mandates that the price of something is X, and X is higher than the price is now, prices go up.
Also, remember than nominal price and economic price are distinct. “Price” needs to include all tax subsidies and other incentives/ dicincentives.
It might make it sting a bit less buying a single-family home in San Jose for 1.5mil and knowing that you're paying 10x the tax of your next-door neighbors.
Short of massively expanding the poor's ability to vote (making Election Day a holiday, putting it on a weekend, mail-in voting) this holds true in American elections.
My anecdote for the morning.
It costs thousands to buy a house
It costs thousands to sell a house
It costs thousands to maintain a house (I once spent, over $10,000 in one month on repairs)
It costs thousands in property tax and insurance
You pay thousands in interest and maybe PMI.
If the asset doesn't appreciate faster than inflation, where's the wealth building coming from? Sure, I'm not paying rent, but, honestly, it ends up being mostly a wash once you factor in all the expenses I am paying.
I bought a house because I wanted to own a house, not because i thought it would build wealth.
One thing that can make it better to own (in the US) is that mortgage interest is tax deductible (at the federal level). Rent typically is not (although some states make rent tax deductible because voters naively believe this is a subsidy to renters and not to landlords).
In CA I might be paying double the tax than my neighbors but I can’t charge more rent than them
Very few people buy the nicest car or the best TV, because we know those don't have a return. But being bad at math, we can't seem to figure out that we only see 30% of every dollar put into the house (taxes, mortgage, upkeep, improvements) back and we conveniently forget about inflation.
Yeah, if your house doubled in value in 25 years that means you kept pace with inflation. You could have done better with CDs.
Now your argument about housing on a personal financial level is spot-on, at least points #1 and #2. As for the latter points, the first purpose of a house should be to house people. When we view housing as an investment we start making economically rational (but morally questionable) arguments like, "ban new apartments because they'll lower my home's value."