Bob bought a house this year. He paid $500,000 even though it should've been $200,000. He's paid $100,000 and still owes $400,000. If you cause his house to be worth $200,000, as it ought to be, regardless of the method, he's going to default on the loan and you'll have screwed him out of $100,000 and (at scale) bankrupted all the banks.

How is raising somebody else's taxes going to fix that?

> And now the FED can't really reverse it. If you start raising rates, and stopping QE, you're not actually getting the money back from the people you gave it to, you'll just get a lot of businesses to close.

The solution is to move the incentives back the other way.

Raise interest rates on debt. This will cause people to pay back existing debts. At the same time, print money and give it out to everyone. This will give people the money to use to pay back their debts, without screwing over the people who didn't take out debts to begin with, because they still get the money.

Now asset prices come down in real dollars, because people aren't as willing to borrow money to invest when interest rates are high. We need that not to happen in nominal dollars or everybody will be underwater on their mortgage, but that's okay, because we're printing a lot of money and all the people who didn't have debts to pay back are going to spend it. We get inflation, which counteracts the nominal fall in asset prices.

Instead of having asset prices fall to parity with wages and consumer prices and causing everyone to default on their mortgages, we need wages and consumer prices to rise to parity with asset prices.

It's got to be one or the other.

We need to let risk takers fail. They gambled and lost. That should serve as a warning to other risk takers to better calculate their exposure.

Bob's N+1th house is an investment.

When buying a house, bob becomes heavily invested.

Now you're paying a form of interest to borrow someone else's house on a floating rate. The price of the underlying asset continues to increase, which applies upward pressure on the cost to borrow the asset.

Now we're talking. Related: how do you feel about shorting TSLA? Or GOOG? If you think its appropriate to do so, what fraction of your net income or worth are you willing to place on that bet? I'm pretty sure they're overpriced, but I'm not kilobucks/month sure.

Now the real crux of it is that I do not have unlimited cash flow to pay peak rent. The previous rental I moved out of has somehow gone up by 85%, a number which would push me into savings or have me calling my boss for a raise.

Shorting housing by renting risks you burning savings or moving to stay out of the bubble. Buying when the market is high is a hedge against the market going higher.

Yeah. But you only look at it from the perspective at staying at one place. What if you want or have to move somewhere else, but in the meantime your house lost its value ("marked crashed"). Now you have to pay both rent in the new place as well as your mortgage (that his now way to high for what you have).

In other words: you can't afford to move anywhere anymore, because of your high mortagage. If you had just rented, you would still be flexible and could move whereever your current pay allows.

Don't fall for survivorship bias. Prices rise for a longer time, but in the short times when they fall, they fall much faster.

I use the yield to determine if a given property market is speculative or not because rent represents real utility (“yes I would like to live there at that price”)

China and India probably share similar low rent yields in cities with more speculative real estate markets.

https://www.commonfloor.com/guide/price-rent-ratio-grows-in-...

10 years ago my first real job was a research assistant position in Copenhagen. Housing was very reasonably priced, and I could buy an apartment in the suburbs with just 3 years of salary. I rented a nice place with 1/4 of my salary. It was great.

I then moved to Cambridge, and while the university is cool, real estate took most of my free income. It was a nightmare. More than 1/2 of my salary went to renting a small flat in the middle of nowhere. During the course of several years, my I had to move houses six times because landlords wanted more money, or because agents wanted to generate fees and the house actually sat empty without a tenant for pretty long.

Now, looking back at Copenhagen, and mostly anywhere else in the EU, is a nightmare. Salaries paid by the government have barely increased because inflation is said to have been really low. But buying or renting is easily 2.5x more money. If you live alone, it's hard to make both ends meet.

these numbers aren't directly comparable.

The rent should be compared with the interest cost of the mortgage plus the capital cost of the deposit (which at minimum is the risk-free rate).

So if you paid 1/4th of your salary as rent, but the apartment costs 3x of your salary, this means you're paying 1/12th of the cost of the apartment as rent, aka, an 8% rental yield. This is an amazingly good yield - greater than the stock market expected yield (of 7%-ish). No wonder investors would want to buy.

The general consensus is that if the rental cost is greater than 5% of the property, you're better off paying the mortgage (and conversely, if the rental cost is less than 5%, then rent is cheaper, and invest the difference would yield more financial returns).

and then the landlord can increase the rent by any amount and then Bob has to look for a house again.

At the same time some of us salaried folks have gotten small windfalls this year, but most jobs haven't seen a comparable rise in salaries.

All of this leads me to be on team taxation.

I’ve recently seen in a youtube video by the NYT that there are actual lobbies against changing low density housing zones to high density housing zones: https://youtu.be/hNDgcjVGHIw?t=253

I’d recommend to give it a watch :)

Imo the soviet apartment complexes are a good idea. I live in one as well (Germany), and I can afford rent without hassle.

That's a form of participating "in an inflated housing market". There us no difference, you just introduced landlord as a middlemab.

the only way to opt out is living in a cave

Landlords provide flexibility to the market. They take on the risks of owning. In a fully healthy system, it would still be very good to have landlords and rental properties, people would just pick them because they are the best option, rather than the only option.

Why do you think people need to own everything they use, lest they be short?

Or are you saying that he should become homeless?

I hope you don't want to claim here that buying a house means that you cannot ever "lose a house over your head"? Because that would be plain wrong. And if you just wanted to say that it reduces the chance, then you should have some good arguments.

Also, some of your points are strange:

> 4. if he gets a girlfriend or boyfriend and they want a bigger place

Well then it's much easier to move to a different place, rather than buying a new house and selling the current one, don't you agree?

When the forces that cause the market to crash are the feds monetary policy it’s a tough sell that it’s actually a free market. To first order individuals should be able to purchase shelter assured that it’s fairly priced. The concerns should be like “the foundation is cracked” not “JP Morgan is pumping house prices.”

Of course it's not a free market. Has America ever had a free market? When is the last time that the real estate market hasn't been manipulated in some way?

Land is a zero sum game, you can't pretend same laws apply to it and iPhones

What have you measured to determine that these markets 'work fine'? These are terrible markets, speculation is higher than productivity, fraud is endemic, prices are volatile and liquidity is low. Antiques and arts are infamous for fraud and enabling tax evasion.

People don't need limited edition shoes to survive, so we can just ignore the problem.

i still don't understand what these distortions being claimed are. "artificially low" interest rates isn't a distortion - it affects everything, and the rates may not be that low, compared to the growth. As for taxation, real estate isn't treated too differently from any other forms of investment.

It needs utilities, shopping centre, major metro line, highway, arts, jobs, good schools, and general 'nice area' vibes created by artists on the verge of bankruptcy. None of those things area created by the construction company.

In fact randomly building houses leads to congestion, lack of places in schools and other facilities, and miserable living conditions.

But he _is_ forced to participate in that market, even if he doesn't know it; whether that's by renting or buying is another question. Renting is less risky but it's still a bet, no?

I'm not sure.

Bob's risks shouldn't negatively influence people who have more risk aversion to the point where it's less risky to take risks like Bob because then we'll all take risks like Bob and then end up in the situation where we are now.

renting is actually more risky, because you are left exposed to interest rate risk, and housing market risk, etc in form of ever increasing rent prices.

in my opinion the proper solution would be increasing property taxes across the board and spending that money locally on schools and other community reinvestments, applying them on market prices and heavily taxing investment properties in single family homes (second and third house, house in title of LLC/S-corp, etc).

also tax heavily houses located in restricted zoning areas, like Palo Alto, CA. If NIMBYs don't want to see new housing in their backyard, they gotta pay up even more on market prices of their homes. provide tax incentives for YIMBYs

If you take a variable interest rate mortgage, as many people do, there is a risk of increased interest payments.

If you buy to live, and something changes in your life that requires you to move, you may be forced to sell in unfavorable market conditions. This is another risk of ownership.

The situation is quite involved.

We’re at a point where we’d rather Bob secure his “investment” while younger generations can’t afford a home to live in.

> We all need a place to live but we all didn't take a risk in taking out a mortgage like Bob did.

My point is it wasn't necessarily a risk Bob has voluntarily taken. I'm not saying that we shouldn't do something to fix this but we shouldn't cause Bob to go bankrupt while trying to help younger generations as Bob may not be the opportunist here.

To my point of view, I see exactly where the haircut makes the most sense.

This is the part most people don't know or understand. We should fix the banking system first. Only one entity should be able to print money, not all banks.

Without refusal to participate, there is no braking effect on Asset inflation. Someone quite literally has to lose their ass for things to correct so that the next generation has a sane foundation to build from, and Lord only knows, the centralization hacks pulled off by the last handful of folks have been so stupidly effective, we're even having this conversation. So, who is in the best spot to take haircuts? I assure you, it isn't the people on the lower side of the income/wealth curve.

So? The house is as livable the day before the mortgage went underwater as the day after mortgage went underwater. It only matters if Bob care about selling the house. If Bob's primary intent is to live in the house as opposed to selling it, it wouldn't be a problem.

But also it significantly limits Bob’s options in life. They can no longer refinance to repair the roof, they can’t move to a different city for a better job, etc.

Yes, that's the point...

>But also it significantly limits Bob’s options in life. They can no longer refinance to repair the roof, they can’t move to a different city for a better job, etc.

Bob knew the risks.

Within the legal system remedies Bobs everywhere are going to bankrupt. Banks can arrest the bankruptcy by changing the legal system, and Bobs everywhere can change the legal system to make bankruptcy more lenient.

At the end of the day a large portion of the population is not going to simply accept that they need to shoulder the losses for a bubble they didn’t make and had no perceived choice but to participate in. Particularly not when it occurs twice in two decades.

They (you?) don't have to accept it. That's not a factor at all. Your acceptance is not required.

If Bob was a first-time homebuyers, then he just got royally screwed because of all the speculation propped up by nigh interest-free lending, which was absorbed via inflated ask prices. There really is nothing natural about the economy of the last 15 years. At all.

That's a big red flag that something is wrong, and that's because houses wear out. Therefore they should depreciate like a car.

The problem is not solved by messing about trying to control "Domestic Credit Expansion". Limiting the supply of money causes the problem by limiting the funding of housing production.

The problem is the power of exclusion. Housing should be used for housing services, not hoarding. If the price of it is going up, all that is telling you is that there are insufficient housing services available, and there is some market failure that is stopping it being produced.

The solution is anti-trust action and, if necessary, government intervention to limit the power of exclusion and directly produce more housing services until houses start to depreciate.

Address the root cause, not the symptoms. The solution to asset prices going up is produce more of the required assets and stop people trying to corner the market in them.

Nobody is suggesting that the price of used cars suddenly going up should be solved by reducing the loans available to buy them. It should be solved by sorting out the production issues for cars to put the market back where it normally is.

Why not the same for housing services?

Take Detroit for example, nothing has changed to the land itself, but the community has changed and caused land (and housing) prices to change.

the way to solve it, I think is to build better communities, help with more construction of houses, parks, and building better public services (police, fire, public education, parks&recreation, etc).

What should be the source of such funding? I dont know, but the American approach seems to be to use local funding from property taxes, but this approach only sustains status-quo, and does not help to improve struggling communities

Raising taxes and/or raising interest rates decreases speculative forces. Property tax is especially effective in combating speculation, since you have to pay it even if you let the house sitting around waiting to appreciate and be sold (and worse, as it appreciates, you might have to pay more of it). Taxation that discourages speculation to the benefit of people actually looking for housing (and not assets that will appreciate) is a good idea.

> Instead of having asset prices fall to parity with wages and consumer prices and causing everyone to default on their mortgages, we need wages and consumer prices to rise to parity with asset prices.

Either housing prices fall back to earth, or the earth expands so that housing prices don't seem that high anymore :). The latter is obviously just old fashioned universal inflation (wages and consumer prices rise), and really screws someone saving for a housing downpayment (not to mention, loans would be harder to get as inflation picks up).

That Bob is indeed really screwed, and so is the bank. But if we're printing a bunch of new money and giving it to everyone equally, that Bob doesn't get any more than the original one.

> Raising taxes and/or raising interest rates decreases speculative forces.

Raising interest rates especially, and that's the one I'm suggesting.

The problem with raising property taxes is that it equally impacts people who aren't speculating. You have to pay the same amount even if you only bought a house because you needed somewhere to live; even if you're not borrowing the money.

It also doesn't solve the general problem, because then people move money into things that aren't subject to property tax, like stocks. We don't need to deflate the housing bubble by creating a stock bubble the size of the sun.

> Either housing prices fall back to earth, or the earth expands so that housing prices don't seem that high anymore :).

Right, exactly. And housing prices falling screws people with mortgages and causes defaults, which is so bad that we haven't been able to solve it since 2008.

> The latter is obviously just old fashioned universal inflation (wages and consumer prices rise), and really screws someone saving for a housing downpayment

Their existing savings will be the same percentage of the house as it was before, because the nominal housing prices are staying the same -- inflation offset by higher interest rates. Then their nominal wages go up, so they can save the rest of it more quickly, which is the entire point.

> (not to mention, loans would be harder to get as inflation picks up).

Not harder to get, just higher interest rates. Which is, of course, the idea.

If you want to make it easier to buy a house, fix zoning so we can build more housing.

Property taxes is simply rent you pay to your locality based on the value of your property. But it acts to reduce speculation because you have to pay it whether you are using the property or just holding it for the appreciation.

> because then people move money into things that aren't subject to property tax, like stocks.

And they aren't keeping it in real estate...so at least we don't have to compete with Bob Speculator when trying to buy a house.

> Their existing savings will be the same percentage of the house as it was before, because the nominal housing prices are staying the same -- inflation offset by higher interest rates.

But then why did I save for that downpayment in the first place? If I saved $200k over 10 years...and then houses double to $2 million while I go from making $100k to $250k/year...well, I was really stupid those first 10 years. And not only that, but my downpayment of 20% is no longer viable...I have to pay 40% to make the loan officer comfortable with the loan. Ugh, now I need to save $800k. Ugh. Maybe I can save that in the next 10 years with my higher salary.

> If you want to make it easier to buy a house, fix zoning so we can build more housing.

Yes, because every mega city in the world that has focused on density is affordable? Yes, Shanghai, Hong Kong, Paris are plenty dense, but they are not affordable by any measure of the word. Zoning isn't the only thing that needs to be done, you need to deal with the speculators, and you need a sane inflation rate so that people can afford to buy those houses eventually.

Interest rates only apply to people borrowing money, which is the thing that promotes speculation. It even promotes speculation among people who are living in the houses, because then they try to buy a bigger one until so does everybody else. With the result that everyone ends up in the same house they would have before, but pays more for it.

Property taxes apply even to people paying their own money for their homes, which is an undesired side effect. It makes it more expensive to own a home, which is the thing we were trying to prevent.

> And they aren't keeping it in real estate...so at least we don't have to compete with Bob Speculator when trying to buy a house.

So then you can buy a house, which won't have a very high resale value because of the high property taxes, but then you can take the money you saved to save for retirement by investing in other assets like stocks and bonds. Which you just made unaffordable.

> But then why did I save for that downpayment in the first place? If I saved $200k over 10 years...and then houses double to $2 million while I go from making $100k to $250k/year...well, I was really stupid those first 10 years.

Let's compare our alternatives here. You spent ten years to save up a 20% downpayment, now you're ready to buy a house. Suddenly a change occurs.

If a change is that the nominal value of the house is cut in half, whether you get screwed or not depends entirely on whether you buy your house the day before or the day after the change. That isn't really ideal. This is also, effectively, deflation -- an incentive to hoard cash. That's bad.

If the change is that your nominal wages double, it doesn't matter if you bought the house yet because the nominal price of the house stays the same. It just gets easier to earn that amount of money going forward. It would be nice if we would have done this ten years ago, but we didn't.

> And not only that, but my downpayment of 20% is no longer viable...I have to pay 40% to make the loan officer comfortable with the loan.

The price of the house is the same and now you're making twice as much money, so the loan officer is more comfortable giving you the loan, not less.

> Yes, because every mega city in the world that has focused on density is affordable? Yes, Shanghai, Hong Kong, Paris are plenty dense, but they are not affordable by any measure of the word.

It's not a question of absolute density. What you need is more housing than you have people, so that you're only paying the construction cost and not competing over artificial scarcity because further increases in density are illegal. The amount of density needed for that in San Francisco is different than it is in Houston.

> Zoning isn't the only thing that needs to be done, you need to deal with the speculators, and you need a sane inflation rate so that people can afford to buy those houses eventually.

If you deal with zoning then you deal with speculators, because increasing the housing supply by a sufficient amount prevents prices from skyrocketing, which drives away speculators. Nobody expects the price of housing to double if a 20% increase in price induces enough construction to cause it to fall back to the original price in five years, and nobody speculates unless they're expecting prices to rise.

Yes, interest rates also promote speculation. But they aren't the only thing: if you amassed capital, you wouldn't need loans but could still speculate on the property market. Property taxes then act against such un-leveraged speculation.

> Property taxes apply even to people paying their own money for their homes, which is an undesired side effect. It makes it more expensive to own a home, which is the thing we were trying to prevent.

Property taxes represent the reality that living somewhere costs money beyond the initial outlay to buy the property. They also makes it more expensive to rent a home, but it is money that needs to be paid anyways. Roads, schools, and other city/county services don't fund themselves. By tying it to property ownership rather than use fees, it creates a built in disincentive to hold property and not use it productively (because those taxes have to paid if you use it or not).

> The price of the house is the same and now you're making twice as much money, so the loan officer is more comfortable giving you the loan, not less.

If inflation is high, the loan officer isn't really comfortable giving you that loan at all. If the high inflation happens overnight and then stops...that's a different story, but that usually causes a free fall in confidence anyways.

> The amount of density needed for that in San Francisco is different than it is in Houston.

Dense cities are more expensive than less dense cities. Not because they are more dense, but because they are more desirable. Increasing SF density doesn't make it cheaper to live there if it also increases its desirability. More demand just springs up to account for the new units. You have to do something like Singapore has done instead: make housing production and distribution more public (ironic, given that Singapore is often considered the most libertarian country out there).

> If you deal with zoning then you deal with speculators, because increasing the housing supply by a sufficient amount prevents prices from skyrocketing,

That has never shown to be true at all. The Chinese have tried this, and...without a property tax anyways, it has just led to a lot of bought for but empty apartments. A better alternative might be Japanese style depreciation (require that housing be rebuilt every 30 years, hey, it also means a lot of construction jobs).

Except your policy is inflationary and Bob with 10x homes is highly in debt with likely fixed interest rate, so inflation likely is very good for him (ie you dramatically increased his net present value/gave him a lot of money in real terms).

Whereas if you raise interest rates, housing prices go down relative to wages without any change to property taxes.

As long as Mr. Bob is actually living in his house and not just speculating on the market, he's still quite likely to come out ahead in the long run, despite the unfortunate setback.

When that life change happens, if you try to sell your house in a market downturn, it would be at a tremendous loss where you would have to cover that shortfall in one single payment. Ex: you owe $500k mortgage on a house that’s only worth $300k, you would have to find $200k in cash (and no bank will lend this) to be able to sell your property. And if you can’t do that, well…then you can’t move.

Alternatively, in a hot market, you could sell your house for 650k, and since you only owe 500k on it, you would get a $150k lump sum (tax free here in the USA). Even if you didn’t want to sell the place, you could still rent it out, and also take out a home equity line of credit, where you still could get nearly 80% of that 150k in a tax-advantaged lump sum and still have the rental cash flow coming in to pay for that loan while you’re living that lavish lifestyle. Since it’s a line of credit, you can extend this lavish lifestyle for quite a while until… you guessed it, the market tanks and you’re back underwater on your mortgage.

There was a show on national television in my country that had a bunch of cases like this after the 2008 crash. The typical scenario was a couple buying a house pre-crash to start a family, then breaking up after the crash and having to deal with that and a house that neither of them could afford on their own, and with the prospect of ending up with a high-interest mutual consumer loan if they sell to cover the rest of the loan.

I remember reading a forum post from a dude who was being forced by the bank to start paying his ex-wife's share of that consumer loan because the bank had given up on her.

Now, there are some theoretical ways out. They could haved stayed together for perhaps 10 years more, even if not romantically. Perhaps easier said than done. They could try renting out - but not all people have what it takes to do that on top of a full-time job. And it requires coordination between two people who may be fighting. They could try to make the bank write off some of the debt, or lower the interest. Actually, that solution sort of worked in some cases, not that they managed to do it on their own, but the show had a financial expert who negotiated on behalf of them.

https://news.ycombinator.com/item?id=29337344

I'm not in favor of homes dropping in value either, but if the argument is it's going to hurt investors, then let's do it.

First of all, buying a house for $1 million that is later worth $700,000 has no bearing on what is owed to the mortgage company. The mortgaged amount has already been paid to the original seller, that money is gone and the buyer has agreed to repay it. Defaulting on the mortgage can be done, but any money already paid will be lost and the borrower won't be able to obtain another mortgage for 7 years.

Or the homeowner can continue to live in the home, but there are a few potential problems:

1. They cannot sell the house should their life situation change. Depending on the overall real estate market, they may also not be able to rent the house out for an amount that covers the mortgage payment.

2. Not only did they agree to pay $300,000 too much at purchase time, they also are continuing to pay interest on that amount. $1 million for 30 years at 3.5% is $616,000 in interest; $700,000 is $431,000 in interest.

3. The loan cannot be refinanced, because they don't have at least 20% equity in the house. Say that interest rates drop from 3.5% to 3.0% -- that would save $100,000 in interest over 30 years. But in order to refinance, they would need to pay the mortgage down to the point that they have 20% equity in the house (in this example pay the mortgage down to $440,000).

4. Since they have no equity, they cannot obtain a HELOC to help finance home repairs or life events in an emergency.

So yes, investors and speculators will be hurt when their portfolio value drops and those are the risks you take when investing. Homeowners, however, are also hurt by the decline of home values.

(1) and (4) are valid concerns. However, if Bob stays there for a long period of time until prices rise again, he'll sell with less capital gains taxes.

So, like in many situations, and how it should work, buying a house works if you stay still for a while, and is worse then renting short term.

On a house? Most people don't have cap gain taxes on house sales. Only extreme high value homes.

The concerns for you in this scenario may be:

1. Has the property been poorly maintained for some time because the previous owner could not afford repairs after buying at a high price?

2. Has the property recently been poorly maintained because the owner knows it will be foreclosed on?

3. Will prices continue to drop, potentially putting you into the same situation as the current owner, or is now the right time? It's generally impossible to time the exact bottom of the market -- and what seems like the bottom may be far from it.

Imagine you have to move because if job or family, you can't sell the house and buy another - its worth -$300,000

You are saying that now but when it actually happens to you then it becomes real and different people react differently when it actually happens to them.

This absolutely does screw over people who didn't take out debt. Yes you gave them money, but you also devalued the money they already had. And you have just driven up the price of houses and assets even more.

> Instead of having asset prices fall to parity with wages and consumer prices and causing everyone to default on their mortgages, we need wages and consumer prices to rise to parity with asset prices.

You can't just raise wages and consumer prices without raising asset prices - the people who are getting more wages would either loose that money on higher prices of goods or invest in assets - driving up their prices.

So basically, take everyone sitting on mountains of cash (e.g. Apple) and start to pay enormous returns for keeping that money stationary, instead of investing it in the productive economy?

> Now asset prices come down in real dollars, because people aren't as willing to borrow money to invest when interest rates are high

The economy isn't composed of only "people". There are businesses too. Rising interest rates means that businesses borrow less money to build new factories, hire new people, and expand. Corporate finance takes available interest rates into consideration; it is literally one of the factors on which CFOs decide whether to start a given project or not. That ultimately translates into whether business start to lay people off or not.

Look, I also think that interest rates should be brought up. But I also appreciate that it's not that simple.

Consider leveraged stock buybacks, leveraged dividends, selling to a greater fool, and simply owning corporations which are too big to ever go chapter 8/11 without taking the economy with them.

Increasing rates will simply mean that these individuals can get paid by interest rates ( you have to borrow from someone after all ).

The only strategies to break this wealth concentration involve punishing capital accumulation. Meaning inflation or taxation.

Just raise the taxes on peoples 3’rd or 4th home. It will definitely screw over a lot of real estate investors and banks, but that’s sort of the deal with investment risk, and after more than a decade of state guaranteed return on this investments it’s about time for and quite fair with a state guaranteed shakedown.

This will cause the market to drop, and the unfortunate ones who overspent on their primary recode are will have a big loss, which you help reduce through tax breaks for people owning no more than one home.

An honest question: why “should” or “ought” the price have been $200k, instead of the actual selling price (assuming that this was a typical price for a comparable home in the area over the same time period)?

Who gets to determine the canonical value of real estate, and how is this somehow more fair than market consensus?

We have many policies that for good and ill restrict housing supply and increase the marginal price for shelter. There isn’t any strong reason to believe that this pattern should or will continue indefinitely.

Why is this ideal? Ideal for whom? Should all goods and services be priced using a cost plus model? What, then, would be the incentive for efficiency? Goods made by inexpensive means would be low priced by fiat, regardless of performance.

I’m not saying that nothing should be cost plus, but there needs to be a strong justification for it.

This process incentivises more efficient means of production, when goods become very cheap relative to performance then consumers of that good can spend money elsewhere. In practice most material goods should be on a cost plus pricing model for this reason. The alternative is scarcity economics which hardly incentivizes efficiency but instead rewards market timing, monopolies, and other activities which don't do a lot to make the world better in the future.

Consider two people who make violins, where their costs are comparable but one is widely deemed vastly superior to the other. Musicians would be willing to pay a hundred times more for the superior instrument, but the cost plus mandate requires they be sold at roughly the same price. The incentive to achieve this much higher level of skill at violin making is far lower than if we allow willing customers to vote with their wallets.

You are conflating defaulting with underwater loans.

Wouldn't this de-risk speculative investment and drive assets higher?

> Raise interest rates on debt. This will cause people to pay back existing debts

But this is risky for the stock market right? interest rates on debt are connected to the fed's interest rate and to bonds yields. Higher bond yields = stocks are less appealing. That could be fine during normal times but the stock market is very very high so the risk for a huge crash is high. Who knows what the result of a stock market crash might be, the 30s were one huge depression. During the current political climate I can see why the high-ups want to avoid that.

But It's something to think about what you're suggesting and it's very possible what you're suggesting will happen in some form or another.

-- The gp actually make this clear and is grasping for alternatives to this scenario rather than advocating. So you reply is either ignorant or disingenuous.

Edit: Gp's quote before your quote - "If you start raising rates, and stopping QE, you're not actually getting the money back from the people you gave it to, you'll just get a lot of businesses to close." The same clearly goes for individuals.

Why would that be? If he locked in a low rate, his mortgage payments could still make sense. If it's a variable rate, then yeah.

Purchase cost on housing is very, very tightly correlated with the interest rates, because shoppers' budgets are determined by their monthly payments, not by the total cost of the house.

When interest rates go up, potential buyers can't afford to borrow as much money, and prices have to fall.

Raising targeted taxes on very wealthy individuals and corporations is assuming that this wealth is going to be redistributed at the bottom somehow, effectively helping Bob not default on his loan.

Printing money and giving it to everyone also risks causing more bubbles…

Either method requires fine tuning…

Or they'll use it to buy booze, pot and iphones like most oeople did with the $2000 covid cash handouts.

How is repricing home loans going to affect banks?

Deflation causes defaults, the disproportionate wiping out of the wealth of the middle class (because mortgages are leveraged) and a financial crisis. Inflation, if done by printing money and giving it directly to individuals, reduces wealth inequality.

To get things back into alignment, your choices are: deflate the price of those assets, or inflate the price of everything else. Which do you choose?

If you tax the ownership, that's property tax, it already exists, and 1) It's already high in the most HCOL states (imagine paying 30K a year for a property worth 750K, that's Westchester, NY or many parts of NJ, and a handful of other states) 2) Imagine you're 75, retired, and suddenly your property tax spikes and the house you bought 20 years ago for 150 is now worth 750K, and now you're on the hook for 30K.

So that's out. Next we have taxing transactions. OK, so we up flip taxes (ownership less than X months), we increase transaction taxes on a sale, we can even rid ourselves of the cap gains tax exclusion for single and married couples, and perhaps even tax everything as short-term cap gains.

So now people will never sell.

What have you accomplished?

Or were you just expressing your emotions and letting others figure out the incredibly complicated logistics of your suggestions?

Easily solved by not hitting people who own one property which is their primary residence.

I'd go easy on two-property people; some people need two places for various reasons, and they occupy both.

The tax rules can be crafted such that heavy penalties are imposed on people with three or more properties, and on house flipping activity.

Only reason you don't see more of that is because, doh, the rules are written by the rich. The politicians themselves or their rich chums are doing a lot of that speculating.

This would discourage individuals from renting out their property for a small profit, which is exactly what you want to see more of to increase affordability (and liveability — not everyone likes renting from big investment firms and property management companies).

That is because they themselves have to live somewhere. If they have to rent, then what have we achieved?

Harassing these people is entirely regressive.

People doing something entirely normal, like buying a place and living in it, are not the root cause of any problem.

(OK, I've heard of the practice of sleeping under the desk at work and using the company kitchen and shower, while AirBnB'ing your apartment for $. Good luck with that if you have a family.)

Alternatively, and worse still, it might erode profit margins such that rentals become exclusively the domain of big investment firms. How is this of benefit to ordinary renters?

I'm with you about the undesirability of these investment firms who hog up properties; the tax structure could easily be set up to squeeze them out, while encouraging the small owner rentals: people who have two or three places.

These firms are basically parasites who contribute to the housing problem as much as home flipping speculators. It should be entirely unprofitable for someone to have like twelve properties. We simply cannot have that in cities where affordability is spiraling out of control.

Maybe once upon a time chains of managed condo buildings and such owned by big companies wasn't a problem; it could be high time to crack down on it.

But that tax structure would put downward pressure on rental unit availability, which would very likely raise rents. Wasn’t the goal of all this to solve housing affordability?

> It should be entirely unprofitable for someone to have like twelve properties.

Someone, as in ... a human? What about LLCs? It’s easy and simple to form several of them.

As someone who owns no real estate, and strongly prefers renting from individuals, my concern is all these plans to make it harder for individuals to own several properties will make it even harder than it already is to find a good deal as a renter.

What's the fallout from that? Let's keep this going and see if it reaches sustainable or insane.

You mean, what’s the fallout of banning anyone or any business regardless of the circumstances from owning more than one property?

Starting with the obvious one, it incentivizes investors to form multiple legal entities to own multiple properties — thereby entirely defeating the proposed regulations. This is already how it works today amongst informed property investors (though for reasons of legal liability, privacy and wealth protection rather than skirting regulations).

But assuming you could close this (realistically impossible to close) loophole... I’m guessing people in this hypothetical fantasy would prefer buying huge tracts of land, and building ADUs? Rentals would likely become a lot more scarce. Maybe corruption would rise due to the general ridiculousness of the proposed regs. Dunno. What do you think?

How it could work is that a residential property must be registered to an individual's social insurance number, not to a corporation.

So then they will have to start inventing people if they want to shelter their activities.

These people can be audited. How did you get the title to this property? From whom? Where is the mortgage in your name? How come you're not actually paying the mortgage? Etc.

You can't hide the fact that you didn't buy that property from the tax man.

In you can get business visa in you invest X amount into a company, it can be in construction but not a property, house-flipping or rentals

Nobody is entitled to live in the same space forever. It’s perfectly reasonable and expected for for someone on a fixed income to sell their appreciated home rather than paying the higher upkeep. If the value proposition makes sense for someone with a higher income then they’ll fill the void. If not, the price will drop and it will all adjust anyway.

The alternative is to end up like CA and we all know the shit show that has become.

The Medicaid look back period for assets is five years.

The real “trick” is to have kids, raise them right, and then get old knowing that they’ll do what’s right. Whether that’s taking you in, putting you in a home, or kicking you to the curb is all a matter of what you teach them.

This should also apply to rent control.

I propose a complete overhaul to this tax. We make this tax a federal tax, no exclusion allowed for any reason. Increase this tax rate to about 8% of the property value meaning if the property is worth USD 1M, you owe USD 80k in property tax each year. No exclusions for anyone. Walmart pays. Megachurches pay. Amazon.com pays. Yes, even the state capitol pays and public schools pays.

Now, to make the math work, we must make a calculation we revise each year. What is the median price of a two bedroom unit in the nation? Every adult gets this allowance for the year. Ideally, this more than offsets the cost of the property tax for this person. If it doesn't, the person is responsible for the difference.

The beauty of this scheme is every building pays and failure to pay for about five to ten years is enough to confiscate the property and put it back in circulation. Everyone has some money for housing. If some place is too expensive, move elsewhere and make money.

$80,000 is what, twice the median income?

But you don’t want to kick someone out of a house they bought because property taxes went up. That property taxes have increased so much that this is even possible is concerning. They shouldn’t go up that much.

The housing issues in California come down to regulation making it expensive and difficult to build, and just way too many people wanting to move somewhere with some of the best weather and natural features and jobs in the world. That California is inherently expensive shouldn’t be controversial or surprising.

Very easy to avoid stupid tax ideas, a million way to avoid

Y'all got yours, now what - screw me?

I want to build my wealth - give people like me a 5 year tax break or something instead. I can't afford to live where I work (California) unless I'm willing to live in a shitty area with high crime and terrible schools.

* $0 to $9,950 - 10% of taxable income

* $9,951 to $40,525 - $995 plus 12% of the amount over $9,950

* ...

* $523,601 or more - $157,804.25 plus 37% of the amount over $523,600

Problem? There is effectively no taxes on wealth, only income/capital gains.

This system really screws over the middle class and immigrant families because we generally accumulate wealth through income... meanwhile Bezos can passively "earn" billions per year through his prior ownership of Amazon shares, with an effective tax rate of 0%.

The low interest rates further benefit the rich because they can take out low-interest loans collateralized by assets (that is, Jeff can take out a $100M loan to get liquidity, without liquidating $100M in shares - he only needs to sell enough to pay off interest [the portion sold is taxed as income]).

because the wealth is already taxed - how else did you acquire that wealth without paying taxes first?

To tax wealth is to prevent accumulation of wealth, and i think that has bad, unintended consequences. On paper it sounds good, but like all things, this hurts some group of people more than others, and just because that group being hurt isn't "your" group of people, it doesn't mean they deserve it.

Taxing income (of which capital gains is one type) is fine - adjusting the brackets is fine too. But a lot of times, people come into the more-taxation side assuming that more taxation means better society - but i can tell you it isn't true. Better politicians comes first.

The very wealthy minimize taxes paid by taking deferred compensation in the form of equity held past the long term capital gains threshold, and then only selling a small portion at the low long term capital gains rate.

The next level tax avoidance approach is as the GP described: don't sell your equity, thereby not realizing any taxable gains, but get cash flow by borrowing against it. This requires you to have so much equity that borrowing a small percentage against it is all you need to pay for your daily life, a position that few people are in.

That's just scratching the surface of tax avoidance mechanisms, but the result is as Warren Buffett described: he pays a lower tax rate than his secretary.

but they'd have to pay interest on that borrowing, and presumably, these interest from borrowings for daily life and consumption is not tax deductible (or only the portion related to an investment expense could be deducted).

Therefore, to pay that interest, they'd either have to borrow even more, or sell some equity to pay. The current taxation scheme encourages this, because if the person's consumption is lower than their wealth's growth, they would want to reinvest their excess, and this is the most efficient way to do so without the state taking away a large portion from taxation.

Or take a minimal salary or use equity sold at the low long term capital gains tax rate to pay for it.

Also consider that when you have huge amounts of assets - far greater than the loan principal itself - you can negotiate an interest rate that regular people can't. Borrowing 20M for living expenses against assets worth 200M is a very low loan to collateral value ratio.

When the group is "the most successful in the current system", it's not exclusionary / discriminatory or exploitable. Whether their success is due to luck or smarts or inheritance, they succeeded in the current system by definition, because there is only one system. Therefore, they can be asked to pay proportionally more to maintain it. Furthermore, the bargain "to pay less tax, be less successful" is not one that any rational actor would make. It's inherently fair.

The only part you could reasonably quibble with imo is using wealth as a measure of success, but since it is the currency that taxes deal in -- one alternative: government takes some of your children -- it's the one that makes the most ssense. Still, those in society that find some way to life satisfaction without accumulating wealth do have an advantage in the proposed system. Maybe that's something we should encourage?

if it were really true that paying more taxes leads to more success, then they would pay more. But it isn't true - patently not true. The less tax you pay, the more you get to keep for yourself, and reinvest, and the more likely you reach higher "success".

Thiel bought a lot of PayPal equity for basically zero dollars in a tax-free account. The tax exclusion for inheritance is enormous, allowing children to inherit millions and millions without paying taxes and receive a step-up in basis.

so he did pay his taxes - he paid the amount required by the financial instrument setup by the gov't (which happens to be zero here).

And his situation is fairly unique and rare - very few people invested in a startup via their retirement account, and have massive success.

For most people, their wealth would already have been taxed; e.g., people with excess savings that they put into investments such as property or shares.

Why do you see this as a bug rather than a feature? Sure, it disproportionally benefits rich people but it's still beneficial for not-so-rich people.

I find it unlikely that there is a system in which rich people don't benefit more unless you create an arbitrary definition of "rich" (I.e. $10M net worth) and tax "rich" people more. Even then they'd probably be able to get around it.

> This system really screws over the middle class and immigrant families because we generally accumulate wealth through income

I disagree. Almost no one gets wealthy without owning assets that appreciate in value.

Taxing capital gains on principle residences means people are less likely to move up to a better home which creates a problem for first time home owners trying to enter the market as no supply exists.

Wealth tax requires you to know everyone's wealth. How are you going to get that information / verify on a yearly basis.

obviously this would be difficult and would require new rules, but it doesn’t seem at all impossible

you could start high (say 1000x the federal poverty line) and work backwards

there are already a number of proposals from lawmakers that cover the details better than some rando on the internet

I'd really like to understand your wealth accumulation algorithm here because, having lived in CA, I wrote a bunch of programs to model my family's guessed at expected inflation, house appreciation, income appreciation, and tax scenarios, and I bailed.

The people ahead of you are not going to let you climb that ladder, is what I decided. Twenty-five years later, yup.

And I won that game. Survivor bias for sure, but now I'm sitting on what I didn't expect: prime real-estate for CA remote workers + retirees.

How do we know that?

> And now the FED can't really reverse it.

By the way, Fed is not an initialism, so it doesn't really make sense to write about them in all-caps.

> We need to erode all that capital concentration, and the only way to do it without hurting the regular guy is through heavy taxation.

What do you want to tax? Land Value Taxes are pretty neat (or rather, the least bad taxation).

Are they? From what I read they’d heavily mess with anyone that bought a family home anywhere near a city more than 10 years ago.

You can argue that their net worth has increased, but their salary is still the same, so increasing their taxes based on the current value of their house just makes them lose the house (and forces them to buy a new house much further from city center).

Maybe exclude property that’s actually lived in?

Alas, that would be a terribly idea, because all of a sudden you have the government snooping into your living arrangements. Especially for grey areas where people share their time between multiple apartments. Way too complicated.

And, people living in bigger places would get effectively get a discount this way.

Your argument does highlight a problem with the transition phase of the introduction of the tax, though. There's a few ways to solve this, eg by slowly phasing the tax in over a decade or more.

(It's not a problem in the long run, because land prices will drop until the financial burden of tax plus mortgage payment is the same as today.)

... not really. Most folks only own one house, so nothing complicated. A few folks own multiple houses. These folks already need to establish residency in one house for tax purposes in a lot of places: Taxes vary from city to city and state to state. It isn't a new grey area, and we can use this established system to tax. The folks can, in general, just use one house or apartment or pay more for more than one house.

I'd personally only give it out to folks with longer terms: The place should still be someone's primary residence, and only give a discount if it has been rented out x months out of the year. This would be to discourage airBNB units (for example) and encourage landlords to make their units affordable and attractive to the residents of the area.

Your scenario plays out just the same. The opportunity cost difference between any two uses is exactly the same.

There's a small difference in a detail of accounting: in one case you see a higher LVT bill, in the other case you pay more for your mortgage. (Or alternatively, if you own out right, your opportunity cost for holding onto the land increases.)

> Land Value Taxes are pretty neat

...if you want to encourage concentration of land in the same hands in which capital is concentrated, yes. (Heavy LVT harshly punishes any land use that isn't maximally efficient at financial value extraction, which is often extremely capital intensive—encouraging upward transfer of land to those able to apply the most capital to it to optimize extraction.)

The opportunity costs between different land uses is exactly the same with LVT as without.

To illustrate more:

Without LVT, when you use a plot of land costing x dollars that you own outright, you 'pay' the opportunity costs of not being able to employ those x dollars elsewhere (or rent the land out etc).

With LVT, the price of that plot of land will adjust to y << x, so that the total of LVT on a plot of land costing y and the opportunity cost of y, will equal the opportunity cost of x amount of capital.

(This discussion ignores risk and other taxes for simplicity.)

Slightly off-topic: I'm also against capital gains taxes. We want more capital employed, so that workers become more productive, and so that the different providers of capital compete. So if anything we should encourage more deployment of capital, and capital formation rather than consumption of wealth.

(Also thanks to international mobility of capital, I suspect that a big part of the burden of capital gains taxes mostly falls on the users of capital, less on the providers. But I am not sure there.)

Which means if it is heavy (or even noticeable) for optimally extractive landuse, it is crushing for any substantially less profitable use.

The government is still free to ban or tax certain uses they don't like.

Well, no, its very different than having no LVT, and in a way which encourages, rather than discourages, wealth concentration; given the context in which it was suggested (specifically, in response to options for reducing wealth concentration being sought), that's a pretty salient difference.

> The government is still free to ban or tax certain uses they don't like.

A tax that makes certain uses generally economically impractical, as a heavy LVT would be, is effectively identical to a ban on those uses.

Could you please explain that?

LVT doesn't make any difference to land use. But it does make land owning expensive. So you could suggest it as a way to reduce wealth concentration. I don't see the contradiction?

> A tax that makes certain uses generally economically impractical, as a heavy LVT would be, is effectively identical to a ban on those uses.

Huh? Eg a moderate tax on petrol stations would certainly lead to fewer petrol stations, wouldn't it? Things happen at the margins.

Fix the money, and fix the housing affordability crisis. Slash the demand to buy housing as an investment.

In a deflationary environment, as housing/rent prices drop, savers are rewarded.

Renting doesn’t entail taking out a mortgage.

> It doesn't create more land or housing.

Nor does building more housing in an inflationary environment necessarily satiate investor demand for inflation-resistant assets in the form of residential property.

Also, "sound money" is anti democratic because the whole point of a fixed supply is to make money exclusive and let existing social classes maintain their status (kings and aristocrats owned a lot of gold mines and thereby controlled the economy)

> whole point of a fixed supply is to make money exclusive

In this case, it’s to obviate the need to take your inflationary funbucks to what is essentially a casino, or otherwise park it in residential property in the hopes of not getting debased.

[1]: http://www.princeton.edu/~mgilens/Gilens%20homepage%20materi...

This is why measuring CPI doesn’t work anymore to track inflation and why the quoted rates are nonsense.

When people had less income you could measure their spending at the till to see how much it’s increasing. In 2021, people aren’t spending more at the till because they largely don’t need to right now so these asset bubbles are serving as many people’s emergency fund. If/when things start to turn the rush of forced selling could be unprecedented.

Especially if any alternative is buying stocks ... everyone knows stocks is just another paper and real estate is ... real deal.

Not going into bitcoins as still for normal people it is not something they can grasp and for me it is pure ... how to say a pyramid scheme but less offensive... Stocks are pyramid scheme currently as much as bitcoin is. With P/E ratios waay over what is healthy it is just "there will suckers in the future that will pay more for that". If all goes to the ground real estate will still have at least some value even if people also use it in a way where "there will be suckers in the future that will pay more for that".

There's also capital gains tax or even wealth tax. Especially the last one will target the wealthy.

Low interests helped those who invested in equity or had real estate to sell.

Have a look at data before you spread FUD https://www.bls.gov/bls/news-release/realer.htm#2010

And even if the claim is entirely off base, isn't it sort of the opposite of FUD? (being unrealistically rosy, rather than motivating "fear, uncertainty, and doubt")

More details:

https://insight.kellogg.northwestern.edu/article/wage-stagna...

> The average hourly wage for production and non-supervisory workers is up 5.8 percent over the last year. It’s up 10.3 percent if we want to go back two years.

> The increases are even larger towards the bottom end of the wage distribution. The average hourly wage for non-supervisory workers in restaurants has risen 12.4 percent over the last year and 13.5 percent over the last two years.

This is pretty substantial.

But it even goes further than this, because what policy tools does the government have on-hand to curb inflation besides raising interest rates until they induce a recession, and won't this be much more harmful to a normal family's bottom line than inflation is?

1. Enforce no-hoarding by businesses to release inventory into markets. Hoarding leads to price increases.

2. Expand infrastructure (in progress) to alleviate bottlenecks in the supply chain

3. Remove some of the not-so-smart tariffs instituted by the previous administration. Import tariffs are paid by, well, importer which leads to price increases.

4. Instead of continuously selling oil from reserves to foreign governments, keep some at home and release continuously to keep energy prices low. Energy cost is the single most important factor in consumer prices (because it takes energy in form of various fuels to: cool, transport, etc)

5. Break down monopolies that stifle innovation and lead to increase in value extracting behaviors by monopolists, instead of real innovation and new business formation.

6. Create new business federal subsidies of some sort?

7. Criminalize scalping (as is done in some countries)

Taxes don't create abundance, capitalism does.

If you are wealthy enough, you can just leave or find a way to bypass taxes. In the end Laffer curve dictates there will be less money to give to freshly unemployed low income families whose employers just moved to more friendly markets.

Stop the money printing machine. It was supposed to be stopped earlier and it will hurt now more than ever. But the more credit you create, the more will assets that are usually bought on credit cost.

what does that mean?

We are beating a dead horse.

If we could just let market decide the interests and not money printer, the economy would stop inflate itself. The only money banks could lend would be those that the bank really owns.

while this is sound in theory, the past has shown that if you do it this way, there would be possible run on banks, as well as credit crunches that hurt more than help.

If money is tight, because lots of lenders fear lending out (who would lend money out that they can't guarentee a return of?), then people who really need to borrow would pay dearly for it (and may be not be able to afford to pay). This would hurt, and probably hurt a lot more than the current "inflationary" printing. You just don't see it because the current system is actually good enough, and all you can see are the minor flaws.

These are not minor flaws. We are creating money from nothing which means pereptual inflation which means your savings are no longer safe. It's much more sound to just borrow money, which makes you dependent on the mercy of state regulations.

This is like saying we dodged withdrawals by taking more of the drug.

You (and many others) have some money, but you don't need it now.

The bank lends it out and puts it to work. They keep enough to pay people back, assuming there isn't a bank run.

If you banned fractional banking, people would find a new way to invent it.

But government runs the same scam because they also don't have enough money to lend so they borrow money from another bank, namely FED. This bank also doesn't have the money so they start up the printers and act like government owns them.

The government debt is so high that if you sum up all the debt government owes and add what government promised (social security etc.) you will find out it pays so much in interest that it's basically bankrupt.

Somehow we ended in system where no one has money, everyone owes each other and we all act like it's okay.

We all know this will implode and the longer we wait the worse it will be.

We don’t need to take every math object as a physical truth.

Laffer especially should be seen a political tool more than an economist.

Where it is a political tool is where it was applied before doing that empirical work, and where it is presented with unrealistic shapes (including, notably, most of search results when I search for "Laffer curve"!)

Laffer has never had and never will have anything to do with pre-existing human behavior itself.

He never defined any of the math objects he used. As far as I can see he’s not invented any net new value, he translated English economic babble into math. It’s elementary abstraction by today’s standards. Since most people could barely balance a checkbook in his day, he’s a genius for life.

It’s like taking a child’s drawing of a tree and acting like the child gave life to the tree.

It’s ridiculous to foist prestige on idiots wielding arithmetic. Look at the misogynistic, misandrist, classist, racist, culture our elders grew up in and chuck their prestige in the bin; they’re human like everyone else.

You want to put a number value on others? Here’s yours; 1 of 7 billion+.

Rich people are rich because everyone else worries if we tax them, everyone can’t magically become rich. They’re aren’t actually smarter, stronger, better; it’s just propaganda; aka today as data science.