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.
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).