Woh woh woh! Deposits are not a mechanism to ensure house ownership is for the rich. Lending without requiring a deposit is known as irresponsible and/or predatory lending for good reason!
If people can't save a 10% deposit, then they absolutely cannot afford the loan repayments. Locking people into a loan they can't afford is a great way to push people into poverty. Additionally, it leads to people defaulting on loans, without a deposit and/or lender's insurance to protect the bank, then in a market with lots of borrowers defaulting, the bank needs to sell properties at a loss - and well, hello, GFC.
Here in France the deposit isn't a hard %, but banks expect it to be able to cover "notary taxes" ( what you pay to the notary and the state for the acquisition, which is usually in the 2%-8% range).
Salary and job prospects presumably have some correlation with one's ability to repay a loan. However, a much more reliable data point is saving capacity i.e. Income - Expenses. How far your income takes you inherently varies based on the life-style you live.
Does it suck throwing money down the toilet on rent? Absolutely! However, in most (not all) markets, home loan repayments will be quite a bit greater than rental repayments. If someone is unable to pay rent and simultaneously save a deposit - then chances are they aren't going to be able handle the loan repayments.
Also, looking at someone's current salary is not a good indicator of someone's ability to pay off a home loan over an extended period of time. Deposits typically take a while to save i.e. it's not a matter of having a high paying job at one point in time, it's a matter of whether one can sustain their income (keep their job) and budget for an extended period of time (many data points).
Even then - this is only part of the equation. Deposits aren't just a method for banks to assess potential borrowers. Initially banks buy/own the majority of the house (all with zero deposit), not the borrower. A deposit (and often insurance) are required to protect the bank in case the borrower does default - they need to be able to sell without losing money if prices fluctuate. Actually, it's not just price fluctuations. There's expenses involved with selling - agent fees, taxes etc.
An alternative to all this would be to significantly increase interest rates to mitigate the risk - which is also non-ideal.
If so, then I agree. No money down plus predatory loans combined with some greed for some staggering wealth destruction
I think there is something of a complacency that people have about inequality. They assume that because progress ratcheted forward in the 19th and 20th centuries, that we can never regress.
I think it's not true, and I think if we are not vigilant, our world will return to a neo-feudalism -- with the accompanying misery and lack of social and technological progress.
This should alarm all of us, even those who are lucky enough to have a handhold on the property ladder.
For instance, here in Sweden, it's very bizarre since we very much don't lack land suitable for new homes. Nimby regulations together with construction laws have however created a situation where prices for new homes have skyrocketed. Demand is overshooting supply by a lot (for the last decades), when there is nothing but government regulations keeping the market from beeing able to supply this demand.
Generally, it is looking like housing being an investment by corporations and foreign interests is having a negative impact on the population that actually lives where the homes are located.
Wouldn’t the demand still exist allowing for more supply to be filled by those still wanting a house ?
It seems bonkers to me that the so-called social states of the EU are letting this issue destroy young generations so hard. In Spain this problem is particularly hard, as income & savings are on a clear decline since 08, yet no one does anything.
And I mean, they are doing dog shit. Entire generations of spaniards are bleeding poor because they have to allocate >60% of their meager income to housing. All this money gets funneled:
a) To boomers. The ones who where there to buy when it was cheap.
b) To public employees. The only large group of people in Spain with decent enough income to still be buying.
c) To companies. Since 08 more and more companies are pouring their money in the market since boomers are a naturally decaying demand force, and workers from private sector are so deprived of savings and pretty much dissapearing from demand.
More and more Spaniards are giving up their inheritances because they have no income or savings to meet the burdens and taxes.
These assets end up in bank or state auctions, and those who already have capital go to the auctions and get batches of assets.
In general, a gigantic transfer of wealth from private sector workers to the groups described above is taking place in Spain.
The public debate is focusing on stupid things and/or things that we know do not work, such as limiting rents, or the problem of empty houses (empty houses are needed for a functional market, and good luck defining what an empty house is).
Meanwhile, housing demand clearly outstrips supply. And it's not just about Madrid or Barcelona, it's happening in medium sized cities too, so even if you want to escape you can't! The city councils control what land can be built on, and who gets licenses. Public housing developments are a bad joke, and private initiative is clearly not doing its job.
It is a situation that is going to explode, and despite the fact that some of us spend time warning in every possible way, it seems that nobody pays attention.
And to this must be added the fact that many Europeans with remote jobs are moving to Spain because for their level of income and savings the prices in Spain make sense, putting pressure on sale and rental prices.
This is an incipient phenomenon, but the climate, a high level of services and quality of life invite to think that it can become a serious problem (there are already cities banning vacation rentals, outright).
In the UK previous governments allowed social housing tenants to buy, then sell housing on. In retrospect I think all this showed was it took one generation to break the social contract for future generations.
If it costs $100k to build a house, these measures all but ensure that anyone who can't save up $100k will be homeless, because there is no reason for people with savings to build up a surplus of housing beyond their own needs.
Note that wealthy people, due to their disproportionate wealth, control how resources are allocated. If there are harsh punishments for allocating resources to housing, then there will be (substantially!) fewer houses.
Although in Australia the situation is beyond a joke. It is already ugly. If the government doesn't stop putting in artificial measures to prop up housing prices it'll keep getting more unpleasant until something breaks down into violence.
Making it difficult for anyone (corporation or individual) to be a landlord will hurt the poor more than it will help them.
> * banks should be banned from requiring deposits
The purpose of deposits is to reduce the risk of default. Banning deposits will simply mean that banks will give fewer loans, and loans which are granted will have a higher interest rate. This will only hurt the poor.
> The goal is to crash house prices as far down as they possibly can be crashed.
I'm pretty sure the best way to accomplish this would be to actually build a lot more housing.
> I welcome the economic conditions that will lead to housing markets being ruined and will party and celebrate those investors who own multiple houses suffering ruinous losses - I'll laugh.
People owning multiple houses aren't primarily the cause of society's trouble in this regard: It's people owning vast swaths of the stock market. FWIW I'd be happy to have the price of our housing assets collapse if it would mean making the world a better place. I can't really benefit from the high house price anyway, since I have to live somewhere.
the idea of GP is that a house should not be considered an asset to begin with. it should be considered something like a beard trimmer: you buy it because you intend to use it, not as an investment to flip it later.
It should be like a car or a washing machine -- a capital asset that you use to achieve a goal. The minimum value for a house will always be the price of reconstructing the house from scratch. I'm not seeing that price ever be in the range that a working poor person could treat it like a beard trimmer; which means a home will always und up being large percentage of the capital of the person owning it. Assuming a properly competitive rental market, it would be much better if whatever capital could be scraped together were put into something more diversified.
That’s always it’s value - plus the cost to move it to your own plot - it’s a depreciating asset that needs maintenance
The observable price increase comes from the price of the land - they are not making more you know
I disagree … having the deposit available to pay for unexpected expenses allows for a financial cushion for buyers after purchasing a home. Instead, many buyers are draining their savings cushion in order to just get the keys to a house and have little to no available cash to handle any financial disruptions.
"any house that is rented must be offered for ownership to the long term renter"
seems like a great way to make sure long term rentals stop existing.
Court resolution will take decades to come at a decision.
It is why nobody makes rental agreements longer than 11 months even if you live beyond 11 months. They will keep renewing that.
They also do this to avoid government rent control and protection policies.
The government will pay for deposits? Why exactly should the government be subsidizing home ownership? Why not just allow more houses to be built? Government intervention is why we have issues to begin with.
Reminds me of posts advocating for rent control but lamenting how they can’t find an apartment, as if the two issues are not related.
Source: https://www.nouvelobs.com/economie/20211126.OBS51459/3-5-des...
Any house ? Your house ? The White House ?
All of those you mention can already buy a house:
https://www.zillow.com/homedetails/510-Oak-Grove-St-Pine-Hil...
https://www.zillow.com/homedetails/1010-W-16th-St-Muncie-IN-...
Then you will create a problem 10 years down the road where there has been massive underinvestment in new housing stock.
The solution is to increase interest rates so there is actually an opportunity cost to money, which will cause people to stop making horribly performing investments in real estate. In Canada, we are already seeing the dramatic effect of a few paltry rate hikes exposing the cracks in this confidence game. Another 150-200bp and house prices will no longer be in the headlines.
Governments would love us all to blame AirBNB and housing investors, but this bubble isn’t limited to housing - we have been in the “everything bubble” and it is due to loose monetary and fiscal policy for too damn long. Shame on them.
I would be more than happy to park my downpayment in a US government bond if it matches/beats inflation every single year.
The idea that a few supposedly “smart” economists can effectively run the economy is absurd and needs to be reversed. There are fundamental checks and balances in economies that have been hampered by these central banks, resulting in the build up of asset prices beyond anything in recent history. Buckle up.
Well great news (for you) this is actively being tried in California and we'll all get to watch the resultant effect [0]. I personally think it won't help anything and will just distort prices further to compensate, but we'll see.
I can't see a way out of this that isn't basically "blow up capitalism and start over". And while I definitely want to blow it all up many days, I also have an extremely strong preference for national economic stability. I really don't want to live through some bigger version of 2008 again.
I hope all those leveraged landlords get totally bankrupted.
While I'm a socialist, I'm also a realist and the ideas that you can regulate away markets or money is more than a bit delusional, and several of these ideas are just going to lead to worse outcomes.
And the first thing that really needs to happen is a lot of the regulations around development need to be removed in order to increase supply, which you've completely missed. So SFH zoning restrictions, height restrictions and aesthetic concerns need to be eliminated. Development that "fundamentally changes the character of the neighborhood" needs to be allowed. The problem with this is that there's a large amount of people opposed to this on all sides who will try to water it down -- this includes bougie socialists (who probably own homes) who don't want to see developers make money and are actually opposed to change.
> the government should provide people with the deposit needed to buy a home
That's probably going to lead to inflation and more bubbles.
> everyone who wants to own a house should have the means to buy one
Probably not a good goal either. Every financially responsible household should be able to buy one but this should be accomplished by other policies (increasing supply, banning financial speculation, attacking the causes of poverty, etc). Once the price of housing drops, and the standard of living increases, then this should be an outcome of those policies.
> banks should be banned from requiring deposits
Maybe I'm just becoming a bit of a boomer, but I'd rather see us go back to 20% down up front. That helps to tamp down speculation since your leverage is capped at 5x. Of course it shouldn't be 20% of current bubble levels of affordability since nobody can afford that.
> people should be financially punished for owning more than two houses > any house that is rented must be offered for ownership to the long term renter > corporations must be banned from owning homes in order to rent them
I hear you on these, I'm not sure how we get there. Houses that sit empty should also be punitively taxed.
I'm also not sure that I mind apartment buildings being rented out by a company as long as you allow overbuilding to tank the rents down to something more reasonable, I'm willing to be told that I'm wrong about that though.
To throw some additional gas on the fire, I'll also suggest that the government should allow more wage-price inflation. We've seen lots of rising in the prices of assets, but now that wage earners more towards the bottom are getting negotiating power over their salaries everyone wants the Fed to raise rates and throw the brakes on the economy to create a recession and throw those people out of work. What needs to happen is for some moderate 5%-8% wage-price inflation to take hold and for 10 year and 30 year rates to rise accordingly. Right now the actions of the Fed/Government work to contain inflation to the assets that rich people hold, suppressing wages in the bottom half of the economy and increasing wealth disparity. If a moderate wage-price spiral were allowed to happen that would have a corrosive effect on the wealth of the upper 10%, while those living paycheck-to-paycheck would not see their real economic power change (keeping in mind that this is allowing price increases to spill over into wage increases, where what we've seen so far has mostly bee price increases spilling downhill in our economy with no increase in wages). Then with more reasonable 8% rates on 10 year and 30 year bonds this would also remove froth from the financial system. Counterintuitively this will not happen by the Fed raising rates now, that will tank the economy and long term bond rates will still hover around 3% -- but this is what is going to happen. If you want higher 30 year rates you need to let inflation take off and start finally landing broadly in wages.
You'll hear people saying "the solution to the housing crisis is supply - building more houses will fix it!"
Who says this? Property developers and real estate agents.
"increasing supply" just means more money to property developers and real estate agents at sky high prices to investors who will rent them out.
Remember when you hear politicians talking about solving it by saying they'll "solve supply" and "build more houses" - that's the property developer lobby talking about their own interests.
"Supply is a lie". It's a beautiful lie because it conveniently gives the rich investors/real estate agents and property developers something to tell the government to do, that appears to "solve the problem", but in fact just serves their own interests. Supply is indeed the perfect lie. Very much like how the packaging industry tell us to recycle so we don't notice the vast waste they produce.
In theory an huge increment in supply should balance the market. The problem is that in practice, you can't increase supply enough to "fix" it. Houses are a safe investment, so when they devalue, they are bought right away.
E.g: Portugal is one of the countries in Europe with more houses per inhabitant but the housing market for locals was completely wrecked by Airbnb and foreign buyers (good climate and cheap prices). And I say this as a centrist or even leaning right.
When there’s a housing shortage, I guess not building is somehow the solution?
- Limit ownership to residents.
- Limit the amount of houses per person. Max. of 2?
- Limit airbnb outside touristic areas.
Stuff that doesn't work: subsidize houses or limit rents.
Why have a max of two? Seems arbitrary, why not one?
Easy, local government pay for new developpements according to their needs, and rent them at 1/20th of their cost (per year, a bit more to account for losses maybe) for at least 10 year, after which the familly/homeowner can buy the rest of the house.
Finding the sweet spot implies trial end error. It's certainly not 1 and I suspect 2 is too restrictive unnecessarily. The relevant is to restrain housing from being a financial instrument not to repress people. If a person can't buy a dozen houses the demand (and consequently the price) will fall.
2. If no one can own multiple houses, then rentals cannot exist. Where do those who cannot afford to buy live?
Governments everywhere do nothing about the insane house prices because all the politicians own multiple houses. They want nothing more than house prices to keep going up.
I think:
* people should be financially punished for owning more than two houses - via dramatically higher taxes
* everyone who wants to own a house should have the means to buy one - yes that means teachers, firemen, policemen, the disabled, warehouse workers
* the government should provide people with the deposit needed to buy a home
* banks should be banned from requiring deposits - this is just a means of keeping house ownership for rich people, so it should be banned
* any house that is rented must be offered for ownership to the long term renter
* all international house ownership should be banned - you must be a citizen or permanent resident to own a home
* corporations must be banned from owning homes in order to rent them
* In Australia, the government - and this is hard to believe - gives money to investors who own multiple houses via tax breaks. This must be reversed into multiple home ownership leading to paying much more taxes.
The goal is to crash house prices as far down as they possibly can be crashed.
I loathe it that housing has divided our society into landlords an renters, and anyone who owns a house does not give a shit about those who don't.
I welcome the economic conditions that will lead to housing markets being ruined and will party and celebrate those investors who own multiple houses suffering ruinous losses - I'll laugh.
... when you read the negative comments to this post .... probably those against own houses, those for do not own houses.