The capital gains exclusion I have less strong feelings about, but it amounts in large part to excluding being taxed on the effect of inflation.
Landlords can deduct mortgage interest just like any profit-seeking business can deduct interest on loans taken on in furtherance of their business. That’s true for single-family homes or duplexes in a suburb same as a rowhouse, 4-plex or 50-unit building in a city.
The owner-occupant deduction applies to their unit, whether that’s all of an SFR, half a duplex, one level of a triple-decker, or 1 unit in a 4-plex.
https://www.progressivemaryland.org/home_mortgage_interest_d...
The US is also one of the only countries where mortgages are so expensive. We wouldn't need the tax breaks if housing prices were low, I suppose.
https://www.brookings.edu/blog/up-front/2022/05/18/how-does-...
there's two parts to home ownership
Physical asset, which deprecates (or needs a lot of maintenance to keep its value)
Land, which appreciates, as they aren't making any more
The former is fine. If you take a wreck and improve/renovate it and sell it for more than you paid, that's great, should be encouraged. The problem is the land value. Ironically the US tends to tax the physical asset far more than the land.
The increase in labor costs may now exceed the rate of home degradation.
Doubt.
Property developers are one of the most despised groups in Ireland, despite our extreme housing shortage, and there are many very fucking good reasons for that.
https://www.opendemocracy.net/en/dark-money-investigations/2...
Successive Ministers for Housing have dramatically under-built social housing, every year, for decades. This, while a "housing emergency" has been recognised for near as long.
These failures are used to justify things like the HAP scheme, which subsidize landlords directly. If this seems stupid - you're right. Many have pointed this out, but the politicians and landlords and developers responsible don't see any issue.
We sometimes subsidize developers to the tune of tens or hundreds of millions, just so we can rent the future property off of them, at above market rate, for decades. And we give it back afterward!
We allow developers to lobby the Government on policies that will make housing less affordable for young people.
Sometimes we just straight up give them €150,000 taxpayer cash per unit, to build "unprofitable" €450,000 units.
All this, while we have all time high homelessness rates, with hundreds of thousands more Irish adults living on friends couches.... While State homelessness organizations accuse charities who question this of "virtue signalling".
Even our constructions materials companies are staggeringly corrupt, eg, CRH (https://villagemagazine.ie/a-history-of-scandal/). They're widely known among Irish people to be criminal, and have been for a long time. See the mica blocks scandal for another example. Yet somehow they all keep getting lucrative contracts. No one is ever punished. And every time there's a big documentary planned about their various mafia type scams, it gets pulled. "Orders from up top".
I'm a little skeptical that homes being disposable is a good idea.
Housing simply should not be seen as the primary personal investment vehicle for the average person.
Easiest way to do that is a land value tax; the home itself is not what is appreciating in value anyways, the land is what is appreciating.
The homeowner just owns the liabilities.
In order to get the attractive spots, they’ll throw you a very lucrative bid, which also raises the surrounding property values considerably (well, until the blocks have been finished, that is. Could take years in cities with strong NIMBYism).
To be honest, many of the newer and “cheaper” apartments in such blocks (still costs you $350k minimum) kind of suck. Small, narrow, etc.
1031 exchange
Mortgage interest deduction
Opportunity zones
Taxpayer backing of Fannie and Freddie (allows insane leverage and eliminates interest rate risk for borrowers)
Lack of any federal property/land tax
Historical precedent that the government will bail out property owners in times of financial uncertainty
Countless local tax cuts (Prop 13 etc)
You make it sound like a bad thing? Policies should favor the people. There are policies that favor renting flats too.
I believe the problem is not "making it a good deal to own your home". That should be the default anyway.
In China for example there's no property taxes and you can't send your kids to public schools unless you own property.
This is changing as we speak due to the interest rate. These investments are not attractive if you can get a 4% or higher return without having to deal with tenants and maintenance.
So if I buy a house for $100,000, I get $4000 in rent per year? Or I get $4000 in my pocket after I use the rent money to pay the mortgage and property tax?
There are different ways to calculate returns: IRR, cash on cash, but it’s immaterial for this discussion. TLDR you want returns higher than you can get elsewhere easier.
What do you mean by 'bad'? Morally bad? Macro-economically negative? A money-losing investment for the investor?
The investment has been a good one for generations. One reason is we have continued to grow wealthier for generations.
Owning your property, with the rights and independence that come with it, is fundamental to personal liberty and security. Your home is your castle; the landlord's home is not. Not everyone has to do it, but you are handing over a lot of power to someone else when you rent.
You then said primary home ownership is a ponzi scheme which I gave an example as to why that seems untrue. I might be wrong here but providing a counter argument supporting why renting should be preferential to home ownership financially would be helpful as that seems superficially untrue.
The pay off from investing in a house is when you retire you live there rent free, thus needing less in other retirement investments. Most home owners fail at this, instead living beyond their means and have nothing saved for retirement.
I think it is fairly safe to say that the general expectation of an investor is that the value of a home will grow faster than inflation - why else bother investing? This means that the average inhabitant's costs for living in that home (rent, mortgage payments) must also grow faster than inflation. However, the average inhabitant's income will only grows with the inflation rate.
This means that for homes to be used as investment, the cost of living in them must be an ever-growing percentage of the inhabitant's income. And this is what we are currently seeing in practice: since 1965, home prices have increased 7.6x faster than income.[0]
This is obviously unsustainable - we can't end up with everyone spending 100% of their income on housing. The big question is, who will be holding the bag when the bubble bursts?
[0]: https://www.realestatewitch.com/house-price-to-income-ratio-...
Secondly, unless you own multiple properties, it's a market you can't exit. You always need a place to live so if you sell your "investment" at a market high, you have to buy your next "investment" at a market high.
Combining the two, you get a lot of policies that protect paper wealth not generating much value. I think it was Putin who said something along the lines of "I don't understand the American economy. It seems like they're just buying and selling homes to each other."
Owning a home provides tremendous value to the owner beyond the financial aspect.
Contrary to your statements, it benefits everyone if these are seen as a personal investment - but not a liquid asset like stock or something.
Financiers shouldn't make broad stroking national moves on this, and it's basically up to state governments to beat back their capital by regulating things like quality, tax levels, and even build rates to prevent gluts, stem out-of-state "investment", maintainable infrastructure. If the banks try to dive into "house" be assured that they mindlessly leave it up to government to assure upkeep of every other dependency.
Banks can't even upkeep the property they plan to buy, they are so dumb and myopic that they'll buy a place, turn off the sump pumps in the basement to "save money" and literally destroy 2% of the available housing in an area -- which is fine for them since they can write it off pricing everything else up a bit, not as fine for the people who already couldn't afford a home, and are more deeply priced-out.
Governments could make them liable for this, akin to how you are contractually obligated not to destroy a leased car, but most homeless folks make poor lobbyists.
This is largely context dependent. For example, Japan's homes aren't built to last as long as many American ones. Additionally, even heavily depreciating assets like cars can last virtually indefinitely with proper maintenance. (E.g., Model T's aren't really worth much because there still are many around and they are relatively easily maintained)
What makes "homes" appreciate in value is almost never the building itself, it is the land.
And it has always been an odd split of who you want as tenants. Commonly, you either wanted very poor, or commercial tenants. Middle class was not desired.
For the middle class, you wanted to be their bank.
- prices dropping is a good thing
- nimby are the real evil
- we should promote the idea of housing as utility not a store of wealth
- but govt encourages housing as wealth via subsidies, tax breaks, bailouts ect.
- poc should be allowed to build inter-generational wealth via housing. This shouldn't be suddenly cancelled.
- we should be building more public housing like germany and france.
- some random side convo about gentrification
- another side convo about suburban housing = bad. we should all live in tightly packed cities with no cars.
Rinse and repeat.
I think this topic is might be second only to 'tech interviews and hiring' in terms of predictability
IMO, this is slightly at odds with the OPs point that creating housing investments is a bad thing. One of the problems in my eyes is that a disproportionate amount of Americans wealth is tied up in their homes. This creates incentives to protect those "investments" through things like NIMBY policies, tax incentives, etc. An alternative would be to create a system that fosters more diversified inter-generational wealth.
it's a catch-22. "lowering the cost of housing" and "lowering property values" are the exact same thing. there's no actual political appetite to lower the cost of housing, because all the people in charge of making those decisions are property owners who don't want to see their investment lose value.
It's also why my first step is not to sell it as the implementation of a new tax; rather, it is an exemption to buildings. People don't like new taxes, but everyone loves exemptions!
Political problems are often difficult to solve but that by no means makes them impossible.
> - another side convo about suburban housing = bad. we should all live in tightly packed cities with no cars.
Are they wrong though ?
Removing zoning restrictions (and fake environmental/historical significance reports) will immediately restore supply-n-demand stability to housing. Want more housing ? Build it. Simple as that.
> second only to 'tech interviews and hiring' in terms of predictability
The main difference is that no one has a good alternative to tech interviews. On the other hand, every single NIMBY problem has been analyzed to death, with location relevant solutions proposals and verified proofs of them working.
It isn't, at all. The increase in prices is tied to increase in GDP, interest rates and disposable income. Unless you think investing is a Ponzi scheme.
[0]: https://www.realestatewitch.com/house-price-to-income-ratio-...
1. Being a landlord has become a more attractive investment because in job-rich regions, cities don’t let developers build enough new homes. The lack of competition from new units allows landlords to raise rents on existing units. Let us be clear on a point of confusion: Developers DO NOT EQUAL landlords. Sometimes developers will rent the units they build, but often not. Developers are the good guys here. When they build shiny luxury towers, it gives the Amazon tech bro something to buy instead of coming into your neighborhood and bidding up the price of older units.
2. Financialization of homes as a personal investment is a BAD thing. It’s essentially a Ponzi scheme operating over decades where home buyers depend on people wealthier than themselves to buy their home at a higher price decades later. This is clearly unsustainable. Homes need to stop being seen as an investment, but rather a consumption, much like a car or other goods. The Atlantic had a good article exploring this topic:
https://www.theatlantic.com/newsletters/archive/2022/12/home...
The solution to our housing crises will include A. State governments allow lots of new homes such that homes are no longer a scarce (thus expensive) commodity, and B. We put in better tenant protections or practices such as multi-year leases that can be broken without too much of a penalty. That is, a family can, say, sign a 10-15 year lease on a home and still break the lease if life events make it necessary.