Nope! First of all, it's come from no one's pockets until you sell. Until then it's just a hypothetical, theoretical gain on paper.
Second of all, when you do sell it, the money will come from the pockets of your willing buyer :-)
Homeowners with this much gain based on artificial supply constraints should definitely feel bad.
If you can't afford less than $1k per month you could just sell your $1 million house.
Those numbers aren't being dramatic. You need a $1.2 million house to pay $1k a month in property taxes.
That is technically true, but not really true. The basic tax rate is indeed 1%, but counties and cities are free to add any kind of fees they want (AFAIK there is no limit) to your property tax so in practice you're paying way more than 1% in CA.
Irvine CA wanted property tax and so they get builders to force you to an extra fee but it isn't technically a property tax.
Not to say there isn't sometimes a fee or two added but it isn't the Wild West at all.
That is the loophole they use. They add all kinds of fees into the property tax but don't classify them as taxes. Best I know, there is no limit to how many and how much. Twenty years ago my property tax was just a single line item, the property tax. Now it's up to 6-7 (don't have the bill in front of me to check exact count) line items.
So yes, your CA propery tax^H^H^Hfee bill can be way over 1%
It doesn’t matter when you sell because now you’re floating on the water. As the tide rises, so do you.
If they sell that house, and then buy something new at a similar market rate, their property taxes will balloon overnight, because the assessments "reset" to the purchase price when the property changes hands.
The only way this works out great is if, after selling this house, they move to a new area (possibly new state) with lower cost-of-living, and possibly a more sane property tax regime.
(Not sure the person way upthread is in California, but someone lower down mentioned Prop 13, so I thought I'd bring this up.)
I would pay 50% more if I upgraded with the same debt amount due to interest.
Say you bougt a house for 200K many years ago. Your neighbor bought the slightly larger house next door for 275K back then. Your house is worth 1M now. Can you move?
Sure, you can sell your house at a nice profit (and pay taxes on that!!). The neighbors house is worth maybe 1.2M now. So you can't really afford to move.
Housing gains on paper are not income and you can't cash in on it unless you move out to a much cheaper area. Otherwise whatever gains you had on paper also apply to the nearby houses, so you can't afford them.
Why are you so certain you couldn't you afford them? You were able to purchase a 200K house many years ago. Now you just need another 200K to buy that bigger house — and it's a bigger house! You did it once long ago, you can probably do it again even easier (in addition to everything else, you have a huge downpayment now). And no, you typically don't pay capital gains taxes against your primary residence.
In any case, the point is that you're in a way better place than if you hadn't made that 200K purchase. That's what I mean by "floating on the water" — you have a stake in the market so now as it moves, so does your asset.
A married couple can exclude 500K from taxes, but the rest (given example above) is taxable.
> In any case, the point is that you're in a way better place than if you hadn't made that 200K purchase.
For sure. Owning is better than renting.
In August 2023, home prices in California were up 4.8% compared to last year, selling for a median price of $792,900. On average, the number of homes sold was down 14.0% year over year and there were 25,115 homes sold in August this year, down 29,214 homes sold in August last year.
https://cdn.nar.realtor//sites/default/files/documents/ehs-0...
A couple hundred thousand is the price of land, not a home. If it is a home, it’s a teardown.
Capital gains don't necessarily apply everywhere. In eg Australia your owner occupied house is exempt. And in eg Singapore we don't have capital gains on any asset at all.
A house is both a home and an investment for most people. That's just a description of what's happening. However you could say that a house _should_ not be an investment.
> Anyone that leverages their home is an idiot. ... and capital gains applies anywhere [...]
Anyone, anywhere..
Less than a quarter of Americans own their own homes. [0]
[0] - https://www.forbes.com/sites/johnwake/2023/03/31/us-has-3rd-...
I am struggling to find the right words to express how wrong your view is to me. Housing is a basic human need like food and clothing. How can you in good conscience celebrate making a tremendous profits exploiting the fact that people cannot afford a basic need?
I'm completely missing your point.
If I buy property in a developing area because I think it's cool, and I live there for years and am part of the community and watch it grow around me, and years later decide to sell - I took an early risk, don't I deserve to recognize the rewards from that risk?
If it was a bad risk and the area went to hell, and I lost money - is that ok?
But making money isn't?
Should home builders not be allowed to make money because housing is a basic human need?
Should we not be allowed to build luxury homes that cost more because we could have built multiple cheaper ones with the same money?
What should the rules be, in your opinion?
In your mind, how much of the increase in value of housing is due to “early risk” paying off in a valuable community vs an increase in overall demand without an increase in supply?
When the nation sees the housing supply increase slower than the population, that’s not a risky investment. It’s musical chairs where you pay to win.
I'm asking because it really doesn't seem like you have much experience with it based on your comments.
Housing prices go through bubble-burst cycles regularly.
National trends are interesting, vaguely, but local markets are everything, and fluctuate wildly based on many factors.
We get into serious trouble when we have external forces skew the market, like in 2008.
Covid years + essentially free loans (nearly zero interest) are another example.
It caused a bubble that's going to cause a lot of pain as the market corrects.
I'll be part of the solution - I'll buy properties (most likely next year) that are in distress, rehab them, and then sell them later.
According to you, though, that's somehow wrong. I should just let foreclosures happen, let houses rot empty - because profit is wrong?
I’ve seen HGTV. I’m familiar with house flipping, I know that the markets are local. I don’t really need an economics lesson to understand that low interest rates spurred buying. Don’t kid yourself into thinking it takes a genius investor to buy something in low supply relative to demand and resell it for more.
Guess I should be learning from you then.
Being a nationwide problem, they probably wouldn't be able to solve the problem. Because solving the problem means everyone moves to your state.
If you don’t win the lottery you can always buy resale which is close to $1M for a 2 bedroom place.
Oh and it’s a 99 year lease. After 99 years you give it back to the government and get $0.
Then surely I have failed to convey it!
In any case, my edited point about "deadweight loss" is perfectly consonant with the parent poster's feeling of guilt, and with what I presume is your feeling of disgust; it is in fact the economic term of art for that at which you intuitively recoil.
(Although you're kind of equating a very, very expensive home, in the overall scheme of things, with the minimum requirements of decency, if you really think that he's exploiting someone's inability to afford housing, but w/e.)
Now let's get into the controversial stuff...
> Housing is a basic human need like food and clothing.
Agreed. But it's also an asset, because someone has to build and maintain it and have exclusive use of (at least parts of) it, and being a basic need doesn't automatically create a right to something (for obvious reasons) so that asset is gonna trade hands voluntarily like any other. Its price will fluctuate, sorry.
Now, NIMBYs using government fiat to drive down housing supply in their market is an annoyingly common failure mode of local democracy, maybe that's all you're upset about.
You glimpse the problem at the end, only to dismiss it. Your glimpse is when you say:
> Now, NIMBYs using government fiat to drive down housing supply in their market is an annoyingly common failure mode of local democracy, maybe that's all you're upset about.
The triangle that you're looking at is that NIMBYs lead to lack of construction, lead to undersupply of housing, which is a direct cost of both high housing costs and high homeless populations. The profit that I have as a homeowner comes from somewhere. Where it comes from is artificial scarcity that causes renters to struggle, and over 170,000 Californians to be unhoused.
Looking at that without guilt, is like New Englanders whose families made a fortune investing in the triangle trade, congratulating themselves on not having been those evil slave owners. Sorry, but it is tied together. You cannot both profit from the crime, and disclaim a portion of responsibility for it at the same time.
What are those obvious reasons?
Yes, food, but I don't see many arguments for bringing down the price of caviar.
IOW, making an argument against high property prices in highly desirable areas is not the same as making an argument for low cost housing.
It doesn't really matter how dense you make housing in highly desirable areas, there'll always be more people who want to live there than houses available.
The solution is more remote working and much faster public transport.
Tax breaks on businesses for each remote worker will be cheaper than building more slums, it will be quicker (demand is affected almost immediately) and it needs no political campaigning against the local NIMBY residents.
Instead of trying to guilt trip people about the paper value increase in their property, just remove that paper value increase altogether.
(I'm not sure how you would solve the slow public transportation problem. Where I am we have 160km/hour trains, but the door-to-door travel time using these trains to travel 20km is still about twice the time it takes to drive)
A land area with a 40 mile radius and the population density of Manhattan would contain the entire population of the United States.
> Instead of trying to guilt trip people about the paper value increase in their property, just remove that paper value increase altogether.
The only way to do this is to build more housing. You can't fix it with mass transit because the existing housing is low density and mass transit requires high density.
That's a good point you make - even at the extremes of high-density living, high density still doesn't solve affordability!
People can neither walk nor bike 80 miles, and public transport over 80 miles with multiple stops takes hours, so you can reasonably expect that prices would be considerably higher in the center (40 miles to everywhere) where it is more desirable, and people can neither walk nor bike 40 miles for commuting. Public transport infrastructure for a 40 mile journey also makes commuting infeasible.
The problem of not being able to afford living close to where you need to be is still there, even in the hypothetical pathological case.
If it can't solve the problem in the ideal case, it can't solve the problem in any case.
Most “new urbanism” people advocate for medium sized, densely built, 15 minute cities. Not a single megalopolis.
I can drive 30-45 minutes and be sitting on a lake with no one around, when I retire that drive will be 5-10 minutes.
A lot of us don't want to live like that even if we could.
Which should make it even easier to find low density housing, because you won't be competing for it against people who just need a place to live and don't care about having a big yard.
Manhattan is <23 square miles, containing ~1.6M people, surrounded by a metropolitan area of ~20M. The surrounding area has a lower population density, implying that it could be higher, which would reduce housing costs by supply and demand.
It's not about how much housing you have in absolute, it's about how much you have relative to demand. The demand in NYC is about the highest in the country, so they need more supply than they have even now.
> People can neither walk nor bike 80 miles, and public transport over 80 miles with multiple stops takes hours, so you can reasonably expect that prices would be considerably higher in the center (40 miles to everywhere) where it is more desirable, and people can neither walk nor bike 40 miles for commuting. Public transport infrastructure for a 40 mile journey also makes commuting infeasible.
The average commute is 41 miles as it is. And with that level of density you could justify express trains that travel at highway speeds or more, making that distance a much more reasonable commute than it is now.
The area in the center might cost more than the outer ring, but what of it? The point is not to make all housing have the same price, it's to build more housing to lower the price of all housing. It doesn't matter if the center costs more than the outskirts if they each cost 25% of what they do now.
It also goes without saying that you would not actually build this. You neither need nor want the entire US population to live in an area the size of Connecticut which represents less than 1% of its land mass; there are multiple metropolitan areas spread all over. The point is merely that enough housing for the entire population would fit in that area, which serves as an upper limit on how much housing demand you could even have. And even Manhattan has a lower population density than we could build at -- it certainly doesn't consist entirely of 100 story buildings despite them being possible to build. The claim that it isn't possible is clearly false.
> The problem of not being able to afford living close to where you need to be is still there, even in the hypothetical pathological case.
That is the pathological worse case scenario because you would have to provide enough housing for a single city with 340M people in it, and you still end up with a lower average commute than people have today.
If you took each existing metropolitan area and raised the population density to that of Manhattan (i.e. lowered the area with the same population) then then San Francisco metro area with 7.8M people would have a radius of less than 6 miles.
If someone discovers their vintage car is worth more than they paid for it as teenager should they feel guilty over this?
Do you feel guilty when you eat food because someone somewhere isn't?
When the people who "generate wealth" are doing so by dictating prices, that seems a bit sketchy to me.
The ironic thing is that housing scarcity often ends up making a place much less desirable -- even for the entrenched homeowners who cause the scarcity problem.
Assuming that property tax has been tracking the current market value of the house then yes.
But in California prop 13 means that isn't the case
It comes from their pockets when they pay rent. Meanwhile you, as a property owner, receive thousands of dollars a month in imputed rent by owning a place to live.
You also have the ability to spend the money without selling the property by borrowing against the equity, as many people do.
> Second of all, when you do sell it, the money will come from the pockets of your willing buyer
People "willingly" subscribe to Comcast. Not because they prefer doing business with Comcast or believe themselves to be getting a fair deal.
> if you still want to feel bad about something, let it be this:
The people celebrating the increase in housing costs because they own housing should feel bad about it. Especially the ones who caused it by lobbying for zoning restrictions.
> But that's why we created the universal land value tax and used it to replace all other taxes! (Hello from the year 2078!)
This doesn't actually fix housing shortages created by restrictive zoning -- which you could conceivably still have with a land value tax and a government that keeps the restrictive zoning to maximize land values and therefore tax revenue. (Land is worth a lot more if you need it proportionally to build housing instead of just buying one piece of land to build an arbitrarily large amount of housing by building an arbitrarily tall building.)
What I'm doing now is renting out that house at less than my mortgage whilst living in a different country with higher taxes and which generally takes better care of its people (the blight that is the Tories notwithstanding).
That said, you can't expect people not to play the game if they're forced to play the game. Those of us in the western world pretty much all live in capitalist countries; the best we can do is ensure that we're doing well in our own lives whilst trying to fix the game for those who aren't doing so well. Taking out a HELOC and giving the money to friends is a substantial financial risk that jeopardises our own comfort without having a clear positive impact on those friends and without really fixing the underlying problem. It's like giving cash to a homeless person instead of giving them housing and support -- the cash will be gone soon, and the system that resulted in their homelessness won't be fixed, nor will you have prevented any future homelessness.
tl;dr, you can own a house and live comfortably whilst still lamenting the fact that your friends can't, and this isn't an inherently hypocritical stance. You're just lamenting the fact that the game you're playing necessarily has winners and losers, and wishing that would change.
IF someone actually means it, though, (which is a very big IF), taking out a HELOC and giving the money to friends for their own down payments is nothing like giving cash to a stranger with a demonstrated history of ending up without money.
If someone really does think their position is a fortuitous accident, and that their friends are equally deserving, just less lucky, they can settle the score. They can take the fruits of their luck, give it to their friends to afford them the same advantage of home ownership, and place themselves in a financial situation similar to their friends. Similar interest rate. Similar equity in the home. Even things out again.
There might be people who really do believe they should right a wrong, and they have the opportunity.
Realistically, I think it's like the richest people who bemoan the injustice that they don't even pay taxes as high as their hired servants, but wouldn't dream of using the IRS's easily available option to pay more taxes voluntarily.
I don't like it when people get points for pretending they care.
As analogy: "It sucks that my peers earn less than me because they are part of <X disenfranchised group>"; You: "Why don't you just take your extra income and give it to them?"
If the food in your fridge or the clothes in your closet were suddenly drastically more expensive and you could make a profit selling them, would that be a good sign for your society and community? Would you view it as a sign of prosperity that your well stocked pantry was now a source of funds you can tap by selling to starving people?
Housing is a basic human need and it’s all but unaffordable. Even if you personally profit surely you can see that this is corrosive to society as a whole.
You bought a house and you live in it. Feeling guilt over something that isn't your fault makes no sense. If it makes you feel _better_ to try to help solve the problem, that's great; but that's totally different than guilt.
Just like it's not right to feel bad that you can't keep up with the Joneses, its not right to feel guilty that the Smiths can't keep up with you.
1. Through the years you own your home, you will pay roughly 1% of the notional value of the property in state and local property taxes EACH YEAR. You already know this.
2. When you sell your house, agents will eat 5% and the state you are in will take another ~3%. Other closing costs, the expense and the hassle to spruce up the house for sale. Round it off to a 10% haircut of the selling price.
3. If you're single the first $250K of capital gains on your primary residence is exempt from federal income tax. Beyond that the IRS will take its cut. Include the Net Investment Income Tax (NIIT) and you're looking at 24% tax on any capital gains, assuming you will be in a high tax bracket when you sell. And depending upon the state you live in, there will be capital gains taxes paid to the state.
Now look around you at the prices of groceries and meals. I have seen these costs roughly double in the last 8 years.
So it's not just that your house has appreciated in value -- it's more that the value of the dollar has gone down. And the plumbers and electricians and construction workers needed to build a new house have also gotten more expensive. By buying real estate you have managed to preserve your buying power somewhat so it's not eaten up by inflation.
You're not as rich as you think, but at least you're better off than the intern and your younger siblings. (edit: formatting)
Would that alleviate your guilt?
I'd be happy about it too, but am overwhelmed by guilt when talking to my intern, our newly hired engineer, my younger siblings, and many of my friends who rent at ever-increasing rates.
That $230,000 was taken from the pockets of my non-homeowning friends. I don't understand how so many seem to be cheering the rising prices, oblivious to what it's doing to our society.