43
Do you think we will ever have affordable housing again in our lifetime?
(discuss.tchncs.de)
you are viewing a single comment's thread
view the rest of the comments
view the rest of the comments
this post was submitted on 22 Aug 2023
43 points (95.7% liked)
Personal Finance
3747 readers
12 users here now
Learn about budgeting, saving, getting out of debt, credit, investing, and retirement planning. Join our community, read the PF Wiki, and get on top of your finances!
Note: This community is not region centric, so if you are posting anything specific to a certain region, kindly specify that in the title (something like [USA], [EU], [AUS] etc.)
founded 1 year ago
MODERATORS
Taxing property doesn't really work, because landlords just pass those taxes on to their tenants. Even if you make a big differential between owner-occupied and rental property (and homestead exemptions are already common), there's a huge base of people who are either short-term residents or lack down payment, and will rent regardless of how much of the landlord's taxes they have to pay. You can make specific neighborhoods or communities unappealing to landlords, but that just makes them move across the street.
One of the things that makes rental property attractive is the massive leverage available to speculators. You can easily get 5:1 leverage on a property - i.e., you get the profits on a million dollar investment for just $200k cash. Interest on the loan is low, because it's backed the the property, and that interest is tax deductible, and there's many ways to disguise profits or offset them with management expenses. Maybe there's things you can do in the income tax code to discourage property rental, but it's not going to be taxing the property directly.
Perhaps. But the renting business would get way more risky, since you need to pay those X% of the value whether you have a vacancy or not. I expect this would disincentivize the rental providers and would a) stop buying and b) sell a lot of their properties, both leading to a significant drop of the prices on the market.
Most people are renting housing not because they like the lifestyle, but because they can't afford to buy their own. If you make buying housing affordable (mortgage is what they pay for rent), then the actual number of people who really need to rent as opposed to own is pretty small and could be covered by some kind of social/city provided housing.
The reason houses are not affordable is not because the mortgage is more expensive than the rent for an equivalent unit. In fact the opposite is almost universally true. The problem is you can't rent cheaply enough, to set aside enough of your income, to accumulate a down-payment for a reasonable property at a pace that is faster than the appreciation of those properties.
Take our situation just a couple years ago - we had a good deal on an old 2br apartment, paying a little under half our income to rent+utilities. I was saving about $1200~1300 a month towards just the house down-payment. Very respectable, I thought. But house prices were going up nearly 20% YoY. On a $400k house, which was very much on the cheaper end of what was available, that means the down-payment required is increasing at around $1500 a month. Literally every month I'm losing buying power. For perspective, when I looked recently the absolute minimum price I saw on Zillow for a unit in our area that wasn't just an empty plot of land was $285k.
Raising taxes doesn't work because the landlords will literally always just pass it on, plus profit margin, to the tenants. As long as there's another tenant looking in the area, they will always fill the unit. People will just get in to a lease that's 40, 50, 60% of their income because it's all there is.
Can't say I really buy the always pass on taxes idea. If a landlord could jack rent by $500 because they have to pay $500 more in taxes and people will pay it, then why not jack the price regardless of whether or not there's a tax increase.
Pretty sure risky owning means higher rent prices
Ok, so the rent goes up by 500, what happens next? The demand is somewhat elastic, so it shrinks, there will be more vacancies which will become deadly to property renters who might prefer to exit the business.
The other thing is that rent is already controlled in many places, so the landlords can't actually increase it.
If you want to disincentivize landlords through tax, it'll be through income tax to directly reduce their profit. Take away the tax deduction for mortgage interest. Take away depreciation. It's easy for most landlords to book taxable losses every year while generating positive cash flow.
Rent is always more than mortgage+insurance+taxes on equivalent property. The landlord has all the same expenses (and more) as a homeowner, passes them on to tenants, then adds expected vacancy and his profit on top.