Taxing the Rich Is Failing to Ease the Global Housing Crunch(bloomberg.com)
bloomberg.com
Taxing the Rich Is Failing to Ease the Global Housing Crunch
https://www.bloomberg.com/news/features/2021-08-16/taxing-the-rich-do-housing-prices-fall-when-empty-second-homes-are-taxed
31 comments
This is a terrible article.
Even if you drill down to the specific point "some people aren't sure vacancy taxes will help", there is a near total lack of anything remotely resembling an explanation for why they think that might be true. The closest thing is an analysis of Vancouver and how some people hoped it would help vacancy rates more but it didn't.
Well, you know what else fits that description in spades? Adding supply. Everybody says "build more housing and the prices will come down" and... they don't. The 2nd derivative bends, prices increase more slowly but they do. not. drop. until the demand side does. But you don't see anybody writing Bloomberg articles about how we shouldn't build more or saying some economists are not so sure adding supply works.
People are sure adding supply works because it fits a simple model. And it probably does help more than not adding supply, even if the financial dynamics are such that it only produces mild effects.
Vacancy taxes deserve at least as much currency in these discussions. And probably more if this article is an example of a substantial case against them.
Even if you drill down to the specific point "some people aren't sure vacancy taxes will help", there is a near total lack of anything remotely resembling an explanation for why they think that might be true. The closest thing is an analysis of Vancouver and how some people hoped it would help vacancy rates more but it didn't.
Well, you know what else fits that description in spades? Adding supply. Everybody says "build more housing and the prices will come down" and... they don't. The 2nd derivative bends, prices increase more slowly but they do. not. drop. until the demand side does. But you don't see anybody writing Bloomberg articles about how we shouldn't build more or saying some economists are not so sure adding supply works.
People are sure adding supply works because it fits a simple model. And it probably does help more than not adding supply, even if the financial dynamics are such that it only produces mild effects.
Vacancy taxes deserve at least as much currency in these discussions. And probably more if this article is an example of a substantial case against them.
Housing is expensive because some people are using it simply to print money out of a very long downtrend in interest rates. The article is paywalled, but it's not in Bloomberg's interest to understand this and I'm not surprised to hear that article fails to articulate any satisfying alternative.
Article is weird and does not construct a coherent argument, feels like something written to throw out the idea as a headline.
As in a headline was written and then an article rushed to fill the topic, rather the other way around.
A point it raises (2 decade long housing boom in Melbourne) does not get addressed, how can there be a “boom” like this that prices people out. Where does that money come from? Maybe tackling it at the root is better.
As in a headline was written and then an article rushed to fill the topic, rather the other way around.
A point it raises (2 decade long housing boom in Melbourne) does not get addressed, how can there be a “boom” like this that prices people out. Where does that money come from? Maybe tackling it at the root is better.
It reads weirdly because it’s a kind of propaganda, in a way.
Who is taxing the rich? We gave the rich a huge tax break 4 years ago...
This article smells like gaslighting, to me.
This article smells like gaslighting, to me.
Read the article. This is a global thing, not US-specific.
Los Angeles is planning to put a vacant homes tax on the ballot for 2022, in the face of a mounting homelessness crisis. Hong Kong officials are considering taxing condo developers to deter them from hoarding new units. Ireland is exploring its options. Barcelona has gone as far as threatening to seize landlords’ empty apartments — paying half of market value — and convert the units into affordable rentals. Paris tripled its tax on second homes in 2017.But only one of those examples is something that’s actually been done. The others are future plans or threats or just ideas.
And also, in that example, it actually seems to have worked, just not as much as they hoped, so obviously total failure, right?
the parent comment: "We gave the rich a huge tax break 4 years ago"
... which is not a global occurrence. But hey, this is HN, wouldn't want the facts to get in the way of a good narrative
... which is not a global occurrence. But hey, this is HN, wouldn't want the facts to get in the way of a good narrative
Why are the wealthy parking their funds in real estate? They don't have a crystal ball so its not because they know its going to appreciate. It's a terrible investment by almost all accounts. It's historically expensive, undiversified, large transaction costs, high maintenance, taxed continuously, politically visible, etc. And they don't even bother to use it.
My understanding is that there are limits to where they can store their wealth with relative safety. A Russian oligarch can't just open up a Robinhood account and park hundreds of millions of dollars in a low cost ETF. Their wealth is in constant risk of confiscation by the state. That's much less true in the US. I don't think Mark Cuban would just sit on hundreds of millions worth of real estate in Vancouver. Vacation homes and private islands are different, but I think its mostly a developing market oligarch phenomenon.
I wonder if crypto could alleviate some of the strain caused by work-arounds to unequal banking systems.
My understanding is that there are limits to where they can store their wealth with relative safety. A Russian oligarch can't just open up a Robinhood account and park hundreds of millions of dollars in a low cost ETF. Their wealth is in constant risk of confiscation by the state. That's much less true in the US. I don't think Mark Cuban would just sit on hundreds of millions worth of real estate in Vancouver. Vacation homes and private islands are different, but I think its mostly a developing market oligarch phenomenon.
I wonder if crypto could alleviate some of the strain caused by work-arounds to unequal banking systems.
You just answered the question. This is not about the "very" rich as in Jeff Bezos or Mark Zuckerberg. This is about the $10-100m guys who made their money in shady ways or didn't pay their taxes. Real estate is great as there are little tracks in how the money is moving.
You could buy a house in a neighboring country for money that you paid tax on (say $500k) and then do renovation work that cost $500k but that money could be moved mostly in cash and is the shady part. It's also very hard for your original country to "know about it (the renovation)" and the host country most likely doesn't care.
You could buy a house in a neighboring country for money that you paid tax on (say $500k) and then do renovation work that cost $500k but that money could be moved mostly in cash and is the shady part. It's also very hard for your original country to "know about it (the renovation)" and the host country most likely doesn't care.
It’s also people that may have made their money legitimately, but live under authoritarian regimes and want an escape plan
I think part of it is also a “safety net” of sorts for the oligarch buyers. If your corrupt government goes under or if you fall out of favor it’s likely your assets will be seized but it’s much harder for your opponents to seize your condo on the other side of the world.
I don’t think crypto is the answer though. If anything it’s allowing the issue to continue. Vancouver, for example, recently implemented AML requirements for real estate transactions and crypto’s major selling point is allowing users to avoid compliance with that sort of pesky regulation.
I don’t think crypto is the answer though. If anything it’s allowing the issue to continue. Vancouver, for example, recently implemented AML requirements for real estate transactions and crypto’s major selling point is allowing users to avoid compliance with that sort of pesky regulation.
My understanding is that housing is viewed as an inflation hedge. They’re buying those assets now on credit because they’re expecting elevated inflation over the medium term. Which means they’ll be able to raise and collect rent over that time, and likely sell at a profit.
This is a problem that many countries have solved by banning or heavily taxing ownership of housing by corporate and foreign entities. We pretend these problems are unique and intractable because solving them would mean a level of wealth redistribution, but honestly that’s well overdue.
This is a problem that many countries have solved by banning or heavily taxing ownership of housing by corporate and foreign entities. We pretend these problems are unique and intractable because solving them would mean a level of wealth redistribution, but honestly that’s well overdue.
It is also an asset you can borrow against.
Once you get past a particular point with money, debt becomes a tool, not something you do to get something. Paying back debt is considered a business expense. Once you see that and you understand that you can work the tax system to pay less in taxes. Rent is just a bonus. Sometimes they will set the rent high just so they do not have to mess with it.
One of the few things that 2016 tax plan did was to put a cap on how much you could write off in many conditions.
Once you get past a particular point with money, debt becomes a tool, not something you do to get something. Paying back debt is considered a business expense. Once you see that and you understand that you can work the tax system to pay less in taxes. Rent is just a bonus. Sometimes they will set the rent high just so they do not have to mess with it.
One of the few things that 2016 tax plan did was to put a cap on how much you could write off in many conditions.
I have several hundreds thousands of disposable money. Good quality appartement in a nice city looks like a very solid investment choice:
- I get to buy a touchable, physical, valuable assets. If something happens to me, I can use that asset for myself.
- It looks like the assets is going to increase in value in the foreseeable future
- Regular, predictable additional income when I rent it
- I cannot "spend" the house, unless I pull the plug and sell it - which is a big commitment. I cannot enter a spiral that leads to me slowly but surely waste that money.
- Assets value is not easy to evaluate, as opposed to stocks/bond which evolve on a daily basis. I currently have stocks, and I end up checking their value almost daily. I believe it actually adds stress in my life and that stuff is addictive. I am not sure I like it that much.
It certainly is not the absolute best placement I can make, but I am not looking to maximize my ROI at all cost, I just want to optimize my happiness and use that money to enjoy life a bit more.
Real estate looks like a great way to store that money, hedge against inflation/stock market crash, protect this money from myself, and reduct my potential anxiety when it comes to managing it.
- I get to buy a touchable, physical, valuable assets. If something happens to me, I can use that asset for myself.
- It looks like the assets is going to increase in value in the foreseeable future
- Regular, predictable additional income when I rent it
- I cannot "spend" the house, unless I pull the plug and sell it - which is a big commitment. I cannot enter a spiral that leads to me slowly but surely waste that money.
- Assets value is not easy to evaluate, as opposed to stocks/bond which evolve on a daily basis. I currently have stocks, and I end up checking their value almost daily. I believe it actually adds stress in my life and that stuff is addictive. I am not sure I like it that much.
It certainly is not the absolute best placement I can make, but I am not looking to maximize my ROI at all cost, I just want to optimize my happiness and use that money to enjoy life a bit more.
Real estate looks like a great way to store that money, hedge against inflation/stock market crash, protect this money from myself, and reduct my potential anxiety when it comes to managing it.
I would strongly advise otherwise.
> I get to buy a touchable, physical, valuable assets. If something happens to me, I can use that asset for myself.
There are expenses in maintenance. If you're in a condo, you'll have to pay condo fees and taxes every year. These will go up as your property appreciates
> It looks like the assets is going to increase in value in the foreseeable future
You don't know this, but if you want a positional bet on real estate there are cheaper managed options such as REITs
> Regular, predictable additional income when I rent it
Renting is non-trivial. You can make good income that may even cover your mortgage, but one bad tenant or a few months vacancy will wipe out your returns. Eviction for non-payment is also non-trivial and takes 6 months to 2 years depending on the state. In non-US its often longer. Something like covid also means your tenant is likely living rent free indefinitely. You'll also have to maintain the tenant and pay for stuff. Fridge breaks down, need a new HVAC, plumbing, electrical, all on you. It's not predictable. You can pay someone to manage the rentals for you, but the rate is something like 10% of gross rent and that doesn't cover expenses that may arise.
> I cannot "spend" the house, unless I pull the plug and sell it - which is a big commitment. I cannot enter a spiral that leads to me slowly but surely waste that money.
Homes depreciate and require a lot of maintenance. More true for houses, but condos have other expenses such as condo fees
> Assets value is not easy to evaluate, as opposed to stocks/bond which evolve on a daily basis. I currently have stocks, and I end up checking their value almost daily. I believe it actually adds stress in my life and that stuff is addictive. I am not sure I like it that much.
There are less liquid investment vehicles other than stock that don't have the daily update factor. There's a lot more stress when your property needs a new roof and you're trying to manage maintenance when you're not there to supervise.
> I get to buy a touchable, physical, valuable assets. If something happens to me, I can use that asset for myself.
There are expenses in maintenance. If you're in a condo, you'll have to pay condo fees and taxes every year. These will go up as your property appreciates
> It looks like the assets is going to increase in value in the foreseeable future
You don't know this, but if you want a positional bet on real estate there are cheaper managed options such as REITs
> Regular, predictable additional income when I rent it
Renting is non-trivial. You can make good income that may even cover your mortgage, but one bad tenant or a few months vacancy will wipe out your returns. Eviction for non-payment is also non-trivial and takes 6 months to 2 years depending on the state. In non-US its often longer. Something like covid also means your tenant is likely living rent free indefinitely. You'll also have to maintain the tenant and pay for stuff. Fridge breaks down, need a new HVAC, plumbing, electrical, all on you. It's not predictable. You can pay someone to manage the rentals for you, but the rate is something like 10% of gross rent and that doesn't cover expenses that may arise.
> I cannot "spend" the house, unless I pull the plug and sell it - which is a big commitment. I cannot enter a spiral that leads to me slowly but surely waste that money.
Homes depreciate and require a lot of maintenance. More true for houses, but condos have other expenses such as condo fees
> Assets value is not easy to evaluate, as opposed to stocks/bond which evolve on a daily basis. I currently have stocks, and I end up checking their value almost daily. I believe it actually adds stress in my life and that stuff is addictive. I am not sure I like it that much.
There are less liquid investment vehicles other than stock that don't have the daily update factor. There's a lot more stress when your property needs a new roof and you're trying to manage maintenance when you're not there to supervise.
Thank you for that. As explained earlier, the money is current not in real estate but in diverse stocks/bond (think ETF). I am quite risk adverse and a bit naturally anxious, so I did consider real estate as a solution, but that might not be the best option for me either.
The current us stock market is overvalued and will continue to be as long as they keep printing money. The billionaires know this and are diversifying into real estate
Real Estate gives you access to secured leverage
Because there is nothing else to buy. Real global growth is almost zero, so the dollars around the world are starting to come back, but as I mentioned, there is almost nothing else to buy.
The economy bus crashed into a wall a couple of years ago, but while the the front is completely wrecked the rear still hasn’t noticed the impact. Money is flowing front to back trying to escape, yet at the same time governments pour even more money at the windshield so people at the back don’t notice the accident.
Stocks are safe assets as long as the fed keeps thinking stocks are the economy, real state is a safe asset as long as the government and police exists.
The economy bus crashed into a wall a couple of years ago, but while the the front is completely wrecked the rear still hasn’t noticed the impact. Money is flowing front to back trying to escape, yet at the same time governments pour even more money at the windshield so people at the back don’t notice the accident.
Stocks are safe assets as long as the fed keeps thinking stocks are the economy, real state is a safe asset as long as the government and police exists.
You can scratch off population growth as the reason.
My country's population peaked in 1999, while its urbanization fell by almost one percentage point during the last decade, yet housing is getting more expensive at an alarming pace.
Both people and institutions have been parking money in the real estate market for a while now and that is made abundantly clear by postings such as "For sale: ten studio apartments!" (in the range of 18-25m sq. - so technically most of them aren't legally apartments).
There's a large new building in my area - I tried to find any kind of information on it back when it was in construction. Turns out it consists purely of so-called "microapartments". They might have been sold out before even any foundation was laid.
This trend is worrying. Buildings take up space and last decades - you can't just build another in the same area and it's not profitable to tear down such an investment.
My country's population peaked in 1999, while its urbanization fell by almost one percentage point during the last decade, yet housing is getting more expensive at an alarming pace.
Both people and institutions have been parking money in the real estate market for a while now and that is made abundantly clear by postings such as "For sale: ten studio apartments!" (in the range of 18-25m sq. - so technically most of them aren't legally apartments).
There's a large new building in my area - I tried to find any kind of information on it back when it was in construction. Turns out it consists purely of so-called "microapartments". They might have been sold out before even any foundation was laid.
This trend is worrying. Buildings take up space and last decades - you can't just build another in the same area and it's not profitable to tear down such an investment.
>My country's population peaked in 1999, while its urbanization fell by almost one percentage point during the last decade, yet housing is getting more expensive at an alarming pace.
Metro areas in Poland are absolutely growing. The problem with part of your argument is twofold.
First, is the faith in official statistics. People moving to large cities for university/work almost never officially change their "zameldowanie" unless they get kids and want to find place in kindergarten.
Second, is the growth in "metro areas" compared to "urban areas". "Villages" such as Józefosław or Nowa Iwiczna have experienced extreme growth since 1999, and prices there directly affect prices in Warsaw. The same effect works in all metro areas except for Silesia.
You're 100% right in the rest of the post though.
Metro areas in Poland are absolutely growing. The problem with part of your argument is twofold.
First, is the faith in official statistics. People moving to large cities for university/work almost never officially change their "zameldowanie" unless they get kids and want to find place in kindergarten.
Second, is the growth in "metro areas" compared to "urban areas". "Villages" such as Józefosław or Nowa Iwiczna have experienced extreme growth since 1999, and prices there directly affect prices in Warsaw. The same effect works in all metro areas except for Silesia.
You're 100% right in the rest of the post though.
Article claims it's simultaneously a failure and that it hasn't been tried yet, but will be but will be soon.
It's kind of convincing me more that Bloomberg doesnt want for it to be seen to be working.
It's kind of convincing me more that Bloomberg doesnt want for it to be seen to be working.
We aren't really taxing the rich, on the contrary they are complaining about not being taxed enough.
This article doesn't seem particularly coherent.
At one point it claims these taxes are not a meaningful way to generate revenue, and then goes on to say the tax in Vancouver generated C$84M over two years instead of an estimated C$4M. I guess they want to say that C$84M is such a meaningless amount to Vancouver it's not even worth collecting? That seems like a stretch.
Then it goes on to say it hasn't done much. Yet they themselves say it has reduced the group of identified problems by 25%. If anything the important part here seems that the problem group was small in the first place. However how does that fit in with the fact the tax ended up producing over 20x the expected revenue?
They also point out other instances where the tax has apparently made substantial changes but not enough changes. This includes the vacancy rate going from 0.3% to 0.8%, instead of a hoped-for 5%. That's still more than double the original rate.
They also say a large number of homes qualify for exemptions from the tax.
Another implementation in Melbourne is apparently not enforced well in the first place.
And the problem continues to exist in both places, of course.
Somehow their conclusion is that the entire idea is not worth pursuing. I don't see how. The tax in Vancouver seems to substantially change behavior and raised substantially more money than expected which is earmarked for government programs dealing with the problem. There are also apparently many exceptions which seem like good avenues to use to skirt the tax, and it seems likely to be worth closing those loopholes.
As for Melbourne, I don't even know what to say about it. How are we supposed to conclude that an unenforced measure is entirely the wrong kind of idea because it hasn't changed anything? It wasn't enforced, so how could it have?
Articles like this one are the kind of thing that convinces people to begin to outright ignore a source. It's one thing to have a usual angle and tend towards it while presenting a fair and coherent picture of the situation. It's another to shove out this drivel that doesn't even appear to be a good-faith analysis.
At one point it claims these taxes are not a meaningful way to generate revenue, and then goes on to say the tax in Vancouver generated C$84M over two years instead of an estimated C$4M. I guess they want to say that C$84M is such a meaningless amount to Vancouver it's not even worth collecting? That seems like a stretch.
Then it goes on to say it hasn't done much. Yet they themselves say it has reduced the group of identified problems by 25%. If anything the important part here seems that the problem group was small in the first place. However how does that fit in with the fact the tax ended up producing over 20x the expected revenue?
They also point out other instances where the tax has apparently made substantial changes but not enough changes. This includes the vacancy rate going from 0.3% to 0.8%, instead of a hoped-for 5%. That's still more than double the original rate.
They also say a large number of homes qualify for exemptions from the tax.
Another implementation in Melbourne is apparently not enforced well in the first place.
And the problem continues to exist in both places, of course.
Somehow their conclusion is that the entire idea is not worth pursuing. I don't see how. The tax in Vancouver seems to substantially change behavior and raised substantially more money than expected which is earmarked for government programs dealing with the problem. There are also apparently many exceptions which seem like good avenues to use to skirt the tax, and it seems likely to be worth closing those loopholes.
As for Melbourne, I don't even know what to say about it. How are we supposed to conclude that an unenforced measure is entirely the wrong kind of idea because it hasn't changed anything? It wasn't enforced, so how could it have?
Articles like this one are the kind of thing that convinces people to begin to outright ignore a source. It's one thing to have a usual angle and tend towards it while presenting a fair and coherent picture of the situation. It's another to shove out this drivel that doesn't even appear to be a good-faith analysis.
The rich are covered in debt. The near zero percent interest is making their net worth explode. They are using tomorrows (worthless) dollars to pay for today's debt with massive tax advantages. The more debt they accrue the more rich they become with this setup. Unlike the wages and salary most people use to pay for living expenses, the borrowing isn’t taxed.
https://www.marketwatch.com/story/extra-credit-how-debt-can-...
https://www.marketwatch.com/story/extra-credit-how-debt-can-...
America convinced their young to get art theater degrees and work at Starbucks instead of learning how to build stuff. I’m guessing that had a much larger impact than tax policy.
Whenever I hear "trickle down economics" The Chaser YT clip comes to mind https://www.youtube.com/watch?v=x5x1sSjfknM