Posted in a Canadian channel before, because I am Canadian:
The housing crisis arises out of one problem, and one problem only:
Housing as an investment.
That’s not to say foreigners are to blame - at less than 2% of the market, they don’t have any real impact. British Columbia’s laws against foreign home ownership is nothing more than a red herring, a bullshit move designed to flame racism and bigotry. Yes, some of them are just looking to build anchors in a prosperous first-world country, but most are honest buyers.
A better move has been the “speculation tax”. By taxing more heavily any home that remains empty, it encourages property holders to actually rent these units out, instead of holding out for people desperate enough to pay their nosebleed-high rents.
But all of this misses the real mark: housing used purely as investment.
Now, to be absolutely clear, I am not talking about landlords who have a “mortgage helper” suite, or who have held on to a home or two that they previously lived in. These are typically the good landlords that we need - those with just two or three rental units, and that aren’t landlording as a business, just as a small top-up to their day job or as an extra plump-up to the retirement funds they are living off of. By having many thousands of separate landlords instead of one monolith, healthy competition is preserved.
No, there are two types of “investors” that I would directly target:
- Flippers
- Landlords-as-a-business.
1) Flippers
The first group, flippers, also come in two distinct types:
- Those that buy up homes “on spec” before ground has even been turned, and then re-sell those same homes for much more than they bought shortly before these homes are completed. Sometimes for twice as much as they paid.
- Those that buy up an older, tired home, slap on a coat of paint, spackle over holes in the walls, paper over the major flaws in hopes that inspectors don’t catch them, and shove in an ultra-cheap but shiny Ikea kitchen that will barely last a decade, then re-sell it for much more than they paid for it.
Both of these groups have contributed to the massive rise in housing purchase prices over the last thirty years. For a family that could afford a 3Bdrm home in 2000, their wages have only increased by half again, while home values have gone up by five times by 2023.
And this all comes down to speculation driving up the cost of homes.
So how do we combat this? Simple: to make it more attractive for owner-occupiers to buy a home than investors.
A family lives in a home that they own for an average of 8 years. Some less, most a lot more. We start by taxing any home sale at 100% for any owner who hasn’t lived in said home as their primary residence for at least two years (730 contiguous days). We then do a straight line depreciation from the end of the second year down to 0% taxation at the end of the eighth year. Or maybe we be kind and use a sigmoid curve to tax the last two years very minimally.
Exceptions can exist, of course, for those who have been widowed, or deployed overseas, or in the RCMP and deployed elsewhere in Canada, or where the house has been ordered to be sold by the court for divorce proceedings, and so forth. But simple bankruptcy would not be eligible, because it would be abused as a loophole.
But the point here is that homes will then become available to those working-class people who have been desperate to get off of the rental merry-go-round, but who have been unable to because home prices have been rising much faster than their down payment ever could.
This tax would absolutely cut investors off at the knees. Flippers would have to live in a home much, much longer, and spec flippers would be put entirely out of business, because they can’t even live in that house until it is fully completed in the first place.
2) Landlords-as-a-business
The second group is much simpler. It involves anyone who has ever bought a home purely to rent it back out, seeking to become a parasite on the backs of working-class Canadians in order to generate a labour-free revenue stream that would replace their day job. Some of these are individuals, but some of these are also businesses. To which there would be two simple laws created:
- It would become illegal for any business to hold any residential property whatsoever that was in a legally habitable state. This wouldn’t prevent businesses from building homes, but it would prevent a business from buying up entire neighbourhoods just to monopolize that area and jack up the rent to the maximum that the market could bear.
- Any individual owning more than 5 (or so) rental units (not just homes!) would be re-classified as operating as a business, and therefore become ineligible to own any of them - they would have to immediately sell all of them.
As for № 2, a lot of loopholes can exist that a sharp reader would immediately identify. So we close them, too.
- Children under 24 “operate as a business” automatically with any rental unit. They are allowed ZERO. Because who TF under the age of 25 is wealthy enough to own rental units? No-one, unless these units were “gifted” to them from their parents, in an attempt to skirt the law. So that is one loophole closed.
- Additional immediate family members are reduced by half in the number of rental units they can own. So if a husband has the (arbitrary, for the sake of argument) maximum limit of five, the wife can only have two herself. Any other family member who wants to own a rental unit, and who does not live in the same household, must provide full disclosure to where their money is coming from, and demonstrate that it is not coming from other family members who already own rental units.
By severely constraining the number of investors in the market, more housing becomes available to those who actually want to stop being renters. Actual working-class people can exit the rental market, reducing demand for rental units, and therefore reducing rental prices. These lower rental prices then make landlording less attractive, reducing the investor demand for homes and reducing bidding wars by deep-pocketed investors, eventually reducing overall home values for those who actually want to buy a home to live in it.
Plus, landlords will also become aware of the tax laid out in the first section that targets flippers. If they own rental units that they have never lived in as their primary residence, they will also be unable to sell these units for anything other than a steep loss. They will then try to exit the market before such a tax comes into effect, flooding the market with homes and causing prices to crash. They know that they are staring down two massive problems:
Being stuck with a high-cost asset (purchase price) that only produces a low-revenue stream because renters have exited the market by buying affordable homes, allowing plenty of stock that is pincered by the spec tax that heavily taxes empty rental units, thereby lowering rental prices well beneath the cost of the mortgage on the unit.
By putting these two tools into effect at the same time, we force a massive exodus of landlords out of the marketplace, crashing home values to where they become affordable to working-class people, thereby massively draining the numbers of renters looking for places to rent. Those places still being rented out - by owners who have previously lived in them, or by investors who couldn’t sell in time - would significantly outnumber renters looking for a place to rent, thereby crashing rental prices as renters could then dictate rents by being able to walk away from unattractive units or abusive landlords.
Full disclosure: I own, I don’t rent. But I have vanishingly little sympathy for greed-obsessed parasites that suck the future out of hard-working Canadians who must pay 60% or more of their wages for shitbox rentals to abusive landlords in today’s marketplace. Most people (and pretty much anyone under the age of 30) who don’t already own no longer have any hope of ever owning a house, as their ability to build a down payment shrinks every year, while home values accelerate into the stratosphere.
Creating massive penalties equal to the whole cost of a house for anyone that sells after less than 6-8 years would have devastating unintended consequences. It might make flipping impractical, but it would also hurt a lot of people who find themselves in a position where they need to sell, and would increase the risks associated with buying a house for lower income buyers.
It would help if you targeted the profit from the sale instead of the whole price. Flipping is about buying low, minimizing the cost of improvements, and then selling for a massively inflated amount. Without that profit it’s not worth it. For a normal person, being able to make money on the deal is nice, but at least recouping your costs can keep you economically stable and allow you to move on with your life.
I also think that you would want to combine this with some plan for helping low income buyers with the restoration of neglected properties that would normally be snatched up by flippers.
I also think the arbitrary age restriction on owning a rental property needs an exemption for inherited properties if nothing else. A 20ish year old who inherits a home or rental property when their parent(s) die is not abusing a loophole, and immediately hitting them with additional legal problems and forcing them to sell a house that has a tenant already in there is just unnecessary chaos for everyone involved.
I’m also curious how large apartment complexes fit into this plan. Are they also banned? Do you just need an owner to occupy a (potentially much nicer) apartment in the building? If you can still operate a huge apartment complex, I would expect the market to shift heavily towards those. If you can’t well, that raises it’s own issues around urban housing and population density.
This would get messy with inheritances. So if you own and a family member passes away, you’d have to either move into that home for two years or it would be worthless to sell? That’s going to create some perverse incentives regarding old folks and housing.
Related to why someone under 25 might own a rental unit.
Also, would this apply to non residential rental properties?
Great ideas. Too bad our politicians don’t listen to us.
No one gets a second home until everyone has their first.
Rental has its place, there have been plenty of occasions in my life where rental suited me better than ownership. Regulation and enforcement of said regulations would do a lot to protect people in this situation.
Dude from Ukraine was telling me that most people own condos. He was weirded out that the vast majority of people in the US don’t have a vested interest into their neighborhood simply because they believe they won’t live there for long.
Did he mention that a lot of the real estate that people own in most post-Soviet countries is inherited when (grand)parents die, this being first if not the only step towards the market for most people?
None of the people I know from Russia, Kazakhstan, Ukraine and Belarus bought their first apartments on their own through hard work or anything: it’s mostly apartments where your grandma died, apartments that you’re either massively helped with or outright gifted by parents when yuu have a significant other to move in with (so both families join funds, most coming from selling some dead relative’s apartment) or on a wedding day (a rarer occasion), or some mix of that.
Without any help or gifts, you’re lucky to be able to get a mortgage that you can pay off before you’re 60 (at least).
The real estate prices outside the US and the EU may seem nicer, but salaries and expenses sure don’t.
Everybody is screwed, everywhere.
Rent apartments. Own houses.
*Since some people really need every combination addressed: Rent/own apartments. Own houses.
How do you handle situations where people want to live temporarily in houses? An example would be a traveling nurse that doesn’t want to be in an apartment building.
We can’t solve the problem for 99.99% of people because of this 0.0000001% person. /s.
I understand your sentiment, but it took all of a half second to think of one scenario that would cause problems in the proposed system.
As frustrating as it is to hold off on a good-intentioned change, it is far more detrimental to charge headlong without considering the consequences. The systems that are in place now are there for a reason. Some of those reasons are greed and corruption, but others are because of they fulfill people’s needs. It would be stupid to build a new system to address the greed side without addressing the need side.
But if you can’t summarize the solution to a complex societal problem with a history to it into a single simple sentence that can be used as a punchy “hot take”, clearly you just don’t want a solution! /s
Way too many people in the world who are more willing to believe that things suck because everyone’s too stupid to try the “obvious” solution, instead of the fact that most societal issues are icebergs of complication and causes.
May people prefer to rent houses over owning one. Many of them I speak to tell me they want nothing to do with house maintenance and upkeep and they prefer to rent so that they don’t have to think or worry about any of the repairs. They like being able to just call the property manager when the hot water stops working or when their kiddo accidentally breaks a window.
Then buy a fucking maintenance contract, just like landlords do.
Why do you care so much how someone else chooses to live their life? Some people want to rent and it’s no one else’s business to make them do any different.
If you want to own a house and a buy a maintenance contract go for it.
I personally wouldn’t wish dealing with a home warranty company claim on my worst enemy. They are all scams geared to deny claims.
When the kids breaks a window, they still have to pay. They just don’t have to source it, which means they might not be getting the best deal.
Plus, most landlords leave things till the last minute or make it such hard work for the tenant to report it, they don’t bother.
The maintenance is built into the rent, so they’re already paying for it, just not getting the best deal and losing the option to do it how they want.
Everything you are saying is true, and even with those facts noted, some people still prefer the convenience of renting and some like the carefree aspect of not having to be responsible for the upkeep.
Houses are pretty terrible for a multitude of factors:
- urban sprawl
- congestion
- pollution
- high cost public works
- low income for public bodies doing those works
- environmental erosion
- flood protection
We should be building apartments that everyone can own, live and be happy in. It shouldn’t be reserved for home owners.
We tried that in the 50’s. They became known as “the projects”.
https://en.m.wikipedia.org/wiki/Public_housing
You end up quarantining the poor into small areas.
Literally the first image in that page is a picture of Singapores public housing, and a claim that they have the highest home ownership rates in the world.
It’s nearly as if public housing can work?
Public housing can work but not without addressing poverty. Using Singapore, which has the death penalty for drug use isn’t comparable.
Otherwise it only makes it worse by concentrating poverty into a ghetto.
Using Singapore, which has the death penalty for drug use isn’t comparable.
I need you to draw a clear through line to why that’s related to public housing policy in any given country.
I’m also gonna like, cite the soviet bloc style apartments, or china’s rapid urbanization in around the same time period that the US decided to make public housing be a thing. I know for the soviet lunchboxes, you had your standard complaints of, oh, long wait lists, subpar build quality, yadda yadda, and then of course towards the beginning of the program you had a large issue with people who had previously been unindustrialized farmers basically just not knowing how to live in an apartment, shit like having your pigs stay indoors and stuff like that. I think similar issues were/are probably a part of chinese publicly subsidized housing complexes. I think barcelona’s superblocks are also publicly subsidized but I don’t know to what extent, and they seem to be working out pretty good. Now those are all places that provide publicly subsidized housing and have provided it to those who were pretty impoverished at the time. They also had/have (again idk barcelona don’t even know why I brought it up) work programs and shit, which we used to have in america, so that might contribute to your point more, but I still think, you know, it is bad to let the perfect be the enemy of the good. The projects were majorly flawed, but they are probably preferable to the whole like. rust belt suburban crime shit. I dunno, realistically it doesn’t really matter what context an apartheid ghetto scenario is happening in, because it’s going to have basically the same consequences on everyone involved.
Houses are pretty great for a few factors
- Not sharing a wall with a neighbor
- being able to be louder in general
- Not being woken up by neighbors
- Not getting your home infested with bugs because of having a nasty neighbor
- No loud honking at night
- Not having your door accidentally knocked on to ask if your apartment neighbor is home when they’re not answering their door
- Parking in your own garage
- Having a yard for your dog/kids to play in
Apartments fucking suck in so many ways. I get that they’re pretty handy in City Skylines where everyone bases their urban planning experience from but there is a reason people prefer to live in house and it’s because it gives you separation from other people in a way apartments cannot.
People who own second and third homes aren’t even the issue. It’s mega corps that literally own tens of thousands of homes each. A better way to go about it is to just progressively tax people more per home. That second home gets taxed at the same rate but any home after is taxed way way way more. If someone can still afford it then that’s fine, just more tax money coming in. That and don’t let corps own rental properties.
Logarithmic scale of increasing property tax rate
Not sure if you actually meant logarithmic or exponential. An exponential tax rate would mean that the more you own the next unit of value would be a lot more in tax, while a logarithmic tax rate would mean that the more you own the next unit of value would be a lot less in tax. See x2 versus log2(x) (or any logarithm base, really). The exponential (x2) would start slow and then increase fast, and the logarithmic one would start increasing fast and then go into increasing slowly.
In Texas, your property tax is already somewhat two tiered. Your first home is taxed as a homestead and you get an exemption on part of the property tax. If you own a second, third, etc you have to pay the full amount and the annual increases are not capped. Im not 100% sure on the specifics as I don’t own more than 1 though.
Your not homestead house will be ~$2,000 higher in taxes than if it were not homestead. Exemption is up to $100k I believe, so I’m going off roughly 2% of exemption for additional taxes.
And all that higher tax cost is passed directly on to tenants
At some point the taxes would be so high that nobody could afford to rent and the owners would lose money forcing them to sell. Which is fine. Just gotta make the taxes higher for more than x houses.
