patrick.net

I think your dogma is shading your thinking.

Many people value the ability to avoid a long term commitment to a neighborhood/city/state/region, and rental property provides them an opportunity to live their lives without having to navigate the vagaries of unpredictable markets and broker commissions. It also protects them from most forms of risk and liability involved. The landlord assumes these in exchange for a fee, because there's really no other way to assume them.

Troy says

Do you think i am a moron? These improvements are totally minor in the overall scale of rent, and also not some arcane service that an actual homeowner cannot also perform

No, I don't think you're a moron, but I do think you're trying real hard to get reality to conform to your decided beliefs.

I can tell you that it's uncommon for a SFH investor to collect significantly more rent than is needed to cover expenses, because real estate is always financed in some way. If not with a loan from a bank, then by the investor herself in the form of allocated capital. You could look at it as a loan to the general public: the property is made available for use by the public in exchange for a market-determined rent, which might (or might not) represent a return on risked capital. I'm sure you object to that perspective, and to finance in general. I won't argue that you're all wrong, but I will argue that the list of "better ideas" is equally dubious.

That an investor does not perform some arcane service to society does not invalidate that service, nor suggest that it's inferior in any way to the "value" added by (or received by) a homeowner.

I won't debate your consumption argument, but I do wonder why you think a homeowner would do something important and different.

I get the sense that this is just one facet of your larger complaint about private property in general. These systems have all evolved over hundreds/thousands of years and obviously they're not perfect. They're certainly not efficient, which is wasteful and definitely creates disparity. But whose model of an efficient society would you trust? I think messy is better, in the long run.

quesera says

I think your dogma is shading your thinking.

Of course it is! Back before I discovered Georgism in 2002 I sensed something was profoundly wrong with the way things were but I couldn't indentify what exactly.

The Georgist argument that land and its natural resources were not rightful property really opened my eyes.

This philosophy of property was not even originally from Henry George, it comes from other great thinkers like John Locke -- http://en.wikipedia.org/wiki/Lockean_proviso -- and JS Mill's stuff.

Once you identify that around 20% of this nation's income flows are completely "wrong" -- and you see how much of this nation's wealthy powers are invested in real estate -- you come to understand why things are so shitty for the middle class and below now.

This dogma further informed me that it is impossible to cut taxes to improve things, since lower taxes will just result in higher land prices and rents. The price appreciation after the 2001-2003 tax cuts certainly demonstrate this, although many other contributory causes were present besides tax rates falling 10-20% on people.

Many people value the ability to avoid a long term commitment to a neighborhood/city/state/region, and rental property provides them an opportunity to live their lives without having to navigate the vagaries of unpredictable markets and broker commissions.

This is simply self-serving hokum. Today's unpredictable and inefficient markets can be fixed with a) a land value tax that eventually knocks down the acquisition cost of real estate 50% or more and b) busting the NAR and MLS monopolies.

If people only had to pay up-front for the fixed improvements (and not the NPV of all future rents) real estate would be much more affordable. Plus if all the leeches were purged from the system supply would go up, further dropping the price.

You could look at it as a loan to the general public: the property is made available for use by the public in exchange for a market-determined rent, which might (or might not) represent a return on risked capital. I’m sure you object to that perspective, and to finance in general.

No, you don't understand Georgism at all. Georgism simply denies that land is rightful private capital, not that capital itself is bad. Marx called Henry George "Capitalism's last ditch". It was discovering Henry George's simple description that capital was that which was created by labor that opened my eyes.

Further essays on the subject eg http://www.cooperativeindividualism.org/churchill_peoples_rights.html developed this, but, alas, the world moved on in the WW I postwar and this basically became lost knowledge.

but I do wonder why you think a homeowner would do something important and different.

Your argument that LLs provide housing improvement jobs was just claptrap on two levels. One was owner-occupiers are perfectly capable of making the exact same purchases, and the second was the mistake of thinking of housing as some sort of capital asset that is beneficial in the macro sense to improve.

"Basically what has happened somewhere along the line is that, as a society, we confused the notion of home with the possibility of an investment opportunity" -- Stewart Lee

http://www.youtube.com/watch?v=5mk04v2pu1g#t=4m7s

But whose model of an efficient society would you trust?

Both Singapore and Hong Kong capture land rents by only allowing leasehold development of real estate.

I think messy is better, in the long run.

"Messy" resulted in landlords shot in prison yards in many places in the 20th century. There is a better way, that encourages private capital to invest in actual exportable wealth-creation and not mere parasitical local monopolism of landholding.

This landholding is a 20% hole in our economy, that directs wealth -- via rent -- from the very poorest to the very wealthiest. It is largely why things have gotten so unsustainable here in the US, as the top 1-5% of the nation enjoy increasing their income flows from real estate (and the financial industry that increasingly latched onto these income flows in the 1990s and bubble 2000s).

Income from increasing ground rents is a free lunch for landowners, and since landowners did not labor to produce this wealth, they should not rightfully pocket it. Taxing this parasitical income away for those who speculate in SFH would be a good start.

http://www.wealthandwant.com/docs/Buckley_HG.html

I agree with many of your assertions and disagree with most of your conclusions, strongly. But I appreciate that your dogma is internally consistent, for that is rare.

I sympathize with the desire to eliminate the bad parts, but I believe you'd devastate the good parts in the process. Strict orderliness and equitability come at an awfully high price. Your examples are not relevant, in my opinion, but they do prove this much. Messiness is necessary, inevitable, and (on balance) good.

In any case, I stand by my original comment that demonizing SFH investors is histrionic. They are bit players in your tragedy, and even if you shamed them into nonexistence, your structural complaints would not change.

On the way up, the "flippers" played more than a bit part. Many buyers, that is ones buying their own homes to live in, reluctantly paid up (in price) based on the ignorant belief that prices only go up. So they paid prices that they knew were too high, feeling the risk was limited. Of course in some cases risk was limited for completely different reasons, namely down payments close to zero (even the banks in many cases bought the "prices only go up" fallacy).

Add flippers to this market dynamic of easy money, and "everyone should own," and you now have a much more destructive and steep bubble.

Think about it. Say in some small area you have 5 sellers and 7 people looking to buy (if they can) to live in. Add another 6 flippers (that is buyers) to the mix, who have strong reason to believe that the easy money and buyers and double digit increases will continue to be there, and you have a problem.

Lurking,

I don't care what other people would do. My belief is that I should not contribute
to the bubble. And I chose not to. And it is not so realistic to expect the
first time home buyers to come with all cash offer.

Well, capitalism does not always reward them. Where have you been for the last
few years? Or are you in denial that we have been in recession? The investment
is always a risk.

The point for this website is to offer another perspective, when everyone is
going crazy on the housing market. And I am telling my side of the story and
belief. Yup, I am insignificant in the face of greed and capitalism. So what?
At least you heard me.

In any case, this group of investors is buying up the properties in Silicon Valley.
I saw another property that I looked was picked up buy these guys. I guess
I am going to rent for a little while longer until their greed is satiated. Maybe
not.

@marcus: I was trying to maintain a distinction between SFH investors and flippers, but didn't succeed, sorry. Nevertheless, flippers are a symptom, not the cause.

@Nobody: I hope you'll look back on 2011 and be relieved that the investors were greater fools than you. They'll probably do just fine for themselves, it sounds like they can absorb the losses and opportunity costs and probably have a greater time horizon than you.. But they might have saved you from a costly personal mistake.

I don't think this is over.. That doesn't mean buying is the wrong thing to do for any individual situation, but it does make real estate a suboptimal financial investment.

Troy says

Today’s unpredictable and inefficient markets can be fixed with a) a land value tax that eventually knocks down the acquisition cost of real estate 50% or more

Troy--I think you've written this many times but I fail to see how this would occur with a LVT. No matter how you collect taxes or where they are collected from, all that matters is the total taxation level that one sees. Assuming that you are not raising total tax level, and you are correct that all excess money goes to land, then I don't see how a LVT wouldn't really drive down real estate. The money would just come from a different pocket.

It would make for a more efficient use a land though--that is certainly true.

tatupu70 says

Assuming that you are not raising total tax level, and you are correct that all excess money goes to land, then I don’t see how a LVT wouldn’t really drive down real estate.

Key thing is to increase the supply of housing (and/or reduce demand of land) such that there is true surplus and renters hold the whip hand.

A LVT would incent the market to build up. My life in Tokyo is a good example I guess. I think I'd let the owner of the 5-unit condo I lived in keep all the rent he could collect, since the building's footprint was basically one of a SFH. Same thing with the place I stayed in after getting kicked out of my college dorm after the first year. . . some old lady who had lived there since the Janss Brothers subdivided Westwood in the 1920s. I paid $90/week for the room in her back place, it was a nice quiet neighborhood that I could not afford to buy into (the house sold for $500K after her death in 1993), and a mutually beneficial transaction. Note that both of these places were OWNER OCCUPIED.

SFHs would hopefully fall into a similar state of over-supply, with the community holding a "land bank" of houses for people desiring them. I haven't thought this through at all and how to preserve improvement value in such a lending model is difficult, not that our current system is doing any great job of preserving the capital value of the RE property falling into foreclosure now of course.

I primarily want the LVT slapped on uneconomic users of land and commercial property landlords. Maybe my numbers are wrong, but I just don't see the service commercial property owners are providing as landlords, and this revenue source is immense. Simply removing Prop 13 protections on commercial property would be a first step. If we can't do that then all this talk of Georgism is seriously wasted electrons.

@Troy

Why would you want the state to force communities into building upward? Most towns have zoning laws restricting the height of buildings and minimum lot sizes . . . precisely because most people associate quality of life with relatively low density. The vast majority of Americans would not want to live a life like those in Tokyo.

I don't hope you had something to do with the death of your old landlord. . . seeing that you think they are "liquidatable." Remind me not to enter into mutually beneficial transaction with you, because you consider counter-parties as thieves and liquidatable.

Commercial land use often has very high volatility, due to the fluctuating conditions of the economy (rent income) and carrying cost (mortgage interest rate; they are refi'ed all the time). They are already appraised for much higher value than residential lots per acre. Prop-13 on commercial property is the result of combination between the desire to keep businesses and jobs in town and a bit of skulduggery that is typical in the legislative process.

@Troy,

So you want the US to follow the HK and Singapore model? Guess what? They have even higher real estate prices than we do! Rental housing is widespread in both places.

You really need to give up on your Marxian Labor Theory of Value. Modern economics has long moved beyond that. Karl Marx himself halted the second volume of Das Kapital after learning about Carl Menger's Marginal Utility Theory (invalidating Marx' earlier faith in Ricardian labor theory of value as shown in Volume One of Das Kapital). Value is determined subjectively by the two parties in an exchange, and a voluntary exchange takes place not because both parties agree the two goods are of equal value but because each party has exactly reciprocal preference! e.g. if I have 10 apples and you have 10 oranges, my preference for my first orange is greater than my preference for my 10th apple, and your preference for your first apple is greater than your preference for your 10th orange . . . then we can have an exchange. Whether an apple is exactly equal to an orange is irrelevent and impossible to judge (apples to oranges).

Money for housing exchange (rent) is legit so long as both parties enter into the rental agreement voluntarily, without coercing each other (or third party agents acting on behalf of either). Rental housing provide several very important social functions:

1. Provide housing to people who want housing on intermediate time horizons (a few weeks to a few years), much less expensive than hotel stays or the vagaries of buying houses;

2. Upkeep and maintenance of those same houses. Short-term home users wouldn't pay for long-term improvements like trees, fences, driveways, etc., or even properly fixed roofs.

3. A stable retirement income for retirees; no I'm not in favor of liquidating them.

4. A stable tax base for the town in times of economic downturns and vacancy

5. Lower cost of housing in boom times. I'm have been taking advantage of this for half a decade waiting for purchase price to drop, and you obviously took advantage of that too when renting from the old lady for $90/wk. Cost of housing would be much higher if either of us had to buy. If I had bought a similar house in the area when I started my current lease half a decade ago, I would have lost $300k by now! in capital depreciation alone, and another $270k in interest payment and taxes (total $570k in potential dead losses) instead of the $180k or so that I have paid in rent so far.

6. Less credit-worthy people and families need a place to live too, even if the banks wouldn't lend them enough money to buy a house.

Individual landlords can upkeep and market the rental units much more effectively than a government bureaucracy. We get a hint of what a bureaucracy for housing is like in the fiasco that is known as mortgage lending in the past decade (most of those loans were passed on instead being retained by the lender, like an individual landlord would be have his skin in the game). So long as the government is not forcing people to stay with a particular landlord (like a mental hospital or prison), the private landlords are actually working pretty hard for their money: the tenant can leave and sign up with another landlord at any time! A high LVT would actually function as a cartel price fixing for landlords.

@quesera,

In regard to this particular property, I didn't care if it goes up or down. As far
as I'm concerned, I could afford it. I could practically pay down in 10 years, if
I wanted to. And my son does not have to suffer from asthma being so
close to the beach.

Now the property sits empty. The big beautiful window is broken. The sun
deck is damaged. When I first looked, the house only needed minor repair.
I wish the property was bought by a renovator who at least knows how
to fix and maintain a property. Now, I don't really want to live in it.

I am not so sure whether the housing market is still heading down. Looking
at Silicon Valley, I am not so sure. My real estate agent told me that her
clients are making money flipping still. That sounds like "Lurking" is right.
And suckers are born every minute especially in Silicon Valley.

Like Lurking said, I am just a few grains of sand in the beach. But I think
I would stick to it. It served me well.

@Troy

>My LL was a nice guy and gave me back my Y220,000 in Y10,000 notes when I was leaving after 5 years.

A very rare (in my experience) yet pleasant story. Maybe you can rent from again if you return here...