cross-posted from: https://lemmy.world/post/3560407
Considering how crazy expensive accommodations have become the last couple of years, concentrated in the hands of greedy corporations, landlords and how little politicians seem to care about this problem, do you think we will ever experience a real estate market crash that would bring those exorbitant prices back to Earth?
I think laws need to be changed to make owning (not building) real estate unattractive as an investment. Something like wealth tax (every year you pay X% of the property value) aimed at real sector specifically, with very progressive structure / exceptions for single homeowners.
That should help in a lot of cases. Then it also depends on the demographic development - many places will actually see drop in the population in the coming decades, that should make housing cheaper. Areas with growing population - there it may not be possible to stop the price increase completely.
This is the only path I see - real estate needs to not be a guaranteed profit generator. It’s been viewed this way for decades. Rents are allowed to increase indefinitely, which inflates property values, which raises taxes, which raises mortgages, which raises rents, because real estate is said to be zero risk maximum reward investment. So it’s better to hold an empty unit until someone comes along willing to pay the price you’re asking than let it go for less.
The only way I see around this is a really aggressive cap on rent. Like, once a rent is established, it can never be raised, for any reason, ever again (unless the property were radically transformed, like a large single family plot in to a townhouse development, condos, etc.). The home value can still do whatever, but it no longer has the catalyzing agent of perpetually exploding rents to drive it up.
I spent a few weeks reading as much about rent control as I could, where it had been tried and analyzing how they failed. The legislation has never been remotely extensive enough - only touching a handful of (usually very old) structures in a single neighborhood, county, or city. Of course if there is a cluster of rent controlled units you will depress building where the properties might not generate as much profit vs. guaranteed to generate profit forever. But if it applies everywhere at once, you don’t have this problem. Landlords evicted tenants to get around the caps, because the only mechanism to increase rent beyond the cap was to cycle tenants out. So the real problem here is landlords taking it out on their tenants, rather than let the properties simply not be a guaranteed infinite profit generator. Finally people in rent controlled units tend to stay in rent controlled units, limiting mobility. This seems to be cited as a weakness but I never came across an adequate explanation as to why. You have to make landlording simply not worth it to bring the number of people who want to own homes in to balance.
New developments would be able to charge whatever rent they wanted, if they wanted to rent them. So if you are absolutely determined to own and rent out properties, you have to keep building them if you want to keep setting new market rates.
An interesting note though is once rents are largely stagnant (except for some special exceptions I would make where owning single units is unusual, like apartment complexes own by single property management firms who handle communal landscaping, clubhouse, etc.), those properties will actually remain competitive for longer… in an environment where average rents go up 10% a year, of course not increasing rent will make it unprofitable very quickly and you might as well sell… but when average rents go up 1% a year, it will actually stay profitable for a lot longer even if you can’t increase rent. So I don’t foresee an instant flood of the housing market.
I also see benefit to pairing this kind of legislation with one that bars or otherwise limits corporations, especially foreign corporations, from owning and renting single family properties, but that’s a separate issue I haven’t studied as extensively.
We have something like that in my city. The rents grow, but are bound to the inflation. The dynamic is similar - the old contracts are vastly cheaper than the new contracts. That has several downsides:
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.