ORC, I’m avoiding any emotion.

I’m trying to figure out what has changed, if anything. If there is a structural problem that we have to address.

The only way to do that is to understand the underlying facts, and I’ve looked across the US. It’s a problem everywhere.

Even Kansas City, one of the most affordable cities in the US and one which is trumpeted as a great place to start a family, is still 50% more expensive than it was in 1970, dollar for dollar, from a housing multiple of salary standpoint.

I don’t want the US to turn into France, so we have to always deal with reality. Not once in this thread have I blamed a soul; we are in this together as Americans.

Second homes are already taxed at 2x a primary residence in many areas. Owners have no voting privileges there, they have no kids in the schools, and use very little of the public services due to rarely occupying the 2nd home. Locals benefit from those property taxes already, whether at 2x or 1x the rate of primary residences.

In addition, pulling down the value of second home will also pull down the value of primary residences in that area. As the owners of the second homes sell off, all values drop. Since the goal is to reduce the number of second homes via punitive taxation, it follows that these homes will be sold and local will see their equity drop.

Finally, we know that city governments love to spend tax money. Which means they'll have to raise the tax rates on primary residences to offset lost tax revenues from second homes.

Second homes are generally in desirable destinations, such as beach towns and mountain resort areas. They make up a significant percentage of homes in those towns. And to be honest, not many average earners can afford such homes which are generally large, luxurious, and expensive aside from the value of the location. It's not like the old days where a school teacher and his housewife owned a cottage at the beach (we rented the upstairs loft from such an owner in the mid 1960's). The economic boost to the local economy is huge due to wealthy owners. Everything from cleaning services, property management, driver services, pool maintenance, to restaurants and catering, etc.

quote:

Originally posted by reloader-1:
US Housing Crisis

First, in order to address the issue,
This isn’t complete, but this is a start to discuss.

With 10 pages at the time of your posting this, aren't we long past starting the discussion? I say we've had plenty of discussions already and it's looking like you're going to find it hard to get a consensus on what the facts are.

Because of this, how about you lay out your solution and, in laying out your solution, reference any facts and assumptions that tie in to that portion of your solution?

I see ORC is accusing you that what you're laying out is simply groundwork for blaming. So, just bypass all that and provide your answer to the problem and then the solution itself can be pressure tested.

Rey, I gave some possible solutions in my Supply/Demand/Structural section.

Thoughts on those?

quote:

Originally posted by reloader-1:
Rey, I gave some possible solutions in my Supply/Demand/Structural section.

Thoughts on those?

It wasn't clear those were proposals.

quote:

Supply:

No new land is really available, at least not in significant quantities. Low interest rates have locked people in homes, and they are reluctant to sell and incur a higher rate. Permits and the construction process varies from city to city and county to county, let alone state to state.

1. Home loans are now portable - interest rates stay with you, and move from home to home. This incentivizes sales, increasing supply.
2. Zoning is now handled at the state level, with time bound constraints. Fees are nominal, and if approval time exceeds x days (15? 25?), the plans are automatically approved. State level determination of minimum lot size, setback, etc - a home plan in one city can be used for all.

Demand:

Immigration has increased the number of buyers for homes. Concentration of jobs means that there are more individuals competing for the same amount of homes.

1. Immigration crackdown - remove excess demand. Pair this with significant immigration reform, through the lens of “until housing prices drop to inflation adjusted 19xx level”, we hold immigration levels low.
2. No foreign ownership of single family homes, even with a green card. Only citizens.
3. Second homes are property taxed at 500% first homes. Third homes at 1000% first homes, and you can do linear trend for more houses. I’m a huge free market proponent, but homes are limited - you can’t generate more land on Long Island, for example. That means that excess demand has to be tolerated, but at a price that makes it a must-have, not just a nice to have.

Structural:

1. Companies are incentivized through taxes to hire in tier 2/3 cities throughout the US; those with cheaper housing or more open land to build on.
2. Construction code - national code review, with significant easing for smaller, single family starter homes. Remove union and some licensing constraints, and focus on making construction costs as affordable as possible (permitting, delays, etc.)

A. Portability of home loans. I've been exposed in how changing rules to encourage / discourage certain behaviors to get desired outcomes often do not get the desired outcomes because people simply adapt new behaviors to maximize their self-interests rather than the group (think multi-level marketing company). I give that background because I've developed thinking to pressure test such ideas. So I see the following issues:

A1. The loan is tied to the home as well as the ability of the borrower to pay the loan. Let's assume your idea is in place. I've been paying down my initial $200,000 loan and it's now $150,000. I want to transfer that, assuming the interest rate is lower than prevailing rates. How many people in that situation do you know would buy a house valued at $150,000? Normally, people buy bigger houses with the exception of old people downsizing. I want to buy a $300,000 house. I will still have to get another mortgage for $100,000 at prevailing market rates. How will I get the $50,000 equity in my current home? Or if I'm downsizing and, now, I just want a $100,000 house and I'm carrying a $150,000 mortgage still. How does paying off a $150,000 mortgage work with buying a $100,000 house?

A2. To circle back to the mortgage being tied to the home as collateral, I get a $200,000 home at fair market value, transfer that mortgage to a dump, how is the lender protected? If the lender is going to be involved in transferring the loan, they're going to incur costs just like they did in the initial loan origination. In the initial issuance, everyone involved is paid as a percentage of the loan. Who is going to pay that?

A3. I don't know how mortgage portability incentivizes sales and increases supply. You're only going to want to carry your current mortgage if it's lower than prevailing rates. So only current homeowners would benefit. If only current homeowners can take advantage of this feature then no additional supply is needed as everyone will just be playing musical chairs. People can already refinance when interest rates go down. Wouldn't the real solution to this aspect is to keep interest rates down? And what keeps the interest rates down is low inflation rate which is the picture of what I painted - wage growth has to surpass inflation.

B1. Immigration crackdown. I think you're conflating subsidized illegal immigration with legal immigration. Legal immigrants are allowed in because, presumably, they add to the GDP.

B2. I am actually neutral and maybe even positive about excluding foreign ownership. I would modify the exclusion to actual land to be in line with other countries that do not allow foreign ownership. If other countries don't allow foreigners to own land in their country, why should the United States be different? The only push back this idea gets is that is limits profits that would be realized otherwise, but I don't see the problem with this proposal.

B3. Do you not know that the number one way that people in the US become wealthy is through real estate? They buy their first house. Then they manage to buy a second house and keep their first as a rental and build from there. I don't like the idea of big corporations doing the same but I don't like taking away this opportunity that most working people have.

C1. Incentivizing companies to hire in tier 2/3 cities. I don't like corporate welfare. It's abused as much as poor people welfare. Companies move to where the talent is. And this is actually self-correcting. In the Bay Area, you see companies opening sites in the outlying areas because employees who had to move out to the less expensive housing are there. Companies know that workers hate the 2 hour 30 mile commute; they end up being late and less productive. So having sites near where the people actually live is a competitive advantage for them.