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 (age 60) remember buying my condo in 1991 or so, interest rates about 7% with a VA-guaranteed loan. My parent’s first mortgage was 2% or 3% but my mom, a Realtor, said those days were permanently gone. (They weren’t. I had that in the house I bought in 2010.) But it felt forever at the time, and she thought it would be forever.
Nothing is forever. It may crash, but something else we can’t imagine might happen too. I think we all agree the present situation is unsustainable.
The crash of 2008 is just 15 years ago. You could hardly give away properties in my neighborhood - there were multiple sales for less than the cost of my car. Those exact conditions may not recur, but speculators always, always overextend. The 15 years of continuous gains we’ve experienced since 2008 are historically unprecedented, so one might even guess that we’re due for a major correction. Maybe it won’t be for another 10 years, but there will definitely be a major housing crash “in our lifetime.” Unless, maybe, you’re already 80 years old.
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.
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.
No. Reasons:
- You can’t make more land. The feasible land around most cities has already been built on. Either you increase urban sprawl further (not considered desirable) or you build new cities.
- NIMBYs: What about increasing density? Sure, but this requires rezoning which NIMBYs and the “save our neighborhoods” types will fight tooth and nail. And even if it does succeed, you also need utility and transportation upgrades to accommodate more people which costs money and creates more NIMBYs fighting anything that might affect them or the “views” from their property.
- Labor shortages. There have been too few people going into the trades for decades now. As the previous boomers retire there’s too few people to replace them. This drives up construction costs considerably.
- Materials costs, on average, will only go up. For example, the logging industry in the US has been decimated over the past few decades resulting in higher costs for raw materials. This too increases construction costs.
- Complexity in building codes and permits is far more than it previously was. In the area I live the amount of red tape to get through in order to get a building permit can easily eat up years of time and tens of thousands of dollars just for one single family home, and that’s before a single shovel hits the ground. Increase that considerably for multi-family home buildings or larger subdivision projects.
For whatever reason, it seems like many people focus on the real estate speculators, and while that’s undoubtedly part of the problem, the costs and red tape of actually building new housing is often ignored. When population increases and you can’t increase supply there’s no where for prices to go but up. The root cause of the problem needs to first be addressed which is the need to build more housing and that’s not a simple problem to solve since it involves the intersection of so many other problems. Therefore I can’t say I’m optimistic that housing will go anywhere but up.
