If I were to try and buy the condo I rent, due to interest rates, taxes, and HOA's I would be paying $1000 more per month. At the end of my mortgage I would given the entire cost of the property to a bank in the form of interest payments.
Rich investors and companies effectively get to buy homes at a discount vs average joes.
In states I've lived in with property tax there is a homestead exemption for the house you live in. In my current state that's about twice the tax.
The effect: Rent goes up to cover the tax and margin is added, so the rent goes up more than the tax.
>Rich investors and companies effectively get to buy homes at a discount vs average joes.
Usually the difference is that the big investor bought the property at lower price, and your rent is based on the lower valuation. Annual rent increases are usually are much lower than market increases - there's a lot of value in keeping a tenant year over year.
Well-established effect and it applies to everything. A huge portion of all technological improvement/productivity gains and nearly all public investment money ultimately accrues to land rents which we then later just call "the cost of living."
In order for the economy to function there has to be ~ SOME ~ landlords. In my experience the random people that rent out their second property are usually good landlords, whereas the massive players treat people poorly. If this tax were implemented well, the latter group would be taxed more forcing them to stay honest. The small landlords would have a competitive pricing advantage over the big players, which should go a long ways to keep rents fair.
Suppose you had $100,000 in cash, and buy a house for $100,000. You'll not be paying 5% interest on a mortgage. But if you did not buy the house, you would be investing that $100,000 for a 5% return.
So, you're either paying 5% on the mortgage, or foregoing 5% return for investing that money.
The rich person is not getting a discount.
What interest rate do you think rich people are getting?
As for the Covid interest rates, those were available to everyone.
Third, we're talking about buying houses, not renting.
The rich person gets to rent the house, while the "newly weds" are living in it. And most importantly - the house itself will appreciate in value at a rate near 5%
Assuming they both buy a $500k house w/ a 20% down payment and a 5% loan. Realistically the young couple would get a worse rate but lets say they both get 5%. Monthly payment is $2,522.29 w/ taxes and insurance lets call it $3000 a month.
The newly weds are just eating that entire cost every month for 30 years, whereas the Rich landlord rents it out. After a quick and dirty Zillow search lets assume $3500 a month rent to start, so he's making $500 a month profit on an asset thats already increasing in value 5% ish per year.
So, with these assumptions: - Home cost increases 2% a year - Rental price increases 3% a year - Home value increases 5% a year
Total rental profit is $537k Final home value is $1.56 M Total Loan cost: $873k
Bringing the landlords return on 100k to be $1.224M in profit over 30 years (Final sell price - total loan cost + rental profit assuming they stuff it under a mattress). Whereas $100k at a 5% yearly return will be ~$430k
disclaimer: Im not the best with Excel and ive never actually bought property so im sure there are flaws in my math.
or 0.7% ... or 20% ... or ... -2.3% ... or ...
Rich people do not have cash, as they invest it all. (That's how they became rich.) Rich people do not get away with not paying their bills. Rich people do not earn rent on the house they are living in. Rich people do not get better mortgage rates because they are rich. They get credit-scored like everyone else. Bankers want to charge as much interest as possible.
My wife and I have owned (at separate times) a couple of rental properties over the years due to various life circumstances (we no longer do). Both properties were valued in the mid $200k range. While being even in that situation certainly makes us unusually fortunate, it gave us no access to cheaper credit.
Now, I appreciate that there is a version of a "rich person" who does. But the GP's example wasn't specifically restricted in that way.
There's no free lunch. The more friction, taxation, and tariffs you add to the housing market, the higher prices go for both renters and home purchasers.
Property tax has a known problem of taxing improvement in addition to land, which constrict urban development. Plus, imposing additional property tax means improvements are further penalized, which means efficient land ownership are penalized.
You should look up Georgism and read up on what they have to say. It's a reaction to the 19th century economic condition but it very much apply to our 21st century situation and even more relevant today.
Very hard to make this work, people find complex ways around it; e.g. “I don’t own that property, it is owned by an LLC which is owned by a trust whose beneficiary is an LLC owned by another trust of which I’m one of the dozen individual beneficiaries”. Close that loophole, someone will cook up an even more obscure one.
If you house owned by commercial entity - taxes are payed from full value, but the valuation to any collateral/derivative goes by something like (0.75x)^l, where l how many levels deep (counting ownership levels). For example it house is in some sort collateral/derivate/indirect ownership mix with 4 levels deep, it can only valuated as 0.31x value (you can only account as it is worth 1/3). In my mind it should reduce attractiveness for speculative buying.
That being said, it sounds like a land value tax might be a better approach to my first suggestion. Regardless, this would not effect people that truly "own and live in their only house"
Making rent more expensive doesn't make ownership cheaper, just makes it more attractive relative to renting.
https://www.astralcodexten.com/p/does-georgism-work-part-2-c...
... and you would be building equity.
So you pay less and get less, right?
You're thinking this is a sign that you are being cheated. It seems to me that it's a sign you're getting a better deal by renting so that's beneficial to you.
You lumped a bunch of factors together (interest rates, HOA, taxes) that don't do much for your argument. You would pay less taxes than the landlord in most jurisdictions, because the unit would be owner-occupied. Do you think the landlord isn't paying HOA assessments? Sure they are. The landlord has a loan at 3% because they bought in 2021. You're offered 6.5% because you're buying in 2026. I'm not convinced it's worth my pity.
I just plugged in some numbers using (estimated) purchase price, taxes, HOA for the unit I'm in now, and it would cost me a little over $1M over 30 years to own a $300,000 1br apt.
2) Would just inflate home prices.
That depends on demand. If no one wants to buy homes at the prices offered, prices will drop.
