Comment by rgmerk
3 days ago
It will make very little difference in the end.
Australia's land tax system makes it effectively impossible for large corporations to own large chunks of residential property, but our real estate is amongst the world's most expensive and landlords are still awful - it's just that the landlords are hundreds of thousands of dentists and, yes, software engineers rather than corporate entities.
If you want housing to be cheaper and renters to be better treated, increase supply. Everything else is window-dressing.
In Australia we've treated the family home as an investment, a primary mechanism for wealth creation (rather than an essential for life) for far too long. I fully agree that supply is the #1 driver for housing affordability, but like many things it's mult-factorial. Tax incentives, market forces, town planning, land use regulation, etc. all play their role.
I'm hopeful that successive governments over here show the courage of their convictions and enact enough change that my kids have a chance of getting into their own places, same as I did.
Tangent: how should we approach changing the housing mix in a city like Perth where 95% of new homes are large four-bedroom detached houses? It's all very well saying "That's what the market wants" when that's also all the market supplies. How do we bootstrap the idea of smaller, denser, affordable, more-diverse housing options?
Current government has explicitly said that they will not lower hose prices:
"We're not trying to bring down house prices," Housing Minister Clare O'Neil declared on ABC's youth radio station triple j.
"That may be the view of young people, [but] it's not the view of our government."
https://www.abc.net.au/news/2024-12-14/housing-minister-says...
YIMBYs would argue (and in my view rightly) that if you allow townhouses and apartments to be built, the market will build them where there is a demand.
The only problem is that in the US, if you let apartments and townhouses to be built, homeowners will get muscled out by large builder concerns and single family homes will be converted into dense housing--which sounds great, until you realize there's no way those housing concerns will SELL those units--they're going to be rented forever. There's no incentive to actually sell those to people and every reason to keep them as rentable apartments forever.
So you have attractive locations being completely dominated by rentable corporate owned housing and the net outcome is that people are completely boxed out of home ownership. There's no way pricing comes down because they do this in areas where people are willing to pay top dollar to live.
I live near Ann Arbor and we're seeing it play out right now--more dense housing in the inner core is being allowed (as current thinking says should be done) and whats happening is that smaller old-timey landlords and homeowners are being pushed out and their homes and apartment buildings are being replaced with brand new high dollar rentals. Not condos (although there are some of those as well, but fewer), rentals. And the rental prices are going up! Normal people get pushed further and further from the attractive areas to live, and pressure from these people moving out pushes up rent in the surrounding areas.
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It's the same in New Zealand - property is the primary mechanism for wealth creation, and you have boomers with 10+ properties that they use for rental income for their retirement.
The issue is exacerbated by the tax structures not incentivizing investments in other assets - e.g. in NZ if you invest over $50k in offshore equities, there is an annual FIF tax that must be paid, even for unrealized gains.
“Show me the incentive and I’ll show you the outcome” Presumably most politicians own one (or more) houses
The fact that there is a housing crisis in most of the western world seems to prove this
> In Australia we've treated the family home as an investment
That's true of most of the Western world, unfortunately.
> a primary mechanism for wealth creation
I don't disagree but this needs to be correctly framed publicly as simply stealing from the next generation because that's what it is.
> Tax incentives
For anyone unfamiliar, Australia has a system called negative gearing. In the mid-2010s the then Labor party proposed scrapping it and lost the election. It really is the third rail of Australian politics. This is a shame because it needs to be scrapped.
It allows you to deduct losses on property against your ordinary income. So if you have a mortgage payment of $3000/month but only earn $2000/month in rent then your income is reduced by $1000/month. That's waht drives a lot of small investors to essentially speculate on property.
The US actually has a better system than this, which is that if you earn over a certain income level, you cannot deduct passive losses (like the above situation) against ordinary income. That would be better but still not enough.
So many upper income Australians essentially end up just hoarding property. They'll call it "investment properties" but really it's speculation. Historically, property was treated as an income producing asset, not a speculative capitals gains asset.
Oh and capital gains on non-primary residences should be like 70%. If you want to stop rampant speculation, that's how you do it.
> Tangent: how should we approach changing the housing mix in a city like Perth where 95% of new homes are large four-bedroom detached houses?
Perth like every Australian city is an urban planning disaster. It's just endless sprawl up and down the coast and inland to the hills. A generation or two ago it was a quarter acre block. Those days are long gone unless you're wealthy or you're 50km+ from the city (less if you go east).
So it's a car-dependent soulless hellhole. I say this as someone who knows Perth well. So even now if you build higher-density housing along transit routes, as they're doing, you still need a car (or 4) to go anywhere but work. And high land values make infrastructure projects incredibly expensive. Like imagine trying to build the Perth to Mandurah train line now instead of 30+ years ago when it was actually built. I guess they could utilize the Freeway they already had but what about the fremantle or Midland lines?
What you should do as you build out is reserve space for future infrastructure. AFAIK no Australian city, especially Perth, has never done. So Guildford Road or Great Eastern Highway should really be a freeway. Same with Albany Highway.
In 2024 Western Australia did really relax ADU (granny flat) development rules. The rules used to be really strict. Now you can basically always build one with normal building approval if you meet the minimum lot size requirements (generally 450sqm, sometimes as low as 350sqm, depending on the council).
Single family home zoning is really cancer to any decently sized city.
Anyway, the truth is, I'm not sure it can be fixed now. Big infrastructure projects are prohibitively expensive even with tools like eminent domain. We need to look at why it's so expensive to build apartments.
I think the only thing you can do now is for the government to become a significant suplier of housing to increase supply and stabilize rents.
Good points, thoughtfully made. As a resident of Perth, I (largely) endorse that description.
So much of the wealth of our middle- and upper-class is dependent on property ownership and rent-seeking, it's depressing. That population essentially needs to vote against their own self-interest to help improve housing affordability, so it's hard to see that ever happening. The best I could foresee is a government forecasting a stepped reduction of relevant tax benefits over time (e.g. in three years negative gearing gets reduced by half, then half again the following year, etc.) and then future governments honouring that commitment. As you pointed out though, it's a surefire way for any Australian political party to shoot themselves in the face.
I sometimes wonder how strong the demand needs to get for more-affordable housing before the market responds enough to matter. State and local govt could likely have a role in unlocking infill developments and increasing the allowed densities, but I'm not plugged into the planning system. I also strongly agree that state government should be more proactive as a housing supplier (in conjunction with private industry).
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The problem with "increase supply" is that existing property owners rarely want that.
In almost all cities land has run out, so the only way to actually increase supply is to increase density. That means fewer single-family-homes, and more townhomes, multi-family, condos, and apartments.
The "American Dream" is a single-family-home, surrounded by other single-family homes, but even with urban sprawl we simply run into the limits of a commute and prices skyrocket.
Ironically we actually solved this problem: Indefinite Telecommuting. But then decided to take our solution that reduces property prices, reduces air pollution, and improves quality of life and then just threw it away because commercial property owners were losing money.
I think it's possible to make apartment/condo living more attractive in the US, but you'd need a few changes. For example:
* American apartment complexes are typically ugly as hell. They're little building islands in a sea of asphalt, disconnected from the wider street grid too. They'd be more attractive if they were more like the complexes I saw while living in Munich: more green up front, car parking basically all underground.
* Require substantial backyards/courtyards for said complexes.
* More tenant protections that prevent landlords from arbitrarily non-renewing a lease, so that people in apartments can have long-term stability. If you break the rules repeatedly or severely, then sure, landlords should be able to remove you, but otherwise you should be left alone to live your life.
While in Munich, we lived in the Solln neighborhood. It's mostly apartments of some kind (we lived in an apartment, and then a backyard duplex), but they just look a lot less ugly than they typically do in the US. Example area: https://www.google.com/maps/place/Munich,+Germany/@48.081098...
> The problem with "increase supply" is that existing property owners rarely want that.
Yup. I'm a weirdo who owns his home but wants a shit-ton more housing built in his city, even if it means my home value goes down. I do know some like-minded folks here, but I would be very surprised if we weren't in the minority.
And it makes sense. We're taught (in the US) to treat our primary residence as an investment, and for most US homeowners it's the most expensive asset they'll ever own, and will be their main vehicle for maintaining their wealth through their later years, and for transferring the remainder of that wealth to their children.
Given that, you'd either have to be self-sabotaging-ly altruistic, or otherwise wealthy enough (outside of your home) that a significant dip in your property's value doesn't tank your finances. I expect that describes a small number of people.
Increasing supply would see your property value rise astronomically. Suddenly there would be developers wanting to build a 30 storey building in place of your single family unit. The ROI on that 30 storey would be high enough for them to give you multiple millions of dollars for your land. What would decrease is the beauty of the neighborhood, but people can be taught to appreciate the beauty of highrise buildings
> In almost all cities land has run out, so the only way to actually increase supply is to increase density. That means fewer single-family-homes, and more townhomes, multi-family, condos, and apartments.
Existing property owners can only afford to hold this opinion because land rents are insufficiently taxed. Through some sort of monumental stupidity we decided to tax labor instead of land. In this sense the SFH, “Americans like suburbia” problem is just a function of poor tax strategy. If homeowners were faced with the economic reality of their choices then markets would fix land use by themselves.
> we decided to tax labor instead of land
I live in Wyoming. We don't tax labor. Just extraction, consumption (sales), some investments and property. Our property is still expensive.
> If homeowners were faced with the economic reality of their choices then markets would fix land use by themselves
The problem begins and ends with supply restrictions.
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That means the American Dream is unsustainable, and until people can break through the entrenched interests and do something rational, American cities will continue to decline.
> In almost all cities land has run out
That's incredibly untrue. There are numerous cities, even in CA and NY, that have plenty of room for new single family homes.
The response to that is usually some variant of "eww, gross".
More importantly, there's huge tracts of land that could be new cities.
In the past, we had that incidentally or almost "accidentally" as new industries would create or vastly expand existing towns, and development would occur around them.
Now most "work" is more fluid, and doesn't build company towns, instead you get endless suburbs expanding off an existing city, even when they're technically their "own legal framework".
Even after we moved off the "factory town" type new cities, the suburb development wasn't a major issue because each new exurb usually involved a new highway direct to the city center - but new highways have been rare mainly because all the "reasonable" ones have been built now.
You could either create demand for cities somehow (look at Las Vegas, built out of nowhere) or you could use high-speed commuter rail to empty areas to give room for a seed to grow.
Where else do we simply accept that incumbents get to have full protection from loss at the expense of literally everyone else? Certainly other examples exist but we certainly wouldn’t tolerate wheat farmers stopping their neighbors from growing wheat.
No, we threw it away because executives wanted their control fantasy of being able to push people around like little chess pieces, as opposed to setting a vision, hiring professionals, and then giving them the tools to achieve the vision and staying the hell out of their way.
can someone who downvoted this comment explain why? I'm guessing you're management and find it offensive? Feels pretty accurate in my experience
It's a good start. Would be nice to add a gradually increasing tax on multiple home purchases, e.g. buying a third home has a 5% tax, 4th 15% tax, fifth 25%, and if you want a sixth home you have to build it yourself. Would prevent regular people from buying up dozens of homes to rent.
Changing the excessively huge (and probably financially needed) capital gains deduction for selling a home and buying a new one to only work if you literally buy new construction - would probably spur something.
Existing stock would be depressed in value as the pool of buyers would be smaller, but they'd be more likely to be first time buyers anyway (no capital gains to deal with) and demand for new would increase.
But you could end up with insane inversions where existing stock was pulled down to build new to take advantage of the gains exclusion.
It should be much more punishing from the 4th home like 45%. One can understand 2/3 homes, e.g., one to live in and the rest as investment for retirement income. More than that is just greed. Also, if you don't live in one of your properties, either sell one to keep the total number within 3 or pay additional tax.
if you allow each person to have 1-2 investment homes then you have the exact same problem but now it's decentralised and more people (more voters) benefit from the problem continuing to worsen
We have a significant number of problems related to housing; generally I would call it a demand side issue not a supply side however.
My reasoning is we have a massive construction sector compared to other nations, with a relatively high productivity in terms of dwellings built per capita. We also have pretty slack standards, with even weaker enforcement.
In addition to that, we have a very weak growth in productivity per capita; and since we are trying to rapidly grow, we have to play catch up to provide the same level of services. This needs to happen while our construction sector is stressed, so the same amount of wealth goes a shorter distance again.
You can also see this in rental prices; negative gearing should allow the capital price to decouple from the rental yield to a larger extent than without it; but we still see high rents...
>It will make very little difference in the end.
It will make very little difference if Wall Street investors hold very little property.
Putting a finger on the scale of how much real estate is individually owned definitely makes a difference though. It makes it worse.
100,000 individuals who own 100,000 properties have far more political power than 10 companies who own 100,000 properties.
>If you want housing to be cheaper and renters to be better treated, increase supply. Everything else is window-dressing.
Yes. However supply is artificially restricted by government, to the approval of the average property owning voter. So more specifically, that is what needs to be changed. Everything else is window-dressing.
This is a country sliding further towards being us, with their housing being more restricted and more expensive.
> 100,000 individuals who own 100,000 properties have far more political power than 10 companies who own 100,000 properties.
Is that really true in the US?
100,000 votes (and really probably closer to 150,000 influenceable votes across those households) is a significant number compared to 10 companies who own an average of 10,000 properties each, yes.
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Consider every other expense that people have that's supplied by companies (see: literally everything). Why have those companies not successfully lobbied to prevent competition? Industries where it happens are the exception, not the rule.
As long as houses are treated as an investment, there will be all kind of incentives to make them go up in value.
China did "over" solve it by building loads of houses, so everyone's house value just crippled down like crazy.
If buying a house delivers 5–10× the ROI of the S&P 500, that’s not “smart investing” then there is a huge problem to be addressed ... (preferably by building more)
>China did "over" solve it by building loads of houses, so everyone's house value just crippled down like crazy.
That's not really a bad thing unless you believe real estate should be a vehicle for investment. However, in T1 and T2 cities asset prices are roughly on par with western major metro areas. However, property management fees tend to be lower. I suspect the Hukou system contributes significantly to keep housing affordable, and it's not just the massive supply.
5–10× the ROI of the S&P 500 - which is really only true because we allow massive leverage on real estate that we'd not on stocks themselves.
And leverage brings all the problems associated with it; if you own your house outright and it goes down %10 you're out 10%; if you only have 10% equity and the same happens you're down 100%. The gains, of course, work similarly which is why for so long it's been a heads I win, tails I win.
> increase supply
There's a counterpart to supply in supply-demand. I wonder if we could also adjust that.
> increase supply.
THIS. If Supply & Demand just feels too complex, then spend a day watching kids play musical chairs.
Well said. A solution so simple and obvious it’s clear why Americans haven’t gotten there yet
And reduce demand, by not importing 3% year on year, where we can't keep up
I've heard that japan has a system that keeps real estate dynamic with lower prices.
Have you read anything on this you could point me to?
here's something: https://news.ycombinator.com/item?id=33418125
The window-dressing is great. You get the votes from the renters because you are doing ”something”, and you get the votes from the landlords because property values remain high
Certainly this is better than nothing though, right?
>>If you want housing to be cheaper and renters to be better treated, increase supply. Everything else is window-dressing.
You can also look at reducing demand due to mass migration.
Yeah, start wars with NATO allies and people will flee your country like it's 1940.
Right, and the large corporations just buy up all the service companies in the area and squeeze both the landlords and renters at once. The only way to achieve fairness is straight socialism.
It will make a _small_ difference, and then also banning individuals from owning multiple homes would be a bigger difference (and then building enough supply, the biggest). We can do all three.
Increased supply comes in majority black and/or low-income neighborhoods here and it's "luxury" units all the way down. Gentrification is the name of the game, while simultaneously reducing social services.
In that light, this move is A-OK with me.
> It will make very little difference in the end.
I feel like there will be a difference between a handful of large corporations owning a majority of properties vs thousands of dentists and software engineers. Are you saying that all of these property owners are also soulless profit-optimizers?
I remember watching some video of tenants being priced out of their rental apartments so when they tried to contact the property owner, they found layers upon layers of managers and companies. It just seems better when there are more thousands of owners than just a handful of corporations.
You would feel that, but you would be wrong.
Small businesses are often just as ruthless as large ones, just less competent. In any case, most rental properties are managed through agencies, who are soulless profit-optimisers.
So what’s your solution exactly? No businesses at all?
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It's the opposite in the UK. Most landlords are individuals, own one or maybe a couple of properties.
It's awful, rogue landlords who do everything they can to not do repairs or improvements and when they do it often comes after a long time. Often as they have underestimated all the expenses they're liable for and find that the profit is not very much.
Give me a company that owns a whole block every day, they've modelled the risk better, have economies of scale, and you have more recourse against them.
IME companies are worse: professional investors highly focused on maximizing profits - driving up rent and minimizing costs - rather than a long-term investment by someone with another job, a sidelight and retirement plan.
I don't see how you have more recourse against a company with lawyers that can ignore you, and mom-and-pop. The latter are much more likely to respond to reason.
Of course, any landlord can be bad.
> I feel like there will be a difference between a handful of large corporations owning a majority of properties vs thousands of dentists and software engineers. Are you saying that all of these property owners are also soulless profit-optimizers?
Do we want to trade crazy high prices in the American real estate market for absolutely crazier high prices in the Australian real estate market?
That is a bit simplistic though, there could be other things going on in Australia, and all the other rich countries (e.g. Switzerland, England, China) where American prices look like a good value. I'm sure at the end of the day supply is the main factor, and not having a hot economy also helps, so I'm sure the USA will get there fairly quickly.
And, everywhere, it's about people wanting to live in some specific cities. Even a bit outside of those specific locations isn't necessarily particularly expensive. (Leaving aside ski resorts, especially nice college towns, and the like).
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Don't be a coward, and talk about demand for housing, which in Australia is driven by sustained mass migration.
The inevitable outcome of this is increasing homelessness, and likely slums when homeless just start building themselves make shift shelter in such large numbers that authorities can't stamp down on it.
We're not supposed to notice that the best thing about migrants (especially the illegal ones!) is that you can cram them 10+ to a house in squalid living conditions that would be abhorrent to most.
It's a price we're willing to pay since we're not paying it.
I mean the only downside is the lowering housing and working standards of the native born working class population, but who the fuck cares about them right?