this post was submitted on 23 Apr 2024
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The idea would be that you don't get to own somebody else's home. Why on earth do you equate that with not getting to exist somewhere on vacation?
Instead of looking for gotchas, why not imagine how that would work without someone at the top demanding a passive income?
Okay, I'll bite. I own a house. Now suppose I buy another house. It's empty. It's not someone else's home. Under the proposed rule ("you don’t get to own somebody else’s home"), I can't rent the house-shaped building to someone as a residence. So now instead, I'm turning the second house into a pig farm and hiring laborers to raise and slaughter pigs on it, because the state insists that I have to put the land to work. [That's what property tax is.]
I'm still profiting off of someone else's labor, the would-be tenant is homeless, and I'm destroying a neighborhood. Somehow this doesn't seem like a win to me--for anyone.
I am strongly in favor of protections for tenants: no one should be constructively evicted, rents should be controlled everywhere, and price-fixing by landlord cartels should result in prison sentences. BUT rental residences arise as a natural consequence of the freedom to contract. The solution to slumlords who fund entire generations of descendents by lucking into a valuable tower at the turn of the century is not "getting rid of landlords." It's just tax.
Full disclosure: I'm not a landlord, but I've both rented and am fortunate enough to own my own home now. I have also litigated both sides of evictions. I've seen bad landlords put the screws to impoverished tenants, and I've also seen spiteful tenants utterly destroy properties with essentially no recourse. This is not a problem you solve with magical thinking.
I'd imagine zoning would restrict this scenario in many cases.
Yeah, you'd think.
"Many" is the operative word there. It's not all--not by a manure-covered mile. If you ever want to do a deep dive down a fun legislative rabbit-hole, dig into right-to-farm law, agricultural zoning, and the history of nuisance litigation. I might not be able to put a hog farm next to a tenement building downtown in a major metropolitan (or I might be surprised to find that, in fact, I can, if I'm willing to pony up for the land), but there are plenty of places where I could.
In any event, the example is ultimately hypothetical. The point is that trying to exterminate landlords can have disastrous knock-on effects, foreseen or otherwise.
Rant warning (that's the end of the response; the rest is just venting about inequality).
It's no accident that the American Dream is about owning land. Land ownership is central to our national identity, born as we are out of generations of homesteaders, tenant-farmers, explorers, slaves, and frontiersmen who rightly made no distinction between the tyranny of the plantation and that of the feudal lord (and that of the modern slumlord). Everyone wants land, and who can blame them? For a hundred-thousand years, owning land has been the best, most reliable route to prosperity and, ultimately, generational wealth.
The problem isn't that landlords exist. It's that landlords are rich. And notably, it's absolutely not all of them. I don't really have any beef with a professional who does well, retires, and buys a little summer house he rents out to vacationers eight months out of the year. The fact that it's a profitable undertaking doesn't really unravel the social fabric, since the profit motive is the only reason vacation homes exist for people (like me) who want them and have yet to save up enough to buy one outright.
Ultimately the problem is, as always, wealth disparity. A vacation home isn't a big deal. A monopoly on an entire vacation community, however, is a different matter, because with it comes price fixing, capture of the local government, corruption, abuse, and all the worst consequences of gentrification--you know, capitalism. And again, it's a problem you solve by taxing hoards of wealth, whether they're in any individual's pocket or hidden in a corporate offshore vault or securities labyrinth. It's a problem we already solved a generation or two ago: Accumulate more wealth, pay more taxes, and continue to pay progressively more taxes until the profit motive is completely overshadowed by the societal benefit (via tax) of the new wealth generated. If you own a building in midtown Manhattan, you should get to pocket only the tiniest fraction of the rents it brings in. Not profitable enough? Then sell it. Plenty of the rest of us will stand in line to take it off your hands. Your corporation that hoovers up neighborhoods all over the country is suddenly in the red because a society-serving tax regime punishes you for said hoovering? Guess you better sell off some homes and watch the market correct itself.
All of that is to say that landlords serve an important function in an ordered society--providing the temporary use of otherwise unused land to persons who have not yet accumulated enough wealth to own their own land outright. We should not aspire to do away with that function, but rather simply to tax rent-seeking at a level that serves the society at large. It should be profitable to own a vacation home. It should never be profitable to own six.
Just because you can't rent it doesn't mean you can't use it as part of an investment vehicle. You can offer a private mortgage or land contract, for example. In either case, the occupant of the property is the deed holder. The terms of the agreement are permanent, and established from the start. You can't arbitrarily increase the cost year after year. They earn equity from day one. You earn interest on the value borrowed from you.
Oh there are plenty of ways to make a property profitable. Selling it--which is both of the examples you offered--is one of the worst ways, however, and that's why those fortunate enough to own land tend to pursue alternatives first. If you stop them from being able to rent by fiat, they're not going to sell as a result. They'll do something else profitable--and probably unsavory--instead.
Lending != Selling. You're looking only at the sale, and ignoring the loan. Lending is an extremely good way of earning a profit.
My approach does not stop renting by fiat. I would double property taxes, and provide a commensurate owner-occupant credit, so the tax rate on your dwelling doesn't increase, or even reduces. I would statutorily adjust that rate and credit, targeting an owner-occupancy rate of 85%.
The investment market is going to be focused on figuring out how to get a renter's name on the deed so they can get that credit.
Meanwhile, an onsite landlord, living in one unit of a duplex, triplex, or quadplex is able to underbid any offsite landlords for his remaining units.
A land contract is a sale. So is a private mortgage. I don't want to be condescending here, but it's not unreasonable to expect that you know what those terms mean when you use them as examples. Your regime also expects that the seller carry the note (which in every or almost every jurisdiction is how a land contract works now--it's almost indistinguishable from a mortgage as a matter of law--and in any jurisdiction where I'm wrong about this, it's worse for the buyer anyway). If the seller is put in a position where you're trying to incentivize them to sell, demanding that they bear additional risk and cost isn't going to do that. I also assume you understand that this scenario increases the likelihood that the seller is the one left holding the bag if the bad credit purchaser defaults. Is it fair to assume the purchaser has bad credit? Yes, because purchasers with excellent credit and assets can already buy property now.
Doubling property taxes doesn't get you the result you want either. It just hurts the small owners, because property tax doesn't care how many properties you own; it only cares about the property to which it's attached. Large corporations don't care about a doubled property tax, because they can just eat it and raise the rents. They're already colluding to fix rents, and that's the whole problem. Tax credit for an occupier? Terrific. We'll put the CEO in the penthouse, put the rest of the C suite in our other penthouses downtown, and use the extra cash for stock buybacks.
What's actually needed is a wealth tax. Don't penalize someone for owning a nice house. Penalize them for owning thirty houses.
Now, I agree in principle that more people should be able to own land, and I also agree that the current situation in which land is being increasingly concentrated in the hands of fewer ultra-rich entities is unsustainable (and heinous, besides). But the "if you're currently a landlord, you should be forced to sell your property to whoever you might otherwise rent it to" just doesn't work. You simply can't make it attractive enough, because you can't change the reality that most renters just can't afford to buy the property. If they could, the problem wouldn't exist. If I own valuable property, there's no magic hand-waving you can do that is going to make me want to sell to someone who can't afford it, because I know they can't afford it! All putting their name on the deed does is ensure that the property gets sold when they default on the note, and whoever's holding the note has to cry foreclosure (and guess what? That does cost money and labor to the mortgagee, since the defaulting buyer is probably bankrupt/judgment proof).
So I'll just turn the place into a hog farm instead. Now instead of renting the house I inherited from the last generation to another family while I wait for my kids to grow up (a situation I expect to find myself in within the next decade or two), I'm instead going to find another way to make it valuable. There's no universe in which I'm going to sell it. I feel like that kind of scenario accounts for a lot of the upper middle class in the next fifty years, all else being the same. Putting those folks in the same boat with the corporate landlords is shooting your agenda in the foot.
A private mortgage involves a sale, but a private mortgage is the loan associated with the sale, and not the sale itself. The sale of the property may not be particularly lucrative, but the loan certainly can be, especially with subprime loans that commercial lenders won't touch.
Buyer/borrower defaults, lender/seller forecloses and sells the property again. Seller isn't holding the bag. Seller is holding the house.
You keep talking about a hog farm. Under my scheme, to avoid the higher non-occhpant tax on residential properties, you would have to rezone. I've never found anywhere that will allow you to rezone from residential to agricultural, so you'd have to go to commercial or industrial to avoid the residential tax hike, but the property taxes on commercial and industrial are considerably higher than residential, and both are currently declining in value. Out of the frying pan, into the fire.
Tax rate isn't just doubled. It's statutorily increased so long as owner occupancy rate is below 85%. To keep their margins, they will need very high rental rates and very high occupancy rates, and those two are inversely correlated. The higher the rent, the more pressure they have to buy. Meanwhile, all these former landlords are looking for someone to put on a deed so they can save on their taxes.
Such a tax will decimate returns on institutional investors. They'll jump ship quickly, throwing their dollars at the next highest return.
No, the investors who stay in the industry will turn to private lending, or convert their rental units to condos, which can be sold instead of rented.
The hog farm is a hypothetical example. Getting hung up on it doesn't change the reality that there are alternative uses of property that don't require new zoning. In places where they don't exist they will be made to exist, because people will sooner burn down their properties than give them away.
And you're now suggesting that instead of renting, property owners should hold the notes on subprime mortgages? Your position is "If you're creditworthy enough to own a second home, you should be forced to sell it to someone who can't afford it and carry a note yourself at tremendous risk that an American bank knows better than to hold." You were alive in 2008, right? You want a Depression? That's how you get a Depression. When you find yourself advertising subprime mortgages in order to make your scheme work, don't you think that might be a good time to reevaluate?
The seller isn't holding the house when the buyer defaults. The seller is holding the house, the buyer's damages to the house, the cost of the foreclosure, and the cost of deficiency litigation against the defaulting buyer who is probably judgment-proof, and that's assuming the seller doesn't also lose the house at foreclosure, since a foreclosure is a public sale. So the seller carries all of the risk while the unqualified buyer gets the equity. I don't even own any land to rent, but fuck that. I'd sooner let it sit empty. The only people making money in that environment are real estate lawyers.
And none of this even considers that currently, a creditworthy seller statistically has given her own mortgage on the rental property in the first place, and that means the seller can't finance the house herself because she can't transfer good title to anyone without paying off her own note first. That's a problem that doesn't exist for, you guessed it, landlords. That scenario exists to currently enable people to buy second homes and generate wealth for their families, and it's impossible in your regime in which apparently the upper middle class should not exist at all.
The bottom line is that your scheme is a disaster. I don't say that to be mean. It's just out of touch with economic reality. People can't afford houses, and forcing landlords to sell their land doesn't make people able to afford it. Credit and lending isn't made up. It's based on actual risk assessment, and forcing landlords to bear that risk while also losing their land isn't a transfer of wealth to vulnerable populations or younger generations. It's an erasure of wealth by procedure, bureaucracy, and waste.
And the owner-occupier thing? You know people can lie about their residency and building occupancy, right?
Your scheme, if implemented, would not solve the housing crisis. It targets the wrong people, it's economically indefensible, and most importantly, it destroys class solidarity thay would otherwise exist between small landowners and renters. The only thing you might accomplish is a tremendous wave of violence, because I think I can speak for a lot of Americans here:
I have been tremendously, exceedingly fortunate and privileged to buy land. I wish everyone were so fortunate. I worked very hard for it. Other members of my family have also, and as much as I dread it, eventually I may inherit a second home that has been in my family for generations and was paid for by decades of backbreaking labor by my ancestors. When that day comes, I may rent one of these properties until my son is old enough to live there with his family. That's the entirety of my retirement and investment strategy. My savings will simply not be enough on their own.
And your scheme suggests instead that I should be forced to sell to someone who may well fail to pay for it. No thanks. That's a nonstarter, and it's a nonstarter for everyone whose story even remotely resembles mine. In my part of the world, that's the story of every house in the county. Your scheme doesn't work for the simple reason that people here would sooner overthrow the government than let it stand.
I will never deed these properties away. They are paid for with my family's blood. If you want to take the land from me or anyone similarly situated, you're going to have to do it with guns.
That's an attitude that can only exist for small landowners. Maybe we should try a scheme that doesn't put them on the same footing with institutional investors. I really don't like being on the same side of an issue as an investment bank. --but I like it a lot more than your plan to set the middle class back a hundred years.
Either way I think we're done here. Take it easy.
By and large, renters already have subprime credit. Landlords are already taking the risk on renters who would be subprime borrowers. That's how they are making their money: exploiting people who don't have the savings or income to qualify for lending.
Landlords aren't taking on any additional risk by lending to them vs renting to them. They are actually reducing their risk, as the same person as a buyer has more to lose than they would as a renter. Further, a stable mortgage payment becomes more affordable over time, as the borrower's income increases.
That's the stupidest thing you've said. Yes, it's a public sale, and the beneficiary of that sale is the lender. The first bid at a foreclosure sale is always the lender, who bids what they are owed, including the foreclosure costs.
The only way the seller loses the house is if someone over bids them (or they are too stupid to bid the full amount they are owed) But if they are overbid, they receive the proceeds from the sale, and are made whole.
You don't get to talk about damage to the property: landlords have the same risk. The cost and process of a foreclosure is similar to that of an eviction, and the higher interest rate the buyer is paying more than covers it. Further, you're ignoring mortgage insurance that buyers would have to pay for as well.
Sure. That would be tax fraud. Property taxes are public records. Anyone can look up who was claiming what. Including the actual occupant of the property you say you live in, or the neighbor you pissed off. And when they look it up, you're on the hook for all the credits you claimed.
That attitude is a problem. You are contributing to the problem. You should be financially discouraged from this problematic course of action.
There is no class solidarity between renters and landowners, nor should there be. The relationship of landowner to renter is the same as the relationship between tick and dog, fly and horse, mosquito and human.
Much like "impoverished child" or "battered spouse", "renter" is a class that should not exist, and for much the same reason.
Solidarity between the people you describe is best achieved by converting the renters into landowners.