Morning Ed: Housing {2017.06.21.W}

Alykhan Pabani decided to stop paying rent. And not by buying a house.

AirBnB to the rescue!

Nobody likes a tattle-tale… except the hotel industry.

New York struggles to put together affordable housing, and many are suggesting that the people the mayor turned to aren’t helping.

Housing prices in each state. Few surprises, though state-to-state comparisons are less than illuminating because most states have some combination of expensive and inexpensive housing. It’s all about where you are.

Leonid Bershidsky makes the case against tall public housing. One problem is that nobody wants to live there.

Robert Colvile argues that Tories need to get more people into houses, or they are doomed.

Intellectually, I agree with this. Realworld, we just joined the ranks of homeowners and come on!

Become a homeowner at $1/sqft per month! That’s almost twice what we pay, though. Ahhh, economies of scale.


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Will Truman is a former professional gearhead who is presently a stay-at-home father in the Mountain East. He has moved around frequently, having lived in six places since 2003, ranging from rural outposts to major metropolitan areas. He also writes fiction, when he finds the time. ...more →

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39 thoughts on “Morning Ed: Housing {2017.06.21.W}

      • Maybe, but it is still the dominant, if not only, provider of housing for the poor. That is to say, poor people in Singapore, like their middle class counterparts live in tall tower blocks. And HDB manages to get lifts upgraded so that they stop on every floor. There is nothing ipso facto inhumane about living in a tower block. What matters is whether due care is taken in the building and maintenance of such blocks. When no such care is taken tragic fires become more likely. HDB blocks are steel and concrete structures*. Even when something catches fire, it doesn’t spread everywhere.

        *Separating walls are literally brick and mortar. The issue that might make it harder in the UK and the US is insulation. You don’t need insulation in Singapore. Honest question for the materials engineers: what non-flammable insulation options are there?

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        • Nearly everything burns if you get it hot enough.
          If you want nonflammable insulation, well, there’s brick and glass.

          If you’re using AC in Singapore, you really do need insulation.

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        • Well, there is asbestos, but for some reason no one wants to use that one, in any form.

          Aside from that, you can use anything that creates closed cell air pockets, so there are various forms of fibrous stone (Rockwool) and concrete/ceramic foams. But those are not as cheap as fiberglass, extruded foam, or treated & shredded cotton/wool fill.

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  1. Perfect Will-bait, the rent crisis does not need a national solution:

    http://www.slate.com/articles/business/metropolis/2017/06/the_rent_crisis_does_not_need_a_national_solution.html

    Our dilemma is not affordability,” Krehmeyer said. “We have a pretty significant single-family rental portfolio, three-bedroom single family homes, 1,200 square feet, that we rent for $675. Affordability is not an issue.” The crowd, made up mostly of big-city journalists, gasped audibly.

    “Come to St. Louis, come to the Midwest,” he continued. “The challenge for us really becomes that even at that great price point, there are so many families that reach out to us and we say, ‘Sorry, we can’t rent to you because you don’t make enough.’ Even at those low price points. And that’s a function of poverty.”

    And then you have the typical problem in cities like New York, SF, Seattle, LA where the rent is too damn high.

    So we have cities with high wages where the rents outpace the wages and we have cities where the wages are too low for people to afford decent rent.

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    • I am missing something. This guy first says that the problem is not a shortage of affordable housing. Rather, it is that people can’t afford it. Actually, I take that back. I don’t think I am the one missing something.

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      • The rent crisis is two fold as Oscar points out.

        You have cities with low unemployment, high wages, and unaffordable rents that are outpacing wage growth and inflation.

        And then you have cities where the rent is really good in theory and there is plenty of housing stock but there are not enough jobs and the jobs that exist generally don’t pay enough to make the “great” rents.

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  2. Mr. Pabani’s corporate landlord seems like a negligent bastard who need to get their shit in gear if they want rent. The warranty of habitability is being violated.

    I’m really surprised that nobody ever attempts to copy the Viennese and German public housing estates or even outsource public housing to them. These estates are reputably pleasant places to live so they must know something about public housing.

    Colvile is probably right. Home owners tend to have something of a stake in the status quo and tend to support the conservative party. The suburbs gave Republicans a lot of votes in the post-War years. Most people can’t afford home ownership without some form of government help though even if they are well-educated and gainfully employed.

    Will becomes a NIMBY.

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  3. I feel especially qualified to read the links this morning because I saw the national tour revival of Rent last night.

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  4. Alykhan Pabani: yeah, good luck with that. Leaving the shitty maint. issues, raising the rent when someone leaves (which I assume is legal) is common. Hell, that’s what they do for property taxes. If a house sells for significantly more money, everyone’s rates get readjusted come review time. The whole article reads as a whine. Should have focused more on the actual maint. issues.

    AirB&B: Yeah, I’m not tattling unless I’m getting paid.

    Average Rent: That average is working hard. Ain’t anything near what I pay in the higher cost counties. It is about what a 2 bedroom apt would run in my area BEFORE the optional items like covered parking, etc. Townhouses/condos are much more expensive than that, running 2.2 to 2.4K a month. It’s cheaper in the outer exurbs of course, but my commute is an hour already.

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  5. Average rents: I think it would be interesting to see a finer-grained study. The “expensive” apartments in my town are $650 a month, which is $100 below the average for my state. And this is in a college town, where supposedly rents are inflated. (Then again: it is typical for college students to rent a 2-bedroom and have four or even six people living in it).

    There are also rental houses here, but I have no idea what they run. (I have people suggest to me that I invest in a few older houses, fix them up, and rent them out, as a source of “passive income.” There’s no way in heck being a landlord is “passive” income; every person I know who owned rental property wound up selling it in disgust at some point)

    Fifteen years ago, when I first lived here, I paid $350 for a two-bedroom. It was in an older complex and there were a few maintenance issues (and wicked ugly carpet). But when I lived in Ann Arbor back in the early 90s, I paid $600 a month for a studio apartment. Granted, there were cheaper options but some of them were in buildings with dodgy security, and I didn’t fancy waking up to someone rifling through my stuff.

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    • Holy Moses, where do you live? I’m in Jacksonville. I rented a flophouse 25 years ago for $360. The one bedrooms in an apartment with trailer trim is $650 now, and a 2-bedroom standard apartment is $1250.

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  6. The mortgage interest deduction ain’t going nowhere. It’s infinitely too popular with all the right population segments: the very wealthy party donors and the vast swaths of the middle class vote providers.

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    • Is the mortgage interest deduction just a blanket income tax deduction – if you own a home, you can deduct all your mortgage interest from your income no matter what?

      Here there’s a mortgage tax deduction for home business income only, for the percentage of the home that’s dedicated to the business only (I work outside the home, so I don’t get to deduct any of our mortgage interest; my wife’s business is based at home, so she gets to deduct from her business income a fraction of our mortgage interest, proportional to how much of the house is her office)

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      • No. You have to be able to itemize. As best I recall, there were only a couple of years out of the many we had a mortgage where my wife and I itemized on our joint return — the standard deductions worked out as a better deal for us.

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        • The mortgage interest deduction works out the best with households on the front half of their mortgage schedule and in areas where either high property values or property tax millage rates (or both) make itemizing a no brainer.

          In many parts of New Jersey and Connecticut, you can easily spend in excess of the $12.6k standard deduction (for married) on interest and property taxes even on a conforming loan priced home. (Less than ~$425K)

          (And since those states have an income tax, even more reason to Sked A)(though yeah, you can deduct sales taxes now too instead)

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          • Exactly. Somewhat relatedly, I am surprised by the number of people I know who have been in “home buying” mode for 20 years and are still in the early years of a 30-year mortgage. Our strategy on the two occasions we moved and once that we refinanced was to keep the monthly payment about the same and shorten the term each time. (And occasionally made additional payments against the principal.) When we paid the mortgage off after 17 years, the monthly payment was only about 10% higher than the monthly payment on our first mortgage.

            Granted, the plan was aided by the fact that we started home ownership about the time mortgage rates peaked in the early 1980s, and we were able to exploit almost 20 years of falling interest rates.

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              • Just about any asset that’s not dollars or debt owed to you in dollars does the trick.

                We took out our mortgage in 2012 with some hope that inflation would return to normal soon, but we clearly have not been winning that bet.

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        • I see. I had to look up ‘itemizing’ in the context of US tax returns, as I don’t think there’s an equivalent in Canada – claiming individual itemized deductions doesn’t reduce the basic automatic deduction.

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          • It’s complicated. You can choose to itemize deductions or take the “standard deduction.” It’s not a matter of reducing the standard deduction. It is either or. You choose whichever is larger. Which that is depends on your situation, but it pretty much stays the same from year to year.

            So does the rest of your return, for that matter. There are many many spaces, but most of them you will never use. When I did my taxes after buying a house and having a kid the same year I found the process of figuring out what now applied to me laborious, and the outcome startling. I had it reviewed by a professional, who for a reasonable fee confirmed that I had done it right. Since then the numbers in the various spaces are different each year, but nothing in my life has changed and which spaces matter to me has remained unchanged with it. I have a moderately complicated return for a non-business. It really isn’t that big a deal. People love to howl about the burden of doing a tax return. I’m sure a few have so little stability in their lives that it really is a bitch to fill the thing out each year. But most simply are bitching to bitch, or are going about their returns remarkably ineptly.

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          • Basically everyone has the option of getting the basic automatic deduction which is a set number per person or a different number per couple. If, however, your various deductible expenses/credits etc add up to more than the standard deduction you elect not to take the standard deduction and instead “itemize” your various expenses and credits which adds up to a number larger than the standard deductible.
            So…
            Poor people who rent or who own small inexpensive homes probably stick with the standard deduction.
            Middle class people who save for college for their kids, have pricey homes and various other expenses (often business related) take itemized deductions that produce much larger tax savings for them.
            And Wealthy people have hugely expensive homes and get a fat subsidy from the state in terms of the mortgage interest deduction to own them.

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      • There are some extra details (the big one being that it must be your primary residence or a second home) and that you can only deduct interest on the first $1M in debt. But otherwise, yeah. It’s an enormous chunk of change that has a big effect on the behavior of everybody from the middle class on up and puts its thumb on the scale of the housing market.

        If you were a homeowner when it went into effect, you got a big windfall. For everybody after that, the deduction and extra borrowing it enables is just baked into market price, so it’s ultimately just a big persistent giveaway to the banking industry that’s very hard to get rid of. It’s popular because people think they’re getting a deal, and even if we all agreed to get rid of it, it would have to be phased out over a very long time to avoid a shock to home prices.

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          • Absolutely. In fact, until I looked up, I assumed that we had.

            It’s insane. We might as well just cut to the chase and make a blanket statement that all interest dollars paid to banks for any reason are fully tax deductible. Or make them a refundable tax credit! Go hog wild!

            Before you get all panicky, I will pay for this program by cutting waste, fraud and abuse when I get to Washington. I’ll be the CEO President.

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        • The issue is that the Mortgage Interest deduction benefits the coasts at the expense of the middle of the country. Consider that the median home in IN is about 140k so assume a 130k mortgage, and at 4% and you get 4200 in interest the first year, and assume the same in taxes and the median home owner in In if married would not itemize unless they have big charitable deductions.

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    • It could be gotten rid of, but as the article mentions, it would have to happen over a long time, like 30 years. That, or everyone would have to be allowed to do some kind of fancy refinance to remove the baked in assumption of the exemption.

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      • Even if we were able to do a fancy refinance thing (which I don’t think would work–I can’t think of any way to do it without just having the government directly make the loans), it would still produce an abrupt downward shift in housing prices across the board. Causing a sharp drop in the price of a whole class of high valued assets that are bought on credit and used as collateral is… playing with fire. It seems like the 30 year phase out is the only good option.

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      • It’d require a bipartisan agreement to not waste each other over it and then, yes, the politicians could sneak it in by making it phase in over 30 years which would work quite well.
        All it’d require would be bipartisanship and an agreement by both parties not to shout to the high heavens that it was happening. While we’re at it I’ve always wanted a unicorn. They crap out rainbows and I could use them to find leprechaun gold!

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    • Assuming that the decline in the value of the housing stock is real, you know who else is going to fight tooth and nail to keep it? Pretty much every local government agency that depends on property taxes. Colorado’s odd tax system is probably an extreme case — maybe the extreme case. Every homeowner protests their current valuation and wins. Any property tax rate increases have to be approved by the local voters, and many of those ballot issues will fail. In the case of school districts, the General Assembly may well have to make up revenue shortfalls out of the General Fund — also without tax rate increases at the state level, where voter approval is a rare thing. Most likely, large sums that currently go to higher ed will be transferred to K-12.

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  7. RE: Mortgage Interest Tax Deduction

    “Eliminating the mortgage interest tax deduction would destroy 10 percent of home values, says one economist. Put another way: It would make them that much more affordable.”

    Will you also force the loan holder to write off 10 percent of the principal? No? Then go fuck yourself with a shovel.

    “Most households (70 percent) do not benefit from the mortgage interest deduction.”

    Wait wait wait wait wait. You just told me that eliminating the mortgage interest tax deduction would cut house values–that’s every house value–by ten percent. But now, suddenly, we learn that only thirty percent of homeowners actually use that deduction. So…why would the housing value increase resulting from the tax deduction affect the other seventy percent?

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    • But now, suddenly, we learn that only thirty percent of homeowners actually use that deduction.

      That’s “households” not “homeowners.” About 37% of households are occupied by renters. So it looks like about half of homeowners use the deduction.

      So…why would the housing value increase resulting from the tax deduction affect the other seventy percent?

      Two things:

      1) Housing is a market and what any substantial subset of the participants do affects the equilibrium price.
      2) The rise in prices due to the interest deduction has less to do with what the current owners are doing than what the potential new buyers will do. The deduction changes behavior by increasing a buyer’s ability to borrow to pay a higher price. The percentage of currently occupied homes that take advantage of the deduction says almost nothing about the percentage of buyers who would use it.

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