So, one of the reasons we have resurgent housing bubbles in world cities like New York, London, Hong Kong, and Toronto is because of foreigners who buy apartments and then leave them empty. Newsweek has a good article on ghost apartments, but I want to focus on this because it’s symptomatic of why we can’t fix almost anything:
In Singapore and Hong Kong, officials tried to slow the spread of absentee-owned luxury housing by limiting mortgages.
….
To encourage owners to occupy their units or sell, New York state legislation has been drafted to impose a progressive tax on vacant luxury apartments worth $5 million or more. The proposed levy would start at one-half of 1 percent and rise to 4 percent on values above $20 million.
People who can afford luxury apartments can afford that fee. Make it simple: Put in a residency requirement. Someone must live in the apartment six months a year. If they don’t, the tax rate is 50% of the ostensible value of the apartment. If that doesn’t work (and it might not, given how rich they are), well, then just make it illegal to own apartments that aren’t used and have the government seize the apartment and use it for social housing, or sell it. And if the next owner doesn’t use it, seize it again.
Lest you think this isn’t a serious problem, understand this: Every unused apartment raises the rent of every other apartment in the city and increases the cost of every other condo in the city. This is supply that is artificially off the market. Because people don’t live in these apartments, local businesses don’t have as many customers. Meanwhile, the high prices of luxury apartments for which there is no actual local demand drives up real-estate prices, which drives up taxation. Everyone pays more in taxes, rent, or mortgages to subsidize foreigners who aren’t even using the condos.
The same is true for houses.
Rich people who want to visit world cities can suck it up and pay for a hotel. There are plenty of hotels that cost thousands of dollars a day (tens of thousands aren’t uncommon, but ordinary people will never even see these listed), which are suitable for their “needs.”
The are many problems like this which are easy enough to fix by either extremely punitive taxation and fines or by just forbidding these destructive actions.
If you enjoyed this article, and want me to write more, please DONATE or SUBSCRIBE.
Stirling Newberry
“year” in para 3.
Mateo Duhaime
Every scenic area with a ski resort i.e. Colorado, California, New Mexico, Idaho etc. are full of vacant homes while the serfs go begging for afordable housing.
S Brennan
Shit yeah Ian…where’s the darn “like” button when you need one?
Where I am living [not for long] 80-90% of CITY* lots are vacant and overgrown [Katrina]. You’d think the land would sell cheap, [and it does, if there is a house on it], but most who own the land don’t pay much more than a $100.00/yr in tax and demand almost [sometimes more] what land with a nice house sells for. The reasoning is simple, once it was valued by a now non-existent media outlet at $XXX,XXX.00 therefore if I sell it for “less”, the buyer is robbing me. Those who rebuilt pay for the the absentees…and can’t sell there house for much because of all the vacate land around.
*Town really
Sebastian Good
Can’t say I disagree, but I think this article misses the major point of foreigner-owned real estate in cities like NYC and London: stability. Rich foreigners buy real-estate in a country with law and order and a (reasonably) stable market because it’s a tremendous hedge against being robbed at home by, say, a sudden change in Russian politics, or a plunging local currency. A non-occupied building tax would just be equivalent to a slightly lower interest rate on their bank account, and a great way to raise money to try and offset the distorting effects of that money.
One wonders if there isn’t a better place to encourage them to put their money.
Tom
Personally, seize them and only allow city residents who live in the city buy city apartments.
Off topic:
http://www.longwarjournal.org/archives/2015/04/islamic-state-assaults-baiji-oil-refinery.php#comment-68565
IS is officially the new NVA. Same strategic and operational brilliance, same atrocities. Only difference is IS has more effective ways to showcase them than the NVA and more trucks.
Mary McCurnin
That gives me an idea. I want to move closer to my kids. One lives in Sonoma. The other lives in San Rafael. All I have to do is find an empty house and move in in a way that doesn’t alert the owner. mmmmmm. What is the best approach to this?
subgenius
@Mary
Adverse possession- you have to find an unused place with lapsed taxes, move in and use it like you own it, openly – no hiding, and pay property taxes for i think 7 years in cali…if you make it you win the house…
JustPlainDave
Nothing like a whiff of relative privation to bring out the rhetorical fangs of the middle class.
hvd
JPD –
Just what of Ian’s analysis do you disagree with?
Ian Welsh
Spent far more of my adult life as working poor than middle class.
Susan
I suggest a similar approach to the abandoned Wal Mart buildings: the ones they left behind when they built the new ‘super-store’, and then ask an unreasonable price for, because they don’t want the competition. Have the local government seize the property and convert it to public use: or break it down into smaller units and sell off at reasonable price to local entrepreneurs.
Susan
JPD: the middle class had better grow some fangs real quick, and learn to use them, before the upper class has succeeded in gnawing all the meat off our bones.
JustPlainDave
The part of the analysis that I disagree with is the bit that hangs it on foreign ownership of luxury property. There are real and profound difficulties in housing, but if one wants to actually work to solve them this isn’t even in the top ten of things to work on – way, way more important things to focus on first.
Taking the Toronto market as an example (and it’s actually a decent example) – that part of the market is so small that it has only the most negligible effects on median affordability. I’ve been following the condo market pretty closely for about the last 18 months – haven’t definitively tabulated the data, but one might see a $5 million condo go by roughly once a month; a $1 million+ place say two out of every three days. That’s a very, very small percentage of properties changing hands (I’d hazard a guess of maybe 1-2%) and only a minority of them are going to be foreign owned. For real impact on overall market affordability, one has to go a good deal further down the price ladder.
None of this is to say that non-resident ownership (ownership by people who don’t reside in a given property) doesn’t represent particular challenges, but in my view when it gets to the scale of influencing overall affordability in any significant way, it’s a much broader phenomenon. The Newsweek article referenced states that one quarter of Paris apartments are empty the majority of the time – the simple scale of that statistic says it’s driven by a lot more than foreign ownership of luxury properties. (Hell, if one quarter of apartments in Paris are luxury properties at all, I’ll eat my hat.) Similarly, the central Brooklyn example reported says that tenants paying $1,200 – $1,500 were being replaced by tenants paying twice as much. Don’t know what rents in Brooklyn are, but that’s not much out of line with what I would expect to pay for a 2/3 bedroom here. I’m not seeing a handy foreign elite to blame things on. While it’s a real problem, ghost stock is not driven by the foreign hyper-wealthy, but rather by citizens who are merely well-off.
Once one realizes that this isn’t something that’s driven by a small population, one then realizes that unwinding it is a bit thornier than initially thought. As an example, a 50% tax sounds nicely cathartic, until one thinks about potential effects on bubblicious markets like the current Toronto one.
joe
S f bay area prices have affected real estate costs for hundreds of miles in every direction. Far beyond the bay area pay scale. The property value( price) space rationing problem spreads as ebola like infection. It’s also interesting in that it’s a very difficult conversation to have with folks. Anger surges. The subject quickly becomes about self amongst owners and those who rent from the bank and call themselves owners. Territory and self worth( pride) are strongly tied together.I have tried having objective conversations about fairness and property use to be met by either silence or anger too many times for me to see them as isolated. This is going to get bigger and uglier. I’m interested to see how long mass media and the privileged can ignore it.
tc
I’ll sort of agree with JPD and Joe. I have no moral or philosophical objections to Ian’s proposal, except that it is piecemeal (and not even remotely feasable, politically), and I hate when you have all these little piecemeal bandaids to tax problems (which then create unanticipated consequences of their own) when there are obviously much broader causes and simpler, broader solutions that should be addressed.
Also, JPD is afraid of pricking a bubble, as though bubbles don’t always collapse eventually, with or without pricks.
When real estate prices (or any other prices) are so susceptible to bubbles in SF or NY or anywhere, that’s a good sign that r/e ownership has been artificially advantaged as an investment relative to other investments. For one thing, the taxes are probably way too low. Notice that most bubbles in the US happen in places where the r/e taxes are low because they rely on income taxes, whereas places without income taxes or low taxes, like Texas, have high r/e taxes and even though they have r/e bubbles, those bubbles are not even remotely comparable to ones in California. I’m not saying do away with income taxes, just get rid of Prop 13 in Calif, and get rid of all the other property tax abatements and unfair, uneven tax preferences and advantages r/e owners (especially the rich) receive, raise the rates on everyone to a level that promotes efficient use of the property, and the problem becomes much smaller.
Ian Welsh
It’s not unfeasible at all. If we want to forbid foreigners from owning places they don’t live in that’s dirt easy.
If we want to forbid nationals from doing it it requires little more than an inspection regime, which given our current surveillance technology, is easy enough to do, and can easily be supplemented by on site inspections. The salaries of the people doing the inspections will be far exceeded by the fines and the money earned from auctions of seized properties.
The tax system is also set up to catch stuff like this. No income declared from your property? Hmmm… do you have family members living there for free? Go inspect.
This stuff is dirt easy to do, and the fact that people don’t understand that means that they don’t understand what government can do.
JustPlainDave
The issue isn’t whether it’s easy. The issue is whether the proposed method – 50% taxes and suchlike – is worse than the cure, particularly given current market conditions.While one can stop a brain tumour’s progress by shooting oneself in the head, it’s oddly not a popular remedy.
guest
If you were addressing my comment about feasibility, I wasn’t suggesting that it would be impossible to enforce (although I can see a lot of ways to scheme around such laws, and I’m not even a lawyer, although I have dealt with quite a few in my job, so I don’t agree that it would be dirt easy either).
But here in the country where our representatives are falling over themselves to repeal death taxes that only affect the super wealthy micro minority, I would suggest if we actually had the political clout to fight such a small but powerful interests, this issue should be way down the list of priorities of fights. And if you fixed the higher priorities, this one would probably self correct for the most part before we got far down the list.
I think the “learned helplessness” in the political class comes from the fact that even the liberals representatives, and their media spokeswhores, are filthy rich, or hoping to be rich (and by hoping to be, I mean they are whoring their b-holes raw), and so even if they know something is the right thing to do, they also know they live on the side of the bread that is buttered. (I think the dems in congress are even richer than the repukes)
As for why ordinary Americans accept and even parrot back the lame reasoning behind the mewling excuses of the hacks, I will never understand. Somehow, “the markets” are so vital and powerful that they must not be opposed lest we find ourselves in concentration camps, but at other times “the markets” are so fragile and sickly that they must not be fixed lest the whole thing come crashing down on us.
Just too many unexamined assumptions (mostly laughable ones) behind most people’s reasoning. How to unpack it all?
Chitra K
I’m from HK and the situation is very dire. If the government wanted to actually curb housing prices, they could impose the laws you mentioned. But the truth is that they don’t want to…prices in HK have been driven up mostly by Mainland Chinese buying HK property to hide their wealth offshore (to avoid 50% estate tax).
With the prices so high here, and wages for graduates so low, it would take 30 years for one to own a house. Or die paying exorbitant rents. Big source of frustration here that lead to the Occupy Central movement.
TheBrummell
This kind of residency requirement and differential taxation and fees already exists in Canada.
In at least some Ontario rural municipalities in “Cottage Country” (roughly the southern part of the Canadian Shield in central and eastern Ontario; within approximately 4 hours drive of either Toronto or Ottawa) non-residents pay around 10 times the local property tax rate compared to residents and face more restrictions on building and changing their property. My family owns a cottage southwest of Ottawa, and members of my family (most often my aunt and uncle) visit for a weekend or a week around a dozen times each year, almost entirely in the summer. We’re clearly non-residents, and pay considerably more in tax than the next door neighbour, a couple who retired to their cottage about 20 years ago and now live there permanently.
I don’t actually have a problem with this, we can afford the fees and taxes and Joe has been a great help over the years keeping an eye on our place when nobody else is around. Perhaps Vancouver and Toronto could look to places like Cloyne, Ontario for some ideas.
Golfinho
The problem with this is the US needs foreign investment (including this ‘vacant apartment housing bubble’) in order to recycle dollars back into the US economy. Since the US no longer produces exportable goods (except military weaponry) and services (military intervention) there needs vehicles in the US economy for foreigners to park their gotten gains.