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A Modest Proposal


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2008 Jan 24, 12:55am   31,101 views  323 comments

by Patrick   ➕follow (55)   💰tip   ignore  

out of reach

How about some legislation with the express intent to LOWER house prices, unlike the crap legislation we're getting from Pelosi and Barney Frank designed to make housing less affordable?

We should completely eliminate Fannie Mae, and after that, the mortgage interest income deduction.

Here are some more ideas from Steve, a patrick.net reader:

the goals should be something like to promote home ownership by
discouraging flipping and owning multiple residences

promote homeownership but discourage multiple residences:
- remove the mortgage rate deduction for all but the primary residence.
- second home/first investment property/ vacation property will have
no mortage deduction and no additional tax
- third home will carry a 10% annual tax
- fourth home will carry a 20% annual tax
- fifth home 30% tax
- sixth home 40% tax
- etc

discourage flipping:
- 35% tax on sale of property held for less then 6 months
- for property held less 6 months to 1 year will prorate down to 0%

i'm not sure what the legal issues are in putting something on the
ballet, i'm a tech person like yourself, maybe you can ask on your
site for someone with experience in that? or a section of your site
for brainstorming this?

#housing

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1   anonymous   2008 Jan 24, 1:13am  

This is interesting. While initially my reaction was "NO! NO bailouts for homedebtors let 'em eat Pergo!", I do like the idea of encouraging ONE home but discouraging multiple flipper homes.

The Soviet Union according to Dmitry Orlov handled it's downfall much better than the US would, because everyone had a home. The homes were gov't owned so there was no landlord to put people out into the street. Orlov supposes that in the US in a collapse, the landlord class will simply put the majority of the population out onto the street.

ex-sunnyvale-renter likes THAT idea though, since that will lead to the much-needed Revolution.

Gov't programs as advocated here though will mean the US going more towards a Western European style of living, with social engineering of this type to encourage a healthy middle class and working class. It'd be nice, but the US seems to be firmly on track to become the Brazil of N. America.

2   DinOR   2008 Jan 24, 1:41am  

Steve,

Thanks for the contribution. I happen to think nothing that drastic is required. If you're truly wealthy enough to afford a 2nd/3rd home (you're getting plenty of Sub S breaks elsewhere) and really shouldn't need MID other than your primary res.

When you say "prorate down to 0%" (in as little as a year) that would probably ENCOURAGE flipping, not curtail it. My key proposal would be to move CGE OUT to at least 5 years and probably more like 8 or 10.

Perhaps when the dust settles we can talk about doing away w/ GSE's but for now it would cost more to shut them down than to continue their dysfunctional existence.

OT, WHAT IS UP w/ the SocGen guy!? I've read several links and it still doesn't make sense?

3   Peter P   2008 Jan 24, 1:52am  

The best way to encourage anything positive is to abolish progressive taxation. A mild flat or regressive tax will incentivize production.

4   Peter P   2008 Jan 24, 1:58am  

I always think that should be zero tax on capital gains and zero property tax. Why all the complexity in taxation?

If cities need money for services, there should be a implicit rental tax instead.

5   netdance   2008 Jan 24, 1:59am  

The best way to encourage anything positive is to abolish progressive taxation. A mild flat or regressive tax will incentivize production.

OK, I give up. How would that lower housing prices? Sounds like you're encouraging rich people to own multiple homes with that proposal.

6   Peter P   2008 Jan 24, 2:03am  

OK, I give up. How would that lower housing prices?

How about more housing units?

7   anonymous   2008 Jan 24, 2:08am  

I was just over at George Ure's site (urbansurvival dot com) and he's advocating a usury cap of 11% on credit cards and a tax write off for consumer debt paid, as his plan to revive the economy. He also points out that since the economy is run by the moneychangers rather than by the people, this has not a snowball's chance in hell of happening.

I'm all for making it easy to own one house, and hard to own more than one. On the surface it seems like it would serve those flippers right! But, owning 2nd properties that are productive farmland should perhaps be encouraged.

I also observe that the USSR was my own ideal for a country in that it was an autarky. That's what the US needs to become, but we're far from it now. The USSR did not have the immigration/invasion problem we have. So, social engineering meant to put US citizens in basic housing will only work if we restrict what constitutes citizenship greatly. To make a good solid prosperous autarky work, we'll have to actually declare a lot of present "citizens" to be non-citizens and send 'em back.

8   Peter P   2008 Jan 24, 2:15am  

I’m all for making it easy to own one house, and hard to own more than one.

Why should anyone decide whether something should be easy or not? Why do we have to attach moral values to the economy?

usury cap of 11% on credit cards

WTF??? I agree that there should be more transparency in consumer credit. People need to know upfront that the rate is more like 30%.

9   Peter P   2008 Jan 24, 2:18am  

USSR has a better (cost effective) space agency though. What is the point of having a reusable space vehicle if we can deploy satellites cheaply using rockets?

Besides, I always wonder why people will want to work for NASA when it is so much more lucrative to work for hedge funds.

The best minds are not in government. If any were, business would steal them away.
--Ronald Reagan

10   FormerAptBroker   2008 Jan 24, 2:22am  

> Here are some ideas from Steve, a patrick.net
> reader: the goals should be something like to
> promote home ownership by discouraging flipping
> and owning multiple residences

We need to remember that not everyone should own a home and government does not need to “promote” home ownership. I don’t know why everyone get’s upset with “flipping” since very few people have ever made any money “flipping” property (true flipping only works when you have 20%+ annual appreciation). What is wrong with owning multiple residences? If I want to buy a ranch in Montana or a condo on Maui why should that bother anyone?

> remove the mortgage rate deduction for all
> but the primary residence.

Since you can only write off $1mm of debt, going forward we will only have a few poor people that live in a crappy home and buy a crappy little cabin who can take a deduction for a second home. The guy with a $6mm home in Atherton and a $3mm second home in Aspen will probably have more than $1mm of debt on his primary home.

> second home/first investment property/ vacation
> property will have no mortgage deduction and no additional tax

You don’t have a “mortgage deduction” on investment property (but get to subtract the interest expense from your rental income).

> third home will carry a 10% annual tax
> fourth home will carry a 20% annual tax
> fifth home 30% tax
> sixth home 40% tax – etc

What will the “annual tax” be based on? If my grandfather bought a lakeshore cabin in Tahoe for $100K that is now my third home will I pay $10K a year on the purchase price or $300K a year based on the current value?

> discourage flipping: 35% tax on sale of property
> held for less then 6 months

So if someone moved to SF for a new job in November and paid $2mm for a home we will tax him $700K if his new firm went BK and wants to sell the home to move back to NY for a new job?

11   Peter P   2008 Jan 24, 2:24am  

We need to remember that not everyone should own a home and government does not need to “promote” home ownership.

FAB is one of my favorites! :)

12   GammaRaze   2008 Jan 24, 2:29am  

Yup, I agree with FAB completely.

Government's steps to encourage home ownership (the deductions, the cap gains exemptions, the quasi-govt orgs etc.) have all hurt, not helped.

Leave it alone.

13   OO   2008 Jan 24, 2:34am  

Government's encouragement of home ownership is a way to ensure social stability. People who "own" their homes are much more likely to support the status quo.

It's all about mind control.

14   Peter P   2008 Jan 24, 2:40am  

If government wants to encourage home ownership, they should counter local NIMBYism, which IMO an enemy to progress.

15   DinOR   2008 Jan 24, 2:43am  

FAB,

I'm not sure where Steve was going with the whole 10-20-30-40%! tax either but wouldn't you agree if someone can afford Atherton/Aspen they're probably filing as a Sub S (or LLC) and getting a lot of other tax breaks anyway?

16   DinOR   2008 Jan 24, 2:51am  

"It's all about mind control" LOL!

Just to put this into context let's try to remember as per NAR's own statistics 35% of homes sold in 2005 were 2nd homes. Some estimates are even higher. Granted that was the generally accepted peak year and a lot of this was attributed to the boomers but still and all, that's an insane number. (Typically it's more like 3-5%)

We know that a) in order for this to be a "2nd" home (they MUST have owned a 1st?) and b) it's such a generous deal it's impossible to say no to! If you want to own a 2nd or 3rd home, fine, just don't look for me to subsidize it.

17   Randy H   2008 Jan 24, 2:54am  

Before rushing to join the bandwagon of pandering, cynical, asstard, boomer politicians with another ill conceived program, how about we just let the market do it's thing...just for a bit...maybe. I know everyone hates capitalism, but all this societal engineering isn't working out so well either.

18   anonymous   2008 Jan 24, 3:00am  

RandyH - I agree. I hate capitalism, but unless we are ALSO willing to make the US an Americans-Only autarky, social engineering isn't going to work. Lacking the will to turn the US into an "Ein Reich, Ein Volk" type state, it's better for now to let the market have its way and that includes letting the sucker crash if that's what it wants to do.

19   LowlySmartRenter   2008 Jan 24, 3:08am  

I appreciate Steve's effort, but most of the suggestions have a snowball's chance in a consumer-driven economy. We're not likely to see policies or tax codes which discourage buying multiple homes, cars, tvs, iPods, etc. It's antithetical to everything our US economy is built upon. And I agree with the idea that a house, car, tv, whatever, is not a right of each American, nor is it a dream. It's just a thing.

I would however like to see more regulation of the Realtor business. That seems doable, even in our fear/greed driven markets. I'd like to see the MLS fully opened up to the consumer, repleat with verified multiple offers and prosecution for fake bidding wars and fake documents. I know that horse has already left the barn, but the crux of this thread seems to be about how to avoid another implosion of the economy due to tricks, scams and 'creative' exploitation of loop holes in the real estate business.

20   Peter P   2008 Jan 24, 3:12am  

I know everyone hates capitalism, but all this societal engineering isn’t working out so well either.

I thought most people one this board love capitalism.

21   Peter P   2008 Jan 24, 3:13am  

RE: “Ein Reich, Ein Volk

Who is the Ein Fuhrer? :)

22   anonymous   2008 Jan 24, 3:18am  

Well, we'll need to elect one, I like Ron Paul, Mike Huckabee would work too. We need a man of the people whose loyalty is to the people not the moneylenders that's for sure.

23   Randy H   2008 Jan 24, 3:22am  

Ich versuche. Ich habe genug Verrücktheit.

24   DinOR   2008 Jan 24, 3:23am  

LowlySmartRenter,

I have to agree. Why get just ONE! We won't be able to stop that, I'm just curious though? If it weren't for the super-outrageously-generous-beyond-belief tax treatment 2nd homes get... would they STILL be as popular without it!?

Please to notice 1031 Exchange Ad above!

I'll further agree that NAR/REIC could stand all the soap we have.

25   Bruce   2008 Jan 24, 3:24am  

Not so sure about details - though I favor getting gov't bumbles out of the equation - but I do think the time to be ready with such proposals will be at the trough of any downturn. Say, 2011 or so.

RE won't be mentionable in polite company, and you can probably kick it when it's already dead.

26   Peter P   2008 Jan 24, 3:25am  

Again, there is nothing wrong about multi-culturalism. Just think about sushi, pad thai, kung pao chicken, wiener, fish and chips...

Orange County has low crime rate, yet it is diverse.

This shows that race and culture have little to do with crime. It has more to do with political ideals (esp. towards property rights and guns).

27   DinOR   2008 Jan 24, 3:25am  

I guess my question is... at what point does it cease to be a 2nd home and start becoming a tax dodge? Do you know how many people there are that have never SEEN their vacation homes?

28   Bruce   2008 Jan 24, 3:27am  

Oh. Presidential politikkks.

Does everyone already hate Mike Bloomberg? I don't.

29   anonymous   2008 Jan 24, 3:28am  

Multiculturalism in the US should mean German, English, Scandanavian.... etc.

30   anonymous   2008 Jan 24, 3:28am  

PeeterPee and yes, the OC has low crime because it's fairly well known that there are a fair amount of what the Brie-eating set call "gun toting rednecks" there.

God I miss OC.

31   Peter P   2008 Jan 24, 3:32am  

Multiculturalism in the US should mean German, English, Scandanavian…. etc.

No. What about sushi, pad thai, kung pao chicken?

I am not a fan of Korean food but we must respect the civil liberties of those who like kimchee.

The MAIN issue is people's attitude towards liberty and property rights.

32   Peter P   2008 Jan 24, 3:38am  

Scandinavian food is good too. Umm... open face sandwich with bay shrimps...

33   EBGuy   2008 Jan 24, 3:39am  

Some randoms notes here. For the record, a (good?) reason not to eat sushi (more specifically, sashimi) while pregnant is the threat of listeria.
The manifestations of listeriosis include septicemia, meningitis (or meningoencephalitis), encephalitis, and intrauterine or cervical infections in pregnant women, which may result in spontaneous abortion (2nd/3rd trimester) or stillbirth.

Can anybody explain what is going on with financials? Short squeeze? (is there a good place to check current short interest?) Or is the market saying the worst is over? (Wachovia -- no profit, no problem!) I guess they could be a bit oversold, but the best is still yet to come...

Multiculturalism in the US should mean German, English, Scandanavian…. etc.
My wife's people were not officially declared white until after the turn of the last century (1900). Do they make the cut? Just askin' cause I have to figure out if I'm going to head for the hills or hide out with the "Whirled Peas"/"Subvert the dominant paradigm" crowd...

34   skibum   2008 Jan 24, 3:41am  

The original post misses the entire point of this country. We are a nation that gives (mostly false) hope to the unwashed masses that yes, you Mr. J6P can live the American Dream, own a home, take nice vacations, drive a nice car, own some nice "toys" to show the neighbors how well you're doin', and maybe even some nice "investment properties." It's the ultimate drug for the masses. Homeownership is a major part of that government sponsored opium.

That is why Congress, the Pres, and all the hangers-on are working furiously to keep this Boomer-conceived clusterfuck that is today's housing situation and economy. This country will never pass any laws to shoot down the "American Dream" of homeownership.

We all thought religion was the opiate of the masses? Well, we were wrong. It's tract homes and crap made in China.

35   Peter P   2008 Jan 24, 3:43am  

All food has risks. Especially Fugu.

Is death a sufficient deterrent when it comes to good food? I think it shouldn't be.

Not dietary advice.

36   anonymous   2008 Jan 24, 3:43am  

PeeterPee I think lutefisk has kimchee beat, so that takes care of that.

Sure, I love Chinese, Korean, etc food after being fed a steady diet of McFood, anyone would. But the real European cuisines are every bit as good as the Asian ones and the Europeans won't chop up your kids they've abducted from the school yard and stir-fry 'em.

Food is the very lamest excuse to invite our enemies into our country.

37   Peter P   2008 Jan 24, 3:44am  

We all thought religion was the opiate of the masses?

Religion is good. Faith is essential.

38   DinOR   2008 Jan 24, 3:45am  

O.K let's try... THIS angle?

I want to buy 1,000 tillable acres in IA. Now eventually... I'll build a house on it but for now it's rows of corn and maybe I'll pull up a 5th wheel trailer when I'm on vacation? Can I write off the interest I pay on that? Why shouldn't that qualify for MID?

39   Peter P   2008 Jan 24, 3:46am  

But the real European cuisines are every bit as good as the Asian ones and the Europeans won’t chop up your kids they’ve abducted from the school yard and stir-fry ‘em.

But I want varieties. I cannot stand eating the same thing every day.

RE: European cuisines

I prefer Contemporary French.

40   anonymous   2008 Jan 24, 3:48am  

Skibum - the ability for the average guy to live decently is what the turmoil of the 1930s was all about, and it was realized right after WWII. It was that or have a bunch of very PISSED OFF vets hanging the rich from the lampposts.

We had a flattening wealth structure, plumbers were sending their kids to college, it was great. The old GI bill was the last great change for Mr Joe Average White Guy to get into college and get that degree he'd been dreaming of. It was a great time. It was also a time of living Jim Crow laws, very restrictive immigration, and the US gauged how well it was doing by its factories.

Then the moneylenders started tearing that all down, contempt for people who make things with their hands was encouraged, and we went from Mr Honest Joe Lunch Pail to the hippies to Gordon Gekko.

That's ok, really, what you sow, you will reap.

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