No need to outlaw the 30 year mortgage; it's the creation of government policy in the first place. Just stop Fannie Mae and Freddie Mac from insuring mortgages.
The problem with housing is that people view it as an investment. And it is, but that same mindset tends to drive people to pay as much as they can possibly afford, loans included. This drives housing prices up. Reducing the max mortgage will not reduce demand in the least, but it would reduce the maximum price people could pay. This would drive housing costs sharply downward.
For this very reason, this stands exactly 0 chance of ever being passed, but it almost certainly a viable solution. It's not like people would just endlessly sit on vacant houses on a large scale.
People speculate on housing mainly because it makes sense tax-wise. Georgist LVT is the best policy for preventing this. In many cities people endlessly sit on vacant blocks waiting for the market to move in their favour, with no disincentives to do so.
Your policy would just result in houses being owned by richer people, and more people paying rent. It would reduce house prices, but only the riches people would be buying them and receiving the benefits.
It would fail in a similar way to rent-control. Sure, it makes things cheaper in the short term, but harms everyone in the long term.
In many cities people sit in very limited areas on a very limited number of houses, while continuing to pay taxes on those buildings. This is why I said specifically at scale. And it's nothing about speculation, which I'd say has the connotation of making a profit. Housing is quite similar to education. People are led to believe that the value of their house will endlessly appreciate (in the same way that education is supposed to lead to imminent wealth), so what's the fair price for a house or an education? Literally anything, because it'll be worth more 10 years from now.
But of course this is a fallacy because the value of a house is strictly finite. So we are stuck in an endless loop of bubbles. People buy houses on debt they can't afford until that debt eventually explodes at some point, and the housing market crashes. Then we start pumping it up again. This is also the reason housing prices (as well as education) have skyrocketed far ahead of inflation. The availability of exceptionally high amounts of debt, relative to what people have, seems to be a recurring theme in breaking economic systems on a micro scale. And perhaps we might see such happen on a rather macro scale as well, in the not so distant future.
Purchasing assets under the expectation that values will increase _is_ speculation. The solution in LVT is staring you in the face, I don’t understand why you reflexively ignore it and reach for worse policies.
Read “Progress and Poverty.” It explains in detail why the cycles you describe would be dampened by a LVT.
Are people "speculating" when they pursue higher education? People, overwhelmingly, are not purchasing houses to make a profit, but rather using the perception of endless appreciation as a misguided justification for taking on increasingly absurd levels of debt. And that is the core problem that needs to be solved. You can try to change perceptions, or you can change the ability to take on unreasonably high levels of debt. Same with higher education.
As for LVT, you can't expect me to go read a book to appreciate your argument. And I'm vastly more inclined to read than average. Owing to that I did at least check out the Wiki on the book. The excerpts section [1] seems to offer an argument that is either false or highly outdated. Any look at San Francisco, NYC, and other places will clearly show that the areas with the highest level of economic development also offer the highest wages, by an overwhelmingly wide margin.
What drives the prices up is not some conniving and far-sighted bourgeois, but rather economic development driving defacto unlimited levels of demand. In a place like San Francisco you can earn $70k for labor that would pay $30k in a less developed area. Because of this you will never have affordable housing, because that $40k delta would otherwise drive everybody over to hoover it up. This is the scenario literally everywhere in the world.
When you look at what few exceptions there are, they tend to not be exceptions. For instance Tokyo is often cited, yet it seems most people still have an obsolete image of Japain in their minds. They've gone through a 30 year period of stagflation, have a shrinking population, and a declining economy. So housing seems cheap in Tokyo by Western standards, but it's extremely expensive by Japanese standards which is where the overwhelming majority of the demand, and thus the price equilibrium, comes from.
I don’t think that excerpt is false, or a good summary of the book really. My point is unless you understand the Georgist argument well, it is misguided to think there are better policies to prevent rent seeking causing housing crisis. When both heterodox and orthodox economists agree on the soundness of a policy such as the LVT, you at least have to compare it to your novel proposal or have a good reason for why so many smart people are wrong.
I agree with most of what you say about more developed areas having higher wages. But this is predicted in Progress and Poverty: as a society progresses in terms of increasing land value and increasing productivity (in wages and efficiency of land use) poverty arises because the rents tend to eat up all value so that wages become just enough to survive. The best way to reverse this is to tax the unimproved rents. This encourages housing development (efficient use of land) and discourages speculative land bubbles (since you lose money if you do not use the land or let others use it).
Do you mean 7 years of down payment time? If so, how would that help? I feel it only would favor those already owning, would be impossible for a new family to get into the market.
Here in Norway the the general rule is that you can't have more debt than 5x your income, with room for some exceptions. Kinda creates a ceiling for the prices of normal houses / apartments.
Btw curious: I often see sellers in the US preferring to sell to someone that pays cash vs a loan. Why does that matter? Here at least I don't care where the money comes from, I get paid the same.
The reason to prefer cash is that there are far fewer things to hold up or tank the deal. When the deal is dependent on a loan, it also becomes dependent on all the conditions for that loan (and the timeline to get it approved).
Ah, here you get your loan amount approved before you start looking at houses. And when bidding you provide your bank contact, which confirms to the realtor that your bid is ok.
But I guess things are just very different. As a buyer you wouldn't have a realtor here either, one for the seller is enough. Quite stringent rules on how the bidding process works, the seller needs to pay for an inspection before putting the house up for sale etc.
land value tax is an efficient tax. No need to arbitrarily ban people from using debt. if by build smaller houses you mean make it legal and easy to do, yeah. also if the government is directly building them and selling them. but don't throw yet more requirements at developers.
7 years isn’t arbitrary? Jubilees are 50 years, which is also arbitrary.
I don’t like the culture of huge debt either, but pretending solutions like this aren’t arbitrary is ridiculous. We have bankruptcy to prevent debt slavery (except for student loans in the US). We have LVT to prevent speculative bubbles, we just need to implement it.
I don’t class a person who inherits land as ‘the poorest.’ In reality, truly poor people are forced to pay income tax which I think is immoral. Most parts of the world had long periods where income taxes where nonexistent. We can do the same with LVT and get the added benefits of less property speculation! Not to mention reducing distortionary effects of income taxes.
I agree no one would make a loan longer than 7 years under that policy, but I don’t think that would be good for anyone but the richest in society.
In our system already the poorest pay no income tax.
If their father gives them a piece of land, now they have to “pay to own” it, what about the recipients who are barely making it?
Agreed that income tax is bad, but not just for the poor; but also land tax is bad. Tariffs or some sort of luxury sales tax would be better. Also reducing the size and scope of govt, but that’s another can of worms. In any case, it’s been nice but I’ll leave the last word to you.
I’m not sure what system you are in, but in the US and Aus people pay tax on very low incomes. Look up the tax free threshold in Australia, it’s almost impossible to live on that income.
If you can’t afford the LVT, you can either rent the land or sell the land. Both are better for the economy than people sitting on idle land doing nothing of value. In this case I would focus on those barely making it who have no property, and whos taxes effectively make landholder’s assets more valuable through gov infrastructure spending.
Tariffs and luxury taxes have the same problems: they distort markets and in the case of tariffs, make goods more expensive which makes life harder for poorer people. Luxury taxes aren’t significant enough to be very useful, but could be useful in addition to LVT.
> No-one should be taxed on income anywhere near that level.
Don’t misunderstand me. I completely agree with this and would prefer having the standard deduction even higher with higher taxes above it to compensate.
> Federal minimum wage is $15,080.
I know which is why I said “close to”. This also with the assumption that it’s always 40 hours a week and you never get sick or need time off (which would assuredly be unpaid).
Even working 36 hours per week, every week, at minimum wage (which is considered a full time job), would put you under the standard deduction.
