Submitted by smurfyjenkins t3_y9veul in science
It’s just a problem from a societal standpoint that people with less money than you, have to pay more for housing because they can’t afford to own. So that benchmark of wealth needed to be a homeowners becomes a class divide. And the stronger those programs are the worse the divide becomes.
I bought my house in 2013 because I had enough in my starbucks 401k to make a down payment on an FHA loan. I only even considered this because I couldn't afford to rent a 1br apartment in my area, but I could afford a $700/mo mortgage.
Could you explain how poor people are paying more for housing compared to someone who buys a house?
When a person buys a house, and pays money into that loan, they are essentially paying themselves, as they accrue net value on an asset they can sell later. When a person rents a house, that money is just gone. There is no value return, you have essentially just bought the opportunity to live in a house for a period of time. Therefore, over time, the person that owns the house will have more assets than the person renting, even if they make the same.
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Renters are paying all the expenses for the property they live on, including the cost of maintenance that they could possibly be doing themselves, PLUS a nice amount of profit for the person that they rent from. Rent prices also don’t scale well in the lower range, so people are paying more for less.
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Aside from the loss of paying rent, we also lose in higher interest and insurance rates over those who can make larger down payments or buy outright and then rent back to us for the mortgage plus cost plus expenses and most importantly profit.
> buy outright and then rent back to us for the mortgage plus cost plus expenses and most importantly profit.
Saying that you pay more because someone else makes a business out of it is like saying that walmart makes more money cause it buys stuff in bulk then sells it to you at an increased price. Thats not really an argument but more like a method of making money.
>Aside from the loss of paying rent
But when you pay rent, you don't have to pay for repairs and maintenance. Heck, sometimes the utilities are included into that rent. Much cheaper than spending $20,000 on a new roof. Or paying $9,000 in taxes per year.
>we also lose in higher interest and insurance rates over those who can make larger down payment
The interest rates are based upon a system which is doing a person a favor. By loaning them money. It's not "Poor people pay more for a house", its more like "The more money you borrow, the more interest you'll have to pay". It doesn't matter whether they're poor or rich, the more money they borrow the more interest and higher rates they'll have to deal with.
Btw, a poor person can still get great rates if they have good credit.
And the solution: make it available to all income groups, eventually ending rental as a major component of housing.
It’s a net positive for you, but for renters who get left behind
I should clarify that this was in 2010 and I also lived in a mobile home because the lot rent was cheaper than an apartment. I owned the home outright due to it being super crappy and super cheap and the fact that my parents let me live with them for 2 years before that.
But I think for those who don't have any support at all or even the meager ones that I did should still be supplemented by society because having basic needs met is good for everyone.
For them there should be incentives to build more affordable housing for local workers to purchase, they are priced out because of supply and demand issues, which then led to housing becomming an asset bubble which attracted investors, many overseas, to purchase up due to its scarcity. Then you have the effect of that becomes self-fulfilling, the property value or rent increases faster than other investments, and on it goes on. Something needs to be done but I don't think the issue is that home owners arent taxed enough or 'enjoy' being free of tax, its more what's not being done for renters.
Its not a closed system between renters and non-renters, the first place I would look for increasing tax revenues would be the tax avoiders with their off-shore tax loopholes. However I could be confused about what they are talking about as imputed rent.
Higher property taxes do lower demand for housing and help depress the cost of housing, though. Prices increase more slowly in places with high property taxes vs lower property taxes.
Yes this is true in that people have to modify what size of mortgage they can take on in light of disposable income, but I think a better solution is to restrict mortgage lenders from lending excessive multiples of an average wage whilst restricting planning permission except for affordable housing (as calculated by an affordable mulltiple of average earnings in the local area). So in this way land costs are restricted. See, a developer knows that affordable housing is defined as a certain level, purchases land, the council or planning department says 'affordable only', this causes the value of the land to be more rational, which is a major component of the final cost. Governments should in my view actively contract home construction companies to meet demand for affordable housing where they know there is jobs.
By relaxing lending in a situation of scarcity and at the same time allowing overseas investors and other investors to accumulate excess property, then the mortgages will go into bubble territory which also is mirrored in rental prices. Its a self-fulfilling loop.
The problem is you can’t really force housing to be affordable. At some point the cost of actually building the house dictates how cheap it can actually be.
You can make buying up existing housing to make money less profitable by charging a higher rate for properties that are not lived in by the owners, or have a graduated tax rate where it becomes cheaper the longer you live in your home.
Businesses bought up over 20% of the housing since the pandemic started. That's a huge upward pressure on price.
Oh it does, the cost of the house can't go to zero, thats true.
But in industrialised, technologically progressing societies, the ammout of stuff each of us produces increases and can in turn, even with a fat cat in the middle, get more in exchange for what we trade. So housing should get technically more affordable, although never free.
In my country by way of background, in my area many people are priced out. But not far from here getting a new, town centre flat can be very affordable, in areas that are reasonably desirable. Because of national minimum wage most everyone can earn £1500 a month and the flats are £100,000, with rent of about £400 a month. These are new builds not being sold at a loss, that's just a reflection of what they cost. Anyone can get a deposit and buy one there.
But go where the housing is in higher demand and prices go, as we say 'mental'. In the capital, for example, a major driver of this is that property is bought for money laundering and oversees investment funds.
So managing demand so that new builds (a fraction of which) can only by bought by local workers and not more than a reasonable multiple of wage is quite doable.
Now, the cost of housing is about 30% from the underlying cost of the land. But, if you were a house builder in this country and wanted to increase the odds of getting your planning application on a plot of cheap farmland you have bought, from nearly zero to decent, you would have to put a fraction of it as 'affordable'. Now if you put it to 100% affordable then developers know that the development has higher odds of getting planning but is less profitable. Councils can thereby keep housing costs down because granting planning for affordable housing means the land is worth less, and thereby costs less, than for say a millionaires row. And this does lower the cost of the development. So yes it is happening, but the rate at which new housing is coming onto the market lags years behind because planning permissions take ages, and really should be strategically pre-approved where it is logical to build them (for affordable housing). The ongoing bubble prices are due to supply vs demand imbalance.
Edit typo
For sure. I just think making housing cost less then it should in a given market is the wrong way to make affordable housing I guess. I think more should be able to afford homes but I don’t think everyone should be able to afford a home everywhere. Like it doesn’t make sense to require affordable housing in the most desirable areas. Then we get situations where a poor person can live there and a rich person can live there but no one in between. I think getting rid of homes as rentals would greatly increase supply and help alleviate the issue. As well as all other types of investment groups buying single family homes at all.
Yeah I agree, micromanagement like that is undesirable for many reasons.
I think where the solution lies is in separating out lending and finance for new builds / restoration vs existing housing. Where a market is plainly overheated encouragement of planning applications for affordable housing to stimulate new supply is different than, say encouraging higher lending for mortgages on existing already built housing stock, that just keeps its price going up, edit or as you point out, financing existing property accumulation by land lords.
The way we do it, which is potentially effective if it was done faster, is that councils are told how many houses they need to bring online to meet population demands, and a fraction of that needs to be affordable. If it falls below its target for long enough those councils are fined. Its up to them to decide where planning submissions are approved for that. I favour high density developments near towns personally, as also transport costs are less and residents have access to jobs.
However, property taxes discourage construction of new homes, and maintenance and repair of homes, because these taxes increase when landowners develop and improve their property, and annual property taxes are passed onto renters as they roughly scale up with occupancy.
A fairer alternative is land value tax, a.k.a. "the perfect tax". The tax is levied based on the potential value of the land to its owner, which creates the opposite incentives. Landowners use land as a speculative asset less due to the cost of LVT, and benefit from developing land in order to realise higher incomes against the cost of LVT. Also, the cost of the tax is not passed on to tenants.
Essentially, property taxes are regressive and create deadweight loss, while land value taxes are progressive and economically efficient.
That also explains the conflicting views on housing affordability in the US.
Rising home prices are a benefit for those who already own homes and a detriment to those who do not. Each side wants to benefit, but helping one hurts the other.
Do you have more info on this sort of thing?
Not financial advice:
Any lender can give you an FHA loan, it gives you rates comparable to a credit score around 750 (so little to no benefit for the top 50% credit percentile). They allow you to put only like 5% down but I believe there is a mortgage insurance fee of like 3% of the purchase price upfront
When you do get a mortgage look at zillow and bankrate to find competitive lenders and reach put to 7 or 8 of them so you can get your interest rate down
Wow thank you
Np, went through all this for the first time a couple months ago so its fresh in my head
Also note that mortgage insurance is based on the assessed value of the home. If your home increases in value you can request your mortgager to reassess the value to leverage new equity against what you owe. For us we needed to have at least 20% of the assessed value covered before they’d remove the PMI. It was around $500 to have the property reassessed, but it cut off years of those payments.
It depends on the terms of your mortgage. Terms in my mortgage was I had to reach 20% of the value I paid for the house, didn’t matter what it may appraise for. With an FHA loan you won’t ever get rid of pmi unless you refi into a conventional loan.
Yep, my terms are similar, 20% of original assessed value, or prove that I did enough home improvement to justify the increase in valuation (ie, not just market fluctuations)
Sad news when I found that out last week.
One thing to know about FHA and VA loans is that they can also be assumable - meaning if the new buyer qualifies and the lender agrees, the buyer can get the loan with interest rate if the original loan (something very desirable in this market if it was created in the last couple years where rates were even under 3%). Conventional loans are not assumable.
Another perk of the FHA and VA loan products (although paying mortgage insurance through the life of an FHA loan rather than it going away like PMI after 20% down is a cost).
I didn't remember about it being assumable... but that's interesting!
Yes, it looks like a net positive. But the actual long-term impact on society (and, likely, you personally) is almost certainly a net negative..
Consider the world where there are no FHA loans, no pseudo banks like Freddy and Fanny, mortgage interest is not tax deductible, laws like prop 13 in california (which limits real estate taxes) do not exist..
What would that do to home prices? Almost certainly they would be significantly lower (especially in areas which are very expensive: where homeowners would be under higher pressure to sell and move into a less expensive area). Basically the current system floods the housing market with money and drives prices up while simultaneously encouraging people to hold-on to their current houses.
What would it do to rent prices? Here the impact would be more complicated but the prices would likely end up lower too: current homeownership laws "lock" a lot of land into very-low-density single family housing, if that land is "unlocked" then single-family will get replaced by multi-family housing which far more efficient (cheaper!)
Another way to look it: the governments are trying to subsidize almost every buyer on the market, that does not work and cannot work, it just drives prices ups. I suspect that the primary beneficiaries of the current laws are real estate agents and development companies (and to a lesser degree long-term home owners).
Dumb take. It's not a "hidden welfare state". Nothing is "hidden" and it's not "welfare". Countries intentionally incentivize home ownership by doing things like making low-interest no-junk-fees allowed first time homebuyer FHA government-backed loans available, letting you deduct mortgage interest on your taxes, etc. Home ownership is stabilizing for a society and is the #1 wealth generator for families. Making home ownership attractive, worthwhile, and lowering the barrier for entry is the right take. Calling it welfare is just trying to create resentment .
>Calling it welfare is just trying to create resentment .
It's the opposite. It's trying to break through to the privileged elite who think they "do it all on their own through merit", as opposed to the poor who "get handouts because they don't work hard enough".
Pointing out that people with means get tax incentives (aka tax expenditures), which is akin to welfare expenditures, helps make them realize that they took get support (just less visible), and that it's not a value judgment of who is better or who works harder. It is a tradeoff of how we apply public funds. Then, you can unemotionally evaluate whether the net social benefit of home ownership outweighs the net benefit of reducing hunger, etc as we apply our limited resources as a society.
As long as those tax expenditures are not part of our conversation, natural biases will draw focus to regular expenditures and will distort the overall cost benefit evaluation. And the people who react with resentment are exactly the people we need to educate.
>It's trying to break through to the privileged elite
Looks like you fell for the bad framing.
Home ownership rate in the USA, those benefiting from mortgage interest deductions, is about 65%.
Those are your "privileged elite" benefiting from the "welfare" system.
I'm not saying they're the only ones who benefit from it. I'm saying that they assume government support does not apply to them, and default to the frame of "welfare bad".
Also, you just linked one agency and one part of a report explicitly looking at first-time and minority home buyers. The study in this post looked at multiple countries, and programs not limited to first-time and minority home buyers.
Why would calling it welfare create resentment?
Read the other comments. Might not explain why, but you can see that it does.
EDIT: Hah. Actually, the resentful comments have been deleted after I posted. It's because the framing of the paper casts helping and incentivizing people to become homeowners as welfare making it sound like a wealth giveaway to wealthy people.
The government subsidizes, through the tax deduction for interest payment, the provision of shelter for those who can afford to buy a home. It does NOT subsidize shelter for renters. My view. Do both, or do neither.
Wait until you figure out what we do for "family farmers."
More context on those poor and struggling "family farmers".
https://www.heritage.org/agriculture/report/what-you-should-know-about-who-receives-farm-subsidies
The Purdue family, the Tyson family, the Jimmy Dean family...
They are just barely gettin' by folks.
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tell me more
The catch is that it is much more difficult now to take the mortgage interest deduction and lower your taxes, thanks to the changes in the standard deduction combined with the principal caps on the mortgage interest deduction itself. It's down to under 18% of home owners now who can actually take the deduction and lower their taxes.
The real subsidy, which is what the paper is referring to, is the tax exemption for imputed rent. When you pay rent, your landlord pays income tax on that rent you pay. A homeowner pays no tax on the imputed rental income of the house, which they functionally pay to themselves by owning the home.
Ah, thanks.
I don't think renters would find it so hard to get their own home if there were less landlords so it would be more the solution to tax landlords to pay to construct affordable housing for local workers, than to give the landlord a tax break on their owning extra houses. I don't see the argument that it would be 'fairer' to anyone to tax homeowners on a hypothetical income if they were renting.
Imputed income is a nonsense concept that seeks to destroy natural incentives to invest in tangible, concrete ways to make one's life sustainable and affordable. It's morally the same as taxing you for raising your own children instead of sending them to daycare, or plunging your toilet instead of calling a plumber. It's essentially a tax on agency and non-participation in ultra-consumerism.
You inspired me to read more of the article. My unschooled opinion is that taxing imputed rent takes away all, or most of the motivation for owning. I guess that is the point. The same logic can be applied to cars. I own a home because I can't get what I have by renting. And it's a cost of housing stabilization system. I hate home ownership. It's a pain. I suppose, if I paid taxes on imputed rent, I would be able to deduct all of my repairs.
I am glad to hear that mortgage susidies have declined.
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> When you pay rent, your landlord pays income tax on that rent you pay. A homeowner pays no tax on the imputed rental income of the house
Sure, but the homeowner also does not get to deduct operating expenses or depreciation in the way a landlord does.
Looking only at imputed rent as untaxed income without looking at building maintenance as offsetting expenses is fundamentally misrepresenting the comparison between homeowners and landlord+renter pairs.
> It's down to under 18% of home owners now who can actually take the deduction and lower their taxes.
Yup, and even that 18% are seeing a much smaller benefit than before.
Previously, an expensive ($1.5M) house could increase overall deductions by $40k+:
Now, even an expensive house like that might get 1/10th the benefit from itemizing:
The tax changes in 2018 more-or-less killed the mortgage interest deduction in the USA. (Which isn't necessarily a bad thing.)
Do you mean that the renters should get the interest component of their rent, assuming the landlord is mortgaged on that property, deducted from their tax?
I kind of think landlords should not be able to borrow just for buy to let and maybe their should be rent controls. I could be confused about what they mean here, especially with imputed rent.
I don't have a plan as to what the renters subsidy be. It would be tricky.
As far as imputed rent goes, it's hard for me to imagine.
who lets them borrow and how?
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if it's that easy you go do it
I think they borrow to buy other properties using other ones as collateral.
But there are individual home owners who have bought a second home to rent out so that the renter essentially is paying off the mortgage.
i was under the impression you get smashed with taxes though on anything after your first home
The government incentivizes home ownership, making it more affordable to buy and hold onto a home.
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>It does NOT subsidize shelter for renters. My view. Do both, or do neither.
The point isn't subsidizing shelter, it's incentivizing and enabling home ownership. That's a good thing for everyone, in some respects even the people that don't own experience benefit.
https://www.midcityredevelopment.org/blog/increasing-homeownership-decreases-violent-crime
Does homeownership reduce crime? A radical housing reform in Britain
Closing the Gaps: Building Black Wealth through Homeownership
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Whether non-owners should get their shelter subsidized is a worthy and important discussion (cliff notes: my answer is yes and there are lots of palatable options to me including UBI). But it's not the same discussion and lumping it in with home ownership is missing the important differences between mere shelter and ownership in people's lives.
There are important differences beyond just the money.
Some people buy a home cheaply as a labor of love. They see a transformed environment largely through their sweat, and in three years, their home is worth 3 times what they Paid for it. Well, their imputed rent goes up. I guess they would get to write off the cost of materials. And the labor. What rate will they get?
I am not economist enough to say whether this makes sense intellectually. It's a practical nonstarter
Because when the word “welfare” is used in the US, people associate that with transfer payments. Tax incentives are not considered “welfare” by most people because the government is not sending you a payment, you are just keeping more of your own money.
Because calling something welfare, or subsidy, is a politically loaded thing, claiming that one benefits at anothers expense.
By way of example, if I point out that children's school books are subsidised, when I am referring to them being VAT free with that word, subsidy, that's an odd way to frame it. As if they are getting help they don't deserve, especially as no rational person can define the absence of tax as subsidy, which has always been referred to simply as a tax break, for example.
Whereas in this case it seems pretty clear that renters need help, not that home owners don't.
There's no direct connection to home owners getting help and renters not getting it. The shortfall, if one wants to consider it that, comes from the general pot. You could just as easily, and more appropriately, point out legal tax avoidance loopholes where people aren't paying any or very little taxes through off-shore tax havens and various ways of hiding things in trusts, or the tax-free foundations of Billionaires, which have everything as much to do with the tax burden on the renters to make up the shortfall, if not more, because that is the class accumulating properties pushing up demand, which feeds onto the house sale price, which loops back around to the average rents that landlords can charge even on a property that long ago paid for its purchase.
So all economic incentives are welfare?
This is a silly stretch of the definition to make it look bad.
That will cause resentment.
Yes all economic incentives are welfare. Its not the fault of the rest of the world that america hates poor people.
It would only create resentment in people who believe that welfare is a negative thing.
Head on over to antiwork and propose a welfare state for homeowners and see if you can feel out whether there are people ignorant enough to feel resentment with this misleading framing.
I have no interest in that sub at all.
I’m just pointing out that it is common to call any financial support from the government for anything “welfare”.
But it's incredibly disingenuous to deny that welfare is commonly used to imply handouts. Usually by the right but also whenever the left wants to villify a group they disapprove of.
Imagine if we all used words the way the right does, to confuse and confound rather than convey meaning.
Providing financial support is different from a reduction in tax obligation. The first is welfare, the second is not. Deciding not to take a chicken leg off your dinner plate is different from cooking you chicken for dinner.
That’s your opinion, but the bottom line is that subsidies of all kinds are called welfare.
It's not an opinion that those are qualitatively different sorts of interactions a government is having with persons / entities.
It is my opinion that acknowledging that difference is useful and improves clarity of thinking.
Did you just ignore that the title SPECIFICALLY said INCUMBENT homeowners? Meaning someone who already owns a home. The most difficult part is breaking in to home ownership in the first place. After that it's gravy. Your mortgage stays the same while rent increases exponentially for others.
>Countries intentionally incentivize home ownership
This is about people who already own a home.
> first time homebuyer FHA government-backed loans available
This is about people who already own a home.
>lowering the barrier for entry is the right take.
This is about people who already own a home.
Why should someone who already owns a home get taxpayer subsidies?
>Did you just ignore that the title SPECIFICALLY said INCUMBENT homeowners?
Haha. You're awfully worked up for someone that didn't make it past the reddit post title. Did you notice that the title of the post isn't the title of the paper, by chance? On that note, did you know there is a whole article on another site behind the reddit title?
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>This is about people who already own a home.
I assure you it's not (exclusively), as it deals with topics like "value-added tax on newly built dwellings"
At any rate, my confused non-reading fellow, my point is that things like FHA loans (unmentioned) and mortgage interest deductions belong in the same bucket. That bucket is, in intention and in de facto consequence, about promoting home ownership. It's not about creating a welfare state for the wealthy as the paper would like to frame them.
>Why should someone who already owns a home get taxpayer subsidies?
It's an incentive to purchase and makes it less difficult to continue owning. Whether tax incentives should be considered subsidies is oddly contentious. IMO it shouldn't be since you're not subsidizing anything by not taking things away. But to answer your question about why home ownership should be incentivized and made easier: it's because home ownership is good for society, and we should want as many people to be able to purchase and keep their homes as possible.
Responds to raw data with "Dumb take."
Tells me just about all I need to know about you.
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Why do u think amazon is buying all the houses
>Yours truly
>Fay Lewis
It's because we've created such a warped set of incentives that a home--what should be a depreciating asset--is being seen more and more as not just a place to put money, but an investment (and a pretty good one at that). Of course, it's not the house that is bringing in the big bucks, it's the appreciation of the land.
We should be implementing a tax on the land itself (not including the structures built on it). To encourage productive use of it. Whether it's more housing or industry. You should not be able to hold onto land indefinitely waiting for the price to go up.
Because we're making new people but not new real estate*.
You should learn the difference between an investor being on the cap table of a company and another company that the investor owns a portion of owning the company in question. They're pretty different ideas.
*Save for a few cute examples like in NYC.
Exactly, it's an incentive. I suppose you can label every tax incentive "welfare", but that seems disingenuous.
The worst form of welfare is having a job. It creates false incentives to take on student loan debt for kids, and unfairly stigmatizes those who don’t work. Really the only way to escape the stigmatized imputed class war is to engage in irregular gig economy until placed in government developed housing on a long term basis with a simple job like making license plates.
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Hold on, saying housing should be the number one wealth builder for families is exactly the problem. Prices increasing faster than inflation means housing gets more and more unaffordable indefinitely. It's not sustainable, something is going to break somewhere.
I didn't say it should be, I said it is. But also, it's going to be a huge wealth builder for someone, so having that be true for as many people as possible is good thing. We make more and more people, we don't generally make more land, and people need land to live on. Real estate value, on average, will go up based on this principle.
Additionally, real estate value is a store of wealth. It's not just the price going up that makes it a wealth builder, it's that you pay off the mortgage, own it, and it holds value. You can borrow against it's value in troubled times. It's valuable. We want lots of people to be able to access that value.
wait you can write off your mortgage interest from your bank on taxes?!
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is there a cap? wife and i are starting to read up on how to buy a house and everything
Yep, sure can. Google home mortgage interest deduction. Yes, there is a cap. If you have to ask, you're unlikely to hit it.
The problem is the way taxation is applied, not that homeowners get tax breaks. The tax systems need reform across the board. This looks at the problem through the wrong end of the telescope.
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I appreciate the homeowner and mortgage tax benefits, but I'd much prefer a sane tax system.
Garbage article with blatant political framing.
You're just reacting to the word "welfare" and going off half cocked.
I am a homeowner (just bought this year and am going through all the first-year projects), so I get to deduct mortgage interest. Only homeowners get that benefit. Here's a list of essential expenses, shared by renters and owners, that I don't get to deduct from my income taxes: food, clothing, heating, transportation (in fact, I pay sales tax on most of those things). Yes, homeowners pay property taxes, but 1) those are often deductible on federal taxes, and 2) landlords' property taxes are baked into rent prices, so renters indirectly pay them too. And the really big one is that renters don't get to deduct their housing costs when doing income taxes!
So yes, as a homeowner, I do feel like the government is singling out people like me and subsidizing my housing expenses. I also feel like the government is putting its thumb on the scale and encouraging me to be an owner rather than a renter. Owning does have some benefits, but also some very big drawbacks--a big one being that as a homeowner, moving is a lot more expensive than a renter, so I'm less able to move in order to pursue better opportunities elsewhere. Another is that maintaining a home is a lot of work and money; I'm relatively handy and work hard at it now and am getting better, but I know my old landlord could do things more efficiently and cheaper than I can (so if I still rented, less time and money would be spent on home maintenance). Finally, because homeowners generally have more money than renters, these benefits are mostly going to reasonably well-off people.
Ideally everyone would be an owner, not a renter. Renting just moves wealth from the poor to the middle/upper class.
Everyone should have the option of owning, but not everyone wants that, depending on where they are in their career or stage of life. Frequent job hoppers prefer the flexibility of renting. Some young adults want to minimize their responsibility, and renting lets them avoid some of the pitfalls of ownership with the downside of having a smaller space. (Specifically thinking of a bachelor friend who has no intention of owning - he is currently content in his one bedroom unit, living a minimalist life. That may change if he ever gets married and has a family.)
The issue we're running into is that individuals who do want to own are now getting priced out, due to lack of affordable housing inventory. New construction isn't providing enough starter homes, and the lack of supply has driven the price of the first homes out of reach for those who are ready to settle down.
I don't see why you'd say that. Renting is just paying the landlord for their service of giving you housing...just like you pay the grocery store for the service of giving you food, or pay the clothing store for the service of giving you clothes. Not everyone needs to own a farm; it's ok to pay someone else for food, and it avoids having to tie up a huge amount of wealth in a farm. Not everyone needs to own a home; it's ok to pay someone else for housing, and it avoids having to tie up a huge amount of wealth in a home. It's a personal decision, where for a lot of people (especially people who move a lot, or don't like being responsible for home maintenance, or just want a small place that doesn't cost much) buying a house makes no sense at all.
If your argument involves the phrase "building equity", having your equity tied up in a house means you can't put it in the stock market (where it would probably do as well or better than a house) or even a business. There are lots of ways to invest money and a home is not necessarily the best.
I’m a homeowner. Haven’t been able to deduct mortgage interest in years.
>And the really big one is that renters don't get to deduct their housing costs when doing income taxes!
Yes, you can. We did this for years while renting and it is pretty explicitly called out on form 8829 and schedule c that you can do this. <- This is for business use only. Whether a homeowner or a renter, you cannot deduct typical housing costs unless part of your home is used exclusively for business use.
Don't be surprised if you are unable to deduct your mortgage interest or property tax. You must itemize to deduct either of these, and with the standard deduction now at $27.7k there is a good chance that your itemized deductions, even with mortgage interest, are less than your standard deduction unless you are early in your loan (which you are) and you are close to or above the principal cap. On top of that, the real estate tax deduction is combined with your state income tax deduction and both combined are capped at $10k (again, compare this to your standard deduction, which you would forgo by itemizing
Please correct me if I'm missing something, but 8829/schedule C is for business use only, if you use part of your home exclusively for work. Deducting your kitchen or bedroom's expense would be tax fraud. I've never heard of anyone legally deducting their rent on US federal taxes except for a home office used for nothing but work.
From the source:
>Use Form 8829 to figure the allowable expenses for business use of your home on Schedule C
Correct. Homeowners have to use part of their house exclusively for a business use in order to deduct their housing costs, outside of the itemized deductions specifically for mortgage interest and other taxes paid. You cannot deduct your mortgage principal, insurance, utilities, etc. otherwise.
Thanks. Could you please add clarifying text to your original comment, saying that this is for business use only? The vast majority of renters are not able to deduct any of their rent, and no renters can deduct all of their home's rent.
Yep, I added that. Thing is, the vast majority of homeowners are in the same exact boat as renters: they cannot deduct any of their housing costs either.
The mortgage interest and property tax deductions can only be taken by a small number of home owners and the business use deduction can only be taken for part of your home if you have an exclusive business use.
OMG let me tell you about how all American white Republicans suckle at that teat: VA loans, FHA loans, mill rates, car taxes. In the whitewashed slumburbia, car taxes are low and mill rates are covered by "white welfare".
every person I know who is Republican usually is suckling at that: soldiers, cops, teachers - all those people exist because we pay taxes.
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Norway also have a really high ownership rate, most people own their dwelling
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I've heard third hand that it's pretty strong in the Netherlands.
It isn't so much for incumbent home owners, it is for new home buyers. People that already own their homes get nothing from this system.
Ah yes, the old argument that not taxing some activity is "subsidizing" it, as though the natural state of things is all activity being taxed.
You do understand what an FHA loan is right? And what the definition of “subsidy” is? Try putting those to together and see what you get
The article is specifically talking about untaxed imputed rent, not FHA loans.
Think that's whack, wait till you learn that even a conventional mortgage loan is money *poofed* into existence via the fractional reserve banking system.
> fractional reserve banking system.
We haven't had a fractional reserve system for almost 3 years now. The reserve requirement is now zero.
Yes, any net tax benefit to one group over another is a subsidy. Do you need a whiteboard?
So... taxing car use is a subsidy to walkers?
No, but taxing cars and not taxing pickup trucks would be a subsidy.
That's an entirely arbitrary distinction.
Not taxing something simply isn't a "subsidy", it's letting people keep their own money.
A "subsidy" is giving them someone else's.
Naturally... this is all a semantic argument... and we can't completely forget that money is fungible, but still... it's kind of an abuse of language to call it a subsidy.
It’s not a semantic argument at all. It’s a mathematical argument.
Ok, well let's look at the mathematics of this particular example them.
Let's say that we decided not to provide a deduction for homeowners' mortgage interest.
Would the business expense deduction for loan interest and depreciation provided to companies renting apartments be a subsidy to them because we decided to start taxing homeowners, when it wasn't before?
Indeed, is any business expense deduction a "subsidy"? And to whom? Or is it just taxing their profit rather than their revenue?
Is a charitable contribution deduction a subsidy for the charity, or the donator? And if the latter... what is it subsidizing, if not the charity?
It's really a lot better to think of only money and services provided to someone in excess of the taxes they pay related to an activity to be a "subsidy".
This stuff is nothing but semantics.
You seem insistent on comparing apples and oranges when the original distinction was very clearly and obviously apples for apples.
I’m happy to discuss more nebulous concepts for subsidies after we put the nail in the coffin of this one. Homeowners and renters are equivalent other than the method they use to pay for housing.
> Homeowners and renters are equivalent other than the method they use to pay for housing.
Sort of similar, yes, but you have to admit that renters will pay less rent in an environment where the lessor can deduct their business expenses than when they can't... all else being equal.
So is that savings due to the business deduction a subsidy to them or not?
The building of the home, marketing of the home, selling of the home — hell, every expense of every business that touches the home is tax deductible.
The deductibility of business expenses is not a subsidy, although that is a point worth arguing in a different conversation (it involves looking at whether we should encourage or discourage vertical integration and mergers in general).
This is just about homeowners versus renters. They are equivalent. If you walk down any residential street, some residents are owners and some are renters. They receive the same product just with a different method. And they do not receive the same tax benefits.
We are subsidizing the ones who have more capital and not subsidizing the ones with less capital. The effect of the subsidy is to increase the annual income of the wealthier families to the detriment of the less wealthy families (in general).
>Moreover, the absence of a tax on imputed rent represents a subsidy, which does not discriminate between the newly built and existing housing. Thus, everyone occupying one’s own dwelling can benefit from it.
So if I don't tax something, I've subsidised it?
Not sure if I am following the logic here. Not everything is entitled to be taxed, that's just the perspective of a government. The mafia thinks you owe them protection money, but we don't normalise that mentality.
If anyone can explain imputed rent to me on your own home I'd be grateful.
If you offer one group a tax break that other groups do not get, you are subsidizing that group.
No you are not. You are, if the tax is unjust, simply discriminating against the other group.
There is no natural state of taxation. Each tax needs to be justified in terms of what it does and be applied fairly, but arguing it as a benefit is like punching one person and then claiming the unpunched person was the beneficiary of not being punched.
I'm pro-tax, but I don't believe a situation can be described as subsidy because you didn't tax it.
Its funny really because whilst this kind of discussion goes on, no one did anything about the tax loopholes in offshore accounts, which the truly rich benefit from.
>if the tax is unjust…
checks sub
shakes head
“Unjust” has no scientific interpretation. A net positive financial benefit to a group that is accompanied dollar for dollar by a net negative financial impact to the government is a subsidy in every way that matters.
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So, the break is on the interest of a mortgage. In order to qualify for a mortgage a person has to show income. The interest is paid from the income. That portion of the income is not taxed. How can a person receive state welfare from their own pot of money?
It's a huge incentive to purchase a home. This contributes to demand and helps keep prices up. This one of the few paths for middle class people to build wealth.
A business is not taxed on its expenses, only on profit. Does this make a business the beneficiary of a hidden welfare state?
A landlord is not only allowed to write off interest, but can also depreciate 1/27 the value of the improvements to a property. Does this put them in the hidden welfare caregory?
This is a stupid stupid stupid perspective. Also, it suspiciously ranks of supply-side idiotic rationality.
Tax breaks are often used as subsidies. This is not unique to mortgage interest.
>A business is not taxed on its expenses, only on profit. Does this make a business the beneficiary of a hidden welfare state?
As an individual taxpayer, I can deduct mortgage interest, but I cannot deduct food, clothing, utilities, or most other expenses (or rent, for that matter). Why single out mortgage interest among all the expenses we have?
>, but I cannot deduct food, clothing, utilities, or most other expenses
Actually, the hurdle to itemization is getting past the standard deduction. A lot of those expenses CAN be deducted if they are related to a job, or maintenance of your home. So, if there is a dress standard at work such as business casual your clothing expenses for work can be deducted. If you go out of pocket for food while traveling for work . . . I need safety boots for work, and am required to do continuing education. So on and so forth.
If I make some inquiries about investments while on a trip, some of those trip expenses can be deducted. For instance, if I'm interested in real-estate investing in an area I travel to . . .
The interest on the mortgage get most people over that hurdle and opens up many more deductions most are not aware of because they fint make sense until the mortgage gets them there.
>Tax breaks are often used as subsidies.
But what is this subsidizing? It's much more beneficial to the financial industry than it is to individual home purchasers. If this "welfare" didn't exist and serious blow would be delivered to that sector of the economy. And we saw in 2008 how much Trickle Down has made the entire economy dependent upon that.
Yes, business expenses broadly can be deducted as non-income. Mortgage interest is not a business expense; it gets special treatment that rent doesn't get. That's the whole point here.
All subsidies benefit both the buyer and the seller; the mortgage interest tax deduction is not unique there. I think the financial industry would survive just fine without this subsidy (and I'm very surprised to see corporate welfare being touted as a benefit to promote the mortgage interest tax deduction!).
The subprime mortgage crisis didn't happen because the banks weren't profitable enough; the financial system was destabilized by banks turning out to be insolvent due to years of accumulating toxic assets, meaning a sudden loss of confidence in the system.
>The subprime mortgage crisis didn't happen because the banks weren't profitable enough; the financial system was destabilized by banks turning out to be insolvent due to years of accumulating toxic assets, meaning a sudden loss of confidence in the system.
I'm pretty well aware of what happened. It's the consolidation of the banking system along with the removal of regulations on the types of investments they could be involved with that led to the crisis. (Along with lack of oversight.) If you know anything about how accounting works then you know that loans are capital for a bank. A bank cannot sell debt without income from existing loans. The toxic debt was a result of the subprime loans. The loans default and the bank can no longer service the debt right? You see you can stop condescending now.
>(and I'm very surprised to see corporate welfare being touted as a benefit to promote the mortgage interest tax deduction!).
My point is that I don't feel the "subsidy" exists solely for homeowners. I'm wasn't touting it, I was shining an alternative light upon it.
The fact remains that as a result of Trickle Down there are fewer and fewer pathways to building wealth other than real estate for those that start out life without any capital. The tax vantage of being able to deduct interest helps drive demand for home ownership. This demand increases the wealth of the owner. Removing that deduction would essentially be removing wealth from the middle class, and that is the ultimate negative impact of Supply Side or Trickle Down policy. History has demonstrated repeatedly that this is terrible policy.
Lastly, and back to my first point, a subsidy or "welfare" is a gift of money. Not taking as much of my income is not a gift. I've still done my part for the economy to have earned that money in the first place. The government is not printing money and awarding it to homeowners, it is simply not taking as much from the economy. You could just as easily say that not allowing rent to be deducted is a penalty for poor economic performance. What is the difference?
Not charging you as much tax as someone else with the same income is logically a form of subsidy. When we let people deduct childcare expenses, we are subsidizing parents. When we let people deduct medical expenses, we are subsidizing health. By allowing people to deduct student loan expenses, we are subsidizing higher education.
I'm not going to say that any of those are a bad thing, but they are certainly a thing easily distinguished from deductions for work-related/business expenses.
Owning your own home vs renting it makes zero difference on the property demand.
Arguing for extra help for renters is great, 100%. But giving similar tax breaks to home owners who sub-let is not going to lower demand for housing and help renters get to own their own home, if it causes more property accumulation by landlords.
It makes a huge difference in cost. Without the incentive to own instead of rent massive amounts of wealth would be drained from the middle class. That would have massively terrible consequences.
Corporate taxes are fundamentally different from income taxes. The corporation pays its employees who are then taxed on their income. Different concepts.
Actually it's not. It's just an accounting distinction. You could just as easily say employee income is revenue gained from an investment of time and labor. You could tax a corporation's revenue, and choose not to tax an employee's income using the rationality that the money has already been taxed as corporate revenue.
All of these categories are just accounting terms. They are all the result of an exchange of time, material, labor, and knowledge for money. The distinctions only get important when you apply policy to them.
>Revenue gained from an investment of time and labor.
It’s not though. As an employee, you are paid a salary or wages, which are fundamentally different from investment income. You can always be an independent contractor and deduct your home office expenses against your contract revenues.
Neither of these things are corporate taxes though.
It's not at all. As an employee I'm investing my time, labor, and knowledge. It's all an accounting distinction. The economy is an aggregation of the exchange of money for the fruits of labor. All an entrepreneur does is convince employees that he can sell their labor better than they can. It's an American myth that it is a higher form of economic participation.
Revenue is revenue, the rest is all accounting.
It’s not an accounting distinction. When you earn salary/wages, the company is expending all of the deductible expenses you would be if you owned the business. You are approaching this like a high school student who took one philosophy class and dropped it halfway through. We are on the science sub. You know that “labor” is not a deductible business expense.
I never said ownership was a higher form of economic participation. Don’t straw man me.
You are using accounting terms trying to argue its not an accounting distinction.
Revenue is revenue. The only difference between corporate revenue and an employees revenue is the column it ends up in in the ledgers, kept by accountants so the taxes can be calculated properly. And that is all a matter of policy, enforced by accountants. It's all accounting.
But the flow of money is exactly the same in terms of economic impact. It still is an exchange.
Terms have definitions. The reason we distinguish is because they are no equivalent. You cannot just say “blah blah nihilism” and pretend you don’t need to make a solid claim for equivalency.
I’ve already explained the differences. Repeating yourself and ignoring those explanations does not help your case.
Your explanations are useless. If I dig a ditch and receive $500.00, or I work 40 hours and receive $500.00 on a W2 there is NO difference. I've done $500.00 of economic activity. How that money is handled on either side of that exchange is all a matter of accounting, and policy.
I'm sorry you are too thick to see that really simple concept.
If you work as an independent contractor and dig a ditch with your own shovel and wheelbarrow, those expenses are deductible on your taxes. If you work for a ditch digging company and use their shovel and wheelbarrow, those expenses are not deductible.
Speaking of digging oneself a hole, I am sorry that you dis that in this discussion and also that you lack the humility to admit when you are wrong. No doubt, that will ensure that you never learn while others surpass your knowledge. I cannot imagine how difficult that must be for your fragile ego.
When the alternative is being subject to the whims of landlords and rent algorithms tax breaks for home ownership seems like a pretty great thing. Unless you’re a landlord.
Or someone without the necessary executive function to keep on top of maintenance.
As a home owner without any mortgage because I really am the home owner, not a lease to eventually own, from the bank I don't feel like I receive any "welfare" because I pay Property taxes that go up every time the speculators drive home prices up and I receive ten million annoying phone calls from Home Vestors and their similar slime that won't put me on their do not call lists when I've been on the Do Not Call database since it was created. Do I receive welfare by owning a fully paid off home? I certainly don't see it that way. Besides property taxes my home insurance goes up as speculators drive home prices up to the point I'm holding off replacing my roof (not leaking just isn't as pretty as others around me really) because if I file for the work with my insurance the claim is large enough to cause my premiums to go up even more than the speculators have driven it. So I think this whole claim that I get welfare by being a home owner is a crock of swill.
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Sounds like a statement you've just made up
auntiepink t1_it7vu20 wrote
Thanks, everyone! I am a homeowner because of an FHA loan which let me be qualified with a lower down payment. Because of this, I've been able to spend less than I would on rent so that I could afford a reliable car, stay employed, build equity, and pay employment and property taxes to help the community. I see it as a net positive and I hope others do, too.