The Housing Disaster has global implications

[Dover]

This article was posted in LBN and was locked apparently because it was a dupe....though I could not find the dupe. However, the subject matter has certainly gotten a lot of play lately...and for good reason.
This author sees the housing bubble occurring on a global scale, effecting several countries. So the implications of bursting bubbles worldwide make this whole scenario even more dire. It's all an illusion waiting to be exposed. The next to last paragraph of the article reads as follows:

The business press, as always, reassures passengers that they are headed for a "soft landing", a slowdown rather than a crash, but even a mild jolt may be sufficient to end the current anemic recovery and throw all the dollar-pegged economies into recession. More ominously, some eminently respectable Wall Street economists, like Stephen Roach of Morgan Stanley, have been warning of a dangerous negative-feedback loop between the foreign-subsidized housing bubble and the huge US trade and budget deficits. "The funding of America," he has written, "is an accident waiting to happen."



Be sure to read the entire article:

Apr 20, 2005



America's riotous real estate
By Mike Davis

Last February the sirens howled in Hollywood as the Los Angeles Police Department (LAPD) rushed reinforcements to the 5600-block of La Mirada Avenue. While a police captain barked orders through a bullhorn, an angry crowd of 3,000 shouted back expletives. A passer-by might have mistaken the confrontation for a major movie shoot, or perhaps the beginning of the next great LA riot.

In fact, as LAPD Captain Michael Downing later told the press: "You had some very desperate people who had a mob mentality. It was as if people were trying to get the last piece of bread." The bread-riot allusion was apt, although the crowd was in fact clamoring for the last crumbs of affordable housing in a city where rents and mortgages have been soaring through the stratosphere. At stake were 56 unfinished apartments being built by a non-profit agency. The developers had expected a turnout of, at most, several hundred. When thousands of desperate applicants showed up instead, the scene quickly turned ugly and the police intervened.

A few weekends after this tense confrontation in Hollywood, another anxious mob - this time composed of more affluent home-seekers - queued up for hours for an opportunity to make outrageous bids on a single, run-down house with a cracked foundation in a nearby suburb renowned for its good schools. "The teeming crowd," wrote Los Angeles Times columnist Steve Lopez, "was no surprise given the latest evidence that California's public schools are dropout factories."

..snip..

The great American housing bubble, like its obese counterparts in the United Kingdom, Ireland, the Netherlands, Spain and Australia, is a classical zero-sum game. Without generating an atom of new wealth, land inflation ruthlessly redistributes wealth from asset-seekers to asset-holders, reinforcing divisions within as well as between social classes. A young schoolteacher in San Diego who rents an apartment, for example, now faces an annual housing cost ($24,000 for a two-bedroom in a central area) equivalent to two-thirds of her income. Conversely, an older school-bus driver who owns a modest home in the same neighborhood may have "earned" almost as much from housing inflation as from his unionized job.

The current US housing bubble is the bastard offspring of the stock-market bubble of the mid-1990s. Housing prices, especially on the west coast and in the east's Bos-Wash (Boston-Washington, DC) corridor, began to rocket in the second half of 1995 as dot-com profits were plowed into real estate. The boom has been sustained by sensationally low mortgage rates, thanks principally to the willingness of China to buy vast amounts of US Treasury bonds despite their low or negative yields. Beijing has been willing to subsidize US mortgage borrowers as the price for keeping the door open to Chinese exports.

Similarly, the hottest home markets - southern California, Las Vegas, New York, Miami, and Washington, DC - have attracted voracious ant columns of pure speculators, buying and selling homes in the gamble that prices will continue to rise. The most successful speculator, of course, has been George W Bush. Rising home values have propped up a stagnant economy and blunted criticisms of otherwise disastrous economic policies. The Democrats for their part have failed to address seriously the crisis of millions of families now locked out of home ownership. In a bubble city such as San Diego, for instance, less than 15% of the population earns enough to finance the cost of a median-value new home. ...cont'd

http://www.atimes.com/atimes/Global_Economy/GD20Dj01.html

[smirkymonkey]

1. Kicked and Nominated!

Pretty soon only the very wealthy will be able to live in or near a major urban area. I live in NYC and it's out of control - even people who make relatively good money are living in dumps the size of a shoebox.

And jobs here seem to be paying lower wages and are more competitive than they were when I was looking 4 years ago. It can't be sustained. The rich can only buy so much property.

[Tux]

2. True

In KY, it's hard to get a job with 100s of people looking for a job. A cheap house for barely 2 people cost $120,000 on average unless you get a forclosed one or a fix er upper that needs to be rebuilt practically.

[whatelseisnew]

3. nominated, I think time is running out

[paula777]

4. I live in So. California and demand for Real Estate is huge

We are so overpopulated and there just aren't enough apartmements or houses. If the real estate bubble burts - we will all still need houses or apartments, which will keep rents high. Isn't population what causes the RE bubble?????

[EVDebs]

7. But with property taxes at 1.25% of 'market price' and Prop13

with a rising RE market and stagnant wages...something's gotta give sometime just as in 1978 when Prop13 passed. We need nationwide caps on property taxes tied to a percentage of median household incomes for the different parts of the nation.

It used to be that 25% of income qualified you for a mortgage. Now people are getting them with 50% and higher. I also heard that Fannie Mae is experimenting with 40 year mortgages just to get the monthly payments lower for people.

Something has to be done...With 1 and 1/4 % of market price in CA as the bellwhether for property taxes annually, and 2% annual increases in assessments legally available for assessors offices in each county, CAPS of some kind are going to be required in CA.

[smoogatz]

5. It's a regional bubble, but the crash isn't coming next week

Look for sharply rising inflation over at least two quarters, which will force the Fed to raise the discount rate. As interest rates climb, housing will start to cool off--but not before a last wave of buyers moves in, hoping to catch a bargain as declining prices and rising interest rates "cross." Remember, a sharp decline in real estate prices can be good news for homeowners who plan to stay put long term (reduced valuations mean lower assessments), and even a crash isn't nearly as scary as an equivalent decline in stocks, where one's investment can simply evaporate. Your home will never be worthless. The following people should be concerned, however: those who've purchased budget-stretching homes near the top of the market; those with adjustible rate mortgages; small-time speculators in real estate; and those whose retirement or other life plans depends on realized capital gains from an existing home.

[EVDebs]

8. These are coastal blue states and the Repubs don't care n/t

[smoogatz]

9. They'd better

The real estate boom is the only thing keeping the economy's nose above water.

[loudestchick]

6. It's happening in my neighborhood. I live in a bungalow neighborhood

built in the late 20's early 30's...hardwoods, crown mouldings, stone foundations. Our public schools suck, but there are tons of small privates and new charters in the area. I just got my new tax assessment, a 60% increase. I can't see how people can absorb this.

[EVDebs]

10. Yes, this is why caps on property taxes tied to incomes are needed

Businesses don't change hands as often as residences in CA and with Prop 13's limitations make it like 'rent control' in NYC...and businesses reap huge tax benefits, cry they're being overtaxed when they are not, and Joe Sixpack gets stuck with the bill. In the meantime, businesses then outsource jobs and still cry they are being hurt !

"Corporate income taxes in fiscal 2003 accounted for 7.4% of all federal tax receipts, down from a post-war peak of 32% in 1952. With one exception (1983), last year’s percentage is the lowest recorded since data was first published in 1934. Even so, tax breaks for corporations (and their investors, particularly large ones) were a major part of the Administration’s 2002 and 2003 initiatives. If class warfare is being waged in America, my class is clearly winning"

www.commondreams.org/headlines04/0306-01.htm

This is clear evidence that we should switch tax systems with the federal government: give the property tax to the feds and give state/local governments the income tax ! You'll see action then...

[dcfirefighter]

11. Wrong Idea on property taxes

It's property tax caps that allow speculators to hold on to land at a profit, keepin someone out of a place to work or live. It's lack of a property tax that allows the price to get so high in the first place. There's only so much that the market is willing to pay for a piece of land: I'd rather pay it to the government (and drop other taxes) than pay it to a bank or a private investor. But, hey, even liberals succumb to the "I got mine" attitude when it comes to housing.

Affordable housing: http://www.newcolonist.com/tworate.html

[EVDebs]

12. No, I've been watching CA property taxes for too long.

Before Prop 13 prop taxes were set by county assessors politically. For many years residential housing would be under taxed and businesses would be overtaxed. Then politics would put a pro-business assessor and residences would be overtaxed to try to 'balance'. Many court cases on corruption on either side...

When the '70s came along with the post-VietnamWar inflation and oil price increases by OPEC after the '73 Arab-Israeli War, we had to pay for the war and the quadrupling of oil prices. At the same time in CA we have the equivalent of the population of Rhode Island coming into CA each year. I hear by 2020 we're going to be near 45 million (35 million today). Where are these people going to live ? And since the '70s also incomes have stagnated.

The bankers and speculators only want that steady drip in the bucket coming in monthly--but as much as they can get. That is why Prop 13 passed in 1978. It set that year as a baseline with subsequent tax increases limited to 2% max annually from that point on with the exception if the property is sold. Then, a new baseline basis is set and again increases of 2% annually from that point on.

This has resulted in a de facto growth control now. No one in urban areas like the 9 Bay Area counties can reasonably afford to spend $550,000 for homes-- not based upon $50,000 family incomes.

Now I'm seeing lower monthly payments by using 'Interest Only' loans. This is exactly the type of loan with baloon payments that was used prior to the New Deal, when amortized loans became the 'way to free up income for consumption' in order to get us out of the Depression !

I'm seeing experimental 40 year mortgages by Fannie Mae but the interest rate is set too high, see 'Forty-Year Mortgages Panned'
http://realtytimes.com/rtcpages/20050118_40yearmtg.htm
in order to get monthly payments lowered. But even here in CA your property taxes would be 1 and 1/4 percent of the price you bought the house (with 2% annual increases possible from date of sale). So your $550,000 home costs $6875 per year in property taxes to start ($572.90 per month !).

Housing affordability, in order to free up family incomes for more consumption-- the goal of Keynesian Economics -- is what got us out of the Great Depression. If the government, or bankers, used the money for more income generating purposes, we'd be having another discussion. But they are too busy allowing 'outsourcing' of US jobs overseas and making loans on housing developments that are 'starter castles' that cost $550,000 TO START.

I'm tempted to yell out 'stop the madness' but unless smaller, more affordable housing, using finance and property tax measures that take into account an area's median family income with caps of some sort, well, the free market is going to give us the same result it did in 1929. Wake up out there.

[dcfirefighter]

13. Bad assessments are bad assessments

http://www.cooperativeindividualism.org/gaffney_proposition-13.html

Assessments should be for expected sale value, and not deliberately over assessed or under assessed.

Limits on property tax mean that the young pay for the old, a family moving into a house must pay the full tax, while the neightbor down the street in an identical house pays much less.

This disparity keeps the neighbor down the street in the house longer than economics would dictate, hindering growth. Without growth, housing supply is diminished, and housing costs rise. But, hey, liberals play the 'I got mine' game as well. Screw the young, they should have been born earlier, right?

Regardless of what the taxes are spent on, limiting their amount makes land an awful good speculative investment. Meaning that the landowner can put some cheap business up, just enough to pay the taxes, and keep people out of a place to work or live for 10-20 years while demand gets pent up and the value of the land rises to a level of the landlord's liking.

Conversely, raising the tax on the land (while reducing/exempting the building) means that the land speculator will sell, or build. Either way the land, if it's in a valuable location, will get built on: either more places to work, or more places to live. If it's more places to live, the cost of housing goes down.

Do this over a widespread area, and you get a lot of new housing, in high value areas, it can be quite dense. Instead of one family paying for a 1/8 lot, you might have 5 families in a condo on 1/8th acre - denser but more affordable.

You can't have your cake and eat it too. You can resist growth, but realize that you are screwing the poor (unless they bought 20 years ago).

Realize also, that when you let those speculators hold those valuable parcels underbuilt, the real investors, homebuilders, and entrepreneurs have to build further out, exacerbating sprawl.

The answer is not to cap property tax, but to shift them from buildings to land, and encourage intensive rather than extensive development.

[EVDebs]

14. So in your Henry Georgian land-tax system what results is farmland

being taxed more than it should. Land taxes have resulted in already existing taxbreaks for ag interests to such an extent that oil companies are now major ag landholders ! CA is perfect example for this with Chevron's ag landholder owning much vineyard lands in my area of CA. I think the name is Huntington Beach Corporation or something like that. The book "Cadillac Desert" describes the process.

Caps with income, median household income is half population earning more half earning less, should be implemented IMHO. The market will never allow for adequate household incomes to sustain other necessary consumption, thus the ebbs and flows of ANY free market economy. Regulation is NECESSARY.

[dcfirefighter]

15. So in your Marxian system?

Farmland would only be taxed at what the market rate for the right to occupy that land.

If the tax were collected in cities, most people, not being farmers, would live in the cities and dense surrounding suburbs. Meaning that the value of farmland would only be it's agricultural value, not its value as a residential development. The dirt-poor farmer is a myth, anyway. Take away subsidies, and monarchial land-titles, and farming becomes a small-hold propisition, where families can make a decent living.

What is 'too high' anyway? Too high for who? Little farmers can make more per acre than the big guys . . it's just that the big guys have all the lobbyists.

Chevron can hold land cheaply because of caps on taxes. Make them pay, and they'll sell - probably to someone who wants to operate a vineyard.

Take the tax off of payroll, and wages, and we get more employment. We get more employment, and workers (most of us) can negotiate better wages. Those wages, not being taxed, go further.

Tax Land, and capital and labor must work more (and enjoy better returns). Labor builds capital. Labor wins. Labor enjoys wages greater than 'necessary consumption'.

You can not effectively legislate higher wages. Hasn't been done. Didn't work anywhere they tried it. A few cents an hour don't count. Legislate higher wages, and the jobs go where there is no legislation, or we do without.

Your idea to cap property taxes merely shifts the payments to newcomers, who have as much right to live and work as anyone else. They didn't choose when to be born. Or should we conquer and remove the natives of Canada so we have more room for housing?

[EVDebs]

16. We already have 'flat tax' in the US, you don't want to make things worse

Do you ? Assuming you are a DC firefighter, who pays your salary ? The citizens of your district. Impoverishing them or making them subsidize the rich even more than they already are...that's not smart. I give you credit for investigating this though, most don't even bother.

Look into Warren Buffett's view on corporate taxation www.commondreams.org/headlines04/0306-01.htm

"Corporate income taxes in fiscal 2003 accounted for 7.4% of all federal tax receipts, down from a post-war peak of 32% in 1952. With one exception (1983), last year’s percentage is the lowest recorded since data was first published in 1934. Even so, tax breaks for corporations (and their investors, particularly large ones) were a major part of the Administration’s 2002 and 2003 initiatives. If class warfare is being waged in America, my class is clearly winning"


As he says, if you ask me, his class has already 'won'.

Also look at the book Perfectly Legal: The Covert Campaign to Rig Our Tax System to Benefit the Super Rich -- and Cheat Everybody Else by David Cay Johnston. Pay particular attention to chapters 7 and 8. We already have a 'flat tax' system in the US when you add up state and local and federal taxes.

Capping property taxes, excepting new home sales, as with Prop 13 already taxes newcomers in CA, or better put, new 'growth' from whatever the source. From a fiscal standpoint the only way to get any more money out of us turnips here in CA to fund new government growth-- say, adding new firefighters to the payroll, for example-- is to NOT hit the property tax base any further.

The only source of new money for governmental services is raising corporate taxes. We already give bonds to the wealthiest, paid back on the property tax roll BTW. The wealthiest one and one-half percent of taxpayers and the corporations have reached the maximum that they can reasonably and sustainably hit the lower and middle class property owners.

The only way out, at least in CA, is to set a homeowner's income tax cap tied to the property values in areas where the median household incomes are low. If you don't do something like that soon you will have more riots at home openings as have happened here in CA.

In DC I guess the Congressmen just give out more pay raises, that the lower/middle classes foot the bill for, and make room for more wealthy speculators. The system is getting to 'top heavy' for people to put up with any longer.

Marxian ? LOL ! Tax revolt created this country. De-brainwashing is necessary and imperative now. Repubs are into regressive taxation of taxing wage earnings and not capital gains.

Re read the original post. LA's tax base of property owners, now more and more lower income, can't sustain highly paid firefighters and police officers whose unions control city hall. By placating Mello-Roos bondholders (read the 'rich') for years they've tied their fates to the Republican party. A bad political assessment of the situation is a bad political assessment of the situation.

[dcfirefighter]

17. The L Curve

applies to wealth, particularly land wealth, more so than incomes.

Don't get me wrong, i'm not advocating a complete shift tomorrow, but a gradual shift, as would be required in any democracy.

Step 1: shift property tax from buildings to land. In most cases (60%?) residential properties benefit. In even more cases, homeowners benefit. Commercial properties, being worth more, get taxed more. Most businesses lease their sites anyway, for them nothing changes. The landowner just gets less unearned income.

Step 2: Eliminate sales taxes, and shift their revenue to land. High value commercial & retail locations become even more valuable, and revenue increases.

Step 3: Increase the personal income deduction, and shift their revenue to land.

Under a land value tax, businesses pay exactly their fair share.
Employment increases, because land speculators can no longer guarantee returns on underbuilt land - they must develop, providing more jobs. As employment increases, potential employees become scares, and employers must offer better wages to attract them.

I agree on taxing capital gains - this is the last 'tax on productivity' I'd eliminate. The whole idea of a land value tax is that it is a tax on unearned capital gains, with no deadweight loss, and no disincentive to productivity (i.e. employement and commerce)

PS Re: municipal unions vs. industrial unions. It's tough to move the municipal operation overseas, unlike industrial occupations. Get the taxes off of wages and benefits are twofold: immediately, workers keep more of their paycheck; and as the price of employment drops (due to the elimination of taxes on the sale price of labor) employment rises. As employment rises, so do wages. All this without a single contract negotiation.

I think you know that HG was popular with the unions back in the day.

[seventythree]

18. interesting perspective