> Do you think people who own a house should be allowed to buy a 2nd one and push first time buyers out the market?
Just to address this, first, yes, I absolutely think people need to be able to buy a second house. There is also a natural impediment in place of investors buying up "too many" houses. The reason is, if there are more houses on the rental market than there is demand for rentals, it will drive rental rates down. Similarly, if there are not enough houses for sale to fill demand of all these investors as well as purchases for-self, it will drive house prices up. As those two things happen, the rate of return on an investment property will quickly become lower than that of other comparable investments, so people will not rationally keep buying investment properties until either prices go back down or more houses are built (which will also drive prices back down).
Obviously in the short term people don't always act rationally, but that situation can't logically persist indefinitely. (And while it does, renters get below-market rent, subsidized by owners. That was has been the case here in Canada for the past few years, and I happily rented for several of those years.) Long term though, investment owners will earn just enough return to make it worthwhile for them to provide the service of rental housing to people who want it. That's a good thing.
Now imagine if people couldn't buy second houses. It would be impossible to rent, because there would be no unoccupied homes. Yes, it would bring house prices down, but what if you were just starting out and didn't have the money to buy a home, even a cheap one? You would then have no options. I know you're not really advocating for outlawing second houses completely, but incentives for first-time buyers over investment buyers would have a similar effect to the lesser extent. You would be making first-time ownership cheaper, and renting more expensive.
Now, I don't think that some help for first time buyers is terrible policy. However, I think better policy would be to focus on helping young people in general. For instance, instead of a first time home buyers' credit, there could be a special reduced tax rate on the first $X (or £Y :P ) that a person earns after age 18. (Possibly varied on a means-tested basis.) That would help people get started, either saving up a down payment, or starting an investment portfolio, without skewing the housing and rental markets.
Of course I recognize that the problem with that plan is that many, or even most, people would waste that money instead of saving it. By tying it to house purchase, you force people to put it into an asset, and in turn, owning a home forces people to save (in the form of equity). However, we need to find a different solution to that problem, because we'll never be (or want to be) at the point where everyone is a home owner, and right now the people who most need that leg up early in life are the ones who aren't getting it. I don't know what the solution is, but there are certainly possibilities. For instance, a defined benefit state-backed pension plan can prevent people with no savings from being screwed in retirement. It could be made possible to borrow from one's state pension plan to buy a first home. In theory that should not skew prices vs rents as much as a straight tax break, because it's not free money. And it would be more equitable, because people who choose not to use it (or who aren't able to) will still get an equivalent benefit.
I generally follow the logic. Though, if salaries are not enough to support a mortgage application this model will trap people in a renting cycle. A precarious one at that.
The interesting part in the model you present is the use of investment portfolios to get on the housing ladder. Its as if working hard isn't enough, you need some extra device, with a degree of risk and luck to make the leap to home ownership.
Its great to imagine what would happen if people couldn't buy second homes, or being innovative over how a special tax rate could be applied to young people. No-one really knows the answers until it happens. My gut feeling is that renting is unethical - I know I couldn't bring myself to make money out of someone renting if I had my own house and enough money already. But that's it, none of these issues are based on isolated models.
My crude knee jerk ideas:
A maximum cap on rental prices indexed to minimum wage.
A preference model where first time buyers get 1st picks.
A trusted simple well thought out online platform that makes buying and selling a house as easy as possible (replacing the trickery of estate agents).
And for Landlords: Absolutely robust laws always favouring the right of the tenant, so landlords are forced to acknowledge a social responsibility to their tenants - what bigger responsibility could you have for another human being then being a Landlord.
An online platform where tenants can request references on Landlords from old tenants.
@okc: Been following this conversation, and I really appreciate the honest exchange of ideas and viewpoints...
Regarding your ideas:
Rental cap indexed to minimum wage: Unfortunately, in the US, this would mean no rental properties in most of the developed cities in the country. We can't control what people earn, and price of building housing is not directly connected to what individuals make.
First time buyers get preference: As explained above, this is manged in various ways (again, in the States) by first-time homeowner loans that have reduced down payments and by tax credits for first-time owners, among other ways. (Good news, in other words!)
Easier buying/selling process: This is essentially a complaint about contract law/language, which has merit, but is a much broader problem/challenge. Still, parts of the States are getting better systems. Try using Redfin.com to look for housing in one of the states it is available for (try Seattle, Washington for example).
Tenant Rights: These are stronger or weaker in different parts of the States, but check out the Tenants' Union of Washington State for an example. Don't forget, however, to protect the rights of a landlord against deadbeat tenants who can occasionally refuse to pay rent, damage the property, or disrupt neighbors.
Landlord references: Love the idea - would need the support of communities, and a rental climate where landlords need to compete (e.g. probably not San Francisco, Seattle, or other boom towns).
Re Landlord (and house) refs: references have lots of pitfuls. Ideally even in a boom town, being able to ref you landlord could warn you off the repeatedly terrible ones. The real problem is authenticity, it may get abused heavily by everyone.(imagine a hydrid anarchical version of all the rating problems inherent in eBay and TripAdvisor).
It seems a fair idea but difficult to implement. Would a simple message board based system be enough for a discerning reader? Any solutions for a system like this?
Just to address this, first, yes, I absolutely think people need to be able to buy a second house. There is also a natural impediment in place of investors buying up "too many" houses. The reason is, if there are more houses on the rental market than there is demand for rentals, it will drive rental rates down. Similarly, if there are not enough houses for sale to fill demand of all these investors as well as purchases for-self, it will drive house prices up. As those two things happen, the rate of return on an investment property will quickly become lower than that of other comparable investments, so people will not rationally keep buying investment properties until either prices go back down or more houses are built (which will also drive prices back down).
Obviously in the short term people don't always act rationally, but that situation can't logically persist indefinitely. (And while it does, renters get below-market rent, subsidized by owners. That was has been the case here in Canada for the past few years, and I happily rented for several of those years.) Long term though, investment owners will earn just enough return to make it worthwhile for them to provide the service of rental housing to people who want it. That's a good thing.
Now imagine if people couldn't buy second houses. It would be impossible to rent, because there would be no unoccupied homes. Yes, it would bring house prices down, but what if you were just starting out and didn't have the money to buy a home, even a cheap one? You would then have no options. I know you're not really advocating for outlawing second houses completely, but incentives for first-time buyers over investment buyers would have a similar effect to the lesser extent. You would be making first-time ownership cheaper, and renting more expensive.
Now, I don't think that some help for first time buyers is terrible policy. However, I think better policy would be to focus on helping young people in general. For instance, instead of a first time home buyers' credit, there could be a special reduced tax rate on the first $X (or £Y :P ) that a person earns after age 18. (Possibly varied on a means-tested basis.) That would help people get started, either saving up a down payment, or starting an investment portfolio, without skewing the housing and rental markets.
Of course I recognize that the problem with that plan is that many, or even most, people would waste that money instead of saving it. By tying it to house purchase, you force people to put it into an asset, and in turn, owning a home forces people to save (in the form of equity). However, we need to find a different solution to that problem, because we'll never be (or want to be) at the point where everyone is a home owner, and right now the people who most need that leg up early in life are the ones who aren't getting it. I don't know what the solution is, but there are certainly possibilities. For instance, a defined benefit state-backed pension plan can prevent people with no savings from being screwed in retirement. It could be made possible to borrow from one's state pension plan to buy a first home. In theory that should not skew prices vs rents as much as a straight tax break, because it's not free money. And it would be more equitable, because people who choose not to use it (or who aren't able to) will still get an equivalent benefit.