"Frontline" on eviction

PBS “Frontline” is an extremely well-researched, consistently high quality documentary program. Since they cover challenging subjects it tends to be depressing.

Their newest episode is “Facing Eviction.”

https://www.pbs.org/video/facing-eviction-8pgkd7/?utm_source…

**Why have American families struggled to keep their homes during the COVID pandemic, despite a federal ban on evictions? With Retro Report, FRONTLINE offers an intimate look at the United States’ affordable housing crisis through the eyes of tenants, landlords, judges and law enforcement.**

This adds to our information about how private equity, which now owns about 20% of mobile home parks and housing, is raising the cost for ordinary renters and buyers.

Wendy

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But what’s the solution? More government handouts?

The poor end of the economy always struggles to keep up. This is old news. Never changes.

Keeping people out of poverty is the best solution. But how? Teaching/training better job skills? Common sense like stay in school and graduate? Get a better job?

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<But what’s the solution? More government handouts?>

No. But the GSEs could make a rule that only individual mortgages to real households for primary (and secondary) residences they plan to inhabit (not hedge funds or corporations) qualify for mortgage insurance from Fannie Mae, Freddie Mac, etc.

That wouldn’t help with all-cash offers but would avoid using public money to back investors.

Wendy

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I kept coming back to the concept of every person must have her own place (were there any men being evicted?).
We USians are so intent on “individalualism” that we’ve lost the ability to “work together for the greater good”.

Remember this Wendy thread from earlier?
Young adults living with parents.
Comments about 3 generations living together. I know a situation with grandparents, grandkids and great grandkids.

https://discussion.fool.com/young-adults-living-with-parents-351…

This “eviction crisis” is a first world problem?
All around Mexico and Central America, where ever I traveled, I saw multiple generations sharing homes. And even unrelated people sharing a home (in one instance, 4 or 5, each with a BR, sharing the public living spaces).

But, in the US, we have laws preventing “too many people” living in a “space”.

And an attitude that every person MUST have her own SEPARATE space.

Anyway. That’s where my biases led me.

I also kept thinking: these people have NO sense of adventure, NO positive attitude.
Me? I was eminent domained in 2017. I CHOSE consciously AND BY PERSONALITY, to view it as an adventure and an opportunity.
But, I’m also white, educated, KNOW that I have options, know how to research and understand the options, and, I have an e-fund. And “savings”.
So, yes, there are differences.
BUT… still, my personality is a positive attitude, which the cherry picked “victims” don’t seem to have.

FWIW
:alien:
ralph

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But what’s the solution? More government handouts?
The poor end of the economy always struggles to keep up. This is old news. Never changes.
Keeping people out of poverty is the best solution. But how?

  1. First of all, let’s not assume that most households being evicted are freeloaders. They’re not, as research shows. Also as research shows, many times eviction is used as a tactic by landlords to get rid of tenants who complain about unlawful living conditions.

  2. In Detroit (where I’ve done research on the subject), thousands of evictions occur annually because the owners collect rent but never pay their property taxes because they can earn a healthy profit in the 3 years the law allows before the county can foreclose for nonpayment. Landlords can make big profits because (1) they can go buy another foreclosed house for an average of $6,000 in the auction, (2) they make minimal if any improvements on the decrepit property, and (3) there are an abundance of households, including ones with working heads, that can only afford the $750/month average rent these landlords charge.

  3. By far, the largest housing welfare program in the US is the home mortgage interest tax deduction. And it is surely welfare, just as much as taxing cap gains at a lower rate than income earned from working is, because every dollar of foregone taxes must be paid by someone else.

  4. The simplest and most effective way to keep most households out of poverty is to ensure that all full-time workers are paid enough to keep them out of poverty–i.e., enough to pay the rent for a modest place to live, put food on the table, get to work and back home, etc. If we learned anything during the Covid pandemic it’s that many “essential” workers–the ones who cook the food, take care of the kids, drive the buses, keep the hospitals clean, deliver the groceries, man the checkout counters, etc., etc.–often can’t make ends meet on the wages they’re paid. Someone has to work those jobs.

  5. If the “free market” won’t provide a living wage, even if most citizens conclude it’s a worthwhile objective, then they use their government to intervene. That’s the way it’s done in civilized countries. That’s the way the U.S. used to do it, too: e.g., when Social Security was enacted and, in the stroke of a pen (a few pens, actually), changed the elderly from being the age group with the highest rate of poverty in America to being the one with the lowest poverty rate. Nowadays, the age group with the highest poverty rate is aged 0 to 4. Maybe it’s time to get them out of the wagon and start pulling their share of the load.

Well, maybe not the kids, but how about their parents, then? Go to #4.

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4. The simplest and most effective way to keep most households out of poverty is to ensure that all full-time workers are paid enough to keep them out of poverty…

I have 2 full time employees in one side business that are worth more than their weight in gold. Recently gave them a 7% raise only to be outdone by inflation.

JLC

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3. By far, the largest housing welfare program in the US is the home mortgage interest tax deduction.

I don’t see that this is a problem. Home ownership should be encouraged. It is the largest asset for many lower income families. And its an excellent inflation hedge for many.

Capping the deduction is good policy. It focuses the benefit on the lower income sector who need it most. And it limits the ability of the wealthy to plunder the benefit.

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affordable housing crisis

Everyone is quite aware that this is a supply and demand issue. With millions of 20 to 30 year old couples trying to find housing in the last twenty years, new home home starts have lagged miserable behind since the 2008 housing bubble coupled with the pandemic, and now inflationary cost of lumber, building materials, and supply-chain shortages. Add to that , the Federal Reserve’s interest rate hikes, and now we’ll see an even more extreme demand for less supply over time as new construction slumps once again to 2010 levels.

https://d3fy651gv2fhd3.cloudfront.net/charts/united-states-h…

New home construction has never made it back to pre-2008 levels, and the demand today (population) has increased faster than in the past

I don’t see that this is a problem. Home ownership should be encouraged.

There is no free lunch. The mortgage interest deduction is fully capitalized into the price of homes, thereby driving up their prices.

“Why Economists Don’t Like the Mortgage Interest Deduction”
https://www.stlouisfed.org/open-vault/2018/may/why-economist…

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New home construction has never made it back to pre-2008 levels, and the demand today (population) has increased faster than in the past

Home prices in some overheated areas have started to moderate because higher rates directly increase the monthly P&I (principal & interest) portion of the mortgage payment. Higher monthly mortgage payments reduce the number of families able to afford the typical home in any given geographic area.

Unfortunately, would-be homebuyers priced out of ownership by higher interest rates are forced to become or remain renters. Unaffordable housing prices do not automatically translate into cheaper rents.

To the contrary, higher mortgage interest rates may actually create upward pressure on rental rates, even as home prices plateau.

higher mortgage interest rates may actually create upward pressure on rental rates, even as home prices plateau.

It still comes down to supply and demand. The latest U.S. Census data shows 13,769 San Jose homes were not occupied in 2020. An estimated 40,458 homes and condos are sitting vacant in San Francisco.
The US tax code allows property LLCs to keep the housing market tight. A housing shortage keeps rental prices high in markets where there is no room for increasing supply of new housing while giving property LLCs a vacancy deduction against revenue.
San Francisco is considering a vacancy tax. Those who have will continue to lobby contrary to the interests of those who have not.

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The mortgage interest deduction is fully capitalized into the price of homes, thereby driving up their prices.

How is this a problem? The home owner collects more when he sells.

How is this a problem? The home owner collects more when he sells.

To collect more when you sell, you first have to buy. The problem is that the mortgage interest deduction (MID) raises the price of houses, thereby putting them out of reach for many first-time, lower-income households. Moreover, these are precisely the households for which an income-tax deduction is of least value–or even of no value at all. There’s a ton of research on this topic; I’m not making it up.

Think about it: if the MID were eliminated, which will probably never happen but should, the prices of residential properties would immediately fall. If the objective is to help more low/moderate households become homeowners, surely lower prices would be a big help, right?

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" Moreover, these are precisely the households for which an income-tax deduction is of least value–or even of no value at all. There’s a ton of research on this topic; I’m not making it up."

Itemizing deductions on an individual tax return has always been a benefit for the wealthier
Americans, and is not much use to lower income Americans. That is precisely why the M.I.D.
will not be eliminated. The wealthier Americans enjoy their welfare, they just don’t admit
to accepting any welfare. The vast majority of Americans receive some type of “welfare”, whether
it’s SS, Medicare, M.I.D. Yes, we all paid FICA taxes, but just compare what is paid in as
opposed to what is received, if you collect for a reasonable # of years. There is a whole lot
of cognitive dissonance going on in the heads of Americans.

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Think about it: if the MID were eliminated, which will probably never happen but should, the prices of residential properties would immediately fall.

We are in the midst of an ongoing test of this hypothesis. So we don’t have to guess, we can observe the results.

In 2017, the tax laws changed to roughly double the standard deduction. For many taxpayers, that effectively eliminated the mortgage interest deduction.

If there was any corresponding fall of residential home prices, I sure didn’t notice it. Quite the opposite, if my memory is correct. Home prices went on a tear since then.

—Peter

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If there was any corresponding fall of residential home prices, I sure didn’t notice it. Quite the opposite, if my memory is correct. Home prices went on a tear since then.

Oh, please. Was nothing else also happening in that period to cause home prices to rise? Not exactly a controlled experiment.

As I said, there’s a ton of research on the topic, both empirical and theoretical. To continue to insist that the MID isn’t capitalized into home prices and thus raises those prices runs against both data and logic.

Anyone who wants to argue the point further should first READ the brief article at the link I posted previously (and repeat here) and then take it up with the Fed.
https://www.stlouisfed.org/open-vault/2018/may/why-economist…

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The simplest and most effective way to keep most households out of poverty is to ensure that all full-time workers are paid enough to keep them out of poverty

It would be very helpful to end the ‘welfare cliffs’ to get people out of poverty. One step forward, 2 or more steps back.

But America really does enjoy punishing it’s poor people.

Case in point: https://www.nytimes.com/2022/07/27/opinion/alabama-fines-fee…

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Not exactly a controlled experiment.

It is generally impossible to conduct a controlled experiment in economics. So the lack of controls is hardly a rebuttal.

My point is that the actual value of the mortgage interest deduction is much lower than most people think. And the lower your income, the lower the value of the deduction. For any given amount of deduction, the taxpayer in the 26% bracket gets a bigger benefit than the taxpayer in the 12% bracket.

Am I disagreeing with economists? Yes, I am. I have rarely been impressed with economists’ knowledge of the practicalities of income taxes. They know a bit of theory, but theory is not the same as practice.

—Peter

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It is generally impossible to conduct a controlled experiment in economics.

First of all, that’s simply not true. (You might want to google “experimental economics”.) Second, even in instances in which a study doesn’t quite meet the “gold standard” of a randomized clinical trial, one can do better than merely make a casual observation about two things happening at more or less the same time.

More to the point about your observation about home prices following the 2017 tax reform, I suggest that a steady drop of roughly 200 basis points in (30-year) mortgage rates between 2018 and 2021, not to mention the ongoing exodus from big cities to less populated areas, are confounding variables that one would want to take into account. Conversely, I can only wonder how one would explain that a reduction in the value of the mortgage interest deduction would cause home prices to … rise!

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Conversely, I can only wonder how one would explain that a reduction in the value of the mortgage interest deduction would cause home prices to … rise!

The simple explanation would be that the two are uncorrelated.

–Peter

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