Quote:
Originally Posted by EvoFire
Taxes work in your theory if there's an abundant supply of the target good and you want to discourage people from consuming the good. The problem we have is there ISN'T an abundant supply of it and it has not kept up with demand. If the supply isn't so tight then the runaway market wouldn't have run away in the first place and there would be no suggestion of taxes to control the market.
A blanket tax would just hike the the price across the board as people will keep raising the sell price to cover the loss on taxes. Your basic economics understanding is unfortunately wrong and you are assuming this is an elastic demand on a good that has no supply constraints. All you are doing is pricing people out with the tax as you raise the price floor. Time and time again it's shown that the "consumer" thus the buyer in this case, will be the one that bears the brunt of the tax.
There are other variables in play here such as some of the very stringent building codes that have been put into place in the last decade, plus the cost of labour and raw materials.
A targeted tax like the empty home's tax, and foreign buyers tax are theoretically much better initiatives to try and reign in the market as they target portions of the consumers instead of everyone. Yes there will be unintended casualties but most policies will. I'm not against a higher capital gains tax on 2nd and 3rd properties as it would again be a targeted tax that would not hurt regulars.
Minimum wage in a way is tax, as the gov't mandates the business to pay a certain amount for services instead of a market rate. Though, there aren't that many jobs that are REALLY minimum wage, and everytime they hike up the min wage everyone takes a hit.
|
Let's just agree to disagree because I think that the supply constraint is over-blowned, and that the massive capital appreciation seen previously is driving the demand and FOMO behaviour, which then the current perceived supply cannot meet. Obviously covid has made listings more scarce than before, but let's just talk about just slightly before the listings crunch and into the post-covid world.
Here's a scenario:
If a crappy shack in east van listed for $1.7M, would you buy it? Your answer will probably be yes or maybe if you can actually afford it. Now, let's think about the reason why you would buy it. Is it because you think that if you do not act now, that this same shack will cost you $2M instead? Or do you really think that normal people should be paying $6,000 mortgages for a house that needs a lot of work?
Now, if you know that at most, this same shack will probably still cost $1.75M to $1.8M in 5 years time, will you that change your answer?
I'm willing to bet that answer is yes, unless you are really rich and just looking for a teardown to build your dream house. But let's just ignore those for now and focus on regular joes who will be paying those $6K payments...for a shack.
I mentioned this before, I truly believe that the reason why people are willing to spend these absurd amount of money, or even willing to "slum" it out now by buying a detached now and renting our 3/4 of their place in order to meet the mortgage payments are only doing so because the capital appreciation factor aka FOMO. Take that away, and there will not be as many people trying to rush out and get what they can while they still can type of mentality.
Again, your understanding of economics is sound, but let's just disagree on the fundamentals that I believe this is an artificial demand issue rather than purely a supply issue.
Now, if I really want to make prices go down fast, I would make it a law to cap the maximum total mortgage amount to be at 5 x income. This would suck for current homeowners who bought in the last 5 years, but at least more people will have better disposable income and can spend elsewhere in the economy lol