I saw this one coming. If you thought Moshe Kahlon and his Kulanu Party are a group of economic geniuses, it turns out they’re a group of politicians looking for more excuses to take more money away from you. Really, only a politician could think up an idea like raising taxes to make your cost of living go down. Bluntly, it’s saying this: You want to be wealthier? I’ll just take more money away from you and then voila! You’ll suddenly be wealthier. Amazing.
An article out in Calcalist, a hack magazine if there ever was one where they throw jargon at you but nothing makes any sense, says that even before Kahlon goes into the Finance Ministry, the bureaucrats there are busy cooking up a plan to take away tax exemptions on property gains for those who own apartments as investments, and to tax rental apartments.
It’s amazing really. That this is what they think of. Not building more, not freeing up more land, not giving away land to build, not even selling land. Raising taxes.
What will this cause? A lot of people want to say that the tax raise will just be passed down to the renter. It won’t. That’s impossible. Rental prices are what they are not because of taxes, but because of supply and demand of houses.
What will happen, though, logically, is something like this:
The people that buy apartments to rent them out have the capital to do so. They have the savings to make a down payment on the house in order to rent it out. The ones that rent, usually do not have the capital or income to qualify for a mortgage. So they don’t buy houses. And now, even if they could, they’d have to pay taxes on property gains.
So what’s going to happen is that the moderately rich people who can afford a house or two as an investment, will sell them in order to escape the new taxes. But who will buy? The people who can’t afford a mortgage now? Certainly not. The ones who will buy will be the super rich who can afford so many houses that the economies of scale will keep real estate investment profitable only at a higher theshold that only the superrich can afford.
So the landlords scraping a living at modest investments, all that income will now go to the superrich. I have nothing against the superrich unless those riches came from government. I’m just saying that they end up benefiting the most from government intervention like this.
The other alternative would be to make it much much easier for a person who cannot afford a mortgage now, to afford one in order to buy a house. That would mean forcing banks to accept people who make no down payment, and then we’re back where we started at the housing bubble.
So super wealthy real estate owners rejoice. You’re about to get a lot more real estate at a discount. But rental prices ain’t goin down until you INCREASE SUPPLY.