The position of the real estate investor, or even the new home owner who sees a chance to turn a profit and move on, is that of an investor. Whatever tax incentives the government gives to persons to own homes would not apply to former, and once the latter behaves as an investor (and gets the subsequent gain), they should no longer qualify for the incentives peculiar to real estate anymore than a person who invests in Microsoft stock or Commodities.
The complaint of flippers would be that they are being taxed at a higher rate. So what? Granted, 35% on short term capital gain is very high, but we have categories of short term and long term gain for reasons, and when behavior falls into one category it should be treated as such. I am not an expert on the negative effects of short term investments vis a vis long term, but I assume there are either negative externalities to short term, or positive externalities to long term investment such that the difference in incentives is justified. If the capital gain is short term, it should be treated as such.
The MSN article points out that last year nearly a quarter of all homes were bought by investors and another 13% were bought as second homes. That is 38% of all homes not being purchased as a primary residence. There is a severe problem with affordable housing and I think that this 38% is part of the problem. The solution is to remove the incentives to persons buying homes as investments, often largely for the tax incentives that real estate enjoys over other forms of investment. This includes taxing the gains at a higher rate and getting rid of mortgage interest deductions on second homes. By decreasing the incentives for this 38% of home buyers, the demand will fall. Classical thinking holds that there should be an accompanying fall in price.
This decrease in housing costs would be good right now, although decreasing tax incentives will likely not be enough in areas such as California where population pressures are sufficient to push prices up without the aid of subsidized investors. However, in other areas it may provide some relief for those looking to buy a home to live in.
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