How To Deflate This Real Estate Bubble and Never Let It Inflate Again
The timing is perfect, but will any politician do the right thing?
The modern real estate market is a massive ripoff.
It’s a pure house-of-cards fraud.
You have two options, aside from being homeless or living with family:
Compete with every other buyer and trillion-dollar multinational institutional investor to purchase a wildly overpriced property, mortgaged by a bankster who creates money out of thin air and forces you to pay it back with real usury, and will make you homeless if you miss just three payments.
Because extractive rent-seeking is so wildly profitable, predatory private equity firms are now gobbling up the global real estate market, driving prices higher and higher.
(Sure, we’re currently seeing a small reset toward sanity thanks to rising interest rates, but for trillion-dollar cash buyers this is nothing more than an opportunity to go on a shopping spree.)
Between inflation, urbanization, a rapidly growing population, and especially financialization, the average house will cost $10 million in our lifetime.
This is bad.
Consider our historical housing context:
When land and resources were all free, it used to take our ancestors 500 hours per person to build a house of stone.
Our grandparents paid off their homes in <5,000 hours of work.
Our parents paid off their homes in <25,000 hours of work.
If we’re “lucky” enough to own, we’ll have to work 50,000+ hours to pay off our homes.
Unless we change something, all future generations will have to pay an unlimited amount of rent money to keep themselves housed.
Americans wasted $2.8 trillion on trying to stay sheltered last year. What a horrific waste of human life.
And it’s only getting worse.
Our trajectory on housing is disastrous, and it’s destroying communities.
Luckily, there’s an extremely simple way to deflate the real estate bubble and never let it inflate again.
Capital gains tax
A capital gains tax is… you guessed it… a tax on unearned gain on capital.
Let’s say you buy a rubber garden hose for $10.
Then let’s say a swarm of beetles destroys all the world’s rubber plantations.
Suddenly, thanks to a demand-supply imbalance, you’re able to re-sell that rubber garden hose for $15.
That unearned $5 is a capital gain.
You did nothing to improve the hose — in fact, it’s in worse shape than you bought it—so that gain really is a drag on all the productive, contributive people who would use that hose to, say, water their organic lettuce farm so they can feed their village.
As you can imagine, extractors love to reap unearned capital gains on all sorts of nonsense like stocks and securities and append-only databases like Bitcoin.
Okay, now let’s do houses!
Taxing capital gains on houses
In most countries, you don’t have to pay capital gains taxes on your primary residence, or you get an exemption on the first few hundred thousand.
If you bought a house for $200,000 fifteen years ago, and now it’ll sell for $800,000 thanks to the fraud of financialization, you essentially get to pocket the unearned $600,000 tax-free.
Some slightly progressive countries charge a minuscule capital gains tax on second houses, land-lorded properties, institutional investments, and commercial real estate, but most people’s primary homes get a fat exemption.
This is bad.
Because let’s be honest, most people — especially creepily real estate-obsessed Canadians — just see their home as an investment.
Which is exactly we should capital gains tax all residential real estate at 100%.
Imagine if every single penny of unearned housing profit went back to the commons from whence it was stolen.
With a 100% capital gains tax, if you bought a house for $350,000, put $50,000 into it (including the reasonable value of your time), and sold it for $450,000, you would receive $400,000 and the $50,000 unearned profit would go to your democracy.
I know. You hate this idea. You’re greedy and selfish and want to keep all that unearned profit for yourself. ;)
I used to feel the exact same way when I was an evil little land-lording property investor, too!
But rise above your Selfish Self and become your Greater Self for a moment.
What would be the profoundly positive civilizational effects of a 100% capital gains tax on unearned real estate wealth?
Might we all be richer for it?
A 100% capital gains tax would create massive revenues to build affordable homes
The value of the American real estate market grew by $2.5 trillion in 2020, a 15.55% price increase from the previous year.
Think about all that unearned capital gain.
Think about how many houses the nation could build with even a trillion:
That’s enough to build every single one of America’s precious 500,000 homeless people a $2 million mansion.
Or we could build $250,000 houses for the poorest 4 million families who are suffering in unfathomable poverty.
Or we could build $100,000 condos for the poorest 10 million single parents who are struggling to raise the next generation of contributors.
Considering that the nation is underbuilt by millions upon millions of units —which pushes up the prices for everyone else — using a 100% capital gains tax to build millions of homes is a no-brainer.
Taxing unearned capital gains at 100% would be a boon for sheltering the poorest of the poor.
A 100% capital gains tax would create long-term community stability
Nearly 7 million houses changed hands last year, and the number of moves is growing every year.
The average American moves every five years.
And that’s not including poor renters, who are uprooted every two years so their land-lorders can jack prices on their next rent-serfs.
The average American now moves 11.4 times in their lifetime.
We don’t even know the full social and mental health impact yet, but community stability requires rootedness. It requires for-life and generational investment. It requires individuals and families to make a community their home.
With a 100% capital gains tax, far fewer people would move, and movers would move far less often. After all, if moving doesn’t make you any money, you might as well stay put.
Instead of playing the real estate game — trading up houses constantly — more people would truly settle down and actually get to know their neighbors.
A 100% capital gains tax would de-commodify the real estate market
Housing speculators would hate a 100% tax on their unearned real estate gains.
Their entire business model is to reap where they have not planted.
Having a 100% tax on capital gains sends a loud and clear message to society:
That this democracy doesn’t reward people who try to extract a passive profit off of the human necessity of shelter.
Adam Smith said that capitalism is all about incentives. For-profit land-lording is so obviously anti-human and anti-flourishing, and eventually society will stop rewarding vultures who hold human wellbeing hostage for a hefty fee.
A 100% capital gains tax would deflate the housing bubble
Make no mistake, taxing unearned real estate profits would make land-lorders and land-bankers head for the hills.
By de-financializing the human necessity of shelter, investors would hunt for easy money elsewhere.
People would still make a good living building houses, and others will still make a good living renovating houses, but we’d see a glorious end to valueless property-flippers and insufferable passive income bros.
And when you finally remove financialization from human shelter, prices will fall back to reality, where they should be — at roughly 2–3X the annual income of a single earner.
Then we can all stop wasting our lives just to stay sheltered.
Then we can start saving the planet, re-building civilization, and loving our neighbors.
A 100% capital gains tax would rescue millions of tenants from the clutches of land-lorders
It’s quite telling that housing affordability, income, and the percentage of homeowners by state is correlated.
When houses are more affordable, more people can afford to own a home.
When houses are expensive, land-lorders trap tenants with high rents so they can never save up enough to escape from rent-serfdom.
But when speculators flee the market and house prices go back to 2–3X the annual income of a single earner, tens of millions of renters will be able to buy for the first time, helping to close the ever-widening gap between the rich and poor.
Timing is crucial
Introducing a 100% capital gains tax is tricky.
If you put it into law tomorrow, up-to-their-eyeballs homeowners would freak out.
And investors, like diseased rats on a sinking ship, would scurry to cash out before the markets tanked.
Then you’d have a 2008-style situation on your hands. Your options would then be to let millions of families lose their homes and life savings (the Obama method), or declare a long-overdue debt jubilee.
You can just wait until the market crashes.
Rather than popping the bubble with a 100% capital gains tax, we can just wait until the bubble naturally pops, and then introduce the 100% capital gains tax so it never reflates again.
If only there was a massive real estate bubble about to burst…
A 100% capital gains tax on real estate would:
create massive revenues to build affordable homes
encourage long-term community stability
de-commodify a human necessity
deflate the housing bubble
rescue millions of tenants from the clutches of land-lorders
help close the wealth inequality gap
ensure the end of real estate market crashes
deliver affordable homeownership for generations to come
So of course it will never happen.
The love of money is the root of all kinds of evil.
And Americans love their unearned money.
Surviving Tomorrow is a reader-supported publication. To receive new posts and support my work, consider becoming a free or paid subscriber.