$100 million for a House

[Birdjaguar]

I read the WSJ most days, not for the editorial, but for the business and investment news. This week's "Mansion" section (high end real estate) was more depressing than usual. Its focus was on $100 million houses.

There seems to me something inherently wrong about people spending $10s of millions of dollars or more for first, second, third or fourth homes when there is so much misery and struggle in the world. I am not opposed to wealth or capitalism as a means to create wealth, but great wealth is looking to be more and more excessive and obscene in its display.

I do recognize that great wealth has and can do great good when donated to or applied to humanitarian causes, but I'm not sure what percent of that wealth makes the transition. I would guess most of it just moves down the generations.

Should the assets of those having great wealth be highly taxed?
Should wealth be limited to some "reasonable" amount such as $100 million?
What should be done with all the excess wealth society has created?
Can/should we force billionaires to be philanthropic?
Can we cap greed?

http://www.wsj.com/public/page/real-estate-luxury.html

In a new development of three spec homes in the tony Los Angeles neighborhood of Bel Air, one property will have a 15,000-square-foot guesthouse. Another home has plans that call for a “Champagne room,” a chilled, glass rotunda with walls filled with bubbling liquid. A third home will have a 2,100-square-foot spa with separate steam and massage rooms.

The only thing missing: a crowd of buyers who can afford to live in them. The Park Bel Air, the 11-acre development currently under construction, has asking prices that start at $115 million—and go up to $150 million with upgrades and custom furnishings.

“There are probably only about 3,000 people [in the world] who can afford this,” says Barry Watts, the Los Angeles-based president of Domvs London, the Park Bel Air’s developer. The buyer “needs to be a billionaire.”

In Los Angeles, the latest trophy homes—many of them speculatively built—may top the $100 million mark. Sales at eye-popping prices have been fueled partly by wealthy international buyers who traditionally shopped for second homes in places like New York, London or Monaco, but have lately turned their sights on Los Angeles.

Currently there are more than four dozen homes on the market in the L.A. area priced above $20 million, and the priciest trophy homes seek over $50 million. The most ambitious of the projects: A spec home under construction in Bel Air will hit the market when it’s completed next year with an unprecedented asking price of $500 million, according to its developer, Nile Niami.

 

[warpus]

There seems to me something inherently wrong about people spending $10s of millions of dollars or more for first, second, third or fourth homes when there is so much misery and struggle in the world. I am not opposed to wealth or capitalism as a means to create wealth, but great wealth is looking to be more and more excessive and obscene in its display.

It might feel inherently wrong to some, and in many ways it is, but in the end this is the sort of culture people grow up in, here in North America (and some other parts of the west) - there is a very strong desire instilled in people to always want more. If you've got a nice car, you've got to work hard to get a nicer car, if you've got a nice house, you've got to work hard to try to get a nicer one, so that you can always keep moving up and up in society. As a result people always want more and more and better and better, and so of course those who can afford it will end up buying super expensive mansions all over the planet. If you want this to change you've got to change the culture people grow up in, but I don't see that changing anytime soon.

 

[Borachio]

Isn't this the trickle-down in action?

Imagine how many cleaners, gardeners, interior decorators, cooks and bottle-washers a $100 million mansion is going to need.

And in terms of soft-furnishings alone, this represents a substantial boost to the national economy.

Also, the naturally philanthropic (as if there could be any other kind!) mansion owner will invite plenty of down-and-outs, hobos, drifters, single mothers and meth addicts for a bit of beano at Christmas, and/or Thanksgiving. I'm certain of it.

 

[El_Machinae]

A $100 million house is very much trickle-down in action. And it's only demand-side trickle down, given that a house will not go on to increase other types of productivity (and thus create supply-side trickle down).

There will also be a multiplier effect, as all those tilers and sculptors go on to buy other goods. But there's a missed opportunity to invest in truly cutting-edge supply side (like the gov't often does), where new, innovative techniques and products are purchased in order market test them while a company is longterm intending to go to scale (e.g., solar, etc.)

 

[Farm Boy]

I always figured more than half the reason to have progressive taxation was to intentionally erode and destroy the formation of a noble class that becomes self perpetuating. All that's necessary to win at capitalism being capital. If the tax code isn't doing that, it's not progressive in any meaningful sense of the word.

 

[Kyriakos]

Apparently a penthouse in the 'One Hyde Park' block at London sold for 200 million dollars.



The area is obviously hugely expensive (Kensington Victoria?), but the actual 1HydePark buildings are post-modernist drivel :\

 

[Birdjaguar]

It might feel inherently wrong to some, and in many ways it is, but in the end this is the sort of culture people grow up in, here in North America (and some other parts of the west) - there is a very strong desire instilled in people to always want more. If you've got a nice car, you've got to work hard to get a nicer car, if you've got a nice house, you've got to work hard to try to get a nicer one, so that you can always keep moving up and up in society. As a result people always want more and more and better and better, and so of course those who can afford it will end up buying super expensive mansions all over the planet. If you want this to change you've got to change the culture people grow up in, but I don't see that changing anytime soon.

I always figured more than half the reason to have progressive taxation was to intentionally erode and destroy the formation of a noble class that becomes self perpetuating. All that's necessary to win at capitalism being capital. If the tax code isn't doing that, it's not progressive in any meaningful sense of the word.

We certainly do have a culture of greed and wealth. Should we set a wealth threshold beyond which a seriously progressive taxation begins?

If one's assets over, say, $200 million, were taxed at rates far above their return rates (25-50% of value?) it might encourage the very wealthy to sell those assess and reduce their holdings to the $200 million level where taxes were more reasonable.

 

[brennan]

Read Piketty.

 

[El_Machinae]

One of the larger problems might be calculating who has more than $200 million of 'wealth'. It's not money, it's assets. It's a great failing of our progressive taxation system that people cannot get taxed properly when they turn their wealth into money (through sale of assets). Because then buying a $100 million dollar home meant that you were taxed on whatever mechanism you attained that $100 million, it was either as income or as capital gains. Ostensibly, it means that someone should have paid ~$66 million (at 40%) in the process of getting that $100 million.

 

[Birdjaguar]

Read Piketty.

Thanks. I had not heard of him.

http://www.nybooks.com/articles/archives/2014/may/08/thomas-piketty-new-gilded-age/

He makes a strong case for taxing the super wealthy.

 

[Birdjaguar]

One of the larger problems might be calculating who has more than $200 million of 'wealth'. It's not money, it's assets. It's a great failing of our progressive taxation system that people cannot get taxed properly when they turn their wealth into money (through sale of assets). Because then buying a $100 million dollar home meant that you were taxed on whatever mechanism you attained that $100 million, it was either as income or as capital gains. Ostensibly, it means that someone should have paid ~$66 million (at 40%) in the process of getting that $100 million.

I agree. Year end snapshots are one approach. Stocks and bonds are easy; Real estate, art, and jewelry get more difficult, but are doable.

Assessing the value of assets is a challenge for many classes of assets invested in by the very rich. I wonder how many families would be counted at the $200 million level of assets?

 

[Valka D'Ur]

I read the WSJ most days, not for the editorial, but for the business and investment news. This week's "Mansion" section (high end real estate) was more depressing than usual. Its focus was on $100 million houses.

There seems to me something inherently wrong about people spending $10s of millions of dollars or more for first, second, third or fourth homes when there is so much misery and struggle in the world. I am not opposed to wealth or capitalism as a means to create wealth, but great wealth is looking to be more and more excessive and obscene in its display.

I do recognize that great wealth has and can do great good when donated to or applied to humanitarian causes, but I'm not sure what percent of that wealth makes the transition. I would guess most of it just moves down the generations.

Should the assets of those having great wealth be highly taxed?
Should wealth be limited to some "reasonable" amount such as $100 million?
What should be done with all the excess wealth society has created?
Can/should we force billionaires to be philanthropic?
Can we cap greed?

http://www.wsj.com/public/page/real-estate-luxury.html

Okay, I followed a couple of links there and had a better look at this place... who needs FOUR swimming pools? Especially in a state where there's a water shortage?

I'm sure the interior designers who worked on that place got a nice chunk of money, and so did the companies they used, whether selling already-made stuff or custom work. But none of this money is going to trickle down to pay the wages of an average worker at, say, Walmart or any other place where normal people shop.

Thank you for posting this, Birdjaguar. Next time there's an article on CBC.ca about the renovations at 24 Sussex Drive in Ottawa - the official residence of the Prime Minister - I'll point out this monstrosity and tell them that in comparison, spending $10 million (in 2008 dollars; probably closer to $15-20 million now) to renovate a 36-room mansion with outdated plumbing, heating, electrical system, no handicapped access, problems with the windows and foundation, and asbestos in the walls is actually pretty cheap.

24 Sussex has needed repairs for decades, but during that time no Prime Minister has actually had the fortitude to move out and let the National Capital Commission get those repairs done. Until now. Justin Trudeau decided to move into Rideau Cottage, on the grounds of Rideau Hall - where the Governor General lives - and which is still plenty large enough for living and working quarters for a Prime Minister and his young family.


As for the house in the photo... one good mud slide or fire would be all it would take to reduce it to nothing but a big pile of garbage. Whoever lives there should have several escape routes planned.

Apparently a penthouse in the 'One Hyde Park' block at London sold for 200 million dollars.



The area is obviously hugely expensive (Kensington Victoria?), but the actual 1HydePark buildings are post-modernist drivel :\

Yikes, that's hideous.

 

[Zelig]

I agree. Year end snapshots are one approach. Stocks and bonds are easy; Real estate, art, and jewelry get more difficult, but are doable.

Assessing the value of assets is a challenge for many classes of assets invested in by the very rich. I wonder how many families would be counted at the $200 million level of assets?

How does that work for owners of private companies? Are you capping company size or forcing the owner to divest in order to keep ownership share below $200m?

 

[schlaufuchs]

Yikes, that's hideous.

Big windows. Open space. Great view over Hyde Park. What's not to love?

 

[bhavv]

And in the UK the tiniest 1-2 bedroom houses cost 110-170 thousand.

No homes for poor people here.

 

[Birdjaguar]

How does that work for owners of private companies? Are you capping company size or forcing the owner to divest in order to keep ownership share below $200m?

I don't know exactly. That's part of my idea for this thread. I choose $200 million arbitrarily as a number that is sufficiently large that a 5% return would generate lots of income. How could such a tax be done? Maybe you start with the easy stuff and work out the rest over time. If such an approach made the very rich flee to "untaxed" privately held companies for their holdings instead of public ones, would that have a beneficial economic impact?

For many/most of the growing, large private companies, the goal is to go public and get rich on the IPO. that might be something that changes and to get rich you have to grow the company through running it well.

Just because it is a difficult problem, doesn't mean taxing assets is a bad idea. Or is it? the "hows" are interesting, but so is the "should we."

 

[bhavv]

I don't believe that assets a person already owns should be taxed, only the income should be taxed in the first place. Higher initial income tax for higher salaries should be the norm, except for when greedy conservatives get elected.

 

[FriendlyFire]

And in the UK the tiniest 1-2 bedroom houses cost 110-170 thousand. No homes for poor people here.

Is that in Euro or pounds ?
Sydney market is going pretty nuts now as everyone from China is moving there money to overseas property market thus driving up prices. tiny 2 bedroom house cost 700K with a very small amount of land.

 

[Timsup2nothin]

A wealth tax would be far superior to income tax, but administration would be really difficult. Using your money productively should be encouraged. Swimming in it like Scrooge McDuck and saying "no income, no tax" is revolting.

There are a lot of problems in calculation though. Not just privately owned companies. What is real estate worth? We already have examples of problems relating to keeping property tax assessments in line as the market fluctuates. What about stocks? Should you be taxed higher just because something hit an all time high spike on some arbitrary day?

 

[bhavv]

Is that in Euro or pounds ?
Sydney market is going pretty nuts now as everyone from China is moving there money to overseas property market thus driving up prices. tiny 2 bedroom house cost 700K with a very small amount of land.

Pounds. The houses are tiny. Cant find any new build small homes for under 6 figures except in areas where no one wants to live.