Originally Posted by bjkeefe
Interesting post, ledocs. Thanks.
I'd add to your proposals of ways to implement brakes for real estate bubbles threatening to grow to dangerous sizes this: revamp the tax structure so that flipping houses is not a privileged way to make money. As I understand it, profit from selling a house is considered a capital gain (not regular income), and unlike the way it used to be, people can now make these protected gains early and often, on sales not involving their primary residences.
Seems to me if there were less incentive to try to get rich quick by buying and selling houses as fast as one could while the market is perceived to be climbing, we'd remove some of the impetus that pushes it to unnatural heights.
Interesting you should mention capital gains on housing. There was an op-ed in the Wall Street Journal yesterday http://online.wsj.com/article/SB123897612802791281.html
that cites the exemption of capital gains on housing up to $500,000 in 1997 as a contributing factor in the bubble. That may need to be revisited. I would go further and say the mortgage interest deduction should probably be phased out as well (Though that's no silver bullet. The Economist
pointed out in a recent article that Britain has no such deduction and that didn't stop a bubble from forming there.)