Quote:
Originally Posted by Katsunami
The one thing that many Dutch people seem to do however, is buy houses that they can just barely afford, as they include tax benefits in their income. This has driven prices upward.
One example is HRA (hyptheekrente-aftrek). It is a tax benefit intended to make it easier for people to buy a house. For example: you can afford a €200K house, and you'll be able to live OK, if you don't do extra's. Through the benefit, you get some extra money, so you can live somewhat more easily; this was done to encourage people to buy more houses.
However, many people used this benefit as budget/expected income, and in doing so, they can suddenly afford a €240K house. Instead of living more easily, they're going to live bigger/more expensive. So, a €200K house has suddenly risen €40K in price.
This has been happening for some time.
Some people have gone so far that they put themselves into the situation that two people in the household need to work above minimum wage, and all tax benefits must stay constant; should one salary be lowered, or one of the benefits fall away, then these people may get into trouble.
|
Hmph.
That is *exactly* what happened in the US.
For 30 years the goverment passed laws encouraging banks to lower their lending criteria so that more lower-income people could qualify for mortgages they otherwise wouldn't qualify for. Where a reasonable mortgage payment was once supposed to be no more than 25% of take-home, people were getting mortgages that ran 50% of their pay and running two jobs to keep up.
Default risk on those mortgages were high so banks bundled the high-risk mortgages with lower risk into financial instruments billed as investment grade.
30 years of that maintained high demand for houses so prices spiralled upwards, creating other problems like flipping, speculation, etc.
A classic bubble.
Bubbles pop.
And this bubble was a massive part of the world's biggest economy.
Six years later, the mess is only starting to clear away and it'll take another 4-5 years of the unexpected energy boom to get the economy back in shape.
So, yes, your government is wise to try to scale back that program.
As you said, bad things lie that way.
It is easy to overextend yourself and very hard to muster the self-discipline to stay within your limits. Or even recognize you have limits. As evidenced by the subject of the thread.
Sometimes a windfall is the direct precursor to a downfall.