Concepts
Groundwork
The ethics of land and liberty
https://www.progress.org/articles/the-ethics-of-land-and-liberty
A colonists' plea for Land nationalization
http://www.wealthandwant.com/docs/ajo_slavery.html
Why landlordism is akin to slavery.
What is Economic Value and who creates it? Mariana Mazzucato
How Land Works
What is Economic Value and who creates it? Mariana Mazzucato
The private appropriation of publicly generated land rent is a de-facto tax. It's a "redistribution of wealth" from those who produce to those who don't. It is, in short, "welfare" for landlords.
The Economics of Real Estate
https://www.youtube.com/watch?v=f4o9aPFI3I0
1.) Properly separates value of housing as made up of land (which appreciates) and improvements (which depreciate) as distinct values.
2.) Inflation of consumer goods is driven by inflation of commercial rents
3.) Rents increasing even though wages falling thanks to nonsensical and self referential lending for speculation in land.
4.) Directly states that moving around land titles doesn't actually produce any wealth and drains investment from productive enterprise.
2.) Inflation of consumer goods is driven by inflation of commercial rents
3.) Rents increasing even though wages falling thanks to nonsensical and self referential lending for speculation in land.
4.) Directly states that moving around land titles doesn't actually produce any wealth and drains investment from productive enterprise.
Land unlike Capital and Labor is a rivalrous good.
Economic Capitalization - Public goods are capitalized into land values.
The Housing Theory of Everything
The hidden effects of expensive housing impacts everything.
Productivity - Workers are more productive in more productive places. Restricting housing in these areas lowers overall productivity by preventing them from moving to where their skills can be put to best use.
Innovation - Proximity of complimentary workers and unplanned interaction leads to innovation. The most innovative areas are among the most expensive.
Inequality - The aggregate, countrywide effect of housing being so limited in supply has been that economic growth in most Western countries has accrued more and more to landowners and less to everyone else.
Left-behind areas and regional inequality - Consider a cleaner living in Alabama. In 1960 they could move to NYC and earn wages 84% higher, and still end up with 70% higher income after rent. In 2010, they could move to New York City and become 28% more productive, and earn a wage 28% higher – and reduce the surplus of workers back home, letting them demand higher pay. But since housing costs are so much higher, the net earnings and living standards of someone like this would fall if they moved today, and wouldn’t be worth it.
Families - The price of housing does not just affect the places where people live; it determines the kinds of homes they live in as well. And that has a huge influence on people’s family lives, affecting both when people have kids and how many kids they have.
Obesity - preferring sprawl over density, and the housing shortages that kind of policy creates, may be damaging health, equality, average wealth and the number of children we have.
Climate change - If walkable cities ban new homes, their residents will move to more affordable places like Atlanta which build larger, more carbon-hungry homes, drive more and emit far more carbon than they would if they had the freedom to live where many of them really wanted to.
Innovation - Proximity of complimentary workers and unplanned interaction leads to innovation. The most innovative areas are among the most expensive.
Inequality - The aggregate, countrywide effect of housing being so limited in supply has been that economic growth in most Western countries has accrued more and more to landowners and less to everyone else.
Left-behind areas and regional inequality - Consider a cleaner living in Alabama. In 1960 they could move to NYC and earn wages 84% higher, and still end up with 70% higher income after rent. In 2010, they could move to New York City and become 28% more productive, and earn a wage 28% higher – and reduce the surplus of workers back home, letting them demand higher pay. But since housing costs are so much higher, the net earnings and living standards of someone like this would fall if they moved today, and wouldn’t be worth it.
Families - The price of housing does not just affect the places where people live; it determines the kinds of homes they live in as well. And that has a huge influence on people’s family lives, affecting both when people have kids and how many kids they have.
Obesity - preferring sprawl over density, and the housing shortages that kind of policy creates, may be damaging health, equality, average wealth and the number of children we have.
Climate change - If walkable cities ban new homes, their residents will move to more affordable places like Atlanta which build larger, more carbon-hungry homes, drive more and emit far more carbon than they would if they had the freedom to live where many of them really wanted to.
The Housing Crisis is the Everything Crisis
https://youtu.be/4ZxzBcxB7Zc (This video by Britmonkey shows all the problems of housing and land misuse)
How fixing the housing crisis will solve nearly all of our problems.
including but not limited to: climate change, poverty, inequality, poor public health, economic stagnation, crime, cost of living and more.
including but not limited to: climate change, poverty, inequality, poor public health, economic stagnation, crime, cost of living and more.
We can pinpoint the root cause of almost all of society's problems down to housing being so expensive.
Solve the housing crises, and you solve all of them.
Solve the housing crises, and you solve all of them.
We are artificially making ourselves poorer, unsustainable, and uncompetitive
Housing used to be a consumer good, and was produced like any other consumer good.
Housing costs were not a factor in child poverty until housing became an investment in the 1980s
1/2 of all children and 1/4 of all adults in poverty would be fine if they just had cheaper rent.
Housing costs were not a factor in child poverty until housing became an investment in the 1980s
1/2 of all children and 1/4 of all adults in poverty would be fine if they just had cheaper rent.
Climate Change: Suburbs are bad. Dense housing and development has far lower carbon emissions per person.
Public Health: Netherlands has one of the lowest levels of obesity, road traffic deaths
Economic Decline: US economy would be 74% larger without spatial misallocation. If NY, San Jose, and San Francisco allowed more housing this would lead to a payrise of 8700 to 16,700 per person even if they don't live in those cities.
Population Decline: Families don't have children b/c of housing costs. In the UK, for every 1% increase in rent, births go down by 5%
Rent Control: Doesn't work and led to decreases in housing in many cities. (Berlin, Stockholm, Boston, ST. Paul, San Franc) "Next to bombing, rent control seems to be the most efficient technique so far known for destroying cities" - Assar Lindbeck 1971
Immigrants: Immigration into New Zealand had a small impact on house prices compared to other demand.
Gentrification: Disadvantaged groups are only pushed out of gentrifying areas with low housing construction. High construction areas reverse this trend.
Mississippi actually has the lowest homeless rate in the US, due to high levels of home construction and housing of homeless.
Public Health: Netherlands has one of the lowest levels of obesity, road traffic deaths
Economic Decline: US economy would be 74% larger without spatial misallocation. If NY, San Jose, and San Francisco allowed more housing this would lead to a payrise of 8700 to 16,700 per person even if they don't live in those cities.
Population Decline: Families don't have children b/c of housing costs. In the UK, for every 1% increase in rent, births go down by 5%
Rent Control: Doesn't work and led to decreases in housing in many cities. (Berlin, Stockholm, Boston, ST. Paul, San Franc) "Next to bombing, rent control seems to be the most efficient technique so far known for destroying cities" - Assar Lindbeck 1971
Immigrants: Immigration into New Zealand had a small impact on house prices compared to other demand.
Gentrification: Disadvantaged groups are only pushed out of gentrifying areas with low housing construction. High construction areas reverse this trend.
Mississippi actually has the lowest homeless rate in the US, due to high levels of home construction and housing of homeless.
The Problem of land
The problem of Land Ownership.
The ethics of land and liberty
https://www.progress.org/articles/the-ethics-of-land-and-liberty
https://www.progress.org/articles/the-ethics-of-land-and-liberty
What justifies the ownership of anything?
How Land disappeared from Economic Theory
https://evonomics.com/josh-ryan-collins-land-economic-theory/
https://evonomics.com/josh-ryan-collins-land-economic-theory/
The classical political economists – David Ricardo, John Stuart Mill and Adam Smith – that shaped the birth of modern economics, emphasized that land had unique qualities, distinct from capital and labour, that had important influence on the dynamics of production.
The classical economists were ‘political’ in the sense that they saw a key role for the state and in particular taxation in preventing the institution of private property from constraining economic development via rent. But at the turn of the nineteenth century, a group of economists began to develop a new kind of economics, based upon universal scientific laws of supply and demand and free of normative judgements concerning power and state intervention. Land’s uniqueness as an input to production was lost along the way.
How Economics has become twisted
How Euphemisms Have Turned Economics from a Science to a Propaganda Device
SEe also : "Corruption of Economics" and "Neoclassical Economics as strategem against Henry George"
A fundamental flaw in economic theory
https://labourhub.org.uk/2021/10/27/a-fundamental-flaw-in-economic-theory/
https://labourhub.org.uk/2021/10/27/a-fundamental-flaw-in-economic-theory/
Through our combined demand to use land and other natural resources, the whole of society generates land and natural resource wealth – NOT those who claim ownership of our precious natural resources. And because land value and taxes are inversely related such a shift in what is taxed means that land wealth, reflected in rent and capitalised value, will transfer to the public purse.
Until a government understands there is a fundamental flaw with modern economic theory and therefore with how our economy actually works, there can never be a permanent solution to the ills that blight our society including poverty; insufficient public service provision; persistent unemployment or low wages for many; insufficient affordable good quality homes for all; economic and social inequality for individuals and regions and an inefficient and distorted tax system that allows avoidance and evasion by so many and a damaged environment because of our over- and bad use of land and other natural resources.
Economic booms and busts can be eradicated, but only if a fundamental error in our economic analysis and economic theory, and therefore in our political decision-making, is recognised and then corrected. Unfortunately, economists and politicians fail to recognise the economic significance that land and other natural resources play in the economy.
These decision-makers and influencers ignore the economic fact that as public and private investments are made so the increased surplus income – that is, income after costs of production are paid – that arises as a result, is diverted to landowners for no other reason than they claim ownership of the land that our homes, jobs, public services etc are sited on. This ‘Economic Rental Value’ of land becomes the unearned income of landowners instead of being returned to the public purse to be used to maintain and develop our public services, including our environment and which greatly contribute to generating land value.
Because we have accepted the historical appropriation of our natural resources, we have also accepted a terrible injustice whereby the surplus wealth – which we all create through our economic and social actions and decision-making – goes, without question, to owners of land. This means that no matter how much we increase our economic output, landowners will always take the lion’s share of the surplus wealth we all create while wages for labour are kept low.
Until a government understands there is a fundamental flaw with modern economic theory and therefore with how our economy actually works, there can never be a permanent solution to the ills that blight our society including poverty; insufficient public service provision; persistent unemployment or low wages for many; insufficient affordable good quality homes for all; economic and social inequality for individuals and regions and an inefficient and distorted tax system that allows avoidance and evasion by so many and a damaged environment because of our over- and bad use of land and other natural resources.
Economic booms and busts can be eradicated, but only if a fundamental error in our economic analysis and economic theory, and therefore in our political decision-making, is recognised and then corrected. Unfortunately, economists and politicians fail to recognise the economic significance that land and other natural resources play in the economy.
These decision-makers and influencers ignore the economic fact that as public and private investments are made so the increased surplus income – that is, income after costs of production are paid – that arises as a result, is diverted to landowners for no other reason than they claim ownership of the land that our homes, jobs, public services etc are sited on. This ‘Economic Rental Value’ of land becomes the unearned income of landowners instead of being returned to the public purse to be used to maintain and develop our public services, including our environment and which greatly contribute to generating land value.
Because we have accepted the historical appropriation of our natural resources, we have also accepted a terrible injustice whereby the surplus wealth – which we all create through our economic and social actions and decision-making – goes, without question, to owners of land. This means that no matter how much we increase our economic output, landowners will always take the lion’s share of the surplus wealth we all create while wages for labour are kept low.
The demand for any site depends on the activities any individual, organisation or business is is planning to carry out in an area.
The value of a particular site will depend on its location, its permitted or intended use and its usefulness to the user in carrying out their business.
The economic rent of a site (or use of another natural resource) is the surplus income generated from the use of that site in producing goods and services after the costs of labour and capital have been paid.
The price a site is sold or leased for is the lowest price the owner is prepared to sell or lease the site for and the highest price a user is prepared to pay for the exclusive use of that site and it may be in the form of a rent or a lease (with or without rent renewals) or a freehold.
Taxes, government grants and subsidies are inversely related to land values.
The value of a particular site will depend on its location, its permitted or intended use and its usefulness to the user in carrying out their business.
The economic rent of a site (or use of another natural resource) is the surplus income generated from the use of that site in producing goods and services after the costs of labour and capital have been paid.
The price a site is sold or leased for is the lowest price the owner is prepared to sell or lease the site for and the highest price a user is prepared to pay for the exclusive use of that site and it may be in the form of a rent or a lease (with or without rent renewals) or a freehold.
Taxes, government grants and subsidies are inversely related to land values.
When we experience economic development, the built-in injustice of our economic system automatically rewards those that claim ownership of our natural resources and penalises those who do not.
Land value is created by the whole community but it is land owners who receive it – this is not fair or sensible.
Land value is created by the whole community but it is land owners who receive it – this is not fair or sensible.
The difference betwixt rights and privileges.
Indirect consequences
Political Capitalism
Lays out a theoretical foundation for understanding why cronyism and corruption are becoming increasingly common in capitalist economies. Political capitalism is displacing market capitalism.
Complexity of Government enriches few and imposes costs on society
https://www.nationalaffairs.com/publications/detail/kludgeocracy-in-america
https://www.strongtowns.org/journal/2021/4/29/pretextual-planning-is-absolutely-everywhere
https://www.strongtowns.org/journal/2021/4/29/pretextual-planning-is-absolutely-everywhere
The Captured Economy
How the Powerful Enrich Themselves, Slow Down Growth, and Increase Inequality
Chapter 6: Land Use.
Chapter 6: Land Use.
Documentaries
http://realestate4ransom.com/film/
Owned - https://www.ownedfilm.com/watch-now Watch on Amazon? Fits with Traumatized society.
Shame of Chicago http://www.shameofchicago.org/episodes#episode01 (Watch online?) https://www.chicagoreporter.com/the-plunder-of-black-wealth-in-chicago-captured-in-film/
Segregated by Design - www.segregatedbydesign.com (Basically 'The Color of Law' in short film form!)
Divided - a Documentary on Chicago’s Segregation https://www.kzoo.edu/praxis/chicagos-segregation/ (On Youtube?)
Banished - https://www.youtube.com/watch?v=pLhZqvQccB4
Owned - https://www.ownedfilm.com/watch-now Watch on Amazon? Fits with Traumatized society.
Shame of Chicago http://www.shameofchicago.org/episodes#episode01 (Watch online?) https://www.chicagoreporter.com/the-plunder-of-black-wealth-in-chicago-captured-in-film/
Segregated by Design - www.segregatedbydesign.com (Basically 'The Color of Law' in short film form!)
Divided - a Documentary on Chicago’s Segregation https://www.kzoo.edu/praxis/chicagos-segregation/ (On Youtube?)
Banished - https://www.youtube.com/watch?v=pLhZqvQccB4
What is Georgism?
Core of Georgist Argument - Max Hirsch
Georgist Theory of Value vs Marx (Labor Theory of Value) and Austrian (Subjective Value)
Collection of all the Articles giving introduction, plus some I didn't know!
History of Georgist ideology and parties around the world.
For more: +History
What we tax and why is very important
Canons of Taxation
What Do You Know About Taxes? Wrong!
Everything We do with tax is wrong.
Public Revenue Without Taxation
https://www.landandliberty.net/public-revenue-without-taxation/
Explains the negative Effects of other taxes.
https://www.landandliberty.net/public-revenue-without-taxation/
Explains the negative Effects of other taxes.
Should We Tax the Rich More?
It's time to overhaul Tax for the 21st Century
https://www.economist.com/leaders/2018/08/09/overhaul-tax-for-the-21st-century?fsrc=scn/fb/te/bl/ed/overhaultaxforthe21stcenturystuckinthepast
Today’s tax systems are unforgivably cack-handed
Today’s tax systems are unforgivably cack-handed
Why Economists love but you hate Property tax.
https://www.bloomberg.com/opinion/articles/2017-11-28/why-economists-love-property-taxes-and-you-don-t
https://www.bloomberg.com/opinion/articles/2017-11-28/why-economists-love-property-taxes-and-you-don-t
Nice Charts
Quotes adam smith. Very good.
Quotes adam smith. Very good.
Excess Burdens of Taxation in the United States
The loss in efficiency at rates prevailing under the 1985 law was 18.6 cents per dollar of property tax revenue and 26.0 cents per dollar of sales tax revenue.
Capital income taxes in the fourth panel of Table 1 had a marginal efficiency cost of 0.975, so that the efficiency loss for each dollar of revenue raised by taxing capital income was 97.5 cents. By contrast, the marginal efficiency cost of labor income taxes was only 0.488, leading to a loss in efficiency of 48.8 cents for each dollar of labor income tax revenue.
Why Sales taxes and VAT are bad m'kay.
https://landresearchtrust.org/wp-content/uploads/2015/12/DebtDeathDeadweight.Ch2_..pdf
http://www.masongaffney.org/essays/Europes_Fatal_Affair_with_VAT_Harrison_2016.pdf
http://www.masongaffney.org/essays/The_Sales_Tax--History_of_a_Dumb_Idea_3_2005.pdf
https://www.brookings.edu/research/dont-buy-the-sales-tax/
http://www.masongaffney.org/essays/Europes_Fatal_Affair_with_VAT_Harrison_2016.pdf
http://www.masongaffney.org/essays/The_Sales_Tax--History_of_a_Dumb_Idea_3_2005.pdf
https://www.brookings.edu/research/dont-buy-the-sales-tax/
Fred Harrison: Taxed to Death
https://landresearchtrust.org/wp-content/uploads/2018/10/taxed.to_.death_.pdf
https://landresearchtrust.org/wp-content/uploads/2018/10/taxed.to_.death_.pdf
Pamphlet goes over everything moral and economic.
For Britain, deadweight Losses have been about 500 billion every year.
For OECD countries, it's 14 Trillion.
For OECD countries, it's 14 Trillion.
To Fix what's wrong
See also the book by Lindy Davies 'To Fix what's wrong'
Robert Gourlay (1778-1863) "I am fully convinced, were £200,000 or £300,000 raised annually by (vacant-land) taxation ... and thrown into Lake Ontario, it would tend to good."
Henry George's Remedy
What's so special about Henry George?
Long article laying the philosophical and economic ground work.
The Importance of Land
Land vs. Products: Their Differences
Speculation
The Incidence of Taxation
Taxes: Their Effects on Production
The Ethics of Property
The Ethics of Taxation
The Single Tax
Some Implications of the Single Tax
Land vs. Products: Their Differences
Speculation
The Incidence of Taxation
Taxes: Their Effects on Production
The Ethics of Property
The Ethics of Taxation
The Single Tax
Some Implications of the Single Tax
HGSS 12 minute video
Because we have accepted the historical appropriation of our natural resources, we have also accepted a terrible injustice whereby the surplus wealth – which we all create through our economic and social actions and decision-making – goes, without question, to owners of land. This means that no matter how much we increase our economic output, landowners will always take the lion’s share of the surplus wealth we all create while wages for labour are kept low.
Why do we allow this hideous and immoral situation to continue?
Why don’t economists, academics or politicians see the wrongness of such injustice?
Can we do anything to stop this theft of the wealth we all create from going to a few simply because they lay claim to part of the surface of the planet and the other natural resources that originate from land?
Are there lasting solutions that will eradicate poverty – whether in poorer or richer countries?
Can a shift in WHAT is taxed enable all natural resources to be used sparingly and efficiently?
So long as our economic and social policies are based on inaccurate economic theory, we can never be free of poverty, economic or social injustice or environmental destruction in the UK or in the world.
Why don’t economists, academics or politicians see the wrongness of such injustice?
Can we do anything to stop this theft of the wealth we all create from going to a few simply because they lay claim to part of the surface of the planet and the other natural resources that originate from land?
Are there lasting solutions that will eradicate poverty – whether in poorer or richer countries?
Can a shift in WHAT is taxed enable all natural resources to be used sparingly and efficiently?
So long as our economic and social policies are based on inaccurate economic theory, we can never be free of poverty, economic or social injustice or environmental destruction in the UK or in the world.
We need a fair tax system that shifts taxes from wages and production to unearned income; that protects our natural resources from overuse; that cannot be avoided or evaded; that rectifies the historic wrong whereby land and other natural resource ownership and wealth have been taken by a few and left the rest of us subject to their control.
LandOil, coal and other minerals and ores
Landing slots at airports
Airwaves
Funding government from Rents is the first necessary step to fixing society's problems.
Effective remedial action involves the restructuring of government revenue so that people are not penalised for working, saving and investing. By drawing revenue from socially-created rents, governments would liberate their citizens to engage in fulfilling forms of employment and life-styles.
To achieve the best outcomes, the first step is for scholars to redesign their theoretical models to include the deadweight losses inflicted by governments on the market economy. This would provide the information necessary for people to mandate governments to undertake the necessary structural changes to the financial system
To achieve the best outcomes, the first step is for scholars to redesign their theoretical models to include the deadweight losses inflicted by governments on the market economy. This would provide the information necessary for people to mandate governments to undertake the necessary structural changes to the financial system
Moral Case for LVT to fund Government
The Least Bad Tax
https://blog.mdunn.io/michael/the-least-bad-tax
https://web.archive.org/web/20210507045832/https://blog.mdunn.io/michael/the-least-bad-tax
https://web.archive.org/web/20210507045832/https://blog.mdunn.io/michael/the-least-bad-tax
Many American's might simply state: “Land Value Tax is close enough to property tax, and I already pay too much. We need less taxes!” However, it would be a mistake to not explore and understand the subtle differences in the two tax policies, as they have quite different economic implications. As with the review of any tax policy, one must understand the economic impact, unless you want to kill the goose that lays the golden egg.
Taxing Economic Rent (Starting with Land) is Efficient and Progressive.
Strong Citations.
An alternative way of slowing down or reversing the trend in wealth inequality would be to tax the returns to wealth directly, instead of taxing wages. However, traditional economic analysis has pointed out two important arguments why taxing wealth is not a good idea. First, if wealth is understood to be productive capital, such as machines, houses, etc., then taxing its returns is particularly inefficient. It reduces growth more strongly than other taxes would because it reduces incentives to invest in productive capital. Second, even if capital taxes are introduced only for the purpose of redistribution, they might not achieve that objective either. This has to do with who ultimately bears the burden of the tax. The rich might be able to pass on to the poor the cost of increased capital taxes by shifting that cost onto wages (Stiglitz, 2016).
An alternative way of slowing down or reversing the trend in wealth inequality would be to tax the returns to wealth directly, instead of taxing wages. However, traditional economic analysis has pointed out two important arguments why taxing wealth is not a good idea. First, if wealth is understood to be productive capital, such as machines, houses, etc., then taxing its returns is particularly inefficient. It reduces growth more strongly than other taxes would because it reduces incentives to invest in productive capital. Second, even if capital taxes are introduced only for the purpose of redistribution, they might not achieve that objective either. This has to do with who ultimately bears the burden of the tax. The rich might be able to pass on to the poor the cost of increased capital taxes by shifting that cost onto wages (Stiglitz, 2016).
Land can be Taxed. It Should be
https://voxeu.org/article/land-back-it-should-be-taxed-it-can-be-taxed#.YFDJMOmQc-o.twitter
https://voxeu.org/article/land-back-it-should-be-taxed-it-can-be-taxed#.YFDJMOmQc-o.twitter
These findings have a strong impact on the way wealth tax, and optimal tax more generally, should be designed. Further, since the optimal taxation literature is becoming increasingly quantitative, land and housing should be reinstated in it, especially when its conclusions apply to countries where housing wealth is between two to four times as large as GDP, as opposed to roughly the same size after WWII (Figure 1). We do precisely this in a recent paper (Bonnet et al. 2021), revisiting Judd's (1885) standard setup.
The take-away message is that a wealth tax uniformly taxing all three kinds of wealth – land, structures, and capital – at the same rate is not recommended, as it does not exploit the tax-elasticity heterogeneity of different types of wealth. Progressivity is welcome (Landais et al. 2020), but targeted taxes on the considerable housing wealth, while not trivial to implement, lead to very large welfare gains because housing land is almost a fixed factor, and this should be central to any analysis.
The take-away message is that a wealth tax uniformly taxing all three kinds of wealth – land, structures, and capital – at the same rate is not recommended, as it does not exploit the tax-elasticity heterogeneity of different types of wealth. Progressivity is welcome (Landais et al. 2020), but targeted taxes on the considerable housing wealth, while not trivial to implement, lead to very large welfare gains because housing land is almost a fixed factor, and this should be central to any analysis.
“The Perfect Tax”: Land Value Taxation and the Housing Crisis
https://brownpoliticalreview.org/2021/12/the-perfect-tax-land-value-taxation-and-the-housing-crisis/
In addition to its desirable efficiency, land value taxation radically changes the incentives around land use, potentially helping housing-starved cities kickstart new development. The important feature of a LVT is that it is levied on the unimproved value of land, and so can encourage landowners to develop their property in order to gain more profit from it and reduce the relative cost of the tax. An example from the D.C. Policy Center is informative: The owner of a single-family home can increase the value of the property by replacing the single-family home with a duplex or triplex while still paying the same in taxes under a system of land value taxation, reducing the average tax burden per unit. In contrast, under the standard property tax regime, this increased densification would result in a higher property tax burden due to the increased value of the property, and the landowner may decide not to undertake this improvement. In this way land value taxation can increase housing supply and drive new development. Land value taxation could also potentially help neutralize the effect of NIMBYism. One of the major drivers of NIMBYism is the concern that new development will reduce the value of local homeowners’ land. A land value tax could reduce local homeowners’ investment in maintaining the value of their land, reducing their opposition to new development and allowing the housing supply to grow with fewer constraints.
Tax the land: One radical idea to solve America’s housing crisis.
What actually happened when land was taxed?
See much more: +History
Evidence in favor of taxing land values
https://cooperative-individualism.org/cord-steven_evidence-in-favor-of-taxing-land-values-2010.htm
Land Value Taxation In practice
Has the details on all the different parts of the world. (Not just Denmark)
http://www.cooperative-individualism.org/hirsch-max_land-values-taxation-in-practice-1908.htm
http://www.cooperative-individualism.org/hirsch-max_land-values-taxation-in-practice-1908-denmark.pdf
http://www.cooperative-individualism.org/hirsch-max_land-values-taxation-in-practice-1908.htm
http://www.cooperative-individualism.org/hirsch-max_land-values-taxation-in-practice-1908-denmark.pdf
The Tax we Need
Split tax in Pennsylvania
And specifically: +History:Examples:Pennsylvania
Pittsburgh
http://fleeingvesuvius.org/2011/06/02/why-pittsburgh-real-estate-never-crashes-the-tax-reform-that-stabilised-a-city%E2%80%99s-economy/
http://savingcommunities.org/places/us/pa/al/pgh/nevercrashes.html
http://fleeingvesuvius.org/2011/06/02/why-pittsburgh-real-estate-never-crashes-the-tax-reform-that-stabilised-a-city%E2%80%99s-economy/
http://savingcommunities.org/places/us/pa/al/pgh/nevercrashes.html
Before introducing split rate tax in 1913 Pittsburgh had the 2nd most expensive housing in the country after New York. Even though at the time, Pittsburgh was very dirty/polluted. Known as 'Coal City' and became the most affordable city in the Country.
Land prices only rose 14% in Pittsburgh during the 12 years after the graded tax was adopted in 1913, while they boomed in the rest of the nation.[22] Real-estate interests complained that LVT was robbing Pittsburgh landowners of gains enjoyed elsewhere. However, Mayor Magee saw these gains as speculative, and stood by his actions.
Magee was proved correct. National land prices peaked in 1925 and plummeted with the Great Depression, except in Pittsburgh. Despite the great flood of 1936, Pittsburgh's land prices fell only 11% between 1930 and 1940, compared to 58% in Detroit, 50% in Los Angeles, 46% in Cleveland, 28% in Boston, 27% in New Orleans, 26% in Cincinnati, 25% in Milwaukee and 21% in New York. Land prices in Pittsburgh even fell less than in Washington, D.C., where the New Deal was booming.[24]
Land prices only rose 14% in Pittsburgh during the 12 years after the graded tax was adopted in 1913, while they boomed in the rest of the nation.[22] Real-estate interests complained that LVT was robbing Pittsburgh landowners of gains enjoyed elsewhere. However, Mayor Magee saw these gains as speculative, and stood by his actions.
Magee was proved correct. National land prices peaked in 1925 and plummeted with the Great Depression, except in Pittsburgh. Despite the great flood of 1936, Pittsburgh's land prices fell only 11% between 1930 and 1940, compared to 58% in Detroit, 50% in Los Angeles, 46% in Cleveland, 28% in Boston, 27% in New Orleans, 26% in Cincinnati, 25% in Milwaukee and 21% in New York. Land prices in Pittsburgh even fell less than in Washington, D.C., where the New Deal was booming.[24]
Pittsburgh did not experience the 2008 mortgage crisis.
https://twitter.com/geoliberal/status/768588171634286592
https://twitter.com/geoliberal/status/768588171634286592
T
reba
reba
Harrisburg
https://www.labourland.org/downloads/papers/chapters/3.pdf
https://www.strongtowns.org/journal/2019/3/6/non-glamorous-gains-the-pennsylvania-land-tax-experiment
https://www.labourland.org/downloads/papers/chapters/3.pdf
https://www.strongtowns.org/journal/2019/3/6/non-glamorous-gains-the-pennsylvania-land-tax-experiment
In 1982, Harrisburg instituted a tax rate on land that was four times the rate on buildings. By 1994, the mayor, Stephen Reed, wrote the following in a letter to Allentown, PA civic activists:
With over 90% of the property owners in the City of Harrisburg, the two-tiered tax rate system actually saves money over what would otherwise be a single tax system that is currently in use nearly all municipalities in Pennsylvania.
We therefore continue to regard the two-tiered tax rate system as an important ingredient in our overall economic development activities.
I should note that the City of Harrisburg was considered the second most distressed in the United States twelve years ago under the Federal distress criteria. Since then, over $1.2 billion new investment has occurred here, reversing nearly three decades of very serious previous decline. None of this happened by accident and a variety of economic development initiatives and policies were created and utilized. The two-rate system has been and continues to be one of the key local policies that has been factored into this initial economic success here.
The number of vacant structures in Harrisburg declined from over 4200 in 1982 to under 500 by 2001. The downtown—previously a ghost town—is alive, even at night. The number of businesses on the tax roll has grown from 1,908 to 8,864.
What happens when land is not taxed?
California's Prop 13
Housing prices have soared as a direct result.
Wealthy Homeowners Are Beneficiaries of California's Prop. 13
More than 40 percent of California homeowners pay an effective property tax rate of less than 0.5 percent, according to the study.
More than 40 percent of California homeowners pay an effective property tax rate of less than 0.5 percent, according to the study.
The Two Oaklands:
Richer neighborhood with an median income over $100,000 save $12,000 a year from prop 13.
Poorer neidhborhood with a median income of $40,000 save ~$3000 a year.
Poorer neidhborhood with a median income of $40,000 save ~$3000 a year.
It is too easy to explain California's recent fall by the ending of the Cold War, the loss of defense jobs, and cutbacks in aerospace. Many professional explainers seize upon these factors. The events of recent decades must be compared with the similar, but much more severe, external events after World War II. Wartime immigrants did not languish unemployed, then, or return home. They remained to create or join in a fantastic burst of growth. Things went otherwise before the scuttling of the property tax. By the end of 1945, Los Angeles lost its wartime economic base: three quarters of its aircraft workers, and 80% of its shipbuilders. Motion pictures went into a decline. Los Angeles was left without much of its former economic base of export industries.
Yet, during 1945-49 there was an increase in jobs (Jacobs 1969: 151-54). Los Angeles grew by replacing imports. It became remarkably self-contained, as large metropoles do. New local companies prospered. One eighth of all new businesses started in the United States during those four years were in Los Angeles. Firms which formerly sold materials to Los Angeles opened branch plants there: Detroit auto-makers, for instance, and Akron tire-makers.
What was different about 1945-49? Why did Los Angeles thrive then, but not now? The difference in which to look for cause and effect is in the fact that in those earlier years California was taxing property heavily, and land heaviest of all. Absentee land speculators, rushing in to free-ride on California's enterprise, were required to share in bearing its public costs. Holders of prime land were pressed to sell or use it to pay the taxes. Anecdotal evidence comes from executives of interstate firms, who commented on the greater pressure toward land performance in California. The state's fall did not begin until 1978, with Proposition 13. It continues.
I find that Proposition 13 discourages redevelopment and sales. In a dynamic discrete choice model of land use, I find that adopting a land value tax that replaces Proposition 13 based property taxes would increase housing production by 35% generating a similar or greater amount of new housing as otherpolicies under consideration in California.
Property Tax Caps
44 States have some version.
~ 4:00 Prop 13 was first Property tax cap in US. (California was booming at the time.)
~ 4:00 Prop 13 was first Property tax cap in US. (California was booming at the time.)
In 1978 Property Taxes made up 50% of local revenues across the US, sales taxes only 16%
In 2015 had decreased to 39 %. Sales taxes up to 23%
In 2015 had decreased to 39 %. Sales taxes up to 23%
New York in 2011.
Texas passes new property tax cap in 2019. (Before was capped at 8%, now capped at 3.5% and requires an election to go over)
Texas passes new property tax cap in 2019. (Before was capped at 8%, now capped at 3.5% and requires an election to go over)
International
In contrast to Japan, Taiwan, South Korea, Hong Kong and Singapore, Rwanda and Ethiopia have failed to recapture land value so investment goes to urban land space and productive investment is starved.
For the past two decades, it has had the highest suicide rate among developed nations: 24.6 suicides for every 100,000 people in South Korea in 2019, compared to 14.5 suicides in the United States in 2017. Although South Korea’s older adults are still the most likely to die by suicide due to poverty and isolation, young people are rapidly dying by suicide. Between 2018 and 2019, the number of South Koreans under age 40 who took their own lives rose by 10 percent, according to the Korea National Statistics Office.
An epic housing crisis in the capital area, where nearly half the South Korean population lives, has made matters worse. The average price of an apartment in Seoul has doubled in the past five years under the current government’s misguided policies on mortgage rules and tax penalties. Four years ago, it would have taken 11 years’ worth of South Korea’s median annual household income to buy an apartment in Seoul. Now, it costs more than 18 years’ worth of income. Rents have shot up, leaving young people with limited savings and without a shelter.
Rapid economic growth, unfortunately, hasn’t translated into shared prosperity. The housing crisis hasn’t affected young people born into wealth as they pay for houses in cash or let apartments sit empty rather than rent them out at a low price.
An epic housing crisis in the capital area, where nearly half the South Korean population lives, has made matters worse. The average price of an apartment in Seoul has doubled in the past five years under the current government’s misguided policies on mortgage rules and tax penalties. Four years ago, it would have taken 11 years’ worth of South Korea’s median annual household income to buy an apartment in Seoul. Now, it costs more than 18 years’ worth of income. Rents have shot up, leaving young people with limited savings and without a shelter.
Rapid economic growth, unfortunately, hasn’t translated into shared prosperity. The housing crisis hasn’t affected young people born into wealth as they pay for houses in cash or let apartments sit empty rather than rent them out at a low price.
Alternate methods of sharing or capturing rent
Community Land Trusts are a private way to fight speculation and rent privatization.
+LandTrusts
Value Capture
Land Value Capture Explained
https://www.youtube.com/watch?v=KVMGzkSgGXI&t=0s
https://www.youtube.com/watch?v=KVMGzkSgGXI&t=0s
Public Investment can increase the value of land by 5 times more than the expenditure.
https://www.gfdrr.org/sites/default/files/publication/Land%20Value%20Capture.pdf
https://www.manhattan-institute.org/building-fiscal-constraint-nyc-transit-projects
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3466847
https://www.lincolninst.edu/key-issues/value-capture-property-tax
https://www.manhattan-institute.org/building-fiscal-constraint-nyc-transit-projects
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3466847
https://www.lincolninst.edu/key-issues/value-capture-property-tax
Financing the Future | Anthony Flint | TEDxBeaconStreet
https://www.youtube.com/watch?v=LvjQbhhPY_E
https://www.youtube.com/watch?v=LvjQbhhPY_E
Value Capture
It is cheaper to live in madrid and commute by air to london than it is to live in London
Even Romans used value capture
It is cheaper to live in madrid and commute by air to london than it is to live in London
Even Romans used value capture
Developing Cities Need Cash. Land Value Capture Can Help
https://www.wri.org/insights/developing-cities-need-cash-land-value-capture-can-help
https://www.wri.org/insights/developing-cities-need-cash-land-value-capture-can-help
Land value capture is a financing tool that allows local governments to charge fees and taxes to developers and property owners and raise revenue that can then be reinvested into community and city services. It is a technical term for a simple idea that's applicable to cities of all types and it is especially important and underutilized in developing cities. This tool has been more commonly used in developed cities, but developing cities have much to gain if they can implement land value capture effectively.
As an urban area grows and develops, the price or value of land generally goes up — especially when the government invests in public infrastructure or implements zoning changes and incentives for private developers. Land value capture allows the local government to tap into this increasing land value, in locations made attractive and livable through government investment. The concept is a way for the city to ensure that some of the value generated by public sector investments and interventions — which the private sector can benefit from, and build on — is reinvested into the community.
When managed well, the benefits of land value capture can promote inclusive and equitable urban development, creating a virtuous cycle by paying for more services like basic sanitation and public transit, and amenities like parks and green space. Land value capture ensures that government action generates broader public benefits.
As an urban area grows and develops, the price or value of land generally goes up — especially when the government invests in public infrastructure or implements zoning changes and incentives for private developers. Land value capture allows the local government to tap into this increasing land value, in locations made attractive and livable through government investment. The concept is a way for the city to ensure that some of the value generated by public sector investments and interventions — which the private sector can benefit from, and build on — is reinvested into the community.
When managed well, the benefits of land value capture can promote inclusive and equitable urban development, creating a virtuous cycle by paying for more services like basic sanitation and public transit, and amenities like parks and green space. Land value capture ensures that government action generates broader public benefits.
Why Rent Control is not the right answer.
https://www.progress.org/articles/rent-control-a-case-study
https://www.bloomberg.com/opinion/articles/2019-09-16/too-much-rent-control-is-asking-for-trouble
https://web.archive.org/web/20191212120807/https://www.bloomberg.com/opinion/articles/2019-09-16/too-much-rent-control-is-asking-for-trouble
The Effects of Rent Control Expansion on Tenants, Landlords, and Inequality: Evidence from San Francisco∗
https://www.bloomberg.com/opinion/articles/2019-09-16/too-much-rent-control-is-asking-for-trouble
https://web.archive.org/web/20191212120807/https://www.bloomberg.com/opinion/articles/2019-09-16/too-much-rent-control-is-asking-for-trouble
The Effects of Rent Control Expansion on Tenants, Landlords, and Inequality: Evidence from San Francisco∗
Next to bombing, rent control seems to be the most efficient technique so far known for destroying cities" - Assar Lindbeck 1971
https://youtu.be/4ZxzBcxB7Zc
https://youtu.be/4ZxzBcxB7Zc
Berlin amount of housing dropped 30%
Stockholm 2011: Waiting list for housing went from 5 years to 9 years
Boston: Benefitted mostly wealthy white people
St. Paul : Housing construction dropped 80% within 3 months
San Francisco 2019: Rent control lowered supply and shifted supply to less affordable housing, driving up citywide rents.
Stockholm 2011: Waiting list for housing went from 5 years to 9 years
Boston: Benefitted mostly wealthy white people
St. Paul : Housing construction dropped 80% within 3 months
San Francisco 2019: Rent control lowered supply and shifted supply to less affordable housing, driving up citywide rents.
Explain Land Tax
An Introduction to Land Value Tax
Understanding Land Value Tax
From Henry Law
http://www.landvaluetax.org/what-is-lvt/
http://www.landvaluetax.org/what-is-lvt/
Land (unlike goods and services) has no cost of production. If an ample supply of land of equal desirability were available everywhere, there would be nothing to pay for its use. In reality land acquires a scarcity value owing to the competing needs of the community for living, working and leisure space. Thus land value owes nothing to individual effort and everything to the community at large. It belongs justly and uniquely to the community. Conversely, the reward for individual effort can belong only to the one who earns it, to spend, save or give away as he or she may see fit.
Because of differences in positional advantages, fertility or natural resources, some locations are more desirable than others. Demand for access to these features gives land its rental value. Land Value Taxation, being assessed on these values, is fair in its incidence.
Center for Property Tax Reform
https://www.youtube.com/watch?v=8dIHR3VRk3s
https://www.youtube.com/watch?v=8dIHR3VRk3s
Intro to Land Value Tax
https://centerforpropertytaxreform.org/2022/03/01/the-lvt-playbook/
THE LVT PLAYBOOK: SO, HOW DO YOU BUILD A LAND VALUE TAX?
THE LVT PLAYBOOK: SO, HOW DO YOU BUILD A LAND VALUE TAX?
Georgism 101
Stop Paying Twice
https://www.youtube.com/watch?v=kxvXzM1mBWo
https://www.youtube.com/watch?v=kxvXzM1mBWo
Dominic Frisby - Simple Guide to LVT
https://www.youtube.com/watch?v=gD_dZvPwAj0
https://www.youtube.com/watch?v=gD_dZvPwAj0
Two minute version:
Root Bug - Land https://www.youtube.com/watch?v=TwlvEKxbdVo
Stephen Meintjes Short Interviews (South African)
https://www.youtube.com/watch?v=iAupS_nJsc0
https://www.youtube.com/watch?v=FQlf5TLk29E
https://www.youtube.com/watch?v=R6JxmdjYK0A
https://www.youtube.com/watch?v=FQlf5TLk29E
https://www.youtube.com/watch?v=R6JxmdjYK0A
The case for Land Value tax
http://bournbrookmag.com/2019/01/23/land-value-tax/
https://www.bournbrookmag.com/home/the-case-for-land-value-tax?rq=land%20value%20tax
https://www.bournbrookmag.com/home/the-case-for-land-value-tax?rq=land%20value%20tax
By implementing LVT and imposing a tax on landowners which they cannot easily pass onto buyers, we would be witnessing a truly fair and progressive tax in action.
The ideas of Henry George are still very relevant for economic theory. A site value tax would help to stabilise property market cycles and promote greater spatial efficiency.
LVT recognises that every individual helps create land values through their work, their community activities and their spending
LVT means that the growing number of non-property owning adults who are economically forced to live with family or friends and tenants also share in existing and future increases in land wealth rather than just freeholders and the big land owners.
LVT recognises that every new investment – public and private – helps create land values, whether it is in public transport, businesses, leisure facilities, schools, hospitals, airports, making neighbourhoods smarter and more pleasant, or in homes or jobs
LVT also recognises that existing services and businesses – public and private – add to land values
By including land that is currently kept idle, LVT encourages better use of land, particularly in towns and cities
By stopping land speculation, investors will seek worthwhile investments including in those areas that currently have high level of unemployment and deprivation, thus redistributing wealth on a regional and individual basis fairly
LVT therefore encourages investment in more jobs and businesses and more affordable homes
By encouraging the use of urban brownfield sites LVT actively contributes towards protecting the rural environment
LVT therefore helps to protect green land and minimise urban sprawl
LVT will rid communities of derelict sites and buildings that encourage anti-social behaviour
Unlike other taxes, it is impossible for people and businesses to evade or avoid paying their share of LVT
LVT increases the funds available for public services, including public transport, health, education, leisure facilities, crime prevention, and social welfare
Land value and taxes are inversely related so as LVT is introduced land wealth, reflected in rent and capitalised value, transfers to the public purse and away from land owners.
LVT means that the growing number of non-property owning adults who are economically forced to live with family or friends and tenants also share in existing and future increases in land wealth rather than just freeholders and the big land owners.
LVT recognises that every new investment – public and private – helps create land values, whether it is in public transport, businesses, leisure facilities, schools, hospitals, airports, making neighbourhoods smarter and more pleasant, or in homes or jobs
LVT also recognises that existing services and businesses – public and private – add to land values
By including land that is currently kept idle, LVT encourages better use of land, particularly in towns and cities
By stopping land speculation, investors will seek worthwhile investments including in those areas that currently have high level of unemployment and deprivation, thus redistributing wealth on a regional and individual basis fairly
LVT therefore encourages investment in more jobs and businesses and more affordable homes
By encouraging the use of urban brownfield sites LVT actively contributes towards protecting the rural environment
LVT therefore helps to protect green land and minimise urban sprawl
LVT will rid communities of derelict sites and buildings that encourage anti-social behaviour
Unlike other taxes, it is impossible for people and businesses to evade or avoid paying their share of LVT
LVT increases the funds available for public services, including public transport, health, education, leisure facilities, crime prevention, and social welfare
Land value and taxes are inversely related so as LVT is introduced land wealth, reflected in rent and capitalised value, transfers to the public purse and away from land owners.
Get to the points.
http://savingcommunities.org/issues/taxes/landvalue/
http://savingcommunities.org/issues/taxes/landvalue/
Why is a tax on land value an antidote to a housing bubble? Well, quite simply, taxing land at a high enough rate removes the incentive for speculators to generate the bubble in the first place. Taxing land and not capital (which seems the popular response to housing issues worldwide at the moment) is important for two reasons. First, land, unlike capital, cannot be hidden in tax havens or by fancy accounting. A land tax is both easier to administer and to pay.
Second, a land tax recognises the ubiquitous importance of land to the economy and frees capital from economically harmful taxes. Taxing land promotes more efficient use because it becomes costly to leave land idle. Efficient land use is not only beneficial to economic growth and housing prices, but may also lower the costs of public infrastructure – it would help China avoid the kind of white elephant projects it has become increasingly known for.
Second, a land tax recognises the ubiquitous importance of land to the economy and frees capital from economically harmful taxes. Taxing land promotes more efficient use because it becomes costly to leave land idle. Efficient land use is not only beneficial to economic growth and housing prices, but may also lower the costs of public infrastructure – it would help China avoid the kind of white elephant projects it has become increasingly known for.
Parade of Introductory Articles
Tax the land: One radical idea to solve America’s housing crisis.
Breadtube vs Economics
Introduce LVT from a non Georgist, with lots of Research citations
Could a 19th century economist unlock the Irish rental crisis?
A fundamental flaw in economic theory: a discussion on why we should not ignore the relevance of land and other natural resource wealth in how the economy works
The Obscure Economist Sillicon Valley Billionaires Should Dump Ayn Rand for.
A Tax you will Love
A Land Value Tax Fosters Stronger Communities
The Most Socially Just Tax
The 140-Year-Old Dream of ‘Government Without Taxation’
Actually sets out the situation very well, but relies on critics who think there isn't enough rent to fund federal government.
The Ultimate Tax Reform:Public Revenue from Land Rent
How LVT prevents the 'Tragedy of the commons'
How to fight inequality
Details history of Arden and how it worked out in practice.
The Fair System to replace other taxes and FAQs
https://bellacaledonia.org.uk/2016/01/18/the-fair-system-to-replace-council-tax-annual-ground-rent-agr/
https://bellacaledonia.org.uk/2016/01/18/the-fair-system-to-replace-council-tax-annual-ground-rent-agr/
Scottish starting point but he also details point by point why it benefits everyone and goes over History. Very good article, calls LVT "Annual Ground Rent"
Deep Dives
See also:
+Research
+Research:Data
Long form version:
A Tax to Solve the Housing Crisis
https://thetyee.ca/Solutions/2018/06/04/Tax-To-Solve-Housing-Crisis/
https://thetyee.ca/Solutions/2018/06/04/Tax-To-Solve-Housing-Crisis/
This article comes from a Vancouver Standpoint, but it actually summarizes Georgism and why modern economics ignores it very well.
What happens when you de-commodify land?
Viennese public housing supplied very successfully after speculators driven from land market.
Vienna provides an interesting counterpoint. Because rent control disincentivized the private development of rental buildings, landlords were, for a time, removed from the market for urban land. Consequently prices finally went down, allowing the city to buy land at a much reduced price; often it was the only buyer in the market.
Even though the city was able to keep land prices down, land and housing still cost money. In the late 1920s, about 30 per cent of Vienna’s annual budget was spent buying land and financing housing construction.
Where did that money come from? Mostly from taxes on private property and land. They were levied on private apartment buildings and progressively increased with the assessed value of each unit. Very high taxes were also levied on vacant land, giving owners extra incentive to sell.
These policies stripped land speculation out of the marketplace and did so very rapidly.
Rents in Vienna are a quarter that of similar units in Paris.
Even though the city was able to keep land prices down, land and housing still cost money. In the late 1920s, about 30 per cent of Vienna’s annual budget was spent buying land and financing housing construction.
Where did that money come from? Mostly from taxes on private property and land. They were levied on private apartment buildings and progressively increased with the assessed value of each unit. Very high taxes were also levied on vacant land, giving owners extra incentive to sell.
These policies stripped land speculation out of the marketplace and did so very rapidly.
Rents in Vienna are a quarter that of similar units in Paris.
Sightline institute Series on Land Taxes - Sightline Institute should revisit! (Write an open letter)
https://www.sightline.org/series/love-for-land-value-taxes/
https://www.sightline.org/series/love-for-land-value-taxes/
1.) Land-value taxation discourages speculation and encourages development of high-value properties.
2.) Land-value taxation is more economically efficient than most taxes.
3.) Land-value taxation is more progressive than other taxes
4.) Land-value taxation is fairer than many other taxes.
5.) Land-value taxation revenue is adequate and stable.
2.) Land-value taxation is more economically efficient than most taxes.
3.) Land-value taxation is more progressive than other taxes
4.) Land-value taxation is fairer than many other taxes.
5.) Land-value taxation revenue is adequate and stable.
Sightline series on Housing policy. . . why no mention of Land Value tax???
https://www.sightline.org/series/winning-abundant-housing/
https://www.sightline.org/series/winning-abundant-housing/
THE PROBLEM WITH US HOUSING POLICY IS THAT IT’S NOT ABOUT HOUSING: It’s about real estate.
These federal policies polarize wealth, exacerbate racial inequality, cut productivity and job creation, speed climate change, and exaggerate both the ups and the downs of the business cycle.
These federal policies polarize wealth, exacerbate racial inequality, cut productivity and job creation, speed climate change, and exaggerate both the ups and the downs of the business cycle.
Property Taxes, Affordability, Monopoly Power, Rents and Efficiency - Lots of Research and Charts. Check author's book as well.
https://www.idiosyncraticwhisk.com/2022/03/16-part-series-on-housing-affordability.html?m=1
https://www.idiosyncraticwhisk.com/2022/03/16-part-series-on-housing-affordability.html?m=1
"If politically maintained monopoly power is going to remain, claiming monopolist profits through taxes is an improvement. The fact that the tax doesn’t affect rents is a sign of efficiency. If rents must be elevated, better that they go to local public services than to the real estate cartel."--KE
https://www.mercatus.org/publications/monetary-policy/shut-out
https://www.mercatus.org/bridge/commentary/property-taxes-are-rent-public-landlord (Mentions Henry George)
https://www.mercatus.org/bridge/commentary/property-taxes-are-rent-public-landlord (Mentions Henry George)
In the previous essay of this series, I used this basic accounting identity to think about how rent, price, and rate of return to investors are related.
Net Rental Value after maintenance and expenses = Rate of return on investment × Price
The answer depends on what the rent is paying for. In 2014, Byron Lutz, an economist with the Federal Reserve, studied a change in property taxes in New Hampshire. He found that where building was not politically constrained, lower taxes led to more building. Where building was politically constrained, in urban areas with zoning restrictions, lower taxes led to higher prices rather than more building.
we should consider why property taxes don’t change rents or quantities in constrained urban centers. Rents in constrained urban markets are the product of a political cartel. Owners in those cities are collecting unearned profits from monopoly power by using local municipal bureaucracies to prevent new units from being built.
The fact that the renter does not pay the tax in those areas is a good thing. That means the monopolist owner is paying the tax. If politically maintained monopoly power is going to remain, claiming monopolist profits through taxes is an improvement. The fact that the tax doesn’t affect rents is a sign of efficiency. If rents must be elevated, better that they go to local public services than to the real estate cartel.
Ideally, those public revenues could be used to fund local infrastructure that would allow local populations to increase with fewer added stresses or congestion. Where home prices have become extremely high, there is a tremendous opportunity to fund public infrastructure with taxes on monopolist rents.
we should consider why property taxes don’t change rents or quantities in constrained urban centers. Rents in constrained urban markets are the product of a political cartel. Owners in those cities are collecting unearned profits from monopoly power by using local municipal bureaucracies to prevent new units from being built.
The fact that the renter does not pay the tax in those areas is a good thing. That means the monopolist owner is paying the tax. If politically maintained monopoly power is going to remain, claiming monopolist profits through taxes is an improvement. The fact that the tax doesn’t affect rents is a sign of efficiency. If rents must be elevated, better that they go to local public services than to the real estate cartel.
Ideally, those public revenues could be used to fund local infrastructure that would allow local populations to increase with fewer added stresses or congestion. Where home prices have become extremely high, there is a tremendous opportunity to fund public infrastructure with taxes on monopolist rents.
Where housing is politically constrained so that property values are inflated, property taxes can be a relatively pure claim of monopoly profits. So, one could argue that a beneficial policy goal may be to raise property taxes in cities where property values are high.
Using this simple equation, price can be expressed as a function of rental value and rate of return. Further, rate of return can be broken out into several components: the market rate of return required for assets with similar risks, the expected future growth rate of rent on a unit, and the rate of property tax.
Using this simple equation, price can be expressed as a function of rental value and rate of return. Further, rate of return can be broken out into several components: the market rate of return required for assets with similar risks, the expected future growth rate of rent on a unit, and the rate of property tax.
Market Rate of Return – Expected Growth in Rent + Property Tax = ( Net Rental Value / Price )
(Expected rent growth is subtracted from the rate of return because the cash return an investor requires is lower if the investment value is expected to grow. In other words, an investment with a face value of $1 and a dividend of 5 percent that is reinvested is the same as an investment with a starting face value of $1 that increases in value by 5 percent per year with no dividend.)
There are some cities where prices have become exceedingly high. Before the crisis, this was widely blamed on speculative, unsustainable markets. In my book Shut Out, I noted that, to the contrary, high home prices have been highly correlated with high rents. Prices hadn’t become unmoored from rents. They were high because of high rents.
Confusion on this matter comes from the fact that when rents rise in a city, prices tend to rise even more. Figure 1 compares rents and prices among the largest metropolitan areas. The relationship between rent and price is extremely strong.
There are some cities where prices have become exceedingly high. Before the crisis, this was widely blamed on speculative, unsustainable markets. In my book Shut Out, I noted that, to the contrary, high home prices have been highly correlated with high rents. Prices hadn’t become unmoored from rents. They were high because of high rents.
Confusion on this matter comes from the fact that when rents rise in a city, prices tend to rise even more. Figure 1 compares rents and prices among the largest metropolitan areas. The relationship between rent and price is extremely strong.
Figure 2 shows how, over the last twenty years, higher rents have become increasingly associated with higher price/rent ratios. This is because the shortage of urban housing has created localized rent inflation that is expected to continue into the future.
Before urban housing became so difficult to build, rents didn’t just keep rising in economically successful cities. Rents remained moderate as people moved to successful places and homes were built for them. Prices didn’t rise in expectation of future rising rents. The pattern of cities with persistently rising rents and prices that reflect future high rents has only developed recently.
In Atlanta, a new leveraged home buyer has similar total monthly costs as a home buyer in Dallas, but in Dallas, more of those costs flow to the local government instead of to the mortgage lender. Since the property tax can be described as a sort of silent ownership by the government instead by the homeowner, the value of those tax payments to the government is not part of the market value of the home. If we added the value the home has for both the owner and the government, homes in Atlanta and Dallas would have a similar total value.
In Atlanta, a new leveraged home buyer has similar total monthly costs as a home buyer in Dallas, but in Dallas, more of those costs flow to the local government instead of to the mortgage lender. Since the property tax can be described as a sort of silent ownership by the government instead by the homeowner, the value of those tax payments to the government is not part of the market value of the home. If we added the value the home has for both the owner and the government, homes in Atlanta and Dallas would have a similar total value.
Henry George's Single Tax Could Combat Inequality
Has great collections of links, but doesn't rebutt the argument that there isn't enough money. If you share this, add the other estimations from other souces
Land Value Tax: Can it Work in the District?
Very informative article examining Land Value Tax and the issues surrounding how it would work in Washington DC.
Makes the point that restrictive zoning lessens its potential impact.
Visualization
Visualize the Math interactively!
Land Value Tax Calculator
Idle Land, Unemployed Workers Caused by Incorrect Taxation
Land Value Tax Revenues Relative to Rent and Land Value
Distribution of wealth between factors of production (See how Rent increases with Productivity)
Idle Land, Unemployed Workers Caused by Incorrect Taxation
Land Value Tax Revenues Relative to Rent and Land Value
Distribution of wealth between factors of production (See how Rent increases with Productivity)
Visualize Earthsharing (LVT)
http://earthsharing.org/visualizing-earth-sharing/
https://web.archive.org/web/20190306034814/http://earthsharing.org/visualizing-earth-sharing/
http://earthsharing.org/visualizing-earth-sharing/
https://web.archive.org/web/20190306034814/http://earthsharing.org/visualizing-earth-sharing/
A high land value tax, uniformly applied, can gradually reverse sprawl, putting vacant and underused land to its highest and best use. There are many other positive social, environmental, and economic effects of land value taxation. However, many of these other positive effects can only be understood by first understanding the spatial effects.
Strong Towns
Strong Towns 6 minute video
https://www.strongtowns.org/landtax Content portal
Strong Towns Land Speculator video: https://www.youtube.com/watch?v=xqQhoZgFZgk
Relationship between Urban Space, productivity, and tax incentives. (Doesn't acutally address LVT directly, but nice short explanation of'Doing The Math' see also the Strong Towns article on tax per acre)
https://www.strongtowns.org/landtax Content portal
Strong Towns Land Speculator video: https://www.youtube.com/watch?v=xqQhoZgFZgk
Relationship between Urban Space, productivity, and tax incentives. (Doesn't acutally address LVT directly, but nice short explanation of'Doing The Math' see also the Strong Towns article on tax per acre)
Why traditional development and efficient use of Land is much preferable to suburban experiment/wasteful land speculator use.
Strong Towns LVT ebook.
Strong Towns Podcast on LVT
Has an interesting idea at getting the same effects by for example charging for roads as a utility.
https://www.strongtowns.org/journal/2020/2/27/anchorage-held-hostage
Strong Towns Podcast about Parking, but actually mostly about how LVT aligns incentives of a city with economic reality.
Strong Towns Podcast about Parking, but actually mostly about how LVT aligns incentives of a city with economic reality.
Webinar with the author
But it explains it all very well!
Fc
The Economist
Should we tax the rich more? Mentions Land Value Tax to provide services
Why Henry George had a point from the Economist
https://www.economist.com/free-exchange/2015/04/01/why-henry-george-had-a-point
Misuse of Urban Space is crippling.
Misuse of Urban Space is crippling.
Land has returned as a constraint on growth
The Time may be right for Land Value tax
Spends too much time naysaying. Dont share without supporting material.
Here is one response: https://www.reddit.com/r/neoliberal/comments/qm70sx/a_response_to_the_economists_article_about_the/
It's time to overhaul Tax for the 21st Century
Today’s tax systems are unforgivably cack-handed
Housing is at the root of many of the rich world’s problems
From the 1960s to the 2000s a quarter of recessions in the rich world were associated with steep declines in house prices. Recessions associated with credit crunches and house-price busts were deeper and lasted longer than other recessions did. Yet the damage caused by poorly managed housing markets goes much deeper than financial crises and recessions, as harmful as they are. In rich countries, and especially in the English-speaking world, housing is too expensive, damaging the economy and poisoning politics. And it is becoming ever more so: from their post-crisis low, global real house prices have since risen by 15%, taking them well past their pre-crisis peak.
Since the second world war, governments across the rich world have made three big mistakes.
Since the second world war, governments across the rich world have made three big mistakes.
1.) They have made it too difficult to build the accommodation that their populations require;
2.) they have created unwise economic incentives for households to funnel more money into the housing market; and
3.) they have failed to design a regulatory infrastructure to constrain housing bubbles.
2.) they have created unwise economic incentives for households to funnel more money into the housing market; and
3.) they have failed to design a regulatory infrastructure to constrain housing bubbles.
As this report shows, flexible planning systems, appropriate taxation and financial regulation can turn housing into a force for social and economic stability.
Affordability
Why is Rent so High?
https://www.youtube.com/watch?v=7HZANYxnkWk
How to end Poverty?
https://www.youtube.com/watch?v=itO7OoKtNUc
https://www.youtube.com/watch?v=7HZANYxnkWk
How to end Poverty?
https://www.youtube.com/watch?v=itO7OoKtNUc
Why you can't afford to buy a house and how to fix it | Laurie Macfarlane | TEDxTotnes
https://www.youtube.com/watch?v=YI4trJE8atI&t=1s
https://www.youtube.com/watch?v=YI4trJE8atI&t=1s
16th century English Land Enclosure lead to capitalism, democracy, modern world.
Want affordable Housing? Look to the land!
http://solidgroundcampaign.org/blog/want-affordable-housing-look-land
http://solidgroundcampaign.org/blog/want-affordable-housing-look-land
Explains many of the benefits inherent to the system.
A better way to solve the housing crisis — tax land, not development
“The Perfect Tax”: Land Value Taxation and the Housing Crisis
https://brownpoliticalreview.org/2021/12/the-perfect-tax-land-value-taxation-and-the-housing-crisis/
China could avoid housing bubbles if it looked to Sun Yatsen or Singapore
https://www.scmp.com/comment/insight-opinion/united-states/article/2169147/how-china-can-tax-its-way-out-housing-bubble
https://www.scmp.com/comment/insight-opinion/united-states/article/2169147/how-china-can-tax-its-way-out-housing-bubble
Stop blaming immigrants for the housing crisis
https://medium.com/@t.keating3/stop-blaming-immigrants-for-the-housing-crisis-8a3189181394
So what is the real reason for impossible house prices? The answer is underneath our feet. Land.
So what is the real reason for impossible house prices? The answer is underneath our feet. Land.
In fact 90% of the variation in House price/Earnings ratio can be explained by a least-squares regression of this ratio on UK household land value! I’ve included 95% prediction intervals.
LVT captures the economic gains from investment in a location that are not due to the landowner’s own effort. Currently this unearned wealth gain is factored into the market value of all land and property when it is sold. With LVT, all land becomes relatively cheaper because this source of unearned wealth, known as economic rent, is removed.
Growth
See also
+History:Examples:Pennsylvania
Faster Growth Begins With a Land Tax in U.S. Cities
The case for taxing land
https://web.archive.org/web/20070814040319/http://www.newstatesman.com/200409200007
https://web.archive.org/web/20070814040319/http://www.newstatesman.com/200409200007
What happens when we remove tax on buildings but not land?
https://www.phillymag.com/property/2017/04/10/tax-abatement-huge-shot-in-arm-for-city-study-finds/
(Philadelphia tax abatement on improvements)
(Philadelphia tax abatement on improvements)
Previously, Philadelphia imposed a ruinous local income tax, which over the decades was shown to be one of the core reasons Philadelphia lost 25% of its population. Philadelphia also imposes a special cigarette tax and a tax on sugary drinks both of which fit the definition of "social engineering."
New York from http://www.americaisnotbroke.net/p/the-slideshow.html
Governor Al Smith of New York got the state legislature to allow NYC to tax land but not buildings for 10 years and new construction tripled.
Governor Al Smith of New York got the state legislature to allow NYC to tax land but not buildings for 10 years and new construction tripled.
- More and cheaper housing, higher wages for construction workers, more businesses to sell to them
- Law expired in 1931 but NYC kept growing, despite beginning the decade with higher density than other cities and without growing its boundaries.
- Law expired in 1931 but NYC kept growing, despite beginning the decade with higher density than other cities and without growing its boundaries.
In 2017, Akron Mayor Dan Horrigan created a 15-year, 100 percent, citywide property tax abatement program. I am proud to say that it is attracting new residents, investors, and home builders to Akron. In 2015, only 10 houses were built in our entire city. Today, there are over 1,000 housing units in some stage of development.
Why dont more cities use the split rate tax?
https://nextcity.org/daily/entry/cities-split-rate-property-taxes-value-capture-land-value-Innovation-lab
https://nextcity.org/daily/entry/cities-split-rate-property-taxes-value-capture-land-value-Innovation-lab
Explains how it works.
Developing Cities Need Cash. Land Value Capture Can Help
https://www.wri.org/insights/developing-cities-need-cash-land-value-capture-can-help
https://www.wri.org/insights/developing-cities-need-cash-land-value-capture-can-help
Land value capture is a financing tool that allows local governments to charge fees and taxes to developers and property owners and raise revenue that can then be reinvested into community and city services. It is a technical term for a simple idea that's applicable to cities of all types and it is especially important and underutilized in developing cities. This tool has been more commonly used in developed cities, but developing cities have much to gain if they can implement land value capture effectively.
As an urban area grows and develops, the price or value of land generally goes up — especially when the government invests in public infrastructure or implements zoning changes and incentives for private developers. Land value capture allows the local government to tap into this increasing land value, in locations made attractive and livable through government investment. The concept is a way for the city to ensure that some of the value generated by public sector investments and interventions — which the private sector can benefit from, and build on — is reinvested into the community.
When managed well, the benefits of land value capture can promote inclusive and equitable urban development, creating a virtuous cycle by paying for more services like basic sanitation and public transit, and amenities like parks and green space. Land value capture ensures that government action generates broader public benefits.
As an urban area grows and develops, the price or value of land generally goes up — especially when the government invests in public infrastructure or implements zoning changes and incentives for private developers. Land value capture allows the local government to tap into this increasing land value, in locations made attractive and livable through government investment. The concept is a way for the city to ensure that some of the value generated by public sector investments and interventions — which the private sector can benefit from, and build on — is reinvested into the community.
When managed well, the benefits of land value capture can promote inclusive and equitable urban development, creating a virtuous cycle by paying for more services like basic sanitation and public transit, and amenities like parks and green space. Land value capture ensures that government action generates broader public benefits.
Why Minneapolis (and every other city) Needs a land value tax
Assessments
Assessments of property taxes rob from the poor and give to the rich.
https://cpb-us-w2.wpmucdn.com/voices.uchicago.edu/dist/6/2330/files/2019/04/Berry-Reassessing-the-Property-Tax-3121.pdf
https://www.jstor.org/stable/27891010?seq=1
https://www.propublica.org/series/the-tax-divide
https://www.arnoldventures.org/stories/property-taxes-rob-from-the-poor-give-breaks-to-the-rich/
https://cpb-us-w2.wpmucdn.com/voices.uchicago.edu/dist/6/2330/files/2019/04/Berry-Reassessing-the-Property-Tax-3121.pdf
https://www.jstor.org/stable/27891010?seq=1
https://www.propublica.org/series/the-tax-divide
https://www.arnoldventures.org/stories/property-taxes-rob-from-the-poor-give-breaks-to-the-rich/
Berry found that between 2011 and 2015, Cook County, which includes Chicago, shifted $2.2 billion worth of the property tax burden from properties that were undervalued to those that were overvalued. A lot of that came right off the top. He estimated that roughly $800 million was shifted from the top 10 percent of properties, by actual value, to the bottom 90 percent. After Detroit began its first citywide reappraisal in six decades, Berry found that, while average assessments had gone down, most properties in the bottom third in terms of sales price were being assessed well above limits set by the Michigan constitution.
See also Washington post story on Racial Inequalities https://www.washingtonpost.com/business/2021/03/12/property-tax-regressive/?outputType=amp
A recent study of 118 million homes nationwide found that Black and Hispanic homeowners pay 10 to 13 percent more in property taxes than whites who own similar properties. “One of the big issues is that the law should be applied to everyone the same,
But we can make it better:
Solving the assessment problem is one way to fix regressivity, but beyond that there are several things that could make property taxes not only more fair but progressive. For one thing, people in less expensive homes could be charged lower rates, just as income tax rates are often based on income levels. Many jurisdictions already give property tax breaks to seniors and farmers. They could choose to offer more breaks to more people. They could also make discounts that are already on the books automatic. For instance, most states have homestead exemptions that make roughly the first $8,000 or $10,000 worth of value tax-free, but not everyone knows to apply for that exemption.
Finally, one major reason people in more expensive homes pay less is that they’re more likely to appeal their assessments. Right now, there’s little downside and the owner has a strong incentive to appeal. By appealing the assessment, the owner might get it lowered, but even if the appeal is denied, they’re not going to end up paying more. Finding ways to change the appeals incentives might stop people from assuming they’ll come out ahead, Murphy suggests.
Once people are aware of the discrepancies, they don’t approve of them, even if they benefit. Berry’s work in Chicago underpinned a series of stories from the Chicago Tribune and ProPublica that became a finalist for the Pulitzer Prize. More importantly, the stories helped convince Cook County voters they needed to change assessors. “The wealthiest parts of the city, which were going to have to pay more in taxes, voted, if anything, even more for the reformer,” Berry said. “No one wants to pay taxes, but I don’t think affluent people want to feel like the poor are paying their taxes for them.”
A LVT would be even better.
Assessing is not the largest problem.
Denmark used to asses urban locations with panels of local citizens. (It was changed b/c CAM was cheaper.) from Fred Harrison: The Traumatized Society ch: Between Eden and Nod
In short, it is not true that valuing land is problematic, as opponents or sceptics of land value taxation often assert – often the same people who quite happily accept the valuation of buildings, even though this is more difficult. Valuing land, especially in towns, which is where the most valuable land is located (because it is in high demand) is much simpler, because, as discussed, it depends essentially on location. Indeed, in the United States where split-rate tax systems operate, according to a valuer in one city, some 95 per cent of his valuation staff is employed valuing buildings, whilst only 5 per cent is involved in valuing land. Moreover, invariably, there are many more appeals against the valuation of buildings than of land, with authorities winning more appeals on land than on buildings.
https://www.landvaluetax.org/download-document/126-glasgow-city-council-local-taxation-working-group-overall-findings.html
https://www.landvaluetax.org/download-document/125-glasgow-city-council-critique-by-david-mills.html
https://www.valuergeneral.nsw.gov.au/land_values/how_do_we_value_land/quality_assurance
https://www.landvaluetax.org/download-document/125-glasgow-city-council-critique-by-david-mills.html
https://www.valuergeneral.nsw.gov.au/land_values/how_do_we_value_land/quality_assurance
A new way to precisely assess real estate values.
https://pages.jh.edu/jrer/papers/pdf/forth/accepted/Property price separation between land and building components_update.pdf
https://pages.jh.edu/jrer/papers/pdf/forth/accepted/Property price separation between land and building components_update.pdf
Observed sales prices are direct references for the market value of properties, but they do not provide information about the separate valuesoflandand building. There are different theories and methods, each one being limited in practice. This paper presents thetroublesome issueof price separation and proposes apractical alternative, using detailed data from Montreal (Canada). The empirical results support the separability thesis in practice for the cases of residential properties.
Gwartney on Estimating Land Value
http://www.wealthandwant.com/docs/Gwartney_Estimating_LV.html
http://www.henrygeorge.org/ted.htm?fbclid=IwAR3QYz5noD7QkT2LSqisBOp_ZNhvh09EgClPgwrL5oXEAoq-XbUX0_1VxyA
http://www.henrygeorge.org/ted.htm?fbclid=IwAR3QYz5noD7QkT2LSqisBOp_ZNhvh09EgClPgwrL5oXEAoq-XbUX0_1VxyA
FAQ
Mason Gaffney's Answer to Futilitarians
- Points Made in The Corruption of Economics
- Geofiscalism composes common rights in land with private tenure of land, and free markets.
- Geofiscalism untaxes labor without raising taxes on capital, or capital formation.
- Geofiscalism composes equity with efficiency.
- Local and regional (state, provincial) governments can pay for public services as generously as they please while simultaneously attracting industry, capital and population by untaxing them.
- Geofiscalism contains urban sprawl without denying consumers free choice of location
- Geofiscalism creates jobs without use of inflationary demand stimulus.
- Geofiscalism lets a polity attract people without diluting its resource base. We may label this the “Hong Kong Effect,” although it is observable in most thriving cities.
- Geofiscalism makes jobs while abating demands on nature and the environment. This is a byproduct of containing urban sprawl (cf. #5, #9), and the Hong Kong Effect (#7).
- Geofiscalism promotes economy in government.
- New Points
- Geofiscalism lets us raise tax rates without impairing the tax base: there is no “Laffer-curve Effect.”
- Geofiscalism effects a radical social and economic reform in a completely non-catastrophic way, working silently through existing institutions and the free market.
- Geofiscalism may be and has been applied by local, central, and intermediate levels of government.
- Geofiscalism may be and has been applied in whole or in part. It is compatible with a mixed economy. It may be applied immediately, or phased in slowly, as preferred.
- Geofiscalism is impervious to tax-avoidance and evasion schemes: foreign tax havens, tax shelters, profit shifting, concealment, electronic transfers, smuggling, creative accounting, etc.
- Geofiscal levies are enforceable without tracing persons, and without threatening them with jail or other personal penalties. The land is the hostage.
- Geofiscalism democratizes access to land, in the manner of open access to a commons, yet without relaxing the constraint on economic use.
- Geofiscalism has the effect of extending land credit to the poor, and everyone, with no risk of non-repayment.
- Geofiscalism speeds the renewal of sites now occupied or covered by decayed and/or obsolete machinery, equipment and buildings. It does so without subsidies, either direct ones to new equipment or indirect ones like sacrificing tax revenues
- Geofiscalism raises revenue without any complex machinery and paperwork such as bedevil the income taxes (corporate and personal), and without any confidentiality of tax data from the press and the public
LVT FAQ and response to objections
In response to a Land Value Tax, Landlords will serve to maximize their own best interests, and absorb the entirety of the tax, meaning no deadweight loss occurs, and renters have no tax burden to worry about.
http://markwadsworth.blogspot.com/2016/12/causation-is-not-creation_28.html?_sm_au_=iVV6QFrV3Nqk7VMN (Response to spillover effects)
https://www.reddit.com/r/AskEconomics/comments/amzc6n/wouldnt_a_land_value_tax_just_result_in_increased/
https://www.reddit.com/r/georgism/comments/an7nqq/a_response_to_georgism/
http://kaalvtn.blogspot.co.uk/p/index.html
http://www.landvaluetax.org/frequently-asked-questions/
https://www.reddit.com/r/AskEconomics/comments/amzc6n/wouldnt_a_land_value_tax_just_result_in_increased/
https://www.reddit.com/r/georgism/comments/an7nqq/a_response_to_georgism/
http://kaalvtn.blogspot.co.uk/p/index.html
http://www.landvaluetax.org/frequently-asked-questions/
http://www.c4ej.com/resources/a-simple-guide-to-land-value-tax
http://markwadsworth.blogspot.com/2016/06/laffer-curve-of-planning.html
http://markwadsworth.blogspot.com/2016/06/laffer-curve-of-planning.html
"Tragedy of the Commons" style objections.
Labour Land Campaing FAQ
Nick Tideman explains the role of Land Speculation. (It can be good under some scenarios)
http://www.wealthandwant.com/docs/Tideman_LTaELS.html
There are both speculative and land-management reasons for spending resources on foreseeing changes in the opportunities to use land. The speculative reason is purely private, while the land-management reason is both private and social. Taxation of land reduces (in the limit, eliminates) the speculative reason for foreseeing land use opportunities, and thereby eliminates the waste of resources in seeking to be first to perceive such opportunities. In the absence of a speculative reason for foreseeing changes in land-use opportunities, a market might develop in insurance against changes that would generate land-management losses.
All four taxes analyzed have the beneficial effect of reducing the waste of resources involved when people seek to be the ones who own land when its improved prospects become known. Taxes on land also have the beneficial effect of reducing the extent to which society suffers from an artificial scarcity of land induced by the winner's curse. In addition, taxes on land ameliorate the consequences of capital market imperfections.
The least beneficial taxes on land are taxes on the realized income from land and on realized gains from the sale of land. They impose no explicit costs on those who hold land idle, and they tax entrepreneurship as well as land. A tax on realized income from land also has conceptual difficulties when applied to those who own the land they use. A tax on the realized gain from the sale of land has the unfortunate characteristic of being avoidable by refraining from transferring land.
Taxes on the sale value and rental of land have no such unfortunate consequences. Taxes on the sale value of land do the most to discourage speculation. However, if assessors treat developed land as if it is more valuable than similar land that is not developed, there will be an inefficient incentive to postpone development.
A very important effect of taxing land is the opportunity it provides for removing non-neutral taxes such as those on improvements. This is highly stimulative of development. A related stimulative opportunity that is created by taxing land is the opportunity to provide services such as water, sewerage and electricity at marginal cost.
If nations that are setting up systems of private possession of land are concerned about land speculation, the best course of action is not to seek to regulate or prohibit speculation, but rather to tax land enough to make speculation not w
The initial effect on the sale value of land of a tax on the rental value of land (disregarding general equilibrium effects and the value of any services financed by the tax), is to reduce the value of all land by the same percentage as the tax rate. That is, the tax is capitalized into the purchase price of land. It is borne by those who hold land at the time the tax is announced. Feldstein (1977) has shown that in a closed economy, a tax on rent can generate income effects that produce a new equilibrium with higher saving and lower interest rates, which have an upward effect on land prices, thereby shifting at least part of the tax. These effects do not arise in a small open economy, as when a single urban area taxes land. Furthermore, if the proceeds of the tax are used to finance public services that add to the value of land, it is possible for those who hold land to be better off with the combination of taxes and public expenditures than they would be with neither. In any case, income effects do not constitute economic distortions. A tax on the rental value of land has no distorting effects as long as it is assessed in such a way that there is no action that possessors of land can take that will increase or decrease their taxes.
The effect on land speculation of a tax on the rental value of land is to reduce the return from being the one who possesses land when its improved prospects become known. Less effort will be spent in seeking to discover what land will rise in value and in seeking to acquire land in advance of when the rise in value becomes generally known. Because the winner's curse will be less prominent, less land will be withheld from development.
With the incentive to speculate in land reduced by taxes on land, it might be expected that there will be a tendency for land to be developed prematurely out of ignorance of its future prospects. However, the land management motive for anticipating transitions remains. With taxes on the rental value of land, those who contemplate developing land will have an incentive to discover whether the land they plan to develop will rise in value, because if they do not take account of such prospects, they will find themselves with tax bills higher than they anticipated, and possibly with no additional revenue with which to pay them. In addition, as long as a tax on the rental value of land takes only part of the rental value, potential developers of land will also be motivated to perceive future opportunities because of the greater profit that can then be attained from improved development decisions
There are both speculative and land-management reasons for spending resources on foreseeing changes in the opportunities to use land. The speculative reason is purely private, while the land-management reason is both private and social. Taxation of land reduces (in the limit, eliminates) the speculative reason for foreseeing land use opportunities, and thereby eliminates the waste of resources in seeking to be first to perceive such opportunities. In the absence of a speculative reason for foreseeing changes in land-use opportunities, a market might develop in insurance against changes that would generate land-management losses.
All four taxes analyzed have the beneficial effect of reducing the waste of resources involved when people seek to be the ones who own land when its improved prospects become known. Taxes on land also have the beneficial effect of reducing the extent to which society suffers from an artificial scarcity of land induced by the winner's curse. In addition, taxes on land ameliorate the consequences of capital market imperfections.
The least beneficial taxes on land are taxes on the realized income from land and on realized gains from the sale of land. They impose no explicit costs on those who hold land idle, and they tax entrepreneurship as well as land. A tax on realized income from land also has conceptual difficulties when applied to those who own the land they use. A tax on the realized gain from the sale of land has the unfortunate characteristic of being avoidable by refraining from transferring land.
Taxes on the sale value and rental of land have no such unfortunate consequences. Taxes on the sale value of land do the most to discourage speculation. However, if assessors treat developed land as if it is more valuable than similar land that is not developed, there will be an inefficient incentive to postpone development.
A very important effect of taxing land is the opportunity it provides for removing non-neutral taxes such as those on improvements. This is highly stimulative of development. A related stimulative opportunity that is created by taxing land is the opportunity to provide services such as water, sewerage and electricity at marginal cost.
If nations that are setting up systems of private possession of land are concerned about land speculation, the best course of action is not to seek to regulate or prohibit speculation, but rather to tax land enough to make speculation not w
The initial effect on the sale value of land of a tax on the rental value of land (disregarding general equilibrium effects and the value of any services financed by the tax), is to reduce the value of all land by the same percentage as the tax rate. That is, the tax is capitalized into the purchase price of land. It is borne by those who hold land at the time the tax is announced. Feldstein (1977) has shown that in a closed economy, a tax on rent can generate income effects that produce a new equilibrium with higher saving and lower interest rates, which have an upward effect on land prices, thereby shifting at least part of the tax. These effects do not arise in a small open economy, as when a single urban area taxes land. Furthermore, if the proceeds of the tax are used to finance public services that add to the value of land, it is possible for those who hold land to be better off with the combination of taxes and public expenditures than they would be with neither. In any case, income effects do not constitute economic distortions. A tax on the rental value of land has no distorting effects as long as it is assessed in such a way that there is no action that possessors of land can take that will increase or decrease their taxes.
The effect on land speculation of a tax on the rental value of land is to reduce the return from being the one who possesses land when its improved prospects become known. Less effort will be spent in seeking to discover what land will rise in value and in seeking to acquire land in advance of when the rise in value becomes generally known. Because the winner's curse will be less prominent, less land will be withheld from development.
With the incentive to speculate in land reduced by taxes on land, it might be expected that there will be a tendency for land to be developed prematurely out of ignorance of its future prospects. However, the land management motive for anticipating transitions remains. With taxes on the rental value of land, those who contemplate developing land will have an incentive to discover whether the land they plan to develop will rise in value, because if they do not take account of such prospects, they will find themselves with tax bills higher than they anticipated, and possibly with no additional revenue with which to pay them. In addition, as long as a tax on the rental value of land takes only part of the rental value, potential developers of land will also be motivated to perceive future opportunities because of the greater profit that can then be attained from improved development decisions
Gaffney (1961, 1973) has suggested an additional reason why taxing land will improve the efficiency of land development decisions: It mitigates friction in the lending market. Land, he says, is an investment that commends itself to investors with low discount rates and high opportunity costs of their time. It requires little attention; unlike investments in on-going enterprises, land is unlikely to fall greatly in value as a consequence of neglect. Potential users of land, on the other hand, tend to be people who have above-average discount rates. Because of the combination of differing capacities of borrowers to offer collateral and the difficulties in identifying borrowers who will be good risks, an equilibrium can persist in which competing bidders for land have quite divergent discount rates. In such circumstances, the taxation of land ameliorates the variation in discount rates. The capitalization of land taxes into lower purchase prices constitutes a substitution of a recurring annual charge for a one-time charge. This makes land relatively more attractive to people with high discount rates, and relatively less attractive to people with low discount rates, shifting land out of the hands of people who will tend to leave it idle and into the hands of people who will tend to develop it. Since this circumvents friction in the lending market, the consequent earlier development of land is more efficient.
Land Reform
Successful Land Reform using LVT
Taiwan, Denmark, Estonia, Hong Kong, Korea, Japan, Singapore.
Gen. Chiang Kai-shek likewise forced land reform on Taiwan (below). A 1980’s World Bank study credited land reform with creating the basis for their economic miracles. Secure farmers can afford to consume manufactured goods. Soon successful industries can trade with other developed nations. Another World Bank report, in 1998 by Roy Prosterman and Tiom Hanstad, Chapter 10, “Land Taxation” by Jennifer Duncan: “Land tax is an important vehicle for transferring some of the benefits of land privatization to the public sector. Revenues from land tax can fund significant and increasing portions of infrastructure and social services, fostering public and local government support for privatization.”
https://en.wikipedia.org/wiki/Land_bonds#Land_bonds_in_Taiwan
https://en.wikipedia.org/wiki/Land_bonds#Land_bonds_in_South_Korea
https://en.wikipedia.org/wiki/Occupation_of_Japan#Emphasis_on_stability_and_economic_growth
Zimbabwe would have been spared a lot of suffering if they'd just listened to Joshua Nkoma
Why Mugabe Killed a nation
https://www.youtube.com/watch?v=haKgDkXKU24
https://en.wikipedia.org/wiki/Land_bonds#Land_bonds_in_Taiwan
https://en.wikipedia.org/wiki/Land_bonds#Land_bonds_in_South_Korea
https://en.wikipedia.org/wiki/Occupation_of_Japan#Emphasis_on_stability_and_economic_growth
Zimbabwe would have been spared a lot of suffering if they'd just listened to Joshua Nkoma
Why Mugabe Killed a nation
https://www.youtube.com/watch?v=haKgDkXKU24
In contrast to Japan, Taiwan, South Korea, Hong Kong and Singapore, Rwanda and Ethiopia have failed to recapture land value so investment goes to urban land space and productive investment is starved.
From South African Land Reform POV - with implementation details, policy proposals, and response to criticisms of implementation.
Stephen Meintjies wrote a book: [Our Land our Rent Our Jobs] https://onlinelibrary.wiley.com/doi/abs/10.1111/1467-8268.12193
https://www.businesslive.co.za/bd/opinion/2018-07-16-charging-of-land-rent-by-the-state-and-distributing-the-income-is-fairer/
Stephen Meintjies wrote a book: [Our Land our Rent Our Jobs] https://onlinelibrary.wiley.com/doi/abs/10.1111/1467-8268.12193
https://www.businesslive.co.za/bd/opinion/2018-07-16-charging-of-land-rent-by-the-state-and-distributing-the-income-is-fairer/
https://www.youtube.com/watch?v=iAupS_nJsc0 - Most Taxes should be Abolished. (Good explanation)
https://www.youtube.com/watch?v=FQlf5TLk29E
https://www.youtube.com/watch?v=FQlf5TLk29E
South Africa's Urban Land Crisis: https://youtu.be/Uv349ZoJLEA
Good charts on how public investment becomes land prices around 9:20
Here is a true story about so-called property rights and investment. Five months ago, the government of Saudi Arabia arbitrarily arrested 200 of the richest people in the country. It claimed this was a “corruption sweep”, but there were no court trials, no legal process. The detainees were kept in detention until they signed away ownership stakes in their companies, or whole assets. The whole programme was conducted to fill a budget deficit left by lower oil prices. It was quite literally expropriation without compensation.
Far from hiding this, the Saudi Arabian government has publicly boasted that it expropriated over R1.2-trillion, at least the same order of magnitude as all the agricultural land in South Africa. And the stock market is up 7% this year, not on government buying, or in oil stocks. Far from a downgrade, the rating agencies are about to include the Saudi stock exchange in several international indices.
Far from hiding this, the Saudi Arabian government has publicly boasted that it expropriated over R1.2-trillion, at least the same order of magnitude as all the agricultural land in South Africa. And the stock market is up 7% this year, not on government buying, or in oil stocks. Far from a downgrade, the rating agencies are about to include the Saudi stock exchange in several international indices.
More generally, here is a non-exhaustive list of countries that have undertaken radical land reform, compulsorily dispossessing large landowners: Japan (1946-48); South Korea (1945-50); Taiwan, China (1950-); Mainland China (1947-55, 1962; 1978); Vietnam (1953-56); Cuba (1959); Peru (1969); Columbia (1968-69); Venezuela (2003); Iran (1962-71); Russia (1917-22); Ethiopia (1974); and Zimbabwe (2000).
Some of those countries were subsequent disasters. Some were subsequently the greatest growth stories in history. Some were both, at different periods. The point is the absence of any fixed relationship. There is no evidence from anywhere that the violation of legal property rights inherited from an old regime has, in and of itself, any determinative effect on future growth or investment.
Here is another case, perhaps the most extreme. At the height of the Cold War, in the 1970s to 1980s, Western banks lent the countries of the Warsaw Pact tens of billions of dollars. By 1982 such debts amounted to over $60-billion (roughly $150-billion today) lent to core members of the Soviet bloc. These were countries committed to having no property rights at home, and to the revolutionary overthrow of property rights everywhere. The banks didn’t care. They lent anyway.
Georgist Platform
+Politics
+Politics:Platforms and Policy
https://taxshiftexplorer.org/
https://www.hgsss.org/lvt-calculator/
Law of Rent
Why is Rent so High? - Explains Law of Rent
https://www.youtube.com/watch?v=7HZANYxnkWk
https://www.youtube.com/watch?v=7HZANYxnkWk
It's odd, but although the Law of Rent is every bit as fundamental as the laws of supply and demand, or motion, or thermodynamics, a great many people have never heard of it. Why do you suppose that is?
Land Rental Value is the annual fee individuals are willing to pay for the exclusive right to use a land site for a period of time.
Rental Value of land is also equal to the contributions society publicly makes to land value.
IOW: Rent is the price labor must pay for the opportunity to utilize its power. When the productive power of labor increases, rent also increases. All the advantages gained by the steady progress of society goes to higher rents and real wages do not increase.
Perfect Market Theory cannot explain the price of land.
Real estate is the only resource that people buy more of the more expensive it gets, which is a result of the law of rent in action. Returns to real estate are passive gains, funded by the labor of others to make a location desirable.
Ricardo noticed that the bargaining power of laborers can never dip below the produce obtainable on the best available rent-free land, because whenever rent leaves them with less than they could get on that free land, they can simply move to the new location. The produce obtainable on the best available rent-free land is known as the margin of production. Since landlords have a monopoly over a given location, the only limiting factor for rent is the margin of production. Thus, rent is a differential between the productive capacity of the land and the margin of production.
The rental value of land can alternatively be expressed the amount that the second-most-efficient available user of that land would be willing to pay in order to use the land in place of the most efficient available user
Capital Growth in Land is ultimately from Market Failure.
Explain Ricardo's Law of Rent
PT 1: https://www.youtube.com/watch?v=yyv1xYDWAxk&app=desktop
Pt 2: https://www.youtube.com/watch?v=gH7uisv0tfc
Pt 2: https://www.youtube.com/watch?v=gH7uisv0tfc
See Also video from same author in the 'Rental Value' section below.
-Perfect Market Theory cannot explain land values
- Land is one of the most important elements of the economy.
-Perfect Market Theory cannot explain land values
- Land is one of the most important elements of the economy.
Land Values are the dominant factor in real estate prices.
- Price of land is actually unrelated to its productivity.
- When land is free there is no incentive to take on more than you can manage.
- As population pressure occupies more land the standard of living for all tenants and employees falls across entire land market, despite productivity not changing.
- When land is free there is no incentive to take on more than you can manage.
- As population pressure occupies more land the standard of living for all tenants and employees falls across entire land market, despite productivity not changing.
Rental value increases on most productive land as marginal land is brought into production.
Tenants on more productive land have a net income = income of the person settling on the least productive land.
Tenants on more productive land have a net income = income of the person settling on the least productive land.
- Wages are equalized across the entire community by rents.
In a perfect market (mobile, informed) rents will be raised to the point where they take the marginal product. (Net product of all tenants, wages or entrepreneurship will be marginal.) See Wages Line.
- Rent will eventually be expressed as the difference between the basic productivity of the land and a minimal (subsistence) standard of living.
Eplain Law of Rent and the Implications
https://www.ethicaleconomics.org.uk/2010/08/the-law-of-rent-the-concept/
https://www.ethicaleconomics.org.uk/2010/09/the-law-of-rent-the-application/
https://www.ethicaleconomics.org.uk/2010/09/the-law-of-rent-the-application/
Ricardian Rent in picture form
https://www.reddit.com/r/georgism/comments/frjsa8/ive_updated_my_pictures_of_ricardos_really_rather/
https://www.reddit.com/r/georgism/comments/g7z8b3/land_economics_and_ground_rent_part_2_speculation/
https://www.reddit.com/r/georgism/comments/hkofy6/land_economics_and_ground_rent_part_3_debt_lending/
https://i.redd.it/8k859zxnfqp41.jpg
https://imgur.com/a/1sGEawI
https://imgur.com/a/6OxFPJv
https://imgur.com/a/BAmIP5H
https://www.reddit.com/r/georgism/comments/g7z8b3/land_economics_and_ground_rent_part_2_speculation/
https://www.reddit.com/r/georgism/comments/hkofy6/land_economics_and_ground_rent_part_3_debt_lending/
https://i.redd.it/8k859zxnfqp41.jpg
https://imgur.com/a/1sGEawI
https://imgur.com/a/6OxFPJv
https://imgur.com/a/BAmIP5H
So for our Classical purposes, we can divide the rent of land into two components:
The natural resources found on the land, including the quality of farmland/grassland, mineral and carbohydrate reserves, freshwater and timber reserves, etc. This is the type of land value that François Quesnay, the father of Economics, was talking about when he published his Tableau Économique and first proposed that a government should tax only land rents.
The distance to the nearest central business district of the land, ie. how far it is from the nearest location where goods and labour can be exchanged, and more specifically how much it costs to transport goods/labour to/from that location. This is the sort of land rent that Adam Smith pointed out in Wealth of Nations.
David Ricardo then combined both of these two components into his Law of Rent, based on which Henry George founded his whole movement, and the rest is history... But how is this so called Ricardian rent assessed?
The Mecklenburger economist Johann Heinrich von Thünen elucidated on that when he developed the first geographical model of land rent, his concentric circle model of agricultural land use, which for the first time accurately described the reasons for the distribution of production of different agricultural products.
Over a century later in the 1960’s, William Alonso added to von Thünen’s model and developed the Bid Rent Theory. In the modern day, the land value component of property value is calculated using a multivariate differential function taking into account both natural resource value, polycentric bid rent, as well as samples of recent local sale/rent rates of land.
Note that what I described is what’s called Ricardian rent. There’s also what’s called Paretian rent, which is for example what Pigouvian taxes are taxing. As an oversimplification, you can think of Paretian rent as rent derived from all other types of monopoly (in the broadest sense of the word) than just land monopoly, but the specifics are a topic for another day.
Explain Rent in wider context and why we should recapture it.
It’s important to recognize that the "tax" Smith spoke of isn’t the kind we pay to government; rather, it’s the kind we pay, much less visibly, to businesses with power. That’s because prices in capitalism are driven by four factors: supply, demand, market power and political power. The first two, which are omnipresent in economics texts, determine what might be called fair market value; the last two, which are prevalent in the real world, determine rent. Actual prices charged are the sum of fair market value and rent. Another way to say this is that rent is the extra money people pay above what they’d pay in truly competitive markets.
Law of Rent Example
http://www.henrygeorge.org/rent1.htm
http://www.henrygeorge.org/chart.htm Charting the costs of land speculation
Location Rent
In economics, Thünen rent is an economic rent created by spatial variation or location of a resource. It is 'that which can be earned above that which can be earned at the margin of production'.
Locational rent, a term used by Thünen in his argument, is to be understood as the equivalent to land value. It corresponds to the maximum amount a farmer could pay for using the land, without making losses. The location rent is given by the following equation:
Locational rent, a term used by Thünen in his argument, is to be understood as the equivalent to land value. It corresponds to the maximum amount a farmer could pay for using the land, without making losses. The location rent is given by the following equation:
L= Y(P-C) - YDF
where the variables are defined as follows:
where the variables are defined as follows:
L: Locational rent
Y: Yield
P: Market price of the crop
C: Production cost of the crop
D: Distance from the market
F: Transport cost
Y: Yield
P: Market price of the crop
C: Production cost of the crop
D: Distance from the market
F: Transport cost
According to Fred Foldvary:
In a competitive market, P=C if cost includes normal returns on asset value. If C is only the explicit costs, then P-C is the accounting profit. Is Y the yield of land? I don't understand
Y(P-C), land yield times accounting profit.
Y(P-C), land yield times accounting profit.
Von Thunen's Model of Land use
https://en.wikipedia.org/wiki/Johann_Heinrich_von_Th%C3%BCnen
https://en.wikipedia.org/wiki/Johann_Heinrich_von_Th%C3%BCnen
http://www.sjsu.edu/faculty/watkins/thunen.htm
In the von thünen model the bid-rent function declined as a result of the increased transportation costs to transport the produce of one unit of land one additional unit of distance.
Extended to Urban Land use by William Alonso
In the von thünen model the bid-rent function declined as a result of the increased transportation costs to transport the produce of one unit of land one additional unit of distance.
Extended to Urban Land use by William Alonso
William Alonso's Bid-Rent Function Theory
https://archive.org/details/locationlanduset0000alon/page/46
http://www.sjsu.edu/faculty/watkins/alonso.htm
Gives land use, rent, intensity of land use, population and employment as a function of distance to the CBD of the city as a solution of an economic equilibrium for the market for space.
http://www.sjsu.edu/faculty/watkins/alonso.htm
Gives land use, rent, intensity of land use, population and employment as a function of distance to the CBD of the city as a solution of an economic equilibrium for the market for space.
A preliminary rationalization of a bid-rent function for a household came out of the Chicago Transportation Study. There the results indicated that households behaved as though they had a combined rent and transportation budget such that if transportation cost were higher then the amount that they would pay for rent is lower.
Bid-rent function theory may be formulated mathematically. Let U(x,h,T) be the utility function of a household where h is the amount of housing space used, T is the amount of leisure time and x is the consumption of other goods and services. The budget faced by the household is that of:
px + rh = y0 + w(1-t-T)
or equivalently
or equivalently
px + rh + wT = y0 + w(1-t)
where t is the commuting time, w the wage rate, y0 the nonwage income. Given t, r and p the household maximizes utility
Urban Agglomeration Theory
https://en.wikipedia.org/wiki/Economies_of_agglomeration
https://www.amazon.com/Order-without-Design-Markets-Cities-ebook/dp/B07L3DJVHP/ref=mp_s_a_1_1?dchild=1&keywords=order+without+design&qid=1587287924&sprefix=order+with&sr=8-1
https://www.amazon.com/Order-without-Design-Markets-Cities-ebook/dp/B07L3DJVHP/ref=mp_s_a_1_1?dchild=1&keywords=order+without+design&qid=1587287924&sprefix=order+with&sr=8-1
Economies of agglomeration or agglomeration effects are cost savings arising from urban agglomeration, a major topic of urban economics. One aspect of agglomeration is that firms are often located near to each other.[1]:1 This concept relates to the idea of economies of scale and network effects.
As more firms in related fields of business cluster together, their costs of production may decline significantly (firms have competing multiple suppliers; greater specialization and division of labor result). Even when competing firms in the same sector cluster, there may be advantages because the cluster attracts more suppliers and customers than a single firm could achieve alone. Cities form and grow to exploit economies of agglomeration.
Diseconomies of agglomeration are the opposite. For example, spatially concentrated growth in automobile-oriented fields may create problems of crowding and traffic congestion. It is the tension between economies and diseconomies that allows cities to grow but keeps them from becoming too large.
The basic concept of agglomeration economies is that production is facilitated when there is a clustering of economic activity. The existence of agglomeration economies is central to the explanation of how cities increase in size and population, which places the phenomenon on a larger scale. The concentration of economic activity in cities is one reason for their development and growth.
As more firms in related fields of business cluster together, their costs of production may decline significantly (firms have competing multiple suppliers; greater specialization and division of labor result). Even when competing firms in the same sector cluster, there may be advantages because the cluster attracts more suppliers and customers than a single firm could achieve alone. Cities form and grow to exploit economies of agglomeration.
Diseconomies of agglomeration are the opposite. For example, spatially concentrated growth in automobile-oriented fields may create problems of crowding and traffic congestion. It is the tension between economies and diseconomies that allows cities to grow but keeps them from becoming too large.
The basic concept of agglomeration economies is that production is facilitated when there is a clustering of economic activity. The existence of agglomeration economies is central to the explanation of how cities increase in size and population, which places the phenomenon on a larger scale. The concentration of economic activity in cities is one reason for their development and growth.
Skyscrapers and land values: Evidence from Chicago on the costs of building tall cities
As shown in Figure 1, we find that land values and building heights are positively correlated, as suggested by neoclassic theory. The elasticity of height with respect to the land price at the time of construction is 45% for commercial buildings and 30% for residential buildings. The height elasticity about doubled over the 20th century. Following significant improvements in construction technology, developers now respond to increasing land prices by building taller at a much faster rate than in the past. Yet, building tall remains expensive. The height elasticity of construction cost with respect to height is about 25% for small structures (five floors and less), increasing in height, and exceeding 100% for super-tall structures.
The cost of height is higher for residential than for commercial buildings. This result is consistent with a larger loss of usable floor space as building height increases, and is reflective of some notable differences in the design of commercial and residential towers. Tall residential buildings typically have a smaller floor plate size (due to the need for more exterior walls), use different materials (e.g. all-concrete due to acoustic reasons), and have more complex facades (with balconies and sunrooms), all of which is not advantageous for the construction of very tall buildings.
These results have important implications for the determinants of urban spatial structure, as they suggest that there is a supply-side mechanism that promotes the typical land-use segregation observed within cities. The strong concentrations of economic activity that are typically observed within clusters – such as central business districts, sub-centres, or edge cities – are likely to be attributable not only to strong agglomeration forces, but also to a relatively lower cost of accommodating commercial uses in tall structures that minimise the use of expensive land.
Our results also have important implications for policymakers concerned with the affordability of their cities, as they suggest that it is difficult to combat escalating rents by means of skyscraper development alone. Beyond intermediate heights, the cost of building tall increases quickly and at an exponential rate. Ultimately, affordable space can only be provided if a city does not only grow vertically, but also horizontally. This is an important lesson for cities with already dense land use and binding urban growth boundaries such as London.
ELEVATORS are FREE! The owner of a building provides free elevators so he can get rent above the lower floors.
Mass transit is actually just like an elevator. (point made here https://www.youtube.com/watch?v=8kXAD_QZC9A around 1 hour mark.)
Similarly, a Mall is a place full of renters with public goods provided by the owners. (Security, entrances, etc.)
Similarly, a Mall is a place full of renters with public goods provided by the owners. (Security, entrances, etc.)
Freeways
Freeway expansion lead to the artificial dispersion of Rent by negating locational advantage of inner cities.
Freeway expansion lead to the artificial dispersion of Rent by negating locational advantage of inner cities.
Henry George Theorem
see also +Research:Henry George Theorem
According to Stiglitz' Henry George Theorem:
The amount of land rent in a particular domain is approximately equal to all public spending at all levels in that domain.'
Vickery claims DC has never had a public works project that didn't pay for itself in land values.
(See the research page on Henry George Theorem for updated studies)
(See the research page on Henry George Theorem for updated studies)
under certain circumstances, a public service will increase land rent[1] enough that, if the increase in land rent is collected as public revenue, this revenue will sufficient to pay for the service.
For many public services, such as parks and libraries, their benefit is greater to the people who are closer to the place where the service itself is provided. Therefore, people bid up the rental value of land that is closer to provision of such desirable services. If all of the benefits from proximity to a new public service are reflected in increased rents, and if the service is worth at least as much as it costs to provide, then public collection of the increase in rents will suffice to pay for the service.
For many public services, such as parks and libraries, their benefit is greater to the people who are closer to the place where the service itself is provided. Therefore, people bid up the rental value of land that is closer to provision of such desirable services. If all of the benefits from proximity to a new public service are reflected in increased rents, and if the service is worth at least as much as it costs to provide, then public collection of the increase in rents will suffice to pay for the service.
1,) the public service must be worthwhile.
2.) access to the benefits of the public service must be spatially limited.
3.) there must be a market process by which rents are determined.
4.) there must be enough people who are both
2.) access to the benefits of the public service must be spatially limited.
3.) there must be a market process by which rents are determined.
4.) there must be enough people who are both
a) mobile
b) able to benefit from the service in full
to bid up rents to a degree equal to or greater than the value of the full benefit of the service.
b) able to benefit from the service in full
to bid up rents to a degree equal to or greater than the value of the full benefit of the service.
Economic Capitalization - Public goods are capitalized into land values.
https://www.progress.org/articles/economic-capitalization
Economic capitalization” is the conversion of a flow of income into a stock of value.
This is also referred to as the present value of a future flow. Imagine a place that had a lake, but is now dry. A river starts flowing into the lake. If you measure the volume of river water per day, you would be able to measure how big the lake will be in a week. The water flow is capitalized into a stock or amount of water. If one were to sell the value of that water today, even before the lake is full, it would be the present value of the expected flow of water.
As real estate is a major asset and a major cost for households and enterprise, the capitalization of territorial benefits is an important economic phenomenon. The net benefits of the public goods and civic services provided by government generate higher land rent and become capitalized into higher land values because most of the payment comes from taxes other than on that land value. A worker who is also a renter pays both higher rent and taxes for the public goods. If the worker-tenant is double-billed, someone is getting subsidized - the landowner. Owners of land obtain higher land value because their sites get services paid for by others, from taxes on wages, enterprise profits, value added, and the sale of goods.
"This implicit subsidy constitutes a forced redistribution of wealth from workers to landowners. This redistribution is a major reason why wages have stagnated even while economies have kept growing. The higher rent is not recognized because most of it is masked in forms such as profits, interest, dividends, and taxes."
The capitalization of benefits into land value has another consequence: much of the gains from economic expansion, due to both better technology and more investments in education and capital goods, gets captured by higher rent and land value. The increase in real estate prices during an economic boom attracts speculators who create an unsustainable bubble that then crashes and brings down with it the financial sector, as happened in 2008.
Economic capitalization” is the conversion of a flow of income into a stock of value.
This is also referred to as the present value of a future flow. Imagine a place that had a lake, but is now dry. A river starts flowing into the lake. If you measure the volume of river water per day, you would be able to measure how big the lake will be in a week. The water flow is capitalized into a stock or amount of water. If one were to sell the value of that water today, even before the lake is full, it would be the present value of the expected flow of water.
As real estate is a major asset and a major cost for households and enterprise, the capitalization of territorial benefits is an important economic phenomenon. The net benefits of the public goods and civic services provided by government generate higher land rent and become capitalized into higher land values because most of the payment comes from taxes other than on that land value. A worker who is also a renter pays both higher rent and taxes for the public goods. If the worker-tenant is double-billed, someone is getting subsidized - the landowner. Owners of land obtain higher land value because their sites get services paid for by others, from taxes on wages, enterprise profits, value added, and the sale of goods.
"This implicit subsidy constitutes a forced redistribution of wealth from workers to landowners. This redistribution is a major reason why wages have stagnated even while economies have kept growing. The higher rent is not recognized because most of it is masked in forms such as profits, interest, dividends, and taxes."
The capitalization of benefits into land value has another consequence: much of the gains from economic expansion, due to both better technology and more investments in education and capital goods, gets captured by higher rent and land value. The increase in real estate prices during an economic boom attracts speculators who create an unsustainable bubble that then crashes and brings down with it the financial sector, as happened in 2008.
Every dollar of public investment ends up in land prices.
One analysis from the National Bureau of Economic Research found that overall, every $1 spent on school funding increases property values by about $20.
Per Martin Smolka of the Lincoln Institute of Land Policy in this video https://www.youtube.com/watch?v=Uv349ZoJLEA
See above point about mass transit working like an elevator.
Land is a unique factor of production
Land ownership actively reallocates labor and capital toward less productive businesses.
If You Can’t Afford the Rent, It’s My Problem, Too
Improving the quality of life in cities matters to more than just the people who live in them.
https://www.bloomberg.com/opinion/articles/2019-03-26/if-you-can-t-afford-the-rent-it-s-my-problem-too
https://www.bloomberg.com/opinion/articles/2019-03-26/if-you-can-t-afford-the-rent-it-s-my-problem-too
Consider an increase in the quality of public services — say, garbage collection, or perhaps in San Francisco the elimination of public urination. You might think that would make life much better for everyone. But in a Ricardo-George model, that is not the case. Mainly what happens is that rents go up and landowners capture most of the newly created surplus.
How would this work? Take the example of San Francisco; with nicer streets, even more people might want to move there. That would push up rents by an amount roughly equal to the value created — putting the gains from the higher quality of life into the pockets of landowners. In a normal market economy, those higher rents would then induce more construction and, eventually, a corresponding decline in rents. But San Francisco is a “not in my backyard” locale where the amount of new construction just isn’t that high, for legal and regulatory reasons. Again, as both Ricardo and George realized, the incidence of the benefit falls upon the very scarce factor, namely land.
The political economy problem now should be obvious: Why exactly would non-landowners press for improvements in their cities? The value of those improvements will be captured mainly by other parties.
By the same token, the incentives are skewed when it comes to the cost of problems. Say air pollution or homelessness gets worse. You might think that would degrade the quality of life in a city. But don’t leap to that conclusion too quickly: To the extent land is truly scarce, the main effect would be a decline in rents and real estate prices. Landowners would be worse off, but the typical city resident might find that the cheaper cost of living offsets the deterioration in conditions.
Once you think about these cities in terms of the Ricardo-George model, it is remarkable how many orthodox views get revised. What about an increase in the minimum wage, for example? Any initial gains for workers will eventually be offset by higher rents.
Like most economic adjustments, these effects are more potent in the long term than in the short term. But the upshot is the same: In a NIMBY-controlled world, many of our most glorious cities will slowly but surely fall apart. Voters just won’t care enough about the quality of public services, and furthermore many voters might end up using their votes to express their ideology (even more so than usual) rather than to elect leaders to solve problems.
How would this work? Take the example of San Francisco; with nicer streets, even more people might want to move there. That would push up rents by an amount roughly equal to the value created — putting the gains from the higher quality of life into the pockets of landowners. In a normal market economy, those higher rents would then induce more construction and, eventually, a corresponding decline in rents. But San Francisco is a “not in my backyard” locale where the amount of new construction just isn’t that high, for legal and regulatory reasons. Again, as both Ricardo and George realized, the incidence of the benefit falls upon the very scarce factor, namely land.
The political economy problem now should be obvious: Why exactly would non-landowners press for improvements in their cities? The value of those improvements will be captured mainly by other parties.
By the same token, the incentives are skewed when it comes to the cost of problems. Say air pollution or homelessness gets worse. You might think that would degrade the quality of life in a city. But don’t leap to that conclusion too quickly: To the extent land is truly scarce, the main effect would be a decline in rents and real estate prices. Landowners would be worse off, but the typical city resident might find that the cheaper cost of living offsets the deterioration in conditions.
Once you think about these cities in terms of the Ricardo-George model, it is remarkable how many orthodox views get revised. What about an increase in the minimum wage, for example? Any initial gains for workers will eventually be offset by higher rents.
Like most economic adjustments, these effects are more potent in the long term than in the short term. But the upshot is the same: In a NIMBY-controlled world, many of our most glorious cities will slowly but surely fall apart. Voters just won’t care enough about the quality of public services, and furthermore many voters might end up using their votes to express their ideology (even more so than usual) rather than to elect leaders to solve problems.
Ricardo's Law ~ The Great Tax Clawback Scam
Any progressive taxation is resturned to the rich by way of rents. (See Henry George Theorem for how public goods increase price of land.)
https://www.landandliberty.net/the-henry-george-theorem/
https://schalkenbach.org/the-henry-george-theorem/
The poor subsidize the rich.
https://www.landandliberty.net/the-henry-george-theorem/
https://schalkenbach.org/the-henry-george-theorem/
The poor subsidize the rich.
Over their lifetime, Britain's Top Earners pay on average about 1.25 million pounds in taxes.
Lower income people, who tend to be renters pay about 0.25 million pounds over their lifetime.
During a boom year, a rich landowner can clawback a lifetime's paid taxes, while the poor are forced to pay more.
Lower income people, who tend to be renters pay about 0.25 million pounds over their lifetime.
During a boom year, a rich landowner can clawback a lifetime's paid taxes, while the poor are forced to pay more.
same in US.
@ ~ 13:00 claims William Vickery showed that there has never been a public works project that didn't pay for itself in land value increases. (See Henry George Theorem) in reference to DC metro
One analysis from the National Bureau of Economic Research found that overall, every $1 spent on school funding increases property values by about $20.
(See the research page on Henry George Theorem for updated studies)
The rich do pay less in taxes
https://www.youtube.com/watch?v=kXCGbAv8YPw
https://www.vox.com/policy-and-politics/2019/11/4/20938229/zucman-saez-tax-rates-top-400
Taxes fall more on lower classes than the upper, despite what nominal rates say. (see also Fred Harrison's Ricardo's law)
https://www.youtube.com/watch?v=kXCGbAv8YPw
https://www.vox.com/policy-and-politics/2019/11/4/20938229/zucman-saez-tax-rates-top-400
Taxes fall more on lower classes than the upper, despite what nominal rates say. (see also Fred Harrison's Ricardo's law)
ATCOR - All Taxes Come Out of Rent
According to Locke(?). No taxes can be paid if no body wants to live or work there.
Explaining ATCOR, EBCOR, And More
ATCOR and EBCOR
https://www.reddit.com/r/georgism/comments/izkwbv/can_someone_please_explain_like_im_5_why_atcor/
https://schalkenbach.org/the-taxable-capacity-of-land/
https://www.reddit.com/r/georgism/comments/izkwbv/can_someone_please_explain_like_im_5_why_atcor/
https://schalkenbach.org/the-taxable-capacity-of-land/
Taxes on wages, profits and consumption have the effect of lowering land rents and values by at least as much as what they would pay by direct taxes on rents. This means that, in reality, most revenue from conventional taxes are actually derived from the rents in the economy. This is the ATCOR thesis.
“ATCOR” (All Taxes Come Out of Rents) may look novel and therefore scary, but its lineage is shown by its other name, “The Physiocratic Doctrine of Tax Incidence”. It dates at least from Quesnay and Turgot and is found in Adam Smith, their student.
But there is more – much more. EBCOR is the acronym for the theory of “excess burden” – the losses that arise from collecting revenue by means of conventional taxes.
Taxes on wages, on profits and consumption have the effect of lowering land rents and values by MORE than what they would pay by direct taxes on rents.
“ATCOR” (All Taxes Come Out of Rents) may look novel and therefore scary, but its lineage is shown by its other name, “The Physiocratic Doctrine of Tax Incidence”. It dates at least from Quesnay and Turgot and is found in Adam Smith, their student.
But there is more – much more. EBCOR is the acronym for the theory of “excess burden” – the losses that arise from collecting revenue by means of conventional taxes.
Taxes on wages, on profits and consumption have the effect of lowering land rents and values by MORE than what they would pay by direct taxes on rents.
What the hell is ATCOR? - Excerpt from “The Hidden Taxable Capacity of Land”, Mason Gaffney, 2009, International Journal of Social Economics 36(4):328-411, pp. 370-76.
http://slrg.scot/what-the-hell-is-atcor/
https://economics.ucr.edu/papers/papers08/08-12old.pdf
http://www.masongaffney.org/publications/G2009-Hidden_Taxable_Capacity_of_Land_2009.pdf
http://slrg.scot/what-the-hell-is-atcor/
https://economics.ucr.edu/papers/papers08/08-12old.pdf
http://www.masongaffney.org/publications/G2009-Hidden_Taxable_Capacity_of_Land_2009.pdf
The meaning and relevance of ATCOR is that when we lower other taxes, the revenue base is not lost, but shifted to land rents and values, which can then yield more revenue.
It has shown that builders offer more for land, and sellers demand more, when the new buildings are to be untaxed. The effect on revenue is the same as taxing prospective new buildings before they are even built, even though the new buildings are not to be taxed at all.
We also observe the ATCOR principle at work in many analogous situations
It has shown that builders offer more for land, and sellers demand more, when the new buildings are to be untaxed. The effect on revenue is the same as taxing prospective new buildings before they are even built, even though the new buildings are not to be taxed at all.
We also observe the ATCOR principle at work in many analogous situations
– Lowering the corporate income tax rate raises stock prices
– Lowering interest rates raises real estate prices
– Commercial rents are multipartite, and a lower share of gross revenues means a higher fixed rent.
– Oil leases are multipartite, and a higher fixed royalty rate means lower bonus bids;
– Wartime taxes depress land prices, while peace dividends let them rise again. There is a long world history of peace dividends followed by land booms.
– The Resource Curse Effect: an influx of mineral revenues, obviating other taxes, leads to land booms.
– The remarkable productivity of the U.S. income tax when wages were exempt, 1916-30, and we paid for World War I with less deficit finance than any other belligerent.
– The utility-rate effect: lower rates mean higher rents and land prices, as observed in practice and explained in theory by Hotelling, Vickrey, Stiglitz, Feldstein, and others.
– Lowering interest rates raises real estate prices
– Commercial rents are multipartite, and a lower share of gross revenues means a higher fixed rent.
– Oil leases are multipartite, and a higher fixed royalty rate means lower bonus bids;
– Wartime taxes depress land prices, while peace dividends let them rise again. There is a long world history of peace dividends followed by land booms.
– The Resource Curse Effect: an influx of mineral revenues, obviating other taxes, leads to land booms.
– The remarkable productivity of the U.S. income tax when wages were exempt, 1916-30, and we paid for World War I with less deficit finance than any other belligerent.
– The utility-rate effect: lower rates mean higher rents and land prices, as observed in practice and explained in theory by Hotelling, Vickrey, Stiglitz, Feldstein, and others.
The thesis that all taxes are shifted to landowners follows from three major premises. One, the supply of land is fixed inside every tax jurisdiction, by definition. Two, after-tax interest rates are determined by world markets, so the local supply of capital is perfectly elastic at a fixed, after-tax rate. Three, labor is also quite mobile – that is how most of our ancestors got here, and then migrated and continue to move all over North America, not to mention switching jobs in the same city. Many of the “top ten cities” of 1900 can hardly make the top 50 today, while many of today’s top ten were not even on the radar in 1900.'
Were we to tax land more and production and consumption and capital less, real wage rates would rise, as better land use and more investing increased demand for labor and lowered product prices. This was the theme of Progress and Poverty, and the primary goal of George’s reforms. He likened the land market, beset by imperfections like speculation, to an unconscious universal cartel withholding much good land from full use, forcing labor and investors out to worse land.
In the event, however, that real wage rates should rise enough to absorb some of the gains from tax reform, it would not lower tax revenues from land. The rise of wages in the Georgist system implies a rise of GDP. The rise would result from removing the excess burdens of current taxes, which in turn will first raise the marginal productivity of labor. That would ensue from opening the “internal frontier”. One can also view that as ending the artificial scarcity of land. This means that workers who now each add, say, $20,000 a year to GDP in menial tasks, or struggling on marginal land, would instead add $40,000 a year each. While this would redistribute income against rents, much of the increase would come from a net rise of GDP.
In the event, however, that real wage rates should rise enough to absorb some of the gains from tax reform, it would not lower tax revenues from land. The rise of wages in the Georgist system implies a rise of GDP. The rise would result from removing the excess burdens of current taxes, which in turn will first raise the marginal productivity of labor. That would ensue from opening the “internal frontier”. One can also view that as ending the artificial scarcity of land. This means that workers who now each add, say, $20,000 a year to GDP in menial tasks, or struggling on marginal land, would instead add $40,000 a year each. While this would redistribute income against rents, much of the increase would come from a net rise of GDP.
Portal to a number of related articles.
Explain ATCOR with simple illustration
http://www.landisfree.co.uk/sa-81-all-taxes-come-out-of-rents-by-rumplestatskin/
http://www.landisfree.co.uk/sa-81-all-taxes-come-out-of-rents-by-rumplestatskin/
You may not realise it, but in the neoclassical market model capital inputs are all leased by firms, and compensated are their marginal contribution to production. This leads to a very circular analysis and an inability to properly understand the concept of rents.
For example, when we whittle our way through the production chain down to the landowner, who has one input, land, the neoclassical framing say that this owner rents their land inputs, which are compensated at their marginal contribution to production. Okay. So she rents off another person who owns the land, who we then model as renting from another person, and so on.
The buck never stops. That’s what happens when you conflate land and capital into a single input. They nee to be treated differently because land is not an output of any production process, unlike capital.
When you allow the buck to stop at ownership of land and natural resources, you get a very different picture of the economy. One in which the taxation capacity of rents is not limited their current value. As Gaffney points out, when we “lower other taxes, the revenue base is not lost, but shifted to land rents and values, which can then yield more taxes”.
ATCOR with a more complicated illustration.
You cannot tax wage or production beyond what labor or capital is willing to accept.
http://thedepression.org.au/all-taxes-come-out-of-rent-atcor/
http://thedepression.org.au/all-taxes-come-out-of-rent-atcor/
The meaning and relevance of ATCOR is that when we lower other taxes, the revenue base is not lost, but shifted to land rents and values, which can then yield more taxes. This is most obvious with taxes on buildings. When we exempt buildings, and raise tax rates on the land under them, we are still taxing the same real estate; we are just taxing it in a different way. We will show that this “different way” actually raises the revenue capacity of real estate by a large factor. There is much recent historical experience with exempting buildings from the property tax, in whole or part. It has shown that builders offer more for land, and sellers demand more, when the new buildings are to be untaxed. The effect on revenue is the same as taxing prospective new buildings before they are even built, even though the new buildings are not to be taxed at all.
The revenue capacity of land, when it is substituted for other tax bases, is comparable to current revenues. Owing to efficiency effects, and renewal effects, it is actually higher, as shown next in Element #12. The major reservation is that the supply of labor is not totally elastic, so some of the revenue gains
may be “lost” in higher wage rates, but on the whole higher wage rates are socially desirable, and serve to lower many public costs as for welfare, policing and jailing, aggressive military spending, make-work projects, etc.
may be “lost” in higher wage rates, but on the whole higher wage rates are socially desirable, and serve to lower many public costs as for welfare, policing and jailing, aggressive military spending, make-work projects, etc.
http://www.georgistjournal.org/2012/10/16/the-unplumbed-revenue-potential-of-land-part-3-atcor-all-taxes-come-out-of-rents/
http://www.wealthandwant.com/themes/ATCOR.html
https://www.prosper.org.au/wp-content/uploads/2018/04/Trickle-Up-Economics-Report-final.pdf
http://www.wealthandwant.com/themes/ATCOR.html
https://www.prosper.org.au/wp-content/uploads/2018/04/Trickle-Up-Economics-Report-final.pdf
Summary
EBCOR - excess burdens come out of rents
https://thedepression.org.au/excess-burden/
https://thedepression.org.au/excess-burden/
this article looks at the amount of deadweight loss there was from 1972 to 2006 in Australia
As you can see, in just 2006 alone, the deadweight loss generated during that period was over $1T, and back then the GDP of Australia was only $922B.
As you can see, in just 2006 alone, the deadweight loss generated during that period was over $1T, and back then the GDP of Australia was only $922B.
Cannan's Law - dissipation of rent by being too attractive to immigrants.
In 1907 Cannan fired off a round at local rating of site values. It hit home. First he recited the logic of what today we call the “tragedy of the commons” (it was common coin long before Garrett Hardin). Then he pointed out that a city taxing only site values to provide free public services would attract too many people and too much capital.
A city is an “open economy,” free to immigration of everything but land, something like an open range or fishery. Even if all cities tax only site values, cities with more rents per head may support public services at higher levels, and so attract immigrants. This distorts locational decisions, attracting people to jobs of lesser productivity where they may gain from better public services. This is “Cannan’s Law"
A city is an “open economy,” free to immigration of everything but land, something like an open range or fishery. Even if all cities tax only site values, cities with more rents per head may support public services at higher levels, and so attract immigrants. This distorts locational decisions, attracting people to jobs of lesser productivity where they may gain from better public services. This is “Cannan’s Law"
acording to Mason Gaffney
https://economics.ucr.edu/papers/papers02/02-17.pdf
https://economics.ucr.edu/papers/papers02/02-17.pdf
There are three bad results from Cannan’s Law.
1) One is an uneconomical distribution of population, as cities with more rentable lands attract more of mobile labor and capital than they should.
2) “dissipation of economic rent.” To make it simple, consider a rich but crowded fishery where another fishing boat added to the crowd will not raise the total catch at all, but simply take fish from other crews who were already there. Interlopers will keep entering until the average boat and crew just make costs, leaving no net rent for anyone. This has long been standard economic lore. As Cannan writes, if a locality uses its rents to benefit all its “inhabitants,” people will flock to the richest places until there is no further gain to immigrants because they have wiped out all the rent.
3) lower the incentive of local governments to provide public services that are open to all comers. It fosters local institutions and attitudes that are harshly hostile to newcomers and outsiders, especially to the poor, young, homeless, hungry, and vagrant.
2) “dissipation of economic rent.” To make it simple, consider a rich but crowded fishery where another fishing boat added to the crowd will not raise the total catch at all, but simply take fish from other crews who were already there. Interlopers will keep entering until the average boat and crew just make costs, leaving no net rent for anyone. This has long been standard economic lore. As Cannan writes, if a locality uses its rents to benefit all its “inhabitants,” people will flock to the richest places until there is no further gain to immigrants because they have wiped out all the rent.
3) lower the incentive of local governments to provide public services that are open to all comers. It fosters local institutions and attitudes that are harshly hostile to newcomers and outsiders, especially to the poor, young, homeless, hungry, and vagrant.
Some successes entail barriers to immigration. Alaska early on set out to limit its social dividend to citizens with five years prior residence in Alaska. It immediately lost out to the ghost of Madison. In Zobel v. Williams (1982)18 the U.S. Supreme Court called this provision a barrier to interstate migration, and struck it down. Alaska’s annual oil dividend survived, but were it not for Zobel might be much higher than today. Meantime, Alaskan landowners pay no property taxes. There goes much of the dividend, and Anchorage is the most sprawled city in North America.
Significantly, exclusionary zoning has NOT been ruled a barrier to interstate migration. Neither have state and city commuter taxes that tax the income of people who live in one state and work in another. It may depend on whose ox is being gored.
Significantly, exclusionary zoning has NOT been ruled a barrier to interstate migration. Neither have state and city commuter taxes that tax the income of people who live in one state and work in another. It may depend on whose ox is being gored.
Ethnic political machines tap into local rents while restricting the benefits to a closed circle that is hard to enter. Note, though, that many machine politicians - Al Smith is the poster boy - have been friendlier to Georgist reforms than have patrician “good government” reformers.
Theocracies with a religious test for entry are noteworthy. Two obvious cases are Congregationalist New England of the 17th Century, and Mormon Utah of the 19th Century. Each was marked by egalitarian sharing of rents among the faithful. Neither was able or wanted to expand its example to encompass other faiths, however, except via conversion. (SEE ALSO ANCIENT JEWS)
California has quite a history of taxing land for public benefits. But what public? California cannot exclude U.S. citizens directly, but does so indirectly by winking at the widespread use of illegal alien labor for stoop and sweatshop work. These aliens repel eastern U.S. immigrants, while the aliens, mostly non-voting, are excluded from most public benefits.
Taxes on the use and improvement of marginal lands sterilize them, said George, "and tend to drive population and wealth from them to the great cities." Godfrey Dunkley argues convincingly that that is what VAT did, when South Africa adopted it for the very purpose of making marginalized blacks pay taxes.20 That is not the last word on the subject either, but shows there is more to it than Cannan began to disclose. As George maintained, aborting rent on marginal land, not just rent-sharing on superior land, distorts locational decisions.
In the single-tax era in western Canada, that crested ca. 1919, organized real estate people were a major force promoting the exemption of buildings.21 They often support land tax increases: some of them even opposed Proposition 13 in California. They recognize the role of infrastructure in promoting economic development, and the benefits of untaxing buildings. Chambers of Commerce, however, now put much more emphasis on attracting capital than labor. Changes in fiscal federalism, discussed below, have reshaped their incentives and
Rental value
Land, Property, and Value
Pt1: https://www.youtube.com/watch?v=mNDzwUOQUjQ
Capital growth in land is ultimately derived from Market failure.
Pt2: https://www.youtube.com/watch?v=c7AwnAzTgd8
Distributive & Commutative Justice
Capital growth in land is ultimately derived from Market failure.
Pt2: https://www.youtube.com/watch?v=c7AwnAzTgd8
Distributive & Commutative Justice
Very nice definition of basic economic terms. (Also takes quick swipe at Neoclassical economics)
1.) The real question in economics is the distribution between land and labor.
The Economics of Real Estate
The private appropriation of publicly generated land rent is a de-facto tax. It's a "redistribution of wealth" from those who produce to those who don't. It is, in short, "welfare" for landlords.
Georgist Theory of Value versus Marx (Labor Theory of Value) and Austrian (Subjective)
Marx and Austrians ignore land.
George's opinion on value and exchange value.
https://www.reddit.com/r/georgism/comments/mpqvzl/georges_opinion_on_value_and_exchange_value/
https://www.reddit.com/r/georgism/comments/mpqvzl/georges_opinion_on_value_and_exchange_value/
"Let me put the proposition in another form: The current theory is that it is when and because a thing becomes exchangeable that it becomes valuable. My contention is that the truth is just the reverse of this, and it is when and because a thing becomes valuable that it becomes exchangeable. It is not the toil and trouble which a thing has cost that gives it value. It may have cost much and yet be worth nothing. It may have cost nothing and yet be worth much. It is the toil and trouble that others are now willing, directly or indirectly, to relieve the owner of, in exchange for the thing, by giving him the advantage of the results of exertion, while dispensing him of the toil and trouble that are necessary accompaniments of exertion. Whether I have obtained a diamond, for instance, by years of hard toil or by merely stooping to pick it up — a movement which can hardly be called an exertion, since it is in itself but a gratification of curiosity which does not involve irksomeness — has nothing whatever to do with its value. That depends upon the amount of toil and trouble that others will undergo for my benefit in exchange for it; or what amounts to the same thing, which they will dispense me of in the satisfaction of my desire, by giving me things in exchange, for which others will undergo toil and trouble."
Estimating Rental Value
http://wealthandwant.com/docs/Gwartney_Estimating_LV.html
Land Market Value = (Land Rental Value - Land Taxes)/Capitalization Rate
Land Market Value is the land rental value, minus land taxes, divided by a capitalization rate. (1) Each of these terms is defined as follows:
Land Market Value is the land rental value, minus land taxes, divided by a capitalization rate. (1) Each of these terms is defined as follows:
- Land Rental Value is the annual fee individuals are willing to pay for the exclusive right to use a land site for a period of time. This may include a speculative opportunity cost.
- Land Taxes is the portion of the land rental value that is claimed for the community.
- Capitalization Rate is a market determined rate of return that would attract individuals to invest in the use of land, considering all of the risks and benefits which could be realized.
- Land Market Value is the land rental value, minus land taxes, divided by a capitalization rate.
Capital values versus rental values
https://www.labourland.org/downloads/papers/chapters/4.pdf
https://www.labourland.org/downloads/papers/chapters/4.pdf
The methods most frequently used for valuing land give its capital value. This is often presented as a problem, because for the purposes of charging landowners for the use of the land that they occupy on an ongoing (normally annual) basis, it is generally assumed that it is the rental value that is required. However, in a modern economy, it makes little difference, because capital values can easily be converted into rental values simply by multiplying capital values by the prevailing discount rate, which is the average going rate of return on capital invested in all economic activities. Conversely, rental values can be converted into capital values by dividing by the discount rate. For example, if the discount rate is 10 per cent, a site with a capital value or market price of £100,000 would have a rental value of £10,000 per annum (the capital value of £100,000 multiplied by the discount rate of 0.1).
Capital Appreciation in Land derives ultimately from Market failure.
Not only are workers more productive on the best locations, but more can work there, per unit of area — because of infrastructure and other synergistic factors.
(See urban agglomeration) https://en.wikipedia.org/wiki/Economies_of_agglomeration
http://www.georgistjournal.org/2017/04/10/charting-the-costs-of-land-speculation/#more-1900
Wealth output has increased, because workers are more productive, now that more of them have access to the better land, from which they were previously locked out. Infrastructure cost is less, because development no longer leapfrogs past unused land.
Because of more efficient use of land across the board, some land is now unused, despite the fact that it had been provided with roads, schools, police protection, etc. It would make sense to use society’s rent fund to pay the relatively low cost of maintaining that infrastructure. If that were done, there would be usable free land, available to anyone who wished to use it — all in all, quite a practical anti-poverty program!
How Much Rent is there?
see also +Research:Data
Land value map of the US
https://www.pnas.org/content/117/47/29577
https://www.pnas.org/content/117/47/29577
if we believe Albouy/Smith's estimates, than PLACES actually still undervalues land considerably, even though PLACES significantly increases valuations compared to the prior art it found in its literature review
(ie, PLACES found their model had higher valuations than prior work, but Albouy/Smith are even higher)
(ie, PLACES found their model had higher valuations than prior work, but Albouy/Smith are even higher)
The UK Office for National Statistics (ONS) estimates that over half of the UK’s wealth is land wealth.
https://www.ons.gov.uk/economy/nationalaccounts/uksectoraccounts/bulletins/nationalbalancesheet/2018
https://www.ons.gov.uk/economy/nationalaccounts/uksectoraccounts/bulletins/nationalbalancesheet/2018
New Zealand - today over half the share of non-produced assets for households is due to land.
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3954888
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3954888
About half of all lending in the US is just real estate.
https://www.youtube.com/watch?v=HVvVVdr__gA&feature=youtu.be&list=PLEI97cRvOTGWQd-5z4gBEKvrij_Sws74M&fbclid=IwAR1tnnNDIrfCQeILxQHZcTCs2gxHLquqxdhY4Cvtwje6bj4jESWut0JMwnE
~ 26 minutes
https://www.youtube.com/watch?v=HVvVVdr__gA&feature=youtu.be&list=PLEI97cRvOTGWQd-5z4gBEKvrij_Sws74M&fbclid=IwAR1tnnNDIrfCQeILxQHZcTCs2gxHLquqxdhY4Cvtwje6bj4jESWut0JMwnE
~ 26 minutes
Land Share of Real Estate Values
See also: Mason Gaffney: Hidden taxable capacity of land.
See also: Mason Gaffney: The Unplumbed Revenue Potential of Land
See also: Mason Gaffney: The Unplumbed Revenue Potential of Land
As it happens, a 5% tax is (usually) a rough idea of the total rental value of land.
Just to be clear. A 5% tax is on historical capitalized values. A 100% tax on rent values would presumably generate revenue equal to ~5% of current capitalized values, and reduce future capitalized values to 0. The market would only be willing to pay the 100% tax on rent per year, and nothing to the current holder besides paperwork fees and the cost of transaction.
Just to be clear. A 5% tax is on historical capitalized values. A 100% tax on rent values would presumably generate revenue equal to ~5% of current capitalized values, and reduce future capitalized values to 0. The market would only be willing to pay the 100% tax on rent per year, and nothing to the current holder besides paperwork fees and the cost of transaction.
http://www.henrygeorge.org/rem42.htm
Because Australia has a long tradition of recording land assessments separately from improvements — and in many places collecting land value taxes — data on aggregate rent is easier to uncover in Australia than in other nations. A 2003 study by Terry Dwyer that surveyed Australian land value records from 1911 to 1999 showed privately collected land rent to be as much as 26% of Australian GDP — more than the 24% of GDP currently collected in taxes, of which only a very small portion is publicly collected land rent.
Because Australia has a long tradition of recording land assessments separately from improvements — and in many places collecting land value taxes — data on aggregate rent is easier to uncover in Australia than in other nations. A 2003 study by Terry Dwyer that surveyed Australian land value records from 1911 to 1999 showed privately collected land rent to be as much as 26% of Australian GDP — more than the 24% of GDP currently collected in taxes, of which only a very small portion is publicly collected land rent.
This study was updated by Gavin Putland of Prosper Australia in 2018
Trickle-Up Economics - Assessing the impact of privatized land rent on economic growth
https://www.prosper.org.au/wp-content/uploads/2018/04/Trickle-Up-Economics-Report-final.pdf
Trickle-Up Economics - Assessing the impact of privatized land rent on economic growth
https://www.prosper.org.au/wp-content/uploads/2018/04/Trickle-Up-Economics-Report-final.pdf
See summary Here.
The economic rent of land (rental value plus smoothed realized capital gains) has increased from 2% of GDP in the early 1950s to more than 20% of GDP in 2017.
Since 2003, the economic rent of land has consistently exceeded 15% of GDP. Private rent extraction is a drain on the capacity of workers and employers to invest in future growth.
“Rent-seeking may, indeed, impose costs to the economy as high, if not higher, than those arising from corruption.” ~Anthony Ogus, Corruption and Regulatory Structures June 26, 2003
Since 2003, the economic rent of land has consistently exceeded 15% of GDP. Private rent extraction is a drain on the capacity of workers and employers to invest in future growth.
“Rent-seeking may, indeed, impose costs to the economy as high, if not higher, than those arising from corruption.” ~Anthony Ogus, Corruption and Regulatory Structures June 26, 2003
The Global Financial Crisis and the recession of the early 1990s were preceded by notable shrinkage of the percentage of GDP accruing to labour and capital, as distinct from land.
An increase in land rent of 1% of GDP corresponds to a loss of 0.124% per annum in GDP growth.
When labour and capital get a greater fraction of GDP, growth is faster, and the cumulative effect of that growth will eventually make landowners better off in absolute terms, although not in relative terms.
https://www.youtube.com/watch?v=h05FIlk1fsk
Fred Foldvary on Smart Talk
Fred Foldvary on Smart Talk
~ 22 minutes or so.
Rent is around 1/3 of GNP
Monopoly profits other than rent are only around 3% of GNP.
Rent is around 1/3 of GNP
Monopoly profits other than rent are only around 3% of GNP.
Has anyone calculated a gross revenue estimate for the US government if it replaces all taxes with a single land value tax?
Total US Location value: $23 trillion in 2009 (Based on Larson Study, rather than the later Albouy study, which would be even higher.)
Economic Rents are estimated to make 6% APR over the next decade which happens to be the exact amount needed (7.3/117≈6%) to fund the entire US government as is, no changes and ignoring any increased efficiencies from positive externalities.
Why Rent can't be passed on
With a Land Value Tax, the owner has to pay that tax every month whether they have a tenant or not. They're already charging the highest amount the market will bear, and as we've already shown, they are unable to change the supply of land. All the leverage is on the side of the tenants, which forces the landlord to eat the tax. The price to buy the land goes down, the price for a tenant to rent it goes down, but the total amount of income the land itself produces ("land rent") stays the same. A portion of it is just being collected by the taxing agency.
That's the theory at least. Does it hold up in real life?
According to the evidence, the answer is yes.
One day, Denmark decided to redraw all its municipal boundaries. Regions that had been under one local government woke up the next day under a different one, immediately adopting a new set of local regulations and rules, including changed tax rates. This caused a large-scale, semi-random shuffling of Land Value Tax rates overnight.
http://www.wealthandwant.com/themes/Not_Passed_On.html
http://www.wealthandwant.com/docs/Kavanaugh_Landlord_can%27t_pass.html
http://www.wealthandwant.com/docs/Kavanaugh_Landlord_can%27t_pass.html
Quotes and References from Economists and Politicians.
(Excellently Explained with Supply Curves and Math)
Trying to pass a LVT on to renters harms the landlord more than if he absorbs it.
In response to a Land Value Tax, Landlords will serve to maximize their own best interests, and absorb the entirety of the tax, meaning no deadweight loss occurs, and renters have no tax burden to worry about.
Trying to pass a LVT on to renters harms the landlord more than if he absorbs it.
In response to a Land Value Tax, Landlords will serve to maximize their own best interests, and absorb the entirety of the tax, meaning no deadweight loss occurs, and renters have no tax burden to worry about.
https://schalkenbach.org/library/henry-george/hg-speeches/why-the-landowner-cannot-shift-the-tax-on-land-values.html
https://web.archive.org/web/20170205021009/https://schalkenbach.org/library/henry-george/hg-speeches/why-the-landowner-cannot-shift-the-tax-on-land-values.html
https://web.archive.org/web/20170205021009/https://schalkenbach.org/library/henry-george/hg-speeches/why-the-landowner-cannot-shift-the-tax-on-land-values.html
Here, for instance, is a piece of land that has a value— let it be where it may. Its rent, or value, is the highest price that anyone will give for it—it is a bonus which the man who wants to use the land must pay to the man who owns the land for permission to use it. Nor, if a tax be levied on that rent or value, this in no wise adds to the willingness of anyone to pay more for the land than before; nor does it in any way add to the ability of the owner to demand more. To suppose, in fact, that such a tax could be thrown by landowners upon tenants is to suppose that the owners of land do not now get for their land all it will bring; is to suppose that, whenever they want to, they can put up prices as they please.
This is, of course, absurd. There could be no limit whatever to prices did the fixing of them rest entirely with the seller. To the price which will be given and received for anything, two wants or wills must concur—the want or the will of the buyer, and the want or will of the seller. The one wants to give as little as he can, the other to get as much as he can, and the point at which the exchange will take place is the point where these two desires come to a balance or effect a compromise. In other words, price is determined by the equation of supply and demand. And, evidently, taxation cannot affect price unless it affects the relative power of one or other of the elements of this equation.
This is, of course, absurd. There could be no limit whatever to prices did the fixing of them rest entirely with the seller. To the price which will be given and received for anything, two wants or wills must concur—the want or the will of the buyer, and the want or will of the seller. The one wants to give as little as he can, the other to get as much as he can, and the point at which the exchange will take place is the point where these two desires come to a balance or effect a compromise. In other words, price is determined by the equation of supply and demand. And, evidently, taxation cannot affect price unless it affects the relative power of one or other of the elements of this equation.
https://www.reddit.com/r/georgism/comments/cweomb/eli5_why_is_georgism_bad_for_landlords_and_why_do/eyatvix/
Originally By Green Meklar
Originally By Green Meklar
It's not that the landlords can't pass on the LVT to the tenants, but more like they're already passing it on. They already charge the tenants as much as they can get away with. They can't raise the price, because if they could raise the price, they already would have raised it before the tax went into effect. (After all, it's free money, and everybody wants as much of that as they can get.)
Here's a thought experiment to illustrate the concept. Imagine if you inherited a special, unique marble sculpture by Michelangelo that only your family knew about. You know it's valuable, and you want to sell it so you can retire to Hawaii and never have to work again. An art appraiser tells you that it's worth $12 million; and when you offer it to museums, the Uffizi is willing to pay $10 million for it, the British Museum is willing to pay $11 million, and the Louvre is willing to pay $12 million. Okay, but now imagine that the government wants to tax you 20% on sales of artwork. In order to pocket your original $12 million, you would need to increase your sale price to $15 million. But you can't do this! The highest offer was only $12 million. The highest offer is $12 million regardless of how much tax you have to pay on the sale, because the museums don't care how much tax you pay. If you want to sell the piece, your best option is to sell it to the Louvre at $12 million and pocket a 'mere' $9.6 million after paying the tax. Effectively, you pay the entire tax on the sale, because you're already charging as much as you can for the one sculpture you have to sell.
The key here is that the Michelangelo sculpture is fixed in supply. There's just the one piece, and neither you nor anybody else can create a second one, nor can you constrain the supply of the one that exists (other than by breaking it, but that would just be a waste). That one item is all you have to bargain with, so the buyers get to set the price, and the tax has no effect on that price. The same sort of thing happens with land. The amount of land that actually exists is all the landlords have to bargain with, and they're already charging as much as they can for it, so they can't increase the price in response to the tax.
http://www.econlib.org/library/Ricardo/ricP3.html#Ch.10, Taxes on Rent
http://www.econlib.org/library/Ricardo/ricP3a.html#Ch.12, Land-Tax
http://www.econlib.org/library/Ricardo/ricP3a.html#Ch.12, Land-Tax
My interpretation of the argument is that since labor and capital will move to the location where they earn the highest return, they will move to lower rent areas if land owners in higher rent areas attempt to pass on the tax. The land value tax allows labor and capital to move to lower rent areas to avoid attempts by landowners to pass on the tax in higher rent areas, because the land value tax does not follow labor and capital to lower rent locations. Rather, the land value tax drops off to zero at the marginal locations which are the least productive in use.
If the land tax was flat and taxed all land equally regardless of location (ie it was not a tax on land values), then labor and capital would not be able to avoid the attempts of land owners to pass on the tax, as the tax would follow labor and capital and still be present wherever they moved.
The answer to this question is very simple if you imagine yourself in the situation of a landlord.
As a landlord, I already charge as much as I can obtain for my property. I may decide to charge a bit below top rate so as to avoid it being empty, or I may stick out for the last penny which means I must accept that the property will be empty for 10% of the time. Either way, I am getting as much is I possibly can.
Once LVT is introduced, then I am liable to pay the tax whether the property is occupied or not. So I have a stronger incentive to set the price competitively so as to ensure that it is vacant for as short a time as possible.
Can Landlords really pass on higher property taxes to tenants?
https://mitcre.mit.edu/news/can-landlords-really-pass-higher-property-taxes-tenants
https://mitcre.mit.edu/news/can-landlords-really-pass-higher-property-taxes-tenants
Study shows 80% or more of tax on improvements is passed thru to tenants.
When UK taxed 'Buy to Rent' properties, Rent actually decreased even though incomes increased during the same time.
https://www.theguardian.com/money/2019/jan/23/uk-rents-fall-for-first-time-in-a-decade
https://www.theguardian.com/money/2018/oct/16/taxes-buy-to-let-landlords-rents-generation-rent-buyers
https://www.theguardian.com/money/2018/oct/16/taxes-buy-to-let-landlords-rents-generation-rent-buyers
Dirk Loehr says in this talk ~47:00 that LVT can be passed on to the tenant in the short run, but not the long run.
Land is the highest returning asset class over the long term.
Land is a fundamentally different asset class, it is truly a distinct, unique factor of production.
Throughout history land and its necessity to sustain life and generate wealth has played an pivotal role in economic and financial calculations. Smart people who recognize this can make outsize returns without others realizing how it works.
Why is Land Different?
https://evonomics.com/josh-ryan-collins-land-economic-theory/
https://www.researchgate.net/publication/253005405_Land_as_a_Distinctive_Factor_of_Production
http://www.wealthandwant.com/docs/Gaffney_LaaDFoP.html
Land is permanent, cannot be produced or reproduced, cannot be ‘used up’ and does not depreciate. None of these features apply to capital. Capital goods are produced by humans, depreciate over time due to physical wear and tear and innovations in technology (think of computers or mobile phones) and they can be replicated. In any set of national accounts, you will find a sizeable negative number detailing physical capital stock ‘depreciation’: net not gross capital investment is the preferred variable used in calculating a nations’s output. When it comes to land, net and gross values are equal.
https://www.researchgate.net/publication/253005405_Land_as_a_Distinctive_Factor_of_Production
http://www.wealthandwant.com/docs/Gaffney_LaaDFoP.html
Land is permanent, cannot be produced or reproduced, cannot be ‘used up’ and does not depreciate. None of these features apply to capital. Capital goods are produced by humans, depreciate over time due to physical wear and tear and innovations in technology (think of computers or mobile phones) and they can be replicated. In any set of national accounts, you will find a sizeable negative number detailing physical capital stock ‘depreciation’: net not gross capital investment is the preferred variable used in calculating a nations’s output. When it comes to land, net and gross values are equal.
Indeed, although land values change with – or some would say drive – economic and financial cycles, in the long run land value usually appreciates rather than depreciates like capital. This is inevitable when you think about it – as the population grows, the economy develops and the capital stock increases, land remains fixed. The result is that land values (ground rents) must rise, unless there is some countervailing non-market intervention.
Indeed, there is good argument that as economies mature, the demand for land relative to other consumer goods increases. Land is a ‘positional good’, the desire for which is related to one’s position in society vis a vis others and thus not subject to diminishing marginal returns like other factors. As technological developments drive down the costs of other goods, so competition over the most prized locational space rises and eats up a greater and greater share of people’s income as Adair Turner has recently argued. (https://press.princeton.edu/books/hardcover/9780691169644/between-debt-and-the-devil)
A recent study of 14 advanced economies found that 81% of house price increases between 1950 and 2012 can be explained by rising land prices with the remainder attributable to increases in construction costs (http://voxeu.org/article/home-prices-1870)
Consequences of the neglect of land
Today’s economics textbooks – in particular microeconomics – slavishly follow the tenets of marginal productivity theory. ‘Income’ is understood narrowly as a reward for one’s contribution to production whilst wealth is understood as ‘savings’ due to one’s productive investment effort, not as unearned windfalls from being the owner of land or other naturally scarce sources of value. In many advanced economies land values – and capital gains made from increasing property prices – are not properly measured and tracked over time. As Steve Roth has noted for Evonomics, the U.S.’ National accounts does not properly take in to account capital gains and changes in household’s ‘net worth’, much of which is driven by changes in land values
In the UK, land is not included as a distinct asset class in the National Accounts, despite being one of the largest and most important asset classes in the economy. Instead, the value of the underlying land is included in the value of dwellings and other buildings and structures, which are classed as ‘produced non-financial assets
Even progressive economists such as Thomas Piketty have fallen in to this trap. Once you strip out capital gains (mainly on housing), Piketty’s spectacular rise in the wealth-to-income ratio recorded in advanced economics in the last 30 years starts to look very ordinary (Figure 1 shows the comparison for great Britain since 1970).
Thus this huge growth in wealth relative to the rest of the economy originates not from the saving of income derived from people’s contribution to production (activity that would have created jobs and raised incomes), but rather from windfalls resulting from exclusive control of a scarce natural resource: land.
In the UK, land is not included as a distinct asset class in the National Accounts, despite being one of the largest and most important asset classes in the economy. Instead, the value of the underlying land is included in the value of dwellings and other buildings and structures, which are classed as ‘produced non-financial assets
Even progressive economists such as Thomas Piketty have fallen in to this trap. Once you strip out capital gains (mainly on housing), Piketty’s spectacular rise in the wealth-to-income ratio recorded in advanced economics in the last 30 years starts to look very ordinary (Figure 1 shows the comparison for great Britain since 1970).
Thus this huge growth in wealth relative to the rest of the economy originates not from the saving of income derived from people’s contribution to production (activity that would have created jobs and raised incomes), but rather from windfalls resulting from exclusive control of a scarce natural resource: land.
This may help us explain – at least in part – the great ‘productivity puzzle’– that is, why productivity (and related average incomes) been flat-lining, even as ‘wealth’ has been increasing. The puzzle is explained by the fact that the majority of the growth in wealth has come from capital gains rather than increased profits (or savings) derived from productive investment, Savings are at a fifty year low in the UK even as the wealth to income ratio hits record highs.
When the value of land under a house goes up, the total productive capacity of the economy is unchanged or diminished because nothing new has been produced: it merely constitutes an increase in the value of the asset. This may increase the wealth of the landowner and they may choose to spend more or drawn down some of that wealth via home equity withdrawal. But they equally many not. Moreover, the rise in the value of that asset has a corresponding cost: someone else in the economy will have to save more for a deposit or see their rents increase and as a result spend less (or, in the case of the firm, invest less).
In current national accounts, however, only the increase in wealth is recorded, whilst the present discounted value of the decreased flow of resources to the rest of the economy is ignored as Joe Stiglitz has pointed out. (https://www.nber.org/papers/w21327) Rising land values suck purchasing power and demand out of the economy, as the benefits of growth are concentrated in property owners with a low marginal propensity to consume, which in turn reduces spending and investment. In addition, most new credit creation by the banking system now flows in to real estate rather than productive activity (http://voxeu.org/article/great-mortgaging) This crowds out productive investment, both by the banking system itself and non-bank investors who see the potential for much higher returns on relatively tax free real estate investment.
When the value of land under a house goes up, the total productive capacity of the economy is unchanged or diminished because nothing new has been produced: it merely constitutes an increase in the value of the asset. This may increase the wealth of the landowner and they may choose to spend more or drawn down some of that wealth via home equity withdrawal. But they equally many not. Moreover, the rise in the value of that asset has a corresponding cost: someone else in the economy will have to save more for a deposit or see their rents increase and as a result spend less (or, in the case of the firm, invest less).
In current national accounts, however, only the increase in wealth is recorded, whilst the present discounted value of the decreased flow of resources to the rest of the economy is ignored as Joe Stiglitz has pointed out. (https://www.nber.org/papers/w21327) Rising land values suck purchasing power and demand out of the economy, as the benefits of growth are concentrated in property owners with a low marginal propensity to consume, which in turn reduces spending and investment. In addition, most new credit creation by the banking system now flows in to real estate rather than productive activity (http://voxeu.org/article/great-mortgaging) This crowds out productive investment, both by the banking system itself and non-bank investors who see the potential for much higher returns on relatively tax free real estate investment.
Land values also fundamentally effect the impact of monetary policy, particularly in financially liberalized economies. If a central bank lowers interest rates to try and stimulate capital investment and consumption, it is likely to simultaneously drive up land prices and the economic rent attaching to them as more credit flows in to mortgages for domestic and commercial real estate. This has a naturally perverse effect on the capital investment and consumption effects that the lowering of interest rates was intended to achieve.
As shown in Figure 2, the value of ‘dwellings’ (homes and the land underneath them) has increased by four times (or 400%) between 1995 and 2015, from £1.2 trillion to £5.5 trillion, largely due to increases in house prices rather than a change in the volume of dwellings. In contrast the forms of ‘capital’ that we associate with increases in wealth and productivity – commercial buildings, machinery, transport, Information and communications technology has grown much more slowly.
See Also : +Research:Financial Effects of Land Monopoly
http://michael-hudson.com/2010/08/the-land-residual-vs-building-residual-methods-of-real-estate-valuation-2/
http://michael-hudson.com/2010/07/entrepreneurs-from-the-near-eastern-takeoff-to-the-roman-collapse/
Ever since antiquity most surplus income and wealth has been invested in land. As modern economies grow richer and even as they “post-industrialize,” most of their surplus is invested in real property as the most desirable asset. It is financed by lenders eager to find a market for their savings and credit-creating powers.
The Federal Reserve Board publishes an annual balance sheet of the economy’s assets and liabilities showing real estate to comprise two-thirds of America’s tangible assets. Land represents most of this real property – upwards of 60 percent, depending on what assessment methodology is used. This explains why most capital gains are land-value gains. They have been spurred largely by credit creation, for on the liabilities side of the balance sheet mortgage debt absorbs 70 percent of private sector bank loans. Not only the savings banks and S&Ls but also commercial bankers are essentially in the mortgage finance business. Their activities are largely responsible for asset-price inflation.
Economists don't know how to talk about capital and profits.
the U.S.’ National accounts does not properly take in to account capital gains and changes in household’s ‘net worth’, much of which is driven by changes in land values.
Much Economic activity is actually involved in land speculation
Land speculation accounts for 60% of global capital investment
In Capital city : Gentrification and the Real Estate State by Samuel Stein.
https://www.versobooks.com/books/2870-capital-city
https://www.versobooks.com/books/2870-capital-city
Our cities are changing. Around the world, more and more money is being invested in buildings and land. Real estate is now a $217 trillion dollar industry, worth thirty-six times the value of all the gold ever mined. It forms sixty percent of global assets, and one of the most powerful people in the world—the president of the United States—made his name as a landlord and developer.
Samuel Stein shows that this explosive transformation of urban life and politics has been driven not only by the tastes of wealthy newcomers, but by the state-led process of urban planning. Planning agencies provide a unique window into the ways the state uses and is used by capital, and the means by which urban renovations are translated into rising real estate values and rising rents.
So the main driver of [urban sewage pond] disappearance is urban expansion into the peripheries. This is largely due to the global speculation on real estate—which constitutes 60% of all capital investments today.
McDonald's and other Fast Food joints are actually involved in land speculation.
https://www.youtube.com/watch?v=8mQYcyxnFyE - Ray Kroc realizes he's in the real estate business.
https://www.youtube.com/watch?v=8mQYcyxnFyE - Ray Kroc realizes he's in the real estate business.
"You don't build an empire off of a 1.5% cut of a hamburger, you build it by owning the land on which that burger is cooked."
https://www.youtube.com/watch?v=mYx3gyS-pAg Food Theory: McDonald's is NOT a Restaurant!
McDonald's is a real estate company.
MCDs is the most successful chain in history, but makes more money from real estate than food.
Sonnenborn model of franchise ownership: Franchise Free, cut of sales, but most importantly, MCDs is the franchise's landlord.
MCDs is the most successful chain in history, but makes more money from real estate than food.
Sonnenborn model of franchise ownership: Franchise Free, cut of sales, but most importantly, MCDs is the franchise's landlord.
Owning and operating a commercial building gives a lot of tax writeoffs.
Depreciation of real estate assets figures prominently. (To the tune of 1.4 billion for 291 million in tax savings in 2019)
Since 2015 has been selling off its corporate stores (making money on the land sale) and leaning more on franchise model.
Smaller food chains that aren't their own landlords were really punished by 2020.
https://www.youtube.com/watch?v=kJVj3vp-lho - How McDonald's really makes money.
64% of its franchise fees come in the form of rent.
The 50-story mixed-use tower planned for 50 Hudson Yards was the last big building to be announced in the new complex, and the lot under our drive-thru McDonalds was the last one acquired for it.
Now, it's not like McDonald's is averse to cooking and serving burgers, and hiring people to do that. It slung burgers on this site for quite some time, possibly at a loss. It employed a total of 65 (full and part-time) employees at this restaurant. The land and building were valued by the city at $3.9 million, and the company paid an annual property tax bill of over $174,000.
Now, it's not like McDonald's is averse to cooking and serving burgers, and hiring people to do that. It slung burgers on this site for quite some time, possibly at a loss. It employed a total of 65 (full and part-time) employees at this restaurant. The land and building were valued by the city at $3.9 million, and the company paid an annual property tax bill of over $174,000.
Why did McDonalds do that? Why, as a long-term investment. The parcel was sold this year for $35.6 million. McDonalds is -- beyond all doubt -- lovin' it.
https://schalkenbach.org/file-12/wp-content/uploads/2019/09/How-The-Income-Tax-Became-A-Tax-On-Labor-4.pdf
https://schalkenbach.org/wp-content/uploads/How-The-Income-Tax-Became-A-Tax-On-Labor-4.pdf
https://cooperative-individualism.org/cobb-clifford_how-the-income-tax-became-a-tax-on-labor-2003.pdf
When people like Jack Kemp talk about “capital gains” today, they conjure up images of new factories and high-paying jobs. But Professor James Poterba of MIT has found that only about 1% of such gains flow from real venture capital. The rest comes from such things as antiques, fine art, and existing stock certificates; and much of the latter represent disguised land and resources. Corporations hold some 75% of the real estate assets in the US, so increases in stock value often reflect underlying increases in real estate values, not job-creating capital.
According to Dan Sullivan, mostly defunct US Steel owns more US coal than anyone else besides ConSolidated.
Land Prices
See also +Research:Data
Price of Urban Land
https://www.citylab.com/equity/2017/11/the-staggering-value-of-urban-land/544706/
http://davidalbouy.net/landvalue_index.pdf
https://web.archive.org/web/20190219134258/http://davidalbouy.net/landvalue_index.pdf
http://davidalbouy.net/landvalue_index.pdf
https://web.archive.org/web/20190219134258/http://davidalbouy.net/landvalue_index.pdf
The total value of America’s urban land is astounding, adding up to more than $25 trillion as of 2010—that’s roughly more than double the nation’s total economic output or GDP in 2006, according to a recent study by economists at the University of Illinois and the University of Michigan. Nearly half the total value of America’s urban land, 48 percent of it, is packed into just five superstar metro areas: New York, Los Angeles, San Francisco, Washington, D.C., and Chicago, with land in and around the urban center being the most valuable by far.
This only covered transaction data up to 2010 and land prices have increased by over 100% in some areas between 2012-2017. In addition to excluding farmland, it may have missed some of the industrial zones on highway intersections.
This only covered transaction data up to 2010 and land prices have increased by over 100% in some areas between 2012-2017. In addition to excluding farmland, it may have missed some of the industrial zones on highway intersections.
Price of Rural Land
The US department of agriculture publishes statistics related to farm real estate. There's a document here which shows changes in land value from 2006 to 2015.
In 2006, farm real estate was worth about $1,700/acre, and rose to about $2,700/acre in 2015. Pasture changed from about $950/acre to about $1,300/acre over the same period. Of course, this is all rural land. The report actually separates the value of land vs. land + buildings.
The United States farm real estate value, a measurement of the value of all land and buildings on farms, averaged $3,080 per acre for 2017, up $70 per acre (2.3 percent) from 2016values. Regional changes in the average value of farm real estate ranged from a 8.7percent increase in the Pacificregion to 1.8 percent decreasein the Northern Plainsregion. The highest farm real estate values were in the CornBelt region at $6,260 per acre. The Mountain region had the lowestfarm real estate value at $1,130 per acre.The United States cropland value remained unchanged at $4,090 per acrefrom the previous year. In the Southern Plains region, the average cropland value increased 6.0percent from the previous year. However, in the Northern Plainsregion, cropland values decreasedby 4.4percent. The United States pasture value increased by $20 per acre (1.5 percent)from 2016 values. The Deltaregion had the highest increase of 2.9 percent from 2016. The largest decrease, at 1.7 percent, was in the Corn Belt region.
Price of Residential Land
(Source for graph is Dan Sullivan's lecture on Land Trusts. )
https://www.progress.org/articles/scholars-guess-how-many-in-this-market
https://www.progress.org/articles/bounty-the-greatest-stat-on-earth-its-real-worth
https://www.progress.org/articles/bounty-the-greatest-stat-on-earth-its-real-worth
Lots of articles in this series 'bounty'. Hunting them all down is a pain.
Larson Study: 23 Trillion
Land increases faster than GDP. ( Still going on https://www.theatlantic.com/ideas/archive/2020/02/great-affordability-crisis-breaking-america/606046/)
Piketty's Capital in the 21st century conflates land with capital. Remove the housing from capital and the return to capital is the same as labor.
https://www.brookings.edu/bpea-articles/deciphering-the-fall-and-rise-in-the-net-capital-share/
Supporting the idea that Piketty conflated land with capital.
https://voxeu.org/article/housing-capital-and-piketty-s-analysis
https://voxeu.org/article/land-back-it-should-be-taxed-it-can-be-taxed
https://voxeu.org/article/land-back-it-should-be-taxed-it-can-be-taxed
https://www.progress.org/articles/scholars-guess-how-many-in-this-market
How much is land actually worth?
https://www.aei.org/housing/land-price-indicators/
https://www.aei.org/historical-land-price-indicators/
Mitigation
Japan instituted an LVT itself much more recently, in 1992. The purpose of the LVT in this case, however, was to stabilize the rapidly increasing value of property. In the twenty five years before the LVT had been implemented, property values in Japan’s largest cities had raised nearly twenty-fold.
By 2013, the property values in Japan’s largest cities had fallen back down to the prices they were in 1983. The effect of this on the urban population is apparent, as there was only a 5 percent increase in the urban population from 1970 to 1990, but a 17 percent increase after the LVT was implemented from 1990 to the present day.In this instance, because the stabilization of the housing market occurred around the same time as the implementation of the LVT and the population of cities increased significantly as well, the LVT appears to have been very beneficial for Japan.
By 2013, the property values in Japan’s largest cities had fallen back down to the prices they were in 1983. The effect of this on the urban population is apparent, as there was only a 5 percent increase in the urban population from 1970 to 1990, but a 17 percent increase after the LVT was implemented from 1990 to the present day.In this instance, because the stabilization of the housing market occurred around the same time as the implementation of the LVT and the population of cities increased significantly as well, the LVT appears to have been very beneficial for Japan.
https://www.reddit.com/r/georgism/comments/hi46e3/why_are_we_using_the_shoshinsha_mark_to_indicate/fweg65q/
Coincidentally, Japan has land value taxes, kind of similiar of a LVT in calculation: The fixed-asset tax is 1.4 percent and the municipal tax 0.3 percent of the “taxable value,” which is typically lower than the market price. Assessing rosenka (taxable value), is carried out by determining a price for a particular plot of land in a given area based on its relation to roads and train lines, and then using that price to determine other plots of land in the area using variables such as size, distance from amenities, etc.
Coincidentally, Japan has land value taxes, kind of similiar of a LVT in calculation: The fixed-asset tax is 1.4 percent and the municipal tax 0.3 percent of the “taxable value,” which is typically lower than the market price. Assessing rosenka (taxable value), is carried out by determining a price for a particular plot of land in a given area based on its relation to roads and train lines, and then using that price to determine other plots of land in the area using variables such as size, distance from amenities, etc.
Pennsylvania successfully used split rate Taxation in the 20th century.
Limited Equity Co-ops used to be a popular and successful strategy for renters to work together and avoid the pressures of urban land speculation.
Land as a Major source of inequality
This article from the economist has a chart that claims ~2012 that the top 1% held 20% of US housing wealth, and the top 10% to 1% held another 45%, the bottom 90% held the remaining 35%. (It is sourced to Saez and Zucman and I think it is derived from data in this 2014 study. They went on to do some very interesting work on how much taxes are paid by the rich versus the poor, which is begging for a georgist synthesis of the data, which Fred Harrison has done for the UK in his books 'Ricardo's Law' and 'We are Rent'.)
Thus around 2012 you had 65% of all housing wealth in the US held by the top 10%. This trend accelerated through the decade.
"The proportion of land owned by the nation’s hundred largest private landowners grew by nearly 50 percent between 2007 and 2017. In 2007, according to the Land Report, this group owned a combined 27 million acres of land, equivalent to the area of Maine and New Hampshire combined. A decade later, the 100 largest landowners had holdings of more than 40 million acres. Their holdings are now larger than the entirety of New England. Even in the vast American West, where much of the land remains in public hands, billionaires have created expansive estates that many fear will make the rest of the local population land-poor."
Most of the rise in wealth among advanced economies around the world of the last two decades was due to the rise in housing wealth, and wealth inequality between nations is strongly determined by housing wealth, as well as within cities.
All this demonstrates that housing is underrated and misunderstood as a source of wealth, despite the fact that currently housing is the largest asset class in the world, and the wealth generated thereof is largely from public expenditure.
However, land as a major source of inequality due to outsize returns is a steady trend going back as far as we have data.
The failure to tax the rent of land results in the lower classes shouldering a larger portion of the burden of the state as well as lower economic growth overall. The pie is both smaller and unfairly divided.
This is not an accident and would be remedied by taxing the unimproved value of land which would eliminate the politial incentivest to propup homeowner's property values with counterproductive policies.
LAND INEQUALITY IS WORSE THAN WE THOUGHT AND IS FUELING OTHER INEQUALITIES
https://www.landcoalition.org/en/newsroom/new-report-reveals-land-inequality-worse-we-thought-and-fueling-other-inequalities/
https://www.landcoalition.org/en/uneven-ground/
https://www.landcoalition.org/en/uneven-ground/
IN A NEW STUDY RELEASED TODAY, RESEARCHERS SAY THAT LAND INEQUALITY IS RISING IN MOST COUNTRIES.
Worse, new measures and analysis proves that land inequality is significantly higher than previously recorded, with data reporting a 41 percent increase compared to traditional census data.
Worse, new measures and analysis proves that land inequality is significantly higher than previously recorded, with data reporting a 41 percent increase compared to traditional census data.
Historically, methods to measure land inequality excluded vital pieces of information, such as the value of land, multiple ownership and landlessness, as well as the control a person or an entity has over it. “These findings radically alter our understanding of the extent and far reaching consequences land inequality has, proving that not only is it a bigger problem than we thought but it’s undermining the stability and development of sustainable societies,” Anseeuw added.
LAND INEQUALITY IS CENTRAL TO OTHER FORMS OF INEQUALITY, AND TO MANY GLOBAL CRISES AND TRENDS
The report further brings new evidence to light on how tackling land inequality is imperative to effectively respond to the most pressing challenges of our times and has the potential to deliver significant positive outcomes for humanity and the planet. If not addressed and the trend continues, increasing land inequality will have significant negative consequences for all societies, on economic and social development, on the environment and on democracy and peace.Yet the authors insist that land concentration is not inevitable.
The report further brings new evidence to light on how tackling land inequality is imperative to effectively respond to the most pressing challenges of our times and has the potential to deliver significant positive outcomes for humanity and the planet. If not addressed and the trend continues, increasing land inequality will have significant negative consequences for all societies, on economic and social development, on the environment and on democracy and peace.Yet the authors insist that land concentration is not inevitable.
“What we’re seeing is that land inequality is fundamentally a product of elite control, corporate interests, and political choices. And although the importance of land inequality is widely accepted, the tools to address it remain weakly implemented and vested interests in existing land distribution patterns, hard to shift,” said Giulia Baldinelli of ILC and co-author of the report.
Nevertheless, the study finds that change is necessary and the urgency of addressing land inequality is fuelled by the same urgency with which people are demanding action on contemporary global crises.
“As we move towards a post-Covid world, we will see increased pressure for fast economic gain at the expense of people and nature,” Mike Taylor, Director of the International Land Coalition Secretariat warned. Adding, “there is always, however, a more inclusive path to re-building our economies, that emphasises sustainable use of natural resources, respects human rights and addresses systemic causes of inequality.”
Property Rights inequality and commons
The Case for Universal Property
https://www.scientificamerican.com/article/the-case-for-universal-property/
If implemented on a significant scale, universal property would inoculate the society against extreme inequality. It would provide an asset-based source for a universal basic income, not dependent on redistributive taxation. Charging for use of the sky’s carbon-absorption capacity would help stabilize the Earth’s climate by curbing emissions; similarly, financial transaction taxes would help stabilize the economy by curbing hair-trigger speculation
Universal property is a bold idea that does not fit neatly into old labels. It is neither Democratic nor Republican, neither liberal nor conservative, neither socialist nor libertarian. Or rather, it is both. It would advance equality and liberty together. And by bringing everyone into the same boat as co-owners, it could help bridge the divides that keep us apart.
Universal property is a bold idea that does not fit neatly into old labels. It is neither Democratic nor Republican, neither liberal nor conservative, neither socialist nor libertarian. Or rather, it is both. It would advance equality and liberty together. And by bringing everyone into the same boat as co-owners, it could help bridge the divides that keep us apart.
Why wealth is determined more by "privilege" than productivity
The lesson here is that aggregate wealth is not simply a reflection of the process of accumulation, as theory tends to imply. It is also a reflection of the boundaries of what can and cannot be alienated, priced, bought and sold, and the power dynamics that underpin them. This is not just a historical matter.
Breadtube vs Economics
Land's role in inequality
Stiglitz on the Origins Of Inequality
https://www8.gsb.columbia.edu/faculty/jstiglitz/sites/jstiglitz/files/2015 Origins of Inequality.pdf
Specifically, I suggest that much of the increase in inequality is associated with the growth in rents — including land and exploitation rents (e.g., arising from monopoly power and political influence).
Standard Economics Is Wrong. Inequality and Unearned Income Kills the Economy
From 2:09 to around 2:13:30 He brings up George and gives an endorsement to LVT!
Want to tackle inequality? Then first change our land ownership laws
https://www.theguardian.com/commentisfree/2019/jun/04/tackle-inequality-land-ownership-laws
https://landforthemany.uk/wp-content/uploads/2019/06/land-for-the-many.pdf
https://landforthemany.uk/wp-content/uploads/2019/06/land-for-the-many.pdf
Economic Capitalization - Public goods are capitalized into land values.
Economic capitalization” is the conversion of a flow of income into a stock of value.
This is also referred to as the present value of a future flow. Imagine a place that had a lake, but is now dry. A river starts flowing into the lake. If you measure the volume of river water per day, you would be able to measure how big the lake will be in a week. The water flow is capitalized into a stock or amount of water. If one were to sell the value of that water today, even before the lake is full, it would be the present value of the expected flow of water.
As real estate is a major asset and a major cost for households and enterprise, the capitalization of territorial benefits is an important economic phenomenon. The net benefits of the public goods and civic services provided by government generate higher land rent and become capitalized into higher land values because most of the payment comes from taxes other than on that land value. A worker who is also a renter pays both higher rent and taxes for the public goods. If the worker-tenant is double-billed, someone is getting subsidized - the landowner. Owners of land obtain higher land value because their sites get services paid for by others, from taxes on wages, enterprise profits, value added, and the sale of goods.
"This implicit subsidy constitutes a forced redistribution of wealth from workers to landowners. This redistribution is a major reason why wages have stagnated even while economies have kept growing. The higher rent is not recognized because most of it is masked in forms such as profits, interest, dividends, and taxes."
The capitalization of benefits into land value has another consequence: much of the gains from economic expansion, due to both better technology and more investments in education and capital goods, gets captured by higher rent and land value. The increase in real estate prices during an economic boom attracts speculators who create an unsustainable bubble that then crashes and brings down with it the financial sector, as happened in 2008.a
This is also referred to as the present value of a future flow. Imagine a place that had a lake, but is now dry. A river starts flowing into the lake. If you measure the volume of river water per day, you would be able to measure how big the lake will be in a week. The water flow is capitalized into a stock or amount of water. If one were to sell the value of that water today, even before the lake is full, it would be the present value of the expected flow of water.
As real estate is a major asset and a major cost for households and enterprise, the capitalization of territorial benefits is an important economic phenomenon. The net benefits of the public goods and civic services provided by government generate higher land rent and become capitalized into higher land values because most of the payment comes from taxes other than on that land value. A worker who is also a renter pays both higher rent and taxes for the public goods. If the worker-tenant is double-billed, someone is getting subsidized - the landowner. Owners of land obtain higher land value because their sites get services paid for by others, from taxes on wages, enterprise profits, value added, and the sale of goods.
"This implicit subsidy constitutes a forced redistribution of wealth from workers to landowners. This redistribution is a major reason why wages have stagnated even while economies have kept growing. The higher rent is not recognized because most of it is masked in forms such as profits, interest, dividends, and taxes."
The capitalization of benefits into land value has another consequence: much of the gains from economic expansion, due to both better technology and more investments in education and capital goods, gets captured by higher rent and land value. The increase in real estate prices during an economic boom attracts speculators who create an unsustainable bubble that then crashes and brings down with it the financial sector, as happened in 2008.a
Yet, the economic textbooks ignore the capitalization of public goods into land values. The public finance tests do mention it, but do not grasp the policy implications. Economists have largely failed to include capitalization in their theorems and mathematical models (but see the note below). It goes back to the mathematization of academic economics into models of K and L, capital and labor, ignoring land for both mathematical convenience and the influence of landed interests who turned grounded classical theory into ethereal neoclassical modeling.
So the public does not understand capitalization, and neither do journalists and politicians. The tax debates are minor arguments over tax rates, exemptions, deductions, credits, and alternative calculations, rather than the big issue of why we capitalize the wealthy landed interests at the expense of labor, enterprise, and the poor.
Note: there have been a few scholarly articles on capitalization, such as “Land Value Capitalization in Local Public Finance,” by David A. Starrett in the Journal of Political Economy, Vol. 89, No. 2 (Apr., 1981), pp. 306-327.
Since 1970, housing's relative price, share of expenditure, and ``unaffordability'' have all grown. We estimate housing demand using a novel compensated framework over space and an uncompensated framework over time. Our specifications pass tests imposed by rationality and household mobility. Housing demand is income and price inelastic, and appears to fall with household size. We provide a numerical non-homothetic constant elasticity of substitution utility function for improved quantitative modeling. An ideal cost-of-living index demonstrates that the poor have been disproportionately impacted by rising relative rents, which have greatly amplified increases in real income inequality.
Roughly 15-18% of US GDP goes towards housing costs (including mortgages, rents, and construction of new homes), and fraction of income spent on housing is inversely proportional to income, so being able to reduce costs associated with it would have substantial benefits.
http://neweconomics.org/2018/04/broken-land-market/
source: Reference: Rethinking the economics of land and housing, Ryan-Collins, Lloyd and Macfarlane
source: Reference: Rethinking the economics of land and housing, Ryan-Collins, Lloyd and Macfarlane
The tax code
George Osborne and Gordon Brown are the chief architects of a tax code that is now the longest in the world – in excess of 10m words and 21,000 pages. (Too long by about 20,500 pages, I’d say). The few have the resources to find the loopholes, of which there are many, and exploit them. The many don’t, so end up paying more on a proportional basis. Do we really need 12.5 times the number of words in the Bible to explain how much tax people should pay?
Income tax
If you have nothing, the only way you can narrow the gap between you and those at the top is by working, but you are constantly and heavily taxed on your labour. The wealth of those at the top, meanwhile, doesn’t derive from their salaries, but from the appreciation in price of their companies, their real estate, their bonds and so on, which largely go untaxed, unless they sell (so most don’t). Our society is geared to owning assets. Hard work and productivity are penalised. Successive governments claim to be “supporting hardworking families”. Really? Don’t tax labour so heavily, then. Tax something else – such as land.
Quantitative easing
Money printed as part of quantitative easing (£435bn in the UK and counting) is created out of nothing. It goes straight into the financial sector, pushing up the prices of financial assets. Great for those who own said assets, or work in related sectors, but not for most people. Who actually voted for quantitative easing and bailouts anyway? No one. Central banks are unelected bodies.
Debt-based money
Here’s a little known fact: banks create money when they lend. Excluding QE, 97% of money has been created through lending. When somebody borrows money – even just by spending on a credit card – new money is created. No wonder our economy is so geared around finance.
The more money there is, the higher prices will rise. But this doesn’t happen evenly. Prices rise first closest to where new money is created. By the time this newly created money has trickled down to everyone else, prices may have risen, but wages usually haven’t. If you own the assets or operate in the sectors that have benefited from all this newly created money – the financial sector and the London property market – you’ve made spectacular gains. Otherwise not.
The more money there is, the higher prices will rise. But this doesn’t happen evenly. Prices rise first closest to where new money is created. By the time this newly created money has trickled down to everyone else, prices may have risen, but wages usually haven’t. If you own the assets or operate in the sectors that have benefited from all this newly created money – the financial sector and the London property market – you’ve made spectacular gains. Otherwise not.
The decline in the purchasing power of money
For a host of different reasons, the purchasing power of money has fallen by 99% in the past 100 years. That’s an average decline of 5% a year. Wages have not risen by the same amount. Those who rely on their salaries to get by have suffered an inexorable erosion of their wealth. Those who own assets have made good.
All of these causes of inequality are within the power of government to put right. Ultimately wealth is created by hard work and endeavour, not by reallocation and redistribution. Yet we penalise labour and subsidise both debt and the ownership of assets. All that is required is a level playing field for everyone. Honest money and a simpler tax system, which doesn’t pander to special interest groups, would fix most of the above.
All of these causes of inequality are within the power of government to put right. Ultimately wealth is created by hard work and endeavour, not by reallocation and redistribution. Yet we penalise labour and subsidise both debt and the ownership of assets. All that is required is a level playing field for everyone. Honest money and a simpler tax system, which doesn’t pander to special interest groups, would fix most of the above.
Zero interest-rate policies
When we suppress interest rates, we effectively lower the cost of debt. We might associate debt with poverty, but cheap debt is in fact a luxury of wealthy corporations, families and governments. And they’re the ones who benefit most when interest rates are kept low.
Cheap debt just encourages taking on more debt, which ultimately leads to higher asset prices, which those prudent folk who avoided excess debt (or were unable to borrow) must now incur. Why are we subsidising debt, anyway?
Cheap debt just encourages taking on more debt, which ultimately leads to higher asset prices, which those prudent folk who avoided excess debt (or were unable to borrow) must now incur. Why are we subsidising debt, anyway?
Not measuring inflation properly
In the 47 years since 1971, the money supply has increased by 67 times, growing at around 11.5% a year. The Bank of England uses a measure of inflation called CPI, which tracks the prices of certain everyday consumer goods, to set interest rates. But CPI only measures the effects of around 10% of this newly created money. It ignores property and financial assets, where 77% of newly created money has ended up, so prices have risen unchecked. It’s one reason we have seen such runaway house price inflation in recent decades. Great if you own property or financial assets. Not so great if you don’t.
Government subsidies
We tend to measure a subsidy’s success in terms of the benefits gained by those who receive it. Rarely do we consider the unseen costs and unintended consequences. For example, help to buy was meant to help young housebuyers; instead, it became a cash cow for building companies, and pushed house prices further out of reach for those not yet on the housing ladder. Housing benefit is meant to help the poorest; yet it pushes up the cost of renting and lines the pockets of landlords. However well-intentioned, subsidies create special interest groups, who then lobby for more subsidy.
Even something like agricultural subsidy has gone wrong. Landowners are actually paid to own farmland and can avoid inheritance tax on it. So investors pile into farmland, prices become unaffordable for local farmers and the market is distorted. It’s a straight transfer of wealth from the taxpayer to the landowner.
Even something like agricultural subsidy has gone wrong. Landowners are actually paid to own farmland and can avoid inheritance tax on it. So investors pile into farmland, prices become unaffordable for local farmers and the market is distorted. It’s a straight transfer of wealth from the taxpayer to the landowner.
Planning laws
Like the tax code, planning laws are so onerous that only the few have the resources to navigate them. Thus housebuilding has mostly become the preserve of a few large corporations. I’d love to build my own house. Wouldn’t you? Tough luck.
https://www.bloomberg.com/view/articles/2018-01-02/land-is-underrated-as-a-source-of-wealth
http://markwadsworth.blogspot.co.uk/2015/09/deadweight-loss-of-excess-inequality.html
http://markwadsworth.blogspot.co.uk/2015/09/deadweight-loss-of-excess-inequality.html
How Land Disappeared from Economic Theory
http://evonomics.com/josh-ryan-collins-land-economic-theory/
http://evonomics.com/josh-ryan-collins-land-economic-theory/
Indeed, there is good argument that as economies mature, the demand for land relative to other consumer goods increases. Land is a ‘positional good’, the desire for which is related to one’s position in society vis a vis others and thus not subject to diminishing marginal returns like other factors. As technological developments drive down the costs of other goods, so competition over the most prized locational space rises and eats up a greater and greater share of people’s income as Adair Turner has recently argued. A recent study of 14 advanced economies found that 81% of house price increases between 1950 and 2012 can be explained by rising land prices with the remainder attributable to increases in construction costs
Ricardo may have been right. https://voxeu.org/article/home-prices-1870
"Our results have potentially important implications for the much-debated long-run trends in the distributions of income and wealth (Piketty and Zucman 2014).1 We offer a lens for reinterpreting Ricardo’s famous principle of scarcity. Ricardo (1817) argued that in the long run, economic growth disproportionally profits landlords as the owners of the fixed factor. Since land is highly unequally distributed across the population, market economies produce ever-rising levels of inequality.
"Our results have potentially important implications for the much-debated long-run trends in the distributions of income and wealth (Piketty and Zucman 2014).1 We offer a lens for reinterpreting Ricardo’s famous principle of scarcity. Ricardo (1817) argued that in the long run, economic growth disproportionally profits landlords as the owners of the fixed factor. Since land is highly unequally distributed across the population, market economies produce ever-rising levels of inequality.
Writing in the 19th century, Ricardo was mainly concerned with the price of agricultural land, and reasoned that as population growth pushes up the price of corn, the land rent and the land price would continuously increase. In the 21st century, we may be more concerned with the price of housing services and residential land, but the mechanism is similar. The decline in transport costs kept the price of residential land constant until the mid-20th century. The price surge in the past half-century could be an indication that Ricardo might have been right after all"
(See also the articles in the history section about Technological impact of declining Transport Costs)
The reasons for this may well be political. Mason Gaffney, an American land economist and scholar of Henry George, has argued that John Bates Clark and his followers received substantial financial support from corporate and landed interests who were determined to prevent George’s theories gaining credibility out of concerns that their wealth would be wittled away via a land tax. In contrast, theories of land rent and taxation never found an academic home. In addition, George, primarily a campaigner and journalist, never managed to forge an allegiance with American socialists who were more focused on taxing the profits of the captains of industry and the financial sector.
The result was the burden of taxation came to fall upon capital (corporation tax) and labour (income tax) rather than land. A final factor preventing theories of land rent taking off the U.S. may have been the simple fact that at the beginning of the 20th century, land scarcity and fixity was perhaps less a political issue in the still expanding U.S. than in Europe, were a land value tax came closer to being adopted.
Economists studying the issue generally reckon that rising housing costs are a product of the rising cost of land. David Albouy of the University of Illinois and Gabriel Ehrlich of America’s Congressional Budget Office reckon that in America land accounts for a third of total housing costs, and close to half in some metropolitan areas. A high share of land in housing costs results in the creation of large rents for landowners.
If regulatory limits on building heights and density were relaxed, fewer plots of land would be needed to satisfy a given level of demand. That would reduce the rents collected by landowners, since any uptick in demand could quickly be met by new development. Just as soaring agricultural productivity led to a decline in the relative economic power of rural landowners in the 19th and 20th centuries, the relaxation of strict limits on development would lead to a decline in property wealth relative to the economy as a whole. More of the gains of economic activity would flow to workers and investors.
Instead building regulations keep urban-land productivity low, and the costs are staggering. A 2005 study by Mr Glaeser and Raven Saks, of America’s Federal Reserve, and Joseph Gyourko, of the University of Pennsylvania, attempted to derive the share of property costs attributable to regulatory limits on supply. In 1998 this “shadow tax”, as they call it, was about 20% in Washington, DC, and Boston and about 50% in San Francisco and Manhattan. Matters have almost certainly got worse since then.
Similar work by Paul Cheshire and Christian Hilber, of the London School of Economics, estimated that in the early 2000s this regulatory shadow tax was roughly 300% in Milan and Paris, 450% in the City of London, and 800% in its West End. The lion’s share of the value of commercial real estate in Europe’s most economically important cities is thus attributable to rules that make building difficult.
One may find it hard to sympathise with Mayfair hedge funds facing high rents. But the net effect of these costs is felt more by the poor than by the rich. Take American homeowners. The fact that 60% of households own property might seem to suggest that rising house prices and inflated land values were good for a large swathe of the middle class. Yet Edward Wolff of New York University notes that the middle class enjoyed much less of a boost to wealth because of an accompanying rise in mortgage debt (see chart 3). Meanwhile poorer Americans, who rent their homes, experienced soaring housing prices as a large and sustained increase in their cost of living.
According to data gathered by Robert Shiller, of Yale University, the inflation-adjusted cost of building new housing in America is roughly the same now as it was in the 1980s. The inflation-adjusted cost of buying a new home, by contrast, has risen by 30% over the same period (during the property bubble of the 2000s house prices climbed a great deal further before falling back). Individual cities have experienced even larger increases. From 1993 to 2013 prices in Boston and San Francisco rose by 60% in real terms
See: https://eml.berkeley.edu/~saez/SaezZucman2015.pdf
See: https://eml.berkeley.edu/~saez/SaezZucman2015.pdf
Wealth Inequality in the United States since 1913: Evidence from Capitalized Income Tax Data
In Germany, the top 10% controls more than 60% of the wealth. The biggest portion of this is real estate.
They invest almost exclusively in good locations, that continue to grow. Land becomes a method of redistribution to the wealthy.
https://youtu.be/_xXNsooGv9Y ~ 49:00
https://youtu.be/_xXNsooGv9Y ~ 49:00
Housing as an inequality engine.
A growing body of research suggests that inequality in the value of Americans’ homes is a major factor—perhaps the key factor—in the country’s economic divides.
Ultimately, the study concludes that the rise in both housing wealth and housing inequality stems mainly from the increase in the value of land. In other research, Albouy found that the value of America’s urban land was $25 trillion in 2010, roughly double the nation’s 2016 GDP.
But here’s the kicker: The main catalyst of housing inequality, according to the study, comes from the growing gap within cities and metro areas, not between them. The graph below shows the differences in housing inequality between “commuting zones”—geographic areas that share a labor market—over time. In it, you can see that inequality varies sharply within commuting zones (marked “CZ”) while it remains more or less constant between them.
In other words, the spatial inequality within metros is what drives housing inequality. Factors like safety, schools, and access to employment and local amenities lead individual actors to value one neighborhood over the next.
https://www.noemamag.com/the-american-mortgage-is-an-investment-in-racial-inequality/
(See internal links)
The institution of homeownership in America is a finely tuned wealth-building machine for the wealthiest and whitest, first and foremost.
The American national housing market, by nature, expands racial and class inequalities. The affluent, older white homeowner — the demographic that votes in the largest numbers in every election — is invested in the status quo and reaps huge dividends as inequality gets worse.
(See internal links)
The institution of homeownership in America is a finely tuned wealth-building machine for the wealthiest and whitest, first and foremost.
The American national housing market, by nature, expands racial and class inequalities. The affluent, older white homeowner — the demographic that votes in the largest numbers in every election — is invested in the status quo and reaps huge dividends as inequality gets worse.
In 2018, the California Housing Partnership reported that the state provided 15 times more subsidies for homeowners than for renters. Incumbent homeowners receive perennial tax cuts that shift the state’s tax burden further onto income and sales taxes, disproportionately burdening the poor and middle class. State services like schools, hospitals, affordable housing, food stamps and unemployment insurance rely more and more on the incomes of workers and the unpredictable fortunes of the stock market. While the costs of goods and services rise during economic expansions, landlords and homeowners reap the rewards from rising land values, while workers see their pay raises absorbed by higher rents.
https://www.fresheconomicthinking.com/2018/12/solving-housing-supply-mystery.html
Instead of housing supply responding to prices, it responds to the rate of return of different asset classes. In this world, the notion of a static equilibrium seems to make little sense if the rebalancing of portfolios into new housing feeds back into prices. Both prices and the rate of new supply move together until the system runs out of new buyers. What seemed in the boom to be a shortage of land and housing suddenly becomes a flood as expectations of high returns vanish. Just ask anyone in Ireland or Spain about this.
If you try and understand housing supply in terms of the standard single-period static supply and demand model you will struggle to make sense of housing. In this static model world, every opportunity for housing construction is already taken up, since it compresses all future time into a single period. If it could be profitable to build a house in ten years time, then the model says it is already built!
If you try and understand housing supply in terms of the standard single-period static supply and demand model you will struggle to make sense of housing. In this static model world, every opportunity for housing construction is already taken up, since it compresses all future time into a single period. If it could be profitable to build a house in ten years time, then the model says it is already built!
Once you break free of this static view and add time to your thinking, housing supply makes a lot more sense. Landowners can choose not only how densely to develop housing on their land, but also when to develop. After all, if the price of the land is rising quickly, why would I develop today when I could make more money by holding the land vacant and developing more housing later?
When you start thinking dynamically the price cycle and the supply of housing become tightly linked. I want to demonstrate briefly how dynamic balance sheet allocation decisions make sense of housing supply mystery with a simple example. (See detailed balance sheet decision tree in linked article.)
1.) The decision to build a new house on a piece of land is not a production output decision but an irreversible capital allocation decision (i.e. you can’t easily ‘unbuild’ the house next year if it is the wrong decision to build it today).
2.) Prices and Supply track together - Rising prices encourage the conversion of land and cash to housing but also encourage the conversion of cash directly to housing. This mostly occurs by buying up the existing homes and in the process bidding up prices.
3.) Zoning - In short, it makes keeping land vacant relatively more attractive than converting it to new housing.
2.) Prices and Supply track together - Rising prices encourage the conversion of land and cash to housing but also encourage the conversion of cash directly to housing. This mostly occurs by buying up the existing homes and in the process bidding up prices.
3.) Zoning - In short, it makes keeping land vacant relatively more attractive than converting it to new housing.
Pinched: Have the Boomers Pinched their children's future?
https://www.youtube.com/watch?v=ZuXzvjBYW8A
https://www.youtube.com/watch?v=O9kYLPbOyQA (Around 13:48 he says it completely)
https://www.youtube.com/watch?v=O9kYLPbOyQA (Around 13:48 he says it completely)
Boomer wealth advantage is because incomes no longer outpace rents in high wage cities.
Young People are less moblie due to rents and can't take advantage of higher wage locations due to mobility
Because Housing is so expensive fewer young people are homeowners.
Young people have less space and consume less.
Home prices SURGE but benefit older at expense of newer.
Young People are less moblie due to rents and can't take advantage of higher wage locations due to mobility
Because Housing is so expensive fewer young people are homeowners.
Young people have less space and consume less.
Home prices SURGE but benefit older at expense of newer.
How Housing became the engine of inequality
https://www.nytimes.com/2017/05/09/magazine/how-homeownership-became-the-engine-of-american-inequality.html
https://www.nytimes.com/2017/05/09/magazine/how-homeownership-became-the-engine-of-american-inequality.html
While many Americans assume that most poor families live in subsidized housing, the opposite is true; nationwide, only one in four households that qualifies for rental assistance receives it. Most are like Diaz, struggling without government help in the private rental market, where housing costs claim larger and larger chunks of their income.
The Problem with US housing policy is that its not about housing.
https://www.sightline.org/2021/02/12/the-problem-with-us-housing-policy-is-that-its-not-about-housing/
https://www.sightline.org/2021/02/12/the-problem-with-us-housing-policy-is-that-its-not-about-housing/
Four parts of the US tax code also encourage real-estate speculation. Between them, these tax rules showered perhaps $150 billion on homeowners in 2020. The handouts are not structured to encourage ownership as such, or to promote stable housing, but rather to reward homeownership as an investment strategy. Because the benefits grow with incomes and home prices, they operate like Robin Hood in reverse.
The four parts:
1.) The mortgage interest deduction lets you subtract interest on your home loan (or loans, if you have two homes) from your income before you calculate your US personal income taxes. The more interest you pay, the bigger the tax break, which makes the policy steeply regressive. Reduced by Congress in 2017 (as I’ll discuss in my next article), it still cost the Treasury $26 billion in 2020.
2.) The state and local tax deduction (SALT) lets you remove all the nonfederal taxes that you pay from your income before tallying your federal taxes, including state and local income, sales, and property taxes. This policy functionally gives homeowners a discount on their property taxes, and like the mortgage interest deduction, the benefit grows with your income and home price. The more property tax you pay—and the higher your income—the bigger the discount. Despite being trimmed in 2017 by Congress, in 2020, the property tax portion of SALT cost the Treasury $6 billion (assuming the same ratio of property to other taxes as in past years).
3.) The capital gains exemption, which denies the Treasury some $35 billion a year, allows home sellers to pay no income tax on the first $250,000 of profit from selling their homes (or $500,000 for married couples). It’s a giant inducement to park your savings in home equity: neither stocks nor any other form of equity investment grows tax-free, unless it’s locked away in retirement or college-savings plans.
4.)The imputed rent exemption is a more curious beast. It waives from taxation the in-kind income homeowners receive through use of their homes. You may be thinking, “Huh?! Pay tax to live in my own house? That’s nuts!” In the terms of economists and tax accountants, though, it’s reasonable. If you lease your house to someone, you’ll be taxed on the rent you get from your tenant. Just so, if you live in the house yourself, you should pay tax on the monthly value of the shelter. Like much of accounting, it’s counterintuitive but logical. The imputed rent exemption likely denies the Treasury of more than $80 billion a year. In contrast, Switzerland imposes taxes on imputed rent, which makes it one of the only countries where taxpayers have no monetary advantages from owning rather than renting their homes. The Swiss choose buying or renting based on nonfinancial considerations, and fewer than 40 percent of households buy, compared with 67 percent in the United States.
2.) The state and local tax deduction (SALT) lets you remove all the nonfederal taxes that you pay from your income before tallying your federal taxes, including state and local income, sales, and property taxes. This policy functionally gives homeowners a discount on their property taxes, and like the mortgage interest deduction, the benefit grows with your income and home price. The more property tax you pay—and the higher your income—the bigger the discount. Despite being trimmed in 2017 by Congress, in 2020, the property tax portion of SALT cost the Treasury $6 billion (assuming the same ratio of property to other taxes as in past years).
3.) The capital gains exemption, which denies the Treasury some $35 billion a year, allows home sellers to pay no income tax on the first $250,000 of profit from selling their homes (or $500,000 for married couples). It’s a giant inducement to park your savings in home equity: neither stocks nor any other form of equity investment grows tax-free, unless it’s locked away in retirement or college-savings plans.
4.)The imputed rent exemption is a more curious beast. It waives from taxation the in-kind income homeowners receive through use of their homes. You may be thinking, “Huh?! Pay tax to live in my own house? That’s nuts!” In the terms of economists and tax accountants, though, it’s reasonable. If you lease your house to someone, you’ll be taxed on the rent you get from your tenant. Just so, if you live in the house yourself, you should pay tax on the monthly value of the shelter. Like much of accounting, it’s counterintuitive but logical. The imputed rent exemption likely denies the Treasury of more than $80 billion a year. In contrast, Switzerland imposes taxes on imputed rent, which makes it one of the only countries where taxpayers have no monetary advantages from owning rather than renting their homes. The Swiss choose buying or renting based on nonfinancial considerations, and fewer than 40 percent of households buy, compared with 67 percent in the United States.
In brief, tax breaks and hidden loan subsidies encourage speculation in home values. They cause buyers to put more money into their homes and less into other, productivity-enhancing investments. They bid up home prices in zoning-constrained high-price markets and escalate house and lot sizes at the top end of the market in more sprawling, less-expensive markets. For example, US housing policy boosts the prices of multi-million-dollar Victorians in San Francisco and speeds McMansion sprawl around Houston. It also exacerbates inequality. Because the tax breaks are much more valuable to households in high tax brackets, they skew the housing market away from first-time and entry-level buyers, who are mostly in lower tax brackets.
In the end, the tax breaks for homeowners—not speaking of the mortgage system in this case—do not even increase homeownership. Because they elevate prices, they hurt first-time buyers and keep them out of the market. Homeownership is less common in the United States than in countries that provide no similar tax subsidies, such as Australia, Canada, and the United Kingdom.
Tax loopholes for homeowners, meanwhile, peaked before the 2017 tax reform. In 2015, these home-owner tax benefits arguably amounted to more than $240 billion, which is about five times as much as the United States provided in housing-related assistance to renters and low-income households that year. Another estimate placed the total closer to $210 billion. Either way, the 2017 reform trimmed the total to about $150 billion, a giant step in the right direction.
Can America Fix its Housing Crisis?
Illustration of forces and effects of land inequality
The Great Affordability Crisis Breaking America
In one of the best decades the American economy has ever recorded, families were bled dry.
https://www.theatlantic.com/ideas/archive/2020/02/great-affordability-crisis-breaking-america/606046/
https://www.theatlantic.com/ideas/archive/2020/02/great-affordability-crisis-breaking-america/606046/
The price of housing represents the most acute part of this crisis. In metro areas such as the Bay Area, Seattle, and Boston, severe supply shortages have led to soaring prices—millions of low- and middle-income families are no longer able to purchase centrally located homes. The median asking price for a single-family home in San Francisco has reached $1.6 million; even with today’s low interest rates, that would require a monthly mortgage payment of roughly $6,000, assuming that a family puts down the standard 20 percent. In Manhattan, listings for sale now ask an average of nearly $1,800 per square foot.
The housing cost crises in the Bay Area and New York might be the country’s most obscene. But the problem is national, driven by a combination of stagnant wages, restrictive building codes, and underinvestment in construction, among other trends. Home prices are rising faster than wages in roughly 80 percent of American metro regions. In 2018, housing affordability declined in every one of the 160-some urban areas analyzed by the National Association of Realtors, save for Decatur, Illinois. Rising prices and housing shortages are squeezing families in Reno, Minneapolis, and Phoenix.
The problem now even extends to rural areas, where income growth has lagged in the post-recession period. A recent report by the Pew Charitable Trusts found “sizable” increases in the number of households spending half or more of their income on housing in rural counties across the country. The housing crisis is hitting Bertie County, North Carolina, and Irion County, Texas, too.*
One central effect of the housing-cost crisis has been to turn the United States into a country of renters. The homeownership rate has fallen from a peak of nearly 70 percent in the mid-aughts to under 65 percent today; the numbers are more acute for Millennials, whose homeownership rate is 8 percentage points lower than that of their parents at the same age. Unable to buy, roughly 3.5 million younger families have kept renting—delaying the Millennial and Gen X cohorts’ wealth accumulation, thus consigning them to worse net-worth trajectories for the rest of their lives. And renting, for many families, is not affordable, either: Nearly half of renters are facing uncomfortable monthly bills, and the cost of renting has risen faster than renters’ incomes for a full 20 years now.
New American Housing Crisis for low wage workers.
https://newrepublic.com/article/154618/new-american-homeless-housing-insecurity-richest-cities
https://newrepublic.com/article/154618/new-american-homeless-housing-insecurity-richest-cities
Atlanta, the third-fastest-growing metropolitan area in the country, is illustrative. For the city’s working poor, there’s an inverse relationship between their ability to remain housed and Atlanta’s much-celebrated renaissance. Between 2012 and 2016, the city’s low-income housing stock declined by 5 percent each year, to the point that today, according to the National Low Income Housing Coalition, there are only 25 affordable rental units for every 100 poor families in the Atlanta area who need them. (The U.S. Department of Housing and Urban Development defines affordable as costing no more than 30 percent of a household’s income.) A recent report by the Brookings Institution found that Atlanta’s income inequality is the most extreme in the nation; another ranked it fifth among places most intensely gentrifying; and a 2019 analysis by the Federal Reserve Bank ranked Atlanta 360th out of 381 cities in terms of economic mobility. To truly grasp the severity of the crisis, however, it’s necessary to turn to a somewhat obscure study—The Worst Case Housing Needs Report to Congress—released biennially by HUD. Last published in 2017, the report tracks the number of extremely low-income renting families who
(a) do not receive housing assistance and
(b) spend more than half of their income on rent, live in grossly inadequate conditions, or both.
(b) spend more than half of their income on rent, live in grossly inadequate conditions, or both.
In Atlanta, that figure was 127,000, or 49 percent of all very low-income renters—roughly the same proportion as San Francisco, and 6 points higher than the national percentage. Nevertheless, nine out of ten apartments built in 2017 were classified as luxury units.
Outrageous rents would be less alarming if wages were increasing at a comparable rate. But the opposite is true. Nationwide, the hourly earnings of high-wage workers rose 41 percent between 1979 and 2013; those of middle-wage workers grew only 6 percent. The pay for low-wage workers, meanwhile, decreased by 5 percent. Contrast these figures to the 138 percent annual wage growth among the top 1 percent of earners. Factoring in the cost of housing only darkens the picture. Today, there is not a single county in the United States where someone making minimum wage can afford a two-bedroom apartment. In Atlanta, according to the National Low Income Housing Coalition’s annual Out of Reach report, the “housing wage” needed to pay for a modest two-bedroom unit is $21.27 an hour. (Georgia’s minimum wage is $5.15 an hour.) In Boston, a tenant earning minimum wage would have to log 141 hours a week to afford the same residence. In San Francisco, it’s 203 hours, or the equivalent of five full-time jobs.
Once upon a time, mass homelessness did not exist in the United States. The population of people without stable living situations periodically surged, but these waves were temporary, subsiding as the economy improved. The phenomenon we now know as homelessness—pervasive, unremarkable, seemingly intractable—arose only in the 1980s. What had been anomalous suddenly became “the common misery of millions,” observed the writer and activist Jonathan Kozol in his 1988 book Rachel and Her Children: Homeless Families in America. Set in a towering New York shelter that Kozol likened to an urban refugee camp, the book sought to excavate the causes of this great displacement. Kozol refused the dominant explanations, all of which emphasized some mix of individual and group pathology: teenage pregnancy, mental illness, drugs, a “culture of poverty.” He offered a different view. In 1970, the United States had a surplus of 300,000 affordable rental homes; under President Reagan, federal spending on low-income housing plummeted from $32 billion to $7 billion. (“We’re getting out of the housing business. Period,” said a top HUD official at the time.) Affordable units evaporated, and with them many of the legal safeguards allowing poor tenants to stay in the relative few that remained. Kozol condensed his findings into a single italicized sentence: “The cause of homelessness,” he wrote, “is lack of housing.”
Is this Related to the loss of taxation of land rent and loss of depreciation of real investment pointed out by Gaffney?
http://www.masongaffney.org/workpapers/Capital_Gains_and_Future_of_Free_Enterprise.pdf
http://www.georgistjournal.org/2016/08/01/tax-treatment-of-land-income/
http://www.georgistjournal.org/2016/08/01/tax-treatment-of-land-income/
Or the Debt / Investment shift away from productive enterprise and towards financial products pointed out here?
https://www.ucl.ac.uk/bartlett/public-purpose/publications/2018/nov/credit-where-its-due
https://www.forbes.com/sites/johnwake/2019/03/15/the-debt-shift-theory-of-the-great-financial-crisis-and-the-great-real-estate-bubble/#c1a00fc19d01
https://www.forbes.com/sites/johnwake/2019/03/15/the-debt-shift-theory-of-the-great-financial-crisis-and-the-great-real-estate-bubble/#c1a00fc19d01
Inequality within major american metro areas has ballooned since the 1980s . . .right around when these shifts took place.
https://www.nytimes.com/2019/12/02/upshot/wealth-poverty-divide-american-cities.html?smid=nytcore-ios-share
https://www.nytimes.com/2019/12/02/upshot/wealth-poverty-divide-american-cities.html?smid=nytcore-ios-share
Last year (2018). . . HUD reported a 23 percent decline in the number of families with children experiencing homelessness since 2007. The only problem, according to critics, is that HUD’s definition of “homeless,” and thus the scope of its Point-in-Time count, is severely limited, restricted to people living in shelters or on the streets. Everyone else—those crammed into apartments with others, or living in cars or hotels—is rendered doubly invisible: at once hidden from sight and disregarded by the official reporting. . . In 2016, Dworkin and her colleagues began conducting their own survey of Chicago’s homeless population, expanding it beyond the HUD census to include families doubled up with others. Their total was twelve times that of the Point-in-Time count: 82,212 versus 6,786. “The idea that these families aren’t ‘actually’ homeless because they’re not in shelters is absurd,” Dworkin told me. “Oftentimes the shelters are full, or there simply are no family shelters—in which case, all these people are essentially abandoned by the system.”
Questions: how to view this in light of the study that says gentrification doesn't have a bad impact even on renters b/c they move a lot anyway?
Questions: how to view this in light of the study that says gentrification doesn't have a bad impact even on renters b/c they move a lot anyway?
First, let's talk about the "commodification" of real estate, alleged culprit for high home prices in the likes of Vancouver. There are three basic ways to make money off land: by developing it and selling it at a profit, by owning it and charging rent for its use, or by owning it and speculating on its rising value. So who are actually the biggest land speculators in today's high-priced cities?
In Vancouver, the average sale price of a detached home rose by an astounding 319 percent from January 2000 to May 2019. This means that a $400,000 house purchased in 2000 may well have since appreciated at the rate of about $65,000 a year—a more than comfortable middle-class salary if it were paid in cash. This is far from only a Vancouver or Canadian phenomenon: a 2018 Zillow study found that homes "earn" at least the minimum wage in more than half of the largest U.S. cities, and in the hottest markets, far more than that. (A San Jose, CA homeowner collects $100 in equity for each hour spent at the office.)
Most homeowners do not think of themselves as land speculators, of course. Most are genuinely interested in a home more than just an investment, and in cultivating community rather than just extracting wealth. Nonetheless, many end up building a healthy retirement nest egg, or passing on a sizable inheritance, thanks to the capital gains on their home. At the end of the day, it's incoherent to describe a city as an engine of capital accumulation via the commodification of land, and pretend that the single-family homeowners who actually control most of the land have no stake in that process.
Culturally, we're resistant to lumping owner-occupiers in with investors and speculators—North Americans, and maybe especially progressives, have a really conflicted set of understandings about whether housing should be a source of profit. Which is to say, of course not, housing is a human right!—but home ownership is an important way to build wealth… but we believe housing should also be broadly affordable, so, uhhhhhh... maybe not too much wealth? It's all messy and contradictory.
The status quo in U.S. and Canadian cities might lend more support, if anything, to a different, competing theory of urban political power: William Fischel's "homevoter" hypothesis. Fischel argues that homeowners whose primary interest is in maintaining their property values are a powerful and often dominant interest group in city politics.
https://www.bloombergquint.com/onweb/2018/06/21/u-s-homes-prices-least-affordable-in-almost-a-decade
U.S. Homes Prices Least Affordable in Almost a Decade
Rents have risen more than incomes in nearly every state since 2001
As of 2019E:
- Since 1960, renters’ incomes have increased by only 5% while rents have risen 61%. Whoever wants to be president should say how they’ll solve this crisis.
- Out of over 3,000 counties in the nation, there are only 22 where a full-time worker earning minimum wage can afford a modest one-bedroom rental, and there are no counties where they can afford a modest two-bedroom.
- Nationally, there are only 37 available and affordable homes for every 100 extremely low-income renter households.
- Since 1960, renters’ incomes have increased by only 5% while rents have risen 61%. Whoever wants to be president should say how they’ll solve this crisis.
- Out of over 3,000 counties in the nation, there are only 22 where a full-time worker earning minimum wage can afford a modest one-bedroom rental, and there are no counties where they can afford a modest two-bedroom.
- Nationally, there are only 37 available and affordable homes for every 100 extremely low-income renter households.
American landlords derive more profit from renters in low-income neighborhoods
https://www.citylab.com/equity/2019/03/housing-rent-landlords-poverty-desmond-inequality-research/585265/
https://www.citylab.com/equity/2019/03/housing-rent-landlords-poverty-desmond-inequality-research/585265/
It is a mistake, Desmond and Wilmers argue, to see slums as a byproduct of the modern city, rundown areas that occur by accident. Instead, they contend that the slum has long been a “prime moneymaker” for those who profit from land scarcity, racial segregation, and deferred maintenance. “If labor exploitation is understood to be getting paid less than the market value of what one produces,” they write, “we can extend this definition to the housing market by operationalizing exploitation as being overcharged relative to the market value of what one purchases, paying more for less.”
Ultimately, they find consistent evidence that the poor, and especially the minority poor, experience the highest rates of housing exploitation. In their most basic formulations, they find that renters in high-poverty neighborhoods experience levels of exploitation that are more than double those of renters in neighborhoods with lower levels of poverty. Neighborhoods with a poverty rate of less than 15 percent have an exploitation rate of 10 percent—meaning that rents cover 10 percent of the actual cost of that housing. (In other words, the actual cost of that rental housing can be paid off in 10 years.) But in high-poverty neighborhoods, those where 50 to 60 percent of residents live in poverty, the exploitation rate is 25 percent, meaning that 25 percent of the value of the property is paid back in a single year of rent.
The Wealth Inequality of Nations
https://stonecenter.gc.cuny.edu/research/the-wealth-inequality-of-nations/
https://stonecenter.gc.cuny.edu/research/the-wealth-inequality-of-nations/
https://fabianpfeffer.com/wp-content/uploads/PfefferWaitkus2021.pdf
April 2021
Fabian T. Pfeffer, Nora Waitkus
April 2021
Fabian T. Pfeffer, Nora Waitkus
Comparative research on income inequality has produced several coherent frameworks to study the institutional determinants of income stratification. In contrast, no such framework and much less empirical evidence exist to explain cross-national differences in wealth inequality. This situation is particularly lamentable as cross-national patterns of inequality in wealth diverge sharply from those in income. We seek to pave the way for new explanations of cross-national differences in wealth inequality by tracing them to the influence of different wealth components. Drawing on the literatures on financialization and housing, we argue that housing equity should be the central building block of the comparative analysis of wealth inequality.
Using harmonized data on fifteen countries included in the Luxembourg Wealth Study (LWS), we first demonstrate a lack of association between national levels of income and wealth inequality and concentration. Using decomposition approaches, we then estimate the degree to which national levels of wealth inequality and concentration relate to cross-national differences in wealth portfolios and the distribution of specific asset components. Considering the role of housing equity, financial assets, non-housing real assets, and non-housing debt, we reveal that cross-national variation in wealth inequality and concentration is centrally determined by the distribution of housing equity.
While simple indicators of home ownership rates, typically used to capture the overall importance of housing assets in a given country, suggest that broader access to home ownership may dampen wealth inequality and concentration, the overall distribution of housing equity, of which the prevalence of home ownership is just one aspect, is the central element accounting for overall wealth inequality. A country’s distribution of housing equity explains its overall level of wealth inequality and concentration to a substantial degree, including both the outlying position of the United States as well as the overall variation across many different countries. This is not to say that the strong concentration of financial assets and business equity at the top of the wealth distribution in most countries would be unimportant. In fact, a focus on financial assets and business equity is likely central to the understanding of elite closure and the continued and accelerating wealth accumulation of the top one percent (Piketty 2014; Carney and Nason 2018).
But, based on the evidence presented here, our understanding of wealth inequality among the remaining 99 percent relies on increased attention to the structure and dynamics of housing and mortgage markets."
It seems unfortunate that one of the most ambitious theoretical and empirical studies on the determinants of wealth inequality, Piketty’s Capital (2014), also mostly disregards the role of housing as a driver of wealth inequality (see also Bonnet et al. 2014; Fuller et al. 2019; Rognlie 2015), and the proposed “rule” of growing wealth inequality (r > g) at best discounts the importance of a careful analysis of the institutional determinants of wealth inequality (see also Acemoglu and Robinson 2015).
An alternative, theoretically ambitious effort that focuses on the role of housing may, instead, naturally align with the rapidly expanding literature on financialization that has forcefully argued for the central role of mortgage lending. At the backdrop of the findings presented here, one way to bring the literature on financialization and the literature on wealth into closer conversation would be to establish a clear empirical link between different lending regimes and the structure of national housing markets.
Doing so would also promise to ameliorate the surprising disconnect between the scholarships on wealth and debt (see also Dwyer 2018).
But, based on the evidence presented here, our understanding of wealth inequality among the remaining 99 percent relies on increased attention to the structure and dynamics of housing and mortgage markets."
It seems unfortunate that one of the most ambitious theoretical and empirical studies on the determinants of wealth inequality, Piketty’s Capital (2014), also mostly disregards the role of housing as a driver of wealth inequality (see also Bonnet et al. 2014; Fuller et al. 2019; Rognlie 2015), and the proposed “rule” of growing wealth inequality (r > g) at best discounts the importance of a careful analysis of the institutional determinants of wealth inequality (see also Acemoglu and Robinson 2015).
An alternative, theoretically ambitious effort that focuses on the role of housing may, instead, naturally align with the rapidly expanding literature on financialization that has forcefully argued for the central role of mortgage lending. At the backdrop of the findings presented here, one way to bring the literature on financialization and the literature on wealth into closer conversation would be to establish a clear empirical link between different lending regimes and the structure of national housing markets.
Doing so would also promise to ameliorate the surprising disconnect between the scholarships on wealth and debt (see also Dwyer 2018).
https://nypost.com/2019/12/25/how-america-is-reverting-back-to-the-feudal-age/
The proportion of land owned by the nation’s hundred largest private landowners grew by nearly 50 percent between 2007 and 2017. In 2007, according to the Land Report, this group owned a combined 27 million acres of land, equivalent to the area of Maine and New Hampshire combined. A decade later, the 100 largest landowners had holdings of more than 40 million acres. Their holdings are now larger than the entirety of New England. Even in the vast American West, where much of the land remains in public hands, billionaires have created expansive estates that many fear will make the rest of the local population land-poor.
How the obsession with homeownership ruins the economy | The Economist
https://www.youtube.com/watch?v=kkVEt5tC2xU&feature=emb_title
a.) Subsidies to homeownership have propped up the price
b.) High homeownership rates correlate with restrictive zoning to protect investments.
c.) High homeownership rates are correlated with higher unemployment. (Less likely to move to find another job)
b.) High homeownership rates correlate with restrictive zoning to protect investments.
c.) High homeownership rates are correlated with higher unemployment. (Less likely to move to find another job)
Those with mortgage debt are 30% less likely to become an entrepreneur. https://www.youtube.com/watch?v=wcEjSvzkehk ~ 6:01:00
d.) Homeownership is weakly correlated with development.
Singapore 91% but #9 on human development index.
Romania 96% but # 52
Switzerland 38% but #2
Romania 96% but # 52
Switzerland 38% but #2
e.) AFter taking all costs into account (taxes, insurance, broker fees etc) , Renting and Homeownership are about the same.
'Shaking the Foundations': Full Housing Report From Economist
https://www.youtube.com/watch?v=wcEjSvzkehk
Starts at 5:22:46
Housing is at the root of many of the rich world’s problems
A history How housing became the world’s biggest asset class
https://www.economist.com/special-report/2020/01/16/how-housing-became-the-worlds-biggest-asset-class
https://outline.com/EfEz3V
https://outline.com/EfEz3V
Over the past 70 years housing has undergone a remarkable transformation. Until the mid-20th century house prices across the rich world were fairly stable (see chart). From then on, however, they boomed both relative to the price of other goods and services and relative to incomes. Rents went up, too. The Joint Centre for Housing Studies of Harvard University finds that the median American rent payment rose 61% in real terms between 1960 and 2016 while the median renter’s income grew by 5%. In the 18th century farmland was the world’s single-biggest asset class. In the 19th century the factories used to power the Industrial Revolution took the number-one spot. Now it is housing (see chart, below).
In a research paper Òscar Jordà, Alan Taylor and Moritz Schularick describe the second half of the 20th century as “the great mortgaging”. In 1940-2000 mortgage credit as a share of GDP across the rich world more than doubled. More people clambered onto the “housing ladder”. America’s home-ownership rate rose from around 45% to 70%; Britain’s went from 30% to 70%.
Why did the rich world turn against new construction? The post-war rise in home ownership may have had something to do with it. In 2001 William Fischel of Harvard University proposed his “homevoter hypothesis”. The thinking runs that owner-occupiers have an incentive to resist development in their local area, since doing so helps preserve the value of their property. As home ownership rises, therefore, housing construction might be expected to fall.
In a research paper Òscar Jordà, Alan Taylor and Moritz Schularick describe the second half of the 20th century as “the great mortgaging”. In 1940-2000 mortgage credit as a share of GDP across the rich world more than doubled. More people clambered onto the “housing ladder”. America’s home-ownership rate rose from around 45% to 70%; Britain’s went from 30% to 70%.
Why did the rich world turn against new construction? The post-war rise in home ownership may have had something to do with it. In 2001 William Fischel of Harvard University proposed his “homevoter hypothesis”. The thinking runs that owner-occupiers have an incentive to resist development in their local area, since doing so helps preserve the value of their property. As home ownership rises, therefore, housing construction might be expected to fall.
Despite the fact that land has a high long term return, it is usually a terrible investment for the poor.
Housing can be a good investment if you buy at the right time, buy in the right place, get a fair deal on financing, and aren’t excessively vulnerable to market swings. Unfortunately the market for home-ownership is structured in such a way as to assure that low-income and minority buyers meet none of these conditions. For these Americans, there’s no guarantee that homeownership builds wealth; in fact, tends to be a risky proposition that often produces financial hardship.
First, you have to buy at the right time. As the experience of the last housing bubble showed, low-income and minority buyers came into the market most strongly as lending standards were relaxed, relatively late in the cycle. Those who bought in 2001 (when the market was depressed) fared very differently that those who bought in 2006 (at the height of the bubble). Easy credit nominally made homes more affordable, but also drew ever more borrowers into the market to bid up the prices of homes until the bubble popped. Because of this inherent quality of the credit cycle, the poorest borrowers are drawn into the market at the worst time to buy—when prices are at their highest.
Second, you have to buy in the right place. Opportunities for home appreciation vary enormously, not only by region of the country, but by neighborhood within metro areas. Ethnic minorities tend to buy in neighborhoods that have lower rates of home price appreciation. Black and Hispanic households experienced bigger declines in home values as the housing bubble collapsed, and a slower rebound as it recovered, leaving them worse off that the typical white homeowner. And that’s not a result of Black and Hispanic buyers being poor judges of neighborhood quality: In segregated housing markets, the behavior of whites to avoid Black and Hispanic neighborhoods means that it’s much more difficult for those communities to see consistently rising home values.
Third, you have to get a good deal on credit. The evidence is that low income borrowers and ethnic minorities pay, on average, higher interest rates. A 2006 study for HUD found that after controlling for household, property and loan characteristics, black households pay interest rates that are 21 to 42 basis points higher than whites, and hispanics pay rates than are 13 to 15 basis points higher. Federally guaranteed home mortgages must pay fees based on their riskiness, as measured by the mortgage’s loan-to-value ratio and the borrower’s credit score. Because minority buyers tend to have lower down payments and worse credit scores, it’s estimated that they pay guarantee fees that are 50 percent higher on average than white buyers. In addition, we know that low income and minority borrowers were the targets of predatory lenders. If you pay more for your mortgage, that raises the cost and lowers the returns to homeownership.
Finally, in order to build wealth with housing, you have to have the ability to weather economic cycles. Low income and minority families often have limited financial resources beyond the equity in their homes and therefore are poorly positioned to cope with financial setbacks—loss of a job, a major medical expense or home repair—and missing mortgage payments can quickly push them into default. And highly leveraged home buyers (who get 90% or greater mortgages) are vulnerable to lose their entire investment in the face of even a modest decline in home prices. As Atif Mian and Amir Sufi have documented, conventional US mortgage loans are a risky, one-sided bet for borrowers.
First, you have to buy at the right time. As the experience of the last housing bubble showed, low-income and minority buyers came into the market most strongly as lending standards were relaxed, relatively late in the cycle. Those who bought in 2001 (when the market was depressed) fared very differently that those who bought in 2006 (at the height of the bubble). Easy credit nominally made homes more affordable, but also drew ever more borrowers into the market to bid up the prices of homes until the bubble popped. Because of this inherent quality of the credit cycle, the poorest borrowers are drawn into the market at the worst time to buy—when prices are at their highest.
Second, you have to buy in the right place. Opportunities for home appreciation vary enormously, not only by region of the country, but by neighborhood within metro areas. Ethnic minorities tend to buy in neighborhoods that have lower rates of home price appreciation. Black and Hispanic households experienced bigger declines in home values as the housing bubble collapsed, and a slower rebound as it recovered, leaving them worse off that the typical white homeowner. And that’s not a result of Black and Hispanic buyers being poor judges of neighborhood quality: In segregated housing markets, the behavior of whites to avoid Black and Hispanic neighborhoods means that it’s much more difficult for those communities to see consistently rising home values.
Third, you have to get a good deal on credit. The evidence is that low income borrowers and ethnic minorities pay, on average, higher interest rates. A 2006 study for HUD found that after controlling for household, property and loan characteristics, black households pay interest rates that are 21 to 42 basis points higher than whites, and hispanics pay rates than are 13 to 15 basis points higher. Federally guaranteed home mortgages must pay fees based on their riskiness, as measured by the mortgage’s loan-to-value ratio and the borrower’s credit score. Because minority buyers tend to have lower down payments and worse credit scores, it’s estimated that they pay guarantee fees that are 50 percent higher on average than white buyers. In addition, we know that low income and minority borrowers were the targets of predatory lenders. If you pay more for your mortgage, that raises the cost and lowers the returns to homeownership.
Finally, in order to build wealth with housing, you have to have the ability to weather economic cycles. Low income and minority families often have limited financial resources beyond the equity in their homes and therefore are poorly positioned to cope with financial setbacks—loss of a job, a major medical expense or home repair—and missing mortgage payments can quickly push them into default. And highly leveraged home buyers (who get 90% or greater mortgages) are vulnerable to lose their entire investment in the face of even a modest decline in home prices. As Atif Mian and Amir Sufi have documented, conventional US mortgage loans are a risky, one-sided bet for borrowers.
Rethinking homeownership incentives to improve household financial security and shrink the racial wealth gap
For decades, the U.S. has heavily relied on homeownership as a strategy for household wealth-building. This offers some useful features—notably, a forced savings mechanism and hedging against rents rising faster than income. But there are also limitations from both an individual and social perspective. Housing is undiversified and illiquid, and thus risky for households. Decades of racial discrimination in housing and mortgage markets have largely excluded Black and Latino or Hispanic households from homeownership. Excess reliance on home equity also incentivizes homeowners to fight against investments (such as affordable housing) that would have widespread social benefits.
Gentrification is good or at least not bad for even the original residents. (Georgist rent increases thus won't disrupt neighborhoods)
It is probably too much to ask, but what the data show, is that for many residents and neighborhoods, gentrification is a good thing. It raises property values for long-time homeowners, increasing their wealth. It doesn’t appear to be associated with rent increases for less educated renters who remain. Poverty rates decline, and objective changes in neighborhood characteristics–notably greater income mixing–are associated with higher levels of inter-generational mobility for kids growing up in such neighborhoods. In addition, the data show that poor neighborhoods that don’t gentrify steadily deteriorate on these measures. Implicit in much of the popular discussion and press coverage of gentrification is the assumption that neighborhoods that don’t gentrify will stay the same–but they don’t. Things get worse. That’s the relevant story for many places, and its simply not reported.
http://cityobservatory.org/the-devaluation-of-black-neighborhoods-part-1/
http://cityobservatory.org/the-devaluation-of-black-neighborhoods-part-1/
Because some white households may be much less averse to having black neighbors, some of what we see as gentrification may be propelled by the substantially lower cost of housing in majority black neighborhoods.
Noah smith goes over research showing more 'market rate' housing lowers rents.
Effects of Financialization
Rentier Capitalism
https://www.ft.com/content/5a8ab27e-d470-11e9-8367-807ebd53ab77
https://www.ft.com/content/5a8ab27e-d470-11e9-8367-807ebd53ab77
From 1948 to 1973, real median family income in the US rose 3 per cent annually. At this rate . . . there was a 96 per cent chance that a child would have a higher income than his or her parents. Since 1973, the median family has seen its real income grow only 0.4 per cent annually . . . As a result, 28 per cent of children have lower income than their parents did.”
So why is the economy not delivering? The answer lies, in large part, with the rise of rentier capitalism. In this case “rent” means rewards over and above those required to induce the desired supply of goods, services, land or labour. “Rentier capitalism” means an economy in which market and political power allows privileged individuals and businesses to extract a great deal of such rent from everybody else.
That does not explain every disappointment. As Robert Gordon, professor of social sciences at Northwestern University, argues, fundamental innovation slowed after the mid-20th century. Technology has also created greater reliance on graduates and raised their relative wages, explaining part of the rise of inequality. But the share of the top 1 per cent of US earners in pre-tax income jumped from 11 per cent in 1980 to 20 per cent in 2014. This was not mainly the result of such skill-biased technological change.
https://www.hup.harvard.edu/catalog.php?isbn=9780674984608
https://www.nber.org/system/files/working_papers/w22944/w22944.pdf
So why is the economy not delivering? The answer lies, in large part, with the rise of rentier capitalism. In this case “rent” means rewards over and above those required to induce the desired supply of goods, services, land or labour. “Rentier capitalism” means an economy in which market and political power allows privileged individuals and businesses to extract a great deal of such rent from everybody else.
That does not explain every disappointment. As Robert Gordon, professor of social sciences at Northwestern University, argues, fundamental innovation slowed after the mid-20th century. Technology has also created greater reliance on graduates and raised their relative wages, explaining part of the rise of inequality. But the share of the top 1 per cent of US earners in pre-tax income jumped from 11 per cent in 1980 to 20 per cent in 2014. This was not mainly the result of such skill-biased technological change.
https://www.hup.harvard.edu/catalog.php?isbn=9780674984608
https://www.nber.org/system/files/working_papers/w22944/w22944.pdf
globalisation in the form of foreign trade and offshoring has not been a large contributor to rising inequality. Multiple studies of different events around the world point to this conclusion.”
The economic impact of immigration has also been small, however big the political and cultural “shock of the foreigner” may be. Research strongly suggests that the effect of immigration on the real earnings of the native population and on receiving countries’ fiscal position has been small and frequently positive.
Far more productive than this politically rewarding, but mistaken, focus on the damage done by trade and migration is an examination of contemporary rentier capitalism itself.
Finance plays a key role, with several dimensions. Liberalised finance tends to metastasise, like a cancer. Thus, the financial sector’s ability to create credit and money finances its own activities, incomes and (often illusory) profits.https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy
https://www.pauljorion.com/stewardship-of-finance/wp-content/uploads/2015/04/College-09-03-2015_-Turner-useful-and-useless-financial-activities.pdf
Finance plays a key role, with several dimensions. Liberalised finance tends to metastasise, like a cancer. Thus, the financial sector’s ability to create credit and money finances its own activities, incomes and (often illusory) profits.https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy
https://www.pauljorion.com/stewardship-of-finance/wp-content/uploads/2015/04/College-09-03-2015_-Turner-useful-and-useless-financial-activities.pdf
A 2015 study by Stephen Cecchetti and Enisse Kharroubi for the Bank for International Settlements said “the level of financial development is good only up to a point, after which it becomes a drag on growth, and that a fast-growing financial sector is detrimental to aggregate productivity growth”. When the financial sector grows quickly, they argue, it hires talented people. These then lend against property, because it generates collateral. This is a diversion of talented human resources in unproductive, useless directions
A possibly still more fundamental issue is the decline of competition. Mr Furman and Mr Orszag say there is evidence of increased market concentration in the US, a lower rate of entry of new firms and a lower share of young firms in the economy compared with three or four decades ago. Work by the OECD and Oxford Martin School also notes widening gaps in productivity and profit mark-ups between the leading businesses and the rest. This suggests weakening competition and rising monopoly rent. Moreover, a great deal of the increase in inequality arises from radically different rewards for workers with similar skills in different firms: this, too, is a form of rent extraction.
Debt shift from Business to financial assets by way Financial deregulation has Accelerated Inequality
Due to New Study "Credit where it’s due: A historical, theoretical and empirical review of credit guidance policies in the 20th century,"
Due to New Study "Credit where it’s due: A historical, theoretical and empirical review of credit guidance policies in the 20th century,"
by Dirk Bezemer (University of Groningen, Netherlands), Josh Ryan-Collins (UCL Institute for Innovation and Public Purpose), Frank van Lerven (New Economics Foundation) and Lu Zhang (Utrecht University, Netherlands).
https://www.ucl.ac.uk/bartlett/public-purpose/publications/2018/nov/credit-where-its-due
https://www.ucl.ac.uk/bartlett/public-purpose/publications/2018/nov/credit-where-its-due
See also other entries for this piece (How Banks Profit and Boom bust)
The Asset Economy
https://homelessness.ucsf.edu/blog/asset-economy
https://bookshop.org/books/the-asset-economy/9781509543465
https://nitter.net/resnikoff/status/1479543419974275076
https://homelessness.ucsf.edu/blog/asset-economy
https://bookshop.org/books/the-asset-economy/9781509543465
https://nitter.net/resnikoff/status/1479543419974275076
The Asset Economy, written by the Australia-based social theorists Lisa Adkins, Melinda Cooper and Martijn Konings, argues that the major economies of the Anglophone world (those of the United States, the United Kingdom, and Australia) underwent a significant shift in the second half of the 20th century. Due to that shift, in their words, “[t]he key element shaping inequality is no longer the employment relationship, but rather whether one is able to buy assets that appreciate at a faster rate than both inflation and wages.”
Their argument is rather technical, but it’s worth trying to gloss some key points. Adkins, Cooper and Konings fix the roots of the modern economic order in the immediate hangover from the post-war boom of the 1950s and 60s. The post-war moment was a period of relative economic equality, driven by a growing middle class that was in turn buoyed by rising wages, government social policy, a muscular labor movement, and rapid economic growth. This expansionary phase came to a stop in the 1970s, when the Anglophone world entered a period characterized by consumer price inflation. Because wages during that era still largely kept pace with rising prices, the biggest losers from inflation were “those whose wealth was invested in financial assets such as stocks, bonds, or Treasury bills and whose income derived primarily from interests, dividends, rents and capital gains.” Inflation devalued these assets.
Policymakers responded with a variety of instruments, which the book describes in detail. I won’t do that here. Instead, I’ll skip to the ultimate consequence, which was to slow down growth in consumer prices and wages while juicing asset values. As this was going on, policymakers tried to offer new opportunities for middle- and working-class households to reap the benefits of asset inflation. As Adkins, Cooper and Konings write, “governments encouraged people to participate in the asset economy to compensate for their losses on labor income with investment income.” For the vast majority of households, the most direct path to a major stake in the asset economy was through homeownership.
Adkins, Cooper and Konings write that the transition to an asset-based economy—and in particular the push to get as many people as possible to participate in this economy by purchasing their own homes—fundamentally transformed the class system of the Anglophone world. “The key element shaping inequality is no longer the employment relationship, but rather whether one is able to buy assets that appreciate at a faster rate than both inflation and wages,” they write.
Implications
A few things make the Adkins, Cooper and Konings analysis useful. In particular:
A.) It helps to explain why home price inflation is an international crisis. Although The Asset Economy focuses on policy developments in the Anglophone world, other nations have enacted similar policy regimes. Perhaps more importantly, the policy decisions made in wealthy countries such as Australia, the United Kingdom, and—especially—the United States have spillover effects powerful enough to influence the world economy.
B.) It resolves some cognitive dissonance around class. Intuitively, it seems that people who have similar jobs and educational backgrounds, and earn roughly equivalent incomes should belong to the same economic class. But we all know from personal observation that this isn’t the case. The Asset Economy explains the existence of “deep chasms of inequality between classes of people who earn the same wages but are differentiated by their status as homeowners or renters.”
C.) It provides a theoretical framework for understanding the modern era of American homelessness. As mentioned previously, we can fix the beginning of contemporary mass homelessness in the United States to somewhere around the late 70s or early 80s. That means its birth coincides roughly with the creation of the asset-based economy. While the book is not focused on the origins of the modern American homelessness crisis, it points to a critical underlying cause: as housing price appreciation began to outstrip income growth, many people on the lowest rung of the economic ladder were suddenly no longer able to afford even the most rudimentary housing.
D.) It helps explain why preventing and ending homelessness is so politically challenging. Close to two-thirds of Americans reside in owner-occupied housing. In practical terms, that means a supermajority of Americans have a significant financial stake in the asset economy; for many of them, their financial health and the security of their families depends on rapid, perpetual asset appreciation. This means that many of the policy levers we could use to reduce the overall cost of housing (or even slow the growth of housing costs) would run directly counter to the economic interests of the largest and most powerful voting bloc in the asset-based class system. Furthermore, most of the people within that bloc are not part of the “one percent” by any reasonable definition; they are part of the generation that was granted easier access to the asset economy as compensation for stagnating wages.
E.) It gives us a glimpse of one possible future. An important feature of the asset economy’s wealth distribution is that it naturally becomes more top-heavy over time. If home prices rise in perpetuity, then the barrier to homeownership becomes correspondingly higher for each passing generation. “The combination of inflated capital gains and deflated wages progressively closes the gates to newcomers, who struggle to buy their way into housing on wages alone,” write Adkins, Cooper, and Konings. Late entrants to the market—for example, young, first-time homeowners—become more reliant on intergenerational wealth transfers to afford even an initial down payment.
Thus, the rate of homeownership appears to be declining among each successive generation of Americans. If housing costs continue to inflate indefinitely, we can expect the prospect of owning a home to become increasingly closed off to all but the very wealthy. And as the price of housing generates additional upward pressure on rents, we can expect to see corresponding increases in homelessness.
What this all suggests is that while the obstacles to reversing increases in homelessness are considerable, our current trajectory is unsustainable. The asset economy is based on a fundamental contradiction: Broad-based homeownership combined with rapidly inflating housing costs. These two elements cannot coexist forever. Something is going to break.
Capital City Gentrification and the Real Estate State by Samuel Stein
Stein also tracks the deindustrialization of urban centers and, with it, the loss of production capital as a driving political force. Without this counterforce that viewed land as a cost rather than commodity (higher rents=demands for higher wages from employees), real estate became the primary driver of planning and policy decisions. Stein does not wax nostalgic for the days of powerful material producers — they fought for their own malicious and disenfranchising policies — but he does make a powerful case for the urban downfall propelled by moving production centers outside of the urban center (or the country as a whole).
CEA chair Walter Heller sold the idea of offsetting the effect of high income tax rates by allowing fast write-off of most new investments, plus an investment tax credit (ITC). The high tax rate applies in full force to land rents; new investment gets major relief. Net result: an income tax that achieves nationally the same goal property tax reformers have to chip at laboriously from town to town.
Tax law changes in the 1980s did away with the 1960s Investment tax credit (which was a roundabout georgist 'hack' to the income tax) and allowed people and corporations to get away with fraudulently depreciating land. (See Michael Hudson)
Underassessing land for property taxation actually has more impact on income taxes than on property taxes. The same property tax rate is applied to both land and buildings. However, buildings are depreciable for income tax; land isn’t. Reams of evidence have been published finding these assessors’ allocations consistently understate land values relative to building values.
In the 1960s new capital achieved partial de facto exemption via fast write-off. Expensing is tantamount to total exemption. If we tax the profits of property, and relieve new capital, what is being taxed but land rent? We had a “graded tax plan” nationally, and never knew it!
Other Anti Georgist changes to the income tax completed over the years:
Tax law changes in the 1980s did away with the 1960s Investment tax credit (which was a roundabout georgist 'hack' to the income tax) and allowed people and corporations to get away with fraudulently depreciating land. (See Michael Hudson)
Underassessing land for property taxation actually has more impact on income taxes than on property taxes. The same property tax rate is applied to both land and buildings. However, buildings are depreciable for income tax; land isn’t. Reams of evidence have been published finding these assessors’ allocations consistently understate land values relative to building values.
In the 1960s new capital achieved partial de facto exemption via fast write-off. Expensing is tantamount to total exemption. If we tax the profits of property, and relieve new capital, what is being taxed but land rent? We had a “graded tax plan” nationally, and never knew it!
Other Anti Georgist changes to the income tax completed over the years:
A.) Wage and salary withholding came in 1941, along with higher rates in lower brackets, converting a tax primarily on property income into a mass payroll tax.
B.) Bracket creep” during inflation pushed workers into higher rate brackets, with no increase of real income. This effect has been reinforced at the bottom, where most wage and salary income is found.
C.) At the top, where most rents and capital gains are, the top rate was lowered from 70% to 28%.
D.)Corporations, meanwhile, are immune to bracket creep because the corporate rate is basically flat (with trivial exceptions at the bottom). The corporate share of total tax revenues has fallen sharply. In addition, in 1986 Congress lowered the flat corporate rate from 46% to 34%. (and again in 2017)
E.) Preferential treatment of land rents and gains has grown in several dimensions, as we will discuss.
B.) Bracket creep” during inflation pushed workers into higher rate brackets, with no increase of real income. This effect has been reinforced at the bottom, where most wage and salary income is found.
C.) At the top, where most rents and capital gains are, the top rate was lowered from 70% to 28%.
D.)Corporations, meanwhile, are immune to bracket creep because the corporate rate is basically flat (with trivial exceptions at the bottom). The corporate share of total tax revenues has fallen sharply. In addition, in 1986 Congress lowered the flat corporate rate from 46% to 34%. (and again in 2017)
E.) Preferential treatment of land rents and gains has grown in several dimensions, as we will discuss.
The shift of taxes off rent-yielding property is the more striking when we add in the States. In 1920 fully 50% of State revenues came from State property taxes; today hardly any does. Nearly all local revenues were then from property; today much less than half is. Sales and income taxes have replaced them.
This paper combines income tax returns with Flow of Funds data to estimate the distribution of householdwealth in the United States since 1913. We estimate wealth by capitalizing the incomes reported byindividual taxpayers, accounting for assets that do not generate taxable income.
Wealthconcentration has followed a U-shaped evolution over the last 100 years: It was high in the beginningof the twentieth century, fell from 1929 to 1978, and has continuously increased since then. The riseof wealth inequality is almost entirely due to the rise of the top 0.1% wealth share, from 7% in 1979to 22% in 2012—a level almost as high as in 1929.
A lot of the points in this paper are debated here: https://www.reddit.com/r/centrist/comments/do4wnf/a_panel_with_3_of_the_most_well_respected/
Wealthconcentration has followed a U-shaped evolution over the last 100 years: It was high in the beginningof the twentieth century, fell from 1929 to 1978, and has continuously increased since then. The riseof wealth inequality is almost entirely due to the rise of the top 0.1% wealth share, from 7% in 1979to 22% in 2012—a level almost as high as in 1929.
A lot of the points in this paper are debated here: https://www.reddit.com/r/centrist/comments/do4wnf/a_panel_with_3_of_the_most_well_respected/
Savings and Debt among classes have diverged since the 1980s.
https://www.nber.org/papers/w26941
https://www.nber.org/papers/w26941
There has been a large rise in savings by Americans in the top 1% of the income or wealth distribution over the past 40 years, which we call the saving glut of the rich. Instead of financing investment, this saving glut has been associated with dissaving by the non-rich and dissaving by the government. An unveiling of the financial sector reveals that rich households have accumulated substantial financial assets that are direct claims on U.S. government and household debt. State-level analysis shows that the rise in top income shares has been important in generating the rise in savings by the rich.
The divergence in savings rates and amount of debt between the 1% and the bottom 90% began at the end of 1970s. (See We Are Rent Book 1 Chapter 8)
The divergence in savings rates and amount of debt between the 1% and the bottom 90% began at the end of 1970s. (See We Are Rent Book 1 Chapter 8)
Banking systems in industrialised economies have shifted away from their textbook role of providing working capital and investment funds to businesses. They have primarily lent against pre-existing assets, in particular domestic real estate assets.”
The shift toward relatively less credit going toward productive businesses helps explain slower wage growth and increased income inequality. The shift toward relatively more loans going toward pre-existing real estate and financial assets helps explain their booms and busts, the depth of the Great Recession and the increase in income inequality.
The debt shift increased income inequality two different ways. First, lower relative investment in businesses that produce goods and services helps explain the wage stagnation. Second, the higher relative investment in existing assets raised asset prices which benefited those who owned more assets, higher income households.
Given the lower than expected percentage of defaults, the lenders lower their lending standards another notch and the cycle repeats itself until, eventually, years later, house prices stop increasing and defaults “unexpectedly” increase. I'd say, the lenders may have convinced themselves they were making mortgage loans but mostly they were speculating on house prices rising.
The result of this feedback loop is much higher levels of household debt which, in the long-run, can lower household spending on the goods and services that are being produced today and that are creating jobs today. That in turn, lowers wage growth.
The Debt Shift Theory says the removal of central bank credit guidance policies in the 1980s and 1990s led to a large shift in lending toward pre-existing assets which lead to a large shift in debt toward real estate and financial asset purchases. The shift in debt had impacts on real estate and financial asset prices, price instability, expenditures on goods and services, labor productivity, wage growth, income inequality and was the root cause of the Great Financial Crisis.
Counterpoint arguments to this thesis.
1.) Stock buybacks and nonproductive investment still go to someone who will either invest or spend. (Doesn't address what happens if that guy also invests in non productive assets.)
2.) Investing in productive assets is not necessary. productivity is way up. We have graduate degrees working at starbucks.
2.) Investing in productive assets is not necessary. productivity is way up. We have graduate degrees working at starbucks.
Taxation has progressively moved off of rent and 'non real' work and onto wages.
The TaxReform Act of 1986,for example,has received widespread praise. It reduced complexity and lowered rates somewhat, which was good.But treating all forms of economic activity the same makes sense only if all activity is of equal economic and social value, which it is not.
When people like Jack Kemp talk about “capital gains” today, they conjure up images of new factories and high-payingjobs. But Professor James Poterba of MIT has found that only about 1% of such gains flow from real venture capital. The rest comes from such things as antiques, fine art, and existing stock certificates; and much of the latter represent disguised land and resources. Corporations hold some75% of the real estate assets in the US, so increases in stock value often reflect underlying increases in real estate values, not job-creatingcapital.
According to Dan Sullivan, semi defunct Us Steel still the #2 owner of US coals
According to Dan Sullivan, semi defunct Us Steel still the #2 owner of US coals
RAND study uncovers massive income shift to the top 1% since 1975
https://www.annualreviews.org/doi/abs/10.1146/annurev-economics-080218-025852
https://www.reddit.com/r/science/comments/bq3asl/wealth_inequality_in_the_united_states_has/
https://www.reddit.com/r/science/comments/bq3asl/wealth_inequality_in_the_united_states_has/
Wealth inequality in the United States has increased dramatically since the 1980s, with a top 1% wealth share of approx. 40% in 2016 versus 25–30% in the 1980s. These estimates may however substantially underestimate the wealth of the 1% due to tax evasion and other measures to obscure wealth.
The caveat here that always needs to be thrown in with regards to tax evasion and such is that the problem isn't really with the top 1%, it's the top 0.1%.
Most of the 99.0-99.5% segment is going to be occupied by doctors, lawyers, finance types, engineers, small business owners, etc. who are undoubtedly wealthy, high income earners. But they're not "stash my money in an offshore LLC" type wealthy, and since most of their income is straight W2 income, they do pay a lot of taxes. This isn't where a serious problem exists, at least in my mind.
This laissez-faire approach perhaps helps explains Britain’s ‘productivity puzzle’: the nation seems to be richer without economic output and wages increasing thanks to spiralling property prices.
The Productivity–Pay Gap
https://www.epi.org/productivity-pay-gap/
https://www.epi.org/productivity-pay-gap/
Since 1973, pay and productivity have diverged.
Labor's share of income is declining.
https://www.brookings.edu/wp-content/uploads/2016/07/2013b_elsby_labor_share.pdf
https://www.brookings.edu/wp-content/uploads/2016/07/2013b_elsby_labor_share.pdf
Over the past quarter century, labor’s share of income in the United States has trended downward, reaching its lowest level in the postwar period after the Great Recession.
Too many of America's smartest waste their talents - in rentseeking.
https://www.chicagotribune.com/opinion/commentary/ct-perspec-meritocracy-asian-americans-college-admissions-harvard-0620-story.html
https://www.chicagotribune.com/opinion/commentary/ct-perspec-meritocracy-asian-americans-college-admissions-harvard-0620-story.html
The U.S. economy still does make use of meritocracy, as indicated by the fact that college graduates get paid higher wages. But there are troubling signs that talent is being squandered in large amounts.
For example, many graduates from elite schools end up working on Wall Street. In 2007, half of Harvard seniors took jobs in finance or consulting. That share fell after the financial crisis, but it is still more than a third. It isn't just Harvard, either — big banks draw large percentages of their workforces from top schools, both public and private.
Some of those workers will be producing real value. But since the 2008 crisis, there has been a growing sentiment that much of what the finance industry does involves siphoning value — which economists call “rents” — from the rest of the economy. Economists such as Thomas Philippon argue that the industry has gotten less efficient. There are many reasons for this — implicit government guarantees propping up unproductive banks, trading activity that wastes resources, and excessive money management fees.
The upshot is that many of the country's best and brightest are either exerting their talents trying to beat each other out in a zero-sum trading game, or exploiting legal and behavioral loopholes to part investors from their money. The Dodd-Frank financial reforms probably helped the situation a bit, but those reforms are even now being eroded.
Since the turn of the century, a large productivity gap has opened up between leading companies and the rest. Research indicates that a few elite companies in each industry are becoming superstars, using their talent and intellectual property to muscle out the rest. The advent of the internet, which gives companies a wider marketing reach, may be contributing to the trend.
ndustrial concentration is worrying for a number of reasons. It suppresses wages for workers, raises prices for consumers and reduces overall economic output. This means that the most gifted Americans, working for superstar companies, are increasingly using their talents to deepen and entrench an inefficient economic system, by figuring out more effective ways to kill off competition.
Meanwhile, many potentially important positions are being starved of the talent they deserve. In countries such as Japan, many top graduates traditionally entered the bureaucracy, though less so in recent years. In Finland, which has one of the world's best education systems, teaching is a highly prized profession. But in the U.S., talented individuals have little incentive to go into government. Low salaries and low prestige are causing young Americans to flee the federal workforce, leaving the civil service starved for talent. Inefficient and ineffective government is the inevitable result. Meanwhile, salaries for American teachers continue to stagnate, which can't be helping the country's flagging education system.
This all adds up to a picture of a broken American meritocracy. The U.S. does a great job of finding the ablest students and giving them a top-notch education, but it then employs many of these capable, well-trained individuals in low-value or even counterproductive roles. The civil service and the educational system sink slowly into inefficiency as skilled people flee for the higher salaries of the finance industry and monopolistic companies.
For example, many graduates from elite schools end up working on Wall Street. In 2007, half of Harvard seniors took jobs in finance or consulting. That share fell after the financial crisis, but it is still more than a third. It isn't just Harvard, either — big banks draw large percentages of their workforces from top schools, both public and private.
Some of those workers will be producing real value. But since the 2008 crisis, there has been a growing sentiment that much of what the finance industry does involves siphoning value — which economists call “rents” — from the rest of the economy. Economists such as Thomas Philippon argue that the industry has gotten less efficient. There are many reasons for this — implicit government guarantees propping up unproductive banks, trading activity that wastes resources, and excessive money management fees.
The upshot is that many of the country's best and brightest are either exerting their talents trying to beat each other out in a zero-sum trading game, or exploiting legal and behavioral loopholes to part investors from their money. The Dodd-Frank financial reforms probably helped the situation a bit, but those reforms are even now being eroded.
Since the turn of the century, a large productivity gap has opened up between leading companies and the rest. Research indicates that a few elite companies in each industry are becoming superstars, using their talent and intellectual property to muscle out the rest. The advent of the internet, which gives companies a wider marketing reach, may be contributing to the trend.
ndustrial concentration is worrying for a number of reasons. It suppresses wages for workers, raises prices for consumers and reduces overall economic output. This means that the most gifted Americans, working for superstar companies, are increasingly using their talents to deepen and entrench an inefficient economic system, by figuring out more effective ways to kill off competition.
Meanwhile, many potentially important positions are being starved of the talent they deserve. In countries such as Japan, many top graduates traditionally entered the bureaucracy, though less so in recent years. In Finland, which has one of the world's best education systems, teaching is a highly prized profession. But in the U.S., talented individuals have little incentive to go into government. Low salaries and low prestige are causing young Americans to flee the federal workforce, leaving the civil service starved for talent. Inefficient and ineffective government is the inevitable result. Meanwhile, salaries for American teachers continue to stagnate, which can't be helping the country's flagging education system.
This all adds up to a picture of a broken American meritocracy. The U.S. does a great job of finding the ablest students and giving them a top-notch education, but it then employs many of these capable, well-trained individuals in low-value or even counterproductive roles. The civil service and the educational system sink slowly into inefficiency as skilled people flee for the higher salaries of the finance industry and monopolistic companies.
Finance sector wages: explaining their high level and growth
Individuals who work in the finance sector enjoy a significant wage advantage. This wage premium has received increasing attention from researchers following the financial crisis, with focus being put onto wages at the top of the distribution in general, and finance sector wages in particular (see Bell and Van Reenen 2010, 2013 for discussion in the UK context).
Real Wages are declining for Americans even with full employment.
http://nymag.com/daily/intelligencer/2018/06/most-americans-wages-have-declined-over-the-past-year.html
http://nymag.com/daily/intelligencer/2018/06/most-americans-wages-have-declined-over-the-past-year.html
On the other hand, Americans are deeply indebted, many are stuck with part-time jobs, and wage gains have been so disappointing, their weakness has challenged fundamental premises of mainstream economics: Simply put, you aren’t supposed to be able to pay workers this little when the unemployment rate is this low.
http://nymag.com/daily/intelligencer/2017/08/the-trump-economy-is-a-gilded-mediocrity.html
https://www.vox.com/the-big-idea/2018/5/4/17320188/jobs-report-natural-rate-unemployment-inflation-economics-april
http://nymag.com/daily/intelligencer/2017/08/the-trump-economy-is-a-gilded-mediocrity.html
https://www.vox.com/the-big-idea/2018/5/4/17320188/jobs-report-natural-rate-unemployment-inflation-economics-april
And on Tuesday, the big picture on Americans’ paychecks grew even darker: In May, U.S. inflation accelerated to its fastest pace in more than six years — and wiped out what little wage growth the typical American worker had seen over the past 12 months in the process.
The consumer price index was 2.8 percent higher this past pay May than it was the same month one year ago; that increase leaves real average hourly earnings for production and nonsupervisory workers (a.k.a. the vast majority of workers) 0.1 percent lower than they were 12 months ago.
Spatial Mismatch costs from bad incentives of undertaxed land as source of wealth
Sprawl costs us all.
from HGSS Understanding Economics Episode 5: The Dog in the Manger
https://www.youtube.com/watch?v=iqbx4dp4BaI
1.) Without LVT 2.) With LVT
from HGSS Understanding Economics Episode 5: The Dog in the Manger
https://www.youtube.com/watch?v=iqbx4dp4BaI
1.) Without LVT 2.) With LVT
Sprawl is expensive. It costs more money to pave a road and connect a sewer line to five families each living a block apart on wooded lots than to build public infrastructure for those same five families living in a condo. It costs more money (and takes more time and gas) to serve those families with garbage trucks, fire engines, and ambulances. And in return – as we've previously written – those five sprawling single-family homes likely yield less in tax revenue per acre than the apartment building that could house our fictitious residents downtown.
This municipal math is a core tenet of smart growth. But the argument is even more convincing with actual numbers. A new report out today from Smart Growth America, which surveyed 17 studies of compact and sprawling development scenarios across the country, sizes up the scale of the impact this way: Compact development costs, on average, 38 percent less in up-front infrastructure than "conventional suburban development" for things like roads, sewers and water lines. It costs 10 percent less in ongoing service delivery by reducing the distances law enforcement or garbage trucks must travel to serve residents (well-connected street grids cut down on this travel time, too). And compact development produces on average about 10 times more tax revenue per acre.
This municipal math is a core tenet of smart growth. But the argument is even more convincing with actual numbers. A new report out today from Smart Growth America, which surveyed 17 studies of compact and sprawling development scenarios across the country, sizes up the scale of the impact this way: Compact development costs, on average, 38 percent less in up-front infrastructure than "conventional suburban development" for things like roads, sewers and water lines. It costs 10 percent less in ongoing service delivery by reducing the distances law enforcement or garbage trucks must travel to serve residents (well-connected street grids cut down on this travel time, too). And compact development produces on average about 10 times more tax revenue per acre.
(Tax Revenue per Acre)
Leftist ideas to deal with modern problems in the US ignore the spatial component.
A Land value tax can correct this.
For more graphs and data, see
+SpatialMismatch
Zoning and Political Collusion
“We have been a nation of land speculators,” Ms. Trounstine said. “This is how the nation was founded.”
Zoning Rules! The Economics of Land Use Regulation
widespread Not In My Backyard (NIMBY) syndrome is driven by voters’ excessive concern about their home values and creates barriers to growth that reach beyond individual communities. The barriers contribute to suburban sprawl, entrench income and racial segregation, retard regional immigration to the most productive cities, add to national wealth inequality, and slow the growth of the American economy.
Political Capitalism: How Economic and Political Power is Made and Maintained, by my Florida State University colleague Randall G. Holcombe, describes the economic and political system that is “political capitalism.” The key feature of political capitalism is cooperation between economic and political elites to their mutual advantage at the expense of everyone else. Modern zoning as an institution fits nicely into the political capitalism framework. Since the late 1970s, zoning policy has become increasingly hostile to new development, as explained by economist William Fischel in his book, Zoning Rules!. He notes that developers of large housing projects were early proponents of zoning because it prevented noisy or dirty businesses from locating too close to single-family homes and eroding their value. Thus, zoning became an important way to give potential homeowners the peace of mind they needed before investing a significant sum in an undiversified, immobile asset—a house.
How Zoning Laws Exacerbate Inequality
https://www.sightline.org/2016/04/20/how-exclusionary-zoning-robs-our-cities-of-their-best-qualities/
EXCLUSIONARY ZONING ROBS OUR CITIES OF THEIR BEST QUALITIES
EXCLUSIONARY ZONING ROBS OUR CITIES OF THEIR BEST QUALITIES
EXTENSIVE CITATIONS and research for each point in linked article.
- Tight regulations radically inflate housing costs
- Housing restrictions segregate neighborhoods by class
- Tight housing regulations kill opportunity
- Restrictive zoning keeps good schools out of reach of those who most need them
- Housing supply restrictions price people out of their neighborhoods
- Exclusionary zoning increases homelessness
- Housing restrictions make everyone poorer
- Exclusionary regulations on housing widen income inequality
Zoning laws alone don't do it (Minimum lot sizes are important). https://www.bloomberg.com/news/articles/2020-07-29/to-add-housing-zoning-code-reform-is-just-a-start
Zoning laws do affect the size of lots built. https://www.strongtowns.org/journal/2019/6/19/do-minimum-lot-size-rules-matter
https://www.propublica.org/article/how-some-of-americas-richest-towns-fight-affordable-housing?utm_source=pocket-newtab
https://www.citylab.com/equity/2019/05/connecticut-affordable-housing-zoning-westport/590155/
Zoning laws do affect the size of lots built. https://www.strongtowns.org/journal/2019/6/19/do-minimum-lot-size-rules-matter
https://www.propublica.org/article/how-some-of-americas-richest-towns-fight-affordable-housing?utm_source=pocket-newtab
https://www.citylab.com/equity/2019/05/connecticut-affordable-housing-zoning-westport/590155/
Power of Law restricts expansion of housing even when there is space and developer will. See Political capitalism.
However upzoning doesn't neccissarily result in immediate new construction and it *does* get priced into the lot.
https://www.citylab.com/life/2019/01/zoning-reform-house-costs-urban-development-gentrification/581677/
https://www.citylab.com/life/2019/01/zoning-reform-house-costs-urban-development-gentrification/581677/
https://www.nytimes.com/2019/05/22/opinion/california-housing-nimby.html
To live in California at this time is to experience every day the cryptic phrase that George W. Bush once used to describe the invasion of Iraq: “Catastrophic success.” The economy here is booming, but no one feels especially good about it. When the cost of living is taken into account, billionaire-brimming California ranks as the most poverty-stricken state, with a fifth of the population struggling to get by. Since 2010, migration out of California has surged.
To live in California at this time is to experience every day the cryptic phrase that George W. Bush once used to describe the invasion of Iraq: “Catastrophic success.” The economy here is booming, but no one feels especially good about it. When the cost of living is taken into account, billionaire-brimming California ranks as the most poverty-stricken state, with a fifth of the population struggling to get by. Since 2010, migration out of California has surged.
The basic problem is the steady collapse of livability. Across my home state, traffic and transportation is a developing-world nightmare. Child care and education seem impossible for all but the wealthiest. The problems of affordable housing and homelessness have surpassed all superlatives — what was a crisis is now an emergency that feels like a dystopian showcase of American inequality.
Just look at San Francisco, Nancy Pelosi’s city. One of every 11,600 residents is a billionaire, and the annual household income necessary to buy a median-priced home now tops $320,000. Yet the streets there are a plague of garbage and needles and feces, and every morning brings fresh horror stories from a “Black Mirror” hellscape: Homeless veterans are surviving on an economy of trash from billionaires’ mansions. Wealthy homeowners are crowdfunding a legal effort arguing that a proposed homeless shelter is an environmental hazard. A public-school teacher suffering from cancer is forced to pay for her own substitute.
Yet where progressives argue for openness and inclusion as a cudgel against President Trump, they abandon it on Nob Hill and in Beverly Hills. This explains the opposition to SB 50, which aimed to address the housing shortage in a very straightf
orward way: by building more housing. The bill would have erased single-family zoning in populous areas near transit locations. Areas zoned for homes housing a handful of people could have been redeveloped to include duplexes and apartment buildings that housed hundreds.
orward way: by building more housing. The bill would have erased single-family zoning in populous areas near transit locations. Areas zoned for homes housing a handful of people could have been redeveloped to include duplexes and apartment buildings that housed hundreds.
There are many threads in the story of America’s increasingly unlivable cities. One continuing tragedy is the decimation of local media and the rise of nationalized politics in its place. In America the “local” problems plaguing cities are systematically sidelined by the structure of the national media and government, in which the presidency, the Senate and the Supreme Court are all constitutionally tilted in favor of places where no one lives.'
According to Furman, the growth of economic rents extracted due to of land-use regulations has been significant. In the 1990s final sale prices were on average about 33 percent higher than construction costs. By 2013, that gap had grown to 56 percent. Which means that across the country, Americans are paying more and more for essentially the same plots of land.
Software was eating the world — now landlords are eating everything
https://medium.com/@sbuss/software-was-eating-the-world-now-landlords-are-eating-everything-e21ba6802f54
https://medium.com/@sbuss/software-was-eating-the-world-now-landlords-are-eating-everything-e21ba6802f54
Landlords are taking $1 of every $8 in venture capital investments due to well-organized NIMBYism that has captured San Francisco housing regulations in their favor.
In 2011, when Marc Andreesen wrote “Software is eating the world,” the average seed round was about $500,000¹, and the median rent was about $2,600.² As of EOY 2018, seed rounds were up to $2.1MM³ and median rent $3,650.²
In 2011, when Marc Andreesen wrote “Software is eating the world,” the average seed round was about $500,000¹, and the median rent was about $2,600.² As of EOY 2018, seed rounds were up to $2.1MM³ and median rent $3,650.²
Per employee, that’s an extra $1,050 ($1,521 pre-tax) per month sent directly to landlords. For a four-person startup, the yearly burn rate increased by roughly $73,000 (pre-tax) just in rent. If the seed round should last four years, that means an extra $292,000 in pre-tax expenses, with $201,600 of that being funneled directly to landlords instead of growing the company or other productive activity.
The 10-year view shows similar trends in both seed rounds and rents:While landlords are getting an extra $201,600, seed funding increased by about $1.6MM. In other words: landlords have captured $1 out of every $8 in venture capital investment. This unearned rent is gained with one simple trick: stopping the expansion of the housing stock.
Taxation, Regulation, and Laws
Land is back – it should be taxed, it can be taxed
Research by Piketty and Zucman (2014) into rising public debts and the increase in inequality in Western countries has reinvigorated interest in the proposal of wealth taxation. Studies (Knoll et al. 2014, Bonnet et al. 2014) have made the three striking observations:
The housing component of national private wealth is explained by the spectacular rise of wealth relative to national income in several countries.
Housing wealth as the sum of two elements – structures and developed land – is mostly driven by the rise in housing prices.
Rising land values can explain most of the trends in the UK and in France.2
Housing wealth as the sum of two elements – structures and developed land – is mostly driven by the rise in housing prices.
Rising land values can explain most of the trends in the UK and in France.2
Recent work by Baselgia and Martinez (2020) confirms these results for Switzerland, a very different country as it is decentralised and has faced much greater economic and political stability with no participation in the World Wars. Therefore, in many of the European countries, housing and land have been behind the rise in wealth-to-income ratio over the last decades. The supply of developed land is highly regulated in Europe through urban planning and environmental regulations, and the land component is de facto an inelastic tax base in cities and coastal regions.
Ricardo's Law ~ The Great Tax Clawback Scam
https://www.youtube.com/watch?v=6ZkfmY1PMng
https://www.youtube.com/watch?v=6ZkfmY1PMng
Any progressive taxation is returned to the rich by way of rents. (See Henry George Theorem for how public goods increase price of land.)
https://schalkenbach.org/the-henry-george-theorem/
https://www.landandliberty.net/the-henry-george-theorem/
The poor subsidize the rich.
https://schalkenbach.org/the-henry-george-theorem/
https://www.landandliberty.net/the-henry-george-theorem/
The poor subsidize the rich.
During a boom year, a rich landowner can clawback a lifetime's paid taxes, while the poor are forced to pay more.
Foldvary: The taxation of land value as the means towards optimal urban development and the extirpation of excessive economic inequality
https://www.sciencedirect.com/science/article/abs/pii/S0264837717304076
https://www.sciencedirect.com/science/article/abs/pii/S0264837717304076
Generally, subsidies increase the supply of goods beyond optimal amounts, and generate deadweight losses. The urban fringes receive implicit land-rent subsidies from the governmental provision of public works and civic services paid for mostly by taxing properties, goods, and income, rather than only the land values generated by these public goods. The provision of utilities such as water is also skewed towards subsidizing the fringes. The taxation of most of the land rent or land value, combined with the elimination of other taxes, especially on improvements, would prevent such subsidies and allow development markets to generate an optimal urban development. Urban sprawl, defined as the use of land relative to optimal use, would gradually become eliminated with the elimination of both horizontal land subsidies and the taxation of vertical development. Land value taxation would also prevent distortive land speculation and, combined with a reduction of taxes on wages or goods paid from wages, would remove a major source of economic inequality while improving productivity.
Poverty is Caused by Regressive Taxes and Prevented by Progressive Taxes
https://www.progress.org/articles/poverty-is-caused-by-regressive-taxes-and-prevented-by-progressive-taxes
https://www.progress.org/articles/poverty-is-caused-by-regressive-taxes-and-prevented-by-progressive-taxes
certain kinds of people (rent-seekers) were “nature’s tax collectors,” and if government failed to heavily tax (really, retrieve or reclaim) their unearned takings (while leaving their wages untaxed), a grossly unfair tax system would result.
This idea is especially important today because under neoliberal theory we’ve been duped into believing that rent-seekers (i.e., landlords, lenders, employers and speculators) are entitled to keep most or all their income, whether earned as a wage, or taken as unearned income. And we’re taught that government is terribly inefficient and inept when it comes to providing social services.
The rich do pay less in taxes
https://www.youtube.com/watch?v=kXCGbAv8YPw
https://www.vox.com/policy-and-politics/2019/11/4/20938229/zucman-saez-tax-rates-top-400
https://eml.berkeley.edu/~saez/SaezZucman2020JEP%28NBER%29.pdf
Taxes fall more on lower classes than the upper, despite what nominal rates say. (see also Fred Harrison's Ricardo's law)
https://www.youtube.com/watch?v=kXCGbAv8YPw
https://www.vox.com/policy-and-politics/2019/11/4/20938229/zucman-saez-tax-rates-top-400
https://eml.berkeley.edu/~saez/SaezZucman2020JEP%28NBER%29.pdf
Taxes fall more on lower classes than the upper, despite what nominal rates say. (see also Fred Harrison's Ricardo's law)
US Workers Are Highly Taxed If You Count Premiums and other compulsory payments.
Only the Netherlands has a higher average compulsory payment wedge than the US.
Only the Netherlands has a higher average compulsory payment wedge than the US.
“A tax on the return to land, and even more so, on the capital gains from land, would reduce inequality and, by encouraging more investment into real capital, actually enhance growth,” wrote Stiglitz. “This is, of course, an old idea, promoted most famously by Henry George.”
“From the economist’s perspective,” Youngman says, there’s also another argument for the tax: It’s uncommonly efficient. Most taxes, she says, “leave people worse off” because of the way they lead people to behave in the interest of avoiding or reducing taxation. She says land presents an appealing, and rare, contrast, because it “is not the subject of individual effort or production” and “is in fixed supply,” and so could be taxed without changing behavior for the worse.
The vast majority of American states get no more than 20% of their local revenue from sales tax, and most get around 40% or more from property tax.
Source: Lincoln Institute of Land Policy https://datatoolkits.lincolninst.edu/subcenters/significant-features-property-tax/census/ViewTable.aspx?table=Revenue&level=LOCAL&year=2013
Source: Lincoln Institute of Land Policy https://datatoolkits.lincolninst.edu/subcenters/significant-features-property-tax/census/ViewTable.aspx?table=Revenue&level=LOCAL&year=2013
Taxation really does have an impact
https://www.strongtowns.org/journal/2019/3/4/you-get-what-you-tax-for
See also Daylight Robbery, Death, Debt, and Deadweight taxes.
See also Daylight Robbery, Death, Debt, and Deadweight taxes.
Taxes on property lower prices
Since property is an asset that is priced based on expected future returns—be it a development site or a new dwelling—the known additional costs that come with owning the asset reduce its market price rather than add to it. Tax obligations reduce thenet return of the asset. Hence the market value of an asset will be lower to account for those tax obligations.
This fact is so uncontroversial it has persisted from the classical economists of the 18th century to modern industry practice manuals and financial assessment tools used in property development.
This fact is so uncontroversial it has persisted from the classical economists of the 18th century to modern industry practice manuals and financial assessment tools used in property development.
Land Speculation is Preferentially taxed.
https://www.bloomberg.com/news/articles/2019-04-24/want-to-make-millions-and-pay-no-taxes-try-real-estate
https://web.archive.org/web/20190429163310/https://www.bloomberg.com/news/articles/2019-04-24/want-to-make-millions-and-pay-no-taxes-try-real-estate
https://web.archive.org/web/20190429163310/https://www.bloomberg.com/news/articles/2019-04-24/want-to-make-millions-and-pay-no-taxes-try-real-estate
Good Charts
INCOME TAX LIABILITY may be minimized in two ways.
The most general -- and also the most economically pernicious -- is through the tax deductibility of interest. The working assumption is that interest charges are a truly inherent business expense, not simply the result of a business decision taken by investors to leverage their equity. For interest to be an inherent business expense, interest-bearing debt would have to be a factor of production, which it is not. Properties would yield their rent regardless of how they are financed. Investors choose to rely on debt rather than equity financing because the tax laws favor it, thanks to the political lobbying of institutional creditors ("the debt lobby"). Homeowners too deduct interest payments, which encourages borrowing.
The second way to minimize tax liability, is to depreciation the building, that is, annually deduct from taxable income part of the purchase price until it's all deducted and the building is "written off." It's the most unique tax advantage enjoyed by the real estate industry. Investors are able to depreciate their buildings based on their assessed acquisition price, regardless of the actual building costs involved or the level of economy-wide land-price inflation. Investors depreciate buildings at rising prices even when prior owners already have depreciated these structures once or even many times. For real estate owned by households and partnerships (the latter being the preferred legal instrument for holding residential apartment buildings and office buildings), the Fed has estimated much higher proportions of land to buildings, but these estimates also overvalue buildings relative to land. Every time a property changes hands at a higher price, building assessments are raised proportionally - and begin to be re-depreciated for these higher valuations, regardless of how often the buildings already have been written off! There is no limit as to how often a building can be re-depreciated. What matters is simply how often the property changes nominal hands.
The second way to minimize tax liability, is to depreciation the building, that is, annually deduct from taxable income part of the purchase price until it's all deducted and the building is "written off." It's the most unique tax advantage enjoyed by the real estate industry. Investors are able to depreciate their buildings based on their assessed acquisition price, regardless of the actual building costs involved or the level of economy-wide land-price inflation. Investors depreciate buildings at rising prices even when prior owners already have depreciated these structures once or even many times. For real estate owned by households and partnerships (the latter being the preferred legal instrument for holding residential apartment buildings and office buildings), the Fed has estimated much higher proportions of land to buildings, but these estimates also overvalue buildings relative to land. Every time a property changes hands at a higher price, building assessments are raised proportionally - and begin to be re-depreciated for these higher valuations, regardless of how often the buildings already have been written off! There is no limit as to how often a building can be re-depreciated. What matters is simply how often the property changes nominal hands.
Only the well off can afford to hold land speculatively. https://www.strongtowns.org/journal/2019/8/1/why-homeownership-is-frequently-a-bad-bet
The System supports the upper 9.9%
How much wealth has changed by income percentile. Most gains of the 0.1 % have come at the expense of the bottom 90%. The Middle 9.9% have stayed stable by working hard to keep the 90% from getting their stuff.
https://www.theatlantic.com/magazine/archive/2018/06/the-birth-of-a-new-american-aristocracy/559130/
1.) The poorest quintile of Americans pays more than twice the rate of state taxes as the top 1 percent does, and about half again what the top 10 percent pays.
2.) The income tax creates a system of redistribution to the top 10%.
Every year, the federal government doles out tax expenditures through deductions for retirement savings (worth $137 billion in 2013); employer-sponsored health plans ($250 billion); mortgage-interest payments ($70 billion); and, sweetest of all, income from watching the value of your home, stock portfolio, and private-equity partnerships grow ($161 billion). In total, federal tax expenditures exceeded $900 billion in 2013. That’s more than the cost of Medicare, more than the cost of Medicaid, more than the cost of all other federal safety-net programs put together. And—such is the beauty of the system—51 percent of those handouts went to the top quintile of earners, and 39 percent to the top decile.
3.) The 2017 tax law raises the amount of money that married couples can pass along to their heirs tax-free from a very generous $11 million to a magnificent $22 million. not merely tax-free; it’s tax-subsidized. The unrealized tax liability on the appreciation of the house you bought 40 years ago, or on the stock portfolio that has been gathering moths—all of that disappears when you pass the gains along to the kids. Those foregone taxes cost the United States Treasury $43 billion in 2013 alone—about three times the amount spent on the Children’s Health Insurance Program.
4.) The returns on (the right kind of) real estate have been so extraordinary that, according to some economists, real estate alone may account for essentially all of the increase in wealth concentration over the past half century.
4.) The returns on (the right kind of) real estate have been so extraordinary that, according to some economists, real estate alone may account for essentially all of the increase in wealth concentration over the past half century.
- From 1980 to 2016, home values in Boston multiplied 7.6 times. When you take account of inflation, they generated a return of 157 percent to their owners. San Francisco returned 162 percent in real terms over the same period; New York, 115 percent; and Los Angeles, 114 percent.
- The rent is so high that people—notably people in the middle class—are leaving town rather than working the mines. From 2000 to 2009, the San Francisco Bay Area had some of the highest salaries in the nation, and yet it lost 350,000 residents to lower-paying regions.
- the migration away from the productive centers of New York, San Francisco, and San Jose alone lopped 9.7 percent off total U.S. growth from 1964 to 2009.
- The rent is so high that people—notably people in the middle class—are leaving town rather than working the mines. From 2000 to 2009, the San Francisco Bay Area had some of the highest salaries in the nation, and yet it lost 350,000 residents to lower-paying regions.
- the migration away from the productive centers of New York, San Francisco, and San Jose alone lopped 9.7 percent off total U.S. growth from 1964 to 2009.
- Real-estate inflation has brought with it a commensurate increase in economic segregation.
- Top public schools (providers of mobility) are backdoor reprivatized by being located in areas only the wealthy can afford to live.
- Land values are protected by zoning. Often hypocritically. saving the local environment, preserving the historic character of the neighborhood, and avoiding overcrowding. In reality, it’s about hoarding power and opportunity inside the walls of our own castles.
How Lower-Income Americans Get Cheated on Property Taxes
Many homeowners are paying a total of billions of dollars extra because of inequities in assessing property values.
Local governments are failing at the basic task of accurately assessing property values, and there is a clear and striking pattern: More expensive properties are undervalued, while less expensive properties are overvalued. The result is that wealthy homeowners get a big tax break, while less affluent homeowners are paying a higher price for the same public services.
Local governments are failing at the basic task of accurately assessing property values, and there is a clear and striking pattern: More expensive properties are undervalued, while less expensive properties are overvalued. The result is that wealthy homeowners get a big tax break, while less affluent homeowners are paying a higher price for the same public services.
Homeowners have long complained about inequitable assessments, and past studies have documented problems in particular cities. A new nationwide analysis led by Christopher Berry of the University of Chicago reveals that the inequities in tax assessments are both very large and very common.”
“These distortions in assessed values carry through directly to tax bills. Nationwide, from 2007 to 2016, homes in the bottom 10 percent of property values in a given county were taxed, on average, at an effective rate that was twice as high as the rate for homes in the top 10 percent of property values.”
“Inequitable assessment is also an important reason the burden of state and local taxation is regressive, meaning that most state and local governments collect a larger share of the income of lower-income households than of upper-income households. By failing to properly assess property, government is worsening the large and growing inequalities in the distribution of wealth and income.
The burden falls disproportionately on minorities. Because of the accumulated effects of past racism, minorities tend to live in homes that command lower prices — yet are assessed at inflated values.”
The burden falls disproportionately on minorities. Because of the accumulated effects of past racism, minorities tend to live in homes that command lower prices — yet are assessed at inflated values.”
“Mr. Berry examined counties in each year from 2007 to 2016 in every state except California, which has a unique property tax system. In the average year, 90 percent of those counties failed to meet a basic industry standard for accuracy and equity.”
One reason for these inequities is that assessors aren’t paying enough attention to the cardinal rule of real estate: location, location, location. The data show errors in valuation tend to cluster geographically. Underestimating the significance of location has the effect of discounting the value of properties in more desirable locations and overstating the value of those in less desirable locations.”
“Statistical techniques are readily available to account for variations [in location value] without inquiring into causes.
“Statistical techniques are readily available to account for variations [in location value] without inquiring into causes.
Daniel McMillen, a professor at the University of Illinois, Chicago, who has reviewed the recent studies, said that the geographical pattern of the errors indicates that many assessors simply aren’t trying very hard to deliver accurate numbers. Mr. Berry estimates that statistical best practices could reduce the inequities by roughly one-third.”
LVT has negative deadweight loss
Documentary - RealEstate4Ransom
Elites and Criminals are hiding wealth in Land.
Oil Oligarchs laundering money are responsible for unaffordability. Banks complicit.
Oh no, the Pandora Papers (2021/10) confirm this.
Minimum wage increases do not have harmful effects. - Because employers currently have too much market power.
-ie finding a good paying job is too costly so workers just accept available wages. (Iand monopoly factor here?)
https://www.bloomberg.com/view/articles/2018-04-05/supply-and-demand-does-a-poor-job-of-explaining-depressed-wages
http://www.businessinsider.com/supply-and-demand-model-of-labour-markets-is-fundamentally-broken-2018-6
http://www.businessinsider.com/supply-and-demand-model-of-labour-markets-is-fundamentally-broken-2018-6
2021 Nobel Prize Winner David Card also showed hiring doesn't slow down from raising minimim wage.
He also studied effect of immigration on employment, finding virtually no effect. https://davidcard.berkeley.edu/papers/mariel-impact.pdf
Stop blaming immigrants for the housing crisis
https://medium.com/@t.keating3/stop-blaming-immigrants-for-the-housing-crisis-8a3189181394
In fact 90% of the variation in House price/Earnings ratio can be explained by a least-squares regression of this ratio on UK household land value! I’ve included 95% prediction intervals.
In fact 90% of the variation in House price/Earnings ratio can be explained by a least-squares regression of this ratio on UK household land value! I’ve included 95% prediction intervals.
Land at the root of poverty among Minorities.
Much of the failures of African Americans can be explained by unequal access to land.
For specifics and details see: +AfricanAmericans
The American Revolution was also about access to Western Land.
https://lehrmaninstitute.org/history/founders-land.html
https://lehrmaninstitute.org/history/founders-land.html
At the time of the revolution the population of the colonies had increased to the point that land on the east side of the mountains was no longer free and was starting to be monopolized.
French and Indians prevented western settlement before, but after British victory it was the British who held it back.
French and Indians prevented western settlement before, but after British victory it was the British who held it back.
" Land is the most permanent Estate and the most likely to increase in value" - George Washington
Banks Role in profiting from Land Monopoly
As long as land is not in the commons, but instead privately owned — thus requiring financing—banks will increasingly become more powerful until one day, they will rule us all.
The twin levers of debt and low wages have always been used to control the American labor class.
"Everyone but an Idiot knows that the lower classes must be kept poor, or they will never be industrious. . . they must be . . in poverty or they will not work!" - Arthur Young, 1771
"All peasant revolutions in antiquity drew on one slogan: Cancel the debts and redistribute the land. " - Moses Finleys
"All peasant revolutions in antiquity drew on one slogan: Cancel the debts and redistribute the land. " - Moses Finleys
Mortgage Lending gives Banking indirect economic control
Financialization of housing post Bust
Mortgage Lending transfers wealth
Monetary
Boom Bust Cycle
Details: +BoomBust
Land economics explain much of the business cycle pattern.
Real shifts in ground rent lead to the creation of bubbles fueled by easy credit. When housing inventory catches up to the bubbled demand, the price crashes and wipes out so much debt that the rest of the economy is affected.
The largest asset in every economy is land, followed by buildings, followed by public infrastructure. So what people imagine are industrial economies have remained, basically, land economies.
Economic Cycles are Land Cycles.
https://prezi.com/m/6qwwjijonrps/boom-bust/
https://prezi.com/m/6qwwjijonrps/boom-bust/
The largest asset in every economy is land, followed by buildings, followed by public infrastructure. So what people imagine are industrial economies have remained, basically, land economies.
See : A Brief History of Doom : Two Hundred Years of Financial Crises - Richard Vague
Georgist Real Estate Cycle verified
https://www.nber.org/papers/w29140
https://www.npr.org/sections/money/2021/08/17/1028083046/home-prices-are-now-higher-than-the-peak-of-the-2000s-housing-bubble-what-gives
https://www.nber.org/papers/w29140
https://www.npr.org/sections/money/2021/08/17/1028083046/home-prices-are-now-higher-than-the-peak-of-the-2000s-housing-bubble-what-gives
18 year real estate cycle
Credit Supply
Tax Law changes
Solution?
Politics
See more:
+Politics
+Politics:Platforms and Policy
Classical Liberalism
See more: +Politics:ClassicalLiberalism
Isolating the Movement or Putting It in Context
Now and then, I hear from someone who sees our views and says: "you sound like those Georgists - I'm from the classical liberal tradition; I'm not a Georgist". For example, I recently received a comment like that from someone who had read an article, even though the article made no mention of Henry George or Georgism. I responded by putting economist Henry George's views in the context of classical liberalism, showing that his views aren't some isolated phenomenon that came out of nowhere. I told the person:
"The prominent classical liberals, such as John Stuart Mill, Adam Smith, Thomas Jefferson, John Locke, etc. all made a distinction between the two kinds of property: things produced by human effort vs land and natural resources, which no person produced. So, they advocated the least possible taxes on products of human effort, and instead called for using a tax on the location value of land. Eight prize-winning economists have endorsed that policy.
"That approach was not invented by Henry George - he studied the classical liberal economists, and then put together the first detailed analysis of that issue. So it's misleading to refer to this approach as being "Georgist" - it's the genuine classical liberal approach, based on principles of economic liberty and economics.
"Even if we didn't have any taxes, that basic issue of the two kinds of property would need to be addressed, because otherwise it distorts the whole economy, as the prominent classical liberals recognized."
Among ourselves, it might sometimes be useful to refer to the word "Georgist" and to cite works of economist Henry George, but we need to avoid giving anyone the impression that these ideas were entirely invented by Henry George out of whole cloth. His views were a natural outgrowth of the work done by his predecessors, the classical liberal economists - people need to hear the context.
Many libertarians in recent decades mistakenly describe themselves as being in the classical liberal tradition, not knowing that the tradition has recognized that there are two basic kinds of property, so that policies need to address that distinction. Those who advocate land and liberty are the actual inheritors of the classical liberal tradition. - Mike O'Mara
Conservative Case
See more: Conservative Case
Economics for Conservatives by Fred Foldvary
Taxation
Conservative thinkers recognize that taxes can damage enterprise. Some have advocated a flat income tax, in contrast to the graduated income tax, as economists recognize that the stifling effects of taxes depend not on the average tax rate but the marginal tax rate, the tax rate on extra income or extra spending. If we follow this concept to its logical conclusion, we arrive at a marginal tax rate of zero. There should be no damage to enterprise from taxation.
If taxes there must be, how can we have an adequate average tax rate while also having a zero marginal tax rate? We do this by taxing something that does not flee, shrink, or hide when taxed: land value. The concept of public revenue from land rent was recognized by Adam Smith, who wrote, in the Wealth of Nations, “Ground-rents, and the ordinary rent of land, are, therefore, perhaps, the species of revenue which can best bear to have a particular tax imposed upon them.”
One would expect a great free-market economist like Milton Friedman to have arrived at the same conclusion. And he did, saying: “the least bad tax is the property tax on the unimproved value of land, the Henry George argument of many, many years ago.”
Land rent (or land value) is an economic surplus that can be tapped for public revenue without any damage to the economy. Thus conservatives should be enthusiastic advocates of land value taxation.
Subsidies
Conservative economic though recognizes that a truly free market economy should not have any subsidies. A subsidy is a governmental intervention that skews market outcomes. Subsidies are a favoring of one group at the expense of others. A price subsidy has a deadweight loss, because the loss of social well being due to the tax is greater than the gain to consumers from a lower price.
Governmental subsidies can be implicit. When government provides public goods such as roads, parks, and security, these make locations more attractive and productive. That increases the demand for land, raising the rent and land value. This is a forced redistribution of income from those who pay most of the taxes - workers, investors, and entrepreneurs - to landowners. Workers and business owners get double billed, paying both taxes and higher rent, while landowners get subsidized
This rent subsidy can be avoided by taxing land value for public revenue. Then labor and enterprise pay only once, with the rent they pay, and landowners do not get subsidized.
federalism
Conservatives lament the shift of political power from localities and states to the federal government. Much of this centralization was due to the federal income tax. States avoid tax competition by having the federal government impose income taxation, some of which then is transferred to the states. Land value taxation facilitates local government, because land does not run to other places when taxed. A shift from taxing income to taxing land value would facilitate the decentralization of government, a policy favored by many conservatives.
the welfare state
Conservatives have opposed an excessive expansion of the welfare state. But we need to examine the cause of poverty, as Henry George did in his book Progress and Poverty. George traced the cause to land tenure and taxation. Conservatives recognize that many of the poor get trapped in poverty, as when they go to work, they lose their welfare benefits. But the tax system causes much of the poverty in the first place. Taxes reduce the take-home wage of workers while increasing the cost of living. When the poor get welfare, they end up bidding up the cost of housing. The conservative remedy is to, as George put it, “extirpate” poverty, to eliminate its cause. When taxes on labor, including those paid by employers, are eliminated, more workers get employed, and at higher wages. By removing the subsidy to land rent described above, housing is cheaper. Then workers can much better afford housing and other goods. This policy also eliminates the call for higher minimum wages and rent controls, policies opposed by conservatives.
government debt
If the only tax were land value taxation, there would be great political pressure to avoid governmental debt. Future debts would be paid for from taxes on land value, and that would reduced land value if the debt were excessive. With today’s government debt, it is not clear who will ultimately pay
socialism
Conservatives have resisted socialist and communist movements. But for the long-run success of conservative values, it is not enough to defeat socialist legislation. Conservatives should understand the motivations of socialists. They see social problems such as poverty, and then seek superficial solutions, interventions, such as higher minimum wages and rent control. Conservatives as well as progressives should examine the causes of social problems in order to cure them permanently. Since land rent captures much of the gains from economic progress, the collection of that rent for public revenue would prevent much of the poverty while providing greater equality without hurting productivity. The success of private enterprise would then reduce the calls for socialist programs.
moral relativism
Henry George agreed that there are universal and objective truth and morality. The right of a person to his own labor and earnings is one such universal value. Another is that trade is mutually beneficial, and people have a natural right to engage in exchange and trade. Subsidies are both economically damaging and morally unjust. As many conservatives look to religion for values, they would do well to follow Ecclesiastes 5:9, “the profit of the earth is for all”.
conclusion
As free-market and conservative thinkers Adam Smith, Milton Friedman, and William F. Buckley recognized, free markets flourish when taxes on production, trade, and consumption are eliminated. Public revenue from land rent makes the economy more equal while not hampering entrepreneurship and investment. The values and beliefs of conservatives are fulfilled with land value taxation. Without economic liberty, the traditions that conservatives hold dear will be relentlessly challenged. Only a single tax only on land value provides that liberty.
Progressive Case
See more : Case - Progressive
Fred Foldvary - Economics for Progressives.
http://www.foldvary.net/works/EcsProgressives1.pdf
http://www.foldvary.net/works/EcsProgressives1.pdf
Economic inequality.
Housing affordability
Medical care for all
Minimum wages
Universal basic income (UBI)
Climate change
Reparations
How much land rent?
Conclusion
Housing affordability
Medical care for all
Minimum wages
Universal basic income (UBI)
Climate change
Reparations
How much land rent?
Conclusion
Progressives can promote the best economic policies by understanding one basic idea, expressed in Ecclesiastes 5:9: “the profit of the earth is for all.” The benefit of learning economics is the understanding of the implicit reality beneath superficial appearances. Superficially, a higher minimum wage sounds like it would help workers, but the reality is that the higher wage would be offset by higher prices, higher rents, and fewer employment hours and benefits. Thus a higher earned income tax credit, and lower taxes on wages, would be better.
Superficially, a high tax on the rich, distributed to the poor, sounds good. But the response of the rich would be to hide, move, and reduce their taxable wealth. The implicit reality is that the rich have one type of wealth that does not flee, hide, or shrink when taxed: land. Progressives would do well to do what the progressives of the latter 1800s did: don’t only treat the symptoms of social problems. Look to the causes of problems to apply effective remedies.
Superficially, a high tax on the rich, distributed to the poor, sounds good. But the response of the rich would be to hide, move, and reduce their taxable wealth. The implicit reality is that the rich have one type of wealth that does not flee, hide, or shrink when taxed: land. Progressives would do well to do what the progressives of the latter 1800s did: don’t only treat the symptoms of social problems. Look to the causes of problems to apply effective remedies.
Policy
- Advocate the policy of “polluter pays”.
- Advocate the removal of subsidies to land value by having landowners return the value received from public goods, whether by a national land value levy, or via the income tax.
- Advocate either a higher earned-income tax credit or a universal basic income.
Libertarian Case
See more: Case: Libertarian
The royal free lunch
When the state granted land titles to a fraction of the population, it gave that fraction devices with which to levy, and pocket, tolls on the fruits of the labor of others.
Tortured rationalizations
"But we're used to it"
It is not some ancient injustice we seek to rectify, but an ongoing injustice. The piece of paper granting title might be ancient, but the tribute levied on the landless goes on and on.
Phony Laissez Faire
The English free-trader Cobden remarked that "you who free the land will do more for the people than we who have freed trade." Indeed, how can anyone speak of free trade when the trader has to pay tribute to some favored land-entitlement holder in order to do business?
State land vs. common land
The distinction between common property and state property is lost on royal libertarians. Common property is that to which we all have inalienable rights. State property is that which the state actually owns, and can dispose of as it sees fit
The ultimate user's fee
exclusive access to land, and especially to more land than one was using, was a privilege that should be paid for, thereby eliminating the need for taxes. It is not a fee for using land, but a fee for the state privilege of denying use of that land to everyone else.
The tragedy of the common misunderstanding
Tragedy only applies to unmanaged commons.
The red, red herring
Libertarians are fond of confusing the classical liberal concept of common land ownership, particularly as espoused by land value tax advocate Henry George, with socialism. Yet socialists have always been contemptuous of George and of the distinction between land monopoly and capital monopolies.
Ending excuses for big government
Much of the government spending to which libertarians strenuously object is made necessary by its taxing productivity instead of land values.
How LVT is for agriculture, and at heart of conservationism
See more: +Conservation
WOULDN’T THIS HURT FARMERS AND ANYONE IN RURAL AREAS?
A LVT would hurt these two groups less than those living in urban areas, in fact. It’s a phenomena observed as far back as von Thünen (who has excellent theories on rent) that economic rent occurs far more within cities than in the countryside. The value of a 1km^2 parcel of land in Manhattan, being near such social activity, is far more value than a randomly chosen 1km^2 parcel of land in the Yukon. Under the Georgist model, a significant number of taxes currently in place would also be lifted on rural residents, and a UBI provided from land rents, to take into your accounting.
Digital Spaces
The Economics of Digital Spaces seems to independently lead to similar conclusions.
For more: +DigitalSpaces
Backlinks: Workshop:Strong Towns:Georgism Workshop:Strong Towns:Georgism:Concepts:AfricanAmericans Workshop:Strong Towns:Georgism:Concepts:Politics:ClassicalLiberalism