Wealth and Want
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Housing Affordability

Many of our social problems can be traced to housing affordability.  If we were able to make housing more affordable, many more of us would have enough money to support our families and save for retirement.  People might choose to marry earlier, have children earlier, live their lives differently. They would have shorter commutes, use less fuel and less time getting from home to work and back.

It isn't the house itself that is expensive: it is the land.  (A 2006 Federal Reserve Board study showed that on average in the top 46 metro markets in 2004, 50% of the value of single family residential property was land value, and in San Francisco, the figure was above 85%.) We can make more houses; we can't make more land and all land is not equally desirable. Those who say that it is zoning restrictions that raise the price of housing are only partially correct. The perverse incentives we use are a much larger factor.

Everett Gross: Explaining Rent

Sometimes it's difficult for people to understand the meaning of "rent" as an economic concept. One way I have of explaining it doesn't use the word rent. I just use a little analogy.

I'm from Crete, Nebraska. It's a small town of 5,000 people.

Suppose a man comes to Crete, and he wants to start a business. He needs a building, but first he needs a piece of ground to build this new building on. So he looks up a real estate agent, describes what he wants, and the real estate agent shows him a parcel that's just right for his needs. The man asks the agent, "All right, now how much money do you want for this land?" The agent says, "It's worth $50,000." The man says, "Why is it worth $50,000?" And the real estate agent points out that "The school is good, the roads are good, the police department is good, the rescue crew is good and very fast, and business is good here."

So the man says "Yeah, I believe that $50,0000 is a fair price. I'll take it. How do I pay the $50,000 to the school people, and the road people, and the police department? To whom do I pay the $50,000?" And the real estate agent says, "Oh no. You don't pay it to them. You pay it to the person who owned the land before."

The man says, "But who supports the schools, and the roads, and the police, and the other good things?" And the real estate agent says, "If you build, then you'll pay for them again."

The buyer then asks, "And what will the previous owner do for me for my $50,000?"  The real estate man answers, "Nothing!  Nothing at all!"

Now I don't need to use the word "rent" in that explanation.

H.G. Brown: Significant Paragraphs from Henry George's Progress & Poverty: 10. Effect of Remedy Upon Wealth Production (in the unabridged P&P: Part IX — Effects of the Remedy: Chapter 1 — Of the effect upon the production of wealth)

The elder Mirabeau, we are told, ranked the proposition of Quesnay, to substitute one single tax on rent (the impôt unique) for all other taxes, as a discovery equal in utility to the invention of writing or the substitution of the use of money for barter.

To whosoever will think over the matter, this saying will appear an evidence of penetration rather than of extravagance. The advantages which would be gained by substituting for the numerous taxes by which the public revenues are now raised, a single tax levied upon the value of land, will appear more and more important the more they are considered. ...

And will not the community gain by thus refusing to kill the goose that lays the golden eggs; by thus refraining from muzzling the ox that treadeth out the corn; by thus leaving to industry, and thrift, and skill, their natural reward, full and unimpaired? For there is to the community also a natural reward. The law of society is, each for all, as well as all for each. No one can keep to himself the good he may do, any more than he can keep the bad. Every productive enterprise, besides its return to those who undertake it, yields collateral advantages to others. If a man plant a fruit tree, his gain is that he gathers the fruit in its time and season. But in addition to his gain, there is a gain to the whole community. Others than the owner are benefited by the increased supply of fruit; the birds which it shelters fly far and wide; the rain which it helps to attract falls not alone on his field; and, even to the eye which rests upon it from a distance, it brings a sense of beauty. And so with everything else. The building of a house, a factory, a ship, or a railroad, benefits others besides those who get the direct profits.

Well may the community leave to the individual producer all that prompts him to exertion; well may it let the laborer have the full reward of his labor, and the capitalist the full return of his capital. For the more that labor and capital produce, the greater grows the common wealth in which all may share. And in the value or rent of land is this general gain expressed in a definite and concrete form. Here is a fund which the state may take while leaving to labor and capital their full reward. With increased activity of production this would commensurately increase.

And to shift the burden of taxation from production and exchange to the value or rent of land would not merely be to give new stimulus to the production of wealth; it would be to open new opportunities. For under this system no one would care to hold land unless to use it, and land now withheld from use would everywhere be thrown open to improvement.

The selling price of land would fall; land speculation would receive its death blow; land monopolization would no longer pay.* Millions and millions of acres from which settlers are now shut out by high prices would be abandoned by their present owners or sold to settlers upon nominal terms. And this not merely on the frontiers, but within what are now considered well settled districts.

* The fact that a tax on the rental value of land cannot be shifted by landowners to tenants, though recognized by all competent economists, is sometimes a stumbling block to persons untrained in economics. The reason such a tax cannot be shifted is that it cannot limit the supply of land. Landowners are presumably, before the tax is laid, charging all the rent they can get. There is nothing in a tax on the rental value of land to make tenants willing to pay more or to make land more difficult to hire. On the contrary, more land will be on the market, because of such a tax, rather than less, since the tax puts a heavy penalty on holding land out of use and unimproved for mere speculation. The competition of former vacant land speculators to get their land used will make land cheaper to rent rather than more expensive. And since only the net rent remaining after the tax is subtracted is capitalized into salable value, land will be very much cheaper to buy. H.G.B.

And it must be remembered that this would apply, not merely to agricultural land, but to all land. Mineral land would be thrown open to use, just as agricultural land; and in the heart of a city no one could afford to keep land from its most profitable use, or on the outskirts to demand more for it than the use to which it could at the time be put would warrant. Everywhere that land had attained a value, taxation, instead of operating, as now, as a fine upon improvement, would operate to force improvement. Whoever planted an orchard, or sowed a field, or built a house, or erected a manufactory, no matter how costly, would have no more to pay in taxes than if he kept so much land idle.

  • The monopolist of agricultural land would be taxed as much as though his land were covered with houses and barns, with crops and with stock.
  • The owner of a vacant city lot would have to pay as much for the privilege of keeping other people off of it until he wanted to use it, as his neighbor who has a fine house upon his lot.
  • It would cost as much to keep a row of tumble-down shanties upon valuable land as though it were covered with a grand hotel or a pile of great warehouses filled with costly goods.

Thus, the bonus that wherever labor is most productive must now be paid before labor can be exerted would disappear.

  • The farmer would not have to pay out half his means, or mortgage his labor for years, in order to obtain land to cultivate;
  • the builder of a city homestead would not have to lay out as much for a small lot as for the house he puts upon it*;
  • the company that proposed to erect a manufactory would not have to expend a great part of its capital for a site.
  • And what would be paid from year to year to the state would be in lieu of all the taxes now levied upon improvements, machinery, and stock.

    *Many persons, and among them some professional economists, have never succeeded in getting a thorough comprehension of this point. Thus, the editor has heard the objection advanced that the greater cheapness of land is no advantage to the poor man who is trying to save enough from his earnings to buy a piece of land; for, it is said, the higher taxes on the land after it is acquired, offset the lower purchase price. What such objectors do not see is that even if the lower price of land does no more than balance the higher tax on it, (and this overlooks, for one thing, the discouragement to speculation in land), the reduction or removal of other taxes is all clear gain. It is easier to save in proportion as earnings and commodities are relieved of taxation. It is easier to buy land, because its selling price is lower, if the land is taxed. And although the land, after its purchase, continues to be taxed, not only can this tax be fully paid out of the annual interest on the saving in the purchase price, but also there is to be reckoned the saving in taxes on buildings and other improvements and in whatever other taxes are thus rendered unnecessary. H.G.B.... read the whole chapter

Louis Post: Outlines of Louis F. Post's Lectures, with Illustrative Notes and Charts (1894) — Appendix: FAQ

Q20. Would not the single tax increase the rent of houses?
A. No. It takes taxes off buildings and materials, thus making it cheaper to build houses. How can house rent go up as the cost of building houses goes down? Read pp. 5 to 8 and the related notes. ... read the book

Weld Carter: An Introduction to Henry George

Another area in which George applied these inherent differences between land and products was the field of taxation. To determine the incidence of taxation, George had to know what was to be taxed, products or the value of land. In each case he traced out the effect from the essential nature of the thing to be taxed: "...all taxes upon things of unfixed quantity increase prices, and in the course of exchange are shifted from seller to buyer, increasing as they go. ...If we impose a tax upon buildings, the users of buildings must finally pay it, for the erection of buildings will cease until building rents become high enough to pay the regular profit and the tax besides. ...In this way all taxes which add to prices are shifted from hand to hand, increasing as they go, until they ultimately rest upon consumers, who thus pay much more than is received by the government. Now, the way taxes raise prices is by increasing the cost of production, and checking supply. But land is not a thing of human production, and taxes upon...[land value] cannot check supply. Therefore, though a tax on...[land value] compels the land owners to pay more, it gives them no power to obtain more for the use of their land, as it in no way tends to reduce the supply of land. On the contrary, by compelling those who hold land on speculation to sell or let for what they can get, a tax on land values tends to increase the competition between owners, and thus to reduce the price of land."

Here, then is another derivative difference between land and products, according to George: taxation on products causes an increase in the price of products; taxation on the value of land causes a drop in the price of land. ... read the whole article

John Dewey: Steps to Economic Recovery

Consequently instead of attempting a technical explanation of the moral and economic philosophy of Henry George, I want to urge my hearers to acquaint themselves with his own works, to study them and then to organize to see that his principle is carried into effect. What are the most evident sore spots of the present? The answer is clear. Unemployment; extreme inequality in the distribution of the national income; enormous fixed charges in the way of interest on debts; a crazy, cumbrous, inequitable tax system that puts the burden on the consumer, and the ultimate producer, and lets off the parasites, exploiters and the privileged, -- who ought to be relieved entirely of their gorged excess, -- very lightly, and indeed in many cases, as in that of the tariff, pays them a premium for imposing a burden on honest industry and on the means of production; a vicious and incompetent banking system, with billions of money, the hope for the future of millions of hard-working peoples, still locked up, while the depositors lose their homes and walk the streets in vain; the greater part of our population, in the nation of the earth most favored by nature, still living either in slums or in homes without the improvements indispensable to a healthy and civilized life.

You cannot study Henry George without learning how intimately each of these wrongs and evils is bound up with our land system. One of our great national weaknesses is speculation. Everybody recognizes that fact in the stock market orgy of our late boom days. Only a few realize the extent to which speculation in land is the source of many troubles of the farmer, the part it has played in loading banks and insurance companies with frozen assets and compelling the closing of thousands of banks, nor how the high rents, the unpayable mortgages and the slums of the cities are connected with speculation in land values. All authorities on public works hold that the most fruitful field for them is slum clearance and better housing. Yet only a few seem to realize that with our present situation this improvement will put a bonus in the pockets of landlords, and the land speculator will be the one to profit financially--for after all, buildings are built on land. ... read the whole speech

Upton Sinclair: The Consequences of Land Speculation are Tenantry and Debt on the Farms, and Slums and Luxury in the Cities

I know of a woman — I have never had the pleasure of making her acquaintance, because she lives in a lunatic asylum, which does not happen to be on my visiting list. This woman has been mentally incompetent from birth. She is well taken care of, because her father left her when he died the income of a large farm on the outskirts of a city. The city has since grown and the land is now worth, at conservative estimate, about twenty million dollars. It is covered with office buildings, and the greater part of the income, which cannot be spent by the woman, is piling up at compound interest. The woman enjoys good health, so she may be worth a hundred million dollars before she dies.

I choose this case because it is one about which there can be no disputing; this woman has never been able to do anything to earn that twenty million dollars. And if a visitor from Mars should come down to study the situation, which would he think was most insane, the unfortunate woman, or the society which compels thousands of people to wear themselves to death in order to pay her the income of twenty million dollars?

The fact that this woman is insane makes it easy to see that she is not entitled to the "unearned increment" of the land she owns. But how about all the other people who have bought up and are holding for speculation the most desirable land? The value of this land increases, not because of anything these owners do — not because of any useful service they render to the community — but purely because the community as a whole is crowding into that neighborhood and must have use of the land.

The speculator who bought this land thinks that he deserves the increase, because he guessed the fact that the city was going to grow that way. But it seems clear enough that his skill in guessing which way the community was going to grow, however useful that skill may be to himself, is not in any way useful to the community. The man may have planted trees, or built roads, and put in sidewalks and sewers; all that is useful work, and for that he should be paid. But should he be paid for guessing what the rest of us were going to need?

Before you answer, consider the consequences of this guessing game. The consequences of land speculation are tenantry and debt on the farms, and slums and luxury in the cities. A great part of the necessary land is held out of use, and so the value of all land continually increases, until the poor man can no longer own a home. The value of farm land also increases; so year by year more independent farmers are dispossessed, because they cannot pay interest on their mortgages. So the land becomes a place of serfdom, that land described by the poet, "where wealth accumulates and men decay." The great cities fill up with festering slums, and a small class of idle parasites are provided with enormous fortunes, which they do not have to earn, and which they cannot intelligently spend.

This condition wrecked every empire in the history of mankind, and it is wrecking modern civilization. One of the first to perceive this was Henry George, and he worked out the program known as the Single Tax. Let society as a whole take the full rental value of land, so that no one would any longer be able to hold land out of use. So the value of land would decrease, and everyone could have land, and the community would have a great income to be spent for social ends. ... read the whole article

Nic Tideman: The Case for Site Value Rating

The Social Justice of Site Value Rating
The Efficiency of Site Value Rating
How Valuations would be Made

Both for reasons of social justice and for reasons of economic efficiency, site value rating deserves a continued place in the programme of the Liberal Party.

The case for site value rating in terms of social justice is founded on two understandings: first, that the value of land in the absence of economic development is the common heritage of humanity, and second, that increases in the rental value of land arising from economic development and government expenditures should be collected by governments to finance those activities. What is meant by "land" is the unimproved value of sites and the value of extractable natural resources such as North Sea oil.

While there may someday be institutions capable of implementing a recognition of land as the heritage of all humanity on a worldwide basis, in the absence of such institutions each nation should implement a recognition that land within its boundaries is the common heritage of its citizens. This is accomplished not by making the nation a gigantic Common or by instituting government management of all land, but rather by requiring all persons and corporations that are granted the use of land to pay a fee or tax equal to what the rental value of the land they control would be if it were in an unimproved condition.

The case for site value rating in terms of economic efficiency is founded on the fact that a tax on resources that are not produced by human effort is one of the few sources of government revenue that does not reduce incentives for people to be productive. Two other revenue sources that have this virtue are taxes on other government-granted privileges such as exclusive use of radio frequencies and taxes on activities with harmful consequences, such as polluting the air. An economy will be more efficient if revenue sources that do not diminish productivity are employed to the greatest possible extent before any use is made of taxes that impede productivity.

What makes a tax efficient is that the amount of tax that is due cannot be reduced by reducing productive activities.

  • When incomes are taxed, people can reduce the amount of taxes owed by working less. They do so, and the productivity of the economy falls. 
  • When houses are taxed, people can reduce the amount of taxes owed by building fewer house and smaller houses. They do so, and the housing shortage worsens.
  • But when the unimproved value of land is taxed, there is no resulting diminution in the quantity of land.
Thus taxes can be levied on land without diminishing the productivity of an economy. And shifting taxes from other, destructive bases to land will improve the productivity of an economy.

Subsequent sections explain in more detail these social justice and efficiency arguments for site value rating, describe procedures for implementing such a tax system, and explain why a variety of potential objections are without merit.

The Social Justice of Site Value Rating

In primitive societies, land is generally regarded as not ownable. No one made the land, so how can anyone own it? Ownership generally originates in conquest. In England, titles to land originated in the claim of William the Conqueror to own all the land because he was king. He granted to dukes, earls, etc. the right to collect rent from designated territories in exchange for their promises to fulfill various obligations to him. In the seventeenth century the nobility succeeded in removing all of their obligations to the crown, but they retained their rights to land. A substantial part of the great inequality in wealth in the United Kingdom can be traced to ancient patents of nobility that granted rights to collect rent.

One highly visible consequence of allowing land rents to be privately appropriated is that young people find it nearly impossible to buy houses. The price of a "house," in the Southeast of Britain at least, is primarily the price of land. If the rent of land were collected publicly, the price of land would be inconsequential, and the price of a house would be the cost of the materials and labour that went into building it. It should be recognized that if the site value of land were taxed, the payment of such taxes would make it more expensive to live in large cities than in small towns, but young people would be better able to afford it because other taxes would be reduced, and the mortgages to which people would need to commit themselves would not be nearly as great. 

... if the full rental value of land is collected through site value rating, then the sale value of unimproved land will fall to approximately zero. The sale value of houses will fall to the value of the houses themselves.
  ... Read the whole article
Nic Tideman: Basic Tenets of the Incentive Taxation Philosophy
Making Housing Affordable
The implementation of our ideas would have a dramatic effect in making housing more affordable. The principal reason why housing costs have risen so much is that the price of land has risen enormously. Some increase in the price of access to land is a natural accompaniment of an increasing population.

But the very great increases of recent years, which have made it nearly impossible for young families to afford houses of their own, have additional causes. The implementation of our ideas would bring down the price of access to land in three ways.

  • First, much land is held off the market by speculators who may wait generations do decide to develop it. The introduction of a fee for holding land, whether used or not, equal to the rental value of the land, will induce speculators to either develop this land themselves or turn it over to someone who will.
  • Second, an important cause of higher prices for access to land by those who wish to build low-cost housing is zoning restrictions. These restrictions are introduced by political factions that already have their houses and do not mind if housing becomes scarcer. It just raises the market value of their homes. But if a rise in land values were accompanied by rises in the fees that existing residents had to pay for the use of the land on which their houses sit, they would have an incentive to do what they could to make land plentiful rather than scarce, and zoning restrictions could be expected to diminish.
  • Third, a person who wishes to own a house must borrow money to cover the price of buying the title to the land on which the house sits as well as the cost of the house itself. If the use of land required the payment of a fee equal to the rental value of land, so that the selling price of land titles became virtually zero, then the amount of money that a family would have to borrow to purchase a house would fall. ...  Read the whole article

Fred Foldvary: Geo-Rent: A Plea to Public Economists
One bids less for land that has tax liabilities and on which profits are lower. Untax the economy, and the economy would produce greater output, which would be capitalized into higher geo-rent.

Michael Hudson: The Lies of the Land: How and why land gets undervalued
Turning land-value gains into capital gains
Hiding the free lunch
Two appraisal methods
How land gets a negative value!
Where did all the land value go?
A curious asymmetry
Site values as the economy's "credit sink"
Immortally aging buildings
Real estate industry's priorities
THE FREE LUNCH     Its cost to citizens     Its cost to the economy

THE FREE LUNCH: Its cost to citizens

The recycling of savings into new mortgage lending has fueled an economy-wide inflation of asset prices for land, homes, and commercial properties, as well as stock market and bond prices. If what rises in value is mainly the land site, then the property owners appear as passive beneficiaries enjoying a free lunch. The property is their major asset and the mortgage their major debt. While doing little to increase the value of the building beyond having picked a good location and making the normal maintenance, they ride the crest of asset-price inflation of land . Indeed, take-home earnings have drifted down over the past two decades, but house prices have soared.

These "capital gains" for households are part of the new phenomenon that has been popularized as "labor capitalism." As Margaret Thatcher's crowd has put it, "Sorry you've lost your job; I hope you've made a killing on your Council House or home in the real estate market." The free lunch.

For the two-thirds of America's and Britain's populations who are home owners, this free lunch from asset-price inflation of land has proved to be a silver lining in the post-industrial economy. For the remaining third of the population, however, the price of access to home ownership is receding rapidly. Today it hardly is possible for most renters to earn the money to acquire their own homes. The entry price has been bid up too high by those hoping to gain from asset-price inflation even as labor's earnings have been declining.

Its cost to the economy
Once a building has taken all its depreciation, investors have a tax motive to sell the property and buy another. The sales price obviously will be higher if the new buyer can begin depreciating the building all over again, for the property will yield more after-tax revenue. This financial trick turns the real estate sector into a game of musical chairs, while enabling property owners to avoid income taxation. The end result is to free more of their cash flow to pledge to mortgage lenders as interest, in exchange for loans to buy more and more property that is rising in price. This is the anatomy of the dramatic increase in land-prices, called the real estate bubble. The tragedy of modern economies is this divergence of saving away from financing new direct investment and employment, to inflate a financial and real estate bubble. When the bubble bursts there will be little new tangible wealth creation to show for it, only a wave of insolvency, bankruptcy and foreclosures as the Western economies begin to look more like that of Japan since its bubble burst a decade ago. America's and Europe's largest economic expansion may similarly give way to a long depression. Its cause will remain invisible as long as the politically powerful real estate interests keep getting land undevalued and its income masked as capital gains on the national income and product accounts ...      Read the whole article

Alanna Hartzok: Earth Rights Democracy: Public Finance based on Early Christian Teachings

Al Hartheimer: Affordable Housing and the Land Value Tax Perspective: a letter to Asheville, North Carolina

To make housing more affordable we advocate the reduction of the tax on buildings and a simultaneous rise of the tax on land to yield the same or more revenue. This is called Land Value Taxation. It is also called the two-rate tax, incentive taxation and the split-rate tax.

We know, from studies of the twenty Pennsylvania taxing jurisdictions that use LVT, that every time the tax on buildings is reduced, and simultaneously the tax on land is increased, that there is a spurt of construction. According to Plassmann and Tideman (A Markov Chain Monte Carlo Analysis of the Effects of Two-Rate Property Taxes in Pennsylvania, Florenz Plassmann and T. Nicholas Tideman, September 1997, p19), "This means that, for an average municipality, an increase in the adjusted tax differential of 1 mil will yield an expected increase in the total value of construction of 1.58%". Much of this increase in construction comes from people improving their homes with the knowledge that the penalty for making improvements is being reduced.

Does this provide more affordable housing? Pittsburgh has used the two-rate tax since 1915, 85 years. Recently, Lew Sichelman (The Housing Scene, by Lew Sichelman, the Los Angeles Times, Sunday, June 4, 2000) said "According to the federal government's latest tabulation, the average of both new and existing houses sold in 31 key markets nationwide reached $200,300 during the first three months of this year…. The San Francisco Bay Area…remains the most expensive place in the country in which to buy a house. The average price there is now $384,700. …At the other end of the price spectrum, the average remains under $150,000 in only two places: Pittsburgh at $143,300….and St. Louis at $145,100." So Pittsburgh, the only sizeable city in the United States to use the two-rate tax, has the lowest cost housing in the country. A coincidence? Perhaps not.

An interesting and amazing thing about the Pittsburgh experience is that the two-rate tax in Pittsburgh applies only to the city tax, not to the school tax and not to the county tax. It's impressive to say that for the city tax the tax rate on land is six times higher than the tax rate on buildings, but because of the much higher value of buildings, only about 57% of the city tax is from land. When you add the school tax and the county tax, less than 40% of the tax yield is from land.

So a modest land tax applied over a long time (85 years) results in the lowest average cost of housing in the country. Imagine what would happen if the tax on buildings were eliminated and all of the city revenue came from the land tax. It boggles the mind to think about it. ... read the entire article

William F. Buckley, Jr.: Home Dear Home

Henry George, the eminent social philosopher of a century ago, turned the attention of planners and economists, however briefly, to the indefeasible factor of land scarcity. Capital and labor can increase; land cannot.

Accordingly, George was the apostle of the single tax. It aimed most directly at land speculators. His insights would focus now on the limitations on the use of land imposed by zoning. If John Jones wants an acre protecting his house, he is laying claim to something that cannot expand in size. Since land, in George's analysis, is forever limited, it must be thought of and treated as common property. And therefore the rental value of one acre should constitute a tax (the single tax) on the person who sequesters it for himself.

A strong case can be made for the amenities of zoning laws. But they have an effect on the availability of housing, and on its cost. One result is that housing costs are increasing faster than inflation.

But is the Henry George factor likely to be espoused in political platforms? It cannot happen soon because too many interests are vested in zoning laws. But sharp political eyes should be trained on the question, in search of a viable formulation designed to fight against homelessness for grandchildren who cannot be expected to pay the projected cost of housing. ... read the whole column

Jeff Smith: Share Rent, Transform Society

It is not just collecting ground rent but also untaxing other systems. Untax labor and make it more affordable. Enterprises such as recycling and reforestation, weatherization, reconstruction, and health enterprises are labor intensive and made more expensive artificially by taxing labor. We subsidize business: free roads for the timber industry, cheap water for agribusiness. Stop those subsidies and recycling could compete.
On a level field, recycling would roll over extraction of virgin material. We could spare forests and salmon and have a healthier eco system. Look at restoration. Money has to come from the public treasury but we could look at it as public investment. Pay for restoration and land values increase, so land dividends would increase. Direct investment benefits the entire public.

Now the public is paying for private parties. That is not fair. Look at the economy. Take taxes off homes, and they become more affordable. Have some kind of land charge, and housing stock increases as sites get developed. Affordable housing helps stabilize neighborhoods. In places that do have the land tax, i.e., Australia and New Zealand, they have fewer disputes with assessment. Assessors say their job is so much easier now. If land is less profitable and less of a political football, it is less tense in local politics.  ... read the whole article

Mason Gaffney: How to Revive a Dying City

Georgist policy has been shown as a means to revive dying cities, and in the process to reconcile equity and efficiency; to reconcile supply-side economics with taxation; to reconcile capital formation with taxation of the rich. It can be seen as a means of harmonizing collectivism and individualism, in the most constructive ways possible. I know of no other program whose proponents can even make such claims, let alone substantiate them. In a world that has already priced younger people out of the real estate market, we should find George's program worth our intense study and support. Read the whole article
Mason Gaffney:  Full Employment, Growth And Progress On A Small Planet: Relieving Poverty While Healing The Earth
It is not that George or his allies are against homeownership. Georgist tax reform makes it easier for first-time buyers to enter the market, and tends to raise the number of owner-occupants. However that sometimes entails inducing Type #3 speculators, melded in among existing homeowners, to let go of excess land they do not need. That basic point gets lost when campaigners pitch their message solely to existing homeowners, lumping them all as a class. Read the whole article
Walter Rybeck: What Affordable Housing Problem?
Like all creatures -- goldfinches, squirrels, butterflies, cicadas -- we humans are squatters on this planet. We all need a part of earth for shelter, nourishment, a work site and a place to raise the next generation. Otherwise we perish. ...

In the 1980s, Washington, D.C., was concerned about its growing army of homeless. At that time I found there were 8,000 boarded-up dwelling units in our Nation's Capital -- more than enough to accommodate some 5,000 street people. I also found there were 11,500 privately owned vacant lots in the District of Columbia, mostly zoned for and suitable for homes or apartments. Decent housing on these sites held in cold storage would have provided an alternative for the many low-income families squatting in places that were overcrowded, overpriced, overrun with vermin and overloaded with safety hazards.

These issues spurred my research described in a 1988 report, "Affordable Housing -- A Missing Link." Evidence from the Census Bureau, Bureau of Labor Statistics and other sources over a 30-year period revealed the following average cost increases of items that go into the building and maintenance of housing:
  • Wages of general building construction workers rose 14 percent a year.
  • Wages of special trade construction workers rose 11 percent a year.
  • Construction material costs rose 11.5 percent a year.
  • Combined wage-materials-managerial costs for residential building rose 12.5 percent a year.
  • Fuel and utility costs for housing rose 13.8 percent a year. All of these costs closely tracked the Consumer Price Index which, over these same 30 years, rose by 12 percent a year. According to those figures, housing prices and housing rents apparently were held in check
Why do those statistics not seem to jibe with what you have been told, seen with your own eyes, and felt in your own pocketbooks?
  • How to explain that, during the last decade of my research period, U.S. households with serious housing problems increased from 19 to 24 millions?
  • What caused the portion of renters paying more than 35 percent of their income for housing doubled from 21 to 41 percent during the last two decades of the study period?
  • Why were over 2.4 million renters paying 60 percent or more of their income for rent?
The answers would be obvious except that, so far, I have not mentioned what happened to the price of the land that housing sits on. Many of those who talk and write about housing conveniently overlook the fact that housing does not exist in mid air but is attached to the land, and that the price of this land has gone through the stratosphere.

In contrast to those 11- to 14-percent annual increases in housing-related costs, residential land values nationwide rose almost 80 percent a year, or almost 2000 percent over those three decades.  ...

A close friend in Bethesda bought a house and lot there 40 years ago for $20,000. Two months ago he sold the property for a cool half million. That 2400 percent increase was entirely land value. The buyer immediately demolished the house to put up a larger one, so he clearly paid half a million for the location value -- the land value -- alone.

Officials, civic leaders and commentators who bemoan the lack of affordable housing nevertheless applaud each rise in real estate values as a sign of prosperity. Seeing their own assets multiply through no effort of their own apparently makes them forget the teachers, firemen, police and low-income people who are boxed out of a place to squat in their cities and neighborhoods. ...

Many of our Founding Fathers, George Washington included, had amassed huge estates. But the property tax induced them to sell off excess lands they were not using.  ...

One of the many virtues of a tax on land values is that it can be introduced gradually. Cities that take this incremental approach report that homeowners-voters-taxpayers hardly notice the change. What's important in modernizing your taxation is not the speed of change but the direction you choose. If you keep the present tax system with its disincentives for compact and wholesome growth, you will experience the treadmill effect that has been so familiar in so-called urban and housing "solutions." You will have to keep running faster and faster with patchwork remedies to keep from sliding backward.

A caution. Revising taxes as proposed here will not end the need for housing subsidies, at least not in the short run, but it will do three things that should greatly reduce subsidies.
  • One, by deflating land costs it will enable the private market to offer homes and sites at lower costs.
  • Two, this will shrink the number of families needing subsidies.
  • Three, it will stretch subsidy dollars farther because sites for publicly assisted housing can be acquired far more cheaply.
In Conclusion, I have tried to show that America has a housing land problem, not an affordable housing problem. This problem can be substantially alleviated by freeing the market of anti-enterprise taxes and by turning the property tax right side up -- that is, by dropping tax rates on housing and by raising them on publicly-created land values. Read the whole article

Mason Gaffney: The Red and the Blue
Several modern economists minimize the role of land prices in home values. Thomas Sowell, now a voguish columnist, was only recently a Professor of Economics at U.C.L.A.  Sowell endorses Professors Edward L. Glaeser of Harvard and Joseph E. Gyourko of the Wharton School, whom he quotes as follows: "America is not facing a nationwide affordable housing crisis. --- In large areas of the country housing costs are quite close to the cost of new construction." These areas "represent the bulk of American housing" and they are areas where "land is quite cheap." I can’t confirm the quote, but it reads like something Glaeser and Gyourko might have written: they also claim that the apparent price of land in Manhattan is only an illusion, the product of zoning laws.  The true or “hedonic” price is not much above farmland.  How do they figure that?  Don’t ask!  It’s exclusionary obscurantism at its worst.

In a Brookings paper, housing authority Karl Case of Wellesley and financial prophet Robert Shiller of Yale write on housing. This is a hasty paper, not of the same quality as their previous work, but there it is under their names.  They write that housing became more affordable from 1995 to 2003 “in the vast majority of states.”  Thus easily they dismiss the minority of states with the majority of the U.S. population and land values, and the highest ratio of land prices to building prices.  Metropolitan New York, with 10% of the U.S. population, and a higher percentage of its land value, is a big chunk of the U.S.A. all by itself.

3,000 miles west, Deborah Reid of the Public Policy Institute of California delivers a parallel locution: “there is no housing shortage in California outside of Los Angeles, the Bay Area, and San Diego.”  Yes, and Switzerland is all flat, outside of The Alps.  Is this a new conventional wisdom to help vitriolic columnists like Sowell ignore land values? Read the whole article

Jeff Smith and Kris Nelson: Giving Life to the Property Tax Shift (PTS)
John Muir is right. "Tug on any one thing and find it connected to everything else in the universe." Tug on the property tax and find it connected to urban slums, farmland loss, political favoritism, and unearned equity with disrupted neighborhood tenure. Echoing Thoreau, the more familiar reforms have failed to address this many-headed hydra at its root. To think that the root could be chopped by a mere shift in the property tax base -- from buildings to land -- must seem like the epitome of unfounded faith. Yet the evidence shows that state and local tax activists do have a powerful, if subtle, tool at their disposal. The "stick" spurring efficient use of land is a higher tax rate upon land, up to even the site's full annual value. The "carrot" rewarding efficient use of land is a lower or zero tax rate upon improvements. ...

Another resource-consumptive segment of the economy is construction. Developers now profit from value. Losing that to land dues, they'd seek a replacement income. They'd be inclined to use cheaper recycled materials and build homes of higher value, with more insulation, heat exchangers, light tubes, rain cachements, a front for the street and a face for the south, fiber-optic wiring for the computerized building, edible landscaping, etc.

Many building codes mandate certain features (thick insulation, smoke detectors, etc). All these add-ons raise improvement value which the polity then taxes. The PTS repeals the penalty for improving structures. Another current obstacle to more efficient construction is that renters, unlike owners, have little vested interest in upgrading the structure. Lower land prices put more people into their own homes. As owner occupants, people tend to be more motivated to plug heat leaks and conserve energy, thereby slowing climate change. ...

First-time home buyers make out like bandits. They'd pay a higher land dues to their community but lower total taxes to government, a lower price to the seller, and a lower mortgage to the lender. Is it fair that one group should benefit so prodigiously? Yes. In many US cities, renters now outnumber owners. High rates of tenancy, as shown in Goldschmidt's 1940s study of the Central California towns Arvin and Dinuba, engender apathy and indifference, which are bad for democracy, community involvement, street safety, and environmental protection. The sooner young families can become homeowners, the better off all members of society will be.

A big problem needs a big solution which in turn needs a matching shift of our prevailing paradigm. Geonomics -- advocating that we share the social value of sites and natural resources and untax earnings -- does just that. Read the whole article

Jeff Smith: What To Do About the Real Estate Bubble
What’s bubbling, and until when?

Sellers are happy. So are developers and speculators. Real estate has gone all bubbly, and that bubble has gone ballistic. What goes up, however, must soon do something else. ...

Actually, it’s not housing whose price has entered the stratosphere. Buildings age – get older, more worn out. What’s getting more valuable is the land, the location – whether it has a building on it or not. Buildings you can make more of, but land you can not, especially locations along the coasts or on the good side of town. None of that would matter if you could ever get buildings to hover around in the air. Meanwhile however, speculators are happy.

... What’s seemingly good for landowners is not necessarily good for the economy. As people spend more on land, something nobody produced, they spend less on output, things people do produce. As producers get less money spent on their products, eventually they take the hint and produce less. "Produce less" is another way of spelling recession.

Plus, more expensive land means heavier borrowing to buy it. More debt means more inflation and less stability. When producers cut back, borrowers have a much harder time paying back their debts. As people go bankrupt, they drag others down with them. A collapsing house of cards is another way of spelling depression.

Preventing bubbles?

If land values didn’t get inflated, of course they would not have to get deflated.Call it mutual compensation for deprivation from part of our common natural heritage. While in rhythmic systems, prices must rise and fall, but they need not boom then bust; they could climb then glide. What would temper economies, preventing bubbles? Rather than let a few lucky owners collect land values, neighbors would have to recover land values for themselves. Nobody made land, and no lone owner made its value; the presence of society in general did that. Plus, for excluding everyone else from their sites, owners owe everyone else, as each one of us owes everyone for excluding them.

To recover land value, government could either transform the property tax into a land tax or replace it and other taxes with land dues or land use fees or an annual deed fee. ...

To pay the land dues, owners use their land efficiently; owners who had been speculating get busy and develop. No longer allowed to tax anything that moves, local governments, too, which presently let acres of abandoned urban land and buildings lie fallow, get busy, too, and make sure to get those acres into the hands of ambitious owners who’ll pay land dues. More locations put to use and more buildings put up increases supply, which dampens price.

Better still, as government recovers land rent, that leaves owners with less land rent to capitalize into land price. Hence buyers need not borrow so much.  ...

Land would still rise in value. With every discovery of a nearby natural resource. With the opening of every new bridge. With every techno-advance, as silicon wafers did for Silicon Valley. With every jump in income and drop in crime, land value rises. But no longer into a bubble. Because every rise would find its way – via land dues and rent dividends – into everyone’s pockets. ...

If the 18-year average holds for this cycle, then real estate still has a few more years of sucking all the investments and purchasing power out of the rest of the economy. Land is still able to soak it all up, and lenders are still willing to pump more in. So despite the premature panic (markets almost never do what everybody says they’re going to do), Mankiw’s 2007 would be the earliest that the current bubble would burst, and 2008 is just as likely.

Then land prices will fall for a few years. Since the run-up was steep, the drop will be, too – after correcting for inflation, maybe as much as 50%. Which will be an enormous relief for the economy – just what the doctor ordered. With land affordable again, a new cycle can get under way. Whether the new one will be boom and bust or climb and glide is up to us, whether we’re willing to practice geonomics, to forego taxes and subsidies in favor of land dues and a Citizens Dividend.

While I don’t mind the current gambling, I do mind the widening of the cavernous gulf between haves and have-nots, and I boil over while workweek grows more onerous, and just seethe watching vacant lots and abandoned buildings push development out from urban cores to sprawl on suburban farmland. To reverse that, let’s let go of the individual owner’s hold on land rent and share Earth’s worth equitably among us all. We’ll all be glad we did. ...  Read the whole article
Herbert J. G. Bab:  Property Tax -- Cause of Unemployment -- circa 1964
The steep increase in the level of rentals represents a true and accurate yardstick of our housing shortage. During the period 1950 to 1961
  • the average rental rose from $71.13 per month to $186.79 or by 160%.
  • During the same period median urban family income rose from $3,497 to $5,924 or by only 69%. 
  • Construction costs per square foot rose from $8.68 in 1950 to $11.32 in 1961 or by only 30.4%.
The ever widening gap between the level of rentals and the urban family income constitutes a rental squeeze, which has brought untold misery and hardship to families in the lower income group, especially to those belonging to minority groups. The rental squeeze has also aggravated overcrowding and slum conditions. ...

A defect of our property tax system that is seldom mentioned is that it puts a premium on obsolescence and penalizes new housing. This is so because property taxes are ad valorem taxes. Every piece of real estate except land is subject to depreciation. Thus the owners of old and obsolete real estate will pay little in taxes, while newly constructed buildings will bear the brunt of the tax.

This characteristic of the property tax is obscured by the rising trends of land values, which in many cases offset the loss in value of the improvement. Increases in tax rates and differences in assessment procedures and practices further hide the fact that ad valorem taxes favor obsolete real property.

Let us now turn to that part of the tax that is assessed on land. Increases in population, immigration from the farms and other forces have led to a rapid increase in the population of our large cities and metropolitan areas. Population pressure is bound to increase the value of urban land. Yet an adequate system of land taxation could have prevented the steep rise in urban land values.

Economists agree that taxes on land can not be shifted but are capitalized. For instance a lot having a value of $10,000 -- will have an imputed or expected income of $500 -- assuming a 5% rate of capitalization. A 2-1/2% yearly "ad valorem" tax would reduce the imputed income by $250 -- or 50%. Such a tax would naturally reduce the value of the land by the same percentage.

For these reasons increases in land values can be prevented by taxing land at an appropriate rate. Yet urban land values have increased tremendously during recent years. For instance in Los Angeles county the assessed value of land increased from $1,972 millions in 1952 to $4,002 millions in 1962, an increase of a little over 100%. The assessed values, are supposed to represent 25% of the market value. Thus the unearned increment in land values during this period amounted to not less than $8 billions. Even this figure is an understatement because it is based on assessed values and land is greatly underassessed. While land values have risen by about 10% yearly, property taxes assessed on land averaged about 1.5%. Thus a person owning vacant or underimproved land would have earned about 8 1/2% per year just by withholding land from its proper use.

A higher tax on vacant or unimproved land would make it unprofitable to hold such lands. It will tax land into better use and it will lead to a spurt in construction activity. While all other taxes are deterrents to employment and economic growth, though to a varying extent, land taxes are the only genuine incentive taxes.

Inflated land values must necessarily increase the cost of new homes, the cost of home-ownership and rentals. It discourages residential construction, prices many families out of the housing market and aggravates the housing shortage. ...

Homeowners who bought their homes some time in the past can reap large profits when selling them. Old homes should sell at a lower price, because of the depreciation of the building, but in most cases the depreciation of the building is more than offset by the increased value of the lot. This increased value forces buyers to increase their down payments or to increase their loan are higher, many families are priced out of the market.

We have discussed the sharp increase in the level of rents that has taken place during these last years. These increases reflect the steep rise in land values that have taken place in almost all sections of our cities. The tax assessed on the improvements has discouraged the construction of more and better housing. At the same time, the tax assessed on land has been too low to induce owners to sell, improve, or replace their rental properties....

We have analyzed the effects of property taxation on improvements as distinguished from those caused by the incidence of these taxes on land.
  • We have found that a high and burdensome tax rate on improvements will discourage residential construction, create unemployment, penalize home-ownership, aggravate the housing shortage and force up rents.
  • Yet a low tax rate on land will have similar if not identical effects: it will lead to a rise in urban land values, which in turn will discourage residential construction, create unemployment, penalize home-ownership, aggravate the housing shortage and force up rents.
The paradox of property taxation consists in the fact that lower rates on improvements produce the same results as higher rates on land and conversely higher rates on improvements produce the same results as lower rates on land. Read the whole article

Henry Ford Talks About War and Your Future - 1942 interview

Frank Stilwell and Kirrily Jordan: The Political Economy of Land: Putting Henry George in His Place

Land is the most basic of all economic resources, fundamental to the form that economic development takes. Its use for agricultural purposes is integral to the production of the means of our subsistence. Its use in an urban context is crucial in shaping how effectively cities function and who gets the principal benefits from urban economic growth. Its ownership is a major determinant of the degree of economic inequality: surges of land prices, such as have occurred in Australian cities during the last decade, cause major redistributions of wealth. In both an urban and rural context the use of land – and nature more generally – is central to the possibility of ecological sustainability. Contemporary social concerns about problems of housing affordability and environmental quality necessarily focus our attention on ‘the land question.’ ...

While still ignored by the economic orthodoxy, interest in George’s work has been stimulated by modern concerns about housing affordability and environmental decay. Such revival of interest recognises that these problems stem, in part, from inadequate policies relating to land. Some members of Green parties, in particular, have embraced Georgist ideas. ...

A third aspect in this ‘stocktaking’ of the relevance of Georgist analysis and policy to contemporary political economic conditions concerns the persistent problems of housing affordability. The difficulty of purchasing, or renting, affordable housing has reached social crisis proportions in many large cities around the world. In Sydney, for example, a median-priced house could be bought for just under four years of average Australian earnings in 1986, but an equivalent house in 2003 cost over twelve years’ worth of earnings (Stilwell, 2003). This constitutes an enormous barrier to home-ownership for a younger generation, a problem that both Federal and State Governments have sought to redress by the provision of first home-buyers’ subsidies. It is not typically the house itself that has been the cause of the inflation, but the price of the land on which it stands. So, looking at the situation from a Georgist perspective immediately directs our attention to how the demand and supply of land affects housing affordability.

The demand for land involves both use values and exchange values. People seek land because the housing built on it provides shelter and security, but they also purchase it as a store of wealth and a means of capital appreciation. A particularly important driver of real estate prices has been the speculative demand, as investors seek capital gains in the property market. In Australia, this has been such common and longstanding practice that it has been referred to as ‘the national hobby’ (Sandercock, 1979). By ‘creaming off’ a part of this potential capital gain, a higher uniform rate of land tax would act as a disincentive to this property speculation, and could therefore be expected to exert a downward influence on property prices. Georgists have always been emphatic that land taxes are different from other taxes in this respect – they depress prices because they reduce demand. So the usual fears that a tax will be ‘passed on’ to customers (such as housing tenants, in this case) do not apply. By making land less attractive as an item to be purchased in the hope of making capital gains, land tax can therefore be an important check on the inflationary process.

However, while a higher uniform land tax could be an important component in a policy addressing housing affordability, it seems unlikely to provide a complete solution. The severity of the housing problem in Australia, for example, also derives partly from the dwindling supply of public housing. Public housing is now less than 5% of the total housing stock and falling (National Housing Alliance, 2004: 5). Governments have withdrawn funds from public housing and tightened entry requirements (for example, lowering the threshold for the means test). This has caused public housing waiting lists to lengthen and put greater pressure on the private rental sector. More and more people have been forced into circumstances of significant ‘housing stress,’ paying a third or more of their net income for housing (Hawtrey, 2002), and further adding to inflationary pressures on housing prices.

There is a potentially important link between these concerns – land tax and public housing – because a higher, more uniform land tax could generate revenue to finance a significantly larger public housing sector. That would, in effect, kill two birds with one stone, providing the twin basis for an assault on the problem of housing affordability. ... read the whole article


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Wealth and Want
... because democracy alone hasn't yet led to a society in which all can prosper