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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























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.









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



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.

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




Its cost to the economy

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


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
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. ...


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:
  • Construction material costs rose 11.5 percent a year.







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


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.


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





Preventing bubbles?








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



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.


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



related themes:

land price


barriers to entry

women's employment

single parent


cost of living

paying twice

construction costs

wealth from land appreciation


home equity

all benefits...

land concentration

urban land values relative to rural

underused land









Proposition 13




hoarding land


land progression

land that shouldn't be built on

land value

land value mapping


lowering the price of land




not passed on



abolishing poverty

poverty and justice

real estate

real estate fortunes


rent control



untaxing buildings

shining city


supporting a family

widow's skirts

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