The housing theory of everything (2021)

It sounds like both Spain and the US have tax systems that cause it to be expensive to sell a house and buy a less expensive house.

In the US, this takes the form of a nonsensical capital gains tax system: personal residences are not eligible for 1031 exchanges, so taxes on gains are due immediately, those taxes are not indexed to inflation, the exemption is too small to make much difference in any high-property-value area, and the basis step-up at death strongly incentivizes children to encourage their parents to keep their house until they die. California puts icing on the cake with Prop 13, so you can trade for a cheaper house and your property taxes increase. At least some recent changes in CA take baby steps toward improving this.

Yep. Housing can be affordable or it can be a good investment. Not both. Not for long.

Home owners are heavily incentivized to "not understand" this, so the cycle of abuse continues.

Note: I’m summarizing a very complex topic as best I can. There is a lot of nuance and thought that goes into a properly implemented land value tax (LVT) that I’m not covering here.

The reason for the LVT is because land doesn’t otherwise follow market dynamics.

In a functioning market you have pressures to sell things. If you can sell something at a reasonably high enough profit margin there is every incentive to do so. There is no benefit to waiting or holding if the price is right. This also encourages competitors who may try to sell a superior version of a widget at the same price or lower, and thus we have basic functioning market dynamics that help achieve relative price stability. It also achieves maximal utility for said market

Real estate however doesn’t work this way. Once someone owns a plot of land there is no incentive to sell. We can’t simply make more, and the things that make said land more or less valuable aren’t inherent to the land but rather where it is located and/or what’s on top of said land.

An LVT is a way to introduce a functioning market dynamic on land. It puts pressure either selling the land or utilizing it maximally. It becomes more expensive over time to hold land that is under utilized. This forces land owners into a set of choices: hold as is but pay an inevitably increasing tax on the holdings, sell part of the land to reduce the holdings, or further develop the land to offset the cost.

Without this function, there is no functioning marketplace for land. Once you own it you can largely hold it forever, without any regard to the actualized value of the land. So for example, a 4 acre lot sitting on “prime” (lack of a better term) real estate with only 1 suburban style house has zero incentive to become maximally utilized even though its value has increased exponentially relative to its utilization.

A LVT is one (and full disclosure I’m a big fan of the land value tax) such proposal to that problem

> property taxes (which are very good, yet seen as unfair by owners, so they stay low)

Property taxes aren't actually good. Consider the economics of new construction: If the net present cost of building new housing is less than its net present value, it gets built.

Net present value is the value of future rents (or rents avoided if you live in it yourself) minus future costs, each discounted by the time value of money. Property tax is a future cost, so it reduces net present value, so you get less construction until rents increase to cover the cost of the property tax.

If you don't like high rents, you don't like property tax.

> Taxes at sale time

This too is a problem if you want people to downsize once they no longer need a piece of property, but e.g. raising the exemption amount so that approximately nobody is paying this tax would then not cost a lot in terms of revenue because as it is the problem is that people are already avoiding the tax by not selling.

If you tax something you get less of it. It's not different when you tax housing.

We stayed with friends outside Madrid who owned a home. They had bought it officially for 400,000 Euros.

They also paid a similar amount "on the black", meaning that they had to pay the sellers in cash so the sellers would only pay tax on the official amount.

This was 15 years ago. It seems hard to imagine something like this happening in the US with the Know Your Customer and Anti-Money Laundering laws but maybe it does. And it might not happen in Spain anymore.

Spain (since it's in Europe, though you could say the same about ME countries) is an example that housing does not drive growth. Growth can drive housing and housing shortages can hamper growth but housing on its own does not drive growth.

Like all these things even in a market like Spain thn solution for one area can create issues in others. Barcelona suffers very different problems to Santander.

I think it would actually make it easier if I could just pay 100K tax to have permission to erect any new 2 bed house anywhere in the country. There can even be a price list linked to local salleries or something.

I don't think slapping a Georgist LVT will magically solve everything, but it will point market forces towards a desirable path, which is already a huge huge help compared to the state of things now.

I think YIMBYs really like to cast NIMBYs as their evil adversaries, but the problem is systemic. Any policy change, be it "what can be built on this lot", or "what social services do we fund", or, in particular for my muni, "how do we deal with leaf collection in Autumn" will generate three cohorts of people:

(i) People who don't like the change

(ii) People who don't care about the change (most people)

(iii) People who do like the change

People who don't like the change (i), regardless of the amplitude of their dislike, will turn out and give public comment and put up yard signs.

People who like the change (iii) will turn out and give public comment only if they are weirdos like me, with off-the-charts amplitude for their feelings.

The net result is that the only public opinion that is legible to staff and electeds is opposite. Again: regardless of what the change is.

Speak for yourself. I am 38, live in one of the top fastest growing cities in America for like 5 years running now (with a booming housing market), and own my own house outright as a result of my hard work.

Just because someone taught you something doesn't make it so. And even then, it might be true but your own choices (and failures) may be the reason you have not met your goals - rather than "housing policy".

Try on some personal accountability for size - it'll probably help you achieve those unachievable milestones you are yearning for, also.

>> I was taught that if you worked hard and kept your head down, you could have a comfortable life

I didn't even work that hard and I have a comfortable life. I learned to code, and that was it.

Your mileage may vary.

If you move to one of the most expensive cities in the world, one of the things you can do is complain that it is really expensive to live in one of the most expensive cities in the world.

You can do that. I don't recommend it, but it is one of the things that you can do.

The number of YIMBYs who own property is approximately zero. "Yes, I would prefer that you make my life worse", said no property owner ever.

I am a bad person. I want my life to be better, not worse.

Raising rents so high that tenants leave seems counterproductive. Now you have no income from the property. So why do landlords do it?

Good luck!

Single family zoning. A residential lot can only be used for a single, freestanding house; not a 2-flat.

Probably single family housing zone

Everything but size is an extremely marginal cost compared to construction labor, and size is determined by what local zoning will allow. That is, more often than not, nothing but single detached homes on large lots, which makes it pointless for a builder to not maximize size while they've already got labor on site.

This is an interesting point that I’ve seen play out as you described. It was the parents of an acquaintance of mine, and they did choose the downsize option because they were getting too old for the upkeep of a whole house and niceties it brings such as having the hotel like amenities of a doorman. Then there’s the point of choosing new vs. old stock, agreed there is a higher demand, thus it demands higher cost.

I mean, if there's restricted supply/excess demand then the ones at the margin moving the point where supply and demand cross will the ones willing to pay high prices.

It shouldn't surprise anyone who took econ 101 that new builds are appealing to the ones at the margin of buying or not buying, and that those people are way above the median income right now.

Georgism stipulates that it doesn't matter who owns the land so long as they pay a tax on it that goes back to the people.

You could say that the people really own the land and call it "land rent" instead of "land tax" but mathematically its the same thing.

> Give me the private ownership of all the land, and will I move the earth? No; but I will do more. I will undertake to make slaves of all the human beings on the face of it.

From "Archimedes", by Mark Twain, 1889

If the land is taxed then you must find a renter willing to pay more than your tax, otherwise you would sell. Meanwhile renters will search for the lowest rent, which is naturally found in high density areas. So cities would still form, and the vast tracts of unoccupied land would be money-losing assets that must be abandoned, at least until population growth makes some of those plots profitable. The market would fluctuate with supply and demand, just as it does today.

Abolish land "ownership", and limit leases to 99 years. Existing ownership relations can be grandfathered in, but they will of course eventually disappear, in much the same way as how scientific revolutions eventually succeed: via the biological demise of the preceding hegemony.

I don't think we're projected to have positive population growth for much longer. Also what does rent based servitude even mean? I own a house but still have to pay taxes and upkeep. It's really not much different from rent. The tax supposedly goes to pay for services that the govt provides back to the people. If I were to pay rent instead, at least the service I receive in return is provided back to me specifically, and the cost of switching if I don't like the deal being offered is much lower.

Rent, healthcare, and the price of eggs are very popular things to complain about for some reason...

Property is Theft!

I like your creativity here but there have been actual calculations done around this and carving out provisions for tax exemptions is not necessary.

Pragmatically speaking, a land value tax would be rolled out first by replacing property taxes with land value taxes, and the majority of people come out far ahead at this stage because people live on lots that have been developed. It is underdeveloped lots that are losers in this phase.

A true georgist would not stop here though, and they would slowly continue to ramp up land value taxes, but rather than replacing property taxes, they would start lowering other taxes on productive activities such as sales taxes or income taxes. But this would be a slow transition.

Additionally, you would include provisions during this phase where tax payments could be deferred until the sale of the property in order to protect individuals who happened to purchase a home that has dramatically increased in value. This prevents situations where an older person might be forced out of their home due to higher taxes. The goal here would be to transition over the long term and protect people who invested significant amounts into their property. The rates would stay relatively low for quite some time. Having lower rates also solves issues that you mention around accuracy of assessments. If you only tax up to 33% of the rental potential of a property, then you can be off by literally a factor of 3 in an assessment and the land will still be profitable to utilize.

This is called means testing, and it's a poor way to design policy because it creates step functions and breakpoints, distorting the market.

You seem to be getting downvoted but I agree that this is a good idea.

Correct. Zoning code prevents building density and building codes force building crappy multi-family housing with tons of parking everywhere. Sprawl and car-dependency are bankrupting America.

The Georgists agree!

Indeed, my state's constitution severely restricts how cities can tax themselves.

Developers want to build because building will increase the value of property.

If the value of property is constantly increasing through development, how are you solving the affordability problem? The development is attracting and facilitating activity that drives more demand.

What dense city with a thriving commercial and business/industrial base is cheaper to live in than a less-developed rural small town?

Nope.

The law is sometimes a large barrier, but there are plenty of places in the world with high housing costs which have minimal regulations.

The problem is the cost of land.

Developers are severely capital constrained. They take massive loans from Banks. Most of those loans go to paying for the land.

Additionally, a large portion of their profits come from the increase in land value that they create from building. Land prices per unit area are higher in a new subdivision than they are in an undeveloped lot(Obviously the majority of the property price increase comes from the building, but the land also increases is my point). It doesn't cost anything to squat on the empty lots while building, so developers purchase multiple undeveloped lots near each other to capture this increase and minimize their purchase cost. Unfortunately, a side effect to this is that the developer basically becomes a monopoly on that area and no other developers or builders can compete with them. This lack of competition is one of the reasons that quality of new build construction has been on decline.

In a world with a land value tax, the acquisition cost of land is significantly lower, but holding it is significantly more expensive. This means that a builder is incentivized to purchase smaller tranches, and hold each lot for less time before starting construction. They will be able to invest more into larger teams because they did not need to loan as much to pay for the land. This will speed up development and also improve efficiency by allowing for more competition.

I don't think you disagree here... Zoning changes and land value tax are both beneficial. In some cases like the example you gave where you can only build one dwelling per 5 acres, zoning would be a more significant problem. That's an extreme hypothetical though. In other cases, taxation incentives are more significant.

We absolutely need to push for BOTH zoning reform and taxation reform. They will work really well together :)

Agricultural land is far from large population centers, so the value is relatively constrained. The real losers on an LVT is not those owning rural land, but the operators of a surface lot near a stadium, or people living in mansions in the innermost suburb ring.

They get taxed less, because instead of taxing their produce and income, their land is taxed, and agro land is very cheap. On a quick google, I can find a 140 acre alfalfa farm in Idaho for $1.4MM ($100k/acre), and a 0.07 acre empty residential dirt lot in NY for $4MM ($54MM/acre).

Land that is far away from developed land will tend to have lower land values, so farmland would not be so highly taxed under LVT. It's mostly land that benefits from being close to development that would be taxed higher.

Australia values every single lot of land for rates (aka council tax). So it is possible with some good stats nerds to figure it out.

But these values take into consideration zoning. So if you are ona residential block it is valued as such. But it would not be hard to figure out what it would be worth as high density. So the valuation problem is easily doable.

Also in Australia each state does it independently.

No, but they're also not punished if they do build

> There exist homeowners who don't want the problem to get worse, because, like, we live in a society.

There's hundreds of millions of homeowners.

Obviously some exist that support basically every opinion imaginable.

The vast majority of home owners want the "problem" to get worse, because it isn't really a "problem" for them - at least immediately and obviously.

It doesn't really matter if a few of the homeowners want things to be better. It's a tiny percentage of the homeowners who want prices to continue going up who push all of the policy effectively.

Turns out the housing theory of everything applies to youth support for trump in 2024.

No, that's not what I'm saying. At the moment, cities are too attractive, and this is largely due to the availability of jobs. What I am suggesting is incentives, in whatever form, to encourage companies to move to less populated areas.

It is not necessary to obliterate the local business environment, only to limit it to the extent that the available jobs roughly match the available workers. Yes, it is true that house prices would fall to be more in line with construction costs, but that is the point, if you want cheaper housing, the housing must actually be cheap.

Didn’t SF try all those things?

Yes. The city is thrilled. Jobs! Tax dollars! Wooo!

The people who live there? Maybe not so much.

Is infinite growth desirable? Should we make policy decisions to distribute things more instead?

Compare Dallas with LA. The denser one is much more expensive. Maybe get denser, like Manhattan? Oops, still expensive. Manhattan just needed to build that much more and get even denser? Where exactly is it believed it would stop? That the growth machine would say 'ok, that's enough, now we will just start lowering prices!'?

Yet Dallas-the-city wants to get those businesses - and will crow for days about being more "business friendly" or brag about this or that company moving to Dallas - but Dallas-the-incumbent-residents don't like the influx of people who can out-spend them for housing.

There are a few places that understand the less-direct effect of feeding the infinite-economic-growth-business-machine, that zone for overall stability, to prevent big industrial/corporate development, not just to prevent housing. But for that to work they generally need to have something well-established to rest their hat on instead, to avoid drying up and drying out.

The businesses wouldn't go away. They would just move to less densely populated areas.

Businesses would perhaps take a small efficiency hit because of the reduced availability of labour in the region, but even this would probably be compensated for by better worker mobility, because businesses would be less crowded in the cities and there would be more labour available in the low-density areas.

Businesses would probably also be able to pay a little less as less income is tied up in housing costs. A restructuring of business and population distribution would probably not have that much impact on overall productivity, but it could shift the available money between income levels significantly. If less money goes to rich property owners, then more money stays with the average person.

I think remote work will continue to grow because it is so attractive to employees. It will just take time to be fully normalised and it is not available for every job.

As for mass transit, well, some countries just like 26-lane highways right through their cities. It is an ideological issue. Here in Europe I've seen a shift towards better public transport and cycling infrastructure, but that whole change will take time and won't be cheap.

I'd posit that it's the inverse belief: anything that benefits other people indirectly hurts you. This zero-sum worldview is becoming popular in national politics as well.

Buses aren’t that sexy but they are probably a good compromise for cities like LA. They don’t require a ton of infrastructure and can still remove lots of cars from the road. Make them convenient (better bus stop UX, wait time no more than 10 minutes, GPS track them, modernize them) and people will consider buses.

Send surveys to all the biggest companies in the city to figure out specifically the routes that need to be created.

Communities only stay "bedroom communities" for long if you force their hand in some way.

But who wants to live in apartments? It's better than being homeless but it's hardly a solution. People want single-family housing, and it is possible to build tens of millions of houses within practical commute distances of big cities. Also, we can build new cities!

People don't like to live in dense environments. Apartments and condos suck, people want their back yard.

I presented it in absolute terms because we're talking high-level here. The possibility to commute from reno to santa monica and having lots of people actually doing that are different things. My point was, if that was a 1-2 hour commute, then housing along side that commute would make economic sense, as will many other economic activities. If it is a train, I personally won't mind a 2-3 hour total daily commute, since I can catch up with books,entertainment,etc.. but if it is a drive, that would be too much, and that in essence is one of the critical issues on how this is being thought about. Cars (EV or not) are one of the root causes of the housing problem.

I agree, so let's make it cheaper. Other countries build subways cheaper over longer distances. It isn't a practical limitation but one of politics and policy.

Even a rail line such as RER A only has a capacity of at most 40k people/h/direction. It cannot solve all, or even most, transportation problems of a large city. For that, you'd need tens of lines, as in China or Madrid.

Good coverage, but it’s absolutely abysmal in terms of reliability, convenience, speed and cleanliness. I tried to survive a week without Uber/driving in LA, and gave up after 3rd day.

If your public transport is mostly used by low income residents, you’ve already failed. It just shows that it’s not good enough for anyone else and alternative methods are superior if you have money.

I think you could replace 'cars' here with a lot of technological innovations that have made certain aspects of our lifestyles attainable at a potentially greater externalised cost. Much of it is simply making things more convenient - not necessarily better.

There are two things that I am becoming more and more willing to believe:

1. We live in an age of entitlement (I can afford it, it is possible, it is legal, I want it, therefore I will do it). There is a good chance that this is how we will be remembered.

2. Convenience is killing us and robbing us of the activities that actually provide satisfaction. We fall for this because we think we desire happiness and that hedonism will provide it, when in reality satisfaction/contentment is what we truly desire.

Tokyo proves that dense cities can maintain access to reasonably priced housing.

where have you looked? I could name almost every European city as an example...