Month: May 2021

Thinking out loud

The various Twitter threads here and here have been a kind of thinking out loud, taking observations and news stories and trying to apply the ideas of Thomas Paine, Tolstoy, and Henry George to them.

If we are serious about inequality, about putting housing within reach of working people, we need to look at why it got away from them. And the answer to that is land. Whatever city you live in, it’s a fixed size: no matter how many people move there, it won’t get any larger so those who own the existing land will be able to charge more in rent or as a sale price. Seattle is 85 square miles: adding 150,000 people since 2000 raises the value of every one of those square miles, down to the foot.

What needs to be more clearly explained is who gets that increased value and how it’s created.

The first part is easy: if the property is sold the seller gets the windfall. And I don’t use that term lightly: it could be millions of dollars on a purchase that might have been hundreds of dollars, if it goes back far enough. But if it’s a rental, like 20% of the houses in Seattle along with thousands of apartments, the landlord can set the rent to match the wages of the new arrivals. As the economy has changed from manufacturing and construction and other trades to programming and other work that is not dependent on location, the wages have gone up and with them the rents and home sale prices. We saw during the Pandemic that rents dropped as many of these location-independent workers left the city. Those jobs don’t require presence, like a teacher or firefighter or barista: they can do their work where they can get a cell phone signal. Yet here they are. The apartments didn’t become more or less valuable. The value of the location did, based on the activity around them.

The second part is a little more complicated. The value in a piece of land is created by everything going on around it, not just on it. There is a network effect, of sorts: as I develop or improve my land, yours becomes more valuable because of the potential value created. If I build an office tower, you could develop your land to accommodate a restaurant or grocer to feed the people who work in the building I made. Also, roads and utilities — public investments — make land more valuable. That cost should be recouped through taxes.

Or you could simply leave it idle, until it reaches whatever value you hope to get from it. As long as you can pay the property taxes, you can hold onto it as long as you care to.

And that value is unearned, as the illustration explains: the value of a parcel of land reflects the investment of those nearby, meaning the owner of a vacant or underdeveloped parcel is a free rider, watching the value of their property rise with no effort on their part.

What can municipalities — cities, counties, even states — do about that? They could adopt a new tax system that, as most already do, assesses land based on the highest and best use, and from that basis imposes a land value tax or ground rent based on what the land could be doing. So a parcel that has a low present value as a parking lot or a low-rise/single story retail shop when it could — and should — be a mixed-use multi-story development would be taxed on that value, what’s needed. So a parcel that is valued at $100,000 and pays 1% might suddenly be assessed a tax based on a $1,000,000 valuation, if that land is in demand or located near other developed parcels.

This would have the effect lowering the cost of buying that land…if I was considering selling it for $100,000 with a 1% tax liability and it is now assessed with a 2-5% tax, I won’t get $100,000 for it: I may have to settle for half that and be glad to get it. Or I could develop the land so that it makes more money than it did as a retail store or parking lot, so I can cover my rent. If I develop a mixed-use building with retail, offices and residential, I’ll make more, even with the taxes. Seattle has many brownfields and empty parcels, as well as surface parking lots in the heart of downtown, all of which should be taxed until they are transformed from a speculative asset to a productive one. Right now, a $1,000,000 parcel can be held, as in the image above, for $10,000/year in property taxes that don’t reflect the productive value of the land or serve as an incentive to put it to work.

The optimal price to acquire land for development is $0…the rent should be calibrated to put the land to work without any speculators cashing out. Why do we even accept that we can own land, that we can put up a fence or, as in the Eddie Izzard routine, plant a flag and claim it as our own? Owning land is like owning time. We didn’t consider either time or land as having value until we could charge for their use. But nothing we do will create more of either.

And coincidentally, land value is a function of time…the longer you hold a parcel, the more value accrues to it through the efforts of your neighbors as well as your own.

There is more to this: there are two levers cities can use to maximize and recoup the value of land, taxation and zoning. Through zoning, the density and other requirements — parking — can be addressed, and a split-rate tax that taxes land at a higher rate than what gets built on it, land can find it’s highest and best use and over time that use can change to meet the needs of the people who created that value.

smells like techno-utopians

Someone suggested that this post is based on some of the writing here. Hard to tell: I suppose the idea of land rents is the connection but there’s nothing there that isn’t a crib from Thomas Paine’s Agrarian Justice, ca 1797. Call it the American Equity Fund or a sovereign wealth fund or a prosperity dividend, as you like.

Most of this piece is the usual techno-utopian twaddle that assumes we all want AI to make more and more decisions (I was reporting about AI — expert systems and neural nets — before the author of this piece was in school) and that we will all just accept the disruption, the loss of opportunity/security as jobs are abstracted away, so that a few people who have managed to fail upwards their short lives can continue to hold power. I suppose one may think this is Luddite or anti-technology crankiness but that just shows a profound misunderstanding of what the Luddites were angry about. All of this Taylorism-adjacent AI stuff is just a way to turn those with local knowledge and skills into cheap labor. James C Scott talks about this in Seeing Like a State, describing this kind of top-down deskilling as high modernism. Just like the capitalists claim about socialism, this really has failed everywhere it has been tried but that won’t stop those who have never learned from failure from trying it again. After all, it’s only other people’s lives they are taking, piece by piece.

There is a way to take someone’s life without killing them: you simply deprive them of the means to enjoy it, reducing them to a meat machine that lacks the means and eventually the desire for anything outside of their labor obligation. This seems to what most of these schemes boil down to, stripmining industries (as with Uber/Lyft and the taxis) or cities, as their inflated salaries distort local housing markets and force workers who don’t command 6 figure salaries to harvest data and put ads in more and more places to leave the cities they built.

Daniel Pink laid out the three components of internal motivation: Mastery, Autonomy, and Purpose. Mastery requires no explanation. Autonomy is simply the power to say “no” to work you don’t want, for whatever reason — it doesn’t pay enough, the working conditions are poor, whatever. And Purpose should also be self-explanatory: you feel like your work has some value beyond money. But these masters of the universe don’t know what any of that means. They are well-supplied with autonomy but what are they masters of and what purpose do they serve besides the accumulation of more wealth? Why can’t these lottery winners just take their winnings and go home?

No, I don’t think any of these insular thinkers have read any of my stuff. The few mentions of land in this piece don’t mention split-rate taxation on commercial land, which is really where the action is. Putting a 2.5% tax on all privately-owned property is a non-starter in a city with a 1% rate that people are howling at having to pay.

The roots of this are in the preference for private goods over public ones: it even extends to the techno-utopian chariot of choice, the self-driving Tesla. Imagine making a car no one wants to drive and thinking you’re an automaker.

As anyone who has worked on the internet might appreciate, the better solution here is to make the road network into a real network, where the vehicles are packets, guided by an intelligent network that can receive the desired destination from each vehicle and manage all of them, merging and exiting them, as the passengers require. Rather that waste time and effort designing cars that can read signs, why not built signaling into the signs and all other road infrastructure to guide the vehicles?

But that sounds like public investment, shared/common goods. They would never consider upgrading or innovating in the public space when they could simply create a private version they can control access to.

So this coterie of failsons and upward failing dreamers will continue to invest in systems and ideas that no one but themselves needs or wants. It may take the rest of this century before the effects of this poison are gone.