Month: June 2021

This 57,120 sq ft parcel (1.3 acre) parcel was cleared in 2005, from the history below:

Since then it has been a hole in the ground, not even paying property taxes until it was sold about 12 years after it was surplused. But look at how the valuation of the land has jumped in the last two decades.

Imagine if the city had decided — like Seattle Schools does with its surplused land — to hold onto it and let it be developed under a ground rent/leasehold arrangement. It could have been $1M/acre, as was offered for the Mercer bioscience site. At that rate with a 2% annual increase, an acre would generate $305 million over the term of the lease, about $3 million per year (annualized).

How long will it take to match that at the $60,000 that vacant lot generates in revenue? A mere 5,000 years. And it might still be a vacant lot then.

If the same developer was offered the leasehold of that parcel for $1.3M per year rather than having to finance $60 million, imagine how much more incentive they would have to break ground and build something. That becomes an expensive asset to hold at $1.3M vs $60,000/year.

Whether or not the city would tax the improvements at a lower rate is another discussion but the almost $400 million over 99 years seems like a better deal than $5.6 million over the same term from the current tax assessment.

But the real magic here is that whatever gets developed there will increase the supply of apartments, retail space, etc, which will either slow the increase in local rents or even lower them if enough land is turned from speculative asset to productive land through ground rents.

As a side note, consider how much we have heard about raising local wages to match the rising cost of living and how much more effective it would have been to tackle housing costs through ground rents and never need to raise local wages. Higher wages that give you no more buying power are of no value. This is the real cause of the inflation we see: the scarcity and rising cost of land as shelter/commercial is what forces up prices and that money flows to wherever the owners live, rather than staying in the local economy.

NB: if you want to know where these numbers come from, you can use the Future Value of an asset in Google Sheets, Microsoft Excel, Apple Numbers, etc.

The syntax varies by application/maker (of course) but here is how Sheets does it: I’ve left the row numbers in and you can work out the columns —

You can verify your results with a 99 row column and repeated addition. It can be eye-opening to see how much money has been left on the table by people who I have to assume have never run a future value function against a ground rent.

The title says it all. There is no affordable housing without affordable land. All the talk we hear about possible solutions — new construction processes, new zoning regulations, an end to parking minimums, new materials — is meaningless without land. To argue otherwise is to ignore reality.

Every thinktank or activist or housing advocate or architect/designer who talks about solving the housing crisis without mentioning land is wasting their time and yours. As with the “war on [some people, mostly black and brown who are arrested for the use and sale of some] drugs” if you deal with demand, the supply will take care of itself. If we can make land available to developers at a price that allows them to build to the density we need, we’ll find that we have a lot of land to work with.

What this looks like is assessing land with tax that reflects the highest and best use…if we want a parcel to house some number of people and support jobs through retail or other activity, we need to tax it so that the owner has to find a way to pay that tax. They can hold it as idle land if they can afford it, but the higher tax burden will make it hard to sell. Better to develop it and put it to work.

If we take what we learned from the Mercer Megablock project, that an acre of land can pay $1M/acre every year, we can work out a value for other idle or underused parcels anywhere in the city. And other cities may well have their own benchmark valuations to work from…developers are probably offering to pay ground rents in other overheated cities as well. If you think about it, it’s a vote of confidence in that city, that the developer thinks there will be enough economic activity to justify the commitment to pay rent for 99 years.

The high cost to acquire land is why we see so many plain boxy buildings: it’s not an aesthetic choice so much as a reflection of how much the land costs and how little is left to spend on design. If the land costs millions of dollars upfront, that’s money you can’t spend on the actual design and construction. Given the option of $150 million upfront or $3 million a year, which one frees up more money for design and construction? Even if you pay more over time, through an annual rent, that is paid by the purchase or rental of apartments or commercial rents from businesses, just as landlords do now. The difference is that the land was cheaper to acquire and it became imperative that the land be developed.

So when you hear think tank operatives or local activists talking about their plans for more housing, wait to see if they mention the need for land, and if you get the chance, ask them about it. If they can’t tell you where they plan to put their 3D printed, recycled, organic, cruelty-free, artisanal housing project, they are wasting your time. There is no affordable housing without affordable land.

I have written about this before. What else can I find to say about it?

Gentrification has a definition —

But it doesn’t talk about the causes, much as newspapers simply write about it as if it was a fact of nature, like the tides or phases of the moon. But it does have a cause or perhaps more than one.

As the definition says, gentrification describes a change in an existing neighborhood where the wealthy move in and displace the poor. But what is left out of that is how this happens, how the poor came to be there and why the wealthy move in. The usual sequence is that some neglected or bypassed neighborhood attracts people of limited means — immigrants, artists, what we used to call bohemians — to set up in disused warehouses or shops or older apartments and homes. There may well be a few older residents who own their own homes as well as renters on fixed incomes. The new residents will put their stamp on the area through food and art, opening restaurants or galleries and performance venues, which brings people to the area.

Next we see property values inch up as the area becomes more attractive: maybe a few homes sell and establish a new price for the area. So property taxes and rents will start to rise as well, as the property values rise and the area becomes more in demand: the people who go there on the weekends decide to move there and the local property owners try to match rents or listing prices to the newcomers’ ability to pay.

This puts pressure on the older residents who face either higher rents or higher property taxes on their homes, which they can’t meet on a fixed income. It also forces the people who moved there for the lower housing costs to move away to the next cheapest area, and before you know it, that neighborhood has lost all the elements that made it valuable. Now it’s just another inner suburb or urban neighborhood. This is when the newspapers and professional activists swoop in and write up stories about gentrification.

So what is to be done? Ideally, a ground rent wouldn’t allow an area to fall into that kind of benign neglect: in a well-run city, there is always some redevelopment or re-use of land to meet the changing needs of the population. Does this mean there are no inexpensive or artsy neighborhoods? It doesn’t have to. Performance spaces and galleries could exist, as could cheap social housing to allow artists or other free spirits to live their best lives. The performance spaces and galleries could be built into a social housing building, making it a desirable place to live and visit, but capturing the value for the commons. It’s not hard to imagine a well-designed block of flats with a performing arts complex at the base and an adjoining public plaza: imagine if someone in Seattle’s city government had that kind of vision when they considered the 55 acres at Northgate. It could be so much more than a hockey training center.

The common thread to all of these pieces is that land has to be managed, not just zoning and land use maps but the highest and best use, to make the land for the benefit of everyone who lives and works on it.

With the growth of population, land grows in value, and the men who work it must pay more for the privilege.

And with the growth of population, the density increases (obviously) and so do the needs of the people living there: they need more services closer at hand and they need transportation to get to work. And that transportation can’t be roads as they take up land the city can’t afford to give up, so the city’s department of transportation becomes more focused on moving people than moving and storing cars.

The city of Paris fits 2.2 million people — along with a river, some large railway stations and many large public spaces — into about 40 square miles. That’s about 55,000 people per square mile, where Seattle has less than 9,000 per square mile. Some would argue that Seattle has more green space but one has to remember that much of it is privately owned: every suburban yard is really a private park, a subtraction from what could be a network of public spaces.

No one would call Paris an overbuilt slum, but how is it that Seattle has such low density and so many unhoused people? With the same density, Seattle could be just 14 square miles, about 1/6 of its current size. How is that we have so much more space and so many who have to live in public spaces rather that build enough private spaces for all?

What needs to be understood is that these other cities so many of the professional activist community likes to point to — Berlin, Vienna, Barcelona — manage their land, rather than leaving it to the market which essentially means speculators. That’s where a ground rent would serve to chase them off and make cities fit to live in for the people who work there.

Rent control — capping rents on rental properties — sounds like the right idea. After all, it goes right to the issue of working families being priced out of their homes. But why won’t it work? Or more to the point, what conditions are needed to make it work? After all, it works in other places (Germany has used it for decades and has very stable shelter costs).

It’s really down to this graphic I used in an earlier post.

But instead of wages and rents putting the squeeze on workers, it’s rising property values (and taxes) from the bottom and capped rents at the top. A finite supply of land makes land more valuable, we know, and taxes are assessed on the current value, ie what it would sell for. So if the value of a parcel, without or without improvements, doubles while the rent stays the same, the landlord will face some choices: how much maintenance can she afford? Maybe that repaint will have to be put off another year. And that leaky roof will have to be repaired, rather than replaced. The appliances are old but can’t be replaced now. The plumbing gets worse every year but it’s too big a job to do right now. See how rent control can create a slum property — and a slumlord — from a perfectly serviceable property?

This is not a defense of landlords so much as an illustration of how they can be a victim of the same scarcity game as working families and businesses in a city with high land values and no check on how that value is recaptured by and for the city.

A ground rent/land value tax that was based on the highest and best use of land, rather than what it would sell for, would force some properties to be redeveloped and others to be put to far better use than surface parking or an idle brownfield. The goal is to put land to work for everyone, for housing and business, where the value of the land is redistributed to everyone who created, rather than siphoned off by a small pool of speculators.

In our hypothetical above, the land value would not increase so rapidly as to force those hard decisions, though it may well rise as the highest and best of that land changes. Small low-density apartment buildings will be redeveloped more quickly into taller higher-density buildings as the ground rent and zoning change to meet those changing needs. As a city moves from a car-dependent model with lots of parking and other non-remunerative uses, developments without parking will be part of the zoning and land-use model, with increased density obviating the need for cars and transit to connect dense areas within the city where walking or cycling are impractical.

Cities should be developed for people, not cars, and housing policy would reflect that. More public space, funded by public wealth through a land value tax/ground rent, rather than thousands of small private parks — yards around homes on suburban streets — and the more diverse and dynamic commercial activity that comes with that.

A conversation today, where someone expressed frustration that a family member couldn’t sell a valuable piece of land in location A because there was no land in location B where they wanted to move. Now we know that there is land in location B: what they were really saying is that the land in location B is too expensive, that proceeds from the sale of the land in A weren’t enough to allow the purchase of land in B. There is always land for sale if you have enough money.

I hear similar conversations a lot, where someone will commiserate about the high cost of housing while they plan where to move to when they sell their place, ignoring that the same scarcity driving up the value of their land is why their friends are having a hard time buying a place of their own.

The luckless owner of that valuable land in location A is playing the same game as those in location B — the landlord’s game, scarcity and timing.

We’ve all played Musical Chairs and most people know the Monopoly board game. They are both about scarcity, about grabbing up the available resources until there is only one person left with all of it. What many don’t know is that Monopoly was based on an earlier game that was designed to explain the Landlord’s Game, how privatizing land created scarcity that drives up the cost of living. You can keep all the nonsense about money and inflation: the real source of inflation is the extraction of rents through scarcity.

With the growth of population, land grows in value, and the men who work it must pay more for the privilege.

As density increases and available land becomes more scarce/more expensive, wages can’t keep up. In some cities in the 21st Century, some industries will pay high enough wages to feed that vicious cycle, overheating local housing markets and forcing out those who made those cities worth living in. The small businesses, restaurants, artists, musicians, that create the local aesthetic are forced out as rents chase the newcomers’ wages.

In many cases, those newcomers don’t need to be in these cities at all: there is no natural resource that they have to be close to. They only need to be close to one another, to collaborate, and as we saw in the Pandemic, they didn’t really need that. They could whatever it is they do from anyplace that had internet access…and many did just that.

So what is to be done? How do we break the vicious cycle that creates boom towns that either go bust (as many of them do) or simply become enclaves of wealth where no one who works in those cities can live there, while who do live there work online and could do so from anywhere?

We need to tax the land, to extract the rents from the bottom, rather than try to add deadweight taxes to the top. We hear arguments for rent control, to cap rents, but that’s the wrong approach. As land becomes more expensive and property taxes rise, landlords will let their properties fall into disrepair, even into ruin, so long as they can hold onto the land. So to prevent that, cities would do well to tax land and force the owners to do whatever they have to do so they can cover that rent — develop, renovate, whatever it takes. And as more land is placed under that model, there will be more development — idle land will be too expensive to hold onto — and rents will fall back into line. To be sure, we need zoning to match the density we need but we can’t do anything without capturing the rents from land that would otherwise go to speculators and investors who might not even know where their holdings are located.

Don’t hate the player, hate the game. Or better, end it and create more players, rather than a few winners and many losers.

Literally. Someone asked me today what the solution was to the persistent homelessness problem, the encampments and other visible signs of distress we see, to say nothing of the high cost of housing for those who have not yet fallen to that level. Seattle has budgeted $167M to help its homeless neighbors but at a headcount of 12,000, that’s about $14,000 per person. And what happens next year? Do we budget the same again? Or do we build permanent housing for all? How do we pay for that?

The solution to both homelessness and high housing costs requires us to see them as symptoms of the same problem, the scarcity and resulting high price of land.

Whenever a population converges around a certain location, the land, of which there is only a limited supply for each location, becomes more expensive to live on; people have to increasingly pay to live on land, and this in turn affects the entire economy.

Thomas Paine said much the same in 1797:

Whether that state that is proudly, perhaps erroneously, called civilization, has most promoted or most injured the general happiness of man is a question that may be strongly contested. On one side, the spectator is dazzled by splendid appearances; on the other, he is shocked by extremes of wretchedness; both of which it has erected. The most affluent and the most miserable of the human race are to be found in the countries that are called civilized.

To understand what the state of society ought to be, it is necessary to have some idea of the natural and primitive state of man; such as it is at this day among the Indians of North America. There is not, in that state, any of those spectacles of human misery which poverty and want present to our eyes in all the towns and streets in Europe.

Poverty, therefore, is a thing created by that which is called civilized life. It exists not in the natural state. On the other hand, the natural state is without those advantages which flow from agriculture, arts, science and manufactures.

By allowing land — the natural inheritance of everyone — to be carved up and sold, we have created scarcity and, with it, poverty. Well done, us.

So what is the solution? We can hardly expropriate the land but we can tax the unearned income it makes possible. Once again, Henry George has the solution at hand:

I do not propose either to purchase or to confiscate private property in land. The first would be unjust; the second, needless. Let the individuals who now hold it still retain, if they want to, possession of what they are pleased to call their land. Let them continue to call it their land. Let them buy and sell, and bequeath and devise it. We may safely leave them the shell, if we take the kernel. It is not necessary to confiscate land; it is only necessary to confiscate rent.[61]

This means ground rents, land value taxes, leasehold, whatever you like, but the bottomline is that the wealth created on a parcel of land was never created by the owner and as such belongs to those who did…the community.

A well-calibrated ground rent model that pushes the cost to acquire the right to develop land as low as possible is what we need. Let those who use land to make their living pay rent for it, as they have required from working people. Idled or underused land will be developed as housing or some other commercial activity, rather than held as a speculative asset.

As we have seen from the Mercer Megablock project, developers will pay a ground rent: the land there commanded a $1M per acre per year. Maybe some think $3M a year isn’t enough but anyone who knows how to use the future value function in Excel or Google Sheets knows that over 99 years, that project would have paid $1,263,069,231 over that term. Consider what that could bring in across the whole of Seattle, not just the 500 acres of downtown. Even a rent as low as $100,000/yr would remit $42,102,307 over a 99 year term.

So the answer is literally under our feet. Set ground rents on land, reduce property taxes on improvements to encourage development, adjust zoning to maximize what can be built — no parking, taller buildings — and watch developers get to work. Any city that has a housing crisis and parking lots downtown is a failure. But it doesn’t have to stay that way.

I remember the Mad Housers in Atlanta 25 years ago, doing something similar, simple structures to house people, something better than a tent and less visible that a bedroll in a doorway. But can we not do better than that in 2021?

Sound Foundations and other builders are producing 100 tiny houses, expected to hold up to 130 people, this summer. The houses will sit on two sites in North Seattle and potentially double the size of a village in Interbay. The Port of Seattle owns the Interbay property and has to approve the expansion.

Seattle included these villages as part of its record $167 million 2021 homelessness budget. The materials for each house normally cost around $2,500, although they’re $4,500 right now because of a national lumber shortage, according to Josh Castle, advocacy and community engagement director for the Low-Income Housing Institute, the city’s main contractor for village operations. It costs an average of $600,000 a year to run each village, with case management and food, Castle said.

$167 million dollars for 2021? How much would it cost to build real housing on one of the many vacant parcels in Seattle and get folks re-integrated into society instead of these pre-fab slums? What could be built with that money that would last more than the few years these wooden structures will endure? If the 12,000 estimate of Seattle’s homeless is reasonable, that’s $14,000 per person for this year alone. I can’t believe there isn’t a more permanent solution that would also create market rate/social housing.

Ideally, this is part of a larger conversation about land use and growth for the next 25 years or so. But a city that gave up billions in revenue from the Mercer Megablock isn’t likely to change its ways.

Seems like London’s rough sleepers could be helped with well-adjusted ground rent on the “most expensive street in Europe for retail rentals.”

“None of these international brands make any money from these shops because the rents are so enormous. But they absolutely have to have a Bond Street address.”

In 2019, Bond Street, running between Oxford Street and Piccadilly, was the most expensive street in Europe for retail rentals, and the third most expensive in the world after Hong Kong’s Causeway Bay and New York’s Upper Fifth Avenue.

I don’t know how to find out who owns that land but I wouldn’t be at all surprised to find that it’s the Duke of Westminster. Who knows, it might even lower the retail rents while making the city a more equitable place to live. A billion pounds in retail trade and the shops lose money while people live on the streets nearby? How does anyone find that acceptable?

I spared her the blame for the one acre plus sized hole across from City Hall that could have been developed…but maybe we should call it Durkan’s Folly after all.

the school district has asked the city not to sweep the encampment without providing outreach and access to shelter to the dozens of people living there. Durkan has responded that the since the school district has made it clear they don’t want the city to remove the camp, it’s up to the district to “stand up their own process” for providing outreach and shelter to the people living there, using their “billion-dollar budget” to do so.

Why is this the school district’s problem to solve? The school district, for all its issues, is a lot smarter about the city about disused land: it doesn’t sell it. The school district owns parcels all over Seattle under ground leases, something Durkan’s city government has never figured out (or her predecessors, come to that, but she is the mayor now) where the city sells them to speculators and never wonders why they don’t get developed as long it gets its taxes paid on time.

Does every land owner in Seattle have to shoulder the cost of encampments or does the cake topper think the school district is special somehow? Does she not know how government accounting works? The article explains some of what she missed, that school districts don’t have surpluses that cities can plunder to make up for their bad decisions.