Month: September 2021

Thinking about how to explain ground rents/land rents/land value taxation…

Economic rents differ from shelter rents, the checks many of us write on the first of the month. Economic rent is what landlords claim from the ownership of land, the proceeds of the work performed on that land. A residential tenant’s wages are the crop harvested each month, as they represent the labor that tenant sells in the market. It’s economic rent and the related term rentier — defined as “[a]n individual who receives an income, usually interest, rent, dividends, capital gains, or profits from his or her assets and investments” — that we are concerned with here.

Going back to the notion of economic rent, not shelter rent, what apartment or house tenants pay, here is the Ricardian definition.

“Portion of the produce of the earth which is paid to a landlord on account of the original and indestructible powers of the soil, Ricardo in his theory of rent has emphasized that rent is a reward for the services of land which is fixed in supply. Secondly, it arises due to original qualities of land which are indestructible”. (The original indestructible powers of the soil include natural soil, fertility, mineral deposits, climatic conditions etc., etc.).

To this we add Adam Smith’s description:

“The rent of land, therefore, considered as the price paid for the use of the land, is naturally a monopoly price. It is not at all proportioned to what the landlord may have laid out upon the improvement of the land, or to what he can afford to take; but to what the farmer can afford to give.” — Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations, Book I, Chapter XI “Of the Rent of Land”

We have to recall the times in which they lived and their focus on or simplification of land for agriculture. What Ricardo formulated was the idea that land’s value was based on what it could produce from its location and other properties (bottomland vs hillsides, sun exposures vs shade, rain or access to water). So the landlord can rent an acre of bottomland with access to the river for more than he will get for an acre on the hillside where water has to be carried uphill. Also included in his definition is that land is finite, fixed in supply, and that it is original (ie, not made by man) and indestructible.

Smith’s explanation is more direct: the landlord owns a monopoly on the land she owns and can charge what she likes for the use of it. If her tenant brings in a good crop, she can demand more rent from her tenant based on the higher income from the land.

What Henry George saw was that the price to acquire land to work in a given area, either as farmland or to site a factory, became more expensive as more people moved to that area. Supply and demand for a monopoly good can only benefit the owner.

So as the cost to acquire land rises, who pockets the increase? The landowner. But who created that value? Everyone else. All the investment by the taxpayers — roads, utilities, public safety — and those who work their land nearby accrues to the landowner’s benefit. As nearby or adjacent land is developed, the value of land increases, partly through scarcity and partly through the increased desirability of it for new or existing businesses. If I am in business, I will pay more for land near businesses or markets I need access to. And rather than the public whose taxes and consumer spending created that value, the landowner — the rentier — reaps the benefit.

When a fraction of an acre sells for millions of dollars, that’s all unearned income. That windfall should be subject to a ground/land rent or land value tax that returns that value to those who created it, derived as it was from “the original and indestructible powers of the soil.” In this case we don’t care so much about the power of the soil so much as the value of the location, its proximity to other commercial interests. Once a city develops a presence in some industry — banking in New York or London, for example — that location becomes more valuable and the land under it more expensive. The idea that someone can live off the proceeds of land their long-dead ancestors bought as farmland sounds a lot like feudalism. Land speculation is as corrosive to social mobility and a free market as dynastic wealth. They are not unrelated.

The ideal price to acquire land for commercial use is $0, with the value of the land payable as a ground rent to the municipality. This is the premise of ground rents, that the map is not the territory. The map coordinates are not the land itself, and we can allow someone to hold, buy, or sell the exclusive rights to a set of map coordinates but the value of the land belongs to no one or everyone:

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.

So does this mean that home prices will rise even higher in overheated markets? That depends. If commercial property is assessed and taxed on its highest and best use, residential rates may well go down. There is no reason why a downtown office block pays the same tax rate as a family home. One of those two properties is using the land expressly to make money and it should pay a higher rate to use the land. If there is a monopoly in land, the value should be held in common with the proceeds being returned to those who created it.

There is really no reason to own land, other than to extract economic rents through scarcity. Imagine a home purchase that didn’t include land in a city like Seattle: it could cut the price in half, with the current property tax being assessed as a ground rent. A look into the King County property database makes clear that land prices have risen faster than home prices (yes, they are tracked separately, in preparation for a ground rent/land value tax).

The ideal tax model would be split-rate, with a higher tax on the land (higher than the current 1%) than on the improvements, to both discourage land speculation and encourage development. If the cost to hold land is increased to discourage speculation but can be defrayed by developing it, that’s what we will see. Accepting surface parking lots or single story buildings downtown in the face of homeless emergency and a housing affordability crisis should be unacceptable but Seattle and other cities can’t seem to find their way out of this mess. We already know that developers will pay close to $1,000,000/acre per year to rent land: putting an equivalent ground rent on surface parking lots and other disused or underused land might impoverish a few parking lot operators but cars have reached their peak anyway. The reality is anyone holding land downtown in many of our expensive cities will make out just fine. Let them cash in their winnings and go.

In his kitchen at Cedar’s of Lebanon Restaurant, owner John Khalil expects more customers, but fears growth and high property values will someday shove him out of his monthly lease.

“It’s like we’re digging in a mine and finding the gold, and don’t know what to do with it. Do we mine it, or split it, or fight over it?” Khalil said.

He’s saying what many of us have saying…that the wealth of cities is in the land, and we don’t even have to dig for it. As Tyrone Beason pointed out a few years ago, Seattle is in the midst of a new Gold Rush but the people getting fleeced aren’t going to the Klondike. They are staying here.”We wanted workers…but we got people instead.”

City zoning reflects the push from small business to “Save the Ave.” All blocks surrounding U District Station are upzoned to allow buildings 240 or 320 feet tall — except University Way itself, which remains capped at 65 feet.

Current construction projects include eight tower cranes. A tiny-house village will move into a Sound Transit surplus construction lot along 45th, until bigger plans hatch. The U District added 2,173 new housing units since 2015, with 2,480 more permitted or under construction.

This is good but 2,000 units over 6 years seems little slow: the additional 2,500 over that time wouldn’t be all that impressive, tbh. A ground rent that reflected a higher and better use than what’s there now might drive development a little harder. Those “bigger plans” could be farther along. These transit stations have been under construction for years and a good business reporter would have pulled all the tax records for all the land that has changed hands around those three stations since ground was broken. The higher sales prices reflect value created by the people who live and work around those stations, all of which should flow back to the community through a ground rent.

How many pop-up Halloween shops are there near you? I make 6 of them within 10 miles.

The argument here (or arguments) is that these are an example of how poor use of land can look like dynamic growth but is really just predatory profit-seeking.

“While I might once have just seen run-down buildings through my windshield and kept on driving, now I see people doing what they can with what they have,” he writes. “It’s not perfect. […] But it’s better than abandonment and blight.” He has a point. I would much rather see an old Kmart used as a Halloween costume store, even if it’s only temporary, than have that store go empty in perpetuity, and I’m sure the owners of the building would, too.

Ok, that sounds fine…

Today’s Spirit is pretty much a bottom-feeder business that works only at the expense of other stores; if there weren’t vacant storefronts, this business wouldn’t exist. Or, as the Times puts it, “Spirit is merrily feasting on the corpses of its fallen foes.”

Huh. That’s not so good.

Maybe seasonal shops could take turns with a rotating storefront downtown; there’s no reason a single space couldn’t be a Halloween store from September–October, a Christmas store from November–December, and a beach-gear store from May–August. Or maybe these shops would fill in during temporary vacancies of commercial spaces, between random store tenants.

You know what used to fill this role? Department stores. And what was once thriving in the vacant spaces where these seasonal shops now appear? Department stores. And they employed local people year round, not just a few weeks at a time. They were often a local destination, with a restaurant or coffee shop inside, and specialty services (repairs and alterations) that are now hard to find.

We shouldn’t be building a world where it’s normal to have dozens of vast empty stores propped up by millions of taxpayer dollars in public infrastructure.

Or empty spaces, like parking lots downtown. We should be angry when we see these shops coming in to scoop up a few dollars and leaving no trace, no investment, nothing behind.

3D printed buildings are in the news again…

[New Story] was started in 2015, shortly after Mr. Hagler took a trip to Haiti and saw families still living in tents years after the 2010 earthquake there. Across the globe, 1.6 billion people live with inadequate housing, according to Habitat for Humanity.

Anything is better than a tent over that kind of time span, and those 1.6 billion people live in all kinds of sub-standard structures that could be replaced by something more durable and safe.

Single-family homes are a good testing ground for the durability of 3-D printed construction because they are small and offer a repetitive design process without much height, said Henry D’Esposito, who leads construction research at JLL, a commercial real estate firm. They can also be constructed to tolerate natural disasters: Nacajuca sits in a seismic zone, and the homes there have already withstood a magnitude 7.4 earthquake.

Apartments/flats also offer those advantages, with the added challenge of fitting them together, but the added reward of better land use through greater density.

“It really is a very effective and efficient way to build a small segment of properties, but it’s not something that applies across the broader commercial real estate ecosystem,” Mr. D’Esposito said. “We don’t know exactly how these buildings will perform over decades or what the long-term value retention will be for them. So if you’re talking to an investor or lender, that’s a big yellow flag.”

That’s a weak argument that assumes single family homes are the be all and end all. There is no reason, other a failure of imagination, why these couldn’t be built as part of a larger structure, either on their own as bricks within that structure or suspended on some kind of metal skeleton.

It would be informative to compare the costs of a regular apartment building vs one assembled from modules from a machine like this. As described that’s a 1,000 sq ft unit but one could easily have different modules or varying sizes — a 500 sq foot core with additional suites or other spaces, all designed to fit together and then be added to a larger community.

Does anyone still think construction costs or materials are the reason why affordable housing is such a thorny problem?

TALLAHASSEE, Fla. — The three-bedroom, two-bath home has a corduroy-patterned exterior, rounded corners — and a cement pour that oozed from an industrial-sized toothpaste tube. And most intriguing of all, it comes from a 3D printer.

When the house is finished around November, Kyndra and James Light, a husband-wife development team, will be asking between $175,000 and $225,000 for the 1,440-square-foot dwelling.

No mention of land in the piece…but I knew that before I checked. There never is. But that’s what’s needed, not new technology.

3D printing isn’t the solution because construction costs aren’t the problem. If someone were to apply this to a design like Habitat 67, that would be interesting. Print homes that are designed to fit together in a structure, stack them up, lather/rinse/repeat.

By Taxiarchos228, CC BY-SA 3.0, Link

Ugly? Maybe. But I’m sure improvements could be made, given that design is almost 60 years old. Or we could just try to replicate the single family home asset model.

vigilante: a member of a volunteer committee organized to suppress and punish crime summarily (as when the processes of law are viewed as inadequate)

Seattle business attempts to clear homeless camp, backtracks after advocates step in
A Seattle business is facing heat from homeless advocacy groups after they attempted to clear out an encampment off of Lake City Way.

I have walked past this growing encampment for a couple of weeks. I expect it’s a lot of folks who were cleared out of the one in the mini-park at 30th and 125th, just a few blocks away.

“Apparently the people from Pierre decided that they didn’t want this anymore,” says Karen Whittle, an advocate for the homeless.

An attorney for Bill Pierre says his business, along with other businesses and residents in the community took matters into their own hands to clear out the encampment.

At least they admitted to it.

Their attorney sent this statement to KIRO 7, which reads in full; “The Pierre Family have been contributing members of the Lake City community for 74 years, the love for their community is generational and runs deep. They along with other community members made numerous pleas to the City and Police Department to help address issues like the vandalism, theft, property damage and threats of violence coming out of this encampment and were told that something like a shooting needs to occur before the City will respond. After hearing this several members of the business and residential community made the hard decision to come together and help clean up a non-permitted encampment filled with human excrement, rodents, criminal activity and used needles that were unsafe for everyone. The Pierre’s support was driven only by the love they have for the community in which they live and work.”

Not sure what contributions they refer to…I suppose they have paid their taxes like everyone else, and sold a lot of cars and trucks through their sprawling dealerships. I know Pierre Properties owns all of this:

And some of those lots are either vacant or abandoned, unused. The two parcels adjacent to the encampment (the two small pieces of the triangle, top right) are derelict, a few vehicles parked there but sometimes empty with no staff/employees. The largest of them, right across the street, is just under an acre in size and right on Lake City Way NE. It is assessed at $3,535,500 and taxed at just under $40,000/year. It’s empty. Not even used for commercial parking. What could a developer do with that, if the zoning permitted and the land value demanded it?

This is the solution to homelessness, not the solution that Pierre Properties felt compelled to enact by force. Land needs to be developed along busy developed roads in high commercial traffic areas. Today was the “1st annual custom car and motorcycle show” just a couple of blocks away from the scene of this incident (I wonder if the imminence of the show was part of this…) and it would be great if that land and the other disused parcels there were developed into something useful.

“If they’re allowed to get away with it other people will do it to other homeless encampments,” says Whittle. “Do something constructive rather than destructive. Give us a chance to show you that we can be neighbors.”

Opening up that land for development would be better. Do what the Seattle School District does with its disused parcels and rent it out: lower the cost to acquire the land and get some project underway.

Setting the rent might take some thinking. It’s not downtown but it is on a busy state highway in a commercial district surrounded by established neighborhoods. But surely we can expect more than $40,000 a year. The highest and best use of that land could be ten times that. The apartment building behind it pays $50,000/year for 1/4 the land. So why not set a ground rent of $200,000/year with a 1% annual increase? That would bring in $67,121,339.78 over the 99 year term, $677,993.33 annualized.

This is where Seattle’s progressive bona fides (legal weed, LGBTQ rights) aren’t enough to carry Seattle as a “progressive” city. It’s still, at heart, a propertarian city, where property rights outweigh human rights and land value is more important than land use that benefits all.

What the news reports don’t tell us is what exactly the propertarians did here. Did they physically move the belongings of the people in the encampment? Did they put their hands on people? Seems like anyone deeply concerned or committed to property rights would have a hard time squaring that kind of action with their beliefs. I never saw any reaction to the cars that have been parked along that street in the Before Times or the RVs that preceded the tents.

Again, if the issue is with tents — not necessarily people being reduced to living in those circumstances — housing is the solution. Social housing alongside market-rate housing could be built right across the street from where this mob decided to act on its worst impulses.

Amazon intends to build a distribution center on 58.5 acres it recently acquired in eastern Pleasanton [CA], the company confirmed.

An Amazon affiliate purchased the property from Houston-based investor Lionstone Investment Group for $75 million, public documents filed Sept. 16 show. Lionstone declined to comment.

That’s $1,282,051/acre. I wonder what the ground rent for those parcels, right there in Henry George’s backyard, would be. Pleasanton doesn’t really benefit from this transaction until the sorting facility gets built and the workers are hired. That’s 2-3 years out. A ground rent would get development underway (who wants to pay rent on something they aren’t using?) and get those jobs filled more quickly. And holding onto the land makes more sense than leaving it in the speculator’s market.

Pleasanton sounds very pleasant indeed:

Pleasanton was ranked the wealthiest middle-sized city in the United States by the Census Bureau.[9][10] Pleasanton is home to the headquarters of Safeway, Workday, Ellie Mae, Roche Molecular Diagnostics, Blackhawk Network Holdings, and Veeva Systems. Other major employers include Kaiser Permanente, Oracle and Macy’s.[11] Although Oakland is the Alameda County seat, a few county offices are located in Pleasanton. The Alameda County Fairgrounds are located in Pleasanton, where the county fair is held during the last week of June and the first week of July. Pleasanton Ridge Regional Park is located on the west side of town.

Pleasanton was ranked number 4 in USA Today’s list of “America’s 50 best cities to live in” in 2014,[12] number 63 in Money’s list of “The Best Places to Live” in 2010,[13] and was named one of “Americans’ Top Hometown Spots” in the United States in 2009 by Forbes.[14] Pleasanton was named the third wealthiest city in terms of earnings in the United States by NerdWallet in 2013[15] and 2016.[16]

Seattle Mayor Jenny Durkan announced Monday the city will purchase three new apartment buildings totaling 165 units to provide housing for people who are either homeless or at risk of becoming so.

$50 million for 165 units seems a little…spendy? And that’s all you get. Just 165 units. That’s $300,000 per unit.

Durkan said the $50 million cost will be shared by the city, which will contribute $25 million, and the Washington State Department of Commerce which will provide $25 million in matching funds.

So that’s a little better, with Seattle taxpayers only on the hook for half. But even $150K per unit seems like a lot. What’s the long term plan for these properties? They are being turned over to LIHI but I’d like to see some thinking around not having a need for LIHI, for an end to low-income and low-income housing. Nothing against LIHI (I live next to an LIHI development now) but I have problems with any kind of segregation, by race or income.

But in the short term, why doesn’t the mayor or city council go after all the unimproved parcels downtown, all the surface parking lots? Why buy existing buildings when the city could get a mixed-use building — social housing, market-rate housing, retail and restaurants — on all of those parking lots? Instead of taxing them for their present purpose as the “highest and best use,” they should be taxed as productive land, as if they were already developed to house people and provide jobs and business opportunities.

If developers are willing to pay annual ground rents up to $1,000,000/acre, why are we accepting that car storage is a better use of that land? Put an appropriate tax on those parcels, assessed as productive land ve speculative investment, and if they don’t pay, seize it under eminent domain. We have a housing crisis alongside vacant/unused land in the valuable part of the city. That should be considered incompetence on the part of the mayor and council but property wealth trumps human need, property rights over human rights. Seattle is more libertarian than progressive but that could change.

Found this article today and wondered how different many cities — like Seattle — would be if they have taken this approach.

Realising the importance of mass transit, planners called for the creation of subway lines, as well as widened streets for cars – but construction would be costly and could take decades to complete.
Instead, Lerner saw an opportunity in the one form of transport that many considered a lost cause: the bus. His idea was to devise a system that gave buses as many of the functional advantages of urban train systems as possible. He proposed to integrate dedicated bus lanes along the city’s main arteries, with stations placed on medians along the routes. This would allow buses to run at speeds comparable to light rail, while dramatically reducing the cost.

We already have bus rapid transit line corridors but they are not prioritized or treated differently. They’re just limited access bus lines.

Though the system wasn’t an instant success after the opening of the first line in 1974, it gradually worked its way into the livelihoods of residents. In 1979, Lerner created the Rede Integrada de Transporte (Integrated Transport Network) to better manage the system and, as new routes were added, it began to show its full potential. By 1993, it was carrying 1.5 million passengers a day.

So right about about when Seattle rejected a $900 million federal grant…

But high ridership created a problem. Buses in the system still used conventional boarding systems, where passengers entered through the front of the bus and paid fares on board. Lerner, who was back in office for his third term as mayor, came up with an elegant solution.

He called for a revamped station design that enabled faster boarding through multiple doors, and fares would be exchanged before entering the station – similar to subway or light-rail systems. Offboard payment would also allow for the creation of transfer stations, meaning one fare would cover the entire system. To top it off, Lerner gave the stations a distinctive look by placing them in futuristic glass tubes. These new “tube stations” debuted in October 1991 as part of the first Ligeirinho express line. Today there are 357 tube stations throughout the city.

Curitiba’s population has now swelled to over 1.8 million people – more than four times what it was when the BRT system first opened.

Imagine if Seattle was 4 times as populous/dense as it was in 1970 — it was about the same size as Curitiba at the time. Hard to imagine Seattle making room for 1.3 million people, given how people love their big houses on big suburban yards.

The Seattle Times Editorial Board seems to think the Great Recession of ’08 and the current pandemic (in it’s 16th month) are to blame for Seattle’s hollowed out retail core:

Across the country, the pandemic wreaked havoc on traditional retail. Eighty seven million square feet of retail space went dark during the 2008 Great Recession. By comparison, an estimated 158 million square feet emptied out in 2020, mostly due to major chains closing.

More than 450 street-level businesses in downtown Seattle have permanently closed since March 2020, according to the Downtown Seattle Association. Brooks Brothers, J. Crew, Forever 21 and Sur La Table were some of the national retailers with a downtown presence that filed for bankruptcy.

I can’t decide if they should go look out the window, being as how their office is close to Amazon HQ, or if they should go talk to people in the ‘burbs who haven’t had a reason to go downtown in years. No shows, no cultural happenings, no street life, and nothing to shop for that they can’t get online. The Pandemic didn’t do that and the closures from the Great Recession were more effect than cause.

There are a lot of Seattleites who would love to go downtown, as long as they could park on the street at the front door, but now that they might have to look for parking or perhaps take a train or bus, they’re more inclined to lament how things have changed. And let’s face it, people are more likely to go to Capitol Hill or Georgetown or Ballard or the U Village. Downtown is all offices and government buildings, not street level, foot-scale retail. There’s no reason for people to stay there after work, not with the hellish commutes most people endure and no reason to go there from home, given how hard it is. If Forward Thrust had gone through in the 70s maybe downtown would be someplace to go, would be easy to get to.

As for the old Macy’s building mentioned? Let’s take a look. The property is divided into three parts, paying about $1.5M in tax, not much less than my ideal assessment of $1.8M would be. But the land is taxed far less — like 1/4 to 1/3 of the building’s value — showing that the building is considered to be worth more than 1.8 acres of land in this location. If that building were leveled, would it seriously only be worth $70M when the whole property was sold for $600M and is still assessed at $350M? Why doesn’t Seattle (or many other cities) value location like speculators do?