Month: October 2021

Got dinged with a parking fee for what I had always assumed was free parking: turns out the rentier’s minions check very infrequently…it’s almost as if the parking fees aren’t the real play, like perhaps the land is where the value is.

But to add insult to injury, the graft doesn’t even stay in Seattle. It goes to Spokane.

It would take 3000 parking fees at $55 each to cover the $160,000 in property taxes…that’s 60 a week. A half acre parcel next to the freeway should be paying more than that and not to a PO Box in Spokane…it should be collected and spent locally in the community that created that value.

Walking along the insalubrious streets where I live, it occurred to me that a land value tax/ground rent that assessed land at its highest and best value might be a useful tool to clean up areas that aren’t tastefully run-down, ie bohemian. For example, what if a promising area of town had a couple of business that might discourage investment? How about a strip club? Or a disused car wash that occupies a lot more land that it needs to? What if the land under the strip club was re-assessed for a more desirable use — mixed-use development, housing/retail/restaurant?

I see from the tax rolls that the owner of a 22,500 sq ft parcel under the strip club also has a 15,000 sq ft parcel next door, zoned as “Vacant(Multi-family).” So the zoning is in place but what developer wants to build a multi-family project there? The business is paying about $70/sq ft, about the same as the vacant lot and disused car wash are paying, with the improvements assessed at $1000 — teardowns. An apartment building a block away pays $300/sq ft, $90/sq ft on the land alone. This is, of course, backwards: the land should be taxed at a higher rate than the improvements, to both encourage land to be developed and to its most remunerative potential.

If the parcels I have in mind were taxed at $200/sq ft, they would pay $11,500,000 vs the ~$2-3 million they remit to the assessors now. And whatever gets built there will remit still more through commercial activity (apartments need to be furnished and the people living in them need to eat, to say nothing of sales taxes from the shops and restaurants).

I don’t care about the morality of the strip club or the limited social value of a car wash (there are two others within a couple of miles) but I do care about the morality of vacant land under-appraised and underused in the midst of a housing crisis with homeless encampments right down the street. Would anyone really miss those businesses?

Next on the list:

• big box storage warehouses that create no jobs and send local wages to out of state owners
• car dealer lots: no one needs to buy off the lot
• surface parking: subsidized car storage needs to go
• strip malls: low-density and they encourage or require driving

This isn’t unique to Lake Tahoe…

The housing crisis in Tahoe is as vast as the divide between real estate prices and local wages, and many people are stuck somewhere in the middle. Local incomes average around $60,000-$65,000 for an individual, while the median price of a home in North Lake Tahoe has vaulted to $1,125,000 — a 129% increase from before the pandemic, according to Mountain Housing Council and the Tahoe Sierra Board of Realtors. In Truckee, those real estate numbers are $1,082,500 for median home price, a 44% jump since the pandemic.

Renters are getting displaced by landlords who either wish to sell their home to take advantage of a real estate market that’s booming, or raise the rent to match the rates that San Francisco transplants with tech salaries are paying.

What’s the old saying — “We wanted workers. We got people instead?” Rents and home prices chase the wages of newcomers, and enforced by the cartel, those who hold the land.

Without viable places to live, locals are leaving town. Already, about half of Tahoe’s workforce commutes from outside of the Basin, according to a new study by the Tahoe Prosperity Center.

Without a workforce, “we won’t have any services in our region,” Zuardo said. “So that means we won’t have groceries. We won’t have restaurants. We won’t have anything. That’s what we’re talking about here.”

I haven’t given a lot of thought to ground rents or land value taxation for resort property but it seems reasonable to assess a value per square foot that goes up for advantageous locations — waterfront or view property. If the value rises to make private homes unsustainable, some other development idea will present itself, I’m sure…a hotel or club that preserves access to that value but makes economic sense for developers.

The fact that Lake Tahoe’s business community has been shoveling its wages outside the city is something that should have occurred to them but no shame, it seems to be an unrevealed mystery to other cities as well. Public employees and low-paid (“essential”) workers live furthest from their workplaces, traveling farther (a tax paid in time), adding to the climate issues we see in the news, and of course, taking local wages to spend on housing elsewhere. Ground rents or land value taxation would restrain the cost of housing and fund the development of more to meet the need.

REX, a real-estate startup, has accused Zillow and the National Association of Realtors (NAR) of anticompetitive practices, saying in a lawsuit that the two work together to suppress listings from real estate agents who aren’t Realtors.

Oh, wait, never mind. They’re just mad they aren’t part of the cartel. They don’t object to it as a thing.

“Through horizontal agreements, three of the most highly visited hubs — Zillow, NAR-licensed Realtor.com, and Trulia — now provide virtually no visibility to homes listed by brokers outside the market dominant cartel,” the startup’s lawyers wrote in an amended complaint filed in late September. (Trulia is owned by Zillow.)

The underlying issue here is the idea of buying and selling land, and business models based on that. What these outfits should be is leasing agents, marketing and negotiating the transfer of leased parcels of land, not the speculative ownership of something that can’t be owned in any real sense. Owning land is like claiming to own time. And like land, time had no value in the market until it could be divided up for sale.

The value in land was created by everyone else but the nominal owner. The prices that Zillow et al are counting on (and creating in, as we have seen) are more about scarcity than real value. After all, both Zillow and Redfin are going after the same fixer-uppers that have been used as a weak but serviceable first rung on the ladder. They’re going after scarce resources with deeper pockets than the buyer who needs a bargain. Until cities wake up to the fact that out of town speculators are coming back every month for their rents or running an auction every weekend (when open houses are often scheduled) or when the business community realizes they have to pay higher wages to feed these same speculators who are also sometimes the landlord for their businesses…nothing will change.

Surely there is a Grimms fairy tale or something about a town that willingly sacrificed its crops or its children to some outside force that never stopped coming round. That’s what cities are doing today, sending tax dollars out of town (since many city workers have to live out of town), while watching local businesses pay more in rent or to buy property. Higher expenses — rents and payrolls to cover employee living costs — and market competition holding prices steady…

We’ve seen this before but that’s for the workers; the business owner has higher rents or property taxes to pay, all to fuel the speculative economy that doesn’t reward labor or intelligence. The squeeze is just as real.

“iBuyers” are gearing up to grow massively in the coming years, with unforeseen consequences for the U.S. housing market.

Oh, I think we can foresee the consequences pretty well. No homes for sale, only to rent, making the predictions of an Age of Access more accurate.

“There’s almost an arms race to get the most inventory possible,” said Daren Blomquist, vice president of market economics at Auction.com, who described the state of the iBuyer market as “almost frenzied.” “It’s less about making money off that inventory, at least initially, and more about who can get the most inventory the fastest.”

Get big fast, may the devil take the hindmost…it worked for other players (Amazon, Google) so why not try it here as well? I wonder if the investors know what this means for anyone who isn’t already on the property ladder.

It seemed like Zillow and Redfin were some kind of market research/listing service where you can see what homes might sell for, maybe even your own. But we see the game:

High-tech middlemen like Opendoor and Zillow Offers, Zillow’s home-buying platform, first inserted themselves into the housing scene a few years ago, armed with cheap money and hoping to profit off the bedrock of American middle-class wealth. iBuyers target mid-level homes that are in decent condition, offer to buy the house with cash, and make the selling and moving process quick and convenient. They then make a few repairs and quickly put it back on the market, ideally at a higher rate. In exchange, they charge the homeseller a fee that varies according to a variety of factors.

So anyone’s dreams of sweat equity or making something their own becomes a lot harder. The fixer-uppers are going and any remodel options will likely have be done to generate a quick reality show type sale. No one wants to tear out a new kitchen or master bath that the flippers put in, designed to sell rather than use on a daily basis.

As Erik Selberg told me many years ago, anyone who says they are trying to reduce the friction in some transaction is actually trying to become the friction: case in point —>

“We’re at a moment of change,” said Greg Schwartz, a former Zillow executive who now runs Tomo, a fintech startup that tries to improve the homebuying experience. Schwartz said iBuyers don’t need to dominate the overall market to become big businesses, noting that 5 to 6 million U.S. homes are sold in a typical year. “If only 500,000 of them sell through iBuying, it’s a massive, massive opportunity,” said Schwartz.

I hear messages from outfits that claim to want to simplify home buying, as if the process is why people can’t afford to buy their own homes. The process is simple but the housing market is disappearing.

(Zillow’s gross profit per home sold was $33,849 in the second quarter, according to the company.) “Putting it to scale gets very, very interesting,” [Viet Shelton] added. “Buying and selling 5,000 homes a month? It gets interesting,”

That’s $169,245,000 each month. The incentive to build new homes isn’t there if prices are rising that fast: why vote for a development that will lower the price of your home? Since cities aren’t in the housing business, there is no one to drive construction that would deflate this bubble. Any development that does get built will be a rental, not for sale, and zoning will keep it out of the affordable housing segment. There is no affordable housing without affordable land and cities control the land within their borders. They don’t have to own it: all that’s needed is the power to tax and zone it. They have that.

The inflationary pressure this will create should be obvious, but don’t take that from me: “With the growth of population, land grows in value, and the men who work it must pay more for the privilege.”

In Pratchett’s Discworld® book Making Money, Moist von Lipwig,in his new role as Master of the Mint and personal dogs body to the bank’s chairman, discovers that cities are the value, the backing store of the local economy:

Hmm. Moist stared at the bill. What does it need to make it worth ten thousand dollars? The seal and signature of Cosmo, that’s what. Everyone knows he’s good for it. Good for nothing but money, the bastard.

Banks use these all the time, he thought. Any bank in the Plains would give me the cash, withholding a commission, of course, because banks skim you top and bottom. Still, it’s much easier than lugging bags of coins around. Of course I’d have to sign it too, otherwise it wouldn’t be secure.

I mean, if it was blank after “pay,” anyone could use it.

Desert island, desert island…on a desert island a bag of vegetables is worth more than gold, in the city gold is more valuable than the bag of vegetables.

This is a sort of equation, yes? Where’s the value?

He stared.

It’s in the city itself. The city says: In exchange for that gold, you will have all these things. The city is the magician, the alchemist in reverse. It turns worthless gold into…everything.

How much is Ankh-Morpork worth? Add it all up! The buildings, the streets, the people, the skills, the art in the galleries, the guilds, the laws, the libraries…billions? No. No money would be enough. — emphasis added

The city was one big gold bar. What did you need to back the currency? You just needed the city. The city says a dollar is worth a dollar.

Not that I think cities need their own currency, but if the city wants to borrow against the value of itself, it should be able to do that. And the way to do that is to tax the land value represented by the buildings, the streets, the people, the skills, the art in the galleries, the guilds, the laws, the libraries…

It’s clear cities already have their own wealth to draw on, to borrow against and to tax for the good of all. They just let speculators and rentiers pocket it every month.

Since the pandemic began, home prices and rents have drastically risen. And a new analysis from the Shelby County Property Assessors Office found out-of-town investors are scooping up thousands of properties.
“It’s the Hunger Games of housing. How did we get to a place like this where you can’t provide people with the basics of shelter?” said Roshun Austin, and Affordable Housing Advocate.

This article is just more proof that houses aren’t homes anymore…they’re assets, commodities to buy and sell. The scarcity is the point. When people vote against development or zoning changes, they’re trying to control the supply and hold on to the wealth they think they deserve or worse, feel that they earned. Imagine a world where some have to pay more and more for the privilege of living and where others demand to be paid for the use of those resources that they were lucky enough to buy.

Bailey said a recent analysis of homes sales found in the past two years, 7,000 single family homes in Shelby County have been purchased by out-of-town investors and turned into rentals.

That’s 7,000 families who will not be able to invest in the community they call home, all so some out-of-town investor can siphon off their locally-earned wages each month. Renting a single family home might be necessary — a military or other deployment with the intent to return — but homes that have been rentals for two or more generations are commercial property and should be treated as such.

If nothing else, local taxpayers should be annoyed that local wages, many of them paid out of local taxes, are being pulled out of the local economy each month. That’s educators and first responders, librarians and public health workers, none of whom make market wages and few of whom will truly call where they live home if they can never buy in. Why does New York need Shelby County’s tax dollars more than Shelby County does?

But as a first step, long-term rentals of single family homes should be illegal: if people are so adamant that homes and neighborhoods are for families, then they can’t at the same time be assets, with rotating tenants. Anti-density/development types love to talk about neighborhood character but they don’t mean anything by that, other than thinly-disguised racism. They’re just pulling up the ladder behind them, making sure no one else has the same opportunity to build wealth from artificial scarcity (land is truly scarce but how we develop and use it is where the artificiality comes from). There is a caste system, as Isabel Wilkerson pointed out.

Hard to imagine this ever changing. Without a social safety net that obviates the need to accumulate the wealth in land for a secure retirement, no one will give that up.

Nothing to see here, just an international investment concern making $120 million dollars simply by having the $370 million to invest. The working people of Seattle did the rest.

Kilroy Realty bought the building from a Deutsche Bank-affiliated real estate fund, according to documents filed Monday with King County. The building was built in 2009 and last sold in 2016 for $370 million.

Maybe some halo effect from Amazon but more from Seattle itself…

Despite an overall decline in office leasing in the United States, technology companies gobbled up more space in the Seattle area than they had the previous year.
[…]
Among the 100 largest technology leases, 14 were in the Seattle area, totaling 3.4 million square feet, about 85 percent more space than in Manhattan, the No. 2 market on the list.

This is just silly…

Downtown Seattle is “closer to capacity build-out,” said Mr. Yasukochi, but the so-called Eastside has room for companies to expand. Some businesses are creating mini-campuses, and others are flocking to new developments like Bellevue’s Spring District.

Downtown parking lots, a acre+ hole in the ground across from City Hall, and all manner of other underused land, but go off, I guess.

“It’s the talent pool that drives the real estate market,” Mr. Yasukochi said. It’s easier to hire specialists in cloud computing, machine learning or virtual reality when so many live in the area.

Large companies also attract start-ups. “If you want to be part of the tech industry, you’ll want to be where the action is,” Mr. Paolone said.

And the speculator/rentier will be there with their hand out, doing nothing, making money while working people sleep.

I am always looking for examples of land rents, examples of home ownership without the need to buy increasingly expensive land. I didn’t expect to find one off the coast of New York’s Long Island.

The town of Babylon owns the island; homeowners pay a $1,800 fee to lease their land, which is added to the town’s annual taxes. Homeowners also pay an annual fee of $2,500 to the Great South Bay Isles Association for maintenance of community property, such as a repair to the floating docks off the parking lot. The association’s directors are elected by and composed of island homeowners. The lease, expected to be automatically renewed in 2065, limits occupancy to seasonal summer use.

[…]
Imagine what these homes would sell for if they came with land:

Houses here don’t often come up for sale because “people keep them in the family,” said Lisbeth English, an associate agent with Netter Real Estate in West Islip. She is the listing agent of 24 Oak Street, a two-bedroom built in 1914, on the market for $249,880.

A red shingled house is under contract for above its asking price of $399,000, said Matthew Arnold, an agent at Netter. And Listing Pro has a four-bedroom, two-bath house listed on the island for $485,999.

Maybe not the most practical example, as this is a summer-only community. Yet it exists. And $1800/year for the land lease plus $2500 as a quasi-HOA isn’t onerous. The article mentions other taxes (likely on the buildings) but $360/month plus whatever that is seems to be something the residents are willing to pay. Here in Seattle, I would gladly pay the current property tax on a house and land as a ground rent if I only had to take on a mortgage for the house. That could cut the cost of an $800,000 property in half. Sure, you’d lose some of the benefits of a mortgage interest deduction but you’d also have more money each month, instead of waiting for the taxman to cough it up once a year.

I wonder how this property became so valuable? From land valued at $4.5 million with negligible improvements to a quarter of a billion in five years.

Alexandria Real Estate Equities has sold a 70% interest in its 400 Dexter life sciences building in the South Lake Union neighborhood for $254.8 million, or $1,255 per rentable square foot.

Could it be the development taking place nearby?

“This transaction marks another strong data point reflective of the current demand for core life science product in Seattle,” said Kevin Shannon, co-head of U.S. capital markets for Newmark. “Life science fundamentals are faring better than the overall office fundamentals with rents that are now ranging from $65 to $80 (including operating expenses) annually, which allowed us to achieve record-setting pricing for the Puget Sound marketplace.”
[…]
“The Puget Sound ranks third nationally for life science growth over the past five years with venture capital having increased 200% during that time frame,” Jesse Ottele, executive managing director for Newmark, said in a statement.

What doesn’t make sense to me is how the building, shown here as improvements, is assessed at higher values each year while the land rises more slowly. The building was assessed at $24,330,400 in 2015, $230 million in 2020, while the land was assessed as being worth $5,160,000 in 2015 and $9,114,000 in 2020. The land — the location — is what become more valuable, not the building. And we know the rents charged by the landlord haven’t stayed where they were in 2015 while the land and location remained the same.

The property taxes are $1,773,255.28/year on property valued at $212,266,000 on about .27 of an acre. If the 1% rule holds, that should be about $2.1 million but I think the balance between the value of land and improvements is what needs recalibrating. That rise in value should be assessed on the land, not the improvements: the location is what’s making the money for the landlord and that value should be remitted back to the original investors — the taxpayers and those who live and work here.