Month: November 2021

I had to read all the way to the end to find it but there it is:

Key parcels of land near the Rainier Beach station are boarded up and underused. Absentee property owners are waiting until neighborhood demographics change, incomes rise and rents increase. In other words, he surmised, developers are waiting for the area to become more white.

I think the color involved here is actually green.

[Residential real estate broker Jonathan] Nicoli recently negotiated with a nonprofit to sell a property along South Henderson Street for about $1.25 million. About 400 feet from the Rainier Beach light-rail station, the land is currently a single family home, a rental property. He has permits to build a 30-unit apartment with ground floor commercial space.

Transforming parcels that house one family (or none, if it has been abandoned) to house 30 is where we need to be heading. We have seen single family homes sitting on land valued at 7 figures before. How many of those are out there? Or to put it another way, how much housing do we need? How many parcels/how any acres would need to be found? Not that anything can be done in the face of the land cartel but if all the busy arterials were up zoned and assessed land taxes that reflect a higher and better use, we could lower rents/shelter costs, revitalize moribund neighborhoods, and reclaim our public spaces from the unfortunates who have been forced out of private housing options.

But as last week’s election showed, property rights and private wealth accumulation are more important that human rights or community. Will the next four years yield any change in how Seattle manages its wealth? Can you have progress without change? It’s not at all clear Seattle wants progress. There have been a lot of changes, to be sure, but so many of them are keenly resented, it’s no wonder Bellevue is flexing to welcome new investment. Who next, Renton or Tacoma?

The headline reads “How one of California’s cheapest cities became unaffordable: ‘the housing market is broken’”

There are so many quotes to excerpt:

Locals attribute the surge to people seeking to escape the high cost of living in Los Angeles and the Bay Area. But even as life returns to pre-pandemic norms, those who live here say the situation isn’t getting any better. Rents, which had been steadily climbing for years before the pandemic, are still rising and, coupled with a shortage of homes, that’s hitting low-income residents hardest.

“During Covid, Fresno and Central Valley rents just kept increasing,” said Jovana Morales-Tilgren, a housing policy coordinator with the Leadership Counsel for Justice and Accountability. “Many people were struggling and are still struggling. Landlords keep raising rents and people have nowhere to go.” — emphasis added

[…]

“The labor market in Fresno is not catching up to the price of housing.”

Translation: rents/housing costs are rising faster than wages: newcomers can pay more than the local residents. The value of land compared to the value of people’s lives means people who can’t pay what the landlords want have to find something else.

“Fresno is becoming a very popular place,” said Karla Martinez, a policy advocate with the Leadership Counsel for Justice and Accountability who works with Fresno residents. “People see how cheap the housing market is here.” California’s high-speed rail project, which will connect Los Angeles to San Francisco via the Central Valley, is also a selling point, Martinez said.

Translation: the state is investing in a high speed rail link that makes the land in Fresno more valuable. Landlords are cashing in on investments they didn’t make. The workers for whom that rail link was built will be gone.

Francisca Alba lives in a tidy two-bedroom apartment with her husband and four children. They can afford the monthly rent of $710, but the unit has been deteriorating for years and the property manager has done little to help. The carpet hasn’t been replaced, or even cleaned, in the 15 years she’s lived there, nor has the unit received a fresh coat of paint.

6 people in two bedrooms…think about that. Because as the value of land rises and wages stay static, landlords cut costs and what were once acceptable properties become derelict. Not to defend landlords/slumlords but they keep the value of the land, even if the “improvements” crumble into the ground: that’s the landlord’s game. They can sell or redevelop and keep on keeping on.

Fresno county is short more than 36,000 affordable housing units, according to the California Housing Partnership, a trend echoed throughout the state. It’s a crisis driven by a demand that far exceeds the supply and a lack of subsidies to build affordable housing.

36,000 units. The land supply is fixed. California is no bigger or smaller than it was 100 years ago. So what needs to happen? How does Fresno pay for 36,000 housing units? Why are rents in Fresno rising? Why isn’t housing being built to meet demand? Because land is too expensive to buy for new affordable housing and the existing housing is scarce enough to allow landlords to hike their rents.

Tax the land, confiscate the unearned wealth and — more important — keep wages and costs from spiraling out of control. Right now we see wages for fast food employees that are more than triple the federal minimum wage. The market for labor — for wages that will cover rising rents — is pushing wages up which will push rents up: rents chase the ability to pay, which is why cities with an influx of high wage workers, either in the old fields of North Dakota or the cube farms of Seattle and San Francisco, will see rents rise to meet those wages.

The rich are different from you and me. Their money is everywhere.

Real estate is a stable investment that often appreciates in value. By purchasing property through a shell company, buyers can secure tax breaks and shield their identities from law enforcement authorities and creditors. Secrecy also empowers criminals, including money launderers and drug cartels. Their trade in real estate through offshore companies moves millions of dollars while avoiding scrutiny.
In the United Kingdom, a director of the National Crime Agency said he believed that dirty money had “skewed” London’s property market [just London’s? — ed]. The combination of asset security and secrecy has also made offshore holdings a haven for money and other assets from less stable economies. A growing body of evidence suggests that offshore purchases at the high end of the real estate market have a ripple effect, pricing out people lower down the property ladder.

I don’t see any way to undo the private ownership of land but we would get most of what we want — public recapture of the value and real wealth tax that can’t be gamed — by taxing it.

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.

Take a look at the two homes below and see if you can guess which of them is worth more, in the eyes of the county property assessor:

Did you guess the one in residential neighborhood with the lush plantings, a stellar example of Seattle’s celebrated single family homes?

Nope. They are valued the same: $1,000. They are both considered teardowns, ripe for redevelopment and in the case of the one that is clearly in a low-density neighborhood, for gentrification.

See for yourself: the first two screen shots are for the first home (located in Wallingford). Note how the land and home assessment values grew each year — until last year, when all the value from the house was posted against the land. Since the taxes are assessed against the land and the house, the house is now considered worthless. The assessor’s office is making my argument for me, that the value is in the land.

Note that the parcels are different sizes: the smaller one has a higher assessed value, based on the land values around it, the multi-story buildings/investments other people made.

There is a similar property next to it, with an almost identical assessed value, same owner, representing a combined $2 million in assessed land value in a very desirable location. Both lots could be cleared and developed into a multi-story building that houses far more than fit in those two century old houses, paying more taxes.

We know the game here:

Those lots might as well be vacant, after all. So the owner is simply waiting for their price, for the pressure to build to push up the price for those parcels, knowing that the buyer will need to buy them both. The Hardwicks store, just a few blocks away, was valued at $3M and sold for $17.5M: who knows what price those parcels will command?

In a conference call with the county assessor’s staff a year or so ago, they all used the phrase “highest and best use” but I am not seeing it here or in many other places. We have already established that the land is what has value, ie, needs to be taxed, and King County breaks out the land and improvements separately. It’s not clear why land isn’t assessed at a uniform rate per square foot for residential land and another for commercial (with variables for density or type of usage). The land under the residential home above is assessed at $186/square foot where 20 years ago it was taxed at $62/square foot (we’re ignoring the house, which the assessor was willing to see as more than a teardown). That’s three times the assessed value for land put to the same use with the same zoning. It’s residential land: it’s not expected to be put to any remunerative purpose. In fact, zoning forbids that. We know the value has increased due to scarcity, to high demand for land, as Seattle’s population has increased over the past 20 years.

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

So what is to be done? Well, the assessor has made a good start by breaking out assessments on land and improvements. What needs to be done now is to treat commercial land separately from residential land, not to let homeowners off the hook but to recoup the value from commercial landowners who pay the same percentage as homeowners. After all, the commercial landowners are among the chief beneficiaries of the scarcity of land as people have moved here. Amazon and the many other businesses here have made a lot of money, but Amazon didn’t exist 30 years ago: the land it sits on did.

But back to the residential homeowner who has seen her taxes rise — triple — in 20 years and now finds her home deemed a teardown: this is gentrification, though not what most people think of when they consider that term. The taxes are being used as a lever to force people out of homes they don’t want to sell, and the proceeds from the land sale — the land is all anyone wants — likely won’t allow them to buy into the local market. So they are forced to leave not just their home but all their local connections, neighbors, shops, restaurants, doctors, all of the things they invested in that made that land valuable.

I don’t care so much for the speculator with his two houses in the U District: we know the game he is playing. They will recoup the $24,000/year in property taxes when those two parcels sell for millions. Some local developer would rather pay a a ground rent, like was offered for the Mercer megablock…$1,000,000 acre for 6,000 square feet would be about $140,000/year. That’s a lot more than those parcels are remitting now. Put a 2% annual increase on that and the annualized rent over the 99 year lease is more than $400,000 a year. Add up all those rents and a city can borrow against that revenue stream to build what it needs to keep those rents coming in.

And if commercial land is assessed for its highest and best use, that gives residential taxpayers a break, as well as forcing speculators to put their land to work. There are idled or disused parcels all over Seattle, including right across from City Hall, that could be making a lot of money for the real investors — the people who live and work here. And to be fair, that $1M/year land rent was what was offered, not what was assessed.

There is no affordable housing without affordable land and taxing the value, rather letting it be pocketed by speculators, is the key to making land affordable. A developer would rather take on those two parcels for a $140,000 annual rent than pay (debt finance) a $10M or 20M purchase. Stop taxing buildings and improvements/punishing development and tax land.

From the Grauniad today:

The answer to business rates? A tax on land | Letters
Britain’s business leaders are demonstrably the modern Bourbons, forgetting nothing and learning nothing. They permanently complain about the manifest iniquities of business rates, but completely fail to grasp the obvious alternative despite it being regularly set out and available for more than a hundred years (Retailers warn budget will cause ‘unnecessary loss’ of jobs and shops, 27 October).

Very simply – one taxes land, not property. When one reads of property prices rising it is not that bricks and mortar have increased in value but the land. Why? Because they stopped making it aeons ago and its supply is limited. Also, the value of a site is largely dependent on the planning permission it holds, ie the decision of the public authority. The value of my house in Leeds is double what it would be if one applied general inflation rather than land value inflation. Why should I have this potential windfall?

If a business increases its profitability it is penalised by an increase in its business rate, whereas taxing land encourages its profitable use as its valuation is on its “maximum permitted use”. Furthermore, taxing property encourages huge enterprises and many public utilities to hold land banks for future use because they pay nothing in rates. Taxing land values discourages such unprofitable holdings and encourages their use. Spreading the tax base reduces the rate of tax charged.

The practicalities of valuing land are relatively straightforward, even with transitional arrangements during a changeover. The switch lacks only the political will to introduce it. It became Liberal party policy in 1893 and Lloyd George put it into his radical 1909 budget, only to see it defeated in the Lords. It is high time the Confederation of British Industry, Chambers of Commerce and other organisations for business stopped mere complaining and put all their weight behind this much overdue change.
Michael Meadowcroft
Leeds

It does seem a little hard to explain in simple words, so ubiquitous is the idea of “owning” a commodity no one made or can make today. What people want is to own the economic output of land, as some used to own people and the work they did or a factory and the products it makes, with ever lower labor costs. I wouldn’t put land ownership on par with slavery but look at the inequality and chaos that results from it, the transfer of wages income paid as rents to speculative investment funds that go to buying up more land. There is a deep moral question being asked as we see more people fighting over a scarce and finite commodity while some get wealthier with no effort.