Category: land and how we use it

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.

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.