a crank's progress

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

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

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

Thomas Paine said much the same in 1797:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

How can that many people owe that much? The rent is obviously too damn high, as others have said.

According to the National Equity Atlas COVID rent-debt study, King County renters owe an average of $4,750 in back rent. Combined, those 39,000 renters owe $186 million in back rent. 55% of all people facing a pandemic-related financial hardship are low-income, 62% are People of Color and 71% lost employment-related income in the last year. That is unacceptable.

Not that I want to see a wave of evictions as they try to make up the difference, but I suspect the amount the landlords need to cover their costs vs what they are asking are pretty widely separated. What percentage of Seattle’s renters is that 39,000? The next lowest county has only one third the number of folks in arrears and only 28% of the total amount owed. Fewer debtors and less owed overall…

We know that rents rise and fall with demand, not as any basis in value. So these debtors unfortunately bought at the peak and now their earnings are in the trough of the wave. Not their fault and it is exactly what Henry George set out to understand when he wrote Progress and Poverty.

Like a flash it came over me that there was the reason of advancing poverty with advancing wealth. With the growth of population, land grows in value, and the men who work it must pay more for the privilege.”
There it was: whenever a population converges around a certain location, the land, of which there is only a limited supply for each location, becomes more expensive to live on; people have to increasingly pay to live on land, and this in turn affects the entire economy. George’s insight that day articulated one of the root causes not only of economic inequality, but of a great number of social ailments that still plague society today, from booms and busts to widespread unemployment, environmental destruction, urban sprawl, suburban dystopia, and rural wastelands.

Brokerages may be able to skirt the tax, however, if agents each form their own LLC or S corporation.

Yet we know that ground rent on any single acre of land downtown or nearby could command a lot more that a few high earners will generate:

$4 million per year (annualized, to be sure, so not so much at the beginning) is real money. Seattle’s downtown is just under 500 acres: getting all of it under a ground rent model would take some time but imagine a $2B annual revenue stream, just from that, not even the rest of the commercial land in Seattle or the other taxes, fees, and whatnot. Rather than target 1% of businesses, let’s spread the load over the whole city.

As for the realtor who says “I’m working seven days a week right now…It’s the hardest it’s ever been in 16 years to get a buyer under contract on a house,” I’m guessing the mortgage broker has to do a lot as well, getting people qualified for 7 figure loans on mid 6 figure homes with ever more expensive land.

This article explains a lot of why proximity — often mislabeled as “location” — matters.

These trading floors are in the most expensive cities in the world — New York, London, Paris, Tokyo — and yet in the midst of the convulsions of 2020, they increased their footprint. They understand the value of proximity, of location, far better than the cities where they work. The value of land is created by the activity on and around it: the land under Wall Street supports an enormous amount of economic activity, none of which involves plowing or harvesting. But is New York rewarded for that wealth through a tax on that land, recapturing that value for those who helped create it, from the traders themselves to the baristas and tailors and chefs who make life complete?

We used to hear a lot about The Creative Class, all these people who are going to revitalize cities through creative work — film, TV, writing, advertising — rather than manufacturing or extraction. It was like magic, all those highly-paid, discerning people raising the standards of small to medium cities that needed a boost. But did anyone ever wonder how that value would be recouped, how a city that fostered that kind of creative environment, either investing in infrastructure or writing policy, would get rewarded? Or was it just a lot of headlines, followed by gentrification, until the next up-and-coming city put out the welcome mat, the usual boom/bust cycle?

Location has value. The investment in infrastructure and services that lures busineses to cities needs to be paid for and a well-designed ground rent/land value tax could do it.

As a motto or slogan, it’s vague enough to allow the reader to add their own meaning. Some would assume it’s the dreadful weather (you know it rains all the time here) or the omnipresent clouds.

But what came to mind when I came up with it was that it really doesn’t have room for everyone who wants to live a complete life: just as an overpopulation of grazing animals will first destroy the landscape before a population crash, Seattle can’t support the 750,000 people who live here now unless they are willing to pay more of their wage income to rentiers and speculators. The crash, if it comes, will be an exodus, not a die-off, but all it will mean is greater traffic issues as more people have to drive further to their jobs in the city.

The pandemic might have given the tech crowd the option of working remotely but the schools as well as the food — both retail and service — industry doesn’t have that option. So the things that make people brave the dreadful weather — the food and culture and access to the outdoors — all rely on the very people who are being priced out, marginalized like elk or deer when the balance of nature gets out of whack.

The solution, as with the way wolves restored the rivers of Yellowstone, is re-introduce the apex predator…in this case, it would be a tax on land that forces landowners to build and gets local people back in the game. We hear lot from the professional activist community about Vienna’s social housing. But we are never told how it works, as if it all appears by magic…

So there is the key: the city controls the land outright, buying up suitable parcels and getting them developed. Seattle couldn’t afford that but it doesn’t need to as it owns plenty of developable parcels it could allow developers to build on with a ground rent and an upfront of $0. The old Seattle PD headquarters site (at 601 4TH Ave) is more than an acre in size and right downtown, across from city hall. It could have been developed under this model 15 years ago, but is still idle, a hole in the ground. I’d call it Durkan’s Folly but it predates her and she has plenty of her own mess to own.

The current owner is a Canadian developer who has done nothing with it in the years it’s been theirs and may not for years yet. Right now, it pays $567,937.38 in property taxes on a parcel valued at 100 times that: what if that was assessed a $2 million per acre per year land rent, double the Mercer Megablock rent but for a better location? That would be $4.6 million a year plus the revenue from the actual development — jobs, retail sales tax, etc. And that’s just a pure ground rent: we could adopt a split rate with a lower ground rent and a small property tax on the development.

Either would be an improvement over a speculators hole in the ground, right here in the crane capital of the USA. The key to affordable housing is affordable land: if you aren’t including that in the conversation, you’re wasting everyone’s time.

With 2.5% annual increase and a 99 year term, this is what $4.6M ground rent would mean for Seattle: A little — or a lot – more of that and maybe we can say that Seattle is for everyone.

This article offers a deeper examination of the term groupthink and I think I see it in our local (and possibly) national discussion (never debate) about housing and homelessness.

You don’t have to read many article or tweets from the local urbanists/professional activists to see themes repeating, about new affordable construction techniques/building designs (by architects and designers) or arguments for the creation of more landlords (!) by people who either want to build an accessory dwelling unit (ADU) or hope to find one they can afford. But they never mention land, without which all these ideas are just that.

But the same themes also exist in the news coverage: more encampments, more RVs on the streets, more homeowners disappointed or angry about all of that, but no solutions. Just more chin stroking or what looks like mutual aid but might just be a hobby. I remember a Girl Scout troop 15 years ago putting together hygiene kits for people who were living rough on Seattle’s streets: I don’t see any adult-proposed solutions that go any further than those of a group of 10 year old girls. If you are still delivering clean socks and hygiene products to the same people in the same location over a period of years, are you trying to make things better or just make what we shouldn’t accept more comfortable?

It might seem unduly harsh to say that but this is such a longstanding problem. If this was a natural disaster like a hurricane or earthquake, we wouldn’t see the same people on the street 15 years after the fact. But this manmade disaster, the unwillingness to actually share the land, to put land to work through taxes and zoning, seems to be unsolvable.

Utah, not a state known for its progressive ways, decided years ago that simply renting apartments and housing people was the most cost-effective way to get people off the street and, more importantly, to give them some stability, some consistency. An apartment, some rented furniture, a place to safely store one’s few possessions, a bathroom, and some social services gets people off the street and keeps them off at a lower cost per person.

Of course, this might prove difficult in a market like Seattle where the high value of land drives up shelter costs but again, there is a solution to that: tax commercial land to fill out its highest and best use as a development and see what that does to rents. Developers need cheaper land and people, those currently housed or those who are priced out, need cheaper housing. But land is never mentioned in the myriad discussions about housing. Walk — don’t drive — through Seattle’s neighborhoods, along arterials like Lake City Way or Aurora Ave and see how many empty or underused parcels you see. Go on Google maps and see how many parking lots you see downtown — not structures but just paved lots that could be mixed-use developments, making far more for the city than the property taxes are bringing in.

Casting back to the RVs on neighborhood streets and all those parking lots, you begin to see Seattle as a city built for cars, not people. And you see Seattle itself as a collection of car-dependent suburbs, rather than a city — too much annexation and too little integration of the small cities around the old pioneer/port city.

You hear more about setting up RV parks for those who were able to get one vs any support besides sweeps for those in tents or sleeping in doorways. Years ago, there was a city-supported lot in a disused restaurant parking lot: it has since grown to become a formalized service. So we accept turning what could be remunerative land into an ersatz car camp, with services, while allowing our public spaces — sidewalks and city parks — to become tent campgrounds with no support. That land could be paying for the services people need, but we fritter that value away, like there will ever be more land. And then we wonder why this problem seems to be intractable.

The various Twitter threads here and here have been a kind of thinking out loud, taking observations and news stories and trying to apply the ideas of Thomas Paine, Tolstoy, and Henry George to them.

If we are serious about inequality, about putting housing within reach of working people, we need to look at why it got away from them. And the answer to that is land. Whatever city you live in, it’s a fixed size: no matter how many people move there, it won’t get any larger so those who own the existing land will be able to charge more in rent or as a sale price. Seattle is 85 square miles: adding 150,000 people since 2000 raises the value of every one of those square miles, down to the foot.

What needs to be more clearly explained is who gets that increased value and how it’s created.

The first part is easy: if the property is sold the seller gets the windfall. And I don’t use that term lightly: it could be millions of dollars on a purchase that might have been hundreds of dollars, if it goes back far enough. But if it’s a rental, like 20% of the houses in Seattle along with thousands of apartments, the landlord can set the rent to match the wages of the new arrivals. As the economy has changed from manufacturing and construction and other trades to programming and other work that is not dependent on location, the wages have gone up and with them the rents and home sale prices. We saw during the Pandemic that rents dropped as many of these location-independent workers left the city. Those jobs don’t require presence, like a teacher or firefighter or barista: they can do their work where they can get a cell phone signal. Yet here they are. The apartments didn’t become more or less valuable. The value of the location did, based on the activity around them.

The second part is a little more complicated. The value in a piece of land is created by everything going on around it, not just on it. There is a network effect, of sorts: as I develop or improve my land, yours becomes more valuable because of the potential value created. If I build an office tower, you could develop your land to accommodate a restaurant or grocer to feed the people who work in the building I made. Also, roads and utilities — public investments — make land more valuable. That cost should be recouped through taxes.

Or you could simply leave it idle, until it reaches whatever value you hope to get from it. As long as you can pay the property taxes, you can hold onto it as long as you care to.

And that value is unearned, as the illustration explains: the value of a parcel of land reflects the investment of those nearby, meaning the owner of a vacant or underdeveloped parcel is a free rider, watching the value of their property rise with no effort on their part.

What can municipalities — cities, counties, even states — do about that? They could adopt a new tax system that, as most already do, assesses land based on the highest and best use, and from that basis imposes a land value tax or ground rent based on what the land could be doing. So a parcel that has a low present value as a parking lot or a low-rise/single story retail shop when it could — and should — be a mixed-use multi-story development would be taxed on that value, what’s needed. So a parcel that is valued at $100,000 and pays 1% might suddenly be assessed a tax based on a $1,000,000 valuation, if that land is in demand or located near other developed parcels.

This would have the effect lowering the cost of buying that land…if I was considering selling it for $100,000 with a 1% tax liability and it is now assessed with a 2-5% tax, I won’t get $100,000 for it: I may have to settle for half that and be glad to get it. Or I could develop the land so that it makes more money than it did as a retail store or parking lot, so I can cover my rent. If I develop a mixed-use building with retail, offices and residential, I’ll make more, even with the taxes. Seattle has many brownfields and empty parcels, as well as surface parking lots in the heart of downtown, all of which should be taxed until they are transformed from a speculative asset to a productive one. Right now, a $1,000,000 parcel can be held, as in the image above, for $10,000/year in property taxes that don’t reflect the productive value of the land or serve as an incentive to put it to work.

The optimal price to acquire land for development is $0…the rent should be calibrated to put the land to work without any speculators cashing out. Why do we even accept that we can own land, that we can put up a fence or, as in the Eddie Izzard routine, plant a flag and claim it as our own? Owning land is like owning time. We didn’t consider either time or land as having value until we could charge for their use. But nothing we do will create more of either.

And coincidentally, land value is a function of time…the longer you hold a parcel, the more value accrues to it through the efforts of your neighbors as well as your own.

There is more to this: there are two levers cities can use to maximize and recoup the value of land, taxation and zoning. Through zoning, the density and other requirements — parking — can be addressed, and a split-rate tax that taxes land at a higher rate than what gets built on it, land can find it’s highest and best use and over time that use can change to meet the needs of the people who created that value.