a crank's progress

The value of an Amazon-leased building in Seattle increased 25% in three and a half years.

Not the building…the land under it.

King County on Wednesday posted an affidavit that shows Alexandria Real Estate Equities (NYSE: ARE) sold the 5th & Bell building in the Denny Triangle for $118.7 million to Hudson Pacific Properties (NYSE: HPP). Hudson said it bought a leasehold interest and that the remaining term on the ground lease is 50 years.

Read that back: “Hudson said it bought a leasehold interest and that the remaining term on the ground lease is 50 years.” We don’t know the terms of the ground lease but if it wasn’t going to make a profit, they would never have taken it. Those payments on the lease could be going to the city tax coffers but instead will go to the speculators who know a good thing when they see it — unlike our electeds and the local chamber of commerce.

Hudson Pacific said it funded the acquisition with a combination of proceeds from the company’s recently closed preferred stock offering and a $75 million draw on its revolving credit facility.

I wonder how much of their revolving credit facility is made up of payments against and income from other land investment…the sort of thing that a city could also be doing, to the benefit of the taxpayers.

The 25% rise in value indicates Amazon.com Inc. has renewed its lease for the six-story building with approximately 192,000 square feet. In a press release, Hudson Pacific Chairman and CEO Victor Coleman said that with the purchase, the company has “nearly doubled our portfolio of premier quality, long-term-anchored office tenants” in the Denny Triangle.

25% in 3 1/2 years is pretty good. That’s 7.1% annualized. The Mercer project only offered 2.5% and it still would have paid out quite a lot. Imagine any other investment with a 50 year term that pays that well.

Five of the most popular Idaho jobs can’t cover fair market rent, data analysis says

The most common jobs in Idaho do not pay a sufficient median wage to afford a fair-market-rent apartment, according to a data analysis by the Idaho Asset Building Network (IABN).
To afford a fair-market apartment, averaged across the whole state, the analysis says one has to make $17.36 per hour.
Further, rent has increased two times faster than wages over the past 30 years according to IABN.

Virginia Wilson in Boise has learned this the hard way. She has lived at Edgewater Apartments, just off West State Street, for three years and when she renews her lease next calendar year, her rent will increase by $500.

$500 more a month for what? To cover new or rising costs? Or to take advantage of Boise’s population surge?

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

Rents/land values (and by extension home prices) follow the money…as wages or investment dollars flow in, prices go up. Land is finite and if you want to own part of a finite commodity, be it gold or land, you have to pay the market rate.

The real question is, why is there a market rate in land anyway? The value of land as an investment is what drives up housing costs. There is no way to build affordable housing without affordable land, so as land rises in value as an investment, it becomes too expensive to develop for anything but luxe properties. If that value were recaptured through a ground rent/land value tax, it would lower the cost to acquire it for affordable development.

How the government helps we allow investors buy mobile home parks, raise rent and evict people

Money is tight for Mary Hunt. She often has to decide which bills to pay on time — heat, her car loan, the phone bill. But she’s been able to scrape by for more than 30 years, living in a mobile home park in Swartz Creek, Mich.

She owns her home outright. But she needs to pay monthly “lot rent” to the park for the little patch of land that it sits on. And the managers of the park, a couple named Stan and Nancy, used to live right here.

She is not homeless but landless…she owns her home but the land is a market-rate commodity, in the hands of investors, not the community or a trust controlled by the people who live on it. But she may be homeless soon, losing both her home as a place to live and the value of it as an investment. The value of the land is more than the value of anything built or kept on it.

But there’s something else at play here, too — when mobile home park investors like Havenpark put the squeeze on residents like Hunt, they’re getting help from an unlikely source: federally backed companies with a core mission of helping to make homeownership affordable.

“When private investors come to buy parks, [they] raise the rent, sometimes 20, sometimes 50, sometimes 70%” says economist George McCarthy, president of the nonprofit Lincoln Institute of Land Policy.

And, he says — what’s really troubling to him — is that the government is basically turbocharging this trend.

That’s right: we are enabling this system. From subsidized home ownership and tax deductible mortgage interest to this ripoff, we allow land to be controlled and sold at ever-higher prices to those who can afford it and are willing to turn it into an investment.

Several industry insiders tell NPR that this is the way it works: When a company raises the rents and fees in a park, that increases the cash flow and makes the park more valuable on paper. So the company can then borrow more money against the property.

This is essentially the argument I have been making, that the rental value of land is cash flow that can be borrowed against by a city to fund needed development or services with taxing income or commercial activity through sales taxes. Recall the Mercer Megablock project, with the $1+ Billion dollars in ground rent offered that Seattle’s city council rejected, settling for $150 million. Now that $1B wouldn’t be paid upfront, but over time, 99 years to be exact. But that could be annualized to about $12 million a year…for one property, about $4 million per acre. Consider that many of our wealthiest neighbors don’t need to qualify for a mortgage using income from labor but by using their wealth in stock or land as a collateral. Why can’t a city do the same?

Sometimes the headlines write themselves…👆🏼

According to the latest numbers from the Texas Real Estate Research Center at Texas A&M University, the average price per acre in the Austin-Waco-Hill Country market reached $5,290 in the third quarter, up 30% year over year. Almost 60% more acreage changed hands last quarter than in Q3 2020.

Rising land prices mean higher overhead for new housing, a significant factor in rising home prices in the Austin area. In October, the median house in the metro cost $455,000, according to the Austin Board of Realtors. At the same time, the need for new housing was extreme, as the area had only one month of inventory. This is a far cry from a healthy market’s inventory of six months. — emphasis added

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

There is no affordable housing without affordable land. Those high land prices reward speculators and investors, as the headline makes clear. There is no way housing developers can build their way out of a hole that deep. The solution to this was understood 150 years ago and further back. But those who still stand to make money from the scarcity of land and are willing to pocket the unearned increment, the dividends of other peoples’ investment, will resist that solution.

Black couple files lawsuit claiming home value was underestimated by half a million dollars because of their race

What is being appraised? The house as a home or as an asset to be used to accumulate value through scarcity/boost the value of others nearby?

That year, it appraised at over $1.4 million but a year later, they said it was appraised at just $995,000.

When the appraisal came in lower than they expected, the couple knew something was wrong.
[…]
The couple decided to ask a White friend of theirs to pretend to be Tenisha to see if they would get a higher appraisal. With their friend, Jan, pretending to be the homeowner, the couple removed all photos of them and their family.
[…]
After doing this and with Jan’s help the new appraisal came in—nearly $1.5 million dollars, more than the appraisal roughly a month before.

So they lost about 1/3 of the value based on how the appraiser thought someone would feel about buying a home from a black family — who could afford a 7 figure home in Marin county. Nothing to do with the home or location…

They’re now suing the appraiser, who is White, claiming she used unsuitable, racially biased comparable home sales or “comps” in determining their home’s worth—giving it a low market value.

It doesn’t say how far away the “comps” were but if they factored in the race of the owner, they may not have been near the property in question. So the imputed location, a/k/a proximity, was the real factor, preserving the “neighborhood values” of the other properties. They appraised it as a black-owned home, not as a home, full stop.

It must be understood that the value here is in the land, even though the appraisal fluctuated by half a million dollars. The location in Marin is the value and the appraisal reflects the scarcity of that finite asset. If land was valued for its highest and best use — commercial or residential — it wouldn’t be a speculative asset and none of this chicanery and wealth extraction would be an issue.

1,500 apartments on 2 acres where Seattle had a 55 acre site (the old Northgate Mall) to work with…how many apartments will go in there? And when? The ice center is open, so we got that priority project completed. /eyeroll

Lynnwood’s city center may be about to undergo a metamorphosis, with light rail arriving in 2024 and with more than 1,500 new apartments opening soon or planned, plus new stores and offices.
[…]
Sound Transit hopes to select a developer by the time the light-rail station opens (with a new 1,670-stall parking garage), and the project is almost certain to include some affordable housing.

It’s not clear if Sound Transit is planning to sell the land or hold onto it and under what terms? Would ST be willing to accept a ground rent on that sure-to-increase-in-value land? What would it be able to charge? If an acre in South Lake Union is worth $1M a year, what would land in Lynwood command? And how would a ground rent, rather than a fee simple sale, lower the cost to develop the land?

It might seem counter-intuitive but raising the assessed value of land to its value when put to its highest and best use reduces the incentive to hold unused land as an asset: if a parcel assessed at $10 million a year (about $100,000 in property tax to hold it) is revalued as if it has a mixed-used multistory development on it, a ground rent at that price makes more sense. Rather than finance $10M, a $100,000 rental both pushes that land into development more quickly and remits more revenue to the city. The optimal price to acquire land for development is $0, with the value recaptured through a ground rent.

That land will become more valuable, make no mistake. For Sound Transit to sell it would be a mistake. Seattle was offered more than $1 billion (over 99 years) and chose instead to take 15% of that — a $150 million fee simple sale. Annualized, a rent of $11 million/year would have surpassed that $150M in less that 14 years with 85 years still to run — $935 million left on the table.

No doubt Sound Transit will make money on the sale but the increase in value created by the rail network ST is building should be used to maintain and extend the network. As Henry George wrote in 1868 in “What the Railroad Will Bring Us connecting cities and people adds value to those locations and that value should belong to those who created it. The transit network, on behalf of the people, should take the rents from that land, rather than sell it. We have already seen how land near the existing stations becomes more valuable but the value didn’t go to those who created it.

This could be interesting…

Dallas Mavericks owner Mark Cuban purchased an entire, tiny — and virtually empty — Texas town.
An abandoned strip club and vacant mobile home park are about all that’s still standing in the 76.8-acre community of Mustang, which is about 65 miles south of American Airlines Center, home of Cuban’s NBA franchise.

“Did it to help out a friend. No plans yet!” Cuban said in an email to NBC News on Friday.

If I could buy a town, I wouldn’t sell it off, parcel by parcel: I would assess a ground rent on the land, with the rents going to support continued infrastructure improvements to make the land more valuable, allowing the rents to be raised (as the land becomes more valuable to entrepreneurs). Or will he just speculate and sell it off? He could build a model town without sales taxes or other disincentives to development, proving that as land grows more valuable and more remunerative, there is no need to tax the sweat of working people.

“Sales tax is a regressive form of taxation, and we appeal to you and to our state legislature to find other forms of revenue to address the pressing issues of housing and mental health,” the letter said.

Oh, oh, pick me…! 🙋🏻‍♂️ I think I have a suggestion.

And of course the fly in the ointment here is that the county is now bidding against everyone else for access to land…and what is a county but land?

The proposal also promises 300 new units of affordable rental housing that would be designed for people making less than 60% of area median income, about $48,600 for a single person.

Cities are for people, made of people, more or less, but counties are land, the bits that have not yet been incorporated. So those 300 units at whatever target price they have in mind will never happen at that price, forcing a shortfall in that goal or creating a need for another tax to fuel the speculative cycle. And of course, what income that 60% is pegged to will also change…it’s a losing strategy.

The solution is to tax the land itself, the value of the land when put to its highest and best use, using zoning and the value created by adjacent or nearby land to determine the value. County assessors already tax land as empty/unimproved but often ignore the value created by commercial activity on it or on nearby parcels.

The phrase “the least bad tax” is attributed to Milton Friedman and explained here:

The famous University of Chicago economist Milton Friedman once stated “the least bad tax is the property tax on the unimproved value of land”. Most popular with Georgist economists (followers of famous American political economist, Henry George), the Land Value Tax is the taxation on the value of land separate from the value of the structure on the property. In residential terms, taxation only on the land beneath the house, instead of the combined value of both. Many Americans might simply state: “Land Value Tax is close enough to property tax, and I already pay too much. We need less taxes!” However, it would be a mistake to not explore and understand the subtle differences in the two tax policies, as they have quite different economic implications. As with the review of any tax policy, one must understand the economic impact, unless you want to kill the goose that lays the golden egg.

This is where owning land — and being assessed taxes that don’t make sense — comes back to bite us.

To cover the property taxes, he might rent the land to another farmer or take part in the federal Conservation Reserve Program, which rents farmland for environmental restoration.

This family could have rented this land on a 99 year lease and worked it as if it was their own all this time. By the same thinking, tax the land in the towns and cities for its highest and best use, since that’s where the money will be spent anyway.

The CRP takes land out of production:

[F]armers enrolled in the program agree to remove environmentally sensitive land from agricultural production and plant species that will improve environmental health and quality. Contracts for land enrolled in CRP are from 10 to15 years in length. The long-term goal of the program is to re-establish valuable land cover to help improve water quality, prevent soil erosion, and reduce loss of wildlife habitat.

but I don’t see any reason why all farmland isn’t assessed rents instead of taxes, to keep farmers on the land, with land treated as a productive asset rather that a speculative asset on some hedge fund’s books.

It’s Never Too Late to Pick Up Your Life and Move to Italy
Holly Herrmann vowed to move to Italy when she was 20. Her dream came true 38 years later.

Sounds like a lovely story until you get to this bit…

In 2016, the couple picked up their lives in Seattle. Unsure of what their future would hold, they first rented their four-bedroom home, then later sold it along with their two cars and possessions too large to take with them.

They owned a four-bedroom home in one of the hottest property markets in the US, where they may well have quadrupled the value (assuming they bought in the 80s and sold in 2016) during their tenure. With savings, retirement plans, the cars and other possessions, they might have had 7 figures to bankroll their move. This is essentially a lottery windfall…hardly a risky move. The only risk is knowing they could never buy back in if it didn’t work out. But the bottomline is they could have made that move on nothing more than the accumulated wealth of their property, wealth created by their neighbors and everyone else who lives in Seattle.

And they probably think of themselves as middle-class, nothing exceptional.