One thing that could be really interesting with your modified Singapore idea is that the entry of firms like Blackrock into the single family rental market creates the perfect opportunity for eminent domain. A state being able to make a cash offer to one or two resident owners and seizing the rest of the block from a corporation to build affordable housing could be an incredibly effective way of turning certain single family areas into more dense housing. The the opponents would lose most of the normal left-NIMBY arguments if the options are new affordable housing managed by the state or literally Blackrock.
It seems too obvious. Build government housing where there's not enough homes to match demand. Keep the revenue to extract tax from land value without much harm to current homeowners. Use this process as a tool to prevent overly fast land value appreciation in high demand areas. Bonus: Lower the risk of home ownership.
Perfect just like Henry George's LVT. Only the problem turns from illiquidity to NIMBYs.
It’s not clear from this article whether this LVT is proposed as a replacement for the current property tax structure, or to replace other taxes like income taxes. If the former, it is not obvious that homeowners would be see any adverse impact—that would only be true of the land under their homes makes up a larger portion of the total property valuation than other property types that comprise the local tax base. In my experience, this is not true, and the landowners who stand to lose in a shift to LVT are auto dealers and other land-intensive uses where the value of the improvements on the land are a small relative to the land value. It is important to realize that the property tax is unlike other taxes in that it starts with a levy, not a rate, and tax rate is a function of the levy divided by the total assessed valuation in the community. An LVT would have a higher rate to get to the same levy, but the impact across property types is dependent on the relative value of improvements to land. The proportion of household weath tied up in housing doesn't tell us anything.
>>The buildout of the suburbs, and various policies to encourage homeownership, both made sure that regular Americans put a lot of money in their houses.
>>And as Jorda et al. (2017) found, the rate of return on housing has been truly excellent in most developed countries over a very long time, providing stock-like high returns with bond-like low risk. (The downside is the lack of liquidity.) So housing was just a good investment option for people who also wanted the freedom that being an owner-occupier provided.
I think the critical problem with Jorda is that, as Strong Towns points out, the postwar growth we've seen is mostly a mirage. We've ALL seen the third- and fourth-cycle suburbs that are positively *dying* right now because they get into a depression spiral of having to overtax in order to keep up maintenance schedules. Housing wealth may have paid off for the people in the first and second cycles, but it's not paying off for people in later ones, no matter how much illusory growth in the former works to mask the latter.
Now to be clear, in SOME cities, some of those later-cycle areas are probably still rising in value because of their potential for redevelopment and the relatively high return on redevelopment right now due to the housing crisis. But that's not a statement about the inherent sustainability of housing as an investment.
That's not to say that the later idea about "social wealth funds" is doomed, it's just that it needs to be based on a sound development pattern to begin with. No matter what the level of taxation is, if a place's housing/land stock can't pay for itself, that fund will be depleted.
Same goes for government housing. If the government is building more suburbs, or just huge housing projects that deplete the area of value-creating businesses, we'll just replicate the exact same problems that ultimately doomed those development patterns.
1) you have to fundamentally break the zoning paradigm to do anything about actually exploiting agglomeration benefits and you have to do some other gnarly stuff to help transition those with positions in the stock of improved land
2) a metric shit-ton of land in the west is public land. Tabula rasa, baby. Implement there, as a condition on transfer to the localities.
I don't feel like this is better on political economy necessarily. "The government will become the builder of all new construction" doesn't seem like a better sell to the middle class than something like "we want to convert your home equity into stocks."
"Why this is true is an interesting tale, involving both history and economics. The buildout of the suburbs, and various policies to encourage homeownership, both made sure that regular Americans put a lot of money in their houses"
I'm a bit dubious that history, economics, the suburbs, or policy actually had very substantial impacts.
It feels more like it is a fundamental human thing.
The US isn't even in the Top 20 countries in terms of home ownership. Here in Vietnam, virtually all wealth is held in real estate and there certainly aren't any suburbs yet.
I think the fundamental problem is what else would the wealth be in? The US has the most developed equity markets in the world but it still wasn't until the 1980s when mutual funds and 401ks made it a thing normal people could really access.
In most other countries it effectively impossible. So you're left with..real estate, gold, and maybe a private business.
A baby step toward this would be an explicitly-stated policy goal of stable housing values. This could be adopted at a local, state, or federal level, and could even be a platform plank of a local/state/national party.
By "stable" I mean something like "equal to the rate of inflation of construction labor and materials". The government probably has a limited number of levers to move to achieve this, but clearly articulating that it is something we *want* to achieve seems important.
It might look something like "cities in this state have to permit X percent more units for every Y percent of housing cost inflation (above the inflation rate of construction labor and materials)".
Brink Lindsay's 2017 book "The captured economy" talked a lot about land use regulation and I mentioned it and you pooh-poohed it because he's a Libertarian and I want reparations for that
Sometimes Georgism feels like a solution looking for a problem.
The problem I see it is that property is expensive. This is especially acute in the old built-out cities on the coasts. You could fix this a lot of ways, but like Noah says in the short to medium-term hiking property taxes will just make property more expensive for people.
My 2c are:
- Property taxes are a good, but you can charge a higher rate on the land than the improvement. Assessments already separately assess both. You could make this revenue-neutral in the short term so nobody notices a change.
- Create exemptions of fixed dollar amounts to make these somewhat progressive, e.g., exempting $100K of property value as a homestead
- Pre-empt zoning at the state level to some extent, probably near major roads, highways, transit stations, etc.
- If you hike property taxes, offset by lowering income taxes.
That might help with prices a bit after a few years and could probably pass via the political process. But I'm also thinking two macro factors will help with housing prices:
- Remote work pushing more people out of SF, NYC, etc.
- Boomers passing into the Big Woodstock in the Sky
As for government built housing, we have a name for that: projects. They're not looked upon kindly for a reason. The issue with housing isn't that it's expensive EVERYWHERE, it's that it's expensive in nice places. It's cheap to live in places where gov't built projects!
I think the reason why this issue particularly animates readers of blogs like this one is because recent graduates with postsecondary degrees feel the cost of housing more acutely and feel like they should be able to afford better. These things are true, but we're not going to rise up as the top 10% of income earners among 20 and 30-somethings and overthrow the economic order. Maybe just leave NY and move to Texas. It's nice here.
I appreciate your taking the impact of land reform on the middle class into account.
While it is true that land ownership is arbitrary and no one made the land (ignoring some areas of landfill in NYC, Boston and other cities). However, most current owners didn't plant their flag on otherwise universally available land or push of the native inhabitants, they entered into an arm's length transaction with the person the Government told them was the legitimate owner of the land. The people who benefited from the arbitrary distribution of land have mostly been dead for hundreds, if not thousands of years.
If the government comes in now, and implements a land tax or some other policy that significantly decreases the value of land, it is going to cause real harm to people who were not only doing something they were allowed to do, but which they were actively encouraged to do. In particular, as it is unlikely that a land tax would come with a debt jubilee for mortgages, it is going to leave a lot of people underwater (not to mention potentially trigger a financial crisis).
It is true that the government does owe you an obligation to protect your investment. However, there is a difference between your home value going down because the of economic, social or environmental changes, and it going down because the government decides to implement a significant policy change. This is particularly true where the people harmed by that policy change are going to be harmed because they were doing something the government was previously encouraging them to do.
While I don't think this means that the government should not implement something like a land tax, or other land reforms, just becuae it may damage the value of property, I do think a lot of YIMBYs are too quick to discount this harm.1 I do think we need land reform, but I also think that, in implementing it, the government should strongly consider the losers, as well as the winners, and try to minimize and/or socialize the harms caused by the new policy.
Yeah - it seems so difficult to implement Georgism given how middle class wealth is in housing. I just don't see an easy way out of this.
I like the government building idea (provided they built housing that looks and lives good, and not just grey blocks), but this is hard to implement except in small-ish states/cities like Hong Kong, Singapore, Vienna. I suppose, in the US, this would have to be done/controlled more locally - but this would mean much higher state/town taxes - which I would support (although I live in Ireland 🤣) , basically making things like the Swiss model where most taxes are in cantons.
This is a very intriguing idea, but it does raise a critical issue around America’s current ability, or lack thereof, to build quality things affordably.
Government construction of new housing in undeveloped areas doesn't help in most of the megalopolises that are driving the current housing problem. There's minimal buildable land within literally hours (during commute times) of the business centers of SF, LA, and NY. Even smaller or less constrained cities generally have problematic distances to undeveloped areas. So you'd have to eminent domain existing areas, mostly housing, which IMO creates insuperable political problems - we can't replace *everything*, so who gets bumped? It could have been done in 1945, but that ship has long sailed.
In general there's an equity issue in switching taxation to land value *after* the middle class has been driven to have most of their assets in land for the better part of a century. You'd have to have some compensatory income transfers, as have been suggested to deal with regressive carbon taxes, and it's hard to see transfers on the necessary scale. For starters, where would it come from? The only souce would be large tax increases on the wealthy, and we can all see how hard that is.
This is such solid stuff that I would actually like to hear more about Wolf Ladejinsky's work. I only have a vague idea of how it worked in Japan, and don't know how good it looks 70 years later.
One thing that could be really interesting with your modified Singapore idea is that the entry of firms like Blackrock into the single family rental market creates the perfect opportunity for eminent domain. A state being able to make a cash offer to one or two resident owners and seizing the rest of the block from a corporation to build affordable housing could be an incredibly effective way of turning certain single family areas into more dense housing. The the opponents would lose most of the normal left-NIMBY arguments if the options are new affordable housing managed by the state or literally Blackrock.
It seems too obvious. Build government housing where there's not enough homes to match demand. Keep the revenue to extract tax from land value without much harm to current homeowners. Use this process as a tool to prevent overly fast land value appreciation in high demand areas. Bonus: Lower the risk of home ownership.
Perfect just like Henry George's LVT. Only the problem turns from illiquidity to NIMBYs.
It’s not clear from this article whether this LVT is proposed as a replacement for the current property tax structure, or to replace other taxes like income taxes. If the former, it is not obvious that homeowners would be see any adverse impact—that would only be true of the land under their homes makes up a larger portion of the total property valuation than other property types that comprise the local tax base. In my experience, this is not true, and the landowners who stand to lose in a shift to LVT are auto dealers and other land-intensive uses where the value of the improvements on the land are a small relative to the land value. It is important to realize that the property tax is unlike other taxes in that it starts with a levy, not a rate, and tax rate is a function of the levy divided by the total assessed valuation in the community. An LVT would have a higher rate to get to the same levy, but the impact across property types is dependent on the relative value of improvements to land. The proportion of household weath tied up in housing doesn't tell us anything.
>>The buildout of the suburbs, and various policies to encourage homeownership, both made sure that regular Americans put a lot of money in their houses.
>>And as Jorda et al. (2017) found, the rate of return on housing has been truly excellent in most developed countries over a very long time, providing stock-like high returns with bond-like low risk. (The downside is the lack of liquidity.) So housing was just a good investment option for people who also wanted the freedom that being an owner-occupier provided.
I think the critical problem with Jorda is that, as Strong Towns points out, the postwar growth we've seen is mostly a mirage. We've ALL seen the third- and fourth-cycle suburbs that are positively *dying* right now because they get into a depression spiral of having to overtax in order to keep up maintenance schedules. Housing wealth may have paid off for the people in the first and second cycles, but it's not paying off for people in later ones, no matter how much illusory growth in the former works to mask the latter.
Now to be clear, in SOME cities, some of those later-cycle areas are probably still rising in value because of their potential for redevelopment and the relatively high return on redevelopment right now due to the housing crisis. But that's not a statement about the inherent sustainability of housing as an investment.
That's not to say that the later idea about "social wealth funds" is doomed, it's just that it needs to be based on a sound development pattern to begin with. No matter what the level of taxation is, if a place's housing/land stock can't pay for itself, that fund will be depleted.
Same goes for government housing. If the government is building more suburbs, or just huge housing projects that deplete the area of value-creating businesses, we'll just replicate the exact same problems that ultimately doomed those development patterns.
I had two thoughts:
1) you have to fundamentally break the zoning paradigm to do anything about actually exploiting agglomeration benefits and you have to do some other gnarly stuff to help transition those with positions in the stock of improved land
2) a metric shit-ton of land in the west is public land. Tabula rasa, baby. Implement there, as a condition on transfer to the localities.
I don't feel like this is better on political economy necessarily. "The government will become the builder of all new construction" doesn't seem like a better sell to the middle class than something like "we want to convert your home equity into stocks."
"Why this is true is an interesting tale, involving both history and economics. The buildout of the suburbs, and various policies to encourage homeownership, both made sure that regular Americans put a lot of money in their houses"
I'm a bit dubious that history, economics, the suburbs, or policy actually had very substantial impacts.
It feels more like it is a fundamental human thing.
The US isn't even in the Top 20 countries in terms of home ownership. Here in Vietnam, virtually all wealth is held in real estate and there certainly aren't any suburbs yet.
I think the fundamental problem is what else would the wealth be in? The US has the most developed equity markets in the world but it still wasn't until the 1980s when mutual funds and 401ks made it a thing normal people could really access.
In most other countries it effectively impossible. So you're left with..real estate, gold, and maybe a private business.
A baby step toward this would be an explicitly-stated policy goal of stable housing values. This could be adopted at a local, state, or federal level, and could even be a platform plank of a local/state/national party.
By "stable" I mean something like "equal to the rate of inflation of construction labor and materials". The government probably has a limited number of levers to move to achieve this, but clearly articulating that it is something we *want* to achieve seems important.
It might look something like "cities in this state have to permit X percent more units for every Y percent of housing cost inflation (above the inflation rate of construction labor and materials)".
Brink Lindsay's 2017 book "The captured economy" talked a lot about land use regulation and I mentioned it and you pooh-poohed it because he's a Libertarian and I want reparations for that
Sometimes Georgism feels like a solution looking for a problem.
The problem I see it is that property is expensive. This is especially acute in the old built-out cities on the coasts. You could fix this a lot of ways, but like Noah says in the short to medium-term hiking property taxes will just make property more expensive for people.
My 2c are:
- Property taxes are a good, but you can charge a higher rate on the land than the improvement. Assessments already separately assess both. You could make this revenue-neutral in the short term so nobody notices a change.
- Create exemptions of fixed dollar amounts to make these somewhat progressive, e.g., exempting $100K of property value as a homestead
- Pre-empt zoning at the state level to some extent, probably near major roads, highways, transit stations, etc.
- If you hike property taxes, offset by lowering income taxes.
That might help with prices a bit after a few years and could probably pass via the political process. But I'm also thinking two macro factors will help with housing prices:
- Remote work pushing more people out of SF, NYC, etc.
- Boomers passing into the Big Woodstock in the Sky
As for government built housing, we have a name for that: projects. They're not looked upon kindly for a reason. The issue with housing isn't that it's expensive EVERYWHERE, it's that it's expensive in nice places. It's cheap to live in places where gov't built projects!
I think the reason why this issue particularly animates readers of blogs like this one is because recent graduates with postsecondary degrees feel the cost of housing more acutely and feel like they should be able to afford better. These things are true, but we're not going to rise up as the top 10% of income earners among 20 and 30-somethings and overthrow the economic order. Maybe just leave NY and move to Texas. It's nice here.
I appreciate your taking the impact of land reform on the middle class into account.
While it is true that land ownership is arbitrary and no one made the land (ignoring some areas of landfill in NYC, Boston and other cities). However, most current owners didn't plant their flag on otherwise universally available land or push of the native inhabitants, they entered into an arm's length transaction with the person the Government told them was the legitimate owner of the land. The people who benefited from the arbitrary distribution of land have mostly been dead for hundreds, if not thousands of years.
If the government comes in now, and implements a land tax or some other policy that significantly decreases the value of land, it is going to cause real harm to people who were not only doing something they were allowed to do, but which they were actively encouraged to do. In particular, as it is unlikely that a land tax would come with a debt jubilee for mortgages, it is going to leave a lot of people underwater (not to mention potentially trigger a financial crisis).
It is true that the government does owe you an obligation to protect your investment. However, there is a difference between your home value going down because the of economic, social or environmental changes, and it going down because the government decides to implement a significant policy change. This is particularly true where the people harmed by that policy change are going to be harmed because they were doing something the government was previously encouraging them to do.
While I don't think this means that the government should not implement something like a land tax, or other land reforms, just becuae it may damage the value of property, I do think a lot of YIMBYs are too quick to discount this harm.1 I do think we need land reform, but I also think that, in implementing it, the government should strongly consider the losers, as well as the winners, and try to minimize and/or socialize the harms caused by the new policy.
Nice post, Noah.
Yeah - it seems so difficult to implement Georgism given how middle class wealth is in housing. I just don't see an easy way out of this.
I like the government building idea (provided they built housing that looks and lives good, and not just grey blocks), but this is hard to implement except in small-ish states/cities like Hong Kong, Singapore, Vienna. I suppose, in the US, this would have to be done/controlled more locally - but this would mean much higher state/town taxes - which I would support (although I live in Ireland 🤣) , basically making things like the Swiss model where most taxes are in cantons.
This is a very intriguing idea, but it does raise a critical issue around America’s current ability, or lack thereof, to build quality things affordably.
W/r/t the Singaporean housing situation - what's your general take on government competing in the free market?
Government construction of new housing in undeveloped areas doesn't help in most of the megalopolises that are driving the current housing problem. There's minimal buildable land within literally hours (during commute times) of the business centers of SF, LA, and NY. Even smaller or less constrained cities generally have problematic distances to undeveloped areas. So you'd have to eminent domain existing areas, mostly housing, which IMO creates insuperable political problems - we can't replace *everything*, so who gets bumped? It could have been done in 1945, but that ship has long sailed.
In general there's an equity issue in switching taxation to land value *after* the middle class has been driven to have most of their assets in land for the better part of a century. You'd have to have some compensatory income transfers, as have been suggested to deal with regressive carbon taxes, and it's hard to see transfers on the necessary scale. For starters, where would it come from? The only souce would be large tax increases on the wealthy, and we can all see how hard that is.
This is such solid stuff that I would actually like to hear more about Wolf Ladejinsky's work. I only have a vague idea of how it worked in Japan, and don't know how good it looks 70 years later.