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Comment by andy_wrote | Hacker News Reader

From the article: "One hardheaded answer is to build more housing. An increasing supply of housing would theoretically put downward pressure on prices. The reality, unfortunately, is that almost all urban construction happens too late."

That last sentence does not sound like an argument against this approach, but an additional argument for it. If there is a secular trend of urban rents outpacing inflation, it sure seems like a "better late than never" situation.

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I think the point is that by all means build more supply, but don't expect that that alone will solve all your problems.

There are real physical limits on the ability to create supply. Even after cutting red tape, developments need to be reviewed, and there are limits to the pace of reviewing and limits to the amount of trades available to build the approved buildings. As the article states construction takes time.

In a high demand environment, for example in a speculative housing bubble, demand could dominate the ability of a city to create new supply. In this case you can add more supply, but it won't halt price increases. You can't change the balance and create more affordable housing without also taking action on the demand side or by subsidizing in some form below market price housing.

A real world example of this would be Vancouver, which has consistently added supply over the decades, and currently has more housing starts than at any other point in the last several decades, and yet was continuing to see spiking property valuations. The Provincial government finally gave in and took action to limit demand, enacting a 15% tax on foreign purchases.

I live in Toronto. It is mind-blowing the number of condos being built. More are in progress now here than exist on Manhattan. But as far as world cities go, the condos and rent are both very affordable. So I think to a certain extent it does work to build more, but it is not 1:1, and lots of people come here because of the (relative) affordability.

It's a reminder that we have a prisoner's dilemma on our hands: if one city fixes things, they share an disproportionate burden of the load that will follow. Real success will only happen if everybody coordinates on better land-use policy.

The likely outcome is that they won't, and here we are.

What kind of land-use policy are you proposing and how will it be kept out of the hands of politicians who abuse it for their own personal gain?

My ideal reform would be the Land Value Tax[0], which admittedly has run into problems in execution with poor implementations.

It depends upon assessments on land value that reflect current market value of that land. In one notable case of the LVT in practice (Pittsburgh), assessors made a real hash of it, with assessments well out of proportion to market demand.

I would like to see a proof of concept to fix this, mainly an automated algorithmic assessment map of land values, based off of public sales records. It's a fun project to attempt; I should start up a repo some time.

[0] https://en.wikipedia.org/wiki/Land_value_tax

The problem with using sales records for LVT is the central concept of LVT is that it's based on unimproved value, and actual sales of land usually include improvements and separating out there unimproved value is non-trivial and hard to validate.

Yes, that's the challenge. But with some assumptions (within an urban area, neighboring plots have about the same land value; when a plot is sold at two different times, the difference in the prices may reflect the rise in land value), one could get some reasonable estimates.

Waiting for a plot to be sold may take too long. How about an auction based pricing model?

Property owner declares land value and pays tax based on that value. Taxman has checks and balances to make sure that the declared land value isn't egregiously low balled.

The declared land value is made public and anybody can make an offer to buy the land at that value plus a premium. If the offer is accepted, all is good and we have a new declared land value.

If the offer is declined, a new declared land value is set at the offer price. The owner pays an additional tax to reflect the new declared value and a penalty if it is found that the old declared land value was (significantly) below prevailing land values.

The trick is in setting the penalty in such a way that it becomes unappealing to declare less than fair market value. The risk is that declared market value is unduly inflated to protect against the penalty, but the property owners self interest in paying the least amount of taxes should protect against that. Also applying a (small) fudge factor to the acceptable fair market value when the penalty does not apply should help. Markets do move and there is no need to (harshly) penalize normal appreciation and market developments.

I've thought about something like this-- self-assessment seems very promising.

Two notes:

* If a person's offer is accepted to buy their land, we need to figure out how to agree upon the price of the improvements, too. I could imagine a system of arbitrators being useful here.

* People's natural loss-aversion would be a problem here-- one would expect a person to overstate the worth of their land by 50% or so.

I don't think loss aversion would be a big problem, as the owner would not be required to sell. They'd only be required to pay tax on the difference, if higher offers come in.

> The declared land value is made public and anybody can make an offer to buy the land at that value plus a premium.

That works for property tax, but it doesn't work for land value tax, because the key difference between LVT and property tax is the former is based on the unimproved value of the property, while the latter is based on the value of the property as it is, with all improvements.

A self-declared value that is legally tied to an offer to sell at a fixed premium is clearly a self-assessment of the improved value of the property, not the unimproved value that LVT is supposed to be based on.

Fair enough, but that just brings us back to the problem of separating the improved and unimproved value. If we can do that, which we must be able to do if LVT is ever to be implementable, we can still use the auction method proposed.

When a plot is sold two different times (without change to the state of the improvements -- which is actually impossible, because agree it's a relevant part of the state), the change is likely to reflect the change in supply/demand of equivalent improvements in the local market (i.e., houses of X square feet with Y bedrooms.)

This is true to a minor extent, but when land becomes scarce, we tend to see land values rise everywhere in similar amounts regardless of what type of improvements we see.

I agree that there are a lot of confounding variables, but with the right amount of filtering and smoothing, one can still get reasonable answers.

Real estate is risky, so mass construction never happens until the dumb money shows up.

My city is awash in luxury apartments and condos with 10 year tax abatements. They'll suck the life out of existing nice developments, and then every little LLC holding company will be bankrupt when the tax man comes back.

The threat of increased future supply should be enough to depress prices. That new condo won't look like such a good investment if you know there will be many more popping up in the neighborhood in the next 5 years.

Established home owners inevitably appeal for increasingly restrictive, even slow, permit processes to prevent even a flattening in housing prices, let alone a decrease.

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