California homeowners made more money in equity than workers made in income
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We need this reform yesterday. It is absurd how much you get taxed on actual work, but so little on land speculation and rent extraction.
I don't see how "rent extraction" is less taxed relative to other activities aside from depreciation, net income, etc. which is not unique to renting. Why is rent extraction favored in the tax code?
Actual work has little risk. If I don't show up in the office today they won't pay me for today. If I own property, in contrast, it can go down in value. Also, I probably have to pay to maintain it.
Renting is considered a business. You can deduct interest, maintenance expenses, etc...
Individuals cannot do that.
>Actual work has little risk.
So does waiting for prices to go up in a city. And this is the key - you just wait. You don't do any work whatsoever. You just wait for economic conditions nearby to improve and then take your share of it by charging higher and higher rents just because you have monopolized the usage of your land. You don't have to contribute literally anything to the nearby economy, but can still benefit from it.
>If I own property, in contrast, it can go down in value.
Property = land + buildings. This is a tax on the land, not the building value. In a LVT scheme, the value of the land goes towards 0, and the share of the property value due to the building increases.
> Also, I probably have to pay to maintain it.
You maintain the building, not the land. Making profits on building would not change.
https://astralcodexten.substack.com/p/your-book-review-progr...
Is a good review of these ideas.
So, renting is not favored over other businesses in the tax code? Cool, then people will invest in renting to the extent that they can make a better profit there relative to other business endeavors. This seems sane to me.
>> Actual work has little risk.
> So does waiting for prices to go up in a city.
Have you ever watched NYC unilaterally and without warning do massive homeless shelter relocations into your neighborhood in the middle of a pandemic? Or noticed that sometimes there are chemical contaminants discovered under towns and the drinking water can be full of lead? Or seen the quality of the local public schools drop over time? Or read that hurricanes and earthquakes and riots sometimes level everything? There is risk in owning property.
Sure, some of that risk can be offloaded to insurance. But witness half of Napa is trying to rebuild at the same time on account of widespread wildfires. The insurance only somewhat addresses systemic risk.
Thank you for responding. I will read the introduction that you suggested.
I will echo the peer responses that I don't see how one values abstract plots of land independent of their current usage. But I am content to watch that discussion unfold instead of continuing on that topic in this thread.
For example, you start with detached single family home zoning. As it is not very dense the rate will be very low so that it is affordable. Once house prices go up in value and row houses and duplexes become viable you raise the desired level of zoning so that duplexes and row houses have the minimal tax burden. Next step would be x stories of apartments. Again the tax is set so that x story apartment buildings have the smallest tax burden per unit. There would be a tax burden per unit (2 different rates for houses and apartments) for the neighborhood on which the actual zoning prices are based on.
E.g. One apartment pays 5k means zoning for 10 apartments will charge $50k. You can still build a single family home if you can afford that tax. Most won't.
This forces popular neighborhoods to provide more housing and punishes land owners that do not improve the value of the property built on top of the land.
With land, the issue is the same. Even though improvements aren't factored in to the value the same way they are with property tax, what makes one parcel land more valuable than the other? Such a value isn't determined by a linear relationship. So where would one get the number from?
Here is the last conversation I had about the topic. https://news.ycombinator.com/item?id=27032163
- look at comparable empty lots that are sold. Even in big cities there are empty lots sold.
- look at the purchase price of buildings + land and subtract out the construction cost of the building
You can also combine the above, e.g. look at two similar buildings with similar construction costs built in two different places to infer the relative price of land in each.
You can get a pretty good estimate from the above techniques. OFHEO supplies such estimates.
> what makes someone's land more valuable than the other?
Like any other good, people bid on it and so a price is set. Having land allows you to build a building or store so things like zoning laws, demographics, income of people, foot traffic, nearby amenities, these all contribute to the value of land. Land in sunny Miami Beach is worth more than land sitting atop a superfund site somewhere in frozen Michigan. Downtown land in San Francisco is worth more than farm land in Iowa. The reason for this is you can make more money with land in one place than another, even if you need to invest in structure to make that income stream a reality.
To your second point: You understand that land has differing value/utility to each purchaser or potential purchaser. LVT does not recognize this. It only assumes that if you have more land, you should be taxed more. The farmer would obviously suffer in comparison to the city dweller.
However, as a critique of your point, few San Franciscans make actual money off their land or real estate (landlords excluded). The fact that they *can* make money off their land, does not mean they are. To be taxed as though one were making money off of land is to use a legal fiction to justify a particular policy. It doesn't solve an inefficiency in land distribution but creates one.
Did you really have to take away all that with a pithy explanation of reality? Why not just let him have his day in the sun?
There's a fair amount of effort on the part of the government to ensure that the price continues to rise
The tax is cutting into profits of landlords that were derived from the value of the land. They still end up charging the same rent.
you can tax land value at 100% and there will be no less land.
If that hasn’t convinced you, think of the children!
If I can identify even one person who might be marginally worse off by a particular policy, we definitely can’t do it. That’s what the founding fathers would want!
/s
Myself I don’t favor this option and think if you can’t afford the land tax on your property then you’re making very poor use of that land and the tax is working exactly as intended if it either encourages you to downsize to another place or redevelop your property into multiple units (for example). You can also take a loan on your property to pay the tax that is repaid from sale of the property when you do decide to move or your pass away. I don’t think people should get special favorable treatment just because they got somewhere first, it’s awfully discriminatory.
Humans are sentimental creatures though and "grandma has to sell her home" is a powerful image.
I think a good compromise, that would also allow Prop 13 to be phased out for good, is to allow primary residences below a certain value to deduct taxes against the home value up to the limit (ie defer payment until the person dies, then the estate settles the debt, most likely out of selling the home) and at that point not owe more. That way grandma never has to leave her home prematurely, society still captures the lost value of underutilized land somewhat, and there is no ridiculousness with commercial properties, inheritances, very wealthy people paying no taxes, etc.
Since most homeowners live in their investment and prices have risen almost everywhere, there's no way to cash out on the investment and remain housed.
You would have to sell and gamble on renting until a market correction, or moving to a cheaper housing market, or own multiple properties to be able to actually cash in on this equity earning
.. whereas of course income is just cash
Maybe I'm missing something
Homeowners could cash out on their investments and remain housed by getting jobs and renting, like the rest of us, which of course they won't do, because they recognize how exploitative the system is and that they earn more just sitting on property.
Anyway you look at it homeowners come out way ahead every time, for doing absolutely nothing.
More likely is that their property values are going up somewhat, so what they spend on property taxes/upkeep is likely preserved as equity. Renters pay more and keep nothing in the end.
Homeowners in less demanded areas do not.
Also pretty sure there aren't many places in California where owning a home is such a liability that your annual losses would exceed those of one renting a comparable property. You might still have to work, but you're still ahead of someone who has to work and pay rent.
We are in a form of inflation.
The 'middle class' are the problem here.
Why?
Because they think 'they're making bank'.
What they don't realize is that 'everyone above them' on the scale, is making even 'bigger bank'.
The $3M home owner realizes this, but also not quite how much the $25M home owner is also screwing him.
This is a 'class warfare ponzi scheme' where everyone up the chain is screwing everyone below them.
The problem is that it's politically untenable to take away something from the middle class, they are voters.
If working class and poorer people coordinated their voting power, the kind of Fed policies we have would be different.
My Uber driver was a millionaire by equity.
Most 'millionaires' are that way. It's not like you're only a millionaire until you have a million in the bank.
An illiquid millionaire still has access to the lowest interest rate capital, compared to someone that has no assets or assets valued much less. There is still a distinction between someone that can even invest in private equity funds, versus someone that would either be legally barred or not able to make the minimum investment.
In common vernacular, a “millionaire”, at least when I was growing up, meant someone who could afford luxuries that almost all could not. And while a secure retirement may be available to a select few, that was not the kind of luxury you would refer to when labeling someone a “millionaire”.
I would say describing someone’s wealth in terms of what they can afford to risk, or what they can afford not to worry about is most useful.
You can start with shelter, food, loss of income, health, retirement, legal, etc. By the time one can (per my judgment) start affording discretionary luxuries or investing in PE funds, you should probably have your legal risks covered, which involves you having enough assets or cash flow to not have to work and simultaneously pay lawyers.
But they could if they wanted to, by borrowing against their 401k at nearly the lowest interest rates possible.
I want a simple term that describes people that can and can't do that. Millionaire is it as there is a clear distinction between people that have zero and negative net worth, and people with one million dollars in assets that can be borrowed against.
> a “millionaire”, at least when I was growing up, meant someone who could afford luxuries that almost all could not.
Well that's inflation for you. I think you're the one that will need to pick another word. My experience with the luxury concept is that people imagine things are more expensive or unattainable than they are. Like, there is a kind of "commoner's luxury" which is catered towards via leasing and borrowing and there is no way to distinguish which person has actually afforded the lifestyle or simply assumed even more debt. The "millionaire" colloquialism seems to have spawned generations of posers with nearly zero net worth, surrounding themselves with the image of luxuries, which even the illiquid farmer with millions of dollars of land can afford.
I think most of the working class feels the same way which is like 50 to 80% of the country.
They don't really have a fined grained classification for millionaire beyond having a million bucks.
If the former, duh? If the latter, wouldn't that just mean homeowners make more in general because many afforded the down payment to begin with?
This example is extreme, but not by much.
And let's not forget, those that took out mortgages 20 years ago have been able to refinance to lower interest rates as they fell.
I'm assuming they got a permit to subdivide which made it more valuable, but still an insane price.
The land cost $38k in 1988 and it was sold a couple of times in the last five years in the 500/600k range. For the boomer generation that bought years ago, they're laughing. Not so much the millennials unless they can inherit these overpriced properties.