Due to the zero-sum nature of real estate, it fundamentally breaks the positive sum theory of capitalism. Adam Smith even called landlord’s right “theft”.
TL;DR: things that people produce such as labor, products, and services are not taxed at all. No payroll taxes, no sales tax, no income tax, and no capital gains tax on investments in productive activity or human-made capital.
Things that people did not produce such as land or the right to extract natural resources are taxed. For land the land value is taxed, but this does not include the value of things built on the land.
You're basically billed for the right to "own" things that existed before any of us were born. Since not much else is taxed, these taxes could be rather steep.
This strongly incentivizes efficient use of land and natural resources and discourages non-productive squatting on them. You would not see, for example, a bunch of self-storage places and gigantic sprawling car washes in Silicon Valley. The land value taxes in such an area would be far too high to justify anything but highly efficient productive uses of the land such as housing, manufacturing, offices, etc. Vertical construction would be highly incentivized in high value areas.
Lowering or removing this disincentive would increase the amount of work that gets inspected.
As an owner-occupant, I want the inspections and am willing to pay one-time for an impartial second set of eyes.
As an owner-occupant, I do not want to pay a recurring subscription fee (in the form of higher property tax) as a result of the inspection.
Given how many properties have obviously recent remodels and no permits pulled in the last 30 years, it’s fair to say that at least some of the market has decided that permits aren’t worth the tax increases.
as you probably know, AVMs (automated valuation models) have been the hotness over the past few decades, but zillow (recently, but all along too) has shown the real limitation of AVMs. in theory, the likes of google and apple have enough geospatial data to create good land value AVMs, but you really still need appraisers on the ground for hyperlocal adjustments that just don't get captured in the AVM data and/or model. and that's all before the politicians, bureaucrats, and competing public interests get involved.
One thing the Bitcoin issue has shown me is just how pivotal that 'number go up' is to society. When 'number go up', that thing gets bought in, which brings more people to it. I think many look at the LVT like medicine, yes, this thing is good and important, but it tastes bad, so we can't get the collective buy-in, and never will. But we all know what's going to happen to Bitcoin, it's a bubble, and it will crash, crash hard. But so is the real estate market.
Real estate has gone up as interest rates have come down. With our interest rates at 0%, there is now no more room for the interest rates to go down, and thus real estate market to go up. We've reached the end, as we come out of CO-VID they might go up another 10% or so, but the easy money is gone - but the downside is now massive. If rates go back to 5% we will see real estate prices go back to where they were at when interest rates were last at 5%. Investors have a huge risk disparity.
And this is where the Land Value Tax can help. If we can implement the Land Value Tax, and at the same time implement a one-time tax credit equal to the price of the land, not only will no one lose out, but those that have the most at risk will now de-risk, and have the most to gain. All in the meantime instantly incentivizing the correct behavior.
That's what they said about the French Revolution, American democracy, the abolition of Russian serfdom, the abolition of US slavery, the Paris Commune, the Bolshevik Revolution, Prohibition, the Holocaust, the establishment of the State of Israel, the Great Leap Forward, the Iranian Revolution, etc.
I mean, that's also what they said about lots of other changes that actually didn't get implemented. And, as the examples above illustrate, it's easy for radical changes to have unintended effects...
This is actually very logical. Never understood why salaries are taxed so high. Always seemed to me like the governments are punishing workers for actively working.
Wouldn't that just mean those lots would stand empty? Its not like the car washes are there because there is a higher revenue option but people just dont want to do it.
In this specific example, what's preventing the land from being used for something more valuable than a car wash currently? I get that a land value tax would disincentivize hoarding land, but urban-sprawl-car wash hardly seems like a case of land hoarding. I think the parent was suggesting that these car washes would no longer exist because taxes would be too high under a land value tax regime - but that raises the question of what the more valuable usage is? Does there exist one, why isn't it currently being used that way, and is the reason something that lvt would rectify? If car washes are the most valuable usage, then they will either continue to exist or if the tax burden is too high in the new regime, they will stop existing and nothing will replace them.
I'm sure there are plenty of examples where lvt would encourage more efficient land usage, i'm just confused why this would be one of them.
Basically car washes are the slightly-harder version of land banking, but there is still enough value in the land that if the land was put up for sale, some other business would purchase it and utilise the land better.
If the car wash owner wanted to maximize returns they could set up a more profitable business today, sure. It's just more effort than they can be bothered with.
Right now, investing in public companies and tech is very risky, as valuations are at record highs. Many experts estimate near-zero returns for decades from public markets. And, as a small-time investor, I don't have access to private deals or markets.
So, that leaves real estate. I don't put my money there because I want to drive up the cost of shelter for anyone, I do it because I don't have any other reasonable way to protect my savings.
I agree with OP, if you just leave hard earned money of us middle class sit in the bank, it will be eaten away by inflation and fees. Its what our parents did, and its properly dumb. Risk with markets which most don't understand, or invest into real estate which everybody does at least a bit. Most folks consider only these 2 options.
Also, if SHTF, in most cases you will have physical places or even land to live off, instead of few bank statements. People will still have to live somewhere, and there is constantly more of us.
This is important because age of labor and consumers directly influences macro economic conditions, which trickles down to investment returns.
https://ourworldindata.org/uploads/2014/02/World-population-...
The problem goes back for much longer though. Interest rates hav been near zero since the Great Recession, and for most of that period, inflation was also below 2% almost the entire time. Add to that a lot of the year over year inflation we are experiencing is due to base effects eg the collapse of oil prices last year. Current oil prices are hardly elevated from their historical norms.
> Right now, investing in public companies and tech is very risky, as valuations are at record highs. Many experts estimate near-zero returns for decades from public markets.
...is a big red arrow pointing to the fact that we're living in a castle made of sand
if we continue to let pathological incentives drive economic decisions the tide will wipe it all away
purchasing power is a mutually constructed fiction and remains a useful social technology only while material productivity can plausibly support the web of lies we tell each other
now that people have noticed the foundation caving in, it would be nice if we could formulate and incentivize a positive sum response, otherwise we get zero or negative sum dogfights over scraps as you describe
This write up of 80s Japan (from 1990!) is worth a read
https://hbr.org/1990/05/power-from-the-ground-up-japans-land...
It’s also justified as the USA is by far the most dynamic economy in the world and has the most advanced military there to protect your investment in USD.
I wouldn't bet the farm on this one. The US ain't what it used to be and China is rising fast.
I’m happy for China and Chinese people having a better quality of life. But their economy is based on humans doing things inexpensive. It’s essentially a services business, not a SaaS business. It doesn’t scale well but they have so many poor people to exploit that they can make a thing of it.
When the seriously export culture, novel technology, or medicines then sure. When they aren’t a net importer of food then sure. But the yuan is not a serious threat to usd. It’s pegged to it.
> So, that leaves real estate.
That’s a huge leap to jump to real estate as somehow safer than public market investing. Real Estate can also be highly volatile and is also prone to significant drawdowns.
Real Estate also has very high carrying costs relative to other investments. Especially if you’re trying to rent it out, at which point it becomes a business with not insignificant labor requirements, either from you or someone you hire. It’s more of a side job than an investment.
If you’re serious about investing, you shouldn’t be choosing between a bank account or real estate. Those are on opposite ends of the risk spectrum and opposite ends of the work-required spectrum.
Instead, you’d want to do things like dollar cost averaging into equities over time (nobody really invests by keeping it all in cash and then flipping it all into specific stocks in the middle of a frothy market). Or you should be looking into ladder if CDs, or bonds, or something like I-bonds to invest an asset specifically indexed to inflation.
But choosing between a 0% bank account or real estate investing is a major false dichotomy.
Ok, so interest rates are near zero. A ton of money is leaving the bond market and going to stocks. Price of stocks is being pushed up due to the increase in money chasing yield there. These companies didn't get more valuable, your earnings per share just went down. Now you're anticipating inflation as printing money is a great way to get out of the next crisis when your interest rate can't get any lower. This personally leads me to real estate.
> investing in public companies and tech is very risky, as valuations are at record highs
To real estate where valuations are also insanity and at record highs doesn't make any sense.
> To real estate where valuations are also insanity and at record highs doesn't make any sense.
The difference for me is that I saw what was happening in public markets and I bought real estate in a country where this wasn't yet the case. It is now though, so your point is valid.
What I mean is, for example, my house is 130 years old. So it’s in a _worse_ state than it was 20 years ago. But it costs probably 10 X more.
It’s not like houses are a fine wine that matures. Nor is it in any way upgraded or better like a new technology would be.
But up in cost they go, indefinitely. Exponentially. Pointlessly. A complete and utter failure of policy.
I have family who made a fortune off the backs of people living under this delusion in the 1980s and the 1960s.
This is a non-sequitur; lots of things are limited, but often collapse in value. As a former Saudi energy minister once said: 'the stone age ended, but not for lack of stones'.
And all of these countries (except japan/Switzerland) are planning to bring more immigrants in to make sure the population is always increasing faster. Something that most people in first world countries don't realise is that the entire population of their country is smaller than the number of millionaires in china+india. Even if all if america+EU became sterile, there would still be enough foreigners to buy more unit and push the bubble further if they open borders. And they would, because the entire economy depends on it.
As is, people have children who occupy a cumulative more houses with or without others than their parents/grandparents did, and there's not more land being made. So that's why the old land and what's on it go up in value.
Basically, the increasing population (demand) is the cause of an asset increasing in value despite not increasing in quality.
One can make policies which reduces the number people who wish to use homes in the domestic market of a given country if they want to prevent that from happening without expanding the supply massively instead, that may lead to other negative externalities though based on which method is chosen (birth limits, immigration controls, ect.).
Now whether anyone should be allowed to own land is a good question. Lots of folks can’t even imagine a world where that’s impossible, but ownership is just law, a social construct.
It's everyone else's vertically built accommodations that attract the hatred.
“jobs”, “good food”, “nightlife”, “dating” and “social opportunities” are all things i hear. the last two are a direct result of density. the first 3 are only possible as indirect results.
anecdotally, the price per sqft of townhomes exceeds that of detached homes in several Seattle neighborhoods. several confounding factors, including the year of the building, but in general that suggests a preference opposite to what you claim. or at least, that, in the face of constricted supply we can’t really tell where the preferences truly lie.
Anecdotally, in Australia, post COVID both rent and real estate in regional areas have gone up dramatically - much more than in cities - rapidly pricing locals out and forcing them to move elsewhere and sometimes find temporary accommodation. Now that WFH is more normalised and either want a quiter lifestyle or straight up can't afford houses in major cities, so they are moving to smaller towns instead.
My own preferences are fairly different but I can't argue with data.
But if you have to decide between an hour commute and living vertically plenty of people would choose to live vertically.
And the experience of high rise social housing from the 60's and 70's shows that that tower blocs do not solve housing problems.
And eventually those people visit friends or see pictures on social media of people similar to them with large back yards, land and big kitchens - and say, shit, maybe we should look into this.
As it happens, just possibly a black swan pandemic event keeps those folks indoors with their kids and dogs, with their nonplussed neighbors, children running around behind Zoom conference calls, and pictures on social media of people with houses and backyards causing massive envy...
And welcome to today.
That's the housing situation in the suburbs and exoburbs. This is BEFORE even even talk about the insanely low interest rates on offer during this time.
If labour and material costs are also high that increases the value of houses that are pre-existing. It means the buyer does not have to pay extra for and wait for a house to be built, which has some value. Also, there's a certain tolerance that I'm sure many people, if I may project, have for how crappy of quality a house actually is. They just want a damn place to live and call their own. Especially when the market is not in the buyer's favour.
At least that's how it all seems in Toronto. In the city of Toronto proper, a detached house selling around $1,000,000 is almost guaranteed to be of relatively bad quality right now.
House is often a necessary evil - its never what buyers imagine as ideal, but in comparison with going through the hell of building one's own (or also adding tearing down the old) its an acceptable compromise for many.
Life is too short, and no house is worth destroying a marriage.
So if they offer a policy that covers the market value of the house, that's much less than what it would cost to repair/rebuild (so insured people can't afford to get their house back after a fire), and they don't want to offer full repair/rebuild value, as that incentivizes people to just burn the house down because in that case the insurance payment would be much more than what they can sell the house for.
They are both worth more over time.
To build a new house just like the old one will cost more since labor went up and materials went up.
https://www.komatsuforest.com/-/media/komatsu-forest/images/...
A machine grabs the tree, cuts it from the ground, rolls it through a thing to remove all the branches all in just a few rapid smooth movements.
All this to say, many houses are upgraded over time, not merely degraded. I'd much rather live in my house now after the decades of upgrades than when it was freshly made in the 70s.
In most cases every 20 year increment backward yields a higher quality house. Newer houses are garbage in many dimensions.
An older home requires a little more capital investment, but if it has lasted 130 years, it’s sound and could be remade/modernized at a cost well below any new construction.
Investing in real estate is a real investment when it results in houses being built. In fact it is maybe one of the most timeless and obvious form of investment. People have built and traded dwellings through the ages. Prices have to rise when good land gets scarce and labor gets more expensive.
Low interest rates _also_ boost investment in technology and businesses.
Raising rates, if you mean central bank rates, would reduce investment in both houses and technology. Raising interest rates is a signal and incentive from central banks to not invest in anything and instead hold on to government paper.
Raising rates means funding the wealthy's savings by providing them a backstop. When they can't find assets that retain sufficient value on the private markets, they can just hold to government paper having above market returns. I wrote more here a while back: https://medium.com/@b.essiambre/the-world-deserves-a-pay-rai...
And “throughout the ages” is nonsensical, slavery is as old as civilization and yet abolishing it led to wealthier and happier societies.
Imagine if instead of real estate speculation that capital went into creating new technologies and businesses.
Higher prices of houses means there is more incentive for them to be built (or repaired) and for the builders to be paid well. Central banks stimulation is meant to make sure this happens to a sufficient degree, just not so much that builders (and workers more generally) are paid too well that it would drive inflation too high.
Land-lording and economic, monopoly rents are bad, housing developments and rentals being hired out are good.
Even for land, the value is all about how developed it is, which is not zero-sum: one can always develop more land.
In England for example, known as a densely-packed country, only about 2% of land is actually built on, and of that 2% only a tiny fraction is actually dense.
Every newly-built house lowers the value of every already-built house. It is straightforward to specify initial conditions where the result is negative-sum.
The second value is what society should care about increasing, and it should go out of it's way to destroy the first kind of "value".
Do you mean every already-built house nearby or every already-built house in the world?
If you mean nearby then your theory would predict that places like San Francisco, Manhattan, and Paris would be among the cheapest places in the world to buy housing. This is very much the opposite of the truth, so if that's what you mean, then either your theory is completely wrong or the effect it describes is swamped by other effects that are much more important determinants of housing value.
If you mean in the world then I suppose it's possible that you're correct in a market-value sense, since the effect on the price of my house due to someone in Shanghai building a nice new condo would be to drop the price by, say, US$0.00003. But if we're talking about use-value rather than exchange-value (which is the sense in which it really matters whether things are zero-sum, positive-sum, or negative-sum) it's hard to see how that could be true. Perhaps you think the use-value of my house is primarily that it enables me to laugh at the suffering of the homeless beggars of Dhaka? I assure you I spend zero time on that activity.
So I think it's clear that your theory is just completely bogus.
So evidently the main determinant of housing prices is "demand", not your hypothetical effect of houses getting cheaper because other houses are nearby.
What do you think produces "demand"? Why is there more demand for houses in Phoenix than for houses 200 km to the northwest? In some cases, of course, there are real differences in land quality: land that is close to waterways or railroads is more valuable for industry than land that isn't, land that's close to iron ore deposits is more valuable for automotive manufacturing, land that's frozen cold 9 months out of the year is less valuable for human habitation, and so on. But none of these explains the universally observed price premium for land in cities over land in the nearby countryside, which often amounts to three orders of magnitude.
It turns out that the main driver of demand for housing is being close to other housing. So building houses drives up the price of land nearby. Not down, as your theory predicts.
This seems to be conflating the symptom with the cause. I doubt housing is more attractive because there are more houses nearby; they're attractive because more services are nearby. Granted, they are going to correlate strongly but I think it's a mistake to conflate the two.
Consider the following:
1) A house with no neighbors within a 100 mile radius. But it has all the best restaurants, utilities, schools etc. within walking distance.
2) A neighborhood with hundreds of houses, but none of those services within 100 mile radius. It's a little isolated island of housing.
Which do you think would cost more to live in?
It seems like the price of each meal at the restaurants would need to be sufficient for the restaurant to operate for a month or two, perhaps a few thousand dollars. That seems like it would discourage eating at these wonderful restaurants.
Building codes, bureaucracy, and NIMBYism all contribute to construction costs, which in many cases severely constrict supply (SF being a shining example), and thus make existing units more expensive. Focusing solely on land prices is missing the forest for the trees. The problem is that there isn't enough supply to meet demand, so prices are skyrocketing.
Building more housing will drive prices down at best, or slow price increases at worst, but it doest affect housing affordability, which is the original statement I was commenting on.
One of your questions was “Perhaps you think the use-value of my house is primarily that it enables me to laugh at the suffering of the homeless beggars of Dhaka?”
I think omitting a proper response to that question is more courteous than discourteous.
If by "developed", you mean "built upon", that's empirically not the case:
Here's an empty lot in the heart of San Francisco for $2 million dollars: https://www.fortressofdoors.com/content/images/2021/08/image...
Here's a building next door to it on a similar sized lot for $2.3 million dollars: https://www.fortressofdoors.com/content/images/2021/08/image...
Location, Location, Location. The vast majority of the value of urban real estate is land (locational) value.
The same land in the same location, with no development nearby, would be worthless.
Advocates of a land value tax therefore often call it a location value tax, or a site value tax, because it is the location and the society around the location that has value, not the dirt itself.
Cities need to be supported by enough resources -- that includes enough water, proximity to arable land, hospitable climate, and ease of access. The 2% figure you quoted can be a bit misleading because we can never develop 100% of the land into houses.
But as Japan/China/Korea has shown, it is probably still very possible for England to become much denser than it currently is. It would require all the residents to change their lifestyles to match though.
Any land is arable if we want to. See Phoenix.
That just pushes it to another zero sum game of money.
My point is that in a world of finite resources, it's going to be zero-sum at some point whether that's land, water, money, labor, or something else. It's not good or bad, but you do have to pick your poison to a certain extent.
There are residential and agricultural technologies that dramatically reduce water usage. For instance drip irrigation. Also the city of Las Vegas recycles almost all the recyclable water and consequently is extremely efficient at using water
I’d worry that it would upend agrarian economies (in the short and medium term, at least $
Those who already own property (myself included) are participating in a system that is increasingly pulling up the ladder on those who wish to join. The housing market is one of the least free. Rules requiring bedrooms have 2 points of egress and that building have minimum fire resistance are fantastic and need to stay. Rules that do things like prevent 2, 3 and 4-plexes, mandate a whole city can't go above 4 stories, and require 1:1 parking for every adult need to get tossed out right away.
In places like California, simply strictly applying the existing rules would be a huge step forward. Instead, even projects that are 100% compliant with all building and zoning rules and already granted building department approval are subject to an endless and often patently illegal "community review" process. See, e.g., https://www.sfchronicle.com/sf/article/State-gives-S-F-30-da... and https://www.sfchronicle.com/sf/article/Supervisor-Mar-pushes...
Under Supreme Court precedent such ex post facto community "vetoes" are unconstitutional. The community votes by passing laws a priori, not through ad hoc, targeted manipulation of the regulatory review process. But for complex procedural and policy reasons the Supreme Court has unfortunately been too reticent to police violations of this principle. My disposition is toward federalism and local control, but in many cases the system is violating fundamental principles in our society about the creation and application of law. Principles even more basic and fundamental than property, free speech, or personal liberty rights.
States like Oregon and Washington that greatly limit supply are widely praised for their natural beauty and conservation precisely because they don’t chop down forestry to build cheap homes to sell to the CCP.
Fools have created an acronym - NIMBY - to denigrate those who don’t want to waste land just for personal financial gain. However, there remain very real benefits to conserving forests and very real consequences to turning every square mile of land into an AirBNB. The landlord won’t live in that area and the renter won’t stay in the area long enough to care about the area but the long-term residents will pay the price regardless.
Coming at this from a UK perspective, housing is a nightmare here too. But our green belt is at an all time low and London is an unbelievable sprawl. No, I'd rather rent forever than ruin the countryside.
Also very little of the NIMBY vs YIMBY debate is whether or not to turn forests into condos, it's almost also SFH vs denser construction.
City center land > suburban land > rural land > land on Mars > land in faraway galaxy.
There is always scarcity of land even though there is an infinite capacity of it across the Universe.
There is a social role to be played here, whether homeowners do it themselves or landlords do it.
Food, clothing and shelter are basic needs. Providing one of them is most certainly creating value.
Real estate is not zero sum. Having shops, schools, offices, factories and whatnot around your real estate makes it more valuable, not less.
There is a problem now around the world in many cities where a great deal of value is created in that government has made it too hard to build new dwellings and the price of dwellings has been rising.
However, there are also cities around the world that have had a lot of growth while having reasonably priced houses.
In 2000, Houston had a population of 3.8M in 2020 it was 6.3 M. From
https://www.macrotrends.net/cities/23014/houston/population
They have also managed this with affordable housing.
That's something to learn from.
Sydney (some of the highest house prices in the world) has a few new estates built outside the city but they suffer from no schools, no shops (except a strip mall equivalent), no parks, no tree cover, and general shoddy building work.
https://www.theguardian.com/australia-news/2021/nov/16/ultim...
Empirically this does not seem like a problem in the US at the moment. Large US banks are starved for lending opportunities, and turning away deposits for lack of balance sheet. The Federal Reserve bought corporate bonds. Lending conditions are loose (see links)
https://fred.stlouisfed.org/series/DRTSCILM https://fred.stlouisfed.org/series/DRSDCIS https://fred.stlouisfed.org/series/NFCICREDIT https://fred.stlouisfed.org/series/NFCI
And yet there is literally millions of people begging for a opportunity to get a unit in large/rich cities. If there was no value to it, why does everyone cares so much about living there?
If you truly believe what you say, than you better never ever complain about home prices. Paying 100$/ft² for a massive modern house in a shithole place is an option that is always there for you if you think location doesn't matter. But let me guess... you want to live in [insert big city near your location] but people richer than you also want to and they priced you out
I can afford the mortgage by myself. I won't have to deal with the city over problems $600 / month rent control tenants create when they were mad at the last owners. I won't have to pay $6k going on $20k to evict a tenant who requests a jury trial, not to mention house them for free for 6 months. My city already has a housing shortage and I am strongly considering just having an awesome SFH instead of this.
Every incentive seems to be against the use of this property. Rent control causes individual landlords to subsidize the poor societal zoning policies. Legacy rent control tenants also distort the market, raising the price of other units at market rate. It also lowers the income that would be put toward building more units. This property is zoned for 15 units and I would love to build those. Any extra income would be going toward that (as is my personal income). Instead the incentives are for this property to limp along so no one has to move ever.
From World War II to the early 1970s, the utilization of existing US capital equipment rarely dipped during the worst of a deep recession, to what have been the highest levels of capital capacity utilization rate since the 2008 financial crisis. The old lows have been about what the new highs have been. This indicates an overabundance of capital investment and overproduction, which was the opinion of former GE CEO Jack Welch.
https://www.federalreserve.gov/releases/g17/revisions/Curren...
If you want a vibrant, sane, and fair rental market, we’d need an actual free and fair market in the first place.
that's different from providing rental housing, whereby owners earn rent by constantly working to provide safe and desirable housing. capitalism is premised on the idea of using markets to drive down prices to the marginal cost of production plus a small industry-/market-specific risk premium. rent-seeking is entirely counter to that.
I can easily imagine a society, capitalistic or not, that doesn't subsidise land speculation, which doesn't suffer from real estate bubbles.