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Comment by estearum | Hacker News Reader

It's worth being precise about this because it's a really important point. Most people who we call "landlords" are simultaneously a landlord and a property manager. Property management is an important and productive job. But the vast majority of such people's financial outcome is actually from being a landlord, that is doing literally nothing except holding a piece of paper granting them monopoly on a plot of land. That plot of land's value (separated from the buildings on top of it) is generated, by definition, by the community surrounding the plot.

So when you say landlords are the least productive class in society, it is that they are totally unproductive by their nature. There is literally nothing to be produced! The land is there regardless! Then the fact that they collect a tax on consumption of a good they did not create makes them a negative-productivity component.

If you remove landlords (but keep property managers, developers, etc, which are all different jobs sometimes played by the same people), it would be a strict improvement to everything about our economy.

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I'm going to assume ignorance and try to explain why landlords exist. Of course you could already understand this and have this as an ideological stance, in which case my effort is likely wasted.

Landlords assume a similar role in economy that banks do, they assume risk on your belalf. We have quantified this to an extent that you can reliably put a dollar amount on how much risk there is.

When you are renting and there is a job change or war or natural disaster or really, anything inconvenient at all, you can more or less walk away without losing much.

Landlords do not assume risk in their role as landlords.

The land is there regardless of whether anyone "takes on the risk."

Landlords often take on risk in their role as property managers or developers. They should be rewarded more for that, and not at all for their simple ownership of land, which again: would be there regardless of whether someone else or no one at all owned it.

We need to draw a box around the property owner, the previous owner, the owner before that, etc, because the current property owner does take price risk, but only by virtue of the payment they made to the previous property owner and so on. The intra-chain P&L distribution is not a legitimizing factor if you believe the entire ownership structure is an exercise in rent seeking (in the economic sense -- as you point out, development and management are not economic rent and I'd add abatement to that list).

Equivalently, we can just pretend that there has only ever been one owner.

The risk inherent in the ownership of land is having too much of your wealth concentrated in it, and having used leverage to purchase the land. Both are true for a large fraction of landlords in the world.

A real estate bubble bursting or anything that makes your area unappealing to live in would suddenly be really problematic and in the case of leverage get you negative equity.

Just because you can lose money does not mean you are "taking on risk" in the way a bank or insurer does.

If they didn't "take on that risk," the land is still right there being land.

That is not true for banks or insurers, where if no one was willing to hold that risk then the inverse product wouldn't exist.

Banks hold money for you, the cash would still be under your mattress if the bank did not hold it.

I'm sure you have a philosophical point here, but this is exactly how the modern economy prices risk. Your understanding of the semantics of risk is not being questioned here.

Uhhh... banks do not "hold money for you." You think banks pay you interest to have the privilege to... hold your money?

No.

They pool deposits and they lend it out, taking on the risk of doing so with the guarantee they will make their depositors whole. This is called "taking on risk," and they are paid for this service (among the other instrumental services they provide in order to make this happen). Without banks providing this set of services, these deployable pools of capital would not exist.

This is absolutely not the same as the price risk that any asset holder has, and it is not what landowners are paid for.

It's not a philosophical point. It is literally a question of who is getting paid what, and why?

Landlords assume artificial financial risk entirely created by landlords

Of course, that's how risk works.

Any high risk high reward strategy gets you in charge of creating the risk to chase a higher reward.

The math is fairly similar between spending 10$ to buy a call option and a 1 million down payment to buy a 10 million property with 15 apartments to rent out.

Then let's make a government run lottery where you either get infinite money or you die. Huge risk, huge reward, right?

As you wrote this, several hundred young men from Russia accepted a bet very much like this.

The missing piece in your comment is the motivation for the government to run such a lottery.

I'm told it creates wealth.

Those same landlords also control many of the levers that might cause their investment to be less profitable.

Definitely

This is why strong regulation is important.

When ownership shows up at zoning meetings, the main risk they seem to be concerned about is accidentally letting someone build enough housing. Heaven forbid!

Anecdata here but I'm a landlord in an area with low 10s of thousands of residents and low 100s of rental units. I absolutely do not care about new housing being built, other than encouraging it because economic development of the town is good for everyone.

My neighbors, the homeowners who don't rent, are typically on the other side. And it's not unreasonable to want to keep SFH neighborhoods predominantly SFH.

My main risks have have absolutely nothing to do with more housing. It's more physical risk to the property and depreciation.

Are you perhaps too privileged to have seen situations where owning land is a liability?

As we speak, close to a billion people are in the middle of ongoing wars. There are entire countries where land is worthless. Ukraine has several hundred square kilometers of land with a thick covering of fiber optic cables from drones.

A better first world example is laws change and now this site where you were gonna build self storage for 20yr before selling out to an apartment/office developer is now worthless

We have seen forest fires burning city blocks in west coast cities in the recent past, can't get more first world than that.

If you think insurance will save you, it might not if no one is willing to insure your property (large true in California nowadays) or the insurance company goes bankrupt in a crisis (happens pretty much all the time).

Why on Earth should I feel the slightest obligation to make whole some jerk who bought the right to kick me off a piece of land and lost money when that right became less valuable?

I have a much better idea: point, laugh, and say "sucks to suck!"

I did not say anything about how you should feel. That's up to you.

I'm telling you why the system works like it does now. You can, of course, choose to deliberately not understand it.

If you didn't mean to imply that I should feel an obligation to compensate the risk of a capital loss, what was your argument?

No, the system works the way it does because it was built by the rich, for the rich, to ensure they had a way to get paid for being rich. You can, of course, choose to deliberately not understand that.

That's an amusing misunderstanding of history. I can see why you'd feel this much animosity if you strongly believe this.

Good luck changing things without understanding how they work though.

Enjoy the high interest rates <3

> I should feel an obligation to compensate the risk of a capital loss

Where did they say that?

"Landlords ... assume risk on your belalf."

That means the opposite of what you're telling everyone it means. When someone assumes risk it means the risk is theirs. You're debating the meaning of English words right now.

I take your overall point about rich people making laws. But on this specific point you're wrong. Take the L.

Perhaps you misunderstood what assuming risk means?

No, you just wish I misunderstood.

> If you remove landlords (but keep property managers, developers, etc

In this scenario, who owns the property? And if you are advocating that everyone should own their home, what is the point of a property manager? What about the people who do not actually want to own their home?

This is exactly my problem with these arguments that demonize landlords. I've lived in multiple cities where I knew I'd only live there for a couple years, and I'm only interested in renting. How do you live somewhere short term without someone owning the rented property?

Swapping the base layer of the capital stack has zero visible change to the person renting. In fact, I'm pretty sure it's common in asia.

Instead of:

    Investor owns the land
    Investor pays for construction, finance, maintenance
    Investor receivers rent

They do:

    Government owns the land
    Investor pays to lease the land for 30 years or whatever
    Investor pays for construction, finance, maintenance
    Investor receives rent

The active roles don't change, the market that keeps them dynamic and competitive doesn't change, but the firehose of passive money goes into tax revenue instead of some rich guy's pocket.

This is the correct answer

You could buy property and sell it later.

Of course it is not a solution to current situation when real estate are very expensive, but in theoretical discussion where real estates are affordable you can buy it and sell when you move.

But I don't want to buy a home, maintain it, and have to sell it 2 years later. Renting provides a great solution that makes both sides of the transaction happy.

> You could buy property and sell it later.

Real estate transactions are extremely expensive. Even if you sell the property for the same price you paid for it, you lose a huge amount of money in the process.

This is not a replacement for renting.

They can be privately owned and have the land value (unearned value, by definition) simply taxed away.

Or you can have the government own the land but do long-term (99 year) leases, like they do in Singapore.

Singapore has the correct approach. Land Value Tax is the incorrect approach.

LVT has the same vulnerability as property tax: owners can worm their way into the policy details and redirect the surplus back into their own pockets. Leases bypass this problem through the competitive bidding process.

Community land trusts, cooperatives, nonprofits, universities, local government, etc.

The problem is always financing. If you're going to own a place you need a lot of upfront capital. If you own a place and plan to maximize rent increases it's easy to leverage your new asset to buy more properties. But if you just want to keep it near cost then you need a new infusion of capital for each new property. So, by their nature such endeavors don't grow as fast as rent maximizing landlord can grow.

The problem is not capital here. Universities and governments have quite a bit of capital. They could do this in a larger scale.

It's more about risk management. Do you want your university to be disbanded or your local government bankrupt if there is a war or natural disaster, or even a standard city block fire.

I assure you wars and natural disasters are not that uncommon in the grand scheme of things. That's why we have people or corporations with a higher appetite for risk assume the risk. These entities, unfortunately, don't always have your best interests in mind.

What cities in the US have the capital to do this at a large scale? Risk management is certainly a part of it but every discussion here in SF and broadly in the CLT movement is about how to get capital access.

A university endowment or a city's tax revenue is legally and structurally earmarked. They can't just liquidate those assets to buy for local real estate. For the non-profits and community land trusts actually doing this work, securing patient, low-cost capital is absolutely the primary bottleneck.

The high leverage of private landlords actually makes them more vulnerable to systemic shocks. Meanwhile, non-market housing models (like land trusts) don't over-leverage their properties, which is exactly why they historically have much lower default rates during crises.

Given the option of landlords making bank for their risk and then getting a government bailout when there's an economic shock or having more housing decommoddified I'd take the latter. There's very little housing in the US that is under these alternative structures so at the very least I'd encourage more experimentation with them.

More experimentation sounds great.

Most of the knowledge we have about what works and what doesn't is from decades ago.

The steelman interpretation would be that government is the only party allowed to own rental properties.

Nobody would be allowed to rent out a space they owned because it would turn them into a landlord. All of the rooms people rent out to others would go away. You wouldn’t be able to rent a private house from someone, you’d have no choice but to live in government owned housing developments.

This would be incredibly unpopular if implemented because it wouldn’t resemble the utopian fantasy it’s supposed to represent. It’s a vacuous idealism in the same category as “billionaires shouldn’t exist” that serves as a placeholder for an unspecified utopian government-run economy. The details are never specified, you’re just supposed to imagine it works and nothing is lost as a tradeoff.

That isn't a steel man

I think Vienna somewhat functions like this, and it seems to be fine. Not that individuals can’t literally own property and rent it out, but that most housing options are government owned.

actually a lot is privately owned, but by law 2/3rd of every rental property must be offered as subsidized by the city. so in practice you own the building, but the city decides who gets to rent 2/3rds of it since the subsidized units are only given to people who have a low enough income.

Interesting, thanks for the clarification.

> If you remove landlords (but keep property managers, developers, etc, which are all different jobs sometimes played by the same people)

You need to be specific about what you mean by “remove landlords” because that’s a nonsensical statement by itself.

Some party must be responsible for the investment to produce the property. Some part must own the property.

The most charitable interpretation of what you’re trying to say would be that private rental contracts are forbidden and the government would have a monopoly on renting properties out. So only the government could own properties that are rented and the entire rental market would depend on how much housing the local government decided to build and manage.

Is this the most charitable interpretation?

You could, for instance, require people who own habitations to actually live in that location. You could tax people who own property they do not actually live in very aggressively until they would be willing to sell for less to avoid the tax burden. You could have a system which taxes aggressively and builds lots of houses and gives it to people who own it as long as they live there.

There are quite a lot of ideas between "government owns everything" and "let vampire landlords do unlimited rent seeking."

As it happens, I think there is quite a lot to be said for the free market solution of just letting supply meet demand more or less freely, but I think your interpretation really is not the most generous one.

You tax away all the gains generated by the land value, which effectively eliminates the "landlord" component of a rental fee and directs the owner's incentives toward producing value via construction, improvements, or services instead of rent-seeking on an asset they did not create and which would continue to exist if they never set foot on it.

> You tax away all the gains generated by the land value, which effectively eliminates the "landlord" component of a rental fee and directs the owner's incentives toward producing value via construction, improvements, or services instead of rent-seeking on an asset they did not create and which would continue to exist if they never set foot on it.

Wishful thinking to imagine that landlords are going to suddenly become homebuilders instead.

That money is going into other investments, like the stock market.

In the process you've destroyed the availability of rental housing.

Better question is: Why are you so focused on punishing landlords instead of getting more housing to market? These conversations always seem to revolve around punitive measures against landlords and rent-seeking, completely forgetting what problem we're trying to solve.

In many cases, the proposals are so backwards that they would disincentivize new rental construction and reduce new housing supply.

Huh? Why would I care what landlords decide to do with their time?

Lol, landlords do not create rental stock. Developers do that. Property managers manage it. They should be rewarded for doing so. Instead we reward landowners for holding a piece of paper.

It has nothing to do with “punishing” landlords. It has to do with paying people for behaviors we want to incentivize. Developers and property managers do useful things we want more of. Landlords do not. We should not pay them for doing nothing of value. Why are you so fixated on giving landlords money they did not earn?

It’s simply not true these proposals would disincentivize rental construction or reduce new housing supply. If you think it would, you need to think a bit more.

Go ahead and plug into your favorite LLM: “Does a high land value tax incentivize or disincentivize production of new housing stock?”

Here’s the first line from Claude: “It strongly incentivizes new housing production. Here’s why:…”

You simply don’t understand what’s being proposed if you think that would be the effect.

Why is the landlord being unproductive relevant? If the government owned the land, they would never sell the land, so the concept of land appreciating doesn't exist. The only difference is that the government would possibly rent at-cost, but the profit margins for landlords are not the main factor driving up rent. Get rid of landlords and the rent prices would decrease only very slightly.

> But the vast majority of such people's financial outcome is actually from being a landlord, that is doing literally nothing except holding a piece of paper granting them monopoly on a plot of land

This is how I know that you've never tried to run houses. If you hire out a property manager and all of your maintenance you are not making money.

I have to be an electrician, a plumber, a painter, a drywaller, an engineer, a salesman, a delivery driver, a businessman, an appliance repairman and a lawyer. And that's to make a measly 8% on my money.

> There is literally nothing to be produced! The land is there regardless!

No one rents bare land. They are renting a depreciating asset that you have to upkeep.

Yea yea yea, Henry George says that the value is provided by the citizens around your property. I call bullshit. The value is the shelter, the heat, the comfort. That's what people need.

Shelter, heat, and comfort? No: Location, location, location.

A crack shack with a busted roof and broken utilities in a good location sells for the same price as a pristine, functional mansion in the middle of nowhere.

No I do "run houses." I bought a house, rented it out, paid a bit for maintenance throughout, covered the entire mortgage the entire time, then sold it for 50% highly levered capital gain in ~4 years.

It's not because I'm an awesome landlord or property manager. I did the bare minimum. It's because the location appreciated thanks to the community surrounding the house, which is the driving force of the vast majority of gains in real estate.

Landlords complaining is honestly some of the funniest stuff on the Internet. I really appreciate the lols.

You were lucky to not have to deal with vacancies, non payments, turnover, rehabs, or capex. I don't think your experience is the common, and it certainly won't scale like that.

One tenant losing their job, getting some sort of medical issue, or even a poorly trained pet can reverse 2 years of profit. These happen all the time.

Personally, the keyboard jockeys talking about how easy contractors have it is hilarious, so I guess we both get a laugh today

If you buy in an area with appreciating land values (i.e. most of them, given the dynamics of land and population), then you have to be a dummy to lose money owning land.

"And that's to make a measly 8% on my money."

Amazing how many people insist on being landlords despite it apparently being a life of sawdust and sackcloth.

Seriously. These posts are always like: "bro I had to text plumbers and then pay them to fix problems. I had to like... work... like 4 days a month... texting plumbers."

That's just not how it works. If I was to call a plumber and a sheetwaller, and a painter, I would be paying $6-12k for a leak. This kills any idea of profit for this year.

What really happens is that I put on my big boy pants, I talk to the tenant, I visit the unit, I crawl under the house, I cut out the drywall, I remove and patch the plumbing, I replace the drywall, I mud the wall, and I paint the wall.

I could have it the way you suggest, pay 10% to some property manager and 1500-3000 for any call to any contractor but that means... I'd have to raise the rent, and not by a small amount.

At the end of the day I'm a housing provider, so I'd like to keep rents and vacancies low. This seems to be what tenants want too.

So yes, I'm doing the best I can, but no, my work is not encompassed by a phone call

I'm not sure how you choosing to personally save money by DIYing rather than paying a professional counts as adding value for anyone but yourself, but okay.

A landlord is doing exactly the same thing as an investor. They are tying up their capital in exchange for an income, and the possibility of a capital gain.

The difference is that investment in a company can create “more company”, whereas investment in land can’t create more land.

> investment in land can’t create more land

But investment in housing can definitely create more housing, and that is by far the most common type of landlord.

Then let's move all land ownership to the government and let landlords build housing on it

The landlords could then pay rents to the local government. We could call that landlord taxes or something and use that to fund local services with them. Wait...

Property taxes are voted on by property owners under the steepest moral hazard while leases are actually competitive: this is the difference between the government capturing a minimal vs maximal fraction of the land rents.

If you genuinely think there is little difference, why do you care so much about not switching to a lease system?

Chicago has relatively affordable housing purchase prices as property taxes are very high. The government has taxed away property appreciation. Unfortunately the deferred compensation promises they have made to public sector employees are coming due and further tax hikes are needed.

As described above, a landlord is not a developer is not a property manager. Sometimes a single individual plays multiple roles, but that does not make them the same inseparable job.

You can improve the land, build more units, replace an small old house with a 4 story apartment building, etc.

Correct, which you should be rewarded for as a developer. I recommend 0% tax on improvements and 100% tax on land value.

Without land ownership, how is it decided who gets to develop what where?

The most popular proposal (from Henry George) is to maintain individual land ownership, but impose a land-value tax that approaches 100% of the land rent.

The result is that real estate basically sells for roughly what it would cost to rebuild whatever is built on the land.

There is still a premium charged (in the form of LVT) to allocate access to desirable locations, but the revenue goes to the government/community instead of the previous owner. And the eliminating the incentive for land speculation should actually reduce overall costs.

I didn't say no land ownership. I said tax the gains of land ownership. Nothing changes about who decides what gets built etc.

That is not a problem, but the problem is that now they are financially incentivized to screw their tenants as much as possible. With a different capital project, sure they're screwing their customers, but at least I go shop at a different store. Humans need housing, and moving is annoying and expensive.

How is a property being used for housing not productive?

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