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Comment by pg | Hacker News Reader

Structurally this practice is a lot like the preindustrial precursor of taxation, when governments would sell monopolies on the import or production of things in exchange for a lump sum.

When obsolete government practices persist, they tend to be pretty sinister.

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I've brought this up in another thread, but over in the UK, due to a lack of property taxes, its possible to purchase a home, yet stil have to pay a yearly ground rent to a private party. The cost to own land in nothing, so there's little incentive to ever sell it, and instead lease it out. People may complain about property taxes in the USA, but it prevents this very practice from happening. It would be better for everyone if the medallion system switched over to a yearly taxation/bidding system. You would lose all these middleman renters.

I don't understand .. why would you purchase a home without the land it rests on? In a free market, perhaps there is some lower price where you would do this, but there is also a higher price where you could purchase the land as well.

Because that's the only type of home on the market!

Well, argumentum's point is that presumably there is some cost at which the ground holder would sell the land.

Like, if the ground rental brings in $10,000 per year to the owner of the title, and I came along and said, "I will pay your $1,000,000 for the title," well... I'm offering you one century's worth of ground-use fees up-front. Presumably all but the most irrational actors would sell their ground.

Of course, but that's nitpicking. The point is that the price is well out of reach of the average Tom.

Well, but why is it out of reach?

I mean, the same guy ("Tom") is going to be giving you money one way or the other. Either in bits and pieces as ground lease, or in lump-sum as purchase.

If you simply want more money than Tom can pay, well, you're out of luck. You don't get any money if you price your tenants out of the market.

If there is an amount of money that Tom can afford to pay in ground leases, then why can't he get a bank loan and make you an attractive offer on the purchase? My earlier example of 100 years rent was extreme to make a point. What if Tom offered you 20 years land rent in an up-front lump sum? Maybe not every land-owner would consider that a good deal, but it's hard to imagine that none of them would. The land-owner gets a present value that exceeds the future value of the rent to them, the bank gets interest, Tom gets synergistic value from now owning not just the house but the land.

I'm not sure adding £1,000,000 to the price of houses is a rational solution to ground rent.

I suspect you'll find the economics are such that most home owners wouldn't be able to afford to buy the land their house is on.

So what happens. Presumably there is a completely parallel market for land. Land owning elites presumably buy and sell land all the time and homes are bought and sold all the time as well. The two rarely intersect? Or maybe those that can buy land can easily buy the house as well? Very confusing. In US effectively the local government and the state "own" and you are just leasing it. There is not parallel land market unless jurisdiction lines get redrawn for some reason or a states secedes from the Union or something like that (you can imagine some negotiations then where the city say, this land with homes brings in $45M in property taxes/year, we wish to sell it for $1.3B cash...) of course this is all hypothetical...just to make a parallel.

Usually it's not a house, but a block of apartments, each of which are owned individually. It's usually cost prohibitive for someone who owns one apartment in a block of twenty to buy out the land for all twenty.

Once there are separate owners (for whatever reason it happened), it's not that easy to arrange that - since the land owner usually does not want to sell.

What if they do sell? Can land owners do whatever they like to the home owners? Like kick them out? Start drilling tunnels through the land, extract oil in the back yard?

Unscrupulous landlords will increase the rent.

Usually the home owner will have a lease that lasts for 99 years (or at least the person who first built the home had a lease for 99 years...).

Mortgage providers won't give you a mortgage term that ends after the lease does.

People buy Condo's all the time. Also, in the United States, you very often give up mineral rights. So you may own the "ground" your home is on, but you don't own whatever comes out of it.

Condominium owners usually own a proportional share of the land that the building rests upon and the common areas of the property.

That seems almost like a scam. Kind of like time shares.

Why would that be a scam? If anything, it protects the unit owners from things like the landlord selling the building and forcing everyone to move. You can't sell an entire condo building and land without clear title from every single unit owner.

Not really.

Some more info: http://en.wikipedia.org/wiki/Fractional_ownership

http://en.wikipedia.org/wiki/Concurrent_estate

Condos differ from time shares. In a condominium, you own 100% of a unit and everything inside the boundaries of that unit is your responsibility (repairs, damage, upgrades, etc). You also have exclusive access to that unit (nobody else can use it, unlike a time-share).

You own a fraction of the land that the building sits on, and a fraction of the "common areas" (lobby, swimming pool, parking lot, etc). You are responsible for contributing for the maintenance of those areas, or paying assessment fees to a management company that will take care of those areas.

Well, what if most houses in an economy were what we called apartments?

Also, in China, the people (gov) owns the land. We are only entitled to a 70 year lease on it. Oddly enough, this is applied to housing (apartments) also. But China also lacks a property tax and so has all the bad speculation behavior and rent-seeking that goes along with that.

I used to live in a city with a community land trust. You can buy the house and get a long-term lease on the land but the land trust (a non-profit organization) retains ownership of the land. They also have a right to buy the house back when you sell it, limiting you to 25% appreciation.

The intention is to keep house prices affordable. (Sort of an upscale trailer park, now that I think about it). If you had the means to buy elsewhere, you probably would.

http://en.wikipedia.org/wiki/Community_land_trust

Ground rent exists in the US as well. Baltimore has a lot of it, maybe Philly as well. A few years ago people were losing their houses over $30/yr bills from someone who found their great-great-grandpa had the ground rent title on whatever property.

"Baltimore's arcane system of ground rents, widely viewed as a harmless vestige of colonial law, is increasingly being used by some investors to seize homes or extract large fees from people who often are ignorant of the loosely regulated process, an investigation by The Sun has found."

In Hawaii it's pretty rare to be able to buy a property fee simple. Mostly it's long term leases.

We don't have yearly property taxes in Australia, just council rates which are usually around 0.2% of the house valuation (which is much lower than in the US AFAIK). However we don't have the split land/house purchasing like in the UK (or it's not very common at least) - I wonder why?

The UK is the type of place where every last square inch of land has been claimed and defended several times over. Australia likely has plenty of land that no one is in a hurry to claim.

The property market underwent a huge decade plus long boom in Australia, with land prices rising astronomically. There are all sorts of rules for land development in place, and limited availability for development in the major cities. It's not quite as bad as the UK, but it's not like we have huge chunks of land to spare.

I assume it's either a result of property law differences, or the sheer length of time land has been available to own in the UK. Would love to know more about it.

I can recommend the book "The Poor Had No Lawyers" for some background on the history of land ownership in Scotland:

http://www.amazon.co.uk/The-Poor-Had-No-Lawyers/dp/184158907...

It may be important to note that while Australia has a huge amount of land, most people live in the cities. Australia's urban population is 90%, versus the UK's 80% and the US's 82%. There are only a couple of large countries higher than Australia in this regard.

We have fooled not only the world into thinking we're all outback-dwellers, but also ourselves. What we like is tarmac and suburban strips.

http://en.wikipedia.org/wiki/Urbanization_by_country

We most certainly do have yearly property taxes in Australia. Your principal place of residence is exempt. Your holiday house, or your office building is not.

That is why residential property is almost entirely freehold not leasehold.

Aha, thanks for the clarification.

"However we don't have the split land/house purchasing like in the UK"

Of course you do [1], and it's even very common. My cursory Google search shows that in Victory, the state with the most private ownership, 40% of all land is lease hold. Other states even more! The whole city of Canberra is leasehold. That said, it's mostly leases of Crown land, so the economic incentives are a bit different from leasing land from a private owner.

[1] http://www.actpla.act.gov.au/topics/property_purchases/lease...

Hey, no fair taking away this part of my comment! "(or it's not very common at least)"

But when you say "40% of all land is lease hold" - are you talking all land now? I was talking about residential housing, and should have made it clearer I was talking about the domain I am used to, i.e. houses in major cities, i.e. in my case Brisbane, Sydney and Melbourne. Having a quick google around and it looks like in rural areas leasehold is more common.

Interesting to learn more about this stuff, thanks for the link.

Property taxes make a ton of sense for buildings which are not primary residences. If you don't live on a piece of land or operate a business there then the property taxes need to be high enough to discourage ownership and should promote highest and best use.

That and the fact that the US is 1/7th as densely populated as the UK (UK is 260 people per km, the US is 34/km). The US is #179 on the population density list country wise. If someone won't sell you a piece of land, there's a vast supply of other land to look at. The only place you'll run into a problem is in a few high density metros like NYC.

Those are pretty dishonest stats though considering the vast majority of that land is extremely rural and much of it is owned by the Federal government (the Feds own 28% of all land in the country). The UK doesn't have something like Alaska which is both huge and empty (Alaska alone is 7 times the size of the UK, but has just 730k people).

If the US ever had a land crunch, it could easily open up vast new tracks of land for settlement via the US Govt. It's very valuable to have that ability. The Feds are already beginning to sell off their hoard of property due to fiscal problems.

That's assuming anyone would want to live on the barren North Slope of Alaska. Just because it's land doesn't mean you can live there comfortably...

There's plenty of suitable land in the US that isn't barren frozen waste or barren desert.

I think there's definitely something to this, because land taxes aren't common in Australia, either, and yet almost all houses there are freehold house and land.

Doubtful. Land taxes are extremely common in Australia. All land is taxable, however exemptions exist for your own principle place of residence (ie home). If you own a holiday house or investment property then your are liable for land tax. That is the reason houses are primarily sold freehold as opposed to leasehold.

In practice, though, it's not that different to property taxes, just that the land is owned by some lord instead of the central government. The effect is just the same. Nobody really owns their land, whether leasehold or freehold. Ownership is really just a right to exclusive use in the best case.

As the old saying goes, if you want to know who really owns your land, stop paying taxes and find out.

The cornerstone of democratic philosophy is that there's a huge difference between a central democratic government and some lord.

In theory, yes. In practice, not so sure. As a little guy I still owe someone money even though I "own" the property. There is also mineral rights and such that make it complicated. Then zoning. At the end of the end of the day someone comes and slaps me for not paying them "rent".

Not to mention eminent domain - where if your property makes sense for a freeway, pipeline, or, in a new twist, a shopping mall if doing so will improve the "Public Good" - someone can basically just pay you what they calculate as fair market value and tell you to move.

The significant difference is that taxes are assessed on an impartial basis - usually a percentage of current market value. The classic problem with landlords is that tenants have no incentive to increase productivity when the landlord captures all of the gains by increasing rent. Even today, businesses often end up in situations where the landlord sees that they're doing well and jacks up the rent in the belief that moving to another location will be too disruptive. My municipal government can demand property tax, but it doesn't hike it every time I get a raise at work.

Referring to 'lord' here is actual lords, like the Lord of Westminster. When I lived there, I paid something like 55 pounds a year into the lords pocket for use of the land.

Landlord in your usage is a different terminology. In the UK a lord with lands either doesn't have the ability, or in practice, does not raise the land rents arbitrarily. Perhaps someone knowledgeable in UK properly law could weigh in.

As other have said, in theory it is different. In practice it isn't. A single property owner has about as much chance of swaying the central government as they have of swaying the earl of whatever.

There is no direct connection between being a landlord and being a Lord - you don't become a Lord by selling someone a leasehold neither are you required to be a Lord to do this (it's just a contract).

Of course, a number of famous landowners are Lords - notably the Duke of Westminster who owns vast amounts of London:

http://en.wikipedia.org/wiki/Duke_of_Westminster

Any country that actually believed that would have true allodial title.

I thought council tax was property tax.

Exactly. A majority of taxi drivers do not own medallions. But decades of being on a "wait list" for the right to buy one and FUD by taxi companies causes a lot of them to dislike ride sharing, when, in reality, it's a huge net win for them.

I never made the connection to selling monopoly import licenses, but that's exactly it.

See also: liquor licenses, various types of zoning permits, etc.

In certain states and cities with especially draconian licensing systems and quotas, the aftermarkets for permits and licenses tend to get ridiculous. Not quite as ridiculous as taxi medallions, but pretty ridiculous nonetheless. (Liquor licenses in certain parts of California have broken the $200,000 mark at auction, for instance).

In healthcare many states require "Certificates of Need", before building any healthcare facilities or even buying equipment. I think it is cost control by granting monopolies. If you eliminate competition, the providers will be able to operate more efficiently and lower costs... I kid you not, this is the explanation.

"When obsolete government practices persist, they tend to be pretty sinister."

How might you propose to compensate people who, in good faith, bought taxi medallions (a legal practice)? (Or do you feel that's not necessary?)

Here in SF they are illegal to sell and must be issued to a person (not a company). People get on the waiting list, get their turn, then rent them to taxi companies for (I believe) ~$100K/yr. Many medallion owners have not driven a cab in years, or never have.

The article said it pretty well.

>So, medallion holders speculated in holding a government asset and lost. Some of these people are also taxi drivers or operators of taxi dispatch companies. Like Greek bondholders, they gambled and lost big.

"So, medallion holders speculated"

Don't agree with that at all that is what the article says. (It doesn't match up with my definition either based on my years of business experience either.)

Definition of "speculation" from investopedia:

"The act of trading in an asset, or conducting a financial transaction, that has a significant risk of losing most or all of the initial outlay, in expectation of a substantial gain."

Based on history there is no reason to believe that the purchase of a taxi medallion could result reasonably in losing "most or all" of the initial outlay. (Unless of course you decided to buy one while ignoring the current events going on of course).

http://www.investopedia.com/terms/s/speculation.asp

Of course you can make any investment or purchase speculative depending on how much of a chance you want to take.

If you decide to get in on an up and coming area in real estate (a run down area that you hope will change over the course of many years) that could easily be seen as speculation. Otoh, buying a condo in a well established neighborhood that has a history would not be seen as speculation which is not the same as saying that you bought because you felt that the value could double and if that doesn't happen you may feel you have "lost" something (the high gain you expected).

Even in the case of eminent domain taking of property for public good the property owners are compensated somewhat fairly for the loss of value of their property. The government doesn't come along and say "hey we need this area for a road sorry guys to bad it happened to you".

I would go further to say that these medallion owners would band together and at least attempt to do whatever they could legally to find a way to prevent something like this from happening if they could. Why? There is enough money involved to pay lawyers to muck up the process or delay it (just like with eminent domain, people even if there is compensation, will do that.)

The comparison with eminent domain is interesting. If the government abolished taxi medallions, are they really taking something from those who own them? The medallion is basically the right to operate a taxi. If the government abolished medallions, then they'd still have the right to operate a taxi, it's just that a lot of other people would too. Obviously they lose a major competitive edge, but strictly speaking, the government hasn't taken any property here.

The best comparison I can think of involving real property would be owning a private tract of land in a valuable area that's almost all owned and unused by the government. One day, the government decides to sell its land. The value of your land plummets. It's still valuable due to whatever intrinsic wealth it has, but the new glut of supply makes it much less valuable. Is the government obligated to compensate you for that loss of value when they sell their land? I'd think not.

> Based on history there is no reason to believe that the purchase of a taxi medallion could result reasonably in losing "most or all" of the initial outlay.

This is always the case before an asset loses value for the first time.

> "The act of trading in an asset, or conducting a financial transaction, that has a significant risk of losing most or all of the initial outlay, in expectation of a substantial gain."

Based on recent history no. But maybe based on longer history? Imagine a pandemic that wipes our a large # of population, now taxi medallions for whatever reason are not that important so they drop in value.

Medallion system is sustain by the laws. Laws can change. The bet is that the laws own't change drastically but that is just a "speculation".

Government is nice enough to offer a compensation in eminent domain, but they don't have to. What if they don't? What would you do? Sue them? You can't. Gather a militia and march towards the White House or the Senate building?

If you had asked someone 20-30 years or so ago. "Do you imagine government one day will be able to store and read all your communications, telephone, mail?" Most people would have bet it would never happen because of Free Speech and it was just something we made fun of other corrupt and evil countries of doing. Yet here we are today. If you'd somehow made a financial bet against it, it would be a losing bet.

I think that you're a little too generous about government exercise of eminent domain.

I wrote an article about a New Jersey city which offered $49,000 for a three-bedroom rowhome, and when residents wouldn't take it, ripped up sidewalks and stopped collecting trash. http://www.huffingtonpost.com/2012/08/01/new-jersey-developm...

Outright seizure gets headlines, but the government can harm your property through regulatory takings as well. So crazy zoning can make your property value decline, and it's not well-established practice to compensate you for your loss. See Richard Epstein's work on this.

The Supreme Court will decide this year on a potentially really important case, Koontz v. St. Johns River Water Management District. A landowner wanted to develop some property, but the local water protection agency denied the permit because he wouldn't pay for mitigation that was totally offsite. This stuff can be borderline extortion.

How might you propose to compensate people who, in good faith, bought taxi medallions

I'm sure the following question was asked many times to abolitionists:

How might you propose to compensate people who, in good faith, bought other people

It seems as disturbing to me as it apparently does to you, but it was recently in the news that the UK actually did a buyout when they abolished slavery. http://www.independent.co.uk/news/uk/home-news/britains-colo...

It's a tricky situation, philosophically. This may have helped the UK abolish slavery sooner (a good outcome), but its morally and legally dubious.

This was suggested many times during the lead-up to the Civil War, but (I think rightly) Lincoln as well as the more hard-core abolitionists viewed this strategy as contradicting their position that Slavery was a crime against Natural Law.

Lincoln's strategy required the forced labor (and for some, subsequent deaths) of tens of thousands of people. The irony of conscription wasn't lost on Americans at the time either, and the military drafts were extremely unpopular on both sides.

Lincoln's strategy itself was "required* because slave-owners and slave-owning states would not give up their slaves without a fight. Blame them, not Lincoln.

Lincoln himself was well aware of the costs that would be imposed by war, but chose this course of action due to the absurdly perverse nature of slavery.

http://www.bartleby.com/124/pres32.html

I don't doubt that Lincoln personally resolved his internal ethical dilemmas, but I do doubt that this would be any consolation to me if I were forced to fight in an army.

As satisfying as it might seem to just shoot the slaveholding bastards instead, that ends up being even worse in humanitarian terms.

You are aware, that the first slave owner in Virginia, who went to court over his slave, was a black man, right?

How does that change anything I wrote? White slaveholders held white slaves in ancient Rome but it would have been justified to kill them all as well, too.

"How might you propose to compensate people who, in good faith, bought other people"

Seriously? You're making that comparison?

I'm comparing the logic, not the gravity of the situations.

You had pointed out (rightly) that purchasing and holding medallions is legal, and those who bought them did so with the understanding that they would profit. At the same time, they must have observed that the very existence of the medallion system limited the freedom of others. Some might have even genuinely viewed this as altruistic.

All that was true of slaveowners and slaves.

Driving taxis isn't a crime against humanity.

Your argument is that requiring medallions to drive a taxi (which I agree has become an inefficient and slightly corrupt situation) is in any way comparable to slavery is an insult to anybody who's ever read any history.

> Driving taxis isn't a crime against humanity

The problem here isn't some people "driving taxis", its that these people, and organizations associated with them, lobbied for and bought into a system that prevents, by force of government, anyone else from driving taxis.

And of course, even that is not a crime against humanity. If it was, I'd be advocating the use of military intervention if it was serious enough, such as in the case of mass slavery or genocide. All I'm saying is that if/when we get rid of this system, we don't need to compensate medallion owners.

That's a valid argument (I think some token compensation is fair, but can totally see both sides).

But if you interlaced every other word with 'fuck' and questioning the sexuality of other posters, you couldn't expect to be judged on the merits of your argument. Personally (others may disagree), I see totally unnecessary comparisons to slavery the same way.

Slavery is soon going to need to be added as an additional clause to Godwin's Law.

It's like godwin's law squared. Maybe because I'm american or maybe because the hitler comparison is cliche, but I'm more insulted by spurious comparison to a slave-owner than I am to Hitler.

You have every right to be offended or insulted.

But it makes no difference to the validity of the argument presented.

Well the argument is clearly invalid. Slave owners??

But there's a difference between lousy analogies that further debate through clarification and lousy analogies that lead to everyone telling each other fuck you.

I had no intention of offending you, or the poster, and if that is how it was taken, I apologize.

The poster was concerned about potential losses incurred by existing medallion owners if the law changed. The comparison was made to point out that laws are often wrong, sometimes more seriously wrong (as with slavery or genocide), sometimes less wrong, but wrong nonetheless.

Individuals or classes who benefit from bad laws should not get an affirmative right to recover losses incurred when these laws are changed. In the most serious cases like slavery or genocide, they may even be punished ex post facto for following such laws. I'm obviously not advocating that here, only that the law be changed through the democratic process, despite the potential effects on existing medallion owners.

I prefer making the comparison to dodging it.

I think you need to go back to the premise here a bit. The scarcity of taxi medallions was not a feature of their original purpose (to protect riders from unsafe drivers), but a corruption of it (to provide risk-limited profit to the existing holders of them).

I would expect that the profit stream off a medallion is effectively greater than that of any other risk-limited or risk-free investment in a government asset (bonds and such) or they wouldn't be in such great demand even at their vastly inflated prices.

So is, perhaps, the decades of extra profit not compensation enough? Maybe recent buyers have some claim to have had the value of the instrument disrupted, but anyone who's been leaching this system for decades should frankly be happy that the government (and by extension society as a whole) propped them up for so long.

At any rate I expect there would be a gradual expansion of the number of medallions on the market until it was an unrestricted license just like any other, at which point trading or transferring them would become illegal. This would provide some ability for holders to get some of their value back as it lowered.

I don't think there's a vested property right in them, but even if there is, there isn't in their scarcity. The government could issue medallions to all comers instead of abolishing the existing one.

Immediate compensation could be to allow "face value plus 5%" of the medallion to be used to pay any local/city taxes, with say 7 or 10 years given to use the credit.

The IRS rules http://www.irs.gov/publications/p535/ch08.html state you have to amortize/depreciate the license over 15 years (180 months). So, any licenses that are 16 or more years old, have already been written off in full, so, a lesser amount would be needed to compensate the owners.

Honest question, why sinister? What has happened?

Another poster is claiming the unregulated Amsterdam market has been taken over by organised crime. That actually sounds sinister.

It's sinister because it pretends to be altruistic while simultaneously serving the interest of a small faction.

Isn't it sinister because it's serving organised crime? Would you feel it similarly sinister if the market had been cornered by a startup (or three) with some silly name and a pile of VC debt?

"governments would sell monopolies on the import or production of things in exchange for a lump sum"

Still happens: http://www.smh.com.au/nsw/port-leases-garner-5-billion-windf...

When obsolete government practices persist, they tend to be pretty sinister.

Why is this true? Perhaps keeping these practices around, despite them being obsolete, implies ulterior motives?

It's something of a meaningless statement. A long-term government practice that is seen as good is not seen as obsolete.

long-term government practice that is seen as good

I've never heard of one, asides from the practices that define government itself (laws, courts, police, voting, congress etc), but these are more necessary than good.

Separation of Powers isn't necessary for government, but it is a good practice, for example. Would anyone serious call that obsolete?

I agree, it's a good practice, intended to prevent government from assuming a whole bunch of bad practices that (unopposed) it tends to assume. But to take your point to the extreme, democracy, courts, etc are also therefore not necessary functions of government.

I'd argue that they are necessary components of a good government. All the best parts of government limit the scope of government .. that says something.

So take voting. Just saying 'the vote' is way too simplistic. Allowing women to vote? Good, not obsolete. Allowing minorities to vote? Good, not obsolete. Electoral college method? Facilitates sinister behaviour, obsolete. Districting rules that allow for relatively easy gerrymandering? Obsolete, and definitively sinister. Promotional materials encouraging people to exercise their rights by voting? Good, not obsolete.

All the best parts of government limit the scope of government .. that says something.

No it doesn't. That's an overly simplistic slogan. Provision of universal healthcare is a clear and topical example.

Provision of universal healthcare is a clear and topical example.

Come on, you know that's political and there are arguments on both sides. For the record, I don't agree with you here.

I have no problem being simplistic, as long as I'm right. That being said, I take your criticism, and will rephrase part of what I said ..

Necessary components of government (such as many you mentioned) are the parts which define how the government works. These parts didn't start out perfect, and perfecting them is a good thing (i.e. women and minority voting).

Everything in government is political. Western democracy is a decent form of government, but it's not the best - benevolent dictatorship is the best; it just doesn't have checks against it turning non-benevolent.

The problem is where do you draw the line, because it has to be drawn somewhere. You claim that limiting the government's scope is good in all cases, yet this is clearly not true - if we were to take arrest powers away from police for example, society as a whole would suffer.

Limiting scope can be argued all the way down to anarchy, which is clearly not supportable at anything beyond the size of a small conclave.

I have no problem being simplistic, as long as I'm right.

The truth has never been simple in politics, and anyone who maintains that it is, is simply displaying contempt (open or otherwise) for your intellect. As a result, we can't rely on simplistic solutions for politics, and have to be cautious of things that try to make it one-size-fits-all.

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