Saturday, February 22, 2014

Edward L. Glaeser — Tax land, not buildings, to help cities thrive

Contemporary Georgism.

The Boston Globe
Tax land, not buildings, to help cities thrive
Edward L. Glaeser
(h/t Dan Sullivan)

See also The 140 year cycle in macroeconomic thought at Fresh economic thinking— New ideas and analysis by Cameron K Murray


Dan Lynch said...

I can imagine several problems with a land tax.

1) How do you determine the value of urban land, since land and buildings are sold together, not separately?

2) Vacant lots have environmental and recreational value and should be encouraged.

3) What difference does it make if a property owner is assessed $X for a "land" tax or $X for a "property" tax? A dollar is a dollar is a dollar.

4) Post-Keynesians often say that business decisions are determined primarily by sales -- by demand for the product or lack thereof. How would a land tax change the demand for housing?

5) Post-Keynesians often say that taxes are merely passed on to consumers like any other business cost. Why would a land tax be an exception to that rule?

6) If the land tax does indeed encourage construction, what if that leads to another housing bubble?

7) As the article points out, "For the tax change to be successful, the permitting process must also allow more building." Right -- housing in some cities, like San Francisco, is limited by the permitting process. A land tax will not change that.

8) As I see it, part of the root cause of the urban housing problem is that urban real estate is monopolistic -- there is a finite amount and they ain't making any more of it. A land tax does not change that.

9) Another part of the root cause is that our population is growing. Naturally that means our country is becoming more crowded and there is more competition for finite resources. A land tax does not change that. Maybe we should address population control instead of building more concrete and asphalt? Limit immigration? Limit the number of children a family may have?

10) If it serves the public purpose to have more affordable housing units, then maybe the government should follow Keynes' advice and build socialized housing, rather than jumping through hoops to manipulate the private sector?

Tom Hickey said...

1) How do you determine the value of urban land, since land and buildings are sold together, not separately?

This is the crux. The other Issues are side issues.

Tax appraisal and insurance policies already distinguish land value and building value. There are ways to do this like replacement cost.

Land value runs both ways. While generally appreciates if only due to scarcity, it also depreciates, e.g., due to erosion. With climate change, add desertification and loss to rising sea level.

Ryan Harris said...

Bare lots always sell after fires and tragedies. Older buildings that have depreciated to zero or negative value (dilapidated) and need investment can give tax appraisers a decent market value of bare land prices.

Ryan Harris said...

If you tax land, you take away people's right to not participate in the labor market and simply keep what they produce.
It is a big deal.
Refusal to participate and ability to produce is the one and greatest power most of us have. It is also the largest threat to government because it is the most fundamental protest against the system where you peacefully resist by not contributing yet benefiting from the state's defense and protection.

Tom Hickey said...

A land tax doesn't need to materially affect small land holders other than those whose land is in very high price areas, usually urban. It would not affect most suburbanites or those with modest rural plots. Those holding vast tracts of rural land would be affected, as well as large urban investors.

It would affect those that profit greatly from improvements other than those they themselves make to their land, which is where most RE appreciation stems from. A land tax is really a windfall profits tax on unearned gain, i.e., economic rent.

David said...

all your questions have been covered very thoroughly in the Georgist literature. Henry George was a California journalist of the 19th century who applied himself to the question of why in the midst of such booming prosperity he still saw poverty all around. The answer he came up with is that private ownership of land gave permanent unfair advantage and control over a limited resource that everyone needed and in his view had a right to. That's the whole crux of it. The idea of the land tax is based on the idea that no individual (or class) has an unlimited right to monopolize scarce essential resources.
1)they already do. People who study LTV have excellent algorithms for accessing it more accurately.
2) that's a question of public purpose which is fully compatible with the value system behind LTV taxation.
3) That's one of the great neo-classical fallacies: "A tax is a tax and they're all bad." Classical economics distinguished between land and capital labor to show what part is made by man and the part that is given by "God." George believed a man was entitled to keep every penny of value created by his own efforts but not that which was created by the community. Thus tax site value (communally created value) untax " improvements " ie, buildings, re-models, add-ons (individually created value)
4&5) LVT doesn't change demand for housing. Proponents think it changes incentives for building, promoting more efficient land use. A tax that everyone who "plays" has to pay can't be "passed on." Think of a farmer's market. Every vendor has to pay a booth fee. The only way to pass on the tax is for the vendors to "fix" the price of tomatoes and have a way of punishing defectors. Under ordinary circumstances they'll pay the fee as a cost of business, and take their chances.
6)The land tax is the natural remedy for the "bubble" phenomenon. A sufficiently high tax should keep housing prices within reasonable bounds to begin with. If the community created rise in value is duly ploughed back into community coffers, public works, etc., there is no the greed dynamic to create the bubble. Growth is good. The trick is to create it in such a way as to produce a virtuous circle as opposed to the familiar vicious ones.
7) the neo-classical oriented regulations and the thinking that produced them would need changing in SF and most other places.
8) Nope, they're not making more, but the tax changes the monopoly question in that it distributes the benefits of urban development more effectively and justly. I think nationalization of land is a more effective solution, but that's another debate.
9) This is the Malthusian argument that Henry George devoted the first part of Progress and Poverty to refuting. P and P was first published in 1878. Consider that the population was much smaller then. Consider also that the dogma of "overpopulation" was nonetheless the same. Let's not discuss distribution of resources or more efficient utilization, but only scare people with projections of assumed "geometrical growth of population against merely arithmetical growth in food supply." The earth may well be able to support a much higher population level than it currently does or has done in the past, but Malthusians always assume that we are right up against some absolute (as defined by them) limit.
10) Yes. I absolutely agree. HG was no socialist. He thought land tax solved everything. It doesn't. One thing it could do, though, is provide a local funding mechanism for just such public housing.

Mason Gaffney is a good source for learning about these issues. Other Georgist sites are around. Some of them a bit right-libertarian to my taste.