8 ms·

Summary: Building & land-use regulations are creating an artificial scarcity of land in large cities, driving prices up and creating an artificial "shadow tax"

Summary: Building & land-use regulations are creating an artificial scarcity of land in large cities, driving prices up and creating an artificial "shadow tax" that distorts labor markets. According to a recent study, if the Bay Area got rid of its building/density regulations, the local economy would be able to support 5x the area's current population, which would boost the US' yearly GDP by $2tn. In 2009, the US GDP was 13.5% lower than it otherwise could have been if land-use regulation had been abolished in 1964. [1] The solution? Dissolve land-use regulation, pay residents to allow developers to build new structures, and distort the market in favor of the renters by levying a land-value tax. Theoretically, this would allow for an increased supply of housing while penalizing the owners of the least-productive parcels of land, such as those who squat on empty plots in New York. The author hints at the political problem of adopting a land tax near the end: But there are practical problems with a land tax — perhaps the largest of which is that by its very nature it hits the well-connected rich hardest. So we may very well never see this regulation brought up or passed given the current, money-greased machinations of the political machine. I was disappointed that the author of an otherwise well-researched and informative article did not get to the heart of the issue: who owns the land? Yes, it is obvious that urban landlords are making a killing in this market, but who exactly are these landlords? What percent of real estate in London, SF, NY is owned by actual residents vs. holding companies vs. foreign interests vs. the government? Is it a small, concentrated number of buyers in each city? Is collusion possible? Also, how are we going to induce growth in sectors other than tech, consulting, and finance? Or do we not care if young talent continues to accrete in these fields, driving the (currently extortionate) growth of the city? Is this the best plan for long-term growth and prosperity? [1] Perhaps this paper assumes that there is an infinite supply of highly-skilled tech workers who have taken jobs elsewhere due to high costs of rent? Seems a bit far-fetched to me.

rs232 11y ago
>Dissolve land-use regulation, pay residents to allow developers to build new structures, and distort the market in favor of the renters by levying a land-value tax. Is The Economist starting to support Georgism? https://en.wikipedia.org/wiki/Georgism https://en.wikipedia.org/wiki/Georgism
- roymurdock 11y ago
  I'm not sure what political angles the economist has played to historically, but I find it fascinating how the death of paid-for content is spurring a decline in the quality and scope of news across the board - especially at once-respectable establishments. When your revenue is driven by ads, which are driven by views, you are incentivized to publish inflammatory articles that play to mass-approved tropes, such as "burn the 1%" and "the police are all evil/out of control". Not to say that these pieces are unmerited, but I've observed their quantity and quality to be moving in opposite directions. I think Bloomberg Businessweek is killing it right now. They've onboarded some of the best talent (Paul Ford, Matt Levine) and revamped the style of their publication to appeal to the young, ADD, super-exuberant tech/finance crowd (myself included). I believe they are heavily subsidized by Bloomberg's other business ventures, so this seems to be a more viable way to fund and disseminate high quality content.
  - kbenson 11y ago
    > I believe they are heavily subsidized by Bloomberg's other business ventures, so this seems to be a more viable way to fund and disseminate high quality content. How are those incentives less perverse than those engendered by current funding models? I don't imagine reporting on stories that show those other business ventures ina negative light may not been seen favorably at some level of management.
    - roymurdock 11y ago
      I see it as the patron model, where a wealthy individual bankrolls an artist to do basically whatever the artist pleases as long as the artist paints a nice picture of the patron every once in a while. Of course, I have no idea how closely the other branches of Bloomberg's empire tie into BusinessWeek, but from many of the articles I have read, I get the feeling that Bloomberg LP is holding off on pushing some annoying agenda until they absorb enough market share from The Economist, The Wall Street Journal, Business Insider, etc.
  - littletimmy 11y ago
    One could easily argue that given revenue is driven by ads, it is a corporate agenda that will be enforced upon people and people will be nudged towards that.
eli_gottlieb 11y ago
>The author hints at the political problem of adopting a land tax near the end: But there are practical problems with a land tax — perhaps the largest of which is that by its very nature it hits the well-connected rich hardest. So we may very well never see this regulation brought up or passed given the current, money-greased machinations of the political machine. You know, neoliberal corruption of government isn't Written in Stone by the Three Fates. We can actually fight it, especially when there's $2 trillion at stake. >[1] Perhaps this paper assumes that there is an infinite supply of highly-skilled tech workers who have taken jobs elsewhere due to high costs of rent? Seems a bit far-fetched to me. I don't know about infinite, but I sure as hell know that I personally choose not to live in the Bay Area, despite its having loads of tech opportunities and the nicest climate on the planet, because of its high housing costs and suburban sprawl.
- kbenson 11y ago
  > I personally choose not to live in the Bay Area, despite its having loads of tech opportunities and the nicest climate on the planet You should give us another look. Our long term plan to reduce the number of rainy days per year is finally paying off!
  - nugget 11y ago
    Southern California has a nicer climate than Northern California and is cheaper (since there's less tech). The ''best'' climate in the US is probably San Diego up to Santa Barbara within 5 miles of the coast. San Francisco (the city itself) has infamously frustrating weather.
    - a_t48 11y ago
      Nicer how? I've only been down there once, and it was super warm.
      - Eiriksmal 11y ago
        https://en.wikipedia.org/wiki/Climate_of_San_Diego#Monthly_averages https://en.wikipedia.org/wiki/Climate_of_San_Diego#Monthly_a... It's utterly beautiful most of the year, and only gets slightly uncomfortable for a few weeks during summer. I live 8 miles from the Pacific and this week's forecast is almost sublime, compared to the continental climate I grew up in. Boiling hot summers? No. Sweaty, muggy, mosquito fests from July through late September? No. Freezing winters from late October through early March? No.
fweespeech 11y ago
> The author hints at the political problem of adopting a land tax near the end: But there are practical problems with a land tax — perhaps the largest of which is that by its very nature it hits the well-connected rich hardest. So we may very well never see this regulation brought up or passed given the current, money-greased machinations of the political machine. That isn't the actual problem. Its the problem the author imagines. The real problem with land [and property taxes] is the fact it tends to flow into the cost of rent and homeownership. Everyone in this country is impacted, it is just a question of degree. Similarly, the vast majority sees an item in their basket of purchases goes up by $X and gets angry. Case in point: The gasoline tax. The vast majority of economists thinks it should go up to cover infrastructure but there is no political will to do so precisely because of how angry it makes their constituents. People are far less rational than you think they are and if their entire tax burden was shifted into the rent for their house, they'd flip the fuck out.
- roymurdock 11y ago
  Good point, the author never discusses what percentage of a tax increase would simply be passed on to the renters of the property. Since demand for these units is so inelastic, it would probably be near 100%. What to do then? Subsidize construction? Force higher densities?
  - fweespeech 11y ago
    I have no idea how to solve it other than to educate people so they understand "Okay, I paid $X in taxes this year, now that we switched to land taxes, I pay that $X in rent and my landlord pays the government." The problem is, in practice, this hasn't really worked.
  - thrownaway2424 11y ago
    That's not how it would work. The rents are already at the maximum that the market will bear, and will not increase. A rent tax would simply divert some of that money from the landlord to the local authority.
spangry 11y ago
"The solution? Dissolve land-use regulation, pay residents to allow developers to build new structures, and distort the market in favor of the renters by levying a land-value tax." Small nitpick. Land markets are generally distorted by default: improvements in the immediate area generate 'privately captured positive externalities' for land-owners in the form of increased unimproved land-value: in other words, pure economic rents that are capitalised into increased private land values. Taxes (like LVTs) that transfer some of this value from private to public hands reduce this distortion: they actually enhance allocative efficiency. It's a fascinating dynamic, and IMHO this uncorrected distortion is a major driver of boom-bust cycles in the macro-economy. Mark my words: the economic depression that will occur in the next 5 years will be started by bubbles popping in residential property markets (China's first, most likely). Consequently, we'll be looking at financial system collapse when this is transmitted to banks via insolvent residential property speculators (to whom they've loaned significant amounts of money). This ain't going to be pretty.
- kqr2 11y ago
  How will this be different from the 2007/2008 financial crisis? Although subprime no longer seems to be the catalyst, won't the government and federal reserve use the same playbook? Namely they will bailout banks, investment firms (either directly or indirectly), fannie mae/freddie mac, and engage in new rounds of QE?
  - linkwray 11y ago
    Imo 2008 is probably not the best comparison. What I believe is happening now is the China crash is the catalyst of a regional Asian/emerging market crisis on a parallel with 1997. Note this was 18 years ago, and this not coincidentally is the average length of land price cycles. These divide roughly into 3-5 year depressions, then an upswing of just over 14 years usually punctuated around year 7 by a mid cycle recession and then an exponential ponzi period leading up to the crash. What is significant is that despite globalization broadly Asia and the West still seem to have separate land cycles. Weak as the recovery in the West has been, it is unlikely the Asian crisis will have a significant enough effect outside of the stock markets, indeed it is cities like London and New York that will attract much of the capital flight from the region. The time period for the Western cycle is likely to be 2019 mid cycle, 2026 crash. I would also look at Australia and Canada however, as their markets did not correct after 2008 due in part to links to China so as well as being they may have become linked to the Asian cycle. And areas such as San Francisco which popped in the dot com boom are already in the 'it's different this time' denial phase so it may well be this region will not survive the mid cycle.

rs232 11y ago

>Dissolve land-use regulation, pay residents to allow developers to build new structures, and distort the market in favor of the renters by levying a land-value tax. Is The Economist starting to support Georgism? https://en.wikipedia.org/wiki/Georgism https://en.wikipedia.org/wiki/Georgism

roymurdock 11y ago
I'm not sure what political angles the economist has played to historically, but I find it fascinating how the death of paid-for content is spurring a decline in the quality and scope of news across the board - especially at once-respectable establishments. When your revenue is driven by ads, which are driven by views, you are incentivized to publish inflammatory articles that play to mass-approved tropes, such as "burn the 1%" and "the police are all evil/out of control". Not to say that these pieces are unmerited, but I've observed their quantity and quality to be moving in opposite directions. I think Bloomberg Businessweek is killing it right now. They've onboarded some of the best talent (Paul Ford, Matt Levine) and revamped the style of their publication to appeal to the young, ADD, super-exuberant tech/finance crowd (myself included). I believe they are heavily subsidized by Bloomberg's other business ventures, so this seems to be a more viable way to fund and disseminate high quality content.
- kbenson 11y ago
  > I believe they are heavily subsidized by Bloomberg's other business ventures, so this seems to be a more viable way to fund and disseminate high quality content. How are those incentives less perverse than those engendered by current funding models? I don't imagine reporting on stories that show those other business ventures ina negative light may not been seen favorably at some level of management.
  - roymurdock 11y ago
    I see it as the patron model, where a wealthy individual bankrolls an artist to do basically whatever the artist pleases as long as the artist paints a nice picture of the patron every once in a while. Of course, I have no idea how closely the other branches of Bloomberg's empire tie into BusinessWeek, but from many of the articles I have read, I get the feeling that Bloomberg LP is holding off on pushing some annoying agenda until they absorb enough market share from The Economist, The Wall Street Journal, Business Insider, etc.
- littletimmy 11y ago
  One could easily argue that given revenue is driven by ads, it is a corporate agenda that will be enforced upon people and people will be nudged towards that.

eli_gottlieb 11y ago

>The author hints at the political problem of adopting a land tax near the end: But there are practical problems with a land tax — perhaps the largest of which is that by its very nature it hits the well-connected rich hardest. So we may very well never see this regulation brought up or passed given the current, money-greased machinations of the political machine. You know, neoliberal corruption of government isn't Written in Stone by the Three Fates. We can actually fight it, especially when there's $2 trillion at stake. >[1] Perhaps this paper assumes that there is an infinite supply of highly-skilled tech workers who have taken jobs elsewhere due to high costs of rent? Seems a bit far-fetched to me. I don't know about infinite, but I sure as hell know that I personally choose not to live in the Bay Area, despite its having loads of tech opportunities and the nicest climate on the planet, because of its high housing costs and suburban sprawl.

kbenson 11y ago
> I personally choose not to live in the Bay Area, despite its having loads of tech opportunities and the nicest climate on the planet You should give us another look. Our long term plan to reduce the number of rainy days per year is finally paying off!
- nugget 11y ago
  Southern California has a nicer climate than Northern California and is cheaper (since there's less tech). The ''best'' climate in the US is probably San Diego up to Santa Barbara within 5 miles of the coast. San Francisco (the city itself) has infamously frustrating weather.
  - a_t48 11y ago
    Nicer how? I've only been down there once, and it was super warm.
    - Eiriksmal 11y ago
      https://en.wikipedia.org/wiki/Climate_of_San_Diego#Monthly_averages https://en.wikipedia.org/wiki/Climate_of_San_Diego#Monthly_a... It's utterly beautiful most of the year, and only gets slightly uncomfortable for a few weeks during summer. I live 8 miles from the Pacific and this week's forecast is almost sublime, compared to the continental climate I grew up in. Boiling hot summers? No. Sweaty, muggy, mosquito fests from July through late September? No. Freezing winters from late October through early March? No.

fweespeech 11y ago

> The author hints at the political problem of adopting a land tax near the end: But there are practical problems with a land tax — perhaps the largest of which is that by its very nature it hits the well-connected rich hardest. So we may very well never see this regulation brought up or passed given the current, money-greased machinations of the political machine. That isn't the actual problem. Its the problem the author imagines. The real problem with land [and property taxes] is the fact it tends to flow into the cost of rent and homeownership. Everyone in this country is impacted, it is just a question of degree. Similarly, the vast majority sees an item in their basket of purchases goes up by $X and gets angry. Case in point: The gasoline tax. The vast majority of economists thinks it should go up to cover infrastructure but there is no political will to do so precisely because of how angry it makes their constituents. People are far less rational than you think they are and if their entire tax burden was shifted into the rent for their house, they'd flip the fuck out.

roymurdock 11y ago
Good point, the author never discusses what percentage of a tax increase would simply be passed on to the renters of the property. Since demand for these units is so inelastic, it would probably be near 100%. What to do then? Subsidize construction? Force higher densities?
- fweespeech 11y ago
  I have no idea how to solve it other than to educate people so they understand "Okay, I paid $X in taxes this year, now that we switched to land taxes, I pay that $X in rent and my landlord pays the government." The problem is, in practice, this hasn't really worked.
- thrownaway2424 11y ago
  That's not how it would work. The rents are already at the maximum that the market will bear, and will not increase. A rent tax would simply divert some of that money from the landlord to the local authority.

spangry 11y ago

"The solution? Dissolve land-use regulation, pay residents to allow developers to build new structures, and distort the market in favor of the renters by levying a land-value tax." Small nitpick. Land markets are generally distorted by default: improvements in the immediate area generate 'privately captured positive externalities' for land-owners in the form of increased unimproved land-value: in other words, pure economic rents that are capitalised into increased private land values. Taxes (like LVTs) that transfer some of this value from private to public hands reduce this distortion: they actually enhance allocative efficiency. It's a fascinating dynamic, and IMHO this uncorrected distortion is a major driver of boom-bust cycles in the macro-economy. Mark my words: the economic depression that will occur in the next 5 years will be started by bubbles popping in residential property markets (China's first, most likely). Consequently, we'll be looking at financial system collapse when this is transmitted to banks via insolvent residential property speculators (to whom they've loaned significant amounts of money). This ain't going to be pretty.

kqr2 11y ago
How will this be different from the 2007/2008 financial crisis? Although subprime no longer seems to be the catalyst, won't the government and federal reserve use the same playbook? Namely they will bailout banks, investment firms (either directly or indirectly), fannie mae/freddie mac, and engage in new rounds of QE?
- linkwray 11y ago
  Imo 2008 is probably not the best comparison. What I believe is happening now is the China crash is the catalyst of a regional Asian/emerging market crisis on a parallel with 1997. Note this was 18 years ago, and this not coincidentally is the average length of land price cycles. These divide roughly into 3-5 year depressions, then an upswing of just over 14 years usually punctuated around year 7 by a mid cycle recession and then an exponential ponzi period leading up to the crash. What is significant is that despite globalization broadly Asia and the West still seem to have separate land cycles. Weak as the recovery in the West has been, it is unlikely the Asian crisis will have a significant enough effect outside of the stock markets, indeed it is cities like London and New York that will attract much of the capital flight from the region. The time period for the Western cycle is likely to be 2019 mid cycle, 2026 crash. I would also look at Australia and Canada however, as their markets did not correct after 2008 due in part to links to China so as well as being they may have become linked to the Asian cycle. And areas such as San Francisco which popped in the dot com boom are already in the 'it's different this time' denial phase so it may well be this region will not survive the mid cycle.