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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 grou
by seanalltogether 14y ago
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.
- argumentum 14y agoI 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.
- bcgraham 14y agoBecause that's the only type of home on the market!
- aetherson 14y agoWell, 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.
- vacri 14y agoOf course, but that's nitpicking. The point is that the price is well out of reach of the average Tom.
- aetherson 14y agoWell, 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.
- rhizome 14y agoI'm not sure adding £1,000,000 to the price of houses is a rational solution to ground rent.
- makomk 14y agoI 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.
- rdtsc 14y agoSo 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.
- desas 14y agoUsually 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.
- PeterisP 14y agoOnce 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.
- rdtsc 14y agoWhat 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?
- enjo 14y agoPeople 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.
- joezydeco 14y agoCondominium owners usually own a proportional share of the land that the building rests upon and the common areas of the property.
- rdtsc 14y agoThat seems almost like a scam. Kind of like time shares.
- joezydeco 14y agoWhy 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.
- mh- 14y agoNot really. Some more info: http://en.wikipedia.org/wiki/Fractional_ownership http://en.wikipedia.org/wiki/Fractional_ownership http://en.wikipedia.org/wiki/Concurrent_estate http://en.wikipedia.org/wiki/Concurrent_estate
- joezydeco 14y agoCondos 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.
- seanmcdirmid 14y agoWell, 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.
- ksherlock 14y agoI 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 http://en.wikipedia.org/wiki/Community_land_trust
- zimbu668 14y agoGround 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.
- detst 14y ago"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." Read more: http://www.baltimoresun.com/business/bal-te.bz.groundrent10dec10,0,5955952.story http://www.baltimoresun.com/business/bal-te.bz.groundrent10d...
- bradleyjg 14y agoIn Hawaii it's pretty rare to be able to buy a property fee simple. Mostly it's long term leases.
- mech4bg 14y agoWe 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?
- seanalltogether 14y agoThe 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.
- mech4bg 14y agoThe 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.
- arethuza 14y agoI 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/1841589071 http://www.amazon.co.uk/The-Poor-Had-No-Lawyers/dp/184158907...
- vacri 14y agoIt 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 http://en.wikipedia.org/wiki/Urbanization_by_country
- malandrew 14y agoProperty 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.
- adventured 14y agoThat 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.
- jonknee 14y agoThose 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).
- adventured 14y agoIf 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.
- caf 14y agoI 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.
- brc 14y agoIn 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.
- lukeschlather 14y agoThe cornerstone of democratic philosophy is that there's a huge difference between a central democratic government and some lord.
- rdtsc 14y agoIn 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".
- ghshephard 14y agoNot 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.
- gamble 14y agoThe 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.
- rdl 14y agoI thought council tax was property tax.