While the article is kind of slog in the beginning to establish its context, this struck me as especially true/relevant:
“When innovative companies begin making decent profits, landlords raise the rents to adjust for the new ability to pay. As a result, these additional wages are neither reinvested, nor reflected in the disposable income of employees. This is the dynamic behind the mystery of stagnant wages. When workers in a particularly well-paid sector begin pouring into a city, landlords likewise raise the rent to absorb these incomes. It isn’t gentrification, but absorption through monopoly power.”
The housing affordability crisis is really a crisis of land owner cartels, especially in major urban centers. Short of some massive investment in public housing, there’s not much that can be done to course correct.
Solution: push remote work as a housing crisis solution.
Remote work allows the people to place themselves in better, affordable places, while helping companies get the best from all over, rather than bound to a physical location.
This works unless the companies/investors are doing a dual strategy of having real estate that they collect on while having their companies located in them that they are investing in. So a big part of the investment never leaves the building. I suspect a large part of Silicon Valley has a scheme like this, investors are usually real estate investors as well, they like people concentrated in areas and supply/demand to benefit them.
The other bigger wage absorber right now is healthcare tied to a job. When healthcare goes up, wages are diverted into healthcare and healthcare and housing have teamed up to sap all wage growth in actual dollars in pockets of consumers,. 'Real compensation' or 'total compensation' doesn't go into cashflow/liquid assets at the individual level and means nothing to consumer spending power which needs to go to housing and life.
Remote work comes up against the harsh phenomena studied in economic geography. Even for knowledge work, there is a supply chain (in that case education, funding, knowledge sharing and adsorption of a certain type of culture).
Once there is a supply chain, an industrial hub with a concentrated supply chain will outperform a disparate network of workers. At that point, market forces will optimise to use the industrial hub for everything. Workers who live in the industrial hub will have an advantage over those that do not.
However, large companies have remote offices in different cities that rely on virtual communication to one another. This just moves the remote/virtual aspect further down the system to the individuals/teams. This push would also make supply chain work more virtual, the long tail of industry.
It could work if they give massive tax breaks for remote workers, when it is a financial benefit and reward for pushing virtual workplaces, it will take hold.
Remote work pushes also have immense impact on carbon production / climate change and making sure local communities thrive from higher salaries in more remote locations. This would allow for infrastructure to also be better more widely dispersed.
There will always be hubs, but even large companies eventually get many hubs themselves and require virtual communication and remote capabilities. Company cities have been around forever, but remote working / virtual communication needs to be a priority and can help fix or improve many problems, not just housing costs.
The mobile device generation will most likely bring about these remote working changes more widely.
> The mobile device generation will most likely bring about these remote working changes more widely.
That is a bold prediction. My money is on the precise opposite. The more talented and successful the employee is, in the main, the closer they are going to be to the heart of a geographically located industrial hub.
Reduced communication costs will make it easier to identify the hubs and increase the competition to move there until the cost of moving is similar to the benefit of being in the hub.
If mobile devices and better communication suddenly causes an on-average decentralisation of wealth generation that would be (1) welcome and (2) shockingly unusual.
> This would allow for infrastructure to also be better more widely dispersed.
Probably going to burn a lot more resources spreading the infrastructure out than is saved by letting everything centralised. There'd be wins cutting down on the daily commute, but would also be costs to decentralising. Similar benefits might be more easily found by designing dense cities to be easy to navigate by bike and foot; which would also let workers keep the advantages of centralisation. Lots of room for improvement there, no doubt.
The reason that industry hubs form and exist is because not all work can be remote, and there are economies of scale and efficiencies in grouping related and essential services and capabilities in one place. This is most pronounced, ironically, in the least material sectors: cinema, television, music, publishing, banking, and software are all activities in which the end result can literally be wired arond the world in an instant, but each has very strong primary locus hubs: Hollywood, New York, Nashville, and Silicon Valley, in these cases.
Yes, there are regional centres: regulation, language, and culture can create the necessity for localised services, so that film also has national traditions (Bollywood, China, Japan, small local productions in the UK and continental Europe, and a few smaller hubs), banking (London, Frankfurt, Tokyo, Shanghai), etc. But to the extant a single hub can dominate, it often does.
It's the support sectors especially which create anchors. For film, casting departments, carpenters, electricians, caterers, props, lighting, riggers, and a whole host of services and suppliers are best met within central hubs. Software operates similarly -- VC, training, presentations, networking services, and the like, tend to focus on major cities such as San Francisco-San Jose, Seattle, New York, and a number of also-rans. Trying to get highly-qualified services outside those areas is difficult at best.
And even if you do manage to allow software and design folks to work remotely, it's the other staff, often far less-well paid, who still have to show up at the office. And who pay the eye-bleeding rents.
Remote work isn't the solution.
Rents, as a claim to all consumer surplus, can be ameliorated through a land value tax. That's the solution which is badly needed.
Public investment is surely one option. Another is appropriate taxation. Vancouver’s residential property taxes are amongst the world’s lowest in terms of total tax take vs properly value. Property taxes should be massively higher and income taxes substantially lower. Too much of the tax burden is on the middle income worker and far too little on the wealthy landowner.
In Austin, it's been an incredibly effective way to gentrify old neighborhoods.
You have people who have lived in their houses for a generation and may have even paid them off but when the land under their home - let alone their home itself - doubles in value every 8 years and the rate doubles in eight years, they have to sell to get out or lose their house anyway.
Then developers swoop in, tear down the houses, and build condos which are much more "economically efficient".
I don't really want to be disagreeable because what is written is all obviously true and correct. However, there are 3 issues that deserve mention in this context:
1) It is a lot more economically efficient, the situation has gone from 1 family living in a desirable area to multiple families. If we ignore the fact that one family had to move that is a big step up.
2) The alternate scenario, where the family just sits in their rapidly appreciating house, is grossly unfair. They are reaping huge benefits without doing anything. It is ok in principle but it is unfair on the other normal folk who can't move in that area and get priced out because there isn't enough housing. This concept is the justification of the land value tax and it goes to a very important principle - benefits should come from either hard work or by taking risks with saved money.
3) Since the economic and social benefits of tearing down single houses and building apartments are so huge (ie, lots of people get to live where they want instead of few people) it would be well worth looking for ways to keep the land value tax and mitigating the effect on the family that has to move rather than doubling down on the idea of people having a right to land. Taxes represent the government taking something people worked to earn. Taxing someone on land and they have to move is not that different from taxing their income and they have to give up some pleasure in life. That is what taxes do.
The thing is people don't even have to move away necessarily. If the land is that valuable and it'll be upzoned, they could just trade in for a unit in the new building + some cash.
Forcing someone to sell because you find their life choices economically inefficient is gross morally.
Further, it creates a legal and financial risk in the entire system where property becomes subject to the whims of whatever governing authority therefore discouraging investment and real ownership.
The Kelo decision was despicable, let's not encourage it.
Welcome to taxes. You could have had something, then the government says you can't and you have to live a different lifestyle. All the options here are morally gross and it is easy to justify either side.
If land values have truly doubled in 8 years it isn't like the family involved is out of pocket. They've made a small fortune. The idea they can make a small fortune and prevent land from being used is also morally gross. The only justification is that a large hurt is diffuse where the small hurt would be concentrated. That is a defensible philosophy but it is also one where eventually everyone is worse off. And it isn't like this is an erosion of property rights; they are being taxed on benefits that they are not responsible for creating. 1.5% land tax so people have to re-buy the land once a generation is as good an idea in tax law as any I've seen.
I agree that having to change a lifestyle because of taxation is pretty awful and the system should strive not to do it. But I've visited places like Hong Kong and seen the density of living there. We're talking an order of magnitude more people. The number of people who come out ahead from that sort of property development is so overwhelming we can't process it using intuition and positive stories about individuals.
You don't have to be forced to sell. You could live in it until you die at which point the sale is forced and the taxes are paid.
This can be done by borrowing against the house from a financial institution or we can have the government place just place liens on the property if you can't pay.
Rarely is there ever a policy proposal, even a good policy proposal, that is entirely without downsides. Pretty much any proposal that is so perfect that there isn't a single criticism that can be made of it has already been enacted. That there are negative consequences of a policy is not an argument against the policy.
> and build condos which are much more "economically efficient"
You can solve this with an age-based property tax abatement. I’d personally aim to make it an abatement for the equivalent of a 1BR condo, though - 85 year olds really don’t need large houses with a bunch of stairs, whereas young families do, and often can’t find much supply on the market in cities, which drives up prices. If an old person wants to live alone in a huge house, I think it’s ok to tax them on that.
I mean, I'm not completely unsympathetic, but we charge property tax partly to make sure land is being used well, and not just being sat on while it appreciates. When people live in low density housing in the midst of cities, that has a very real cost to everyone else in that city. The housing crisis is partly a result of this phenomenon, and that hurts a huge number of people.
I don't understand your last paragraph, but clearly society generally doesn't agree with you that "their land, their choice". Maybe in your country it's different, but in most cities in the US there are a huge number of restrictions on what you can do with your land. I think too many, in some ways.
If you want to have complete freedom over your land, you generally can't live inside a city, because people inside a city are much more interdependent, and what you do can very easily impact others. In the countryside, you have much more freedom to do what you want with it.
See the picture, it shows how you can make "more efficient use" of land by building tall, high density apartment buildings that will bring more people and traffic and pollution in the cities.
When I built my house it was 1 km (0.7 miles) outside of the city, that was the distance to the closest building. Now, just 12 years later, it is 1.5 km inside. Not my choice, not my doing, not my fault: why should I be put all the restrictions and the taxes when the city expanded (in a really ugly way, btw) chaotically and engulfed everything around it?
The challenge is in the details. Who determines X, and how? Is X fixed or does it increase over time? If yes, is it indexed to inflation? In what way? CPI, local housing market, something else?
Capping property taxes is the same as rent control. It has the same challenges in its implementation, and the same downsides and costs.
Price appreciation alone isn't enough to force people to sell - they can take out home equity loans, and the appreciation is more than enough to cover the increased taxes and interest payments. "Doubles in value every 8 years" means something like 9% appreciation, HELOC rates are 5% and property tax rates are below 2%. Starting with a paid off house, you can take out home equity loans to cover property taxes forever with that rate of price appreciation.
> but when the land under their home - let alone their home itself - doubles in value every 8 years and the rate doubles in eight years, they have to sell to get out or lose their house anyway.
I'm having trouble thinking of a realistic combination of numbers where the asset owner would exhaust the equity in their home under such a scenario, or is that "off limits" for some reason?
There are other options than just "sell and move away". They could owe the taxes against the value of the land. They could sell to the condo developer in exchange for a new unit and some cash, so they don't have to move away. I'm sympathetic to people wanting to stay in the same place, but it doesn't have to be in the exact same house.
That just replaces serfdom to a landowner with serfdom (or sharecroppage) to another landowner, the government. Problematic with property taxes is you can not simply exist, you must be turning some profit.
If you're renting, you can't simply exist either. In fact, you have to make enough money to pay your rent and pay the income taxes on the income which is paying your rent.
Simple equity demands that property taxes should at a minimum be equal to income taxes on the rental cost of equivalent property.
I don't see your point. I can usually choose not to rent. Income taxes I think are perfectly acceptable: a limited nonrecurring percentage is taken, ostensibly as compensation for society's contribution to your ability to earn an income. Usually the way income is received means you are never able to not pay.
But there are niggles. Under most tax systems value you produce, even for own consumption, must be assessed and taxes paid on it. This is problematic if you take a crop for subsistence farming.
Property tax is inimical to the natural state of man. As in my original post, it keeps you from simply existing and forces you to participate in a system you had no business in creating.
Income tax is the best compromise I know of. If you want to participate in the economy-at-large then you pay it. If you don't want to, feel free to not participate. People who make more will pay more, but they will still make more.
You inherently can’t not participate unless you live in the boonies, which isn’t the land that people are talking about taxing. Cities have to maintain infrastructure for every building - roads, sewers, power, mass transit, police, water, fire protection, courts, the list goes on. Even if you magically don’t use it (no shopping at the supermarket), sitting in the middle of it all lengthens the runs to the other buildings.
If workers are always only paying the amount that they are able to pay, no more and no less, then that means that any increase in salary, will cause rents to increase.
BUT, it also means that the opposite is true. If salaries decrease, such as because if a tax, then rents will also equally decrease.
Or in other words, the tax is purely borne by the landlord.
So it makes perfect sense to tax the landlord in that case.
Either the taxes are passed through to the renter, or the price of rent is determined by a renter's ability to pay.
These are conflicting statements that both can't be true.
If renters are already paying the most that they can, and increases in wages only causes rents to go up, then it is not possible for them to pay that extra tax.
In most cases both can be true; "renter's ability to pay" is usually not the limit of what they can pay, but what they are willing to pay. If you put a tax that would increase the rent 10%, some people will pay (cut on other expenses), some will move out and someone else will move in and pay. At the end of the day, any tax is passed to the consumer, so it is never helping the consumer.
In economics, if a consumer always pays as much as they are able to, IE, it is a constant willingness to pay, then this is called perfectly elastic demand.
The situation of taxes being passed in to consumers, would only happen if consumer demand is perfectly inelastic.
It is literally the opposite situation. Demand can't both be perfectly elastic and also perfectly inelastic at the same time. They are opposites!
From a pragmatic standpoint, property tax _is_ rent. I make this comparison because the consequences of not paying taxes is the same as not paying rent.
If there is property tax, only the government owns the property and rents it to citizens.
If you make your philosophy austere and instrumentalist enough, there is no ownership, only physical control. And under any Weberian government there is only one legitimate owner of anything.
Luckily most governments and societies today respect a sort of legal Platonism where the law as an ideal both constrains the government and the owners of property even though the government is tasked with implementing it. It might not be empiricist enough for some people but it seems to play nicely with human psychology’s inclination towards the mystical. And of all the cultural fantasies we might share, we could definitely do a lot worse than human rights and the rule of law.
No. Taxes are spent on goods an services, the same as any property owner spends rent income.
The outcomes of expenditures on each part is different (sometimes a plate tax is actually applied to road maintenance). But the concept of a slush-fund and no (or few) legal guardrails for expenditures means your tax dollars probably land in a pet project somewhere, or are consumed in the financial friction of government bureaucracy.
Taxation is a passive measure and these never solved problems, just kept it under control for a while. I would like to read about solutions, not the catchall "tax them". Well, tax them and then what? New buildings will grow out of the trees? Lower prices will come by train?
> The housing affordability crisis is really a crisis of land owner cartels
If you consider the city counsel a land owner cartel, I guess I can agree.
Cities where land owners can build what they want on their land does not have this problem. WHat a central government can do is ban most zoning, and make sure cities have incentives to welcome new inhabitants.
In California Prop 13 make cities lose money when people live inside them, with predictable result.
Is not landlords raising because of the decent profits, it is because more people want to live in one specific zone, increasing the demand, therefore, prices rises due por offer. It is not all landlords coordinately find out how the economy is going and acting in coordination to raise the prices.
The housing affordability crisis is a crisis that rich people who have money to invest in companies want to live next to those companies in nice places and nice houses and keep the rest of the people who work at those places living further away.
L.A is not a tech hub because the omnidirectional traffic kind of wrecks the whole thing, while the bridges in the bay area mean that the worker bees are rate limited in their ability to get in and out of the nice places in cars somewhat lessening the omnidirectional traffic nightmare for the rich people who invest in companies. Have you ever watched people trying to get to the east bay over the bay or peninsula bridges during rush hour? That's rate limiting for ya.
If you bother to read the article, it makes heavy reference to Adam Smith’s opposition to landlords and their rent-seeking because of the heavy drag they place on markets. They capture and enclose too much capital that could otherwise be used for dynamic and productive investment. He was as right then as he is now.
The cartel comes from the fact of how much wealthy landlords control local governments, who then make it onerously difficult to build the amount of housing that is actually needed. I don't know if this is the case in Vancouver but it is absolutely the case in California, with its absurd cases of a run-down laundry mat being declared a "historical property" to block redevelopment.
How is that predatory pricing? Landlords aren't driving alternative landlords out of business by dropping their prices too low for others with shallower pockets to compete.
Predatory pricing, also known as undercutting, is a pricing strategy in which a product or service is set at a very low price with the intention to achieve new customers (Loss leader), or driving competitors out of the market or to create barriers to entry for potential new competitors.
There isn't really a great word for long-term exploitation of an easy structural advantage, though. Landlords don't have to form a cartel, since (a) everyone has to buy from them, (b) land is limited in supply and (c) the barrier to entry is high. Maybe it's a "natural cartel".
Fair enough. I believe they call that behaviour "rent-seeking" (in the Adam Smith sense) https://en.m.wikipedia.org/wiki/Rent-seeking#Description Most of the value of the land is from work done not by the property owner, which is just an interesting situation.
In city centres, there often is a group of only a few landlords who own entire blocks, then a few housing/investment companies who own most of the development projects (apartments). They collude and conspire with each other and local government to lower their own taxes, have the city improve streets near their properties, restrict supply/development permits, etc...
But for a certain piece of land, its a complete monopoly. And unlike with goods or services, you can't go somewhere else to get that exact piece of land.
In my opinion there are two issues:
#1: Land owners are not taxed for the un-earned value of their land. Making lots of money for just owning a piece of land is absurd. Normally this doesn't matter due to how large the USA is, but you can see its ugly result when land is very constricted like in major cities.
#2: Land owners are very limited by what they can build on their land by local laws and such, which prevents development of high density buildings, which would lower rents due to the increased number of units and efficiency at which these can be built. A land tax would even necessitate this sort of construction so that it would be profitable for the landlord to even keep the land.
Exactly. And using your money and influence to control development in a way that limits competition and keeps prices/rents artificially high (as is the case in real estate across the North America) is textbook cartel behavior. While there are some subset of developers pushing for increased development, as was pointed out downthread, the largest real estate lobbying group in the US works tirelessly against higher density development.
It’s funny how people can observe cartels in other basic inputs into the economy, like energy, but miss them entirely for the equally basic input of land/housing.
This piece is about so much more than the usual complaint against an increase in rent. It does not talk about public housing. Rather it points out the problem of bureaucracy that acts as a multiplier to the market power of landlords.
I want to see graphs that support this assertion. Yes, I expect that in an area with higher income housing becomes more expensive, but so does everything else. Unless you can show data to prove this I really doubt that an increase of median income of X% results in rent increasing X%, I rather suspect the rents increase to some smaller percentage of that together with increase in other things.
Rents are demand and offer, if the offer is perfectly static (no new housing/rental units are being made available) then if you have immigration in an area you should see rental pricing increasing according to that, rather than increase according to medium income.
EDIT: As for solving this with public housing, that'll simply make it that the market price is not reflecting the demand, but it doesn't change the underlying issue that there is more demand than offer. Which means that there will be other ways to "fight" for those limited units (instead of market price it will be "favors" or lottery or "first come first served" which tends to favor existing residents over newer ones).
Land owners want to build higher density, increasing supply, lowering price. The government prevents high density, decreasing supply, increasing price.
Only some land owners. Other land owners join organizations like the National Association of Realtors (the second-largest U.S. lobbying spender only after the Chamber of Commerce itself) and try to influence the government to prevent high-density development.
One idea is to limit the percentage of the purchase price that can be borrowed. That would reduce a lot of the longet term problems but would upset some short term.
In some places, it is, but in many places is an exaggerated demand that cannot be easily satisfied. There are some hot sports on the planet where everyone wants to be there, of course that is not really possible and this leads to unhealthy demand.
That doesn’t make a lot of sense. Even if you’re talking about real wage stagnation, inflation (as measure to adjust for real wages) has been very low.
I hope the author's technical thinking is a lot more organized than what was represented in this mass of meandering confusion, that this represents the mind of a startup CTO would cause me as a potential investor to run the hell away.
The essay falls on its face with its central thesis that 2010's Canada = 1970's Soviet Union, which beyond being absurd on its face the author fails to make any case for other than observing, correctly, that bureaucracy exists in Canada and that individuals that are established in a social hierarchy take advantage of it. The underlying motivation for this screed seems to boil down to 1) rents are too high in Vancouver, and 2) firms don't want to pay techies enough in Vancouver. This is then extrapolated linearly to mean 'Canada'.
As for the observation on the housing situation, this is recognized generally as a problem in many markets, but his actual argument here is that these high rents thus smother "wealth creation". This may be true in Vancouver, but doesn't seem to be true in other areas like the Valley or NYC, which remain hotbeds of economic activity. Vancouver's specific problem seems to be that the Soviet leadership in British Columbia has been unable to curb the very capitalist problem of money laundering profits from the People's Republic of China into Canadian real estate.
> The word hypernormalisation was coined by Alexei Yurchak, a professor of anthropology who was born in Leningrad and later went to teach in the United States. He introduced the word in his book Everything Was Forever, Until It Was No More: The Last Soviet Generation (2006), which describes paradoxes of Soviet life during the 1970s and 1980s.[3][4] He says that everyone in the Soviet Union knew the system was failing, but no one could imagine an alternative to the status quo, and politicians and citizens alike were resigned to maintaining the pretense of a functioning society.[5] Over time, this delusion became a self-fulfilling prophecy and the fakeness was accepted by everyone as real, an effect that Yurchak termed hypernormalisation.[6]
A lot of these issues describe Calgary (where I'm from), but we have the advantage of near limitless land to develop (everything north, east and south of the city is basically flat farmland, not even particularly productive farmland at that) and the local oil industry's near collapse has caused rents in the city centre to plummet. 20 years ago this article could have described our city nearly perfectly but even today is pertinent. The biggest obstacles to development are still bureaucracy and cartels, but thankfully at least some of their power is reduced by the relatively poor economy and tons of space.
Not sure the exact dynamic in downtown Edmonton WRT landowners and whatnot, in most of my visits there it seems like most businesses are slightly more spread across town than in Calgary (probably because their city is split up by a massive river valley), and like Calgary they do have a lot of space to develop as well (most of Alberta east of the mountains is relatively flat). Their economy is a little more diverse in the sense that they have a lot of government officials. It's a nice city but they have bitterly cold winters (even though as I write this there's snow on the ground in Calgary and a snowfall warning for all of southern Alberta) and less tourism than Calgary.
The rest of AB is basically smaller agricultural towns, with a few oil towns that are basically glorified work-camps (Grande Prairie and Fort McMurray) and then a few mountain towns that have their own crazy dynamic due to national park regulations.
> Vancouver's specific problem seems to be that the Soviet leadership in British Columbia has been unable to curb the very capitalist problem of money laundering profits from the People's Republic of China into Canadian real estate.
It's not just money laundering, but an entire "industry" of investment and tax fraud schemes:
“When innovative companies begin making decent profits, landlords raise the rents to adjust for the new ability to pay. As a result, these additional wages are neither reinvested, nor reflected in the disposable income of employees. This is the dynamic behind the mystery of stagnant wages. When workers in a particularly well-paid sector begin pouring into a city, landlords likewise raise the rent to absorb these incomes. It isn’t gentrification, but absorption through monopoly power.”
The housing affordability crisis is really a crisis of land owner cartels, especially in major urban centers. Short of some massive investment in public housing, there’s not much that can be done to course correct.