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Same article in papers thousands of times, always deliberately confusing LAND VALUE with house value

By Patrick following x   2018 Apr 11, 4:46pm 817 views   14 comments   watch   sfw   quote     share    

It's amazing how many times the same article can get printed, just with a different address and different price. In every case the story is the same:

* Look at this shitty run-down house!
* It sold for (insert large price here) dollars!
* Unstated theme: You should get very deeply into debt right now and buy a house! It can only go up!

This gets people to talk a lot about how crazy high the housing market is, but what they don't talk about is that the house itself actually has a negative value. The land would be even worth more if the house were not there at all. The price was the price for the land alone. And the price for the land is comparable with similar sized lots nearby. But that's not very exciting.

Here's the latest one:


I'm just going to keep listing them here since this has been going on for at least 20 years and corrupt reporters just keep on taking the payola and printing them in order to deceive the public into enslaving themselves with maximum mortgage debt.

Please send more. This is going to be fun.
1   Patrick   ignore (0)   2018 Apr 17, 3:38pm   ↑ like (1)   ↓ dislike (0)   quote        

Same article, different address, again ignores the land value and hypes the bad condition of the house as if that indicated something.


Remember, the land would be worth more without the house there, so the condition of the house is irrelevant, and yet it is always made the centerpiece of the article.

Please send more like this. Let's point out the same deception over and over.
2   pwagner   ignore (0)   2018 Apr 17, 3:57pm   ↑ like (1)   ↓ dislike (0)   quote        

Don't forget this Sunnyvale beauty. 848 square feet, 50 years old, and sold for $2 million.

A burned down house might be preferable in this case, as you might not have quite as much regulation during the tear-down.
3   Patrick   ignore (0)   2018 Apr 19, 4:37pm   ↑ like (0)   ↓ dislike (0)   quote        

Same fraud as in original post republished yesterday:


Realtors jerk off to the thought of so many stupid people who believe the price has something to do with the condition of the house instead of the land alone. There are boatloads of money to be made skinning such people alive.
4   Patrick   ignore (0)   2018 Apr 19, 7:08pm   ↑ like (0)   ↓ dislike (0)   quote        

Same fraud yet again, deliberately misleading readers into thinking that a rotting house selling for a lot of money means the market is hot. In reality, the price is for the land alone. The house is completely irrelevant and in fact lowers the value of the land.

5   Patrick   ignore (0)   2018 May 10, 5:35pm   ↑ like (0)   ↓ dislike (0)   quote        

Yet another version of the same bullshit article:


It's the land that is getting that price, not the house.
8   Patrick   ignore (0)   2018 May 13, 3:37pm   ↑ like (0)   ↓ dislike (0)   quote        

And here's another clone of the same article, different address:


It's caused by corrupt and lazy sensationalist reporters just printing whatever realtors feed them. Again, they do not mention that the price for that land would be higher without a dilapidated house on the property. The reporter implies that the price is for the house itself, with is simply a lie.
9   marcus   ignore (1)   2018 May 13, 5:10pm   ↑ like (1)   ↓ dislike (0)   quote        

I'd be the first to admit that the public by and large is often ignorant and misinformed. And yet on the subject of the housing market, I think in large part they understand that land value is intermixed with the value of the "improvements" to the land.

That is people generally understand that when they pay big bucks for a small relatively crappy house in a great location relative to their work, schools and so on, it's the value of the land, becasue of location, that is the greatest part of the value.

It's complicated though. Is the value of the house itself often negative ?

Not really. It may be true, that if a developer buys a property to build a new house there, they would have to pay for the destruction and removal of the old house, making it a cost to them, and in that sense the value of the actual house is negative. But if they are investing to hold for 20 years before selling to a developer in the future, and if they can rent it out, becasue of the excellent location, for a decent income, then the income plus appreciation may make it a good investment. despite the fact that the current improvements to the land are shit.

I've thought a lot about this. You see a crappy house in a great location and wonder, why isn't someone buying this to tear it down ? Sometimes this seems so out of whack.

But if you think about it, you realize, e.g. that the land under a house in a neighborhood in LA that has homes in the 550,000 to 700, 000 price range, the most realistic valuations of "value" are done using the "market approach" based on legit comparables or based on the "income approach" (based on rents). The least used approach is the "cost approach." (disclosure - my first job out of college (several decades ago) was as an appraiser for a commercial mortgage dept of a large RE company in chicago).

Anyway, my point: What is the value of the land ? TRicky, becasue on the one hand, any new home you build there would be nicer than the current ones, but you would have to pay 500,00 or perhaps a little less (if you can find something too crappy to rent out) for essentially just the land, plus the price of removing the home. So it's not economically feasible to pay say 550 (total including removal of old house) , and then another 300K to build a home there, that can't be sold at a profit for over 800K.

Therefore the land must be worth less than the value of the property, and a better investment is often to make it livable and to rent it out while it appreciates - since investors want some real assets (inflation hedge) in their portfolios anyway.

It does kinda suck. You've definitely put your finger on a flaw in our system. One that Georgism would address. This used to be frequently written about on this forum by Bellingham Bill. Will this flaw in our system eventually lead to some market solutions ? Such as affordable modular homes, or printed homes that people buy ? That wouldn't solve the issue at all, but it might be the next stage. Becasue at some point those crappy homes do need to be replaced, as much as the economics of our fucked up system doesn't support that happening.
10   Patrick   ignore (0)   2018 May 20, 5:02pm   ↑ like (0)   ↓ dislike (0)   quote        

And here is the same article again, deliberately ignoring land values and going on and on about the condition of the house:

11   Patrick   ignore (0)   2018 Jun 7, 7:49pm   ↑ like (0)   ↓ dislike (0)   quote        

Yet another scam article that pretends the price has something to do with the structure, when it's really entirely about the land value around here:


The subtext of this article, as ever, is "Bid as much as you can! Bid till it hurts! Get so far into debt that you cannot possibly escape!"
12   Reality   ignore (5)   2018 Jun 8, 6:03am   ↑ like (0)   ↓ dislike (0)   quote        

The real issue of property value is more complicated than even Henry George's theory regarding "land value."

Henry George's theory essentially divides (real estate) property into two parts: (1) the structure and land improvement; (2) everything else falling into the basket he calls "land value," which he attributes to government action therefore he considers ought to be subject to 100% taxation.

There are several problems with both components of his theory of valuation for real estate property:

1. The total amount of work put into landscaping and building the house may well exceed the current value of the house for many houses (should the government then pay the owner 100% the difference? The Georgist "land value" is negative in those cases). Cutting trees, pulling out all the stumps and leveling grounds are not cheap, and that's before the construction cost of the house itself. Also, this approach to valuation really smacks of long obsolete Ricardian "labor theory of value," instead of any modern theory of valuation of just about everything else since circa 1870's introduction in economics of the Marginal Value concept.

2. Locational value is actually a component in almost every item's valuation in our daily lives. It's the reason why the same item is usually more expensive at a 24hr convenience store than in a supermarket than in a warehouse club or at Amazon. It's the same reason why an apple is more expensive in a store than at the orchard's gate (otherwise, nobody would be transporting it to the store, which in turn wouldn't be able to pay wages, rent or taxes, never mind return for investors). It's the same reason why a gallon of gas cost over $100 in Iraq for the US army during the war in Iraq; otherwise, there wouldn't be drivers delivering the gas. Locational value is an integral part of the value of almost every item we buy on a daily basis.

3. Locational value, even in the case of real estate, is not entirely the result of government action. In fact, it's usually government inaction (i.e. a relatively free market in the absence of high taxation and high regulations) that leads to high locational value. e.g. "free cities" since the middle ages (including places like Hong Kong and Singapore in the 20th century). Neighbors (nearby individuals and enterprises) also contribute heavily to locational value; e.g. the Silicon Valley.

4. Then there is speculative value. Real estate is a form of capital, just like stock ownership. The value of a stock is not just a simple function of its book value or EPS value, but having a heavy component based on what each buy/seller thinks the same stock will be worth tomorrow (or the next minute). With RE, it is further complicated by renovation potential (along with speculations on future interest rate and future neighborhood outlook).
13   marcus   ignore (1)   2018 Jun 8, 6:28am   ↑ like (1)   ↓ dislike (0)   quote        

I didn't get your criticism of Georgism there. They seem like irrelevant details that could be dealt with. PErhaps the exact details suggested by George don't make total sense to you, but the idea with Georgism is that when you buy a house in that case, it would be primarily tha house you're buying. But sure that would vary a lot still by location since construction labor has differents costs in different locations etc.

THe idea would be that someone buying a home in a good location would have essentially two monthly bills to pay. One would be their mortgage payment on the home, that is on the value of the improvements to the the land (i.e. basically the structure itself). The other bill would be the property tax, which would be high in good locations.

THe ultimate cost to the owner in an expensive location should be somewhat less than what people pay now, for two reasons.

1) The part of price that has to do with expected appreciation (from investors bidding the prices up) would not be there.

2) The interest part of the morgage cost - at least on the land value would be gone.

I do see some big questions about assessments. How do you work this so that it's not too much government intervention in the process ?

What if people still bid on what the monthly amount is that people are willing to pay to live there, and the government decides mostly based on a formulas relative to the cost of labor, how much of what they pay goes to the land value tax and how much goes to the depreciated value of the home itself.

As for additional costs for landscaping and maintenance, those could be possibly be deducted from the land tax. This is complicated in terms of reimbursing the current owner if he moves before the new capital improvements are paid for, but very doable.
14   Reality   ignore (5)   2018 Jun 8, 10:17am   ↑ like (0)   ↓ dislike (0)   quote        

My point was that Georgist "land value" is actually a proximation of locational value, which is a component of just about everything we buy on a daily basis; Georgist moral justification for extraordinarily high taxation (100%) on "land value" is that they assert the locational value of real estate is always the result of government service; that assumption is not correct at all, as "locational value" is usually the result of the neighbors (non-coercive community/society) and the absence of the coercive community/society (aka "government").

Anyone buying a house is essentially buying the capitalized value of the difference between:

1. rent cash stream or the monetized (cash stream equivalent of) personal/family enjoyment living in the house; plus expected future sale proceeds


2. cost of maintaining the house, including repair/maintenance, tax, insurance, mortgage interest, and cost of rental management (if a rental property).

Raising tax on the property would not at all reduce the overall cost of ownership: higher tax is financially no different from having more frequent hail damage, or frequent earthquakes, or higher insurance cost. They work almost exactly the same financially in increasing ownership cost while reducing the value of the house. Mortgage interest payment might be lower, but more than made up by increased tax payment. In fact, while mortgage interest payment will end 15-30 years after purchase, tax bill will never end. So the ultimate cost of living at the house (whether owning or renting) will certainly be higher under high tax scenario.

People will always speculate on the value of capital assets. It's just like when you send your kids to college, you are speculating that their future higher income from the degree will pay more than the cost of the college education. Introducing a new house ownership cost item called bureaucrats' estimate on the land value (which will certainly be different from the actual land value reflected at the next transaction; otherwise, those bureaucrats would be the best land speculators in the world, and would not take the government jobs at all to begin with), would only introduce another element of uncertainty and room for fraud/corruption. People will just speculate on the difference between real market value vs. bureaucratic estimate, just like people now speculate on Fed interest policy rate in the future; the Fed meets every month and can have emergency meetings in between, yet the market speculate on their policy errors vis the market interest rate. Can you imagine if town bureaucrats reset "land value" under the houses every month? never mind emergency meetings in between due to market conditions. There would be riots if bureaucrats actually tried to update tax table that frequently. So the idea that bureaucrats can charge 100% "land value," or even knowing what the full "land value" is under any house at any given time, is a hopeless fantasy.

To the extent that more taxes are collected, the government can then borrow "public debt" (identity fraud against future generations not yet born or not old enough to vote) against the cash stream. When the inevitable crash happens, more bailout will take place as it would be infeasible to lay off government workers during recession. That means higher inflation in the long run . . . which ironically would make home ownership even more critical for the middle class as a device for avoiding being stripped of the fruit of their own labor by inflation over the long run. So household asset/budget allocation would have to tilt even more towards home ownership, for those who can afford it; those who can not would have to move to smaller rental homes due to higher tax, just like the higher gasoline tax in Europe force people into smaller cars.

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