patrick.net

The Bush years have seen a rise in debt slavery born out of an unrestrained credit bubble. We might call this Bushanomics. It funds both housing and the continued Iraq fiasco. Things have not gone well there so now we are going to spice things up with a troop surge. The Bush recipe continues to ripen prospering some and ruining others. Its repercussions are likely to reach well beyond January 2009.

I don't think it's terribly difficult to deconstruct Georgist arguments.

Land is valued, in a free market, by its various components. Land has intrinsic value, which sometimes maybe very low or effectively zero -- such as undeveloped, inaccessible swampland. Some land has very high intrinsic value, such as natural harbors or fertile farmland.

Potential usage also drives land value. Extraction of resource, establishment of productive commerce, industry or residential stock.

Microeconomics is the final component. Supply and demand. George lived during a period of dramatic capital creation, the industrial revolution. Had he lived to write about late 20th-Century Gary Indiana, he would have realized the essential flaw in his theory.

There certainly is a huge state component in apportionment of land, and thus in one of its fundamental value drivers. Regulations implied and explicit also serve to introduce friction into the free market function of the land market. Not all of this is bad. For example, the short-term benefit of building landfills next to schools is probably outweighed by the long-term detriment.

But, how exactly would one (one being a sovereign governing body) go about "depressing land prices"? I'm very curious to hear what grand price-control scheme will produce superior economic outcomes, especially given the enormous inefficiencies introduced by that very act.

People have always valued land, even when land ownership was prohibited (all land owned by the state). All that happens then is a "secondary market" or "black market" for land rights emerges spontaneously. So it costs political currency instead of ubiquitous tender currency, but the land still has value far beyond George's notions.

And let's roll back to the pre-Feudal period when apparently land was abundant, free, and we all lived in harmony. Who owned land in the various empires of Antiquity? How was land apportioned? By a market, or by the point of a spear? Even the non-agrarian peoples fought fiercely over land as it represented hunting territory. That land had value, and there was a market for it. Just not a market very sympathetic to making the wrong bet.

But today, with all our terrible notions of personal property rights, land ownership, an impartial arbitrating marketplace, and as close to equality of ownership as has ever existed, we're to believe we're all just slaves? Oy.

Land is valued, in a free market, by its various components.

Absolutely.

Land should not be free. In fact, everything should have a price.

No. Alternatives to private landownership is filled with moral hazards and inducements to inefficient behavior.

BTW, anyone here want a 10 months subscription to the Economist? I traded some unusable NW frequent flier miles for a year's subscription but I find its editorials even more indigestible than when I cancelled it the first time in 2002. I couldn't get any money back if I cancelled my subscription, so I'd be happy to send the remainder of my subscription to someone here.

While the median price of an existing home has flattened for the past year and may even be poised for a decline, the high-end market is soaring.

The luxury market is probably still solid. Too bad the social-ists in frisko are not allowing more luxury developments (without BMR units).

Uh with high profile celebrity developers like Ivana Trump, George Clooney and Michael Jordan backing out of the "Mantattanization" of Las Vegas that whole scenario is hardly anything to brag about. They've managed to salvage some of that market but primarily from attrition.

If one were to make the case for "free" RE (this would be it). Can you say...... I fold?

For the legions of FB's one flies over on their way into Macarran Int'l I'm sure they are taking great comfort in the thought that the "high end" market is holding up so well!

With golf community/ocean/mountain "view" lots in nose bleed territory and "teardowns" of perfectly habitable homes I think we can safely say this is HARM's credit fueled land bubble.

I have to remind myself that when "money is cheap" we're running out of land! (When it's expensive there doesn't seem to be any great sense of urgency).

A few years back I had a bright, young branch manager and we constantly kidded about just being GIVEN the damn house! Isn't the constant maint. decorating, upgrading, weatherizing, roofing and ever escalating property taxes punishment enough?!? I mean, think about it. Just a short while back there was an article about a family that were like 3rd generation "owners" and they were STILL owed the bank on it! How many times should a bank be allowed to collect a lifetime of int. payments on the same freakin' dump?

How many times should a bank be allowed to collect a lifetime of int. payments on the same freakin’ dump?

People should rethink the meaning of ownership. Again.

With the constant stream of negative cashflow, the boundary of renting and owning is quite blurry.

The original poster is misrepresenting Henry George's thesis. George didn't think land should be free. George thought that land was the scarce resource to which all monopoly rents flowed in the end and that taxes should only be levied against such scarce resources. (In the modern day, intellectual property would be similarly treated.) In particular, George thought that any improvements to land - houses, factories, fields of wheat - should not be taxable as they were returns to work and effort and energy. He argued that, as a matter of public policy, such efforts improve the lot of mankind and deserve no penalty.

To tie that into the ongoing theme of this site, the housing bubble of recent years actually has nothing to do with housing. It's all to do with the land a house happens to sit on. No one here - let's be honest, no one anywhere - believes that a stuccoed shack in East Palo Alto is worth more than it was five years ago - but the land underneath the shack is different. It's the land that has increased in price. George's argument is that the increase in the land's value is unearned and thus taxable. If the shack is worth more because somebody put granite in the kitchen or sod in the front yard, George would say, "Good for them."

Peter P,

Exactly! The lines have been unclear for at least the last 5+ years. Be it through savings, building/buying in a less expensive or "boot strapping" through sweat equity the whole idea is to have 'a' home that's completely paid off by the time you retire, no?

Whatever happens in the interim is just so much noise.

Punchbowl,

In a fashion, I have to agree. Perhaps the only way way we'll know which land/developments sit on worthless dirt is when the "ghost town" gets the bulldozer! (I've got a feeling it'll be A LOT!)

So how would you propose to "tax away unearned appreciation" of land? I'm not talking about conceptually, but detailed accounting-wise? I believe if you follow this logic through you'll find out it's circular. The very entry which causes you to book a tax liability is dependent upon itself.

Talk about singularities. --Or-- the better solution we have today. A tax of 0% on this synthetic attribute.

Anyway, how exactly would you unwind the intrinsic value from the total value? The components that drive total value -- the market value -- are not independent variables. For example, gentrification increases total value as a function of capital improvements, but also drives up intrinsic valuation of other unimproved proximate land.

Or maybe we're separating "potential" value from "intrinsic" value (the unimproved land next to gentrification is still worth only $0, it's just the potential for capital improvements drives up value). Well, in this case the intrinsic value term reduces to a constant and is irrelevant, leaving you with exactly the system we already have.

Am I missing something?

Congratulations on your first thread, Different Sean! Welcome to the wonderful world of moderation. I pretty much have to agree with Randy H, Peter P and most others re: abolishing private property ownership.

Yes, the current system has problems, and the U.S. could use a far more fair, uniform and efficient system of property taxation (witness Prop. 13), but I doubt abolishing private ownership would be the best solution. For one thing, it's not private ownership itself that caused the bubble --it's the Fed irresponsibly dropping interest rates to negative territory (in real terms), reckless abuse of credit issued on margin (110% LTV NINA flippers), a strongly pro-RE speculation bias in the tax code, and the global carry trade (endless stream of foreign-held $USDs for toxic MBS). Oh, and the total disconnect between risk and reward in the mortgage marketplace, thanks to a dereliction of duty by Congress and federal bank regulators. The same Congress and federal regulators we're supposed to trust to "fairly" and "efficiently" ration and distribute land under Georgism.

If land were to come under complete control of the state, there would still have to be *some* way of rationing it, determining it's "value"/price and best use, just like any other scarce resource. People would switch to competing for high-value land with "political currency", as Randy said --i.e. bribery, cronyism, intimidation, etc. And we all know goverment is far better skilled at correctly pricing things that than private enterprise... not.

MrSaito,

Excellent points. Sometimes we have a tendency to get wrapped around what's going on at Google, SunMicro etc. and lose sight of the contribution made by the smaller firms. I'm told "we're" the 3rd largest economy on the planet. It's just a shame we don't get treated with the dignity that would seem to warrant?

I didn't want to bring it up earlier b/c I thought it might derail the thread but it now seems appropriate to perhaps mention what is going on w/the Rose Garden here in "stumptown".

Paul Allen was given an unbelievable tax incentive package! (Like he needs one). Increasingly even some of his supporters are questioning the value of what he has brought to the table. The employment, economic development and general "resurgence" of the east side has completely failed to materialize! 2 blocks in from the stadium it still looks like it did before Portland had an NBA team. Yet despite defaulting on debt obligations and attempting to cut ties to the organization he STILL gets favorable tax treatment. Maybe small bus. owners should pool to get a team and show him how it's done?

I think abolishing property rights/ownership would start a war in the US and would be considered a hostile seizure of property (something the colonists didn't like the idea of British soldiers doing). I believe about 70% of Americans are "home owners". People would rise up and overthrow the government. Remember Sean, we all have guns.

(OK, I'll go for it, but only if it's done quickly enough that people will quickly rise up and overthrow THIS administration and then get back to normal).

It's ludicrous to assume that the government could do a better job of valuing land than the private market. As Randy points out, how does one accurately separate out the value of the land from the improvements upon it? It is much healthier to tax the capital gains of people and companies. Then your tax policy is aligned with their natural inclination to make more profit.

As far as I'm concerned, property taxes are bullshit. We should eliminate them and more aggressively tax income and capital gains. Appraisers are crooked, and property tax makes no distinction as to the relative wealth of neighbors. Why should a carpenter be punished for making his dwelling more enjoyable? The government should derive no money until wealth changes hands.

But then, I also recommend that we increase taxes on consumables like water, electricity, natural gas and oil. Particularly anything that has a detrimental effect on the environment.

Remember Sean, we all have guns.

Did SF try to appeal the defeat of Prop H?

As far as I’m concerned, property taxes are bullshit. We should eliminate them and more aggressively tax income and capital gains.

No............

Income and capital gains should not be taxed.

Consumption-based taxation is the way to go. Since living in a home is a form of consumption (paying rent to yourself), it should be taxed accordingly. Renters should be taxed the same way.

GC, I told my wife about your stock and she was excited.

It is reminded that everyone should examine his/her investment independently and carefully.

GC, please re-examine the word "pump". It implies certain things that may or may not be legal.

I am not a lawyer.

Peter P,

I'm not an expert in securities litigation but IF GC were a "registered person" this would definitely be an infraction. If he were technically an "insider" this would constitute an infraction as well. Private parties can be prosecuted if:

They have already established a position (long OR short) and are "touting" (or bad mouthing) the stock on multiple boards/IM's, spam etc. To my understand (at least at this point) GC is compliant but I would definitely be careful. One of the easiest ways for the NASD to police this is matching the touted position to very recently opened accounts! (Like they're the FIRST guys ever to think of this).

NLA

DinOR, thanks for the clarification! :)

GC,

It's when we get into the gray area of assigning "target prices" is where we get into trouble. Really regardless of our roles. As long as we steer clear of that we won't have any issues.

"If" NAR ever adopts any meaningful self regulation, making statements such as "15% is already in the bag" will be frowned upon. They sure as hell should be.

Any realtor that promises appreciation should be legally held liable for that difference upon the sale of the house.

Brand,

Is a "promise" a lot like a "guarantee"?

Here's that little issue again. If a realtor were to say, "Typically homes in this town/neighborhood/area appreciate at 4-8% a year". Of late it's been significantly higher but there's NO assurance that will continue forever or even next year" (then I have no problem).

When you think about it, a MB or realtor can be a hell of a lot more damaging to an unsuspecting person than any fast talking NY stockbroker ever could.

Taxes are such a wretched creation that we should endeavor to minimize their impact on the economy; not direction their impact on the economy. No tax has ever been created which doesn't distort incentives, shuffle winners & losers, and cause unintended consequences.

Property taxes in California are a prime example. Prop 13 has all but destroyed an entire generation's faith in the very institution of government and its right to formulate tax policy. It has revealed that taxes are nothing more than a "me and mine got ours, and yours too!" tyranny. Otherwise explain to me how the Mill Valley trust fund baby Stanford dropout who just moved in across the street bought his recently re-McMansioned zillow-guesstimated $2.6m home for a $385K tax base?

Who do you think is subsidizing him to sit around and throw tri-weekly cocaine parties? (well at least not me at the moment, being a bubblesitter).

Randall H,

You are a very angry, bitter person. Why do you get so jealous when other people are more fortunate than you? Didn't you get an opportunity to choose your parents and vote on Prop. 13, just like the rest of us?

Randy H,

I don't know about the thrice weekly "blow bash" but what a wonderful sense of values to share with your children! Son, this is how to rub elbows w/the right crowd AND be a "tax squatter" at the same time! Great......

Randy H.-

I know knothing of such matters, but can't anyone petition the county to have the property reassessed? Do you have an MLS# or address or something? If he did the remodel, and has owned the property a long time, that might explain the tax issue. If it has recently changed hands, there is no way Zillow can be 2M+ off on the comps. I personally would love to get to the bottom of this, as I'm debating if 2 year old son should stay in CA for school. Prop. 13 is evil, and I have at my disposal only one true recourse.

newsfreak says: One can choose many things, but not the parents.

Citizen newsfreak, I salute your iron grasp of the obvious. Citizen HARM's next lesson will be about sarcasm and how it can be represented by loaded contradictory statements.

@Randy H: Perhaps we might explore the global economic advantages of spending U.S. money saved on property tax on Colombian "imports". Just curious, would you be more or less mad if they were just a bunch of frat brothers throwing keggers every weekend?

Randy H Says:

> Property taxes in California are a prime example.
> Prop 13 has all but destroyed an entire generation’s
> faith in the very institution of government and its right
> to formulate tax policy. It has revealed that taxes are
> nothing more than a “me and mine got ours, and yours
> too!” tyranny.

The business and people that are here “now” are the ones donating to and voting for the politicians that we have “now” so tax law has always benefited the business people in the state at the time the new tax law is passed.

> Otherwise explain to me how the Mill Valley trust fund
> baby Stanford dropout who just moved in across the street
> bought his recently re-McMansioned zillow-guesstimated
> $2.6m home for a $385K tax base?
> Who do you think is subsidizing him to sit around and throw
> tri-weekly cocaine parties? (well at least not me at the moment,
> being a bubblesitter).

In California lineal descendants can legally take over the pre Prop. 13 tax basis of their parents so I would have even a lower tax base if my parents died and I moved in to their house on the Peninsula that is worth about twice as much as the Mill Valley McMansion across the street from Randy.

If my Mom doesn’t outlive me (my great aunt recently died at 99) and I inherit the house and I would not be around much or throw many parties. If I did have some parties there would not be much blow (the last time I actually saw the stuff at a party Miami Vice was on Prime Time TV). I’ll probably invite the neighbors over and let them enjoy the good wine I’ll be buying with my tax savings…

P.S. Did anyone here the name of the Atherton wine collector who lost 150 bottles worth over $500K. I heard that it might be Bill Walsh from Sequoia Associates…

@Brent

His dad is a retired, successful law partner -- or at least so he says. He's got some kind of Prop 13 Legacy Transfer crap going (even though his parents haven't lived in the house for over a decade--it was rental prior to remodeling).

@Brand

I'd be equally as annoyed if they were kegging frat boys, although at least that would imply continuation in college and some form of accomplishment. It's not the drugs I object to -- I'm very libertarian on such subjects; so long as he doesn't steal my shit, or run over my son, he can wind his heart up to 280bpm all he wants.

What I do object to, being myself of a very modest background and having busted my ass for everything I have today, is the fact that he's a trust-fund legacy and he gets a tax break for it. Fair enough he gets daddy's money. But totally unfair we have to subsidize him while he gallivants about.

I despise all forms of no-incentive welfare. Even the backasswards upward-socioeconomic type as in Prop13.

This is not intended to be a trollish topic, I was intrigued by the thought experiment of revaluing land vs use of land as a whole new system. No confiscation of property or bloody, glorious, or velvet revolutions are intended or implied in the thought experiment, however much fun it might be. The closest thinker to this idea seems to be Henry George, but Georgism is only an interesting parallel philosophy to prop up the case. I was also intrigued to find out what people thought about George's philosophy, being an American political economist who appropriately was remarking upon property conditions in California a century and a half ago. I think the idea must have occurred to him in a brilliant, blinding flash, much as it did to me as I was locking up the office last night.

Remember property taxes are already a reality, and properties are already valued by the state for the purposes of gathering such taxes. I am proposing that business and commerce continue much as they do in terms of providing goods and services, but that we consider for a moment what the world would be like if the average quarter acre residential block had an ascribed land value approaching zero. Randy would argue that differential values for land are an essential part of a free market in operation. I am suggesting once a council has zoned a tract of land for subdivision, then we only value what's on it in bricks and mortar (and infrastructure). This would theoretically prevent bubbles occurring and make residential housing much more affordable. Or are we too far gone, and the 'commodification of everything' and 'free market voodooism' has taken hold of us to the extent that we can't even imagine an alternative?

Randy, we all know that life is not fair.

Can we discuss how to exploit unfairness in this zero-sum game? :)

Holy cow! Abolish property rights?

Not quite, not abolishing property rights in terms of ownership, use and quiet enjoyment, only in setting a price on it. Use in any given area is strongly prescribed by the state (councils) in the form of zoning, anyhow -- it is already mandated by the state...

@Peter P,

Life isn't "fair" to be sure, but current tax policy didn't just fall out of the sky, or come down the mountain with Moses.

Tax policy was created by people to serve particular societal ends and can --and should-- be changed to better serve those ends. If it cannot be designed to be "fair", then at the very least it ought to be "neutral". Prop. 13 is neither.

I just did a wiki crash course in Prop. 13, and it's a very interesting can of worms indeed, especially analysed from a tax theory point of view...

@DS,

Did you like my choice of thread graphic? Don't know if it ever toured in Oz, but 'Les Mis' was very popular here.

Tax policy was created by people to serve particular societal ends and can –and should– be changed to better serve those ends.

I agree. Policies ought to do good.

However, my faith in human nature (or there lack of) compells me to expect some other outcomes.

Prop. 13 might seem a worthy thread on it's own, unless it's been done? Didn't know you could inherit a properties tax base, that sorta undermines the "kicking old ladies out of their home" theory for upholding it. I'm praying that fiscal death to the inland empire will cause CA insolvency to elevate beyond the bond solution. Multi-million dollar homes have a tendency toward "unexpectedly" trading hands without a police force to prevent it.