patrick.net

Reality says

tatupu70 says

Actually they are not. If you look at nominal housing prices vs. interest rates, the correlation is very weak to non-existent.

Which time period are you talking about? Are you factoring in real cost of borrowing? (accounting for both inflation and borrower qualification)

I'm talking about over 100 years. Nominal housing prices vs. interest rates.

tatupu70 says

I'm talking about over 100 years. Nominal housing prices vs. interest rates.

Like I suspected, the granuality is too coarse. The 100yrs also covered very different market conditions, spanning 3 different monetary regimes, with drastically different inflation rates. 10% nominal interest rate is very high if inflation rate is 0, but very low if inflation rate is 10%

A house (+land) is a capitalized asset, just like any other capitalized asset. The valuation is based on discounting future stream of income. (Expected) Real interest provide the discount rate, and tax affects the magnitude of that income stream.

Reality says

tatupu70 says

I'm talking about over 100 years. Nominal housing prices vs. interest rates.

Like I suspected, the granuality is too coarse. The 100yrs also covered very different market conditions, spanning 3 different monetary regimes, with drastically different inflation rates. 10% nominal interest rate is very high if inflation rate is 0, but very low if inflation rate is 10%

Oh, so the correlation only exists under certain conditions then? That's ridiculous. If interest rates affected prices, you'd be able to tell with the r2 value.

tatupu70 says

Oh, so the correlation only exists under certain conditions then? That's ridiculous. If interest rates affected prices, you'd be able to tell with the r2 value.

Have you ever tried to buy a house? Tell me interest rate doesn't affect your decision on price.

Why do you think GSE's like FNM and FRE exist if interest rate has nothing to do with price?

Reality says

Have you ever tried to buy a house? Tell me interest rate doesn't affect your decision on price.
Why do you think GSE's like FNM and FRE exist if interest rate has nothing to do with price?

Hey-the data doesn't lie. Interest rate effects are in the noise. They are drowned out by the effect of the overall economy.

tatupu70 says

Hey-the data doesn't lie. Interest rate effects are in the noise. They are drowned out by the effect of the overall economy.

Yes they do, when you do not look closely at what the real borrowing cost was during those years.

BTW, just to make sure we are on the same page, by "housing price" you do mean price of buying houses (and land below them), right? Not cost of renting a roof over one's head. Rent is not interest-dependent, and I addressed that separately earlier.

Reality says

Yes they do, when you do not look closely at what the real borrowing cost was during those years.

So, do I have this right? Your position is: data be damned. I say it so it is true.

OK--you win.

tatupu70 says

So, do I have this right? Your position is: data be damned. I say it so it is true.

OK--you win.

Not at all. You have to look closely at what the real meaning of the data is, lest you fall for the old saying "there are lies, damned lies, and statistics."

Reality says

as opposed to then having to bureaucratically assign land value without much reference to market price

An elegant solution to finding the "right" land value tax is just to have public bidding on it for every land sale.

Whoever agrees to pay the highest tax gets the land.

Tax hikes for that owner after the auction are limited in a Prop 13 kind of way, say 2% per year, with very strict re-auctioning required upon the death of the owner (none of this perpetual family tax rate bullshit like we have in CA) or every 10 or 20 years in the case of businesses, which don't necessarily die.

This solution was suggested to me by Ingo Bischoff of the Economic Club of San Francisco.

I like it.

tatupu70 says

. If you look at nominal housing prices vs. interest rates, the correlation is very weak to non-existent.

This is on the macro scale, where interest rate policy is used to dampen wage inflation.

Ceteris paribus -- when wages are otherwise flat -- I fail to see how its controversial to assert that "housing prices are dependent on interest rates".

Of course, complicating things is that rising housing prices become a form of income via home equity extraction.

Here's a chart demonstrating the interest rate - price lock of 2000-2004:

http://research.stlouisfed.org/fred2/graph/?g=1Mi

The blue line is 30 year mortgage rate indexed at 100 on 2000/1/1.

The red line is Case Shiller indexed at 100 on 2000/1/1, inverted (down is higher) and renormalized back to 100 by adding 200.

From 2000-2004 you can see home prices tracking lower interest rates directly.

that was the boom. In 2004-2006, I would argue that we saw the bubble, with negative am, liar loans, and all the other stuff pushing people into the market to get the free money that the 2000-2004 people got.

Interest how the CS index has returned to blue line now. I didn't really expect that, but that does add support to my argument, since real wages are still pretty flat compared to 2000.

swebb says

the cement factory and bus repair depot

If I were king, I'd use zoning to limit land value effects on businesses.

It's not important to capture every last dollar on the table via LVT. It's just important to break the specuvestors' and rent-seekers' business models to incent them to invest their money helping Man instead of enslaving us.

A properly-run LVT would bring in more money than we'd know what to do with as it is : )

LVT rewards people building up to the zoning max. This creates oversupply and rights many other sins.

Like I said above, AFAICT Tokyo is now basically in the state of overbuilding. Rents are pretty cheap (I think), even though land values are still relatively high. I think Tokyo got this way by getting in its 400+% debt-to-GDP condition (i.e. they borrowed to build), but their density and modern construction stock is what a LVTer would like to see. (Cruising around Tokyo in google street view I am shocked to see all the new building done since I left in 2000).

Bellingham Bob says

Ceteris paribus -- when wages are otherwise flat -- I fail to see how its controversial to assert that "housing prices are dependent on interest rates".

And I agree with that. It's not controversial.

Like I said--interest rate effects are an order of magnitude less powerful than wage effects. If wage effects are minimal, then interest rate effects become more powerful.

Anyways--my point was just to say what historical data has shown.

An elegant solution to finding the "right" land value tax is just to have public bidding on it for every land sale.

Whoever agrees to pay the highest tax gets the land.

Two problem with that:

1. It's impossible to strip already in-service land back to "raw land" state, undoing all land filling, grading, buried utility lines, etc..

2. Why should the full economic value of the land accrue to the monopolistic government bureaucracy instead of the renters who then can enjoy lower rent without the tax burden?

The land auction as government revenue approach has been tried in other parts of the world. For example, HongKong generated the bulk of its government revenue that way for almost half a century from after WWII until less than a decade ago. Instead of collecting annual land rent/tax, the government would auction newly opened up land for a one-time fee on a 99-yr lease. The result was extremely high housing cost, extremely packed living conditions for most people living there, and making a handful of developers extremely rich.

I doubt that's what socialist experimenters want, unless they are already bought off by the extremely rich, like many a historical big-name socialist agitators turned out to be.

Reality says

Not at all. You have to look closely at what the real meaning of the data is, lest you fall for the old saying "there are lies, damned lies, and statistics."

Yes--the real meaning is that historically interest rates haven't had a major effect on housing prices. Wages have.

Like Bob said--if wages are stagnant, then interest rates may have an effect.

tatupu70 says

Yes--the real meaning is that historically interest rates haven't had a major effect on housing prices. Wages have.

Like Bob said--if wages are stagnant, then interest rates may have an effect.

Nominal wages or real wages? Nominal price or real price? If you use nominal for both over 100 years, you are just plotting inflation more than anything else.

Reality says

Nominal wages or real wages? Nominal price or real price? If you use nominal for both over 100 years, you are just plotting inflation more than anything else.

Nominal. Of course inflation is the major driver. That's my point.

Bellingham Bob says

It's not important to capture every last dollar on the table via LVT. It's just important to break the specuvestors' and rent-seekers' business models to incent them to invest their money helping Man instead of enslaving us.

What enslaving are you talking about? Is your land preventing you from leaving and rentng from someone else? A high LVT leading to government owning all land would actually reduce the entire population to serfs.

A properly-run LVT would bring in more money than we'd know what to do with as it is : )

In other words, the government would enslave the people more than ever. The whole point of your exercise is about raising revenue not about shifting revenue source, much less about fairness or equitability.

LVT rewards people building up to the zoning max. This creates oversupply and rights many other sins.

If there is enough rent income to be found, why wouldn't landlords already build to the max? if money is their primary goal.

Like I said above, AFAICT Tokyo is now basically in the state of overbuilding. Rents are pretty cheap (I think), even though land values are still relatively high. I think Tokyo got this way by getting in its 400+% debt-to-GDP condition (i.e. they borrowed to build), but their density and modern construction stock is what a LVTer would like to see. (Cruising around Tokyo in google street view I am shocked to see all the new building done since I left in 2000).

Only a small minority of Americans would enjoy the kind of high density living that is the case in Tokyo. Even Japanese prefer lower density. Packing enormous number of people into small area actually create new monopolistic economic Rent in several areas: retail, service, schools and even churches, etc. would all be able to charge monopolistic economic Rent when people have to give up their cars.

Funny you should decry "enslavement" at the beginning of your post, then end up promoting something like this.

tatupu70 says

Reality says

Nominal wages or real wages? Nominal price or real price? If you use nominal for both over 100 years, you are just plotting inflation more than anything else.

Nominal. Of course inflation is the major driver. That's my point.

Then that's a pointless point. Over 100 years spanning 3 different monetary synstems, you can draw correlation in nominal price between just about anything. That says absolute nothing about the real relationship between the two goods.

Just like I suspected, you are looking at a graph that has way too coarse granuality. My surprise is that you didn't even bother to normalize them with inflation. As the old saying goes, there are lies, damned lies and statistics. I actually love statistics, but I hate lies. That's why I always look into the details when presented with graphs or statistics.

Reality says

pkowen says

Reality says

Perhaps we have different definitions of the word "arbitrary."

Indeed, mine is from a dictionary. Yours is whatever mangled logic it takes to continue your opinionated and confused rants.

No, to me, valuation has to be somewhat reflective of market reality . . . not some number pulled out of some academic's ass because they had a convention somewhere, like in the former Soviet Union.

To me, valuation deviation form market reality is "arbitrary."

"Academics ass" ... "Soviet Union". You clearly are not worth my time.

You cloud your own assessment of rational and logical solutions with a blind dislike of the bogeyman of government "bureaucracy", academics, and apparently Soviets. Soviet Union? Really? Do you know anything about the subject at hand?? Clearly not. I'm done with you.

One last thought for those who might actually be listening to this clown as though he actually had rational arguments:

Valuation using mass appraisal is indeed "somewhat" reflective of market reality, but more stable and consistent and less prone to irrational market swings (reference: the past 10 years). Typically, appraised value as defined by the tax assessor is LESS than recent market sales data. Rather than being at the whim of the volatile "market", which is by any definition more arbitrary than a formula - mass appraisal uses common characteristics of property rather than whims of buyers. Of course, in CA we threw out mass appraisal in favor of a less stable, more inconsistent supposedly "market driven" system. Now, some pay 10x more (or less) than their neighbors, simply because of market fluctuations.

Georgism is likewise a rational solution. Too bad we now live in a country where we cannot discuss things rationally. Instead, reason and logic have been replaced with opinionated half-baked rhetoric.

pkowen says

"Academics ass" ... "Soviet Union". You clearly are not worth my time.

Then you proceed to contradict yourself.

You cloud your own assessment of rational and logical solutions with a blind dislike of the bogeyman of government "bureaucracy", academics, and apparently Soviets. Soviet Union? Really? Do you know anything about the subject at hand?? Clearly not. I'm done with you.

Which subject? I know quite well about the subject on how Soviet and Marxian system of relying on wise men (academics) to evaluate goods and plan their economy.

BTW, stop contradicting yourself every paragraph with "I'm done with you" then proceed to do the exact opposite.

One last thought for those who might actually be listening to this clown as though he actually had rational arguments

You are not very funny . . . for a clown.

Valuation using mass appraisal is indeed "somewhat" reflective of market reality, but more stable and consistent and less prone to irrational market swings (reference: the past 10 years).

In other words, "don't confuse me with facts on the ground." You obviously believe your "somewhat reflective of market reality" is more "rational" and more appropriate than the market reality itself . . . which was precisely my point earlier: if we leave to the government bureaucrats to decide what the land owners land is really worth and tax that value heavily, we are all screwed! They are perfectly willing to contort themselves in order to come up with a steady stream of tax revenue . . . real land value be damned!

Rather than being at the whim of the volatile "market", which is by any definition more arbitrary than a formula - mass appraisal uses common characteristics of property rather than whims of buyers.

The whims of bureaucratic formulae must be better than the whims of people spending their own money! Welcome to the USSR. LOL! Show me one formula that encompasses everything that can ever happen to a house. Does it account for meth lab history? dog/cat pee? fluting on the eves? guilding? etc. etc.?

Georgism is likewise a rational solution.

No it is not. Self-proclaimed Georgists can't even agree among themselves what "land" is

pkowen says

reason and logic have been replaced with opinionated half-baked rhetoric.

what i call misean / right-libertarian bullshit.

My "institutional defenses of intergenerational wealth" was referring to Heritage Foundation, Cato, Hoover Institution, Manhattan Institute, AEI, the WSJ, FOXNEWS, etc etc.

The forces of wealth have built up quite the message machine. Opposing it is centrists like Krugman, and some moderately left mirror-image organizations like CBPP and whatever Soros is funding.

Red-baiting is a standard thing the defenders of wealth do; from my "Royal Libertarian" link:

"Royal libertarians are fond of confusing the classical liberal concept of common land ownership, particularly as espoused by land value tax advocate Henry George, with socialism."

The funny thing is Georgism is generally quite compatible with capitalism, just not the rent-seeking kind we are suffering under today.

William F Buckley and Georgism:

http://freeliberal.com/archives/003247.php

Given the immense amount of wealth currently sitting in land, one would expect to see immense amounts of push-back on directly taxing this wealth away. Anything less would be the dog that didn't bark.

Bellingham Bob says

aka misean / right-libertarian bullshit.

More content-free diatribe.

I don't even consider myself Misean, as I advocate direct debt burden relaxation.

My "institutional defenses of intergenerational wealth" was referring to Heritage Foundation, Cato, Hoover Institute, Manhattan Institute, AEI, the WSJ, FOXNEWS, etc etc.

In case it's not obvious, many of those organizations do not agree with each other on many subjects.

The forces of wealth have built up quite the message machine. Opposing it is centrists like Krugman, and some moderately left mirror-image organizations like CBPP and whatever Soros is funding.

What a joke. Krugman advocates the worst kind of Trickledown Economics: government bailouts and hand-outs to the ultra-rich. Soros is actually an ultra-rich rent-seeker.

You are just a joker advocating for raising taxes so more money can be fed to the ultra-rich rent-seekers who control the governments. Your preference for packing millions of people into tight spaces like Tokyo so that they can be taken advantage of by local monopolies further proves your real color.

BTW, the real problem with "communists" is not their ideal per se, but the fascist methods that they always end up adopting in enslaving the people after they establish economic and political monopoly. Monopolistic management of economy is simply unworkable, regardless what the ideal is. People have to be allowed to discover economic value of goods on their own. That's how new creative use of limited resources is to be found and enhance living standards for humanity.

Reality says

if we leave to the government bureaucrats to decide what the land owners land is really worth

So what is your objection to letting people bid on the land tax they are willing to pay?

http://patrick.net/?p=981019#comment-760859

Reality says

Not when the Georgists can't even figure out what "land" is .

lemme try my "Georgist" cap on here this lovely afternoon

land - all the material universe outside of man and his products

how do you define "land" in your "reality", Reality?

are Land and Capital one in the same, or do you perceive them as two separate things?

Reality says

if we leave to the government bureaucrats to decide what the land owners land is really worth

So what is your objection to letting people bid on the land tax they are willing to pay?

http://patrick.net/?p=981019#comment-760859

I'd be fine with if the bid amount then is proportionally allocated to all other bidders who did not win the auction, instead of the government. [edit: I wrote this first sentence before reading the link; I thought you were talking about auctioning new land to developers; I will address the specifics with auctioning land below existing house after each death in a separate paragraph specifically]

Accruing all future economic value to the government bureaucrats is not at all the same as paying the society. The experience of countries that tried the land lease auction method to fund government, like Hongkong, showed that the result is not at all what Georgists expected: the 99-yr lease auction process created extreme wealthy developers who could win those auctions vs. the masses of middle class being reduced to service a huge debt/rent because the supply of housing was so tight. The poor ended up renting stacked beds! not even rooms.

It is important to keep in mind that Government actually functions as a feudal territorial monopoly regardless what its de jure form is. Auctioning exclusive privileges (territorial feudal privileges) is in effect feudalistic tax farming.

If I have to guess, if every house has to come up for land auction when the owner dies, families all over this country would be quickly reduced to bankrupt renters: the banks financed by the FED can bid on those land auctions; if they win, they hold the land and rent back to whoever moves into the house (the bank would be getting the house for free, as moving house is uneconomic in most cases, especially with existing laws protecting trees on sidewalks), if the relatives of the diceased have to borrow to bid against the banks, they'd be in hock to the banks for the loan.

We already know who win tax lien auctions and what they do with their wins: the banks, and they charge enormous interest to the hapless homeowners or steal their house altogether. Luckily the land tax auction after each death plan wouldn't fly at all, as imposing hardship on newly berrieved families would have enormous political backlashes. The very purpose of the threshold in inheritance tax is set so that most family don't have to worry about paying tax on their dead parents' house. Only the millionares can be politically singled out if they do not plan ahead.

A much better way is what the US government did in the 19th century when the West was opened up: giving land out to anyone and everyone who would pioneer / homestead the land with nominal registration fees, and limited the size of that give-away to each family to no more than 160 acres (a day's traverse), a homestead, so that the pioneering farmers would compete against each other to produce farm products, and accruing the benefit of new land to all buyers of farm goods (in addition to the farmers who own the land).

BTW, I'd be fine with limiting the concentration of ownership in any given area, such as a law prohibitting any one (or related ones) from owning more than 10% of the total housing stock within a zip code (unless there are less than 100 home owners total in a really really rural or new area being developed; someone founding a new town obviously would have to be the concentrated owner at the very beginning).

errc says

Reality says

Not when the Georgists can't even figure out what "land" is .

lemme try my "Georgist" cap on here this lovely afternoon

land - all the material universe outside of man and his products

how do you define "land" in your "reality", Reality?

are Land and Capital one in the same, or do you perceive them as two separate things?

The main appeal of Georgism to the uninitiated is that "land" is "God-given" and unmixed with human labor. However, in practice, it becomes impossible to identify on the ground what is "land" what is "improvement." Is a buildable lot that had been a swamp before the developer filling it "land" or "improvement"? How about a level lot that used to be a ravine or a cliff before developer? Since the first home buyer had purchased the developer's service in his purchase many decades ago, and subsequent assignees have purchased the value of that service in their turns . . . how would it be fair now for the government to assess the current owner for the entire value of the flat lot even if the house is struck down by the lightening (in a very lucky scenario for Georgists)? The lot would have to be reverted to swamp or unbuildable ravine to find a buyer to arrive at real market value for "original raw land" value. . . which is obviously unpracticable both for obvious efficiency reasons and for book keeping reasons keeping track of what a plot of land had been before civilization arrived there.

That's why Henry George eventually arrived at the conclusion that all improvements that last longer than the original improver is defined as "Land" in official Georgism. Defined as thus, Georgism loses much of its romantic appeal about "God-given Land."

My personal view is that the crux of the issue is not "God-given" or not. The iron in your car is "God-given," nobody can use that iron until you sell the car (or rent out the car as the case may be); DMV has the title registeration for your car just like town deeds office and county title office for the land/house; does that mean there should be a use tax charged for the entire use value for all the material content of your car? Of course not, despite your continued possession is preventing someone else from scrapping your car for the raw material.

The real issue is government granted monopolistic economic power; i.e. Economic Rent. On this point, B.Bob is actually close to my understanding. A liquor license or a hospital license actually carry far greater Economic Rent than the land sitting under the store or the hospital. Where B.Bob and I differ is that I understand that the more the government charges for that license / (feudalistic territorial) privilege, the more costly the services would be to the local residents . . . whereas for some odd reason that I don't quite understand, B.Bob thinks a more expensive liquor license would lead to cheaper liquor (analogy to landlords if they had real market power like the holder of an exclusive liquor license).

Also, I don't believe small time landlords for residential housing command much Economic Rent, thanks to the large number of them competing against each other in any given area. The high cost of rent/use-fee in some parts of the country is simply the result of many people wanting to be there running up against the zoning laws preventing landlords from building more. The fact that landlords enjoying Prop-13 protection pass substantial amount of tax savings to the renters making rent/use-fee much much lower than monthly payment on unamortized mortgage on similar house is indicative of the competitiveness among landlords. The monthly payment on unamortized mortgages (plus down payment) is the true extent to which the highest bidding renters/buyers are willing to pay for housing in an area, and would be the price in the absence of landlords offering similar housing for less rent.

Buying a house (+land) to rent out is no different from any other business; if it commands far superior returns than stocks or factories, investors would quickly rush in and bid down risk adjusted returns. They did precisely that a few years ago, leading to many of them being foreclosed upon. The cause for their rushing in wasn't even rent/use-fee from tenants but rather asset appreciation due to dropping interest rate and lax lending standards.

There are real Economic Rent issues in some other cases: such as hospital license and liquor license. The way to reduce hospital Economic Rent is by relaxing licensing requirement, so people have to service providers to choose from. As for Liquor License or night club license, that is indeed a form a tax imposed by the community with explicit purpose to limit supply. Do we really want to apply the same logic to limit supply on housing or medicine?

Reality says

If I have to guess, if every house has to come up for land auction when the owner dies, families all over this country would be quickly reduced to bankrupt renters

The owner could be a married couple. One dies, the other remains, no problem.

But I do have a problem with letting children inherit the low tax base of their parents. That's another step toward landed aristocracy, and impoverishment of all others.

Reality says

My personal view is that the crux of the issue is not "God-given" or not. The iron in your car is "God-given," nobody can use that iron until you sell the car (or rent out the car as the case may be); DMV has the title registeration for your car just like town deeds office and county title office for the land/house; does that mean there should be a use tax charged for the entire use value for all the material content of your car? Of course not, despite your continued possession is preventing someone else from scrapping your car for the raw material.

I want some of what you're smoking!

people don't live in cars though. It is merely transportation.

a bit apples and oranges, if you ask me

I didn't notice if you answered my question in all those words, did you?

The owner could be a married couple. One dies, the other remains, no problem.

But I do have a problem with letting children inherit the low tax base of their parents. That's another step toward landed aristocracy, and impoverishment of all others.

I can certainly sympathize with the sentiment. However, in practice, the real "landed aristocracy" with tens of thousands of acres can pass down the generations through family foundations . . . and in some cases even nominally "donating" to the government so that the taxpayers would have to provide grounds keeping service.

Luckily for us, the super wealthy nowadays are not relying on residential rent income . . . probably due to legal liabilities. The field of residential rental is very competitive, which is good for the renters and avoiding Economic Rent. A tax raise there actually would hurt the renters and the economy in general.

My problem with "married couple" only is that then government gets into the business of defining what's a marriage. What about the dutiful kid who chose to stay home to help the elderly parent so he/she did not become a burden on the public? So long as we are talking about inheriting a single house (even if a multi-family), I doubt there is any basis for "landed aristocracy."

Let's not have green eyes on our neighbors. If the neighbor can get away with paying less taxes, that means the government bureaucrats have less resources to pick on you.

But I do have a problem with letting children inherit the low tax base of their parents.

Or when you do something stupid like allow grandchildren to inherit tax bases, as under Prop 193. This is one of the dumbest tax policies ever and only entrenches wealth for undeserving people.

errc says

I want some of what you're smoking!

Why do people running short on logic have to hyper-ventilate? I like the tone in your earlier post much better.

people don't live in cars though. It is merely transportation.

Ask a homeless sleeping in a car about that . . . or a homeless who can not recycle your car for scrap metal in exchange for his next meal about that. I mean, why shouldn't the homeless be allowed to "mine" your catalytic converter? Your continued ownership of the palatinum is preventing other people from using the limited resource. Palatinum as an element is certainly God-given (from Super Nova) and is certainly finite on this planet.

Conversely, if people don't live in it is the new standard, does that mean commercial land should have zero LVT? LOL. It's the economic value of finite natural resource that we are talking about . . . whether the benefit should accrue to the end user in a competitive market process or should the entire economic benefit of the finite resource accrue to government bureaucrats via tax.

a bit apples and oranges, if you ask me

Not really:

House: land is an input factor, allegedly god-given, and finite, then intermixed with labor in its improvement, is registered with government agencies for "title" for ease of litigation in the future, and can be rented for use value. The land is not useable by anyone else while the house owner is using that land.

Car: metal (ore) is an input factor, alleged god-given, and finite, then intermixed with labor in refining into alloy and made into a car, is registered with government agencies for "title" for ease of litigation in the future, and can be rented for use value (car rental). The metal in the car is not useable by anyone else while the car owner is using the metal as part of his car.

I didn't notice if you answered my question in all those words, did you?

What's your question? I thought I gave a very detailed explanation . . . that the "Land" that arouses righteous Georgist antipathy is actually an abstract concept standing for government granted monopolistic Economic Rent. That did apply to some degree to farm land in Henry George's time in Europe (Feudal land holdings in a predominantly agrarian economy) . . . however, today government granted monopolistic Economic Rent do not primarily involved land holdings, especially not in the case of small time landlords who do not command much Economic Rent.

corntrollio says

Or when you do something stupid like allow grandchildren to inherit tax bases, as under Prop 193. This is one of the dumbest tax policies ever and only entrenches wealth for undeserving people.

The logic is thus: people coming into owning a house through involuntary circumstances are not like the new buyers who are flush with money. Prop-13 is simply a way to enable a town to raise tax whenever new buyer flush with money is coming in. It's simply a customer price discrimination policy, like any vendor with marketing power (the government certainly does have that monopolistic marketing power), trying to differentiate between those who can afford to pay more, who can not, and charge accordingly.

Most towns people are protected under Prop-13 to one degree or another. It just gives the town an excuse to charge more for new comers. Not at all a "tax break" for a few.

Reality says

2. Why should the full economic value of the land accrue to the monopolistic government bureaucracy instead of the renters who then can enjoy lower rent without the tax burden?

You're joking, right? As if a landlord would ever lower rent because of lower taxes! ALL the benefit of lower taxes ALWAYS goes to the landlord. Period. Can you imagine this conversation:

Landlord: "Well, the government has lowered land taxes, so I will lower your rent."
Tenant: "Gee, thanks. You didn't need to do that."

The landlord always charges the maximum the tenant is willing and able to pay. Period.

You're joking, right? As if a landlord would ever lower rent because of lower taxes! ALL the benefit of lower taxes ALWAYS goes to the landlord. Period. Can you imagine this conversation:

Landlord: "Well, the government has lowered land taxes, so I will lower your rent."
Tenant: "Gee, thanks. You didn't need to do that."

The landlord always charges the maximum the tenant is willing and able to pay. Period.

The tenant can move to the next landlord who is charging less because his tax expense is lower. I actually negotiated a rent reduction from my landlord in 2008 after the economic collapse, just by hinting about moving. Why do you think many new landlords had negative cashflow? instead of asking for more so they can at least break even? The tenant would simply move to the cheaper service provider!

The very fact that Prop-13 has enabled many landlords to rent their units for much much lower price than the purchase monthly PITI on the a similar house is clear proof that landlords do pass along tax savings to tenants, through the competitive market process. Heck, they pass along more than their tax benefits! They pass along even some of the lower monthly payment due to their having successfully managed the place for decades, as reflected at a time rent was less than half of monthly cost of buying.

It is indeed very important to understand this competitive market process. It explains why the competition among American carmakers in the 1920's and 1930's were able to deliver cheaper and better made cars to American consumers whereas German and Soviet central planners could not despite their alleged efficiency and government coordination to make cheaper cars.

Likewise, we have witnessed this phenomenom again in the last 30 years as the competitive semiconductor and communication devices industries in this country due to multiple competitors "greedily" pursuing their own profitability while delivering cheaper and faster devices . . . whereas the soviet and Japanese and Chinese government sponsored research facilities in the same fields went nowhere.

Of course the landlord would like to charge the maximum he can get away with . . . as does the tenant who wants to pay as little as possible. However, due to competition, neither can get their full wishes . . . or put it another way both indeed get what they wish, with a caveat "they can get away with" under the competitive pressure. That's the beauty and dynamic equilibrium of free market. Government taxation OTOH is much more monopolistic.

When tax is lowered, the tenant is simply less willing to pay the old rental amount because the landlord next door is offering housing for less due to the lowered tax expense.

Reality says

The tenant can move to the next landlord who is charging less because his tax expense is lower.

Doesn't work that way in Silicon Valley. All rents are already at the upper limit of what tenants can possibly pay, as determined by salaries, because continuing bubble prices prevents any new houses from being bought and rented out profitably. So this makes rental supply artifically tight.

Prop 13 does reduce a long-time landlord's obligation to the community to essentially zero. That, combined with the very high rents, makes old Prop 13 landlords into a hereditary aristocracy that simply sucks money from the economy while producing nothing of use to anyone, except for some maintenance, and that only if absolutely necessary to avoid getting in trouble with the law.

Great work if you can get it.

Doesn't work that way in Silicon Valley. All rents are already at the upper limit of what tenants can possibly pay, as determined by salaries, because continuing bubble prices prevents any new houses from being bought and rented out profitably. So this makes rental supply artifically tight.

The rent amount is not even close to the upper limit of what tenants can possibly pay . . . as evidenced by none other than the frequently repeated stats that renting in the Silicon Valley is much much cheaper than buying (i.e. renting money) in terms of monthly payment. The ITI (no P) on new purchase reflects how much people can actually afford to pay if they really want a house.

Prop 13 does reduce a long-time landlord's obligation to the community to essentially zero. That, combined with the very high rents, makes old Prop 13 landlords into a hereditary aristocracy that simply sucks money from the economy while producing nothing of use to anyone, except for some maintenance, and that only if absolutely necessary to avoid getting in trouble with the law.

Great work if you can get it.

So why didn't you get it? It's like saying, someone bought 10,000 shares of Microsoft in 1989 or 10,000 shares of Walmart in 1985 are all parasites. Now both worth multiple millions. What did they ever do besides holding onto those shares? So why didn't you buy them? They were fairly cheap back then. The rental service provider in Silicon Valley is certainly doing much more work over the years than the stock holders of MSFT or WMT.

What you are missing is that numerous wannabe landlords have gone bust along the way just like numerous other stocks have gone bust, before you can turn your green eyes on those success stories.

As for producing nothing of use to anyone, do you consider HR managers who interviewed you for your last job as having produced nothing of use to anyone in their entire lives? How many people do you think the landlords had to interview for the 25+ years of ownership before they can really let Prop-13 cap their tax to "essentially zero." Property price was already fairly high in the late 1980's (about half of the recent peak at then peak), so someone purchased as early as 1988 can't really benefit more than about 25-50% reduction compared to current tax level. It's the ones who bought before about 1982 that really benefit from Prop-13. That's 3 decades of consistent management! When was the last time you had stayed at a job for 3 decades? Should an HR manager with 3 decade of experience be called parasite and kicked out?

As for obligation to the community, towns love really long term residents and owners . . . because the short-term homeowners with only a few years of stay in good towns are usually there to take advantage of the good school system! Considering that something like 80-90% of the town's budget go to the schools, it's highly advantageous for the town to have someone who pay tax for 30 years, even at half-off or 3/4-off, but do not have kids to register at the schools.

BTW, if you think small time landlords who have to interview tenants, fix buildings, collect rent, pay bills on time and put his capital on the line for risk exposure . . . are all parasites, what do you think government tax collectors are? And why should they be paid more?

@Troy or should I say Bob

>Given the immense amount of wealth currently sitting in land, one would expect to see immense amounts of push-back on directly taxing this wealth away. Anything less would be the dog that didn't bark.

LoL!

@Troy (Bob)

>Cruising around Tokyo in google street view I am shocked to see all the new building done since I left in 2000).

Yes, I am here. The has been lots of new building (Mori Building, Omote-Sando Hills, Shidome, Tokyo Midtown, new Shibuya towers and more)....

Reality says

The rent amount is not even close to the upper limit of what tenants can possibly pay . . .

Sure it is. Buyers and renters are not the same groups of people for one thing.

But back to Prop 13. My landlord pays about 1 month of my rent per year as property tax. Without Prop 13, she'd pay about 6 months of my rent per year as property tax.

She's making a big profit either way, but 5 extra months of profit at public expense is totally uncalled for.

Reality says

f you think small time landlords who have to interview tenants, fix buildings, collect rent, pay bills on time and put his capital on the line for risk exposure . . . are all parasites, what do you think government tax collectors are? And why should they be paid more?

1. Interview tenants? Just a form I filled out.
2. Fix building. Yes, minimally, but honest work.
3. Deposit my check? Very hard work, right...
4. Pay bills on time. Also very hard work.
5. Put his capital "on the line". Why should anyone be rewarded for speculating in real estate that already exists?

Government tax collectors... yeah, what have the Romans ever done for us?

http://www.youtube.com/watch?source=patrick.net&v=ExWfh6sGyso

What you're not seeing is that that rent on the land is itself a TAX with no BENEFIT. I suspect that might be because you need to feel entitled to money that you're not really entitled to. Maybe you're a landlord? If you can mix in the honest income from actual work with the dishonest income from land ownership, then it just feels better.

The solution is to call a tax a tax, and stop calling it rent. Then let the government collect it so we can eliminate income tax and sales tax.

American in Japan says

Given the immense amount of wealth currently sitting in land, one would expect to see immense amounts of push-back on directly taxing this wealth away. Anything less would be the dog that didn't bark.

Bingo!