patrick.net

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!

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

Without the landlord let service, buying would be the only option. Qualifications for buyers are actually higher than for renters, so in a normal market, monthly fee for renters should actually be higher than that for buyers who have the superior credit worthiness. i.e. rent should be higher than the monthly payment for buying. That is actually one of the cardinal rules for buying investment property in a normal housing market: the landlord is actually arbitrarging his/her superior credit worthiness to provide the renter a roof over the latter's head.

The availability of houses for renting at half the monthly payment of mortgage on comparable house is almost entirely the result of competition among landlords, as is the phenomenon of negative cash flow among new landlords.

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.

That means she has owned the property since probably before 1980! That's 30+ years of successful track record on her job! Assuming the property tax rate in your town is 1.5%, her rental revenue is only about 3% of the house' value! That's before insurance, tax, repair expense and her mortgage payment (if any) What big profit are you talking about? 3% revenue - 1% insurance and repair = 2%, that's about 1.5% Return On Capital after Prop-13 protected property tax! (and would be 0.5% if there had been no Prop-13 protection) And you are complaining as if she enjoys some kind of Economic Rent?!

1. Interview tenants? Just a form I filled out.

If you are the only applicant, then the landlord has even less market power than the tenant, as the tenant probably looks for housing at multiple different places. When I was in college, I had to sublet to my roommates in 4br apartment. When two of them moved, it was a pain the rear end to find new roommates. I spent multiple days interviewing dozens of them before picking two; they were not even my top choice, as some people that I wanted decided to live somewhere else. Two-way choice is a real bitch. LOL.

2. Fix building. Yes, minimally, but honest work.

Hardly. There are far more fixing around the house than a public road. You are forgetting the house needs new roofs every 10 years or so. New water heater every 6. Plumbing leaks, electric fixes, exterior painting every 3-5 years, etc. etc.

3. Deposit my check? Very hard work, right...

You need to check on deliquency rate among tenants.

4. Pay bills on time. Also very hard work.

There are full time jobs for that, called account managers. Are they "parasites" too?

5. Put his capital "on the line". Why should anyone be rewarded for speculating in real estate that already exists?

For the same reason that there are markets for stocks arleady issued, and bonds already sold by the Treasury. . . because without them who would be paying the builders and developers? Oh, home buyers you say? Then you need to pay more than double every month. Are you ready to cough up and buy? and ready to pay twice as much every month for the same roof over your head? Do you also believe any and all money that you have made from stocks should be taxed at 100? including dividends? Chances are that you bought the stocks on the secondary market not all IPO issues. Besides even if you bought IPO, you had to sell into the secondary market.

What you're not seeing is that that rent on the land is itself a TAX with no BENEFIT.

Of course there is BENEFIT! You are getting a roof over your head that is costing you half the price of what would cost you every month to buy the same house. Do you also believe hotels offer you no benefit? If it offers you no benefit, why did you sign up with your landlord at all? The fact that she is willing to charge you less than other landlords is your 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.

Like I mentioned before, my motivation is that I do not wish the Georgist nonsense drive up rent across the country. If you really believe the small time landlords have market power like liquor licenses do, what makes you think a more expensive liquor license would make the liquor cheaper?! My landlord has saved me $180k over a little over half a decade compared to if I had bought the house at the time. Unlike you, I'm rather appreciative of that service.

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.

If your idea is to let the government collect rent, who will be managing the building then? The government? Do you really want to interview in a facility like the DMV for your next house hunting? Wait, the government already run some rental units. Go to a public housing project in Detroit or Baltimore, and see what it's like.

There is a reason why having the government take over retail housing rental is a bad idea. We have already gone through that experiment: Marxians (and Henry Ford too) thought government/monopolistic resource management would bring efficiency. The result was the exact opposite: because no one person can do everything up and down the chain of responsibilities, the monopolistic bureaucracy that would grow out of such a monopolistic integrated operation (whether it be a commune in Russia or a the River Rouge Plant in Michigan) is nowhere nearly as efficient and flexible as multiple competitors at each level.

That's why we have multiple different private firms involved in growing lettuce, transporting them, and putting them on the shelves for you to choose from. The grocery store may well be charging you 3x per head the price that they are paying (a profit margin that is far higher than what your landlord is getting) . . . but that is still far more efficient than if a government monopoly were put in place to handle all the growing and distribution . . . for the very simple reason that a monopolistic bureaucracy would become far more self-serving without competitive pressure.

Getting the most that one can get away with is human nature (including sheer laziness). For crying out loud, your landlord is getting a shitty 2-3% or less return on capital, and you are here disparaging the morality of her being landlord, obviously hoping to pay less. LOL. It is only the freedom to choose alternatives that keep both parties to a transaction in check. If a government monopoly becomes one of the two parties in a transaction, the counter-party loses that freedom to choose entirely and has to suck up shitty service at high price. If you think the rent is too high, you should be pushing for government relaxing zoning restrictions so that more landlords can compete with more units instead of advocating raising taxes that may well drive some existing landlords out and make rent more expensive.

For what it's worth, most commercial spaces are rented on "triple-net" basis; i.e. the tenant is responsible for insurance, tax and utilities, largely because commercial zoning tax rate and insurance tend to fluctuate. A high LVT that get re-assessed every year may well make residential rental market into triple-net basis as well. . . perhaps not a bad idea to have rents quoted on triple-net basis, considering just how misinformed some people are nowadays.

What you're not seeing is that that rent on the land is itself a TAX with no BENEFIT.

It is not a TAX at all because you are free to rent from the next landlord in the same area. That very freedom to choose ensures that the price is two-way market driven not coercive. It's no different from say if you complain why a head of lettuce should cost $1.50 to you when it is only $0.10 cents in the field. It is your own responsibility to find a vendor who is willing to give you the service for less.

That two-way freedom to choose is what ensures efficient allocation of available living spaces . . . in a way that is far more efficient than a government monopoly (ie. government collects the rent instead).

Reality says

If the neighbor can get away with paying less taxes, that means the government bureaucrats have less resources to pick on you.

Well, that's a novel thought. Let's say, just for the sake of argument, that the Assessor is crooked and the big breaks he gives to his pals and cronies are beneficial to everyone.

Trickle down corruption! A win-win for everyone!!

Cook County resident says

Reality says

If the neighbor can get away with paying less taxes, that means the government bureaucrats have less resources to pick on you.

Well, that's a novel thought. Let's say, just for the sake of argument, that the Assessor is crooked and the big breaks he gives to his pals and cronies are beneficial to everyone.

Trickle down corruption! A win-win for everyone!!

Nope. Its such a scenario that represents grounds that the government does not need the levy it sticks to its residents.

Take the Water Reclamation District you may be familiar with.

wtfcapinv says

Cook County resident says

Reality says

If the neighbor can get away with paying less taxes, that means the government bureaucrats have less resources to pick on you.

Well, that's a novel thought. Let's say, just for the sake of argument, that the Assessor is crooked and the big breaks he gives to his pals and cronies are beneficial to everyone.

Trickle down corruption! A win-win for everyone!!

Nope. Its such a scenario that represents grounds that the government does not need the levy it sticks to its residents.

The government has legitimate duties and they must be paid for. While it might be nice if we could be taxed at the same amounts as the cronyocracy, it just wouldn't work. Government costs and letting insiders get off on the cheap isn't fair.

wtfcapinv says

Take the Water Reclamation District you may be familiar with.

Yeah, if the Water District really needed money, all those connected guys would have been getting water bills, too.

Cook County resident says

Well, that's a novel thought. Let's say, just for the sake of argument, that the Assessor is crooked and the big breaks he gives to his pals and cronies are beneficial to everyone.

Trickle down corruption! A win-win for everyone!!

What you have described is essentially Keynesianism! Money in a fiat money economy is get-out-of-jail-free-card: satisfaction of tax payment. Keynesianism is essentially about handing money out to the cronies in the hopes that the money (tax satisfaction notes) would trickled down to the rest of the economy.

The problem with Cronyism, as opposed to neighbors figuring out tax loopholes on their own that are open to all, is of course the issue of fairness and market efficiency. So long as the "loopholes" are available to all, the benefits accrue to third parties in the general public very quickly. Take for example, giant "sales tax loop holes" exists in the form of online shopping and shopping across state borders to states where there is no sales tax. Because those tax avoidance options are available to all, the benefits of these no-tax zones accrue directly to consumers.

Cook County resident says

The government has legitimate duties and they must be paid for.

While food distributors serve a legitimate purpose, that doens't mean a chicken is worth a day's labor, like it was when soviet government held the monopoly on food distribution; while surgical knife serves a legitimate purpose, it doesn't have to be the $900 price in the current government licensed and subsidized system. The "price" in a purely monopolistic system is inherently illigitimate (result of coercive power). If you think what small time landlords charge for rent is illegitimate despite ready competition right next door, the price that the government bureaucratic monopoly charges for "service" is far less fair due to the absence of competition. In a monopolistic market, prices go up to the maximum affordability completely unchecked by competition, and then go up some more (both in price increase and in the form of quality reduction)

Reality says

Cook County resident says

Well, that's a novel thought. Let's say, just for the sake of argument, that the Assessor is crooked and the big breaks he gives to his pals and cronies are beneficial to everyone.

Trickle down corruption! A win-win for everyone!!

What you have described is essentially Keynesianism! Money in a fiat money economy is get-out-of-jail-free-card: satisfaction of tax payment. Keynesianism is essentially about handing money out to the cronies in the hopes that the money (tax satisfaction notes) would trickled down to the rest of the economy.

I was sarcastically responding to the comment:

Cook County resident says

If the neighbor can get away with paying less taxes, that means the government bureaucrats have less resources to pick on you.

+Property tax favoritism is the same thing as picking on the less favored, regardless of Keynesism, fiat money, tax satisfaction notes or any other wordfog.

Reality says

The problem with Cronyism, as opposed to neighbors figuring out tax loopholes on their own that are open too all is of course the issue of fairness and market efficiency. So long as the "loopholes" are available to all, the benefits accrue to third parties in the general public very quickly.

Croynism makes government more expensive, not less expensive. Croynism makes bureaucracies more likely to pick on everyday people, not less likely to pick on them.

Reality says

In a monopolistic market, prices go up to the maximum affordability completely unchecked by competition, and then go up some more (both in price increase and in the form of quality reduction)

In a monopolistic market, government regulation ought to serve as the check.

Cook County resident says

+Property tax favoritism is the same thing as picking on the less favored, regardless of Keynesism, fiat money, tax satisfaction notes or any other wordfog.

Instead of making senseless accusations like "wordfog," you should actually read what I wrote. In no way did I favor Cronyism. All I said was that if the neighbor can find a pre-existing loophole in tax codes (that is open to all) and exploits it, it's not a bad thing. I gave the example of tax-free shopping online and shopping across state lines to where there is no sales tax as example.

Croynism makes government more expensive, not less expensive. Croynism makes bureaucracies more likely to pick on everyday people, not less likely to pick on them.

I do not endorse Cronyism at all . . . which is why I'm against Keynesianism, because it is Cronyism (money has to be handed out to someone in Kynesianism; that someone is selective). Not a wordfog at all, merely pointing out the blindspots some of your friends are having.

Cook County resident says

In a monopolistic market, government regulation ought to serve as the check.

Piling monopoly on top of monopoly doesn't work.

The track record of government self-regulation is even worse than industry self-regulation.

The real solution is free market choice and competition.

Reality says

It is not a TAX at all because you are free to rent from the next landlord in the same area. That very freedom to choose ensures that the price is two-way market driven not coercive.

No, you are not free to rent from the next landlord and it is not a two-way market. Landlords here form an informal cartel in the areas where there are jobs. They do not compete, because the salaries are high and the rental options are few. Just the opposite: renters are forced to compete to pay them, because the landlords are monopolizing scarce land. Every landlord with an old Prop 13 exemption from paying their fair share of tax simply has a licence to take money from workers. It's like the company store.

To be near the jobs of Silicon Valley, I must either buy pay extortionistic rent (bad choice) or buy a house at bubble prices (worse choice). If I choose not to live near the jobs, I lose anyway.

It's a large and ongoing forced transfer of wealth from productive members of society to unproductive rentiers. You object to transfers from the rich to the middle class, but are happy with transfers from the middle class to the rich.

No, you are not free to rent from the next landlord and it is not a two-way market. Landlords here form an informal cartel in the areas where there are jobs. They do not compete, because the salaries are high and the rental options are few. Just the opposite: renters are forced to compete to pay them, because the landlords are monopolizing scarce land. Every landlord with an old Prop 13 exemption from paying their fair share of tax simply has a licence to take money from workers. It's like the company store.

Do you have any evidence that there is such a cartel? What's preventing any alleged cartel member from "cheating"? They are not at all like the "company store" especially when their own "rent"/tax is low. The very fact that they have failed to push rent even past half of the purchase monthly payment on a similar house in the area is indicative that there is no such cartel. You are talking about thousands if not tens of thousands of members to a cartel! How is that even remotely possible without government enforcing a cartel (hmm, like mandating minimum fee and charging high "rent"/taxes to them)?

To be near the jobs of Silicon Valley, I must either buy pay extortionistic rent (bad choice) or buy a house at bubble prices (worse choice). If I choose not to live near the jobs, I lose anyway.

You may as well say the local restaurants and grocery stores are charging extortionist fees on food; and that would be a far more credible charge because there are far less restaurants and grocery stores in the same area. The very fact that rent is substantially below purchase monthly payment, and that new landlords are having negative cash flow! should be indicative that there is no such cartel. The high price is simply a matter of a lot of people trying to live there running up against zoning laws.

It's a large and ongoing forced transfer of wealth from productive members of society to unproductive rentiers. You object to transfers from the rich to the middle class, but are happy with transfers from the middle class to the rich.

The small time landlords are the middle class. It would not surprise me at all if your landlord has lower income than your previous job had. If not for the FED artificially suppressing interest rate, I'd think she would probably have preferred to have sold the house and collect a normal 5% bank CD interest rate instead of the measely 1.5-2% that she is collecting from the house. A high tax on those small time landlords would be horrendous injustice on both landlords and renters (both will be paying for the new tax; if you believe there is an effective cartel then new burden will fall exclusively on renters) to enrich the wealthy who get the government contracts constructing $80million school building boondongles when no new school building is needed just to get the town in hock to the banks.

Landlords here form an informal cartel in the areas where there are jobs. They do not compete, because the salaries are high and the rental options are few.

I just checked Craigslist right now for SF Bay area, presumably where you are. There were 600+ listings yesterday alone on the C-list! on a Wednesday! 1BR units ranged in price from $600 to $3800. What cartel are you talking about? Looks to me like a very vibrant competitive market place.

No, you are not free to rent from the next landlord and it is not a two-way market. Landlords here form an informal cartel in the areas where there are jobs. They do not compete, because the salaries are high and the rental options are few. Just the opposite: renters are forced to compete to pay them, because the landlords are monopolizing scarce land.

With all due respect Patrick, you've gone off the rails. Landlords now have an informal cartel? Really? Most mom and pop landlords and even large corporate housing like Avalon want to get as much as the market will bear like any other business using basic supply and demand economics. I would venture to say that the vast majority of landlords don't even know other landlords and if they do they are from landlord blogs around the country and don't compare notes. I'm sure that the big boy players like Avalon use data to make their business decisions and don't talk to mom and pop landlords either.

No, you are not free to rent from the next landlord and it is not a two-way market. Landlords here form an informal cartel in the areas where there are jobs. They do not compete, because the salaries are high and the rental options are few.

It's a large and ongoing forced transfer of wealth from productive members of society to unproductive rentiers.

Patrick with all due respect you need to get your head out of your silicon valley. Ass, gas, or grass no one rides free. If you want to be part of the silicon valley scene and play with the big boys then that's the cost of doing business. If you don't want to play then go somewhere else. There are many cheap places to rent in America.

None of the georgists have even begun to explain where rental housing would come from under their scheme. In no real world scenario I can think of would everyone be an owner. In no real world scenario would everyone be a renter in a multi family. So the whole georgist thing doesn't even begin to work except perhaps in a very small densely populated area. I notice the examples offered of supposedly "working georgism" (that's a very debatable point) were exactly that. What about the other 98% of the country?

Reality says

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.

This is nonsense. It's not a very good argument and doesn't exist in any other context. NIMBYism shouldn't be rewarded. Do newcomers use more local services? Not necessarily. Let's call it what it is -- a subsidy.

If Prop 13 didn't exist, prices would be lower because the property market would be more liquid, and we shouldn't be price-discriminating like this. It does fuck over newcomers and young people, but it doesn't help as many people as you think -- illiquidity hurts on the back end too because there are fewer buyers. Furthermore, it makes it harder for people to "move up" to the more appropriate house since no one is trimming down. Overall it's a bad housing policy.

You still haven't adequately answered my criticism with respect to inheritances. Why should we let that pass?

If you think Prop 13 only lowers taxes for homeowners without other consequences, you are very naive. There are numerous problems:
1) entrenches wealth as I mentioned, including the stupid generational and skip-generational rules
2) results in greater state legislature control because localities are starved for money
3) results in higher sales taxes because localities are starved for money
4) over the long-term shifts the overall property burden to residential owners from commercial property owners
5) screws over newcomers and artificially elevates property prices
6) results in inefficient use of land and structures
7) makes an illiquid property market

The list goes on. There are better ways to keep grannie in her house and there are better ways to prevent government growth, if those are your arguments.

Nomograph says

Pretty much everything from mises.org is ideological bullshit, and evidenced by the above post.

Ding ding ding. We have a winner. Not that any other ideology is right. Ideologies tend to use circular logic to justify themselves.

corntrollio says

artificially elevates property prices

This is the big one. If I were king there'd be a high property tax burden on new buyers for say 25 years, then basically nothing as long as the original owners remain in the property. Instead of paying 3-4X of salary we'd be paying 1X since the taxes would be so high.

LVT itself can't fix high home prices, since we bid them up to whatever we can afford. LVT can only direct this flow from the REIC to somewhere else, like the state. (LVT on retired people would in fact encourage them to vacate after they didn't need the space, but I dislike this idea of forcing people out of their homes -- I think security of tenancy is something of a human right / valid human desire that tax policy should respect)

makes an illiquid property market

houses would be a lot more affordable if the payment were only on the replacement cost of the structure, not the entire bundle of land usage rights.

It's this latter thing we're buying that adds so much to the cost of real estate, in high-cost areas at least.

bob2356 says

None of the georgists have even begun to explain where rental housing would come from under their scheme.

I tend to reject the idea that some percentage of people in this country are only capable of being rent slaves. IMO this is just a self-reinforcing attitude.

Once real estate is divided into 1) the housing good and 2) land rights (the latter not being acquired in a fee title but by essentially leasehold via the LVT), the up-front real estate cost of acquisition would fall towards (if not to) the cost of the housing good itself.

Which is VERY minimal in the scheme of things. Contrary to Reality's assertion above, housing stock lasts much longer than 30-40 years.

I don't see why MFH can't go towards a condo model over time, with the HOA taking the place of LLs.

In my system, if there would still be a market for short-term housing, then it would function more towards the residential hotel spectrum.

The key thing about LVT is encourage housing supply. It does this by taxing improvements less and the land more.

bob2356 says

What about the other 98% of the country?

In cheap areas home ownership % is much higher. There's less a problem already where land costs are so low.

But the flows from renters to owners is much greater than a 2% problem. More like 50%.

corntrollio says

his is nonsense. It's not a very good argument and doesn't exist in any other context. NIMBYism shouldn't be rewarded. Do newcomers use more local services? Not necessarily. Let's call it what it is -- a subsidy.

You have the conceptual model for "government" backwards. It is not there to provide service for the most fair and lowest cost possible. It is there for a cabal of rent-seekers to snatch monopolistic Economic Rent while keep the peons down. Over the years, the cabal has realized that physical suppression the old feudalistic way is not as efficient as a "softer approach" where the peons are exploited to the max but just short of thinking of rebellion.

That's why laws like Prop-13 exist: it allows higher tax revenue from families who are on the rising phase of their economic life, while keeping families with less tax paying capacity away from grabbing their pitch forks or shot guns. I'm sure the towns would love to have progressive tax based on income, but that's just not practicable.

You still haven't adequately answered my criticism with respect to inheritances. Why should we let that pass?

Like I explained earlier, tax code is designed to avoid pitchforks and shotguns. Messing with families that just lost their loved ones runs those risks. That's why inheritance taxes always exempt an amount that is about equivalent to the vast majority of the home values in this country. The $600k or so covers about 80-90% of the houses in this country. If you are a millionaire, it is your responsiblity to plan ahead, because there is enough jealousy in this country to prevent the 80-90% to come to your help when the taxman comes to mess with your kids when you die.

For the same reason, local property taxes allow family members to assume the older generation's obligation to the town. The loss in revenue is actually marginal, because:
(1) usually there are more than 1 offspring, so a sale will ensue to divvy up the proceeds;
(2) most kids live elsewhere, often far away, so the economic incentive to keep the house is just not there, as opposed to selling the house and taking the money.
(3) those living in the house when the parents died, obviously falls into that pitchfork and shotgun category of considerations, so they are left undisturbed.

If you think Prop 13 only lowers taxes for homeowners without other consequences, you are very naive.

No I don't think it lowers taxes overall for all homeowners in aggregate. Like I said, I think it's a way of raising tax on new home buyers to a level that would not normally be feasible for the entire housing stock.

There are numerous problems:
1) entrenches wealth as I mentioned, including the stupid generational and skip-generational rules

We are talking about a single family home, right? Not some enormous estate.

2) results in greater state legislature control because localities are starved for money

No they are not. There is no way you can raise taxes on a couple grandparents on social security to over $10k a year, regardless how much their house is worth. Don't even think for a moment the nominal rate can be applied to the entire housing stock across board at the recent peak or current price level. Without Pop-13, the tax rate would just have to be much lower . . . leaving the town unable to collect more from the new home buyers.

3) results in higher sales taxes because localities are starved for money

Most localities in this country does not collect sales tax at all, only states do. Also, it has nothing to do with being starved for money. If the monopolistic government bureaucrats get more money in one year, they would just set more programs and borrow even more against that one-time cash flow, then when the recession eventually hits, they'd be even more starved for money. It's just like, if a person doesn't know how to manage money (or is managing other people's money with an eye for graft), a higher cash flow just means being more in debt.

4) over the long-term shifts the overall property burden to residential owners from commercial property owners

That's the trade off for keeping them in town with golden handcuffs. In any case, businesses don't actually pay taxes; they just pass the tax off to customers . . . because businesses do not have to exist.

5) screws over newcomers and artificially elevates property prices

Certainly true about its being a scheme to charge newcomers more taxes. However, I'm not sure about elevating property prices. Without Prop-13, the nominal tax rate for the town would be lower (to the level where grandparents on social security can afford) . . . Lower nominal tax rate would actually enable new buyers to bid up prices even more.

6) results in inefficient use of land and structures

The desire to kick out the old couple and give their land and home to a younger family in their prime in order to generate more tax revenue has to be balanced against the peaceful tranquility that most residents take for granted in their blissful ignorance of the sharp teeth and bloodlust lurking around the townhall

Considering the high turn-over rate in recent years, I don't think these are real problems.

Bellingham Bob says

I tend to reject the idea that some percentage of people in this country are only capable of being rent slaves. IMO this is just a self-reinforcing attitude.

Almost the entire population of the world are rent slaves/serfs: under the various government.

Renters in the usual sense are not rent slaves to the landlords at all, but customers: for the simple reason that they can move, just like renting hotel rooms. Don't tell me you consider yourself slaves to the hotel management when you are on vacation. BTW, is "rent slave" some neo-Marxian equivalent of "wage-slave"?

A sizable proportion of the population are not capable of being or willing to be long-term renters of money from banks . . . for the simple reason that they do not have a sufficiently dependable income or stability in location, so the bank can have collateral to hold.

Once real estate is divided into 1) the housing good and 2) land rights (the latter not being acquired in a fee title but by essentially leasehold via the LVT), the up-front real estate cost of acquisition would fall towards (if not to) the cost of the housing good itself.

Which is VERY minimal in the scheme of things. Contrary to Reality's assertion above, housing stock lasts much longer than 30-40 years.

And if you really read what Henry George wrote, you'd know that makes the house itself "Land," when the original builder of the house dies, and subject to the high taxation to the full value of the "Land," which now includes the house. Just by this fact alone, I think most owners would torch their own houses when the original builder dies, in order to build replacement in their own name . . . just like Ukrainian farmers killed their cows for meat en mass the night before Stalin's agents would arrive to "communize" their cows.

"If I were the king" is not enough, you have to be the God to enforce those wacky schemes to your own liking.

I don't see why MFH can't go towards a condo model over time, with the HOA taking the place of LLs.

Most MFH owners probably want to turn their buildings into condos. The town is the one that do not want unreliable owners that they can not chase down easily.

In my system, if there would still be a market for short-term housing, then it would function more towards the residential hotel spectrum.

The difference being?

The key thing about LVT is encourage housing supply. It does this by taxing improvements less and the land more.

Yet, your policy proposal achieves the exact opposite: official Georgist "Land" is the mythical raw land plus whatever improvements that have been made by improvers that have passed away. Guess what would happen to the age of the housing stock if you then tax "Land" heavily? Homeowners would have every incentive to tear down a building whenever they get notice of previous improver dying.

Besides, how would you calculate the land's worth? As soon as the land is taxed to the full (or near full) economic value, the land price would be zero or near-zero, as you even admit . . . then what exact tax revenue are you getting for all your effort?

Bellingham Bob says

I think security of tenancy is something of a human right / valid human desire that tax policy should respect)

I agree. I'd also add that security of tenancy is crucial if you want decent looking neighborhood properly maintained and improved. Lack of security in tenancy was one of the big reasons for Potato Famine in Ireland a century and half ago, as farmers did not improve their land much due to their English overlords could kick them off land at any time

houses would be a lot more affordable if the payment were only on the replacement cost of the structure, not the entire bundle of land usage rights.

It's this latter thing we're buying that adds so much to the cost of real estate, in high-cost areas at least.

Houses in many parts of the country are already at or below replacement structure cost. So LV would be zero in your calculation and therefore LVT would be zero.

Obviously, in the absence of an LVT, land value can not always be zero even in your way of calculating. In boom years, the land value would be much higher (in the absence of LVT): the house price go up and down while the structure doesn't change, so must be the land value that's going up and down. How exactly would that wild fluctuation in tax burden help security of tenancy?

Of course, with LVT at 100% of the year's land use value, all land value would go to zero. So you end up collecting nothing for the entire effort.

Reality says

Instead of making senseless accusations like "wordfog," you should actually read what I wrote.

I read what you wrote. Whimsical tax assessments have been around long before Keynes and fiat money.Reality says

In no way did I favor Cronyism. All I said was that if the neighbor can find a pre-existing loophole in tax codes (that is open to all) and exploits it, it's not a bad thing.

It's legal, but I believe that complex tax structures are based on favoritism and are a precursor to corruption.

I won't call that a good thing.

Cook County resident says

I read what you wrote. Whimsical tax assessments have been around long before Keynes and fiat money

Keynesianism provide the intellectual framework to carry out favoritism / cronyism on a vast scale in post-1930's governments.

It's legal, but I believe that complex tax structures are based on favoritism and are a precursor to corruption.

I won't call that a good thing.

What complex tax structure are we talking about? Sales tax being non-existent in the neighboring state? How complex can literally "nothing" being written on the subject be?

Reality says

Cook County resident says

In a monopolistic market, government regulation ought to serve as the check.

Piling monopoly on top of monopoly doesn't work.

Some monopolies are unavoidable. I can have only one gas company and the government acts as a check on their rates.

Reality says

The track record of government self-regulation is even worse than industry self-regulation.

The real solution is free market choice and competition.

My government water department does a good job. The water is always clean and safe and water main breaks are fixed quickly. I don't think it's too expensive although I don't have anything to compare it to. They are certainly charging less than the market will bear. It's easily affordable.

Obviously, the check on the water department isn't a competing water department, it's the voters.

Reality says

Keynesianism provide the intellectual framework to carry out favoritism / cronyism on a vast scale in post-1930's governments.

I had no idea an intellectual framework was necessary.

Reality says

What complex tax structure are we talking about?

Property taxes.

Cook County resident says

I had no idea an intellectual framework was necessary.

hehe. As an intellectual framework, it certainly fooled enough people for the last 80 years. How many otherwise intelligent people would have supported handing money to the super rich at the expense of the poor and the middle class?

Property taxes.

If you are referring to Prop-13, it's a necessary formula tweak in order to collect higher tax on new home buyers at a rate that is simply not possible on grandparents on social security. Take for example, if the houses in an area were all similar and worth about $600k apiece. An across the board tax rate of 2% would mean $12,000 each, which is simply not enforceable on grandparents on social security. In order to make tax affordable to the old couple, $3000 a year is more like it. Without Prop-13, the town would have to lower tax rate to 0.5% in order to avoid a tax revolt by the elderly, who do vote consistently. The town bureaucrats then would have left $9,000 on the table that they could have collected from the young couple who have secure jobs and can afford to pay.

Remember, taxation is not about fairness, but about what the monopolistic bureaucratic rent-seeking cabal can get away with.

OTOH, is there some degree of fairness to it? perhaps, most new home buyers buy homes in order to register kids in particular schools. So hitting them with a higher tax for a few years is somewhat fair because 80-90% a typical town's budget go to the schools.

Reality says

Like I explained earlier, tax code is designed to avoid pitchforks and shotguns.

This makes no sense. Very few other areas have anything like Prop 13, and yet I don't see an abundance of pitchforks and shotguns elsewhere.

Reality says

We are talking about a single family home, right? Not some enormous estate.

Oh please, in many cases we're talking about multimillion dollar homes.

Reality says

Don't even think for a moment the nominal rate can be applied to the entire housing stock across board at the recent peak or current price level.

And yet it happens in city after city except here.

Reality says

Most localities in this country does not collect sales tax at all, only states do.

Many urban counties collect sales taxes. Certainly in California this is the case, and we're talking specifically about California.

Reality says

against the peaceful tranquility that most residents take for granted in their blissful ignorance of the sharp teeth and bloodlust lurking around the townhall

Yeah, again, why is this different from everywhere else? That's really where your analysis falls apart.

corntrollio says

This makes no sense. Very few other areas have anything like Prop 13, and yet I don't see an abundance of pitchforks and shotguns elsewhere.

California was just taking the lead in the nation, as usual. Oregan, Washington, Colorado and Massachussetts passed similar measures in the years following California did. Then the economy improved after 1982. The economic environment for tax revolt did not materialize again until recently. New York State just passed the 2% two months ago. The rest of the country may well follow soon if this slump continues.

Oh please, in many cases we're talking about multimillion dollar homes.

Still single-family homes. The number only goes to show how pathetically small the dollar has become . . . and how big the real estate price bubble has become. Single-family homes are not really income producers upon which a generational fortune can be built. If it's really worth multiple millions, the inheritance tax bite may well force sell quickly any way.

And yet it happens in city after city except here.

The most expensive locations seem to be following California lead to cap property tax rising rate.

Many urban counties collect sales taxes. Certainly in California this is the case, and we're talking specifically about California.

That's because California also cap nominal property tax rate (i.e. on new buyers too) to 1.2%. I find it rather interesting that urban areas always need higher tax rate, despite higher density theoretically would make service delivery easier.

Yeah, again, why is this different from everywhere else? That's really where your analysis falls apart.

Give other places more time. OR, WA, CO and MA followed in the years following CA; NY just followed a couple months ago.

Cook County resident says

Some monopolies are unavoidable. I can have only one gas company and the government acts as a check on their rates.

That's an old canard about "natural monopoly." People don't have to use gas; they can use electricity or oil. The so-called government-check functions more like a price guarantee preventing other players from entering the market place.Cook County resident says

My government water department does a good job. The water is always clean and safe and water main breaks are fixed quickly. I don't think it's too expensive although I don't have anything to compare it to.

That's the crux of the problem, you have nothing to compare to. So you have no idea if they are delivering clean and safe water at a competitive cost . . . in fact, they are guaranteed to be doing it not at a competitive cost.

They are certainly charging less than the market will bear. It's easily affordable.

Different areas are quite different. Some dictators may indeed be "beloved."

Obviously, the check on the water department isn't a competing water department, it's the voters.

How many voters would have voted for allocating R&D funding for iPod or iPhone before Steve Jobs took the entreprenuerial risk to do that? Everyone voting with their own wallets every minute of the day puts a much more effective check on existing profit centers in the economy than pulling levers in a election booth for very limited choices every few years . . . which is why the real super-rich establish with vested interest to protect tend to promote government bureaucratic solutions over individual choice.

Reality says

That's an old canard about "natural monopoly." People don't have to use gas; they can use electricity or oil. The so-called government-check functions more like a price guarantee preventing other players from entering the market place

Around here people did use open market oil. Almost everybody switched to gas decades ago and stayed with it.

Reality says

That's the crux of the problem, you have nothing to compare to. So you have no idea if they are delivering clean and safe water at a competitive cost . . . in fact, they are guaranteed to be doing it not at a competitive cost.

The water is cheap enough that I'm not worried about what it costs. A few bucks a month. If it were free it wouldn't much cheaper for me.

Government water is a pretty good deal.

Reality says

They are certainly charging less than the market will bear. It's easily affordable.

Different areas are quite different. Some dictators may indeed be "beloved."

Huh?

Reality says

How many voters would have voted for allocating R&D funding for iPod or iPhone before Steve Jobs took the entreprenuerial risk to do that?

Who cares? As long as Jobs isn't trying to open a water treatment iPlant and install iPipes and try to sell me iWater iWon't care either. In fact, nobody is going to try to install a competing infrastructure. This is one of the things that government does very well.

Cook County resident says

Around here people did use open market oil. Almost everybody switched to gas decades ago and stayed with it.

If gas price go up tremendously vis oil, people would just switch back. Isn't choice a good thing?

The water is cheap enough that I'm not worried about what it costs. A few bucks a month. If it were free it wouldn't much cheaper for me.

Government water is a pretty good deal.

Depending on where you live. Where you live, on the shores of the Great Lakes, water is almost a "superabundant" good.
In other places, it might not be. A friend of mine just paid a water bill costing over $10,000.

Huh?

Government monopolies are dictatorial, at least until the next election. Even then not all activities in the government monopoly can be realistically put on the ballot at election time. That's why it's far better to let people vote with wallets every minute of the day.

Who cares? As long as Jobs isn't trying to open a water treatment iPlant and install iPipes and try to sell me iWater iWon't care either. In fact, nobody is going to try to install a competing infrastructure. This is one of the things that government does very well.

On the shores of the Great Lakes, you don't care about water pricing. You would care about water pricing if you were in a desert. Is housing or medicine as "superabundant" as water where you live?