LVTFan's Blog

NYT: Property Values - What You Get for ... $850,000

Property Values - What You Get for ... $850,000 - NYTimes.com

As I read this regular column, I generally have several thoughts:

1. The size of the lot is relevant, whether the home is on a city postage stamp, or a country estate.
2. For multi-story multi-family buildings, I'd like to know the number of stories and the footprint of the unit.
3. The age of the building is useful to know; many are quite old and, likely, quite inefficient, even obsolete
4. Right below the Property Tax information, I'd like to see the percentage of the school district's high school graduates who go to 4 year colleges, and the drop out rate from 9th grade to 12th.  (This matters even if the target audience is 2nd home New Yorkers whose children won't attend those schools.)  Generally, there seems to be a strong correlation between high property taxes and quality of local education.

What the typical reader probably doesn't think about is that for most of these properties, it is the location which is valuable, not the house itself.  The writeups sometimes describe the locational amenities: transportation infrastructure and services, views, parks, jobs.  All these things are definitely worth paying for; the question, of course, is who we should be paying, and how.  Should we pay the previous owner, who didn't create any of those things -- or should we pay the community, which did?   Should we pay the community in the form of taxes on our labor, or in the form of taxes on the value of the land we occupy?

See paying twice, paying the wrong party, privilege, windfall, unearned increment, rent, rent is for the community.  There is a better way to finance our common spending than what we're doing now.

Dumbest Thing Voters Did

A friend of mine named Wendell Fitzgerald posted a wonderful comment under that title to an OpEdNews article at http://www.opednews.com/articles/California-s-Legislators-a-by-Sandy-Sand-081228-553.html entitled "California's Legislators and Voters are Among the Dumbest in the Land."  With his permission, I am posting it in its entirety.  (The bolding is mine.)

The most truly stupid thing California voters did a long time ago which is slowly killing the State and underlies everything Sandy is saying is voting for Proposition 13 back in 1978.  The only proper source of revenue to pay for local and state services (physical infrastructure in particular) is to assess against the economic value that those expenditures engender.  All public expenditure and most obviously in the case of expenditure for physical infrastructure results in increasing land values. They do not increase the value of improvements but land value only.  All economists agree.

The appropriate source of revenue to pay for public services, therefore, is to assess against the privately held values public expenditures produce and increase.  That value is land value.  The property tax is the only tax that directly taxes land value.  In that regard, the property tax merely takes back for community use to pay for community provided services the value the community gives to land.  This is the epitome of economic justice.  Unfortunately the property tax is deeply flawed in that it also taxes the value of improvements the value of which is not increased by public services but compared to every other tax that by definition has to fall on labor and capital, the property tax even as flawed as it was/is contains the only just and economically neutral form of taxation there is. The tax on community created land value.

Landlording in NYC: "We don't pay taxes, only the little people pay taxes."

There was an interesting blog post on the NYT website yesterday, entitled "Gotham Book Mart Holdings are Given to Penn."  I found it interesting because it deals with a specialized business which existed in NYC for decades: a bookstore specializing in antiquarian books.

It was most recently housed in a building at 16 East 46th Street, between Fifth Avenue and the top of Grand Central Terminal.  The article says that two "benefactors" had bought the building in ~2004 for $5.2 million and leased it to the owner of the bookstore for $51,000 per month.  The implication is that the $51,000 monthly rent was a bargain.

Eisenhower's roads to prosperity

Eisenhower's roads to prosperity - Los Angeles Times.

Tom Lewis describes some of the history of Eisenhower's huge infrastructure initiative, the Interstate Highway system, in the context of Barack Obama's plans to use infrastructure as a job-creation tool.

What most people don't seem to realize is that investments in infrastructure do more than create jobs in the process of the development of the infrastructure and in its maintenance: they also create something else of much larger importance, which we as a society have chosen to pretend is of little or no significance, to our detriment.  (How's that for understatement?)

What is it?  Every worthwhile infrastructure project creates more land value than the project costs.

I'll repeat that.  Every worthwhile infrastructure project creates more land value than the project costs!    Therein lies one of the most important keys to solving many of our most serious problems.

Daily Kos: One Person's Lot is Person's Loot

Daily Kos: One Person's Lot is Person's Loot.

Eron Lloyd has an excellent post over at Daily Kos.  He's writing about Philadelphia, but could just as well be writing about most American cities and towns.  He writes,

At the Mayor's third town hall meeting last week on the budget cuts, I was handing out our Philadelphia LVT brochure to people before the meeting as usual when I had a brief but interesting exchange. A man walking into the building took a quick look at my brochure and handed it back, shaking his head. He said that he works for the city, and that "there's no money in land" to solve the city's problems. ...

After the meeting, I decided to test this person's belief while walking along Girard Ave. back to my car. Across the street were some vacant lots that looked like they'd been empty for years. It appeared to be about 3-5 lots in size, with huge weeds and junk all over the place. Rather than describing it in detail, have a look for yourself.

Eron goes on to describe the property, the public records on it, and the location, and then tells us that the property is for sale.  I'll leave it to you to read the rest of his post, and to consider how we currently finance public spending, and how the incentives affect our economy -- local and national.

A Property Tax Cut Could Help Save Buffalo - WSJ.com

A Property Tax Cut Could Help Save Buffalo - WSJ.com.

Here's what I tried to post on the WSJ website; the topic, not surprisingly, was "locked."

Cutting property taxes is not the answer.  Rather, the answer is reforming property taxes so that we stop taxing, or at least severely limit, the tax on buildings, and place most -- or better, all -- of the property tax on land value.  Not only Buffalo, but also Schenectady, Albany and a number of other hurting cities and towns would benefit from this reform.

When we tax buildings, what we get are (a) fewer buildings; (b) poorer maintenance; (c) slower redevelopment of blighted neighborhoods; (d) less investment.

When we tax land value, what we get are (a) redevelopment of underused properties; (b) vacant lots and parking lots blossom with buildings that will help pay the land value tax; (c) better maintenance of existing buildings because the landlords suddenly realize that they need tenants to help pay their property taxes.   All these contribute to a healthy local and national economy.

Taxes and Tolls Sought in Plan to Save M.T.A. - NYTimes.com

Taxes and Tolls Sought in Plan to Save M.T.A. - NYTimes.com.

The tax on payrolls, expected to be less than one half of 1 percent, would apply to businesses in the 12-county area served by the authority. It would be paid by businesses, not employees. The tax would be designed to raise $1 billion a year or more.

It would be coupled with the new bridge tolls, which would generate about $600 million a year, after the cost of maintaining the bridges and collecting the tolls is accounted for. Drivers would pay a higher rate on the East River bridges than on the Harlem River bridges under the plan.

There would be no toll plazas: Most tolls would be collected through a system of E-ZPass readers. Drivers without E-ZPass would be identified and could be billed using digital cameras that snap a picture of each vehicle’s license plate.

Control of those bridges, which are owned by the city, would be transferred to the authority under the plan, although it was not clear how that would be achieved.

The third main element of the proposal is a more modest increase for next year in fares and existing tolls on the bridges and tunnels already controlled by the authority.

That increase would allow Mr. Ravitch and his supporters to argue that the cost of running the system was being shared by all those who benefit from it.

So we've got a proposal that the way to pay for the shortfalls in providing the public transportation on which the NYC economy is vitally dependent is from taxing employers, imposing tolls on previously free bridges into Manhattan, and raising existing bridge tolls (which fall on those who don't use public transportation [except perhaps bus commuters?]

Most interesting is the final sentence quoted above:

That increase would allow Mr. Ravitch and his supporters to argue that the cost of running the system was being shared by all those who benefit from it.

Ah, but he has omitted from his analysis something vitally important: paying in proportion to the benefit received. One of the biggest -- huge!! -- beneficiaries would pay next to nothing!  To whom am I referring? The landlords of New York. 

Dying of Consumption - NYT

Dying of Consumption - NYTimes.com.

The chairman of Morgan Stanley Asia has an op-ed piece in the NYT which calls for measures which will increase savings by the American people, and promote less consumption:

The United States needs a very different set of policies to cope with its post-bubble economy. It would be a serious mistake to enact tax cuts aimed at increasing already excessive consumption. Americans need to save. They don’t need another flat-screen TV made in China.

The Obama administration needs to encourage the sort of saving that will put consumers on sounder financial footing and free up resources that could be directed at long overdue investments in transportation infrastructure, alternative energy, education, worker training and the like. This strategy would not only create jobs but would also cut America’s dependence on foreign saving and imports. That would help reduce the current account deficit and the heavy foreign borrowing such an imbalance entails.

It is difficult, though, to ask people whose income is being eaten up by fixed costs to save.  (See Warren & Tyagi's The Two Income Trap.)  Many of these fixed costs relate to housing, and, for young families, childcare -- and, I might add, this is a vicious circle: many need the childcare because of the high housing costs

Couple this with the fact that taxes weigh heavily on lower-income and middle-income people, and one might be led to seek a better way. 

As we do things now, if one buys a home, one makes a down payment of some size, and finances the rest.  For most of us in urban areas, with the possible exception of those who are buying newly built homes, over half of what we are paying is not for the house (or condo) itself, but for the location, the site.  The seller didn't create the land value, even if he and his ancestors have owned that property for generations.  The community created that land value.  But as we currently do things, the hapless buyer must pay the seller for it.  And then, to add insult to injury, he must pay property taxes on the house itself and on the land value, and taxes on many of his purchases (in Chicago, the sales tax is now over 10%, surpassed only by a few counties in Alabama), and taxes on his wages.

Should we tax action, or tax inaction?

Joshua Vincent, of the Henry George Foundation in Philadelphia, is a keen observer of the scene, particularly of Philadelphia's scene.  This week he had an article in The Bulletin in that city, and he comes up with what I think is an interesting observation:

... on the revenue side we still depend too much on the taxation of action.

He continues,

The fact is Philadelphia relies on tax revenue from two things - labor and capital - that can be hidden, can vanish or can flee. Both are being whipsawed by forces beyond Philadelphia's control. There are few places to hide, especially from high tax rates on those two things.

Mason Gaffney: "The Great Crash of 2008" -- and how we can dig out and head off the next one

This is one of several things I've been meaning to post here for weeks.  It was written in July, and has been making the rounds in Georgist circles -- and beyond -- ever since.  Shorter versions of it have been published in some newspapers, but I think it worth sharing here in its entirety.  You can find more of Mase's writings on his website, at http://www.masongaffney.org/, on the Schalkenbach foundation website, and at Wealth and Want.   

Relatedly, take a look at the November issue of Harper's Magazine, in particular the article by Michael Hudson, entitled "Tax the Land."

If you have contacts within the incoming administration, I hope you'll share this piece with them.  It provides a means to get ourselves out of our current economic crisis, and, equally important, prevent it from happening again.

Here beginneth:

THE GREAT CRASH OF 2008
Mason Gaffney

This crash is The Big One; it has signs of becoming a Category 5. How do we know? We’ve “been there and done that” so many times before, roughly every 18 years over the last 800 or more. Major wars and, rarely, plagues have broken the rhythm, along with the little ice age, reformation and counter-reformation, political revolutions and reactions, the rise of nation-states, the enclosure movement, the age of exploration, massive European imports of stolen American gold, the scientific and industrial revolutions, the Crusades, Mongol and Turkish invasions, and other upheavals. Yet, the endogenous cycle keeps returning, as soon as we find peace, and economic life returns to its even tenors. What President Warren Harding famously called “normalcy” soon evolved into another boom and a shocking bust, as so often before. Calm and routine prosperity has never been man’s lot for long: it somehow leads to its own downfall, cycle after cycle.

Homer Hoyt published his classic 100 Years of Land Values in Chicago, 1833-1933, in December, 1933. He covered in fine detail the 5 major cycles that crested and crashed in 1837, 1857, 1873, 1893, and 1926-29. At the end he generalized “The Chicago Real Estate Cycle”, a  regular rhythm of boom and bust with the same features in the same sequence. The boom sets us up for the bust. He could have omitted the limiting word “Chicago”, its cycles were synchronized with national waves recorded by other scholars like Arthur H. Cole, Philip Cornick, Lewis Maverick, Frederick Lewis Allen, Harry Scherman, Carter Goodrich, Ernest Fisher, Homer Vanderblue, Herbert Simpson, and others — surprisingly few others, in fact. Alexander Field has recently reviewed much of this literature, but held back from seeing cycles in the present or future.

It is uncanny how the latest boom tracks the events that Hoyt recorded and generalized. There was “an increase in rents, building ..., and subdivision ..., each of which was carried in turn to speculative excess, and each of which interacted upon the others and upon land values to generate and maintain the boom psychology”. The cycle, Hoyt continued, is “the composite effect ... of a series of forces that ... communicate impulses to each other in a time sequence, ... in a definite order” (p. 369).

Americans and Mass Transit

An article in Salon last week, entitled Who says Americans won't ride mass transit? contained some interesting factoids:

• Like mass transit systems across the country, BART has experienced record ridership this year. In 2007, Americans took 10.3 billion trips on public transportation, the highest number since the Model T and its progeny took over the nation.
• Back in 1926, Americans each year took 147 transit rides per capita.
• By 1950, Americans took just 113 transit rides per capita, and by 1956 that number had plummeted to just 66. By 2006, Americans took just 33 transit trips a year per capita. In the decades since World War II, it has been only in the dense financial centers, like New York, Chicago and San Francisco, where transit has been able to stubbornly resist the rise of the car, remaining a major way for many residents to get around.
• In 1960, some 12 percent of all U.S. workers used transit to get to work. By 2000, that number was down to 4.7 percent, and in the past couple of years it has just barely ticked up to 4.9 percent.
• Since the early '80s, 15 major American cities, including San Diego, Portland, Ore., Denver, Houston, St. Louis, Salt Lake City and Los Angeles, have built new light-rail systems from the ground up. Dozens of other cities are considering proposals for similar systems, or have them in development, such as Phoenix and Seattle.

So how do we go about making our cities and towns mass-transit-friendly?  Seems to me that measures that lead to increased density will help support mass transit ... and that mass transit will support increased population density.

The best measure I know is shifting taxes onto land value.  Sites well-served by infrastructure (e.g., roads, bridges, highways, airports, public transportation systems, ports, city water and sewer, stormwater runoff and, where needed, levees or hurricane protection, etc.) -- and services (e.g., schools, emergency response for small- and large-scale emergencies, public health, courts, etc.) -- and in places made desirable by nature (e.g., good views, waterfront, access to recreation, an appealing climate, a reliable supply of clean water, etc.) and good laws (e.g., limiting pollution, unpleasant smells, noise, etc.), efficient and uncorrupted government, and a healthy economy (with smart incentives and few disincentives to productivity, good infrastructure, logical and efficient services provided by the government, particularly in natural monopolies) have tremendous value.  For a good example of this, see this post.

When we tax land value lightly, those who own choice sites can choose whether to sit and wait -- without lifting a finger -- for the rise in land value they can reasonably expect to occur, or put the land to good use now.  Putting the land to good use now creates jobs, housing, offices, retail spaces, density.  Sitting and waiting produces nothing on that site, and leads to sprawl at the fringes.  Should our landholders have that choice, or is putting such sites to something approaching their highest and best use sufficiently important to the community as a whole that we ought to have incentives to good land use?  I'd say that reducing and reversing sprawl is sufficiently important that we ought to be taxing land value heavily. 

And there are many other good reasons to do so beyond this one.

Rich in Natural Resources

But what if our natural resources are in private hands?  Are we rich in natural resources if the Jed Clampetts own the land under which our natural resources reside?

Or are we rich in privileged people, whose trickling down the rest of us must be content with?

A significant share of Alaska's oil revenue flows to the state and to the Alaska Permanent Fund because the oil sits under state-owned land.  But in the lower 48, our oil is on privately owned property, or under corporate property, and the revenues flow not to the American people, or to the people of one of our states, but to private portfolios.

Is this consistent with the notion that we hold it to be self-evident that all men are created equal?   Discuss.

We all contribute to rent. Some of us get to live off it. How does this fit with the notion that we are created equal?

Rent is something most of us give little thought to, and most of those who think about it are not thinking about the sort of rent to which I refer.  The rent I'm talking about is not the payment which goes from tenant to landlord each month.

Rather, the rent to which I refer is the return to land, just as wages are the return to labor and interest is the return to capital.  And, just to expand it a bit further, "land" in this usage refers not just to the sites under our feet, but equally to the remainder of the natural creation and to that which our common investment in infrastructure and services has added to the natural creation: the access created by bridges, highways, railroads, subways, airports, river locks, etc, the value created by schools, parks, public health, courts, systems set up to respond to individual and widescale emergencies, etc.  Land includes natural resources, such as oil, water and air, the electromagnetic spectrum (those airwaves that belong to the American people); airport landing slots (where demand exceeds supply), etc.  

Rent happens.  It happens whenever more than one party wants to use a specific piece of land.  Who should benefit from it?  A small group of us? the first to arrive? Or all of us? 

An Election Season Thought

Wealthandwant.com: John Stuart Mill.

"Lord, enlighten thou our enemies. Sharpen their wits, give acuteness to their perceptions, and consecutiveness and clearness to their reasoning powers: we are in danger from their folly, not from their wisdom; their weakness is what fills us with apprehension, not their strength." — John Stuart Mill, "Essay on Coleridge"

This struck me as particularly relevant in this election season.  Perhaps I'd revise it from "enemies" to "adversaries" or even "leaders" ... or politicians and their advisors.

Pres. Bush is worried about people being able to send their children to college

Interesting that GWB seems to think it is normal and to be expected that most people will have to tap their home equity to send their children to college.

What have we come to when people are unable to save toward a predictable expense, but some portion of the ~70% who are homeowners have rising land value which they can borrow against to finance their children's college bills?   Most parents of college students have 10 to 20 years before their own retirements.

Remember the old ad "Is this any way to run an airline?"  You bet it ISN'T!

The Big (and unnoticed) Winners in the Mortgage Crisis

Among the big winners in the current mortgage crisis are a large subset of those who complain bitterly that they "played by the rules" and "used good sense" and "didn't take on mortgages they couldn't afford" -- and now feel put-upon because they think they might somehow be forced to subsidize those who, from their perspective, took advantage.

The unnoticed winners (and perhaps whiners) are those who, over the past few years, sold their previous home for a price that was inflated by the eased availability of low-priced mortgages.  At the closing table, they pocketed value that they didn't create, and patted themselves on the backs for their wisdom and goodness and hardworking efforts over the preceding years to pay the mortgage which made this day possible. 

They turned around and used the home equity they had so painstakingly* built as a downpayment on a higher-priced home.  That they could afford a higher-priced home** was a function of several factors:

Being born into the Landed Gentry is like holding the winning lottery ticket

The Ianded gentry ...  sounds so noble ... so gentle ...  so aristocratic .... so entitled!

What is it about? 

David Cay Johnston: Can You Hear Opportunity Knocking?

Link: http://taxprof.typepad.com/taxprof_blog/files/120TN0683.pdf
David Cay Johnston, the peerless reporter and commentator on US income tax policy, formerly with the NYTimes, and the author of two excellent books (Perfectly Legal and Free Lunch), now a columnist for Tax Notes, has written a column on the incentives involved in the income tax deduction for interest.

Though I think he sees through a glass darkly on this one, he does make some important points:

He starts out with this:

What we make of life’s opportunities depends on how well we have prepared to take advantage of them. But first we must recognize opportunity when it comes knocking, or the chance is lost. And lost opportunity costs can be huge not just for individuals, but nations as well.

As a Georgist, I am led to wonder about this.  What I think of when I read this is that one of life's biggest opportunities, as we structure our economy right now, is the privilege of claiming for oneself a choice bit of the natural creation or the community creation -- without being required to compensate the community for what one has taken.  The former includes natural resources, such as ports, water, the electromagnetic spectrum, and the oceans -- not to mention breathable air.  The latter includes that which the community has created, through both public spending and private spending: land value, created by the presence of concentrations of population due to favorable climate, attractive views, cultural amenities, and through public spending on such public goods as infrastucture (airports, highway systems, bridges, water delivery, sanitary sewer and stormwater runoff systems, public transportation, schools, emergency services, libraries, public health, parks, etc.), and what might be either public sector or private sector spending, on electricity, cable TV, WiFi, railroads.

All these things conspire to make some land more valuable than other land.  Those who have title to valuable land get to collect rent from their fellow human beings, just as if they, personally, could take credit for all those natural, public and private amenities.  What an opportunity!  Shouldn't the smartest among us be permitted to privatize all that economic value?  Isn't that what opportunity is all about?

NO!   

new Lincoln Institute Study -- Property Tax Assessment Limits: Lessons from 30 Years of Experience

press release: http://www.prweb.com/releases/property_tax/assessment_limits/prweb1130504.htm
The Lincoln Institute of Land Policy in Cambridge, MA, published recently a new study entitled "Property Tax Assessment Limits: Lessons from Thirty Years of Experience."  In 44 pages, it lays out rather well the problems with California's Proposition 13 and Florida's "Save Our Homes" assessment caps, which have led to, among other things, high land and housing prices and high foreclosure rates -- the boom-bust cycle that hurts most of us and helps only the land speculators.

It doesn't speak particularly to the injustices involved, or to the virtues of a portion of the property tax -- the part that falls on land value  -- for creating a vibrant economy and a just society, which are suppressed when assessments are not up to date and consistent with market valuations, for all. This is an important omission.

Nor does it point out that utilizing the property tax allows us to avoid wage and sales taxes which deaden the economy.
It does, however, suggest some alternative forms of property tax relief -- homestead exemptions, classified tax rates, circuit breakers, and tax deferral programs -- though to my mind, it does not weigh in heavily enough in favor of the one I think it far superior to the others (the option to defer some portion of the property tax, with interest, as a lien against the property).  [For more about that, see Bill Batt's article, Property         Tax Relief Measures: Answers to the "Poor Widow " Argument -- also available in PDF here.]

Pragmatic Politics: Proposition 13

Link: Pragmatic Politics. A short excerpt:

"The LA Times article posited Proposition 13 as a culprit in California's current mess. The PC isn't so sure about that. The Times pointed out that some Californians have some of the lowest property taxes in the country. Well, maybe that is true. But, some don't. Anyone that bought in the last 10 years does not have cheap property taxes because house prices were outrageously high. A heck of a lot of people have bought homes in California in the last 10 years. Since Prop. 13 passed in the 1970s (we think), property tax revenues have gone up over 5-fold. Also, California has a huge sales tax (7.75%) rate, high income taxes (but that varies up and down with the economy) and voters keep passing big bond measures for everything from badly needed infrastructure projects the legislators are incapable of funding on their own to stem cell research (mostly a sad waste of money).

For crying out loud, how freaking much money does the state need? The PC does not want to be cheap, but we suspect that there is tons of money that goes into rat holes the public knows nothing about. Those rat holes probably give back not much to the state, especially if that spending is payback for "campaign contributions". After all, if the legislators can gerrymander their districts for their own personal benefit, why can't they waste tons of money for exactly the same reason?"

I have a number of thoughts about this.  First of all, there is a fair amount of expense involved in collecting wage taxes and sales taxes, over and above the excess burden and deadweight loss they impose on our economy.

Cindy McCain's San Diego condo (the oldest of their 3)

The candidate's wife was in the news recently because there were unpaid property taxes on a condominium in San Diego, one of 3 she owns there. (Turns out that the bills had gone to the wrong address for 4+ years; they have since been paid in full.)   The story is relevant here only because it highlights one of the perverse aspects of California's Proposition 13.

Her late parents bought the new 1429 sq ft 2BR oceanfront condominium 36 years ago in 1972. In 1978, Proposition 13 rolled back the assessed valuation to its 1976 level, and since then, has capped the annual increase  in assessments at 2% per year (occasionally a bit less, when inflation was very low).  Its 2008 assessed value is $140,855.  That suggests that its 1978 valuation was about $71,000.

At Realestate.com, I selected La Jolla, condominium, 2+ BR,  2b, <1500 sq ft, and came up with 68 properties, ranging in price from $2,895,000 to a low of $319,900; the lower-priced ones were clearly a distance from the ocean.

We All Pay for Leona Helmsley’s Bequest to Dogs - NYT

Link: Op-Ed Contributor - We All Pay for Leona Helmsley’s Bequest to Dogs - Op-Ed - NYTimes.com.  The article begins,

THE latest news from the Palace, that Leona Helmsley left instructions that her charitable bequest of as much as $8 billion be used for the care and welfare of dogs, rubs our noses in the tax deduction for charitable gifts and its common vehicle, the perpetual private foundation. Together these provide a mechanism by which American taxpayers subsidize the whims of the rich and fulfill their fantasies of immortality.

Leona Helmsley’s Fortune May Go to Benefit Dogs

Link: Leona Helmsley’s Fortune May Go to Benefit Dogs

The living and the dead, the human and the canine.

Leona Helmsley and her husband Harry individually and together accumulated billions of dollars worth of New York City real estate.  Who is entitled to that fortune?

CA & FL account for nearly 1/3 of mortgages in foreclosure or 90 days delinquent

source: http://www.nytimes.com/2008/06/06/business/06mortgage.html:  About 1 in 11 Mortgageholders Face Loan Problems

a few excerpts:

• About 1 in 11 American mortgages were past due or in foreclosure at the end of March, according to a report released on Thursday, a figure that is rising fast as home prices fall and the job market weakens.
• California and Florida, for instance, accounted for nearly a third of all mortgages that were in foreclosure or 90 days delinquent. Home prices, construction and mortgage lending were particularly ebullient in those states earlier this decade. The housing industry accounted for a bigger portion of their economies during the boom.
• “The problems in California and Florida are extraordinary, and they are the main drivers of the national trend,” said Jay Brinkmann, vice president for research and economics at the Mortgage Bankers Association.
• In states like California and Florida where they have huge inventories of repossessed homes, some companies are starting to move a little faster by auctioning off properties...

What do California and Florida have in common?

The Landed Gentry

We hear the phrase "the landed gentry" from time to time, often in the context of first-time homeowners, lyparticularly those who have bought  in a neighborhood undergoing "gentrification."

But what does it mean to be the landed gentry?  What is it that matters about being landed?  And what is "gentry"?

One Solution for Many Problems?

That was the title I chose for a short talk I gave at the "Building a New World Conference" at Radford, VA, a few weeks ago.  Here it is ... 

Golf Courses, Assessments, Property Taxes, and Nonmembers

Several articles on the topic of assessing golf courses have come to my attention in the past few days.  I've posted previously on the topic, but will start fresh here.

The first article had to do with assessments in Greenwich, Connecticut, where eight private golf clubs were seeking assessments of just $60,000 per acre.  Now that might seem like a high value to people who live in the heartland of America, but Greenwich is a place where a single-acre building lot (with or without an existing house on it) can sell for well over $1 million, and where roughly 1 in 4 residential transactions results in a teardown, often of a home which would be considered a super-luxury home nearly anywhere else.   The assessor had sought to value the land at a still-very-generous-to-the-clubbers $200,000 per acre.  (By law -- a peculiar law whose justification I don't follow, CT's assessments are to be 70% of actual value, so the $200,000 valuation would be about $285,000 -- still a very generous valuation in a town with high property values.)

Taxes as the Price We Pay for a Civilized Society -- But What Taxes?

As I watched the coverage of the rescue and recovery efforts in China following the earthquakes, I added to my list of the benefits of community several items: building standards and building inspectors, as well as elevator inspectors.  None of these things come cheap, and they are worth every penny in a society which includes multi-story buildings, or buildings which might be subject to hurricanes or tornadoes.

The buyer of a building ought to have some assurance that it meets at least the standards of the era in which it was built, both in terms of materials and construction methods.  The elevator passenger wants some assurance that someone besides the building's owner is paying attention to the maintenance of the elevators.

But how should we pay for such things?

Is LVT the answer to all our problems?

My local newspaper has set up a facility to permit comments on articles and opinion pieces, and I frequently respond to what I read.  Yesterday, I posted a comment to an article entitled Office owners strive to retain tenants whose thumbnail description says "In tough times, office building owners often look for other sources of tenants besides relocations to their properties."  Today I went back and someone had posted the comment, " Your sole issue is land value tax. Am I right?"

 

Krugman: Stranded in Suburbia - New York Times

Link: Stranded in Suburbia - New York Times.

If Europe’s example is any guide, here are the two secrets of coping with expensive oil: own fuel-efficient cars, and don’t drive them too much.

Notice that I said that cars should be fuel-efficient — not that people should do without cars altogether. In Germany, as in the United States, the vast majority of families own cars (although German households are less likely than their U.S. counterparts to be multiple-car owners).

But the average German car uses about a quarter less gas per mile than the average American car. By and large, the Germans don’t drive itsy-bitsy toy cars, but they do drive modest-sized passenger vehicles rather than S.U.V.’s and pickup trucks.  ...

Can we also drive less? Yes  —  but getting there will be a lot harder.

There have been many news stories in recent weeks about Americans who are changing their behavior in response to expensive gasoline — they’re trying to shop locally, they’re canceling vacations that involve a lot of driving, and they’re switching to public transit.

But none of it amounts to much. For example, some major public transit systems are excited about ridership gains of 5 or 10 percent. But fewer than 5 percent of Americans take public transit to work, so this surge of riders takes only a relative handful of drivers off the road.

Any serious reduction in American driving will require more than this  —  it will mean changing how and where many of us live.

The Price of Land in the New York Metropolitan Area

The Price of Land in the New York Metropolitan Area
by Andrew Haughwout, James Orr, and David Bedoll
at http://www.newyorkfed.org/research/current_issues/ci14-3.pdf

An interesting study was published recently by the Federal Reserve Bank of New York about the price of vacant land in the NY metro area.

It starts by citing a transaction in 2000: a 3.4 acre parcel on the southwest corner of Central Park which sold for $345 million, and whose buildings were demolished to make way for the Time Warner Center.  That's $100 million per acre.  But it certainly isn't a record, even in Manhattan.

And, yes, land value matters.  It matters quite a lot, in ways that most of us don't understand.  (As my mother would have put it, "Our educations have been neglected" -- but in this case, even those who should be teaching us can't, because their educations were lacking!)

Are you going to be part of the problem, or part of the solution?

This was the headline of an email that came into my inbox today.   And it dawned on me that it is a fine angle from which to view the benefits of land value taxation. 

A Few Inconvenient Truths about the Property Tax

I'm pleased to share (with permission of the author) something that appeared on a mailing list I subscribe to. The conversation was along the lines of "how do we share the idea of land value taxation [a reform of the property tax] with people who are used to hating the property tax?"

Roy Langston wrote,

When I encounter the usual unreasoning hatred of property taxes, I just point out a few inconvenient truths, along these lines:

How much is your home worth?

I'm talking about its dollar valuations; "priceless" is not one of the options here  (And think about the trouble that the MasterCard ad series has gotten us into: that using credit to afford a "priceless" family experience is a wise thing to do.)

We get a lot of different valuations on the same piece of property, and it is worth looking at all of them, and understanding the differences among them and the significance of the various figures.  I'll list all the valuations I can think of, and hope you'll add others in the comments.

a tax reformer does the family 1040's

I've heard it said that voting and paying taxes are two of the major sacraments of citizenship. Having spent a significant part of the past week working on the machinations of the latter for several different family members, I am weary of the sacramental qualities of income taxes.  It isn't that I think taxes are a bad thing.  But our current system of taxation is both fundamentally wrong and, having said that, unbelievably convoluted.

Most of the commentators I read and hear are only interested in simplifying the income tax. A few propose getting rid of the income tax and replacing it with a sales tax, which I regard as simpler, but nearly as evil as an income tax from a number of points of view.   And that puts aside the question of whether the necessary rate for the so-called "FairTax" is 23% (or 30% in the way we're used to thinking of sales taxes) or closer to 60%, as I understand is more realistically the case.

Abolish All 'Taxes' - NYT

Link: Abolish All 'Taxes' - NYT 4/15/08  There was an op-ed in Tuesday's NYT about changing the word "tax" to something else.  It drew 150 comments before they stopped accepting comments around 6pm.

I propose we stop saying “taxes” and start calling them “dues.”

and

Consider that “tax” comes from the Latin for “appraise” with punitive overtones of “censure” or “fault,” as if wage-earners have done something wrong by their labors. “Dues,” in contrast, is rooted in social obligation and duty.

California's Proposition 13 and Parcel Taxes: Adding insult to injury for new property owners

Link: SignOnSanDiego.com > Parcel tax to bolster schools is proposed.

Readers of this blog are probably aware that 30 years ago California capped its property tax at 1% of a property's assessed value, and capped the increase in assessments on individual properties at 2% per year, until they changed hands, at which point the transaction price would become the new assessed value.  This means that two families in identical neighboring homes on similar lots could be paying very different property taxes: the people who have lived there for 30 years are paying about 90% more than what they paid in 1978 (2% compounded), while land values (and therefore house prices) have risen by hundreds -- often many hundreds -- of percent since 1978.  And yes, the Supreme Court in 1992 managed to say this this was acceptable -- though it is difficult to believe that with another 16 years of data ANYONE could have looked at the results and reached the same conclusion.

This measure has starved local government and made them hungry for sales tax revenue.  It has starved the school systems, taking it from among the most respected in the country to quite far down the list.  Towns have considered closing their libraries for lack of funding.  Parks suffer, as documented by David Cay Johnston in his recent book Free Lunch.

Now there is a proposal to add insult to injury:

Contra Costa Times OpEd -- End the property tax

Link: Richard S. Colman: Your Turn -- End the property tax - ContraCostaTimes.com.

A homeowner in California is complaining about the injustice of Proposition 13.  He has owned his home for 9 years, and is paying 650% of what the fellow from whom he bought it was paying in property taxes.  His solution?

The answer is simple: it's time to get rid of the property tax altogether. Perhaps a tiny income tax would be an acceptable substitute.

Taxes as oppression, taxes as incentives: Alabama

Friday night's PBS NOW and Bill Moyers Journal were a powerful combination.   My local station shows NOW first, followed immediately by BMJ.  NOW showed three families in Alabama, including a hard working couple whose income places them at roughly the poverty level.  They pay sales taxes of 10% on their purchases, even on food.  They only recently got indoor plumbing.

The footage also showed one of my heroes, Susan Pace Hamill, law professor at the University of Alabama, who has written several important papers, all available online [and highly recommended], about the inconsistency of Alabama's tax code [2002] and of the federal tax code [2006] with the ideals we say we hold dear.  I applaud her efforts and her scholarship and her good heart ---  and I don't think she sees the half of it, or the solution.

Still on the mountaintop: Economically rational racism

Link: Still on the mountaintop: Economically rational racism, by Gavin Putland

... So the key to the Promised Land is to reduce the natural rate of unemployment without creating a new class of working losers. To see how to do that, we must revisit some basic economic principles.

For a century and a half, capitalists and socialists argued about ownership of the means of production as if the assets that make up the "means of production" were all of the same kind. But they're not; they fall into two distinct categories.

• In one category are the assets can be produced by private, competitive effort. For convenience I'll call these house-like assets, although they include not only houses but also other buildings, as well as movable plant and equipment.
• In the other category are those assets that cannot be produced by human effort, or at least cannot be produced by private, competitive effort. For convenience I'll call them land-like assets, although they include not only land but also other natural resources, building rights attached to land, and monopolies and privileges of all kinds.

The returns on house-like assets include

• interest, which is the price of time-preference,
• insurance, which is the reward for bearing (quantifiable) risk, and
• economic profit, which is the reward for bearing (unquantifiable) uncertainty.

Those returns are an incentive to produce house-like assets. Any tax on those returns, or on the assets themselves, reduces the incentive. Conservatives repeat this argument ad nauseam but never acknowledge that it's valid only for house-like assets.

The net returns on land-like assets are usually called economic rent. Some people prefer to call them usury. But whatever you call them, they can't be an incentive to produce anything, because no private person or corporation can produce land-like assets, while the rental values of those assets are produced not by the owners, but by the demand from prospective users.

It follows that any fraction of the rental value of a land-like asset can be diverted into the public treasury without discouraging any productive activity, and therefore without raising prices. In other words, taxes on the values of land-like assets are not inflationary.

Revitalizing older cities

Recently, four city mayors in Connecticut proposed that cities ought to  be permitted to impose a 1% sales tax if they chose.  Those who spend much time thinking about incentives recognize this as a poor idea.  I particularly liked this pair of letters to the editor in the New London Day:

San Luis Obispo County (CA): Governor tells SLO County that 'nothing is sacred' when it comes to budget cuts

Link: San Luis Obispo County’s website | 03/26/2008 | Governor tells SLO County that 'nothing is sacred' when it comes to budget cuts.

Local officials hoping to see area state parks protected from budget cuts were informed by Gov. Arnold Schwarzenegger this morning that nothing is sacred as he has proposed 10 percent across-the-board cuts to make up a growing state deficit. ...

Thousands of layoff notices have been sent to teachers across the state, including some in San Luis Obispo County, in anticipation of the state budget cuts. And seven local state parks have been proposed for closure. ...

Funding Infrastructure: A Dedicated Funding Stream

A recent article in the Stamford Advocate, Dodd touts transit-funding bill in Stamford (3/25)

STAMFORD - During an appearance yesterday at the Urban Transitway construction site, U.S. Sen. Christopher Dodd, D-Conn., called for major national investment in roads, trains, bridges and other infrastructure.

Dodd came to town to promote his bill that would set up an independent national bank for such projects. The bank would designate regionally significant projects for loans, loan guarantees or other financial help and issue tax-exempt bonds to finance them.

Dodd said the United States needs a national policy and a dedicated funding stream for maintaining infrastructure, rather than leaving it to politicians to fight for money for individual projects.

It may be a dry topic, but it's important, he said.

"It normally glazes over the eyes of the most determined listener," Dodd said. "I'm proud to be in a city that cares about it."

Philadelphia, its Wage Tax and its Residents

An article in today's Philadelphia Daily News caught my eye.  Philadelphia is home to several fine universities, some excellent medical schools and teaching hospitals, fine museums, Constitution Center and the birthplace of two of my favorite people, one in the mid 20th century, the other in the mid 19th century.  I visit its suburbs every week, and  have a sense of knowing the territory from having grown up in those suburbs.

The article, entitled Philadelphia targets one of its toughest problems, says, in part, 

Only 14 percent of city residents hold a bachelor's degree, according to the 2005 study "Graduate! Philadelphia: The Challenge to Complete," by the Philadelphia Workforce Investment Board and the Economy League of Greater Philadelphia.

In Boston, that rate is 25 percent; in Seattle, it's 36 percent.

Philadelphia's college attainment rate puts it at 92nd among the 100 largest cities in the country --€” scraping the bottom.

In fact, in Philadelphia --€” unlike Boston, Chicago or Washington, D.C. --€” there are more people who have started college and dropped out than there are residents who actually hold a four-year bachelor's degree.

What could be behind those statistics? 

The Colorado Self-Sufficiency Standard, 2008

Link: http://www.cclponline.org/pubfiles/SelfSufficiency08_FinalProof.pdf
The newest Self Sufficiency Standard Study was published recently, for Colorado.   The SSS is a detailing of a no-frills cost of living which meets all the most simply defined needs but provides no frills.  I've spent a lot of time on most of the 30+ studies (mostly on one state at a time; a few on a major metropolitan area), and have mixed feelings about them.  On the one hand, they are probably the best assessment we've got the cost of a the-very-bottom-of-lower-middle-class lifestyle in various places in the US.  They use a consistent and logical methodology and tailor the findings to various configurations of families.  So far, very good and useful.

Fixing Wages, and Fixing Housing Affordability -- for All of Us

By this, I mean fixing the problem of low wages -- wages insufficient to support an individual or a family in conditions we consider acceptable on a reasonable number of hours of labor per week.  I don't mean minimum wage legislation, or living wage legislation, both of which I regard as well-intentioned but ultimately destructive for the community they intend to help.  I don't mean measures like the Earned Income Tax Credit, either.  It appears that people must jump through high hoops to get those dollars (which often seems to require professional advice, at a price), and then a significant portion of the money goes not to the wage earner but to his tax preparer/advisor, in the form of fees and interest.

Did someone yell "FIRE" sector? Bailouts for whose benefit??

Link: The Way Out of the Financial Ditch - New York Times.

To the Editor:

Re “The B Word,” by Paul Krugman (column, March 17):

The national mortgage calamity, often dubbed the subprime crisis, will continue for several years as various iterations of adjustable rate mortgages come of age.

Instead of a bailout as outlined in the column, a solution is required that stabilizes home values involving participation from homeowners, lenders and government.

For the last several months I have discussed such a plan with elected officials, government agencies and investment firms that own mortgages at risk.

“Appreciating America” is a plan I put forward that will help homeowners who need to be refinanced to prevent foreclosure.

This plan involves using a shared appreciation second mortgage to finance the shortfall between the amount owed and the current value of the home.

This is a financial instrument commonly used in commercial real estate transactions, and was recently supported in a speech by Ben S. Bernanke, the Federal Reserve chairman.

After five years, the homeowner and the lender will share in any appreciation of the home, giving all involved a stake in preventing foreclosure and rebuilding property values.

The plan can be adopted by all mortgage servicers, promoted to ailing homeowners and supported by the Federal Housing Administration. It can be carried out immediately.

Let’s not talk about bailouts until we provide bootstraps and solutions.

Nicholas Bratsafolis, Chairman and Chief Executive Refinance.com
New York, March 18, 2008

ConservativeHome's Platform: Mark Wadsworth: Time to look at Land Value Tax?

Link: ConservativeHome's Platform: Mark Wadsworth: Time to look at Land Value Tax?.
I commend this discussion to your attention!

Mark writes,

The total value of all privately-owned residential property is currently around £4,000 billion, of which three-sevenths relates purely to land/location values, i.e. £1,700 billion. If and when house prices fall to their long run average of five times disposable household income, then land/location values will fall by two-thirds to £570 billion.

This would be exactly the right time to introduce LVT - the fiscally neutral rate required to replace all existing taxes on residential property in their entirety (see list above) would be about 6% per annum on site-only land/location values. The tax would act like an extra interest rate, so in future, price rises would be dampened and values/prices would be kept low and stable. There would be no windfall gains to land- and home-owners, but just as importantly, there would be no risk of land- and home-owners suffering ‘windfall losses’ – what doesn’t go up can’t come down.

Earmarks, nightlights and windfalls - Individual, or Community?

I've heard this point made a couple of times recently, but particularly liked the way Gail Collins expressed it in her recent column, George Speaks, Badly:

Besides being incoherent, this is a perfect sign of an utterly phony speech. Earmarks are one of those easy-to-attack Congressional weaknesses, and in a perfect world, they would not exist. But they cost approximately two cents in the grand budgetary scheme of things. Saying you’re going to fix the economy or balance the budget by cutting out earmarks is like saying you’re going to end global warming by banning bathroom nightlights.

The relative magnitude of earmarks relative to total federal spending or total discretionary federal spending may be rather small.  But earmarks do have tremendous potential to do good locally. They can fund projects that may not be feasible for local government to fund, which can contribute mightily to local economic activity and economic rent.

The question, I think, is what happens AFTER the earmark project.  Will the local community that benefits from that federal spending collect the benefit from the local residents who are benefited, or will that benefit keep accruing to particular individuals, and continue to be just a nice permanent federal gift to them?