Mid-East Views, Land and Resources.

[tcpip]

YouTube has an excellent six minute video that show many of the difficulties of Palestians living under Israeli occupation. Many of el-jays resident libertarians show themselves to be against freedom (for Palestinians). On topic, homais says some very sensible and balanced things about the current conflict in Lebanon, which are quite similar to the concerns of Johnathan Steele. How could both sides have blundered so badly?

A certain trouble maker has been warbling on about land and housing issues. The fundamental claim is correct; well meaning legislators who ration land are just as much to blame for rising house costs as a taxation system that does not capture the unearned increment in rising land prices. In other resource related news, the ALP is set to ditch their uranium policy, an action will undoubtably lose more votes than what they'll gain. Professor Emertius Ian Lowe has a different idea about energy. Further on-topic (from soulvessel Exxon is still avoiding payouts from the Valdez oil spill of 1989. You can email the CEO here.

claudine_c's speech at the Unitarians on rural health work in India was excellent. Noted the particular difficulties of dealing with an entrenched caste system and the inappropriateness of "western" medical mores. Followed by Brent McAuslan's discussion on the history of war at the philosophy group. Discussion tended towards the psychological motivations. Then the Cybernoia game which imajica_lj has summarised. In rodent news, Vagabond has hurt his spine, probably following a fall. Every dozen steps he lets out a sharp squeak of pain. He's currently drugged up on metacam and sleeping soundly ;-). Well done to dr_nic for providing the worst company URLs.

Comments

[greylock.livejournal.com]

I tried to scan the land issue.
It seemed as if he was saying one should build where one wants.
But it can't be.

I'll have to bookmark that one and puzzle it later, as I will what "a taxation system that does not capture the unearned increment in rising land prices" means.

[tcpip.livejournal.com]

What he's saying is that artificial restrictions on land supply will lead, well, to less supply. Inevitably, the less supply of land available the higher the prices.

By unearned increment what is meant is the tendency for land prices to increase in market value without the owner contributing to that increase in price.

[greylock.livejournal.com]

What he's saying is that artificial restrictions on land supply will lead, well, to less supply. Inevitably, the less supply of land available the higher the prices.

As I said, I'll have to sit down and read it, but that seems like Economics 101 right there. Once read and digested, I'm sure I'll compose some sloppy rhetoric on why restrictions are important, and why (in Perth at least, there's no shortage of land, there's just a shortage of quarter-acre blocks close to the beach.

By unearned increment what is meant is the tendency for land prices to increase in market value without the owner contributing to that increase in price.

Nothing wrong with that, surely, at least for one's primary dwelling place? I should loathe to have to pay tax if we ever sold this house, mostly because I suspect we'd struggle to get back into the property market.
I think we have have discussed this in the dim past.

On the other hand, if you want to take the whip to speculative property investors, have at it.

[tcpip.livejournal.com]

Nothing wrong with that, surely, at least for one's primary dwelling place?

Well look at this way; if we agree that there is a need for at least some rates, what should such rates be levied on? The site value or the capital value?

If you levy it on the capital value there is a tendency to accumulate land and let the buildings go derelict. If you levy the site, there there is tendency to use the land more efficiently.

For example:

"A few hundred people owned large areas of cow paddock and market garden and vacant land and refused to sell them for housing partly becuase they believed the speculative value of the land would rise. Such people blocked Camberwell's growth and contributed little to its municipal revenue. At Camberwell junction and other shopping centres, owners of old woodon shops were paying smaller rates than the enterprising landlords who built expensive shops and attracted business to the centre. In residential streets, landlords who allowed houses to go unpainted paid smaller rates, while the landlord who improved his property and therefor the neighbourhood's appearance and land values was penalised for his enterprise with higher taxes. The reformers argued that a new method of municipal taxation would accelerate the pace of Camberwell's growth and improve the quality of the suburb. Calling for a referendum, they carried the poll after a fierce campaign and Camberwell and Caufield became the Victorian municipalties to tax the land and not the buildings. From 1922, the new method of taxation undoubtably forced many large landowners to release vacant land for house building..."

Geoffrey Blainey, A History of Camberwell, 1980, Lothian Publishers, p86

[anthonybaxter.livejournal.com]

The other thing that happens is that people will do up a house, but leave the front looking like crap. A friend's parents did this to the small house they bought in Fitzroy. The inside was gorgeous, the front looked like a particularly bad share house gone very very wrong.

No suprises - people will game the rules.

[tcpip.livejournal.com]

I've encountered a couple of places like that myself; very often in older urbs like Fitzroy.

We so have to get you into Prosper Australia ;-)

[peachik.livejournal.com]

Hey there, found your journal through the Libertarianism community.

I don't claim to be a real estate expert (especially not as it relates to the Australian markets), I was wondering if you could clarify why someone would have an incentive to let a building go derelict rather than convert into something that generates revenue - unless they lacked the funds to make the improvements, in which case higher taxes will not help that process.

If land owners are sitting on the land speculating that it's value will rise, why should they not be allowed to do so? I don't know how I feel about the government punishing low time preference to increase supply. But perhaps I misunderstand you...

[tcpip.livejournal.com]

Hey there, found your journal through the Libertarianism community.

Oh goodness ;-)

Anyway, WRT to land...

Firstly, if the speculated increase in land improvements is greater than revenue gains from improvements then it is better to let the land remain idle and allow others around you to do the work in improving land values.

Secondly, unlike all other taxes, taxes on land ('land' being the economic term, i.e., all natural resources) actually decrease the price of a good because it removes said speculative component from the equation leading to a price more based on use-value.

Thirdly, ownership of land is a bit of an iffy one in economics. Recognising the right to own products of their labour (and of investments in human-made machinery etc) is not the same as recognising the right to own land. Land existed a priori to any of this; a gift of Providence if you will. So what one really buys in their title deed (among the "bundle of rights") is the right to possess in exclusion to others.

As Milton Friedman (from one side of the economics world) once wrote:

"There's a sense in which all taxes are antagonistic to free enterprise -- and yet we need taxes. ...So the question is, which are the least bad taxes? In my opinion the least bad tax is the property tax on the unimproved value of land, the Henry George argument of many, many years ago."

And from the other, William Vickery

"Economists are almost unanimous in conceding that the land tax has no adverse side effects. ...Landowners ought to look at both sides of the coin. Applying a tax to land values also means removing other taxes. This would so improve the efficiency of a city that land values would go up more than the increase in taxes on land."

There's a geolibertarian FAQ out there if you want a primer on the subject.

http://members.aol.com/_ht_a/tma68/geo-faq.htm

Finally, welcome to the journal. Hope it provides much interesting reading.

[peachik.livejournal.com]

Thanks for being rational and patient. Unfortunately those are rare qualities these days... As you've clearly studied this more than I, forgive me if some of my questions seem elementary. But when I find someone such as yourself who is willing to share insight and knowledge freely and without pedantry I try to take advantage. SO-

With regard to you first point: agreed. But this is a risky and protracted venture. I think we need to consider the time involved. Idle land always has a hefty opportunity cost, especially in a rising market. I may misunderstand your argument but it seems as though you are positing that a property is worth X in 1998, Joe Landowner has an interest in leaving it idle until 2006 when he (hopes he) can sell for X+2. However, Joe has to consider the money he could have made with the property in the intervening 8 years had he made improvements or leased to someone willing to do so, that revenue might very well be greater than X+2. For these reasons I question the actual prevelance of this sort of speculation. It's my understanding that derelict buildings tend to come about so that they can be counted as an investment loss for the purposes of reducing other taxes of the land owner (income tax, capital gains, etc) when such taxes outweigh the amount the owner might make from improving or selling the property, at least in the short run.

With respect to your third point: again I agree you are basically buying exclusivity. I think if anything this undermines your contention for a land-valued tax. It doesn't make sense that your right to exclude should become more costly (i.e. more public resources are required to ensure that right) just because the market is going up, you're still using the same amount of government services / protections to maintain your exclusivity as you were before.

If Vickery's point were true I don't see how the taxes would encourage more effecient use or increase market liquidity: which if I'm not mistaken was the stated goal of the tax (I'm not even sure if that's an appropriate purpose for taxation, but that's another issue). If the value of the land is still appreciating faster than the tax then one might still have an interest in a speculative hold-out. Moreover, my personal observation finds his assertion to be is false. Maybe it's just because I live in New York City, but I have NEVER seen a municipal government propose: "Because we're now raising money with Tax A, we can now eliminate/reduce Tax B". Even if they use that argument to sell the new tax, somehow it rarely, if ever, comes to pass that the old tax is phased out or reduced. But that's just my anecdotal experience and perhaps not valid in this discussion...

I will definitely check out the link, thanks!

Mark

[tcpip.livejournal.com]

But this is a risky and protracted venture. I think we need to consider the time involved. Idle land always has a hefty opportunity cost, especially in a rising market.

It is true that it has an opportunity cost, but it is most certainly not risky as land prices will always increase in an environment of positive economic growth and positive population. As for being protracted that demands on the rate of economic or population growth.

you're still using the same amount of government services / protections to maintain your exclusivity as you were before.

Actually, you would have to be using more; either excluding a greater number of people or excluding services to greater value. Otherwise land price wouldn't increase.

I don't see how the taxes would encourage more effecient use or increase market liquidity

It most certainly increases more efficient use on the assumption (and empirically confirmed) that people want to pay less taxes. So if land is what attracts taxation, owners engage in minimising their use of land and maximising investments in other places.

Vickery's point is further confirmed by yet another Nobel Memorial Prize winner Paul Sameulson..

"The striking result is that a tax on rent will lead to no distortions or economic inefficiencies. Why not? Because a tax on pure economic rent does not change anyone's economic behavior. Demanders are unaffected because their price is unchanged. The behavior of suppliers is unaffected because the supply of land is fixed and cannot react. Hence, the economy operates after the tax exactly as it did before the tax--with no distortions or inefficiencies arising as a result of the land tax."

"Because we're now raising money with Tax A, we can now eliminate/reduce Tax B".

There's plenty of evidence of this. Pittsburgh (and twenty other cities in Penn.) for example was faced with the problem of whether they tax land or tax buildings for their city council. Most ended up choosing a split-rate system; say 5% for land and 1% for buildings.

Further, in Victoria, Australia there were plenty of referenda among councils over whether to have capital improved value or site value as the basis for Council rates. Most chose site value.

[peachik.livejournal.com]

Well put. Lots to chew on: Thanks for the food for thought...

[zey.livejournal.com]

The problem with releasing land, willy nilly, is that councils and the state government gets lumped with the cost of providing infrastructure to support it: water, sewerage, electrickery, telecoms, public transport, roads, etc.

Land rationing encourages subdividing the land that's already serviced. It's always a lot cheaper to add an extra outlet than build new pipes. The land might be more expensive in the short term, but, everything else ends up cheaper. (One of the benefits seen from severe land rationing in places like Japan is how cheap it is to provide massive broadband speeds to their citizens.)

The biggest problem re housing affordability these days is all the old governments who used to be active in providing public housing alternatives have pretty much packed up and left, in an era like the last 20 years where prices have rocketed up versus annual earnings, at the same time as we've had massive tax breaks put in for investment properties which has caused investors to pump up prices to a point past which a large proportion of first home buyers can't afford without intergenerational asset transfers.

[tcpip.livejournal.com]

Your arguments regarding infrastructure are partially true and, I suspect your arguments concerning the government giving up on that nasty socialist enterprise, public housing, may also have a grain of truth.

The main difference however has become land prices. Data from the HIA clearly indicate that the price of housing per se has no increased proportionally to land. For example a new house and land in Sydney in 1993 was $107,000 for the land and $121,000 for the house. In 2003 it was $128,500 for the house and $460,600 (!) for the land.

I have links to a couple of Housing Industry Association pdf on my journal a couple of weeks back; grab them - they make fascinating reading for something that is dry as tables and numbers.

[zey.livejournal.com]

Yep. Land prices are largely being fueled by those tax breaks for investment properties I mentioned earlier. Remove negative gearing for investment properties and half the demand disappears and there's a whole heap of sellers. Viola! Affordable land again.

The sad thing is, housing inaffordability for the non-boomer generations is the result of government policy. You can have both restrictions on the release of land and low land prices, but, not without culling the dodgy tax breaks to those largely upper-middle class (Liberal voting) real estate investors.

[tcpip.livejournal.com]

It has been suggested that negative gearing is a good idea but very badly implemented.

If it applied for new housing it would mean an increase in housing stock. However because it applies to all housing it means an increasing concentration in home ownership.

Of course, nobody has the political will to take on those who benefit from such an arrangement; because you can be sure that having discovered the direct benefit they'll vote against anyone who will take it away, whereas the gains from removing such a poor policy are both long term and indirect (i.e., no votes in it)