|Wealth and Want|
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About 31% of American households are tenants. The homeownership rate has been rising, but a significant portion of that increase could have been predicted simply as a result of the aging of the baby boom generation (just as the crime rate went down in the 80's and 90's as the baby boom passed through the age groups most likely to commit certain kinds of crimes).
In our largest cities, homeownership rates are much lower -- 15%, 20%, 40% -- and rents are much higher than the national average. People pay corporations, real estate investment trusts, family trusts and private individuals huge sums for the privilege of living close to the center of things. The amenities in the apartment itself may not be much more than in a small city, but the rent bill certainly is, and it rises for reasons that don't involve the landlord providing additional amenities.
Many who rent their homes pay significant portions of their income on rent, and have little hope of being able to save money toward a downpayment. The FIRE sector has responded to this by creating low downpayment mortgages, coupled with private mortgage insurance; by changing the underwriting rules to allow borrowers to devote larger and larger shares of their income to debts service; by extending mortgage terms to 40 years; by creating interest-only mortgages. The benefits of these moves have lined the pockets of companies in the FIRE (finance, insurance and real estate) sector of the economy, and of those who have houses to sell in popular locations, including real estate agents who collect a 6% commission on the sales.
So 2/3 of us are homeowners, and don't consider ourselves tenants. We think we now have more to gain by the perpetuation of this system than we have to lose. We don't think much about the next generation.
But among the 2/3 who are homeowners are also a lot of people who own their own businesses, and many more who aspire to own a business of their own. Let's put aside for a moment those whose business is that of landlord. Some businesses can be started in the corner of one's home, or practiced from a laptop computer anywhere. But most require at least a bit of dedicated space, and often the success of the business depends on that space being well located. A doctor needs to be located close to the hospital. A lawyer would usually prefer an office close to the courthouse or the central business district. A restaurant needs to be where people are during mealtimes. A boutique is not going to succeed on the edge of town. Most of those businesses are conducted in rented quarters. And we've all seen the signs: "Clearance Sale" "Lost our lease" "Under New Management" "Grand Opening."
Look around at the doctors, lawyers, accountants, restauranteurs, retailers and other small business people you know. Now think about whether each rents or owns the quarters in which they conduct their business. Then think about the general prosperity of each one — the neighborhood they live in, the schools their children attend. I suspect you'll find that those whose business is in rented quarters don't live half as well as those who own their business site.
Under our current system, we pay taxes on our income and taxes on our sales, many of which go to provide the very services which allow the landlord to command a higher rent without himself providing anything more. Is this a great country to be a landlord in, or what? The good news is that it is easy to correct, through a modification of the property tax. Instead of taxing sales or wages or interest income, begin to increase the tax on the value of land. Don't increase the property tax on buildings -- just on land. By all means decrease the rate on the buildings.
Who benefits? Everyone except those whose primary economic role is that of "land lord." And even they will see benefits.
Henry George: Why The Landowner Cannot Shift The Tax on Land Values (1887)
A VERY common objection to the proposition to concentrate all taxes on Land Values is that the landowner would add the increased tax on the value of his land to the rent that must be paid by his tenants. It is this notion that increased Taxation of Land Values would fall upon the users, not upon the owners of land, that more perhaps than anything else prevents men from seeing the far-reaching and beneficent effects of doing away with the taxes that now fall upon labor or the products of labor, and taking for public use those values that attach to land by reason of the growth and progress of society.
That taxes levied upon Land Values, or, to use the politico-economic term, taxes levied upon rent, do not fall upon the user of land, and cannot be transferred by the landlord to the tenant is conceded by all economists of reputation. However much they may dispute as to other things, there is no dispute upon this point. ...
But while the Taxation of Land Values cannot raise rents, it would, especially in a country like this, where there is so much valuable land unused, tend strongly to lower them. In all our cities, and through all the country, there is much land which is not used, or not put to its best use, because it is held at high prices by men who do not want to, or who cannot, use it themselves, but who are holding it in expectation of profiting by the increased value which the growth of population will give to it in the future. Now the effect of the Taxation of Land Values would be to compel these men to seek tenants or purchasers. Land upon which there is no taxation even a poor man can easily hold for higher prices, for land eats nothing. But put heavy taxation upon it, and even a rich man will be driven to seek purchasers or tenants, and to get them he will have to put down the price he asks, instead of putting it up; for it is by asking less, not by asking more, that those who have anything they are forced to dispose of must seek customers. ...
... And how groundless it is to think that landlords who have tenants could shift a tax on Land Values upon their tenants can be readily seen from the effect upon landlords who have no tenants. It is when tenants seek for land, not when landlords seek for tenants, that rent goes up.
To put the matter in a form in which it can be easily understood, let us take two cases. The one, a country where the available land is all in use, and the competition of tenants has carried rents to a point at which the tenant pays the landlord all he can possibly earn save just enough to barely live. The other, a country where all the available land is not in use and the rent that the landlord can get from the tenant is limited by the terms on which the tenant can get access to unused land. How, in either case, if the tax were imposed upon Land Values (or rent), could the landlord compel the tenant to pay it? ...
Hence a tax on Land Values, instead of enabling the holder of land to charge that much more for his land, gives him no power to charge an additional penny. On the contrary, by making it more costly to hold land idle, it tends to increase the amount of land which owners must strive to secure tenants or purchasers for. Thus the effect of a tax on Land Values is not to increase the rent that the tenant must pay the owner for the use of the land, but rather to reduce it. And since the tax must be paid out of what the land will yield the owner, its effect would be to reduce the price for which the land could be sold outright. ... read the whole article
Charles B. Fillebrown: A Catechism of Natural Taxation, from Principles of Natural Taxation (1917)
Mason Gaffney: The Red and the Blue
Today, rural land monopoly has cut the number of American farms down below one million, about the population of Milwaukee, San Francisco, or Columbus. Not many votes there. Small farm towns on the King idyll have shriveled and turned into camps for migrant laborers, few of whom vote. Today, the haunts of equal homeowners and fresh-cheeked maidens are the cookie-cutter subdivisions, whither the “reg’lar fellers” and girls have fled. Homes are not just equal, but identical to the last cornice. These make the red states red.
“And the people in the boxes, send their children to the university,
Where they all fit in little boxes, and they all come out the same.”
The difference between tenants and owners is stark and obvious. There are also differences among owners. In poorer cities, the “skew” of home values is much less than in richer cities. “Skew” means inequality, and is measured in many ways. An easy way is the ratio of the mean home value to the median value: the higher the ratio, the greater the skew. In southern California, as we move from the red interior to the blue coast, the skew rises a lot, meaning the top values rise faster than the other values. Thus, in the blue counties the homeowners are less equal to each other. Here, too, there is a greater gap between tenants and homeowners; and there are more tenants.
The blue counties report higher incomes per person than the red inland counties. You might think this would compensate for their higher home values, but you’d be wrong. Moving from red to blue, home values rise faster than incomes. The National Association of Realtors (NAR) and its state affiliates report “Affordability Indexes” for different cities. These indexes show what fraction of the residents can afford to buy the median-priced home. The higher the median income, the lower the Affordability Index. Counter-intuitive? Again, that is because home values rise faster than incomes. The blue counties are those with lower affordability indexes. ... Read the whole article
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Wealth and Want
... because democracy alone hasn't yet led to a society in which all can prosper