Healthy Development Vs Our Rewarding of Speculators
CBS -- The Real Meaning of Rising Home Prices
Why are site prices rising? How can that become a boon for everybody? We excerpt two 2012 articles from (1) MarketWatch, Dec 20, on home prices by A. Andriotis, and (2) New York Post, Dec 27, by A. Forman.
by AnnaMaria Andriotis and by Adam Forman
The Real Meaning of Rising Home Prices
As home prices continue to climb, some analysts are questioning whether that alone indicates the housing market is truly in recovery mode.
The national median sales price of existing single-family homes hit $180,600 in November, 10.1% higher than a year ago. It marks the ninth consecutive monthly year-over-year increase, which last occurred from 2005 to 2006. Since January median prices have risen about 17%.
But experts say that spike is largely due to the limited number of homes on the market. There were about two million existing homes available for sale at the end of November, which equates to the lowest housing supply since September 2005. With fewer homes to choose from, buyers intent on purchasing a property are more inclined to offer a higher price or engage in bidding wars.
This limited inventory underscores a weakness in the housing market: Many sellers have resisted putting their home up for sale, out of concern that it will sell for far less than they paid for it. There were less than five months’ worth of unsold homes at the end of last month, while a normal market would have six to seven months’.
In some neighborhoods, median or average sales prices are rising because the mix of homes selling has been shifting toward higher-end, more expensive properties — not necessarily because the value of the typical home is rising. Sales of existing single-family homes priced at $1 million or more increased 52% in November from a year ago, a trend that’s been in play for most of the year.
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Growing NY Through Smarter Taxes
Speculators will sit on their land, incurring little cost and waiting for public investment to revitalize the area. Meanwhile, the accumulation of empty plots will blight the neighborhood, delay recovery and undermine government efforts at restoration.
How can we temper these undesirable practices? With a two-tier property tax — a revenue-neutral shift to encourage development rather than land speculation.
Property assessments are divided into two parts: one for the value of the land itself, the other for the value of buildings (“improvements”). Under two-tier taxation, land is taxed at a significantly higher rate than are improvements. The lower rate for buildings provides an incentive for owners to maintain and restore properties. The higher rate for land discourages speculation. Developers cannot sit on undeveloped or underdeveloped land without suffering steep costs.
The two-tier property tax has a proven record of success. In 1979, Pittsburgh began taxing land at a rate six times higher than improvements. In the ensuing decade, building permits increased by 70.4 percent. This expansion occurred while its core industry, steel, was faltering. In the same period, the number of building permits fell by 14.4 percent in similar Northeastern and Midwestern cities.
Harrisburg, Penn., also experienced a boost. From 1950 to 1977, the city lost nearly half its population. According to federal criteria, it was the second most distressed city in America. Following the introduction of two-tier property taxation, along with other revitalization policies, Harrisburg made an impressive comeback. In the ensuing decade, the number of vacant sites fell by nearly 90 percent, and the number of businesses more than doubled. (The city’s recent financial problems are unrelated.)
By discouraging speculation, taxing land would guard against undesirable fluctuations in the real-estate market. And by encouraging building in areas suitable for redevelopment, such a tax would stimulate the city’s economy and discourage sprawl.
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JJS: If you’re a buyer, you don’t want to see prices climb, under the current property regime. But what if higher prices meant glad tidings not just for the seller but for the buyer and everyone, too? That could be the merry state of affairs in a place such as Singapore, which pays its citizens a dividend from surplus public revenue. From where does Singapore get its revenue? In part from a tax on land. When growth pushes up locations values, that tax recovers more socially-generated site values and the residents receive fatter dividend checks.
Also, since land taxes or land dues discourage speculators (as noted above), then they can’t inflate land prices, a bubble can’t arise, a non-existent bubble can’t pop, and no recession can follow. Rather than ride a rocky roller coaster of boom then bust, people get to enjoy either steady growth or a steady-state economy. Not only does the periodic poverty of recession disappear, so does the entrenched misery of the usual long-term poverty, since using prime land intensely means keeping people gainfully employed and full employment means higher wages.
Finally, since it’s the tax on land, not on buildings, that does all the good, you could, if you had the political chutzpah, get rid of all the tax on improvements and levy only the value of land. While deleting the taxes on structures, you could also get rid of the ones on income and sales. Your government would still have plenty of revenue, from corralling all of society’s spending for not just surface land but for all natural resources and for privileges such as corporate charters. You’d have such a huge surplus you’d be embarrassed to not pay citizens a dividend. Aspen CO is a partially example of dividends, just as some towns in Pennsylvania can boast the benefits of taxing land alone.
Editor Jeffery J. Smith runs the Forum on Geonomics and helped prepare a course for the UN on geonomics. To take the “Land Rights” course, click here .
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