April, as Fair Housing Month, is a cruel reminder that we still haven’t escaped the specter of communities segregated by race. If a community vision advocated by early-20th-century reformers had flourished, we may have seen much less of this segregation. Under their approach, land for home sites (not the house structures on them) would have been held on a rental basis from the community — with the land rent paid by homeowners in the form of a tax, not a lease payment.
How would our metro areas have developed differently if everyone rented their home sites in this way? For one, the practice of blockbusting — in which the real estate industry profited by stoking racial fears of falling “property values” — would have had little effect. Why? Because the term “property values” refers to the value of a home’s site, not its structure, and if the site went down in value there would have been nothing for a homeowner to fear financially; it would just have meant they paid less in land rent for the site. There would have been no risk of being “under water” on a mortgage because, by renting the site, no loan would have been required to pay for it. A loan would have been needed only to pay for the structure (often about 70% of a home’s value), and the labor and material costs that determine a structure’s value are not affected by racial fears. The practice, too, of mortgage redlining would have been unlikely to develop because, again, banks would have been lending against only the structure, collateral that is impervious to racist reactions.
Plus, it was not just racial fears that fueled white flight. It was also driven in part by home buyer’s prospects of profiting from suburbia’s rising land values and by federal financing of highways and other suburban infrastructure. Those rising site values may have had less allure had they meant rising land rent payments and not added “home equity.” And if land rent payments — not federal vehicle and gas taxes — had been used to fund highways, suburban sprawl may have been slowed and the demolition of urban minority neighborhoods that accompanied interstate highway construction may have been avoided.
Moreover, just as having jobs compete for workers — such as when the workforce was depleted by World War II — overcame much employment discrimination, so having homes competing for occupants may have overcome much housing discrimination. A major factor in reducing the supply of housing is the real estate speculation that results when property owners can profit from rising land values; this speculation would have been thwarted if that unearned profit had been eliminated by having sites held on a rental basis, and a resulting dramatically increased housing supply may have been eager for takers regardless of race.
It may be argued that because owning a home is the single biggest investment of a typical middle class family, it would be unwise to reduce middle class “home equity” by 30% or more by having home sites held on a community rental basis. But the total land rental fund of a metro area — minus what would have been used to pay for public investments and services — amounts to “collective equity” from which every resident would have been entitled to a regular equal dividend, an “equity withdrawal” that would have created no indebtedness as with a home equity loan.
We can’t change the past. But our communities can, by taxing the land value of properties more than their building value, begin collecting more land rent from home sites and thereby hasten the day when Fair Housing Month becomes a celebration of what exists and not just a call for what should be.