In a recent New York Times article, The Californians Are Coming. So Is Their Housing Crisis, Conor Dougherty delves into the conundrum of growth and housing problems. He points to the current situation in California and the fact that its residents are fleeing the sunshine to a more affordable, and less congested state of Idaho. He poses the question: Is it possible to import California’s growth without also importing its housing problems?
In short yes. The response to the article was mixed. I offered the following:
Suppose a house or condo was not a form of investment, other than paying off the mortgage and perhaps doing renovations. In other words, suppose that as a homeowner, one was not entitled to pocket the increase in land value during the years one owned the house or condo. Suppose that, instead of paying the previous owner for the value of the house or condo PLUS the value of the site on which it sits, one only paid the seller for the value of the house or condo and other improvements (including landscaping).
One would need a smaller down payment. So young people might not always need two incomes to become home owners. One would not need nearly as large a mortgage, and might be able to take on a shorter mortgage, at an advantageous interest rate.
Suppose that one’s annual property tax was only on the value of the land itself, and not on the condo or house and other improvements. Suppose that property tax payment, instead of being an annual payment, was simply a monthly payment. If you needed to move from one metro to another, there would be many more buyers for your house, and you’d be able to move expeditiously. If you needed to move from a less expensive metro to a more expensive metro to take a job that paid you well, you would not be forced to the fringes by a huge down payment. A house or condo of a certain size, style, age and quality would sell for more or less the same amount in most of the country. I think it would solve a lot.
Another reader responded, “How do you suppose school budgets in your community would be financed without taxes levied on residential property?”
It’s a little less cumbersome than one might think. Most communities have a significant amount of vacant land, which likely pays rather little in taxes. Under the structure I describe, a vacant lot would be paying the same amount as the same-size lot next door that has a house or a condo or a high-rise on it. No annual (monthly!) penalty for putting the land to good use. No penalty for making improvements to the buildings, or planting trees or keeping an attractive lawn. No penalty for adding an accessory dwelling for a relative or for a tenant. People get housed, closer to the center of things, closer to amenities, to transportation, to services, to jobs.
In most cities, half the value of a home is in the land. (A new subdivision on the fringe starts out as more like 20% land, 80% house, but the land tends to rise in value as services are provided, and the house starts to depreciate.) In California, more like 60 to 80% of the value is in the land. Vacant lots will start to pay their share, reducing the burden on families, workers, others who need homes, too.
To which another reader responded, “How about not connecting school budgets to property taxes, as it clearly leads to education inequality?”
Good point and I agree with this reader. I do not believe that a LOCAL property tax (be it based on taxing improvements, which I think is a poor idea, or on taxing land value, which I think is wise and just and promotes a much fairer and more vibrant economy) should be used to finance schools. Rather, that land value should be treated as our common treasure, collected as natural public revenue, and then distributed more evenly across our society, to meet the needs of all.
Children everywhere are entitled to a good education, whether they live in a high-land-value city, or in a rural area. The policy I propose will make it possible for many more of us to choose to live in or near the most interesting cities, for some or all of our lives.