Financialization Of Housing Violates Human Rights

“Housing is at the centre of an historic structural transformation in global investment and the economies of the industrialized world with profound consequences for those in need of adequate housing.”

Adequate housing is a human right, and securing it for all people is not only a moral imperative, it is one of the 17 Sustainable Development Goals that have been developed by the United Nations and targeted for achievement by 2030. All signatory member states are bound to pursue this goal in earnest.

Leilani Farha is the U.N. Special Rapporteur on adequate housing, and she has reached some unsettling conclusions about the worsening of what she terms the “financialization of housing” in a report presented to the U.N. Human Rights Council at the beginning of the month.  Prosper Australia’s (Earth Sharing Australia) Speculative Vacancies report is held up as a primary source of evidence regarding the scale of the issue, a study that EarthSharing.org is excited to replicate in the United States as well. 

Photo: Leilani Farha

After the enormous losses incurred from the 2008 global financial crisis – by homeowners, banks, and taxpayers – it seemed reasonable to expect that any legislative response would crack down on the deficiencies in the system that had made such a crisis possible. In a nutshell, the opportunities for corporate finance to turn housing debt into a commodity were left unchecked, and the practice of packaging mortgage-backed securities into enormous bundles and selling them as an investment became widespread.

According to Farha, the resulting catastrophe of mortgage defaults and foreclosures actually ended up being a huge win for corporate finance, as companies were able to sweep up billions of dollars worth of property at fire sale prices from state governments who had been forced to assume responsibility for high-risk mortgages.

“Individuals and families who were affected by the crisis were often blamed for taking on too much debt and new rules and regulations were put in place to restrict their access to mortgages. Austerity measures cut programs on which they had relied for access to housing options, and the march towards the financialization of housing continued.”

There is a need now more than ever to reclaim housing as a social commodity and to disincentivize its treatment as a cash cow, an asset for the accumulation of wealth and an easy tax haven for the world’s super-wealthy.

Farha outlines the way in which a vast amount of investment properties are being left empty and suggests that even without occupants, a property can generate significant value for the owner. In Melbourne, a full 20 percent of investor-owned properties are vacant, equating to about 82,000 homes. In London, the wealthy suburbs of Chelsea and Kensington saw a 40 percent increase in vacant properties between 2013 and 2014.

Photo: woodleywonderworks via photopin (license)

“In such markets, the value of housing is no longer based on its social use. The housing is as valuable whether it is vacant or occupied, lived in or devoid of life. Homes sit empty while homeless populations burgeon.”

Farha says there is a “gross imbalance” between the resources that governments devote to assuaging the needs of the ownership class and what is a “complete deficit” of attention paid to those who cannot meet their needs for a safe, affordable place to live. The situation is likely to worsen with the proliferation of international trade agreements, which tend to have the effect of intimidating governments out of regulating investment in property and the development of luxury rentals. A precedent has already been set by cases of treaty arbitration wherein millions of dollars in damages have been awarded to foreign investors.

The human right to adequate housing is enshrined in the 1948 Universal Declaration of Human Rights and half a dozen other international conventions and covenants. This right, under our present system, is in constant conflict with the use of land as a store of wealth and a means of capital appreciation, and governments have made the problem worse by providing tax subsidies for homeownership, tax breaks for investors, and bailouts for corporate finance.

A system of Land Value Taxation would discourage such ubiquitous property speculation and exert downward pressure on prices. Confronted with tax bills that more accurately reflect the public value of centrally-located land, speculators and other stakeholders will find it much less attractive to hold onto housing as a deposit box for wealth. The revenue generated from this tax could be used to revitalize the stock of public housing, though this would simply be a cherry on top of the more significant shifts in incentives created by the Land Value Tax.

Featured photo: byronv2 via photopin (license)

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Monthly News Digest – February

IN THE NEWS

The short life of Pennsylvania’s radical tax reform

The town of Altoona began trying out the land value tax in 2002 on the recommendation of the Center for the Study of Economics. From 2011, land value tax completely replaced taxes on buildings.

Nevertheless, five years later, land value tax advocates don’t have clear examples to point to of projects or investments in the city that would have been made without the tax system in place, and the reform has been undone.

The incentive created by the city’s land value tax was limited because the county and the school district imposed property taxes. Another major problem was that the tax system was so unusual that potential residents and businesses struggled to understand the potential benefits of moving to or investing in the city.

In some cases, businesses might have been turned off by the relatively high rate of tax on land, not understanding that there was no rate of tax on structures.

Britain has enough land to solve the housing crisis – it’s just being hoarded

The UK’s biggest house building firms are sitting on 600,000 plots of land that have planning consents – four times the number of new builds in the UK last year.

Land is often bought and sold many times over before construction goes ahead, and many owners have no intention of every building. The result is speculation and very expensive housing.

The average price of agricultural land in England is £21,000 per hectare, whereas land that has residential building consent is valued at close to £6 million per hectare.

Narendra Modi has made it extremely unappealing to be a landlord in India

The Modi government is introducing measures to encourage first-time home buyers, introducing tax incentives for self-occupied properties and rentals.

In the past, these tax incentives were capped for owner-occupied houses but not for rentals. Therefore, a landlord could book the loss they suffered on lower rent, which helped in reducing their overall taxable income. 

It is expected that this will bring new real estate to the market in turn bringing the prices down, which have already fallen by 30 percent after the demonetisation.

Mayor positive about a Land Value Tax trial

With the release of the London Finance Commission report, Assembly Member Tom Copley called for a Land Value Tax to replace the three basic property taxes: council tax, business rates and stamp duty land tax.

Copley said a Land Value Tax would discourage land banking, where developers sit on land waiting for its value to rise without building on it. This would incentivize the building of news homes quickly while raising much needed funds for investment.

Congress moves to give away national lands, discounting billions in revenue

Republican lawmakers have quietly laid the foundation to give away 640 million acres of national land to state governments. Critics fear this could eliminate mixed-use requirements, limit public access and turn over large portions for energy or property development.

The oil-rich Arctic National Wildlife Refuge could soon be up for sale. States with small budgets may be unable to invest in the management of these lands and decide to sell them off.

Areas at stake are managed by the Bureau of Land Management (BLM), National Forests and Federal Wildlife Refuges, and contribute to more than $600 billion each year in economic stimulus from recreation and 6.1m jobs.

Not Dirt-Cheap: 10 Cities Where Land Is Worth More Than the Home on It

A home for sale last year in San Francisco’s Sunset District came perilously close to redefining the very concept of a “fixer-upper.”

The place was not inhabitable in any way, and yet it sold for just under $1 million last February after just a short time on the market. In space-strapped San Francisco, the real value of real estate lies in the land.

Could Land Value Tax reduce the tax bill for 99% of us?

Calculated based on a total land value in England of £1.842 trillion, residential properties would pay 79.5 percent of the tax, businesses 15.5 percent and agriculture 4.8 percent. Current Council Tax is unfairly distributed because it uses property bands.

On this basis, the top 1% of property wealth owners would be liable for 54% of the residential part of the tax assuming the tax is introduced at a flat rate for all. Land Value Tax, unlike Council Tax, is not a residency tax it is an ownership tax, so people in rented accommodation do not pay the tax. 

Infrastructure Australia says tax land not property to capture value

Infrastructure Australia recommends that governments gradually get rid of stamp duties and tax land values over the long term, arguing it is the “fairest” way of raising money for new infrastructure.

A new train line that makes it faster for people to get to work will typically attract people to buy houses nearby, increasing land values. IA’s report said “there are serious challenges for any form of value capture based on property prices rather than underlying land values.”

Why Falling Home Prices Could Be a Good Thing

Instead of looking at homes as investments, what if we regarded them like a TV or a car or any other consumer good? They would be somewhat cheaper in most places, where population is growing slowly. But they would be profoundly cheaper in places like San Francisco. That was the conclusion of a recent paper by the economists Ed Glaeser of Harvard and Joe Gyourko at the Wharton School of the University of Pennsylvania.

The paper used construction industry data to determine how much a house should cost to build if land­ use regulation were drastically cut back. Since the cost of erecting a home varies little from state to state — land is the main variable in housing costs — their measure is the closest thing we have to a national home price.

SOCIAL MEDIA HIGHLIGHTS

We don’t necessarily endorse any of the viewpoints in these discussions on Facebook, but they are sure to make you think. Tell us your thoughts, and feel free to submit images that more accurately reflect some of the concepts generated by the Land Value Tax Facebook community.


Since most of the economic rent in the world is actually captured by the wealthy, Charles D Allison attempted to construct a more accurate image showing how the rich capture a greater proportion. Exactly how much and what the standards for some of these terms are is unclear. It is clear however that rent privatization is much more stratified than either of these conceptual images would indicate. So, if you can create a more accurate image, reply with it or tell us what else you would improve about this one.



TREND SPOTLIGHT

EarthSharing.org in January:

 Wikipedia interest in ‘Henry George’:

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Solving The Obesity Epidemic

We now know that sugar, particularly high-fructose corn syrup, is the leading cause of the U.S. obesity epidemic. Two-thirds of adults and a third of children are considered overweight or obese, and the dietary choices that have created this crisis are often the result of understandable thrift. Our tax environment offers market-shifting subsidies to conglomerate producers of some of the worst things we put into our bodies.

Co-opting Noble Wartime Policy

Agricultural subsidies were used to great effect during World War II, as a way to shore up supplies of corn and wheat to prevent a shortage of troop supplies. These policies served their intended purpose, but without a timeframe, they were allowed to become entrenched by farming businesses which stood to benefit. The foods we are encouraged to eat today, and what we are told about nutrition and cardiometabolism, are in no small part influenced by lobbying from within the system created by wartime pragmatism.

The justification for subsidies today is that the U.S. government wants agriculture to be competitive globally. However, the choices American consumers are making have turbocharged healthcare costs related to obesity. So, two opposing goals are being pursued simultaneously, all while the agriculture industry preys on vulnerable people with cheap, unhealthy foods. A common response is the suggestion to tax sugary foods, but this may not be the best way to optimize incentives.

A study of subsidized foods and their relationship to cardiometabolic risk measured that overall, 56 percent of calories consumed were among the major subsidized food commodities – corn, soybeans, wheat, rice, sorghum, dairy and livestock. The study concluded that higher consumption of calories from subsidized food commodities was associated with a greater probability of some cardiometabolic risks. Therefore, better alignment of agricultural and nutritional policies has the potential to significantly improve population health.

The majority of subsidies go to commercial farms with an average income of $200,000 and average net worth close to $2 million, according to a report by Heritage Foundation senior research fellow Brian Riedl. The reality of agricultural subsidies is incongruous with their intent; instead of raising farmer incomes with higher crop prices, they promote overproduction and lower prices further.

Photo: myoldpostcards Late Autumn Fields Along The County Line via photopin (license)

Smallholder family farms are largely excluded from subsidies, and instead they finance consolidation and raise land values to prohibitive levels. In the decade preceding 2007, many agricultural subsidies were distributed to Fortune 500 companies, celebrity “hobby farmers”, and sympathetic Members of Congress, including:

  • $2,849,799 – John Hancock Life Insurance
  • $1,183,893 – International Paper
  • $534,210 – Westvaco
  • $446,914 – ChevronTexaco
  • $553,782 – David Rockefeller
  • $206,948 – Ted Turner
  • $225,041 – Senator Charles Grassley (R- IA)
  • $45,400 – Senator Gordon Smith (R-OR)
  • $161,084 – Representative John Salazar (D-CO)

A 2006 Washington Post investigation discovered 75 acres of Texas housing for which the owners could claim agricultural subsidies based on “historical rice production.” Over the past 25 years, rice plantings in Texas have plummeted from 600,000 acres to 200,000, in part because people can now collect generous rice subsidies without planting rice. This illustrates that once implemented, even a seemingly sensible subsidy can become a useless bureaucratic burden that must be repealed or risk becoming ridiculous.

The Sugar Conspiracy

Robert Lustig, a pediatric neuroendocrinologist at UCSF, says a person increasing their sugar consumption is a big problem because “sugar both drives fat storage and makes the brain think it is hungry, setting up a vicious cycle.”

More specifically, Lustig confirms that it is fructose that is harmful. Fructose is a component of the two most popular sugars: table sugar and high-fructose corn syrup. High-fructose corn syrup has become ubiquitous in soft drinks and many other processed foods.

According to the World Health Organization, food marketing has been shown to influence children’s dietary preferences and behavior, increase the risk of becoming overweight and obese and form habits which persist into adulthood.

Amanda Long, Director-General of Consumers International, says that “the majority of adverts seen by children around the globe are for heavily processed foods high in fat, sugar, salt and calories.”

Research in the science journal Nature concluded that young children are not responsible for their food choices, and are incapable of accepting personal responsibility in amongst so many influences including parenting, social factors, and advertising. Obese children are ostracized by their peers, and their quality of life, as measured by self-reported distress, is comparable to those receiving cancer chemotherapy.

In September 2016, NPR reported that for the past five decades, the sugar industry has been attempting to influence the scientific debate over the relative risks of sugar and fat.

Photo: The Open University (OU) Rahul Pandey via photopin (license)

That these documents are so old only serves to magnify the implications of this ongoing corporate behavior. A report published in the JAMA Internal Medicine journal highlighted ways in which these practices continue.

“In 2015, the New York Times obtained emails revealing Coca-Cola’s cozy relationships with sponsored researchers who were conducting studies aimed at minimizing the effects of sugary drinks on obesity. Even more recently, the Associated Press obtained emails showing how a candy trade association funded and influenced studies to show that children who eat sweets have healthier body weights than those who do not.”

Report co-author Stanton Glantz told The New York Times this sugar industry strategy of sponsoring research was a smart one, “because review papers, especially if you get them published in a very prominent journal, tend to shape the overall scientific discussion.”

The response from the Sugar Association was to say that at the time of publication, “funding disclosures and transparency standards were not the norm they are today.” In one recorded study, a finding of health benefits from a diet of less sugar and more vegetables was dismissed, because such a dietary change was not considered feasible.

In the aftermath of these revelations, the sugar tax debate ignores the more fundamental forces that have given agricultural mega-producers so much influence.

Sweetening The Deal

Subsidies are either going to artificially inflate farmland values and rents, or wind up in the back pockets of supermarkets. If the farming of certain crops is supported by a failsafe government subsidy, supermarkets will see no need to reimburse farmers for the full cost of production, resulting in lower prices and stagnating incomes.

Under a system of Land Value Taxation, all production would be tax-free and, in a sense subsidized. Other foods could compete with corn, and we might experience a decrease in the ubiquity of high-fructose corn syrup in cheap, readily available processed foods.

Farmland is not particularly valuable in comparison to its urban counterpart, so many farmers could expect to be better off under such a policy. Nevertheless, a Land Value Tax would also encourage small-surface-area, horticulture as opposed to extensive, land-wasting monoculture that is subsidized by the public purse. Not only that, it would create a lot of jobs in sustainable farming, since taxes on labor would be removed in a pure Land Value Tax system.

 

Feature photo: stevendepolo Plain and Cinnamon Sugar Donuts Robinettes via photopin (license)

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How Political Polarization Is Predetermined

What if there was a set of questions that could predict with a high degree of accuracy your political views on a variety of issues? Social scientists suggest that we process information based on our pre-existing worldviews. In other words, our cultural outlooks shape our thinking. Cultural Cognition Theory suggests that this can be used to predict perspectives and help us understand how they form.

Hotbed issues such as climate change continue to draw political battle lines among the general public, despite scientific consensus. Even neutral information is processed through our own individual political filters.  But why? Addressing this question is vital for understanding public perceptions of risk and building support for crucial new policy. Is it a lack of credible information, a failure to communicate evidence effectively, or something else entirely?

Dan Kahan is a distinguished professor of law and psychology at Yale University whose research has been focused on risk perception, science communication, and applications of decision science to law and public policy. He is part of the Cultural Cognition Project, examining the impact of group values on perceptions of risk. Across a number of studies, his research has explored public divergence over climate change and scientific expertise in general.

Photo: 350.org Philadelphia, PA via photopin (license)

The cultural theory of risk was developed by Mary Douglas and Aaron Wildavsky in the 1970s, asserting that people form risk perceptions and beliefs that are influenced by and harmonious with their ways of life. A simple example is the “white male effect”, which is a propensity for Caucasian men to perceive social threats as less significant than do women and minorities.

Kahan’s research has concluded that people form perceptions of risks to society that emphasize their worldviews and cultural outlooks. Thus, political polarization occurs surrounding contentious issues despite the presence of empirical data and scientific consensus. In analyzing how and why these perceptions form, this kind of research can offer insights into the best ways to shape and inform public opinion on risks to society, and to develop and implement better policy.

Intuitively, support for public policies that address societal risks like green technology, vaccinations and gun control should increase as people become aware of and sympathetic to these issues. The problem is that facts are less important than values in the formation of perceptions, and Kahan argues that “identity-protective cognition” causes people to dismiss information that conflicts with their values as a kind of “identity self-defense mechanism”.

Cultural cognition is evaluated through attitudinal scales, which Kahan says “should be thought of as measures of latent or unobserved dispositions, for which the items that make up the scales are simply observable indicators.”

La naturaleza del Riesgo. Una aproximación sociocultural
Source: Cultural cognition as a conception of the cultural theory of risk, Dan Kahan, 2008.

Two continuous scales rank attitudes along two dimensions, referred to as “grid” and “group” ways of life. The first scale, “Hierarchy-egalitarianism”, runs from “high grid” individuals who support the maintenance of status-based systems through to “low grid” individuals who believe entitlements should be based on merit rather than position.

On the second scale, “Individualism-communitarianism”, individuals classed as “weak group”  expect to fend for themselves while those classed as “strong group” value solidarity over competitiveness. Responses in agreement or disagreement with value statements are aggregated to form continuous “Hierarchy-egalitarianism” and “Individualism-communitarianism” worldview scores.

Cultural cognition research has revealed a tendency for people to perceive knowledge, honesty, and shared interest in experts who they believe to share their values. A common idea in science communication is that evidence of environmental threats has been ineffectively conveyed to the public, or that scientific literacy is too low. However, it has been shown that polarization over environmental threats is actually greatest among the science-literate. Dramatic public division on these issues is not a result of incomprehension, but instead stems from a distinct cultural conflict of interest.

Photo: Simon Blackley Frank discussion via photopin (license)

A 2010 study on perceptions of HPV vaccine risk showed that people will selectively accept evidence to validate previously held beliefs, which suggests that even a balanced argument may increase polarization in people with opposing values. People also base their perceptions of expert credibility on values rather than the content of any argument. The study showed that if a person hears an argument they are predisposed to reject being made by an advocate whose values they share or vice versa, polarization shrinks to insignificance.

Kahan’s research demonstrates that bombarding the public with information or expert evidence on social risks can create a backlash and thus become counterproductive. This is likely to occur in people regardless of their political party or cultural belief system. To reduce combative polarization, it is more effective to present a culturally congenial solution that fits within prescribed worldviews.

As Kahan puts it, “don’t try to convince people to accept a solution by showing them there is a problem. Show them a solution they find culturally affirming, and then they are disposed to believe there really is a problem in need of solving.”

Cultural cognition theory has useful applications in the context of Earth Sharing and Henry George’s ideas about Land Value Taxation. While presenting any policy argument based on a demonstrable problem is liable to be rejected on the basis of predetermined values, presenting the same policy argument framed around the solution and decorated with sympathetic values is likely to succeed. Proponents of significant political change are too often focused on highlighting risks that they believe need to be addressed, failing to speak to people’s core values. In the absence of a framework of values, the substance of the message is lost to partisan interpretations of the supposed risk.

Featured photo: Feggy Art: Say No More via photopin (license)

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Rent-Seeking Drives Inequality

In 2010, the world’s 62 richest billionaires collectively held $1.1 trillion in wealth. At the same time, the poorest half of the world’s population held wealth amounting to $2.6 trillion. Just six years later, in 2016, those 62 billionaires had amassed a further $660 billion, and the poorest half had been stripped of the equivalent of more than $800 billion.

This should be the dying breath of trickle-down economics. Ahead of the World Economic Forum earlier this year, Oxfam Great Britain chief executive Mark Goldring said that “it is no longer good enough for the richest to pretend that their wealth benefits the rest of us when the facts show that the recent explosion in the wealth of the super-rich has come at the expense of the poorest.”

Oxfam senior economist and former special adviser to President Obama Didier Jacobs published a discussion paper in November 2015, called Extreme Wealth is Not Merited, in which he detailed the “six rungs” of the rent-seeking ladder: crime, cronyism, inheritance, monopoly, globalization, and technology.

He argues that few, if any, of these rungs allow a person to become extremely wealthy based on merit, and that “meritocracy calls for talented people to be rich, but not extremely so”. In an analysis of the wealth portfolios of the Forbes list of billionaires, Jacobs offers insight into the relative importance of each rung:

“Fifty percent of the world’s billionaire wealth is found to be non-meritocratic owing to either inheritance or a high presumption of cronyism. Another 15 percent is not meritocratic owing to presumption of monopoly. All of it is non-meritocratic owing to globalization.”

 

Photo: Ravi_Shah 168/366 – Classic via photopin (license)

According to Jacobs, for the world’s richest, wealth begets wealth, and clearly the most prosperous avenues to enormous wealth are through currying favor with politicians or simply receiving a fortune as a hereditary right. All billionaires have benefited from globalization, population, and economic growth. Jacobs suggests that the world will inevitably see its first trillionaire in coming decades, and it will be the result not of some extraordinary talent but of continued growth in the global economy.

In a February 2016 interview with Inequality.org, Jacobs compared modern wealth with the merit of Johan Gutenberg. “He invented the printing press in 1439. Most of us would agree, I think, that the printing press amounts to an invention as least as important as Google. Yet Gutenberg did not become a billionaire…because the world economy in the fifteenth century was simply too small and too fragmented to support any billionaire fortunes.”

Jacobs says the idea of meritocracy makes sense for the middle class, and “an outstanding nurse is likely to make more money than an average one and would deserve that extra income”. But the kind of extreme inequality of wealth we see today cannot be justified by the same concepts of meritocracy, as these fortunes are so dependent on collective resources.

Henry George’s definition of land was actually very broad, encompassing “all natural forces and opportunities”. In this way, we can see applications of his principle of shared utility to not just land and natural resources, but to intellectual property, and the forces of globalization and ongoing economic growth. That we should begin to see the existence of trillionaires while so many still struggle to live on wages and are taxed on their labor is a great injustice.

George promoted the idea of the Land Value Tax as a way to fairly distribute economic rent, what would otherwise be unearned wealth, concentrated in the hands of the mega-rich. He also advocated a guaranteed basic income or citizens’ dividend, and a policy of this nature should be funded by taxing the economic rent from land. This way, when public initiatives and global systems create added value for businesses and the rich, that value will be returned to the public instead of being lost to further private stockpiling.

Jacobs says that today, every single billionaire’s wealth “depends on having access to a large population that’s linked through a globalized economy”. Those massive increases in wealth are crystallized in high land values, especially in ritzy locations in major global cities like New York and London. The rich can’t take their land with them to the Switzerland or the Cayman islands.

“The more this global economy grows, the richer our billionaires get. This growth happens independently from any one individual’s effort and talent, so we can’t say that billionaires deserve the profits that go hand in hand with economic growth.” Much of what appears on the balance sheets as profits for productive activities is really land holdings in global hubs. By simply taxing the value of land, we could capture that surplus, without taxing any earned wealth or reducing productive incentives. There would be enough to fund all healthcare, schools, transportation systems, etc without any taxes on normal people. We could have all of the wealth creation of a purely capitalist system while realizing the noble dreams of socialism.

 

Featured photo: FraVal Imaging Malaga muelle uno via photopin (license)

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Is The American Dream Dead in Northern California?

In 1931, historian James Truslow Adams said the American dream mandates that “life should be better and richer and fuller for everyone, with opportunity for each according to ability or achievement”, regardless of social class or circumstances of birth. But what does that actually mean?

For some, the vagueness of the American dream concept makes it difficult to quantify. Identifying a more specific metric of focus would offer a clearer picture of American opportunity for prosperity and success, and an upward social mobility for all people.

TechCrunch.com journalist Kim-Mai Cutler delivered a presentation at Earthsharing.org’s BIL Oakland 2016: Recession Generation event on July 9, in which she focused on the intersection between opportunity, technology, and land. To address this intersection, she referenced the research of Stanford University economist Raj Chetty.

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Figure 1

Chetty analyzed the family income records of 40 million children over the past 20 years and calculated the likelihood of a child born into the poorest 20 percent (lowest quintile) of society reaching a higher quintile in income. Isolating geography as a determining factor, Chetty found that, for example, the city of San Jose provides the best opportunities for a poor child to reach the 80th percentile in income distribution, compared to all other cities across the country. This is shown in Figure 1.

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Figure 2

Despite this, Figure 2 shows a trend reflected statewide and across the United States wherein median wages are increasing, but poverty is also on the rise, and homeownership is falling.

This trend in Santa Clara County flies in the face of conventional thinking, whereby poverty should decrease as incomes and opportunities multiply. If people are making more money, yet are less able purchase a home, the home price must be rising faster than the wage.

screen-shot-2016-12-06-at-6-21-02-pm-1
Figure 3

Similarly, apartment rent is skyrocketing. There is a lot of job growth, which would tend to indicate that labor is more in demand and that incomes will be higher, but most of the new jobs do not pay well – most make less than 50 percent of the average median income (AMI), as seen in Figure 3.

To add insult to injury, Figure 4 shows that many lower-wage workers fall well short of average asking rents, and are therefore unable to work and live in the same area. These people must either cohabitate or commute long distances in order to secure housing that they can afford.

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Figure 4

These are direct consequences of Proposition 13, which greatly limits property taxation in the state of California. Proposition 13 defines what a parcel of real estate can be taxed, how much that tax can grow annually, and when the parcel’s value can be reassessed. Over time, this has created severe market distortions, as developers have no incentive to build additional housing that is affordable. This ultimately limits housing supply, forces workers to commute further from the urban centers, and leads to additional sprawl.

How does this all affect upward mobility? For starters, family commute times correlate with a child’s future success and earnings. Figure 5, from Chetty’s study, shows that a transit time of 15 minutes or less significantly correlates with a child’s upward mobility.

screen-shot-2016-12-06-at-6-21-15-pm
Figure 5

If the American dream is precipitated by upward mobility from one income quintile to the next, it is becoming an unattainable dream for an increasing percentage of the population. Without significant policy change, it will become impossible for many families to escape wage slavery.

Remedies do exist – some to resolve the problem altogether, and others to mitigate it. Metro San Francisco has seen a significant growth of working professionals choosing cohabitation, as well as the tiny house movement of 100-400 square-foot spaces. Unfortunately, these behaviors do not address the structural inequities and land misuse created by the current policy environment and Proposition 13.

With this in mind, it would be sensible for new housing construction in the Bay area to occur where economic activity is most concentrated, namely downtown San Francisco. Downtown areas tend to have the greatest land values, but traditional strategies for construction in the city center tend to be very expensive, politically treacherous, or otherwise ineffective. While cohabitation and tiny houses might make the area more affordable for a few, government must incentivize urban development in high-demand areas to effectively turn the tide of this crisis. To this end, the city and state must consider a Land Value Tax.

The economist Henry George documented this phenomenon of market exclusion 137 years ago in his seminal work Progress and Poverty. George demonstrated how rent increases faster than wages, and to expedite new construction, he recommended eliminating taxes on work and consumption and shifting the source of revenue to Land Value Taxation. His idea was to encourage landowners and developers to increase residential and commercial space in order to pay the Land Value Tax, while generating a respectable return and providing value to others. Land Value Taxation naturally becomes even more effective wherever land values are higher, like the urban core of cities. Implemented in cities, Land Value Taxation leads to a substantial increase in both living and working space.

California faces a unique challenge due to the limits imposed by Proposition 13, and overcoming this would require a difficult voter-approved constitutional amendment to completely overhaul the property tax system. State legislators and regional and city planners would be remiss not to consider a Land Value Tax, which has had demonstrated success in increasing residential space in the United States and abroad.

 

Watch Kim-Mai Cutler’s presentation below:

 

Images: Keynote presentation by Kim-Mai Cutler at BIL Oakland: Recession Generation 2016

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Mutations of Ownership: Should Genes Be Patentable?

“He who receives an idea from me, receives instruction himself without lessening mine; as he who lights his taper at mine, receives light without darkening me.” -Thomas Jefferson

The Angelina Jolie Effect

In 2013, Angelina Jolie shocked Hollywood by announcing her decision to undergo a preventive double mastectomy. She cited a hereditary risk of breast and ovarian cancer and what she had been told was a 65 percent chance of breast cancer due to a mutation in her BRCA1 gene.

The discovery that certain mutations of the BRCA 1 and BRCA 2 genes increase risk of breast and ovarian cancer was made in the 1990s. The company that began the BRCA analysis test claimed that a mutation in either of these genes could increase risk to as high as 87 percent for developing breast cancer and 63 percent for developing ovarian cancer by age 70.

The ensuing publicity caused a surge in genetic testing in what has been named the Angelina Jolie effect’. But the cost of a BRCA test is extremely prohibitive, at more than $3,000 in the United States. Jolie wrote in an op-ed that this was a huge obstacle for many women seeking tests for breast cancer, a disease that kills almost half a million people around the world each year.

When Myriad Genetics discovered the ‘breast cancer genes’ in 1994 and 1995, it managed to acquire 20-year patents for the very genes themselves, as well as any current and future methodologies for examining them. This monopolization was a boon for shareholders, and in 2013 the BRCA analysis test brought in 75 percent of Myriad’s total revenue of $613 million.

Should Biological Phenomena be Ownable?

Conversations about property rights typically involve things that people have built, bought, or otherwise created throughout their lives. But as technology challenges our fundamental understanding of biology and ourselves, we are faced with a decision about whether to update our institutions to reflect new opportunities for ownership in nature.

In 2009, a group of organizations including the Association for Molecular Pathology and the American Civil Liberties Union filed a lawsuit challenging the BRCA gene patents, arguing that they amounted to patenting human life, robbed every person of a piece of self-determination, and violated basic human dignity.

The case was supported by testimony from many women who had been disadvantaged or put at risk by patent restrictions, from being denied a second opinion on tests, to being unable to afford testing, and having insurance rejected by Myriad. After a four-year legal battle, the Supreme Court ruled in 2013 that human genes cannot be patented in the U.S. because DNA is a “product of nature”.

This ruling annulled the patents related to more than 4300 human genes, stripping monopoly status from Myriad Genetics and dozens of other companies and institutions that had profited from them. “Myriad did not create anything,” Justice Clarence Thomas wrote in the majority opinion. “To be sure, it found an important and useful gene, but separating that gene from its surrounding genetic material is not an act of invention.”

What the landmark ruling didn’t cover, however, were methods for testing BRCA genes, possible new patents of these methods, or the patentability of synthesized DNA. Myriad’s two-decade monopoly has left it with a massive database of genetic data, maintaining its dominant position in risk factor analysis for BRCA genes compared to any competitor.

The main importance of the Court’s decision was establishing this boundary between innovation and appropriation of biological phenomena. In the same way that natural resource extraction methods can be patented and monopolized, so too can techniques for analyzing and repurposing genetic material. But the mere existence of compounds in nature should not be ownable in a free and clear way, not without some sort of duty to use these natural opportunities, opportunities that hold the potential to free us of a great deal of suffering and unleash human potential.

‘Biopiracy’

It’s not just genes that have been captured for exclusive license and rent-seeking. Consider Joseph Merrick, a so-called ‘freak of nature’ known as the Elephant Man. He spent most of his short life in circuses, where many entrepreneurs made a great deal of money exploiting Merrick’s condition. Until recently his bones were on display at the Royal London Hospital museum, and there is no evidence to suggest he consented to this.

The most famous case of this sort of appropriation is that of Henrietta Lacks, an African-American woman whose cancer cells were harvested in 1951 and used to create an immortal cell line for scientific experimentation. In the process of radium and x-ray therapy, tissue was removed from her tumor and secretly sent to a lab at Hopkins University to be grown in test tubes.

Lacks died at the age of 31, leaving behind a husband and five young children. The family never received any financial support, and found out by chance that their mother’s cells (called HeLa cells) have been used in ongoing research. HeLa cells were used in developing the polio vaccine, were sent into space, and have been used for cloning, gene mapping and in vitro fertilization.

The practice of patenting materials in nature and people or aspects of cultural tradition is given the derogatory term ‘biopiracy’, and agrochemical and biotech company Monsanto offers an illustration which once again distinguishes between innovation and merely appropriating what freely exists in nature.  In 2016, the European Patent Office revoked a Monsanto patent for a virus-resistant gene found in Indian melons. Monsanto introduced the resistance to other types of melons and managed to patent this as its own invention. But the gene responsible for this resistance was discovered in 1961 and plants containing it have been publicly available since 1966. Conversely, Monsanto has won many of its own lawsuits against farmers who infringe on patent rights Monsanto has on its seeds.

Monsanto and other institutions have appropriated these materials without obtaining consent. It then has turned around and charged monopoly prices to the same people for the right to use these materials. And while cultural remuneration is tricky, privatizing these cultural products anyway has sometimes resulted in important advances in medicine and other fields. However, in the context of patents, there has more often been a very real reduction in scientific and social advancement, as patent holders merely speculate on their patent claims. This forces real innovators to pay large sums of economic rent or go through contortions to avoid patents, all in order to add to the intellectual stock of humanity.

For example, there are hundreds of patents on Agrobacterium techniques alone, which has been the most common vector for companies like Monsanto splicing genetic code into plants. The reason there are so many is the risk of patent infringement. Researchers have come up with brilliant workarounds for these problems, but developing new ways to do the same things has huge opportunity costs. For scientists, it’s a purely bureaucratic hurdle, not a chance for real scientific advancement. Thankfully, tools are being developed to help reduce confusion over this, but they are not enough to encourage entrepreneurship without an army of lawyers.

Open Access

In the mid-’80s, molecular biologist Dr. Richard Jefferson pioneered a genetic research technique that helped illuminate where genes are expressed in plant tissue. He distributed this helpful technique immediately to more than 1000 labs around the world.

Jefferson said in an interview that the litigious way in which genetic patent issues tend to be resolved is not constructive, and that both parties “end up trying to promote their particular worldview based on a lack of evidence on either side”.

“So you’ll have businesses who will pound their wingtips on the table and say ‘we must have exclusive licenses, and… on the other side, you might have civil society or thoughtful social policy engagement that says ‘it’s all wrong, you shouldn’t do it that way, everything should be free’, but they may well not be aware of the very complex natures of risk mitigation businesses have to encounter,” he said.

“There’s no real evidence base that can guide real problem-solving for policymakers or for practitioners.”

One company might be better off if techniques for analyzing genes can be monopolized, but it is likely that the market for innovation and society as a whole would be better off if these medical techniques were somehow available to all. These returns to society could manifest as wealth creation, scientific innovation, and better health outcomes.

Open source success stories in the technology world –  including operating systems, programming languages and web browsers – have not offered direct profit to its community of creators, but they have provided social value and a means to create wealth. Jefferson wrote in 2006: “Many ask, ‘How do you make money in open source?’ The answer: you make money not by selling open source, but by using open source.”

There are valid reasons both for patents as well as open source. However, might there be a synthesis, a solution that would give us the best of both worlds?

Incentives are Holier than Property

Friends of Earthsharing.org, Guido Núñez-Mujica and Joseph Jackson, had a great idea for helping poor people in remote areas of Latin America. They wanted to create a light and portable machine for copying DNA (PCR) so it could be used for all sorts of things, in this case testing for tropical diseases. A standard PCR machine is fairly heavy, at least as far as jungle treks go, so a light mobile version could have really helped a lot of people get tested and then obtain treatment. However, because someone had patented the mere idea more than 25 years ago, and done nothing with it, they could not patent it themselves. This vastly reduced the pool of investors due to the increased threat of competition.

Even if others have independently thought of the same idea on their own, they are restricted from using it by an existing patent. Such ideas should not belong exclusively to the person who merely filed the patent first, at least not in an absolute way. We can, for instance, say that a patent affords the holder the opportunity to invest more into creating their idea, but that right should be coupled with an incentive to use their monopoly privilege for productive purposes.

An innovative solution to this problem parallels that of 19th-century economist Henry George, who wanted to incentivize landlords owning prime real estate to make their land available to others. He proposed a tax on the value of urban land to invigorate landlords to use prime locations productively.

Where landlords have monopoly privilege over a particular geographic location, Myriad genetics and Monsanto had, and to some degree still have, a monopoly privilege over specific ‘nucleo-graphic’ areas of DNA, untouched by the artifice of human innovation. Just like landlords who own vacant urban lots for years and leave them undeveloped, patent owners should pay increasingly more to exclude others from developing ideas that will benefit humanity.

Photo: Pixabay.

Patent Value Tax

Patents are important because the exclusive usage rights can often provide a predictable environment that can encourage production. Banks can feel confident that they can provide loans. Inventors can feel more confident that someone won’t just copy their work and get away with it. Patents are also important because it ensures that the discovery is publicly documented.

But as previously mentioned, patents also have drawbacks. Patent trolls use patents for idle speculation, holding valuable ideas for ransom. Patents contribute to a climate of high liability for new inventors, because with so many patents it is impossible to know when violations occur.

To ensure patents are only held by people who intend to use them, and only while they are intending to use them, a tax incentive system could be very helpful.

Patent values could be self-assessed by the inventor and changed at any time. The rate of tax will gradually rise over time, based on the self-assessment. If particular patent holders decide the taxes are too onerous, they can simply lower their assessment, or relinquish it into the public domain.  Anyone is allowed to place bids that are higher than that self-assessed value, and this will initiate an auction. The proceeds go to the current holder.

Auctions would be open to anyone, including the government. This would provide a vehicle by which we can use the democratic process to incentivize scientific research. Since the government could buy the patent and release it into the public domain.

Some may argue that patents are nothing more than a right to sue for violation, and do not encourage innovation. This is particularly true today considering that many technologies require a combination of existing technologies, involving multiple patent holders who are often in it to speculate. However, this dynamic would vanish if patents had high holding costs and could be publicly auctioned at any time. Patent holders would have an incentive to work with others quickly because holding onto a patent would be like holding a very expensive hot potato.

Patents as a Privilege

Founding Father and third President of the United States Thomas Jefferson is the earliest authority on American patent law, but his view on the matter was characterized by skepticism unless patents were for the public good. He was generally opposed to any kind of monopoly, and believed that ideas were both unstoppably contagious and not fit to “be a subject of property”.

“Society may give an exclusive right to the profits arising from them, as an encouragement to men to pursue ideas which may produce utility, but this may or may not be done, according to the will and convenience of the society, without claim or complaint from anybody,” he said.

The attachment of property rights to biology, and all ideas for that matter should be treated with great care, both because the natural world was not created by any one of us, and because exclusive rights to innovate need to come with a duty to use the necessary natural resources well. It is not for us to plant our flag and claim ‘this is mine!’ but to consider ourselves stewards, with a duty to use natural resources in ways that will ultimately improve our lives and the lives of others.

 

Featured image: lisichik via Pixabay.

 

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Origins of the Silicon Valley Housing Crisis and How to Fix it

Most of the wealth being generated in Silicon Valley is the result of advanced engineering, risky venture capital and cut-throat business acumen in the face of rapidly-evolving competition. Visa, HP, Intel, Adobe, Ebay, Apple, Google, Facebook – the concentration of multi-billion-dollar enterprises in this tiny pocket of Santa Clara Valley is staggering.

But not everyone making big money in Silicon Valley had to major in a STEM field or produce any real wealth to do so. For those who have speculated on rising land values, the last 40 years has been a gamble that keeps paying off. In the 1960s, when the land in Santa Clara Valley was producing prunes instead of circuits, John Arrillaga Sr. and Richard Peery could see the wheels of a new boom beginning to turn. These young entrepreneurs spent the next decade building the corridor through which much of Silicon Valley’s world-changing innovation would pass.

By constructing custom and cost-effective office units quickly for emerging tech companies, Arrillaga and Peery dominated the region and became its go-to developers. Their signature, low-slung concrete buildings called tilt-ups made for cheap and quick construction early on. The pair was also among the first to build before tenants were confirmed, in the hopes that immediate availability would be attractive to businesses. The land they had bought up as young men began to generate formidable returns, and the speed of technological progress coupled with an apparently insatiable demand for more space created today’s Silicon Valley, synonymous with skyrocketing land values. While this new value injected into Santa Clara Valley draws people to the area and creates prosperity for those in innovative industries, it also attracts speculation where it is possible to capture significant wealth simply by owning land.

Arrillaga is worth more than $2.5 billion, a fortune earned in part from unparalleled skills as a developer, but also because he was able to extract a great deal of unearned wealth. The contribution of pioneering land developers to economic growth is undeniable, but unfortunately, taxation structures have not kept pace with the rapid transformation of unproductive land into a cybercity of millionaires and billionaires. The wealth that has been obtained from constructing buildings is hard earned, but the enormous increase in rental income resulting from rapidly-increasing land values has not been earned. It’s not as if aging structures have grown more valuable, it’s the land underneath them that has skyrocketed in this hub of innovation, land values created by an aggregation of economic activity not attributable to any one person, developer, or tech company. The value of this land is indeed a socially-created value.

Today, the success of entrepreneurs starting tech companies has made Silicon Valley the most expensive place to live in the United States. As these tech giants grow, the reach of their impact on the housing market spreads, and migrant employees move with their money to suburbs farther and farther out from where they work. In so doing, they shape land values and make other lasting changes to the urban environment. The gains generated by developers like Arrillaga and captured by speculators can ripple out into the wider community and inflate the cost of living.

By Unsplash via Pixabay.

The incredible wealth now being generated by high-tech industries in Silicon Valley has put a premium on all surrounding land, both commercial and residential. Working-class residents can only hold on to rent-controlled accommodation for so long before the profit motives of private developers see them evicted, and their housing demolished. According to the Guardian:

Between 2000 and 2013, the number of low-income households in the Bay Area increased by 10 percent, but the region lost 50 percent of units defined affordable for this population, according to researchers at the University of Berkeley, California, who have closely studied gentrification and displacement.

The proliferation of wealth in our communities is a wonderful thing; the only reason it causes such polarization is because systemic inequalities go unaddressed.

We can have the best of both worlds. For men like Arrillaga and Peery to have the opportunity to create these cash cow business parks and bring thousands of talented professionals to Silicon Valley is incredible, it should be celebrated.

As people have come together to produce a great deal of wealth in the tech industry, land values have boomed. Those who were able to get on the property ladder before an oncoming swell in land values simply sell or rent for huge windfall gains, unearned wealth, while prior tenants are displaced. Incoming renters are squeezed or turned away entirely by the high rent.

The problem is not the tech companies or their workers, and it is not the vulnerable tenants; it’s not even the landlords who benefit from, perhaps unconsciously, playing the working class renters and the angry anarchists off the techies. It’s our system of property taxation. The best and simplest way to correct the imbalance, to give justice to everyone, is to implement a system of Land Value Taxation while reducing taxes that harm the poor and the production of new wealth.

From the developer’s’ perspective, a Land Value Tax would in no way detract from the incentive to build in the first place, as the taxes on buildings would be eliminated, after sales and wage taxes. Furthermore, the incentive to build on unused, centrally-located land would increase. They would have an even greater incentive to build immediately because owning the land without having tenants would leave them in the red after paying their Land Value Tax bill each month. The site would not be a speculative asset, but one that only yields a positive return if a developer uses it well to meet people’s needs.

For Arrillaga and Peery, the taxes due on their development portfolio would have grown with the unprecedented business success of their tenants, from dirt cheap taxes on empty lots to large tax bills on lucrative land accommodating high-end office buildings. This would have generated a massive amount of public revenue without harming incentives toward innovation. The seeds of gentrification are nurtured by insufficient housing supply, but Land Value Tax would mean that centrally-located land would be developed to accommodate increasingly more people at comfortable densities.

By lauramba via Pixabay.

This policy encourages landowners to maximize the revenue they can generate by constructing and maintaining buildings of the highest caliber to attract tenants. As opportunity brings more people to an area for work, demand for housing pushes land values even higher, which increases revenue from the Land Value Tax even more. A landowner can then create more housing, often vertically, to cover the larger tax, or if they are unable or unwilling, sell to a developer who will. This applies not just to Silicon Valley, but to any in-demand area where the concentration of jobs forces living costs higher than many can afford.

Land Value Tax can be used as a source of revenue to fund great social programs, even while reducing wage and sales taxes -from health vouchers to housing for mentally ill homeless people, or even a universal basic income. Without a Land Value Tax, however, the benefits these social programs create will simply be captured by landlords through higher rent charges. Thus, the positive effects of these social policies would nearly be wiped out, funneled into the pockets of landlords as rent hikes. For example, if everyone was given a $10,000 basic income each year, all else being equal, what would happen to the cost of rent? It would go up by a comparable amount, and largely cancel out the benefits of basic income to the most vulnerable people. However, with Land Value Tax, incentives to increase housing supply would result in people being able to protect their basic income from rent hikes.

Governments will not be able to subsidize their way out of this housing crisis with palliative measures. Creating a system of incentives in which the market is enabled to correct itself is the most sustainable way forward, and offers the best hope of ensuring affordability for all while simultaneously giving a boost to incredible growth in future industries.

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Next Recession Will Be in 2026

Fred Foldvary EarthSharing.org

An 18-year cycle of real estate and land values has been the cause of every major recession, and without a radical shift in taxation structures, the U.S. economy will be in for another shock around 2026.

EarthSharing.org had the opportunity earlier this month to speak with Fred Foldvary, professor of economics at San Jose State University and board member of the Robert Schalkenbach Foundation. Foldvary predicted the last recession in his 2007 book ‘The Depression of 2008’, and said real estate bubbles in general can be predicted using an 18-year cycle model developed by early-20th-century economist Homer Hoyt.

“[Hoyt found that] in Chicago there was an 18-year real estate cycle with very astonishing regularity, and that also coincided with the general business cycle of the United States,” he said.

Foldvary used the same methodology as Hoyt, swapping in the most up-to-date numbers from today’s real estate sector.

“I brought it up to date with current data on both construction and land data… The data is out there for the last 50 years,” Foldvary said.

A combination of low interest rates and high land values was the key warning signal for recession, Foldvary said, a kind of hybrid between the Austrian and Georgist schools of economic thought.

“The major recessions have all been closely related to the real estate cycle,” he said. “In each case the real estate prices and construction peaked shortly before becoming a recession.”

Without any unprecedented changes in government policy, there was no immediate risk of another recession for the next decade, Foldvary said. But the other side of the coin is that, without new ways of thinking about land values and controlling speculation, the U.S. economy should be prepared for another recession in around 2026.

“The federal debt will be that much higher, and if the government is all tapped out and it can’t borrow any more money in the next financial crisis, it could be even worse than 2008,” he said. “The economy has the same structure as it’s had for the last 200 years. The basic problem is massive subsidies to real estate – both fiscal subsidies and monetary subsidies.”

Even newer financial regulations like Dodd-Frank would be ineffective, because they failed to address the core reason for the business cycle, Foldvary said.

“They don’t touch the fact that land values absorb the benefits of progress, and then speculation carries them to a height that makes real estate unaffordable, and then you have the collapse.”

The potential for a system of land value taxation to break this 18-year cycle is enormous. Taxing land and natural resources instead of incomes and investment would act to discourage real estate speculation, keep the market accessible for wage-earners, and stimulate the construction of centrally-located real estate that promised the best value for the public and the greatest amount of space in which to work and live.

There will come a time in the next ten years when we will begin to see the signs of another impending recession in the U.S., one with the potential to be the worst this country has ever seen. Knowing the precipitating factors of a future crisis, and as the economy experiences slow growth, now is the critical time for land value taxation to be seriously considered.

 

Fred Foldvary is on the board of the Robert Schalkenbach Foundation (RSF), a non-profit organization established in 1925 to spread the ideas of the social and economic philosopher Henry George (1839-1897). Foldvary received his B.A. in economics from the University of California at Berkeley, and his M.A. and Ph.D. in economics from George Mason University. He has taught economics at the Latvian University of Agriculture, Virginia Tech, John F. Kennedy University, California State University East Bay, the University of California at Berkeley Extension, Santa Clara University, and currently teaches at San Jose State University. Foldvary is the author of The Soul of Liberty, Public Goods and Private Communities, and Dictionary of Free Market Economics. He edited and contributed to Beyond Neoclassical Economics and  The Half-Life of Policy Rationales. Foldvary’s areas of research include public finance, governance, ethical philosophy, and land economics.

 

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Fixing The Bay Area Housing Crisis

The San Francisco Bay Area is in the midst of a severe housing affordability and displacement crisis, the result of years of inadequate public policy, a clash of generational attitudes, and ubiquitous obstruction of new housing projects. At the BIL Oakland: Recession Generation conference, hosted by EarthSharing.org on July 9, a panel of four housing advocates shared their thoughts on where to go from here.

Zac Shore, Stephen Barton, Alex Lofton and Tim Colon described a multi-faceted crisis requiring concurrent and complementary solutions.

Zac Shore is the director of development for Panoramic Interests, a construction company focussed on affordable student housing, workforce housing and homeless housing in San Francisco.

The company has a modular construction ethos that crystallized when they traveled to the U.K. and witnessed the construction of 190 apartments in eight days using shipping containers.

“When we saw that, we were convinced, and now we’re starting to build with it on a large scale in San Francisco.”

Panoramic Interests has built hundreds of apartments for students and workers, and is now beginning to build for the homeless. Shore cited demonstrable cost savings associated with housing homeless, cutting down on chronic use of emergency services and offering an economic incentive alongside the humanitarian one.

Stephen Barton represented the Bay Area Community Land Trust and the Committee for Safe and Affordable Homes. Barton has a PhD in city and regional planning from the University of California, Berkeley, and was director of the Housing Department and deputy director of the Rent Stabilization Program in Berkeley, California before retiring recently. He has written widely on housing policy and co-authored Common Interest Communities: Private Governments and the Public Interest.

Barton argues that new construction does not have the ability to solve the Bay Area’s housing crisis.

“It’s not to say that increasing the housing supply is not important, because it’s desperately important,” he said. “But of course we have Prop. 13 here in California and its progeny designed to protect real estate investors’ windfall profits, and of course encouraging land speculation because people who own vacant and under-utilized land hardly pay anything in taxes.”

Using taxes to treat rental property like a business rather than personal real estate would be a step in the right direction, “to recapture through taxation the value that we and those who came before us have created,” Barton said.

“If you applied a two percent tax to rental property in the whole Bay Area, you would raise $500 million a year and it could lead to construction of as many as 50,000 affordable apartments.”

“About half of the rent that tenants pay in the Bay area is not, in fact, necessary to profitably operate and maintain the housing once it’s been built and the construction costs are amortized. Instead, it’s basically an admission charge – ‘welcome to the magic kingdom, here’s how much you have to pay to be here in the Bay area’.”

Alex Lofton is a co-founder of Landed San Francisco, a community-based brokerage organization that raises capital from investors interested in local real estate, and uses that money to support first home-buyers with down payments.

“Our whole system is set up on the intergenerational transfer of wealth: you’ve got to ask your mom or you dad, or brother or sister, or grandparents to help you buy your first house, especially in expensive places. So we just say ‘Why can’t there be other options than mom and dad…to borrow that money?’”

“You live in a place like this and you question if you’ll ever become an owner…the leap from renter to owner is just impossible.”

While affordability was the main problem with Bay Area housing, requiring greater supply and higher incomes, another way forward was thinking about the concept of ownership differently, and coming up with creative ways for whole communities to help people get started in the property market.

“There isn’t a silver bullet, it does take a lot of solutions.”

Tim Colen, at the time of conference, was executive director of the San Francisco Housing Action Coalition, an organization promoting well-designed and well-located housing. Prior to this, he was president of the Greater West Portal Neighborhood Association, and spent 25 years working as geologist.

San Francisco is cursed by having a red-hot economy, and highly-skilled workers flooding into a city that has a history of under-producing the amount of housing it needs.

“We have chosen policies for the last two or three decades that have led us to this position where our population is growing by about 10,000 residents per year… a city that has a historic production rate [of houses] somewhere around 1700-1800 units a year.”

“It’s already a city that’s become hostile to the young, young families, seniors, immigrants, the artists, the weirdos, the hippies, everybody. It’s going in the direction of becoming a luxury resort with a certain amount of housing we can afford to subsidize.”

In Sacramento, liberal democrat Governor Brown has taken a bold step by introducing “by-right housing”, whereby if certain conditions are met by developers then new builds cannot be obstructed.

“It’s the first tool we’ve seen in ages that says ‘you can’t appeal projects to death anymore’,” Colen said.

The dominant conversation around housing has been one of intergenerational change, and the desire of previous generations to keep things the way they are, Colen said, and this has tipped the balance of power toward those who say no to development and increase construction costs.

“We’re strangling ourselves,” he said. “There is not enough money in the world to subsidize our way out of this problem.”

 

This panel discussion highlights a struggle between established residents and newcomers, who should be joining forces against an entirely different threat. Renters are being squeezed out of the Bay as prices surge, while would-be newcomers, many of whom are tech workers, are kept out by the same phenomenon. Both blame each other, yet it is landowners who are making a killing off the skyrocketing costs for space in the Bay Area.

Yes, tech workers drive up the cost of land, but freezing new construction also makes apartment rents artificially high. Both groups are right, but it is unfettered and untaxed landlordism that is the real problem.

There is a way to help protect those in danger of being forced out of the Bay, while also giving access to newcomers in innovative industries: tax the rising value of land and reduce taxes on working and exchanging. A citizen’s dividend paid out of the revenue from a land value tax, what some call a basic income, should be given to everyone to be spent as they wish. They would use this money to subsidize their apartment, while construction could boom in downtown San Francisco and elsewhere in the Bay. With more people able to fill the new units in the central locations, this would take pressure off areas even slightly outside the central business district. This in turn would retard the rise in rent from what it otherwise would be, while putting more money in vulnerable people’s pockets to secure housing.

 

 

Feature photo: Guner Gulyesil City Romance via photopin (license)

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