In this May 9, 2017 episode, Corey Smith of the San Francisco Housing Action Coalition talks about the policies and the politics to get the housing supply up to 5,000 units a year. All your favorites are here: CEQA and Prop 13. Some talk about the limits of empathy: are our land-use policies making us meaner?
Starting in 2017, EarthSharing.org has been collaborating with KZSU Stanford 90.1 FM to create a weekly hour-long radio show. The Henry George Program is a platform for interviews, roundtable discussions, and debates on economic justice and policy.
Tune in for challenging content on the housing crisis in the Bay Area and beyond, economic stagnation, widening wealth inequality, and environmental degradation ― can Henry George’s ideas offer a path forward that unfettered capitalism and incremental socialism lack?
An archive of the Henry George Program can be found here.
Featured photo: San Francisco Housing Action Coalition
My father’s side of the family were peanut farmers and Angus ranchers in west Texas and east New Mexico. I grew up riding horses, and was active in both 4-H and Future Farmers of America. I even took part in junior bull riding. I thought that Willie Nelson was just about the greatest guy ever. Ok, let’s admit it, Willie Nelson is an amazing person, both as a musician and in his desire to help people and animals alike. The kinds of people Willie really intends to help with his farmer benefit concerts are the type of people I would like to see helped.
Billions of taxpayer dollars go toward subsidizing crop production each year. So often, the supposedly vulnerable members of the agriculture community are held up as an example of why this is a necessary and compassionate policy. Not only is this perception false, but the very image of the struggling, cash-strapped family farmer is one that doesn’t really hold true in the 21st century. In the 1930s, about 20 percent of the U.S. population were actively working in agriculture. Today, it’s only one percent and the rate of new farmers entering the workforce is dropping dramatically.
When we imagine a family farm, we think of the painting American Gothic, Charlotte’s Webb, Babe, and the Hidden Valley Ranch Dressing label. It’s a reminder of how things supposedly ought to be, an idyllic country fantasy of modest people working and often struggling to provide the rest of us with food.
Everyone seems very concerned about the plight of family farmers these days. But, what does the term “family farmer” really mean? Pretty much everyone has a family. What I really want to know is: who are these farmers who don’t have families? They are the ones who really need help!
The USDA claims that 97 percent of farms are family farms. However, this classification relates to the ownership structure and the top-level management rather than who actually works the land. Just 59 percent of farm laborers and supervisors are U.S. citizens. Half of the hired labor on crop farms, according to the USDA, is people not even legally allowed to work in the United States. They are mostly Mexican migrants making abysmally low wages. Farming subsidies surely don’t go to these ‘family farmers’. Many probably miss their families desperately.
‘Small family farms’ as the USDA defines them, operate 48 percent of all farmland and own 47 percent of the value of farm real estate including land and buildings. In 2012, they held 40 percent of U.S. cattle, 89 percent of the horse inventory, and “grew 64 percent of all acres in forage production”. Yet, despite owning so much, they only produce 20 percent of agriculture sales and five percent of the country’s net farm income. Almost half of small farms are “off-farm occupation farms” which means that the operator’s primary occupation is not farming.
Farmers soak up about $20 billion in subsidies each year. Despite the rhetoric of “preserving the family farm,” the vast majority of farmers do not benefit from federal farm subsidy programs. According to Environmental Working Group president Ken Cook, most subsidies go to the largest and most financially secure farm operations.
The first thing to keep in mind is that two-thirds of the farmers counted by the census of agriculture do not get farm bill subsidies. So most farmers don’t get anything… And even within the third that does get money from farm bill subsidy programs, the very large ones dominate. And it’s getting more and more concentrated all the time.
Farming subsidies largely prop up wealthy landowners who are not what we would we would intuitively agree to be real family farmers at all. In general, the concept of the nice old landowning family farmers struggling to make ends meet simply doesn’t exist on a large scale anymore. The average farm household enjoys an income about 15 percent higher than that of the average U.S. family.
Cook goes on to describe to Mother Jones how historical subsidies can be enjoyed by subsequent generations who have no involvement in production:
Absentee owners exist everywhere. Let’s say you and I are brothers. You came to town to be a journalist, I came to work at an environmental group, but we both came from a farm family in Arkansas. If mom and dad give us 5,000 acres in their will, we don’t have to go back down to Arkansas and farm. We’ll get the direct payments automatically for that rice and cotton mom and dad kept growing, and on top of that we’ll get other payments.
What we should do is not only cut off these subsidies to landowners but tax the farmland in proportion to its value. This would enable us to fund government without taxing farm equipment and labor.
This would actually help small farmers, whose major startup cost is purchasing land. But wait, if you tax land, wouldn’t their costs go up? No. Unlike taxing consumer goods, which drives up prices, taxing land has the benefit of not reducing its supply. Somebody always owns it. Taxing it makes hobby ownership less attractive, thus actually lowering the purchasing price.
If you’re an economics wonk, here’s an explanation of taxes on inelastic supply:
If the taxes on labor and equipment were reduced while the cost to purchase land went down too, this would be a boon for families purchasing small plots of land to grow food. Their holding costs for land would be higher, but that would just incentivize them to use land more efficiently, like real family farmers used to do.
We could actually see a resurgence of what we would agree is real family farming. These families could hire a lot of workers and pay them more without the burden of paying wage and sales taxes. And if all of these families were using less land and employing more people at higher wages, family farms could thrive and new farmers could enter the market.
Significant strides toward a fairer tax system have been made in Scotland, where the establishment of a dedicated commission on land reform has cemented the policy direction of the leading Scottish National Party.
SNP, Scotland’s governing party, held its annual conference in March, and attendees were jubilant at the commitment made to some form of land taxation. An amended motion stated that as the government works through its land reform program it “must include exploring all fiscal options including ways of taxing the value of undeveloped land”.
Back in 2015, grassroots SNP members rejected the party’s proposed land reform policy, on the basis that it didn’t go far enough and was thought to be a watered-down version of the ideal policy. This was considered significant then because it is rare for a party’s membership to overturn a policy on its own and send its representatives back to the drawing board.
Writing for Bella Caledonia, Jen Stout explains that growing pressure for land reform in Scotland was bolstered by debate during the nation’s independence referendum in 2014.
“The stark inequalities that damage Scottish society so much were a frequent topic, and few statistics hit you so hard as ‘432:50’ – around 432 interests own half the private land in Scotland. That private land, incidentally, makes up 89 percent of our 19 million acres. Community ownership accounts for two percent. Just one man, the 10th Duke of Buccleuch, owns one percent of Scotland.”
Adding to the chorus of Land Value Tax advocates is the Scottish Green Party, one member of which has prepared a manifesto on implementing Land Value Tax. Andy Wightman writes that the only major barrier to achieving this is the establishment of a land register, which currently does not exist for Scotland.
“Land Value Taxation is no longer the preserve of advocates and lobby groups on the margins of public debate. It is now a mainstream part of contemporary debates over the future of public finances, local revenues and public infrastructure.”
“There are signs that the public is becoming weary of the house price escalator. For one thing, young people (and by that I mean almost anyone under the age of 30) are being impoverished through the high cost of accessing property. For another, the credit crunch has exposed the weakness of an asset-based debt model. Combined with pressure for just rewards, fairness and greater equality, the arguments for LVT suggest its time may at last have come.”
For all the progress being made in setting the priorities of major political parties, significant misunderstanding of the Land Value Tax policy remains. Public opinion regularly equates a land tax with explicit “community ownership”, which is a failure to grasp the concept of returning the value of public goods to communities.
Wightman writes that while some industries, like forestry and agriculture, and the owners of buildings on high-value land would be resistant to the new system, serious effort should be expended to educate low and middle-income families and the business, retail and industrial sectors on their potential cost savings.
Support for Land Value Taxation in Scotland is now a force to be reckoned with, and its proponents are numerous and well-respected. EarthSharing.org will be continuing to observe and encourage this debate as it develops.
We would like to invite you to an exciting event in New York City on how natural resource policy has gone so wrong. Don’t miss the chance to be a part of this vital ethical and economic debate that will shape policy dialogue for years to come.
Friday, May 19th, 9:00 am – Noon 22 East 30th Street, New York, NY 10016
For further information and/or to attend email: firstname.lastname@example.org
“To make the economy work on behalf of citizens and nature, the special privileges of the past will have to be terminated.” The words of Frederic S. Lee, editor of the American Journal of Economics and Sociology, elucidate the powerful implications of a new piece of writing from Georgist economist Mason Gaffney.
Gaffney’s Nature, Economy, and Equity: Sacred Water, Profane Markets appears in the November 2016 edition of AJES and challenges the fundamental assumptions of even the most liberal economic dogmas of the past century. Lee says that by recognizing the tendencies toward capital accumulation inherent in laissez-faire capitalism and enshrining the sanctity of nature at the forefront of any policy discussion, Gaffney has produced “principles of universal relevance”.
To foster an ongoing public dialogue on Sacred Water, Profane Markets, the Robert Schalkenbach Foundation is co-sponsoring an event in New York on May 19, with the International Union for Land Value Taxation, a United Nations ECOSOC NGO, the Center for the Study of Economics and The American Journal of Economics and Sociology.
This event will explore how a just system of charging for nature’s services can not only protect nature from excessive use but also make the market for produced goods and services healthier by preventing the development of monopolies that impede economic efficiency and destroy social harmony.
FROM THE ORGANIZERS
Sacred Water, Profane Markets should be of particular interest and provide ground-breaking insights to any professional, NGO, or others with an interest in or responsibility for managing, funding, using or caring for substantial bodies of water for municipal, domestic, commercial, agricultural, industrial, amenity, leisure or hydropower purposes.
Two of our speakers, David Triggs and Mary Cleveland, will address the economics and management of water. They will describe how a just system of charging for nature’s services can not only protect nature from excessive use but also make the market for produced goods and services healthier by preventing the development of monopolies that impede economic efficiency and destroy social harmony.
Drawing upon many years of practical experience in both developed and developing countries and extensive academic research they will show how a healthy balance of demand management and market forces may be used to ensure both safe drinking water for all in water scarce cities and the optimum sharing of water between agricultural, industrial and commercial users of water. They will provide fresh thinking with regard to how the cost benefit analyses that underpin major water related capital projects throughout the world may be improved to avoid unnecessary waste of natural, human and financial resources. The principles underpinning this approach apply to wider economic and public revenue issues.
Our third speaker, David Michel, has researched and written about transboundary water governance, maritime resources management, and water conflict and cooperation. He is co-author of Toward Global Water Security: US Strategy for a Twenty-First-Century Challenge. He will share his views about the water ethics and policy presented by the first two speakers and how these might make a valuable contribution to a global water grand strategy formulation. The intention of Dr. Michel’s current work on global water security is to maximize the potential for civil society and the private sector to speak with a cohesive voice on water ethics and policy.
Following the three main speakers several designated respondents will draw on their own insights and experiences in water ethics and management in giving their input to the proposed reconciliation of Sacred Water and Profane Markets. The main speakers and the respondents will then participate in a plenary round table discussion on a number of key points and questions raised by forum attendees.
Can inequality within and between societies be explained in terms of merit and intelligence, or are the most important determinants of inequality beyond individual control? Both economist Henry George and geographer Jared Diamond essentially asked this same question, examining the fundamental forces that have shaped human history. They come to startlingly similar conclusions. These similarities have not, until now, been connected and compared so directly. Henry George, as an economist, had a view of history which emphasized the importance of the privatization of the economic value of land. Jared Diamond emphasizes the importance of the orientation of large land masses along an east-west axis in shaping history. What is common to both theses is the importance of land – the petri dish which supports human cultures. Diamond’s Pulitzer Prize-winning Guns, Germs and Steel is probably the most popular book ever written about the role of agriculture in the evolution of human societies. George’s magnum opus Progress and Poverty was likely the best-selling book in the world, after the Bible, when it was published in 1879. Princeton historian Eric F. Goldman described a society in which enormous numbers of people found that their “whole thinking had been redirected by reading Progress and Poverty in their formative years. In this respect, no other book came anywhere near comparable influence.”
Both books tackle such large questions that they are frequently attacked for being deterministic and for broad-stroking details. While the details are contentious, the core theses are straightforward and robust. Postmodernism has made many scholars afraid to distil general forces and has turned ‘generalization’ into a pejorative term. But among those seeking useful answers for the current state of the world, Diamond and George are responsible for paradigm shifts within many fields of inquiry. It is not my goal with this piece to defend all of these thinkers’ ideas with an exhaustive list of historical examples, but merely to compare their most defining ideas. Land Determines Human Progress
Diamond’s thesis is that Eurasia had ideal conditions for agriculture and the success of its people was not due to intelligence or merit. Essentially, crops that flourished in the fertile crescent (self-pollinating hermaphrodites) could move east and west much easier than they could move north and south. Globally, those who controlled land on this east-west axis were able to grow huge food surpluses and advance rapidly, inheriting selectively bred food crops, technology, and ideas at a much faster rate than areas not on this physical and intellectual jet stream.
Diamond writes that effective agriculture and food storage were “prerequisite for the development of settled, politically centralized, socially stratified, economically complex, technologically innovative societies. Hence the availability of domestic plants and animals ultimately explains why empires, literacy, and steel weapons developed earliest in Eurasia and later, or not at all, on other continents.”
Food surpluses freed people’s time and energy for innovative pursuits, supported dense hubs where people could exchange ideas, and supported large militaries to exact tribute and rent from traders and inhabitants. In other words, it was principally differences in access to well-located land that made it possible for some societies to advance to the point of being effective at conquest and colonization.
If George were aware of Diamond’s thesis, he might remark that there is a global privilege, or economic rent, associated with controlling land on this east-west axis. George mostly goes about describing this within societies – as opposed to Diamond’s sole focus on comparing civilizations – arguing that those who control the best locations and can charge rent for them have a return far beyond that which is justified by their individual merit. On the collapse of societies, both thinkers boil it down to sprawling and wasteful land use.
In Progress and Poverty, HenryGeorge discusses how sprawl and the inequalityit produced was the cause of the decay and fall of the Roman Empire:
“Rome arose from the association of independent farmers and free citizens of Italy. It gained fresh strength from conquests, which brought hostile nations into common relations. Yet the tendency to inequality hindered progress from the start, and it only increased with conquest.”
“Great estates—“latifundia”—ruined Italy. The barbarism that overwhelmed Rome came not from without, but from within. It was the inevitable product of a system that carved the provinces into estates for senatorial families. Serfs and slaves replaced independent farmers.”
George, firstly, notices that private property is a natural thing related to human production and in ancient times when the population was sparse “ownership of land merely ensures that the due reward of labor goes to the one who uses and improves it.” But over time, with the density of the population, rent increased forcing civilizational sprawl.
Conquests led to appropriation of land and slavery. The Roman armies moved outwards from Latium demanding land; victory gave more land to the farmers; excessive demands again brought exhaustion of fertility; again the armies moved outwards. Early 20th-century professor of economic history Vladimir Simkhovitch wrote: “Province after province was turned by Rome into a desert, for Rome’s exactions naturally compelled greater exploitation of the conquered soil and its more rapid exhaustion. Province after province was conquered by Rome to feed the growing proletariat with its corn and to enrich the prosperous with its loot. The devastation of war abroad and at home helped the process along.”
Diamond describes the way in which Middle Eastern and Mediterranean civilizations grew crops and grazed cattle in an irresponsible and wasteful manner. If land was plentiful for the dominant culture, who had subdued the inhabitants, they could afford to destroy the soil and move on. The only reason western Europe was able to survive similar irresponsible methods, according to Diamond, was its rainfall, unlike the drier Mediterranean and more inland areas of the Middle East, which were not always deserts.
In this way, George and Diamond agree on the importance of land and resource management in the rise and fall of civilizations, as opposed to the individual merit of those involved, but they describe very similar phenomena through unique and largely comparable lenses. It is difficult to compare thinkers from such different times on issues like the environment. However, one possible difference between George and Diamond are their views on population. George viewed humans, unlike other species, as capable of multiplying their productivity, using fewer resources to produce more wealth. Diamond’s theory that Easter Island, for instance, was a Malthusian (population) trap might put George’s and Diamond’s philosophies at odds. George was likely more of an optimist in terms of population and technology, if the land problem could be adequately addressed first. Resource Distribution within Societies To illustrate, Vikings, a popular historical drama on the History Channel (spoiler alert), features the fearless upstart Ragnar Lodbrok. Ragnar bases his legitimacy as a ruler on the idea that he can supply his people with not only new sources of loot but, most importantly, land. He dramatically demonstrates this mid-battle in an impassioned speech to his warring countrymen. Instead of fighting each other for land, says Ragnar, they should join forces in killing other peoples. Despite historical inaccuracies common in such dramas, scholars believe the Vikings raided other parts of Europe principally out of a hunger for land.
According to George, when a society does not use its own resources well, it leapfrogs to others. He believed that the Western land tenure system creates extreme social stratification whereby the rewards of economic and technological progress go disproportionately to the owners of land. Fear of poverty and an emphasis on unearned wealth and status seeking surrounding this dynamic leads to militarization and a colonial leapfrogging mindset.
Contemporary Georgist economist Mason Gaffney referred to what causes this as ‘milking the core to feed the periphery’. The poor in the center of a society, like large cities, are paying a great deal of their earnings out as rent and those seeking to avoid this rent sprawl in a multitude of ways – from urban sprawl, to heading west during American expansion, to invading other countries for resources, as was the case with the Romans and Vikings as well.
Gaffney and Fred Harrison describe how land hunger drove millions of people to make the dangerous passage across the oceans to the Americas. Over the course of three centuries, those who came from the Old World gradually displaced or decimated the tribal societies of “First Americans” who occupied the continent for thousands of years. Such a huge, and resource-rich continent provided the oppressive Old World regimes with a safety-valve, or what Harrison describes as “a continental-wide bolthole to freedom.” At least for a time.
“When the land ran out in the 1890s,” writes Harrison, “the land of plenty turned into a hell of poverty.” The poverty that plagued the Old World had arisen with an equal vengeance in the New World cities established by the descendants of the first Old World migrants. Of course, the land did not actually “run out” in a literal sense; the commons was given away to the railroads, to politicians and their close friends, to land speculators, and to settlers.
After the Revolution, huge sections of land were bought up by rich speculators, including George Washington and Patrick Henry. As the veterans returned home, speculators immediately showed up to buy the land warrants given by the government. Many of the soldiers, desperate for money, sold their 160 acres for less than $50.
This kind of hoarding of land creates an artificial scarcity, and this can, in turn, be used to stoke public sentiment toward war. As was the case with Rome and other empires, George argued that this process is unsustainable; at some point, people become more focused on raiding and stealing the wealth others have produced than on creating real wealth themselves. The returns are just too low by comparison. Rent-seekers parlay their power, even if originally earned through productive means, into more rent-seeking and even buy political power to cement their positions. The social pact is destroyed as the society continuously undermines its productive base. This dynamic, which George viewed as cyclical, had happened long before the Viking raids of the Middle Ages. In Progress and Poverty, he wrote the following:
“In the history of every nation we may read the same truth: our primary social organization is a denial of justice. Allowing one person to own the land makes slaves of others. The degree, or proportion, of slavery increases as material progress goes on.
The effect of invention and improvement on the production of wealth has been precisely the same as an increase in the fertility of nature. What has been the result? Simply that landowners took all the gain. The wonderful discoveries and inventions of our century have neither increased wages nor lightened toil. The effect has simply been to make the few richer — and the many more helpless!”
Conclusion According to Diamond, people who were lucky enough to have come from land along the longest stretch of east-west land were able to parlay that ownership into more land, decimating those who got in their way. If these east-west cultures existed in environments with lots of water, they could withstand the assault of unsustainable agricultural practices and continue to conquer other parts of the world. If not, they collapsed. George thought that those lucky enough to own land within a society enjoy the same type of unearned luck and privilege. In this way, George describes the cause of poverty within societies, and Diamond describes reasons for inequality, poverty, and colonialism between societies. Both describe why this system of resource allocation and use are unsustainable and ultimately lead to social and environmental collapse, respectively. They also agree that land and location, both its geographic position and land policy, is the most important single factor in determining the fate of civilizations.
If George were alive today, he and Diamond might sit down together and decide that they liked the idea of a global system for sharing the value of land, perhaps as a citizen’s dividend (basic income), which would equalize the historically generated value of land with the descendants of conquerors and the descendants of victims of conquest alike. This would help correct at least the economic misfortunes of people disadvantaged by their geographic position. This would overwhelmingly help those in the global south, the people who not only did not benefit from being on the east-west axis but who were also colonized by those people who did benefit. If done correctly, it could eventually wipe out disadvantages due not to merit, but simply being born on the wrong side of the proverbial railroad tracks.
Simkhovitch, V. G. (1916). Rome’s fall reconsidered. New York: Ginn. Zinn, H. (2003). A people’s history of the United States: 1492-2001.
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.
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.
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.
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 canafford.
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.
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
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.
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.
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.
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.
Significant changes to any system of taxation require significant upheaval, and perseverance from citizens in and out of government. EarthSharing.org spoke with land value taxation proponent Joshua Vincent earlier this month, in a conversation covering attitudes towards land value tax, its applications, and the activism required to advance it. Watch the interview below, broken into three parts.
Vincent has been executive director of the Center for the Study of Economics since 1997. He has consulted for more than 75 municipalities, counties, NGOs and national governments. He works with tax departments and elected officials to promote land value taxation, and has testified as an expert witness on its impact. Vincent is the editor and publisher of Incentive Taxation.
Best Valuation Methods
Vincent lays out best practices for calculating land values, most of which “rely on values that have already been established by the assessor.” By looking at sales prices in an area, particularly of vacant lots but also of derelict buildings set for demolition, a fairly accurate picture of land value can be obtained.
Building values are more complex, but still absolutely necessary for revealing land values: by subtracting building value from a property’s total value, the ideal taxable land value can be calculated. Vincent says that “if we want to help capital and labour escape taxation we have to figure out what the building is worth, because that’s where the labour and the capital goes.”
The most effective valuation systems are in states that “update their assessments on a fairly regular basis, and they also change the percentage of land value to building value to reflect essentially what the market is,” Vincent says.
Using the example of an Atlantic City casino, Vincent says that while 20 years ago the property value would have skyrocketed due to market dominance and profit levels, today that profit has been reduced substantially. “Right now the land value is half of the total parcel value, because the building has lost its revenue-generating capacity,” he says.
Approaching City Officials
A land value tax is not just an end unto itself to reduce inequities in wealth. Vincent says the focus of any campaigners for land value taxation should be its application to almost any pre-existing problems in a city.
“You have to identify a problem that the community suffers from,” Vincent says, whether it be blight, population loss, or perceived high taxes. City officials will usually tend toward enlightened self-interest, and the revenue-neutral tax abatements that a land value tax allow are attractive to public representatives whose priorities are job creation and citizen well-being.
“We would then propose: well how about a universal permanent abatement on all buildings, and not just new buildings, not just condos, but all buildings past, present and future?”
One discussion is not enough to effect real policy change, and Vincent says any correspondence should be followed up with a second meeting, further information, and a push for the council to crunch the numbers of what is a very practical, “nuts-and-bolts” policy.
“The mistake a lot of reformers of all types make is they march into a city council chambers or a mayor’s office and say ‘here’s a reform, do it’, and then they turn around and leave. I think what we are putting forward is something that is practical, it is doable, and you can demonstrate immediately how it is doable.“
Who Is Likely To Oppose Land Value Taxation?
Entrenched interests exist that have made fortunes extracting rent from populations without investing back into them, and these interests comprise the most likely and vigorous opponents of land value taxation. Vincent points the finger at speculative, “absentee owners who have a business model that depends on blight and the decay of the neighborhood.”
“A lot of people that oppose land value tax are people that have adopted business models and used tactics to thrive in a declining city,” he says. “You extract rent, literally, from the tenants but you don’t put anything into the property; you let it run down. That’s the successful business model. And they will oppose a land value tax, because their buildings have fallen apart to such a degree that they wouldn’t benefit from such a land value tax.”
Automobile-intensive businesses are another example, and in the past, owners of flat-surface parking lots have voiced opposition to changes of the tax structure. Vincent says these businesses feed off the value of urban land, itself the product of the people and the government, but “they’re doing nothing to create that value, and they’re doing nothing for the community”.
Vincent points out that some among these interests have actively funded anti-land value taxation campaigns, like in Allentown in 1997.
If variety is the spice of life, then why are so many of us drawn to old habits? You might think of this phrase in the context of your Friday night plans, but economists are asking it about our approach to public policy. Despite a growing body of research indicating that the structure of U.S. property taxes could be vastly improved, we tend to be content with the status quo, and it hasn’t always been clear why. But now, using experimental economics, a professor at the University of Delaware is undertaking a one-year study to identify why people don’t respond to smarter economic policy that could greatly enhance their lives.
Joshua Duke, Professor of Applied Economics at the University of Delaware, sees a big problem with how cities and municipalities in the United States tax property. Governments levy taxes according to the value of buildings and productive activities on the land instead of the land value itself. While property tax is by far one of the best taxes, especially over wage and sales taxes, it is still not as good as a land value tax. A land value tax is virtually the same as a property tax except that the tax is on the land value only, not the building. Property taxes have been structured this way for centuries, but Duke believes we could implement an alternative tax structure that raises tax revenue and stimulates economic development. This would run in contrast to the existing tax structure, which tends to generate and exacerbate wealth inequality by taxing regular people for working and exchanging, but fails to tax unearned income like that from passively owning an ever appreciating vacant urban lot.
“The idea is that if you’re going to tax anything in society, probably the best thing to tax is the value of land. Not the value of the improvements on land, like a house, just the value of land, and the reason is that it’s non-distortionary**. That means that it doesn’t provide the incentive to do less property improvement than is optimal,” Duke said.
According to Duke,“[land value taxation] really would make society a lot better. It’s one of these major things we could do. We don’t have to create anything, we can just change the way things are taxed and [as a result] increase society’s wealth,” Duke said.
Determined to understand why land value taxation is so rarely used, Duke is harnessing the power of experimental economics. He is constructing a virtual city, in which land value taxation is financially advantageous to all citizens. The citizenry will be composed of 100 students of business, economics, and engineering. Ultimately, Duke hopes to identify why people, given the option of introducing financially advantageous land value taxation, tend to reject this tax structure.
“Economics is all about simplifying reality. What we’re trying to do is reduce problems to the fundamental incentives that we want to study. You have an amount of income; how much of your income do you devote to improving your land and how much do you devote to consumption? Then do you feel that, over time, you’re being treated fairly by the tax system and do you vote to reject it? So we set up a little democracy using our computer program where participants in our experimental economics platform can vote,” Duke said.
Duke is already planning his next study. After the completion of this one-year project, he will use his findings to identify ways to help citizens overcome political objections to land value taxation initiatives. Ultimately, he hopes to aid economists and policy experts who are eager to see cities and municipalities usher in smarter economic policy.
**Distortion, in the most basic sense of the word, simply means change. In economics, it is almost always considered a harmful mutation in an idealized market, where there is perfect competition and no externalities, e.g. almost alltaxes vis a vis reducing productive incentives, misallocating resources, etc. Just as breaking up inefficient monopolies encourages competition and benefits the market, land value taxation encourages competition and captures distortionary externalities. This encourages behavior that is good for markets and for people, which is what Duke means when he says that land value taxation is “non-distortionary.” In fact, shifting to land value taxation actually increases productive incentives, what we might call a positive distortion.