Bidding Wars Create New Headaches for Vancouver Renters

Finding a new apartment in a competitive housing market can be exhausting: constantly scouring classified ads, racing from one showing to another, hoping that your credit history and persona can charm potential landlords. But just when you thought finding an apartment couldn’t be more difficult, prospective tenants are finding themselves in rental bidding wars, as landlords exploit competitive real estate markets to maximize revenues.

Vancouver, British Columbia has a housing market rivaling the aggressive competition of New York City and San Francisco. The vacancy rate decreased from 1.8% in 2014 to 0.8% today, and the average rent is $2,230. Neither metric shows any sign of improving as the population continues to grow, partially driven by Vancouver’s strong job market.

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Photo: justenoughfocus Lights of Coal Harbour via photopin (license)

It is not uncommon for prospective renters to conduct searches spanning months, which can cause substantial disruption in their lives. But some landlords are now taking steps that will exacerbate this problem – once you find an apartment in your price range, bidding wars between applicants will probably increase the list price.

As Devin Cox and his roommate hunted for an apartment in Vancouver, they noticed that approximately a quarter of all rental applications asked prospective renters to list the maximum amount above the asking price they would be willing to pay. According to Cox, multiple landlords notified them of higher offers and gave them the chance to increase their bid.

This practice is not illegal, and is even being highlighted in classified ads. A recent Craigslist posting for a studio apartment noted that monthly rent would be determined by an on-site auction. While this practice might be gaining steam in Vancouver for the first time, it has plagued US cities with limited housing stock for several years, particularly New York City and San Francisco.

Housing advocates cite bidding wars as a reason to implement stricter rental laws. At present, Vancouver officials are taking no action to curb this practice. Bidding wars have been blamed for worsening Vancouver’s housing crisis, although no studies have investigated the full extent of their effect.

Bidding wars are another way in which landlords are taking advantage of Vancouver’s economic success. Yet, they are just a symptom of deeper issues. The city’s infrastructure, people, and businesses are enticing large swathes of educated workers to relocate there, increasing the value of land in the metropolitan area. This increasing land value is a social product that should be reinvested in the community. Unfortunately, this value is being depleted through rising rents that are far outpacing wages.

If Vancouver will not take steps to eliminate bidding wars, it should at the very least take steps to increase residential space. Government officials should consider implementing a land value tax (LVT).

American political economist Henry George argued that taxing productive activity discourages production. Taxing buildings punishes those who build vertically, and results in a reduction in urban housing and worksites. To encourage more construction, he proposed abolishing the building taxes altogether, and shifting all taxes onto land. He argued that land is our common inheritance, and we can achieve justice by sharing the revenue from land.

Photo: Caelie_Frampton 6th ANNUAL WOMEN’S HOUSING MARCH via photopin (license)
Photo: Caelie_Frampton 6th ANNUAL WOMEN’S HOUSING MARCH via photopin (license)

There are many nuanced arguments in favor of this strategy. George argued that sufficiently-high land value taxation would actually encourage landowners to develop residential and commercial space, adding value for others, in order to pay the land value tax as well as provide themselves a respectable return. This additional housing inventory would ultimately reduce housing costs. But also the increase in construction and development would create a high demand for labor, thereby reducing unemployment and improving wages.

Given the extreme nature of Vancouver’s housing market, officials should move quickly to keep Vancouver a place where all people can afford to live and live well. The Vancouver mayor and council can be contacted online, over the phone, in person, or using a mobile app, details of which are listed at vancouver.caRead more on the problems of bidding wars and speculation.

 

Featured image: James Wheeler Granville Island Bridge via photopin (license)

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How Optimal Taxation Can Create a Better World

optimal taxation panel 2016

Earthsharing.org organized BIL: Oakland 2016 Recession Generation on July 9th in Oakland, California. The Optimal Taxation Panel participants were Yoram Bauman, Joshua Vincent, Fred Foldvary, Robin Hanson, and Kris Nelson. The panel moderator was Edward Miller (bios below).

The discussion revolved around the essential role that natural phenomena play in all economic activity and how to fairly treat these resources vis a vis taxation. Resources like land, minerals, access rights, the electromagnetic spectrum, domain names, and atmospheric carbon were discussed.

Optimal Taxation Panelists:

Yoram Bauman: PhD environmental economist and “stand-up economist.” Bauman is the founder of the revenue-neutral carbon tax proposal (I-732) that will be on the ballot in Washington State in November 2016. He has been working on environmental tax reform since his 1998 co-authorship of Tax Shift, which helped inspire the revenue-neutral carbon tax in British Columbia. Bauman also co-authored the Cartoon Introduction to Climate Change and the two-volume Cartoon Introduction to Economics. He lives in Seattle with his wife Laura and their two-year-old daughter.

Joshua Vincent: Executive Director at the Center for the Study of Economics since 1997. Vincent has consulted for more than 75 municipalities, counties, NGOs and national governments. He works with tax departments and elected officials to restructure taxation to a land-based system, and has testified as an expert witness on the impact of land value taxation. Vincent is the editor and publisher of Incentive Taxation, a journal on land value taxation.

Fred Foldvary: Board member at 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, with Dan Klein, The Half-Life of Policy Rationales. Foldvary’s areas of research include public finance, governance, ethical philosophy, and land economics.

Robin Hanson: Associate Professor of Economics at George Mason University and a research associate at the Future of Humanity Institute of Oxford University. Hanson is known as an expert on idea futures and markets, and he was involved in the creation of the Foresight Institute Foresight Exchange and DARPA FutureMAP project. He invented market scoring rules like LMSR (Logarithmic Market Scoring Rule) used by prediction markets such as Consensus Point (where Hanson is Chief Scientist), and has conducted research on signalling.

Kris Nelson: Principal at Phoenix Finance, which provides access to capital without collateral to small businesses and startups. Nelson also serves as Legislative Director of Common Ground OR-WA, a non-profit organization that promotes a more democratic treatment of land and natural resources. Previously, Nelson worked as a Principal at Genomics Consulting, where he helped launch a clean technology venture capital firm. He holds a Master’s degree in Business Administration from Willamette University and a Bachelor’s degree in Journalism from Evergreen State College.

Edward Miller: Co-organizer of the Recession Generation event. Miller is the Administrative Director of the Henry George School of Chicago, a non-profit educational organization which provides educational opportunities to the public on the topic of classical political economy. He serves as a board member for the Center for the Study of Economics. Previously, he has worked with the Institute for Ethics and Emerging Technologies.

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The Norwegian Model: Managing Resource Wealth for the Common Good

Natural resources play a foundational role in a country’s economic development. As natural commons, they provide economic assets via space, raw materials, and energy that can be used to create other assets and opportunities in the form of industry and wealth. But because these commons are finite, their mismanagement often leads to a boom and bust pattern of economic development. Norway, however, has set a solid example for how to properly manage natural resources, including one of the most sought after – fossil fuels.

In the 1950’s, European countries began to speculate that vast oil and natural gas deposits lay under the North Sea. This theory was confirmed in 1959, when the largest natural gas field in Europe was discovered in the Netherlands. Excitement grew around potential future discoveries, particularly in the area of Norway’s continental shelf. Anticipating the discovery of reserves, the Norwegian government passed legislation in 1963 stating that the State owns all natural resources. The legislation also stated that the government is the only authority that can grant licenses for exploration and production. This legislation put Norway’s natural commons firmly into the hands of its citizens.

This turned out to be smart planning. In 1969, oil was discovered in Norway’s continental shelf. Oftentimes, nations turn to free-market economics, an approach that consistently fails to allocate the wealth derived from natural resources efficiently. Instead, Norway sought a different strategy to ensure that this natural commons provided long-term wealth to the entire country.

Initially, the Norwegian government gave private energy companies limited licenses to explore and tap Norway’s reserves. These companies can be credited with developing the country’s first oil and gas fields. However, in an effort to maximize national revenue, in 1972, the government moved quickly to create a government-owned petroleum company called Statoil. From that point forward, any foreign energy company granted a license was required to split 50% of the work with Statoil.

photo credit: L.C.Nøttaasen Yme platform via photopin (license)
photo credit: L.C.Nøttaasen Yme platform via photopin (license)

Norway’s fast action prevented the privatization of its natural commons and secured its oil wealth for its citizens. The government credits oil wealth with the creation and sustainability of their welfare state and support of macroeconomic development during downturns in the petroleum industry.

In the 1990’s, the government created the Government Pension Fund – Global (GPFG), informally known as the Norwegian Oil Fund, as a place to deposit all excess oil profits. The value of the fund stands at a staggering $850bn, and officials estimate that sum will surpass $1 trillion by the end of 2019.

So what has Norway been doing with all this money? Well, not much. And that is the point. The government capped annual withdrawals at 4% in order to prevent hyperinflation and to secure a surplus of money to survive in a looming post-fossil fuel world. This decision has proven wise recently as a drop in oil prices has moved Norway to declare its petroleum industry in crisis.

Norway’s natural commons management is a shining example of the prosperity that results when revenue from national resources is shared by all citizens. Norway has used this wealth to create social and economic programs that help each citizen. This wealth has also built a massive pension fund that can support the country during periods of economic hardship. It is a powerful equalizing tool not often seen in nations rich in oil and other natural resources.

photo credit: Jean-Paul Navarro The Grand Harbor via photopin (license)
photo credit: Jean-Paul Navarro The Grand Harbor via photopin (license)

Some economic scholars draw comparisons between Norway’s approach to natural commons (referred to as “petro populism”) and the theories of Henry George. Henry George, an American economist and political theorist from the 19th century, postulated that land is social commons, and that the profits drawn from land should be shared by all citizens via the use of land value taxation (LVT). In the case of Norway, they have taxed the revenue drawn from oil rich land at the very high rate of 78% and both redistributed and saved that revenue. In addition, they have carried over such sustainable thinking towards other natural resources, such as lumber and fisheries, and seen the same successes as with petroleum.

Resource-rich nations should take lessons from Norway on how to fully profit from and intelligently invest revenues from the utilization of our natural commons. The discovery of lucrative resources can inevitably lead to a boom and bust economy. Avoiding that requires managing those resources appropriately and wisely, as the Norwegians have, by using wealth derived from them to create an equitable and healthy society for all.

But all nations, whether “resource-rich” or not, have at least one socially-created resource of enormous value which can be tapped: the rental value of land.

Audio podcast on Norway and it’s oil management system. Courtesy of NPR online.

Featured Image: photo credit: arbyreed  via photopin

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Kim-Mai Cutler – The San Francisco Bay Area: A Modern Housing Crisis

This past July, Earth Sharing organized an event in Oakland, California entitled: BIL Oakland 2016: The Recession Generation. The aim was to help millennials navigate the uncertainties of economic life in the aftermath of the financial crisis. One of the speakers at the event was Kim-Mai Cutler, a technology reporter and columnist for TechCrunch, best known for her work on the intersection of technology and culture in the Bay Area. Cutler has worked for Bloomberg, VentureBeat, and the Wall Street Journal.  In the talk below, she discusses the insights of history on the Bay Area housing crisis.


Special thanks to Robert Schalkenbach Foundation, BIL, Cohousing California, The Henry George School, Edward Miller, Frank Ortiz, Alex Wagner Lough, Raines Cohen, David Giesen, Alodia Arnold, Christine Peterson, Christy Fair, Patricia Mikelson, Betsy Morris, Nate Blair, and all of the speakers and amazing volunteers! If you don’t see your name added here or at the end of the video, we apologize. Please send us a note and we will add you. We just wanted to release the video as quickly as possible.

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EarthSharing.org on Stanford Radio KZSU 90.1 FM Promoting the Recession Generation Event

WKZSU 90.1 FM Stanford University Radio Interviews EarthSharing.org

 

July 5th, 2016, Edward Miller and Jacob Shwartz-Lucas were invited onto Stanford University Radio to discuss an event they would organize in Oakland a few days later. The event was titled BIL Oakland 2016: The Recession Generation.

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The discussion revolved around the event’s aim of helping young adults to navigate the challenges of living in our harsh economic climate and rapid technological disruption.

Jacob and Edward discussed their motivations for putting on the conference. This included explaining their backgrounds, and what changes they want to see in the world.

photo credit: Jane Says via photopin (license)
photo credit: Jane Says via photopin (license)
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Chinese Investment in US Real Estate Tops $110bn

The lessons of the 2008 financial crisis are quickly being forgotten. That market collapse was precipitated by an extraordinary rise of US land values, which was driven by the emergence of subprime lending on a mass scale.

Prices of residential and commercial real estate are once again on the rise. A major driver of this astounding rebound has been Chinese real estate investment. Chinese investors, seeking promising investments and a way to move their money out of the slowing Chinese economy, have poured $110 billion dollars into US real estate in the past five years. By contrast, the Chinese real estate market, which is putting a drag on the Chinese economy, has been called by many the largest land bubble in history. Chinese investments in the US market are inflating housing prices across the country and placing home ownership further out of reach of many Americans.

Over the past several years, Chinese investment in commercial properties has captured headlines. For example, in 2015, the Anbang Insurance Group purchased the Waldorf Astoria Hotel for $2bn and attempted to purchase Starwood Hotels for $14bn. However, the vast majority of Chinese speculative investment has been in the residential market, to the tune of over $93bn. Cities with the most rapidly rising housing costs–San Francisco, New York, Los Angeles, and Seattle–are popular markets with Chinese buyers. But as housing stock across the country continues to gain value, buyers are now turning their speculative intents to Chicago, Miami, and regions of middle America.

Chinese buyers are eager to speculate in the US real estate market. Not only because they see a lucrative investment opportunity, but because of concerns about the slowing Chinese economy. As the economy continues to slow and the value of the Yuan falls, citizens are eager to move wealth abroad and into dollar-backed assets, particularly in the form of land speculation. Despite efforts by the Chinese government to encourage domestic investments, speculation in US real estate by Chinese nationals is expected to exceed $200bn over the next 5 years.

photo credit: IMG_0953 via photopin (license)
photo credit: IMG_0953 via photopin (license)

When people speak of rising real estate prices, they certainly aren’t talking about bricks, they are talking about land. As a consequence of all this land speculation, Americans are finding it harder to obtain affordable housing and commercial space, and not only because of rising prices. Close to 70% of Chinese buyers pay cash, which is more appealing to sellers because deals can close much faster. This puts US residential buyers who require a mortgage at a disadvantage. Bidding wars with deep-pocketed foreign speculators also has the effect of pressuring US buyers with more limited liquid assets to sign off on larger mortgages than they can financially handle.

Prospective home buyers are not the only ones feeling the crunch. As homeownership becomes more unaffordable, the number of people in the rental market increases, driving up rents across the country. In 2016, rent increases are expected to outpace wage increases by about one percentage point. Faster than the general rate of inflation.

The periodic bubbles in real estate markets are a symptom of this rush to pocket the rising value of land, whether by foreigners or citizens. So far, the United States is not taking steps to curb either domestic or foreign speculation in real estate. Instead, Congress is going in the opposite direction by encouraging foreign “investment” in US property.

However, other countries are taking a stand. Hong Kong and Singapore have instituted a 15% tax on properties purchased by foreign buyers, a move that has slowed the rise in housing costs. Citing decreasing affordability of homes, Australia has instituted a similar tax. The Australian government also used legal means to intercede in the attempt by Chinese investment group Dakang Holdings to purchase the Kidman Farm empire, which controls 1.3% of the Australian landmass.

photo credit: Lavender Valley 2407 via photopin (license)
photo credit: Lavender Valley 2407 via photopin (license)

An alternative to such measures, which numerous eminent economists recommend, is a tax on land values. Land value taxation (LVT) is a twist on conventional property taxation, whereby improvements to the land are not taxed, but the land itself is taxed. Proponents argue that we ought to shift as much taxes as possible away from productive activity and onto land values. While other strategies would serve to limit foreign land purchases, taxing land values would actually halt idle landholding in general by making the speculative ownership of raw or underdeveloped real estate unprofitable.

When markets are operating correctly, profits are simply a return for productive activity, not a windfall that is achieved by excluding others as with the landed gentry in the feudal era. With LVT in place, Chinese or other foreign investors who wanted to make money by purchasing land would have to actually develop that land. They would need to attract residential or commercial tenants by providing desirable amenities and reasonable rents, and shouldering the risks involved in any sort of productive activity.

This would result in a growth of construction activity and an increase in US housing supply. Increased construction activity and decreased cost for commercial and residential real estate would stimulate the rest of the US economy, simultaneously decreasing unemployment and raising wages.  In effect, taxation of land values would convert the current Chinese desire for US land into a sustainable means of growth for the US economy.

Featured image photo credit: Light River via photopin (license)

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What if you lived rent-free?

Imagine if you did not pay rent for an apartment, or taxes on your wages. Think of all the excess income you would save, invest, use to take a vacation, learn a new skill, spend on an altruistic project, etc. What would you do with the money?

 

Beach Sunrise Punta Cana via photopin (license)
Image Source via photopin (license)

Some people actually have this luxury. They don’t have to pay rent or a mortgage. They own their apartment building, free and clear, and the property taxes they pay are minuscule. The value of the land under their New York City apartment building just goes up and up in value. As this happens, they are able to charge their tenants more rent.

Good for them, right? But do you know what that means for you? Your rent goes up and up too. It’s not like the landlord really had to renovate your apartment to charge you more. It’s not that they had to build more units to get more rental income. It’s not that they necessarily worked any harder than you. The value of their land just keeps going up, and that means that you are subsidizing their increasingly luxurious life style.

 

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photo credit: Donald Trump via photopin (license)

They have money to see a Broadway show and vacation in France precisely because you have to struggle to pay the rent. Wouldn’t it be fairer if everyone paid rent for the space they claimed? If they paid taxes on the rising value of their land, we could use that money to offset taxes on working and exchanging.

 

2016 Commencement via photopin (license)
Image Source via photopin (license)

Imagine if you did not have to pay taxes anymore, and instead, when your landlord collected your rent, they covered those taxes for you with the rent money? It’s not like you would pay any more rent either. In fact, you would likely pay less.

What would you do with all the taxes you saved? What vacations would you take? What new skills and educational opportunities would you seize? What worthy causes would you give to? What Broadway shows would you see? This would all be possible if we lived in a world where land was the primary source of public revenue.

 

Cover image: Image Source via photopin (license)

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Can Tiny Homes Solve San Francisco’s Housing Crisis?

“Tiny homes,” residential structures that typically measure between 100 and 400 square feet, have been touted by some as an elegant solution to de-cluttering one’s life and embracing a minimalist lifestyle. Examples have graced the pages of every prominent home and garden magazine, and HGTV has three (yes, three!) shows dedicated to tiny homes. In San Francisco, housing activists and city planners are now looking to the tiny home movement as a potential tonic to the city’s worsening housing shortage.

With a vacancy rate at 0.3% and a population influx to the Bay Area to the tune of approximately 90,000 people per year, San Francisco, known for its stunning Victorian homes and hilly streets, is running out of housing. Chelsea Rustrum, a consultant on the sharing economy, believes that tiny home villages have the potential to increase housing inventory at a greatly reduced cost. Compared with the $1000-per-square-foot cost for traditional construction, the per-foot cost of constructing tiny houses falls between $200 and $400. Eager to develop the first tiny home village in the San Francisco Bay Area, Rustrum has assembled a team of 10 people and is scouting for a plot of land. However, she has run into a problem that plagues most new housing initiatives – zoning.

The tiny homes that Rustrum and her colleagues seek to build violate a number of common zoning rules as set by the International Code Council, a domestic trade group. Most notably, they are below the minimum square footage necessary to be classified by as a residence. Rustrum hopes to overcome such zoning obstacles through negotiations with city governments, but changes to zoning laws have become a flashpoint in the debate over the housing shortage and development in the Bay Area. Homeowners consistently try to stymie new construction because they assume that an increase in population density would decrease their own property values. (In actuality, the opposite effect has been shown to occur: increased population leads to increased land values.)

 

Tiny Houses via photopin (license)

 

Even if zoning obstacles were overcome, could the construction of tiny home villages truly reign in the careening San Francisco rental market? Eric Fischer, a San Francisco resident, recently analyzed 30 years of rental prices (the median rent for a 1-bedroom apartment having reached an astonishing $3,500) and created a model that explains housing costs in the city. According to Fischer, it would take a 53% increase in the housing supply (200,000 new units) to reduce costs by two thirds. Given that the entire land area of the city is 7 x 7 miles, most of which is developed, tiny home villages do not pose a realistic solution in San Francisco County, because there just isn’t enough unused land to construct them on.

The Bay Area, by comparison, is comprised of multiple cities, some of which have far more available land than San Francisco. However, there is concern over the effect tiny home villages would have in these areas A criticism of proposed tiny homes developments is that, though less environmentally damaging than traditional tract home developments, they still represent a form of urban sprawl. And more sprawl is not something that the Bay Area can handle right now. The area’s burgeoning population is already crushing public infrastructure. Bay Area Rapid Transit (BART), a major transportation system, has $5 billion in unmet capital needs over the next 10 years, and interstate highway commute times are at all-time highs. Any housing solutions that place people further outside of urban centers could add pressure to already strained transportation infrastructure.

 

Nothing Gold Can Stay via photopin (license)
Nothing Gold Can Stay via photopin (license)

 

With this in mind, it would seem that any new housing construction should occur where economic activity is most concentrated: downtown San Francisco. Problematically, downtown areas tend to have the greatest land values, and traditional strategies for construction in the city center tend to be very expensive (using subsidies and eminent domain), politically treacherous (due to entrenched residential and commercial landlord interests), and ultimately ineffective. While tiny home developments might make the area more affordable for a handful of individuals and families, to effectively turn the tide of this crisis and resolve the housing shortage, government officials must take steps to build up housing inventory in urban centers, particularly in downtown areas near the business district. To this end, the city and state must consider a land value tax (LVT).

American political economist Henry George hypothesized that both property taxes and taxes on the value of improvements (structures) discourage new construction, as any residential or commercial development will result in higher overall property taxes. To expedite construction, Henry George recommended eliminating taxes on improvements and shifting the revenue burden towards higher land value taxation (LVT), which would encourage landowners and developers to increase residential and commercial space in order to pay the land value tax while providing them a respectable return as they provide value to others. LVT naturally becomes even more effective wherever land values are higher, such the urban core of cities. Implemented in cities, LVT leads to a substantial increase in both living and working space.

California faces a unique challenge due to the limits imposed by Proposition 13. Overcoming those challenges in the long term would require a difficult–but not impossible–voter-approved constitutional amendment to completely overhaul the property tax system. State legislators as well as regional and city planners would be remiss not to consider the solution of the LVT, which has had demonstrated success in increasing residential space the United States as well as abroad. For the moment, housing advocates have their eyes on Rustrum and her tiny home villages, a pop culture trend that could provide a short-term solution to a steadily worsening housing crisis.

Cover Image: Boneyard Studios. Licensed under a Creative Commons Attribution-NonCommercial 4.0 International LicenseCreative Commons License

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London Congestion Tax Reduces Traffic Pollution While Improving Infrastructure

Is traffic a daily problem for you? Bad news: If you live in a major metropolitan area, chances are that traffic congestion is only going to get worse. The nation’s roads and highway systems are being crushed as Americans flock to urban areas for economic and social opportunities. In the San Francisco Bay Area alone, traffic on some highways has increased over 25% in the past 5 years. With a cost to Americans of $124 billion a year, plus the unquantifiable impact on quality of life, cities must take action to abate worsening traffic congestion. For some ideas on how to do that, they should look to London.

London is a global financial center with a burgeoning population of over 8 million. As London’s economy and population ballooned in the 1990s, so did traffic, earning the city its reputation as one of the most congested cities in Europe. Government officials took notice and hatched a plan to reduce traffic in the city center, boost ridership of the London Tube and buses, invest in public transportation, and improve quality of life. Their solution? A congestion tax.

 

 

Piccadilly Circus via photopin (license)
Piccadilly Circus via photopin (license)

 

Officials in London created a “congestion zone,” which motorists are charged for entering. First implemented in 2003, this tax was introduced at £5 per day and has since risen to £11.50. Resulting tax revenues, amounting to over £200 million in 2008, have primarily been invested in public transportation improvements. The number of public buses has increased, bus routes have been modified to take advantage of reduced traffic congestion, and roads and bike lanes have been improved.

13 years after its implementation, the congestion tax has been hailed as a success. The number of cars entering the city center has plummeted by 34%, traffic speeds improved between 20 and 30%, and bus ridership increased by more than a third.

The benefits of the tax are not limited to improvements in transit times and increased use of public transit; it has also been a powerful tool for reducing the environmental impact of transportation. The tax has reduced CO2 emissions by a total of 100,000 tons annually, cut fuel consumption by 40 to 50 million liters annually, and led to greater than 15% reductions in atmospheric levels of major air pollutants NOx and PM10 levels.

 

Buses and Bikes via photopin (license)
Buses and Bikes via photopin (license)

 

London’s success has inspired other cities to consider congestion taxes. Singapore and Stockholm introduced congestion taxes several years ago, and Beijing and Mexico City are in the planning phases. Efforts to implement congestion taxes in New York City have typically failed due to partisan gridlock, but have gained momentum in recent months.

London’s congestion tax is a powerful example of the positive urban development that occurs when revenue derived from the value of land is invested in public infrastructure. Traffic congestion is largely a consequence of economic growth, which is made possible by a city’s populace and infrastructure. Motorists enter London for economic opportunity. The congestion tax functions as a mechanism by which the city can capture a portion of the wealth earned by non-residents and create the incentives to effectively align self-interest with the public-interest.

A number of economic scholars have compared London’s taxation system with the theories of Henry George. Henry George, an American economist and political theorist of the 19th century, postulated that land is social capital, and profits drawn from land should be shared by all citizens via the use of land value taxation (LVTs). In the case of London, government officials are taxing the use of land by motorists and distributing that revenue to public works projects designed to increase the quality of life for the city’s residents.

As metropolitan areas across the world see traffic congestion worsen rapidly with intense development, a congestion tax is a proven solution worth considering. Not only will traffic decrease, but cities will be able to re-capture wealth generated by its land and use it to improve the city for all.

 

Cover Image: Street Art: Camden via photopin (license)

 

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The UK Can Harness Post-Brexit Foreign Investment for Economic Growth

Since Britain voted to leave the European Union, global markets have dropped and people have begun to prepare themselves for a grim possibility: a world with a less stable Europe. But to foreign investors, particularly those with an eye to real estate speculation, the Brexit vote seems to present a golden opportunity. With the value of the British pound falling to its lowest level in decades, overseas buyers have snatched up London properties at a massive discount, with the consequence of an even more overheated housing market.

Significant currency devaluations can have devastating effects on a country’s economy as the costs of imports and exports fluctuates and the risk of inflation increases. For foreign investors, however, currency devaluations create an opportunity to make strategic purchases within the affected country that would not have been feasible before.

Since a dramatic 12% drop in the value of the British Pound Sterling, investors from Hong Kong, the Middle East, and nations with currencies linked to the dollar have begun to buy property in the United Kingdom. This activity has been concentrated in London, where property sales have increased 38% since the Brexit vote. The percentage of recent purchases that have been completed by foreign investors is unclear, but property investment firm Benoit Properties International and real estate consultants Knight Frank have reported a significant surge in purchases by buyers outside of the UK.

 

Brexit Scrabble via photopin (license)
Brexit Scrabble via photopin (license)

 

Foreign speculation in the London real estate market is not new. As the financial center of the United Kingdom and a rapidly growing metropolis, London’s real estate has generally been a safe, albeit expensive, investment. Between 2008 and 2015, investors purchased £100 billion of property across the city. These purchases mean more than lucrative long-term investment strategies – they provide an opportunity for the wealthy of other countries to move their money overseas, a financial strategy that is becoming increasingly attractive as economies such as China’s falter.

None of this is good news for the average Londoner. Foreign nationals have been buying real estate at a faster rate than UK nationals for several years, a trend which has been credited with causing to the steep surge in housing costs in London. Last year alone, average London housing costs increased 10.6% to $681,500 for a single family home, more than twice the national average, which was itself excessive. Renters especially have felt this squeeze, as rents increased 12.5% in the same time period, reaching a staggering £1,500 per month for a 1-bedroom apartment.

Considering the continuing rise of the tide of xenophobia in the wake of the Brexit vote, it’s important to clarify that foreign investors are not the enemy. Rather, they are driven by an economic and real estate system that makes UK property investments lucrative and accessible. The dearth of opportunities to invest gainfully in growing commercial goods and services industries spurs investors toward land speculation, fostering the housing crisis that is unfolding not only across the UK but worldwide.

 

Brexit tea via photopin (license)
Brexit tea via photopin (license)

 

The UK’s leaders must enact policies to ensure that Londoners have fair access to affordable housing. As it turns out, they have many other countries to turn to for ideas. Hong Kong and Singapore have instituted a 15% tax on properties purchased by foreign buyers, which has slowed the rise in housing costs. Australia has instituted a similar tax, citing decreasing affordability of homes while also legally interceding in the attempt by Chinese investment group Dakang Holdings to purchase the Kidman Farm empire, which controls 1.3% of the Australian landmass.

An alternative to such measures proposed by many economists is the taxation of land values rather than traditional property taxation. While other strategies limit land speculation by foreign investors, taxing land values would actually inhibit all speculative land grabs by making the holding of real estate for that purpose unprofitable. Instead, by making the ownership of idle land prohibitively expensive, taxation of land values would spur construction on prime locations, which in turn would decrease housing costs for all.

If foreign investors wanted to make money by purchasing land, they would have to develop that land with residential and commercial improvements. In other words, they would need to put forth effort and bear risk in order to see any returns, just as business ought to work. This would result in a growth of construction activity, meaning more residential units available at lower prices. In effect, taxation of land values would effectively convert the current foreign appetite for British property into a sustainable means for growing the British economy.

 

Has City of London lost its voice with Brexit? via photopin (license)
Has City of London lost its voice with Brexit? via photopin (license)

 

The movement to leave the EU garnered strong support in part for its assertion that too many UK citizens are being left behind economically in our globalized society. As uncertainty shakes the British economy, that problem will likely get worse. UK leaders must act immediately and decisively, and use the tax system to address the disparities caused by land speculation.

 

Cover Image: Dis United Kingdom [Explored] via photopin (license)

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