Movin’ On Up: A Winning Strategy For Housing And Prosperity

Well we’re movin’ on up,
To the east side,
To a deluxe apartment in the sky.
Movin on up,
To the east side.
We finally got a piece of the pie…

We Can Have it All

Image result for paris buildings
Typical Parisian architecture in the 7th arrondissement.

Who says that a big house surrounded by nature can only be found in the country? Do you have to sacrifice high wages and the convenience of city life for some peace and quiet?

We want everyone living in cities to have space, views, and creature comforts. This sounds like a pipe dream, but it isn’t. To house more people without displacement, it is possible to stimulate the construction of new affordable housing and guarantee existing residents at least the same size home for no more than their current rent.

Paris, for instance, is one of the densest cities in the world. It’s also arguably the most beautiful. They do not have many skyscrapers. Instead of capping the height of buildings at 2 stories, as San Francisco does, Paris consistently has 6 story buildings. Whatever a city’s needs are, and however tall people feel comfortable building, rapid construction is not an external physical constraint.

We’ve been building tall stuff for centuries, and construction technology has only become safer, faster, and more modular. Chinese company Broad Sustainable Building has broken numerous records with its prefabricated construction, completing a 15-story hotel in 48 hours and a 57-story complex in just 19 days. With the right economic incentives, this technology could improve faster even as it becomes more sustainable. Necessity is the mother of invention and if there is one thing that the San Francisco Bay Area has in spades it’s the ability to take innovative ideas and run with them.

But skyscrapers alone do not improve density. There are tall buildings everywhere that sit empty for much of the year. What’s more, landowners in the urban core won’t build if they can coast along on the increases in value of their land being generated by all of the activity around them. Their lot becomes worth more and more simply because of location, so there’s little incentive to use land to generate as much rent as possible. There is really only one way to make sure that urban core landowners actually improve the real supply of housing for everybody and thus lower market rents throughout a city. There must be a strong incentive to use land and buildings for people’s needs.

In Brief

  • Strong Cores: Restrict Land Value Tax to the urban core as a transitional measure.
  • Reduce other taxes such as sales and wage taxes in and outside the core.
  • Freeze the rent of urban core renters.
  • Movin’ On Up: Offer a free upgrade, in terms of location, unit quality, and cost, for those whose building is replaced.

The Transition to a Winning Solution

Land Value Taxation is a proven and sorely needed policy. If you need a primer, start here. With LVT in place, landowners have to use their land productively to cover the tax.  Rather than construct luxury units to be held vacant as a store of wealth, they are going to build sites for rich, middle class, and poor renters alike that actually generate rent. Right now, new development in the urban core simply spurs new speculation, and new development outside the urban core is either met with fierce resistance or it doesn’t happen at all.

In New York, Manhattan’s Upper East Side now sees a huge proportion of apartments left vacant for most of the year. According to the New York Times, about one in every 25 Manhattan homes has an owner or renter who lives there less than two months of the year, and the number of absentee owners and renters grew more than 70 percent between 2000 and 2011. Ownership of this space in the urban core is being used as an investment by the wealthy all around the world, while local residents are pushed out of the city.

Photo: smith_cl9 East River Esplanade, Yorkville via photopin (license)

In the long run under an LVT, city centers become more accessible to all. The problem with LVT is not the end result but that without a slow transition, it too could temporarily push poor people toward the periphery.

Freeze Rent and Free Apartment Upgrades

To get around even the temporary downsides of LVT, a sensible and politically feasible solution would be to restrict the tax to the urban core, freeze the rent of all urban core residents, and guarantee them a new better and more centrally located home if their building is replaced. Heck, we’ll even pay their moving costs. This will stop the banishment without turning newcomers away.

For renters and newcomers alike in the SF Bay Area, this will mean an enormous new supply of housing in the city center. When housing is no longer in such short supply, landlords won’t be able to charge such exorbitant rents. Less disposable income will be lost to rent, and young tech industry employees can rest assured that they are not creating gentrification and displacement.

Here’s a table showing how key players will be affected by such an Urban Core Land Value Tax policy, coupled with a few other transitional measures:

Landowners Outside the Core

  • No new proposed subsidized housing in their communities
  • Lower taxes
Urban Core Landlords & Developers

  • Lifts on zoning requirements
  • Land values increase faster than the tax
  • LVT will offset income and sales tax
  • Bigger workforce, less pressure on wages
Renters Outside the Core

  • Much greater supply of housing near their jobs
  • Lower rents as supply in the core increases to satisfy demand
Urban Core Renters

  • Rent freeze
  • Possibility of upgrade
  • Keep their community

Among those worried about higher taxes on land are suburban and peri-urban NIMBY (not in my backyard) landowners, and they are the source of many uninformed and polemical attacks on Land Value Tax and those who would seek to get rid of Prop 13. They are a barrier to the system we need, but they have legitimate needs too. It has to be made clear that these people will pay the same taxes or less and that they won’t be forced, by this measure, to adopt new zoning laws.

In fact, all of the people they may currently want to keep out of their single-story neighborhoods will stay out, not merely via zoning laws and blocks on subsidized housing, but because living in the urban core will become possible again. Everyone will flock there. These outlying communities can be run however local residents see fit, and the increase in the supply of real housing in the city centers will reduce the push to build affordable housing in these neighborhoods. Pressure will be taken off the periphery.

Savings for Everyone, Everywhere

In addition, NIMBYs outside of the urban core could actually pay less tax than they currently do, even under Prop. 13! This is because land in the center of the city is exponentially more valuable the closer it is to the urban core. Outlying landowners will see a drop in what they pay in taxes, in most cities, under LVT. However, if it’s salient to these owners that an Urban Core Land Value Tax will be restricted to the core, outlying land owners will not be affected. In fact, their tax bills would probably go down. One reason for this is that the city would be enabled to eliminate sales and wage taxes with the revenue obtained from taxing the value of the land in the urban core. It might even be possible to offer a rebate on federal income taxes. Everyone will want to flock to the urban cores for these reasons, and this will increase land values and the revenue it generates, even more.

 

st_theheightsb_f

With a radically greater supply of housing and business space, renters will gain leverage and everyone’s taxes will be reduced. It’s a win-win, even for the property developers who want to build higher but are prevented from doing so. As long as the buildings are safe and conform to zoning, there is no reason why this should not be implemented. If it makes it more politically feasible, the urban core land value tax can be slowly raised as opposed to being done all at once.

SF’s Historical Barriers to Housing

The Mission Yuppie Eradication Project began in the summer of 1998, encouraging the destruction of property of dotcom-era newcomers to the Mission District. Photo: Found SF

Kim-Mai Cutler, writing for TechCrunch in 2014, described how the “formidable permitting process” in San Francisco is a product of tenant action and environmental movements over the past 50 years.

“Even back in 1967, thousands of Latino residents in the Mission — the heart of the gentrification battle today — organized and convinced the city’s Board of Supervisors to vote down an urban renewal program in the neighborhood. They saw what happened to the Fillmore — once the “Harlem of the West” —when the city’s re-development agency razed it, displacing tens of thousands of black residents and the businesses they had created after World War II.

To this day, there’s distrust and fear that the same thing will happen again, especially if it’s carried out by private developers. Advocacy group Causa Justa has been documenting this displacement through Census data, noting that the Mission has lost 1,400 Latino households while adding 2,900 white households between 1990 and 2011. In the same time period, Oakland lost 40 percent of its black residents.”

In 1986, a resolution was enacted that set annual limits on new commercial real estate space. Cutler highlights the side effect of this preservation movement as a barrier to housing for all. The city has added 1,500 units per year for the last 20 years, while between 2010 and 2013 alone the population grew by 32,000.

What about the eyesore of tall buildings? A more consistent use of the land — say a limit of six stories like Paris versus the height limit of two stories (see image below) — would allow SF to accommodate a lot more people at more affordable rents. This will undoubtedly be the solution in certain areas of the city where buildings are more vulnerable to earthquakes and other considerations.

Map of San Francisco’s building height limits. Yellow represents a two-story limit.

 

Luxury Apartments for All!

Though this article is focused on SF, the same key insights apply to other cities as well. In essence, the idea is that if you’re a renter somewhere in an urban core, you are either going to keep living there at the same rent, or (if your building is demolished) be moved into a much nicer building. Your rent won’t go up, and you’ll either live on the same lot or move on up closer to the center. This would not be a scheme to force all the low-income people into the same shoddy inner-city housing, and they wouldn’t be singled out or ridiculed for receiving one of these apartments.

It would be a bona fide upgrade and sustainable means of protection from erratic forms of displacement and gentrification. Note, that this is a slightly different conception of the idealized end-stage Georgist model of housing where the market is flooded with centrally located supply and the lowest income residents live only slightly outside the core. It’s also not the YIMBY(yes in my backyard) ideal of “Build Baby Build” –anywhere and everywhere. This would only affect urban cores and would leave other communities alone. There would a boom in housing for all, not just the rich, and not just existing privileged residents. Everyone could put down their pitchforks and get along.

We all have a right to space. We all have an equal right to the social value that we collectively create in city centers, with all of their passion and innovative dynamism. Here’s a realistic and economically sensible way to achieve that.

Featured photo: ShanePix Fly with me! via photopin (license)

Facebooktwittergoogle_plusredditpinterestlinkedinmail

2 thoughts on “Movin’ On Up: A Winning Strategy For Housing And Prosperity

  1. For what it is worth, I am not supportive of creating a multi-zoned implementation of land value taxation. Enormous savings would be experienced by exempting all property improvements from the tax base as quickly as possible. As the studies performed by the Center for the Study of Economics show consistently, between 87-80% of all owners of residential property would experience a reduction in their property tax. The savings would increase over time as the speculation in land is eliminated and the rental value of residential lots is subjected to greater competitive pressures.

    It is unclear to me what is meant by “freeze the rent of all urban core residents.” A significant tax on land values (i.e., on land rent) will lower land prices and stimulate the development of new housing units (providing zoning permits mixed-used development). Apartment “rents” will come down in response to the increase in the supply of new rental housing units.

    In many urban centers experiencing renewed demand for housing, lower and moderate income households are facing financial hardship when property is reassessed under current property taxation. Moving to LVT would have only marginal effect on these property owners. To prevent displacements of residents from neighborhoods in which they have resided for decades , the fairest solution is a “circuit breaker” approach that allows the owner to apply to have the annual tax payment capped based on some formula to determine affordability. The owed but unpaid amount of tax obligation would accrue as a lien against the property to be paid at time of resale or transfer of ownership via inheritance.

    And, to “guarantee them a new better and more centrally located home if their building is replaced” is an idea that sounds good for existing renters but has the difficulty of where people moved to during the time between when the building they live in is condemned and when the new building is finished and ready for occupancy.

  2. Due to time, I only scanned this article. Its aims are excellent. However, I think there would be a problem with a rate differential at the urban core, no matter how good and socially useful the desired outcome. I believe there is an established “uniform fairness across the board” ethic with property tax administration, such that all parcels within a taxing district pay the same tax rate and are assessed at the same percentage of market value using the same methodology. I think this is partly to eradicate any possibility of appraisers within assessors’ offices accepting bribes to be more lenient with certain owners’ properties, which probably happens anyway, but at least now it is clearly illegal under the ethic of “uniform treatment of all parcels across the board” with regard to appraising technique and tax rate applied. Of course the well-heeled can hire lawyers and appraisers to complain in court, but again the judge’s decision has to be based on some objective evidence of bias that violates the uniformity principles. And I think this is a good thing, so I would support trying LVT by an approach different from this one. Also who is going to define at which streets and blocks the “urban core”
    begins and ends? That would also be endlessly disputed, IMO. But basically core owners will simply argue that their higher tax rate unfairly singles them out for severe financial penalty by lowering their parcels’ values due to the higher tax rate imposed on them. And I think they would be right.

Leave a Comment