Do the Affordable Housing Laws Work?

[Arlington]

The arbitrary nature of determining appropriate use just seems to me to scream litigation. At least with improved properties, you can place a somewhat legitimate tax value.

Appraisers don't do moral value judgments, they do "market value"...the whole process is led by what "the market" is willing to pay for a particular improvement in a particular place. Build a wacky house, and it still costs the same per-sq-ft to build, but the appraiser will knock it down in value due to 'design depreciation'...but always with reference to "the market" and not some policy-maker.

So the only judgment of appropriateness is "is this (more of) what the market wants". The more it is, the more appropriate it is, and the higher its appraised value will be.

If surface parking was crazy valuable, then, yes, land hoarders would find no market incentive to replace it with a building, and our little Libertarian selves would just have to suck that up as a loss. But that's not what's likely to happen.

Today, there's a just-as-arbitrary judgement that a dollar of building should be taxed the same as a dollar of land. Where'd that come from? Of all value-laden assertions, how'd we come up with the idea that the buildings we make should be taxed at exactly the same rate as the land God made?

Really, common sense should tell us that buildings are profoundly *unlike* land, and that since buildings are what civilization "does" we should encourage "doing" by lightening the tax load on it.

 

[HalcyonEra]

Appraisers don't do moral value judgments, they do "market value"...the whole process is led by what "the market" is willing to pay for a particular improvement in a particular place. Build a wacky house, and it still costs the same per-sq-ft to build, but the appraiser will knock it down in value due to 'design depreciation'...but always with reference to "the market" and not some policy-maker.

So the only judgment of appropriateness is "is this (more of) what the market wants". The more it is, the more appropriate it is, and the higher its appraised value will be.

If surface parking was crazy valuable, then, yes, land hoarders would find no market incentive to replace it with a building, and our little Libertarian selves would just have to suck that up as a loss. But that's not what's likely to happen.

Today, there's a just-as-arbitrary judgement that a dollar of building should be taxed the same as a dollar of land. Where'd that come from? Of all value-laden assertions, how'd we come up with the idea that the buildings we make should be taxed at exactly the same rate as the land God made?

Really, common sense should tell us that buildings are profoundly *unlike* land, and that since buildings are what civilization "does" we should encourage "doing" by lightening the tax load on it.

Agree with tax rate of land vs. a building. I will say though that as far as my own house is concerned, the land is valued much higher than my humble abode (which I do not necessarily agree with, but I'm not an appraiser and it could simply be a town thing). That said, cities and towns do have the option to tax residential and commercial at different rates, why couldn't they just start applying a different rate to land?

 

[Arlington]

True. However, you need that tax savings to be equivalent to the loss in ROI if the developer builds affordable housing. Real Estate is not an altruistic endeavor. Maybe it can be done in the form of a subsidy of some sort. But we all know what happens over time to tax funds held for specific purposes, they somehow end up in the general till when general revenues go down and not used for their original purpose.

Gee, you've got a very "statist" view of this--exactly the sort of government-mandated outcomes, Chapter 40 this-and-that, subsidies and guarantees that have proven awful at outsmarting the market and serve only to encourage scarcity, hoarding, and high prices.

Scrap all that. Just incentivize lots and lots of supply-- densification. The value of Land, the market tells us, is location, location, location (transportation and centrality). Tax it heavily and it it won't go away (and spend taxes on more transportation...not cooking up subsidies for housing lottery winners)

The value of buildings is also market-led. Make stuff people like and find highly used/useful and it'll appraise for more. Encourage that by taxing it more lightly.

Relaxing constraints on supply in a big way and taxing land to discourage hoarding of underdeveloped parcels in good locations. That's it. The solution is less micromanaging, less zoning, and more big, gross, long-term incentives to build.

 

[Arlington]

That said, cities and towns do have the option to tax residential and commercial at different rates, why couldn't they just start applying a different rate to land?

They can, but its going to work best if it happens region-wide. One state-level way might be a flat tax on the underlying land in the MBTA district, particularly within X distance of T stations.

 

[HalcyonEra]

I wouldn't consider my view to be statist per se, but realistic. If I am a developer, I want to maximize my ROI. Affordable housing simply does not do that. Luxury does. The cost of building luxury vs affordable structures has embedded fixed costs and then variable ones which creates the level of luxury, if you will. The mark up for providing the "luxury" aspects is much more enticing for investors and hence we do not get much by way of new affordable construction.

 

[Arlington]

I am a VERY strong advocate for land-based tax assessment. There are examples that have proven extremely successful.

I had a hard time Googling up any great case studies--obviously I believe they should be out there--so I'd appreciate any help folks can offer in finding good examples of how differential taxation of land-vs-improvements has worked.

 

[Arlington]

I wouldn't consider my view to be statist per se, but realistic. If I am a developer, I want to maximize my ROI. Affordable housing simply does not do that. Luxury does. The cost of building luxury vs affordable structures has embedded fixed costs and then variable ones which creates the level of luxury, if you will. The mark up for providing the "luxury" aspects is much more enticing for investors and hence we do not get much by way of new affordable construction.

This was well-addressed upthread. In a time of scarcity/hoarding, yes, the preference to only sell to rich buyers is particularly strong. Once the famine ends, your incentive is to produce as much as possible and sell it as widely as possible, as Henry Ford and the Levitts did with cars & split-levels during the last era of unconstrained supply.

Even so, "new" will always be less affordable than "used", but if "new" is plentiful enough, it eventually turns into a glut of affordable used. That's where we want to be. The North End was affordable to Irish once the swells had moved to Beacon Hill, and then affordable to Italians once the Irish had moved to Roslindale and Brookline. Used stock is key to affordability.

OT: When honest-but-poor folks write to Warren Buffett with a sad story asking for a new car so they can get to their job, he refers the request to his sister, who politely declines to give them a new car, but will often make a gift of a quality used car instead.

 

[Matthew]

I get it, but I also think that the parking lot landowner can claim that the parking lot is a necessary use due to the lack of parking in Central Square,

The notion of "necessary use" is itself a government intervention. You are arguing against removing government intervention (land value taxes in place of property taxes) by arguing for more government intervention ('necessary use'), but claiming the opposite. Uhm, what?

Land value taxes don't preclude parking lots. Hey, if parking really is valuable in Central Square, then perhaps that landowner will get plenty of value out of running a surface parking lot. The key part is that the choice is up to the private property owner.

Right now the government puts a heavy hand against redevelopment of such vacant parcels and puts a heavy hand in favor of surface parking no matter the market conditions. That's screwy and only benefits speculators at the expense of everyone else.

 

[HalcyonEra]

This was well-addressed upthread. In a time of scarcity/hoarding, yes, the preference to only sell to rich buyers is particularly strong. Once the famine ends, your incentive is to produce as much as possible and sell it as widely as possible, as Henry Ford and the Levitts did with cars & split-levels during the last era of unconstrained supply.

Even so, "new" will always be less affordable than "used", but if "new" is plentiful enough, it eventually turns into a glut of affordable used. That's where we want to be. The North End was affordable to Irish once the swells had moved to Beacon Hill, and then affordable to Italians once the Irish had moved to Roslindale and Brookline. Used stock is key to affordability.

OT: When honest-but-poor folks write to Warren Buffett with a sad story asking for a new car so they can get to their job, he refers the request to his sister, who politely declines to give them a new car, but will often make a gift of a quality used car instead.

Given the finite amount and scarcity of land, I'm not sure you can correlate the trickle down effect to real estate like you can with commodities. The split craze was a direct result of a burgeoning middle class, which now is increasingly shrinking. I understand that a saturation point will eventually be reached, but the result will likely be exclusionary rich enclaves. Try finding something affordable in San Francisco, or Wellesley for that matter.

 

[bigeman312]

The notion of "necessary use" is itself a government intervention. You are arguing against removing government intervention (land value taxes in place of property taxes) by arguing for more government intervention ('necessary use'), but claiming the opposite. Uhm, what?

Land value taxes don't preclude parking lots. Hey, if parking really is valuable in Central Square, then perhaps that landowner will get plenty of value out of running a surface parking lot. The key part is that the choice is up to the private property owner.

...

Bingo. The highest use does not equal no parking. If parking was so desirable for a lot that an acre of parking brings in as much revenue as an apartment building, the land-owner will choose a parking lot over an apartment building. The bottom line is that the free-market will determine the highest use of the land.

Adjacent to public transit in a city, that is most often NOT surface parking or single story taxpayers. Tax policies are keeping these inefficient uses of space more prevalent than they would be in a land-based tax assessment.

Given the finite amount and scarcity of land...

This is our argument. Land is a finite resource. It should have the highest use. Density is more economically viable in a city, and the choice of land-owners absent government intervention. Density is a way to better use the finite amount of land we have. Density is socially, economically, and health-wise better for an individual. But, density is being discouraged by our current tax policies. Therefore, these tax policies should be overhauled so that we better use the finite amount of land we have.

 

[HalcyonEra]

The notion of "necessary use" is itself a government intervention. You are arguing against removing government intervention (land value taxes in place of property taxes) by arguing for more government intervention ('necessary use'), but claiming the opposite. Uhm, what?

Land value taxes don't preclude parking lots. Hey, if parking really is valuable in Central Square, then perhaps that landowner will get plenty of value out of running a surface parking lot. The key part is that the choice is up to the private property owner.

Right now the government puts a heavy hand against redevelopment of such vacant parcels and puts a heavy hand in favor of surface parking no matter the market conditions. That's screwy and only benefits speculators at the expense of everyone else.

I am playing devil's advocate and claiming necessary use as a defense to the label of under-use that the tax authority may use. There is a lot more at play than simple taxation and policy. Nimbyism and zoning are two 800 lb gorillas waiting to interject at all times.

 

[Arlington]

I am playing devil's advocate and claiming necessary use as a defense to the label of under-use that the tax authority may use. There is a lot more at play than simple taxation and policy. Nimbyism and zoning are two 800 lb gorillas waiting to interject at all times.

The taxing authority isn't going to judge uses as "over" or "under" or "necessary" or "unnecessary". It is just going to judge improvements for their market value (what they'd sell to the next buyer for), and encourage adding to that store of value by taxing it more gently.

For all we know, the last couple of surface lots in Central Square might skyrocket in their daily rates and so have a market value sufficient to "cover" the carrying cost of the land underneath. And that's OK.

But we know for sure that there is a glut of surface lots in Central (at Prospect @ Bishop Allen) because they don't come anywhere close to filling up. Empty spaces will have a low appraised value. Further, we know that building is "too expensive" (regulatorily and future-tax-wise) that developers prefer to hoard an entirely condemned-but-undemolished building nearby, waiting either for government action or for some more-desperate (or luxury) buyer to come along. De-zoning would end that paralysis and scarcity.

The proposed solution to both NIMBYs and Zoning is to allow builders to negotiate cash settlements with direct abutters. Original Ellickson papers on this span from 1973 to 1991. Recent update from Mises Institute.

If a developer could pay you cash for your lot (as if I were buying you out of all its useful value...except you'd get to keep using it), it'd look a lot like what's happening at the municipal level with the Wynn Casino paying off nearby towns. Pretty soon we'd know what the "going rate" was for shadows, smells, and crowds and whatever else NIMBYs want to concoct, and the developer could/would be negotiating market settlements, rather than both sides acting indirectly though zoning boards.

 

[HalcyonEra]

The taxing authority isn't going to judge uses as "over" or "under" or "necessary" or "unnecessary". It is just going to judge improvements for their market value (what they'd sell to the next buyer for), and encourage adding to that store of value by taxing it more gently.

For all we know, the last couple of surface lots in Central Square might skyrocket in their daily rates and so have a market value sufficient to "cover" the carrying cost of the land underneath. And that's OK.

But we know for sure that there is a glut of surface lots in Central (at Prospect @ Bishop Allen) because they don't come anywhere close to filling up. Empty spaces will have a low appraised value. Further, we know that building is "too expensive" (regulatorily and future-tax-wise) that developers prefer to hoard an entirely condemned-but-undemolished building nearby, waiting either for government action or for some more-desperate (or luxury) buyer to come along

Fair enough. But go and propose building a 50 unit section 8 building on one of those lots and you will quickly see exactly how liberal the neighborhood is. The point is, encouraging development and especially affordable housing is not an easy policy to implement, especially in a provincial area and there is always some (not so apparent) reasoning behind the regulatory rules in place

 

[Arlington]

Fair enough. But go and propose building a 50 unit section 8 building on one of those lots and you will quickly see exactly how liberal the neighborhood is.

I am totally against mandated levels of affordable supply--they're no more helpful than telling a sick guy that he should bathe in ice to keep his temperature down. And upthread, I don't condone NIMBY fears of outsiders, but telling them they've got some kind of "mandate" to take 40-whatever housing is needlessly coercive and provocative.

Prospect @ Bishop Allen should be a huge luxury rental place, stuffed to the gills with Googlers and Biotech types. As big as possible. It'd take pressure of housing prices in Somerville short term (check out riders on the 91 Bus and bikers riding parallel) and add to long-term supply.

Or maybe an office tower. Whatever the market demands, because the goal here is to break the back of a market of scarcity that encourages hoarding.

They say the best time to plant a tree is always 5 years ago. The second best time is now.

The best time to build housing is 20 years ago....'cause it'd be on the market today as a slightly tired-but-affordable supply. The second best time is now--even if it, today, looks too luxurious to be considered affordable, it is 2035's affordable supply.

OT: I've worked for several non-profits in housing: Habitat for Humanity and another that helped tenants in DC buy their building from their landlord (DC law gives tenants a right-of-first-refusal to form a co-op when their landlord moves to sell...a great law we should have in MA) I'm a true believer. But everywhere the problem is that the "ins" constrain the supply of housing for "outs" of every income class. The universal solvent is unconstrained supply.

 

[Matthew]

Nimbyism and zoning are two 800 lb gorillas waiting to interject at all times.

Nimbyism and zoning are precisely the examples of the government intervention that I wrote about earlier.

And neither of them are forces of nature from on high. They're both artifacts of human behavior. Just like our current structure of property taxes.

Zoning didn't even really exist, a century ago.

Honestly, I think changing the structure of property tax is probably a harder political lift than changing zoning. The latter sometimes happens.

The best time to build housing is 20 years ago.... The second best time is now

LOL! I almost exactly wrote this line in a private e-mail yesterday.

 

[underground]

Zoning didn't even really exist, a century ago.

A century ago in a pre-zoning world, barely anyone could afford a mortgage and Jacob Riise was taking pictures of the results, so I don't know if zoning is really the number one issue. You look back at what's worked in the past (1910-1980) -- block grants, GI bill, government backed loans, etc -- you can't discount the financing aspect. Those are all things that went away or were hamstrung in the 80s/90s.

 

[Matthew]

Oh, that was just to point out the ephemeral nature of such things as zoning. They're not set in stone, eternities laid out by the gods.

Yeah, I agree that zoning is not the cause of all problems. At the time, it was seen as a solution. The problem for us is that they thought of zoning as a solution to the 'problem' of different races of people mixing together. Progressives of that era were not always the most wonderful of people. Okay -- not all were like that. But a lot has changed in a century and zoning remains a crude, obstinate tool that doesn't seem to produce results that anyone really likes. Can you even name a generally likable part of Boston that was developed after the 1950s zoning code was instituted? From an urban life standpoint, it seems we keep on subsisting on the remains of 18th and 19th century Boston.

 

[HalcyonEra]

The problem with zoning in general is that it is frequently outdated shortly after implementation, overly complex or too simple, with not enough overlay districts which makes many properties (usually industrial) languish for years until there is either a variance granted or the city/town rezones an area which is usually a huge pain in the ass. Unfortunately we are not playing Sim City.

 

[datadyne007]

Well I totally jinxed myself by talking about how One Webster is affordable mid-range living in Chelsea. Came home today to a notice in my door announcing a $1 mil upgrade, moving the fitness center & getting new equipment, building a "designer clubhouse w/ wifi lounge" and putting in a f-ing pool.

Letter says "One Webster will become the premiere community in Chelsea" - a clear dig at One North. FML. Can't wait to find out how much the rent goes up.

What's even crazier is that they're doing the lobby renovation & fitness center relocation and designer clubhouse in a matter of 2 months. The pool will be done for summer.

 

[Oakley]

Well I totally jinxed myself by talking about how One Webster is affordable mid-range living in Chelsea. Came home today to a notice in my door announcing a $1 mil upgrade, moving the fitness center & getting new equipment, building a "designer clubhouse w/ wifi lounge" and putting in a f-ing pool.

Letter says "One Webster will become the premiere community in Chelsea" - a clear dig at One North. FML. Can't wait to find out how much the rent goes up.

What's even crazier is that they're doing the lobby renovation & fitness center relocation and designer clubhouse in a matter of 2 months. The pool will be done for summer.

Isn't the luxury market saturated, according to the information and articles I've read?