In this era of heightened awareness of social justice, it is important that we keep focused on those things that directly affect our ability to raise a family and keep them safe while pressuring institutions toward change.
Most of us are aware that half of all renters in the U.S. spend more than 30% of their income on housing but many of us do not know that many renters pay over 60%. So, if you live in Manhattan and earn less than $375,000, you cannot afford (and may not qualify to rent) an apartment going for $7,500 per month. Rental housing operators multiply by 50 the cost of a rental unit you are interested in to see if you earn enough to qualify.
Why do landlords get these rents?
Answer: Limited supply and a dysfunctional tax system that favors the landowning class. It is a reasonable question to ask first how about we increase supply? If you were a housing developer with developable land and you had a market for luxury units, why would you build non-luxury units? If a developer is required by lawto build non-luxury units in order to build any luxury units, some just don’t build, sometimes they lean on state legislators who vote according to who butters their bread by giving tax abatements to luxury unit developers who then provide a few middle-income units (not low-income units). This then limits governmental revenue that alternatively could have been used for real affordable housing programs. So, you see, doing the first nibbles at the edges of the problem is not a solution. It’s long past time to do the preferred solution: enact land value taxation (LVT).
What is that, exactly?
LVT, in its full form, places the burden of funding all local governmental services (e.g., policing, water supply, transit, education) on collected land value while concurrently abolishing all other taxes on labor (income taxes) and production (business taxes). So, if you earned $150,000 a year and lived in Manhattan, saving 30% of your income from income tax would net you $45,000 per year. If more units of truly affordable housing were built (meaning local government takes extra revenue from LVT that is funneled to it and incentivizes affordable housing), rents would naturally go down by countering scarcity. In fact, if vacant and underutilized lots were taxed equal to adjacent utilized lots, owners could possibly abandon them to the government that could then use the land for a mixed-income community land trust development with more than 60% affordable units. But, you ask, wouldn’t landowners just pass on higher land value taxes to tenants so as to keep the dysfunctional system intact? Good question. Let’s unravel it.
First: The LVT must be equitably applied city-wide so land owners tempted to raise the price-point (e.g., for middle-income) of the units they have on the market within the city would be competing with neighboring jurisdictions (e.g., New Jersey, Westchester or Nassau Counties that do not have LVT) for the same tenants.
Second: Intra-city competition within the industry would bring prices down because the only change between yesterday (without LVT) and today (with LVT) is a flow of wealth from landowners to the government. Those who raise rents would be non-competitive, thereby creating a tendency toward stable pre-LVT rents.
The caveat: Tax assessors must stop assessing buildings and other land improvements so that landowners can maximize income from their utilization of land, thereby making up for the decreased margins received in pre-LVT rent payments (i.e., their unearned increment of land value).
The silver lining: Properly utilized, increased revenue to the city should be reflected in the quality of life (superior services) that tenants enjoy. The better the city performs, the greater the prospects of a win-win-win among the landowner, tenant, and government. The trick is to not extract more revenue than the land is generating, without leaving too much unearned wealth on the table for the landowner to collect.
Two moderating influences:
FIRST: Neighboring jurisdictions may see an initial bump in rental volumes after the switch over, but that tendency would soon be smoothed out after tenants factor in the costs of commuting, discovering “housing” costs disguised as transit costs.
SECOND: The tax assessor must be mindful to allow landowners to make a reasonable profit on their enterprise, so that (after LVT) when maintenance, monitoring, and operational costs are totaled, landowners can reap a justified profit. It would be counterproductive to extract more than the golden goose provides.
We all know the policies we see today. And, now you know why landowners are thrilled you pay income taxes.
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