Archive for the ‘land value’ Category

Another example of location value

Don’t know if fair use permits me to use Bloomberg’s picture, so here’s a goose in Aurora, maybe somewhere near the site of interest. Image credit: Kenneth Cole Schneider (CC BY-NC-SA 2.0)

Just in case anybody doubts that location has value in the 21st century, here’s a report from Bloomberg about a 31-acre Aurora parcel that became valuable because it’s adjacent to the CME Group‘s data center, enabling one to trade a millionth of a second faster. The site sold for $14 million, “probably twice as much as it’s worth” according to a local real estate exec. I would argue that it must be worth $14 million, else the buyer would not have paid it.

The article reports a couple other nearby deals, but provides no parcel numbers nor even a map, so we can’t see what the assessment of this parcel is.  There’s also no indication who the seller was.

How come a LaSalle County TV station is the most valuable in the country?

image credit: Brian Smith (CC BY-NC-SA 2.0)

Well now, more precisely, how come the spectrum held by  a TV station broadcasting from Ottawa fetched a higher price than any other station offered? WWTO is owned by Trinity Broadcasting and broadcasts on five digital subchannels according to the Wikipedia article.  According to the report today from the Federal Communications Commission, their spectrum sold for $304 million, highest in the U S. , while WYCC’s spectrum in Chicago fetched only $16 million.  I know there are all kinds of technical considerations that might explain the difference, but it’s a curious one. Some of us are suspicious when government-owned assets are sold for a comparatively low price.  Both stations are reportedly going off the air.

Nationwide, most of the spectrum has been “purchased” by wireless companies but apparently some will be returned to the “unlicensed” category for use by wifi and similar low-power devices.

So most of the spectrum will be used by private corporations to provide services from which they expect to obtain a profit.  Kind of like commercial land, which everyone agrees is subject to tax.  So why does the government not tax privately-held spectrum?

Let’s watch the Assessor on this one

Some people are Cubs fans, others find it more interesting to watch the Assessor.

Crains reports that a very prosperous Cub, Jon Lester, has purchased and demolished the building next door to his home,apparently so that he could have a side yard.  Purchase price was $1.35 million, so the land must be worth that much.  It cost Mr. Lester more, of course, since he had to pay to demolish the place, but let’s take the $1.35 million over to the Assessor’s office. There we see that the property was assessed at $100,463, indicating a market value of $1,004,630 for the land + building. Land alone is about a quarter of this, so the Assessor seems to be saying the land is worth $250,000.  But it isn’t. Obviously it was worth over a million dollars. (And, checking Zillow, I see that the price isn’t out of line for the area.  A 3125 sq ft lot at 1450 W. Grace is on offer for $1.05 million. )

Now, under Cook County’s current rules, the tax bill is based on the assessment of the total parcel and it makes no difference which part is land and which part is building.  But with the building gone, it’s important for the assessed value to represent what the land is really worth. Otherwise the rest of us taxpayers have to cover part of Mr. Lester’s share.

(In case the link above stops working, you can readily find the parcel on the Assessor’s web site. Search for 1446 W Berteau, or parcel number 14-17-305-025-0000)

From the Assessor’s web site

Extreme land value follies in Vancouver

Credit: tglucas500 via flickr

Credit: tdlucas5000 via flickr

Up in Vancouver BC, analyst Jens von Bergmann calculates that the increase in land value for single family houses over the past year exceeded the total income earned by the entire population of the City.  Median increase was $262,000, average was $318,877.  Von Bergmann estimates this to be equivalent to $126/hour, assuming people work a 40 hour week 62 weeks per year (allowing for multiple-worker households).  By comparison, actual labor yields an average income of $26/hour (all figures in multicolored Canadian dollars, of course).

But the land price appreciates every hour of every day, so it might make more sense to calculate the median increase as $29.89 (mean $36.38) per hour.

Of course this cannot continue indefinitely, but something like it has been going on for a long time in Vancouver, as well as a few other cities.  Wealthy international buyers from less stable places want a refuge, as well as perhaps an investment.  But even this group, depending on developments overseas, must eventually be limited.  Some analysts — Garth Turner comes to mind — have been warning of a crash for years and years.

What really impresses me about von Bergmann’s analysis is that BC assessment authorities appear to do a decent job of estimating land value, and making the data broadly available.  It’d be worth something to live in a place like that.

h/t Wealth and Want.

People are willing to pay more than fares for transit

This is really nothing new, except that it is a new data about an old truth:

from the Econsult report

from the Econsult report

Analysis of Philadelphia suburban data shows that people are willing to pay more than fares for rail transit, as indicated by house prices in areas near the stations. These are really land prices since characteristics of the houses are already filtered out. Interesting to see that people living more than a half-mile from the station seem willing to pay more for frequent service than for extensive parking, but I wouldn’t want to conclude too much from this limited analysis.  The study considers only parking and frequency of service, nothing about travel time, availability of feeder bus, or anything else, but the main point remains.  See the full report here.

Local land prices show that location still matters

taken about 8 years ago by Zachary Korb, via flickr (cc)

A different vacant parcel, about 8 years ago by Zachary Korb, via flickr (cc)

Crains reports the sale of a vacant parcel in the fashionable North State Street neighborhood for $70 million — $4075 per square foot. The article says that “Under a zoning agreement the city approved in 2006, a developer could build as many as 261 residential units on the parcel,” which would work out to about $268,000 land cost per unit.  You can buy a nice residential lot in many decent neighborhoods for a lot less than $268,000 (and in less-decent neighborhoods land is practically free). Perhaps the buyer is expecting to obtain an increase in permitted density.

The article also reports that the seller, a “Miami-based developer” who has held the parcel only four months, will realize a $42 million profit.  It’s unfortunate that none of this profit goes to support the intensive and expensive infrastructure which helps keep the neighborhood functional.

It matters how we own what nobody produced

Tenant farmers paid rent here

Tenant farmers paid rent here

[I]n Bill Clinton’s encapsulation of political strategy, “It’s the economy, stupid.” But the success of an economy can only be measured by its growth.  Since growth requires the accelerated consumption of limited natural resources, it is not a sustainable model in the long run.

If you concentrate on how a place is owned, however, the perspective changes.  As this book demonstrates, matters of laws, of rights and of politics become crucial, taking precedence over economics.  From that point of view… “It’s the neighborhood, stupid.”

…Around the world and throughout history, neighborhoods have succeeded in a million different ways.  It all depends on how the earth is owned.

That, the conclusion of Andro Linklater’s Owning the Earth, illustrates what is right and what is wrong with the book.  Our quality of life does does depend on how the earth is owned, and Georgists are aware of the importance and practicality of recognizing each individual’s right to what no one produced. But must a sound economy necessarily use more of the earth’s limited resources? Is there no practical way to use resources more efficiently? And is there no possibility that economic improvement could be measured by anything other than economic growth?

The book is wide-ranging and (mostly) well-written, making connections in place after place between how the right to use nature is recognized, and how well the community developed. It draws some connections that I hadn’t seen before, such as how the growth in mortgages on American farms followed logically from the end of homesteading.

And Linklater does devote a couple of pages to Henry George, but seriously misunderstands why George’s proposals weren’t widely adopted, saying  “[I]t is notoriously difficult to arrive at a valuation system that can clearly separate earned from unearned capital appreciation.” Here he means “separate improvement value from land value,” and he is wrong.  Practical methods of doing so on a mass basis were described back in 1970 in TRED #5  (outline), which is not posted on line to my knowledge, and in this more recent paper by Ted Gwartney, MAI.   And, of course, land values are routinely estimated by appraisers and are a component of almost every U S income tax return that involves commercial or investment real estate.

It is true that, with limited exceptions, George’s proposals weren’t adopted, but for a different reason.  Mason Gaffney has provided a compelling and well-sourced explanation (also available in a book), and it is unfortunate that Linklater seems to have been unaware of it. One wonders what else he did not know.

March 1 2015 update: I just discovered that Ed Dodson has produced a more thoughtful and detailed review of Linklater’s book.


Land sales price vs. what is paid for land

image credit: Onishenko

image credit: Onishenko

In order to fund community needs from a tax on land value, assessors need to estimate what that land value is.  Conceptually the task need not be difficult (Ted Gwartney outlines some options here, but a more complete and still-valid examination is in this book.) Basically, you look at sales prices for actual land transactions, and make adjustments for parcels which haven’t sold recently or where land comprises only a small part of the value.  But what happens if the buyer pays something additional, “off the books,”  for the land?

According to Peter Katz, that seems to be what often happens. This presentation at APA last March starts off slow (and self-promotional), but moves along thru some interesting territory. Regarding the price of vacant land, he asserts that, in many desirable areas, developers have to first buy (or option) the land, then negotiate with local authorities to get permission to build. Getting that permission might require agreeing to donate money (or land) for public use, or perhaps less savory expenditures, and to the developer this is part of the cost of land. If an area of any size is subject to such constraints, all the land sales are below market prices by the amount of such costs, and all sites, whether sold or not, receive assessed land values that are lower than what developers actually pay to get a buildable site.  This results in less public revenue, implying a need for other taxes, as well as a tendency to develop at lower densities than might be appropriate, when developers choose to settle for existing zoning rather than what they might be able to negotiate. Katz suggests that a formal study of this effect should be done, and nominates Lincoln Institute to make it happen.

Katz’s remedy seems to be a combination of form-based zoning codes, plus a sophisticated (and presumably accurate) fiscal impact analysis that might show denser development to actually be more “profitable” to governments.  But, responding to a question about 65 minutes into (and near the end of) his talk, he acknowledges that funding government from a land value tax would be a good way to obtain the desired development pattern, and that Henry George was a great guy.  His observation that Georgists tend to be wacky has been made before, and I can’t say it’s wrong.

Mortgage Wars & Collapse

An informed review by political economist Ed Dodson of Tim Howard’s new book about the collapse of Fannie Mae. The senior people understood that they were in trouble due to politics and ideology, and they saw the collapse of underwriting standards, but most had no interest in addressing the fundamental cause.

Misunderstanding housing costs again

imge credit: David Shankbone  (cc) via flickr

New York’s housing situation (image credit: David Shankbone (cc) via flickr)

Melissa Kite had a piece in Thursday’s Guardian complaining about the escalating cost of London housing. She starts off well, observing that she can’t earn as much in a year as the increase in the value of her flat.  “[W]hat does it say about our society when we can, in theory at least, make more money doing nothing than we can by the sweat of our brow?”  Agreed, it’s a problem. So what does she recommend?

In New York, 45% of people live in rent-stabilised accommodation where landlords are limited to increasing rates by a certain percentage each year. This is not rent control – which accounts for only 1% of tenants – but rent with controlled increases, an important difference.

I will wait to hear from New Yorkers about how this has solved their housing problem.  Going back to the Guardian article, Kite gets pretty close when she observes that “a British company is selling a flat-pack self-assembly ‘house in a box.’ But she doesn’t take the next step to ask: “If you buy one, where are you going to place it?” The answer, of course, will be that anyone who can afford only the flat-pack house will be unable to obtain a suitable site anywhere near London.

The problem isn’t house costs, it’s land costs. And land costs would be a lot lower if all land was subject to a stiff site value tax, because there could be little or no speculative premium.   (To be clear, the cost of obtaining a site for your house, purchase financing plus tax, would be much less if landholders weren’t pricing sites based on their future hopes rather than current usefulness.)  This point is readily made, for example here and here. It’s unfortunate that the writer of the Guardian article seems unfamiliar with the concept.