Not the Washington DC streetcar project, which at a cost of $1.5 billion is expected to raise land values by $5 to $7 billion. (This is the increase in value of “existing properties.” Double it to include the value of new construction.) So collecting just 30% of the increase should be sufficient to pay the cost.
A lot of details are missing from the source article, and so far I don’t know how to get the study which it describes.
Thanks for Alanna Hartzok for the tip.
Suppose you are a king. And suppose you have a restless, mostly young population, high unemployment, with most people having to rent because housing and land are too expensive. Few people can get mortgages, because they involve large down payments and high interest rates. Also suppose that you have a big country, lots of land relative to population, and a huge government surplus. What to do?
You could examine why housing is so expensive, and whether there’s a way to make more land available. Maybe that’s happened in Saudi Arabia, but recent news reports give no indication. Instead, the Saudi solution is to encourage the mortgage industry and expand credit. Will that make housing cheaper? Will that make it easier for an underemployed population to get decent housing? Or will it drive up the price of land and feed what seems to be an already-building bubble? It may be that the Saudi objective is to get more of their people into debt-slavery so they’ll faithfully serve the state. I don’t know.
What really puzzles me is how mortgage interest fits into an Islamic-dominated state. Possibly this is like the “Islamic Finance” offered by some U S banks, where no interest as such is charged, but either the price is inflated to compensate for the fact that it will be paid gradually, or the “homeowner” is technically a renter until enough rent has been paid to cover the cost plus what, to others, would be interest.
Bloomberg says the King pledged more than $82 billion for housing, but does not say whether this comprises direct government grants, or is simply some amount of debt which homebuyers will contract. It also says that
Saudi Arabia’s mortgage law will change the way home finance is regulated, from registering mortgages to prosecuting police officers who refuse to carry out eviction orders.
This will be interesting to watch, preferably from a distance.
More about Saudi housing and morgages:
Innovative geoist group Prosper Australia are promoting a homebuyers’ strike against that country’s still-high housing prices. It’s getting them worldwide publicity and certainly seems to be in the interest of non-homeowning Aussies, encouraging them to avoid leveraging themselves in a soon-to-burst land bubble.
But what is the message? The message is, “don’t get yourself deeply in debt to buy a house that may put you underwater in a few months.” I hope the message also is “We at Prosper Australia understand the economy and know how to fix it. Pay attention to us.”
Whether that’s getting thru, I don’t know. But the campaign can’t hurt.
Economic Ebola is “the virus that infects scientists and engineers and causes them to go to Wall Street rather than create something of societal value,” says Paul Kedrosky. Graduates with quantitative skills are offered salaries up to five times what they could make in productive work, so of course many of them spend their time finding ways to scrape a few million from high-velocity financial markets, rather than designing products or processes that would actually increase society’s satisfaction.
“Let’s save the world by keeping our engineers out of finance,” says Vivek Wadhwa. [Well, they’re not really our engineers, they belong to themselves, but we’ll skip that for now.] A fine idea, but how to do it? One answer might be a financial transaction tax, a tiny levy on each financial trade which could remove the profit from “financial engineering.” It would have no real effect on “long-term” investors who hold a position for more than a day. Seems like a good idea, but of course there will need to be a definition of what is a “financial transaction” for tax purposes, and clever people will find a way to design a transaction which doesn’t meet the criteria.
Maybe a better approach is to eliminate or scale back some of the things that make financial engineering lucrative. For instance, if a land value tax prevented private collection of land rent, the mortage/financial crisis we’re still in would have been much smaller, or perhaps not possible at all. We might want to go back to the classical concept of usury, forbidding all transactions where interest is charged for the use of money. (People can still get compensation for lending money, but it would be as some agreed share of the profits which the investment generates, keeping the lender conceptually closer to the borrower.)
Of course we could start with something simple, like having the government take over insolvent banks, prosecuting and imprisoning criminal executives, letting stockholders, bondholders, and others who have unwisely trusted the bank to absorb the financial loss. That alone would make financial engineering a lot less appealing.
Steve Keen did the great service of reading the FCIC report and confirming my impression (obtained without reading it) that it was not worth reading. And a few posts prior, he reported that Wendell Cox and friends are out with another edition of their annual Demographia report, showing, once again, that the ratio of house cost to income tends to be higher in metropolitan areas where housing development is relatively restricted, and lower where developers find it relatively easy to get clearance to build. (Their report is international in scope but I will limit my comments to their analysis of US conditions.) Continue reading Housing costs and land use regulation
Yes, the report of the Financial Crisis Inquiry Commission is out. It’s over 600 pages long. Sources I respect say it’s the expected whitewash. I probably won’t ever read it. I still haven’t read the Obamacare Act (yeah, thats not a good name for it, we really oughta call it something like DemoPublicare.) Anyhow, I just found out how it’s going to increase the screwing up of the housing market.
As Lew Sichelman explains, it includes
a highly targeted 3.8% tax enacted as part of the controversial health-care reform legislation that has been signed into law and which Republicans are now trying to overturn.
The tax will apply to individuals with adjusted gross incomes above $200,000 and couples filing jointly with more than a $250,000 AGI. If you and your spouse choose to file jointly, the AGI threshold is $125,000 for each of you.
The Medicare tax, so named because the proceeds are to be dedicated to the Medicare Trust Fund, will be on interest dividends, rents less expenses, and capital gains less capital losses. But the key thing to remember is that the tax is based on whichever is less, the gain you made on the sale of the house or the amount your income exceeds the AGI threshold.
It’s complicated, so it’s hard to predict how it will effect every seller. As always with tax matters, it’s best to consult with a professional.
Of course, the income limits may change (legislatively or thru unmeasured inflation), so any of us who own our housing better save all receipts which might possibly have anything to do with adjusting the basis. But at least it doesn’t immediately affect the rest of us, does it?
Not so. I’d say this is another in a series of moves discouraging old people from selling houses that are larger than they need or really want, and which would otherwise be bought by families with children who could use the space. Earlier policies with similar effect include real estate tax breaks targeted at old people, and whatever programs facilitate reverse mortgages.
So what will homeseeking families do? Most likely, they’ll find houses they can afford, and the probability is that these will be further out. (The tax presumably also applies to sales of high-priced vacant lots, another force discouraging construction of homes on well-located sites.)
So maybe instead of the Obamacare Act, we should call it the Sprawl Enhancement and Old People Stabilitzation Act.
Former banker Rudolf Elmer, opposed to use of Swiss bank secrecy to aid evasion of taxes by non-Swiss, has provided Wikileaks with two CD’s of (apparently incriminating) data. Who is right here? Customers were assured the data would remain secret, now it will be revealed. But aren’t governments entitled to collect taxes which they impose on their citizens? If not, why should anyone pay? If so, how can anyone’s financial affairs be private?
The answer is, none of this would be an issue under Land Value Taxation. When revenue comes from the land, government does not even need to know who the owner is. Government need only know sales prices and a few readily-observable characteristics. The tax has been paid or it has not been paid, and in the latter case a process starts which eventually will result either in the tax (plus late fees) being paid, or the land being taken by the government. (And remember, the government is necessarily the ultimate custodian of land records, a natural monopoly.)
Only land value taxation permits financial privacy.
in the past few years, as well illustrated by this article from MSNBC. Homeowner insurance costs generally haven’t declined, because construction costs haven’t declined. (Homeowner insurance covers the cost of repairing or replacing the structure.) If it’s not construction cost, what went down? Must be the land. (ht Rob’t Blau)
I’m struck that an article about homeowner’s insurance doesn’t touch on title insurance, which is having difficulties of its own.
Haven’t posted much lately; busy with other things, including trying to clear off my desk. In the process of which I found some notes of interest
How do you fund transit in the “most liveable city in the world?” Vancouver uses the real estate tax to cover about 35% of its operating shortfall (net of fares). Fuel tax covers an almost equal amount (See this pdf). One can imagine how well Chicago’s transit system could run if funded this way, assuming also that it was competently planned and managed.
Unfortunately, Vancouver fails to fund capital costs in this way, relying instead on what Canadians call “senior governments,” meaning provincial and federal funds. Probably that has something to do with the continuing real estate bubble in the area.
I also found notes I took at a conference in July concerning Japanese high speed rail services. Japan is said to be the only country with privately-owned high speed passenger rail. How is it funded? Hint: JR-East, one of the big operators of high speed trains, gets 32% of its gross revenue (see this pdf) from real estate it owns, and intends to grow this to 40 by collecting more of the value that good transport gives to real estate.
The draft report from the Fiscal Responsibility Commission, subject of my previous post, has some proposals for reform of how Congress makes (or doesn’t make) expenditure decisions. Frankly, I do not understand them. Perhaps this is because the draft report is simply a series of slides, not really a report. Or maybe these things are too complex for a simpleton like me to understand.
Separately, there is apparently a proposal to cut Congresspersons’ pay, and even one to reduce their pay every year that the government runs a deficit.
But these won’t work, for a very simple reason: Continue reading Real Congressional Reform– The Art Auble Plan