Yes, A Tax Would Help Lower Urban Housing Costs–But We Need the Right Tax

Last week, the intertoobz were all abuzz with the proposal that San Francisco’s housing problems could be solved with a land tax. Rather than taxing property (i.e., housing), you tax the value of the land, so someone who doesn’t build high density housing winds up earning much less after taxes: since the land tax is fixed, there’s an incentive to make as much money as one can on the properties on that land.

This might work in San Francisco. From what I understand, densities in residential areas are quite low since there is a lot of detached housing. But this focus on increasing density ignores the larger context of rising income inequality. In Boston, like San Francisco, rental and housing prices are sky high (articles will often compare the two). But most of Boston’s expensive neighborhoods have population densities that rival those of Manhattan*. I’m sure more people could be shoved in, but low housing density is not the problem.

What is the problem? The real problem is that, once payroll and local and state taxes are factored in, we essentially have a flat tax. In that environment, inelastic goods, like a college education or housing in an urban area, will be ‘bidded up’ by the wealthy. If you don’t believe me, listen to Steven Pearlstein (boldface mine):

Concentrating so much income in a relatively small number of households has also led to trillions of dollars being spent and invested in ways that were spectacularly unproductive. In recent decades, the rich have used their winnings to bid up the prices of artwork and fancy cars, the tuition at prestigious private schools and universities, the services of celebrity hairdressers and interior decorators, and real estate in fashionable enclaves from Park City to Park Avenue. And what wasn’t misspent was largely misinvested in hedge funds and private equity vehicles that played a pivotal role in inflating a series of speculative financial bubbles, from the junk bond bubble of the ’80s to the tech and telecom bubble of the ’90s to the credit bubble of the past decade.

There’s a trickle-down effect: when the ‘best’ housing is overpriced, the next best housing also becomes overpriced, and so on. A more progressive income tax** would go a long way towards lowering housing costs. Yes, the rich will always be rich, but we can weaken their ability to bid up prices for the rest of us.

There’s a larger context here, one that involves income inequality. In many metro areas, there’s no way to ‘move west’ and avoid it***.

*Boston’s overall density is relatively low, but around 54 percent of Boston’s property is untaxed. Being a state capitol and a regional political, social, and transportation hub means much of the city is simply ‘uninhabitable’.

**In lieu of that (in this political climate, it’s not likely), a good start would be taxing interest as earned income and removing the payroll tax cap.

***And in the context of global warming, increasing commuting mileage isn’t a good idea either.

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2 Responses to Yes, A Tax Would Help Lower Urban Housing Costs–But We Need the Right Tax

  1. dr2chase says:

    I think it would be fine to increase commuter mileage, as long as we could find a way to do it not-with-cars. We’ve got existing rail all over the place, which for various reasons is underutilized (various reasons include low-density zoning around suburban stops, and not the greatest access unless you drive to the station, and not much parking once you get there). One way to change the incentives somewhat for the suburbs (which often lack much in the way of commercial tax base) would be to spend more state money on education so that school funding was not as dependent on property tax revenues; as it stands, no matter what other reasons they may have for their zoning, towns can quite rationally point to the effect of increased residential density on their school budgets.

  2. Pete Gaughan says:

    Whaaaa….? “San Francisco” and “low density” in the same sentence?? The City is #22 on the list of U.S. municipalities by density! and there are a lot of teeny places in that list, so among cities over 100,000 population, SF is #2 most dense behind NYC.

    (Outsiders might think the residential districts are low-density just because they’re mostly single-family. But those homes sit cheek-by-jowl like New York row houses: houses shaped like railroad boxcars with only enough space between them to fit a garbage can, if any.)

    The land tax idea is a complete nonstarter. It would make the residential west side more expensive while making the high-priced financial and tech areas cheaper–so it amounts to a tax on workers to subsidize businesses. AND it’s completely illegal under state law anyway.

    (I live in the East Bay ‘burbs but work in a high rise downtown.)

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