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.