Solving the Affordable Housing Crisis with Community Land Trusts 

20:10 costs

We do not have a "housing" crisis in the United States. The crisis has everything to do with the cost of the land on which housing sits. And, the asking price by those who own vacant, developable land is what drives property prices broadly. Why do land prices climb and climb? The economics are straightforward. Land cannot be produced. The supply is fixed by nature. In any regional market, some percentage of the land area cannot be developed for various reasons. Some percentage of the land is set aside for open space, or the development rights have been purchased by the community to preserve agricultural use. Streets, roads and highways take up more land but in the process also make contiguous land accessible and, therefore, more valuable. More land is held vacant as part of large lots or (outside of the central cities) estates. A rough estimate is that between 30 and 50 percent of all land in a region is not available for the development of residential housing. Building multi-unit, multi-story buildings is one way to increase supply given the constraints on land supply. Public subsidies are also needed to increase the supply of affordable housing, both for rental and for owner-occupancy. Keeping the owner-occupied housing units affordable requires that they be subject to resale restrictions. There is also a fundamental contradiction with how real estate is taxed. Almost everywhere across the United States housing units are subject to an annual tax based on some estimate of the current market value. These assessments are almost always incorrect because they are not adjusted annually based on current appraisal data. The logic of imposing an annual tax on a depreciating asset is hard to understand. If this makes sense for housing units (which all households need in order to survive), then other depreciating assets (e.g.., automobiles, trucks, computers, televisions, telephones, refrigerators, etc. etc.) ought to be taxed based on their depreciated value. Clearly, this makes no sense. But, what about the land on which housing sits? Land is not produced by us. Land is provided to us free of charge by nature. It was the opportunity to acquire free land that brought most of our forefathers to North America. But, of course, land has from the early years come to have a purchase price. In every city of the United States large sections of land are held off the market by individuals whose families acquired the land generations ago. Business entities hold large amounts of land vacant in anticipation of future expansion. Or, land is simply abandoned and left vacant for years or decades. Existing tax policy encourages the abandonment of land when profits cannot be generated at a location. Existing tax policy rewards the hoarding of land that is in high demand. And, existing tax policy rewards investment in land for speculation rather than development. What is this existing tax policy? It is the almost universally low effective rate of annual taxation of land across the country. There are just a handful of exceptions. Land prices are lower and the number of land sales greater in about twenty Pennsylvania communities that have implemented a two-rate form of property taxation, imposing a much higher rate of taxation on the assessed value of land than on whatever buildings exist. The state capital of Pennsylvania (Harrisburg), for example, imposes a rate six times greater on land values than on building values. Theoretically, land prices could be brought down close to zero. What this requires is that the full, potential annual rental value of every privately-held parcel of land be captured to pay for public goods and services (exempting all structures from the tax base). Economic theory tells us that the rental value, less whatever tax is imposed, is capitalized into a selling price. Thus, if I can lease a parcel of land to someone for $12,000 annually and the land tax is $2,000, I have a net income of $10,000 to be capitalized. Assume that an acceptable rate of return is 5%. $10,000 = 5% of $200,000, which would be the minimum price I might accept if I was willing to sell. Now, what if the annual tax is $12,000? There is nothing left to be capitalized into a selling price. The problem of climbing land prices is solved. And, so is the mislabeled housing crisis. Edward J. Dodson, M.L.A. Director School of Cooperative Individualism www.cooperative-individualism.org