Speaker 1: Hello, and welcome to another episode of the Odd Lots Podcast.
Speaker 1: I'm Joe. Wasn't all Tracy. You know, It's like, how
Speaker 1: is it when housing it's booming, it seems to cause
Speaker 1: people a lot of stress, like they want to like
Speaker 1: get in on a home, and then when housing tumbles
Speaker 1: that also closes people stress. Maybe if you recently bought
Speaker 1: at home or something like that. But either way, wherever
Speaker 1: we are on the cycle, it feels like in the US,
Speaker 1: like housing is just this like huge source of stress.
Speaker 1: Like sometimes I go on the real estate subredbit and
Speaker 1: it's just like all these people clearly close to like
Speaker 1: having nervous breakdowns over the travails if either trying to
Speaker 1: find a home to buy or sometimes even to rent. Yeah,
Speaker 1: I mean you will have very different sources of stress
Speaker 1: depending on whether or not you're a homeowner or whether
Speaker 1: you're trying to become a homeowner and and source and
Speaker 1: actual house in the current market. But yes, it seems
Speaker 1: like an endless struggle in many ways. You know, one
Speaker 1: thing that I just, um, I just learned about and
Speaker 1: you know this is maybe naive on my part, but
Speaker 1: as a new homeowner, can we talk about property taxes?
Speaker 1: And the fact that if I, if I improve my house,
Speaker 1: I will pay more. That's crazy. So don't just let it.
Speaker 1: Just let it deter it, just like let the yes
Speaker 1: come in, let the foundation crack all that stuff. I mean,
Speaker 1: that's the incentive that I have now, although well resale value.
Speaker 1: But yeah, anyway, there are all these things you discover
Speaker 1: once once you actually own a property. No, only a
Speaker 1: property is the worst curse because like you think, it's like, oh,
Speaker 1: I finally got a house, and all these people are
Speaker 1: competing and entering bidding wars, and then if you win,
Speaker 1: you actually kind of lose because then you're like stuck
Speaker 1: to this thing and you realized like how much houses?
Speaker 1: But yeah, bottom line is like everything about real estate
Speaker 1: ups or downs just seems to be a permanent source
Speaker 1: of stress. And okay, like mortgage rates go up and
Speaker 1: maybe that clols buying, but it doesn't feel like anyone
Speaker 1: has any sort of like it doesn't feel like there's
Speaker 1: a long term plan to address this. Like yeah, at times,
Speaker 1: maybe things soften up a bit, but maybe if things
Speaker 1: are softening up a bit, it's because the economy is
Speaker 1: down and people are getting laid off, and then it
Speaker 1: gets harder or impossible to get a mortgage or be
Speaker 1: in a position to buy a house. Structurally, it's just
Speaker 1: it's just it seems like a nightmare. Well, I would say,
Speaker 1: the other big thing is it feels like no one's
Speaker 1: decided what role housing is supposed to have in the economies.
Speaker 1: So yes, I think most people would agree that if
Speaker 1: you can get on the housing ladder, it's probably a
Speaker 1: way of building wealth. But at the same time, no
Speaker 1: one wants house prices to go up so high that
Speaker 1: everyone starts to get priced out in the market. And
Speaker 1: so it feels like we have yet to decide exactly
Speaker 1: what role housing should play in in the American economy. Certainly,
Speaker 1: why do we want houses to be this key asset
Speaker 1: where your your ability to retire, your ability to have
Speaker 1: some sort of like comfortable economic existence is predicated on
Speaker 1: buying How's it like? You know, how's inclusions be like
Speaker 1: a consumption good You're like, buy shelter and the just
Speaker 1: the shelter component. But it has become this thing where
Speaker 1: everyone feels like homeownership is such a key to what
Speaker 1: we think of as you know, the American dream or whatever,
Speaker 1: having a comfortable life that you'll like pay a fortune
Speaker 1: just as you put it, like get even the term
Speaker 1: the housing ladders, like we all have like climb up,
Speaker 1: we have to grab a rung. It's also it all
Speaker 1: seems so perverse. Well, it also immediately creates that fomo feeling,
Speaker 1: that sense of missing out, like, oh my gosh, I
Speaker 1: have to get on the ladder because if I don't
Speaker 1: get on it as soon as possible, I'm gonna be
Speaker 1: behind everyone else for the rest of my life. But yes,
Speaker 1: this is a peculiar model. It is not the model
Speaker 1: used by everyone in every country, by the way, and
Speaker 1: Europe in particular is quite different in its approach to homeownership.
Speaker 1: So it definitely seems a little more saying all right,
Speaker 1: lots of very pessimistic intro to this episode, talking about
Speaker 1: how much stress. But maybe there's a maybe, maybe there's
Speaker 1: a way out, Maybe there are policy moves that could
Speaker 1: actually address some of this. But to sort of understand
Speaker 1: more why how's it going such a source of stress
Speaker 1: and all of this that we're talking about, we are
Speaker 1: going to be speaking to Darryl Fairweather. She is the
Speaker 1: chief economist at the real estate website redfin. She might
Speaker 1: have some ideas on how you can alleviate things or
Speaker 1: at least understand the roots of this tension. So, Daryl,
Speaker 1: thank you so much for coming on odd lots. Thank
Speaker 1: you for having me. I'm so happy to be here.
Speaker 1: We're really psyched to have you here, you know, are
Speaker 1: we right? So people talk about there being a housing
Speaker 1: crisis in America ornament of housing shortage? Is there a
Speaker 1: housing crisis in the US? Like can we? Is their
Speaker 1: data that's beyond just all the anecdotes of stress and
Speaker 1: comments on red it and stuff like that that points
Speaker 1: to it, like we have a serious like mismatch with
Speaker 1: the demand to own a home or the demand to
Speaker 1: have shelter versus what's available. Yes, we are in a
Speaker 1: housing crisis. It's not just me saying this. Starting MAC
Speaker 1: has estimated that we're almost formally in housing in its
Speaker 1: short If you just look at California, it's even higher
Speaker 1: than that. I think maybe some of the confusion is
Speaker 1: that it's much worse in certain parts of the country
Speaker 1: where housing crisis have really gotten up and up for
Speaker 1: the last decade, and there are parts of the country
Speaker 1: that have not seen that. So maybe people just don't
Speaker 1: see it where they are. But as a whole. We're
Speaker 1: definitely in a housing crisis. So how did we get here?
Speaker 1: Because again, as Joe and I were talking about in
Speaker 1: the intro, you know, housing kind of looms large over
Speaker 1: the American psyche, and it's part of the American dream.
Speaker 1: Everyone wants to become a homeowner at some point, so
Speaker 1: you would think that there would be a massive industry
Speaker 1: that is geared towards producing a good that everyone wants
Speaker 1: and will pay a lot of money for. So it
Speaker 1: happened we stopped investing so much in housing or really
Speaker 1: seeing it as this savior. Before the housing crash, there
Speaker 1: was this idea that if we just made everyone a homeowner,
Speaker 1: then everybody could achieve that American dream and build wealth.
Speaker 1: But making everybody everyone a homeowner came with a lot
Speaker 1: of consequences. Not something can just magically produce produce that
Speaker 1: kind of wealth. So there are people who were getting
Speaker 1: homes that they actually couldn't afford, and there was a
Speaker 1: financial system that was supporting that as well. That all
Speaker 1: came crashing down. So from the crash onwards, we kind
Speaker 1: of ignored housing, didn't see it as something that we
Speaker 1: should be promoting. We built fewer homes in the twenty
Speaker 1: tents in any decade going back all the way in
Speaker 1: the nineteen sixties, and Millennials the biggest generation. They're entering
Speaker 1: into home buying age. They need places to live, and
Speaker 1: we just haven't been building for them, or really trying
Speaker 1: to grapple with why we don't build enough homes to
Speaker 1: meet seemingly this excess of demand. It's interesting we talked
Speaker 1: about this with commodities all the time, like natural gas
Speaker 1: and oil and lumber and all these about the twenty
Speaker 1: tens being this year of under investment, and of course
Speaker 1: housing is not a commodity strictly speaking, but there's an
Speaker 1: interesting like parallel of this, likes is sort of like
Speaker 1: the decade of under investment and everything, and now we're like,
Speaker 1: now we're paying the price for it. It was a
Speaker 1: very destructive recession and we're certainly still paying the price
Speaker 1: for that. And we also just didn't we didn't do enough,
Speaker 1: I think, to get out of that recession quickly enough.
Speaker 1: We may be over corrected in this last recession and
Speaker 1: did a whole lot, and now we're grappling with the
Speaker 1: with the flip side, which is inflation. But I think
Speaker 1: most economists agree that that that that the fallout from
Speaker 1: the recession was was more harmful than it needed to be.
Speaker 1: So I know we're going to get into things that
Speaker 1: could be done to increase the housing stock, but just
Speaker 1: on the current trajectory, Like, if everything continued as it
Speaker 1: currently is, would you expect some sort of supply response
Speaker 1: from home builders, Like would you expect them to ramp
Speaker 1: up production enough that it would start to fix some
Speaker 1: of the imbalance between supply and demand. I don't think
Speaker 1: that builders on their own are going to be able
Speaker 1: to build enough to meet demand because they only really
Speaker 1: started getting ramped up on production when demand was exceedingly
Speaker 1: high during the pandemic, and now that interest rates are up,
Speaker 1: there already starting to see that decline demand and they
Speaker 1: want to pull back. Because of the cick locality of
Speaker 1: housing market, builders, they only really ramp up at the peak,
Speaker 1: and then right after that they pull back, and then
Speaker 1: they don't want to ramp up again until there's another
Speaker 1: peak coming. So I think we do need some kind
Speaker 1: of government intervention or more policy making to support home
Speaker 1: building that actually meets demand. So before we get into that, though,
Speaker 1: you know, Tracy said something important in the intro, so
Speaker 1: you know, like Tracy talked about this in the beginning,
Speaker 1: that you know, not all countries have the same approach
Speaker 1: to housing where housing is so central to their conception
Speaker 1: of economic life once per little finances. What is it like?
Speaker 1: Where did it come from? In the US? This idea
Speaker 1: that like housing we placed at the center of this
Speaker 1: and that it became like the sort of home ownership
Speaker 1: became core to the American dream. Oh, I think it
Speaker 1: goes back to the founding of this country if you
Speaker 1: want to go, if you want to look at the
Speaker 1: real route, property rights are are really part of how
Speaker 1: this country was built. I mean the the denial of
Speaker 1: property rights the Native Americans, uh, and the idea that
Speaker 1: an individual can own property is part of how this
Speaker 1: country was was founded. So I think that that is
Speaker 1: deeply embedded into this country, the idea that you own
Speaker 1: a piece of property and it's yours and you can
Speaker 1: build what you want on it. The government can tax
Speaker 1: a bit, but I think America resists taxing too much
Speaker 1: because the idea that you own the property. So why
Speaker 1: don't we talk about potential fixes or policy solutions, but
Speaker 1: what what could be done? Well, one thing that is
Speaker 1: kind of straightforward at least when you say it, it's
Speaker 1: a lot less straightforward in practice is to have a
Speaker 1: land value tax, which means that you essentially pay rent
Speaker 1: to everybody because you don't own the land. You didn't
Speaker 1: create the land. Land belongs to everyone in your area,
Speaker 1: in your country. So having a land value tax corrects
Speaker 1: for that, and it turns the value of the home
Speaker 1: really just more into a commodity the actual property that
Speaker 1: sits on top of it. You're not getting some excess
Speaker 1: of wealth just because the land value goes up. That
Speaker 1: would mostly be taxed. Okay, so how is that difference?
Speaker 1: So Trace, you mentioned that when after she became a homeowner,
Speaker 1: she discovered the awful world of property taxes. So can
Speaker 1: you talk a little bit further, like what is the
Speaker 1: difference between a property tax and a land value tax? Yes,
Speaker 1: so your home consists of the land, but it sits
Speaker 1: on top of it, you own and you can do
Speaker 1: what you want with it. And then there's also the
Speaker 1: property that is a structure, that's it's that's it's on
Speaker 1: top of that land that can be modified. The land
Speaker 1: value separates that from the property tax. So a property
Speaker 1: tax is really a combination. It taxes both the land
Speaker 1: and the value of the property. But you can think
Speaker 1: of it as two different parts. The reason for having
Speaker 1: a land value tax from an economic perspective is that
Speaker 1: land is immutable. You can't change it. If you tax it,
Speaker 1: it's not going to change anyone's behavior. So it's a
Speaker 1: really efficient tax to impose when just trying to raise
Speaker 1: tax surpluses. Also, there's there's just the idea that you know,
Speaker 1: you didn't create the land, so the value should go
Speaker 1: to everyone. The property tax part, I think is more
Speaker 1: motivated by having a progressive tax. That if you have
Speaker 1: some mansion, you are a wealthy person and you can
Speaker 1: afford to make that to pay that tax and have
Speaker 1: it redistributed back to people who can only afford to
Speaker 1: build a little one bedroom house or bungalow or whatever
Speaker 1: it is on the property. So I think they have
Speaker 1: different motivations, but they get lumped together and just the
Speaker 1: overall property tax. You know, as Tracy put it in
Speaker 1: her intro, she gets penalized for improving her property. So
Speaker 1: she went a house, and if she makes the more
Speaker 1: valuable that um I would raise her property tax. Whereas
Speaker 1: inferior land value tax, if it's just the land portion
Speaker 1: of the ownership, then nothing she does on the property
Speaker 1: development side. That's why you say it's an efficient tax
Speaker 1: because what her what what Tracy does with respect to
Speaker 1: her house would not necessarily change the underlying vilure of
Speaker 1: the land and a very simplistic model of the world,
Speaker 1: that's true, But I actually want to push back on
Speaker 1: a land value tax being perfectly efficient because land value
Speaker 1: is affected by everything that's around it, whether it's the
Speaker 1: quality of the air or you know, what your neighbor's
Speaker 1: house might look like at the cast of shadow on
Speaker 1: the land. There's like a lot of different things that
Speaker 1: can go into land value, with how the access to
Speaker 1: jobs for that land. So it's not immutable, but it's
Speaker 1: less likely that what Tracy does impact the land value.
Speaker 1: It's it's a little bit more out of our control
Speaker 1: and it's more determined by all the factors in the community.
Speaker 1: So it's the idea here that at the moment, we
Speaker 1: have a property tax, which is basically a tax on
Speaker 1: the structure on the land that you own, and so
Speaker 1: you're basically taxing investment. So if I pour money into
Speaker 1: you know, my house, and I make it better and
Speaker 1: bigger or whatever, someone is going to come along and
Speaker 1: charge me more money for that. So if you started
Speaker 1: doing all land tax, the ideas that you're taxing land
Speaker 1: which is in finite supply and kind of exist regardless
Speaker 1: of whether or not you build on it. But by
Speaker 1: doing that, you're trying to better align the incentives so
Speaker 1: that people are going to want to build on the
Speaker 1: land rather than just leave it alone. Is that is
Speaker 1: that how it's supposed to work. Yes, I think that
Speaker 1: that is how an economists would want to design our
Speaker 1: tax system. But in in practice our taxes tend to
Speaker 1: skew towards equity concerns over efficiency concerns. So at the
Speaker 1: same reason, we have a capital gains tax, because the
Speaker 1: kind of people who have a lot of capital gains
Speaker 1: tend to be very wealthy, and from equity perspective, we
Speaker 1: may want to distribute some of that wealth down to
Speaker 1: people who don't have any capital gains to be taxed
Speaker 1: in the first place. So it works the same for property.
Speaker 1: If we're trying to just purely promote economic growth, we
Speaker 1: would not want the structure of the home or improvements
Speaker 1: to be taxed. So what does the land value tax
Speaker 1: theoretically accomplished? Like we talked about, Okay, how is it
Speaker 1: such a big source of stress if we had when
Speaker 1: how does that fix the four million housing deficit, or
Speaker 1: how does that get us towards that that goal of
Speaker 1: bringing supply and demand into balance. So one is that
Speaker 1: if you are taxing the value of the land, then
Speaker 1: people are going to be less likely to stay in
Speaker 1: their property beyond and like the value that they would
Speaker 1: get out of it. So right now we have an
Speaker 1: issue in the country of people just staying in place,
Speaker 1: aging in place. There are you know, baby boomers who
Speaker 1: don't have children staying in their three bedroom home or
Speaker 1: four bedroom home when that house may be more a
Speaker 1: value to somebody who is younger just starting a family,
Speaker 1: But because the older person in the home is not
Speaker 1: paying the full value of the land, they they would
Speaker 1: rather just stay put than to move somewhere else and
Speaker 1: potentially have to bear more of the cost, or to
Speaker 1: rent and bear more of the cost. So there's there's
Speaker 1: a bit of a problem in terms of allocation of
Speaker 1: real estate. If you're not taxing the land, there's revenue
Speaker 1: to be gained from taxing the value of the land.
Speaker 1: You could put that money towards building more properties. If
Speaker 1: somebody is being taxed the value of the land, they're
Speaker 1: going to want to get more out of that land
Speaker 1: in order to make a profit. So instead of building
Speaker 1: a single family home, you might build a multifamily home.
Speaker 1: Instead of having a land just sit as like a
Speaker 1: golf course or something, you might try to have that
Speaker 1: be commercial space will be of more value to the
Speaker 1: entire community or to the economy. So just on that note,
Speaker 1: I mean you mentioned the value of the land and
Speaker 1: the potential thing that could be built there. How do
Speaker 1: you actually measure land value for the purposes of a
Speaker 1: land tax and would you would you incorporate like potential use,
Speaker 1: So would you look at a site and be like, well,
Speaker 1: you could build you know, a massive, um multi residential
Speaker 1: building here, and so it's going to be a lot
Speaker 1: higher than a different type of land, Like how do
Speaker 1: you do that exactly? Because that, on the surface would
Speaker 1: seem to be quite tricky. Potentially, Yes, it's quite tricky,
Speaker 1: And I think that is um is lost a bit
Speaker 1: when we talked about land value tax, because in theory
Speaker 1: it seems great, like, oh, just do a land value
Speaker 1: tax and everything will be efficient. But I think actually
Speaker 1: assessing the land value tax and of itself would have
Speaker 1: would necessitate au bureaucracy of appraisers who determine what the
Speaker 1: value is in any time you're doing an appraisal. I mean,
Speaker 1: it's basically an algorithm that might determine the value of
Speaker 1: the land, and there's always algorithmic bias. So one issue
Speaker 1: with the current property tax current property taxes in America
Speaker 1: is that black people sometimes are paying more property at
Speaker 1: tax than white people because white homeowners are more likely
Speaker 1: to uh to debate what the actual appraisal is, go
Speaker 1: fight that and try to get appraisal that gets them
Speaker 1: a lower tax burden. So there's room for this kind
Speaker 1: of bias to crop up just in terms of who
Speaker 1: is pushing back on what the appraisal might be or
Speaker 1: what the appraiser is saying is a valuable land. They
Speaker 1: might introduce their own bias if part of that is
Speaker 1: a human error or algorithmic This interesting. I hadn't realized
Speaker 1: that about, but it makes total sense about this sort
Speaker 1: of asymmetry or inequality of who has the resources to
Speaker 1: fight their appraisal. Those same issues would they would theoretically
Speaker 1: arise in either one either a property tax or land
Speaker 1: value tax, or these issues of subjective human judgment, and
Speaker 1: or is there a way because you don't have to
Speaker 1: gauge the actual value of the structure, is there a
Speaker 1: way to make a land value to act somehow more
Speaker 1: equitable and less less able to be gained. I think
Speaker 1: we have to look at look at it on whole.
Speaker 1: Having a land value tax in the first place, I
Speaker 1: think would promote equity because it's it's taxes that would
Speaker 1: be collected more efficiently and could be distributed back to
Speaker 1: a community and possibly help people who are lower income
Speaker 1: or have socioeconomic disadvantages. But it's not going to be
Speaker 1: perfect in terms of collecting that money. It's not perfectly efficient.
Speaker 1: So I think you just have to look at it
Speaker 1: from both sides and and make it a termination. As
Speaker 1: to whether it would be good for society as a whole,
Speaker 1: I think it would be, but I think we would
Speaker 1: have to really have a lot of transparency and how
Speaker 1: appraisals are made and make it easy for anybody to
Speaker 1: to fight an appraisal that they feel like they've been wronged.
Speaker 1: There are ways, I think, through the court system to
Speaker 1: make it fair or make it fair as long as
Speaker 1: we're paying attention. So land taxes do already exist in
Speaker 1: other parts of the world. Can you talk more about
Speaker 1: those existing systems and what impact it's had on house prices, um,
Speaker 1: And I guess society as a whole. So one example
Speaker 1: that comes to mind is Israel. It actually they call
Speaker 1: it a hundred year lease, so you lease land from
Speaker 1: the government. But it's effectively the same as the land
Speaker 1: tax because you're paying this money monthly to the government
Speaker 1: and just you have to pay it regardless of what
Speaker 1: the size of the property is. You can still do
Speaker 1: whatever you want on the property. UM. So it works
Speaker 1: in in effect the same as the land value tax.
Speaker 1: I'm not actually I should look a little bit more
Speaker 1: into housing affordability. In Israel, they have their own land
Speaker 1: issues because a lot of the country is desert, and
Speaker 1: there are other land issues there that I won't even
Speaker 1: get into, but that is one country that comes to mind. Um.
Speaker 1: But yeah, it's interesting though, And I think like Singapore
Speaker 1: also has the has this system where a lot of
Speaker 1: people don't actually technically own their property, but they're in
Speaker 1: these like ultra long term leases. But I guess like
Speaker 1: one of the implications and you sort of hinted at
Speaker 1: it in the very beginning, which is it. It's sort
Speaker 1: of muddies our concept of property ownership a little bit.
Speaker 1: If you're always paying, whether it's a monthly or a
Speaker 1: yearly land value tax, then to some extent implicitly like
Speaker 1: you're always sort of renting your land, and I think
Speaker 1: you even use the term rent, but it's sort of
Speaker 1: just introduces this idea that like everyone is kind of
Speaker 1: a renter or to some extent in this framework. Yeah,
Speaker 1: I think that's an ideological hurdle when it comes to
Speaker 1: land value taxes. And in the book Gone with the Wind,
Speaker 1: Scarlett O'Hare's dad is always railing about property taxes, and
Speaker 1: I has always found it really ironic that like this
Speaker 1: character that owns people is mad that he doesn't pay
Speaker 1: for this land that he thinks he owns. Is entiled
Speaker 1: to anyway. I think another side, I think there's like
Speaker 1: a lot of ideological stuff and whether somebody can actually
Speaker 1: own land or not. Yeah, So just on this note,
Speaker 1: I mean, so two countries that spring to mind for
Speaker 1: me that have this sort of land tax system or
Speaker 1: a rental agreement where you're effectively renting the land from
Speaker 1: the government for long periods of time, Mozambique and China,
Speaker 1: And I mean, I don't know why those two spring
Speaker 1: to mind other than I've spent time in those two countries,
Speaker 1: but like both of those were a legacy of the
Speaker 1: communist government in the respective countries. So I'm trying to
Speaker 1: think how to rephrase this. But what's the likelihood of
Speaker 1: a land tax getting enacted in a place like the US,
Speaker 1: where people really associate property rights with freedom and you know,
Speaker 1: if I buy land, I own it, and I shouldn't
Speaker 1: have to pay a continuous stream of taxes that looks
Speaker 1: a lot like rent to the US government. Well, we
Speaker 1: already have the land value tax embedded within the property tax,
Speaker 1: so I think we already have in some of the
Speaker 1: just I think the question is how high could it
Speaker 1: go where people still feel like they own their land,
Speaker 1: like if it was you know, right, Like I think
Speaker 1: most property taxes are around one to three percent, maybe
Speaker 1: higher in some places, so that's not a huge amount
Speaker 1: you're paying every single every single year. But if that
Speaker 1: creeps up to say ten percent, maybe people won't feel
Speaker 1: like they truly are owning the land. And also a
Speaker 1: cut into the wealth the equity that they gain. One
Speaker 1: of the reasons that home prices go up so much
Speaker 1: is because people aren't actually paying for that value of
Speaker 1: the land. It's to accumulate instead of going back into
Speaker 1: the government or back into the public coffer. If you
Speaker 1: are extracting some of the wealth and putting into the
Speaker 1: public coffer, then people won't have their house as an
Speaker 1: asset anymore, and people might not like that. In America,
Speaker 1: it's interesting, okay, like to this point that the land
Speaker 1: value tax is to some extent embedded in the existing
Speaker 1: property tax. And I'm thinking about like the difference between
Speaker 1: California and Texas and califor manya, And I forget what
Speaker 1: the law is, but it seems like really hard to
Speaker 1: raise property taxes on some people. And what's the effort.
Speaker 1: What's the the law that like makes it like super
Speaker 1: like people get like these really cheap property tax assessments
Speaker 1: in many cases proper thirteen yeah, Whereas in Texas property
Speaker 1: taxes are really high. In fact, there's no state income taxes.
Speaker 1: So the primary revenue generator, or one of the primary
Speaker 1: revenue generators for cities and uh towns is the property tax.
Speaker 1: And Texas is having a housing boom right now, and
Speaker 1: home prices like in Austin, and some cities are sky high.
Speaker 1: But generally speaking, it seems as though Texas has avoided
Speaker 1: some of the housing affordability issues that have really become
Speaker 1: a major crisis in California. Yeah, I think. I think
Speaker 1: property taxes are working the way they are supposed to
Speaker 1: do in Texas. I was in Austin just a couple
Speaker 1: of months ago, and every single apartment building that was,
Speaker 1: you know, over two decades old, was being remodeled. And
Speaker 1: that's what you would do if you have a high
Speaker 1: property tax. When you see that your property tax bill
Speaker 1: is about to go up because home values have gone up,
Speaker 1: you really are motivated to improve the properties you can
Speaker 1: make up that that loss from the property tax. And
Speaker 1: landlords are also passing that on to their renters. Many
Speaker 1: renters are getting hit with big rent increases that aren't
Speaker 1: capped and they have to move out, and then that
Speaker 1: gives a landlord another opportunity to upgrade the property so
Speaker 1: they can get a higher return, or just to rent
Speaker 1: it to somebody who has more money to pay. So
Speaker 1: I think it is causing a lot of disruption to
Speaker 1: the people who actually live in Austin, and and I'm
Speaker 1: sure that it's not easy to get that big rent
Speaker 1: increase and just be told, well, this is the economy,
Speaker 1: pay the market price. But it's it's working as intended
Speaker 1: in in Austin from what I can tell, do you
Speaker 1: think I mean, just going back to what Joe and
Speaker 1: I were sort of discussing in the intro, but do
Speaker 1: you think the balance or the emphasis that America puts
Speaker 1: on home ownership would would things be better if if,
Speaker 1: I guess, people were more accepting of being lifelong renters,
Speaker 1: because you know, again I don't mean to denigrate the
Speaker 1: American dream or anything like that, but in other countries,
Speaker 1: you know, places like Germany or Austria, people will just
Speaker 1: live in an apartment for a long period of time,
Speaker 1: they have more rights as tenants, um, so maybe a
Speaker 1: greater sense of ownership even though they don't actually own
Speaker 1: the space. But would that be a solution to the
Speaker 1: housing crisis, to just not have so much focus placed
Speaker 1: on ownership versus renting. I mean, I'd like there to
Speaker 1: be more of a balance for renters to not feel
Speaker 1: like they are boxed out of creating wealth or that
Speaker 1: they're always being displaced by higher and higher prices. But
Speaker 1: I think that I think there are some advantages to
Speaker 1: home ownership. I mean, it gives you the ability to
Speaker 1: improve your property. If you actually own your house, you
Speaker 1: can be responsible for mowing the lawn and maintaining it,
Speaker 1: putting a new roof on, making it what you wanted
Speaker 1: to be, and putting pride into that. So if you're
Speaker 1: only renting, you might detach people from their homes a
Speaker 1: bit more. But I think that there should be more balance,
Speaker 1: and people shouldn't feel like they're not a cheating success
Speaker 1: just because they are renting. It might just fit better
Speaker 1: with their lifestyle and their own personal financial goals. I'm
Speaker 1: sort of fascinated by this idea that with the land
Speaker 1: value tax, you would sort of be punished implicitly for
Speaker 1: uneconomical uses of your land. So if you just built
Speaker 1: a single house on a property that could theoretically have
Speaker 1: a duplex or a condo, you're sort of you're gonna
Speaker 1: pay more. You're gonna pay a cost for that. Or
Speaker 1: if you just have a golf course, then you're gonna
Speaker 1: pay a cost for that, Or if you just want
Speaker 1: to have a huge property all to yourself, you're gonna
Speaker 1: pay a cost for that. For not developing. How much
Speaker 1: do you think that could catalyze just more creation of
Speaker 1: the housing stock itself. Oh, I think it would certainly
Speaker 1: help it was paired with relaxed zoning laws. I mean,
Speaker 1: part of the housing crisis I think is is single
Speaker 1: family zoning. And if you had a problem if you
Speaker 1: had a land value tax and the home was only
Speaker 1: single family zoning, then the value of that land would
Speaker 1: be less and if it was multifamily zoning. So maybe
Speaker 1: that would actually be an incentive for even cities to
Speaker 1: rethink their zoning if they knew that they could get
Speaker 1: more tax revenue with better zoning. Um, So that that
Speaker 1: could help in that sense. But yes, I think that
Speaker 1: a land value tax motivates a homeowner to sell if
Speaker 1: their home would be more valuable as a duplex or
Speaker 1: a triplex, or maybe they would be the ones to
Speaker 1: actually add in those extra units or put a granny
Speaker 1: flat in or whatever, so they could get revenue to
Speaker 1: make up for the property tax for the land value
Speaker 1: tax rather m So, even if a land tax was enacted,
Speaker 1: you know, let's say tomorrow, it feels like it would
Speaker 1: take just because housing takes a while to build, it
Speaker 1: feels like it would take a while until we got
Speaker 1: fresh construction and greater supply, So I guess I don't know.
Speaker 1: It just kind of feels like this particular generation of
Speaker 1: homeowners or potential homeowners, like millennials, are just screwed. Yeah,
Speaker 1: Like you know, it just feels like there's we've come
Speaker 1: up against like a choke point in the system, and
Speaker 1: there's no good way of rectifying it quickly. I think
Speaker 1: from I think from a certain perspective that is true,
Speaker 1: especially for millennials who grew up in a certain place
Speaker 1: and always dreamed of owning a home like their parents
Speaker 1: did in that place. I think that is very difficult.
Speaker 1: You can't stay in the same socio economic status and
Speaker 1: still expect to achieve the things that your parents did,
Speaker 1: just because we didn't build enough homes for everyone to
Speaker 1: have that same, that same American dream. But if millennials
Speaker 1: kind of rethink what the dream means for them, maybe
Speaker 1: living in a more affordable area, moving to a different
Speaker 1: part of the country, living in a condo or a
Speaker 1: multifamily home instead of a single family home, I think
Speaker 1: that they can still still achieve economic prosperity. It might
Speaker 1: just not look the way that they thought it would
Speaker 1: look twenty years ago. Well, are the millennial parents? Are
Speaker 1: the boomers ever going to sell their homes? I mean
Speaker 1: you mentioned people staying in their homes for longer than
Speaker 1: maybe they need to, even after the kids have moved out.
Speaker 1: And it feels like this has come you know, there's
Speaker 1: come up on prior episode, Like it feels like everyone
Speaker 1: is waiting for this to happen, this wave of supply
Speaker 1: that's going to come to the market, But like, is
Speaker 1: that actually gonna happen or is it always going to
Speaker 1: be like years out And it's always like this sort
Speaker 1: of dream that it happens, but it never actually transpires.
Speaker 1: And I don't think it's going to happen in the
Speaker 1: next decade, just because baby boomers aren't that old and
Speaker 1: life expectancies are going up, and it's hard to predict
Speaker 1: out farther than a decade because it's so much a
Speaker 1: policy choice. Like people ask me a lot about like, oh,
Speaker 1: there's a witness wave millennials, what about gen Z? Because
Speaker 1: gen Z is slightly smaller than millennials, But gen Z
Speaker 1: is a smaller generation because of a policy choice. We
Speaker 1: had much more immigration that promoted the size of the
Speaker 1: millennial generation and we kind of cut back on immigration
Speaker 1: since then. So we would choose to be a country
Speaker 1: that can grow and can accommodate more people if we
Speaker 1: had better housing policies. So, but we can also shoot
Speaker 1: ourselves in the foot and not and not promote immigration
Speaker 1: or growth and keep in this kind of same state.
Speaker 1: So the other thing that we spoke a bit about
Speaker 1: in the intro was just the stress of the housing
Speaker 1: market and people, you know, get worried when house prices
Speaker 1: go up and it affects affordability for potential buyers, and
Speaker 1: then people get worried when they start going down because
Speaker 1: if you're a homeowner, you're losing equity and losing wealth.
Speaker 1: Um Is is there a way too, you know, especially
Speaker 1: in the current environment where mortgage rates have gone up
Speaker 1: and we are starting to see some softness in the market, Like,
Speaker 1: how should we be looking at house prices in the environment,
Speaker 1: Because there were plenty of people saying that the past
Speaker 1: year has past year or two have been problematic because
Speaker 1: people are getting priced out of where they want to buy.
Speaker 1: Um And on the other hand, a lot of people
Speaker 1: who bought over the past couple of years, myself included,
Speaker 1: are probably going to be worried one house prices start
Speaker 1: going down. Yeah, I think you said it well. But
Speaker 1: if you haven't bought a home, home prices going up
Speaker 1: is a is a real problem. If you already owned
Speaker 1: a home, home prices going up isn't so bad, but
Speaker 1: it can have other perverse effects on the economy that
Speaker 1: might impact you. So maybe if you live in uh,
Speaker 1: let's say a city like Austin and home values have
Speaker 1: gone up, you're going to be paying more in property tax.
Speaker 1: As home values go up, You're gonna probably paying more
Speaker 1: for groceries because people need to make more to work
Speaker 1: at the grocery store to afford their rent. And you
Speaker 1: might just see more inflation across the board. Redfen did
Speaker 1: a study of war inflation was going up the most,
Speaker 1: and it's going up faster. And migration destinations the places
Speaker 1: people are moving to than the places people are leaving,
Speaker 1: like San Francisco or New York of Los Angeles. Do
Speaker 1: you think it's possible that we'll see a nationwide price
Speaker 1: decline like because I think people have been skipping like
Speaker 1: other things will slow down or will be see an
Speaker 1: end of bidding wars, But the underlying average price is
Speaker 1: still going up. Do you think an actual like nominal
Speaker 1: home price decline is possible. Redfin is forecasting home price
Speaker 1: growth to slow to seven percent by the end of
Speaker 1: the year. That's compared to the previous year UH and
Speaker 1: by three for annual price growth to slow to about
Speaker 1: three by spring. So home prices were expecting to stay positive,
Speaker 1: but to really start to slow down to a very
Speaker 1: slow pace. One interesting thing we didn't talk about is
Speaker 1: negative land value taxes UM. So the idea is that
Speaker 1: a place like Flint, Michigan, for example, their land value
Speaker 1: was deteriorated because of the lead in the water. So
Speaker 1: maybe we should be sending chucks to people who own
Speaker 1: land there because of the way that the government kind
Speaker 1: of failed them in terms of the infrastructure. It's interesting
Speaker 1: ahead and thought about that. So would then necessitate in theory, though,
Speaker 1: that any sort of land value tax be sort of
Speaker 1: done on a national basis or like like it would
Speaker 1: it be optimal in general to not have this highly
Speaker 1: patchwork system of property taxes that are idiosyncratic by city
Speaker 1: and state and to come up with some sort of
Speaker 1: more national national tax code when it comes to real estate. Possibly,
Speaker 1: I mean the government does it for flood insurance. They
Speaker 1: come up with a property level flood insurance premium that's
Speaker 1: done at the national level, So they definitely could. And
Speaker 1: I think the more data you put into the model
Speaker 1: the better it would be. In theory, models were never perfect,
Speaker 1: but the more data the better generally. So one thing
Speaker 1: I was wondering about was, I guess conservation versus incentivizing
Speaker 1: people to to build on things, because there there would
Speaker 1: be some areas, presumably where you wouldn't want people to
Speaker 1: be incentivized to build a skyscraper or you know, multi
Speaker 1: story residential housing or whatever is that would that be
Speaker 1: taking care of by zoning laws or like, how do
Speaker 1: you reconcile different potential uses of land with the land
Speaker 1: tax and the incentives that it creates. I mean, you
Speaker 1: could put a value on just about anything. You could
Speaker 1: incorporate the carbon value of land if there is some
Speaker 1: if they're like, say that carbon is valued at some
Speaker 1: dollar per ton, and having a bunch of trees on
Speaker 1: land absorbs that carbon. You could put a dollar value
Speaker 1: on that value, on the value of having the land
Speaker 1: remain vacant, and you can give credits to people who
Speaker 1: who do that kind of activity. So I think the
Speaker 1: land value tax. You can get really creative with it
Speaker 1: and try to incorporate a lot of different kind of values.
Speaker 1: Like you mentioned, there's value and having a park that
Speaker 1: goes the public even though you're not actually charging people
Speaker 1: to use the park. But I'm sure clutter economists could
Speaker 1: come up with some estimate of the value to be used.
Speaker 1: So one of the perverse things about right now is like, Okay,
Speaker 1: how's it up until very recently with the mortgage rade jump,
Speaker 1: but how's it has gotten less and less affordable? And
Speaker 1: so people are stuck in renting. But renting itself has
Speaker 1: all kinds of problems to For one, rent prices have
Speaker 1: surge too. You can't lock in a rent price very easily,
Speaker 1: so not they keep going up year after year. You're like,
Speaker 1: you're you're not on the housing ladder, but you're also
Speaker 1: falling behind potentially if your wages don't keep up with
Speaker 1: your rent What do you see happening on the rental side?
Speaker 1: And you know you mentioned that prices or that your
Speaker 1: forecasts are for prices to cool off, would you expect
Speaker 1: rental inflation to cool off roughly in line with the
Speaker 1: cooling off of housing prices or can the two move separately.
Speaker 1: It really depends on what measure of rentalation we're talking about,
Speaker 1: because asking rents for the for rentals that are on
Speaker 1: the market currently, uh, those peaked last month. I think
Speaker 1: it was eighteen percent up year every year, and now
Speaker 1: it's down to like seventeen percent year every year. So
Speaker 1: we seem to be past the hump in terms of
Speaker 1: home or apartments that are on the market. But that's
Speaker 1: going to trickle into all other rentals in terms of
Speaker 1: what people are paying on their lease each and every year,
Speaker 1: because if you're in a rental for a long time,
Speaker 1: then maybe your rent was sent who was actually set
Speaker 1: a couple of years ago and isn't updated as frequently.
Speaker 1: Landlords tend to like keeping tenants because it's lower costs
Speaker 1: for them than finding a new one. So I don't
Speaker 1: think it's the end of rental inflation in terms of
Speaker 1: how much people are actually paying, but at least the
Speaker 1: fuel is no longer being poured on the fire. It
Speaker 1: seems so obvious question what is the possibility of a
Speaker 1: land tax actually getting enacted in the US, And is
Speaker 1: there anyone out there currently who who's making noises about
Speaker 1: this or or advocating for it. There's an online community
Speaker 1: of people who are who are very into land taxes,
Speaker 1: the Lincoln Land Institute, I'll shot them out. They do
Speaker 1: a lot of work in terms of educating at more
Speaker 1: the municipal level how policymakers should should use their land
Speaker 1: to tax it or at lease their land as an
Speaker 1: alternative land taxes. So so there are this is happening
Speaker 1: at a local level. At a federal level, I'm not
Speaker 1: sure it's even constitutional for the government to have a
Speaker 1: federal land tax. I think it violates the Commerce Cloud
Speaker 1: or something like that. But perhaps they could could at
Speaker 1: least set up the infrastructure for it to be easier
Speaker 1: for municipalities to adopt one. There's definitely a very vocal
Speaker 1: online community about mixing all of these sort of zoning
Speaker 1: reforms and changing land taxes. But the gap between actually
Speaker 1: sort of like, yes, this makes a lot of sense
Speaker 1: on paper versus Okay, we're gonna have this sort of
Speaker 1: new framework where your house is not necessarily going to
Speaker 1: be your economic nest egg. Still seems like a pretty huge,
Speaker 1: uh wall to overcome, so to speak. Well, we're starting now.
Speaker 1: You start calling, call your local politicians. Yeah, everything starts
Speaker 1: online through tweeting these days, so eventually, eventually, just like
Speaker 1: it was your tweet Darryl about that's like, oh well,
Speaker 1: this is why we have to do an odd episode anyway,
Speaker 1: you start start with tweeting and then the world changes absolutely.
Speaker 1: All right, Well, Darryl, thank you so much for coming
Speaker 1: on ODDS. Thank you. This is great. Yeah. Thanks. So,
Speaker 1: I thought that was really interesting and this idea that
Speaker 1: you know, we talked about renting or owning property versus say,
Speaker 1: renting it very long term from the government. Those seem
Speaker 1: like really two different things, but they're not necessarily like
Speaker 1: that different. And some of it is just like slightly
Speaker 1: reframing how we think of things, or is this attacks
Speaker 1: or rent what seems like a radical difference, maybe maybe
Speaker 1: a bit more subtle. Yeah, yeah, um, but part of me,
Speaker 1: I mean part of me just thinks whatever someone says
Speaker 1: we're going to solve this problem with an extra attacks
Speaker 1: like you will immediately get a knee jerk reaction, certainly
Speaker 1: in Washington. And I think there's something about homeownership in
Speaker 1: America in particular that just makes it such an emotional
Speaker 1: topic that it feels like it's a very difficult system
Speaker 1: to change. Oh, it's incredibly difficult to change or the
Speaker 1: idea like all these zoning requirements and despite all the
Speaker 1: housing shortages of the frustration because like you want to
Speaker 1: change one thing, like you'll read about like the herculean
Speaker 1: efforts that a developer had to go through to be
Speaker 1: able to like build a duplex somewhere or the like
Speaker 1: in California, they like try passing a law so that
Speaker 1: a condo condominium building could be like built within a
Speaker 1: few blocks of a train station. All of these things
Speaker 1: that seem kind of modest just run into incredible blockages
Speaker 1: politically still though, like thinking about these like all their
Speaker 1: countries where they might do something like a hundred year
Speaker 1: lease as opposed to owning the land outright, and you know,
Speaker 1: Singapore has that, and we don't think of like Singapore
Speaker 1: is being like you know, I think Singapore is a
Speaker 1: reputation for being like a pretty free market economy. So
Speaker 1: it is interesting that even within the sort of free
Speaker 1: market economies, there are different ways of conceptualizing homeownership or
Speaker 1: what it means to occupy a certain piece of land
Speaker 1: or property. Yeah, well, I mean I I do agree
Speaker 1: that there, and I think a lot of real estate
Speaker 1: developers would would probably say this too, but like there
Speaker 1: is a perverse incentive that is created by the emphasis
Speaker 1: on property tax and the idea that if you improve
Speaker 1: a property or if it goes up in value, you're
Speaker 1: going to have to pay more for that. Like that
Speaker 1: just on its face seems kind of weird, especially when
Speaker 1: we're talking about housing shortage and the need to create
Speaker 1: more units and better units, preferably well, and I like
Speaker 1: that point though, And it seems like a case for
Speaker 1: the land value tax, which is okay, if you're gonna
Speaker 1: you know, the property tax or in your case, it
Speaker 1: might seem like it's penalizing you for improving the property.
Speaker 1: But if you also had a penalty for not improving
Speaker 1: your property because you're essentially paying more for the same
Speaker 1: thing because the value of the land we're going up,
Speaker 1: then you might counteract that and you might get this
Speaker 1: sort of like the greater economic incentive to actually the
Speaker 1: build out property. So I sort of think it's an
Speaker 1: interesting idea from sort of basically counteracting the perverse negative
Speaker 1: effects of the property text alone. Totally. I mean, definitely,
Speaker 1: I guess I'm just cynical nowadays, but yeah, I am. Yeah, Okay,
Speaker 1: shall we leave it that? Leave it there. This has
Speaker 1: been another episode of the All Thoughts podcast. I'm Tracy Alloway.
Speaker 1: You can follow me on Twitter at Tracy Alloway and
Speaker 1: I'm Joe wi Isn't Thal. You can follow me on
Speaker 1: Twitter at The Stalwart. Follow our guest Darryl Fairweather. She's
Speaker 1: at fair Weather pH D. Follow our producer Carmen Rodriguez
Speaker 1: at Carmen Arman. Follow the Bloomberg head of podcast Forcesca
Speaker 1: Levi at Francesca Today, and check out all of our
Speaker 1: podcasts at Bloomberg under the handle at podcasts. Thanks for
Speaker 1: listening to Take Tea. It takes t things. Take to Tea.