Purchasing Housing without the land

http://politicallyuntenable.blogspot.com/2012/09/landless-housing.html

It's an idea I've had floating about and it's not fully developed but basically the idea is to change the way you purchase housing (and by extension all buildings).

Basically, land has no value and is always owned by the government. You never buy land, sell land and by extension trade land. The government slowly buys up land and then commits to open bids for housing development. This housing is then sold at a price that correlates with the material/labour cost of the housing, meaning that the same quality of housing will fetch the same sale price in Richmond as it does in East Vancouver. A crazy idea yes, that same quality of housing will fetch the same price.

However, it does have significant effects. For instance, because price reflects only material/labour cost, your house actually depreciates in value over time unless you put in renovations/repairs to keep up the material value of the house.

But, if you spend say $600 000 on a house, you get a house that took $600 000 to build. All of the money goes into the quality of the housing and none of it into the obscure idea of land ownership, when the land never changed.

Housing is no longer an investment but at the same time the price reflects what you are buying.

But what about gardens/lawnrings? Normally they're part of the land...

And the fact that some locations are just better places to have a house. The same house on a beach is not equivalent to the same house twenty miles inland. You can't divorce house values from where they sit without fundamentally re-landscaping the planet so that everywhere has the same features (lakes, oceans, powerlines, internet access), lawn, and climate.

With no offense meant to the OP, that isn't politically untenable, it's just untenable, period.

Objection #1: There are tons of things to do with land besides plunk a house on it.

Objection #2: For many people, the land associated with a house is as important or more important than the house itself in determining whether they want to live there.

Objection #3: Under this system, people in cities would be even worse off housing wise, as they now pay top dollar for their chunk of apartment block while joe redneck's shack on 5 acres has now become even cheaper.

Objection #4: Even if the above 3 problems didn't exist, people would still have different preferences, and if housing prices were enforced to be uniform there would be no fair way to assign the most desirable spots.

While this version of buying houses without buying land is unworkable the idea in general can work. Here (Norway) it's actually pretty common for people to own a house built on land they're only leasing. It does require a lot of legal restrictions on the ability to alter the leasing contract though, since you can't move a house if you find the changes to the contract unacceptable.

Leasehold? That's fairly common, even in the UK.

Is it? I'd never heard about it anywhere else. Learn something new every day I guess.

We have condos in the US, where people buy part of the building, but the person they buy it from retains land ownership and ownership of the non-private parts of the building. It's like renting an apartment, only not.

edited 13th Sep '12 7:46:01 AM by DrunkGirlfriend

It mentioned in one of the Discworld books that the Assassins Guild owns their building but the land under it belongs to the Ramkin family.

China has something similar.

"Private Property" doesn't really exsist when it comes to land so technically, the Government owns all the land and is the ultimate landlord (ironic considering landlords were one of the "enemies" of the people targeted during communist times).

What the government does is allow you to rent the space above the land for a time.

Usually about 50 years at a time if you want to settle down or put up a factory/plant.

The value of the improvement built on top of the land belong to whoever pays the government taxes on it, so in a way, it does penalize one for improving property but as long as the tax is low and excemption zones exsist (to promote certain industries in a given area), it shouldn't be a problem.

Housing is a bit messier since people tend to want to own/belong to a place they call home, but as long as this isn't seen as a "right" and more like a dream that may or not be feasible in a lifetime, the complaints shouldn't be so bad.

edited 13th Sep '12 8:59:51 AM by Natasel

@ Edwards Grizzly

Much offence taken! Anyway,

1) There are also additional policies beyond land value price, so you'll have to name each thing beyond land specifically and talk about those specific policies.

2) The point here is that land value doesn't matter. Therefore there's no market value associated with land. Obviously some land will be more desirable than others, not due to the neighbourhood, but due to the geography. What is important here is to understand what you are saying.

You're saying that you want the market to determine the value of land that is more desirable, versus land that is not, in order to increase the price of housing in areas that are geographically nicer. So, the ultimate goal here is that people who have more income/wealth, are able to acquire the more desirable housing, and those with less wealth are priced out of the situation. To me, I don't care, so I remove this portion of market pricing, leaving geographically desirable areas with the same price.

3) I'm not sure I'm clear on this consequence. If you're paying more money for the housing, it has better quality. Basically, I'm unsure as to your reasoning on how urban housing prices would stay the same for the same quality when the primary reason they are more expensive is due 100% to land value.

4) This is completely philosophical. You're saying it is "untenable" over "politically untenable", yet this is exactly what it is that you are claiming it to be; politically untenable. All of your objections basically revolve around "but you aren't doing it free market style, therefore it is wrong".

If you want a super nice house, you pay more money for it. If you can only afford a crappier house, you pay less money. That is how it remains. The point is that the price you pay actually reflects the quality of the house. If the only people who buy homes on a beach go with a construction bid that says "we'll build real stone/timber homes for a million dollars each", only those who can afford such homes will press for that bid to pass and that's what will get built. I haven't really eliminated the free market, I just made it actually reflect the quality of housing. The land will be owned by the government at all times and you merely lease the use of it. This is versus "I'll pay a million dollars for the land and then spend another million dollars to build the nice house".

@ All

Yeah the concept requires a significant difference in how housing is purchased and maintained. As it's no longer an investment, it's now more like how businesses build capital.

The problem is, this approach requires governments to ignore a potential source of revenue.

It's not really a matter of free market vs command economy, it's a matter of basic incentives and economics.

Suppose we do what you say. Suddenly incentives go all screwy. A house on 15 acres is now mandated to cost the same as a similar house with 6 inches of gravel on each side between it and the next house. So nobody will buy the second house: whoever owns it will be stuck with it. Meanwhile the first, vastly more desirable house will have several people who want to buy it. One of two things can happen here:

A) The sellers arbitrarily pick and choose who to sell to. A mafia-like underground forms where people pay favors under the table to get preference in housing purchases. People without influence are left out in the cold.

B) The buyers bribe sellers to sell the more desirable houses to them. The more valuable the house, the higher the bribe is bid up, leaving us back at square one except now everything is done off the record and illegally.

Ok, I lied. Both of those options are the same. There's only one possible outcome: because houses vary in desirability, people use the resources at their disposal attempt to get the more desirable houses for themselves. No amount of policy can change that, unless you just assign each person to a house by random die roll.

EDIT: oh, and in response to this:

Houses in rural areas tend to be less fancy but come with more land. Now that house quality is the only determiner of price, nice city houses on postage stamps cost much more than older rural houses on sprawling acreage.

edited 13th Sep '12 11:01:03 AM by EdwardsGrizzly

And it requires people who buy and sell houses to ignore the fact that there are going to be people who offer them more money to live in the nicer areas. You end up exactly where you are now but with people having no rights to improve the areas that they live in outside of their homes. That makes the housing situation worse for everyone.

edited 13th Sep '12 10:52:17 AM by shimaspawn

The level of government control that would be required makes it untenable, not simply politically untenable. Other factors that affect how much a house is worth besides the actual actual cost of its construction:

• School district;
• neighborhood safety/reputation;
• availability of parking
  and/or
  * proximity to and quality of public transportation;
• Amenities in the area
• geophysical characteristics of the land: is it in a floodplain? on a steep slope? backing onto a ravine or stream? what kind of soil does it have? (clayey or sandy would be less desirable to someone who likes to garden, for instance)

• Personal preferences.

There's a whole lot of reasons that the mantra of Realtors and real estate agents is "Location, Location, Location."

edited 13th Sep '12 11:01:07 AM by Madrugada

So I think there's a misunderstanding on how this works and what I mean.

Desirability of Location

Generally speaking, areas that are more desirable have more money put up to purchase the land and the associated housing on that land. Without land value, land is no longer the tool through which the market prices out individuals. Instead, it would be based on the bidding process. If there is significantly more money involved, then bids with higher quality construction can be demanded and win the bidding process. This would mean that more desirable locations have higher quality construction demanded.

Lawns/Gardens

Without the ability to own land, at best you could rent it for use (such as to build a factory on it, or to construct a home/condo on top), then the concept of lawns and gardens becomes complicated. Renting is nothing more complicated than paying property taxes.

In a single detached home situation, which typically comes with a lawn, there could be a reintroduction of common area. For attached homes, condos and the like, common areas already exist. Generally, the government wouldn't be in the business of putting various restrictions (beyond the usual city by-laws) on land use, even if the ownership is ultimately the government but rather leave the common area to be shared by communities.

It would involve a significant restructuring of urban planning (while rural areas are likely to be much less affected since problems only arise between home-owners). For instance, to build a common park behind a group of homes and a small separation distance to a sidewalk to the front (perhaps with trees in the area for northern United States and Canada, otherwise more local vegetation for southern United States). Or, a row of townhouses could have a common garden area and a small park. There would be many options and the group of people who win a construction bid would decide on the type of common area.

Bidding Process

When individuals travel to "historic" cities such as Paris, they are likely to admire the small shops, the bakeries and the lack of strip malls and other modern construction. What is less apparent is the significant government interference required to maintain this "style". Some of the largest objections against land lacking value is that it is difficult to ignore the desirability of land in pricing (a person who sells a house on a beach expects to fetch a higher price than selling exactly the same quality of house in some marshland) and lack of private area.

Generally, this logic extends a bit further in that demanding full free market for construction is also a public demand for strip malls, lack of small shops, the absence of small independent stores and the growth of big business. Whether that is desirable is not considered. Rather, the consequences of land without value is considered.

Firstly, the bidding process would heavily depend on zoning restrictions. These are the primary tools to determine whether small businesses will thrive, or large strip malls will replace the landscape. City officials in cooperation with an organisation such as Canada Mortgage and Housing Corporation (or some new organisation in the United States). Depending on the type of zoning restrictions, it would specify what types of construction bids will exist. After that, individuals will have to express interest. Now, after this, is the key political consideration. On what factors should construction bids win other than price for quality? Does the number of individuals matter more than the money they put up? If it was desired that the system work similar to how housing is acquired today, then the amount of money a group is willing to put up for a construction bid will have their bid win. Otherwise, if it were desired that the number of people mattered more, therefore more people can acquire housing, then city councils would decide to let that group decide a winning construction bid.

Secondly, maintaining a small/medium business "style" to a city is a matter of concentrating individuals, spreading out poverty, maintain high levels of city services and enforce construction bids strictly (you get what you pay for without need of signing a million contracts with heavy fines for people who try to weasel out of a construction bid). Other policies that maintain style include having first floors of condos as business units. Government using land for small business areas, rather than approving strip mall construction.

Third, the new system does not mandate prices. Rent control mandates prices. This already exists in many parts of the world and used to great effect to keep prices stable and allow renters to move into house ownership by restricting rent prices. As land value changes, rent cannot change beyond inflation.

Fourth, there is actually a decrease in government interference. Government conducts land transfer tax and property tax, plus associated builder's fees. If land has no value, this is likely to go away (except for environmental charges to builders). So in fact, complaints that there will be more government is illogical. There is a decrease in what government needs to do.

Fifth, free market land pricing mechanisms is an argument for ghettos and rich/poor neighbourhoods. It is understandable that having lived for so long in a society in which free market land prices have reigned for such a long time, in terms of North American history, that it would seem strange that land holds no value but government has always and will continue to be a large part of how land is handled and divided amongst people. Today we utilise the free market, moreso in America than in Canada, but overall everyone has some element of the free market to determine the price. But it must be a key part of any policy statement to understand the overall meaning and consequences of that structure. One should not blindly state "but if land has no value, how else can you assign prices?", well there are many ways, all of which would reflect the quality of housing versus the location. Demanding free market land value prices necessarily prices people and locations into specific income strata which is the primary reason for the formation of ghettos and neighbourhood income divides. That has a significant negative consequence on society.

As a general rule, the idea that free market exists with housing is heavily flawed. Because land doesn't move or grow in size, free market ideas do not follow as well as it does with luxury products that can be built, packaged, stockpiled, moved around, sit on shelves or bought/sold on floating prices.

edited 13th Sep '12 7:58:47 PM by breadloaf

This makes no sense. If, as you say, the price of housing is set at a certain proportion of the cost to build that housing, there is no incentive for contractors to build more expensive housing on better land. Their profits are the same whether they build 15 shacks for $10,000 or one upper-class residence for $150,000. No matter what the contractors do, we'll still end up in a situation where absolutely no one will want to buy housing in undesirable locations, because no matter what quality of house is sitting on the plot, the same quality house somewhere else will be much better for the same price.

How do you intend to resolve the competition for desirable locations? A house in New York is very expensive because a lot of people want to live in New York. Under your system, the people who currently buy houses further out and commute to work because they save money by doing so will all line up for the closest house. How will you determine who gets it?

@ Edward Grizzly

I think your argument is sorta like saying "But without the free market, how would you have the free market?". Housing has always been heavily controlled by government forces all throughout history because land is the most scarce resource and the one thing most protected by the government.

I'm not sure what you mean by incentive for contractors to build a $10 000 home in expensive land versus $150 000. A construction bid only passes if people put up the money for it and local government determines the process by which a bid wins. For you, you would likely demand that the group that puts up the most money gets to win the selection process. That group decides what construction bid wins after putting money into a deposit. All of the money goes into house construction and not into land purchasing.

Essentially, your question is "If you take away the price of an item, how much does it cost?". The question no longer makes sense. Let me liken it to another necessity of life; healthcare. If I took price away from healthcare, there is a bunch of people who want various forms of healthcare (such as an MRI scan) but not everyone can get it right away. Without a price, how could we possibly arrange healthcare? Well, from your perspective, apparently we no longer can assign healthcare and it's total bullshit. :)

But, the reality is, we assign in another way. I haven't actually taken away the free market with this policy, I'm only shifting it into a situation where you CAN remove the free market if you want. You seem to keep talking about price fixing, or price mandates or whatever, yet nowhere in any post have I stated any such thing yet you keep repeating it. I'm starting to think you're talking about a model that is totally alien to mine but regardless, if you want a free market, zoning laws are the way to go. If an area is more desirable the local government can always mandate that only expensive housing can be built in the area, zoning laws depend on the amount of money people are willing to put into development in the area. Or you change the way local government grants permits when petitioned by developers. Anyway, I'm saying that price REFLECTS material/labour, I did not say government sets the price, or that there are price mandates or whatever, I'm saying that when you pay $1 000 000 for a house, it's because it cost that much to build it. If land is more desirable then people are more willing to put up money for it, then the government is the one that decides how that money is going to be spent.

edited 15th Sep '12 12:22:37 AM by breadloaf

This is still all relying on governments turning down revenue.

When a thousand rich businessmen turn up asking to buy their preferred plots of land for fifty thousand dollars each, is the government supposed to ignore the votes they could secure with a fifty million dollar tax cut?

Yes. I expect government to not be corrupt. I don't call these ideas politically untenable for no reason.

EDIT:

Also, thinking about it for a second, I'm not familiar enough with the system in the United States to comment but I'll say something about the Canadian system. Generally the issue with municipal income is that their only forms of revenue are builder's fees, land transfer taxes, property taxes and a few other things. Now, with property taxes it doesn't matter if people are rich or poor, as long as someone owns the land they get paid. Builder's fees are short term income in return for urban sprawl... so poor urban planning due to too many greedy short term decisions lead to significant long term costs for a city.

I'd like to, or prefer to, have a municipal income tax to replace the vast majority of it all. Roll it into the provincial tax rate and cut a portion out to municipalities based on some "equalisation" formula if you will. Probably something to do with land area and population, and something that encourages higher population density. Municipal governments don't officially exist in Canada, so it'll take a piece of legislation to mandate blank cheque income to municipalities from the provincial governments. I say blank cheque because I don't think municipal income should be tied to mandates. Extra income can be tied to mandates.

edited 15th Sep '12 12:28:28 AM by breadloaf

I'm really not sure how you just declare that land has no value, only the structure on top has value. The land itself tends to dictate what you can build/use it for, in conjunction with what is around it.

@breadloaf: What I am saying is that even if you manage to totally control housing sellers, the free market will still exist for the buyers, because people will still want nice things for themselves.

Maybe an example will help: Right now, beachfront property is very expensive. The reason it is expensive is that a lot of people want to live there and there isn't very much room for them to live in. Fortunately, with the free market, when demand exceeds supply the price goes up until eventually some of the people who would like to live on the beach decide they would rather live somewhere cheaper, and then there is enough houses to go around for everyone who is left.

In the same say, land is cheap in the inland desert because few people want to live there and there is plenty of room for them to live in. Thanks to the free market, when supply exceeds demand the price goes down until some people who would normally not choose to live in the desert decide to move there because of how much money they can save. Thus, the desert's houses don't sit empty.

Now, under your system you would take away the advantage of living in the desert and take away the cost of living on the beach. What will happen if you do this is suddenly a lot more people will want to live on the beach and a lot less people will want to live in the desert. So where before you might have had 2 million people who want to live in the desert and 2 million people who want to live on the beach, now you have 3 million people who want to live in the 2 million houses on the beach, and only 1 million people who want to live in the 2 million houses in the desert.

So what do you say to those 3 million people who want to live on the beach? You can't just build more houses: the environmentalists make enough stink about sea turtles as it is. Do you just pick your least favorite million and tell them too bad? Do you have a random drawing for who gets to live in their desired place? No matter what you do, you're going to have 1 million very unhappy people who get left out in the cold despite being just as deserving as the 2 million lucky winners you choose.

Meanwhile, out in the desert you have a ghost town! Half the houses are empty because nobody wants to live in them. Again, what do you do? Do you round up a million people somewhere and force them to live in the desert whether they want to or not? Do you wave some special magic wand you have and make the desert just as nice as the beach? If you can do that you can fix the world's housing problems with no need to mess with the free market.

@ Deboss

Why not? Government determines exactly the value of land and it's use via by-laws and zoning. People can't just build whatever the heck they want anywhere they want, nor can they buy any land they feel like.

@ Edwards

Not sure I understand your example. How is it different in your "thanks to the free market"... millions of different group of people are forced out of that location. You do realise you are still provisioning housing only by a different mechanism right? I'm essentially unclear how there is any different number of people without the waterfront housing in either case. You are literally saying "Without the free market, how is there a free market?". It's a tautological argument I don't know how to proceed against.

I'm saying that the price will reflect the cost of the house. If you want to provision housing by price, then the difference is that whoever pays the most money will get rights to select the winning construction bid. If you want.

There are other ways you can provision housing of course but you appear to be adamant about money being it and so there it is.

This is exactly the private healthcare argument. Let me give you an example. I have 3 MRI stations which can only service 30 people a month. I have 500 people who need an MRI. Who gets an MRI first?

Or here's a provisioning scheme for your free market.

Local government slowly assumes control of land as structures become old and must be replaced, the land is instead sold off to the government. You have to buy permits to be allowed to build new stuff on that land. Permits are sold at floating price. Money goes into escrow to be used for whatever construction the person wishes to do once they win a permit.

edited 15th Sep '12 2:47:37 PM by breadloaf

I'm going to be blunt here. You are WRONG about this. The government restrictions and limits affect the value of the land to some highly variable degree. They do not determine it exactly. Not by a long shot. When I was house shopping I looked at several houses, all in roughly the same neighborhood, and with comparable construction and size. All of them met the exact same zoning regulations. The prices varied wildly. I chose the one I did because of the property it was on — its location relative to the local stores, and the bus stop, the fact that it had an off-road parking area, the fact that it was closer to the fire station and farther from the grade school, and the fact that the yard had two huge maple trees and a lilac bush. I bought this house as much because of the land as because of the house.

edited 15th Sep '12 2:52:18 PM by Madrugada

@ Madrugada

You can be blunt and you can declare me wrong but let me give you a few examples of you being flat wrong as well.

• Land used for highways
• Land used for building military bases
• Land used for government buildings

Government lets land have float prices if it wants, or it kills that notion when it wants.