In this episode, we’re joined by urban economist Stephen Hoskins to discuss the relationship between zoning and land value. This episode was cohosted by Lars Doucet.
William Jarvis 0:05
Hey folks, welcome to narratives. narratives is a podcast exploring the ways in which the world is better than in the past, the ways it is worse in the past, where it’s a better, more definite vision of the future. I’m your host, William Jarvis. And I want to thank you for taking the time out of your day to listen to this episode. I hope you enjoy it. You can find show notes, transcripts and videos at narratives podcast.com. Additionally, in this episode, my friend Lars du se joins us as a co host.
Will Jarvis 0:40
Well, Steve, how are you doing this afternoon?
Steve Hoskins 0:43
I’m doing very well. Well, thank you for having me on the podcast?
Will Jarvis 0:48
Absolutely. Absolutely. Do you mind giving us a brief bio and some of the big ideas you’re interested in?
Steve Hoskins 0:54
Yeah, sure. So as you can tell from the accent, I’m a New Zealander. After graduating with a degree in economics, I worked in kind of urban issues for five years there, a lot of housing and transportation type stuff. Then I went off traveling the world and sort of ended up in Singapore working in health and labor economics. And basically, what’s been niggling at me for the last 10 years or so, is a frustration with the housing market, which is basically, you know, stuffed everywhere. And just the love of cities and wanting to make them better. And how that’s kind of channeled into my career is, I’ve eventually settled on the idea that Henry George’s, you know, prescriptions for shifting the tax base onto land are some of the most important lessons that economists, people involved in housing policy and the entire public can learn. And I’m kind of directing my career along the pathway of trying to convince people that that’s really what we need to be doing to fix our cities, fix our inequality and solve a lot of social problems as well.
Will Jarvis 1:59
Can you talk a little bit about how, you know, the current political discourse is kind of framed as this conflict between capital and workers, you know, like you hear like workers of the world unite. You know, this is kind of this famous socialist tagline. You know, Thomas Piketty writes a lot. And I’m sure butcher just I’m sure I pronounce his name wrong, Katie, I’m not sure. Yeah, exactly. Exactly. You know, he wrote this book Capital in the 21st century, it’s all about how all of the inequality is driven by these excess returns to capital. Can you talk about how, you know, maybe that that model may be flawed in some ways? And what land has to do with it?
Steve Hoskins 2:35
Yeah, sure. So, I mean, it’s absolutely crazy that in basically the entirety of my economics, education as an undergrad, and in all of the way that that kind of political discourse happens, there’s always flame flamed around capital and labor being in competition with each other. And that, you know, when wages go up, profits go down, and vice versa. And what I kind of have discovered, as I’ve, you know, completed this recent Master’s in spatial economics and learned the sort of George’s lessons is that there’s this third category of land, which everybody’s just kind of blind to. And it has, you know, some really unique features. When we talk about land as Georgia’s, you know, we’re talking about the physical land. And that’s what I’m most interested in, you know, as an urban economist, but it also kind of applies to natural resources. And also some areas of kind of economic rent, where regulations are like really protecting people, you know, deriving what we call economic rent to them, because it’s not being competed away. But to focus on the kind of physical land, the thing that’s really unique about it is that, you know, it’s in fixed supply, so you can’t really make more of it. Yeah, you can dredge up some areas, I’m in the Netherlands at the moment, and they’re quite good at that. But the locational aspects of land just can’t be competed away. And, you know, everybody needs land to survive on It’s literally impossible not to consume land when you’re producing and when you’re out there socializing and consuming in the world. And what that means is that, you know, we’re all paying for land all the time, all sorts of rents are being just gobbled up by the landowners. They can’t be competed away, and nobody’s talking about it. So we can talk about how that plays out in the politics a little bit but that’s kind of the really frustrating thing for me as a as an as an economist.
Lars Doucet 4:37
So speaking of these things, we throw around words and jargon like rents and stuff, you know, economic rent versus, you know, the rent you pay to your landlord. You know, part of your thesis is, is that the, you’re talking about how we’re always paying all these invisible rents all the time. What what do you specifically mean by that, and can you give some concrete examples?
Steve Hoskins 4:58
Yeah, sure. So, um, You know, to stick with the area that I’m most focused on, which is housing, cities and kind of urban land, you know, in order to access labor markets, or to access, you know, proximity to other people, which is something that we all love, it’s why so many of us live in cities, you have to pay for access to those locations. And, indeed, to the extent that an area has kind of higher or lower amenity, you know, there’s greater, you know, value enjoyment that you can get out of a place, you have to pay higher rent. And so when I talk about, you know, land gobbling up so much of the economy, it really is the case that, you know, as society develops, as the center of cities become so much more productive, or provide so many more social and you know, consumption opportunities, land prices just go up and up and up. And so all of those kinds of benefits of, you know, social progress, flow ultimately into the people at the hands of the people that are owning the land and the lucky locations. And out of the hands of both the workers and the capital, the producers, they both have to pay for those, those location rents.
Lars Doucet 6:16
Okay, so this rains a little bit with the traditional socialist critique, which is that it’s but the socialist critique is that it’s capital that’s doing the gobbling up, but you’re saying that it’s land? And that land is often conflated with capital? So how are they different? And how does that work out? So when when land is gobbling up these these amenity values? Like, like, like, how does that actually work? And how is that different than capital? And why should we treat them as separate things?
Steve Hoskins 6:43
Great. So you’re right, the socialists are obsessed with, with capital and its power in our economy. And my position, is that that correct, but they just most of what they’re seeing most of the injustice that they’re seeing is land that they call capital. And so the thing that makes land really unique there is, you know, you can’t produce more of it, like capital that we think about in terms of machines, and computers, that you have to use and recycle back into into greater production in the future. Human effort can make more of that we can take materials, we can process them together, we can make them more valuable. But with land, you know, they just exist this plane of physical territory, some of it has, you know, more desirable features, and some of it has less, but when you know, the center of Manhattan is suddenly you know, becoming a really desirable place to be, you can’t respond to that by producing a bunch of more location in their area, and kind of competing the profits away. That can happen with with capital, you know, Apple got really good at producing tablets that we like to use. And, and as a result, you see, you know, Samsung popping up and saying, I’m going to do that too. And the profit gets competed down somewhat. But um, but with land, you just can’t do that. And so the profit sort of margin, the profit margin of land that we call rent, just just absorbs that chunk, more and more.
Lars Doucet 8:15
So, going riffing off of that, going back to an idea you had talked about earlier, where you had said, like, the the classic capital versus labor or capitalist or socialist fight, is this idea that it’s like, okay, if we want to raise wages, we got to take that out of profit. And, you know, the socialists see that as a good thing, because, you know, the business people are evil anyways, and don’t deserve it. But some Well, meaning, you know, more more capitalist oriented people are like, Well, hey, that’s our investment in society, right? And businesses take risks, and anyone who’s run a business knows that it’s like, it’s easy to go out of business, you know, like, risk taking is difficult. You know, entrepreneurship has a, you know, a real cost to it. So capital does deserve this return. So how can we get out of that? That dilemma, like how does introducing this third thing land like shift, the fight between, you know, so called capital and labor in terms of in terms of who gets returns? Like, can we basically have a world where we can give a good profit to investment but also have increasing wages?
Steve Hoskins 9:29
So I don’t take too much of a strong opinion about the capital labor battle. I mean, it may be a problem and I’m fine with the socialists taking that up once we’ve dealt with the land problem. But for me, you know, land is absorbing value from both the workers from consumers when they when they occupied, you know, houses and physical locations and from the producing firms. But the thing that makes it really different compared to the risk taking that capital does is, I don’t see the social value being generated by, you know, the clever landowners who buy land in the right location, and then profit when it becomes more valuable. You know, when somebody does that by, you know, buying shares or investing, you know, their venture capital in a startup, the risk they’re taking has a social value to it, which is that, you know, you give the your, your hard earned savings to someone, they put it to work producing something that they think that humans want to enjoy. And, you know, if they’re right, everybody else, you know, everybody kind of benefits from that innovation from that new technology, and so on. But the risk taking that landowners like to claim is providing value to humanity, I really don’t think it is because the land would have been there. Regardless, a lot of the time, the risk taking takes the form of you know, buying a car park and holding on to it for 10 years, and then making money out of it. So it’s just not a socially useful type of risk taking. And, yeah, I think we can solve that with by placing a price on the ownership of those locations.
Will Jarvis 11:04
Well, Steve, up, I love this thought here. And like there’s a lot of unearned gains that that go to landlords, things they didn’t do, they perhaps don’t quite deserve a lot of the rents they get. And it has these negative effects where, you know, they’re sucking up a lot of the workers excess productivity, a lot of capitals extra profits, what’s to be done about it? What should we think about what kind of policy things can we can what interventions can we put together that will help alleviate this kind of problem?
Steve Hoskins 11:34
Yeah, sure. So I think the gold standard in this in this area is the land value tax, that US judges like to hammer on about all the time. And sometimes we’re a little bit perfectionist, where we say, you know, an 80% per year land value taxes, the only thing that we can do, and we have to do it, I think we should slowly, you know, try and chip away at that and shift more and more of the tax base onto land, you’re basically charging each piece of land a certain percentage of its value every year. So you’re not charging an acre the same in every different location. But the acres in the center of Manhattan get charged, much higher price, because they’re much more valuable. So yeah, any progress we can make at kind of increasing the proportion of the tax base that comes from land, and reducing the proportion that comes from workers and firms and all of these other kinds of harmful sources, the better. But I also am willing to take some flexibility and say, Actually, anything we can do to chip away at the power of kind of rentier landownership anything we can do to kind of redistribute some of the value of location to other members of society, the better. And you can do that with things like community land trusts, and public housing. And rent control can do that a little bit. And I think, you know, an area that I’ve spent the last nine months or so just kind of constantly thinking about is with land use regulation. And I’ve really been kind of engaging with the yimby movement, the yes, in my backyard argument that all we need to do is deregulate you know, land use, allow people to build anything anywhere. And that will reduce the power of the landowners. And I kind of went in thinking that I have a little bit of hesitancy around it. And I’d like to kind of talk through some of those, those comments with you.
Lars Doucet 13:32
Well, let’s do that. Let’s, let’s talk about EMP ism. First of all, define yimby ism, you know, kind of formally for our audience, and what its goals are, and then just briefly, its relationship and, you know, to Georgia ism, and what you think about them.
Steve Hoskins 13:49
So most of the western world, in almost every city has this sort of comprehensive and onerous system of land use regulation, which basically says on every given parcel of land in that city, here are the uses that you’re allowed to put it to. And here are kind of the maximum densities that you can have on it. So I think you had Nolan gray on your podcast a month or two back. And, and he was really, you know, pointing out that we have all these regulations that you know, the US has particularly bad for this, but New Zealand is very much the same. Where, you know, on a piece of land, you can’t build within a couple of meters of the boundary. You can’t cover more than a certain area of the ground with built floor space, you can only build a certain height, maximum density maximum floor area, you might have to have a car park or a certain type of garage. And also you can only use it in certain ways. So you can’t have you know, any kind of retail or commercial activity and a lot of suburbs in the US. These kinds of controls overland use and young bees, yes, in my backyard are basically a response to the NIMBYs who use those regulations to stop people from building.
Lars Doucet 15:08
The human being. NIMBY is no, in my backyard,
Steve Hoskins 15:11
not in my backyard. Yeah, exactly. Yeah. So the MPs are saying, you know, let’s just slice a bunch of that regulation away, allow landowners to compete in what they provide on different locations. And that competition will, you know, bring down housing costs, make our cities a lot more thriving. And I think a lot of them think that it will also, you know, substantially erode the power of land that I’ve been talking about.
Lars Doucet 15:36
So the MB is basically their pitches that if we abolish or at least strongly reform, zoning municipal zoning that says it’s like, okay, this is a residential district. It’s a single family, bedroom suburb, and it always will be and, you know, we’re going to bring down the wrath of God on you if you try to build a duplex or a triplex in this neighborhood. If we get rid of that and just let people build what they want, because zoning is effectively really heavy handed central planning. If we just let the free market decide what gets built, things are going to be better. That’s kind of the pitch of nimbyism, right?
Steve Hoskins 16:13
Yeah, that’s exactly right. And a lot of the time it’s, it’s kind of framed in these very black and white kind of terms, I get really triggered by the kind of, it’s just supply and demand row like it’s econ 101, bro, kind of perspectives where you know, all we have to do is just cut the regulations. You know, tons and tons of stuff will get built, prices will plummet and as studies will be will be fixed. I am a UMB. I really liked the idea of deregulating, but I think that the argument is often really over over simplified, and there’s a lot more complexity going on in terms of how land markets work.
Lars Doucet 16:51
Okay, and so what are the MPs missing? And what do they need to have a complete balanced Land Policy breakfast?
Steve Hoskins 16:57
Yeah. Okay, so I’ll frame it in two ways. So the first way is, I just got really stuck into the economic literature on this topic, and was a little frustrated by the evidence is really not that clear, that, you know, cut regulation, prices of housing go down, there’s a really a lot of correlations between it, you know, cities that have stricter land use regulation tend to have higher prices, tend to have less elastic supply of houses. So when prices change, the supply shifts, less and the more regulated places. But not a lot of those studies do a very good job of kind of proving causality. And it could very well be the case that, you know, what we actually have is places that are higher value, the wealthier people in those places are just better at lobbying government to kind of protect their way of life, protect their city, and and that that sort of reverse causal perspective, you know, hasn’t really comprehensively been been proven for my taste. That is not the main part of my criticism, though. And it’s very much just like a technical, you know, economists, you know, being picky about causality, criticism. My main one is actually, I think that land use regulation can really shift the distribution of land prices. But I’m not convinced that it can drastically reduce them. And I think to get into it, it requires talking a little bit about the kind of three pathways that I think land use regulation affects land prices, and house prices, and then talking about how that feeds into the a&b sort of perspectives on this. Is it okay, if I slip you through
Lars Doucet 18:42
them? Yeah, yeah, let’s go through that. So by the way, land policy affects land prices, you need things like, if I zone this area for single family homes, here’s the effect that it has on prices, and a bunch of other things like that. Yeah, exactly. Yeah. Let’s get into it. Yeah.
Steve Hoskins 18:57
So the, there’s this very sort of intuitive model that urban economists use to sort of plot out the land price gradient. And so what we’re saying is that, you know, in cities, we know that land prices are really high in the city center, and that they decline, the further out that you move towards the periphery of the city, and sort of at the point where those prices, the price of agricultural land, that’s the edge of your city. And the models that economists urban economists use to explain this. Basically say the reason for that is the transportation costs, right? So I can live in the city center, and pay $0 for my commute, because I’m right by my job. Or I can live on the fringe of the city and pay a lot of time and money to get to work and back every day. And so the difference between the price of a house in the center and the price of a house on the edge of the city is basically the sort of annualized value of that transportation cost that the landlord During the city center is able to to sort of demand of tenants or of tenants of their properties. Because, yeah, because that that’s the benefit of that location. Yeah.
Lars Doucet 20:10
Yeah. So just to like, clarify there, what you’re saying is that, if it costs me I don’t know, I’m making up a number, like gas is so expensive now. But like, if it costs me I don’t know. $1,000 2000. Yeah, $2,000 in gas a year to commute to my job, like, I don’t know, like, over whatever distance. Yep, that basically says that it’s like, I’m saving $2,000 in rent, and I’m paying it in $2,000 in gas. And so like, the distance I’m traveling out is like this smoothly, like, like, smoothly interpolated function of how much more after paying gas is like the, the amount of my, my rental price increases? Or decreases? Is that essentially what you’re saying?
Steve Hoskins 20:58
Yeah, that’s exactly right. And we have this concept of spatial equilibrium, which is basically, you know, now we are talking a little bit about competition where, you know, all of the benefits of one location compared to another one, get absorbed up into the difference in the price of accessing land in that location compared to the other. Because if the difference wasn’t absorbed into that price, well, you would just take the location that offers you you know, more amenity more, you know, access to jobs, access to social life, etc. But for a cheaper relative price. And as people do those movements, the spatial sort of arbitrage between locations means that all of those differences in amenity get reflected in the price of access to land. And that is what explains, you know, the difference and land prices in different parts of cities, different parts of the country? I’m curious,
Will Jarvis 21:57
Steve, so how does how does this interplay between, you know, land rents, and zoning, you know, play out in the real world? So so, you know, we had Cameron Murray on the pod A while back, he had this claim that that zoning, zoning, rolling back zoning restrictions would actually have like, no effect at all on housing prices, which doesn’t quite make sense to me at some level, I think it definitely like, you know, easing, zoning restrictions would definitely help increase density and things like this, and and on the margin would definitely be helpful. But But can you talk about, like how these two kind of interact with each other like and how loosened zoning relations, zoning restrictions could could relate to price?
Steve Hoskins 22:43
Yeah, I really want to talk about Cameron’s work, because I think he has a lot of good things to say. Let’s talk about the three pathways first, because the third pathway is kind of the one where you can imagine all of the prices dropping down. So there are three ways that land use regulation can affect the value of land in a given location. And I call these the amenity effect, the profit effect and the scarcity effect. So the amenity effect is basically what we were just talking about, which is that land use regulations can affect how desirable or undesirable a location is. And as it does that, it will raise or lower land rents in that location. This is like the historic justification for zoning right is, oh, there’s going to be too much crowding too much noise, you’ll be shading the neighbors properties. And all of these kinds of negative externalities need to be regulated. And if we regulate them, well, we’ll make our air our cities much more desirable. And actually, land rents will be higher, right, because you’ve created more amenity in that location, compared to somewhere else. I’m pretty skeptical about that argument now, because I actually think that density has so many benefits, that that that, you know, reducing density is creating more harm than good. So we can mostly set that one to the side. The second one, the profit effect is what I have focused on in my thesis. And this is the idea that, you know, if you’re, if you own really central land in a city that is tightly regulated, and basically says, you know, look, on this location, you can just build like three row houses. And they can only be three storeys high. But you know, in an open competitive market, you’d love to build a 12 storey apartment building, that regulation that tells you what you can’t build kills your profitability on that location, right? It kills what you’re allowed to build as the landowner. And so when you go to sell the property, the land is somebody, they’re gonna say, you know, I’m really not willing to pay that much for it. And so the flip side of this that I studied in my thesis is that when you drastically deregulate, you know, certain parts of a city, the landowners on all of that, you know, deregulated land get an instant windfall. They absolutely love it. Cameron talks about There’s a lot. And actually, there’s a lot of kind of sneaky land banking that people do, where they buy land, they lobby, the municipality for deregulation of their site, and they pocket the differences. And often they don’t actually build the house, they, you know, build the houses. Once 30 regulations happen, they just sell it on and, and there’s no more supply. And this explains, yeah, that’s what I found in Auckland did this big deregulation in 2016. And I looked at those sites that have their land use regulations cut and observe that, you know, for the owner of like a typical property in Auckland, which is, you know, a fairly sprawling city, similar to a lot of American ones, the owner of that typical property that was up zoned to allow like five stories, instead of just a single family home, home, pop it pocketed in the order of about 100,000. US dollars. Yeah, on a on a typical property. So that was lovely for them. But the real question is the third effect, which I call the scarcity effect, and this is the one that the kind of yimby is are actually relying on with their arguments, which is that, you know, because we have strict zoning across the whole city, housing is made really, really scarce. Consumers are therefore, you know, desperate to afford a house and they pay much more out of pocket, you know, to get access to housing. And that basically, you know, I talked about this, this gradient inside the city going to the city center before, the scarcity effect is the idea that that tight regulation, like pushes all of that curve upwards, and generates this big sort of red rectangle of value that is kind of expanding the extractive power of the landowners and the city. And, you know, the extent to which that is possible, depends a lot on the existence of alternative locations that you’re willing to move to when regulation forces you out of the city. So, you know, if you think about the American case, what’s happened with the tight regulation of coastal cities in California, you know, Los Angeles and San Francisco specifically, is a lot of Californians have fled, and they’ve fled to places like Houston and Colorado, you know, where a little bit more housing can be built.
Because they just sort of not not able to be in California anymore, the housing that they would like to consume was not able to be built. And because they’re able to do that to move to an alternative location, it kind of weakens the the size of that scarcity effect, because the landowners, as we said, right at the start all they can charge as the difference between their location and the other alternatives. And because there’s lots of those alternatives available. I think that the extent of that scarcity chunk is kind of overstated. I do think it exists, I do think that massive deregulating would, you know, would slow the rise of land rents, or maybe reduce them if it was a really, really big one. But I think human beings kind of overstate it because they don’t account for the fact that people are always, you know, engaging in this arbitrage between locations.
Lars Doucet 28:12
Okay, so that was those a lot. Let me let me summarize to make sure I understand. So you’re saying that there’s these three effects, that is basically account for the relationship between zoning and land values. And the three effects that Land Policy has on land values is first is the amenity effect, which is, you know, the whole the whole approach to your historical justification for zoning, you know, to manage your externalities and stuff. And so that if you successfully use land policy to make an area better place, somehow that’s supposed to raise land values. But if you’re saying it can also destroy land values by you know, preventing good things like density, you know, okay, so that’s the amenity effect make the place better or worse. Then the second is the profit effect, which is where zoning can reduce the profitability of parcels, by keeping people from building as much as they’d like, right? It’s like, okay, I’ve got some prime location here, but I’m not allowed to do the profitable thing. So I have less profit, which creates these interesting incentives, you know, for speculation, like, hold this pile, hold this land for 10 years till the app zone it and now it’s, I can build apartments on it. So I can sell it to someone who wants to build apartments, so I’ve done nothing with it. I’ve just held it out to use for 10 years, but because of the depressed effect of the zoning that produced my opportunity once I got the new zoning in, and then there’s the scarcity effect, you’re talking about where zoning by not allowing us to build enough housing causes, you know, the whole was just supply and demand, bro argument. So So those are the three effects we’re talking about. And then the effects that they have on on on land prices, right? Yep,
Steve Hoskins 29:52
that’s really well put. And an important thing to think about is that the amenity and the profit effects are actually a good thing we would want Want to maximize land value through those effects? Because what they’re doing is making the land much more valuable, much more desirable and much more productive. Right. So it’s actually good to maximize land value with those two effects. But you know, although as we’ll talk about, it would be ideal if that value was going to everybody and not just the landowners. But the scarcity effect, you know, to the extent that it exists, that one is very, very bad, and we shouldn’t want want that to be happening because all it’s doing is basically increasing the power of landowners in the regulated city, and allowing them to extract more from the workers and the and, and the firm’s then would be efficient, and essentially kind of slowing the productivity of the whole city through that pathway.
Lars Doucet 30:49
Okay, so what I would like to hear now is okay, so what is the kind of what what what is what is missing from the yummiest position that that you think will address the kind of shortcomings of maybe not the shortcomings of nimbyism, but the incompleteness of it?
Steve Hoskins 31:07
Yeah. So I am a yimby. I know I’ve just sat here for 20 minutes and told you about why the EU and visa are horrible and wrong. And I differ with Cameron Mary on this as that I still would like to see our cities up zoned drastically. But I think that the argument should be made much, much more. On other aspects of the argument, I don’t think we should make these really sweeping claims about house prices being fixed. And I think that instead, our claims should be centered on creating better cities, making them into these kinds of production and consumption powerhouses. You know, tackling climate change is a big one easing, you know, a lot of racial exclusionary policies in the US. And then there’s kind of a political strategy argument around creating more households who have kind of less of their entire net worth just locked up and in preserving land values. So yeah, we can kind of talk through some of those if you’d like.
Lars Doucet 32:11
Yeah, well, let’s just cash it out. What should we do? Right, the unities want us to up zone all the land or even abolish zoning, or or at least reform it? You know, so it’s pretty clear what they want? What do you think we should do? It seems like you want to Yes. And like, Yeah, let’s do the MVC stuff. But then what’s the end? Yeah,
Steve Hoskins 32:29
yeah, I sometimes kind of rant about this on Twitter, where I feel like we’re often arguing about which urban policy is the best. And most of them, we should just, you know, we should just do all of them all the time. So from a pure economic efficiency perspective, if I was forgetting, you know that much about equity, and kind of the experience of displacement for tenants and things, if we were just going for, you know, maximizing the efficiency of our cities, what we would do is we would drastically deregulate land use, you know, I think I mentioned like, you know, height limits, density limits, setbacks, and minimum floor coverage, most of those, we would just slice away, minimum packing gone, all of that should go. Because I think that, you know, landowners deciding what to do with their land based on the demands of their potential customers does lead to much better decisions about land use, and we should slice all of that away. But we need to make sure that the value that that creates for society doesn’t just go into the hands of the people who happen to own the land when we do the upzoning. So, you know, I would support directly at the beginning, if it was the only thing on offer. But it’s so much, so much better, if it comes with a system of land value capture, and ideally, that would be a land value tax. But there are other pathways towards it, which is to sort of have windfall gains taxes, which is where when someone gets up, zoned, the municipality takes a lot of the value that that’s created for the landowner, because, you know, it’s just a windfall profit. So yeah, it’s a yes, we should do EMB. But we should also really be be capturing land values, and I’m begging the young bees out there to be georgeous and integrate it into your Eunbi movement. And then I’ve kind of brushed over but there are some other kinds of aspects of equity and making sure that that process isn’t overtly harmful to a lot of people, but especially sort of tenants in the process, and we should probably have a sympathetic conversation about that at some point as well.
Will Jarvis 34:36
Steve, I am really curious that you’ve said some interesting things about the windfall effect of zoning. My question here is if there is this windfall effect of, you know, getting rid of get rid of zoning restrictions to, you know, land plots in a city. Why are there NIMBYs like if there’s 100,000? If so, if you want a piece of property, there is this big winner. effect? Do people just like really, really value keeping their neighborhood the same to the tune of like hundreds of 1000s of dollars? Or is there something else going on there?
Steve Hoskins 35:09
So I view it as being two main factors. The first is, yes, absolutely a financial one, which is essentially, you know, the the West has made the main route towards retirement savings, buying property as soon as possible. And owning it while it grows in value. And then sort of using that as your retirement nest egg. Most of the middle class in the US are barely invested in, in the stock market, aside from sort of their 401, k’s and things. And the strategic play that homeowners make is that they are willing to accept tighter regulation of their property, in the process of getting stricter regulation for all of the other properties in the city as well. So if I’m a homeowner, my goal is to have be allowed to build whatever the hell I want. But for nobody else to be able to build anything. Right. That’s great. That’s really, really great. And so I think what happens is that they, they kind of intuitively get that sense that it’s better, you know, to show I’m sorry,
Lars Doucet 36:17
real quick, economically, why is that great, quote, unquote, like, why is it great for me to build but nobody else?
Steve Hoskins 36:24
Yeah, if there are sort of competing housing supply in the neighborhood, it can make it harder for you to, you know, get a good price for your property. And, you know, likewise, we did talk about some of the negative effects of shading and, you know, congestion, a lot of them, I think, are really wedded to their access to their on street parking and not wanting the roads to be clogged as well. So it’s that, you know, I don’t want the neighboring properties to throw that many more people in there, that will be sort of essentially competing with with my property. So I think that there is that financial part happening there. But I think that there is also indeed a quite a strong, intuitive connection to the way that one’s neighborhood is at the very moment, at the moment, you know, and not wanting to see it change drastically. There’s some classism, and some racism as well, you know, if we allow denser types of housing, the type of people that will be in those are lower income, and darker skinned. And, you know, in the case of the US, at least, you know, there’s this strong reaction to that from your kind of white homeowner, especially in the suburbs, you know, we’ve had white flight and things like that in the past. So I think it’s a little bit of finance, and a little bit of kind of cultural attachment to place.
Lars Doucet 37:52
One question I sort of have is one of the arguments also with regards to amenity for zoning is if you ever talked about zoning reform, people always bring up OC you want to be able to build a nuclear power plant right next door, or, Oh, you want to be able to build a slaughterhouse in my neighborhood? I mean, I’m just going to just flag my own opinion here. I mean, that seems to me like a bad faith argument. Because slaughterhouses a nuclear power plants and industrial coal plants in residential neighborhoods have nothing to do with density, or height limits or setbacks, which is mostly what municipal zoning goes for, right? Aren’t there these things called nuisance laws, which are entirely parallel to zoning that deal with like building glue factories in the middle of a sleepy suburb?
Steve Hoskins 38:38
Yeah, that’s exactly right. And this is where the MBAs are bang on the money. And Nolan gray is just terrific with this and has built arbitrary lines where we do need to regulate some of those externalities. But it’s just so much more efficient to do it with, you know, direct regulation of those nuisances, rather than sort of trying to circle our way around to it by controlling density. So if we’re worried about noise, we can put noise ordinances in place, and we can, you know, talk to people in the area about, you know, what is a suitable type of noise and what isn’t. I mean, and this is, this is, it’s not even done very well with zoning. Because, you know, if you live in the suburbs, think how often you get woken up at 8am, on your Saturday morning, sleeping by the neighbor with the, you know, the lawnmower, or the neighbors, you know, teenagers, kids having a very loud party, like, we can deal with these things by, you know, calling the noise, noise control, or whatever you guys call it over there, and directly regulating the externalities there. And I think I think Nolan also talks a little bit about having, you know, mechanisms of arbitrage in place where, say, you know, someone wants to open a bar in the neighborhood, they may be able to sort of to buy the right to that activity from the neighbors, you know, and have some kind of sort of tradable permits for some of those activities as well. But I’m not as informed on those on the mechanisms of those.
Lars Doucet 40:08
One thing I would like to talk about, you know, talking a little bit more about practical stuff, like, okay, let’s say you have a place with an active VMB movement. And let’s say you succeed in convincing them that they need Georgia ism as well, because they’re not going to be able to like solve the housing crisis and all the other things they want to do, just by up zoning, they also need to have Georgia’s policies to make sure that, you know, these windfall gains from upzoning, don’t just get privately captured and just create these like mal incentive effects to therefore go out and land speculate. Let’s say you build a coalition that’s like, yes, let’s do this. What in your mind is a practical policy proposal that works within the existing system to get us there? You know, with the minimal revolution necessary?
Steve Hoskins 40:55
It’s a great question, I am, my instinct is to go to the land value tax, but I think I should tap the brakes on that, because I think that’s a very difficult political battle. And so they should be fighting it. And, and it’s a really, really important part of, I’ve actually empowering UMB and making it so much more successful. And I’d like to talk about how it does that. But I think if we were talking, you know, brass tacks. Practical Approach, I think that the windfall capture policy that I think Cameron probably talked to you about, and Australia has had some success with is actually the better pairing with observing. So basically, what you do is, you know, you do say, to the public that we’re going to do this upzoning, because our cities need to be made so much more efficient, and we need to allow people to live in the locations they want to. But in order to prevent that, from being just a massive, you know, handout to land bankers, we pair it with a tax, that catches the uplift in the value of those properties as a result of the of the change in zoning. So this is kind of called collectively called value capture or value uplift capture. It’s been done a little bit with, you know, public investment in transit and things as well, where, you know, the value of properties near the train stations, gets raised by the access to the transit, and those owners also have to sort of pay pay society, compensate society for that privilege. So by pairing up zoning with a windfall capture, it’s a really good way of saying, you know, look, we and these are not just, you know, tools of land speculators, we really want our cities to be better. And we want the funding of our cities to come from the value that we’re creating with our zoning, and the pairing of of the zoning with the windfall capture is a really, really like sort of nice way of doing that and getting some George’s ideas on the table as
Lars Doucet 42:57
well. Is that what’s been called a land value increment tax. Yeah,
Steve Hoskins 43:01
same idea. Yep. Okay, well, so
Lars Doucet 43:03
here’s another thing, like, here’s another practical policy proposal that I’ve heard, various cities float, such as the city of Detroit, and others is a split rate property tax. So instead of going maximum full Georgist, overnight, where we’re just taxing the land, that 100% of its annual rental value, is not the same as 100% of the value you pay for it just, you know, the the income it’s capable of generating, essentially, is to instead take the existing property tax regime we have and reform it, basically, allow local municipalities to charge a different percentage or millage, I guess, is that is the term rate on either the buildings or on the land and have those be separately, you know, so you could move the building tax down and the land tax up, but still collect the same amount of dollars overall, you’re basically just shifting where the tax burden goes. Can you talk a little bit about what the effects of a proposal like that would be and what you think of the practicalities of it in terms of political difficulty?
Steve Hoskins 44:08
Yeah, that’s that’s a really great one to raise. Because I actually think that’s one of the most politically viable routes to Woods sort of a more Georgia’s future that we have, the best way to sell it is to make it really, really clear that we’re not talking about raising property taxes overall. All we want to do is reduce the proportion that comes out of the building and and raise the proportion that comes just from the land value underneath it. I think it’s very saleable to property owners, which is desirable because it’s a big political hill to climb. Because the people that end up paying that kind of transition, the most are the people who have been sort of hoarding land for speculative purposes. Often this is kind of the owners of, of, you know, blighted car parking, or vacant spaces in the center of Have thriving cities. You know, often this is in the commercial district where there could be so many more businesses and things or apartment buildings. And they’re just kind of holding on to it and making, you know, like 10x on their return and 10 years in the case of Phoenix and one study. And, and during that transition, it raises the overall taxes paid by those property owners, and it tends to reduce the tax burden on the vast majority of homeowners. That’s certainly the case in the studies on Detroit. Yeah, so it’s kind of a benefit for the median voter. And then there’s this kind of secondary set of effects, which is that, yeah, it’s kind of changes the strategic behavior that people participate in with land, and it encourages much more development of properties, right, because you’re not punishing someone for building, you’re punishing them for holding the land. And they get actually rewarded with more more and more profit when they build more intensely on their sites. So that’s a really good route to it. And that actually leads really nicely into talking about sort of my kind of three main pathways for why you can be being a yimby is not enough. And you should also be a Georgist. Is it okay, if I kind of step you through those, those three points, because this is where I really want the members in the audience to listen up. And and, you know, come to terms with the fact that you’ve got to be a GA to me.
Will Jarvis 46:25
Yeah. Could you could you also perhaps just it’s all the GA as well after you why they should be MVS after that,
Steve Hoskins 46:31
I think they’d be great. Yeah, yeah, that’s, that’s, that’s a really good way of doing it. Yeah, let’s actually do the Georgist. First, because I’ve been quite harsh on the NBS. And it’s important that the Georgist in the crowd listen up. So like, zoning is really, really harming the both of the efficiency of our cities, and just the kind of lively liveliness of them, right? It’s restricting what people are building in the most desirable locations, it’s preventing the density that we have in the center of those cities. And we know that density of people leads to what we call agglomeration economies, which is that people closer together, they learn more from each other, they have lower transaction costs between each other, they upskill a lot faster, wages are higher, as a result of all of this, you get more innovation, those innovations benefit everybody, as the economy grows, those more intensive types of housing are much more lenient on the environment. When you have shared walls, and shorter commutes, you’re consuming a lot less carbon. So that’s a really essential plank of our, of our tackling of, of climate change. It helps with racial and, and wealth inequality in general, by enabling more people who have been priced out of these center, those centers and pushed, you know, out of San Francisco to some of the sort of second tier cities. It allows them to move into these cities a lot more. And so you know, there’s a lot more kind of upward mobility for people that have been priced out. And, and it creates sort of more households who have a smaller vested interest in preserving land values at all times, because they are, you know, tenants in the city center, they own a condo, so they’re not quite as like tied to this big, you know, quarter acre plot in the suburbs. They’re less worried about land as their sort of retirement nest egg. So that’s the why the GA is should be in these as well. For why the young bees must also be GA lists. I think we got to talk about sort of these three sort of George’s critiques of nimbyism that I have, actually, I’ve mostly stolen them from cameras to be honest with you can remarry. And why land value tax or land value capture solves that. So we’ve talked about, you know, the profit effect of upzoning is just a windfall handout to the owners of land and those desirable locations. And this is why human beings often get called sort of shills for the developers, because it is the case that, you know, that that policy going in place, hands a lot of value to those, basically developers, but I think it’s just landowners. And land value tax captures that windfall means that whatever the regulation does to the spatial distribution of land rents, those you know, the landowners that benefit from the regulation are compensating society for it. And by sort of pricing, the constant annual holding of that land, we actually turn those developer land bankers back into developers, which is what we want them to be. So that’s the first one. The second one, which is that, you know, speculation on land value, can actually really reduce the supply effects of up zoning. So for up zoning to flow through the lower house prices and the envy argument, you have to deregulate and that deregulation has to lead to a boost in the supply of dwellings. But Cameron Murray shows and there’s there’s a couple of other sort of surrounding papers Is that explore the the time decision that that landowners have to make, basically shows that, you know, even if you upzoning, this land, it won’t necessarily bring forward the point in time when the landowner chooses to develop, right, because they instantly get the windfall gain. And now they’re holding on to this desirable land, but they’re still looking at, you know, what’s happening with house prices, what the neighboring developments are doing, and they’re sort of thinking to themselves, like, it might not be optimal to build right now, it might be better for me to wait a few years, wait for land values to rise, you know, then I can build even more intensively. And, and, you know, get even more value out of my land in the future point in time.
Lars Doucet 50:47
So what you’re saying is that you want to take the whole, yeah, so when you talk about like time preference, that’s kind of a nerdy economic jargon. So like to make that concrete, make sure I understand. When I’m selling a house, now, I’m profiting off of two things, people’s desire to live in that house, and people’s desire to live in that location. And the value of that location goes up and down with the housing market, you want to take the fluctuation in that value, or in the especially if it increases in the long term out of the question. You want to make it so that it’s like, Hey, you want to provide a house to the market? Provide a house to the market? Not, you know, oh, like, you know, like, like, how, how high can I ride the wave of increasing house prices, which is really increasing land prices, before I finally break ground and just build something. Like, that’s essentially what you’re saying? That’s exactly
Steve Hoskins 51:38
right. And it, it just changes their calculus, you know, because they’re often just sitting there thinking like, well, I could develop, or I could just sit here and take very, very little risk, and just wait and keep earning, you know, you know, these profits from from the location value rising, and maybe I’ll develop one day, but I don’t really need to. And this is really the driver of, of both vacant lots in a lot of thriving city centers. But also just kind of what I call speculative under use, which is where like, there’s locations that are zoned for intensity, you know, they definitely would be profitable to redevelop it into a taller building. But I’m just gonna wait a little bit longer, I’m gonna wait a little bit longer. And the sort of outcome of all those decisions is that the ABS zoning might not necessarily translate into an increase in the net number of dwellings being built, it might change the location, I think it does change the location. And we’ve got studies on that, you know, in Auckland, for example. But it might not boost the actual overall number of houses being supplied each year. And land value tax by placing a sort of constant price on land ownership punishes that kind of speculative delay, and forces landowners to actually develop their properties for the most efficient use as soon as possible. And then benefits all of us specifically
Lars Doucet 53:01
because whatever increase in land price I’m going to get is going to be taxed away. So yeah, it’s it’s
Steve Hoskins 53:08
flattening that it is flattening that kind of pattern over time. But it’s also just placing a full scope, we call it the full opportunity cost, basically, the full price of that land in terms of what it could be providing to society, each year has to be paid by the landowner, whereas currently, they pay a just a tiny, minuscule proportion of that,
Lars Doucet 53:28
and it’s sort of like internalizing that externality, right. It’s like, it’s like, if I’m, you know, to, to analogize it, like if I’m in if I’m in, you know, a nursery school, and I’m a kid, and there’s 10 toys, and I grabbed the cool toy, and I’m not even playing with it. Every other child is suffering the opportunity cost of not being able to play with the cool toy, and I’m not even necessarily realizing the benefit of it. Right? That’s what you’re talking about. So like with with the land price, it’s like I am sitting on this property people right now over the 10 years I’m holding it could have been providing society with whatever benefit could be realized there. And I am not paying that cost. I’m not paying that opportunity cost I’m inflicting on society, by just holding it and just owning it, because I know the price is gonna go up. Yeah,
Steve Hoskins 54:15
exactly. And that to return to sort of what we said at the start in your toy example, if people engage in that pattern of behavior with with capital things that have been produced, like toys, well, the toy is depreciating over time, which is you know, one of the ways that you don’t want to just hold it out of use, but also someone else can make more toys. And so the child that’s, you know, feeling sad because they don’t have access to a toy. Well, they can take their pocket money and they can they can buy a new one and someone is going to be like, Okay, I’ll make a new toy for you. But with land that can’t happen, right, that desirable land in these city centers that could be used for this, you know, absolute powerhouse of production and consumption that we have in our cities. Nobody can sort of create more in a result But being used that way. So that speculative holding of land out of use makes us all materially poorer. For the most valuable natural resource that we have, you know, which is that we have to use this land to
Lars Doucet 55:10
write Yeah, and depreciation is a good point, because it’s like in the toy example, it’s like, I better play with this toy before. It like gets broken or worn out, like, well, while the getting’s good, I better eat this fruit while it’s still right, you know, but no, such pressure exists like that for land. So that’s really interesting. Exactly. And
Steve Hoskins 55:29
it’s almost the opposite, right? Because it just just goes up as you know, as GDP grows and society becomes more prosperous, it’s it tends to drift upwards.
Lars Doucet 55:36
Like this is the classic economic problem of deflationary assets, like the whole babysitters Co Op model, we won’t we won’t go off on that tangent where like, everyone just hoards the thing, because they’re all just waiting for it to go up. And so economic productivity goes down. So let’s talk about some other things like. So we’ve made the case for why yimby should be Georgia some way Georgia should be MBs. We’ve talked about like, the practical policies we can do about it. So one of the things is there’s also the whole talking about just the things that surround the housing crisis discourse, like public housing, you sometimes have people who call themselves FIM B’s, you know, public housing in my backyard, and they’re like, Okay, well, I oppose this and such housing project, because it needs to have more affordable housing and affordable housing, like trademark means, like rent controls in practice. Right? So can you talk a little bit about the whole, like, push for affordable housing, you know, which arguments are made in good faith and which ones are made in bad faith? And how that slots into this whole? This whole? You know, pie?
Steve Hoskins 56:45
Yeah, this is a near and dear issue for me, because I, I get really frustrated with kind of the left urbanist movement because I feel like they should be massive allies of both yimby and Georgia ism. But so often, we sort of seem to be at odds and arguing with each other. And, you know, instead of going after the rentier landowners, there’s a lot of squabbling about the best policy for fixing our cities. So we’ve talked about Yes, and my perspective with a lot of these policies is that it’s yes, and so, to go with the SMBs, that public housing in my backyard, I really like public housing, I think that there are some, you know, in the ENB movement, who really just want private supply all the time, but I think public housing has a couple of really useful roles to play. The first is that in, you know, in a private marketplace of housing supply, there’s this really strong cyclical pattern of supply, which is that, you know, when prices are going up during their, you know, boom, kind of periods, everybody sort of rushes to supply houses to the market to get, you know, sell them at the top of that peak. But when we, you know, have a big crash, like we did in the GFC. And like, I think we’re due for a couple of years. Again, that construction just collapses, right, prices are declining. You know, a lot of developers are like, oh, you know, let’s, let’s not do this, right now, we don’t want to be selling at the depth. And just construction just gets paired right back. And so I think that public housing, can do a really good job of coming in, in those downturns, picking up a lot of the sort of loose capacity for construction. You know, the builders and the architects and the, you know, even some of the developers, and put those to work building public housing. So there’s a really useful counter cyclical approach for public housing, that can ensure that we keep getting housing supply, you know, in our cities. And then the second side of it is, it’s a really important mechanism for ensuring that we don’t just allow our cities to like completely sawed themselves, so that the wealthiest people are all in the most desirable locations. And the poorest people are all in the less desirable location. So it’s kind of an inequality and an equity side. By providing public housing with, you know, all or I prefer, sort of part of it to be offered at subsidized rates to people, you know, below certain levels of income, we can ensure that our neighborhoods have a mix of people from the socio economic spectrum, which is great for kind of building connections across the class divide and enabling upward mobility. It’s a useful tool for preventing people from getting displaced from their neighborhoods, when you know, developers start going crazy and pushing people out and redeveloping public housing can ensure that there is affordable housing in those neighborhoods for people that have a really strong connection to the place. And it also actually is a really good mechanism for capturing land value, location value, and redistributing To get to other parts of the income spectrum. And I think Georgia should appreciate that value of public housing as well. So it’s a yes. And private supply, good. Public housing supply also really good. And I really don’t like it when people use their preference for one or the other as an argument against the other one, because I think that is just really wasted effort that we could all use, you know, spend supporting each other.
Lars Doucet 1:00:26
Okay, so let’s talk about gentrification, the G word. You know, this is something that it touches on issues of race and everything. This can be like a really thorny thing, because it’s like, I mean, let me just put it bluntly, like when white people move out of an area, it’s called white flight. And then when they move into an area, it’s called gentrification. But then at the same time, it really sucks. If you’ve lived in a neighborhood for a long time, and you’re a racial minority, or you’re poor, or you know, in any way, like unrepresented, and you have your own little neighborhood, and a bunch of rich yuppies come in, they bid up the prices of all the housing. And now the place you’ve had, you’ve lived in for 20 years, like your price out of your own place, and you gotta go somewhere else, that’s probably worse than where you were before. And that feels bad man. So like, I get, like, both kind of understandings of this, but it also like, sometimes seems to perversely cash out to, we should not improve poor minority neighborhoods, because that’s bad. And that’s violence. And how do you how do you cut that Gordian knot? You know, how do you how do you solve gentrification?
Steve Hoskins 1:01:30
Yeah, it’s a really difficult piece of discourse to have. I think everybody has, well, most people have quite good intentions, but it plays out in some really awful way. So to go back to basics, in terms of spatial equilibrium. Unfortunately, if you are allocating land using a market, anytime you improve an area relative to other locations, you will see the price of rents in their area rise. So if you are really wedded to anti gentrification efforts, that is going to mean that you essentially have to oppose anything that can ever improve, you know, the desirability of the neighborhoods where low income or minorities live. And I think that’s an untenable approach. Because while it might look like you’re, you know, doing good by keeping the white, white collar work, you know, tech workers out of these low income neighborhoods, it also extends sometimes into arguments that, you know, we shouldn’t invest in transit in these places. You know, or, I mean, I haven’t seen this, but it can even go to the point of anything that kind of reduces crime or cleans up those neighborhoods, you know, it gets rid of litter, or whatever. It also shows up in, in higher land rents. So I don’t think that we can take this approach, you know, of, we can’t ever improve the neighborhoods where low income folks live, you want to say something?
Lars Doucet 1:03:01
Yeah, because that also, that also seems to imply that like, the root issue is the rising land rents, right, the rising house prices, the amenity effect that you got into? Right, you know, you increase the amenity of the neighborhood, people are willing to pay more for it. And then on the topic of market things, it’s like, I’m a little skeptical that you can allocate housing. Without a market, I think if you try to go with non market solutions, you wind up with hidden market solutions, like in the Soviet era, you know, housing was allocated effectively by the state. And so it was like, okay, there wasn’t a formal free market, but there was a black market, you know, have connections and slide deals and stuff. And it’s like, Oh, if you’re out with the current political insiders, like, Well, maybe you don’t get to get a good apartment, that just increases the non monetary costs, you know, and so like, the good apartment, like had a higher cost in terms of connections and favors, and, and distance to, you know, the people who make those allocation decisions, but so like, it seems like the root cause is the rising land rents, and, you know, these these kind of so so is your position that solving those root causes, through, you know, your proposals for your yimby Georgia’s synthesis, we’ll get at those root issues so that we can improve, you know, low income neighborhoods without committing them to, you know, ever rising rents that are gonna push their own residents out, or is there more to the picture?
Steve Hoskins 1:04:28
Yeah. This is this is a great topic. I haven’t sort of formalized my thoughts on this much yet. But I often go to war with the lefties on Twitter. Trying to sort of explain my perspective on I think that we could actually get a Eunbi Georgist leftist synthesis going. And here’s some of the ways that I think we can get towards that. So I think that the left is are coming from a really good place in terms of They’re concerned about people being priced out of their neighborhoods, I think that that’s, you know, well intentioned, some of them. But the solutions that they tend to go towards are, you know, are either they try and look for mechanisms where we sort of won’t have market based land rents anymore, right, let’s not allocate location using a market. Let’s instead have, you know, fully public housing, where we democratically decide on who gets to live where. And, you know, we might use I don’t know, you know, means testing or something like that, to decide on exactly who goes where. That’s one approach. And then the other approach I’ve seen is to sort of abolish the idea of there being locations that are better than other locations. So it’s kind of like, well, why did why is it that the city center is the is the best place, we should make sure that everywhere has great infrastructure, you know, has street beautification efforts has access to jobs, you know, has walkable neighborhoods that, you know, let’s make everywhere the same. And that way, they won’t be these land rents, kind of sorting locations. And I think neither of those actually work. Like you said, I think if you abolish market rents, and you try and do it another way, I think it’s just really, really hard to do. Just doing, you know, just voting on every location decision of every person, I think, is not viable. And even if you’re voting, you have the problem of like, locals voting against their interests and against the interests of other people,
Lars Doucet 1:06:34
people paying people to vote, right? I mean, it feels like trying to abolish gravity. It’s like, the press by gravity every day, that I’m gaining weight, you know, but it’s like, I have to live with that fact. Rather than try it try to like, yeah,
Steve Hoskins 1:06:49
yeah. And if you, if you are completely sort of abolishing land rents as the way of allocating people, so you know, a house costs about the same in different places, you’re just gonna get massive amounts of demand to live in places with shorter commutes. And, you know, so you have everybody basically saying, Yeah, I would love to live in a, you know, two bedroom apartment in the center of Manhattan, for the, you know, the established rent that the government offers to everybody. And then, you know, you have to just build like, infinitely into the sky to try and meet that. And I think that the costs of building like that kind of density, are often sort of not worth it from a social perspective.
Lars Doucet 1:07:33
Well, that’s interesting. A really quick segue is to the question of density. So I’ve heard this theory that some people oppose the MB ism, because it’s like, what you just oppose Georgia ism, where they’re like, Okay, what you, you just want to pave the earth, you just want to build skyscrapers everywhere. And I’ve heard that actually, having buildings that are too massively tall, is actually itself a form of sprawl that is caused by artificial scared, like artificial Lee increased scarcity in lands, and the ability to develop land. So I was wondering if you could, if you could talk about that?
Steve Hoskins 1:08:10
Yeah, um, the, I think the way that that shows up, is you get a lot of very thin, but very, very tall buildings. In a lot of places, I think Manhattan has this problem with a lot of kind of luxury apartments. And I think that’s usually a product of led us regulation, right, which basically, like it’s preventing a lot of stuff from being built in other locations. And then on a specific site, it says, you know, look, you’re only allowed to have a floor area ratio of, like, let’s say, six, and you can only cover a third of the land with with paved surface. And so the only solution to that kind of regulation to sort of use the plot, you know, to get the profit that you want out of the plot, is to just build this like really skinny building, and then throw it up as tall as you possibly can before you hit the floor area ratio limits. So I do think that, you know, if we allowed a lot more of what people want in different locations, and we were using a land tax to sort of price optimal development, I think we would see a much smoother gradient of type of dwelling. And I think we’d get a lot more of kind of the medium density, you know, three to seven kind of story. In a lot of cases, walk up apartments that we see and people really love and a lot of Europe. I’m looking at one
Lars Doucet 1:09:30
right now. So I imagine it is kind of like if you take a glob of playdough, and you say that the volume of that playdough is the demand for housing in an area, right? And then you take a plate with just a couple of holes in it downtown, and it’s like got this really shallow, and then you push it onto the playdough. What’s gonna happen is it’s going to push the PLATO out, which is horizontal sprawl, just all the way out sprawling, sprawling suburbs, and then in the city center, you’re gonna get these little towers of Plato just like Just extruding out as high as they can go, right. So you’re getting horizontal and vertical sprawl, rather than, you know, like reasonably tall buildings, but not massively tall. And then a city that’s relatively fairly compact, which means it’s more walkable, it takes less time to commute, which means it takes less gasoline, which means it’s more environmentally friendly, which means you’re closer to your friends. So you’re less depressed when you’re a kid, and you need your mom to drive you 30 minutes to an hour and a half every time you want to just like, play, you know, is that kind of the argument that you’re making about horizontal and vertical sprawl?
Steve Hoskins 1:10:36
Yeah, exactly. And it actually sort of guides back to the topic of gentrification as well, which is that the only projects that kind of managed to squeeze through the holes in the playdough example, are, are sort of going to be targeted at the luxury end of the market, right. Because if you’re only allowed to build in a few locations, well, you’re going to want to sell to the really high, you know, high income, high value people. value in terms of what they’re willing to pay. So, you know, I think that in many cases, it’s it’s because of our strict land use regulation, that the only types of things that get built when you up zone are, you know, what they call luxury luxury apartments. But I think if we had a system with a lot less regulation, and a lot more actual competition, in terms of what people were building, through, you know, land value taxes, impact on on on supply, you would get a much more diverse range of housing being built in different neighborhoods, you would want to be targeting different segments of that market a lot more in the same way that we see, you know, in like a market for cars, right? You don’t just build luxury cars. Yeah, so I think by dealing by this sort of anti competitive aspects of both land speculation and land use regulation, we can get a much more diverse type of housing supply to different types of people in different places.
Lars Doucet 1:11:58
Okay, so one more thing I want to ask about, and then we’ll move on to the conclusion is, first of all, I want to flag that we read your thesis, and we were really impressed with your work. So just to kind of disclose for the audience here. We’re actually working with Steven Hoskins on a grant project that will and I wrote together, which was, you know, I wrote that series on astral Codex 10, about GA ism, we later got a grant from astral Codex tend to do land value assessments. And we’d like to work so much that we we want we’re actively collaborating with you right now. I can you talk a little bit about your work on this assessment project, and what its goals are and how it links in with all of the ideas you’ve just talked about today?
Steve Hoskins 1:12:39
Yeah, so one of the big critiques that we get, as Georgia says, is, you can’t value the land, you can’t value land value, separately from the buildings. When you buy a property, it’s a house, and it’s the land underneath it. And, you know, it’s a practical argument, oh, we can never do Georgia ism. Oh, that’s unfortunate, because we can’t accurately value the land. So I have never actually found that argument. Very interesting. Because in all of New Zealand, and all of Australia, we have separately valued land and improvements for the better part of the last century. And nobody complains about it, it’s not a big deal. You know, there’s, there’s a company that gets paid by municipalities to do it. And homeowners know what their, what their taxes are, and are fine with it. So the modeling, you know, has has been done in places and unsatisfying, but in the US, I think you have a really mismatched kind of system of land use regulation, it’s basically done at the municipality level, in every different city, and even your metropolitan areas are fractured into lots of different cities. And so, yeah, in terms of getting standardized property assessments, it’s not been done very well. And because it’s property tax, it’s taxing both the House and the land underneath it. I think people, you know, really dislike being taxed for their family home. So they also kind of have this real gut kind of feeling against property taxation. So I think that what you know, what we’re doing is to take the land valuation methodologies that you know, exist in the economic literature in the valuation literature and are applied in several countries as well. And putting them to work on models that we’re going to, you know, make open source, the methodology will be really available to people. There’ll be different models, you know, side by side so people can see, you know, that the values aren’t that different and that separately value both the land and the building portion of a property using a real combination of sort of economic and valuers and deep learning AI techniques. to just show that it can be done separately, you don’t always need to have a ton of vacant land sales to get really, you know, safe estimates of the land value. And indeed, that the land value like moves quite smoothly over space, right? Because location is not changing that much as you move from property to property. And that most of the like, real crazy variation is in the house and the building. And that’s actually the one that’s really hard to assess. Because, you know, they depreciate, they have different typologies, and, you know, different ages, and it’s quite hard to observe the interior state of a lot of dwellings, but the land value portion, I’m convinced can be valued, you know, very easily. And once in place, I don’t think the public will have a have a problem with it.
Lars Doucet 1:15:45
So it’s interesting, because like, the standard way to value land, and building separately is what’s called the cost approach, where you take, it’s like, okay, we know the whole parcel sold for x. So let’s go punch all of the characteristics of the building into what effectively is a Kelley Blue Book, but for buildings instead of cars, and out pops a value, okay? It’s 15 years old, apply depreciation, that’s the cost to build the house minus depreciation, subtract that from x, the total sell price of the parcel, that’s the land value. And you’re saying we should do the opposite, that it’s easier to look at all the land characteristics and the patterns of of people’s willingness to buy, oh, you’re willing to pay $2 million for this property. And right next to it is one that you’ve paid 2.3 million, the land characteristics are the same, but there’s a little building on this one, you know, you think it’s easier to basically use your model to basically predict the land prices. And if you want to get the building, you subtract the land price that your model has guessed directly, to get the building as a residual rather than the opposite.
Steve Hoskins 1:16:45
Yeah, and the particular problem with the cost approach is that in the case, where you have a land parcel with, let’s say, a standalone house on it, which is the case in a lot of of America, but you know, if that if that property was up, zoned and sort of was, was taxed in a way that nudged it to be developed in the most optimal way, you would actually build something completely different. What happens with those properties is that the value of the house is actually not that important, when you’re buying it, the market value of the property is way more tied to like what you could feasibly put on there. You know, if you redeveloped, so we talked about this with the profit approach, right? Like when you rezone a standalone house, it zips up and value instantly. The cost approach doesn’t capture that at all right? Because, you know, from their perspective, that’s like, what we buy a piece of land and the house cost this much to build.
Lars Doucet 1:17:42
So it’s like it’s conflating cost with price, it’s conflating the cost it takes you to make something versus what someone actually will pay you for in the market. Like maybe it costs you this much to make that house 10 years ago, but the value today isn’t 10 years of depreciation minus that cost. It’s the market value of that building, which could be very different, because maybe I want to build apartments there instead.
Steve Hoskins 1:18:04
Yeah, exactly. And so you know, valuation methods that account for what the zoning sort of allows you to build on the property is really, really important to reflect this idea that, you know, when you buy a property, a lot of what you’re buying is, you know, the ability to develop on it at a future date, or to sell it to somebody, you know, to develop at a future date. And actually, like, you know, the value of the house that’s there at the moment, in places that are sort of underdeveloped relative to the market is not that not that important, because it’s quite cheap to demolish. And what you’re really interested in is like, how profitable would be the thing that you’d like to redevelop on there and a really competitive and efficient housing market? Okay, well,
Lars Doucet 1:18:50
we’ve gotten quite long. So let’s wrap it up. Now, if you could summarize your key points, and then kind of wrap a bow on on with any kind of concluding remark that you really think is necessary to tie it all together?
Steve Hoskins 1:19:01
Yeah, sure. So I think to put a bow on the gentrification conversation, I’ll just say that, you know, we do need to be putting policies in place to enable its low income people and its tenants who sort of don’t have any mechanism to protect themselves against rising land rents in a place. We need to have some policies in place to smooth that transition for them, enable them to enjoy the benefits of that location as it changes. And, and yeah, so that they’re not sort of disoriented by this really rapid change in, in the nature of their neighborhood. So I think there is a role for some rent stabilization type of policies to you know, prevent, you know, massive increases in rent from being used to push people out. Public Housing can do really well for that. housing vouchers are really useful for you know, the, the poor tenanted segment of the population to be able to afford these desires. But locations, and then all sorts of stuff around, you know, providing legal aid to tenants having a register of landlords that are kind of engaging in dodgy practices, there’s right to return which says, you know, if you get pushed out so your property is going to be redeveloped, you get first first dibs on, you know, the next property is there or you have to get paid out to leave. Those are really important. And I think that, that the left urbanists are right about a lot of that and geologists and human beings should pair up with them to to be helping with those anti displacement efforts as well. Did you want to say something about that before I move to the
Lars Doucet 1:20:38
end? Yeah, well, no, it’s just it’s just kind of funny, like thinking about like, some of these line policy things like right of return is like, pretty ancient, like you find it in the Old Testament. You know, it’s, there’s a form of it in Norwegian Viking era law, it’s the oldest law in Norway, the right of Udo, which is like, basically a way to keep land out of the hands of foreign invaders over the course of 1000 years. And things like that. So So it’s interesting that like, some of these these like land policies and ideas actually go go go quite a long way back. And then like the right to Rome, yeah, I was gonna say which, which is like, which, which some countries have more than others, like Norway, you’re allowed to travel across uncultivated land, you know, this kind of notion that like the Earth really, in a sense belongs to all of us.
Steve Hoskins 1:21:24
Yeah, that’s exactly right. And so that actually fits really nicely into the Georgia’s perspectives, right, which is that I think that in a lot of our cultures for, you know, centuries or 1000s of years, we have intuitively understood that land is, you know, given to us by nature, that we all have a shared interest in, in the value that that land creates. And so the Georgia’s prescription of you know, making sure that that land value gets enjoyed by everyone in society through land value taxation, or windfall gain. Capture is really important and I think fits with what a lot of people would intuitively understand if we kind of hadn’t done this rentier capitalist approach to private home ownership over the last century.
Lars Doucet 1:22:12
Okay, so basically, your thesis is the MBAs and the GA should be friends. And that yimby ism is complete without Georgia ism. And Georgia ism is incomplete without nimbyism. So I’m Steven, where can people find you? Read more about what you’re doing. Following online, just just be more familiar with your work?
Steve Hoskins 1:22:30
Yeah, so I am on Twitter at Georgist Steve and you’ll find my profile with the cringy laser eyes on there. I write for a Georgist substack called progress and poverty substack or p&p substack. Google will get you to that I am involved with with your project with land as a big deal.com. And we’re going to be you know, publishing materials as we develop our models there. And through my Twitter account, they can also find my, my sort of notion homepage where I have a collection of notes from Urbanus books, collections of kind of research ideas that I think that geologists should be pursuing. And in a collection of writings as well.
Lars Doucet 1:23:23
Great. Well, thank you so much, Steve, and we’ll include links to all that stuff, you know, in all the places that we post this podcast,
Steve Hoskins 1:23:28
I really want to emphasize, you know, that I I think that all of us interested in urban issues, should be allying with each other and the left urbanists and the MPs and the Georgist I think should all be propping up each other’s policy approaches to push for efficient and equitable housing markets as soon as we can get it and and to push back against the sort of the rentier capitalist landowning class.
Lars Doucet 1:23:54
Thanks for coming on. I think it’s been a really great conversation really wide ranging and really in depth.
Steve Hoskins 1:23:58
Yeah, thanks so much for having me Lazar.
William Jarvis 1:24:04
Special thanks to our sponsor, does market analysis for the support. Bismarck analysis creates the Bismarck brief, a newsletter about intelligence great analysis of key industries, organizations and live players. You can subscribe to Bismarck free at brief dot biz market analysis.com Thanks for listening. We’ll be back next week with a new episode of narratives. Special thanks to Donovan Dorrance, our audio editor. You can check out documents work in music at Donovan dorrance.com
Transcribed by https://otter.ai
Join the discussion