Why I don’t think developers are the bad guys (or gals)

Brennan Jernigan
Aug 9, 2017 · 4 min read
Development: Evil or beautiful? Photo by Mitchell Haindfield, licensed under Creative Commons.

So I just read this great LA Times editorial on a taxing mechanism to fund affordable housing in Los Angeles — and it 100 percent exposes how flawed our narratives can be about this issue.

The authors’ basic point is that, rather than taxing development (or building) through what are known as “linkage fees,” we should be taxing land — developing/ed or not — to pay for affordable housing.

I won’t get into specifics of how this tax would be collected or its political feasibility (from the sound of it, not terribly likely in LA’s current political landscape) — but I’m going to run through the basic arguments in favor of land taxation.

  1. It taxes to encourage development, not stifle it. Rather than stifling the development of property (as a linkage fee may reasonably be assumed to do), taxing land actually encourages it. Imagine, if your land is getting taxed, you’re going to want to get some economic return out of it to offset the cost — so you might as well build more units and rent them. Increase of housing supply = lower rents in the long run. Done. (Yes, I’ve expressed antipathy toward the idea of endless increase of supply in our major urban centers, but that doesn’t mean it doesn’t deserve a reasonable level of expansion.)
  2. It increases the tax base. With linkage fees, you’re only taxing something when it gets built out. With land taxation, every parcel gets taxed. That means that the tax rate can be lower while generating the same revenue as a high linkage fee.
  3. It’s honest about who’s benefiting from the boom — and taxes accordingly. I like the idea of taxing land because it’s honest about who’s benefiting from the population boom in our cities. It’s total shit to blame the developers for the problems of housing. Think about it for a moment: these are the folks actually building new units in our housing-strapped cities — and yet we’re in effect punishing them for it and stifling building in the process. Now, there’s a reason we do it — it’s that we think, “Hell, they’ve got the money! They are reaping benefits like no one else from this boom, so they should pay to help those at the bottom.” Yes, developers are benefiting. But like no one else? Hardly. I call that bullshit right now. Virtually every landowner in a booming city benefits from an influx of newcomers — their land values skyrockets, they are able to sell at a profit, and they can charge whatever they’d goddamn like to (or so it would seem to us renters). So let’s start talking about all the landowners shouldering the burden to assist those who are losing in this boom.

It’s really that last point that interests me most — more even than the relative effectiveness of the taxing policy. It’s a very healthy reminder for all of us — myself included — that our policy decisions almost always reflect the narratives we tell ourselves. And if those narratives are false? Well then, we get ineffective policy.

In the case at hand, the popular narrative seems to be that new development (all that terrible, luxury, market-rate housing) is making housing more expensive. That’s nonsense. It doesn’t matter if new housing is luxury or how much the new units cost — if it’s replacing one single family home with 20 apartments, there is simply going to be more housing on the market, and the increased supply will have a dampening effect on increasing housing costs. (Now who gets displaced from specific neighborhoods is a very real issue, but it is a separate one that needs to addressed as such.)

Taxing land across the board casts an alternative narrative and it is this: You know what keeps housing expensive? Property owners. Of all types. People who want their property to maintain its value or go up in value have an incentive to keep development down. And so long as they do, they will fight tooth and nail to prevent development in their neighborhood.

The op ed says it much better than I do:

Housing scarcity delivers unearned wealth to people who own housing, and it imposes unwarranted burdens on people who don’t. To solve our housing crisis fairly and effectively, we should tax that wealth and use it to ease those burdens. It’s easy to wish that someone would help our disadvantaged fellow citizens. It’s harder to acknowledge our own role in their distress — to admit that our capital gains are their housing crisis. But that is the situation: Linkage fees [taxing development] feed the false belief that some of us in some neighborhoods can keep blocking development and growing our nest eggs, while the city helps the poor by taxing someone else to build affordable housing somewhere else.

I think it’s no coincidence that a faulty narrative about who’s to blame leads to an ineffective policy. Correcting our narrative leads us to do not only the right thing, but also the effective thing.

So let’s tax all property owners, not just developers — and let’s get our stories right in the process.

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