Welcome back to Sunday reading. This week: Land taxes.
In Newsroom, Zbigniew Dumieński and Nicholas Smith put forward the case for a major shakeup of New Zealand’s tax system. Sounds like it could be a very good idea:
Unlike any other products of labour (including houses), land is not produced and, therefore, won’t disappear when we tax it. This is also why, unlike a tax on buildings, a tax on land values cannot be passed to tenants. Taxing land values eliminates the incentives for speculation or land banking and encourages landowners to use their land more efficiently, thereby reducing sprawl, waste and burden on infrastructure and the natural environment.
Taxing unimproved land values also allows us to reduce other harmful taxes that currently fall on production and entrepreneurship. This could help improve our economy’s competitiveness and reduce the high cost of living. Even a local shift of rates from improvements onto land values would reduce the cost of constructing or renovating homes, while at the same time making holding land idle much more costly.
A tax on land values is also easy to collect, transparent, based on public information and virtually impossible to avoid – these characteristics should appeal to those concerned with the problem of tax avoidance.
Finally, a tax on unimproved land values is naturally progressive. Not only is it the most burdensome to those who hold valuable urban land they are not using, but it also it correlates better with benefits received (e.g. good transport infrastructure, schools, low crime, clean environment) than any other broad-based tax.
On the same note, Lance Wiggs lays out the case against complaining about rates on his personal blog:
The average rate payer in New Zealand pays just 0.35% of their house value each year, still far less than most Kiwisaver providers.
If we had a single nation-wide standard rates fee as a percentage of home value then we would have a national rate of 0.35% of home value. That would mean rates in Auckland would rise by 50%, in Queenstown Lakes by 29% and everywhere else the rates would fall.
So here in Auckland we underpay our rates, and the national government has to subsidise (and they don’t enough) our infrastructure more than they should. they certainly pay their way in Waitomo – if Aucklanders paid as much as they did there then rates would rise by 550%.
A 50% rate rise in Auckland is entirely justifiable, and the rest of New Zealand should be demanding we pay our fair share, and lowering their rates too. But can Aucklanders afford to pay more?
Yes, yes we can.
Over just the last year homeowners have, almost everywhere, made substantial capital gains and once again Auckland’s did very well. […]
Last year alone Auckland ratepayers averaged a tax free gain of $52,000 from each property, and they paid an average of just $2,340 in rates. The gain is 2226% greater than the cost, a ratio any Kiwisaver fund would be proud to brag about.
We all need to stop complaining our rates, especially those who can afford to pay them with cash, and who are sitting on vast windfall gains.
— You Had One Job (@_youhadonejob1) August 20, 2017
Now, a bit on homebuilding, which we don’t have enough of. Dan Bertolet from Seattle’s Sightline Institute explains how “housing delayed is housing denied (and rent increased)“:
Recent analysis by real-estate firm Trulia indicates that delay may be the biggest regulatory factor in the lag of homebuilding that sends prices spiraling in booming cities (see end notes). In 2002, economists documented a “strong positive relationship” between permitting delay and high home prices. This 2015 study from Austin, Texas, estimates that the city’s average avoidable delay of 3.5 months raised the rent of a typical apartment by 4 percent. Meanwhile in San Francisco, approval alone may consume four years or more.
Overall, like any complex undertaking, housing development becomes less efficient when the flow is interrupted. Specifically, delay makes homebuilding more expensive through four main direct mechanisms. First is interest on the land. Imagine you’re trying to construct apartments. Typically, your first task is to secure land on which to build. In most cases, you have to borrow the money to buy it. You’ll pay interest on that debt until you finish the project. The interest adds up fast.
Second, more time to complete a project means more overhead: more paychecks for your managers and office staff, more retainers for attorneys, designers, and other consultants. Third, delay imposes an opportunity cost: you cannot start your next building while you’re still assembling this one. Fourth, the longer your project takes, the more inflation, taxes, or additional fees may take a toll.
Speaking of construction, James Macbeth Dann has a useful but worrying rundown of the fate of the Christchurch rebuild projects:
with the SEVENTH anniversary of the first Canterbury #EQNZ coming up, here is an update on the projects in the Blueprint, released in 2012
— James Macbeth Dann (@edmuzik) August 23, 2017
Here’s the full list so you don’t have to click through:
1. Hagley Oval. Built in time for the Cricket World Cup. Sports! Open
2. Bus Exchange. Has been running for more than 2 years. Strangely quiet
3. INNOVATION PRECINCT. Was listed in the Blueprint but was really more of a vibe than a project. EPIC centre planning on leaving
4. JUSTICE PRECINCT. Was meant to be “handed over” on March 31st. Didn’t happen. Fletchers meant to be getting pinged for each day over
5. THE FRAME. The $500m buy up of land on the east frame has been complete. Now they are landscaping the gravel
6. THE CATHEDRAL. An incredibly sad sight. No decision, no idea what is happening
7. NGAI TAHU CULTURAL PRECINCT. Pretty sure that they walked away from this. Nothing happening
8. PERFORMING ARTS PRECINCT. No one knows what is going on with this, nor whether any of the stakeholders actually want it / will pay for it
9. CENTRAL LIBRARY. CCC in charge of project, seems to be steaming along
10. RESIDENTIAL DEMONSTRATION PROJECT. Collapsed at project stage after a bizarre “competition” for entries, no-one could work with CERA
11. MARGARET MAHY PLAYGROUND. Unmitigated success that wasn’t actually included in the Blueprint
12. METRO SPORTS CENTRE. Take a giant sports facility from the poor east and put in in the middle of town! Construction hasn’t started
13. HEALTH PRECINCT. The new hospital build is well underway, but little-to-no other buildings – the research labs etc that were promised
14. CONVENTION CENTRE. Currently a massive wasteland that takes up 2 blocks in the centre of town. Meant to cost $475m. See
15. THE STADIUM. Not two but THREE whole city blocks, sitting, waiting, for an idea and the $500m to pay for it.
16. THE AVON RIVER PRECINCT. They made the river look nice and now there are some eels and a place to eat you lunch.
by my count, 4 out of 16 projects are complete, and they’re all the smallest ones. 2 have been canned entirely. 3 are under construction.
5 – and the biggest 5 – are mired in uncertainty at this moment: Stadium, Convention Centre, Metro Sports, Performing Arts, the Cathedral.
Jeez. Also on Christchurch, John McCrone writes about the city’s transport transformations in The Press:
Change is knocking at the door. The general public quietly realises it says Dr Glen Koorey, a former Canterbury University engineering lecturer now working for Christchurch transport consultant ViaStrada.
Christchurch is of course a city where a car is just so damn convenient. There is parking everywhere and the sprawling design of its suburbs seems to demand private vehicle ownership.
Yet Koorey says people understand they could be only an economic crisis and oil price shock away from this car dependence being a big problem.
Christchurch’s traffic congestion is also growing. For such a flat and open city, it is getting rather choked on its main routes.
And he says it is notable that when Christchurch residents were asked what they wanted during the council’s post-quake Share an Idea consultation exercise, they called for a compact city with greener transport options.
Just before the earthquakes, the council had brought in Danish urban designer Jan Gehl to come up with European-style plans for Christchurch – cycle paths, light rail, street calming.
“At the time, a lot of those recommendations seemed pretty radical. The report was politely parked. But then the earthquakes came along and it has been a game-changer. People have said, yeah, we actually want those things.”
So there is a general mandate for change. The only problem now is to figure out how to deliver – especially with post-quake Christchurch having become even more spread out with people shifting to Halswell and Belfast, Rolleston and Rangiora.
Aspirations for transformational change that are thwarted by conservatism and bad delivery. I’ve heard that story before.
— The Civilian (@TheCivilianNZ) August 24, 2017
On a completely different note, Alana Semuels reports on Japan’s challenges with rural population decline in The Atlantic. This is a fascinating topic that we should all be paying more attention to, as similar trends will shape many places in most developed countries:
Japan is slowly becoming something like one big city-state, with the majority of the population centered in an urban belt that runs through the cluster of Tokyo, Osaka, and Nagoya, all located relatively near each other, along the route of Japan’s bullet train. In 1950, 53 percent of Japan’s population lived in urban regions; by 2014, 93 percent did. (In the U.S., by contrast, 81 percent of the population lives in urban regions.) It is mostly young people who move to the cities, and that means that as Japan’s population ages, the cities and towns outside the city-state are left to fade away. Japan’s Ministry of Internal Affairs says that now, around 15,000 of Japan’s 65,000 or so communities have more than half of their population over the age of 65.
In some rural regions, nature is reclaiming the land. Families are tearing down unused homes, turning the land back into fields. Bear attacks near settlements in Japan’s north are increasing as humans stop pruning back trees and maintaining their land. Wild boars have been ravaging farmland across the island of Honshu. “What will happen in the future, for most places, the only outcome will be total disappearance,” said Peter Matanle, a senior lecturer in Japanese studies at the University of Sheffield, who has extensively studied Japan’s rural decline. Fields and empty lots will replace homes and farmland, and in some places, only graveyards will be left to mark the land where people once lived.
One measure that Japan could take, but probably won’t, would be to accept more immigration. There’s heaps of people who would happily move to small-town rural Japan if given the opportunity – but they just don’t happen to be Japanese.
— RNZ (@radionz) August 24, 2017
On that note, Joseph Heath wrote a thought-provoking essay on Canada’s unusually tolerant and well functioning immigration system. Canada has lots of immigrants, from extremely diverse sources, but it hasn’t experienced a major populist backlash against them. Heath explains why:
[After Trump’s election and the UK’s Brexit election] a fairly widespread discussion broke out over the seemingly anomalous circumstances that prevailed in Canada, where nativism seemed to be gaining no traction. The picture we all saw of a smiling Justin Trudeau greeting Syrian refugees at the airport was reprinted in newspapers around the world. And it led a lot of people to wonder what we’re putting in the water here in Canada.
As was widely noted, there are several important respects in which attitudes towards immigration and diversity in Canada diverge from those in other Western countries (leading many people to announce the dawn of “Canadian exceptionalism”). Typically, as the number of immigrants goes up, public support for immigration goes down. Canada is the only country in which both immigration and support for immigration have risen over the past few decades. Furthermore, patriotism and support for immigration are positively correlated in Canada, whereas in most Western countries, including the U.S., they are negatively correlated.
Heath goes on to put forth five explanations for Canadian exceptionalism on this front. I’ve excerpted them at length because they’re well worth considering. The key point, it seems, is that Canada has evolved a system wherein immigration reinforces national identity, and hence where it is widely perceived to be socially and politically beneficial for the country.
1. Very little illegal immigration
Perhaps the most important difference between Canada and the U.S. is that, south of the border, any sort of discussion of migration policy is completely dominated by the problem of illegal immigration. Indeed, I do not think it is too much of an exaggeration to say that the discussion in the U.S. is poisoned by this one issue. In Canada, by contrast, illegal immigration is much less of a problem (the unauthorized population in Canada is estimated to be between 200,000-400,000, so maybe 15-25% that of the low-end estimate of the U.S. one) This is, interestingly enough, comparable to rates in Europe before the Syrian refugee crisis, but by contrast, only 50% of Canadians view it as a concern, compared to 67% in Europe. (Canadians, it should be noted, are just as hostile to illegal immigration as Europeans, they are just less like to consider it a problem.) […]
2. Bringing people in from all over
Again, partly because of geography but also because of policy, Canada has an immigration policy that brings in people from all over the world, as a result of which no one group dominates within the migrant population. There is no “majority minority.” Indeed, in a typical year, no group from any particular region makes up more than 15% of the total number of immigrants coming to Canada. This is quite different from the situation in France with North Africans, Germany with Turks, or the United States and Mexicans.
The central advantage of this arrangement in Canada is that it makes each ethnic community a much smaller pole of attraction, such that it cannot form a viable subculture within the society. This dramatically limits opportunities for what, in another context, sociologists would refer to as “social deviance.” More generally, it increases the incentive to participate in the broader workforce, as well as to learn the language of the majority. The latter point is particularly important in Quebec. If immigrants don’t speak a common language amongst themselves, then they will naturally gravitate toward the language of the majority, or the language that is taught in schools, even to mediate their own relations. […]
3. A political system that encourages moderation
[…] All of this is because our electoral system gives the moderate right a powerful incentive to control the far right. As a result, we have not seen the emergence of far right, nativist party, in the way that so many European nations have – one that has a permanent “base” of around 15% of the population, not enough to win power with, but enough to ensure a strong parliamentary presence, so that its voice will always be heard.
My inclination is to regard the absence of such a party as an important feature of the Canadian success story, because these sorts of parties have an impact on the national conversation that greatly exceeds their electoral numbers. In particular, I think that the success of these parties in gaining media attention may lead many immigrants to overestimate the level of racism, or hostility to minority groups, that exists in the general population. Or perhaps the absence of such a party, in Canada, leads immigrants to underestimate how much hostility is out there. Either way, I think the absence is good for integration, in part because it reduces the salience of race or ethnicity in everyday interaction.
4. Immigrants are part of larger nation-building project
It is important to observe that the major cleavages within Canadian society – those that threaten to tear the country apart – are between its “founding peoples,” the English, French and First Nations. Just today, in my Canada Day edition of the Globe and Mail, I see short interviews with all the provincial premiers, about their dreams and hopes for the future – all except the premier of Quebec, who refused to participate. Meanwhile, there is a “reoccupation” teepee in Ottawa, to protest the Canada 150 celebrations. And so it goes. Does anyone seriously believe that the Canada 200 celebrations will be any different? After all, we will still be standing on land stolen by the white man, Montcalm will still have been defeated on the Plains of Abraham…
Immigrants, by contrast, arrive here fresh, with none of these axes to grind – and indeed, convincing them even to take an interest in these old conflicts is a challenge. As a result, immigrants have been doing a lot more to hold the country together in the past few decades than any of the founders. It may have been impolitic for Jacques Parizeau to blame the loss of the 1995 Quebec referendum on “money and the ethnic vote,” but the allegation was certainly not false. “Allophones” in Quebec essentially voted along the same lines as anglophones – overwhelmingly in favour of staying in Canada. If they had voted like francophones, Quebec would have seceded. The fact that secession is now considered dead in Quebec is almost entirely a consequence of subsequent immigration, not any sort of change of heart on the part of francophone Quebecers. This is nation-building on a large-scale – Canada has, in effect, overcome the secession threat by changing its own internal demographics. […]
5. Protection of majority culture clear from the start
When it comes to immigration, Quebec is in a peculiar position. French Canadians are a national minority group within Canada, but with respect to immigrants, they form the majority group in the province of Quebec. As a minority group, both their language and culture are threatened, “externally” as it were, by the English majority. Large-scale immigration, however, threatens to further undermine their language and culture, “internally,” because immigrants might choose to learn the language of the national majority (English) rather than the local majority (French).
Thus Canada has faced the challenge of integrating immigrants, not just into the majority society, but into the society of an internal minority, in a way that is acceptable to that minority. (Compare that to a country like Germany, France, or the United States, which has a single, hegemonic language.) Because of this, the only way that it has been possible to have something resembling a national immigration policy has been to offer a set of very explicit protections for Quebec, and in particular, for the French language. These same protections, however, have been extended to the English majority as well. So, for instance, Canada is far more explicit with immigrants about the importance of language-learning than many other countries are, in part because we have an “official languages” policy that sets out very clearly the privileged status of English and French.
The result has been, I believe, much less insecurity, or “demographic anxiety” about immigration, because the protections enjoyed by the majority are laid out explicitly, in a way that they are not in many other countries.
That’s it for the week! Until next time!