421-A exemption being challenged; The true value of ALL U.S. Land

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Scott Baker

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Jan 29, 2015, 3:39:49 PM1/29/15
to Scott Baker, Andy Mazzone, Alanna Hartzok, Edward Dodson, Billy Fitzgerald
Hello Common Groundlings (and friends)!

Two headline stories today on local Pols challenging the decades old 421-a tax exemptions on high value buildings should get every Georgist's attention.  For those who don't know this New York City-specific legislation passed in the 1970s, this exemption was created as a way to, supposedly, allow developers of luxury buildings to get a tax exemption in exchange for creating "Affordable" housing elsewhere.  The argument that such exemptions are worth it because Affordable Housing would not happen any other way, was challenged almost form the beginning, but is especially being called into question now, when the $100 million threshold has recently been broken for a duplex apartment on the 89-90 floors of 94% tax-abated One57 (a building which had already set the previous record with another $95 million duplex penthouse).

From the New York Observer article, here is the definition of "Affordable Housing"
The 421-A program is available to almost any new residential building of more than five units. Projects that qualify for the exemption must set aside 20 percent of their units as “affordable,” meaning available to those making 60 percent of the federally-set “area median income,” an average of annual salaries in the New York metropolitan area.
But here, in the Crain's article, is the Real (Estate) problem, according to Progressive Caucus leader, Brad Lander (emphasis added):
On the other hand, City Councilman Brad Lander, D-Brooklyn, suggested that the real beneficiaries of tax abatements might not be the end buyers or renters of the apartments who end up paying less—or even developers who might not have built a rental building otherwise—but landowners. He noted that they are charging historically high prices for their properties.
The idea is that if developers are getting a break on taxes through 421-a, which amounts to $1 billion in forgone tax revenue annually for the city, they can afford to pay more for land—something those with property to sell well know.
"I do think land price escalation is such a big part of our affordability problem … and spending $1 billion a year in a way that largely fuels it is something to [think about]," Mr. Lander said. 
As Georgists know, when the Land Tax (aka Site Rent) goes down, the Land Price goes up (at least if the Land Tax goes down enough).  This is exactly what's been happening for some time in NYC, but even for this city, things have gone to historical extremes.  I gave several examples of this in my presentations on Case Studies in New York City Property Development seminars last year (video and slideshow included in the link), including the $95 million example from One57 (now superseded by the $100 million penthouse.  It's hard to keep up!).  Common Ground-NYC Treasurer Rita Rowan and I met briefly with Brad Lander and other progressive caucus members at a caucus fund raiser a couple of years ago to discuss this as well.  Note also both articles cite Assembly member Helen Rosenthal, who until 3 years ago, was the sponsor of the bill to tax vacant land at values closer to build-upon land prices.  The bill was tabled, unfortunately, and currently it is not uncommon to find vacant  lots where the property tax is literally 1/10th the property tax of a fully utilized lot on the same block.  The most famous example of this was cited by CGNYC members Lindy Davies and Mike Curtis in their "Ground-breaking" video "Walking the Common Ground of New York City" which you can still view here: https://vimeo.com/67776419 (other CGNYC members such as Toby and Will Lenihan, contributed as well).

Action Step: Call or write to your City Council member, Assembly member or Senator (or all 3!) and say that the 421-a abatement mostly forces Land Prices to be higher and more unaffordable.  A Land Value Tax instead would bring prices back to Earth, while providing the city with all the revenues it needs (so other productivity-sapping taxes could be reduced or eliminated).  A Land Value tax would create opportunities to develop under-used and vacant land for the benefit of ALL New Yorkers!

Our message is, at long last, starting to get through, though not entirely in the solutions-oriented way it should.  They've seen the problem, now let's show 'em the solution!

A billion dollars mostly wasted just in the 421-A plan.  How many billions more wasted through less dramatic but much more prevalent mis-taxation?  Remember, the NYC Dept of Finance, even using property assessments that almost certainly too low by half, says there is half a trillion in land values alone in the 5 Boroughs.

What about nationwide?  This is a question that has bedeviled Georgists for many years, but the answers are getting easier to calculate now. 
The following dialog from the Yahoo group Georgist Organization Action Items might clear this up.

Matthew Yglesias calculates total land value at $14.48 trillion, but Nic Tideman and Chuck Metalitz more than doubles it for reasons they explain below, to over $33 trillion total (Tideman) to over $1.7 trillion just in Illinois farmland alone (Metalitz). 

In either case, the tax on full rental value should produce enough to get rid of all other taxes.  It is, as Henry George first said, "Enough and to spare."

On Thursday, January 29, 2015 6:17 AM, "geo...@yahoogroups.com" <geo...@yahoogroups.com> wrote:


2 Messages

Digest #766

Messages

Wed Jan 28, 2015 8:54 am (PST) . Posted by:

"Alanna Hartzok"


FYI - Are any of you connecting with Matthew Yglesias? If so please let me
know. This is a spectacular article that was published over a year ago and I
had not seen it until today. - Alanna


A blog about business and economics.
Dec. 20 2013 4:06 PM
What's All the Land in America Worth?

By Matthew Yglesias
Land!

Photo by David Becker/Getty Images
After yesterday' s post on the aggregate value of all the housing in America,
a couple of correspondents noted to me that for recent decades you can
actually compute the value of all the land in America from the Federal
Reserve' s Flow of Funds report (PDF). The short answer is that all the
privately owned land in America is worth about $14.488 trillion—which is a
lot.
Here's how the math works. Table B.100 "Balance Sheet of Households and
Nonprofit Organizations" has a line for real estate in its nonfinancial
assets section. It tells us that households and nonprofits own $21.61
trillion in real estate. Then at the bottom on line 45 it tells us that the
replacement cost of all the structures owned by households and nonprofits is
$13.8 trillion. So all you need to do is subtract the replacement cost of
the structures from the total value of the real estate to reach the
conclusion that a little bit over one-third of the total real-estate
value—about $7.812 trillion—is land.
Then you repeat the procedure for B.102 "Balance Sheet of Nonfinancial
Corporate Business." Here we learn that corporate America owns $9.867
trillion of real estate and that the replacement value of the structures on
it is about $8.109 trillion. Subtract and we conclude that there's $1.758
trillion* worth of land in the corporate sector.
Last we turn to noncorporate business, which owns $9.704 trillion in real
estate and has a replacement cost of structures of $4.786 trillion, giving
us $4.918 trillion in land.

Add it all up and you get $14.488 trillion in land value.*

Now how good is the Fed's data on this? I don't know. Certainly estimating
the replacement cost of structures can be hard. But this is what's on the
books. And when David Albouy and Gabriel Ehrlich tried to estimate the total
value of residential land through an independent method (PDF) they came to
the conclusion that "approximately one-third of housing costs are due to
land, with an increasing share in higher-value areas, implying an elasticity
of substitution between land and other inputs of about one-half." That's
very similar to the residential piece of the Flow of Funds.

So who cares? Well, you should care. This number is high enough that it
tends to confirm that view that taxation of land and other natural resources
supplemented by pollution fees and things like congestion charges could
replace all taxes on labor and investment and still fund an ample welfare
state and public sector.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.


 














































(From Alanna): Two comments received so far to the LV in America article. First from Nic Tideman, then Chuck Metalitz.
 
Alanna et al. The logic of the calculation is faulty.  It subtracts REPLACEMENT COST from total cost.  This does not give you land value.  You should subtract  DEPRECIATED COST.  But you get the correct answer only when depreciated cost is calculated in such a way that the result from the subtraction is the value that the land would have if it were unimproved.
 
I have made another calculation taking total value of all private assets from the Fed's Survey of Consumer Finances ($67.872 trillion in 2007) and subtracting the commerce department's estimate of the depreciated value of the stock of replaceable private capital ($34.081 trillion in 2007).  The result is $33.791 trillion.  If the inputs are correct it will be an estimate of land value plus enterprise goodwill plus the value of patents and R&D knowledge plus net holdings of foreign assets.
 
Nic  
 
-------Original Message-------
Date: 1/28/2015 1:53:22 PM
Subject: It's worth way more than that (was Re: geoact: What's All the Land in America Worth?
 
Presumably this comment goes only to Alanna, who will forward it if she sees fit.

Slate's site won't display for me the 40 comments on this year-old article, but hopefully one of them notes that this is completely the wrong way to estimate land value.  Subtracting structure replacement value from total parcel value will tend to underestimate land value.

Also, U S Census of Agriculture estimates the value of farmland and farm buildings in Illinois alone to be about $1.698 trillion.  Of course most of this is land value. It's hard to reconcile this number, for just one middle-size state, excluding nonagricultural land,  with the $14.488 trillion claimed in the article for total land value.
=====

Until next time, Happy Landings,


Video Appearances & Slideshows here:
http://newthinking.blogspot.com/

Petitions:
-- Commemorate President Lincoln's Assassination with 1 Billion Debt-Free Lincoln $5 Bills
-- Replace Property Tax with Ground Rent in New York State
-- Assess NYC buildings using comparative properties
-- California Dreaming: Set up a State Bank with abundant CAFR funds
-- Complete the East Side Manhattan Greenway from 38-61 Streets and save bikers, help the environment, and clear up traffic
-- Tax Vacant & Unused Land to Return its value to the Community
-- Close New York State's budget Gap with money from its own agencies by setting up a State Bank
-- Defend the Clean Air Act
-- Produce debt-free United States Notes
-- Reclassify the FED's account, from private to public
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