Commenting about 10 months after the article was written ...
I love all your articles. I started with the one on Cartels and am rabbit-holing my way through the others. Kudos and thanks for the great work!
That said ...
I don't buy the need to tax imputed rent as a panacea for bloated housing costs - a mortgage, which most owners have, is rarely less financially onerous than paying rent. Simply eliminating the deduction on mortgage interest will go a long way to eliminating the distortion between renting and owning.
Of course, if you're going to go after that mortgage interest deduction, you need to also whack corporates ability to deduct interest, or you will see homeowners turn into real estate investors by forming corporations and buying their single-family homes that way instead.
There will also likely be a huge re-adjustment in the corporate credit markets (and a massive tremor in the LBO business) if ever the corporate deduction on interest is removed, but once the adjustment is done, all will be well and Wall Street will continue to thrive, boom and periodically go (almost) bust and be bailed out.
As for eliminating distortions imposed by zoning, etc., good luck on that (Federalism, etc.) - one just has to let competitive dynamics between geos to attract business to locate in their areas do the trick, aided by the continuing advance (one hopes) of telecommuting options. That's helping the likes of Austin right now, but it hasn't as yet started to hurt NYC and SFO. As yet ...
You can come up with a variety of different schemes to bring the tax rate on owning land in parity with the tax rate of actually working - it could be any combination of property tax, tax on imputed rent, and so on - you definitely do not need all of those levers. I was mostly trying to illustrate the massive subsidies we give wealthy landowners, at the expense of people that actually work and build things! Most of the subsidies are invisible because they consist of taxes *not* collected and exemptions from competition - but for example if you get $100,000 off your income tax bill, that is economically equivalent to getting a $100,000 welfare check in the mail. Government accounting recognizes this, but most people do not.
It has been an interesting year in housing - I wasn't planning on writing about it, but there continues to be a lot to write about. I touched on this in the other essay, but I believe in this ideal that America should be a land of economic opportunity, and historically, megacities are at the core of that - letting people cluster together is a huge productive boon, and the biggest cities have powerful network effects that have seen them through hundreds or even thousands of years. I don't know about you, but I and most of my friends took for granted that you could just move to NY or SF or LA out of college and start a lucrative career. If we want that to be available to the next generation, we have to make it much easier to build. Big cities are our most valuable economic asset, and letting control of those cities fall into the hands of a few wealthy landowners who want to hoard access to those cities and extract income from them is a huge mistake, in my opinion. The idea that businesses can go "on strike" and move to Austin or Miami is seductive and will work a bit on the margin but I think will be a little disappointing - there are a lot of reasons people will still prefer the biggest cities.
Moreover, the idea that we would just give up and turn over control of our big cities to a small cohort of people who figured out how to hack the political system and capture control is objectionable to me. If a small group of people managed to capture control of all of our farms and rewrote the laws to reduce production to jack up the price of food, would we say, oh well, let's see if we can work on developing soylent and importing food so we are not so reliant on domestic wheat and corn? Or would we say, hang on, no, this is America, you can't do that? I think it would be best if treated we treated our big cities as the strategic asset they are, on par with our IP and oil and farms.
Re your prediction in the article - I have to wonder if there's a coming backlash to remote work. I've been remote for a year now, and it's incredibly difficult to communicate complex ideas over zoom. I feel like a lot of roles in product and engineering will be push back to in person, especially for more senior employees.
Thanks! There are definitely downsides to remote work, and the choice for most companies will definitely be based on what the company in question does and how important it is to be in person.
Commenting about 10 months after the article was written ...
I love all your articles. I started with the one on Cartels and am rabbit-holing my way through the others. Kudos and thanks for the great work!
That said ...
I don't buy the need to tax imputed rent as a panacea for bloated housing costs - a mortgage, which most owners have, is rarely less financially onerous than paying rent. Simply eliminating the deduction on mortgage interest will go a long way to eliminating the distortion between renting and owning.
Of course, if you're going to go after that mortgage interest deduction, you need to also whack corporates ability to deduct interest, or you will see homeowners turn into real estate investors by forming corporations and buying their single-family homes that way instead.
There will also likely be a huge re-adjustment in the corporate credit markets (and a massive tremor in the LBO business) if ever the corporate deduction on interest is removed, but once the adjustment is done, all will be well and Wall Street will continue to thrive, boom and periodically go (almost) bust and be bailed out.
As for eliminating distortions imposed by zoning, etc., good luck on that (Federalism, etc.) - one just has to let competitive dynamics between geos to attract business to locate in their areas do the trick, aided by the continuing advance (one hopes) of telecommuting options. That's helping the likes of Austin right now, but it hasn't as yet started to hurt NYC and SFO. As yet ...
Thanks!
You can come up with a variety of different schemes to bring the tax rate on owning land in parity with the tax rate of actually working - it could be any combination of property tax, tax on imputed rent, and so on - you definitely do not need all of those levers. I was mostly trying to illustrate the massive subsidies we give wealthy landowners, at the expense of people that actually work and build things! Most of the subsidies are invisible because they consist of taxes *not* collected and exemptions from competition - but for example if you get $100,000 off your income tax bill, that is economically equivalent to getting a $100,000 welfare check in the mail. Government accounting recognizes this, but most people do not.
It has been an interesting year in housing - I wasn't planning on writing about it, but there continues to be a lot to write about. I touched on this in the other essay, but I believe in this ideal that America should be a land of economic opportunity, and historically, megacities are at the core of that - letting people cluster together is a huge productive boon, and the biggest cities have powerful network effects that have seen them through hundreds or even thousands of years. I don't know about you, but I and most of my friends took for granted that you could just move to NY or SF or LA out of college and start a lucrative career. If we want that to be available to the next generation, we have to make it much easier to build. Big cities are our most valuable economic asset, and letting control of those cities fall into the hands of a few wealthy landowners who want to hoard access to those cities and extract income from them is a huge mistake, in my opinion. The idea that businesses can go "on strike" and move to Austin or Miami is seductive and will work a bit on the margin but I think will be a little disappointing - there are a lot of reasons people will still prefer the biggest cities.
Moreover, the idea that we would just give up and turn over control of our big cities to a small cohort of people who figured out how to hack the political system and capture control is objectionable to me. If a small group of people managed to capture control of all of our farms and rewrote the laws to reduce production to jack up the price of food, would we say, oh well, let's see if we can work on developing soylent and importing food so we are not so reliant on domestic wheat and corn? Or would we say, hang on, no, this is America, you can't do that? I think it would be best if treated we treated our big cities as the strategic asset they are, on par with our IP and oil and farms.
This is great writing - cogent and unique.
Re your prediction in the article - I have to wonder if there's a coming backlash to remote work. I've been remote for a year now, and it's incredibly difficult to communicate complex ideas over zoom. I feel like a lot of roles in product and engineering will be push back to in person, especially for more senior employees.
Thanks! There are definitely downsides to remote work, and the choice for most companies will definitely be based on what the company in question does and how important it is to be in person.
This is quality! Thank you.
Thanks for writing. This is so good.