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1713Re: [LandCafe] Baby Steps - Was: No land price with full land tax - simply is not true

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  • Wyn Achenbaum
    Nov 12, 2006

      There was a Federal Reserve Board study published in May, 2006 which said that in the top 46 metro markets, land as a percent of the total value of single family residential property was 50.9% in 2004, up from 32.0% in 1984 and 39.7% in 1998.  Oklahoma City's figure was 23.3%, down from 27.9% in 1984.  San Francisco's was 88.5%, up from 74.9% in 1984 (not long after Prop 13, BTW); LA's was 78.7%, up from 60.8%; Boston 75.7%, up from 50.1%; NYC, 67.4%, up from 32.2%; Washington, DC, 67.4%, up from 46.7%; New Orleans 46.6%, up from 28.6%, Salt Lake City, 35.3%, up from 8.0%. (Tables 6a-6f)

      Those 46 major metro markets represent 56% of the US.  For the other 44%, they estimate the LSREV for single family housing at 27%.  So 50.9% on average for 56% of the US, and 27% for the other 44%, in 2004.

      The study is at The Price of Residential Land in Large U.S. Cities, by Morris A. Davis (University of Wisconsin) and Michael G. Palumbo (Federal Reserve Board), at  http://www.federalreserve.gov/pubs/feds/2006/200625/200625pap.pdf and http://www.federalreserve.gov/pubs/feds/2006/200625/index.html

      See Footnote 13, which says that a previous paper assumes that the nominal value of structures accounts for 87.5% of the nominal value of new housing.  This comes from an unpublished Census Bureau memo, and I can't find justification for a figure as high as that.  (Best I can figure, the figure should be 75% to 85% for spec houses.  If you have data points or theory on this, I'd like to know about them.)

      This article also provides a highly footnotable assertion that houses depreciate at 1.5% per year.  I wonder whether commercial property is any different.

      I've done a lot of calculations off the data provided, and what is most remarkable is how narrow the range of housing values is across the 46 markets, and how much the land value varies.  (I'll share them offlist with anyone who is curious.)   Of course these are aggregate figures for each metro area.) Consistent with Mase Gaffney's poetic observations within an urban area, in The Taxable Capacity of Land, at http://www.wealthandwant.com/docs/Gaffney_TCoL.html.
      Now do us both a favor, please. Pause and savor that comparison. Let it linger, as though you were testing a slow sip of wine from Fredonia's famous grapes. Roll it on your tongue, mull sensually over its aroma and bouquet, and, getting back to business, mull cerebrally over its full import. The house that shelters the very rich family is worth 2.8 times the house of the modest family; but the land under the house of the very rich is worth 17.5 times the land of the modest. Seventeen and one half times as much! Again, it is lot value, more than building value, that divides the rich from the poor. Seldom will you find an economic rule more strongly supported by data. It's just a matter of presenting the data so as to test and bring out the rule.


      Sean Brooks wrote:

      1) it's a mistake to say that land is the most valuable asset people have:
      (US figures)
      Median home price is ~$220,000.
      Land portion of this is probably 30% - $66,000 - or less.
      So already, their home, at $154,000 is worth more than their land.

      2) Their land, at $66,000, might have an annualized value of $6,600/y.
      The median 4 person household income in the U.S. $65,000/y, 10x the value
      of their land.

      So we have their labor, and their house, which are already worth more than
      their land.

      Furthermore, the initial steps towards LVT, a dual rate property tax,
      financially benefits more homeowners than it hurts.

      Likewise, an increase in LVT collected, concurrent with a reduction in wage
      taxes, should benefit the vast majority of the population, who pays far more
      than $6,600 in taxes on wages.

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      Wyn Achenbaum
      webster, http://www.wealthandwant.com ... toward abolishing poverty
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