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Each week, LA Progressive’s editors pick what they regard as a particularly insightful comment from one of our readers, both to draw attention to one particular reader’s thoughts and to encourage more readers to weigh in with their opinions. This week’s pithy "Feedback Friday" response comes from Adam Eran, who commented on the article by Karen Chapple, ""California Isn’t Full; We Could Provide Housing for Everyone."

California Housing

One of the ultimate ways to keep housing affordable is to increase property taxes. Since 90% of housing is borrowed, this actually impacts banks, and keeps a lid on land speculation by making it impossible to warehouse infill because the cost of holding on to it is too high. (See http://realestate4ransom.com)

Land speculation is rampant in California, and one of the major sources of local corruption. The land speculators can purchase outlying farmland for a few thousand dollars an acre, and once they have obtained the requisite entitlement to develop, sell it to builders for 50 – 100 times what they paid for it. Something about a 5,000 – 10,000% profit –called the “unearned increment”– encourages corruption.

There are alternatives: In Germany, the developers must sell the agricultural land to the local government at the agricultural land price, then re-purchase it at the up-zoned price. All that profit inures to the benefit of the local governments. So Germany has excellent schools and infrastructure. The arts budget for the City of Berlin exceeds the National Endowment for the Arts for the U.S. of A.

Mandating mixed-use, including housing, would solve a significant portion of the affordability problem. After all, the land in these centers is already owned–in other words, it’s free!

Meanwhile…in the Sacramento region, there is 20 years worth of infill that remains undeveloped. Rather than build it, though, the speculators have literally thousands of acres of outlying land they’re proposing (probably successfully) to develop. Incidentally, that outlying land requires longer infrastructure runs, which are roughly twice as expensive to maintain as more compact development…like that infill. But by the time those bills come due, the speculators will be gone, on to the next project.

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The Reagan administration began this downward slide toward un-affordability by cutting the HUD affordable housing budget 75%. With the collusion of Democrats, Reagan passed the ’86 tax law that **retroactively** removed a tax break for all the partnerships that built affordable housing, particularly apartments. That meant that not only were no new apartments proposed, but existing units whose finances depended on that tax break went bankrupt. The smart partnerships just deeded these projects back to the banks who financed them. I’d suggest this was a significant contributor to America’s previous biggest-ever bank scandal: the Savings and Loans.

Finally, why do all the suburban shopping malls not include housing? The upper stories of these structures could provide a customer base that would patronize the malls now in decline because of online shopping, and remove commutes now taken to go to the mall, easing congestion and pollution.

Existing “lifestyle” centers that include housing produce a better income stream than single-use, all-commercial centers too. Mandating mixed-use, including housing, would solve a significant portion of the affordability problem. After all, the land in these centers is already owned–in other words, it’s free!

For a little international perspective, here’s from “Rethinking the Economics of Land and Housing” by Josh Ryan-Collins, Toby Lloyd and Laurie Macfarlane, an account of those topics that is euro-centric, but very suggestive about ways to solve our affordability problems:

p. 117…”it’s clear that a major driving force in UK house price increases in the last thirty years has been a relatively elastic supply of credit meeting a fixed supply of land along with increased speculative demand for home ownership. Without the existence of a credit- and money-creating banking system, it is impossible to envisage how such huge increases in prices would have been possible given the slower pace of income growth”

p. 162 “…the increase in the wealth-to-income ratio observed in recent decades which has underpinned the rise in inequality has been driven not by productive activity, but rather by increasing residential land values.”

p.186 “…increasing household debt-to-GDP ratios may repress consumption demand and lead to less demand from firm for borrowing for capital investment…. Empirical research has found that this phenomenon played a key role in causing the Great Depression and the 2008 financial crisis….”