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Letter in Washington Post
On Monday, the Washington Post printed a letter of mine, which I reproduce below, just as they published it, and not precisely as I wrote it. For one thing, I believe that I said that the lack of affordable housing is due partly to snob zoning, and partly to the wrong kind of property tax:
Tax land, not buildings
We have some general inflation, but we also have special problems with the lack of affordable housing [“As inflation grows, so does housing crisis”, front page, July 4]. This is partly because of snob zoning and the wrong kind of property tax. In most jurisdictions, both buildings and land are taxed, with land values often being underassessed in practice.
This means that someone who is considering erecting an apartment building will not find it profitable to do so until rents have risen enough to cover the building tax, other expenses and a return on capital. Someone who invests in a vacant lot in a populated area with the intention of keeping it vacant until, perhaps decades later, he can sell it at a good profit will typically pay low taxes on it. As a result, not enough housing is constructed, so what there is costs too much.
An important reform is to tax real estate only on the value of the land, not on the buildings or other improvements. That way, land could be bought much more cheaply and real estate bubbles, which are bubbles in land prices, would not inflate. People could build houses and apartments without raising their tax bills, so we would have more housing, making it cheaper. Some might criticize this proposal on environmental grounds, but by encouraging infill development, it would also have the merit of reducing sprawl into the countryside.
Nicholas D. Rosen, Arlington
The writer is president of the Center for the Study of Economics.
Tax land, not buildings
We have some general inflation, but we also have special problems with the lack of affordable housing [“As inflation grows, so does housing crisis”, front page, July 4]. This is partly because of snob zoning and the wrong kind of property tax. In most jurisdictions, both buildings and land are taxed, with land values often being underassessed in practice.
This means that someone who is considering erecting an apartment building will not find it profitable to do so until rents have risen enough to cover the building tax, other expenses and a return on capital. Someone who invests in a vacant lot in a populated area with the intention of keeping it vacant until, perhaps decades later, he can sell it at a good profit will typically pay low taxes on it. As a result, not enough housing is constructed, so what there is costs too much.
An important reform is to tax real estate only on the value of the land, not on the buildings or other improvements. That way, land could be bought much more cheaply and real estate bubbles, which are bubbles in land prices, would not inflate. People could build houses and apartments without raising their tax bills, so we would have more housing, making it cheaper. Some might criticize this proposal on environmental grounds, but by encouraging infill development, it would also have the merit of reducing sprawl into the countryside.
Nicholas D. Rosen, Arlington
The writer is president of the Center for the Study of Economics.