Housing Price Rig Jig
I came across this report from the "Manhattan Institute" (whatever that is):
http://www.manhattan-institute.org/html/cr_39.htm
The authors attempt to define what they call "zoning tax."
Zoning Tax = Market Price of a Housing Unit – Production Cost of that Unit
Now am I being daft, or are they talking about profits, not "tax?"
Through a series of complicated (and quite interesting) calculations, peg this "tax" at about 50% (make that superprofits).
[Most interesting among their facts: the marginal cost of production of "average" quality dwellings in Manhattan = $160/square foot. "Economical" dwellings (those which do no more than meet building codes) = just $96/square foot. So, our apartment, again = 350 sq ft * $96/sq ft = 33,600. Not bad, eh? Let's build more! Pinky's prescription to get it done.]
But back to the institute wonks. Their point, which they seem oddly loath to dish straight out, is that the City of New York gave out very few building permits '80s and '90s, which massively inflated housing costs. They are so eager to dismiss the possibility of oligopoly -- which they define as literal exclusion of small-fry builders, that they shit all over their own findings of considerable superprofits for those builders who can get permits.
Told straight out, this raises all sorts of interesing questions, starting with possibility of massive direct corruption -- permits only to "friendly" developers -- and ending with a certainty of fucklebuck squeezing of city residents through housing cost hikes.
Tell it wide, 'kay?
a tentative extended thought: Greenspan weighs in: "no way to tell if there is a housing bubble." The value of urban land, Al the green and his ilk figure, is "impossible to calculate." The author's themselves make quite a point of this, too. But if I understand the finance right, this is completely bogus -- it's impossible to calculate the market value of land, because land is unique. It is only possible to determine using an active government policy like the one pinky advocates (same link as above). Instead of what is done now, which is: 1)depress land values by preventing new construction, which 2) inflates the values of existing buildings (and those few new building permits doled out by the city gov't). The authors' "taxes" never reach the hand of the government, they go straight into the big pockets. How much can they squeeze out of the city = how much rent, on the one hand; on the other, how many hours of commute time (commuting represents a major under-industrialization of the American economy). [my hazy understanding of the relation between these two is why I need to study the theory of rent]
Instead of all that, the government can figure out how much land is worth very easily, by 1) taxing land at the maximum possible rate (how do you know the maximum? when landlord's are abandoning buildings you've reached the top) 2) driving up the value of land, and 3) raising the total value and pushing down per-unit value of city buildings, therefore 4) pushing down rent. Nice, huh? The question is the analytical tool. The market is in buildings, assholes, and you can only rationalize it by assertive government action in relation to land. But I suspect Al and his clutch know this already...
Are we in for a great snatch of wealth by means of real estate? Is the "unknown land value" of real estate being used to lure in small investors just as the "unknown future value" of technologies that was used to lure small-fry investors into the NASDAQ? In New York, I have the strong feeling we might be in for a swoop very soon. I don't know if all of these new buildings will tip it -- will there be a pop, can it come down gently, or will the whole thing bust open in scandal?
Posted by Sam at September 9, 2004 03:52 AM
land is fixed thus its price is a pure function of demand
if development is obstructed
by code and other review processes
theoretically
quasi rents for this service
can be collected out of the now higher rents collected else whereby existing landlords
space per foot square of ground
is a function of codes in manhattan
buy land and it may stay undeveloped for years
check this time from buy/plan to build
prolly getting quite long
then theres a gate keeper "fee"
when go aheads are rationed by the review process
how the pols collect who cares its happening
and end users of space pay
this quasi rent
sad to think a minimum dwelling could cosy under 50 k
with proper city systems
and federal build outs
