Maybe it's beyond the scope of the substack, but I'd love to read a full post on the "demographic death spiral". I've long thought that people worry too much about fertility rates and aging populations and that eventually the problem will solve itself. If we have a generation or two of shrinking population, all of a sudden houses won't be so scarce anymore and it'll be easier to raise families and we'll be back to growing populations.
Funding old-age healthcare with a smaller tax base is the real problem. But housing-wise, I think we'll be fine.
I agree the issue isn't that there isn't a possible future with a healthy steady state, it's just that the decades in between will be extremely painful for everybody. The period immediately after the black plague was one in which peasants enjoyed a major reset in their wages and bargaining power, but getting there really, really sucked.
The major issue with the demographic death spiral is that if things are left to their own devices, the default way we will muddle through is with intense austerity, even more mortgaging of young people's futures to pay for current obligations.
And there are scenarios there that are possibly civilization-ending: massive brain drain to countries that tax young people less (implicitly and explicitly), or political radicalization of young people leading to large-scale tax revolt/civil war.
This is not a possibility, as there is nothing healthy about stealing individuals' wealth and "redistributing" it .. mostly to the ruling bloodlines. This is the bread and butter of the state, as government has no money outside of what it steals and extorts.
Both the right and left are pro-socialism/state, but one is just wants less of it than the other.
Great post. I'd like to see some of the "investment vehicle" claims taken on a bit more head-on, though. You do acknowledge this briefly under Pottersville: "if you’re an owner occupier, your investment is also your residence. That means if you sell your house, you immediately need to buy a new one" but your little smiley face summaries throughout the article imply people's misconceptions about housing-as-investment have something to them.
To be explicit: If you're an owner-occupier, rising house prices do you no good whatsoever, with a few caveats:
* If you own multiple houses, obviously rising house prices do do you good. You'll collect more rents on the ones you let out. (But you're not really defined by being an owner-occupier there. You're a landlord.)
* If you decide to downsize you can get more cash than you would have if prices hadn't gone up.
* If you remortgage you can get more cash.
* If you do some really weird thing where you speculate on house prices with your primary residence, moving from a place where prices have recently gone up to one where you think they're about to go up, but nobody ever does this.
In fact, if you're on the housing ladder, rising prices are *bad* for you. You wanted to get to the next "rung"? Well the rungs just got further apart. Sure, your rung might be higher from the ground, but that doesn't help you if your ambitions are to climb or stay put. Only helps you if you want to climb down (downsize/remortgage).
Now, I accept that rapidly *falling* house prices do cause harm for lots of people, including owner-occupiers. If you end up in negative equity you'll struggle to move up, down, or sideways, and that's obviously bad. But I think static house prices, or falling in a manageable way, or rising in nominal terms and falling in real terms, would all be good outcomes.
I broadly agree and do think that the whole "rising house prices is a great way to get rich" has tons of problems as you say--having your asset go up isn't super helpful if you just have to trade it for another one that's just as expensive.
On this point in particular I'll push back, though:
> * If you do some really weird thing where you speculate on house prices with your primary residence, moving from a place where prices have recently gone up to one where you think they're about to go up, but nobody ever does this.
Actually people do this all the time, but perhaps not exactly how you were thinking. It's called moving from California to Texas and Florida! Now, I don't think tons of people do this *repeatedly*, or explicitly as a wealth maximization tool, but post-COVID this has been one of the primary drivers of surging housing prices--massive internal migrations of rich people into areas that were cheap *for them*, which drove up housing prices for the current residents.
Yeah, I definitely agree that how expensive an area is is a factor in people's decision making. And I also agree that if your area has just got much more expensive you will notice and be tempted to move somewhere cheaper (in order to get a nicer house or just more cash). And I also agree that COVID changed the dynamics quite a bit in terms of local vs global prices.
But I was really mostly claiming that most people don't do it repeatedly or explicitly as a wealth maximisation tool.
Going back to the main point (about whether people are wrong to think of their house price as a source of wealth), it's important to distinguish between global vs local prices. If *your* house price goes up, then yes, you've gained wealth. If *everybody's* house price goes up, then no you haven't. For homeowners in a given area to act as an interest group and try to increase their house prices makes sense (in a selfish zero-sum sort of way). But for all homeowners in a country to act as an interest group does not make sense. Donald Trump standing up for the interests of homeowners as a class is not coherent.
Great article as usual Lars. I've always wanted to ask: What do you think the Georgist position on tenant unions is? If the biggest social issue from private land ownership is the poverty that comes from landowner's ability to extract rent from tenants, wouldn't a tenant union collectively bargaining lower rents and cause more of the surplus to go to the tenants? The lower rents from collective bargaining would also have some of the same second/third order effects as a LVT (less speculation, more productive use of land). It wouldn't solve vacant lots though, so it still wouldn't be as effective as a LVT. Just curious where tenant unions fit alongside other methods like public land-trusts, zoning/parking reform, etc.
I tend to think tenant unions, particularly with our current system, are often warranted, but often they aren’t collective bargaining.
For me, there’s a power dynamic where landlords have more access to capital and more knowledge of the laws. Tenants in many cities live in buildings where code is broken (no hot water, appliances broken, maintenance requests not repaired timely), and tenants are struggling enough to get by let alone have time to understand and fight their landlord when they feel powerless.
This also is represented in eviction courts where tenants assume they have no power and landlords disproportionately have access to lawyers.
At the same time, low income tenants have no time to move units, not the few hundred dollars it’d take to move. So landlords have the ability to raise rents, even slightly above market rate.
So in all the senses above, I think tenants unions can step up to even the power dynamic which should make the market more fair.
All that said, I don’t think just arguing rent decreases is a way to really fundamentally ensure the market is providing lower housing and rent prices — LVT is a systematic solution.
Thanks for the reply. I guess I was thinking of more militant tenant unions that engages in rent strikes, but those kind of actions sounds like they're rarer (and probably much more difficult to do in some countries like the US, with much weaker tenants rights). It's kind of like labor unions too, in that the majority of strikes (as far as I know, could be wrong) were over work conditions and not necessarily higher wages.
I do agree that tenant unions can't replace a more systematic solution like an LVT. I just see tenant unions as part of a group of Georgist policies and actions including community land trusts and zoning reform. I personally prefer methods that use direct action and grass-roots organization because it creates a power bloc that can go on and enact legislative change. Labor unions were crucial in winning the 8-hour workday, weekends, and worker injury laws. Land trusts or tenant unions could one day help win property-tax reform and maybe a full LVT.
Great ideas alone are not enough to change the status quo, and there's a limit to purely legislative/electoral methods. Henry George and the Single Tax Movement learned that the hard way and we should learn that lesson too.
Wouldn't this just be a another populist supply restriction like rent control that leads to deadweight loss? We want people to build up to the relevant land value, not the land value - profit loss from collectivized tenants right?
If my understanding of land markets is correct, it would not cause supply restriction. It would cause supply restriction if you assume that the market is very elastic and decreases in rent would cause landowners to leave the market (demolishing rental units they've already built or leaving them idle and taking a hit on the property taxes). Since Ricardo's law of rent predicts that landowners would charge the full amount that the market can bear via their monopoly power, it seems implausible to me that anything less than monopoly rents would cause landowners to leave the market. This is similar to the argument against labor unions. Standard economic theory predicts that bargaining for higher wages would decrease the demand for labor. But empirical research has shown that's not always the case (e.g. David Card and Alan Kreuger). In some cases, employment stays roughly the same with employers taking a hit on their profitability (while still being profitable of course). These markets are more inelastic than we think.
Also yes, we want people to build up to the relevant land value, I still think an LVT is a better overall solution—but if we want to address the social ills caused by the monopoly power of landowners, tenant unions seem like a good tool. The idea is the same with labor markets. You can try to eliminate non-compete agreements, and wait for anti-trust laws to break up labor monopsonies. But at the same time you can unionize to increase wages above the artificially-suppressed floor.
> Since Ricardo's law of rent predicts that landowners would charge the full amount that the market can bear via their monopoly power
This "law" is from 1809 it looks like I'm not sure if we should be taking it overly seriously.
> This is similar to the argument against labor unions. Standard economic theory predicts that bargaining for higher wages would decrease the demand for labor.
I think it is generally accepted that unions cause deadweight loss all else equal. I.e. if all Starbucks baristas unionize consumers will likely pay a higher price or have access to a Starbucks for less hours/ day. I think most people are OK with having a Starbucks open less hours/day but not with not having housing.
> supply restriction if you assume that the market is very elastic and decreases in rent would cause landowners to leave the market (demolishing rental units they've already built or leaving them idle and taking a hit on the property taxes).
Maybe this is the core of our disagreement. It would cause less supply to get built for sure and maybe some units would leave the market if homeowners thought they wouldn't be able to get bad tenants out and that sort of thing. This happens in NYC already with vacant apartments that are off the market
1. Ricardo's law of rent is a theory that has been supported by empirical evidence for over a century, and even if you don't think David Ricardo's formulation is completely accurate, I think it's pretty evident that landowners have monopoly power to set the price of rent to as much as the market can bear (because land is a fixed resource and so a fixed supply). Also, Newton's laws are still studied and applied today even though they were published in 1687—you take things seriously if they're supported by empirical evidence.
2. I disagree that it is 'generally accepted' that unions cause deadweight loss. The researchers that I referenced would disagree with that (you can read Minimum Wages and Employment: A Case Study of the Fast-Food Industry in New Jersey and Pennsylvania by David Card and Alan Kreuger—one of the authors won the Nobel Prize in Economics btw). They were actually talking about minimum wage laws and not collective bargaining but the conclusions still support my claim about price-elasticity. These are not efficient markets, they are heavily influenced by entities with incredible market power. There's already deadweight, it's just the tenants who pay for it.
3. Yes, this might be the core of our disagreement. To me, there's no question that landowners can run rental units profitably without charging monopoly rents. They will say that it can't be done, just like manufacturers said their business would fail if they had to pay higher wages. But time and time again, it's shown that their complaints were way overblown.
I appreciate all of your great insights and analyses, broken down for the lay person. However, as a rural resident and advocate, I am curious how these tools are (can be) applied to small towns (500 to 5,000 residents) and rural counties (16,000 residents in an area 150% the size of Rhode Island)? We experience great housing "shortages" and high costs of living, but without the arguments of converting city centers or redirecting land use aside from paving over public or open land - the economics of which is part of the identity of long-term rural residents (natural resource production), and what makes living out here desirable to many newcomers. We have far more houses held as STRs and/or second homes, but plenty of current and potential full-time residents who are being priced out of acquiring homeownership.
Hey there! Thanks for reaching out about this. Generally our focus has been on bigger cities for reason of pure pragmatics -- a) the land value is highest there and b) that's where most people are, so it's a natural place to start.
As you say, the stock urbanist pitch isn't the same one we would make to rural communities. The specifics depend a lot on what the local area looks like, data availability, and whether I can connect with someone who's actually from there. Could you let me know which communities you're thinking of specifically?
The good news is that small counties are usually much easier to study simply because they have fewer parcels and people, so there's less computational intensity. The bad news is that the data, and local contacts, is not always as easily available. I'll take a look and see what I can find!
I'd love to learn what you find, and keep in touch. What's a good email? I can share more about who I am, what I've been doing, and where I'd like to be headed.
Obvious ones: increase density in the towns by building vertically (which also means more customers for in-town businesses). Find out why those who have empty rooms in their houses aren't renting them out; repeal any laws which effectively forbid it or make it unprofitable, or even use the tax system to incentivize it. And finally, accept that things can't and won't stay the same and attempting to keep them that way makes everyone worse off.
I don’t see anyway out of this unless there is a global event (Trump might be it). It’s a zero sum game at this point unless one group is willing to give up something of value, which is unlikely.
I feel conflicted about this narrative. On one hand, profiting off of housing scarcity is bad. On the other hand, from a historical perspective, land speculation was rampant during the 1800s and early 1900s when housing was much less expensive. Land values can appreciate naturally from increasing demand!
Wrote this impulsively before reading the article though so need to do that…
If I were a parent in a young working family and didn't understand Georgism, I'd probably believe I'd be ok with the silent crash?
The disadvantage "Bad news: inflation has wiped out your savings" wouldn't hurt too much if I haven't got any savings because the rent is too damn high.
Maybe it's beyond the scope of the substack, but I'd love to read a full post on the "demographic death spiral". I've long thought that people worry too much about fertility rates and aging populations and that eventually the problem will solve itself. If we have a generation or two of shrinking population, all of a sudden houses won't be so scarce anymore and it'll be easier to raise families and we'll be back to growing populations.
Funding old-age healthcare with a smaller tax base is the real problem. But housing-wise, I think we'll be fine.
I agree the issue isn't that there isn't a possible future with a healthy steady state, it's just that the decades in between will be extremely painful for everybody. The period immediately after the black plague was one in which peasants enjoyed a major reset in their wages and bargaining power, but getting there really, really sucked.
The major issue with the demographic death spiral is that if things are left to their own devices, the default way we will muddle through is with intense austerity, even more mortgaging of young people's futures to pay for current obligations.
And there are scenarios there that are possibly civilization-ending: massive brain drain to countries that tax young people less (implicitly and explicitly), or political radicalization of young people leading to large-scale tax revolt/civil war.
"healthy steady state"
This is not a possibility, as there is nothing healthy about stealing individuals' wealth and "redistributing" it .. mostly to the ruling bloodlines. This is the bread and butter of the state, as government has no money outside of what it steals and extorts.
Both the right and left are pro-socialism/state, but one is just wants less of it than the other.
Great post. I'd like to see some of the "investment vehicle" claims taken on a bit more head-on, though. You do acknowledge this briefly under Pottersville: "if you’re an owner occupier, your investment is also your residence. That means if you sell your house, you immediately need to buy a new one" but your little smiley face summaries throughout the article imply people's misconceptions about housing-as-investment have something to them.
To be explicit: If you're an owner-occupier, rising house prices do you no good whatsoever, with a few caveats:
* If you own multiple houses, obviously rising house prices do do you good. You'll collect more rents on the ones you let out. (But you're not really defined by being an owner-occupier there. You're a landlord.)
* If you decide to downsize you can get more cash than you would have if prices hadn't gone up.
* If you remortgage you can get more cash.
* If you do some really weird thing where you speculate on house prices with your primary residence, moving from a place where prices have recently gone up to one where you think they're about to go up, but nobody ever does this.
In fact, if you're on the housing ladder, rising prices are *bad* for you. You wanted to get to the next "rung"? Well the rungs just got further apart. Sure, your rung might be higher from the ground, but that doesn't help you if your ambitions are to climb or stay put. Only helps you if you want to climb down (downsize/remortgage).
Now, I accept that rapidly *falling* house prices do cause harm for lots of people, including owner-occupiers. If you end up in negative equity you'll struggle to move up, down, or sideways, and that's obviously bad. But I think static house prices, or falling in a manageable way, or rising in nominal terms and falling in real terms, would all be good outcomes.
I broadly agree and do think that the whole "rising house prices is a great way to get rich" has tons of problems as you say--having your asset go up isn't super helpful if you just have to trade it for another one that's just as expensive.
On this point in particular I'll push back, though:
> * If you do some really weird thing where you speculate on house prices with your primary residence, moving from a place where prices have recently gone up to one where you think they're about to go up, but nobody ever does this.
Actually people do this all the time, but perhaps not exactly how you were thinking. It's called moving from California to Texas and Florida! Now, I don't think tons of people do this *repeatedly*, or explicitly as a wealth maximization tool, but post-COVID this has been one of the primary drivers of surging housing prices--massive internal migrations of rich people into areas that were cheap *for them*, which drove up housing prices for the current residents.
Yeah, I definitely agree that how expensive an area is is a factor in people's decision making. And I also agree that if your area has just got much more expensive you will notice and be tempted to move somewhere cheaper (in order to get a nicer house or just more cash). And I also agree that COVID changed the dynamics quite a bit in terms of local vs global prices.
But I was really mostly claiming that most people don't do it repeatedly or explicitly as a wealth maximisation tool.
Going back to the main point (about whether people are wrong to think of their house price as a source of wealth), it's important to distinguish between global vs local prices. If *your* house price goes up, then yes, you've gained wealth. If *everybody's* house price goes up, then no you haven't. For homeowners in a given area to act as an interest group and try to increase their house prices makes sense (in a selfish zero-sum sort of way). But for all homeowners in a country to act as an interest group does not make sense. Donald Trump standing up for the interests of homeowners as a class is not coherent.
Great article as usual Lars. I've always wanted to ask: What do you think the Georgist position on tenant unions is? If the biggest social issue from private land ownership is the poverty that comes from landowner's ability to extract rent from tenants, wouldn't a tenant union collectively bargaining lower rents and cause more of the surplus to go to the tenants? The lower rents from collective bargaining would also have some of the same second/third order effects as a LVT (less speculation, more productive use of land). It wouldn't solve vacant lots though, so it still wouldn't be as effective as a LVT. Just curious where tenant unions fit alongside other methods like public land-trusts, zoning/parking reform, etc.
I did help start a tenant union.
I tend to think tenant unions, particularly with our current system, are often warranted, but often they aren’t collective bargaining.
For me, there’s a power dynamic where landlords have more access to capital and more knowledge of the laws. Tenants in many cities live in buildings where code is broken (no hot water, appliances broken, maintenance requests not repaired timely), and tenants are struggling enough to get by let alone have time to understand and fight their landlord when they feel powerless.
This also is represented in eviction courts where tenants assume they have no power and landlords disproportionately have access to lawyers.
At the same time, low income tenants have no time to move units, not the few hundred dollars it’d take to move. So landlords have the ability to raise rents, even slightly above market rate.
So in all the senses above, I think tenants unions can step up to even the power dynamic which should make the market more fair.
All that said, I don’t think just arguing rent decreases is a way to really fundamentally ensure the market is providing lower housing and rent prices — LVT is a systematic solution.
Thanks for the reply. I guess I was thinking of more militant tenant unions that engages in rent strikes, but those kind of actions sounds like they're rarer (and probably much more difficult to do in some countries like the US, with much weaker tenants rights). It's kind of like labor unions too, in that the majority of strikes (as far as I know, could be wrong) were over work conditions and not necessarily higher wages.
I do agree that tenant unions can't replace a more systematic solution like an LVT. I just see tenant unions as part of a group of Georgist policies and actions including community land trusts and zoning reform. I personally prefer methods that use direct action and grass-roots organization because it creates a power bloc that can go on and enact legislative change. Labor unions were crucial in winning the 8-hour workday, weekends, and worker injury laws. Land trusts or tenant unions could one day help win property-tax reform and maybe a full LVT.
Great ideas alone are not enough to change the status quo, and there's a limit to purely legislative/electoral methods. Henry George and the Single Tax Movement learned that the hard way and we should learn that lesson too.
You should actually probably talk to @Greg Miller about this as he founded a Tenant’s association in South Bend a long while back
Wouldn't this just be a another populist supply restriction like rent control that leads to deadweight loss? We want people to build up to the relevant land value, not the land value - profit loss from collectivized tenants right?
If my understanding of land markets is correct, it would not cause supply restriction. It would cause supply restriction if you assume that the market is very elastic and decreases in rent would cause landowners to leave the market (demolishing rental units they've already built or leaving them idle and taking a hit on the property taxes). Since Ricardo's law of rent predicts that landowners would charge the full amount that the market can bear via their monopoly power, it seems implausible to me that anything less than monopoly rents would cause landowners to leave the market. This is similar to the argument against labor unions. Standard economic theory predicts that bargaining for higher wages would decrease the demand for labor. But empirical research has shown that's not always the case (e.g. David Card and Alan Kreuger). In some cases, employment stays roughly the same with employers taking a hit on their profitability (while still being profitable of course). These markets are more inelastic than we think.
Also yes, we want people to build up to the relevant land value, I still think an LVT is a better overall solution—but if we want to address the social ills caused by the monopoly power of landowners, tenant unions seem like a good tool. The idea is the same with labor markets. You can try to eliminate non-compete agreements, and wait for anti-trust laws to break up labor monopsonies. But at the same time you can unionize to increase wages above the artificially-suppressed floor.
> Since Ricardo's law of rent predicts that landowners would charge the full amount that the market can bear via their monopoly power
This "law" is from 1809 it looks like I'm not sure if we should be taking it overly seriously.
> This is similar to the argument against labor unions. Standard economic theory predicts that bargaining for higher wages would decrease the demand for labor.
I think it is generally accepted that unions cause deadweight loss all else equal. I.e. if all Starbucks baristas unionize consumers will likely pay a higher price or have access to a Starbucks for less hours/ day. I think most people are OK with having a Starbucks open less hours/day but not with not having housing.
> supply restriction if you assume that the market is very elastic and decreases in rent would cause landowners to leave the market (demolishing rental units they've already built or leaving them idle and taking a hit on the property taxes).
Maybe this is the core of our disagreement. It would cause less supply to get built for sure and maybe some units would leave the market if homeowners thought they wouldn't be able to get bad tenants out and that sort of thing. This happens in NYC already with vacant apartments that are off the market
1. Ricardo's law of rent is a theory that has been supported by empirical evidence for over a century, and even if you don't think David Ricardo's formulation is completely accurate, I think it's pretty evident that landowners have monopoly power to set the price of rent to as much as the market can bear (because land is a fixed resource and so a fixed supply). Also, Newton's laws are still studied and applied today even though they were published in 1687—you take things seriously if they're supported by empirical evidence.
2. I disagree that it is 'generally accepted' that unions cause deadweight loss. The researchers that I referenced would disagree with that (you can read Minimum Wages and Employment: A Case Study of the Fast-Food Industry in New Jersey and Pennsylvania by David Card and Alan Kreuger—one of the authors won the Nobel Prize in Economics btw). They were actually talking about minimum wage laws and not collective bargaining but the conclusions still support my claim about price-elasticity. These are not efficient markets, they are heavily influenced by entities with incredible market power. There's already deadweight, it's just the tenants who pay for it.
3. Yes, this might be the core of our disagreement. To me, there's no question that landowners can run rental units profitably without charging monopoly rents. They will say that it can't be done, just like manufacturers said their business would fail if they had to pay higher wages. But time and time again, it's shown that their complaints were way overblown.
I appreciate all of your great insights and analyses, broken down for the lay person. However, as a rural resident and advocate, I am curious how these tools are (can be) applied to small towns (500 to 5,000 residents) and rural counties (16,000 residents in an area 150% the size of Rhode Island)? We experience great housing "shortages" and high costs of living, but without the arguments of converting city centers or redirecting land use aside from paving over public or open land - the economics of which is part of the identity of long-term rural residents (natural resource production), and what makes living out here desirable to many newcomers. We have far more houses held as STRs and/or second homes, but plenty of current and potential full-time residents who are being priced out of acquiring homeownership.
Hey there! Thanks for reaching out about this. Generally our focus has been on bigger cities for reason of pure pragmatics -- a) the land value is highest there and b) that's where most people are, so it's a natural place to start.
As you say, the stock urbanist pitch isn't the same one we would make to rural communities. The specifics depend a lot on what the local area looks like, data availability, and whether I can connect with someone who's actually from there. Could you let me know which communities you're thinking of specifically?
Thank you for responding! I'm in Grand County, Colorado. I'd love to see what you can come up with.
The good news is that small counties are usually much easier to study simply because they have fewer parcels and people, so there's less computational intensity. The bad news is that the data, and local contacts, is not always as easily available. I'll take a look and see what I can find!
Presumably *you* can be the local contact?
I'd love to learn what you find, and keep in touch. What's a good email? I can share more about who I am, what I've been doing, and where I'd like to be headed.
lars@landeconomics.org -- fair warning it might take me a bit before I have anything for you, but it's on my radar now
Obvious ones: increase density in the towns by building vertically (which also means more customers for in-town businesses). Find out why those who have empty rooms in their houses aren't renting them out; repeal any laws which effectively forbid it or make it unprofitable, or even use the tax system to incentivize it. And finally, accept that things can't and won't stay the same and attempting to keep them that way makes everyone worse off.
I don’t see anyway out of this unless there is a global event (Trump might be it). It’s a zero sum game at this point unless one group is willing to give up something of value, which is unlikely.
Fantastic article. I agree with you in many areas.
I feel conflicted about this narrative. On one hand, profiting off of housing scarcity is bad. On the other hand, from a historical perspective, land speculation was rampant during the 1800s and early 1900s when housing was much less expensive. Land values can appreciate naturally from increasing demand!
Wrote this impulsively before reading the article though so need to do that…
If I were a parent in a young working family and didn't understand Georgism, I'd probably believe I'd be ok with the silent crash?
The disadvantage "Bad news: inflation has wiped out your savings" wouldn't hurt too much if I haven't got any savings because the rent is too damn high.