Tuesday, July 23, 2019

The latest posts in my Mercatus Housing Affordability Series

The last two posts in my series were:

"Tight Lending Regulations are a Wealth Subsidy".  An excerpt:

Thinking in terms of rental value, public policies and market innovations that lower mortgage interest rates can be broadly beneficial to consumers, even if those benefits don’t accrue to the actual borrowers who use those low rates.  That is because higher mortgage interest rates have a similar effect on price as exclusionary lending standards.  Downward pressure on price creates a rental subsidy for home buyers who don’t require a mortgage.

"Property Taxes Are Rent to a Public Landlord" An excerpt:
If there is concern that the net effects of government policies, in total, favor housing and lead to market volatility, a return to higher levels of property taxation can be a useful tool for countering it.

Writing the series helped clarify my thinking on several issues.  I hope you find some nuggets of interest in it too.


  1. Given that income taxes, both personal and corporate, both domestically and globally, have become a shell game Gong Show, I think a return to property taxes is a fine idea.

    1. Yes. It's unfortunate that the intuition people seem to have is to double down on taxes that lead to that behavior because it hits the right scapegoats rather than moving to more efficient taxes

  2. Benjamin, make them land taxes, and you have something even better. (But even simple property taxes aren't that bad. The portion that falls on the improvement is not worse than other taxes on capital.)

    Kevin, I like your 'silent partner' explanation. It also gives a nice solution to the problem outlined in the classic paper 'Why are there NIMBYs?' that the author weirdly enough does not bring up.

    In your article, it would perhaps be useful to stress that the higher rent to price ratio that property taxes make necessary comes entirely out of power prices. (And any effect on rents is only via the channel of reduced supply. And that is independent of what kind of bill your landlord writes.

    Eg in the UK council tax is paid for by the tenant, but the tax incidence is still (mostly) on the landlord. It's a 'free' tax for the tenant, but people have a hard time seeing that.)

    1. Thanks Matthias. I address some of those points in next weeks post.

    2. Cool! And please excuse the typos in my earlier comment.

      Have you gotten much response on the articles over at Mercatus and on your book?

      I also really like the three way distinction you make between tenant, owner and financer, of course with the note that a personal union between those roles is common.

      The Swiss system agrees with that. They calculate a deemed rent that an owner occupier would pay to themselves for tax purposes. The word they use is Eigenmietwert.

    3. Thanks Matthias.
      The Swiss model is interesting. Although, I think the property tax is a decent approximation of a rent tax. Our problem is that it is locally controlled so it is varied and inequitable.