Sunday, September 19, 2010

The Solution to the Housing Problem

Henry George (September 2, 1839 – October 29, 1897) was an American writer, politician and political economist, who was the most influential proponent of the land value tax, also known as the "single tax" on land. He inspired the philosophy and economic ideology known as Georgism, which is that everyone owns what he or she creates, but that everything found in nature, most importantly land, belongs equally to all humanity. His most famous work is Progress and Poverty written during 1879; it is a treatise on inequality, the cyclic nature of industrial economies and possible remedies.”  (Ref: Wikipedia)

This was a good idea that could never be implemented because all the property was in private hands.

Instead of pouring taxpayer money into banks to keep them from imploding from the devalued loans on their books, why not use the money to buy the land under their homes from the property owners. The homeowner could then use the money to buy down the value of their mortgage to the value of the structure, giving them a monthly payment they could afford, thus enabling them to keep their home. The bank balance sheet problems would be relieved by these buyouts. When the economy recovers and home owners are able to afford a higher monthly payment, the government could then start charging them for the lease of the land. In this way, government revenue will increase to pay off the debts incurred to make the purchase of the land.

If this practice is continued, eventually the government will own enough revenue producing land to pay off the government debt and begin to reduce other taxes. In this way, the Henry George land based economy could be implemented over time.

The program would have a side benefit in that it would allow government to prevent or offset future recessions by reducing rents instead of increasing spending, when private spending wanes in a recession. In boom times, rents could be increased to take some steam out of asset bubbles that were developing.

The program would also limit speculation in land by banks, hedge funds, and other investors, thus slowing the development of asset bubbles and the attendant crises when they burst.

The housing and real estate markets would be stimulated because the cost of a home would only be the cost of the structure, requiring less funding on credit.

The main entities that would suffer would be banks and speculators. Now isn’t that a shame!

The Henry George economy is discussed fully in the link cited above.

2 comments:

LVTfan said...

I think you're missing the beauty of George's proposal. He did not seek to nationalize land. Leave title with individuals and corporations and whoever wishes to own the land, but collect from landholders, month in and month out, the economic value of that land: the advantage it provides the holder over the value of more ordinary land available on the fringe for free.

You're correct that collecting this value would stabilize the economy, ending the 18-year boom-bust cycle that we've seen over and over. (Google the name "Homer Hoyt" and "100 years of land values in Chicago")

Land rent IS natural public revenue. Leona Helmsley told us clearly about how taxes are currently structured when she said "WE don't pay taxes. The little people pay taxes."

See also Mason Gaffney's "The Great Crash of 2008," "How to Thaw Credit, Now and Forever," and "After the Crash: Designing a Depression-free Economy" -- http://www.masongaffney.org/

Andy said...

Thanks for your comment. It is possible that one of the reasons George's plan didn't get implemented was because people were unwilling to pay rent on land they owned. The result would be the same as if the government owned the land. I live in Nevada where most of the land is already owned by the government. They could be renting it, but instead they are allowing a few people to use it nearly free. And, when the opportunity arises they sell it to private parties and divide the proceeds with the state, where it gets spent. It would be a better long range plan to spend only the income from the property. I'll check out your links. They look interesting.