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The Threat Coming by Land: Landlords are eating the world; There is growing concern that wealth inequality has skyrocketed
Topic Started: 11 Sep 2015, 03:44 PM (3,716 Views)
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The Threat Coming by Land

Sept 9, 2015, By Noah Smith

For all the alarm about the “rise of the robots,” or “software eating the world” or the peril of climate change, one of the most pressing economic dangers of the future is getting short shrift: Landlords are eating the world.

There is growing concern that wealth inequality has skyrocketed, and that capital income accounts for a growing share of the economic pie. This was the theme of Thomas Piketty’s "Capital in the Twenty-First Century." But although we usually think of “capitalists” as they were defined by Karl Marx -- i.e., owners of corporations -- we forget that land also is a form of capital, which means landlords (and homeowners) are capitalists, too. Furthermore, according to Matt Rognlie, an economics Ph.D. student at the Massachusetts Institute of Technology, it is land, not corporate capital, that has been responsible for the lion’s share of the increase in capital's share of income.

This increase is happening worldwide. A great report by the Economist showed that the share of residential property value as a percentage of gross domestic product has skyrocketed in European countries since 1950.

This is bad for the economy. To understand why, we have to look at the reasons land has value in the first place. That’s not easy, because for most of human history, the value of land came mainly from the value of its natural productive power -- the fertility of the soil, or the minerals beneath the earth. But in the modern age, land has value for a very different reason, summed up by the real estate mantra: location, location, location.

In a city or suburb, land’s value comes from location. People want to be close to the companies where they work. Companies want to be close to the people they employ. Stores want to be close to the consumers they serve, and consumers want to be close to the stores. Companies in the same industry want to be close to one another, so they can keep an eye on rivals, absorb ideas and poach talent. And people want to be close to other people in general, so they and their children can have friends, enjoy culture and meet their romantic partners.

As our economies become more complex, there are more kinds of stores, more cultural activities and more industries to cluster together. Therefore, the value of location increases, which pushes up the value of land. It doesn’t matter how much empty land is out there -- who wants to live on the Kansas prairie? What matters for the value of modern land is the incentive to locate close to other people. And unless we all start telecommuting and living entirely online, location will become more and more valuable as our economy becomes more complex.

More stores, more industries and more culture are good things. But it’s a very bad thing that location has become so important to us, because location is an inherently scarce commodity. When it becomes more important, it also becomes more scarce, and when it becomes more scarce, it puts a brake on growth, just as if oil became more expensive. The Economist reports that this scarcity may have reduced U.S. GDP by more than 13 percent since the 1960s.

This is exacerbated by the fact that cities themselves are so remarkably productive. When businesses and people cluster densely together, productivity increases for all of them. But ironically, the bigger the productivity bonus that density provides, the bigger the loss from the scarcity of urban locations. In economics jargon, this is an "externality" that means that land ends up getting paid more than the value it produces.

So the increasing importance of land is bad news for the global economy. What can we do? One approach, advocated by the 19th century economist Henry George, is to tax the value of locations. Essentially, a Land Value Tax is a property levy with exemptions for development. This encourages construction and development, while reducing the cost that businesses have to pay to locate close to one another. Pennsylvania has long used a version of this tax, sometimes called a "split rate" property tax, with encouraging results. Another approach to reducing the cost of density involves reducing zoning and other building restrictions, essentially allowing developers to create more locations where people can live and gather.

The problem, of course, is that these solutions are politically difficult. Landlords are powerful in local politics, and they will naturally resist any policies that cut into their windfalls. As in so many situations, economists know what needs to be done to boost the national economy, but special interests are almost certain to block those policies.

Read more: http://www.bloombergview.com/articles/2015-09-09/the-threat-coming-by-land
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Veritas
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Systemic inequality? Surely not eh bulls? Just another case of a whingeing bear who bought too many iphones and lattes.
Property acquisition as a topic was almost a national obsession. You couldn't even call it speculation as the buyers all presumed the price of property could only go up. That’s why we use the word obsession. Ordinary people were buying properties for their young children who had not even left school assuming they would not be able to afford property of their own when they left college- Klaus Regling on Ireland. Sound familiar?

The evidence of nearly 40 cycles in house prices for 17 OECD economies since 1970 shows that real house prices typically give up about 70 per cent of their rise in the subsequent fall, and that these falls occur slowly.
Morgan Kelly:On the Likely Extent of Falls in Irish House Prices, 2007
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Foxy
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Zero is coming...

have no desire
http://www.afr.com/content/dam/images/g/n/2/1/u/8/image.imgtype.afrArticleInline.620x0.png/1456285515560.png
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The Whole Truth
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With rental returns at 20 year lows, house prices stagnant or falling, and the economy on the verge of recession/depression I can't see them doing very well in the decades to come. Those that don't lose out to foreclosure will just become cash cows for the Federal government. Just like happened in the last depression.
"Panics do not destroy capital; they merely reveal the extent to which it has been previously destroyed by its betrayal into hopelessly unproductive works." John Stuart Mill
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herbie
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The Whole Truth
11 Sep 2015, 08:52 PM
With rental returns at 20 year lows, house prices stagnant or falling, and the economy on the verge of recession/depression I can't see them doing very well in the decades to come. Those that don't lose out to foreclosure will just become cash cows for the Federal government. Just like happened in the last depression.
When the return on cash is at a 4,000 year low, a 20 year low on rental returns just doesn't sound three bad at all ... :D
A Professional Demographer to an amateur demographer: "negative natural increase will never outweigh the positive net migration"
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Loki
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herbie
11 Sep 2015, 09:16 PM
When the return on cash is at a 4,000 year low,
Also to keep budding landlords solvent.

Ahhhh ... social engineering ... rarely works out the way you expect.


“Talk sense to a fool and he calls you foolish.” - Euripides
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herbie
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Loki
11 Sep 2015, 11:53 PM
Also to keep budding landlords solvent.

Ahhhh ... social engineering ... rarely works out the way you expect.
Yes, it's all a bit strange.

In the old days when money actually had a somewhat significant cost associated with it, I would have been more motivated getting renos done I reckon - But nowadays it's almost become a matter of dawdle along happily because money's cheap - So who the eff cares.

Hardly 'productivity enhancing' I'd of thought? - But it is what it is/what the central bankers of the world have run with in their collective wisdom; With which who am I to argue as a numptie know nothing? ... :)
Edited by herbie, 12 Sep 2015, 12:09 AM.
A Professional Demographer to an amateur demographer: "negative natural increase will never outweigh the positive net migration"
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Loki
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herbie
12 Sep 2015, 12:07 AM
Yes, it's all a bit strange.

In the old days when money actually had a somewhat significant cost associated with it, I would have been more motivated getting renos done I reckon - But nowadays it's almost become a matter of dawdle along happily because money's cheap - So who the eff cares.

Hardly 'productivity enhancing' I'd of thought? - But it is what it is/what the central bankers of the world have run with in their collective wisdom; With which who am I to argue as a numptie know nothing? ... :)
Strangely enough, there is a productivity benefit of low interest rates. Robots get cheaper (cost of capital declines) and they can replace, or more accurately displace, more humans from employment.

So then governments have to borrow money (which is cheap) to employ people, because the private sector is shedding skilled labour and replacing them with robots.

There is the low paid service jobs of course, but they don't have much longer to run either.

Posted Image

While employment in the capitalist system wasn't a perfect way to distribute wealth, distributing wealth through government "jobs" has the problem that it is inherently corrupt, like all Nepotocracies are. Meritocracies are rare, but they sure do get results.
Edited by Loki, 12 Sep 2015, 12:19 AM.


“Talk sense to a fool and he calls you foolish.” - Euripides
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Trollie
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Loki
12 Sep 2015, 12:18 AM
Robots get cheaper (cost of capital declines) and they can replace, or more accurately displace, more humans from employment.
If this rubbish were true unemployment would have risen steadly since the early 90's.

It has not, and remains low.
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Loki
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Trollie
12 Sep 2015, 12:21 PM
If this rubbish were true unemployment would have risen steadly since the early 90's.

It has not, and remains low.
Jesus H Christo, just when I think you cannot say anything dumber.

What has been happening to government and private debt since the 90s genius?

What was the fastest growing industry since the 90s? Could it be construction work? Driven by debt fueled real estate bubbles?



“Talk sense to a fool and he calls you foolish.” - Euripides
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