Wealth and Want
... because democracy alone is not enough to produce widely shared prosperity.
Home Essential Documents Themes All Documents Authors Glossary Links Contact Us

 

Owner-Occupied Housing

Mason Gaffney:  Sounding the Revenue Potential of Land: Fifteen Lost Elements

 In addition, the IRS reports nothing at all for the imputed income of owner-occupied lands, because this kind of non-cash income is not taxable. Todd Sinai and Joseph Gyourko of the Wharton School report aggregate owner-occupied “house” values in the U.S. in 1999 were $11.1 trillions. The annual rental value of that, figuring at 5%, would be roughly half a trillion dollars a year -- quite a chunk to omit from the rental portion of national income. We also know that the prices of lands for both housing and recreation have risen sharply since 1999, perhaps by 50% or so, so that $11.1 trillion may be $16.7 trillion now. That means that the imputed rent income is 50% higher than half a trillion (i.e. ¾ trillion dollars), and also that the net worth of the owners has risen by about $5.6 trillion. Such silent gains are also a form of income from land. To all that, many economists remain blind, dumb, and curiously incurious.

  Sinai and Gyourko’s treatment is superior to what one usually sees, with some effort made to treat land separately. However, even they, like others, write of the imputed income of owner-occupied “housing,” exclusively. That is doubly misleading.
  • First, it emphasizes the house, the building, de-emphasizing the land. That is wrong because the income proper imputable to the house, per se, is much less than its rent equivalent. The house requires constant expenses for upkeep, heating, maintenance and repairs, cleaning, painting, etc. etc. The house also depreciates, physically. Those expenses and the depreciation must be deducted from the rental equivalent to get the net income.
The land, that is the space and location, does not depreciate physically, and so requires none of those expenses. Its rental equivalent is its net current income. Instead, it usually appreciates in value, and that annual increment is also a current income. So the “imputed income of owner-occupied housing” is mostly attributable to the land - but no one is saying so.
  • Second, it is misleading by omitting vast lands beyond the “house” value, narrowly defined. We may presume that “house” includes the land under it, and a little yard or curtilage, but what about other lands held for the owners’ personal enjoyment? No agency collects data on such lands and their values, but common observation tells us they are vast and valuable, and dominate values in many “rural” counties. Read the whole article

Mason Gaffney: The Red and the Blue
It is not just average incomes per capita that define the economic position of most people in a state or city.  The distribution of income and wealth makes a lot of difference.  But wait again: IRS data, and other data derived from IRS sources, vastly misstate the concentration of real income because they omit the imputed income of owner-occupied housing.  Thus, a salary-earner paying high rent in the Gold Coast of Chicago has the same reported income as one on the same salary on the same Gold Coast who owns his own million dollar house or coop or condo, and pays no rent. More: the renter’s income is actually reported as higher, because the owner gets to deduct the costs of ownership, interest and property taxes.  It’s the renters who turn Chicago blue - along with most big cities. Read the whole article

H.G. Brown: Significant Paragraphs from Henry George's Progress & Poverty, Chapter 4: Land Speculation Causes Reduced Wages

In communities like the United States, where the user of land generally prefers, if he can, to own it, and where there is a great extent of land to overrun, this cause operated with enormous power.

The immense area over which the population of the United States is scattered shows this. The man who sets out from the Eastern Seaboard in search of the margin of cultivation, where he may obtain land without paying rent, must, like the man who swam the river to get a drink, pass for long distances through half-tilled farms, and traverse vast areas of virgin soil, before he reaches the point where land can be had free of rent i.e., by homestead entry or pre-emption. He (and, with him, the margin of cultivation) is forced so much farther than he otherwise need have gone, by the speculation which is holding these unused lands in expectation of increased value in the future. And when he settles, he will, in his turn, take up, if he can, more land than he can use, in the belief that it will soon become valuable; and so those who follow him are again forced farther on than the necessities of production require, carrying the margin of cultivation to still less productive, because still more remote points.

If the land of superior quality as to location were always fully used before land of inferior quality were resorted to, no vacant lots would be left as a city extended, nor would we find miserable shanties in the midst of costly buildings. These lots, some of them extremely valuable, are withheld from use, or from the full use to which they might be put, because their owners, not being able or not wishing to improve them, prefer, in expectation of the advance of land values, to hold them for a higher rate than could now be obtained from those willing to improve them. And, in consequence of this land being withheld from use, or from the full use of which it is capable, the margin of the city is pushed away so much farther from the center. ... read the whole chapter

 

To share this page with a friend: right click, choose "send," and add your comments.

Red links have not been visited; .
Green links are pages you've seen

Essential Documents pertinent to this theme:
Home
Top of page
Essential Documents
Themes
to email this page to a friend: right click, choose "send"
   
Wealth and Want
www.wealthandwant.com
    
... because democracy alone hasn't yet led to a society in which all can prosper