The more general principle is that investors put their money where it generates the highest return.
Since the United States taxes land rents much less than it taxes labor and capital, investment leaves agricultural areas where farming is heavily dependent upon labor and capital, and moves to coastal cities where land values are highest. It moves out of rural areas and into urban areas at an accelerating rate because that's where our broken tax system tells it to move.
This market distortion could be permanently corrected by replacing taxes on labor with taxes on land values.
Farming is heavily dependent on labor and capital rather than land. Rural land is worth very little relative to urban land.
A broken tax system which assigns low taxes on land relative to taxes on capital and labor has resulted in higher land prices, increased the concentration of farm land ownership in the hands of fewer individuals, while shifting jobs and investment towards coastal cities where land values are highest.
The first part of the solution is to completely eliminate mortgage subsidies and mortgage interest deductions. These do not increase the supply of housing, they only subsidize demand for more expensive houses and increase indebtedness, and increase the flow of capital into non-productive areas of the economy such as mortgage lending and mortgage backed assets.
The second part of the solution is to convert all property taxes into Land Value Taxes, so that idle and vacant land is taxed at exactly the same rate as land containing well maintained houses. Local governments would no longer get higher payouts for zoning for high end housing, they would only get higher payouts if they raised the net desirability of all land within the borders of their city as a whole.
The land value tax would also free up vacant, idle and underutilized land for actual use and improvement, by making land unattractive as an asset for investment or speculation. This would greatly increase the competitiveness of the housing market, because if it is no longer profitable to hold onto a vacant building, a parking lot, or a strip mall in a high demand area after the carrying cost applied by the land value tax, the vacant lot might be split up and sold to smaller owner-operators, the parking lot might be replaced by several smaller town houses, and the strip mall might be replaced by a mixed used development with additional housing units builtin above the shops, increasing average quantity of housing units per city block or per area unit measure.
> How willing are banks to issue loans at the lower end?
Focusing on banks and subsidizing loans is what is fueling this problem. The solution is not to make loans easier to get, it is to drastically lower the price of land and increase the efficiency at which land is used. When the price for land is cheaper and closer to a market price rather than a monopoly price, far fewer people will have to bother with loans or mortgages in the first place. Lower end housing can be made substantially more affordable even if all mortgage assistance schemes are eliminated.
You will still be competing against everyone else who does the same, and your competition will be vastly increased. It will no longer be profitable for other nearby land holders to hold on to idle, vacant, or under-utilized land. For instance, if someone is holding on to a vacant building, a parking lot, or low density commercial development such as a strip mall, it may no longer be profitable to hold on to these under a land value tax.
The vacant building may be replaced with several small town houses, the low density commercial buildings may be replaced with multi-story mixed used buildings with additional housing built-in, as property owners seek to increase the value of their buildings relative to surrounding buildings in order to acquire a profit larger than the land value tax. They would pay the same tax regardless of whether they left the land vacant or put it to use, so there is a strong incentive for them to put it to the best use possible.
When land is actually improved and put to use, this increases the demand for labor and raises wages so that wages increase faster than rent. When land is held idle for speculative purposes, rent increases faster than wages and the average worker becomes poorer even if the output of the economy is increasing. Nominal prices may change in reaction to market condition, but what is important is wages relative to rent.
Communism is anti-worker because it leads to rampant rent-seeking by political organizers responsible for coordinating the provision of collectively owned capital goods, which is a necessarily a complex problem, since a capital good could refer to any manufactured good which is 'durable' and not immediately consumed.
However the base means of production for any economy as recognized by the Physiocrats and all classical economists is land and natural resources, which are non-produced resources of fixed supply that are a wholly distinct factor of production than capital.
While it is not necessary or desirable for the state to seize capital or private interest payments paid for the use of capital, it should sieze the 'ground rent' which is acquired from private enclosures of natural resources, as unlike interest on capital the surplus ground rent paid to landholders does nothing to increase the supply of land, and is collected even if the land were to remain idle and the landholder invested nothing in its actual improvement.
I am advocating a land value tax, not a property tax. This is the most progressive tax possible as the incidence of the tax does not fall upon labor at all.
> Wouldn't it end up hurting people as you just see rents rise?
No, rents would not rise in proportion to the tax. Adding a tax as a carrying cost on a good of fixed supply such as land produces the opposite effect of a tax of goods and services. It increases the supply of available land and decreases prices because the tax makes land less attractive as a speculative investment and store of wealth. It encourages land holders to sell off any underutilized land being held for speculative purposes, thus increasing the supply of land available for actual use and improvement by workers, and lowering its price.
The 'ground rent' collected by landholders is the surplus profit above what is necessary to bring the land into use. If no one paid ground rent to private landholders, the supply of land would still remain the same, and there would still be just as much land available for everyone to use. Confiscating private ground rent simply shifts this payment from private parties to the state, and the tax cannot be passed on to renters through higher prices at all.
This increases the disposable income of a super-majority, because once all private ground is instead paid to the government for the provision of essential goods and services, all other taxes which fall upon the labor of workers, such as payroll and consumption taxes, can be eliminated.
- maximize after-rent and after-tax disposable income of workers
- shift all taxes off of wages from labor and onto ground rent from private enclosures of land and natural resources
- support a universal public savings account for all citizen residents over 20
- democratically divide and deposit all surplus natural resource rents directly into the universal savings accounts
- have the Federal Reserve conduct monetary policy by setting the interest rate on the universal citizen savings accounts, rather than by buying up assets from investors
This should increase the disposable income for a super-majority of workers by decreasing rent, making acquiring a house more affordable, making land for new small farms and businesses near competitive markets easier to obtain, increasing private savings to ensure workers have access to a large-runway of cash and high bargaining power while in between jobs, reducing the severity of economic depressions and recessions created by idle land speculation, and by directing capital flows away from mortgages and mortgage-backed assets and into productive businesses which will actually increase the demand for labor and raise wages.
The solution is pretty straightforward. Replace all taxes on labor and earned income with a land value tax. This will increase disposable income of workers by directly decreasing taxes on wages, by lowering the cost of housing by disincentivizng speculative land investment, and by increasing the supply and margin of production of rent-free land, the later of which increases the bargaining power of workers per Ricardo's Law of Rent. The lack of private savings can also be addressed by creating a Citizen's Savings account for all citizen residents over the age of 21, into which a dividend is regularly deposited raised from natural resource rents.
The supply of land, and the degree to which land has been monopolized, is still the primary determining factor of wages even in a high-tech economy.
The price of rent for access to land in proximity to capital and dense concentrations of skilled workers of complementary skillsets determines how much savings one has to have before they can start a competing business or work for themselves, and the ease at which people can create a new business and go into competition with their previous employer determines the fairness at which equity is distributed in the average firm.
Since the United States taxes land rents much less than it taxes labor and capital, investment leaves agricultural areas where farming is heavily dependent upon labor and capital, and moves to coastal cities where land values are highest. It moves out of rural areas and into urban areas at an accelerating rate because that's where our broken tax system tells it to move.
This market distortion could be permanently corrected by replacing taxes on labor with taxes on land values.