Commentary on Housing as Investment vs. Shelter
Common Ground – OR-WA
Previously our website featured four articles describe the actions and impacts of institutional investors who have penetrated the housing markets in Portland and Seattle, using their superior buying power to seize a large share of homes for sale. Our suggestions for addressing this problem:
Any solution will have to come out of public policies that yield both prudent regulations and financial incentives. We offer three remedies to consider: 1) Land value taxation – shifting the tax rate off a parcel’s building value onto its land value. This will incentivize the development of properties to their maximum zoned potential, and boost production of higher density housing. 2) Opportunity to purchase – extending the right of first refusal to purchase at the sale of residential properties to qualified non-profit and government entities. 3) Community land trusts – transferring multifamily properties whose affordable contract requirements have expired to public or quasi-public owners such as CLTs which maintain perpetual ownership of land titles and limit dwelling resale price.
On November 30, 2022, Oregon Senator Jeff Merkley introduced his proposed solution, stating:
“Everyone should have a safe, affordable place to call home, yet the costs of both renting and buying homes are rapidly increasing – hurting ordinary people so investors can get rich.
In every corner of the country, giant financial corporations are buying up housing and driving up both rents and home prices. Not only do these hedge funds and private equity firms outbid ordinary Americans looking to buy homes, they are horrible landlords. Hedge fund landlords raise rents faster and are more likely to skimp on repairs, because they don’t care about our communities, they just care about squeezing as much profit as they can out of the properties they own. Wall Street is pouring fuel on the fire of the affordable housing crisis that so many of our communities are facing, leaving working families behind.
It’s time to put a stop to it. The housing in our neighborhoods should be homes for people, not profit centers for Wall Street.
That’s why I introduced the End Hedge Fund Control of American Homes Act, a bill aimed at ending Wall Street ownership of residential housing.
The End Hedge Fund Control of American Homes Act bans hedge funds and private equity investors from owning large numbers of homes by establishing a $20,000 federal tax penalty for each single-family home owned by a single company and its affiliates over 100 homes. The tax penalties collected will be used to provide down payment assistance to homebuyers.
It’s time for Congress to put in place commonsense guardrails that ensure all families have a fair chance to buy or rent a home in their community at a price they can afford. This bill is step one to bringing our housing market in balance and ensuring average American families can afford a decent roof over their heads without being gouged by the wealthiest to further line their pockets.
I won’t stop working to solve our housing affordability crisis and make our nation’s housing opportunities more equitable, available, and in reach for all Americans.”
Senator Merkley’s solution has two interesting features. First, it moves the point of public intervention from local government to the federal level. Secondly, it uses the tax code as an incentive tool – in this case a disincentive. The national Georgists have already put in a word on this account, saying: “Merkley has identified harmful economic behavior than needs to be discouraged by democratic action. Obviously, the Land Value Tax is a less-targeted approach than Merkley’s — yet, if implemented, it might make Merkley’s approach unnecessary. [On the other hand], without LVT Merkley’s approach might be necessary.”
Georgist Mike Curtis, on Dec 11, 2022, offered another suggestion that may have escaped Sen. Merkley. One way to succeed in the struggle of investors vs. homebuyers is by changing the federal income tax laws to stop all depreciation allowances for investors. “The fact that real-estate can be depreciated by investors every time it changes hands is atrocious. Owner occupied residences can’t do it. God only knows how much land value has been depreciated by calling it building value”.
We agree, and would add this caveat to Sen. Merkley’s proposal: Obviously, this bill will encounter a red wave of strident opposition in Congress. Yet, with the unrelenting displacement of housing units throughout the nation into the hands of speculative investors, can we really depend on local city councils to take similar steps?
The Lincoln Institute of Land Policy has prognosticated on this question of local prerogative over land use regulations. Note the President’s Message, “Zoning’s Asteroid Moment” published in the October 2022 issue of Land Lines: “Numerous blue, red, and purple states have passed or are contemplating efforts to preempt local zoning so they can advance critical policy objectives. Now, some 19 states are ready to preempt local zoning to permit development of multiple housing units on lots that are currently zoned for single-family homes. Clearly, local control over land use is no longer sacrosanct.” Oregon is one of the states that has mandated a prohibition on single-family zoning.
Are local citizens amenable to the idea of extending authority to enact land use controls and financial incentives to higher levels of government? A survey from the Oregon Values and Beliefs Center, October 6-14, asked respondents about social services needed across the state. More people said they’d prefer the government provide incentives for the private sector to address the state’s housing shortage than for the state to address it directly. It appears that Oregonians are not favorable to continuous subsidies for affordable housing. They would instead “empower” housing providers with financial incentives not funded by taxpayers – not “top-down charity”, as one respondent declared. (printed in the Portland Tribune, November 30, 2022.)
Is this possible? In a word yes. The land value tax has a built-in incentive not to speculate on land, but rather invest in new in-fill housing. And by shifting tax burden onto vacant and underutilized sites it is revenue neutral. There is no revenue loss, no subsidy.
Tom Gihring, Research Director
