Henry George Vs. Jane Jacobs

 Henry George - Lookin' Good!VS. Jane Jacobs - Cool Annexonian

I want to post something I’ve been thinking about since reading Progress and Poverty. Wyn from Wealth and Want has been in touch with me, and has graciously offered to put this blog on a listserve for Georgists. So I thought I should add a bit more on Henry George.

I hope Georgists are aware of Jane Jacobs’ work – I would rate them both at the same status of “genius outsider economists”. George died long before Jacobs, but his work was undoubtedly known to her. However, she has never explicitly mentioned him in her work – which is a bit weird considering how both were intensely interested in urban economics. This got me thinking about why she hasn’t. I think several reasons explain this:1. Jane Jacobs was probably aware of the campaign against Henry George, so did not want to be tarred by the same brush.2. Georgist policy would drastically increase the pressure to convert land to its “best possible use” (that’s Henry George’s point isn’t it?)I won’t go on about the first point – it is impossible to prove or disprove it now that she has passed away. It’s just a gut instinct.However, about the second point… Two things Jacobs wrote about deal with converting land uses. One was that “Old businesses may sometimes use new buildings, but new businesses must always rely on old buildings”. Georgist taxation would make it very expensive to keep old buildings in areas where land values had increased. The tax burden would require their rebuilding to whatever use carried the highest rent. This could mean old warehouses leveled for new condos (Toronto today), or even massively renovated to appeal to urban-type businesses/residents that can pay high rents for the cool factor of being in a converted space.Under the current system, landlords to not have as much pressure to knock down or renovate old buildings – one of George’s complaints.The second point is more involved, it deals with her explanation of “The self-destruction of diversity” to understand her point, one must accept that neighbourhoods with a diversity of primary uses are much more vibrant and economically productive. Self-destruction occurs because vibrant areas attract people (and their money). People and businesses want to be there because it is a pleasant area (i.e. commercial businesses and residents), and retail businesses want to be there because of the foot-traffic.This very desirability drives up rents – which means landlords must convert their buildings to suit whatever use happens to be most profitable, and hence can pay the high rents. What use this is depends on the area – e.g. some areas become known for restaurants (like College St currently in Toronto), so gradually the diversity of other businesses (retail, professional, etc) gets reduced as they are driven out of the area, and more restaurants move in. Eventually, there remains only one main use (downtown office districts are the ultimate expression of this), and the area becomes dull and uninviting. We scratch our heads wondering what happened, and then move on to the next “in” neighbourhood.

Georgist taxation would drastically exaggerate this tendency as the government itself would put monetary pressure on landlords to convert to the highest paying use. Currently if a business owns its own building, it is able to ignore the higher rent it could charge if it rented it out. And probably landlords can be lazy about evicting long time tenants or charging them higher rents reflective of the neighbourhood. But with the taxman charging higher land tax, the pressure to convert would be immediate and intolerable.

These are raw thoughts – please comment!!

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Published in: on September 7, 2006 at 4:43 pm  Comments (5)  

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5 CommentsLeave a comment

  1. You wrote,

    “Georgist taxation would make it very expensive to keep old buildings in areas where land values had increased. The tax burden would require their rebuilding to whatever use carried the highest rent.”

    I envision this somewhat differently … I think ongoing redevelopment of the central business district would occur, with sites progressing from being single family homes to multi-family homes, from single-story diners and dry-cleaners to low-rise multi-use to mid-rise m-u to high-ruse m-u. Each piece of land would gradually accommodate more people and more usage. And yes, the landlord would be able to collect more rents from more tenants. More human needs would be served, within an area already served by infrastructure such as city water, sewer, stormwater runoff, emergency services, transportation, etc.

    The process of redevelopment will create jobs. But equally important, the redeveloped buildings will create opportunities for entrepreneurs to open businesses in the most productive places, the center of activity. Those business will be able to draw customers, employees and suppliers from a 360 degree radius. And this will lead to healthy competition which will tend to bring prices down and allow specialization.

    In my home town, a city of 120,000 people, there is a 4.5 acre site not far from the “100% location” (the highest value site in the central business district) which has been a “hole in the ground” for the 31 years I’ve lived here! The owner’s address is in Manhattan. Meanwhile, Stamford’s residents must walk around it, drive around it, pay for its police protection, sewer maintenance, storm drainage (some years back, an out-of-control car went through the chain link fence, rolled over, and its driver drowned in a “puddle” on the property). In another direction from the 100% location, there are 2-story and 3-story mixed use buildings from the 1940s. And a few blocks away on the very edge of the CBD, a local developer and Donald Trump wanted to build a 37-story luxury condo on a 1/2-acre site; the tallest building in town, new when I arrived 31 years ago, is 22 stories. The downtown restaurant owners were thrilled. Many of the rest of us weren’t, though many suggested the building would be fine over at the more centrally located “hole in the ground.”

    These underused properties are a drag on the community. Development sprawls up the main roads which used to have single family homes on them. But our incentives are such that the landlords can sit and wait.

    You wrote,

    “Currently if a business owns its own building, it is able to ignore the higher rent it could charge if it rented it out. And probably landlords can be lazy about evicting long time tenants or charging them higher rents reflective of the neighbourhood. But with the taxman charging higher land tax, the pressure to convert would be immediate and intolerable.”

    Looking at the assessor’s database for my small city, it appears that few businesses here own their own sites. I recall some former neighbors who owned a furniture store and the building it was in. They worked hard. At some point it occurred to them that they could make as much renting the building out to someone else as they were making in the furniture business. They built a house on the South Carolina coast. They still own the commercial property here. (Interestingly, I think their children re-opened a furniture store in part of the building. And the local assessor bases his assessments for commercial property on the income approach, so if they don’t report a large income, they don’t pay as much property tax.

    Relatedly, it seems to me that there are two kinds of businesses in most towns. There are the businesses that own their own properties, and the businesses that are tenants to someone else. Oh, and of course that means that there are “businesses” that are predominately landlords. The “third generation” business probably owns its own site, and so has little in the way of locational cost. It is hard for a new business to compete with him, since the new business has to pay a landlord or a mortgage lender.

    Think about the doctors, lawyers, accountants, and dentists you know. How many of them own the site on which they conduct their business? And what is the financial situation, on average, of those who do own versus those who don’t? I’m guessing that those who own their business sites probably live far better than those who rent from someone else. Are they better doctors, lawyers, accountants or dentists? Probably not. But their businesses’ cost structure is different because they are their own landlords.

    Think about the landlords you know. How do they live? Pretty well. The deck is generally stacked in their favor. As a town or city grows, they are the winners. Their tenants have to pay them more and more for the right to occupy the same space. The landlord hasn’t made any further improvements, but still they must pay him more. Did he “earn” that? The legal fiction is that he did. The truth is that it is an unearned increment, and rightly should be treated as our common treasure. Is he entitled to keep more of the rent when he improves his building? Absolutely. And we all benefit when he improves his building — jobs, places to shop, services, etc. We shouldn’t discourage that.

    IF we can remove the perverse incentives that discourage improvements (via taxes on buildings), and add positive incentives to improve well-located properties (via increasing the tax rate on land value), we should be on our way to healthier cities and towns. Will landlording be less profitable? Yes. Will being a buildinglord be less profitable? No, not if he builds the kinds of facilities the market wants. But that’s work and that’s capital being invested.

  2. good article, or at least a good start …

    “http://www.canada.com/montrealgazette/news/story.html?id=ddf32d26-d72b-4312-912e-fbdf6d851fb7

    What would be more fair than the present property-tax system? Here are five proposals

    LINDA GYULAI, The Gazette | Monday, September 11, 2006

    1. Land-value taxation

    In Quebec and most of North America, property tax is charged on the value of land and building together. But many counties in Melbourne, Australia, and a few other places in the world, tax the land alone, not the building on it.

    A variant form is called “split-rate” property tax, in which land is taxed at a higher rate than the building. It’s used in parts of Pennsylvania, for example.

    Unsal Ozdilek, a real estate professor at Universite du Quebec a Montreal’s Ecole des sciences de la gestion, has studied assessment systems around the world and advocates for land-value taxation. It existed in western Canada in the early 1900s.

    Land-value and split-rate taxation make it costly for speculators to sit on vacant land because they pay the same tax as the owner of an office building on the same size land, he says.

    Studies show land-value taxation discourages speculation, encourages development in the short term and helps curb urban sprawl, Ozdilek says.

    Building improvements don’t add to property assessment or taxes under land-value taxation so it removes a disincentive for renovations and stimulates demand for construction materials and employment, he says.

    The idea developed with Henry George, a 19th-century editor and political economist in the United States who argued speculators shouldn’t profit from rising land value because they’ve contributed nothing to it.

    Still, Ozdilek says the system would be best applied uniformly across Quebec and Canada, otherwise speculators would have only to move to another jurisdiction to avoid land-value taxation.

    A possible downside is that a large, luxury home could, in theory, be taxed less than a modest one if it’s built on a smaller lot.

    Also, a city would have to decide whether to assess land at its current use or on its best possible use. And a scarcity of vacant land sales could make it difficult to determine fair market value.”

    Well, it isn’t lot size so much as it is lot location, and if speculators left town, who would lose? That seems to me to be a situation to be devoutly hoped for!

    Land should be assessed for its highest and best use. A single-story diner downtown on a 1/4 acre should have the same assessment as the midrise building next door on a 1/4 acre lot. And soon, the diner operator would find it to his benefit to be operating a coffee shop on the first floor of a midrise building on that site, which would then create office space or living space for lots of other people, on the same footprint.

    The other 4 suggestions are far less desirable, and some downright undesirable!

  3. […] This post is a follow up to the post about Henry George vs. Jane Jacobs vs. Henry George (and to Wyn’s excellent comment). I want to make sure that we all understand that a LOT of Jacobs’ work and ideas meshes very well with George’s. […]

  4. Hi, Interestingly, Jane Jacobs was born and raised in Scranton, Pennsylvania, during the height of the land value tax based on HG’s ideas. During those years, Henry George was a part of the political fabric of Scranton; indeed the tax office in Scratnon is called the “Single Tax” office (although everyone has forgotten why!).

    The 1920 and 1930s saw Scranton raising most of its property tax revenue from the land value tax, and the impact showed, as this article from a 2005 article in the Scranton Times-Tribune demonstrates:

    “Scranton adopted the two-tiered system in 1915, two years after the state Legislature made it an option for Class 2 cities. Scranton is now a Class 2A city — the only one in Pennsylvania — but the law still applies.

    It’s meant to spur development on vacant or underdeveloped lots, and it apparently did that in the 1920s. According to the Times-Tribune files, the change from a flat rate to a dual rate prompted owners of some valuable downtown lots to replace smaller buildings with multistory structures.”

    Today, in Scranton and elsewhere, old buildings have historical status conferred upon them which reduces the land valuation sometimes to a dramatic degree.
    I also agree with Wyn that the diner that everyone loves is a perfect example of a bad land use, and they often come into being when the total urban economy is weakened. These are “en passant” uses, like parking or used care lots, mean to pay the bills until the speculative price of the landowner is paid, or until the government despairing of the market not working overpays for the lot the diner sits on.

  5. After reading _Dark Age Ahead_, I’ve wondered about how Jacobs would critique George – Dark Age slights property taxes, but without explaining why very well.
    It seems like Georgist land value taxes would yield more clustered cities, which would profoundly influence transportation systems. Perhaps this is a hidden benefit to Georgism.
    I still have yet to read any thoughtful critique of Georgism, based on evidence or logic, from Jacobs or anyone else, and would like to see one. That land value taxes didn’t last, and that the thinking behind it wasn’t strongly maintained, seems more to do with some variant of the DFH factor than anything else. As far as I can see, The Single Tax wins by default.

    Brian Cady


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