They own land! Give them money!

Spotted by TBH in the Epoch Times:

California authorities announced Monday the state plans to pay off 100 percent of unpaid rent accumulated during the pandemic, with the money to come from some $5.2 billion in federal COVID-19 relief funds.

California Gov. Gavin Newsom wrote in a tweet Monday that, “California is planning rent forgiveness on a scale never seen before in the United States,” attributing the post to a report by the New York Times, which noted that state lawmakers were putting the final touches on the program.

While eligibility criteria for the newly proposed program are still unclear, reports indicate that the measure would both give renters in arrears a clean slate and make landlords whole.

Possibly one of the worst abuses of "COVID-19 relief funds" in recent history. Are they mental? Let's imagine that a developed country send a struggling country £1 billion in aid payments to help them get over Covid-19... and they just hand it all over to landowners.

Daily Mail on top form

Hundreds of residents gather at vigil to support black family whose $3.5million home was firebombed in 'racially-motivated hate crime'

Homey homies (2): The effect of congestion on rental values

The Stigler looked at an article on gentrification a few days ago.

Apart from illustrating that society as a whole creates rental values by imposing/accepting law and order, this bit is a good illustration of von Thünen's theory of rent:

Key to attracting companies and families is Compton's geographical location close to LAX airport, Long Beach port which is the second busiest container port in the US, and near office buildings in downtown Los Angeles.

[Mayor Mrs Aja Brown] said: "In California they're not making any more land. And with the high cost of land, from a business standpoint, being able to move your goods quickly and cheaply makes Compton an attractive place to be.

"And traffic is so horrible here in Los Angeles, and getting worse, that if you want to have a quality of life not on the freeway, you may want to live nearer where you work. I think people are getting to grips with that. I think Compton is a really attractive place for young families."

We can hold some of von Thünen's variables constant; what has changed is

a) The value of being close to the centre of activity has gone up,

b) Hence the amount of traffic has gone up,

c) So although Compton's physical distance from the centre has not changed, travel times/travel costs have changed.

Assuming that the overall attractiveness of the whole area is roughly constant (more people makes the centre more valuable but more traffic pushes rents down again), what happens is that rental values close to the centre increase disproportionately and rental values further out go down slightly.

This is true even if travel times from Compton have gone up in absolute terms; as long as travel times have gone up even more for people commuting from further afield.

(Rhetorical questions: Can any single landowner in Compton claim to have created or earned that extra value and/or can any single landowner in surrounded areas be blamed for the fact that the rental value of his land has fallen?)

Homie Homies

From the Telegraph

The residential property market is surging, up more than 10 per cent in the last year, as people are priced out of other Los Angeles neighbourhoods. Properties are being snapped up by investors and professional house flippers have started targeting the area. Compton's first home with a price tag of $1 million recently went on the market.

Key to attracting companies and families is Compton's geographical location close to LAX airport, Long Beach port which is the second busiest container port in the US, and near office buildings in downtown Los Angeles.

Mrs Brown said: "In California they're not making any more land. And with the high cost of land, from a business standpoint, being able to move your goods quickly and cheaply makes Compton an attractive place to be."

"And traffic is so horrible here in Los Angeles, and getting worse, that if you want to have a quality of life not on the freeway, you may want to live nearer where you work. I think people are getting to grips with that. I think Compton is a really attractive place for young families."

That's one smart 32-year old mayor. Understands how land values work, and that all that's depressing them in Compton at the moment is the dealers and the violence. So, she's got the gangs together an stopped them fighting which has made it a nicer place to live (and raised land prices).

Give it a few more years and California will probably legalise cannabis, at which point, the dealers will largely disappear and it'll be a pretty pricey place to live.

Why house prices in California and New York are so high.

There is a school of thought that this is largely down to planning restrictions around the most densely populated and/or desirable parts of California and New York, which in turn are the first and third most populous/popular states.

How much evidence is there for this (and how indeed do you measure the restrictiveness of planning and zoning laws?)..?

Let's download the stats from here and get crunching!

1. House prices vs earnings


As we see, there is a good correlation between average local earnings and house prices for the 714 counties (excl California and New York) for which we have data. The coefficient of correlation is 0.80, if you factor in the property taxes, the coefficient is even higher at 0.84.

A lot of California (red dots) and some parts of New York (green dots) are well above the trend line; most parts of New York are in the middle of the pack. The green dot in the top right corner is Manhattan 'island', of course.

2. House price-to earnings ratios vs earnings

Their evidence to show that housing is particularly expensive in those two states is that house prices are a high multiple of local average earnings, so let's do another chart:
As we see, the ratio of house prices-to-earnings is not a constant. In low wage areas ($40,000) the ratio is only 2.5; in high wage areas ($120,000) the ratio is 4.8, but the coefficient of correlation is quite low, only 0.46.

That's because this is a false comparison. You get a much more sensible figure if you use the first chart and compare house prices with the excess of earnings above the basic minimum household expenditure of (say) $20,000 - the trend line is now house price = [earnings - $20,000] x 4.2.

3. The coastal effect - California

We know that in the UK, there is a large premium attached to areas with a sea view. It's also nice being within driving distance of the coast, and because of the size and shape of Great Britain and Northern Ireland, three-quarters of it is within 25 miles of the nearest bit of coast or estuary and just about all of it is within 50 miles thereof.

Not so for the 48 main states! Only a per cent or two of the area is within 25 miles or even 50 miles of the coast. So we would expect the premium for being near a beach or even near the coast to be higher.

We can easily split Californian counties into 16 "coastal" counties and 24 "inland" counties and compare the two:

And we observe that having controlled for earnings, people are prepared to pay about $100,000 more to be nearer the sea, i.e. they are prepared to pay an extra $6,000 a year to for the benefit of coastal walks, surfing, sailing, fishing, sun bathing etc. If somebody inland spends an extra $6,000 a year on his inland hobbies, or extra gasoline for getting to the coast, then we would not count that as housing costs, would we? So I'm not sure that the extra $100,000 along the coast truly counts as housing costs either

4. The coastal effect - New York

New York state is triangular and has hardly any coastline whatsoever, just a few miles of beach, river and estuary at the southern tip (around Manhattan).

So I separated out the eight counties at the southern tip and contrasted them with the other 30 counties:

As we see here, the premium for a home in those areas is $150,000 to $200,000, much higher than in California because of the additional scarcity - less than a fifth of New York counties are 'coastal' as against over a third in California. And New York City is a huge economic and cultural draw as well, of course.

5. Strip out the coastal effect, and prices in California and New York are no different to anywhere else

Finally, I reworked the first chart comparing the rest of the USA with inland counties in California and New York, as we can see, there are only half a dozen outliers and the rest of them are slap bang in the middle of the pack:

California Über Alles

Dearieme (in the comments to an earlier post) reminds me that Jerry Brown was re-elected as Governor of California last year, after eighteen years doing something else. Read up on the man who opposed Proposition 13 at Wiki while you listen to his theme song:

The Sperminator

I'm not happy with the first attempt. Second attempt.

Because televisions use a different kind of electricity

From The Metro:

California will ban power-hungry televisions after it became the first US state to pass eficiency standards for sets... (1)

The commission estimates that TVs account for about 10 percent of a home's electricity use. (2)

The fear is that energy use will rise as people buy bigger, more elaborate TVs, put more of them in their homes, and watch them longer... (3)

"We have every confidence this industry will be able to meet the rule and then some," Energy Commissioner Julia Levin said "It will save consumers money (4), it will help protect public health (5), and it will spark (6) innovation."...

Californians buy about 11 percent of the 35.4 million TVs sold in the U.S. each year, according to industry figures. (7)

1) The first state to take bribes from a large TV manufacturer, which will mean existing stockpiles are obsolete.

2) That seems surprisingly high. Do TV's really use that much, or are US homes otherwise incredibly energy efficient?

3) They already watch four hours a day, allegedly. There's only so much you can watch, surely?

4) If consumers were concerned about saving energy, they'd buy a smaller set, surely? By all means, make it clear on the packaging how much electricity a TV set uses and what that costs per hour, but apart from that, people have to make up their own minds. If we go with 300 watts for an large-ish TV, and $0.12 per kWh price, that means a TV costs, er, less than four cents an hour to run. That's hardly terrifying, is it?

5) Wot?

6) Poorly chosen word, methinks.

7) Wot? California is about 11% of the population of the USA and they buy about 11% of all TV sets? Horrors!

For the attention of Mr Curious

Dear Sir

You asked:

"Now, I think LVT is a brilliant idea, but if it were introduced into an area as divided as California, what is to stop all the wealthy residents leaving?"

That's the clever bit. Notwithstanding that the first thing California should do is reduce its state spending, it is high taxes on incomes that make people leave an area (and cutting taxes on incomes is nearly always a good idea). High taxes on land values merely reduce the capital value of properties (while leaving overall occupancy costs much the same), and such taxes clearly cannot drive land abroad.

Therefore, for a given total tax burden in different countries, people with high incomes will tend to migrate to those countries with lower taxes on incomes and higher taxes on land or property values. But conversely, there is no incentive for people with lower incomes to migrate in the other direction - not only would the income tax burden be higher, it would be more expensive to buy a house.

I submit the real life example of hedge-fund managers leaving the UK and going to Switzerland (because of Switzerland's lower taxes on income taxes and despite Switzerland having higher taxes on property values), without there being a corresponding flow of wealthy Swiss pensioners moving from Switzerland to the UK.

I trust this is of assistance and remain

Yours faithfully.

Rabbit, headlights, oncoming train.