Control Land Prices
The high price of houses in general prevents many from the rewarding experiencing of home ownership. The young do not have the income or down payment to buy a home. The poor are even more impoverished. The elderly cannot pay rising property taxes based upon zooming assessments and are forced to sell. For the middle class and middle aged, a house is affordable but it comes at a high price, at a high proportion of the household budget. The constant inflation of house values is a major source of income for banks and mortgage companies as they sell larger and larger mortgage loans to you.
Land is one good that violates the laws of supply and demand. As Will Rogers said, “God is not making any more of it.” Land is always in short supply creating an artificial situation of very high demand which ceaselessly drives up pricing. Because land is not a normal market it must be regulated, controls should be put on land prices, and this benefits homeowners and businesses alike.
It is already accepted practice to intervene in warped markets where monopolies control output and drive up prices. Land though natural is another one of these “unnatural” market situations that requires regulation.
Stewards of the Land
In the long run we can go further than a control of land inflation; we can consider something more radical though familiar. We can, if we like, reduce land prices to zero, and hold land in common as we do other national resources. Land would then be distributed by first-come-first-serve application, by lottery, by need or some other fair method or combination. Policies, regulations and penalties can control opportunists who try to take advantage of a situation. An advantage of this approach is also that the rich do not receive the prime properties; we would have a more equitable distribution of natural wealth and desirable location.
There is no logical reason to give land a price, if we hold it in common. Land should be considered a sacred trust managed by an ethical steward. This stewardship could be passed on -- inherited or given to others or traded. Stewards would have legal rights defended by courts so that money or politics does not undermine the system.
To some this idea may be too radical, but in the long run this idea might gain adherents because it is quite rational and fair. But if the idea of not owning property creates insecurity, we can abandon the idea of common land. Still with land price controls on private property there will still be a significant gain for citizens and businesses alike.
When land prices are half or more of one’s property assessment, this can be a huge boon for citizens and business. Since construction price rise is often associated with the warped supply and demand relationship of land, we must also control it too.
Right to Own a Home
Combined with the above idea is the Human and Constitutional Right to own a decent home. People should not be driven from their homes by foreclosure, and further everyone deserves access to a home at whatever economic station.
What happens to Mortgages then?
If land inflation is simply stopped then we do not have any problem with mortgages. If we roll back land prices then we have people paying for loans on property that has been devalued. These loans will have to be adjusted. Those who bought land on a speculative basis must accept that this will not happen anymore, but that there will be economic gains in lower land prices.
If we move to the stewardship idea of collective, national land, then land will fall to zero in price. The price decline will have to be staged to be fair to those who own land at old prices. But a transitional strategy can be created for a step by step decline in prices and adjustment of mortgages.
Sound crazy? Not really. If we have determined that land should not have a value or should have a very reduced value, and that construction costs are warped and must be controlled or reduced, then we have essentially ended the conventional mortgage.
Consider that banks and mortgage companies make most of their profit from false pricing of land and construction. This is a transfer of wealth monthly from you to them. The financial firms then bundle your mortgage and sell it as a mortgage-backed security at a discount to get immediate cash. They then use this cash to create more lucrative mortgages. This is the cycle of the mortgage economy. And this cycle transfers wealth at a dizzying speed from ordinary people to corporations and the rich.
If we abolish conventional mortgages and control land prices and only allow reasonable construction loans for the future, we will have made a move to a rational and ethical economy. Should we do it all at once? Probably not, because the shock of no mortgage payments would collapse the financial system immediately. But what we can do is stage the process so that, say, over 10-15 years the transition is made.
This gives financial companies the time to reorganize. They will have a window to set themselves up providing loans on a more rational and ethical basis.
Yes, this will cause losses for these institutions and shareholders but we have no choice. This sector is in serious trouble anyway and is essentially defunct and needs serious restructuring. Now is the time to be bold and follow through on the logic of economic history and create something very new. Why fix this problem later when we have suffered so much already because of it, why wait for another collapse in 20 years and go through this again?
There will be big gains for consumers and businesses as their mortgage payments decline, monies will be used for new purchases and savings. The real issue in any major economic reorganization is who will gain and who will lose. In this case it will be the consumers and not the predatory lenders.
Cage Innoye
Axxiad News