How Taxation Creates Affordable Housing and Economic Growth

When you read that headline you probably asked yourself – “Is he out of his mind? – or – “What kind of funny shaped cigarettes is he smoking today?’ Well, unfortunately, neither is the case. The headline simply reflects the approach that government and some in the “social service providers” loop would have you believe. For them, there is no problem that cannot be solved by adding a bit more money to the solution side and an entrenched position that government has the responsibility to take care of citizens. When everything is a “Right”, Do-gooders can do no wrong.

Unfortunately, that is the position taken by those who believe it is the responsibility of those that “have” to be responsible for supporting those who “have not”. They have no understanding of the “how” haves came to be that way or why “have nots” are in the condition they are in. Those are not to be considered when the need is so great and immediate. After all, is it not our individual responsibility to “protect the most vulnerable among us” and to “prevent the suffering of our children”? The fact that the “haves” enjoy the fruits of their individual labors (they actually worked for what they have) and that taking those personal gains is both immoral and a violation of their individual rights seems not to matter. They have it – we need it- we will simply take it. If the same practice were followed in a store or a private residence it would be properly called theft and the perpetrators would be held accountable (not sure if that is actually the case any longer). So the apparent difference is if the actual thieves are well-meaning or just stealing for their own benefit. I am not sure how that rectifies the actual impact on the individuals who are the targets of the theft.

So what does this have to do with housing and economic growth? – actually a whole lot. Consider that the cost of a home, as we previously knew it, was the price of the land and the cost to construct the house. To acquire the land one individual contracted with another for the sale and paid a price that was acceptable to both. That is a free market solution. The new land owner then contracted with a builder to actually construct the building that would be the home. The contract considered the cost of materials and labor, services required by the builder, utilities associated with the project and some other costs directly associated with construction and completion of the contracted project. In addition, there were some nominal costs associated with getting the necessary permits and inspections to validate that the job was being completed in compliance with applicable codes. On completion, the value of the home properly reflected the cost of the land and the actual construction cost of the structure. That value also established a benchmark for property taxes and other taxation programs various jurisdictions would use to fund public services. If it all worked that simply, many of the problems we face today in housing and the economy would not exist.

History has proven to be a beast that, if not positively checked, will soon grow to consume the people it was created to serve. For Americans, the “balance of power” formula was supposed to provide that protection. If that balance fails, the system is allowed to run wild. That is the case today in housing and economic growth. Government involvement in the development of property (residential and commercial) has grown from simply regulating a separation of incompatible uses (saloons away from schools and hog rendering plants away from homes) to the most intrusive and detailed guidance on where to develop, what to develop, and when to develop. Current zoning regulations have destroyed the free market of land by either limiting or mandating the specific use of parcels. Owners no longer enjoy the normal right of use as it has been replaced by government dictate. Government action in land use also dictates how we shall live by demanding use dedicated to high-density individual housing or multi-family structures. The government has also dictated that some land areas cannot be used by adopting policies that require minimum (and normally exceedingly large) lots for home construction outside the government approved living areas. On top of zoning, Governments have instituted a number of “protective” regulations that serve to further limit the actual use of available land. Regulations protecting undefined wildlife habitat or waterways that may or may not harbor species of fish limit the land available to develop. It is not uncommon for these regulations to require significant cost and effort to document the presence of a “critical area” on a piece of property to be developed, the cost of which is born by the developer and which add no value to the project. Building codes that proscribe everything from the specific design of toilet that can be used to the number of electrical outlets that must be installed further add to the final cost of the project with no real added value. In the end, however, the cost of the structure and completed project is much higher than it would be without the cost of excessive government regulation and oversight. In the end, the excesses of government create an artificial value that is then employed to establish the taxation base. Are you beginning to see the connection?

Government action in land use also dictates how we shall live by demanding use dedicated to high-density individual housing or multi-family structures. The government has also dictated that some land areas cannot be used by adopting policies that require minimum (and normally exceedingly large) lots for home construction outside the government approved living areas. On top of zoning, Governments have instituted a number of “protective” regulations that serve to further limit the actual use of available land. Regulations protecting undefined wildlife habitat or waterways that may or may not harbor species of fish limit the land available to develop. It is not uncommon for these regulations to require significant cost and effort to document the presence of a “critical area” on a piece of property to be developed, the cost of which is born by the developer and which add no value to the project. Building codes that prescribe everything from the specific design of toilet that can be used to the number of electrical outlets that must be installed further add to the final cost of the project with no real added value. In the end, however, the cost of the structure and completed project is much higher than it would be without the cost of excessive government regulation and oversight. In the end, the excesses of government create an artificial value that is then employed to establish the taxation base. Are you beginning to see the connection?

The problems of government intervention are even more complicated and damaging when associated with economic development. The cost of commercial projects which result in creating jobs and provide goods and services to the community (called economic growth) are often linked to significant loans to finance the projects. The loans are normally secure in sequence with the anticipated progress of the project and the project budget is based on realistic expectations of progress. The one factor that is not under the control of the developer is the time that the government will take to consider required permits or the expansion of required permits. Once the developer has the funds in hand to commence the project (either personal capital or loan funds) the clock starts on the accrual and payment of interest on those funds. Government delays in approving permits or necessary time to meet new permit requirements all add to the time cost of money. This is a factor that government bureaucracies processing permits are not only unfamiliar with but have no interest in understanding.  It makes no difference to the permit office if the approval is granted today or next month. Their job is to make sure everything is alright and all requirements have been satisfied. In many cases, developers will readily agree to additional requirements or restrictions (read added unnecessary cost) just to get permit approval and move the project forward. Once again the result is an additional cost to the end result with an artificially elevated value base for the project. All the while, the developer is at risk for the funds in the project. It should not be surprising that the number of commercial developers who might create economic opportunity soon lose interest because of government actions.

In addition to the specific taxes related to property, local and state governments have a nasty habit of considering any money left in a citizens wallet at the end (perhaps the beginning ) of the day are actually available for a better use as dictated by the government. First let us establish that we, the citizens, have authorized governments to collect taxes as may be required to support the services and functions we have delegated to them. We did not declare open season on our wallets or bank accounts. Excessive sales taxes to support government pet projects (mass transportation, community theaters, bike trails, and many others) reduce the amount of available funds for the wage earners to spend as they wish and bolster the free market economy. Funds used to offset conditions like “excessive housing costs” for some do little more than reduce the ability of others to afford housing and actually negatively impact the “quality of life” for the general public. From an economic standpoint, the programs that are effectively redistribution of wealth through taxation and government programs is called socialism and is contrary to the principles of the free market system. When the taxation is specifically directed toward supporting housing for one class of citizen at the expense of another, all relations to a free market and personal liberty are eliminated.

And thus we come to the understanding that after a little taxation here and a little taxation there, pretty soon you are talking about no more liberty.  Any reasonable person who either supports or agrees with taxation not consistent with the documented responsibilities of government deserves the impacts on their lives that they would foster. Our grievance is that they have no right to take the rest of us down with them. If any person actually believes that they are not taxed enough, then they are free to send as much money to the government treasury of their choice. Just don’t expect the rest of us to send matching funds.

 

 

 

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