Stop Asking the House to Save Us

The retirement plan is a room with a leaking window.

Nobody describes it that way at first. They say the property will be worth a great deal one day. They say there is equity. They say the children will have something. All of this may be true. But the room still needs a repair, and using the wealth attached to it may require a sale, a loan or another arrangement with costs and consequences.

We have asked the house to do a remarkable amount of work. It is expected to provide shelter, build savings, insure old age, finance care, establish social standing and help the next generation enter the same expensive market. When other sources of security feel unreliable, the demands become heavier.

Then we wonder why reform is politically difficult.

People defend the rising price because they have attached several futures to it. A government that promises cheaper housing without addressing that dependence can sound as though it is proposing to remove the only reserve ordinary owners have.

The response should be to build a broader basis for security. A home can remain an important asset. It should not have to rescue every failure elsewhere in the economy, especially when the rescue is financed through a higher price charged to the people arriving next.

The national wealth story

A family can become wealthier when its property appreciates. It may sell and use the proceeds, pass on an asset, or gain borrowing capacity. These are real possibilities, with real conditions attached.

The national story is more complicated.

If a country builds additional useful homes, improves their quality or makes more locations practical to inhabit, it has expanded what its people can use. If the price of an unchanged stock rises because access becomes scarcer, the owners’ balance sheets may improve while would-be occupants face a larger barrier. The higher valuation does not by itself create another bedroom, shorten a commute or repair a roof.

Not every gain is a simple transfer. Improved amenities can make a place genuinely better. Expectations about future income, interest rates and many other factors affect valuations. We should avoid reducing all property wealth to theft or all appreciation to social progress.

The necessary question is what changed in the real possibilities of living.

Imagine a town with one hundred sound homes and one hundred households. Then imagine that the number of households wanting to live there rises while the homes do not. Prices may rise. The existing owners can report greater asset values. The additional households still need somewhere to live.

Now imagine the town adds suitable homes and the supporting infrastructure. More people can obtain shelter. Some scarcity gains may be smaller than owners once expected. The town can nonetheless be more prosperous in the sense that matters to its inhabitants: more work can be reached, more families can form independent households, and fewer decisions have to be postponed for lack of a place.

This is an illustration of a mechanism, not a complete model of a town. It helps expose an error in the scoreboard. We cannot judge housing success solely by how much the existing stock would fetch if sold.

A society can mark up an asset and still fail to make room.

Give security more than one address

The dependence on housing appreciation is partly a dependence on what is missing elsewhere.

A household with adequate retirement income and a financial reserve may value the house mainly as a place to live and an asset among others. A household with little else may need the sale price to cover several future obligations. The second household has a stronger reason to fear policies that reduce scarcity gains, even if its members also want affordable homes for their children.

This is why a housing coalition should support ways of accumulating security that do not require bidding against the next generation for land. Reliable retirement provision, portable savings arrangements, fair access to broadly shared productive assets and wages that leave room to save all have a place in that discussion. Their design is beyond a housing book’s full scope, but their relationship to housing politics is direct.

The proposal is institutional. It is not advice that a reader sell a home and purchase a particular investment. Assets carry different risks, taxes, costs and practical uses. A household decision needs its own circumstances and qualified advice where appropriate.

At the public level, however, we can reject a narrow bargain that says security is available mainly through successful property timing. Someone who rents for a working lifetime should have a credible route to reserves and retirement. Someone who buys should not need an extraordinary capital gain to survive later life.

This could change the politics of abundance. When fewer people need scarcity to serve as their pension, more can support enough homes. The relationship will not be automatic; interests and preferences remain. But reform becomes more plausible when it offers a substitute for the function people fear losing.

It is easier to invite someone away from a fragile bridge after building another way across.

Tax the right thing for the right reason

Tax policy is one of the ways a country tells people which arrangements deserve support.

The U.S. mortgage-interest deduction, for example, is not a benefit automatically received by every homeowner. IRS guidance ties it to itemization, qualifying secured debt and other requirements and limits.¹ A tax preference should be evaluated by who actually receives it, what behavior it changes and whether another use of the resources would better improve housing security.

The existence of a familiar benefit does not settle its public purpose. Does it help households who would otherwise lack a home? Does it encourage larger loans or more expensive purchases? How does it treat a renter with comparable income and housing need? What happens if assistance is redesigned around need or durable affordability instead of a particular financing form?

Those questions require distributional analysis and attention to transition. A sudden rule change can affect households that made commitments under the previous arrangement. Grandfathering can reduce disruption while delaying reform and preserving inequities. Phase-ins can help, but complexity itself has costs. There is no honest design without a stated choice about who bears what and when.

The principle I favor is that public support should be judged by the security it purchases. A subsidy that mainly raises the amount a buyer can bid for a constrained stock is less attractive than one that creates or preserves useful access. That is a criterion for evaluation, not a claim that every existing preference has the same effect.

Tax reform also needs to distinguish the building from the site. We want people to construct and maintain useful structures. We need not treat the rising value of a scarce location as though the owner personally produced all of it.

The value under the building

A land-value tax focuses on the site rather than the improvements on it. A split-rate property tax places different rates on land and structures. The economic argument is that land’s supply is not reduced by taxing its value in the same way that taxing an activity can discourage producing more of that activity. Reducing the burden on improvements can also avoid penalizing some useful construction. Richard Dye and Richard England’s policy analysis examines this rationale alongside valuation and implementation challenges.²

The distinction is appealing because it points policy toward the value of access rather than the work of improving a home. But an appealing principle is not a complete municipal tax system.

A government must estimate land values separately from structures, keep assessments credible, provide workable appeals and explain changes clearly. A tax bill is a real cash obligation. Households with valuable land and little income need an explicitly designed transition or hardship mechanism. Local legal authority and the relationship to other taxes matter.

An optimal-tax model by Gregor Schwerhoff, Ottmar Edenhofer and Marc Fleurbaey explores both efficiency and distribution. Its conclusions depend on who owns land and how revenue is returned or used. It is analytical research, not a guarantee that adopting a particular rate will make every household better off.³

My case for exploring land-focused taxation therefore includes conditions. Begin with transparent estimates of who would pay more and less. Explain what other burdens, if any, would be reduced. Protect genuine hardship without exempting wealth indefinitely by habit. Pair the change with permission and infrastructure for useful development. Publish outcomes and correct implementation failures.

A land tax cannot make an unsafe site safe or finance a building whose expected income cannot cover its costs. Nor does it ensure that every parcel develops immediately. Its value lies in changing part of the incentive structure and in raising revenue from a defensible base. Asking it to solve everything would repeat the mistake of asking the house to solve everything.

When public work raises private value

A new station can make nearby land more useful. Permission to build additional homes can increase the value of a site. Public investment and public decisions can therefore create opportunities for private gains.

Land-value capture is a family of methods for recovering some of that uplift for public purposes. The OECD and Lincoln Institute’s comparative compendium documents a range of instruments and their legal and administrative challenges across countries. It does not identify one universal design that works everywhere.⁴

The principle is straightforward: when collective action creates additional value, the public may have a claim to part of it. The practical questions are harder. How much value was created? Compared with what? When can a contribution be collected without making a useful project infeasible? Who pays if the forecast is wrong?

Consider a public authority planning a major transport improvement. If it waits until land prices reflect the expected benefit before acquiring sites for affordable housing, it may pay more to secure access created by its own investment. Early planning can preserve opportunities. That requires funding, legal authority and competent decisions before the gain becomes someone else’s asking price.

Public land can also be leased on terms that retain a continuing public interest. Development agreements can specify affordable homes or contributions to infrastructure. Each method needs a transparent bargain and an assessment of feasibility. Excessive or unpredictable demands can stop construction. Weak demands can give away value without enough public return.

The remedy is neither automatic generosity to every developer nor automatic suspicion of every margin. It is competent public negotiation, open assumptions and enforceable commitments.

The public should not have to buy back every improvement it helped create.

The empty home argument

Few sights are more frustrating than an apparently empty home in a place where people cannot find shelter. It is reasonable to ask why it is empty and whether policy could bring it into use.

It is less useful to take a national vacancy count and assume every unit is a suitable home deliberately withheld from someone nearby. Census vacancy categories include homes for rent or sale, units already rented or sold but not yet occupied, seasonal or occasional-use properties, and other circumstances.⁵ Geography, condition and availability matter.

Some vacancy is part of a functioning market. People need homes available when they move. A market with almost no suitable vacancies can give tenants very little leverage. Other vacancy may reflect repair, legal disputes, an owner’s circumstances, weak demand or a decision to hold property unused.

A policy aimed at avoidable long-term vacancy should identify the behavior it seeks to change. It needs a clear definition, reliable evidence, reasonable exceptions and enforcement that does not collapse into paperwork theater. A levy may change some owners’ decisions. Acquisition, rehabilitation or legal assistance may be more useful in other cases.

The question is how many suitable homes the policy brings into use, at what cost, for whom. Revenue can be useful too, but a policy advertised as increasing occupancy should be judged on occupancy rather than merely on the number of bills sent.

We should pursue recoverable housing capacity without pretending that it eliminates the need to build. Existing homes and new homes are parts of the same task.

Do not reward the wrong race

A housing economy can reward several activities: building, repairing, managing, financing, searching, trading and waiting. Some of these add capacity or improve service. Some help match people with homes. Some capture gains created elsewhere. Real projects combine them in complicated ways.

The objective is to make the useful activities easier and more rewarding, while limiting the ability to profit from avoidable scarcity or abusive conduct.

That requires more precision than a campaign against investors as a single category. Long-term capital can help finance homes. Acquiring existing homes may alter who can buy or rent them without adding a single unit. An institution can provide competent service or exploit weak alternatives. A small owner can do either too. We need rules that follow the behavior and the relevant market power.

Ownership transparency, enforceable service standards, competition scrutiny and taxation can each address a different problem. Restrictions on particular acquisitions should state whether they aim to improve owner-occupant access, reduce concentration or achieve another measurable outcome. Exceptions for genuine new construction may be appropriate where the goal is to distinguish adding capacity from bidding for existing stock, but they need definitions that cannot be defeated by a label.

A useful reform will sometimes reduce an expected return. We should be willing to say so. The public’s duty is not to preserve every strategy that becomes profitable under a shortage. Its duty is to maintain a fair, workable system in which homes are provided and people can live securely.

Capital seeking a return is adaptable. Public rules should make the route to that return pass through useful provision rather than unnecessary exclusion.

Let the house be a house again

The leaking window still needs repair.

The household may choose to use some equity, draw on savings, obtain assistance or arrange the work in another responsible way. The correct decision depends on its circumstances. Nothing in this chapter makes the choice automatically easy.

But imagine how different the decision becomes when the house is no longer carrying every financial hope. Retirement income is more dependable. A reserve exists outside the walls. The next generation has realistic housing options. Maintenance can be planned rather than postponed until a sale.

The owner can then support more homes nearby without feeling that every additional front door threatens the family’s future. The renter can expect security without being ordered into an unaffordable purchase. The builder can earn by adding useful places. The public can recover part of the value it creates and use it to widen access.

This is a different arrangement of incentives, supported by a different account of prosperity. It does not require abolishing ownership, denying effort or promising that risk will disappear. It requires relieving a basic human necessity of duties it performs badly when loaded onto it alone.

A home should have enough strength to hold a life. We do not need to make the entire economy balance on its roof.