Tax the dirt, with Lars Doucet & Greg Miller

This week I'm joined by Lars Doucet (returning after a previous conversation) and Greg Miller, co-founders of the Center for Land Economics. We explore how shifting taxes from buildings to land could transform development patterns, why California's property tax caps coincide with its housing crisis, and how the fundamental trade-off between assessment accuracy and consistency creates winners and losers. We also cover their work developing open-source tools to bring transparency to this opaque system, plus practical ways anyone can use a spreadsheet and data analysis to influence their local assessment office.
Sponsors: Safebase
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Timestamps
(00:00) Intro
(00:45) Center for land economics
(04:01) Property tax basics
(05:31) Challenges in property valuation
(10:22) Impact of Proposition 13 in California
(12:28) Anti-market property tax policies
(14:43) Housing crisis and land value
(15:46) Sponsors: Safebase
(17:17) Housing crisis and land value (Part 2)
(27:49) Urban development incentives
(29:17) Tokyo's urban planning success
(39:23) The abundance movement in housing
(40:07) Innovative housing policies
(41:24) Government bureaucracy and policy making
(49:56) Mass appraisals and property tax fairness
(01:00:02) Technological advances in property assessment
(01:06:16) Empowering local governments and citizens
(01:16:02) Wrap
Transcript
Complex Systems with Lars and Greg
Patrick: Hideho everybody. My name is Patrick McKenzie, better known as Patio11 on the Internet. And I'm back here with my friend, Lars.
Lars: Howdy.
Patrick: And Lars’ co-founder Greg.
Greg: Hey everyone.
Patrick: So we had so much fun discussing the wild, wild world of property tax assessments earlier that we're back for around two with even more dives into deep detail.
But before that, let's pause for station identification. I think you folks are starting a a Center or non-governmental organization around this project.
Greg: Yeah, we’re starting the Center for Land Economics. I'm sort of Thing 1, Thing 2 with Lars and co-founding the center broadly, we plan to promote equitable tax policy and fair foster fair development through tax policy.
Center for land economics
Greg: What does that mean? We just wanna shift taxes to land. And so really what we plan on doing that through helping with better assessments and helping better assessment practices, partnering the city county officials and nonprofit organizations to create more development. Take taxes off of buildings and towards the value of land.
Patrick: And what did you do prior to this, Greg?
Greg: Prior to Center for Land Economics, I spent two years as a program analyst at the Department of Housing and Urban Development. I was under the office of Policy Development research there, working on a variety of block ramp programs and housing policies where we were trying to figure out how to create more construction in the United States. We tried stacking subsidies on top of each other. An alternative policy is shifting our tax structures.
Then went off for a year in Silicon Valley, starting a startup with a couple of founders, AI for government. We pivoted around a little bit and figured out that I could go do the thing I wanted to do most, which was promote land value taxes.
And so I decided to take that on full time.
Patrick: And Lars, for the benefit of people who might not have caught the earlier thing. Can you give your how he became a villain speech? (I usually say that joke about myself. You are not, in fact a villain. Please continue.)
Lars: Super villain origin story, coming up.
I kind of have like the exact opposite trajectory of Greg, so he was working for HUD, you know, just for federal government and all that. I was kind of a nobody. My background originally is as a video game developer of all things. And so I came to this field quite accidentally because during the pandemic, my kind of pandemic project was, I wrote this really big essay on the history of Georgism, which won the first slate star Codex book review contest for people who know what that is.
It was, you know, a kind of influential blog. And so that launched me into, into niche and I should say emphasize the word niche, niche-Internet-micro-micro celebrity. Among this little topic, I got introduced to the whole crowd that was interested in that policy and then people wanted me to follow up with, it's like, okay, you've got this economic theory that we should, you know, that like land is a big deal and land value tax is better than other taxes.
But where do we go from there? And that just kind of started this whole trajectory of me figuring that out. One thing led to another. I wrote a book. I joined a startup for a while for some personal reasons due to a very large personal tragedy in my life. I wound up leaving that startup just 'cause I can't take the startup life anymore.
And then I joined up with Greg here.
Patrick: One of the things that I love about this story is that in some corners of the internet, there's an awareness that the posting to policy pipeline is a thing. Randos like Lars and myself end up blogging for the Internet and somehow end up with some level of impact on things like, I don't know, national vaccination IT infrastructure, you know, the obvious next job after working in bingo cards for elementary school teachers. [Patrick notes: an increasingly dated reference to my first software company, 2006-2015, which is probably not what I was best know for by 2021 when I started VaccinateCA, but was what I was best known for for about a decade.]
Ine of the things I think that is less well understood is that somewhere along the posting the policy pipeline you end up working with people who have actually made this the focus of their career to date. And it seems like, at some levels, in some cases, the posters and the policy wonks, to paint the camps with very broad rushes, end up getting quite a bit of value from working directly together.
So, with that kickoff message outta the way can we give a brief refresher for people who might not have caught the first episode with Lars on how is property tax generally conducted in the United States?
Why do we care? And then we will dive deep into the mechanics.
Property tax basics
Lars: I'll try to keep this brief, but basically, property tax in the United States is mostly a completely local phenomenon. There's no federal property tax in many states. There's not even a state property tax, although I should say that it varies widely state to state.
Usually it's your local government, most typically your school districts but it could include, for example, your city and your county and your community college district. But generally it is a local property tax system. Those taxes are raised locally, but they're raised based off of an assessed value.
Someone has to figure out what your properties are worth. That person is usually called an assessor or in Texas an appraiser. You know, terminology varies. Another local government unit will decide what tax rate to apply against that assessed value, and that is where property taxes come from. Someone comes up with the value of a property, someone decides how much the tax it. Then you get the bill at the end of the day.
Patrick: So thanks much for that brief recap. For folks who would like to hear much more about the basics of this topic, please see the earlier episode with Lars. But we're going to dive into some of the depth here on calculating various forms of equity.
Challenges in property valuation
Patrick: So I read a interesting essay that you folks wrote recently about mass appraisal and the challenges associated with it.
But it appears there's sort of an, a trade off with where you are simultaneously maximizing for two goals that are in constant tension with each other. Can you describe the nature of that trade off?
Lars: Right. And so the nature of the fundamental trade off in property valuation is that you're trading accuracy against consistency.
The term that the assessors themselves will use is equity. That word has become a political hot potato. Now that will get you fined and replaced in a lot of situations. So for lay people, I'll use the term consistency, because it's a little clearer.
What do we mean by consistency? Assume we are looking at a street at five identical houses.
Their desirability in the market is about the same, but the prices they sold at are not. This is due to natural variation of the market. One buyer had a better credit rating. Someone got gets a worse deal on closing costs. It was sunny on closing day. The prices will vary for something that approximately has the same market value.
To measure accuracy, you compare assessed values against sales prices. But what your users frequently care about, what they will protest if you get wrong, is whether they pay what their neighbor does in property taxes when they feel they live in a very similar house.
And so there's this constant tension that it's like the closer you try to make the valuations exactly match the observed sales, you know, you can kind of "chase" that notion of accuracy that takes you a little further away from consistency. Whereas consistency is tracking just the median value per square foot for this area, for this kind of property.
And so that's the kind of fundamental tension there. And then another aspect to that is what we call vertical equity. Making sure that you do not have a consistent error bias against poor or expensive properties.
Patrick: So, we'll go back into horizontal and vertical equity. I love how you called it vertical virtue in the essay, by the way.
There are many kinds of virtue in the world but be that as it may. [Patrick notes: I feel like the polity that is the United States so monomaniacally focused on equity for a few years that I needed to clarify that I did not believe equity and virtue are synonyms. As an example, I have been in at least one meeting where someone, who probably does not think they are a sociopath, advocated against saving lives if doing so would save lives in a ratio which negatively impacted equity metrics. This person likely believes I am morally disordered.]
Patrick: You said something in our earlier conversation which was revelatory for me. Many of us are quite influenced by the Efficient Markets Hypothesis, even if we don't believe the strong version.
Anything in capitalism is worth what someone is willing to pay it. And so the price I have the most confidence in, that something is accurately valued, is the one on the wire transfer that happens 30 minutes after a property has been sold. [Patrick notes: This is not what closing day will feel like, in most cases. Sorry.]
And then my confidence in the accuracy of the value goes down over time.
You convinced me that there were important reasons why one could not simply "chase" the sales price. Why not?
Lars: Yes. So sales chasing is a pejorative term in property assessment. And that is where, when it comes to the valuation, we're just like, well, what did it sell for?
That's the sale price. And there's a couple of reasons for this. One of these is that, first of all, what are we trying to do? We're trying to put a value on it. That's market value. What's market value? It's a hypothetical value. It's what we think it would sell for, if it were sold today, where almost all properties will not sell today.
It could have sold last week. It could have sold yesterday, it could have sold 10 years ago. And so if we just sales chased the sale price for 10 years ago, we can all see why that's wrong because the market has moved significantly, would not sell today for what it sold for 10 years ago.
But you have seasonality effects. Spring and winter will have different prices, even if like the kind of aggregate market demand for the year was the same just because of how that goes. [Patrick notes: One factor here in markets like e.g. Chicago is that there is an enormous disinclination to move during the winter months because there is a disinclination to do anything during winter, and therefore a seller of a single family home who lists in winter will generally sell at a slight discount to listing for a sale in e.g. April or August.]
The other reason is not everything sells. A sales tax is levied on goods which have a known price: all sold goods have been sold, by definition. A property tax needs to account for property that doesn't sell this year, and might sell never (or almost never). [Patrick notes: The most common cause of property effectively never selling is when it is owned by perpetual institutions, such as churches or universities, which are both generally tax-exempt in U.S. practice. However, there are families who e.g. keep ancestral homes in the family for hundreds of years running—I ran into one recently—and those homes are generally taxable even if the last recorded arms-length transaction was for the princely sum of $200.]
And you have to put a value on every house, not just the 10% that happened to sell on that street that year. And so, those are kind of the general reasons that sales chasing is bad and it also leads to bad horizontal equity 'cause side by side valuations get outta whack. And we should let Greg get a word in on vertical equity in a second.
Patrick: So off the top of my head, the average tenure in a newly purchased house in the United States is about seven years. [Patrick notes: Approximately accurate.]
Given that we want horizontal equity between all owners of homes, whether they're living in them or for example landlords who do not actually live in the unit which is probably the majority case for landlords.
(Actually not sure about that. Put it in the show notes. [Patrick notes: Given more than a minute of consideration, it's very obviously the case that landlords living in the building is the minority case. It's a much closer call if you ask if the landlord has ever lived in the building, because a large portion of all rented residences held by non-professional landlords were previously the landlord's family home prior to them aquiring a new one, moving to it, and renting out the previous one. Breathless articles about Blackrock et al eating the single-family housing market aside, the supermajority of rented SFHs in the U.S. are operated by "mom and pop" landlords with 1-10 rented doors in their portfolio.])
Would like you to have a consistent tax burden regardless of whether you are in year one or year seven. Also, that average is an average. There are people who live substantially more than the average. There are some people who actually manage to pay off a 30 year mortgage without selling a house in the middle. [Patrick notes: SoFi quotes the average tenure of a U.S. homeowner as 12 years. I remember the average mortgage as persisting about 7 years before being paid off, but perhaps SoFi either isn't counting refis or I have a statistic cached from an era when falling interest rates caused many mortgages be refinanced, which is the opposite of the current trend; homeowners with 2.25% mortgages from 2020 are holding onto them for dear life.]
Patrick: And you know, ideally we would not have a class of landed gentry in a city or state that they radically disproportionate property taxes compared to other people in the city or state. [Patrick notes: One common hereditary privilege of nobility was a contractual relationship with the sovereign which gave them essentially a property right to their tax treatment. This was frequently bound up with a contractual hereditary obligation to collect taxes on behalf of the sovereign.]
We have unfortunately wandered into that situation in various places in the United States.
Impact of Proposition 13 on California
Patrick: The classic example being the impact of Proposition 13 on the California tax base. Proposition 13 has a number of "interesting" policy prongs which sounded good in 1978. [Patrick notes: See this authoritative backgrounder.]
One of them is just a cap; property taxes are capped at 1% of assessed valueAnother one says that the assessed value cannot increase by more than 2% per year. By law.
Capitalism looks at that law and says, well, that's wonderful. But you know, the market will move as much as the market wants to move. Deal with it.
And it turns out that property in many places in California, like say, I dunno, San Francisco has appreciated very consistently, a lot more than 2% over the intervening, how much is that now? Oh, 47 years or so. And if there, hypothetically, something has been appreciating at about 8% per year. [Patrick notes: 4.5%~5% is probably a better estimate for homes in say SFBA over a generational timescale.]
But tax wise, it's been appreciating by 2% per year. Then there is this 6% compounding impact be between the tax value of a property and the IRL value of a property which results in grossly inequitable situations between similarly situated taxpayers based on who has been in California for how many generations.
Which is a thing you think that the polity of the state of California would be much more vexed about than it has been given like other things that the California polity broadly believes about, like how much it wants to welcome immigrants, et cetera, et cetera.
But there is this two generation-plus like right under law essentially for in many cases, if you were to capitalize the tax the tax asset that people implicitly have, it's worth millions of dollars due to the existence of Proposition 13, which is one reason why it's been so difficult to deal with Proposition 13 through the constitutional or legislative process. One of the downsides of creating inequity under the law is that reestablishing equity will create winners and losers and they will be very large losers in the circumstance to have the snapback to reality happen.
And so, it's sure a lot easier if you get things right the first time. So, let's talk about getting things right the first time.
Anti-market property tax policies
Greg: I think it's interesting when you think about California because it is really just an anti-market system. So cities year over year need to keep track with markets, and markets grow at certain rates, and their land values grow at certain rates.
When those land value grows, it costs more to hire people, it costs more to develop infrastructure. And so California cities year over year, they can't increase their tax rate enough because those property taxes, we think about how sales taxes work. You set 2% and that applies for the next decade until you change it.
And so if the market increases in value, your, your sales tax revenue also increases proportionately. But what we're seeing across the nation is proposals to make property taxes capped year over year, which increases that inequity. I think in particular, it's good for wealthy homeowners whose home is gonna continue to accumulate in those land speculators who are sitting on vacant land in downtown areas as the urban area is developing.
So we see this also in Washington state, which caps that 1% of total assessments citywide and then 1% growth year over year. And these cities allow for referendums, but referendums to increase property taxes aren't popular, so they're not going to pass. And so there's a huge issue of creating these policies.
Indiana right now is considering cutting their property taxes and implementing these caps that, in my opinion, are anti-market and sort of move against the market where a decade from now cities in Indiana are gonna be left behind and their property taxes are gonna have to be offset with increases in other taxes.
And then you're gonna have to do a pro con list of which tax is most efficient. And, you know, we would argue that property taxes are the most efficient. The economists would argue the same thing. Study after study has shown this Florida Governor DeSantis right now is proposing chopping all of property taxes.
The question is, is what is he gonna replace that with? Property taxes across the US are the largest source of revenue for city governments and municipal governments. And so, there's really a defense of property taxes, I think that needs to take place right now. And I think that pointing to California is exactly the way to do this, is saying look at what California's done over the past four decades, and how it's impacted their ability to adapt to their local context, to adapt to population growth in San Francisco, and, you know, now population decline and to build housing in their affordable housing crisis.
And so there's a huge problem here.
Housing crisis and land value
Patrick: I think tying it explicitly to the availability of housing is extremely important because it seems sort of academic for people, particularly for people who are renters. A a thing that is mind blowing for me is that there are some people who think that property taxes are only paid by people who own property.
Which just the meth does not pencil there. Like obviously they, they will get reflected in rents for landlords who are able to stay in business. But be that as may, um, the, this sort of artificial wealth generation engine that we've accidentally written into the laws in various places competes real wealth generation engines like build a building that people want to live in.
And where the artificial wealth is more generous than the actually have to go, like swing hammers and lay wires and get permits in the real world wealth generation engine the artificial engine will outcompete actual development of properties, actually creating something in the world that people want, like a space to live in for a family.
And that is by no means the entirety of the story for why there is a housing crisis in various places. But it is a part of story.
Lars: Yeah, I would, I would like to say that California style approaches to property taxes are what I call the 'abolish gravity' approach to weight loss, which is, it is a way to nominally affect the policy.
Like, achieve the policy goal. Like if I go to the moon, I will lose weight, but I will not decrease in mass, which is the real problem. And the, the kind of issue there is that, you know, if your polity was only growing at 1% a year and you cap property tax rates at 1% a year, you're not gonna have a problem.
The problem is the market does not agree with you. There's also this kind of assumption that as assessed values grow, so will tax bills. And I'm not saying that's not true, but people don't understand what really happens when you cap assessments. It doesn't mean that tax bills won't grow, it just means who pays more changes, right? Because the way the taxes are assessed is the local governments come up with a budget and they're like, we need $10 million, a billion dollars, whatever. It depends how big they are, right? And then they work it out backwards. They're gonna raise the same amount of money they're gonna raise.
They then look at their tax base and decide where it comes from. So if you have this class of landed gentry that basically pays no taxes, well then the city's gonna get its money one way or the other. They're just gonna get it from a different group of people. And so tax exemptions don't actually reduce taxes, they just squeeze the sausage and whatever gets squeezed, the rest of it has to come from somewhere else.
Even if you cap the total rates, they're like, we'll just raise the millage rate, you know, and then you cap the millage rate. It's like, well now it's time for income and sales taxes and company taxes. You know, it always, it always bleeds in somewhere.
Patrick: To define the millage rate for the people who weren't on the last episode, the millage rate is the multiply the assessed value of the property times x to get your property tax. But every year millage rate is x. Right? And Greg, go right ahead.
Greg: Yeah, I, I think that this point that the city sets the revenue and then the mill rate is sort of determined from the revenue the city sets is, is really important.
The past five years, land values have exploded due to coronavirus in, in certain cities. And so there's these reevaluations. 'cause you know, evaluations don't happen every year in some of these counties and in a lot of counties. And so people are seeing that their assessed value has increased 25, 30%. And city and county officials are trying to tell them, that does not mean your property tax bill is increasing 25, 30%.
In fact, it'll probably only increase 0.5% or whatever the city decides to increase their property tax revenue by, becaue it's not like a sales tax where a sales tax is set at 2% and run year over year. Now, I think it's really interesting to think about what the implications of that are, again, in the context of how can cities continue to adapt to markets and keep up with increased land values.
And to what extent are increased land values mean increased infrastructure costs and increased sewage costs for cities? And, and so should cities actually be keeping track of land prices and, and setting a millage rate that applies year over year? I think it's, it's an interesting thought experiment.
Lars: Yeah.
Patrick: And things that I learned from Lars in our previous conversation was that there is sort of an accountability happening between the taxing authorities and the assessing authorities here where in years where you want to raise more revenue as the taxing authority, because the taxing authority is the people who spend the revenue, without changing the millage rate, you can make the assessing authority, the bad guy for doing catch up growth of assessed value versus actual market values, and then say,' well, it's outta my hands. We certainly didn't have any non-democratic, no notes taken meetings here about this issue.'
But the thing you were saying earlier about squeezing the sausage is a very real thing in the world.
And from just a democratic accountability perspective, like one, certainly we, I think as a national polity, we would prefer that all people shared equitably in tax burdens for some definition of equity, whether that's horizontal, vertical, or some of their more complicated preference set.
But two, we should be able to describe how our laws work, and then the laws should operate in the way that they're described and the, a great negative of these things that create classes of people who are extremely advantaged under the law is that we do not allow ourselves to say that our laws actually have defacto created, you know, gentry who we essentially say have a property interest in having an ine equitably low burden.
And so to to honor that property interest, which we can't agree publicly exists. We have to do the reciprocal inequitably high tax burden on various other groups. And then we have to have a meeting in a smoky backroom every year to figure out like who carries the idiot ball this year. Because the way that we have set up the system guarantees that someone must always be carrying the idiot ball.
So, a little more philosophy of government implied here than you might guess from just the, somewhat boring dry topic of, so how does one do a property appraisal on an individual scale and at a mass scale?
Lars: Well, I won't say that there aren't places in the world that are exactly that cynical, but I do think there is also like a lot of just low hanging fruit. I think just the lim the, the vocabulary that people have for dealing with the housing crisis in general, and property taxes in GE and property taxes in specific is very limited.
Basically, when legislation convenes, they're like, okay, so what exemption are we gonna carve out this year? Because that's like the vocabulary they're limited to. That's what they're used to. And wouldn't, you know it, we have this huge fight about property taxes and let's just slap another, you know, $10,000 on the homestead exemption.
Call it, call it a day. And, you know, inflation proceeds two years, we'll be right back where we started, you know, two years from now. And so if we start looking at. Other ways of looking at the problem. You know, I think we can start talking about, we can even start talking about, you know, a defensive property tax as the, you know, least worst or even affirmatively best of the local government tax systems.
But also there's other ways to do property tax relief that can actually work. You know, we always talk about, you know, if you want an exemption, you could exempt all the buildings from taxation. That would certainly get you a more, not only tax relief for your, for your middle and working class homeowners.
It would also give you one that economists say is way more efficient. And in some places you don't even have to go that far. There are places where they have anti land value tax where they exempt downtown commercial land. Why? Nobody knows. Maybe somebody knows, maybe it was intentional, but a lot of times, like people don't even know what exemptions are on the books.
They just, they just build up over decades, right? And so our kind of philosophy is we should be aware of what we're already doing and we should put stuff on a map, make it clear, make it legible, give people a new vocabulary, new tools.
Patrick: I think this is one of the recurring surprises to me in policy land that you.
Have this sort of background thought in your mind that, okay, the law is written somewhere and you can, you can in principle go and read it. And it turns out that for a lot of important domains in society the laws are written. We we're not mostly making it up as we go along but they accrete like sediment over the years in terms of different laws modifying different laws, court decisions, modifying, modifying the laws administrative guidance that's been pa that's been patched to pass the, passed to patch the previous administrative guidance, which was issued in response to the, the court decision that modified the law, et cetera, et cetera, et cetera. And so we arrive at this situation where there are important systems in the United States where the function of the system is only described accurately by the function of the system.
And, and that is one of the things that makes it maddeningly difficult to turn these systems into like executable computer programs. And also just maddeningly difficult from a democratic accountability perspective to say like, okay, from what source does one's property tax burden actually spring? And if we are to have a conversation on a society of changing that, like what is the thing we are actually changing right now, right?
Greg: I mean, there's, there's a path dependence we follow in policy, right? And we end up in situations. You know, my two of my favorite examples, the one I just found out about last week in Osceola County is $20 million of Walt Disney owned property. And, and fair market value is only assessed at a hundred thousand dollars because they put horses on it and called it agriculture.
Right? And, and you know, and then we, we look to Colorado and Colorado assesses, you know, finds the fair market value and multiplies by 30% on commercial properties, but only by 6% on residential, meaning that residentials are already paying five x less and therefore market value. And right now they're considering expanding homestead exemptions.
So they're stacking these exemptions on top of this already hidden assessment rate. And, you know, you, you end up with these path dependencies and nobody's asking the bigger picture of, okay, we've just spent this conversation talking about property taxes and taxes, but taxes are boring, right? But housing affordability is a huge issue.
And at a time when everybody's looking around and asking, how can we develop more? Nobody's asking, well, how can we align market incentives to develop more? So a lot of people in the housing community are like, okay, we, we should up zone. That's good. You know, upzoning will solve the San Francisco issue, the New York City issue.
It solves issues in our urban cores, but there's a ton of housing crisis in our Midwest and everywhere else. And so what we need to do is we need to make sure that we're aligning market incentives. Let's decreased the tax on buildings. As Lars is saying, let's offset that by increasing taxes on land speculation, on the value of land itself, on those vacant lots or those parking lots in our downtown cores that are just taking up space and aren't being used for a good use.
Right? It doesn't have to be the best use of land, but let's make sure we're using our, our land for good use and, and penalize those people who aren't. And, and so I think that's how we need to separate this narrative of path dependence. We need to stop talking about taxes and start talking about the housing crisis on our hands.
And, and the rent burden in our cities in Colorado and California, but also the rent burden in Indiana and Ohio. Right. It's, it's everywhere. And I think that's how we start to sort of shift the narrative.
Lars: And I will point out just to kind of, but to Greg's point, the nation with a lot of the effectively lowest property taxes, at least for the residents with the most valuable property, is California, which has the most expensive housing and the worst housing crisis.
And the state with not the highest, but among the highest property taxes in the nation is Texas, which is famously like Ybi topia, where everyone's bragging about Austin. You know, so if someone's trying to make the argument that like, high property taxes are counter to development, we see the exact opposite.
Low property taxes lead to California, and I will say reasonable property taxes that are well thought out lead to Texas. This is not to say that Texas's situation with property taxes cannot be greatly improved because it can't. But we'll leave that for us for, for later.
Urban development incentives
Patrick: I like the point about creating incentive structures that get our, you know, downtowns used in the most economically appropriate fashion.
Particularly when we can do that through you know, tweaks to free market mechanisms you know, one could pass a law that said no unproductive use of was the example that we used parking lots but our, our history of passing laws that say the government wants there to be less parking lots has very rarely ended up with the economically optimal number of parking lots.
And you know, there's some variation in people's preferences. There's some variation in people's expectations of the future, et cetera, et cetera. And so, without needing to necessarily pass the law that puts a punitive tax on parking lots, you can just quote unquote rationalize taxation against land values and then hopefully allow the market to distribute that and say, okay.
There we as a statewide citywide national polity have decided that that society has some interest in the ground under all of our feet. And we would like you to, oh, Lars, you wanna say something?
Lars: Oh, yeah, yeah. Well, I was just gonna wait till you were done.
Patrick: Nope. So, society has decided that there's it has some interest in the ground under all of our feet.
And we want you to husband our collective interest in this adequately. And our mechanism for doing that is this this land value tax. If you are able to, you know, keep up with that responsibility, we will continue protecting your property rights. If you wanna turn it into a new hospital, if you want to turn it into a new apartment building, if you wanna keep it in.
What seems to be temporarily not the optimal use and let it ride for 10 years because you have grand plans for the future. Great. You do. You but at the margin, these economic incentives will tend to push things into their economic higher and better uses.
Tokyo's urban planning success
And while you said Texas was utopia, I was previously in Tokyo, and Tokyo is real utopia.
And one of the pieces of the magic for Tokyo Utopia is that they were for complicated reasons that we don't have enough time to describe right now. Developers are heavily incentivized to do redevelopment of places which have, uh, become more economically valuable over the period of, say the past couple of decades such that they get a sort of automatically up intensified without necessarily needing a rezoning or a.
Complex bureaucratic process to enable the regenification. So there's nobody in city hall who needs to say, oh, there really needs to be a nine story building where it was previously only a six story building. The market will basically take care of that incentive structure and someone is eventually going to take a whack at it.
'cause this is a great way to make it a lot of money in Tokyo. Okay. Right. I've said my piece,
Lars: so there's a couple things I wanna jump off of that with. So a lot of people are like, oh, we have too many parking lots. Like, why don't we just have a, a vacant lot tax, right? This often frequently comes up and it's certainly not like an awful policy.
You know, the problem with it is that the minute you pass a vacant lot tax, you will suddenly have a concrete porta-potty on every vacant lot or whatever the minimum built square footage is to not pass that threshold of a vacant lot. You know, I think the term is like a welfare cliff or whatever, because it's a binary.
Policy that is easily escaped by doing, doing the minimum. And another thing I would often advocate for is I would be happy to just get rid of the, i i, I call it the Stop Hitting Yourself initiative. You know, in a lot of places, you know, before we even talk about tax policy, we have parking mandates. We mandate private individuals must build this much parking, whether they they're building needs it or not.
You know, you can read Donald s Soup, the high cost of free parking on this. It's like, what's so crazy to me is that Texas, I mean, not just Texas, there's my 40 and slip by the United States prides itself on being the land of the free. And that we are not like free market commies who want to plan the economy.
And yet when it comes to our urban design, it is so micromanaged and so centrally planned. You must build this. You cannot build this, you have to do this, you have to do that. You have to ask all these other people to decide what you can build on land that you own, which, which strikes me as very strange.
And then to go back to the vacant lot thing is, it's like if you want to, you know, have like a comprehensive reform that builds actual density in your urban cores, you know, vacant lot taxes, like they can work, but you're gonna get a lot of minimal least I can do building you know, just exempting the value of buildings, which is all land value taxes, right?
Is property tax minus the tax on buildings, incentivizes people to actually do something with their property because they're not gonna be penalized for building on it. And so something that's downtown centrally located that they're just paying taxes on for holding it empty, they're like, well either sell it to someone who will build on it or build something myself.
Greg: Yeah, I also think it's, it's interesting to think about outside of vacancy, what this implies for underutilized land. And so in the Midwest we have a lot of sort of blighted properties that, you know, can, can be improved and, and are underutilized. Oftentimes a single family house in most of our cities is actually an effective and efficient use of land.
And so, you know, we do modeling for cities across the country, and typically a single family homeowner will decrease in property taxes. This is great news for us because single family homeowners are the ones who vote in local jurisdictions.
Lars: To a clear, you're saying that under a land value tax shift, it would save money.
Greg: Yeah. If, if you decrease the, the tax rate on buildings and shift to land, you know, single family homeowners might be worried that that means that every piece of land should be a large multifamily housing unit. And, and that's not the case in, in most of our cities, although, particularly in the downtown course of those cities, yeah, we should probably have townhouses at least, if not multi-family housing.
But in a place like San Francisco, I haven't done the modeling there, but a single family house is all of San Francisco, and that's the problem. Right. There's so much demand for that, that land that it, it's underutilized. And so a vacancy tax can get passed. In San Francisco, they're talking about it.
They want to pass one. Particularly for their empty storefronts. But, but a vacancy tax doesn't solve all of their issues. There's a huge land value issue. And when we're, when we're talking about housing values, like Lars was talking about, housing values are very large in California. We're, we're not talking about housing values, we're talking about land values, that the houses are typically very similar to the ones built in Texas.
If not Texas might have larger houses. We're talking about land values being very high. And so that's, that's, you know, really important in understanding and wrapping your head around what's going on in this housing crisis. It's a land crisis. It's a land valuation crisis,
Lars: right? When you have a town home in San Francisco, right next to a vacant lot, and the vacant lot is worth a million dollars, you know, you're paying for the dirt.
And the other thing is that a lot of people are often scared that it's like, you know, we talk about like land value taxes and all this stuff. What, what people don't understand is how demand, and therefore prices sprawls out when demand cannot be met in the inner city. If you, I want you to imagine just like a lump of Plato that represents demand, and you put it on the table.
Now I want you to take a plate and just squish it out. And so everywhere now, now it's this like big flat thing that's demand creeping out. You ever have these like suburbs that are named after ranches that the farmer had to sell because now there's demand for residential demand out there. What's gonna happen if you satisfy that demand in the inner city?
Well then there's gonna be less demand out here. So your prices are gonna go down, so houses will get more affordable out there. You don't, I'm not, no one's gonna force you to move to the city. You can stay right where you are, but all of the yuppies who are fleeing the city are gonna stop bidding up your neighborhood and pricing you outta your own home.
My home, I'm, I'm a proud homeowner. My home is nearly gone up in value. If I take the word of all the unsolicited offers from real estate agents who are always knocking on my door, my home is almost doubled in value. I could not afford to live in my own neighborhood if I had to buy today. And I'm really worried about that for my kids because I look at my parents' neighborhood, nobody, no trick or treaters at Halloween.
No kids. Right? And that's gonna be my neighborhood. If, if, if, if, if my, if my city doesn't build right and my city's not gonna build if the incentives aren't there.
Patrick: And the Plato amount affects both, uh, you know, at a metropolitan level, at a city in the surrounding suburbs. But it also kind of affects the national level.
One of the reasons that there are many, I don't wanna say this in a disparaging way, but I dunno the right way in English to say it. The tier two cities in the United States many of them are dealing with a what is effectively an imported housing crisis at the moment. Because our friends and colleagues in places like San Francisco who discovered quite a bit of geographic mobility during the pandemic with work from home being available decided to decamp from places like San Francisco to places like Boise which shared the you know, desirable time zone and desirable internet access.
But had vastly preferable housing prices. And so, there's been a reaction in some cities against oh, those Californians, those techies, et cetera bidding up the local price of land. And if we were to rationalize land use policies in many of our tier one cities, there would be less reflected pressure against our tier two cities by.
The 20 or so percent of the American economy that is extremely mobile.
Lars: Well, one of the things that was happening during the pandemic was that I had assessors that were telling me they were having Californians coming in, buying Texas land site unseen, right? And, and then and, and this is really distressing with the local population.
'cause everyone anchors on the price they paid for their house for 10, 20 years. You're gonna think of that as the price of your house. And so it's hard enough when the market value goes up just for normal reasons, right? To convince people about this. Another thing I wanted to throw in about the Play-Doh model, some people have an aversion.
They're like, you guys, YIMBYs, you just wanna like build towers everywhere. Well take the Play-Doh model and now poke some holes in that plate. These are the few places downtown where density is actually allowed. What's gonna happen when you squish the plate down? They're gonna go to the moon, right? They're gonna, that's where you get your super tolls from now.
If you didn't have the plate pushing everything out, you know, if you just opened up that whole area, what would you have? You would have gentle density downtown. Right? So I just think that these concepts, like everyone thinks that any change is always gonna be bad. They don't understand how change could actually be good for them and even preserve the things they like about their neighborhood.
Like keeping all the yuppies downtown.
Patrick: I would love to take people on a walk if Nakameguro, which is the the neighborhood I lived in in Tokyo. I think many people get the impression that Tokyo is Skyrise Central, which is true for like a couple of blocks of it. But then when you go out to it is a massive, massive metropolis.
And the the average height of buildings across that massive metropolis is not actually all that high in Nakameguro. It is a beautiful neighborhood. It's one of the like the scenic spots in Tokyo. People cram into it by the hundreds of thousands during sakura season, along the river, directly adjacent to the river.
There are two story, four story, and my building was pretty tall for the neighborhood. Nine story built buildings. And so like you are walking in the sunlight or walking in the shade of a tree, you're not broadly walking in the shade of a you know, concrete canyon. Like people have this image of for overbuilt cities.
And you know, if you are there's the capability of building a reasonable amount of density, and there is the ability to put density in the places where it is economically most viable to to do density then you can like compromise and say, okay, then the, the built reality of the rest of the city is going to look like very human scale.
And I, I would defy anyone to walk around Nakameguro and say, Nakameguro is not human scale. It's, I picked it for a reason. It's a wonderful place. You should all go visit it. You know, we're not fundamentally running up a constraint here running up against like a physical constraint of the amount of sky that we have.
We're running up a constraint about political will, about deeply felt opinions that I think just are all that rational, et cetera, et cetera. And so, I'm generally apolitical on this podcast will continue to be, but I think YIMBYism is just straight up, right, with a regards to a lot of the claims.
And we could transition to it in ways that almost everybody would feel pretty happy about.
The abundance movement in housing
Greg: And the, the room for optimism here is the YIMBYism movement, right? Over the past decade. It's, it's gained momentum, but it's realized that it's not just an upzoning movement. Upzoning doesn't solve all the problems of all of our cities.
It's realized that what it is is it's an abundance movement. And this is the new project of YIMBYism is how can we have an abundance supply of housing under the belief that abundance and supply is what brings cost down for the people who we care about most. The, you know, the, the fringes of our society, the low income worker, the, the, the daily worker, the nine to five worker, the paycheck to paycheck person.
I think that this transition to abundance is, is exactly what's needed. And exactly, you know, a lot of these MBS are starting to catch on, okay, how can we actually align market incentives more than just Upzoning to encourage this development.
Innovative housing policies
And so, you know, in California that's okay. We could also look at ADUs.
We could also look at how are we designing our staircase building code mandates. You know, we used to require two staircases on an apartment complex, but now there's a lot of movement to just a requiring one. And it turns out that makes it a lot cheaper to build.
Patrick: And so I think that another example of the posting to policy pipeline, because it was originally one blog post that said, Hey, wait a minute.
We had this idea back in the day that you need two staircases for resilience in the case of a fire. There's a lot less fires these days. Let's do a literature review. Oh, this really gets us nothing. So we've been putting, you know, at scale thousands of essentially unused unneeded staircases where people could be living maybe let's stop doing that e.
Greg: Exactly. And it was, it's a type of post that was needed. Right. I think. As a government bureaucrat in, in the inside. I frequently, you know, would read articles from the outside on these fringe topics, but there, there might, they might be niche. And, you know, if, if you're a listener out there wondering how you can have that post to policy, find a niche area and post something very academic about it, and, you know, very substantively backed and, you know, if it ends up relating to policy, people will catch on and say, oh, this small little niche thing actually has a massive implication for the way we're designing apartments all across the United States.
And could be a huge key in unlocking more development or cheaper development.
Government bureaucracy and policy making
Lars: Greg, I have a theory I'd like to run by you as a career government bureaucrat, at least, you know,
Greg: for, for two years. Most of them are there for 20, so,
Lars: yeah, yeah, yeah. Well, you're in your twenties and I'm in my forties a fact, which should be illegal.
But anyway one, one thing that I would like to ask your expertise about is that I have this working theory that. Eventually, you know, government bumbles about, and we try a bunch of things and there come moments in history where everyone kind of discredits themselves. Nobody has a plan, and then someone strides onto the world stage with an action agenda.
And that person in that moment becomes way more powerful than they have any rights to actually be. Would you agree that this isn't an accurate model of the world or not?
Greg: I think it's an interesting point. I think that frequently, I think it comes down to the path dependence too, where bureaucrats have for like 20 years have been following whatever, you know, department, they're in the sort of path dependence of the way that their office works and the way that they stipulate these policy programs.
And then one person comes along with this big picture idea and then all of a sudden it's what everything's latching on. What the more innovative government bureaucrats are latching onto. Although most of them might be pushing back against it. Right. And so, HUD, perhaps you think about, well, well land value taxes, but they haven't quite made their way there yet, except for me yelling it from every office room I could.
But you, you can think about direct rental assistance. And so we have this vision of, you know, we give out vouchers and pay for people to pay the landlord for low income tenants to live in. Why not just give them cash? And I think that might have been one of those ideas that sort of transcended the way we usually do things and was broad enough.
But, but Lars, I'm kind of curious to know what, what examples you are, you are thinking of and, and have in mind.
Lars: Well, I'm thinking about a lot of things, you know, just, just generally like what gets, you know, just thinking about this path dependence, right? Like all else equal government bureaucrats would like to continue making the, nobody got fired for buying IBM decision that they made yesterday, right?
And, but sometimes you have these crises where like. Nobody has a plan. Everything's discredited. Someone needs a plan. And you know, you have the, you you, you have the, what is it called? The bureaucrat's fallacy or the politician's fallacy. Something must be done. This is something, therefore this must be done.
And you really wanna be in that room with your plan when something must be done. And I think Patrick was a, PR was a pretty good proof example of carrying this out when it was like, oh, it's the pandemic. We have vaccines. No one knows where to get the vaccines. Something must be done. And then Patrick raised his hand and said, this is something.
And I was shocked at, you know, I know there was a lot of stuff behind the scenes, but, you know, to a first approximation this was done
Patrick: there. Oh boy. I think 2020 should be studied a lot by people who care about politics and policy broadly, because there were a huge number of things that were done in ways that are not the way that is typically taught in schools government for getting things accomplished.
Many somethings were done. Many, somethings were done. Not all of them positive. One thing that I will say that is positive Dave Kasten, a previous guest of the podcast and who worked with me on VaccinateCA has a great piece that he calls the Essay Meta, which is available at essaymeta.com.
Get a domain name if you have two words.
Lars: that's like extremely meta, that's multiple metas of essay meta.
Patrick: Yeah. And his theory there is basically that we are in a somewhat unique time in history where there has been a lot of discrediting of the ancient regime in various places in the ology spectrum.
And so people are looking for good ideas. And if you have a good idea a. Succinct backgrounder for that idea, which might bootstrap somebody inside an agency inside the legislature. You know, you're targeting not to cast dispersions on anyone, Greg, but you're literally targeting a bright 24-year-old who doesn't know much about the topic and just trying to bootstrap them to the conclusions that you've already reached.
And maybe, you know, like put some pointers out and pre digest the academic literature, et cetera, et cetera. That can be far more levered than you would have any right to expect. Something that you yourself wrote on that. And I've seen that in my own writing as well. I, I wrote a pretty comp comprehensive take on the de banking issue back for bits about money in early December, and I understand that to be continuing to bounce around the corridors of power in Washington again, things that are not necessarily the obvious next career moves after selling bingo cards to elementary school teachers, and you know, that wasn't because Washington is greatly impressed by the amount of Hacker News Karma I got over the years. It's simply like, oh, someone wrote what seems to be like a pretty comprehensive review of this issue. Like that the piece makes gestures in the direction of like, here are some postmortems that were conducted in the wake of Operation Chokepoint back in the day. Here's how you should read those postmortems et cetera, et cetera. Goes through like the arguments of advocates in the, you know, current political situation in 2024 slash 2025 Gives them an appropriate amount of grace with respect to the arguments and says you know, but. This is not a position paper from someone who has no position at all.
I think they're right with respect to X, Y, Z, wrong with respect to A, B, C, here's my reasoning for why et cetera, et cetera. And there were people at various points on the political spectrum and who had various thoughts with regards to the merits, who said, oh, you know, like given that he is agreeing with me on two of these points, and given that his agreements seem to match, like my reasons for having those points and these things that are in dispute, like my prior expectation that he's probably telling the truth here is going up.
And I know there were some people who, crypto advocates who were like extremely ideologically disposed to agreeing with crypto advocates points who read my essay on it and were like, oh I think this guy's kind of a straight shooter.
Lars: Better than begrudging acceptance from an ideological opponent.
Patrick: When he, when he specifically predicted something, you said two months before you said it and then said it was probably going to lack candor. Can you, can you provide a few words on how that thing might've might've been a candid statement or not? Anyhow. Yeah. Not to toot my own horn here but the the amount of, you know, influence and actual impact on the world you can get for the like spending one weekend of your life just writing, a primer is not the right word. I, I think the world has a lot of one-on-one level explanations of things like how housing affordability but the our beloved 24 year olds in Washington, they don't need the 101 level explanation. They understand housing is really expensive. They need the 201 explanation.
I'm like, okay. Like, why do land value taxes matter? How does property taxation work, et cetera, et cetera, to allow them to bootstrap into, like, the bosses just told me to figure something out for the meeting in two weeks. And I've got a crutch on things like, what is the thing that I'm going to use as a source when crutching.
Greg: Yeah, I, I think that moments of catastrophe particularly are when governments are most willing to innovate, particularly the bureaucrats. And I think we're talking about two kind of separate but related things here. We're talking about the bureaucrats who implement the policies given to them. And then we're talking about politics.
And politics will usually take a long while unless, you know, you have a disaster, like a, a fire hit California and then the governor operates emergency power, in which case a small blog could probably make an impact. Right. And in politics, you know, a small blog would, might make an impact, but it will be spread across many years of passing around random staffers offices.
Now a lot can be said on the bureaucrat side of increasing the ability of bureaucrats to perform their work. You know, increasing the efficiency of government, which of course is now also a partisan term. Although I think that that term, you know, that that idea has been around. And, and I encourage listeners to read Recoding America by Jen Pahlka.
A great book that talks about bureaucrats and, and how, how important they are in some instances and how important it is that they do really good work. And, you know, that we innovate on our tech and how we're, we're outdated in terms of what bureaucrats technology are using.
Lars: Isn't that one of the things that makes Japan so great, is just obsessive bureaucrats.
Patrick: Complicated story. But yeah, that is broadly effective bureaucrats is one of the bits of the secret sauce there. Obviously Japan has its own set of problems but, uh, that would be a very long podcast indeed. As long as we're mentioning Recoding America Dave Guino, who has mentioned in that as a previous guest of this podcast and I think would broadly agree with the statement that I immediately proceeded this one so people can check out his episode.
So, few folks at the center are not mely doing advocacy for the new thing. I think you're also talking about a technological slash organizational substrate that would help people to move in the direction of mass appraisals.
Mass appraisals and property tax fairness
Can you say a few words on like what's the difference between a mass appraisal and just an appraisal appraisal and why do we expect mass appraisals to capture more of these benefits with respect to horizontal and vertical equity than previous methods of doing things?
Lars: So first of all, there, there's two basic methods of appraisal. There's fee appraisal, which is what most individuals have encountered when you have to get an appraisal for your home. It's called a fee appraisal because long, long ago in the distant past, it's to distinguish people who, to a cut of the appraisal.
And so it's like a term of honor that they, they were just paid a fee to come give you an independent, you know, they take their clipboard, they value your house and they leave, right? Local governments are all mass appraisals. For the most part, they could not afford the appraisals on a hundred thousand parcels for one.
And mass appraisals is when you're basically using statistics to value everything at once. And there's a lock in that maybe said about that. Mass appraisal is already done basically everywhere. There's just many varying le like there's just. All mass appraisal is, is that they're trying to do it at all, and they do it, you know, on whatever schedule they do it, and you can do it better, and you can do it worse, and you can do it faster, and you can do it slower and cheaper and more expensive.
And we're taking our kind of expertise. You know, I've spent the last couple years working with tax appraisers and assessors directly. And we have built from scratch, completely from scratch a new open source library that is dedicated to taking, first of all, the first goal of it is just to measure, right?
There's all these standard measurements that organizations like the IAAO, which is the International Association of Assessing Officers, USPAP, other organizations, the Appraisal Institute, set out that assessors are supposed to follow nationwide. And so make those things easy to calculate and to make it.
Something you can do at scale, right? We, any, we, we, we should be able to, no one should be sat scratching their heads, wondering how good the local district is doing. Local districts, of course, do test themselves and state oversight committees do too. This is all very fragmented. It's all, some places there's like a beautiful portal.
I was lay it down county by county, other places. It's like, you know, not that. And but we're,
Patrick: go figure. The amount of data science expertise and software development resourcing available to different taxing authorities is not uniform across the United States. I remember something you said that tracked me in our previous discussion.
You said the Chicago assessor's office was a well-known nationwide for something and. As someone who has lived in Chicago at various points of his life, I had immediate priors on what that something would be. And I did not successfully predict, ah, they have the best GitHub in the nation for a county assessor's office which is apparently true.
But you know, your organization is making an effort to create open source software that different assessor offices can use to like quickly bootstrap up the chain of like, okay. We've done some level of formal and informal number crunching with respect to these things in the past.
But let's make it easy to do that at scale without necessarily needing to have the best in the nation data science work scientist working in the office next door.
Lars: Right. I'm personally directly inspired by the Cook County GitHub.
It's quite beautiful. It is very specifically tailored towards the needs of Cook County. And so we're trying to make something a little more general and more modular. And I have no illusions that an assessor's gonna pull up my GitHub and see all the command line instructions and immediately like, check out, like we're at phase 0.0 0.0, but there are many techies and laid off video game developers and ask me how I know and, you know, board machine learning adjacent, you know, people.
Who have all the skills they need to do mass appraisal. You know, what they need is that they need the domain knowledge that comes from the world of assessment and, and, and, and a degree of humility, I will say. 'cause you don't want to go in as like an elite tech row who thinks you're gonna show people how it's done.
'cause there's things you genuinely need to know, but you have all the technical skills. So there's no reason we can't start the conversation of how we can bring these, these tools to these people.
Greg: Yeah. And I, I wanted to motivate this a a little bit for, for people listening. Like we, we already value land and buildings and so if all Lars and I cared about were shifting taxes to land, then, you know, we could just go advocate for split rate and not care about assessments at all.
But, but to motivate this in two different ways, one is there's good evidence from Dr. Chris Barry at the Property Tax Fairness Project at the University of Chicago that we take a low income neighborhood and we're over assessing the value of their properties, and we're under assessing the properties of high income neighborhoods.
And this is the vertical virtue, right, that, that Lars talks about. And there's evidence that this is happening in counties all across the us. You can find your county's results if you go to Property Tax Fairness project the University of Chicago. The second thing is sort of an anecdote out of, out of Baltimore where I'm working, you take seven houses, right next to seven vacant parcels.
They're all zoned the exact same, all on the exact same street. They're all neighboring each other. If you look at those seven vacant pieces of land, they're valued at $2,000 each. And if you look at the land values of the improved parcels, it's $20,000. Now, the improved value is like $80,000, so it's a hundred thousand dollars in total in Baltimore, but we're we're talking about is a 10x multiple on the land values of somebody who improved their property.
So the homeowner is paying a lot more than the speculator right next door. So these are reasons why people should care about the equity of property tax assessments. You know, this could be happening in your county, who knows? But these are all testable hypotheses and in fact, what degree, how should we test these things?
These are all sort of open research questions. There's a lot of research that's been done, but Lars and I plan to use this open source tooling kit to think about new futures, about what we should be targeting and how we should be running mass appraisals. So I think of things that people, you know, listening to this podcast might be motivated by, that there are interesting research questions here.
Lars: I want to just talk about, this is about trust, right? A lot of people don't trust property taxes. Right? Sometimes I don't blame them, you know, I'm always gonna defend, you know, the, the hardworking assessors, you know, the ones who are doing what they're supposed to do 'cause it's a thankless job. But at the same time, like they need modern tools.
You know, there's this wave of retirements that's coming, you know, it's, it, it's, and a lot of them are, are doing the best they can, but sometimes they're asked to make brick without straw. And another thing is, is just that you know, the more we can, I. Put things on a map and just see what's going on.
Like a lot of people pretend that like property valuation is like astrology, like it's made up, you know? And that's not true. There were objective tests to tell you if you're doing a good job or not. And those comport with common sense. You know, you sit a normal person down and you explain it to 'em and they're like, oh, I get it.
That wasn't so hard. And it's just because this is such an obscure topic. And so we're trying to educate people. So that's what our new series, mass Appraisal for the Masses is all about where we just like explain it and with lots of pictures. 'cause I love pictures and you know, just kind of break it down to a layman's level without dumbing the content down.
And I think it's something that anyone can understand and anyone can kind of do. And then they kind of start to see, it's like, oh, well, like, you know, I mean I you know, especially if you're technically clients, like, well I can run a Python notebook and I can, you know, put things on a felt map and you know, sure you can.
Right. You know, this doesn't have to be so hard.
Patrick: I think you're in the best year in the history of ever for getting fiddly software working on various people's Python notebooks because you can like literally tell people here's the LLM Promp that you need to get the exact set of instructions.
But think there is an empowerment angle where you know, to the credit of the United States property tax rules are public information in a lot of places. Yes, there might not be a good public visualization of that role. And if you are living in a city where you don't have a great great visualization, you are potentially like an hour or two of work as a somewhat competent software developer from publishing a visualization with no authorization required from anybody.
Right? And that was one of the one of many learnings from the vaccinate ca project. Like maps are an extremely useful thing to have in the world. Lots of people can read maps and there are, some obvious truths about the world that become extremely obvious. As soon as you like, put a map up on a on a monitor and say, okay, if you understand this domain at all, look at that map.
What does it tell you? And the difficulty of functioning like. GIS data, et cetera, et cetera. To get addresses turned into something mappable and put up, put up on a monitor makes it inaccessible to a lot of government offices where knock on wood, we as a society would hope they would've, the ability to like have an accurate map on the wall at all times.
And with, you know, the miracles of open source software, LMS and perhaps specifically minded technologists there could be like. Yeah, this isn't the map, but it is a map with the data and if you want the map, like maybe you know, have the necessary conversation internally about what it would take to resource this going forward.
Lars: Right. And you know what, what I, I really want to give just so many local governments credit for how much open data they put out. It's, it's like in the last 10 years, it's just been this huge flowering and it's often like very high quality. You will always get better data if you work with the assessors themselves, but sometimes the degree of what they just voluntarily put out is like in many jurisdictions, it's all you need to be able to reproduce their values and run statistics on them.
And in terms of putting stuff on a map, we have new GIS technology coming out constantly that makes things so much better than it used to for one, just LLMs to just like get you through the instructions. Right. But now they did not pay me to say this. I have no financial ties to them felt.com. Oh my gosh, they're so great.
They're the Google docs of maps without dumbing it down. They are fantastic. They create these easy to use maps that you can create a share link to and send to anyone. You just drag your data in, you style it however you want. They now have an API you can use so that you can have live data hosting and push it without having to like work with like the kind of old and crunchy GIS solutions of yesterday year.
Anyway, I just, I'm, I'm, I have no financial interest. I'm just, I'm just a user and a fan.
Technological advances in property assessment
Greg: Yeah. And on the AI front, there's kind of a lot to be excited about in terms of like the next decade of property appraisals, particularly in terms of computer vision and, you know running over satellite imagery, finding out what's vacant and what's not vacant, and mapping all of this out, you know, how many parking spots are in each built are on each parcel, how many entrances to, to the building are there, there's so many things that I think computer vision is gonna help solve and that, you know, will help assessments long term.
I, I think that, you know, we're on a five to 10 year timeline for adoption of that, but there's certainly interesting things there.
Lars: I think a lot of people don't appreciate another function of assessment offices, which is they're the ones who go around and drive around in cars and collect their characteristics.
And often if you go and buy like your, your free market, third party data sets a whole bunch of times they'll just be regurgitating the assessor's data. And so it, it's like these offices are providing us a real use in col. They don't just assess your values, they also like gather the information and that is a real valuable, piece of work that's being done locally everywhere in the United States.
Literally, you know, some places, you know, you know, degree of quality varies, but you know, everyone's doing it. And if we can give them tools to do it better on that side, then you know, the kind of third party analysis that independent groups can do too. Because think about how challenging it is. In every county of the United States, there is someone whose job it is to draw a shape file for the local parcel splits for every plot of land with a building on it or without a building on it. In the city, it's someone's job to keep that up to date. I have yet to find, even in the most podunk rural place, an area that does not have that year's parcel shape file. Well, maybe not that year's, but like a parcel shape file and think how hard it is to source a GIS expert in every county in the United States, considering that some counties in the United States have more cows than people, you know, like this is a real challenge for a lot of places.
Patrick: The bottom 20% of counties in California have less than a large stadium worth of population. Yeah. And that, to be fair,
Lars: I have not worked with any of the counties that have more cows than people. But I don't know that they don't have this, this either, you know, but it's like, but often they're, they're stretching, you know, they're always starved for GIS talent.
They're always starved for technical talent. And you would like a cushy, local, cushy, local government job. Maybe check your local assessment office. If you're a recently laid off video game developer, you have all the skills you need plus one weekend of catching up on stuff.
Patrick: Yeah. I also think that broadly standardizing might not be quite the right word, but to the extent that you are building upon this existing body of knowledge and codifying some of it with like literal codification and computer code, et cetera, et cetera, that creates interface points for both the assessor's offices to build on top of your work, but also the rest of private society both the for-profit and you know, advocacy, et cetera, oriented portions of private society to do things like, okay, well currently if we have a business process in a particular county that needs to have someone do the traveling salesman job of go to every residence in the county and like count the number of windows, there, there's cost associated with that, like plausibly some YC company next year needs to say, okay, like, drones plus satellite imagery plus 10 craft coders doing vision analysis, et cetera, et cetera. It means we should be able to do this for accounting for like, eh, $2,000 and then sell that to 3000 counties in parallel every year.
Lars: I will say that just being able to keep track of what lots are vacant or not is one of the single lifts, greatest lifts in data quality you can achieve, which would be trivial to do at scale with satellite image processing or, and, and then, and then street level view image processing with what's capable now with LLMs and with image.
Vision could give you so much characteristic enrichment. It would be great. I know there are partnerships that local governments often make with Google to basically piggyback off the Google car. Like you'll basically like, kinda like rent the equipment and then you'll drive the Google car. So you don't have to like buy the equipment and then Google gets the rights to the images and you get them.
So Google kind of franchises, the Google cars to kind of like get just like infinite capacity, but then you get all the imagery yourself as the local government. So a lot of local governments see that as a really great deal. But yeah, that's a feel that's ripe for disruption. You know, there's, and once they have better data, like valuations are completely constrained by how good the data is, you know,
Patrick: and my understanding is that the price of aerial photography and satellite photography has come down precipitously over the course of the last 20 years.
My father, previous podcast guest used to have table sized books that were printed by a company in Chicago that would fly planes over Chicago take photos, publish some of those books. These books cost many, many thousands of dollars. And obviously at the, um. Refresh cycle was what it was.
You can get individually tasked satellite photos of addresses in the United States for I won't give an exact quote, but my finger to wind is like, it's like $50 to get a spy satellite to go over like a particular location. If you're not very particular around one, the spy side satellite gets over it.
And so you can have very up-to-date data over a metropolitan area and basically any refresh cycle that you want. Oh, and that, that's,
Lars: that's a la carte prices.
Patrick: Yeah. You know? Yeah. If you if the basically exclusive use of the satellite is all that you're paying for, and given that the aperture, yada, yada.
I'm not the right guy to talk to about space technology or cameras. But discounts are available in bulk if you want to do like a hundred thousand addresses in Chicago at once instead of like one address in Chicago at once.
Lars: Yeah. And a lot of local governments already contracted with people.
And the three main things, it's planes, it's satellites, and it's weather balloons actually which don't need propulsions so they can be cheaper. And so, and a lot of the cities who have contracts with contractors like EagleView who do this was one of the most popular vendors. They'll often put their satellite imagery up on their open data portals.
So there are certain cities and counties, local governments that have all the state-of-the-art imagery we just talked about today. Some even with street view imagery. So if you are an AI head, you could go out and already, like go in, enrich all the property characteristics to see if they match up with the tabulated values.
Empowering local governments and citizens
Patrick: And you could potentially, you know. Like, bringing power to people with their local situations. If you want to check the tabulated values, check the assert characteristics against the quote unquote ground truth of characteristics, and then say like, you know, for a particular neighborhood in, in this city where we might have some degree of social concern, are we being fair to that neighborhood right now?
Like you can come up with a, um, like write the one one essay, write a report that says we think that the county's assessor office is mischaracterizing 60% of the this characteristic in a particular neighborhood versus like 6% c citywide. And we think the counter's assessor office should take a look at that this year.
Like I. I think that that is a very high impact letter if you wanna send it. And it's potentially a letter that you would only take 48 hours of doning around in Python to generate.
Lars: And I would say, you know, if you really wanna make a difference, treat this like a vulnerability report. The assessor's office does not wanna have to deal with your protest.
They would rather fix the problem before they get the protest. So if you wanna disclose that to the assessor and be like, here's a bunch of characteristic discrepancies I found. You wanna update your database, you know, I mean, and I mean, you know, write, write your blog post and stuff, but like, I would treat it the way you do a vulnerability report where, you know, you pop it in there and see if you, you can make 'em real happy with you.
You know, because a lot of these, and even
Patrick: better than a vulnerability report, you can't get in trouble for this one, is you don't have to hack anything.
Lars: Right. Well, the other thing is that a lot of people are skeptical of algorithms, right? There's always talk about algorithms. That's why open source is so important to us.
But a lot of problems aren't because of any valuation method. It's just data. It's just a data discrepancy. Oh. I valued you as if you were an improved building. I didn't know you tore it down and it's a vacant lot now, you know? Or vice versa, you know? Or, or, or, or whatever. You know, it's like someone you know.
I don't know how it got this way, but I value you as if you were a ley parcel sale. I. You know, these, these things happen somewhere in a database of hundreds of thousands of records, something's gonna happen.
Patrick: So one, I think people undervalue just spreadsheets and the characteristic that is, I have a spreadsheet, which I put together using some combination of automated tooling and then going out and looking at the real world.
And from having the recent experience of producing a spreadsheet based bit of investigative journalism the, the number of people who don't appreciate that you can just like, go out and visit 20 sites in the real world and then write your observations about them into a spreadsheet and send it to the, the right people is very high.
And so if you were hypothetically like writing one of these, dear colleague, letters to your local assessor's office you could say you know, we spot checked this for you so you don't have to worry about whether quote unquote, the al the algorithm is right or not. Here are 20 addresses that you can drive a car to today.
I already did. Here's a photo I took on my, on my phone about what I found at those 20 20 addresses. Here's an Excel file that that shows what we learned and therefore, like the 680 addresses that we think are likely problematic. You should like probably prioritize some time on Tuesday, and I'm thinking seriously about that.
'cause we've drawn out all the steps in this logical chain for you.
Lars: Yeah, and I'll, I'll, I'll point, like, you know, sometimes when I tell people I work with property taxes, they're like, oh, you work with the bad guys, you know, but what I want to emphasize is like, these people aren't out to get you, you know, often they're not responsible for your taxes.
Like we said, you know, the, the local electeds love that, you know, they can, they can blame them for it. But I mean, if you, if you wanna protest your property taxes, I can tell you how I mean. What they most want you to do is to just not waste their time. So if you come in there with like three to five comps of genuinely similar, similar properties, physically similar and similarly located, not the same kind of house 10 miles away, right?
Similarly located, physically similar, bring in five comps, divide the build square footage divide the price it's sold for. Gotta be recently sold too. Like, so, not like 10 years ago. Sale price by build square footage. Calculate the median of your three to five comps and compare it to your dollar per square foot valuation.
And if there's a big whack difference and you show that to a property tax assessor, that's really good evidence in your hearing. You know, and they'll thank you for not wasting their time and coming with all of your evidence, you know, and they'll be like, okay, well update that in the record. Have a nice day.
Goodbye. You know, I don't, I cannot guarantee that's how we'll proceed, but that's what all the assessors tell me they wish people would come in with when they're repellants.
Patrick: And per tip, if you wrote like in two paragraphs of fee, freeform prose, I'm trying to write a a protest on my, my assessment.
Here are the three to five comps that I found. Can you fill out like the rest of a letter to your element of choice? That's the thing that they succeed outrageously at right now, that sort of general, like go from a data source to something which suggests that you have been here before which is helpful in a lot of bureaucratic processes.
Lars: People just assessors just wanna know that you have evidence and you know, and that you're not wetting their time. And if you do that, you know, they're not your enemy.
Greg: There. There's a couple of other things that, that people might, might do in their analysis here. You know, in terms of going and checking in person is one is Airbnbs, right?
And so depending on the county, Airbnbs might, should, maybe, should be taxed the. You know, corporate assessment rate rather than the residential. And so, you know, listeners might be curious to know whether that's the case in their city and whether they're actually doing a good job of tracking those. So you can go on aird.com, find all the Airbnbs in your area, you know, show up and send one, one story, attach four other stories, and then attach data analysis, right?
Or perhaps you think that parking lots are undervalued, which, which could be the case in many counties and you want less parking lots. Go to your assessor, show them one story of a parking lot that's, you know, huge but not valued at what you think it should be compared to the corporate land next door.
And, and, you know, attach three other stories and then a ton of data with it. And I think that's the way to do it, is, you know, one main story, other anecdotes with it and data to back it up.
Lars: And the evidence, the gold standard for evidence is sales transactions. If you've got a sales transaction of something and a picture of the property and a list of its characteristics, you know, that's how they value things is like, they're like, okay, well I found some that look like this.
In this area. I guess the rate for that is this based on the sales. And we'll paint with that until we get further enough away that, you know, the market's moving at a different rate, you know, and then we gotta figure it out again. So where are the sales? Where are the sales, where are the sales? And something you gotta keep in mind is in 12 states, they don't have the sales.
They have to beg, borrow, and steal the sales. You know, there are 12 states that are real estate nondisclosure and real estate Nondisclosure is another one of those things that taxpayers thinks help them, but actually winds up causing them to pay higher taxes is my hypo my very strong hypothesis because the assessors will figure out what the average property sells for.
'cause there's so many of them, a bunch of people will just volunteer. They send out letters and people will just turn in the answer. And so they know what the average kind of property sells for. Or they'll buy it from third party data vendors. 'cause real estate, non-disclosure does not actually protect your privacy, you know, and there is a.
Massive trade of third party data brokers who just buy that data and then sell it back to the government. So your taxes increase and increased costs of assessments. So that's fun. And then just another way is just but what's excluded from that is the harder to value properties, right? So this is kind of like I, I, I, I asked to make bricks without straw kind of situation.
People are like, well, if the assessor doesn't know what my home sold for, then they can't value it and the price will have to go down. It's like we know what a one story suburban house sold for. We know what a two story suburban house sold for that is not a mystery. What is a mystery is what a 10 million or $20 million property might have sold for, you know, and who's picking up the tab you are because we don't know about the high end
Patrick: or the local waterpark.
Yeah. You know, tough, tough to value when it's a one of one in the neighborhood. If I can give people one more bit of advice from someone who's done very tiny bits of policy advocacy and then a lot of attempting to get things written in newspapers over the years. Local newspapers across the United States they're, they're still with us, thank goodness in many places.
And if you can find a local reporter who writes on a business or real estate or taxation, beat that person, knock on wood, still should exist. The, a good next stop for after having set your friends at the assessor's office at your analysis of how the assessment is missing. The value of local parking lots are similar, is to brief your reporter on that and say, did you know that they're doing great work at the assessor's office right now?
With respect to reevaluating the the parking lot issue which directly impacts the availability of housing in, in this neighborhood. As you have written about the last couple of months, maybe you would like to get, get in touch with Bob at the assessor's office and hear about the great work that they are doing.
By the way, here's a background. If, you know, your polite and persuasive letter did not get somebody at the assessor's office to immediately kick into gear hearing like, yeah, this is the sun. So I hear you're doing great things right now about the parking lot issue. That is a excellent way to raise to the top of the ill list of priorities in what is often a sleepy local government office.
Greg: People like good press.
Patrick: It is tremendously underrated in many parts of the American experience. How responsive local government or bureaucratic institutions are to the characteristic has good press or does not have good press. Both re: respect to their own operations and the operations of third parties.
By the way if you get written about once by any paper ever every time that you do a reach out to your favorite local assessor's officer, similar in the first paragraph you know, as you might have seen in blah, blah, blah we are the blah, blah, blah. Like, you don't have to be officially constituted or blessed initiative for anything.
Just the characteristic has good press will cause many people who actually have like legitimately democratically constituted authority to say, oh, you certainly know what you're talking about. Even if you have a self-conception of just being one of these random bloggers on the internet. And with that stirring note, I think that is a good place to sunny to wrap up the episode.
Greg and Lars, where can people find you online?
Greg: Yeah, we are at landeconomics.org. If you are interested in getting data analysis done, whether on the assessment side or on shifts to land value in your area, if you know a city county official or or county official or state senator or state representative who might be interested getting in contact with us.
I'm greg@landeconomics.org. Lars is lars@landeconomics.org. We're not hard to find and we like talking to people, so reach out.
Lars: And I will add that we are the new management at the progress and poverty.substack.com substack. So the progress and poverty substack, that's where our new article series is running.
We put out new content on that Substack every week. And then I'm just gonna go out and say it. We are currently looking for funding, so if you want to help us with that, it would be great that we can continue our mission long into the future.
Patrick: Awesome and complex systems will be back for the rest of you next week.
Thanks much.
Lars: Thank you.