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Comment by seanalltogether | Hacker News Reader

I've brought this up in another thread, but over in the UK, due to a lack of property taxes, its possible to purchase a home, yet stil have to pay a yearly ground rent to a private party. The cost to own land in nothing, so there's little incentive to ever sell it, and instead lease it out. People may complain about property taxes in the USA, but it prevents this very practice from happening. It would be better for everyone if the medallion system switched over to a yearly taxation/bidding system. You would lose all these middleman renters.

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In practice, though, it's not that different to property taxes, just that the land is owned by some lord instead of the central government. The effect is just the same. Nobody really owns their land, whether leasehold or freehold. Ownership is really just a right to exclusive use in the best case.

As the old saying goes, if you want to know who really owns your land, stop paying taxes and find out.

The cornerstone of democratic philosophy is that there's a huge difference between a central democratic government and some lord.

In theory, yes. In practice, not so sure. As a little guy I still owe someone money even though I "own" the property. There is also mineral rights and such that make it complicated. Then zoning. At the end of the end of the day someone comes and slaps me for not paying them "rent".

Not to mention eminent domain - where if your property makes sense for a freeway, pipeline, or, in a new twist, a shopping mall if doing so will improve the "Public Good" - someone can basically just pay you what they calculate as fair market value and tell you to move.

The significant difference is that taxes are assessed on an impartial basis - usually a percentage of current market value. The classic problem with landlords is that tenants have no incentive to increase productivity when the landlord captures all of the gains by increasing rent. Even today, businesses often end up in situations where the landlord sees that they're doing well and jacks up the rent in the belief that moving to another location will be too disruptive. My municipal government can demand property tax, but it doesn't hike it every time I get a raise at work.

Referring to 'lord' here is actual lords, like the Lord of Westminster. When I lived there, I paid something like 55 pounds a year into the lords pocket for use of the land.

Landlord in your usage is a different terminology. In the UK a lord with lands either doesn't have the ability, or in practice, does not raise the land rents arbitrarily. Perhaps someone knowledgeable in UK properly law could weigh in.

As other have said, in theory it is different. In practice it isn't. A single property owner has about as much chance of swaying the central government as they have of swaying the earl of whatever.

There is no direct connection between being a landlord and being a Lord - you don't become a Lord by selling someone a leasehold neither are you required to be a Lord to do this (it's just a contract).

Of course, a number of famous landowners are Lords - notably the Duke of Westminster who owns vast amounts of London:

http://en.wikipedia.org/wiki/Duke_of_Westminster

Any country that actually believed that would have true allodial title.

Ground rent exists in the US as well. Baltimore has a lot of it, maybe Philly as well. A few years ago people were losing their houses over $30/yr bills from someone who found their great-great-grandpa had the ground rent title on whatever property.

"Baltimore's arcane system of ground rents, widely viewed as a harmless vestige of colonial law, is increasingly being used by some investors to seize homes or extract large fees from people who often are ignorant of the loosely regulated process, an investigation by The Sun has found."

In Hawaii it's pretty rare to be able to buy a property fee simple. Mostly it's long term leases.

I don't understand .. why would you purchase a home without the land it rests on? In a free market, perhaps there is some lower price where you would do this, but there is also a higher price where you could purchase the land as well.

Because that's the only type of home on the market!

Well, argumentum's point is that presumably there is some cost at which the ground holder would sell the land.

Like, if the ground rental brings in $10,000 per year to the owner of the title, and I came along and said, "I will pay your $1,000,000 for the title," well... I'm offering you one century's worth of ground-use fees up-front. Presumably all but the most irrational actors would sell their ground.

Of course, but that's nitpicking. The point is that the price is well out of reach of the average Tom.

Well, but why is it out of reach?

I mean, the same guy ("Tom") is going to be giving you money one way or the other. Either in bits and pieces as ground lease, or in lump-sum as purchase.

If you simply want more money than Tom can pay, well, you're out of luck. You don't get any money if you price your tenants out of the market.

If there is an amount of money that Tom can afford to pay in ground leases, then why can't he get a bank loan and make you an attractive offer on the purchase? My earlier example of 100 years rent was extreme to make a point. What if Tom offered you 20 years land rent in an up-front lump sum? Maybe not every land-owner would consider that a good deal, but it's hard to imagine that none of them would. The land-owner gets a present value that exceeds the future value of the rent to them, the bank gets interest, Tom gets synergistic value from now owning not just the house but the land.

I'm not sure adding £1,000,000 to the price of houses is a rational solution to ground rent.

I suspect you'll find the economics are such that most home owners wouldn't be able to afford to buy the land their house is on.

So what happens. Presumably there is a completely parallel market for land. Land owning elites presumably buy and sell land all the time and homes are bought and sold all the time as well. The two rarely intersect? Or maybe those that can buy land can easily buy the house as well? Very confusing. In US effectively the local government and the state "own" and you are just leasing it. There is not parallel land market unless jurisdiction lines get redrawn for some reason or a states secedes from the Union or something like that (you can imagine some negotiations then where the city say, this land with homes brings in $45M in property taxes/year, we wish to sell it for $1.3B cash...) of course this is all hypothetical...just to make a parallel.

Usually it's not a house, but a block of apartments, each of which are owned individually. It's usually cost prohibitive for someone who owns one apartment in a block of twenty to buy out the land for all twenty.

Once there are separate owners (for whatever reason it happened), it's not that easy to arrange that - since the land owner usually does not want to sell.

What if they do sell? Can land owners do whatever they like to the home owners? Like kick them out? Start drilling tunnels through the land, extract oil in the back yard?

Unscrupulous landlords will increase the rent.

Usually the home owner will have a lease that lasts for 99 years (or at least the person who first built the home had a lease for 99 years...).

Mortgage providers won't give you a mortgage term that ends after the lease does.

People buy Condo's all the time. Also, in the United States, you very often give up mineral rights. So you may own the "ground" your home is on, but you don't own whatever comes out of it.

Condominium owners usually own a proportional share of the land that the building rests upon and the common areas of the property.

That seems almost like a scam. Kind of like time shares.

Why would that be a scam? If anything, it protects the unit owners from things like the landlord selling the building and forcing everyone to move. You can't sell an entire condo building and land without clear title from every single unit owner.

Not really.

Some more info: http://en.wikipedia.org/wiki/Fractional_ownership

http://en.wikipedia.org/wiki/Concurrent_estate

Condos differ from time shares. In a condominium, you own 100% of a unit and everything inside the boundaries of that unit is your responsibility (repairs, damage, upgrades, etc). You also have exclusive access to that unit (nobody else can use it, unlike a time-share).

You own a fraction of the land that the building sits on, and a fraction of the "common areas" (lobby, swimming pool, parking lot, etc). You are responsible for contributing for the maintenance of those areas, or paying assessment fees to a management company that will take care of those areas.

Well, what if most houses in an economy were what we called apartments?

Also, in China, the people (gov) owns the land. We are only entitled to a 70 year lease on it. Oddly enough, this is applied to housing (apartments) also. But China also lacks a property tax and so has all the bad speculation behavior and rent-seeking that goes along with that.

I used to live in a city with a community land trust. You can buy the house and get a long-term lease on the land but the land trust (a non-profit organization) retains ownership of the land. They also have a right to buy the house back when you sell it, limiting you to 25% appreciation.

The intention is to keep house prices affordable. (Sort of an upscale trailer park, now that I think about it). If you had the means to buy elsewhere, you probably would.

http://en.wikipedia.org/wiki/Community_land_trust

That and the fact that the US is 1/7th as densely populated as the UK (UK is 260 people per km, the US is 34/km). The US is #179 on the population density list country wise. If someone won't sell you a piece of land, there's a vast supply of other land to look at. The only place you'll run into a problem is in a few high density metros like NYC.

Those are pretty dishonest stats though considering the vast majority of that land is extremely rural and much of it is owned by the Federal government (the Feds own 28% of all land in the country). The UK doesn't have something like Alaska which is both huge and empty (Alaska alone is 7 times the size of the UK, but has just 730k people).

If the US ever had a land crunch, it could easily open up vast new tracks of land for settlement via the US Govt. It's very valuable to have that ability. The Feds are already beginning to sell off their hoard of property due to fiscal problems.

That's assuming anyone would want to live on the barren North Slope of Alaska. Just because it's land doesn't mean you can live there comfortably...

There's plenty of suitable land in the US that isn't barren frozen waste or barren desert.

I think there's definitely something to this, because land taxes aren't common in Australia, either, and yet almost all houses there are freehold house and land.

Doubtful. Land taxes are extremely common in Australia. All land is taxable, however exemptions exist for your own principle place of residence (ie home). If you own a holiday house or investment property then your are liable for land tax. That is the reason houses are primarily sold freehold as opposed to leasehold.

Property taxes make a ton of sense for buildings which are not primary residences. If you don't live on a piece of land or operate a business there then the property taxes need to be high enough to discourage ownership and should promote highest and best use.

We don't have yearly property taxes in Australia, just council rates which are usually around 0.2% of the house valuation (which is much lower than in the US AFAIK). However we don't have the split land/house purchasing like in the UK (or it's not very common at least) - I wonder why?

The UK is the type of place where every last square inch of land has been claimed and defended several times over. Australia likely has plenty of land that no one is in a hurry to claim.

The property market underwent a huge decade plus long boom in Australia, with land prices rising astronomically. There are all sorts of rules for land development in place, and limited availability for development in the major cities. It's not quite as bad as the UK, but it's not like we have huge chunks of land to spare.

I assume it's either a result of property law differences, or the sheer length of time land has been available to own in the UK. Would love to know more about it.

I can recommend the book "The Poor Had No Lawyers" for some background on the history of land ownership in Scotland:

http://www.amazon.co.uk/The-Poor-Had-No-Lawyers/dp/184158907...

It may be important to note that while Australia has a huge amount of land, most people live in the cities. Australia's urban population is 90%, versus the UK's 80% and the US's 82%. There are only a couple of large countries higher than Australia in this regard.

We have fooled not only the world into thinking we're all outback-dwellers, but also ourselves. What we like is tarmac and suburban strips.

http://en.wikipedia.org/wiki/Urbanization_by_country

We most certainly do have yearly property taxes in Australia. Your principal place of residence is exempt. Your holiday house, or your office building is not.

That is why residential property is almost entirely freehold not leasehold.

Aha, thanks for the clarification.

"However we don't have the split land/house purchasing like in the UK"

Of course you do [1], and it's even very common. My cursory Google search shows that in Victory, the state with the most private ownership, 40% of all land is lease hold. Other states even more! The whole city of Canberra is leasehold. That said, it's mostly leases of Crown land, so the economic incentives are a bit different from leasing land from a private owner.

[1] http://www.actpla.act.gov.au/topics/property_purchases/lease...

Hey, no fair taking away this part of my comment! "(or it's not very common at least)"

But when you say "40% of all land is lease hold" - are you talking all land now? I was talking about residential housing, and should have made it clearer I was talking about the domain I am used to, i.e. houses in major cities, i.e. in my case Brisbane, Sydney and Melbourne. Having a quick google around and it looks like in rural areas leasehold is more common.

Interesting to learn more about this stuff, thanks for the link.

I thought council tax was property tax.

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