Robin Green had a very interesting comment in reaction to my post “The Wrong Side of Cobb-Douglas: Matt Rognlie’s Smackdown of Thomas Piketty Gains Traction” that he made into a Tumblr post of his own. I am grateful for his permission to make it a guest post here.
Robin was reaction to this idea:
Above, I wrote that developers should have to pay some of the costs of reductions in the quality of life nearby when higher density is unpleasant to live nearby—say by blocking out the sun. In an earlier version of this post, I actually made the serious mistake of saying they should pay for the reduction in “land values” from development nearby. But that is wrong by a cost-benefit test. Suppose a particular housing development is neutral for the quality of life nearby. Then it would still reduce the values of land nearby by providing more housing competition. This is not a social loss but rather a shift in wealth from landowners renters and future buyers of land, which reduces inequality. So a key conceptual issue for appropriate land policy is to not think of everything that reduces neighboring land values as a bad thing, but to distinguish when (and how much) it brings down land prices by reducing the quality of life nearby from when (and how much) it brings down land prices by providing additional housing competition.
Here is his reaction:
While the idea of taxing externalities is broadly popular when it comes to pollution that causes clear harm to others (and in fact I would argue pollution should be taxed punitively, due to the precautionary principle and humility about what science does not yet know about harms of pollution), we very quickly get into seriously morally problematic territory if we consider all factors that might affect local property values.
For example, some people consider that proximity to poor people, or unemployed people, makes a property less desirable. So people could be taxed for being poor or unemployed! Some people are explicitly ethnically biased, and would prefer not to live near gypsies, or black people, or Muslims, or Jews, etc. etc. So people could in theory end up being taxed for being anything other than white anglo-saxon protestant! This is obviously morally unconscionable, as well as politically unthinkable.
So in addition to your point about new housing bringing down (residential) land prices, we would need to be able to reliably exclude factors such as ethnicity- and class-based discrimination to make some sort of generalised externality tax-and-subsidy system viable. I am not sure how we would go about doing that.
Moreover, it’s worse than this. There are innumerable factors that some people might object to, but which some would argue - at least in some cases - should be ignored on the grounds of personal freedom. Examples include playing certain genres of music loudly during the daytime, having a front garden, not having a front garden, having a front garden but leaving it untended, garish Christmas lights displays, political signs, religious signs, playing ball games in the street, etc. (Many of these are currently restricted in various ways by landlords and/or certain homeowners associations.)
Then there are subcultures that some people don’t like, but unlike ethnicity are more a matter of choice, such as: goths, emos, people who dye their hair in “unnatural” colours such as pink or green, environmental activists, members of religious cults, members of intentional communities.
Even a neighbourhood which includes a high proportion of teenagers, regardless of how well those teenagers behave, could be viewed negatively by some people.
It’s a minefield.