Hacker News Reader

Comment by cm2187 | Hacker News Reader

This enthusiasm for taxation doesn't really motivate me to renew my subscription to the economist. There is something fundamentally wrong with taxing an absence of income. The French socialist party had a similar idea, they wanted to tax homeowners who occupy their property based on what rental income they would get if they were renting it out.

In London the primary cause of the housing crisis isn't unused lands. It is a combination:

1. very restrictive planning, which doesn't allow to build up except in a few limited spots. We end up with this absurd outcome of 3 storey houses everywhere and skyscrappers in 3 or 4 areas. Instead London would be much better off allowing to build 10 storey buildings everywhere.

2. Terrible infrastructure choices made decades ago which are now impossible to reverse. London has kept the narrow streets from XIX even when it had an opportunity to plan a better urbanism after the war. And the tunnels in the tube are too narrow to support the current traffic.

More taxes isn't really going to change any of that.

View on HN

> There is something fundamentally wrong with taxing an absence of income.

I'd argue the other way, that taxing income is discouraging production. We should be taxing consumption more than we are. If you see deeded property as a non-renewable resource, then ensuring good use through taxation seems essential, not just a good idea. Now, land is not exactly non-renewable since we can build up, as you point out, but in densely developed urban areas, it's pretty close to non-renewable.

We just had a land bubble, and many think the bubble is reinflating, at least in some areas. Putting a check on irrational pricing by adding a consumption tax here seems like a plan worth discussing to me.

If you agree that there will be no further densification of already developped urban area (whether because of planning restrictions or physical constraints), then adding taxes isn't an incentive to better using the land. Which was the point of this tax.

Preventing bubbles is another problem. I think in London the problem is that brits have this curious obsession with owning property and be willing to bid as much as they legally can, burrying themselves into debt, in order to achieve that. This is compounded with the lack of supply and foreigners using London property as a safe. But unless this obsession ceases, adding taxes or limits to borrowing isn't going to prevent bubbles. In fact the recent increase in stamp duty on expensive properties does not seem to have any effect.

> If you agree that there will be no further densification of already developped urban area (whether because of planning restrictions or physical constraints), then adding taxes isn't an incentive to better using the land.

This is key. A land value tax would have to go hand-in-hand with measures to allow density to increase. That would mean changes in planning laws, and also building of infrastructure like transport, doctors' surgeries, schools, etc. The former can be done at the stroke of a pen, the latter can be funded from the increased tax receipts that come with higher density.

I agree but I don't think a tax would be needed where there is a strong housing supply crisis if planning restrictions are relaxed. Property developpers are already frenetically building residential skycrappers where they can in London.

You're not seriously holding up London as an example of a functioning housing market, are you?

I am merely suggesting that in the areas where there are little planning restrictions, the developpers do build the much needed housing supply.

My point was that it's not enough to just build housing - you need to make sure the supply of public infrastructure increases accordingly. This is an existing problem in London, hence section 106 agreements and all that:

https://en.m.wikipedia.org/wiki/Planning_gain

[if no densification]...then adding taxes isn't an incentive to better using the land. Which was the point of this tax.

You seem to equate "densification" and "better using the land". That is a narrow definition of "better using the land".

In strictly utilitarian terms any change that increases total utility would be "better using the land", so if a tax increase on land makes some current residents reprioritise their money and decide to move, giving space to other people who value the location more, then that is "better using the land".

Because substituting people does nothing to the housing supply. The only thing that will increase the supply is increasing the density or expanding. The later being very challenged by the TFL infrastructures.

If the government gets to reap some of the benefits that densification brings to the value of land, it would be harder for NIMBYs to argue in favour of use restrictions. Thus the land value tax might help with densification. But only indirectly.

To me, it's tackling the wrong problem.

The issue with property is that they are being used as an investment opportunity, which undermines the purpose that most people want property for, which is as an affordable place to live.

What we want to discourage is people using property to invest, but without penalising those who want somewhere to live. Therefore, if we're going to have a land use tax it should be based on how someone uses it. If a property is your only home anywhere in the world, then it should be exempt, but anything outside your main home could be taxed. That should discourage those people who buy property but barely live there from driving up prices for the people who want to live there.

So why not aggressively tax profits from property sales then?

Tax-free primary residences causes at least two problems:

1. People want places to work and shop, too.

2. You end up having to regulate what counts as a primary residence so that Mr. O'Billionaire doesn't get an entire city block tax free. How does working from home affect your tax rate, etc.

1. Taxes on companies could be adjusted to compensate for the introduction of a land use tax.

2. A primary residence is where you live most of the year. To have any property qualify you would need to spend more than 6 months in a year within a country, and would also need to specify which of the properties you own in that country is your primary residence. Problem solved.

*2b and only .25 acres of land would be exempt. (Of some other generally agreed amount)

No exemption necessary. Just eg pay out all the land value tax as a basic income. And automatically anyone sitting on less than the average amount of land (in terms of value, not size), will get a net income. People sitting on more, will make a net payment.

Let's not make it unnecessarily complicated. Basic income is a good idea on its own, but mix it with land use taxation and you get into all sorts of problems. For example, how do handle a rented block of flats, would your land usage tax/income vary depending on how many tenants were currently renting in that block of flats?

Tax exemption for primary residences (under a certain size) + basic income is a far more flexible arrangement, and you lose none of the benefits of determining basic income on land use.

> [...] would your land usage tax/income vary depending on how many tenants were currently renting in that block of flats?

It's a land value tax, not land usage tax. So it would be independent on what you do with the land. (Basically it would be driven by the opportunity costs of what someone else could be doing with the land instead.)

> Tax exemption for primary residences (under a certain size) + basic income is a far more flexible arrangement, and you lose none of the benefits of determining basic income on land use.

Why? That's much more complicated, and full of loopholes.

I do agree that tying land value tax to financing basic income is only potentially a good idea, not necessarily.

But why not just tax profits from sales instead of fiddling around and implicitly creating special interest groups?

Taxing sales doesn't tackle the misuse of land that has already been sold.

Sure it does. It discourages using land for speculation. If the appreciation curve flattens out, some people buying property as an investment will look to other markets that don't impact the standard of living so directly.

What about the land people already own?

Taxing sales encourages people to hold onto property that they're not really using optimally any more, which is the opposite of what we want.

You're taxing profits, not sales. If the value of land more closely tracked inflation, people will look to other markets for growth.

To put it another way, why don't people sit on their cash? They're taxed on most cash transactions, right?

> If the value of land more closely tracked inflation, people will look to other markets for growth.

Sure, but as long as it can be used to extract rent at no cost, the value of land is going to keep going up.

> why don't people sit on their cash? They're taxed on most cash transactions, right?

Inflation is a de facto tax on holding cash. Without it people probably would sit on their cash.

Remember that most people do not own their home. Land value tax or no, most landlords are going to price their rent as high as they can get away with. Tenants are effectively paying a land value tax (the rent), whose amount is determined by the market.

Generalising land value tax effectively makes everyone a tenant —land property is abolished. This sounds revolutionary, but since this affects only a minority, I'm not sure how much of a change this would really be. I'm pretty sure for instance that it wouldn't rise the renting prices in big cities.

Land property isn't abolished by taxing it.

With regards to the rental market, people will only rent where they can afford, which is exactly the same as now, what it does change is the amount of profit that landlords can make from each property. If we have a land use tax I'd like to see it increase based on the number of properties you own, which would discourage people buying large numbers of properties just to rent them out.

Again, the purpose of the tax should be to curb the demand for property as an investment. If you do that the increase in house prices should come down, and as a side benefit there's less incentive for companies to expand nationally, which would increase diversity in the marketplace.

Yes, you got the effects exactly right. The land value tax would have no direct effects on rent. That's why it's such an awesome tax: it does not distort economic activity. Unlike eg income tax which discourages working.

Pro-forma the land will still be in private hands, thus encouraging people to improve it. (Remember: buildings are not taxed, only the land.)

The government will be very interested in improving the value of land, eg by making saner infrastructure investments, because they automatically get more tax money to play with that way.

That kind of restriction is easy to game, and creates perverse incentives. Imagine a billionaire with an enormous house: if they start renting out half of it to someone else, suddenly they have to pay more taxes? That's not right.

Rental prices are already as high as the market will bear (people can't choose not to have a house, so demand is pretty inelastic). A land value tax does exactly what we want: it will keep the net rental price the same, but push down the ownership price. So we'd see a lot less buy-to-let, and more people able to buy homes. As a bonus, it would make it harder for corrupt foreigners to hold empty property as emergency funds, since someone would have to be paying the taxes on it.

> "That kind of restriction is easy to game, and creates perverse incentives. Imagine a billionaire with an enormous house: if they start renting out half of it to someone else, suddenly they have to pay more taxes? That's not right."

How is that creating a perverse incentive? If someone seeks to transform their primary residence from somewhere they live to somewhere they make money, then what's the problem in taxing them?

Also, with regards to the rules of the proposed tax exemption, quoting jrs235... "*2b and only .25 acres of land would be exempt. (Of some other generally agreed amount)""

The perverse incentive is: the billionaire would be wasting less space for himself and sharing it with other people---but the tax system would discourage that.

Based on the relatively small number of billionaires/rich people in the world, that's a compromise I'm willing to make. If the rich want to house the poor they can do so through a charitable foundation.

Furthermore, as has been pointed out already, we could make it so that only properties that sit within a predetermined land mass size would be exempt from tax.

Why go by size and not by value? Someone having a huge estate in the middle of nowhere is not a problem, vs occupying the same amount of space (or even a much smaller, but still large one) in the city centre is.

Value is open to fluctuations, size is not.

A large estate in the middle of nowhere is still potentially wasteful. For example, could that land not be used for farming or wildlife? How many bathrooms does one person need?

That distorts the incentives by encouraging everyone to use the full exempt size. Why not just give everyone a fixed amount of money to spend as they wish? That way people who want a substantial house can spend it on their land tax, and people who have better uses for it can spend it on those instead.

> There is something fundamentally wrong with taxing an absence of income

I disagree; in fact, I believe the opposite - that income is taxed way too much, simply because it's an easy target - "Look at those rich people drawing a huge salary!" In reality, people who have big salary are almost always not really rich - they are still employed by someone else, they can be fired at any time, and they don't own productive assets.

In an ideal world, ownership of assets would be taxed way more than it's now, or e.g. income tax (all income, including capital gains and dividends) would be proportional to your current assets, not just your income (i.e. if a millionaire earns $1, s/he would pay e.g. 80% tax, while a poor student would pay 0%).

I fully support the concept of a flat tax on salaries, dividends and capital gains, but again all of these are realised income, ie you received cash, you can pay some away in taxes. But if you own a painting and this painting increases in value, this is not an income until you sell it. There shouldn't be a tax on "non income".

This notion of "realising" income is what drives a lot of complexity and abuses in the American tax system (e.g. companies doing stock buybacks when it would be more efficient to pay dividends, except they're taxed differently). If income were as simple as "net worth at end of year - net worth at end of last year" that could remove a lot of that. (Bonus: income which goes back to society via consumption doesn't count, and so there's a natural progressiveness to this model: the money that you spend on living this year isn't taxed, only what you gained on top of that).

If your painting increases in value that's an indication that the amount of value that that painting could generate for the rest of society has increased, therefore the incentives should encourage you to sell it, not discourage you from doing so.

Of course, accessing the value of your painting is hard without a sale.

Unless you require people to voluntarily put a price tag on all their paintings (and other assets) at which they'd be forced to sell to any comer.

People with expensive paintings have them valued all the time for insurance purposes. I'm sure a truly dedicated fraudster would find a way, but it raises the cost of tax evasion even if it doesn't eliminate it entirely.

Not that it's any of my business at all but the very fact that you would even consider not renewing your subscription because they would write something you don't like doesn't really show much willingness to hear the other side but I will try to anyway :)

I think you are ignoring a couple of things.

First New York has skyscrapers everywhere still prices are sky-rocketing. So claiming that would solve Londons probems isn't really founded.

Second as the article mentions. The value that someone accrue by owning land is 99% of the times based on the surrounding 99% of society increasing that value. If anything it's much fairer to tax the value of land because compared to income tax you aren't actually doing anything for that value.

In New York right now. Chinese or buying apartments cash. Go to Miami and you will see plenty of amazingly expensive apartment complex be ghost towns because it's owners live in Brazil and just have it as a backup.

The people who actually develop new areas with a few exceptions are artist and young people who make an area hip enough that developers want to a house here and there and slowly but surely push out those who made the area worth investing in to begin with. Who benefits. Some of the people who lived in the neighbourhood for a long time but had nothing to do with the increase in value of a place.

Infrastructure choice isn't irreversible it just takes time. London wasn't bombed to anywhere close to the degree of a place like Berlin so of course it wasn't really going to change the width of the street.

More taxes on land is solving the fact that urbanization is pushing people to move into the bigger cities. Again reasons unrelated to the fact that someone own land.

There are plenty of ways to discuss taxation on land that would be both more effective and fair. There is nothing useful about people using property as an investment tool it just drive prices way up.

We should reward money that work and tax money that doesn't.

People may be okay with hearing opinions that differ from their own if they don't have to pay for it, but may feel quite differently if there is a sense that they are actively funding the writing and propagation of ideas that run contrary to their beliefs.

Sure but that is hardly something you can claim about the Economist. They go pretty wide on things.

But sure if taxation isn't your thing then economist and most other magazine about economy isn't your thing either.

Property is income, just in a very illiquid form. Recently it's been quite possible for average homeowners in London to make more by property value appreciation than their salary.

Property is widely considered the only form of investment that is safe and pays a decent return, while interest rates hover near zero.

London could really do with a property tax that isn't capped like council tax. The recent SDLT changes are a surprising improvement, and there's even work being done on the "holding company" loophole. I'd suggest 1%, or 5% if the beneficial owner isn't resident in the UK for income tax purposes or is a company in a tax haven.

I see no justification for an exemption of capital gain tax on primary residence. This should be the way increase in property value should be taxed. If you realise that gain (like if you sell a stock), then you have cash that can be taxed. And property would become like any other investable asset.

But it is absurd to tax someone on an income he doesn't have.

I see no justification for an exemption of capital gain tax on primary residence.

Well, maybe if you get a "rollover" relief - but otherwise, such a tax would significantly lower the velocity of the property market (which is already suffering, not least because of a similar tax - stamp duty).

> But it is absurd to tax someone on an income he doesn't have.

You have the income. It's just never hits the market. If you have your own property and live in it, you are producing and consuming `housing'. That can be taxed.

Similar arguments apply for idle property. Opportunity costs are real.

The skyscrapers do seem a bit out of place in London, but I wonder if that's just a temporary issue. I remember reading that there were similar objections to the Eiffel Tower in Paris around the time when it was built. Perhaps they only look out of place because you remember what it was like before, or perhaps they'll always stick out.

Are there limits placed on the heights of buildings in residential areas of London?

As for narrow streets, I'm glad they kept them. Compared to some other big cities London feels more 'human friendly' (for want of a better term), wide streets can make a place feel more car focused, less a place that feels like a destination and more somewhere you travel through to get to where you want to be. Dedicated bike lanes are the only changes worth making IMO, but you can create that by working with the existing roads so long as you reduce the demand for cars. It seems that the London Underground has been increasing in capacity over the past 10 years or so, hopefully that will continue.

I am not a planning expert but my understanding is that pretty much the whole city is listed which means that the low rise houses can never be replaced. There are some areas that are not listed but then you have rules about panoramas, ie you need to be able to view certain monuments from many viewpoints, which creates an invisible web of max building height over London. As a result only a few spots can be built up.

As for the narrow streets, I am not questioning their charm, but they make transportation very slow, and therefore make it difficult to build out to compensate not builing up.

This video captures quite a bit of what I consider important in city planning, would be interested to hear your thoughts on it:

http://youtu.be/Hy4QjmKzF1c

I pretty much 100% agree with it. Except the 5 floors rule. Paris or Vienna are 7-8 floors. Upper manhattan is 10-12. And these do not feel particularly oppressive.

Tokyo is another interesting type of urbanism. You have very large avenues delimiting blocks. The blocks can either be residential, in which case you walk in what feels like a quiet little village with its narrow streets. Or they can be "entertainment", with a dense web of noisy bars, restaurants and game arcades, lots of light and people.

I agree that the 5 floor rule doesn't make sense all the time, though the limits used should be linked to the width of the streets. I believe it's good to make sure sunlight can reach every window for at least part of the day, though there's a certain charm to some narrow side streets too.

Tall buildings are not all bad.

Dublin has had strong restrictions on building height since the 1960s. An argument for this was to maintain the character of the city, although the destruction of many Georgian buildings was allowed by planners, on spurious health and safety grounds.

The worst effects of the policy were felt during and after the boom of the early 2000s, when accommodation was built further and further out from the city, leading to sprawl, and a commuter belt that stretched 100 kilometres in all directions, which put immense pressure on transport infrastructure. With so much construction, this represents in hindsight a missed opportunity to create more liveable centres or hubs in the style of London or other large cities.

Allowing taller structures for residential purposes in central city areas, would have improved Dublin's liveability. Instead, there is now a critical housing crisis that no one seems to know how to solve.

What do you think of the ideas in this video:

http://youtu.be/Hy4QjmKzF1c

I believe it captures most of what is important in making a livable city that people enjoy living in.

> There is something fundamentally wrong with taxing an absence of income.

Isn't the plan to eventually replace all fixed assets with rental assets? Thus solving this problem.

So, are we trying build some communist utopia where private ownership of the building is forbidden, all land belongs to government which rents it to a citizens?

Yes, that is where we are heading.

Not communism though, more like corporate ownership of everything. That is, corporations own the property since they exist forever, humans rent them, since their existence is transient.

Remote working, minimalism, cheap flights, universal passport, home rental through Airbnb, Uber for travel. The pieces exist, they just need a little time to work through the system.

> So, are we trying build some communist utopia where private ownership of the building is forbidden,

No, the building is private property.

> all land belongs to government which rents it to a citizens?

Yes. The idea is that taxing land (not: buildings or property!) is less distortionary than taxing income or consumption. Hyper-capitalistic Hong Kong operates on that model. Property is expensive, but income tax is around 15% and consumption/sales tax is 0%.

Many advocates of land-value taxation have proposed entirely replacing all other forms of taxation with it:

https://en.wikipedia.org/wiki/Single_tax

"restrictive planning" is not a valid argument. If rules don't make sense then you can criticize them directly. Maybe people don't like 10 storey buildings because they're ugly, they're impersonal, etc.?

Reply on news.ycombinator.com