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The land thing is crazy. Buying at the right time means you get paid to live in your house. Then when you sell, they charge you capital gains so you can't buy the same house back with the money you just got.

The other thing that's crazy is how ridiculously cheap the same stuff is in countries with lower land prices, like South East Asia. A nice apartment with a pool on the beach is 1/10 the price of San Francisco. The food is cheaper, services are cheaper, etc ,etc. Meanwhile, people living in South Eat Asia running online businesses can make the same amount of money in the American economy. The manufacturing thing is even more mind blowing. The cost to manufacture in a developed country vs China is on the order of 20x cheaper. When Big Box stores like Ikea open in China they struggle because they can't charge western premiums for the stuff they're selling because of domestic competition and they have to lower prices by 50%[1]. That would be totally impossible in a developed countries!

Someone should go through the whole cost structure of a developing country manufacturing operation and figure out the reason they are so cheap. My hunch is it would come down to incredibly cheap food, provided by incredibly cheap land prices forming a foundation for incredibly cheap everything else. Garlic growers in the California central valley say that the price that the Garlic gets delivered packed and shipped at the grocery store from China is less than what it costs them to grow it before harvesting.[2]

[1].http://www.scmp.com/news/china/article/1300942/ikea-last-cra... [2].http://www.wbur.org/npr/11613477

Prices are set by credit. When productivity rises in these countries significantly above subsistence level the bankers will come in to claim the productivity gains.

You can't steal from people on the breadline. Once they are above this you can by selling their own futures back to them (and dismantling the future for their kids).

Prices are set by credit. It's the banks.

You don't get charged capital gains on real estate unless your single and the gain is more than 250k or married and the gain is more than 500k.

I doubt that land has that much effect on pricing differences. Farms in china have similar implied value/acre as ones in the US (http://www.usda.gov/nass/PUBS/TODAYRPT/land0815.pdf + http://www.chinabusinessreview.com/rural-chinas-nascent-land...)

The main drivers of developing countries costing more is going to come down to better infrastructure (which costs more money) and stricter regulation. Sure, being able to drink water from your tap, have a low risk of being injured at work, having high food safety and a strong social net leads to higher costs, but to most of us, it's completely worth it.

How do you suggest we modulate land price if not via the current system? How is land tax going to make things any easier? The US already has property tax - you want to raise it?

I've put that in my reply above. We need to have taxes to regress speculation which will see land prices fall and will replace much of income tax.

Have a read of the link or many other sites on LVT.

I think we also need to deal with money creation by private banks. This has been an absolute disaster since it became effectively unconstrained with the end of the gold standard. (not that I'm a gold bug).

It's the issue facing our generation, and the next. Just look at SF where land prices have made it very expensive to live there as ultimately all productivity gains flow to land prices rather than to workers.

And to the guy who replied below you need to put some effort in I'm afraid:

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

Basically you can't pass on LVT via rent.

Every time this comes up, the answer I see trotted out is that increased land taxes will cause land prices to fall and rents will get cheaper.

I don't understand how this makes any sense, at all. If the town raises the property taxes on my rental, guess what, the rent is going to go up at least as much as the tax increase.

If you could just raise your rent tomorrow, why don't you? Will the market bear the new price or won't it? Taxes should have no effect on what renters will bear.

You know it. This man knows how things are priced.

Isn't it amazing, all these capitalist landlords who could be taking a greater cut of their tenant's labour but somehow are not.

Rental demand is fairly inelastic though - everyone needs a roof over their head. The main force keeping prices down is competition, not the fact that landlords are being kind. If land taxes are increased, then all landlords will raise their prices, and the market will bear it - the other choice is to end up living in the street.

The advantage of the LVT is that in theory the market could bear the price increase because there will be a corresponding drop in the salary tax that most renters are paying. The idea is that the government effectively takes a large slice of the profit from rent, instead of it all going to landlords. The problem of course is that this creates a disincentive for landlords to invest in property, reducing supply, and now we go back to high prices because of market forces.

There is no simple solution to the high price of land, except by increasing supply or reducing demand. In other words, building more housing (which requires us to encourage landlords, not discourage them), or reduce the population. Just think, in a world with half the population of today, we would drastically reduce the percentage of salary devoted to housing. Not bad really.

This all agrees with what I said. You are preaching to the converted :-)

> I don't understand how this makes any sense, at all. If the town raises the property taxes on my rental, guess what, the rent is going to go up at least as much as the tax increase.

This is only true if the rent is based on the cost of the unit in terms of purchase price and upkeep. That's true in lower cost-of-living areas, but in expensive areas, the rent is high primarily because demand is outstripping supply, not because the cost of landlording has gone up. And if rent prices are not based on cost, then an increase in cost (which is what a property tax increase is) will mostly not be passed onto renters.

I do not understand your last sentence. I am assuming that if the increases in cost were not passed onto renters, they would be absorbed by the landlords themselves, which harms the landlords' profit margins. What incentive would landlords have to willfully cut into their profit margins vs. passing the increases on to the renters?

> I am assuming that if the increases in cost were not passed onto renters, they would be absorbed by the landlords themselves, which harms the landlords' profit margins. What incentive would landlords have to willfully cut into their profit margins vs. passing the increases on to the renters?

They're not doing it willfully. They're doing it because they have no choice. Let's say the current average rent in Seattle is $1,500/month. Why $1,500, and not $2,000/month? Why are the landlords willfully cutting into their profit margins by not increasing rent? We both know the answer: because the current price is based on what the market can bear; in other words, it's based on the relationship between supply and demand. They can't arbitrarily decide to raise rents without risking losing tenants and having units go unoccupied.

Now, let's say the property tax increases a bit. Will that be passed onto the tenants? Well, can the market bear it? If no, then it won't be passed on. If yes, then why wasn't the rent increased before?

Like I said before, it's different in low cost of living areas. There, the profit margin on top of the costs is relatively small. The rents in that case aren't really based on demand, because supply in those areas tends to be very flexible, you can always make more housing to match demand. For a property tax increase in those areas, the costs will be passed onto the renters, because the primary determinant of rental prices is cost.

See the other reply. You need to do some reading.

This doesn't add up. If rent is so much higher than purchase plus upkeep, people will borrow money and buy, safe in the knowledge that they can just become a landlord and be cash-flow positive at any time. Or investors will simply buy the cheap properties and rent them. The demand for investment properties will drive up the purchase price and parity will be reached.

This is why house prices are just as insane in Silicon Valley as rents.

That's not what GP is claiming.

He's claiming that a land tax would not be passed on to renters if instituted, because rent is being driven demand-side (what renters are willing to pay) not supply-side (cost to provide a house to people). Any attempt to increase rent would result in a lower demand by renters, meaning the market would fail to clear -- the rent would then need to be re-lowered.

But you are correct, that rent shouldn't be higher than purchase plus upkeep. In the event of a land tax, rent holds constant but upkeep increases (taxes); consequently, for the equation to hold, purchases prices (and thus land values) will fall.

And that's why this is so politically impossible to pass, even though it is considered the "least bad" tax economically. Land owners would see their assets sufficiently fall in value if a land tax were enacted.

No rents typically lag house prices significantly. Prices are set by credit. Rents by wages. You have to pay your rent from your wage. Prices are via fiat created ex nihilo by private banks.

Rents do go up when wages go up (SF) and when there is speculation they rise but it's capped by wages.

How about increasingly higher property tax rates for 2nd, 3rd, etc. properties? Also, getting rid of the CA law that sets property tax assessment value at time of purchase would help increase liquidity a lot, as it no longer makes sense to let land sit unproductively as you wait for it to appreciate.

Why should the people in power ever institute this? It would ruin all of them.

The land value tax was a nail in the coffin to the decadent Roman empire. People just got up and left their property.

...the decay of trade and industry was not a cause of Rome’s fall. There was a decline in agriculture and land was withdrawn from cultivation, in some cases on a very large scale, sometimes as a direct result of barbarian invasions. However, the chief cause of the agricultural decline was high taxation on the marginal land, driving it out of cultivation. Jones is surely right in saying that taxation was spurred by the huge military budget and was thus ‘indirectly’ the result of the barbarian invasion.

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

History does not repeat, but it surely does rhyme.

The same reason they ever implement anything: because they are either worried about losing all their power / something even more "abrupt".

In all of history, the elite have never been more secure. They've never had anything close to the level of surveillance and policing as today. The police today are literally thousands of times more effective at their job than the time of the French Revolution.

No one with a clue is worried about anything "abrupt". Rebellion is literally impossible.

https://en.wikipedia.org/wiki/2011_England_riots

Did they put guns on Big Dog since 2011? What's changed? Good old UK had to stop the press reporting on it they were so flustered.

That riot in no way threatened the existence of the state, or the privileges of the elite.

Your example proves my point. There is nothing to fear from the poor. They are completely checked and have no access to power whatsoever.

They can go further. IMHO jury is out.