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Comment by gburt | Hacker News Reader

How do supporters of the UBI deal with the real estate valuation problem? It seems that assets that are highly immobile and have elasticity that is directly proportional to income would eat up all or almost all of the transfer.

It is possible that there is a counterbalancing effect of people being able to live outside of the big city, but I still suspect a form of "minimum rent" would arise in the case there was a UBI and the whole transfer would end up consolidating with a few landlords.

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Build more houses. Here's the graph that really makes it clear: https://pbs.twimg.com/media/CgXjY3cWIAAVfCM.jpg

That graph makes it clear that there are a whole lot of relatively low cost areas that, one would assume, don't have much of a housing shortage and a relatively small number of cities where housing costs are high to very high. Presumably people who don't have a specific, often employment-related, reason to live in one of those high-cost areas would not do so.

A fixed UBI makes moving to low cost areas very appealing. This lowers housing prices in the hot spots and raises wages in high cost areas. Net results city's become less packed and far more affordable.

The graph makes it clear that no high-cost area has built many houses recently.

There's no evidence I've seen that the supply curve for housing has the properties you describe; as I see it, the original you describe simply doesn't exist in that form.

Land Value Tax, of course. The UBI is unthinkable without it.

What's the mechanism by which the LVT (Georgian Tax) prevents rent / property value escallation?

Theoretically, if increases in the value of a site are taxed at very high marginal rates, landowners have a lot of incentive to increase the supply of housing to be able to actually gain any benefit from the increase in demand.

Also, I would like to point out that any property improvements themselves don't get factored into the land value tax itself. Properly, a land value tax is a response to the value of the land itself (where you're literally just buying a plot sans any external improvements). So, demand for land itself sets the bar for the tax. If a plot is $100 today but doubles to $200 dollars the tax should (on a curve or however it's computed) increase thusly. But if you improve the property on the land like adding better windows to your home or solar panels those improvements don't factor into the tax. Thus, it incentivizes you to keep adding to the property value without the current penalties of the property tax system we have today.

No, if increases in value of landholdings are taxed at a high rate, than landholders have a lot of incentive to invest their surplus revenues in non-land assets whose appreciation is not so highly taxed.

What are these assets? Surely not most capital, which depreciates rapidly.

The only assets that would apply would be:

* Intellectual property (patents and copyrights). This would be a problem, but only to an extent-- there isn't such an inelastic demand on the return of IP as there is on housing stock. * Picassos, etc. This, while true, isn't especially relevant.

Is there something you're getting at that I'm missing here?

If the tax is 100% of the annualised return on the land (so perhaps around 6-7% of the land value) an increase in property values will lead to a concomitant increase in the level of UBI. Presumably there is an equilibrium point where prices settle down though it would lead to significant inflation initially.

Yes, it would be pegged to the full Economic Rent of the whole of the land stock. Essentially making it a citizen's dividend on the value of this land.

Essentially by definition.

Property value escalation either means that the actual structure becomes more valuable (something that very rarely, if ever happens), or that the ground underneath becomes more valuable.

The land becoming more valuable (up to $X) is equivalent to saying that the market price on the unimproved land is now worth $X-- this is the amount of money any landowner can expect to collect on this land, given the proper amount of improvements upon it.

Since there is no marginal cost in the unimproved land, the entire return to this land is pure Economic Rent. The LVT would tax the full Economic Rent of the land (which is essentially equivalent to an annuity on $X, for land worth $X.)

Why wouldn't the landlord pass on the LVT to tenants? Competition, essentially. Land would only be desirable to be held by people well-equipped to build (and gain the return on) the proper improvements. These landowners would have an advantage over a landowner who does not make the proper improvements, and competition would drive the market rate of rent towards the marginal cost of improvements.

My understanding is that LVT is just that, a tax on the land value. In any significant urbanised setting, that's an alternative statement of "the value of the surrounding services of the property". More specifically, it excludes the improvements to the property itself.

That aside, your tax on the unimproved economic rent makes some sense.

What of increases in cost of rents or property values?

Didn't see this until now.

In general, increases in the cost of land rents are an important signal that more should be built on this land; it's a bummer for current residents, but it's important that this demand is satisfied.

I believe financial instruments should help: an insurance policy taken by landowners against a rise in land value should dampen the blow. (This is somewhat related to the housing markets championed by Case/Shiller)

But in general, it would probably lead to a bigger change, that is that the property with the greatest risk (land) would likely tend to be owned by those best equipped to deal with this risk. More people would prefer to be renters (what's the advantage of landownership, anyway, other than the investment potential that the LVT would relieve?)

Thanks again. I'm mulling this but leaning to UBI, living wage, and land tax. A few other bits as well.

And thanks BTW.

The UBI is quite thinkable without an LVT, and if your accept the GPs description of housing supply curve, trying to solve the problem it creates by lining UBI to an LVT would just create a huge positive feedback loop and inflationary spiral.

Really, independent of the unlikely characterization of housing supply curve in this subthread, UBI makes more sense tied to a progressive income tax without preferential treatment of capital income than to an LVT.

I think any funding of the UBI cannot be distorted by the UBI itself, at any level of the UBI.

Imagine the UBI was raised to a level high enough that essentially no one wanted to work anymore; how could this possibly be funded, insofar as there IS no income to be taxed?

The LVT avoids this particular problem, in that it's driven fully by the value of land within a city. No matter how much or little people work, this land will continue to have value.

Land has no value absent the demand for it by people who have money.

This statement seems to be fundamentally incorrect or untrue.

Land is valuable for its many uses:

  * To grow on
  * To live on
  * To collaborate on
  * To build on
  * To travel on

etc and etc and etc.

What do you possibly mean that it "has no value"?

This is in the context of a discussion of a tax on land value which is presumably a function of the monetary value placed on that land--i.e. how much someone is willing to pay for it. But, sure, pay a land value tax of 10 percent of the sheep grazing on it or whatever.

Land has usages that create demand, which creates a market value for it. I'm not sure I understand what you're getting at.

Those are reasons that people become willing to give up something else for it, and, as such, reasons why it has value. The value of a thing is what someone is willing to give up in exchange for it, not the reason they are willing to do so. That's just what value is.

Agreed; I never said anything otherwise: "Land is valuable for its many uses"

That's a tautology for any economic good in which "value" is defined as "market value".

It explains nothing, nor distinguishes land from any other good.

Maybe you make UBI an income guarantee rather than a right to live in a given place guarantee. In such a structure the state could incentivize moving to areas which are losing population, such as Midwestern rustbelt cities and towns in the US, or any place not the MDF in MX or the Ruhr valley in DE, etc.

Any remotely rational policy would not try to adjust subsidies to enable living in luxury locations. No, you're not going to be able to live in San Francisco. You'll be able to (barely) afford a crappy apartment in Detroit.

I don't think we should incentivize moving to such places unless we plan to also (somehow) massively increase the opportunities available in such places.

Isn't the whole idea of UBI that it's subsidizing the lack of good jobs for people who for one reason or another can't land decent jobs? I don't see why someone who isn't being overly productive also needs to live in a location where one could use more productive people.

In other words if a mill worker's site shutdown and this person now depends solely on UBI I don't see why they should feel like they should afford some place in the closest big city if they don't get a job since their active addition to productivity is nil. If they get a job then they may or may not afford a place in that city. Still, it's not "owed" anyone.

> plan to also (somehow) massively increase the opportunities available in such places.

The incentive itself does this. First, there's the "opportunity" of living on the UBI - not a great option but more than there was before. Second, there's the opportunity of meeting the needs of the other people moving to such places, as well as those who lived there before (with their increased ability to pay).

And this leaves aside the fact that an increasing number of opportunities are not inherently tied to location.

UBI, by definition, is an fixed, unconditional, income. If it's need-tested (such as scaling by a formula taking into account local cost of living) it's not a UBI, it's a conditional, needs-treated welfare program. UBI is specifically intended to dodge bureaucratic overhead by avoiding means-, needs-, and behavior-testing common in existing welfare programs.

So the "alternative" you propose is actually what a UBI is by definition.

Start its implementation in economically depressed regions first.

Unnecessary complication. If you do it generally, it'll matter more and go further in depressed regions on it's own. Line drawing exercises are unnecessary and counterproductive.

If people don't have to work, it becomes a lot less appealing to live in places where rents are super high. That might counterbalance some of the effect.

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