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Comment by joshu | Hacker News Reader

editorialized title. Tsk.

the tipping situation sucks, but the larger economic problem is effectively due to rent extraction by the landlord. when a restaurant can't afford the rent that, say, a bank can, they are effectively priced out of the market. All excess returns and up going to the land owner. This effectively becomes a variant of baumol's cost disease. Once again, return on capital trumps return on labor.

I remember, many years ago, living in Manhattan: in a short period of time, for restaurants on each corner of an intersection were replaced with four banks. A vibrant spot died.

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This is why I support the land-value tax.

Landlords would only be taxed on the value of their land and not the property they're building.

They're heavily incentivized to develop as much as possible to pay tax, since land-value tax doesn't care about the cost of any improvement you make.

This wouldn't change landlord's incentives and therefore unlikely to change the outcome.

You would need to explain that to me.

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

A landlord's decision to improve or not improve the property only depends on 1) the cost of the improvements and 2) the expected revenue stream from that improvement, neither of which are affected by an LVT, since the LVT only cares about the unimproved value of the lot.

I can't follow the technical arguments you're making.

You are a landlord. You need to decide whether to make an improvement to your property.

There are only two things you care about:

1. How much money does that improvement bring in?

2. How much does that improvement cost?

Neither of those two inputs are affected by a land value tax. Therefore the landlord must reach the same decision, regardless of whether there is an LVT or not, and so LVTs have no effect on whether landlords improve their property.

You might think that they'll be motivated to improve the lot in order to be able to pay the LVT, but that rationally doesn't factor in to the decision to improve the land or not. It only affects the price of the land (Imposing an LVT makes land prices fall by the discounted future cost of the tax).

And not to be rude, but it seems strange to jump into discussions recommending LVTs as a solution to an economic problem without first understanding basic economic theory.

I misunderstood the LVT as something that is levied against the landowner every year?

And not to be rude, but it seems strange to jump into discussions recommending LVTs as a solution to an economic problem without understanding basic economic theory.

I read an economist article on it, and I thought that I understood it. Apparently I don't.

I won't be recommending it in the future until I fully understand the consequences.

> I misunderstood the LVT as something that is levied against the landowner every year?

Yes, but it still doesn't affect the (rational) landowner's decision. Imagine an improvement that can net the owner $Y a year in profit. A rational owner should always make that improvement, regardless of whether the government is also taxing them $X a year on the land.

If they doesn't have the money/capital to do so, they should sell the land to someone else. Obviously not every landowner acts fully rationally, but in the aggregate, landowners should act pretty closely to that model.

>Yes, but it still doesn't affect the (rational) landowner's decision. Imagine an improvement that can net the owner $Y a year in profit. A rational owner should always make that improvement, regardless of whether the government is also taxing them $X a year on the land.

It's not just about whether return is positive, it's about the highest ROI considering opportunity cost.

Consider a simple case where two lots with one story of development each can produce as much as a single lot with two stories of development. With a tax on land+improvements, a landlord does not prefer one over the other. With a tax on land value only, the single lot with two stories is preferred.

>If they doesn't have the money/capital to do so, they should sell the land to someone else.

Indeed. If the neighbors have ten stories of development, a landlord with a one-story building will not be able to afford the LVT and will sell to someone who can afford to build ten stories.

> With a tax on land value only, the single lot with two stories is preferred.

Yes, but that's because tax on land + improved value distorts incentives (by discouraging improvements).

Usually when we say the LVT doesn't affect incentives, the baseline of comparison is against no land taxes of any form. In that world, you would prefer to develop the single lot because you need to buy less land, so the result is the same as with LVT.

> Usually when we say the LVT doesn't affect incentives, the baseline of comparison is against no land taxes of any form.

That really confused the whole discussion as the current situation is tax on land + improved value, making it look like you were arguing from the other side. No tax at all is anyway taking it to the extreme as the government need money, so it becomes merely an academic exercise.

LVT changes #2, because the ongoing tax cost of putting a new high rise on your empty plot of land is no different than it being empty or it having 4 single family homes. The property tax bill make having a single family home an expensive luxury in dense cities because of the high land tax relative to the amount of improvements on it.

In our current scheme, improving property is disincentivized because it increases your property tax bill with reassessments.

Or am I missing something?

I doubt this very much. They'd be incentivized to make more improvements. Under our current regime what is currently a smaller profit would translate into losses under LVT.

Theoretically there's no difference between a smaller profit than is possible and a loss for rational profit maximizing agents but the psychological difference is huge.

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