Comment by lend000 | Hacker News Reader

Comment by lend000 | Hacker News Reader

Parent Full thread

Interesting -- the market aspect is crucial. My only other qualm, which may or may not be better than necessary side effects of capitalism: if someone has "owned" a house for a long time, especially in a growing area, what is their Land Value Tax? Have they not profited through intelligent or lucky speculation by not having an auction since decades back when the price was much lower, and are they not incentivized to hold onto it even if it should be redeveloped? On the other side, will the feds kick people out with eminent domain for the above reasoning?

I came up with a scenario about why I thought this would hinder property improvement, but I think I solved it within the Georgian system:

Let's say Alice buys a piece of property zoned for 10 story buildings at 2mm/year LVT. She invests 30M and 3 years of construction into building a 10 story building that can generate 4mm/year in rent. It will pay itself off in 21 years plus start generating profit. Alice has specialized in being a great property develop but not a property manager. However, she is now TIED to this property -- if she lets it go up for auction, she loses the profits from her improvements. Sure, she can contract out property managers and eat into the profit, but this just increases the time until she can afford to build the next building.

In a capitalist system, Alice can sell the building upon successful completion and immediately profit to the exact degree the market thinks she improved the land's value. That capital can immediately go into the next project and allow better specialization of human resources.

However, I now suppose that the party who "bought" the land from the feds doesn't have to be the specialist who gets contracted to develop it. She can still be paid 30M upon completion and go straight into the next project with a different owner, without ever dealing with an auction.

I potentially like this system a lot, as long as it allows wealth and non-land property rights, and market pricing, but I do need to think about it more. Thanks for helping to explain.

LVT applies to the land value today. If the value increases because a commuter rail station opens, the value of the land goes up, so the price of the tax goes up (you’re effectively paying more tax as you benefit from better society)

If a power station opens next door and price drops, you pay less tax

Presumably it would also be possible to take steps to adjust the LVT. For example, perhaps the first x thousand dollars of a family's primary home is untaxed.

But why? What problem would that rebate seek to solve?

If the concern is that poor people might be unable to afford to stay in their homes, why not target poverty or house prices directly rather than adjusting the tax?

Either would be fine as long as it works. I just meant that there are different ways that a LVT could be implemented.

If you want to avoid the cash flow problem you allow the tax to be levied as a charge on the land - collected at disposal

Rebates for primary homes are especially annoying, because they get the government into the business of deciding what your primary home is.

This is the problem -- who determines how much these things are worth? And if you risk other people pricing you out of property you currently hold a lease for (especially because they think the value is going up because of your investments in it) I can't imagine that would encourage any development at all.

If LVT is subject to arbitrary changes outside of precise terms negotiated during the initial auction (which should cover the annual cost plus cost increase schedule).

Ultimately, nothing will incentivize the improvement of the value of the property as much as owning the property. I think it's apparent that total infrastructure development would go down significantly under this system, even if there are other advantages. We can minimize risk by including length of lease in the auction, but if there is a maximum lease length, the end part of that lease will always be devoid of infrastructure improvements.

> This is the problem -- who determines how much these things are worth?

There should be a much more active market in land (land would change hands much more frequently because it doesn't make sense to hold as an investment), which then makes it easy to assess land value.

> And if you risk other people pricing you out of property you currently hold a lease for (especially because they think the value is going up because of your investments in it) I can't imagine that would encourage any development at all.

You're discouraged from building more than you need on land you can barely afford, and in an area that's rapidly changing you're encouraged to build things that you can either easily move, or sell on to future buyer of the land. The intent isn't to encourage development for development's sake, and the result might be less development in areas that are rapidly changing.

> This is the problem -- who determines how much these things are worth? And if you risk other people pricing you out of property you currently hold a lease for (especially because they think the value is going up because of your investments in it) I can't imagine that would encourage any development at all.

This concern is usually addressed by ditching the distorting effects of the periodic auction and of the incentive to try to "steal" capital improvements by abandoning the auction framework and just assessing a yearly property tax proportional to the value of the underlying land were it unimproved. Since ownership and sale of land would still exist in this system, the value of the land for assessing land value tax can be determined by the market value of the land.

Reply on news.ycombinator.com