Wouldn't a land value tax encourage urban sprawling ?
Current ubran policies in the western world, coupled with the normalization of remote working already do this to some extent.
Current ubran policies in the western world, coupled with the normalization of remote working already do this to some extent.
As population density increases, desirability increases, and people may try investing with the goal of renting, which with an LVT will more sharply decrease the desirability of population density.
LVT is paid by the owner of the land. That is the whole point of a LVT, that you cannot avoid it.
For some landlords that would cover their tax bill. Others not so much.
It would precipitate a collapse in property values, but not a rise in rents.
As population density increases, desirability increases, and people may try investing with the goal of renting, which with an LVT will more sharply decrease the desirability of population density.
An LVT can incentivize sprawl because all else equal the LVT would ultimately be passed on to renters.
With a property tax, the total tax bill increases when you build upward and make the apartment block. If you take a lot with a single home on it, and then stack 9 identical homes on top, the resulting property might be worth 9x as much. That’d mean the renters of that bottom home still have to pay 90% of their old property tax.
With LVT, the tax bill is based on whether you could build up productively, whether or not you actually choose to do so. So if you stack 10 family homes on top of one another, the renters of those homes would pay 1/10th the land tax.
This shifts the relative tax burden toward lots which are less dense than their surroundings. Encouraging infill and discouraging sprawl. If it pushes some to build their single family home in the exurbs so that an apartment block can be built in the suburbs, that’s a net win.
This is the core distinction between LVT and property tax.
If you put 10 family dwellings on land, then its value is at least that of 10 family dwellings. So each individual renter is somehow paying 1/10th the 10x greater cost. You haven't reduced the LVT by sharing it between the LVT between the renters, they're all paying the same or more.
In theory, it still has whatever value the optimal use would provide.
In reality we don’t have an optimal land use oracle, and valuation techniques would take the vacant lot as a data point suggesting that the area is bad. The assessed land value might decrease a tiny bit – along with that of your entire suburb, and similar regions. But it’s not going to zero.
Similarly, if you take a block of land, put 10 apartments on there, and fill them with renters, you’ll create property value where there was none, but the land value isn’t going to go up 10x.
I dont see how that follows - you stated it but did not explain the mechanism by which it happens.
Population density would flow from the land value as it does now, albeit more efficiently since inefficiently used land would not just mean minimized profits but large losses.
If he raises his rents to the maximum that renters are willing to pay then the value of the land grows and he has to pay more land value taxes. He actually cannot make land more expensive. He can only make the land as expensive as it already is.
Of course, it is entirely possible that the effective tax burden on the tenant has risen in the process. For that reason I would encourage the government to reduce income taxes.
That's also why there shouldn't be an exemption for first home.
Obviously made up those numbers but hope you get the idea.
It would certainly discourage the building of houses in the city centre.
No, that's not how it works. The value of a property is made up of the value of the land and the value of the buildings on it. If one of these two components is taxed, its value is reduced. However, it is important to remember that the supply of land is fixed, but the supply of buildings is not. If one taxes buildings, as is the case with a traditional property tax, construction activity is reduced, but if one taxes only land, as is the case with a land value tax, construction activity is not impeded at all. That's the beauty of a land value tax: it doesn't distort anything.
With a property tax, an undeveloped lot in the center of town is taxed less than a high-rise. With a land value tax, both are taxed at the same rate. Relatively speaking, a property tax promotes sprawl, a land value tax promotes density.
Who would want that house with that tax bill?
Obviously in real life, people care about other things besides just pure acreage, but you can see the argument.
As I explained in another comment[1], a property tax discourages density and encourages sprawl. A land value tax, on the other hand, does not have these adverse effects on density because it taxes only the fixed supply of land, not the variable supply of buildings.