Comment by larsiusprime | Hacker News Reader

Comment by larsiusprime | Hacker News Reader

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So you're basically describing the slumlord situation. Let me grab a figure from the book review:

https://cdn.substack.com/image/fetch/w_1456,c_limit,f_auto,q...

So imagine that the return from land was taken away. The only thing a landlord can charge rent on now is providing a nice building (capital) and good service & maintenance (labor).

The first property, "a nice house" would be able to charge rent -- because it now has value above the value of an empty field.

The second property, an empty lot, would be able to charge approximately nothing (the government collects the land rents, and this is capitalized into the price such that you can't charge any additional rent above that).

And yes, the third property (teardown property) you'd have to actively pay people to occupy, because you can't charge for access to the land, and the place sucks and is hazardous to your health.

What's the incentive in this situation for a landowner who wants to make money? Build something good (capital) and provide good service (labor), both are things we want to encourage.

Of course, the above assumes that land value taxes are fully capitalized into land prices and thus can't be passed on to tenants. This isn't discussed in this article (Part I) but will be discussed tomorrow in Part II.

Thanks for the concise explanation! You must be the original author. I've shared the article with many friends.

A few follow up questions:

- I'm interested to see how this affects multi-family housing. Do the same mechanics come to play? In an apartment complex, I assume that the positive or negative value of the property would be way greater than the land value, no?

- Do the resulting effects of the 3rd property only apply for teardown and straight up unliveable properties? Or would it be the blanket bottom x% of all houses in SF? If it was the latter, could this count as an inefficiency under the proposal? As "bad but livable" units today are now taken off the market?

- Does the "good house" now lose re-sale value now simply by virtue of being next to a "bad house"? Let's say that the house issues are internal, and the outside is fine. Is this okay?

Looking forward to part II. If these questions get answered then, I'll just wait until I read it and ask more questions.

Yup, I'm the author.

- As far as I know, yes, LVT would definitely incentivize multi-family housing over single-family housing.

- I'm not sure exactly where the threshold would be. Under current market conditions where landlords can collect land rents, it'd be any place where the property is so bad that the rent is less than you'd be able to collect if it were, say, a parking lot. This might still be a good investment for the slumlord because the presence of the teardown property has negative value and makes it cheaper to buy than if it were just an empty lot, and then they just refuse to fix anything and collect the land rents.

- Not 100% sure what you're asking but maybe I can answer it this way -- So locational value comes from the activity of your neighbors. That's why "location, location, location" is a thing. If you're in a good neighborhood, your land value goes up because it's a nice place to be and people will pay more for that privilege. If there's, say, a crackhouse next door that will depress your land value for obvious reasons.

Thanks for the responses.

To clarify the last question, my house value would be affected if it was known that my neighbor will undergo a construction project. So I was just wondering that if the rise in propensity to teardown increased under LVT, that it would have weird ripple effects of devaluing the land of the good house by virtue of it being next to a future construction zone.

I think that would depend on the frequency the tax assessment occurs, and under what kind of legal structure. If your whole neighborhood is in the midst of a multiyear construction boom, then maybe that gets factored in. But if we are talking about a few nearby plots, then the valuation is probably being based on a some area averages anyway without factoring specifics.

> thus can't be passed on to tenants

Currently you charge tennant a as much as you can until they no longer live there. That works out to be as much as they can pay for the benefit they get. If you charge 1k a month now, the reason you don’t charge 1200 is because they won’t pay it.

If you have a LVT, and try to increase the rent, your tennent wouldn’t be gaining any more value from the land that they currently are, so you still won’t be able to charge 1200.

>If you charge 1k a month now, the reason you don’t charge 1200 is because they won’t pay it.

>If you have a LVT, and try to increase the rent, your tennent wouldn’t be gaining any more value from the land that they currently are, so you still won’t be able to charge 1200.

This only holds if there's no competition between landlords - so the landlord extracts the maximum possible rent from each tenant. If I'm a tenant and living in this area is worth $1500 for me; but there are two landlords competing to have me pay them, I might end up paying $1000. If then both landlords raise their prices to pass the LVT, my rent ends up higher.

It's an empirical question and not easy to answer as to how much of the economic surplus is captured by the tenant vs landlord

Where rents are high supply is less than demand - as demand is reduced by people living away and by people cohabiting when they would rather not.

On the opposite situation where properties are empty, they are empty at any price, LVT won’t change the price. They currently can’t be rented out for $50 a month, so why would they be rentable with LVT

The only properties which will be flakey are those where the cost of renting it out (maintenance etc) is lower than the current asking price, but higher once you include LVT.

However as LVT will cost whether you’re renting out or not this will simply increase incentive to sell (if you can’t get enough to rent out), reducing the purchase price, and allowing people to live there.

Given that in cities where rents and land values are highest the number of empty properties is minimal, increasing the cost of owning an empty property won’t increase that number.

I think this assumes a more efficient rental market than what actually exists. Even in highly demand-skewed some properties sit empty for weeks/months between tenants.

> this will simply increase incentive to sell (if you can’t get enough to rent out), reducing the purchase price, and allowing people to live there.

But that means less supply for rental, and presumably lower impact on the demand for rental given how different the renting versus buying populations are. Even in a maximally efficient model this should result in raising rents?

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