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Comment by pydry | Hacker News Reader

>People want to live in specific locations, or have to in order to find work. This drives land values up as demand increases.

This ignores the world's giant pool of floating capital ravenous for returns that jumps on trends and amplifies demand by buying up what it thinks will have good resale or rental value.

I saw this happen in the area I grew up in recently. Some people I know who were struggling to gather a deposit saw their dreams of homeownership go up in smoke as they got consistently outbid on a series of properties by investors.

This would be a pretty harmless outlet of an for a glut of capital if A) land werent finite or B) land had not been slowly untaxed for decades.

Of the two, B is a more prudent way of making property prices sane again.

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I was including that under "or simply buying because they can afford it now".

"Of the two, B is a more prudent way of making property prices sane again."

Maybe if you taxed unused land. Otherwise that tax will end up increasing a resident's rent/mortgage substantially (as it's a perpetual annual expense). So really, you'd have to tax way above what a normal person can afford (average US household about $75k, so $7500 is 10% gross), and that still wouldn't be much of a disincentive to the wealthy (ignoring the fact the the market would collapse because normal people can't afford to buy it from them nor pay the rent).

Now if we did tax unused land, then we are reducing conservation and incentivize development. This is a major concern for some areas, especially around loss of agriculture land, riparian buffers for water quality, etc.

If we had work that was more distributed, like remote is for IT, then it's possible the effects of all the capital flooding a handful of markets would be diluted by spreading it across numerous others. A generation or two ago we had many small cities with industrial or manufacturing jobs. Now it seems many of those cities have shrunk while the national population has grown, mostly concentrating in specific metro areas.

>Otherwise that tax will end up increasing a resident's rent/mortgage

It would do nothing to rents or mortgages intrinsically but it would cause property prices to fall and it could add to the tax burden of regular property owners depending on how it were implemented (i.e. if the tax free threshold were set too low).

>that still wouldn't be much of a disincentive to the wealthy

It would be a massive disincentive to the wealthy, since they own the most property and are used to it being an asset not a liability.

They would dispose of properties that were nonperforming because taxes > capital appreciation + rent and this would spiral as falling prices leads to more hoarded properties being given up.

They would also scramble to rent out previously unrented properties where capital appreciation wasnt covering taxes. More rentals on the market means even lower rents which makes their properties worth even less to them.

"It would do nothing to rents or mortgages intrinsically"

Most people have their property taxes escrowed with their mortgage payments. Taxes can easily account for 25% of one's monthly payments. As for rent, the property owners just pass the cost on to the tenants by increasing rent. So property taxes are related to rent and mortgage payments. Even if not included directly in the mortgage payment, it affects how much of a mortgage one can afford.

"It would be a massive disincentive to the wealthy, since they own the most property and are used to it being an asset not a liability."

I'm not sure about this. Just because they own more property doesn't mean they would be the most affected. The tax would likely be a larger percentage of a "normal" person's income for their own home and thus more impactful to them. Plus, if the wealthy are renting out the majority of the properties, then they can make up for tax increases by raising rents (because property tax increase priced more people out of homes (because the price drop was a drop in demand), increasing demand for rentals). I do agree that it should incentivize full utilization of rental properties. But I don't think there are enough vacant rentals to affect supply/pricing, but I don't have the numbers. I would think that most owners are already utilizing residential rentals pretty much at full capacity in the markets that are the tightest.

>As for rent, the property owners just pass the cost on to the tenants by increasing rent

Rents would either remain unchanged or go down.

I dont magic myself a raise because income tax goes up. It works the same for landlords. If supply and demand remains unchanged, prices remain unchanged.

The only change I could forsee to affect either is previously empty properties being put up for rent in order to cover tax payments to turn property liabilities back into property assets. This would increase supply.

>Plus, if the wealthy are renting out the majority of the properties, then they can make up for tax increases by raising rents

They'd really love for that to be how it works and sometimes they pretend it is.

"I dont magic myself a raise because income tax goes up. It works the same for landlords. If supply and demand remains unchanged, prices remain unchanged."

What you're missing is that the market floor get universally pushed up. There's no competition from cheaper places because they all increased their rent to cover the new coat so they can still make their same margin. The demand is still there because people still need a place to live.

"The only change I could forsee to affect either is previously empty properties being put up for rent"

Any numbers on that, or are you just going to keep claiming it's a big enough vacant supply to significantly affect prices?

"They'd really love for that to be how it works and sometimes they pretend it is."

This is still tied to the previous comment. If the number of vacancies are not sufficient, then supply is adequately constrained to just increase the prices to cover costs. Because, again, this increase moves the market floor.

> they all increased their rent

Why would they not have done this before, if they could? Landlords aren't trying to maintain some fixed margin, they want as much as possible, always.

Because of competition. They can't all conspire together to price fix (or if they do they could be arrested).

Writing in context of preceding comment, which seemed to be predicated on them having a special capacity to raise prices in response to land taxes.

I did wonder briefly if a land tax might decrease competition => higher prices, but then I recalled that the supply of land is fixed.

If it's s limited resource which people require (shelters), the price (rent) will be quite elastic. There will still be competition if the taxes go up. Competition is what prevents the price from rising unnecessary. The floor for all the competitors went up because taxes went up and they all want to stay profitable. They aren't going to take loss, so they raise rent to cover it. Buying won't look very attractive either because the tax increase raises those costs, and if it's as significant as they other poster wanted (to affect rich people) then it will likely exceed the $10k SALT deduction limit.

This SALT deduction is part of how they penalize landlords already, which is just passed on in the rent payments. This is part of the reason renting is more expensive than buying (comparing just monthly payments), in addition to management fees, profit, and repair/renovation reserves.

The last few cities I've lived in have seen 10+ straight years of rent increases (with a brief drop then rapid spike again from COVID) so... they do already do this?

Writing in the context of preceding comment. Landlords increase prices as much as they're able, they don't decline to increase when they could to maintain some fixed margin. I'm not saying they're generally unable to rise prices in general, but that they have no special additional capacity to raise prices in response to land taxes.

"but that they have no special additional capacity to raise prices in response to land taxes."

How so? If all landlords now have a significant new cost, why would they not raise rent to cover it?

This seems to say they cover 80-90% of tax increases through rent increases. And commercial properties should be more competitive.

https://mitcre.mit.edu/news/blog/can-landlords-really-pass-h...

>What you're missing is that the market floor get universally pushed up. There's no competition from cheaper places because they all increased their rent to cover the new coat so they can still make their same margin.

You're saying that it doesnt matter if supply and demand remains unchanged, rent goes up coz every landlord independently decided that it does?

Not that they decided it does, but generally that they all had to in order to stay profitable. Part of this is due to the othwr commenter's suggested goal that the rise in rates be significant enough to demotivate rich people.

Here is some research on commercial properties, which would in theory be more competitive than residential. It shows that 80-90% of any tax increase is covered by an increase in rent. https://mitcre.mit.edu/news/blog/can-landlords-really-pass-h...

And of course many landlord resources say to just build it in.

"The best way to protect yourself from taking a hit is to plan ahead. Plan for a tax increase every single year and adjust your rents accordingly. Build the tax increase into your rent and allow for future rent increases. A planned annual rent increase will allow you to stay ahead of tax increases instead of being caught off guard and behind."

https://commonsenselandlording.com/property-taxes-rental-pro...

> >As for rent, the property owners just pass the cost on to the tenants by increasing rent

> Rents would either remain unchanged or go down.

The rent must cover all the costs of the property (+ some profit). If any cost goes up, the rent will go up by at least that much. Anything else is wishful thinking.

If the costs go up so much that it's no longer possible to rent because nobody can afford it, that still won't make the rent go down because the owner isn't going to start taking a loss on it for fun. Instead, they'll sell the property and now it is off the rental market for good.

"If the costs go up so much that it's no longer possible to rent because nobody can afford it, that still won't make the rent go down because the owner isn't going to start taking a loss on it for fun. Instead, they'll sell the property and now it is off the rental market for good."

What do you mean it's off the rental market? The house doesn't dissapear. Either the next owner rents the house out, so nothing has changed, or they live in the house which means that someone who previously had to rent is now a homeowner. Either nothing changed or it's an improvement.

What is this weired attitude anyway, laws and markets change all the time and sometimes I have to eat a loss, are landlord some kind of divine nobility that never does?

> What do you mean it's off the rental market? The house doesn't dissapear.

I mean it's no longer available to renters. If it's no longer affordable to rent out, the alternative is to sell it off to someone who wants to live in it themselves. Of course the house itelf doesn't disappear, but the number of units in the rental market for that town now went down.

That's fine if those who were considering renting that unit are just as happy buying it as a homeowner. But I see many people saying they only want to rent, so for that audience, the rental supply went down.

> What is this weired attitude anyway, laws and markets change all the time and sometimes I have to eat a loss, are landlord some kind of divine nobility that never does?

I don't understand this comment. What I'm saying is that if the landlord find that renting out becomes unprofitable, they'll simply get out of that situation by selling it off.

"I don't understand this comment. What I'm saying is that if the landlord find that renting out becomes unprofitable, they'll simply get out of that situation by selling it off."

So if previously the buyers consisted of 50% landlords, and 50% would-be residents, presumably now there will be fewer landlords buyers and the price will go down. Is the landlord selling at a loss?

>The rent must cover all the costs of the property (+ some profit). If any cost goes up, the rent will go up by at least that much. Anything else is wishful thinking.

When businesses that can't raise prices get taxed more than their profits they go out of business.

Anything else is wishful thinking.

>Instead, they'll sell the property and now it is off the rental market for good.

It's almost as if there were an army of renters complaining vociferously that prices are to high for them to get on the housing ladder.

Basically every city in the world is growing and thus demand is increasing. If you increase costs and make it unprofitable to build, nobody is going to build until the rising demand increases rent to make it profitable.

I wish I was at 25%, mines at 38%!

> ignoring the fact the the market would collapse

I think that is the point. The market doesn't make sense already for people who actually use the homes because of the investors. If there were property policies that targeted investors and forced their money elsewhere, prices would drop dramatically, making housing affordable again.

"The market doesn't make sense already for people who actually use the homes because of the investors."

I think that depends on the area.

A true crash, if it were to happen, would affect all though. You'd have people underwater on their mortgages, unable to move by selling or renting out the home and instead being foreclosed. People in some sectors my lose their job because people have less discretionary money (if they'd be smart and save more for retirement to offset the loss on their property). If anything, I would think more people would be looking for cheaper apartments to rent because they were foreclosed, leading them to rent from the rich who have a large share of that type of housing.

If it was just investors why would rent be as close to mortgage payment amounts as it is? The vacancy rate is low. Demand is high. Demand is high even among people with more money than me so there are a lot of places that both sell for more than I can afford, and rent for more than I can afford.

People are competing for the more desirable neighborhoods, whether renting from an investor or buying outright, that's what makes it an attractive investment in the first place. They'd still be competing, so the prices would still go up until an equilibrium was reached. Maybe just slower?

"If it was just investors why would rent be as close to mortgage payment amounts as it is?"

I am not clear how this is meant to prove anything, an influx of investors increases prices and rent, both. perhaps it's better to call them speculators, because they don't invest in the economy to create new properties, just inflate prices on existing ones.

Indeed. Someone recently discovered that fifteen landlords own about 10% of Edinburgh: https://www.thenational.scot/news/19926004.edinburghs-housin...

How do you implement B) without causing a disproportionately negative impact on existing homeowners?

For example, would you just tax "new" purchases more heavily? Or scale it into existing homes? Give caveats for fixed-income (elderly and disabled)?

Politically, this seems like a tough road, even if it's the best choice. You have to essentially convince people to vote against their own economic self-interest. I think current tax policy around homes is curious because it's one of the few areas that there is a rather clear consensus around economists that it's bad policy that incentivizes the wrong actions, yet we can't seem to change them.

Land value tax.

It could be made palatable to regular people by making a high tax free threshold. Most homeowners could be left unaffected.

That leaves 50% of land owned by the 1%. A fair chunk.

Additionally the money could be funneled initially into pensions for the impoverished elderly.

Capital/billionaires would fight back by arguing that it would hit the elderly the hardest just as the howard jarvis taxpayers foundation did with prop 13 but if it was very obvious how many elderly people were helped, crying about grandmothers having to sell multimillion dollar mansions would probably backfire.

They would throw immense resources at trying to discredit and kill this, though. They would use every character assassination trick in the book to stop those pushing it. Some would probably also resort to violence if that failed. It would be an uphill battle the whole way.

"That leaves 50% of land owned by the 1%."

Is a lot of that farm land, like with Gates?

I thought a lot of the investors are involved with apartments, which don't take up much land?

Maybe somebody can clarify, but wouldn't that land also be much less taxable per acre because the value is lower?

That's part of what I'm missing here. How is that value calculated?

LVT is generally conceptualised as proportional to the value of the land, not it's area.

And how do you set that if excluding the type of property that's on it?

I fail to see the relevance, land is zoned for farming or reaidential, that sets it value

You could reform zoning, but its not a requirement

Without reforming zoning, it is largely useless. Sure it might cause some improvements in places underutilizing their land but I think most places are using their land for the highest value thing it is zoned for.

If I have a SFH zoned for SFH in the heart of manhattan next to skyscrapers, the value of the land isn't based on the skyscrapers, it is based on what you can put on it and you can prove that by selling it for which nobody is going to pay as if you could put a skyscraper there.

"underutilizing their land but I think most places are using their land for the highest value thing it is zoned for."

In urban or higher density suburban areas, I think you're mostly right. But in lower density areas, a lot of the land is multi purpose or has few restrictions. So technically, you could build apartments or homes on land that is used as agriculture. However, there might not be demand for it in that area. Essentially, the tax-by-zoning works well in the situations where zoning is restrictive and demand is high. But in low density areas where the actual use is not well defined with a single zoning use, the value would be potentially arbitrary or inaccurate (making property tax a better measure of value).

So I could build a mansion or a small house and pay the same, just because I'm paying for the zoning. And of course zoning could change and much of it can also have dual use. This complicates the calculation and can lead to surprises.

It seems current actual land usage through property tax better accounts for the way the land is being used, is more stable, less arbitrary, and implicitly complies with the existing zoning.

Homestead exemption. If it's your primary residence you get a tax exemption on the first $[geographically_appropriate_median_goes_here].

They did that with the casino money in PA. It's a joke, like a couple hundred bucks, if that.

Homestead exemptions for older folks already exist. Perhaps a higher tax rate for those not living in a property?

I would love to see no tax on primary home property at all. Just for commercial/investment properties. Unfortunately, a lot of that would be passed on to renters unless income taxes were assessed differently. But that would also mean drastically changing school funding, which could be a good opportunity but would likely turn this into every more of an impossible shitshow.

I think one argument is this incentivizes in the wrong way regarding home buying. It seems similar to the mortgage interest rate deduction argument: it incentivizes larger homes, it's regressive because it benefits those with more wealth in property than those with less, increases the likelihood of defaults due to people being incentivized towards more expensive homes, and potentially distorts housing prices, related to excessive borrowing.

Maybe. My idea is to shift property tax to income/capital gains tax. In theory (depending on the structure) that should provide less net income because the number of working years should be lower than the number of years living in any property, and it should impact the higher earners more. This lower net income should lower the amount one is approved for (and hopefully stay the same towards the lower income range). This should reduce the burden on people who are on a fixed income while keeping houses a similar size. Maybe even smaller since the tax is taken off the top rather than perpetually taken off the back end - people tend to notice a smaller paycheck more.

This is an interesting perspective, thanks for clarifying. I think it would also be interesting if it leads to a more equitable method of funding schools.

I think it would be a mix in my view. Most of that should be income taxes at the state level, but still allow for some smaller percentage income tax to be collected at the local level. This should provide a higher base level of per student funding across the state, but still allow local municipalities to collect a smaller amount of funds that wouldn't have state restrictions on them. Maybe something like 95% fed and state funding with 5% local.

It sounds plausible if we could get around the PR issue of any raise in state income taxes being viewed as an evil. (I do think this would cause the need for higher state taxes, considering how many state and local municipalities struggle to fund education programs through general funds).

It reminds me a bit of the universal healthcare push. It seems very hard to convince people that, yes, their income tax levels may go up, but their overall costs will go down.

If you are referencing property taxes funding schools, you should know that it actually only funds about half of total school funding. The other half comes from federal and state governments and the way they give out funding is to selectively counteract that misallocation such that 47 states actually allocate more per-student funding to poor areas than to wealthier ones and according to this article [0], it has been this way since at least 1995.

So if you actually informed people that the wealthy areas don't get more funding, I don't see why it would be an issue.

[0]: https://apps.urban.org/features/school-funding-do-poor-kids-...

I thought it says they are relatively neutral? And that 35 states have policies to counter local discrepancies?

Maybe I'm just missing stuff - that page is a design/user nightmare. But I do agree that the pet student funding tends to be pretty fairly distributed.

"So if you actually informed people that the wealthy areas don't get more funding, I don't see why it would be an issue."

I generally agree. I think the main point that the rich areas would not like, is that often the state money has restrictions on what it can be used for, or comes with policy requirements attached. If I remember correctly, PA schools could lose state funding if they didn't implement and enforce the state's masking policy. This caused a bit of friction in many districts.

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