Hacker News Reader

Comment by BirdieNZ | Hacker News Reader

Taxing land doesn't increase rent; it's an inelastic good with greater demand than supply. See Ricardo's Law of Rent, Henry George, or basically any analysis of land tax (or indeed, taxing any monopoly good). The incidence of land tax is well known to not fall on the tenant.

View on HN

That’s interesting. Why is land tax not a cost that’s passed on to the consumer while all other costs do?

Typically inelastic goods mean that prices can increase because demand will not drop as prices go up.

It is passed on to the consumer but the consumer in this case is the landlord not the renter.

There are two markets with two types of consumer here:

1) The market for a roof over your head. This is highly (but not completely) inelastic. People need somewhere to live.

2) The market for property as an investment. Higher taxes on an asset disincentivizes ownership of that asset. This is elastic because there are tons of other asset classes you can pour surplus wealth into.

Effectively a land value tax already exists for renters - in demand locations have higher rents. The "tax receipts" just dont flow into government coffers.

So do landlords just eat that tax increase or do they raise rents?

They'd eat it.

Depending on how high and fast it was raised it would likely lead to a steady stream of landlords defaulting on their mortgages and leaving the banks holding the property.

(Usually) rents are already as high as they can be, in aggregate. In other words, the market cannot bear a higher cost for the good, so an increase in cost has to be eaten by the landlord.

This is actually very easy to see in countries with no 30 year mortgages, because landlords have to refix their mortgage rates every 1-5 years. This means you can see regular landlord cost changes as interest rates fluctuate, as well as the impact on rents.

The impact on rents is essentially 0 as landlord costs change; instead, rents follow tenant incomes, because landlords are able to charge more as long as tenant incomes increase.

I've got plenty of data from New Zealand if you're interested, but I'm sure it's the same everywhere there is supply-constrained housing.

> Usually) rents are already as high as they can be, in aggregate. In other words, the market cannot bear a higher cost for the good, so an increase in cost has to be eaten by the landlord.

How do you explain rising rents?

Rising tenant incomes. As incomes increase, landlords are able to increase rents proportionally. This is only true where demand outstrips supply, but that's the case in most developed cities in the West, as well as many other cities.

Tenants have several fixed costs to pay: taxes, food, rent, and transportation being the main ones. If their incomes go up, rent typically consumes the increase, because housing is a fairly uncompetitive market.

My property taxes currently falls on my tenant. And my rent currently pays for my landlord's property taxes

If there wasn't a property tax, would you have decreased the rent (all else being equal)?

In a similar way I would try to charge more rent if my costs went up.

As much as the market permits, as the rental market also competes with actually just buying the house.

Reply on news.ycombinator.com