Detroit wants to be the first big American city to tax land value
economist.com
economist.com
This Detroit case is interesting because there are different rates of taxation on the land, but the difference in rate could also be obtained by increasing the land component of a parcel's value.
The goal of an LVT is to insulate a landowner's tax bill from being affected by their own improvements. Its anti-goal is to insulate a landowner from changes in land use around them.
Shifting the tax burden from homeowners and productive businesses onto idle land holders means that those that drive the community will penalize investment less and use limited resources in more effective ways.
Efficiency helps the wealthy, but it can help those with less even more, as it matters more.
Take a look for yourself[0]. This is just outside of the downtown area. Loads of vacant lots. This is theoretically prime real estate, and would be ripe for development. The problem is, it's the fucking hood and no one wants to live there. Detroit emptied out over the decades and those empty lots _used_ to be decaying crack houses. So several years ago Detroit had them leveled to reduce blight. Now they're whining that people are just "speculating" by sitting on the empty land. If there was even the slightest hint that developing this land made sense economically, someone would have done it by now. It's just too convenient to the downtown area. And yet, no one has. Perhaps there's more at play than just people trying to sit on empty land.
0: https://www.google.com/maps/place/Detroit,+MI/@42.3370378,-8...
Build a 200 unit apartment complex in an area with a housing problem and jobs currently unfilled ... yep.
Build a gigantic house to be occupied by a single very wealthy family .. not so much.
But how to measure the difference? The simple market value of the improvements is not going to be accurate.
> In FY 2023, the Department of Education (ED) had $271.01 Billion distributed among its 10 sub-components.
Maybe they just burn that quarter trillion, but I suspect it ends up in the districts eventually.
https://peecs.net/2021/03/10/how-are-california-school-budge...
So federal is...7%?
Of course it's all academic in a way, because money is fungible.
I think a local income tax is the correct way to handle it theoretically but I don’t know any specific examples.
It seems easier to just have a land value tax, so you don’t specifically disincentivize development. Then, you can spend that tax money to provide services that promote the other stuff: beautify downtown and add public transit, that sort of thing.
But what has the investor taken from the public when they build? The best possible answer, in my opinion, is the value of the land they occupy. This exclusive use of a portion of land deprived all others from using it. That is the value of the land, and there are roughly two sources of that value: proximity to all the other things that others have built, or access to natural resources. And importantly, the investor is not the source of that land value, that comes from society as a whole or from nature.
So that's why the land value is an appropriate object of taxation: it's a payment to us all for what we have been deprived of. A person who builds a massive structure of great value on a piece of land has built that structure, but they didn't build the land or the bounty that the land provides.
The provision of good emergency services and hospitals and libraries and other amenities raises the land values within their service areas. (They don't raise the value of the buildings.)
If if someone in your neighborhood repaints their house, your land becomes more desirable. This is true for you and others!
The problem is determining what the land is worth. If you use a periodic market-based auction system (the only known way that could possibly yield accurate prices), then you give the government and the wealthy extraordinary power to kick people out of their residences, even ones in which the tenants built the house. Good for the collective perhaps, but terrible for individual autonomy. This could be mitigated by auctioning off longer length (~say 30 year) leases, but you can end up with huge value mismatches after 30 years of change, just like today, and I suspect there would be other unintended consequences. For example, things wouldn't be built to last, they'd be built to generate as much value as possible before the lease is auctioned off again.
And even then, you haven't really determined what the land is worth, since any rational auction participant is considering how much money can be made with the existing improvements on the property.
That being said, I hope they do try it in Detroit, since I have no stake in the city and it seems like it has more to gain than to lose from such an experiment.
Wrt "even ones in which the tenants built the house": For me the baseline of implementing LVT is that ppl don't have to pay it for their primary housing (or a much lowered version of it). Is that controversial?
Of course, remember that apartment buildings are commercial businesses…
Also excluding homesteads destroys the public schools, because they’re often in areas that really only have houses and a Walmart or two, and if the entire property tax burden is transferred to the Walmart it’ll just close.
Overall, I think there are so many impracticalities and second-order problems with implementing LVT that it seems like nothing more than a fantasy mental exercise.
Usually that is solved by various measure to slow down the tax increases for existing homeowners - which can be good or bad, depending on whether you're a homeowner or somebody looking for a home.
Whereas in an LVT system, a person just gets priced out as the neighborhood increases in value with nothing to show for it, even if they spent money to build or improve the house.
I don't see how having regular auctions to determine what the land is actually worth is compatible with true land ownership. You auction the land to determine the tax, someone pays more than the current lessor, then that highest bidder gets to lease the land from the government and kick out the old lessor. Where does ownership of land and ability to sell it and profit from improvements come into play?
Unless you are in the Georgism-lite camp that says no auctions, just let government appraisers put value on the land as they do today and base the property tax on that exclusively instead of the current combined property tax. In this case you still have property ownership/buying/selling, which is far superior. I think the pros could outweigh the cons in limited situations, specifically downtown metro areas. But you have to accept a lot of bad pricing in this scenario, because these are the same assessors who allow all of those single story parking lots to profitably exist in downtown metros throughout the country.
These appraisers would all of a sudden wield huge influence, and one appraiser's opinion of the value of being near trendy shops or a park or a waterfront could vary significantly from another's. At least now they can use market data from similar properties to come to a tax assessment, since the tax is being assessed on the full value of the property.
Nobody's actually suggesting randomly auctioning off people's land at periodic time intervals.
You're arguing with ghosts.
You might be surprised if you visit r/georgism.
But the point is that if you don't do auctions, you don't know how to price the LVT, and you don't actually know if the resulting inefficiencies are more significant than the core problem with taxing productive land use that Georgism tries to address.
> You're arguing with ghosts.
You're selectively arguing with a fraction of a comment.
This system wouldn't work, because you would be measuring the property value not land value
I happen to think it's interesting, but for reasons unrelated to the article-- it's kinda goofy for the state to tax personal property that happens to be fixed to a location, like a fireplace, stained glass window or chandelier. Tax a house on a foundation; no tax for a house on wheels? This "LVT" scheme does away with those issues so folks can fix whatever they want to the location, so it makes more sense logically even if the connection to Detroit's problems is very unclear.
In practice, real estate is the 20x more valuable than any other personal property, so it doesn't make sense to tax anything else. Cars are subject to a registration fee.
If you own expensive business machinery, that may be subject to tax in some states. My county also taxes boats and airplanes.
In many places a large part of what property tax is for is things like roads, water, sewer, police, fire, and schools.
For most of those how much money is needed for them depends a lot more on what is on the land than on the land itself. E.g., the amount of sewer capacity needed for a lot is proportional to the number of people who live on the lot. It thus seems sensible to have a tax that includes as a factor what is built on the lot.
I would go further and actually argue that you need more road and sewer capacity because someone inserted a blank patch of land between dense areas.
The tax is an incentive to develop when the land's value is high. The city is basically saying that you have an obligation to build something useful or sell the land to someone who will.
I'm interested to see what happens. I'm hopeful that it will be good for urbanization.
Surrounding towns will probably not do LVT, which will also be interesting.
Surface streets are obviously proportional to land area. So are water and sewage infrastructure, and they're massively more expensive than streets. As others have pointed out, water treatment and supply are handled by usage charges.
The 'goofiness' is on purpose: you tend to get less of what you tax. Most taxes are taxes on some kind of economic activity.
The supply of land is fixed, so you can tax it all you want without impacting economic activity, like working a job or investing capital or even just shopping.
> [...] even if the connection to Detroit's problems is very unclear.
Detroit suffers from a lack of economic activity.
Not quite.
They have to pay up while they own the land.
They can develop it in ways that may generate revenue sufficient to cover the tax (e.g. a landlord-developer)
They can develop it in ways that won't generate revenue, but that satisfies their own goals, and pay the tax from some other source (e.g. a homeowner)
They can sell it to drop the tax liability.
The carry cost has gone up, forcing action!
The thing missing from the above scenarios is:
Owner can't afford the tax, can't find renters, can't find a buyer, so just walks away. This is why so many properties are vacant now. The owners just walked away.
> This is why so many properties are vacant now.
In Detroit...?
People don't walk away because they can't afford taxes. It's because any dollar spent is negative NPV!
It means that you only pay for the structures, or the cost to remove a blighted structure, etc. It makes real estate more liquid, and allows more people to try their hand at development without having a massive land bank worth millions of dollars.
It decentralizes these decisions and lets more local players get involved. It rewards those who are productive, and encourages those who are squatting on resources to let somebody else give it a shot.
You're missing THE point.
Your comment is too general.
1. You'll only pay higher taxes if your ratio of land/improvements is above a threshold (TBD).
2. The article says that the proposed change would lower taxes for 95+% of the population.
I don't see how this helps Detroit's problems - unless they arbitrarily set high values on land where land is possibly already worthless. The areas with the most blight have the lowest land values already.
The city already owns 75k out of 380k lots (~20% of the city - most of it vacant) - and instead of trying to sell the lots - the Detroit Land Bank holds onto them to arbitrarily inflate land values.
This seems like another recipe for a negative feedback loop that makes bad areas even worse.
Just tax blight outright.
Give away the damn land to anyone that will build something on it and live there - or get someone else to live there, pay taxes, and be a valuable part of the community - rather than a vacant lot that's a breeding ground for crime.
A land value tax is a much more elegant solution. For one, it doesn't introduce the problem of needing to define 'vacant land'. Is a parking lot vacant land? etc
Of course it does. Complexity in the tax law is regressive. It lets wealthier people and businesses take advantage of more deductions and writeoffs to lower their tax burden, due to the ability to hire accountants full time to work on it. Simple taxes that are difficult to avoid (such as LVT) are best if you want a progressive tax regime.
One of the best features of LVT is that it taxes unearned increases in the value of land. While you can do any improvements you want to the property without increasing the LVT, improvements made by the city or other private interests to the area around your land absolutely will increase its value, thus increasing your tax burden.
Can you explain how is it simple? Who gets to set the theoretical value of a plot of land, disconnected from all current uses? Since it's theoretical, it's very subjective. Who do we give this power to make or destroy the owners based on purely subjective speculation on what it might be worth? How do we guarantee that this entity won't abuse the power to set arbitrary tax valuations?
We don't. They already do that with "normal" property taxes. This wouldn't change that.
Soon-to-be gentrified neighborhoods are often ignored by property tax assessors and code enforcement for many years, then one day a developer reaches out to the tax assessors and says "hey the taxable assessment values in this neighborhood should really be higher". Then the people living there have taxes raised 10-20% every year until they are forced to sell for low prices because they can't afford to hold onto their property until the gentrification is actually well underway when they'd finally see their property value actually go up.
At least, that's how it goes in Texas.
I don't think this system would be worse in that sense, probably roughly equivalent. But it makes sense to at least attempt to tax undeveloped and under-developed land at high enough rates to encourage at least some healthy amount of development. It won't be perfect, but it shouldn't be worse either.
I don't see how it can't not be much worse.
If the tax is based on the actual value of the property, there are two important factors:
1- You can easily prove or disprove whether the valuation makes sense. Just look at comparable sales nearby. If in a neighborhood of similar houses, ten have been sold in the past year for 200K and your very similar house receives a tax bill saying it's worth 2M, you can easily protest and win since the sales records show it's only worth +/- 200K.
2- If it really is worth 2M based on comparable sales, in worst case you can then sell it for 2M. While it's terrible to kick people out of their homes via property taxes, at least the consolation is that it's actually worth that. So you don't go bankrupt, you can sell it for that price.
With LVT the tax is supposed to be based on some theoretical projection of what it might be worth if a non-existing structure were to be there. What prevents the county from telling you that if only you built a ten story highrise there, it would be worth 10M? So now you have to pay tax on 10M.
You can't easily disprove it because, well perhaps maybe it's true that if the highrise was there it might be worth 10M. But of course the building doesn't exist so it's all speculation. Also, since the building doesn't actually exist, you can't sell the property for 10M to pay the tax bill.
In the Houston area the appraisal board just doesn’t care. They raise taxes across the board for the whole neighborhood by the same amount every year and appealing has limited effect. You cant really argue comparables because the whole neighborhood raises in lockstep by a shocking amount every year (since well before the big housing bubble)
Comparables refers to actual sales of similar homes nearby. If all sales in the neighborhood have been +/- $200K over the last year, they should not be able to claim the property is worth 500K. Or they could, but should be easy to disprove.
When you get a mortgage, it's based on a theoretical value of the property as determined by an assessment.
The bank will lend you up to, for example, 90% of the assessed value. Thats how you get a morthgage on a property that maybe you already own for 20 years.
This looks more like a way to destroy society than prudent tax policy.
It would raise the value of your land.
Perhaps that's the point - in order for cities to stay dynamic and fair, we need to make everyone pay something close to market value for their land - even those who bought it a long time ago. But doing so is unlikely to make those people very happy.
If LVT helps to loosen up some undeveloped/underdeveloped land and get it into the hands of a willing developer then that is a big win for the fight against the housing crisis.
It's also a false dichotomy. We don't need LVT to solve housing. We don't even know if LVT would solve housing. On the other hand, we know exactly how to solve housing. People just don't want to.
We'll just have to wait and see then. Detroit is going to try it out and we'll see how it works for them.
we know exactly how to solve housing. People just don't want to.
It's a collective action problem. One of the ways we usually solve those is through government action. LVT is a candidate for exactly that!
Well that's a problem with those people if they think their most valuable capital asset is irrelevant.
It is relevant, because without LVT, the tax code is literally encouraging inefficient use of land. Housing prices consistently rising five times faster than salaries is a huge problem, and it is caused by inefficient land use.
If only that were so! Then the American real estate market wouldn't have been artificially stacked in favor of homeowners for the last eighty years.
So, up to the point where you would actually sell your land, LVT is simply a liability. Even if eventually you sell are not guranteed to actually make the amount implied by the LVT you have been paying.
Let's think about what structures and incentives and ways of thinking we would foster here. Everyone a property speculator! That worked out so well with housing.
Meanwhile the people who just want to raise a family in peace and stability can now be priced out of their homes because their neighborhood got too "good". And that's just the goldilocks analysis.
In grim reality, city councils can use this to soft-evict anyone, anywhere without giving a reason by simply raising the estimated land value. The corruption is going to be off the charts.
Which is also why I don't think it helps Detroit today as they don't have the problem problem of land that someone else would build up on
This already happens just with more economic inefficiency under a property-tax regime. People already vote against improvements that would cause their taxes to go up.
But it introduces, unless I'm completely misunderstanding, the need to establish a theoretical value for a plot of land that's unrelated to any sale or use value we can objectively measure today.
At best, it seems the assesment will be very wrong often. At worst, it'll be a political tool for local government to drive out whoever they want by overvaluing plots on purpose.
A lot of the land around Detroit is nearly worthless given the blight. Will it be taxed at $0 or will they say that in an alternate universe someone could build a skyscraper there so it's worth millions? Even though nobody would actually fund that work.
Taxing based on sale price isn't perfect, but at least it is much harder to game since it's based on a concrete market-clearing price that isn't up for debate.
Distinguishing between lot value and property value is already a very common exercise in the real estate business.
Basically all of your data points are the built-up prices. So it is going to be easier to estimate the built-up value than the raw property value. Maybe not much easier, but definitely not harder.
Or maybe a tax based on more things has nothing to do with complexity. The largest market is for land and structures. That makes it the simplest to value.
This is a nightmare. Can you elaborate?
A good starting point can be the relevant part of the Georgist primer published on ACX:
https://www.astralcodexten.com/p/does-georgism-work-part-3-c...
Now how do we determine that x%? That's a good question. I think there's no way out of some empiricism even if someone did try this approach. But you can always start it low and raise it incrementally to see how it affects the land economy of an area.
Why? This just seems to create yet another perverse incentive structure that people have to invest time into understanding (and some into exploiting), rather than adding any actual value. Taxes mean nothing if everyone is too busy figuring out this sort of scheme to do anything valuable.
> To put this problem starkly: allocative efficiency and thus an efficient market economy is impossible in the presence of private ownership.
What the paper's early pages are saying is that study A found that things could be allocated more efficiently, and study B found that sometimes people hold out from selling things now to gain more later, therefore to increase the efficiency of global (literally) allocation of resources, people should be forced to sell things or pay more taxes to keep them.
This seems to have several problems on its face, that might be dealt with later, but still:
- This is all theory. There is no global optimum to observe, no matter how many papers might be written. Only to theorise about.
- This is relative, and time-sensitive. I might value a property at X because at that moment it's worth that much to me. It might change in the future, or depend on how markets are doing. Should I instantly sell because I have an ice cream shop and people are all eating gelato, and I can't afford the tax so I reduce the valuation to a point where some shark can grab the building?
- Perfect is the enemy of good, particularly when perfect is so poorly defined. This can get a lot worse much more easily than it can get a bit better.
Think at the margin here. You're not saying you should instantly sell because the gelato/ice cream enthusiast ratio has increased slightly. You're saying everyone all at once decided en masse to start eating gelato instead of ice cream. Yes, as an entrepreneur you need to respond to that. That's an enormous and sudden change in not just the long- but even the short-term viability of your endeavor.
Indeed the forced price mechanic improves the short term responsivity of the local economy to such a change, because your scenario suggests a recent total upset in the established order of things. I would rather see you walk away today, from a venture that you realized yesterday was doomed to fail, with an extra $X in your pocket from the shark who bought you out than to see you driven to bankruptcy because you were the last ice cream boy in this mad, gelato crazed new world. Who knows -- maybe you'll start an ice cream stand in a cheaper, more sane part of the world with it.
But I'm having trouble as a result of the choice of icecream/gelato words.
I interpreted @robertlagrant to be in the "gelato is icecream" camp (which seems reasonable to me in a "baguettes are bread" sense).
But @hiAndrewQuinn, you seem to be in the "gelato is not icecream" camp. I would call this is an arguably correct position similar to "chicken tikka masala is not Indian food," but I doubt most people holding either of these positions would consider these kinds of small differences likely to be the trigger for a business becoming unviable. So perhaps you didn't know what gelato was?
In either case, I think you two need to be using the same definitions for your illustrations to make sense. And I really want them to make sense because I want to understand :)
That doesn't make any sense in the context of a land value tax.
The whole point of a land value tax is that a parcel of city center land is taxed at the same rate whether it's got a parking lot on it or an apartment block.
But the owner of an apartment block would self-assess their land as much more valuable than a parking lot, not wanting to be forced to sell their apartment block for the price of a parking lot. So you'd be back to having a property tax, not a land value tax.
But they may later find out that the parking lot isn't really worth $5 million, because it's harder to make the money to justify the x% of $5 million tax you're paying on it with a parking lot than with an apartment complex. They may then drop their valuation to $3 million, or $2 million, to reduce the total amount they pay in tax each year. But then of course they may run a greater risk of being forced to sell themselves -- perhaps even back to the original apartment runner they paid $5 million to before.
Depreciation reflects that the asset's value is used up over time by allowing the owner to deduct part of its value each period to reflect the reduction in asset value in their financial statements.
Depreciation definitely needs to be fixed. You shouldn't be able to claim 3% of a structures value as business loss every year, without some sort of evidence that you will actually tear down the structure in 33 years. And perhaps after it has been counted as depreciated once, future owners shouldn't be allowed to deduct the depreciation either.
Let alone things just getting dated.
If you look at typical house most of the labor and expense for materials is in the finishing not the rough structure like the framing. Look at the price of 8 ft 1x4 trim piece compared to just 8' 2x4 despite the 2x4 having twice the amount of wood. Then look at what generally needs to be replaced its not the framing unless the building was neglected or poorly built.
It might appear they are, but if you properly account for everything it’s not tremendously advantageous.
And it reduces your cost basis also, which means you pay more tax when selling unless you have other ways of avoiding that.
Eventually the land ends up in the hands of the few willing and able to abuse the land to that level, prioritizing profit above all else.
Assuming that higher density is always better ignores the externalities required to maintain such a system. Higher density cities require more outside inputs brought in from outside the city. Those inputs strip resources from other lands, require input to process the raw materials, and require fuel and vehicles to transport the goods into the city frequently. The city's waste must be transported and processed somewhere, again adding impacts to the environment even if those impacts aren't directly felt within city limits.
If the goal is to minimize impact, cities would only be as large and as dense as they can reasonably be self sufficient. That doesn't preclude trade between cities, states, and countries, but it does mean the city isn't entirely dependent on a constant churn of bringing in resources from elsewhere and shipping out waste.
Surely, it can't possibly be that simple. Sometimes that's true, sometimes it is not. If I want fiber to my house in the country I might be paying $30k to get that line all the way to my one house whether I want 100MB/sec or 10GB/sec. In the city it might be shared with hundreds and only need to run a few yards. Same for sewage. Same for police and fire.
Your examples only really touch on one relevant example though, sewage. Sewage isn't really an issue in rural areas, off grid seltic systems process waste on site and more compelling systems can even compost human waste with very little effort. Modern central sewage system only exist because of dense cities, they weren't needed before that.
High speed internet is purely a convenience and really shouldn't be a concern if there's any meaningful environmental impact from it. Police and fire similarly are conveniences that may turn into necessities in highs density areas. I live in a rural area where police may show up tomorrow if I call them now and our fire is mostly volunteer.
I've never heard of anyone having real issues from either. Volunteer fire still respond quickly enough and it's amazing how much less import policing is when people are more spread out and the expectation of turning to police for every problem isn't the norm.
However if all you ever do is drive to the big city I can see how that would take more time and distance.
Now for the first paragraph: This is kind of the point because maximizing use generally means more density, which means more opportunity to minimize use elsewhere. I did outline one situation that I thought was unfair and should be addressed, which is the situation where you buy land zoned one way with a much lower value only to have it zoned another way on you that makes it a lot more valuable. Other than that specific situation, I don't agree with you that your first paragraph is a problem, it's a positive feature.
As far as shipping goes, it can definitely be comparably affordable to ship in products. Though you still have to factor in costs of everything from making and maintaining those vehicles, the oil and gas that moves them, and the costs on the area that actually produced the products.
My point isn't that everything should be magically fixed with more rural living or a perfect balance of density in cities. I'm simply trying to raise the other side to point out that things aren't simple or clean enough to actually run the math on whether dense cities are better or worse at reducing impact on the environment. There are simply too many factors and hidden costs along the way to calculate accurately.
These resources can be transported to high density living, or spread out across 100x - 1000x area. Which do you think is more efficient?
Building roads, water, electricity costs millions/mile. All this must be built before you even think about shipping resources to support. Then services (schools, hospitals, dentist) -- all of these and services only make sense at scale.
https://umdearborn.edu/news/mapping-detroit-new-tool-aims-id...
If we want to reduce human impacts on the planet, why not incentive the opposite and incentive leaving the land natural?
Land value taxes prioritize GDP and profit above all else. Isn't that how we got into this mess in the first place?
Costs can be externalized, but at the environment level they still exist even if outside the city of consumers. It's also often the case that externalizing those costs adds even more impact as the product has to be shipped in and the waste shipped back out.
I don't understand your argument. Are you saying that people that don't live in cities don't consume, or consume less of, food, water, electricity, furniture and clothing?
> It's also often the case that externalizing those costs adds even more impact as the product has to be shipped in and the waste shipped back out.
They have to be shipped to fewer places and thus save resources. The only way what you are saying makes any sense is either if shipping things to more places somehow save resources or if people that don't live in cities don't need anything shipped.
It may be true from a theoretical viewpoint, but in general cities are richer and consume more.
Optimizing for profit in urban land use excludes the production of raw materials almost entirely. Meaning that raw materials have to be grown or raised elsewhere, transported into the city, and the waste has to be removed afterward.
Wouldn't it be more beneficial purely from an environmental angle to produce more food and resources in the urban areas to minimize external costs? And if so, wouldn't the current system disincentivize this in favor of higher profit per square foot businesses, regardless of the environmental impact?
There isn't a magic answer to it, but simply saying dense areas use less footprint for shelter ignores all the other necessities and conveniences consumed by the people living there.
Single family homes are often easier to power off-grid with solar if that's on the table, though again with regards to externalities the solar power equipment likely sends those costs to multiple countries on the other side of the planet.
If you replaced property taxes with land value taxes and held revenue equal:
For rural areas, not much would change. Land is cheap and taxes would remain low.
For suburban areas, there would be a moderate shift in tax burden. People with homes on large plots of land would pay more; people with homes on smaller plots of land would pay less.
For urban areas, the changes would be drastic. Because land is limited in urban cores and appreciates in value every year, there's an absurd amount of speculation. An LVT would discourage this by making it costly to hold onto undeveloped or underdeveloped land just for future price gains. As a result, we could expect a surge in the development of vacant or underutilized plots, leading to a potential increase in housing availability and a decrease in rental prices. This would both alleviate housing shortages and reduce the speculative bubbles that can distort urban real estate markets.
The wealth transfer is a feature rather than a bug, in this case. Speculators sitting on unimproved or underutilised land are seen as literal rent-seekers, and taxing them is seen as reclaiming a natural monopoly at the same time as removing the leeches who're sucking up big chunks of a city's growth.
Because otherwise newcomers are stuck paying high rents to people who got there first, causing misery and impoverishing young people to the benefit of the old. And when young people lack opportunity, violence happens.
> why not incentive the opposite and incentive leaving the land natural?
We do. All over the place. But for the cost of a square mile of Central London being natural, we could have a dozen square miles of natural land just 50 miles away. Because way more people want to live in Central London than a commuter town.
Didn’t Detroit raze the lots in the first place, since they considered an empty lot to be better than one with a decaying house? I really doubt many of these lots will ever actually be developed to any reasonable extent, since they aren’t exactly in nice areas. And likewise I bet there won’t be many people dying to buy these lots either. My guess is the city will be taking ownership of a decent amount of land in the not-so-distant future.
Child of lifelong Detroiter here. iirc a big problem in detroit is some ultra wealth like Matty Moroun owning a huge portion of the land and just sitting on it, doing nothing with it. If that's still true, the LVT makes plenty of sense.
And so the value of the land is less and the LVT drops along with it.
Of course for someone planning on putting another service station there maybe not...
But that would make the land valuable again …
It’s quite possible to have a plot of land (especially in more rural areas) that is “worth” $10k but has state mandated cleanup required that costs $60k.
What happens when there are different agricultural fields with different productivity? Where does economic rent come from in that situation? Ricardo saw LVT as a way to make agriculture fair when some land is fantastic, and other land has very few economic upsides.
Land with environmental problems is like land with a structure with negative value on it. People are still really good at valuing this. Check out home sales of the small 1000sqft cottages in Palo Alto that go for millions; the sale price is pretty much always exactly the cost of the land minus the cost to tear down the cottage.
Gas spills will function similarly.
Most states do tax mobile homes, they just classify them as vehicles. Whether that actually makes a difference in the tax rate depends on the state.
California property tax bills have two components [1][2]:
- structure/improvement assessed value
- land value assessed value
The land value component is re-accessed frequently and changes based on comparables (presumably but its mostly black box).
The question is to what degree/portion of Georgianism to apply and what to do when the land value component starts going up infinitely that its starts hurting the electorate.
Do you introduce alternative tax sources (i.e. income)? Do you introduce caps on annual land value increases or add a bunch of waivers for specific use cases (i.e. primary homes, day cares)?
Or do you just stick with the unrelenting assessed value increases and go free market/no pain no gain/survival of the fittest on the electorate?
Basically Texas is basically the US experiment closest to pure Georgianism.
[1] https://www.propertytax.lacounty.gov/Home/AnnualSecuredPrope...
Or are you suggesting the tax rate will spiral upward infinitely? Again, at some point that just means it’s not worth buying the land unless the productivity possible on it is through the roof as well.
North Texas homeowners getting 'sticker shock' with new property tax appraisals
The question is to what degree/portion of Georgianism to apply and what to do when the land value component starts going up infinitely that its starts hurting the electorate.
- Do you introduce alternative tax sources (i.e. increase income taxes on billionaires instead as in California)?
- Do you introduce caps on annual land value increases (i.e. Prop 13 as in California) or add a bunch of waivers for specific use cases (i.e. primary homes also know as the homestead exception, day cares as they are starting to do in Texas)?
As mentioned I think Texas will be interesting to watch as its pretty close pure Georgianism - the state's revenue is mostly/all LVT property taxes - but they are starting to see exponential growth - so it will be interesting to see if they stick to it or resort to California style Prop 13.
Exempting by use, like primary homes or day cares, now means that the government is in the business of snooping on you to make sure that the primary home you declare is also your actual primary home. You also give well-off people with a bigger primary home (or owning a home at all instead of renting) a big tax break. Welfare for the well-off is not an efficient use of funds.
> - Do you introduce alternative tax sources (i.e. increase income taxes on billionaires instead as in California)?
If you do that, you lower your land value tax take. (Of course, if you already already sabotaged your land value tax base via exemption and limits, as per your second point, then bad decisions beget more bad decisions and special taxes on billionaires seem like a good idea..)
However in reality its a difficult ask to have all people purchasing single family homes to be able to build a 40 year financial model/projection of a regions growth prospects when the buy a home.
Or have them move away from their family and friends support network.
I think Georgianism works best:
- when there's expansive flat land and slow growth and no zoning/resource constraints (i.e. Texas pre-2010).
- you build higher density subsidized housing so people can stay in their neighborhood (i.e. Singapore)
Compare to right now, where every generation can’t afford to live in their own hometown, because there’s only upwards pressure on housing costs, so families and support networks are constantly being torn apart.
OR you have proper planning and build it into the city charter. The city needs to have planned for the locations of future additional schools/recreational infrastructure/transporation a priori and have sufficient resources (water, gas, electricity, sewage).
There also need to be proper addendums to any purchase agreements to highlight the potential for severe property tax increases.
Post facto switchovers to or continuation of pure LVT don't seem like they would work realistically.
Georgism doesn't require that any more than the current system. In fact, for people who haven't already bought a home, the cost under a Georgist system are almost exactly the same as before:
The yearly outlay for owning a place is the same, because market forces will adjust land prices to make it so. The sum of cost of capital plus all taxes is roughly only dependent on demand / what recurring benefit you can derive from the land. Under LVT your mortgage will be smaller, but you have more taxes on the land.
Assume a long time single family home elderly owner on a fixed income (i.e. social security) that had modeled for only linear increases in accessed land value (and associated taxes) but experienced exponential accessed land value appreciation (and tax increases).
Would the proposed solution be for the original long time elderly owner to sell 50% rights to the property in exchange for another future owner to tear down the single home and replace it with a duplex for the original owner and new co-owner to live in together?
Or is the assumption that only well capitalized apartment owners are the only ones who own the land and have the capability to teardown and re-build as more units or renovate and raise rents?
If you stay put and don't move, your property taxes won't go up much. So you can vote for all the govt spending you want: don't move and you won't have to pay for it.
I'm not saying people are "getting away with" low taxes. I'm saying that people are "getting away with" high spending.
There’s no reason why commercial land should get the same benefits.
Bonus points if we can crank up the tax bill on families which inherited their home but never had the money to make improvements.
And the municipalities -- their local elected representatives -- complied. They didn't reduce the millage rate each year to stay revenue neutral. No, they used those funds to supply those desired public goods.
And as land values rose, taxes rose. And eventually, people whose homes were appreciating by half (or 100% or more) of their annual incomes, increasing their home equity at an awesome rate, started objecting to the taxes that were paying for all those public goods.
Remember that in those days, California's colleges and universities were regarded as among the very best. And they changed a lot of lives, particularly of those in the school districts so well funded by those taxes that were ever-rising because the local officials didn't lower the tax rate to remain revenue neutral.
I don't see any sign that California, under Prop 13, has any resemblance to Georgism.
Take a look at a listing at realtor.com for a home in any California city or suburb, and focus on the "Property History" section, on (1) asking and selling prices; and, under that (2) assessment and tax history. (Choose the "see more" option in each section.) Then look at the assessments vs the current asking price. The land and "additions" figures rise by no more than 2% per year, while the asking and selling prices are far above the assessment on which taxes are based.
"The land value component is re-accessed frequently and changes based on comparables (presumably but its mostly black box)." No, they rise by 2% per year, until a sale takes place, at which point their sum is adjusted to the selling price.
But the house next door, of similar age and condition, but not sold in 20 or 40 years, is receiving a huge subsidy, paying a tiny fraction of what the newly sold neighboring buyers are paying.
Where is the equity in that?
The answer, for other states, is not assessment caps or capping taxes at a certain percentage of assessed value, but reducing the millage rate to remain revenue neutral, unless the local property owners approve a millage rate that is higher than revenue neutral because they actively desire more services, better schools, etc.
It's just not purist Georgism.
And even if LVT was the only source of tax income - it could be done at punitive level to prevent all land speculation or be more relaxed.
I think somethings that I haven't seen addressed by pure Georgists:
- Where to stick schools and playgrounds to support the newly built residential towers
- Water/sewage/gas improvements/transportation stresses
- Displaced people who get kicked out of the single family home if no private developer wants to build condos for them
From what I can tell - it'd require proper pre-planned zoning when the city is in its early stages and for the stuff to be written into the city charter.
Or some strong government intervention that could just plop new 3 story schools and 10 store public housing towers where it wants.
So the older residential suburb has become a denser urban city, and the new residential towers are supported by the schools having been rebuilt taller.
And for some value of “works” this does seem to be doable. Most land uses are stackable, though I’ve never personally seen a multi-story gas station.
Our land underwent a reassessment and the value was calculated as “more realistic” (50% more!) but our property taxes went down in absolute dollars because the budget was the same this year, but new houses have been built in the town.
California seems to collect money and then decide where it should go.
[1] https://www.dallasnews.com/news/watchdog/2022/04/20/property...
"What we're trying to do is value that land as if it were vacant — or that lot — and ready to be put to its highest and best use, which is to build a single-family home on, And we do that by looking at lot sales of what would be a competitive or a substitute product."
In a pure LVT system the structure should play no part. The landowner should be free to build whatever they want on their land without such building causing a change to their taxes. A partial step towards LVT would be a “split rate” system, where the value of the land is taxed at a higher rate, say 5%, than the value of the structures, which could be 0.5%.
Pennsylvania is the example case here in the US:
https://www.strongtowns.org/journal/2019/3/6/non-glamorous-g...
The assessor can't the change the share of land vs structure unfairly any more than they can increase the assessed value unfairly. A homeowner can protest the assessment and provide comparable sales and other estimates that show a more objective split of value.
Michigan property taxes are interesting in another way, they have had issues with "dark store" restrictive covenants for commercial and industrial real estate. Basically the owner of a large commercial building argues the land/building has very little value on the open market, it is a single use building with restrictive covenants that prevent an alternative use. These restrictive covenants prevent the land from being sold to their main competitors, and these restrictive covenants are self imposed.
For a more detailed overview, I recommend Lars Doucet's review of George's Progress and Poverty, which won the Astral Codex Ten book review contest a year ago: https://www.astralcodexten.com/p/your-book-review-progress-a...
I really like the style, but you need to put an hour or so aside to read the whole thing. For me, it was definitely worth the time!
That said, "everybody works but the vacant lot" is a Georgist slogan that has been seen on billboards before now: https://digitalcollections.nypl.org/items/510d47de-036a-a3d9...
You decide if the above is good or bad.
Something like 90% of boomers want to age in place (as opposed to moving in with family, or moving into some assisted living arrangement). This is a problem when that effectively locks up 40% of the housing stock.
Does this "little old lady" need a 1-acre lot for her gardening when she can barely walk to the end of it and back? Or could that lot be parceled up into 4 single-family homes, or dozens of apartment units?
Also: that small house will grow in value (along with the property taxes) until the value of the land almost entirely dominates. My parents are in one such situation -- anyone who would buy their house would assuredly tear it down to build something bigger.
However it’s just not compatible with any concept of freedom, as understood by those people themselves. A lot of people have an expectation of fairness that they ought to be able to own a home of their choosing and stay in it until they’re ready to move (or dead). And they are sentimentally attached to their homes where they raised their children.
We in the West have a society whose framework is roughly aligned with that idea. We could change it, but it would require lots of other “the government knows best” policies, and ultimately the massive empowerment of police to enforce those “best practices” when people object. Even one would agree with the outcomes in housing policy, it would be pretty risky to create that kind of totalitarian situation in general, because we might not like the other “most efficient best practices.”
Edit: by money I mean income. She owns her house because years ago she (with her now dead husband) at one time had enough income to buy and pay off the house. Now that she is retired she has much less income despite having assets like a house that are in theory worth a lot of money that cannot be accessed.
It always seemed crazy to me that nothing was done on that very valuable corner for so long.
There are other examples.
I’m new to town but everyone else tells me that the area has massively improved in the last 5 years. Those lots are wasted potential.
E.g. where I live it's just assumed that all your assets produce a yield of 4% yearly, and that is taxed as regular income. Makes the tax declaration also a lot easier, since people don't have to list all exact dividends and profits they might have gotten from investments.
Put another way:
If I have $1B, and I buy $1B of land, that creates no value, and raises prices for everyone.
If I have $1B and I start or fund a company which produces a new medical device, computer, or car, I've created massive economic value, both in the inputs (hiring people) and outputs (new technology).
Land is also a scarce resource we all need to share fairly (for whatever 'fairly' means). If you have more, everyone else has less. On the other hand, if you're investing in making movies, I can make my own movies too. There is no fundamental limit to that sort of economic growth.
Most people won't care about some Rolex that someone around the world is willing to pay $100K for.
Land has purposeful value rather than just 'worth'
Imagine someone buying a house somewhere cheap. Then some gentrification, a new microsoft campus built nearby, etc., and the price of the house jumps 10x+. You're on a fixed income, and your taxes are now higher then you can afford.
If you have multiple houses, sure, tax the second, third, etc. one (evn though the taxes are then charged as higher rents if you lease those properties), but the first, primary residence should not be taxed as a "profit maker".
Maybe it's a cultural difference, but here in the balkans, people rarely move, and telling a 75yo grandma that she'll have to move, since her socialist built apartment is now worth 500k eur+, because "investors" want it for airbnb, and she cannot afford taxes on it, is just evil.
It's the society's best interest that people can afford places to live and not live under threat that some new fad will make something they already own (and need to survive) unaffordable.
In your example, if the grandma's house went from 200k to a 1million, then she isn't poor anymore. She is very rich.
She doesn't have to leave the neighborhood. She can give her house away for redevelopment into a condo. Get the nice penthouse flat and a pretty penny on the same land. Now, she has enough liquidity to pay the land value tax, which is also lower per person because it's distributed over the whole condo.
This is happening in India right now. Apartments are redeveloped into towers. Old residents get 2x the floor space and decent relocation $$ for the construction period. No one is being kicked out of their house. Most people move to another spot within a 10 minutes walk from their home for 3 years and then come back when the building is done.
Are we seriously saying that if someone can no longer afford tax on a land they already own because the rich need to get richer, you should sell?
Basically you're asking for normal people to work, get raises forever and hope nothing crazy happens that can raise land value in their neighborhood in order to keep the land they already own.
No, this is not in "society's best interest". This is in the capitalist's best interests. Those are very different.
Comments like these make me not want to live in this world anymore. I really hope I misunderstood the comment.
Edit: removed some unnecessary harsh words.
devil's advocate: No, not because of the rich but because of the poor. Buying a house decades ago was very possible on an average single person's salary. Nowadays, even upper income range couples have large troubles financing a house. So the situation is that you have lots of old people living in houses that they could never, ever afford at today's prices. The claim (no comment on whether it is correct or not) is that this causes massive distortion and that this proposal would fix it (doubt it, but that is the discussion).
> What the f*.
That is not helpful for a discussion. There is a problem stated and a (probably bad) proposal to address it. Instead of just saying "f*", address the problem and make a different proposal.
Fair enough. Edited that part off. I was simply extremely shocked at the implications, if I understood it correctly.
> So the situation is that you have lots of old people living in houses that they could never, ever afford at today's prices.
I don't think punishing people for what companies have done to inflate house prices is a good move though.
Screwing over people that bought houses that they live in instead of fixing the root causes for all these insane price hikes seems completely backwards to me.
Remember that companies or rich folks might have to pay some extra taxes but, in general, they can freaking afford it. Normal folks more often than not, can't.
The point of the proposal is that it is not an either or. In order to fix things you will have to also "screw over" people that have bought houses or people that currently can't buy houses. Long running problems are not quick and easy to fix and a fix will have collateral damage, not just "companies or rich folk".
Again: I am not taking a position on either side, but you are currently attacking a straw man.
The first is that if someone suddenly became wealthy because their house went up 3x in value and they want to continue living there then they can get a reverse mortgage. Assign that new found wealth in the equity to the bank in exchange for getting a monthly payment to pay the tax. If you're arguing they both should be able to stay, and keep the increase in equity that they contributed to them you're arguing housing should be a speculative investment (which leads to bad incentives).
> Screwing over people that bought houses that they live in instead of fixing the root causes for all these insane price hikes seems completely backwards to me.
The whole point is it's not. It's incentivising someone to move so they stop screwing over the 10-20 families they would like to buy a house but can't afford to because the supply is so low. By replacing the single story home with multi floor condos, more people can now afford homes in the area.
It is purely about how much land you sit on and where. That's it.
> Basically you're asking for normal people to work, get raises forever
Nope, it mostly incentivizes real estate hoarders to start making productive use of there land. It allows normal people to buy houses because this system inventivizes the increase of supply.
> land they already own because the rich need to get richer, you should sell?
If your lad value tax increases enough to be unpayable, then your house has likely appreciated 3x+. This makes you one of the rich.
There are no new houses in the neighborhood so the normal person can't afford a house. With land value tax, you can sell the land, make bank, and allow access to greater housing through upzoning. The normal person benefits greatly.
Either housing is an investment or an essential commodity. It can't be both.
So effectively normal people that don't own empty land will not pay this or pay an equivalent of the previous taxes?
> If your lad value tax increases enough to be unpayable, then your house has likely appreciated 3x+.
I guess you could try to argue that but I still feel like that's going to hurt folks. Imagine a scenario where I live somewhere for decades. Suddenly there's a new subway or some other factor that increases the value of the land enough that I can't pay for it.
Now I'm forced to leave this place when it finally becomes better to live in. In theory if I sold it, it would make me some money, but that's not the same as saying I'm a rich person now.
It's also not free in the sense that I still have to move somewhere else, which will probably be worse than the current place I live, since I will be required to buy a house with a lower tax (less valuable).
I can see the benefits if this was part of a bigger set of changes that would overall benefit everyone. But in isolation it seems like it will hurt normal folks and companies will just turn their empty plots into useless parking lots (or some other loophole they will find) to say it's "valuable".
I can imagine it.
That is exactly what happened to my neighborhood in India. Small residential condo community where Dad and I grew up. Everyone knows everyone sort of place. Our neighborhood suddenly turned into the hipster capital of India and began gentrifying and taxes started becoming unaffordable.
You know what people did ?
Took a deal to have their 5-storey condo redeveloped into a 30 storey one over 3 years. Everyone gets decent upfront cash, a huge rental allowance for the duration of the construction, 2x larger houses and more luxurious amenities.
Everyone is falling over themselves to have these deals signed. Yes, people waited till the last generation passed away, since they didn't want huge changes for those in their 80s. But, as those in their 50s-60s are heading into retirement, they are delighted to be able to retire wealthier, in a bigger house for 'free'.
The community has not been displaced, since everyone who lives here will still live here. Young families can buy apartments in one of the most accessible parts of town. Quality of life is better for everyone.
Who offers these deals? Is it the government or private corporations? I'm struggling to see how one profits from this (which is normally the only reason companies do anything) so I'm very curious.
This really does sound like a win/win situation if it's like you described it! Here I only hear/read stories about people losing their homes without any other option other than selling.
The 5 floor condo gets converted into a 30 floor tower. The residents gets 2x space and the first 10-ish floors. The rest goes to the private builder to sell to whoever they want as profits. It often involves demolition of 3-4 buildings into 1 large building. So a lot of wasted space also gets brought into building floorspace.
Skipping past your other points, I just wanted to reply to this sentence, since it seems to show a deep confusion/misunderstanding (perhaps on my behalf!).
- Land owners won't get to "say" how valuable their land is; that's determined by the market, assessors, etc.
- Given the chance, land owners would try to say their land's less valuable; since higher value means a higher tax bill.
- Land value tax is (as the name suggests) based on the value of the land; not what's on it. The tax for an empty lot is the same as a parking lot (or a skyscraper, for that matter).
- If anything, turning an empty lot into a car park may increase the company's tax bill. For example, if a lack of parking bottlenecked the area's economic growth, the new lot would allow more development nearby, increasing the area's land value, and hence increasing the company's tax bill.
- Turning an empty lot into a parking lot has construction costs (I'm assuming our company doesn't care about ongoing maintenance). Since the land value tax is unaffected (or even increased!), the only reason to construct a car park is when its predicted revenue is higher than its construction cost. The predicted revenue of a purposefully-useless parking lot is low, so there's no incentive to pay its construction cost: better to leave the plot empty!
- If the company can't use the land to bring in revenue that (a) pays off any initial capital/construction costs, and (b) exceeds the ongoing costs (including the constant land value tax!), then it should sell the land to avoid having to pay the tax.
- The only ones willing to buy the land off them (and hence take on its tax burden) are those who can make use of that land (either a company able to make a profit despite the tax liability; or people wanting to live there who are fine with paying the tax). In which case, the sale is incentivised and the land is put to better use.
PS: "From the outside" I'm sure there will be loopholes in theory, and in practice in Detroit. However, your example is pointing in the complete opposite direction of all the incentives, which looks "from the inside" like a lack of understanding.
They do need to make sure the tax is higher than the land value growth otherwise it wouldn't really work. Maybe it's not that hard, but with some of the price hikes I've seen, it could happen.
Honestly, I am very curious to see how this will pan out. Hopefully there isn't a giant loophole that will backfire as it happens with so many bills.
The more realistic picture is that grandma living alone in a rather large, old house, whose price, heating etc. went up quite drastically. That is already happening, in particular the heating part. Just have a look at Europe and the UK. The question then is, and I am not picking a side here, whether you spend public money so she can afford to stay in that large house or you make changes.
We had a law, that somehow got repelled by some lobbyist, where all the public money given to help was then taken out of inheritance (so the kids had to either pay it back, or property got sold at an auction, government took the money and the kids got the rest). This would solve the help-money issue.
In practice, that grandma is stuck in a city where her children and grandchildren can no longer afford to buy real estate in. Friends and neighbors who rent are priced out and have to move regardless. The local goods and services rise in price and taxes go up, all under the current system. Her support network and community evaporate and soon she finds nothing left but to sell to a corporation, who is the only entity left that can afford the prices her house demands.
The first order effect of a Land Value Tax is that it shifts who pays the biggest burden of taxes. Grandma A who owns a big house in the center of a vibrant city where lots of young families are looking for homes near their jobs might see an increase in her taxes, but the Grandma B who owns a Condo in a larger complex will likely see her taxes drop. Grandma C who lives in a nice well-maintained house way out in the burbs will likely see a drop as well, most of her value is in the nice home she has been tenderly caring for her whole life.
A second order effect of LVT is it creates a suppressive effect on real estate prices. When prices in an area are going up across the board, this is entirely in the value of the land, which means LVT taxes are going to rise correspondingly. This additional tax liability significantly helps counteract a speculative rise in prices, leading to a lower and more stable pricing, and pushing out those who are just looking to speculate on trends. The value that a government creates for its citizens is recaptured and able to be reinvested, instead of going directly in the pockets of land speculators.
The third order effect is that this shifts the incentives around value creation vs value capturing. Perhaps the house next door to Grandma's is currently owned by a deadbeat landlord, Pennybags, who lets the house fall into disrepair, hoping to turn around and sell it as the market rises. Now all of a sudden Pennybag's plan is quickly becoming a bad investment. With LVT his property value is more heavily correlated with the actual quality of the house and less with value of the land. He is finding that despite an increasing demand in the area, his property is actually dropping in price. Meanwhile good ole Grandma has been diligently been taking care of her home, and adding value and the price of her home has actually gone up faster than the rise in taxes. She's able to use to use the increase in value to take out a loan to build an accessory unit she uses to now help her cover her increased taxes, which further increases her property value. Despite all of that, her taxes have not gone up at all!
A LVT would just shift property tax burden more toward empty lots or less-developed parcels and away from more-developed parcels. It wouldn't result in killing little old ladies.
Taxing land only disincentivizes land from being hoarded and being used inefficiently. It's not going to prevent the creation of new land.
Theres also the issue of fairness. Land owners didn't create the land or make it valuable. They just use it to extract rents. Asset creators did make their assets valuable and if they do rent them the value of the rents will be in proportion to the value of the work they put into them.
Also, importantly, you can't "hide" land (from taxation) by moving it out of the country.
Historical Georgists were also called "single taxers" because of the idea to abolish all other taxes, but make up for this by a tax on land ownership that leaves the state with the same income stream as before. Apart from being (in their view) socially good, this would also have the advantage that landowners couldn't just move their land to the Cayman Islands to evade the tax.
I don't think modern Georgists are quite that single-minded, but I do get the argument that, for example, VAT is a tax on the poor in the sense that even people whose income is low enough that they're not paying income tax in the usual sense have to pay it every time they buy something (unless it's exempt), but taxing land would truly be a tax on the more affluent only, at least in a country where most poor people rent their accommodation.
And wardrobes, tables, books or computers (every year) but that's another story.
I suspect that in actual use it would end up having a small to no effect.
Similar arguments would go for rural municipalities that might want to encourage multi-generational agricultural living, for example, if that's what you're getting at.
Having un-utilized land in your family generation after generation codes as noble, but economically this is much worse than owning an AirBnb or a vacation home or being a Chinese investor who collects vacant luxury condos, or any of the other boogeymen of housing discourse. These people hold one unit off the market, and in the meantime they maintain it or finance its construction. The landowner builds and holds wealth for nothing but parasitism.
Being told you can't live in your house anymore because it is now zoned commercial gets people riled up, and being told the same because it's now too expensive does the same.
It's a hot-button issue but you can defuse it by putting safeguards in, though they're not always successful - see eminent domain scandals.
But this is more of a straw man than a real objection; as there are various and sundry ways to resolve this (for fixed income, you can have property tax deferral until sale-after-death, you can have homestead exemptions, etc etc).
I fail to see why that’s a problem. Those taxes go to fund local services (like schools, police, fire, etc.) whose costs likely scale when the local cost of living and land values scale. Buying land doesn’t mean you should get to lock in the price you pay for these services for perpetuity.
If anything a pure land value tax should be more predictable than a property tax, I got hit with a major property tax increase and looked into it, the town had calculated the new property tax based on an incorrect square footage and number of bedrooms for my house. After filing an appeal and going to court I got it fixed, but that was a more capricious process than if it was simply based on the value of the land under the house.
Then simply enact that, and the voters won't care because their taxes will stay the same (they probably will never actually decrease).
You won't get an absolutely black and white one sentence solution from it, but it is thought-provoking and contains some really useful ideas, IMO.
LVT would exclusively take from people and corporations who own land. This in turn will allow more people to own their home.
That sounds perverse in itself, especially since an economy needs diversity to function, and if everyone is incentivized to chase a single thing per region you end up with overproduction of that and underproduction of everything else.
I don't see why this would encourage economic homogenization.
Besides:
> Empty lots, parking lots, and other unimproved land would pay more tax.
Believe it or not, we need ranches and farms. Taxing them out of existence would be bad.
Maximum value, not maximum density.
They may tend to be the same thing, but that's not necessarily the case.
Thank God we are far from reaching that point.
If land is in a city, that gives it a high value and revenue earning potential due to no work or expenditure from the land owner, but ongoing costs to the taxpayer to provide the infrastructure and services that give it this value and potential. Roads, schools, hospitals, etc. these are very costly to the public but increase the value of nearby land.
The land value tax gives the owner an incentive to invest in improvements and get the maximum economic return on the land, and dissincentivising sitting on land in order to benefit 'for free' from it's improving value. So it's about making sure the public gets the maximum benefit from it's investments that improve the value of the land. Taxing improvements directly would have the opposite effect.
Let's say because of rising taxes, a bakery or a shop has closed and a lawyers office has opened in that spot. Who exactly us "the public" in this case and what are the "maximum benefits" that they are getting from that change? Because if I actually lived nearby, I sure wouldn't be happy about my favorite vakery/shop being closed.
And don't say "increased tax base" - for that, you can tweak existing system and increase income taxes so you collect more from the lawyers while still keeping bakeries alive.
The current property tax system makes it more likely that (in your example) the law firm will push out the bakery. Because improvements are taxed adding more commercial space means paying more taxes, which makes it less likely to happen.
With an LVT, expanding the building (up or out) to add a second store/office is cheaper so you’re more incentivized to provide space for both
The important thing isn't that the lawyer's office makes more money. That's just correlated with the important thing, which is that the lawyer's office is willing to pay more rent. Note the lawyer isn't operating a charity for property owners here; they're only going to pay as much for rent as required for the market.
If prevailing rent is high enough such that only lawyers get retail square footage, then clearly property should be taxed as such. That's the value of the land. But then more development will happen, eventually reaching an equilibrium.
Taxes will rise in neighborhoods where improvements have happened. To determine the neighborhood is improving, we need a metric, for instance traffic. We expect the donut shop in an improved neighborhood to see increased traffic and more sales. If traffic doesn't increase then land value hasn't actually increased and the taxes have been applied inappropriately. Maybe we can come up with a better indicating mechanism for land value, I admit I have not read Henry George's work.
Empty land isn't using any of those things. Any future improvement would use those things and be taxed accordingly. If you're concerned about infrastructure costs, the. You want to use a per capita tax or the current property tax that taxes the improvements (where people work or live) since they are using the infrastructure.
But even if you’re not using them, the utility services (water, power, sewer) still have to pass by the property. Power lines and poles are there, they have to be maintained, your water main can’t be leaking, etc. There are real costs to do all that.
It doesn't have to use them to benefit from their proximity. Land in the middle of a barren desert is usually worth far less than a similar piece of land near a populous city.
Yeah, but we are seeing that many cities are not prosperous and are seeing population reductions. You can't will the creation of value. Just because it gets taxed like the land will create value doesn't mean it actually will.
"in a way that benefits the community."
These taxes don't guarantee this at all. There could be any number of uses, many of which could be detrimental or wasteful (and this will vary based on perspective as not everyone wants the same thing).
Sure, but the real question is what does one consider productive enough? Should we tax a single family home at the rate of an apartment building just because the zoning changed? My opinion is that this type of scheme will be abused to force some people out of their homes in the name of benefiting society. My guess is developers and apartment companies can "persuade" politicians in many areas to change zoning to force people out, possibly the "wrong" kinds of people.
If you want productive uses, then you'd be better off charging a vacancy tax to already developed property. You wouldn't be able to fill all those spaces because the physical economy has shrunk, or people don't want to live/work in a rundown area, etc. There's plenty of open commercial real estate around me. The problem is you don't have customers to support the businesses that already exist.
A tax purely on the land has the same justification as a windfall tax. The value goes up or down independently of any action of the owner. i.e. They didn't do anything to deserve the increase in their wealth. The value comes from what the land is surrounded by.
It could instead leave you on the hook for increases in the desirability of the neighborhood which you have no say in. So it would mean that homeowners get screwed even harder if their neighborhood gets gentrified.
The steelman for it is that society should incentivize denser development of more desirable land, by disincentivizing maintaining sparse development of it.
Meaning, their land value and therefore wealth has gone up. Many people would love to be "screwed" like this, and in fact very hard at getting into the position amenable to "screwing."
As a class, real property owners are wealthier and have means relative to people who don't own real property. The idea that they're some oppressed underclass is ridiculous.
That is exactly what a land value tax does, in a negative way. It disincentivizes buying land in a desirable neighborhood and then doing nothing with it, waiting for prices to rise.
With capital value taxation (the other alternative), a person doing that pays less tax than someone providing buildings for people to live in or businesses to operate in. So they can do it for longer.
Because any buildings on the land are not taxed, construction is not disincentivized. Well, it wouldn't be, if permitting were not insane...
Cheekiness aside, you'll find the overlap of people who support both a land value tax and a wealth tax to almost be a circle.
Though popularised by George it was first rigourously analysed by Adam Smith in the Wealth of Nations.
We are, ultimately, all tenants of our sovereign. Our sovereign protects us from enemies both foreign and domestic. They do not protect our incomes, or our assets but by and large most societies do agree that it is a matter of fact that can be arbitrated in a dispute as to who owns which piece of land.
The arguments for an LVT fall into both economic & moral categories. The economic argument is that the elasticity for land is zero. It's always there, always will be there, and no human action is going to change that (barring things like landfill, which are a literal edge case that doesn't matter much in the grand scheme of land area). The only economic questions are "Who owns the land?", "What kind of returns can be generated from it?" and "How is it distributed?" As a result, a tax on land has zero deadweight loss. Most taxes reduce economic activity by disincentivizing the transaction they're taxing; as a result, productive activity that would've occurred without the tax never occurs. Land is different. The land will still be owned, just by different people, regardless of how high it is taxed. That means that the government can raise revenue without curtailing economic activity.
The moral argument is that nobody built the land out of their own labor, they only conquered it. And so what right do they have to monopoly returns from its ownership? Land was commons that existed before humanity, and so returns from ownership of it should go back to the commons, in the form of funding (presumably democratically elected) government and public-sector improvements that raise the value of the land for all.
Property on the land is different, in that it is built through human labor & ingenuity, and the returns to doing that should accrue to the people who actually do it (or compensate them for creating the built infrastructure).
And this is a fantasy. Some land is marginal: Taxing it more would reduce the profit anyone could make from it to nothing, leading to empty lots that aren't owned by anyone because the last owners were delinquent on taxes to the point the local government took the land from them and is now trying to auction it off. Look at houses in Detroit being sold for a dollar for an example of this. The city makes no money from those.
https://99wfmk.com/detroits-one-dollar-houses/
> It sounds like a good deal...a dollar for an old decrepit house – but then what? Then you have to pay for all the repairs, renovations, excavation (if needed), property taxes, lawn work.....so you fork out just one whole dollar but you wind up spending no less than six figures getting it in shape. Whether you plan to keep it or sell it is a moot point. You're still out that money.
Plus:
> The moral argument is that nobody built the land out of their own labor, they only conquered it.
Turn a piece of land into a farm and say that.
https://news.ycombinator.com/item?id=37913341
> The idea is that you tax the land only as if it was being used for best use - so that every property is encouraged to develop to maximum density.
So by definition, the "best use" isn't very valuable. I suppose the definition doesn't strictly include residential usage, but it's not hard to see that some land is inherently less valuable for residential as well, because location matters.
"Tax the land as if was being used for best use" is an oversimplification. The government can't realistically know what the best use of land is, or what value that would command. That's for the market to decide. But the point of an LVT is that you're taxed on the base value of the land (as measured by how much profit your neighbors are making off it), and so only usages of the land that are better than average remain profitable. If none of your neighbors can turn a profit on it either, tax will be negligible.
That's Detroit's plan.
The game Monopoly was originally called The Landlord's Game and meant to demonstrated the issues of land monopolism.
It was created by Lizzie Magie, a designer and political activist: https://en.wikipedia.org/wiki/Lizzie_Magie
Another (somewhat more niche) piece of trivia: (80s-90s) Poland had its own version of Monopoly called Eurobiznes/Eurobusiness: https://pl.wikipedia.org/wiki/Eurobusiness
The only problem that I can see with this approach is landscaping. It is valuable to have a nice park in the center of a city, if only for the cooling down that it provides, but parks don't make money and land value tax would incentivize people who own them to bulldoze the park and build something in its place.
Perhaps this could be solved with certain exemptions. But these are subject to the usual corruption, e.g. someone leaves a really bad parking lot in place and his friends in the town hall simply categorize it as a park.
Land value is therefore a really weird part of the economy that allows people to charge money without doing any work or providing any value in return. If we confiscate all the money people charge to rent or buy land, nothing changes because no work was ever happening. The land is still there and still just as useful. Contrast that with anything where work is actually done - the industry would collapse if you confiscate the money. Taxing land value therefore allows the government to reclaim the money which those people should not be able to charge in the first place (if there was free market competition). When this happens, counter-intuitively, land prices do not rise (because the highest bid in the auction doesn't change) and there is no negative affect on production or jobs (because no one is employed to manufacture or maintain land). We know this because economic theory predicts it and various countries have already tried it. Instead, other taxes can be cut or eliminated due to the enourmous boost in government income, which has very positive effects on the rest of the economy. Understanding how this works is deeply counter-intuitive and so people usually think that a shortage of buildings is driving property/land values because it's easy to make sense of.
To directly answer your question: if you tax the land value as set by the current market, you don't have to worry about assessing other factors that SHOULD lead to higher taxes because the people trying to buy the land have already done that. That's why they are offering a higher price. It's simple and therefore cheap and easy to administer. Also essentially immune to tax dodging because you can't hide the asset.
You say they shouldn’t be able to charge for it, but instead of disallowing it you just change the beneficiary?
Land value tax: Your tax is unchanged on how much you invest in your properties. A rundown parking lot pays the same amount of tax as the next door skyscraper (encouraging development of limited, high value land, and punishing lazy speculation).
Land value tax is a simple, elegant way to incentivize more (and more efficient) economic development.
> Land value tax: Your tax is unchanged on how much you invest in your properties. A rundown parking lot pays the same amount of tax as the next door skyscraper (encouraging development of limited, high value land, and punishing lazy speculation).
The problem with this analysis of a land value tax is that the value of the lot next to the skyscraper depends on the improvements of the skyscraper lot. This is in addition to the 'inherent' value of being downtown.
If we assume the skyscraper is the highest and best use of the land, it would then appear that both the skyscraper land owner and the parking lot land owner are being charged based on the investments made on the skyscraper lot.
Now, how are market prices determined? Overall, investors and lenders wish to maximize a return on investment. Indeed, property appraisals explicitly consider the highest and best use of a property in determining its market value.
So I am unclear how the explicit taxation of land value and improvement value that exists currently causes differences in behavior from the land value tax system you outlined.
Land with a skyscraper already on it and land next to a skyscraper have related but not equal market values. Switching from a tax on market value to a tax on land value rewards the the owner who developed their land and punishes the owner who didn't.
I agree! But in appraisals that I have seen, there is an effort to assess the highest and best use of a parcel as well as a break-out of the value of the land associated with a parcel.
If the highest and best use of a parcel is a skyscraper, a sale of the parcel should occur near the valuation of skyscrapers in that area. If there is no skyscraper on the parcel, the sale should occur near the valuation of land that has the possibility to be turned into a skyscraper.
> Switching from a tax on market value to a tax on land value rewards the the owner who developed their land and punishes the owner who didn't.
I agree that the owner who built the skyscraper is being penalized (but also, the owner would not have created a sksyscraper if the underwriting did not show the endeavor would be profitable).
However, both land owners are being taxed on land value; one is also being taxed on the improvements on the land. It would seem that the land value of both parcels should be the same.
Yes, the land value is the same. lets say the Land value is $1 million each and the skyscraper is worth $1 million. Lets say property taxes are 1% under the current system:
0.01 * 2,000,000 = $20,000/year for skyscraper plot
0.01 * 1,000,000 = $10,000/year for vacant plot
There's a total of $30,000 per year in income so we have to equalize our LVT to match. a 1.5% LVT gives us:
0.015 * 1,000,000 = $15,000/year for skyscraper plot
0.015 * 1,000,000 = $15,000/year for vacant plot
The owner will evaluate building a skyscraper against investing in some other venture unrelated to the land. Under Property Tax, investing that $1 million into his property adds a -1% to his projected yearly returns that isn't present for other investments that $1 million is competing for. That discourages development even if the skyscraper would have been profitable.
My question is why we need to reframe our extant system as a 'land value tax.' This proposition suggests that we should give concessions to developers in areas where there is a need for more development. But this already happens!
I guess I don't know why we should avoid taxing the value of revenue-generating assets if they are fixed. Buying a truck for a landscaping business is an taxable purchase. Why should this be different when the asset is fixed?
For "This proposition suggests that we should give concessions to developers in areas where there is a need for more development."
Development is a good thing. Maintaining your house or property, improving it, developing businesses are all good things. I'm not sure we should restrict these things to "areas where there is a need for more development". I don't want to live next to someone who has a rotting ruin of a house, who didn't maintain their place in order to pay less in taxes.
Someone maintaining their roof isn't a developer, and isn't going to be making money from their investment but they still pay more in taxes because they do it. They always won't get any government concessions or subsidies to do it (in general).
Similarly, a small business owner usually does not get concessions for starting their business. Usually they instead have to pay extra for permitting and such.
The parking lot owner next the skyscraper, however, gets FREE value from the skyscraper construction - essentially leaching off of another's productivity.
As for the argument how we SHOULD be taxing assets ... every tax takes money from the economy, and some ways of doing that are "better" than others, in that they result in more desired outcomes. LVT seems to provide better outcomes than other ways of taxation.
I'd write more, but only if someone responds to this.
Bridges are even more financially burdensome. Recently, we replaced a culvert that was so small I could easily jump over it, and yet it set us back $700,000. Keep in mind; we're talking about a town with a population of around 1,000 people, and we have over 30 of these culverts and bridges scattered across our approximately 80 miles of road within a 55-square-mile area. If you're familiar with the region, you might even be able to pinpoint which town I'm referring to.
To add to the challenge, not only do we have to repave our roads every 7-10 years to prevent them from falling into disrepair, but we also have to maintain them for safety, plow them, and salt them for safe travel. Over the past three decades, the expectations for maintaining these infrastructures have significantly increased.
The problem lies in the way taxes are structured, which is based on the combined value of land and improvements (buildings). Particularly in smaller towns and cities, most people are trying to get the most affordable option. This approach encourages sprawl, resulting in substantial infrastructure construction and maintenance costs. In larger cities (unlike mine), the upkeep of water and sewer lines are another considerable addition.
In more suburban communities, we're witnessing the aging of infrastructure that was originally constructed during the early days of the automobile era. The cost of replacing this aging infrastructure is substantial, but growth expectations, which used to help fund these projects, are dwindling. Many people who moved a few miles outside the city center still expect the same level of services without understanding the financial implications. This situation places a significant strain on tax funds, leaving us with limited resources to invest in valuable critical community needs and values.
We now live in a small city in multi-unit building that has ~60 ft of road frontage, and is right in downtown. The building has 6 apartments so has considerable value. But our _infrastructure_ costs are tiny compared to those that live in suburbia. Why are we paying more taxes for helping the city be efficient?
MA GL says you have to tax everyone on their property value - so someone in a 250K house out in suburbia that costs the town huge amounts to maintain their roads, sewers and water, actually costs the town money -- while a downtown 6-unit $1.5M building next to others that use the same services, is a boon.
And what made that possible? The proliferation of the automobile.
We need our tax system to promote density - which means you can spend more tax money on things that matter.
(this has been edited in places by ChatGPT)
Why? Why didn't you all agree to go down to Home Depot and load up on one big short metal pipe and some cement if that's the case? How was 700K spent?
- Environmental regulations requiring NEPA analysis or categorical exclusion
- State laws on who can perform road construction
- Construction codes for roadways and bridges
- Miscellaneous overhead for other areas (e.g., Human Resources, accounting, etc)
As a thought experiment, even the wealthiest city in the world couldn't afford a single bridge if regulations required bridges to be made out of stainless steel.
For anyone that doesn't know what a "stroad" is, I hope you look into it. You'll never see the world the same again.
If anything, many of these rural/exurb communities are already at the minimum population needed to support the industries that must exist outside of dense/expensive cities. These aren't the overpriced McMansions full of entitled upper class folks, those tend to be located near the city, and are quite healthy financially due to outsized local tax revenues.
I haven't really looked at Lafayette so it might count as rural but if the 3rd largest metro area of a state is the size ST says is unsustainable [2] then that bodes pretty poorly for all but 2 of it's metro areas.
I bet a lot of say New Jersey is close enough to either Philly or NYC to avoid being "3rd tier" but there's a whole lot of the country that isn't near a top-10 metro area.
[1]: https://en.wikipedia.org/wiki/Lafayette,_Louisiana
[2]: https://www.strongtowns.org/journal/2020/4/27/this-is-the-en...
In my city we pay a negligible “excise tax” on our vehicles. It’s like $100 for 2 older cars. If it were doubled or even tripled in think most people could afford it. This would seem to be the logical way to pay for road improvements, or a municipal gas tax.
Yes, people would skirt it (there already is a problem with people’s registering their cars in New Hampshire to avoid the excise tax, or driving over state lines to buy gasoline). But if even 80% of residents paid the taxes, it would make a real difference to municipal budgets for fixing roads.
I've been answered something on the lines of "but all those paved roads will create economic activity and we will all become richer and we will be able to afford their maintenance going forward", which is reportedly not true anymore (also because of demographics and of the ageing population). It might have been true some decades ago, when the demographics were different and the age pyramid was more "normal", but not anymore.
After I moved here, the people in the village decided to drastically hike income taxes to pay for improvements of other village roads. People saw 50 nice new houses being built and decided those people are responsible for paying for everything the village needs.
This is what will happen all over the USA. People want their infrastructure, but they will find ways to make anyone else pay for it.
Especially for services (where the value is concentrated at the time of delivery).
If that infrastructure costs were not so high, there would be sufficient money to pay people what they deserved.
Yeah, that's not the point. The point is that taxpayers receiving services should pay for what it costs to pay people what they deserve, not saddle the future with those costs.
But the issue has been that municipal taxes are a zero-sum game. People expect taxes to stay at a constant level unless they are getting additional services. So allocating more taxes in one place pulls taxes from another.
By not funding retirement immediately, you can keep taxes constant and not diminish current services.
But most importantly, the single-most-explanative reason why we services have gotten more expensive is because of this ignored tsunami of additional costs caused by the proliferation of the automobile.
If anything it seems like it would be much easier than the current property tax assessment scheme.
Plus, nearly all locales either have empty lots that are sold, or if there is no more room have houses that are sold as teardowns, and in either case that gives you an unambiguous land value.
Explain how it can be easier?
If valuation is based on sale price of the property or nearby comparable properties, those are objective numbers. A sale actually happened, at that price. So it was worth that much to someone. No room for argument.
A LVT gives power to the government to unilaterally declare that in some alternate universe, your plot of land might be worth a lot more, so they'll just go right ahead and tax you on that speculative amount in the absence of any evidence.
That sounds very open to abuse.
What about using insurance estimates for rebuilding costs? If my house is insured for a rebuilding cost of $500,000 and I bought it for $1,500,000, isn't $1,000,000 a reasonable estimate of the land value?
> A LVT gives power to the government to unilaterally declare that in some alternate universe, your plot of land might be worth a lot more
Only if the law for some bizarre reason gives unilateral power to the government to declare the land value for plots arbitrarily
You could say exactly the same thing about property taxes currently. Why could the government not unilaterally declare your property is worth 10x? Because that's not how it works
Right, that's not how it works when the tax is based on the sale prices of the property itself and/or comparable nearby properties. Those are market clearing prices, so it demonstrates actual people were actually willing to pay that price, so it is realistic.
The county can't say your property is worth 10x overnight, because there is proof that it is not, in the form of the public records of comparable sales nearby in the last few months.
But with LVT the claim is that the tax should be based on a theoretical value of what it might be worth if someone build something else there, like a high rise apartment tower. It is speculative, since the building doesn't exist. That's completely unfair.
For example, people could self-assess their land's value. To stop people low-balling the assessment, the Government could have an option to purchase the land at some % above the assessed price and then on-sell it. This way all valuations are linked to a market price rather than a bureaucratic process.
If you mean "free use" then land and speech are okay, but I still don't like the idea being applied to people.
You're attacking the person rather than the idea.
Experiments are good, even if they fail to confirm a hypothesis because we can learn more. Sounds like your mind is made up before the experiment though.
For some weird reason (laziness?) no one is going back to see why in these cases the idea was repealed.
It has been tried previously and had success.
1. Prop 13 in the 1970s was the incumbent homeowners voting in a massive generational tax break. It capped annual property tax raises for really no reason. Worse, it allowed your children to inherit those tax rates (as well as inherit your property on a stepped up basis so you didn't pay any CGT either). Only in recent years did this get cut back slightly. If you own multiple properties, only one (the primary residence) gets to have its beneficial tax rate inherited. And that measure only passed by (IIRC) 51%;
2. Corporations get the same capped tax increases and don't have to worry about inheritance. Disney World had its tax rate set in the 1960s so it paying a pittance. The LLCs can get bought and sold without resetting the property tax rate to assessed value as would happen if the property was sold;
3. For old people who may be sitting on massive land value that you may not want to evict straight away, just do what Texas does: accrue property tax but defer it to their death with a lien on the property. This gives people a choice between staying and paying later or downsizing.
Prop 13 may seem great if you're a longstanding homeowner but the thing is, it's a trap. You can't move because if you sell your property you lose your beneficial tax status. People should have mobility and generational wealth isn't who we should be giving massive tax breaks to anyway.
If you get these things wrong property vs land value makes absolutely no difference.
"Getting rid of the speculators" sounds good and might even BE good. But you know, Detroit's been in decline since the 1967 riots. No conceivable LVT is going to be a game changer. If the land isn't worth anything because no one wants to live there, that's the end of the story.
I highly recommend grabbing a copy of land is a big deal. https://www.amazon.ca/Land-Big-Deal-wages-about-ebook/dp/B0B...
Still less than 70 years ago, which is more relevant.
Roughly, 2% each year and in 50 years and it's gone.
Since you are relying on the government and surrounding society to defend the land, it’s up to society to define how that ownership works.
God doesn’t need money. Money is a human concept!
That share could come as government services, or it could come as a paycheck. But in either case that 2% belongs to all of us equally.
I’m not saying anything pro/con the LVT. But measuring ownership by whether you created it or not is a pretty terrible measure. You wouldn’t own _anything_ worth any value in the modern world.
That seems to be the goal. If everyone rents everything that would increase dollars flowing in the economy right? We are all here to work for the man, and rent the air when we inhale.
This isn't going to change much about landlords. If anything, it will increase the amount of housing rented through landlords, because the land value tax will make it uneconomical for more people to own their own homes. In a high value area, the only people who would be able to do so are the very rich.
Even setting that aside, if the land value taxes on the land that someone owns dramatically increase then that means the value of their property has dramatically increased, and they can sell the land for a dramatic profit. Certainly it sucks that someone might have to sell; however, don't think that someone who becomes rich due to their home value appreciating is really much of a victim in the grand scheme of things.
All value stems from improvements made by people, either on the land, or nearby.
Sure. Most of the value comes from the efforts of people who have nothing in particular to do with the "owner" of the land though.
If somebody is sitting on a prime seat in the hot tub, and they don't really care very much about it, and there's a line of 20 people waiting to get in, we have a wasted resource. Revealing true preferences by having people put some skin in the game means that more people are happy, more people are productive, and society works better.
Why bother making a tub, a neighborhood, or a community if it can simply be taken from you.
Id rather burn mine to the ground than have it taken away just because someone else wants it more. They might not even want it more, but they just have more money.
How could that possibly be true. The lvt would have to be high enough to replace revenue from all current income taxes, sales taxes, corporate taxes, and current property taxes.
It would also be based on land used, so Warren be buffet and someone working at Walmart would have the same tax bill if they both own houses in the same neighborhood.
It is incredibly regressive.
Elon Musk can live out of his small undesirable home in boca chia, so his total taxes would be close to zero
If they both live in the same size house in the same neighbourhood, sure. If a billionaire really wants to live in a closet to spite the taxman, that's fine, although I don't know why they'd bother having the billion. They aren't imposing on the community, they apparently made their billion without using any space (because it's not just homes, the whole point is that it applies to every kind of land use, good for them.
> It is incredibly regressive.
It's the opposite. Land ownership is the biggest thing separating the upper and lower classes.
> Elon Musk can live out of his small undesirable home in boca chia, so his total taxes would be close to zero
He'd still have to pay LVT on his giant factory and fashionable city-centre showrooms, so skimping on his home is not going to make a lot of difference.
Buying stuff that people make enriches those people and spreads the wealth around. It's good to encourage doing that rather than hoarding land. (While you can hoard individual old paintings, if you drive up the price of paintings then new and innovative painters - like Picasso - emerge, and produce new paintings to meet that demand).
> Elons giga factory would pay no land tax because the land vale is zero. It is in the middle of the desert surrounded by employ land that nobody wants.
Which is exactly where we want giant factories being built.
My point is that it's a terrible way to fund a government. The vast majority of economic value created does not require land and would go un taxed. The vast majority of value comes not from land or the raw materials derived from land, but from Human labor used to convert the raw material into Goods, or pure services.
It's also much more regressive than the current system. People like Elon Musk make a million times more than your average person, but they don't use a million times more land or eat a million times more hamburgers. Most of what the rich purchase is labor and human compute.
The value gets created by human labour but it ends up captured by landowners. I believe there's an economic theorem to that effect, but it's also pretty clear in Silicon Valley: some new innovation increases productivity, workers and investors get paid more, rents go up and all the gains end up in the pockets of San Francisco landlords.
> It's also much more regressive than the current system. People like Elon Musk make a million times more than your average person, but they don't use a million times more land or eat a million times more hamburgers. Most of what the rich purchase is labor and human compute.
In theory I take the point. Do those people actually pay a million times more tax under the current system though?
The hot tub is the land in this metaphor, no-one builds it, someone just put their butt on it first.
> Why bother making a tub, a neighborhood, or a community if it can simply be taken from you.
Something the younger generation has been asking itself for decades, since things are set up so none of us ever gets to "own" a place to live.
> Id rather burn mine to the ground
That explains so much about how the older generation has been acting politically.
If you can afford the rent for your home, you can afford to own it via a mortgage. (Assuming functioning capital markets and assuming low enough transaction costs.)
Something like this has to be true, because that's how landlords pay for their cost of capital and maintenance etc. If rent couldn't cover that, but for some reason home prices still stayed high, and sane land lord would sell the property and put the proceeds in some investment that does cover its cost of capital.
This does not follow. It assumes the landlord has the same cost basis and cashflow requirements as the person with the mortgage, which is almost never the case. Your mortgage interest payments alone can be higher than a rent that allows a landlord to make a profit. This is not uncommon. Rents in Seattle, for example, are far lower than the equivalent mortgage if you bought the place.
That said, most people struggle with financial and investment math generally, even when they sincerely attempt to make prudent financial decisions. I can’t really blame people for not knowing how to build and reason about financial models, it isn’t a skill you ordinarily pick up in day-to-day life.
Your residential mortgage will be at a lower rate and you will have property tax exemptions if the property is your primary residence and your insurance will be cheaper.
Well, in the hypothetical system we are discussing there would presumably be no tax exemption for primary residences or other tax differences.
If you buy a place for $1,000,000 at 7%, you can’t compete with someone that owes $100,000 at 2.5% on the same place, which is often the reality.
> If you buy a place for $1,000,000 at 7%, you can’t compete with someone that owes $100,000 at 2.5% on the same place, which is often the reality.
Where does that 2.5% come from?
If mortgages cost more than the rental yield, then your landlord should sell the place and use the proceeds to get into the mortgage business. (If not, your landlord is doing the landlording as a charity, because they are leaving money on the table.)
No. A land value tax doesn't make any difference at all to the ongoing cost of owning a given piece of land.
That's because land value taxes decrease the price of a piece of land (via market mechanisms), so that the sum of tax plus ongoing capital cost is the as before.
A simplified example: without LVT you might be able to buy a piece of land with a mortgage that costs $1000 per month. Afterwards, you can buy the same piece of land with a smaller mortgage of $200 dollar a month, but you are paying $800 in LVT.
If you own the land outright, you still have opportunity costs of capital. But it's easier to explain with a mortgage. Also, if you already own land then the introduction of an LVT will definitely put a one-off hit on your finances. (Unless the government compensates you.) But there's no long running impact.
You do realize condominiums exist, right? You don't need to own an entire parcel of land to own your own home.
As the saying goes, they aren't making more land. With a constrained resource that nobody created, the least efficient way to allocate it is to just let whoever got there first have it. A far better way would be to have competitive bidding so whoever thinks they can do a better job gets a shot at it.
In effect, the argument is that since land was not created by anyone then no one has any more right to it than anyone else. So the land's value should be shared among all of society; which is precisely what a Land Value Tax seeks to do.
Or even just the Mexicans from whom large parts of the US where conquered? (How Mexico got the land is another story.)
I advise reading the 14th amendment as well: "nor shall any State deprive any person of life, liberty, or property, without due process of law"
For an extra twist: There's the fact that land-as-property is not enshrined in the constitution - that's the land ordinance of 1785. Which would make a constitutional challenge interesting.
And of course, none of all that obviates the original point: Nobody worked to create land, so from a moral standpoint, "land ownership" is a very interesting concept.
The mountain and me
Until only the mountain remains"
-Li Po
Maybe the land isn't really yours to begin with?
I presume in your view, it would be best if governments cut the middle man and seized all land, but alas, they are too incompetent to extract any value from it. So like the EIC of old, they must rely on landlords.
That is an interesting view of private property. It certainly explains a lot about about modern rental problems.
Yes, you can see this alternatively as the government renting out the land. And that's a fine view. Landlords pass on the land, but also put buildings on top. What you pay monthly for your apartment is partially for the land (which would go to the government, indirectly) and partially for the building and amenities and maintenance.
What they think should be done about that depends on exactly what type of leftist they are. However, most do not think that the land should be seized by the government. Many are fine with private ownership but feel that systems (such as the land value tax in this discussion) should be put into place to help ensure that the land's value is shared by society. On the other hand, anarchists might feel that land should be owned collectively by those living on it and managed by them democratically.
I think that most leftists would agree with you; realizing that landlords didn't actually do any labor to earn the money that they receive opens ones eyes to a lot of the problems in our current system of housing.
Another is that the government is simply a service provider which you pay a yearly subscription to.
Now people live by, for, and at the discretion of the government.
There is no personal property, only what the government allows you temporarily posses.
People now live by, for and at the discretion of the corporations. The government is just a tool that the rich use to exert their will upon the people.
If the role of the individual is to serve the needs of the government, it is easy to corporations to control the whims and goals of the government. The individual doesnt have to understand whys and wants of the government, just serve it.
However, if the roles are reversed and the purpose of the government is to serve the individual, than each person can judge if their personal interests are being served.
That is to say, I think the idea of people as a servant of the government is instrumental in corporate capture of the institution. The idea of serving a greater good, without voluntary consent, is just an exploit opportunity for capture by corporations or others.
When people view the government as their servant, they just say no, I dont want that policy.
Imagine this system was in place in 2000, you watch as trillions are flushed into a pair of 20 year wars. You watch as lax oversight leads to the crash in 2008. And you ask yourself if the piddling sums extracted from your property were well spent, and conclude that it probably wasn't.
If these taxes went into a single payer healthcare system, I'd be a lot more interested, but as just another step in gifting insurance companies another trillion... eh.
Edit: Was the stress on "decides" or "best"?
They also have silly things like stamp duty, which is a sin tax on giving land to someone who has a better use for it.
So arguing that it's effectively the government stealing your property is only a valid argument if you are arguing that all taxation is theft. If that's what you believe then that's fine, but it would be better to be upfront about what argument you are making.
Your use of the phrase “rent seeking” is also a bit weird. It sounds like any extraction of value from capital would meet your definition. It’s fine if you object to a persons right to extract value from their capital, but rent seeking typically describes attempting to extract value from capital _without_ reciprocating any productive value to the person who’s paying you. Which is certainly not the case with land use.
You know that this is not true in most places?
If you put a hundred dollar bill under your pillow, it will be worth less and less as time goes by thanks to inflation. And if you use that hundred dollar bill to buy an asset that hopefully keeps its real value, you pay capital gains taxes on the nominal increase in value (even if there was no real increase in value).
That's because capital gains taxes that don't account for inflation (which is most of them) are essentially a stealth wealth tax.
> When inflationary systems are well controlled, they do create some positive incentives (primarily to spend money and put capital to productive use).
I find that those incentives are a bit silly. First, the central bank can print enough money to get any level of aggregate nominal spending they fell like. No need for inflation. George Selgin's book 'Less than Zero' even makes a convincing argument in favour of deflation. (He essentially argues for a fixed nominal GDP, and an economy that's growing in real terms would thus see the price of goods decline.)
Inflation is also not an incentive to put capital to good use. That's because money isn't real capital. If I have a factory or a piece of land that sits idle, that's a real cost to the economy. But if I have a hundred dollar bill that's siting idle under my pillow, nothing of value has been lost: hundred dollar bills are essentially free to print.
The central bank can put them in and out of circulation by buying and selling assets. So when I remove my bill from under my pillow to spend it, the central bank can react by selling assets. (They don't need to monitor my pillow. They can just go by statistical measures of spending or inflation.)
In fact, in order for me to have a hundred dollar bill under my pillow, it means I refrained from consuming some real goods earlier. So those real goods are available for investment by the wider economy while my pillow serving as a piggy bank.
A house in a city has lots of resources deployed there and land value tax pays for those things.
This tax makes better for people who invest locally and hurts people who don't.
I would really only object to property taxes (as a concept) in situations where intensified high density infrastructure doesn’t exist (or isn’t required to exist).
In that respect, I generally see property taxes as more just than income taxes. However, I am sure that there are exceptions and any tax code would need to be nuanced.
[1] Although owning capital may allow you to do some labor that you couldn't otherwise in which case the profit gained from that labor would not be rent.
No man is an island; land should be seen as something rented from the people, especially in cities, where most of its value comes from the efforts of others. I'm sympathetic to the idea that one is entitled to the sweat of their brow and the work of their hands, but land is neither; property in general may not be theft, but private land ownership is, because land rightly belongs to everyone and no-one.
> Your use of the phrase “rent seeking” is also a bit weird. It sounds like any extraction of value from capital would meet your definition. It’s fine if you object to a persons right to extract value from their capital, but rent seeking typically describes attempting to extract value from capital _without_ reciprocating any productive value to the person who’s paying you. Which is certainly not the case with land use.
There's a reason "rents" are called "rents"; land rent is the most classic example of them. The "owner" of a piece of land does nothing to produce its value, they just take money for nothing because they hold a scarce resource.
Rent seeking is a clearly defined economic concept that is not related to the seperate concept of renting an asset to somebody.
> Rent seeking is an economic concept that occurs when an entity seeks to gain wealth without any reciprocal contribution of productivity. An example of rent seeking is when a company lobbies the government for grants, subsidies, or tariff protection.
https://www.investopedia.com/terms/r/rentseeking.asp
Renting an asset to somebody has a very obvious reciprocal consideration of value.
It's called rent seeking because the thing you're seeking is rent ( https://en.wikipedia.org/wiki/Economic_rent - your link claims a false definition of the term).
> Renting an asset to somebody has a very obvious reciprocal consideration of value.
You could make the same argument for any of the classic examples of economic rents. A doctor's license or a taxi medallion is obviously economically valuable; that doesn't make it not a rent. The thing that makes it a rent is when you're able to rent it out for more than it cost you to produce, or when you don't produce it at all.
Rent seeking describes a specific case of “economic rent” where the reciprocal value either doesn’t exist or is highly contrived. As I’ve said, it’s fine to be against a persons right to seek “economic rent” from their capital or land. But this isn’t an “anti-rent-seeking” position. That’s an economically Marxist anti-capitalist position, as that is the most fundamental component of Marx’s economic model.
>The "owner" of a piece of land does nothing to produce its value, they just take money for nothing because they hold a scarce resource
As soon as anybody owns any piece of land or capital, they are not doing anything to produce any value that is derived from it, they are simply collecting money for controlling a scarce resource. Those two factors of production can create ongoing value without any intervention from their owners, and you either support a persons right to own those resources, and collect some portion of the value they create, or you don't.
Your use of the phrase "legitimately earned" also means nothing in this context, and I presume this is just a weasel word you're using to avoid actually having to clarify any sort of concrete stance. For starters, legitimate according to who? I would further presume that you have some sort of view on who's accumulated their wealth legitimately, and who hasn't. What criteria have you invented for this? Is the use of capital and land something you would consider contributes to "illegitimate earnings"? Because all of that just circles back to "seizing the means of production" (as in land and capital).
Also, what's wrong with unearned capital? If I give somebody a hammer, do you have some sort of moral objection to them deriving income from the increased productivity that would create for them? Because I would suggest that the only thing that matters there is whether I had a legitimate ownership claim to the hammer in the first place.
It's not, but semantic arguments are pointless. If you want to use "rent seeking" to mean something different from what it normally means, fine, I don't mind using different words.
> As soon as anybody owns any piece of land or capital, they are not doing anything to produce any value that is derived from it, they are simply collecting money for controlling a scarce resource. Those two factors of production can create ongoing value without any intervention from their owners, and you either support a persons right to own those resources, and collect some portion of the value they create, or you don't.
> Also, what's wrong with unearned capital? If I give somebody a hammer, do you have some sort of moral objection to them deriving income from the increased productivity that would create for them? Because I would suggest that the only thing that matters there is whether I had a legitimate ownership claim to the hammer in the first place.
Right; the point is that land and capital are very different. People can legitimately own hammers, which are the work of human hands (yes, access to the means of production could be a factor, but if we assume that production of hammers is now widespread then it's irrelevant). Claims of ownership of land (or radio spectrum, or so on), if you mean chattel ownership, can't ever be legitimate, because people can't make land, only seize it.
> Claims of ownership of land (or radio spectrum, or so on), if you mean chattel ownership, can't ever be legitimate, because people can't make land, only seize it.
These two claims aren't logically consistent. As a factor of production, land includes all natural resources. 100% of the input materials used for the production of a hammer are land, and so are 100% of the input materials used for the entire hammer supply chain. If you claim that ownership of land is never legitimate, then how can ownership of a hammer ever be legitimate if it's made of 100% land? Nobody made the iron or the wood in the hammer with their own hands.
I can see that you prefer to invent your own vocabulary, rather than use the long established vocabulary of economics. But that doesn't make the inconsistencies in your arguments dissapear. The only thing you've consistently expressed that a person can have a legitimate ownership claim over is labor (which yet again, takes us back to seizing the means of production).
No, but the overwhelming majority of the value of the hammer is from human efforts, not from the raw materials. Like yes technically you could say that whoever takes the hammer should have to pay tax on the value of 100g of unrefined iron or whatever, and if we ever reach a point where good iron for the tools that you need for good jobs is so expensive that only the children of rich families are able to hope to own those tools and the rest of us have to rent them at extortionate rates then maybe that would be a policy worth adopting. In theory nothing is 100% land and nothing is 100% product. But in practice you can draw the distinction pretty easily and say which things are scarce enough that taking them out of circulation has an impact on your fellow citizens and which aren't.
right but if this is my only piece of land where I live on, I am "the people". I need to live somewhere, I have no choice. It's like asking a prisoner to pay weekly tax for the cell he lives on: He has no choice, he has to live in some cell. Instead tax it intelligently so that I'm exempt for my first and only house on a moderately sized piece of land.
We all need to live somewhere bruh, you're not special. If you pick a piece of land that no-one else wants, you'll be paying zero or very close to it. But if you want your "first and only house" in the middle of Manhattan, either you pay a fair tax to compensate the rest of us for the valuable land you're taking out of public circulation, or you let someone else have their go.
That implies a size-based exemption, not a value-based one. And that kind of thing is how you get loopholes that the super-rich exploit. Keeping the tax system simple is the only way to do it. Tax all land in proportion to its value, no exceptions.
> The solution is never to tax working people even more just because they want to have a home.
Part of the point of the idea is to (eventually) move away from taxes on working. It's not like having a home is being treated as a special case, and nor should it be. Again: if you're taking the land out of public use, you pay your fair share of tax, in proportion to the value of the land you're monopolising. Keeping the rules simple ultimately benefits the working poor far more than trying to create special case carve outs.
What about all of the billionaires buying ridiculous properties in Manhattan as havens for their ill-gotten gains? If they aren't the problem, who is?
> The solution is never to tax working people even more just because they want to have a home.
Ok, so it's not the rich and it's not the working people. Who is the problem?
You cannot defend your land property from even a marginally better equipped aggressor who seeks to take it from you. You need a court system, or for a larger aggressor, an army, to do it for you. This means that de facto, the state with the armed men owns the land. Land tax is tantamount to a fee you pay to lease it. Also it can be framed as just payment for a service rendered, that is, the service of defending your property for you. Furthermore, any entity that "owns" land property and gets protection of his claim by a court or army that does not pay a land tax is free riding.
Income taxes are unjust. By the logic of the premise, land tax that pays for anything but defense of claim to the land is unjust. Wealth taxes are unjust, as are capital gains. Tarrifs that fund a navy to protect shipments on the high seas would be just, as would registration fees to bay for highway infrastructure. The core rules are, the state must only solve a tragedy of the commons, the tax that funds such an endeavor must derive directly from benefitting from that endeavor and it must only ever be used for that endeavor. With these axioms it is easy to deduce which taxes are just and which are not, they're all payment for services rendered for a service for which a state is the optimal organization to provide.
https://falkvinge.net/2017/03/01/a-simplified-taxless-state-...
Further, healthcare isn't a commons, so it is arguable that a state has no business interfering. Emergency facilities specifically are a commons, if the hippocratic oath is followed and all in need are helped. So some scheme where people pay for the maintenance of these facilities and services rendered in them based on how much they stand to benefit from them would be just. I don't know how you'd do that beyond sending them a bill. Maybe yearly renew on an access card, like vehicle registration, that isn't based on income but maybe could be based on medical history, or just flat rate for everyone. Taxing income, or wealth, to pay for blanket coverage including person to person contracts with specialists would be unjust, socializing something that isn't a commons would be unjust, but managing emergency facilities as a commons and funding them with some type of tax directly derived from their existence would be, because they are a commons and do suffer from tragedy of the commons.
You are paying maintenance in exchange for the right to exploit that land. Streets, power, water, sewage, fire, police, schools and libraries both cost money and increase the value of your land, so it makes sense to link the tax base to the value of the land since they should be strongly correlated.
So someone like Musk should pay basically no tax personally because he doesn't own any land?
I think the idea LVT comes from a period of time when land was a good proxy for wealth. These days, I think that's only true for the middle class, who gets crushed by LVT while the true wealthy laugh from their mansions on modest plots of land while spending their summers on billion dollar yachts.
So basically land value (which nobody creates through their own labor- its created by a community and should be owned by the community) is vacuumed up by the financial sector, which they throw at tech.
For more on this process, look into Michael Hudson, who accurately forecasted the 08 financial crisis.
Also ask a different question if he doesn't benefit from any of the land in the US why is he still there?
Also, 2% is in a similar range to many existing implementations, and has been shown to be too low to prevent speculation.
Your comment about "it's gone" shows that you do not understand the intent here. I would recommend you watch the following: https://m.youtube.com/watch?v=h59se33UCK4
In short, the land is not gone. The profits you made if you rented it out are not gone. However, any hope of increased value through speculation will be diminished based on how long you held the high value asset prior to sale... which is the exact intent of this policy change.
https://www.astralcodexten.com/p/does-georgism-work-is-land-...
The idea is that people would be more incentivized to build with the land, because it would impact taxes as much, but at the same time they would pay a higher base rate if they underutilize it.
* Original book review: https://www.astralcodexten.com/p/your-book-review-progress-a...
* Follow-up part 1: https://www.astralcodexten.com/p/does-georgism-work-is-land-...
* Part 2: https://www.astralcodexten.com/p/does-georgism-work-part-2-c...
* Part 3: https://www.astralcodexten.com/p/does-georgism-work-part-3-c...
The first review is very much worth a read--well written, entertaining, and informative.
From https://www.washingtonexaminer.com/the-short-life-of-pennsyl....
It's a "local" downside, but if you subscribe to the land tax idea, it's part of the process. These same people could just build "up" on their property, instead. But they want to cut grass.
FTA:
> The bigger immediate benefit, though, comes from reducing taxes on most [Detroit] residents. The city argues that 97% of homeowners will get a tax cut. Lower tax rates on improvements ought to encourage people to invest in properties
The proponents of this I have met are generally wanting to use it force seniors with paid off homes out of them so they can live in them instead (or often build on them, as they are property developers).
It also assumes that NIMBYism remains at the same level, which is challenging, as every new build or development nearby increases your own taxes. It would also encourage the childless to fight things like schools, as they would pay extra tax having them nearby.
California for example is partially so dysfunctional because they don't have enough conventional property taxes.
Yes, conventional property taxes disincentise building, but not more than capital gains taxes or income taxes do. And in large parts of eg California houses only cost a small fraction of the land they sit on at the moment.
In practice, land value taxes increase home ownership, so the actual displacement rate of a population might be the same or even less with LVT implemented.
> It would also encourage the childless to fight things like schools, as they would pay extra tax having them nearby.
Note that any existing property tax or council rates regime already theoretically has this effect too, but I don't really see this behaviour. It's a theoretical strategy that certain demographics could utilise, but not one that plays out in practice in any city I've ever seen.
This is the same as the existing tax system, where tax is proportional to (land value + buildings' value).
> High levels of displacement and instability.
Taxes would rise on undeveloped or underdeveloped properties, and fall on developed properties. The net effect would be an increase in total housing stock, as the relative cost of building and owning more units goes down.
> The proponents of this I have met are generally wanting to use it force seniors with paid off homes out of them so they can live in them instead (or often build on them, as they are property developers).
An LVT wouldn't have to work this way. The transition could be something like, set the LVT for each property the same as its current tax under the old system. But any future change in the value of buildings on the property don't affect its tax. This would mean seniors could continue paying the same tax they used to, while developers wouldn't get penalized for building more housing.
If you retire, or loose income, people currently pay less income taxes. You can also live frugally to cut down on sales taxes.
With LVT, taxes are detached from income and spending. Your taxes are also based on the whims of others. If your neighborhood gets trendy, you tax bill might double.
The opposite should be true because as density goes up the cost of services go down.
What's the alternative? Letting SFH leach off the current system paying less in taxes than the government spends to service them?
If you don't allow deferment of the tax, pensioners might have to move unwillingly (low income that may not cover the tax). Most proposals allow deferment for retirees until sale of the property, though, so it's kinda a non-issue.
In general, if your circumstances change unexpectedly then you might be unable to pay the tax and thus lose ownership of your property. This already is the case for renters, but it does mean a somewhat reduced sense of security for home owners too. Mind you, this is already the case for any existing property tax or council rates, which exist in many/most places, so it's also kinda a non-issue.
Ah more carve outs for boomers. I knew it had to be in there somewhere.
(However, it might still be a vote winner. Voters aren't exactly the brightest.)
We’re so addicted to spending that anything that leads to generational wealth is fair game for governments to loot?
It came from renters and first time home owners putting money into the housing market.
Your grandma is doing the looting.
Now public spenders think she owes them what she spent her life building.
A much better option would be to target the wealth inequality that is driving a lot of these problems (e.g. by ensuring basic needs like medical care, encouraging unionization, etc.). However, there isn't the political will to do that.
If she lives in the middle of a city, then yes her taxes may increase.
I'd love to build my own house, but it's practically impossible for my generation because of the policies those older generations have voted for.
> and lives on a fixed income. Should she be forced to sell (assuming she couldn’t afford LVT)
Yes. There aren't enough places for the rest of us to live, at least not anywhere where there's work, so those of us who are doing something productive (i.e. not lucky enough to be paid a "fixed income" out of other people's taxes) should get priority. If the older generation doesn't like it, they should make it legal to build more housing so that there's enough for everyone.
> for an investment she took all the risk to develop?
Part of the point of LVT is that it mitigates the risk. If the place where she built it becomes popular, she doesn't just get to trouser all the gains. But if the place where she built it becomes unpopular, her taxes drop.
The gentrification situation is similar: if someone is living in a single-family home in an area that is filling up with apartments, they're using the land much less efficiently than a replacement structure would. As land values slowly increase, the owner would be prompted to eventually sell to someone who would put it to higher value use. You could have some speed bumps in the policy to make sure this doesn't happen too fast, but if you stop it entirely you're just giving up on productive land use.
It's worth noting that property taxes have the same dynamic, since they also incorporate land value in them. The difference though is that _property taxes discourage development_, which contributes to higher rents. Land value taxes do not have this problem; a world where we suddenly swap to LVTs is a world with many more buildings and much lower average rents.
It's no coincidence that people who support LVTs are typically YIMBYs -- we want to reform urban planning and land use to make it easier to build things.
An LVT gives no such incentives. LVT is explicitly agnostic about how the land is being used. You pay the same, no matter how the land is being used. That's why it's economically efficient.
However, a conventional property tax (and also income tax and capital gains tax etc) disincentivise developing. An LVT can help raise enough revenue to be able to lower or eliminate those other taxes, and thus indirectly help remove disincentives to developing.
So under property taxes, the parking lot owner can afford to wait and have the lot sit empty; under an LVT, they have an incentive to develop.
The LVT has no influence on building.
If you draw a two-by-two matrix where the columns are property tax yes/no and the rows are LVT yes/no, you will find that the rows have no influence at all, and it's all about which column you are in.
maybe this would encourage them to actually pay attention to the plight of their neighbors instead of the "fuck you, I've got mine" NIMBY attitudes they so regularly take.
> If you don't allow deferment of the tax, pensioners might have to move unwillingly (low income that may not cover the tax). Most proposals allow deferment for retirees until sale of the property, though, so it's kinda a non-issue.
Otherwise, banks can do that kind of deferral for you with something called a reverse mortgage.
You can always provide an exception though, for a primary residence where the increase in taxes would be burdensome on the owner's income.
On the flipside, I bet there are locales where the buildings have a lot of improvements with multi-story dwellings and the land tax could be worse.
The article goes into detail about why this tentatively works for Detroit where the majority of tax bills will decrease.
the whole point of an LVT is to aknowledge that land is a valuable resource to the community at large, and using it ineffectively is a harm to the community and should be discouraged through taxation. every exception you make not only removes the incentive, but then creates an incentive to not change the usage of that land to something more beneficial, because the people who've received the exception don't want to give it up.
Or they just time shift it until the person receiving the exception moves away and the property goes to someone without the exception.
Sounds a bit silly.
You could give people a UBI equivalent to the median's persons LVT tax take (or first quartile from the bottom etc). That way the poorer people get a net payment from the LVT system. And you don't need to sniff in people's personal lives to determine which residence is their primary residence (if any) nor what would be burdensome.
Technology changes, too, will make some houses obsolete; older roof technology, plumbing, HVAC, inefficient systems, too little insulation and no space for more.
Houses that are obsolete for their location will sell as teardowns. In that situation, the land value is measured by the selling price plus the cost of removing the old house from the site. Assessors can work with those figures very well. Connect the dots from one to the next to the next, and the land value map shapes up.
The two downsides I'm aware of are difficulty in transitioning to an LVT and difficulty in valuing the land.
Transitioning to an LVT means that landowners no longer capture land rents for themselves, which is a massive overnight loss in the value they hold. The solutions there typically tax only the difference in land value versus a baseline assessment. So if a lot is worth $100 before LVT and $105 after, the tax is calculated only on the $5 difference.
Valuing the land is tricky because the whole point of LVT is to tax only the location itself. So the value of any structures should be excluded from taxation, and even improvements in soil quality (e.g. on a farm) should be excluded. This is problematic because the market for bare land is significant less liquid than improved land, especially in suburbs and cities. So there isn't always good data on comparable land, and there isn't a way to hold a straightforward auction to value a given lot. Of course, most present systems of property taxation are subject to the exact same issue.
This seems by _far_ the biggest difficulty, and I find it strange that this rarely comes up in LVT discussions. Even for nominally 'liquid' land it's not clear who values it or how.
BuT rEnNoVaTiOnS. Listen, I’m not trying to give you a comprehensive answer. I’m just trying to show that it’s not by far the biggest difficulty, not in the places LVT is most impactful, such as cities with extremely high vacancies like San Francisco.
If some land developer wants to build a new arena next to your plot of land - boom you're value just skyrocketed.
If the same land developer backs out of the deal - boom your land is worth less (or is actually worthless).
Your taxes depend on exactly when the assessment was made... and even professionals cannot agree on valuation (as we're seeing in some high profile cases right now).
Even for the same plot of land two people can value it radically differently.
> extremely high vacancies like San Francisco
This is a relatively new phenomenon.
There is no objective valuation for anything really... particularly when it comes to more-or-less unique, speculative properties such as land and/or improvements.
The only reason everyone mostly agrees on, say a car's value is there's a lot of cars exactly like it that have been sold recently in whatever area you are in. Yet, every plot of land is mostly unique and has a tremendous amount of potential, debatable factors when it comes to value.
That's almost the most common discussion point in my experience..
- LVT encourages building tall and is hostile to lowrise development and unbuilt/green spaces. Those policy preferences may not be shared by everyone.
>> Of course, most present systems of property taxation are subject to the exact same issue.
This is not really true. There are constant sales of building+land in cities and estimating building+land values can reasonably be done.
In a city bare land almost never trades.So you have to extract land values from building+land sales, which is much much harder and possibly impossible to do fairly.
That's actually a feature, especially if you make sure that the authority who can do the zoning also gets the revenue (or at least shares in it). That way aligns incentives.
> - LVT encourages building tall and is hostile to lowrise development and unbuilt/green spaces. Those policy preferences may not be shared by everyone.
LVT doesn't do anything like that. The whole point of LVT is that it has no influence on land use choices: you literally pay the same LVT no matter how you use the land. It doesn't encourage or discourage anything. That's why it is economically efficient.
(However, alternative taxation schemes like income tax or capital gains tax or taxes on improvements do discourage building tall. And if you lower those taxes, people will build taller.
Btw, I think that for all its faults a conventional property tax that doesn't distinguish between land and improvements is still miles better than income tax or capital gains tax or sales tax etc.)
> In a city bare land almost never trades.So you have to extract land values from building+land sales, which is much much harder and possibly impossible to do fairly.
Often land changes hands and the new owner tears down the structure and build a new one. You can reasonably assume that the old building was valued at zero, or even negative because tearing down costs money and time. So that gives a lower limit on the price of the bare land.
This is only a positive if your goal is to upzone everything. If you think cities should be a mix of zoning and zoning shouldn't be driven by tax considerations, then this is very negative, since the land management department has an incentive to increase zoning and taxes.
>> LVT doesn't do anything like that. The whole point of LVT is that it has no influence on land use choices: you literally pay the same LVT no matter how you use the land.
I don't agree that's how the incentives work.
If you don't tax structures you absolutely incentivize building structures, because they earn money but pay no tax.
In a land+building tax structure, there is less incentive to build a structure because they pay tax.
If I have a lot of green space and few structures, and we convert to LVT, I will be taxed proportionally higher than before, or than my neighbor with less land and more structures. By taxing me more you are dis-incentivising my approach.
(Before zoning was a thing there were already nuisance laws that forbade opening heavy industry next to a Kindergarten. No zoning required.)
In any case, people don't build high rises in the middle of nowhere right now. They won't start (or at least not much more than under the status quo) if someone drops taxes on structures a bit.
Also keep in mind that people don't get spontaneously generated. If people cluster together to form a high density area, some other parts of the country will see lower density. Ie if you let all the people who bunch up together, bunch up together, there's more space left over for the people who prefer lower density.
> If I have a lot of green space and few structures, and we convert to LVT, I will be taxed proportionally higher than before, or than my neighbor with less land and more structures. By taxing me more you are dis-incentivising my approach.
What you are describing is purely an effect of whether you tax structures or not. It's completely independent of whether you tax the land value.
Cities were already able to rezone neighbourhoods and unilaterally alter the values of residents' land (also just through everyday building - if they build a transit station in one neighbourhood and a sewage treatment plant in another, that alters everyone's property values), and this was already a very corruptible process. In theory LVT should improve it a little since now the city has an incentive to increase everyone's land value as much as possible.
> LVT encourages building tall and is hostile to lowrise development and unbuilt/green spaces.
Yes and no - it encourages making valuable use of expensive land, and moving less valuable uses onto cheap land, but it's agnostic about what that "valuable" is. If people prefer - that is, will pay more to use - lowrise buildings or green spaces, then that's what LVT will deliver.
It's rather easy to value the land: Have the owner decide what it's worth, then they pay a tax as a percentage of that valuation.
Now, obviously given that system everyone's going to value their land at $0.
To adjust for that land owners must be obligated to sell their land to anyone willing to buy it at the declared valuation.
Such a mechanism doesn't only keep the current owners honest, but leads to more accurate price discovery, as the land might have a higher "real" valuation than the current owner is aware of.
> It also defeats the object of land ownership[...]
So no, most people could keep land they'd like to keep in practice.
The entire notion of any sort of property tax is also predicated on the idea that individual land ownership is a tradeoff between the interest of the individual and society at large.
Indeed, and I like this concept, I don't think we should ever "own" land in the same way as I own, say, my phone. All we ever do is borrow it from society (or even nature).
However, some aspects of land ownership are a net positive for society at large. In particular, the incentive to look after it better if it's really yours until you sell it or you die. With this in mind I like some proposals I've heard whereby unpaid land value tax can be accrued to be paid at death or on sale. That way the stewardship aspect of ownership is reinforced without the freeloading on land value increases.
Returning to the valuation question. I think you're assuming an efficient market when it clearly isn't one. It would be like having to reapply for your own job, except it's rebidding for your own house. Not a kind thing to do to anyone.
What's more, even if you pay more than you ought to, you'll never feel secure in your home, knowing that at any time you may be forced to sell.
In economic terms what you're arguing is that investment efficiency should always outweigh allocative efficiency.
> pay [...] much more than your neighbor, who objectively speaking may have a lot of equal value.
All land is unique, so I don't think adjacent land of equal value exists. The difference may be trivial, or it may be substantial.
But yes, it's all a tradeoff. Some might prefer a centralized government authority decreeing a given value, others might prefer market-based price discovery.
I'm not trying to convince you or anyone else either way, just pointing out that fair price discovery for a self-assessment LVT isn't an unsolved problem.
I don't understand how this relates. My point would stand even if the neighboring lots were slightly different in value.
> just pointing out that fair price discovery for a self-assessment LVT isn't an unsolved problem.
Yeah okay I'll give you that. It's just that we can't ignore how tax policy must match a society's values in a democratic society, else it'll be voted out. I'm saying this probably wouldn't work out since voters put value on the idea that at least some people will be able to get a good enough job to afford to bring up their kids in a stable home.
I'm agreeing with you (along with the "heartstrings" comment) that all land is going to have both objective and intangible value, e.g. the view, and that someone grew up in that house.
But I think you're imagining that any intangible interests in the land are going to favor the incumbent.
I think for residential lots that's probably more true than not on average.
But we can easily come up with examples where a prospective buyer has a stronger intangible interest.
E.g. maybe you own it, and don't really care about the land or house per-se, but it saves you 1 minute on your commute v.s. the next lot.
Whereas I used to live there, and was forced to sell the house during the last recession. I've got a deep emotional connection to the lot and house, and my dog's buried in the backyard.
I'd like to buy the house back. You don't want to sell.
Does my interest outweigh yours? Maybe, maybe not.
All I'm saying is that a self-assessed LVT with an auction mechanism (see https://news.ycombinator.com/item?id=37909570) will enable both of us to set a price on those intangibles.
I agree that probably nobody's willing to try this out any time soon, for what it's worth the authors of "Radical Markets" suggest phasing in such a system by starting with commercial lots (and perhaps it would never go beyond that).
https://press.princeton.edu/books/hardcover/9780691177502/ra...
That can already happen right now with conventional property taxes..
If Warren Buffett wants to increase the value of my land, he can bid up all the surrounding plots, and make bids for my land. Any sane assessment method will see that the value of my land has increased, and will increase my property tax or LVT, and I'll have to pay or face the consequences.
(In the self-assessment case, you can give people the right to refuse to sell, if they are willing to eg back-pay the difference of LVT to the higher price for the last year or so. So people can opt to pay the tax instead of moving out.
To be extra fancy, give the would-be-buyer 1% of the extra tax take to incentivise people hunting for undervalued homes and to compensate for the buyer having had to secure funding.)
Someone who has more of a fear for can put up her self-declared land value. They'll pay a bit more in recurring tax, but would get a significant windfall, if their fear were to come to pass: Yes, there might be some psychological downsides to moving, but getting a extra few million dollars (or whatever) has psychological upsides, too.
E.g. let's say you live in a neighborhood where everyone's paying a premium for fanatic views. Except your house is the only one that doesn't have that view.
Even in such an obviously unfair scenario the government is likely to stick to some assessment that's going to be unfair, e.g. some mean sale value of the N lots adjacent to yours.
Btw, none of the problems here are specific to LVT. You see exactly the same problems in conventional property taxes: if your land is suddenly worth a lot more, your tax bill goes up.
Essentially, you want to force asset owners to write an at-the-money call option against their assets, and then adding insult to injury by not paying them an offsetting risk premium. I don't know how any moral person could be a proponent of the kinds of abuse and profitable exploitation of average people this proposal would trivially enable.
Yes, you would be forcing people to write a call option. It doesn't have to be at-the-money. Owners just pick a price that they'd be happy to sell at. Not some mystical 'fair market value' that would ruin them.
Of course, land owners would want to keep their tax bill low, so picking the right price to declare is a trade-off.
> [...] and then adding insult to injury by not paying them an offsetting risk premium.
Please be more careful in your reasoning! You are right that the call option is worth a premium. But that obligation to write the call option comes with ownership of the land, so we can just treat it as another (small) tax on the land. The market price of the land adjusts so that the yearly benefit from owning the land is pretty close to the yearly cost of capital plus sum of all taxes.
To simplify: the option premium is automatically offset by lower LVT payments.
> I don't know how any moral person could be a proponent of the kinds of abuse and profitable exploitation of average people this proposal would trivially enable.
Please elaborate. But please refrain from assuming that landowners are morons.
In particular the book by Glen Weyl mentioned in that article describes how it could work in more detail, and in a way that address the concerns you have.
A relevant except from that book (which I've got a Kindle copy of):
> For any tax rate below the turnover rate, the possessor will always set a price above the amount she is willing to accept[43]. When the tax rate is zero, the possessor is free to set any price she wishes at no cost and thus would set the monopoly price. When the tax rate equals the turnover rate, she has to reveal her true value. For intermediate tax rates, she will still be discouraged by the tax from setting a very high price, but she will not have a full incentive to report her exact value. Instead, she will set a price intermediate between her true value and the monopoly price that she expects a buyer to be willing to pay. As the tax rises from zero to the turnover rate, the price she quotes will gradually fall from the monopoly price to her true value.
That 43rd footnote in particular further addresses your exact concern (the mentioned "COST" stands for "common ownership self-assessed tax"):
> 43.: This fact helps allay two potential objections to a COST: that possessors may wish to “sabotage” the appeal of their goods to others to avoid their interest in taking the good, and that predatory outsiders may maliciously take goods just to harm a possessor. Notice that neither of these are possible if possessors always set prices above the minimum they would be willing to accept, because in this case the possessor is happy when her possessions are taken: she still profits, just not as much as if she set a monopoly price. Thus “predation” will be nearly as welcome as would be the “predation” of someone offering you out of the blue an extravagant sum for your home and you would never wish to sabotage your possessions as this would reduce the chance of such an exceptional opportunity. Only individuals who fraudulently report extremely low values and try to dramatically sabotage their goods would be open to predation, but so they should, and such individuals are likely to be caught by others before too much sabotage is possible.
If the government turns on an LVT, do you trust them to turn off other forms of funding? Or do you think they're just going to decide that their income went up?
I kind of trust them, but I don't have very high confidence that they won't decide that they "need" the extra money, maybe just for some "emergency" situation...
You can see that dynamic on the border between Switzerland and Germany: Swiss income taxes are a lot lower, so their property prices are higher. (You can probably see similar things happening on some borders between American states?)
Without an LVT, those higher property prices only benefit the land owner. With an LVT, the government gets some incentive to lower those taxes.
> If the government turns on an LVT, do you trust them to turn off other forms of funding? Or do you think they're just going to decide that their income went up?
I guess it depends. Governments have an incentive to get themselves more budget, but taxes also aren't just ratcheting up all the time. Eg the US still has lower income taxes than most of Europe. And tax rates also change over time.
Examples include conservation projects and urban farms, but the big one is empty-nesters ageing in place (while the city has grown around them).
If you've seen the start of the movie Up you'll recall that Mr. Carl Fredrickson owns a detached home which now has apartment towers going up on all sides. As a widower his house holds extreme sentimental value to him; he isn't selling. Under an optimal land tax regime, he'd be paying quite a bit of land tax reflecting the increased desirability of his location, and would potentially be forced to sell up as a result.
Until you realize the reality writ large: The current tax scheme enables drives supply down and value endlessly up. So much so that most homeowners end up selling for more than the total lifetime cost of ownership. So the old man from 'Up' would be able to sell and recoup a lifetime of housing costs. Personal homeownership is just abstract landlording in that way.
We have a myth in the western world that we own our homes. You can argue it's a natural right, but that won't matter to the government if you don't pay your taxes. So ownership is a social construct, just like copyright; we've decided as a society that it's most beneficial to let people "own" land. But the current system has, by destroying housing supply, increased housing costs by double (in HCOL areas) over what they would be if supply met demand. So renters and first time homeowners are subsidizing homeowners in a huge way. As a result, people are putting off having kids, or not having them at all, and taking a job they hate just to exist. It's abstract, but it's still feudalism; land owners extracting value from land merely from holding the social contract to it.
So no, my empathy does not extend to sympathy for Mr. Carl Fredrickson. I'll save it for the people laboring to pay his fair share.
I do have sympathy, it's a understandable position for someone to be in, but I'm not sure that Up in specific is the best analogy?
It doesn't make much sense for a modern service based economy. Your typical service sector worker, programmers, doctors, CEOs, would have essentially no taxes as long as they have a small geographic footprint.
Of course it sounds good to tech b
This doesn't apply to what Detroit is doing, but you could probably also take the underlying logic of land taxes (rent seeking should not be protected from taxation) and apply it to other more modern forms of property.
Stop letting low tax paying SFHing leech off the system, and we will be incentivized to build more.
The best way to keep your land value tax low is to ensure that zoning restricts its use and Light Rail never gets built.
Under a land value tax this flips, and the majority vote would go to up-zoning.
This means you want the maximum restrictions to keep the value low, for both you and your neighbors.
Less extreme, if you have a neighbourhood with plots that allow unlimited building and a few plots that only allow single family homes, the latter would be a lot cheaper.
you can put a duplex or quad-plex on a parcel and have much lower rent, but higher parcel land value.
If you are a homeowner who wants lower land value tax, you should fight tooth and nail to prevent higher density zoning,
It would be like a flat tax (in dollars, not percent) on every homeowner. Currently the top 5% of income earners pay 65% of taxes, and the bottom %50 pay %2.
Instead of this, every homeowner would pay basically the same. Bezos and Musk would pay more, but they don't own a million houses each, so it wouldn't be much more.
They want to be close to high-paying jobs? They want to be close to highly-paid homeowners? They want to be close to their own workplace? Location, location, location!
But instead of paying the previous owner, who didn't create the land value, they pay the community, year in and year out, for those services.
Makes sense to me.
Meanwhile, blue collar workers tied to living in urban centers pick up the bill.
Lvt would completely decouple income from tax burden
Can you explain more? I don't see it.
If a place already has high property taxes, and they are currently assessed on the land and the improvements then improved land in an area will receive a relative "tax reduction" compared to a full encompasing property tax. This means it is beneficial to improve land (the opposite of urban sprawl). The more the improvements the more the gains. Or thought another way improvements are "tax free" so it's easier to gain profit from improvements and is incentiviced.
If the location has low or no property taxes, then LVT will introduce a tax to the area and usually the plan is for this this tax is replace / offset other forms of tax (ex sales taxes). So enterprise would be taxed less and the land would be taxed instead. So again doing more commercial activity compared to a similarly sized lot doing less would be rewarded.
I'm not seeing any method that benefits sprawl for LVT compared to property taxes.
Imagine you are considering to start a small manufactory, say for artisanal socks. You can purchase land anywhere, since the bank will lend to you at a cheap rate backed by the land as collateral. You consider two options; option 1 is in a dense urban area, close to your workers and walkable with lots of public transit. The land is expensive due to nearby amenities. Option 2 is some exurbian land that is accessible via commute. The land is cheap. Assume without LVT that option 1 is preferred because it provides a better lifestyle for your workers. Now add LVT; the tax rate on the urban land is set based on rents, so the fact that a bank would lend cheaply against good collateral no longer matters; you cannot afford the land because local rents are too high.
It’s just a thought experiment to demonstrate a simple principle; society gets less of whatever is taxed.
But even if you did use your example above. Imagine as well there is someone else trying to open a fancy large bookstore containing as well hangouts like cafe, a bar and lecture halls for reading and book discussion. Their main draw is foot traffic and to be a neighborhood lounge where people will stroll by and stop in to pass some time about a subject they like.
They also want use of the same land, and for them the downtown location will also benefit their employees but critically it is also extremely important for their expected customers. For them, they would profit more from their location downtown and wouldn't likely be able to stay in business in the exurban location. So they would be willing to pay more for that dense urban location because it largely benefits the greater economic activity and better use of the locaiton - they would correctly outbid the manufacturer who can open a manufacturing plant just about anywhere and only marginally benefits from being in the dense urban location.
So in result if the LVT means less manufacturing in downtown (where it really isn't needed), and more businesses can operate where they benefit from the density then that's a plus for society and LVT working as is should.
And even all of tht said, neither of these are really the main examples to show the true benefit of LVT.
Property tax creates its own distortions, just like all taxes. But it is less distortive since going back to the example of a manufactury or a bookstore, no matter where they locate the property tax changes less than a land value tax, meaning the decision on where to locate is based on efficiency rather than taxes.
There is a single lot in the urban core. There are two proposed businesses vying for the lot. The first is an empty parking lot, the second is a two story parking garage. Under a property tax, the second group would be taxed for the improvements of building the above ground garage they would be taxed on economic activity - that is a bad disincentive for society. Under an LVT they would not be taxed for improving the property, there would be 0 marginal tax on economic improvement of the land. Now where it may not have been profitable previously to add the garage it now is. That is what you want. You have a market for this property, and it is now beneficial to be sold to the buyer with plans for the best economic use of the property.
A second example. Imaging a single city block split into lots. The city changes from a property tax to a LVT. The amount of money they collect from this block stays the same - but to change they will reduce the taxes on improved lots and raise the taxes on unimproved lots. Now those who improve their lots are no longer subsidising the free riders who are sitting on unimproved lots. Again you are supporting beneficial economic improvements and their activty instead of penalizing it via a property tax.
The case you are thinking of, you are using the phrase "marginal" but you are not applying marginal reasoning. Marginal implies a small change with all else being equal. You cannot apply marginal analysis to land as land is not substitutible - there is not "margin" between being in a dense urban center and in the exurbs.
There can be more buyers for a single plot of land. Enough buyers that they can be though of as substitutible. There are not more sellers for a single plot of land - you can't create more land, or produce more land with those characteristics of that dense urban center. Marginal analysis from the perspective of the buyer fails here and that's the mistake.
> no matter where they locate the property tax changes less than a land value tax, meaning the decision on where to locate is based on efficiency rather than taxes.
Again this is thinking that second order effects are first order. The first order effect here is the price of the property. The price of the property in the urban center will at least 2x-3x the price of that same property in the exurbs. It will dwarf any differnece in method of taxes. Even if LVT were 3x the property tax most property taxes are roughly 1% of the purchase price per year. Price not tax is the dominant factor and the reason why that comparison you made isn't valid. Within a price band yes tax will impact decision making, across price bands price obviously dominates. And tax dominating within a priceband is a good thing because we have now changed the policy to no longer tax economic improvements to land - so the tax policy is actually better. It's improving behavior at the margin.
Then why do realtors do showings for multiple locations? It’s because the locations are substitutable, with buyers balancing price and amenities. Land is substitutable.
> confusing second and first order
Prices are a second order effect, not a first order effect (unless there’s price fixing). LVT makes land with amenities relatively less attractive, which lowers demand. Lower demand then moves the price, but the quantity demanded will still be lower since the demand curve has shifted down. This causes an exodus from urban centers to the periphery.
>property taxes disincentivize development
True. Assuming constant revenue, a move from property to land value tax would create a relative migration from city cores to a highly developed exurbia. If the LVT was high enough, we’d get single plot high rises with multistory garages only accessible by freeway surrounded by untouched nature reserves.
At this point it appears you're just ignoring basic economics price sensitivity. Lowering overall taxes on a lot will not cause a migration from that lot.
I mean you can just keep repeating that phrase, but it doesn't then make it true. If you continue your argument that eliminating a tax on economic activity in an area will reduce the amount of activity in that area then there likely is little left for us to discuss.
Perhaps if all the shop owners got together as a cartel they would face the incentives you talk about. But not for individual owners.
Also, LVT does not change the total yearly cost of some land. It obviously doesn't change rents; and even for land owners it doesn't change the recurring costs: the sum of cost of capital for the value of the land plus all taxes is the same with LVT or without. (Basically, the market will prince the LVT burden into market prices of land. Imagine a city where some plots of land have to pay LVT and some don't: the total cost of ownership for comparable plots would be the same independent of whether they are LVT plots or not. Same for renting plots.)
As urban demand goes up, builders are incentivized to keep building denser ...... until equilibrium is reached.
LVT's main benefit is that it helps remove zoning confusion. It makes houses, parking, offices and factories compete on comparable financial ground. And promotes a minimum level of upzoning based on the value of the land. (Usually corresponding to demand for said land)
The increase in land value over 30 or 40 years has gifted them with lots of home equity (far more than their principle payments on their mortgage). That's enough funds to downsize from 3 or 4 bedrooms on a 10,000 or 20,000 sf lot to a very fine single-level apartment or condo in a building close to the center of things, a home they can take care of, feel safe in, and perhaps even have services to cater to their current needs, just as the nearness to schools and jobs catered to their needs 30 or 40 years ago.
Meanwhile, young families, particularly those with only one earner, must drive further and further to qualify for a mortgage. They drive not just on their home-hunting trip, but twice a day to commute to jobs close to those family-size homes and well established schools.
And if they do manage to afford a home in those older more central locations, they are paying (in California) multiples of what their neighbors are paying in property tax. Those neighbors raised their kids in a time when people of all ages were contributing to the costs of the schools. Today, the young families pay lots, while the comfortable older ones play little.
And from an environmental POV, having those workers commuting 30 or 40 miles each way each days isn't such a great deal for the environment, or for their quality of life, or for the time they can spend with their children.
About (2): LVT has no incentives or disincentives for how you use your land. It's entirely up to you, your tax is the same no matter what you do with the land. That's why an LVT is economically efficient: it doesn't mess with market allocation or land use.
Why would green space be reduced? If green space is the best use of a given plot of land right now, an LVT doesn't change any of the incentives nor opportunity costs at all. (Also keep in mind that many green spaces are zoned exclusively as such. LVT doesn't influence zoning.)
LVT concentrates development efficiently. It would actually increase green space, since people wouldn’t have to develop sprawling exurbs to escape high rents (too little housing) in the city center. So no, LVT would produce significant quality of life improvements over what we have now.
Not in valuable parts of cities it wouldn't. The direct effect of LVT is higher cost of land and lower cost of buildings, thus incentivising more building and less bare land/green space.
In order to compensate, tax on land is increased, so the relatively poorer homeowner who owns land with a relatively worthless house sees little benefit but in fact a tax increase, as the taxes that we’re previously being paid by the mansion owners fall onto them.
Just don't do what Prop 13 did in California where they applied the property tax limit even to commercial property for some reason.
There's a Prop 13 style cap on property tax increases. It's the lesser of 5% or inflation. I'm not a fan of it, but it's not nearly as bad as Prop 13's low cap.
The California approach is to let the owner get massive appreciation, which they receive at sale, but never pay tax on any of it.
In other words, if California actually did kick out homeowners for their neighborhood getting too popular, it would have been much less of a disaster.
It was true that before Proposition 13 many older homeowners who could not keep up with rising taxes were forced to sell. But taxes were rising because house prices were rising, so they were able to sell at a nice gain.
This is essentially a relatively benign form of eminent domain, which has the same consequences without the implication of a good financial outcome.
Not in Michigan (where Detroir is). The rate of increase on property taxes is capped, so if prices go up quickly your tax doesn't. It gets reset to market if you sell.
The most valuable thing you can have for retirement is a home free and clear. Incentives to disrupt that in favor of what others think is a "better use" are very un-American IMHO.
Prop 15, a modest modification to Prop 13 that wouldn't have affected homeowners, just commercial property, failed. Removing Prop 13 protections for homeowners would be much less popular.
Maybe people in California do think the system is a disaster, but they like it and don't seem to want to change it.
Either current residents are protected from property tax increases, or property taxes can be deferred until sale or death and the estate pays them (common in many jurisdictions).
And yet it is immensely popular. Why do you think that is?
I believe it's because rather than thinking home owners are evil rent seeking capitalists, most are hard working people who bought a house and think it's fair that the government not tax them out of it.
It would still suck to have to sell, but it's not nearly as dark as you seem to be suggesting.
Besides any legal hiccups (how common are such contracts? Is this well-understood law or are we trailblazing this?) there's the practical concern that if I sell my place and it takes a year or two to build the housing complex, well, I still need a place to live while it's under constructions.
I think the best that current American society could do is "...if the former owner could be guaranteed enough money from the sale to move someplace else nearby".
Still - if anyone has ideas about how to sell one's current residence so that more dense housing could be built, and then one could move into an apartment/condo in that new, denser, housing I'd be really curious to hear them.
(Depending on how life goes, it might be relevant to myself in the next 5-10 years)
If there are more people like you, maybe I’ll become a developer.
Single family homes are redeveloped into 7-8 floor condos and 4-5plexes are frequently redeveloped into 12-15 floor condos. The residents are paid handsomely in rent for a few years and the new apartment is usually more luxurious and larger.
It's a win win
I see it all the time. There is some office building with a weird looking residential unit on the top floor. The resident gets residual rent income together with the developer. New residents take advantage of increased supply of housing and commercial space. It is a win-win-win.
In reality, individuals and businesses like to make long term plans. This expectation makes it incredibly unreasonable for a recently constructed home, office, or retail space which has an expected useful lifetime of decades. They shouldn't be expected to replace it all only after a few years.
This is why I think a reasonable compromise is to have a type of limited "rent control" for land value tax where it is only allowed to increase by no more than 1 percent more than the rate of inflation. This limit comes into affect when a building is constructed and lasts for the duration of the expected lifetime of the building, perhaps 55 to 65 years. That's at least 2 full depreciation cycles (if you're familiar with that). It resets to market value if the property is sold but the limit is not extended any further into the future.
- a delay or cap on taxes for first time/single home owners; to make it not so punishing if you're just buying it to live there
- a number of properties below which the tax isn't applied or is reduced; to allow people to build equity in their house and maybe a vacation home or two, but stops someone from owning 5+ homes and locking up all the supply
- a tax that applies more heavily to corporate owners of residential homes; to keep the Blackrock's of the world from snapping up significant amounts of residential homes for padding their portfolios. Could even apply to LLCs of a certain size.
We just need to get creative!
Land value taxes have a special property in that land owners cannot respond to the tax by producing less land; the supply of land is fixed. This means LVTs do not generate deadweight loss, which makes them very efficient: https://en.wikipedia.org/wiki/Land_value_tax#Efficiency
Not that it won't spur development. It will. But not as much as anyone hopes. They have to eliminate taxes on all improvements to the land and tax the land itself only. Also remove code and zoning restrictions on it. They could rebuild the city if they got serious about it.
I'll just keep renting, I guess, since it makes no difference.
That land is provided ongoing services, security, and utilities which cost money each year to maintain. Ownership is not some fundamental law of physics. It's a made up concept which is defined however the society you live in wants to define it.
Yeah, and I already pay PG&E, Comcrap, and whoever else is maintaining those services, I don't need to pay it again to the IRS. The IRS wouldn't do jack shit on land I own.
Do you think all these things just magically exist?
Hence, owning property isn't attractive to me at all right now unless they can stop taxing it.
Where I live we see tremendous value in the property taxes we pay. The kids get a quality education, the parks are well maintained, the streets are good and the walkways are clean. It’s not cheap but it’s all accounted for in a public ledger. And if you don’t like it you’re able to run for office to change it.
Look - I’m with you when it comes to government inefficiency, corruption, etc. the further from home the worse it is. At least property taxes go into my community and we directly benefit. It makes a place desirable.
In this case the IRS collecting LVT is just recouping the investment they have made improving your land for you.
This is like saying:
> Harry Potter is the best story ever written and I have no interest in ever reading it.
Property rights are made of consensus, so I'd recommend you stop consenting to the short end of the stick.
There’s no way that the tax burden offsets the equity you would build by owning property vs renting.
95% of my mortgage payment goes toward paying down principal on the loan, which is essentially value I get to keep. Not to mention that my housing costs are much more fixed compared to rent.
Paying rent provides zero value retention in the long run, its only real benefit is flexibility.
This sounds like it's revenue neutral, so it doesn't seem like they're squeezing more. Also, they didn't eliminate all taxes on improvements, but cutting them by two thirds is still pretty good.
If the city is to be believed, most of Detroit's residents and business will actually be unsqueezed.[0]
> The city estimates that the LVT plan would reduce property taxes for 97 percent of Detroit homeowners and 70 percent of small businesses
[0]https://www.taxpolicycenter.org/taxvox/detroit-considers-shi...
There is a real question on how utilities and services should be paid for. There are places where water is really cheap to provide and then subburbs that require multible expensive pump stations yet they pay the same amount for water.
This incurages building in the wrong places and a land value tax by itself does not fix these things.
In addition the city also needs to strongly evaluate how it uses its land, specially things like on street parking.
Check out some of the work by Urban3 on land value, tax income and so on. Thy have fantastic visualisation that have changed my view on some things.
So yeah, land value tax, go for it, much better system. It allignes insentives better, but there are many otjer distorting effects. Its one piece of a much larger puzzle in terms of how to make great cities with great urbanism.
What if we applied a nominal real estate tax, but applied a differential rate to real estate that’s used for rent seeking?
i.e. if you rented your property for N/60 of the previous 60 months, you’re taxed progressively and exponentially.
I know this would depress real estate prices and reduce the volume of housing available for rent. This is the goal: I want property to be owned by local residents and affordable to local residents, because I think it makes better communities and citizens.
Can you all help me poke him in this idea?
That said, it's good that Detroit understands its goals and is thinking of what levers are available.
The problem is that you need structures. A city full of vacant lots isn't worth anything, and if you force people to build they won't. Why build when your building will never be worth anything?
Nothing as drastic as Detroit, of course, and I don't think Seattle is alone in moving the bar gradually to taxing land more and improvements less.
I mostly agree with the goal of Georgism: I've seen the wasteland that occurs when everyone is an investor waiting for the area to take off (New Brighton, Christchurch which has been slowly rotting over many decades because of investors IMHO).
However an 11% tax on land value is completely whacko.
There is already a holding cost for undeveloped land: either a mortgage or the opportunity cost (of not investing in say the stock market). (Albeit balanced somewhat by the benefits of using land as collateral for loans when interest rates are low).
The clichéd story of Georgism is an undeveloped plot amidst developed land. I suspect that situation is not common: developers usually will develop if land is surrounded by valuable property! How much of central New York is blank property?
Detroit: what happens when a whole area is blighted? The tax is just a way to steal the land value over time from the owners. 11% less CPI means devaluing at say 6% per annum so property has zero value after a couple of decades. That is definitely not capitslism and is not so far distant from communism (state owns private property over time, it just takes longer than a revolution to do so).
But then that self declaration gets published in an official register, and anyone offering 1.5x that declared value gets to buy the land without the owners ability to refuse.
I get the idea, but having money shouldn’t mean you should be able to just choose someone’s land and decide its yours.
I think this is not a very fair system and would cause lot of middle class people lose their home to large owners.
It's like people actually want to have world of obscenely rich and obscenely poor people... with nothing in the middle.
I'd rather the government not force people out of homes they paid for, but I don't think that's an option right now.
We have more housing units per capita than any time in US history. Why do you think we need more?
You do bring up a good point, however. Nuclear families use housing much more efficiently than singles. For the good of the planet and others, perhaps people should consider the benefits of committed relationships.
> If you tax blight, will you get less of it?
I think the theory is that it will prevent “hoarding” by forcing land owners to make efficient use of their property, or sell it, thereby lowering the overall price. It creates a less favorable risk profile for speculative real estate. You buy land to do something useful with it, not to wait for the next market boom before you sell.
I think the problem it aims to solve stems from the fact that once you own enough of the land you essentially can charge whatever you want.
And since land taxes incentivize more efficient use of land, yes, you may get more total housing supply.
More affordable because the tax increases the holding cost of land which is factored into a buyer's purchase budget, much like how mortgage interest rates factor into a buyer's budget.
First let's assume the supply of land for sale is fixed. Of course land is in fixed quantity but I'm talking only about sales inventory – what is actively on the market to purchase. Say I can afford $4,000 per month. If property tax is $1,000 per month and interest rate is 6% maybe I say my purchase budget is $500,000. If interest rate decreases to 3% maybe I say my purchase budget is $700,000. Now consider if the property tax increased to $2,000 per month. Now if interest is 6% my purchase budget becomes $330,000 and if 3% then $475,000. In either case I still pay $4000 total per month. The economic incidence of the tax falls completely on the seller (the previous owner).
Now let's remove our prior assumption about the quantity of land for sale. we earlier established that land would be more available under a higher land value tax because of the increased holding cost incentivizing more sales. That increase in supply (of land for sale) should reduce the market price for land. I can either get the same land for less purchase price or more/higher quality land for the same.
I think in this scenario there'd be a couple of options:
1. The land is worth a lot. If that is the case, you should be able to sell it reasonably easily.
2. The land is worth very little. In that case the tax would be insignificant because the land has so little value.
This can happen for all sorts of reasons, they might be using a simple algorithm that takes into account nearby values / recent sales as comparables. Those lots might have subtle features which makes them much more valuable than yours. Etc.
You get hit twice if over-assessed, first of all because you have to pay more, secondly because the high taxes act as a drag on what you can sell it for.
In theory this can result in "negative value", ie, the land generates less income under any plausible use than the property taxes cost.
Then you're stuck! What idiot will buy your white elephant now? How can you stop paying the taxes if no one will buy it? Which is why any fair lvt proposal needs at least an out where landowners can hand stuff back to the state.
If people are buying in an area and that drives up prices because it shows the area is valuable, in what conditions would your land not be worth a similar (ish) value?
But after some time I guess it could be found to be abandon and then sold at auction. But until then you’re liable for it. And I think it makes a difference if you own outright or if you have a mortgage.
It’s an interesting question though since so much property in Detroit has been abandoned.
Similarly, if the tax on a rental property becomes too great the rent will rise to meet it. And again, people will be priced out of their homes.
Similarly, the income tax in the US was started to pay for the Civil War. It wasn't until the early 1900s that income (both corporate and individual) got federally instituted.
In essence, the tax history of the US reads "At first there were only excise/consumption taxes, and then the government granted itself powers it never gave back. And now here we are."
As such, my expectation is that the notoriously-super-high-integrity government of Detroit won't do anything that isn't in the best interest of the people. Surely.
This is already possible with property taxes.
FTA the city claims that 97% of homeowners will see a reduction in taxes. Typically, LVT is highest in areas more central to the city (think downtown) and lowers as you move outwards.
This means that, for example, a multitenant strip mall neighboring an Arby’s on a plot of the same size will pay similar amounts of tax. With property tax, the strip mall would be paying significantly more in taxes even though it is a more productive use of land because the development has more value to its owner.
I don't about increasing taxes on home owners, but more so disincentivizing siting on vacant property that could otherwise be used better.
You're welcome to sit on that property, but you're incentivized to get it rented instead of not developing it.
Right now, there's less incentive to improve or repair buildings on existing land if taxes are high, since those improvements would make taxes go even higher. By tying it to the land value irrespective of improvement, the thinking is that it should encourage development.
As a homeowner, this sort of thing does concern me, though. I live in a low density, single-family area. A taxing authority might decide that my area is worth more - e.g. politically if there was a push for higher density housing - and proceed to value the land higher and my taxes would go up. This might make it unappealing to own and live in the house, and I would have to leave. Of course, this is seen as the correct outcome by a lot of people.
The city forecasts[0] that the average Detroit homeowner will get a 17% permanent property tax cut in 2025. 97% of all Detroit homeowners will get a tax cut.
[0]: https://detroitmi.gov/departments/office-chief-financial-off...
When you look at it from that perspective you see a systematic attack against any safe harbor.
Which funnily enough are both just other forms of tragedy of the commons.
Turns out the majority of voters are not all that interested in defending the piles of unproductive wealth.
Or Ben Franklin, "Democracy is two wolves and a lamb voting on what to have for lunch"
Mob rule doesn't imply ethical or moral.
Maybe it's the minority who have tricked the majority to vote for their bidding.
It is also reasonably resilient to inflationary dilution.
I'm fortunate to be still earning. You could spend your life building a small nest egg and paying off a home to retire in and have it just litigated right out from under you.
Your argument is "time marches on" but then what value in saving and accruing capital? It's all short sighted transactional consumerism or bust. That's no way to live.
Land tax is good in that it still rewards developers for creating value, but not speculators or people who buy land and don't actually provide value.
Tell me more about how nobody's hoarding land.
>> This is exactly what LVT is supposed to incentivize.
How? If people don't think building a parking structure is going to be more profitable than keeping a parking lot, how is raising their cost going to change their mind?
I suppose some of the lots might be sold as unprofitable which might lead to less parking and higher prices, which might lead to someone building a structure. Is that the logic? It seems pretty flimsy, but I don't otherwise see how LVT would incentivize building parking structures.
I'm not an LVT advocate, but as I understand it, that's the theory.
So most homeowners will pay less in total property taxes than they do today.
A city run completely by Democrats.
Every policy they have is destructive.
[0]https://detroitmi.gov/news/u-m-economic-forecast-shows-detro...
[1]https://www.detroitnews.com/story/business/2023/02/08/michig...
[2]https://www.chicagofed.org/publications/chicago-fed-letter/2...
Please do quote me exactly where it says this new Detroit-only metric shows the city doing better than the metro-inclusive metric. I'm particularly curious to see where it says that since the article explicitly points out that the Detroit-only index performed worse than the metro-inclusive index.
> Moreover, the city’s economic growth more frequently dropped back into negative territory than the MSA’s:
End result is that french people go to great lengths to make their house look un-valuable.
For example, they never paint anything and never do repairs. Some even have holes in the roof so they can claim buildings are worthless when in fact there is some 2nd roof underneath keeping the inside dry.
With an LVT they would be taxed identically regardless of if their building is in pristine shape or falling to shambles. Meaning there is now no longer any incentive to let the building rot.
It was proposed over 100 years ago and apparently has been endorsed by most economists as the least distorting tax.