Modeling land value taxes
progressandpoverty.substack.com
progressandpoverty.substack.com
The way land tax was designed resulted in a limited focus on results. This created a tax system that was largely ineffective; it was too narrow to work as either a revenue or social policy tool and for decades persisted without any obvious purpose. Attempts to revitalise it in the 1980s had some success but did not fix most of its underlying problems. Ultimately land tax was abolished in 1990; not for ideological or functional reasons but because it, and the Fourth Labour Government, were unpopular, an election was imminent and abolition was seen as a way to reduce the chance of the government losing.
https://worksinprogress.co/issue/the-failure-of-the-land-val...
They auction off land for 99 year leases at a time.
One analysis I’d like to see is how a pure LVT tax shifts the tax burden toward people with less valuable homes while giving a break to people with nicer homes.
One of the overlooked upsides of taxing land and improvements separately is that it’s more progressive: People with more expensive houses pay more in taxes than their neighbors with less expensive houses.
Shifting to a pure LVT ignores the house because, of course, it’s a land value tax. So if you have the most expensive house in the neighborhood your taxes go down, but if you have the cheapest house on the block your taxes go up (assuming similar lot sizes and such).
In practice this would end up being the opposite. Right now if you have two plots of land of the same size and one of them has a single big mansion while the other has a condo tower with 50 units, the mansion is valued at a million dollars and the condo tower is valued at 25 million dollars, implying that each of the condo units is $500k. So each of the condo units is being taxed half as much as the mansion, but the total for that plot of land is really 25 times as much.
Under LVT they both pay the same for the land, but then the owner of the mansion is paying 100% of the tax on the land and each of the condo owners is paying 2% as much instead of 50% as much.
You only get the result you're referring to if you have people building a single small house on a plot of land big enough for a mansion or large multi-unit building. But in that case why are they consuming so much land for such a small structure? Making inefficient use of high-value land is a luxury.
As it should be. Land is a finite resource and taxing based on the value of the land instead of the thing you build on your land makes sense.
Taxation based on realised employment income is more progressive. Any taxation based on unrealised gains/value is regressive, because it will be levied against people who may not have the income to support the taxation.
And yes, forcing people to move also costs money and can be seen as an extra levee against poor people who need to move to accommodate your new taxation model.
Proponents of LVT really hate poor and retired people, and tend to make up reams of excuses when this is put to them.
That might actually be the goal, to remove the last remaining poor people from gentrifying neighborhoods. All you have to do is build more expensive services, and subject the land to a new valuation and there you go, self removing poor people from your rich neighborhood.
Land value taxes are politically impossible in America, so there's no need to make the people who like LVT look bad. We already look bad!
Taxing land will be passed through 100% to the renter.
>We already look bad!
With good reason.
Replies like this genuinely confuse me. How do you think rent prices are set now? I’ll tell you, they’re generally set to maintain a given occupancy rate, which is to say, they’re set as high as the market allows. The market being a group of renters which make an income, of which landlords generally take a third or more.
If we implemented a LVT tomorrow, the renters don’t get additional capacity to pay rent as mana from heaven. The rents wouldn’t budge.
Any claim otherwise requires it be the case that there’s capacity to raise rents that landlords aren’t currently utilizing, i.e. that landlords are undercharging renters en masse. I have never seen evidence in support of such a claim.
"What the market allows" is affected by taxes.
Suppose the risk-adjusted return to investing in real estate in some area is equivalent to the overall market, and rents are currently $1000/mo. Then if new people move into the area, rents start to go up from higher demand, but that brings rents above the overall market rate of return, which makes it profitable for developers to invest money in building new buildings, which increases supply to match the increase in demand and acts to mitigate the increase in rents.
Now suppose you raise taxes on property ownership, so that to match the overall market rate of return, rents would have to be $1500/mo in order to cover all the existing costs plus the new taxes. Then nobody is building anything new until rents hit $1500/mo, because new construction isn't profitable until then. So when new people move in, there is an increase in demand but no corresponding increase in supply, and that persists until rents get above $1500/mo. By which point the renters are paying the new taxes.
Notice that this is effectively the same thing that happens when you impose restrictive zoning rules like single family zoning. They effectively act as a tax because now you have to buy a lot more land for each housing unit you want to add, so the cost of construction goes up and rents with it.
Let’s unpack your example with some rough numbers to see where the logic leads.
You assume rents are currently $1,000/month and that a new tax causes them to rise to $1,500/month to maintain the same return. That implies an added tax burden of $500/month per lot. If the lot is 10,000 sq-ft (common for single-family homes where I live), that’s about $0.05/sq-ft/month, or $0.60/sq-ft/year in land tax.
Now let’s look at whether this disincentivizes development.
Say a developer replaces that single-family home with a fourplex:
* Each unit is ~1,000 sq-ft - Construction cost is ~$270/sq-ft, so total is ~$1.08M * Required rent for a 5% return = $1,125/month per unit - The land tax ($500/month) is now split over 4 units = $125/month per unit * Total required rent = $1,250/month per unit, or $1.25/sq-ft/month
Compare that to the single-family home:
Rent = $1,500/month, also $1.25/sq-ft/month
So the developer earns the same return per square foot, and houses more people on the same land. Renters gain a cheaper overall option at the same cost per square foot. New development isn't disincentivized — it's neutral or even encouraged under a pure LVT.
Where your argument usually does apply is with regular property taxes, because those are assessed on both the land and the structure:
Single-family home is taxed on $240K (structure) + land Fourplex is taxed on $1.08M (structure) + land Per unit, that’s $270K in taxable improvements vs. $240K Unless the land is very expensive, higher-density development pays more tax per unit, even though it uses the land more efficiently. And that penalty grows with scale (e.g. high-rises).
That's the core issue LVT proponents focus on: property taxes tend to penalize building, while land value tax does not. In fact, LVT often makes better use of land more attractive by decoupling the tax burden from how much you invest in construction.
That implies an added tax burden of $500/month per unit. It's only $500/month per lot if the lot is only expected to have one unit.
> New development isn't disincentivized — it's neutral or even encouraged under a pure LVT.
You're getting this result by comparing it to existing property tax, which even more heavily disincentivizes new development.
Consider what happens if you only compare LVT to itself, i.e. to see what happens if you raise the amount of LVT by $500/lot.
If you build the fourplex, the amount of LVT increases by $500/lot or $125/unit. Now incentive to build the fourplex is lost unless the tenants are going to eat another $125/mo in rent.
And wait a minute here, under the existing property tax system the government was getting $500/mo/unit in property tax. If the typical plot is going to have a fourplex on it and the tax is expected to raise the same amount of revenue as the old property tax then it needs to be $2000/lot and thereby likewise increase the required rents by $500/mo/unit.
Where the incentive changes is that now you'll want to build not just fourplexes but highrises to try to dilute the LVT over more units. But now you've got a weird incentive: If existing rents are high enough then you want to build a highrise. But as soon as they drop below the point that building a highrise is profitable -- and highrises have a higher construction cost per unit -- you certainly don't want to build anything smaller than that, because the higher LVT per unit for smaller structures outweighs the lower construction cost per unit for smaller structures. So as soon as prevailing rents can't justify any more highrises, you get no more construction at all. Even if there are still a bunch of abandoned lots.
In the starting scenario the housing supply are single family homes, so there's one unit per lot to begin with. That it happens to be $500/unit is a coincidence of math rather than a fixed statement. Governments don't levy taxes (particularly an LVT) on a per unit basis, it's only ever on a per lot basis.
> Consider what happens if you only compare LVT to itself, i.e. to see what happens if you raise the amount of LVT by $500/lot.
The point of an LVT isn't to raise it by itself, it's to trail changes in land value.
Even if you were to arbitrarily raise it by $500/lot, the price is still more affordable for the fourplex renters than the house renters. So you should still expect less negative profit from the fourplex than the single family home. That the profit is negative will disincentivize future development, but it would also includes maintenance on the single family homes. And it'd be least bad for the fourplexes, because it's more spread out.
> And wait a minute here, under the existing property tax system the government was getting $500/mo/unit in property tax.
They were getting $500/lot, that happened to coincide with per unit but is non essential. And can't be, an LVT can only ever be charged at lot level. It's a _land_ value tax, not a unit value tax.
> If the typical plot is going to have a fourplex on it and the tax is expected to raise the same amount of revenue as the old property tax then it needs to be $2000/lot and thereby likewise increase the required rents by $500/mo/unit.
Huh? The government is overseeing a certain number of lots. Total revenue given a certain tax per lot is independent of the number of units on the lot. Also the costs, for local government, are largely per lot, in the sense that the maintenance on infrastructure dominated by lot level servicing rather than incremental uses of it. The exception to this would be schools. There's no reason to think that the tax needs to increase to be equal per uni.
> Where the incentive changes is that now you'll want to build not just fourplexes but highrises to try to dilute the LVT over more units.
This implies that the tax is not set per unit, which contradicts your previous paragraph. I happen to think this is correct, incidentally.
> So as soon as prevailing rents can't justify any more highrises, you get no more construction at all. Even if there are still a bunch of abandoned lots.
Construction is generally less discrete than you're suggesting. There's generally various buildings of various degrees of age (and various levels of depreciation) in a city at a given time. Also, most cities have a spread of land values, with land being most highly valued (and thus incentivized to be most dense) in the core and less so as you spread out.
And LVT would, rather than the discrete steps you suggest, probably look like: as it increases there's an incentive to sprawl, and as long as that population is still bringing traffic and receipts into the urban core the urban core will be incentivized to redevelop to higher density. That will bring people in from the previous sprawl, until there's additional demand at which point the sprawl either increases in density or moves further out, etc.
but the presumption that there will be a stream of people moving in is false. The people would just not move to a place with high rent (all else being quite equal).
So high rents will lower the incoming demand. Aka, the current rent is almost always the max the market will bear, regardless of people moving in (or out) - so you can assume it's at some sort of equilibrium.
A new tax on the land will cause the owner to obsorb it, and under that equilibrium assumption above, they will not be able to raise the rent to compensate. Unless, the new tax has an equal and opposite tax credit to renters! Who now have more money, and would be able to accept a higher rent as they've become slightly richer.
People move into places where there are jobs. All else is not equal, because other places don't have those jobs. Notice that higher rents correlate with population growth. Under your theory, if rents went up, shouldn't the local population decline rather than increase?
Also notice that the overall population increases over time as a result of births and immigration, and that existing structures are occasionally damaged in various ways and have to be renovated or rebuilt. The result is that the steady-state is rents going up unless you have active investment in new housing.
> So high rents will lower the incoming demand. Aka, the current rent is almost always the max the market will bear, regardless of people moving in (or out) - so you can assume it's at some sort of equilibrium.
"What the market will bear" is supply and demand. If you add costs to supplying more housing, supply won't increase until the price matches the new costs. It changes the intersection point with the same demand curve.
> Unless, the new tax has an equal and opposite tax credit to renters! Who now have more money, and would be able to accept a higher rent as they've become slightly richer.
Your assumption is that renters can't pay higher rents. It's that they won't pay higher rents if lower rents are available, which is caused by competition between landlords and increases in supply from new construction. Take that away and people have to outbid each other for the now more constrained number of units, and then people have to pay higher rents and have it come out of their other spending, or take on more debt. Because you pay for housing or you're homeless.
Isn't idea of LVT to replace other taxes? Like income tax. So they would get more capacity as their other tax burden would be lesser.
Obviously if it was entirely new additional tax it would take more time for rents to creep up.
The real reason these sorts of reforms will never kick in is that roughly 2/3 of Americans are in owner occupied housing, it’s the largest asset on most of their balance sheets, and an LVT will in many cases effectively zero that out.
So it’s the homeowners (particularly the older cohorts) which will vote against this policy to the detriment of the younger cohort.
That being not politically tenable is a feature of democracy, not a bug.
Housing got set up as a pyramid scheme where the price keeps going up because supply is constrained, so younger people have to take out ever-bigger mortgages in order to have somewhere to live. Nobody wants the prices to be unaffordable until they buy a house, but once they do they're locked in to the high price they bought in at and want prices to go up even more. When you have a majority of people on the hellbound side of the line then you're locked into a death spiral that violently explodes once the prices get so high that the majority can no longer afford a home.
fixing it implies it is a problem in the first place. It isn't a problem.
There is no right to ownership of a property (despite it being called the american dream). As long as rental vacancy is sufficient to not cause mass homelessness, it isnt a problem. And if does become a problem, the issue becomes one of production of supply and density (related to allowed zoning), and not the price and taxation (of land).
And it is through the fight to afford to buy property that productivity and innovation can be forged.
Isn't it?
80% of people own a home, so they vote for policies that increase housing costs. Then 70% of people can afford to own a home, so they vote for policies that increase housing costs.
Eventually only 45% of people can afford a home, so the now-majority of renters vote for different policies. The entire edifice built on ever-increasing home values collapses because policies to support their continued increase are no longer favored by the majority. Without the expectation of continued price increases, speculators divest. There is a massive housing crash and all the people who did own a home end up underwater on their mortgages, but they're no longer in the majority so the now-majority only cheers because housing costs have finally come down and they're no longer paying two thirds of their income in rent. The now-underwater homeowners hand the keys back to the bank, because why pay a $500,000 mortgage when you can now get a house for $250,000?
That's a pending disaster. Maybe we should consider policies that get housing prices down in a controlled way, instead of causing a giant recession?
> There is no right to ownership of a property (despite it being called the american dream). As long as rental vacancy is sufficient to not cause mass homelessness, it isnt a problem.
"As long as there isn't mass homelessness, having landlords milk workers for everything they have is fine"? You get "can't afford medicine" and "can't afford nutritious food" long before you get homelessness. You get "can't afford to start a business" long before even those things. That's bad. That's a problem.
> And if does become a problem, the issue becomes one of production of supply and density (related to allowed zoning), and not the price and taxation (of land).
Those things are related. If taxation is higher then investment in new construction goes down.
Land value tax also does something extra weird. Suppose the annual tax on a plot of land is a million dollars. Meanwhile the amortized construction cost of putting one house on it is $30k annually, a 10 unit complex is $400k and a 25 unit complex is $1.5M annually, because taller buildings cost more per unit. Then the annual cost per unit with the LVT is $1.03M for the house, $140k for the 10 unit complex and $100k for the 25 unit complex. Even though the 25 unit complex costs twice as much per unit than the house to build, and 50% more per unit than the 10 unit complex, and even though the local population density may only require 5 housing units on each plot of land.
So the result is that you get a lot of 25+ unit condos/apartments, and then a lot of abandoned plots with nothing on them at all, because it's not cost effective to build on them unless you're going to build at least 25 units, but it's also not worth the construction cost of 25 units unless rents stay above $100k/year/unit. So you get enough towers to get rents down to the cost of the tower plus the LVT on the land under it and then construction stops because it both costs too much to build more towers (higher construction cost per unit) and costs too much to build smaller structures on the remaining land (LVT kills you with fewer units per plot).
> And it is through the fight to afford to buy property that productivity and innovation can be forged.
High rents cause poverty and crime, not productivity and innovation.
If you don’t want to switch forms of government, formulating a holistic plan, addressing weaknesses in the plan, laying out how the transition will work, educating the people about it, and convincing them why your plan is better is what I’d recommend.
But those checks and balances have been eroded over time, or weren't strong enough to begin with, so then the majority e.g. votes to constrain new construction because they value their own short-term financial gain over the greater harm they're causing to the minority.
And then the same dynamic plays out for some other issue, but this time you're in the minority and you take -50 damage instead of a +10 gain. So the problem is that it's in everyone's interest to stop this from happening in general, but only in the minority's interest to do it on any particular issue, and democracy in and of itself isn't structured to handle that.
No surprise there.
I don’t think any of this is particular to nor confined to a specific generation.
My house is well sized for our family of four. I don’t plan to move out when the kids go to college nor as long as I’m able to live independently. People who don’t like that are entitled to their opinion but not to my acting in accordance with their wishes.
Huge red flag, this isnt the case. It isnt a perfectly liquid market.
>If we implemented a LVT tomorrow, the renters don’t get additional capacity to pay rent as mana from heaven.
No of course not, the process would probably take 12 months, as home owners identify their losses, and instruct rental agencies to end leases and increase prices. Accepting that while the house might be on the market for longer than usual, attracting a higher income tenant and getting them to sign for term is going to long term resolve the new hole in their budget.
>that landlords are undercharging renters en masse. I have never seen evidence in support of such a claim.
I am living this discussion right now. So this is amusing me.
I rented my current property in 2020 for 320 p/w. It was probably worth 400 p/w I had a handshake agreement with the rental agency that they would leave the price where it is, and I would complete as much maintenance myself before raising a fuss.
In 2022, the owners had to sell the property to pay for medical treatment. The old owners had no mortgage, and loved having a fixed stable income. Their biggest risk was having the property untenanted for any length of time. So they left the price alone while the world moved on.
The new owner has raised the rent every 12 months since. The previous owners sold at a massive gain, and the new owner was struggling to pay the mortgage. My calculation based on sale price is that their mortgage payments were in excess of 380 p/w and, considering the sale grandfathered my no maintenance agreement, are looking at considerable maintenance costs.
Current cost to me is ~500 per week.
Issues: Market is currently roughly (we have big discussions about this) permitting 520 - 540 pw for similar properties.
My barrier is that its a substantial cost to move. So I negotiate all the price rises with the real estate in terms of property improvements.
If they saw a taxation increase imposed by an LVT, they would not hesitate to pass it on to me over 12 months. I would have to reevaluate the costs to move. If the same increase occurred roughly evenly across where I want to live, I would probably just have to make it work. I cant go anywhere to avoid the LVT increase, and it costs money to relocate. I would have to further erode my spending in other areas to account for it. And I could.
This really comes back to what the LVT is designed to do. Its designed to enforce the most efficient use of the land. The outcome is intrinsic to the goal. The land is not being used most efficiently (I rue the day that my landlord figures out that we have the exact amount of land required to battleaxe the block, turning my backyard into another property) which for humans, as opposed to spherical cows, is actually fantastic in a lot of cases. Under an LVT my landlord would be required to run the property in the most taxation efficient manner, which is counter to my interests as a renter.
But yeah, the rental market is not liquid. There's costs to move. Costs for having the property on the market untenanted for significant time. Costs to bring a property up to spec between renters etc etc. And lots of people live in that gap. To the point where our local real estate industry body actually issued guidance to real estates that they should raise the rent as frequently as possible because it wasn't getting done very often, suppressing prices.
Why don't home owners just instruct rental agencies right now to end leases and increase prices? Why do they need to wait for some hypothetical tax to kick in?
In a world where LVTs increased taxes on all nearby landlords, that threat is an empty one. Sure, they can threaten to go move 10 miles away or eventually to go move into a beehive apartment that will be built 3 years from now to optimally house humans while not leaving a shred of land under-used.
Well, that only works iff landlords can pass down these taxes. That's exactly what we are discussing. So this is begging the question.
> In a world where LVTs increased taxes on all nearby landlords, that threat is an empty one. [...]
It doesn't matter. Even if only left-handed landlords paid LVT, rents wouldn't change depending on the handedness of your landlord. (However, left-handed landlords would likely sell to righthanded landlords, because the property is worth more to them.)
Your own observation that rents would not change based on handedness of your landlord implies that you understand this.
(You can change the supply of land on the market, by eg giving a tax subsidy for keeping land off the market. That's what the British council tax does in many counties: you get a rebate, if your property ain't occupied.
But LVT specifically does not depend on what you do with the property. It's due one way or another, thus it has no influence on the supply of land.)
The supply of land is not fixed, its highly regulated.
In my country, the state governments have land release targets roughly matching population growth, they have never met these targets.
Then there's zoning. We have wild agricultural zoning practices that prevent agricultural land, even shitty agricultural land, from becoming residential.
Zoning and Regulation limit land supply.
> Then there's zoning. We have wild agricultural zoning practices that prevent agricultural land, even shitty agricultural land, from becoming residential.
Yes, there are land restrictions. But that limits land use. Not the total amount of land.
Do you expect rents at the end of 2026 to be higher or lower than now in that market?
The LVT itself will have no impact on rents. However, lowering income taxes will increase rents, independent of LVT. (Eg if they'd just lowered income taxes, because some rich sheikh wrote the government a big check for fun.)
That's assuming all else being equal, eg number of units available for rent.
Any tax levied on landlords will impact rents. Any business where the input costs increase, has an effect on prices. If you have a heck of a lot of competition AND the businesses can eat the increase you might get away with it. But LVT is a regressive tax that doesnt care about income, so the "businesses" aka landlords in this scenario can (and probably will) have tax that reduces their income to a deficit. Theres no getting around this, you need to stop pretending that LVT is magic.
Yes, only an income tax cares about your income. Eg a capital gains tax also doesn't care about your income.
So you are also arguing conversely that giving landowners some free gifts will lead to a drop in rents? Colour me skeptical.
Prices are set by demand and supply. For a cost to be passed on, supply must shrink.
There's nothing in the LVT that would cause supply to shrink.
Why do want to do everything in your power to ignore it? Stop trying to use your ignorance to selectively ignore arguments.
Regressive taxes hurt people which is why progressive taxation exists.
>So you are also arguing conversely that giving landowners some free gifts will lead to a drop in rents?
No, to drop rents you need both an increase in supply and a reduced costs for suppliers.
>Prices are set by demand and supply. For a cost to be passed on, supply must shrink.
This is a bonkers statement. "For a cost to be passed on supply must shrink". Only in a perfectly elastic supply/demand market is this true, and only if I sneak "relative to demand" in there. We have been around and around on this point. But its been demonstrated false over and over again.
Whats worse, is the other outcome identified, is supply shrinking. So not only are you wrong about prices, your statement is already inclusive of the effects of LVT.
>There's nothing in the LVT that would cause supply to shrink.
Ok you have to be a religious zealot to still be spouting this.
If the cost of supply houses to the rental market becomes higher than the income expected from supplying houses to the rental market, supply to the rental market will shrink.
LVT is a regressive tax, in that it doesn't care about income. So landlords with tight margins are going to be just as affected as landords with good margins. Any landlord making 1 dollar more than rental income, faced with a new 100 dollar LVT, is going to either withdraw their property or raise rent at least as far as 99 dollars to make it worthwhile to hold the asset.
Simply repeating your religious mantra does not change this obvious fact.
An LVT doesn't change any of the opportunity costs here. Getting more rent is exactly as useful (or not) as without an LVT.
Assuming all landlords have shareholders is the first clue you aren't on target here.
Your approximation is wrong and dangerous
If you live where there’s no demand and r prey houses already you can force prices down just as easily.
Mortgages prove costs aren’t passed on. A landlord with a lot gage doesn’t on the whole charge a higher rent than one without.
Thats literally my experience, the new owner with a mortgage charged me more.
I hope your new landlord will lower your rent, when they refinance to a cheaper mortgage. (Or are only higher mortgage rates pass through? What's the difference?)
I shopped around and found a good deal. It including moving to a suburb with cheaper rents and still making sure I found something good.
But this is the market. Its not full of spherical cows, its full of human beings making human decisions.
I found humans who valued longevity over pure profit. This is not a unique scenario, people use rents as retirement income all the time. They wanted a consistent tenant, and the suburb I wanted to move to is famous for inconsistent tenants.
I valued low prices and outdoor space. We found a price we both agreed on. I know of other examples of this happening near where I live, it isnt unique.
Likewise, costs being passed directly to the renter, not unique.
LVT does not preclude these precious humans from existing.
LVT just punishes them more severely for doing so.
If your question is, AH BUT SOMETIMES THEY DONT INCREASE RENT ALWAYS SO MAYBE THEY WONT INCREASE IT WITH AN LVT. But we are talking about a situation where the cost to supply a rental property has increased dramatically.
Landlords will fit into 2 categories.
1. Landlords who can absorb the cost.
2. Landlords who cannot absorb the cost.
Landlords have 3 options.
1. Try and absorb the cost.
2. Pass on the cost through increased rent (possibly leaving the property untenanted)
3. Sell
Landlords who cannot absorb the cost either need to pass it on or sell. Theres no "absorb it" long term for them. Likely the vast majority will try to pass the cost on before doing so.
The question remains whether landlords who can absorb the cost, increase prices. If enough of the market bites on the rent increases they likely will.
Also, there's another leg here. If significant numbers of landlords remove their properties from market, scarcity will drive up rental prices anyway. We literally did this to ourselves years ago when we removed negative gearing. Negative gearing has a tendency to drive up rental prices, but it also drives up supply of rental properties. We removed it for a year or two and the result was a dramatic increase in rental prices due to lack of supply. Renters cannot become home owners fast enough to ensure elastic demand, that's why house ownership : rentals is often seen as arbitrage. You take a product from one market and make it available to consumers in another market.
unless you're imagining they're destroying the property, you cannot "remove" it from the market (or they decide to leave it vacant deliberately - an illogical a choice as destroying the property).
If they sell to a owner occupier, it removes that buyer's original rental demand, by the same amount as the removal of the rental property from the market.
If they live in it themselves, it's the same (just no money changing hands).
Its not that the house is destroyed, its that they aren't spherical cows that immediately exist on the sale market. Renters cant become owners instantly. Landlords cant sell properties instantly. These things take time. Housing is not a perfectly elastic market.
Let’s start by noting that we’ve now shifted the argument from “100% of this tax will be charged to renters” to, “this will get passed through to renters who were previously being undercharged.”
It’s hard to directly argue with your anecdote because I don’t know where you are or what your rental market is like, so I’ll address the argument more broadly.
Let’s examine how common that arrangement is. To the best of my search small time landlords of the variety you mention own something on the order of 35 and 40% of rental units. The rest, primarily multifamily (apartments) are owned by corporate landlords.
The corporate landlords were sued by the last admin for price fixing using realpage. I don’t know if or how that case was resolved but I think it’s safe to conclude they’re probably not undercharging.
For the small time landlords, probably some aren’t undercharging and some are. After all, how hard is checking neighborhood rents on Zillow once a year? Even if none are, we’re still admitting at least 60% of renters aren’t getting the kind of deals you mention. So this is a minority case, and probably shouldn’t be the basis of policy.
Addressing this point: > Under an LVT my landlord would be required to run the property in the most taxation efficient manner, which is counter to my interests as a renter.
Even granting that that’s true, I’d argue it’s not persuasive. The government needs some amount of money to function. LVT is one source of that money, income taxes are another, sales taxes are another, wealth taxes are another, etc.
So your argument fundamentally resolves down to “other members of society should make up the deficit in taxes I would otherwise pay so that I (and others in my situation) can enjoy a yard or more space than I otherwise would.”
And the basic question here is, why? In what way does it benefit literally anyone else in society that you have a bigger yard? This is a blunt and perhaps impolite way to put it, but it’s true.
Going back to those alternatives, we can counterfactually raise income taxes on some waiter bussing tables or a SWE slinging code at Facebook, on an author with a copyright, or on someone who owns a business. But, if we do, we should expect less of all of those services. That serves as a reason to avoid such a tax.
In contrast, with the yard, I can’t think of a single such service provided or reason to avoid the tax. And that’s the crux of the Georgist argument more than railroads or slumlords. It’s the empty lot, or the lawn as we now call it.
The issue at hand isnt "Does the government need money to function" unless we are going full MMT derp we can all accept a level of taxation is necessary.
The issue at hand is whether LVT is a better distribution of the burden of taxation.
>So your argument fundamentally resolves down to “other members of society should make up the deficit in taxes I would otherwise pay so that I (and others in my situation) can enjoy a yard or more space than I otherwise would.”
My argument is largely that by shifting the burden of tax from a progressive tax regime, that is only targeting those by an amount calculated on what they can afford, to a tax regime thats largely dictated by circumstance and subjective valuation, you will hurt a lot of people who dont deserve it.
If we go too far in this direction we will have to define basic moral principles, because that seems to be where you are heading. I dont necessarily think that earning income should mark you for punishment either. But just as not taxing the homeless is fairly universal, not taxing people who organised their retirement and arent a burden is also fairly universal. Your mileage may vary.
it can't, because the value of the land must be judged on how much income it brings - such as rent. If rents grew, so will the tax.
The amount of rent that it could bring if maximally used is relevant to an LVT, but not what it actually does. (This is the entire point of an LVT vs a property tax.)
You are thinking of monetary inflation, I am referring to the most common use of the word, price inflation.
>Inflation most commonly refers to a rise in the general price level over a period of time (also known as price inflation).
(Especially they can always create more inflation by just buying more and more stuff with freshly printed money. If that ever fails, that means they have unlocked an 'infinite wealth' cheat: just keep printing and buying until you own the whole world. Obviously, the dollar would lose value before that, hence proving that they can always create inflation.
Lowering inflation isn't always possible, yes. But it's always possible as long as they have any assets on their balance sheet: incrementally sell those assets and 'bury' the money received in the sale.
As long as the Fed ain't out of assets, they can lower inflation.)
the GFC would like to chat about that.
The feds cannot nudge more than a tiny bit in either direction. Look how much money was printed during and post GFC, to try make inflation higher, and it never did.
The bank of japan tried the same a decade earlier too, in japan. Inflation never took hold no matter what they tried.
> As long as the Fed ain't out of assets
the Feds can never be out of assets, as they just print more. What they cannot control is the hearts and minds of all economic participants - and that is where the root of inflation (or deflation) comes from.
They didn't take their own advice, that they previously gave to the Japanese central bank in the 1990s. Instead, they started paying interest on excess reserves to neuter their own buying.
> Inflation never took hold no matter what they tried.
They tried approximately nothing. As I said, if you found a way to keep printing money without raising inflation, that's actually an opportunity, not a problem: just keep printing money and gradually buy the rest of the world for a bit of paper and ink. (Well in reality, it's only database entries. Which are even cheaper.)
If they can't create inflation, they should go and take lessons from Argentina, Turkey or Zimbabwe.
> the Feds can never be out of assets, as they just print more.
The Fed prints liabilities, not assets. Domestic money is a liability for the Fed. Assets are the stuff they bought with the money, like eg bonds or gold.
Taxing land, though, forcing more economical use of said land. It's wasteful to spend your land on single units to rent, and then you're not going to be competitive when other developers are putting in apartments around you.
So, you're going to be smart and try to score a better unit/land ratio. Maybe you'll build apartments, or dingbats, or townhomes. The end result is that, per tenant, they're going to be paying significantly less rent.
The reason we build sparse and stupid housing is because it works and it makes money for the builder. But it really, really shouldn't - at least not all the time. We have the wrong incentives.
Then I suppose it's settled. All that economic theory, and all those left-wing and right-wing economists that unanimously agree with that research, is all meaningless, because of your declarative statement.
You can borrow against unrealised gains. That's a key part of the 'buy, borrow, die' tax strategy.
People who sit on hugely appreciated land ain't 'poor'.
> Proponents of LVT really hate poor and retired people, and tend to make up reams of excuses when this is put to them.
Haha, right.
Borrowing and taxation are completely different concepts. Unless I am the only idiot who hasn't asked for their tax back with interest. Possible.
>People who sit on hugely appreciated land ain't 'poor'.
They aren't poor in that they have at least one valuable asset. The kind of asset that helps people stay afloat when they have issues with income or domestic violence. Regressive taxes are regressive because they simply do not look at income. Someone can be retired, living on nearly no income, and have a single valuable asset. It is not the role of government to significantly disrupt peoples lives because they have 1 good thing going. IIRC home ownership is the single best indicator of mental health.
My memory (going on 10 years I have been having this conversation with Georgists) is that George was largely enraged with Private US railways. From memory they would be automatically granted the land immediately adjacent the track they laid. Sometimes they would develop this land, sometimes they would sell it, but largely they banked it. Because that land was adjacent to, the railway, it was quite valuable, but often underused.
The problem with Georgists, is that the context their ideas were formed under is no longer relevant. The people who will be punished by these ideas are not the railways, but people who are just holding on to their property, people who bought cheaply (ie made an intelligent forward thinking decision for their future) and find themselves surrounded by new services that raise their properties value. Thats what gets me, is that property value is not something you can consent to or plan for. Its arbitrary subjective market valuation, and asking people to lose their homes (homes are houses that humans have a relationship with) because of a subjective market valuation is bad. Its bad when variable mortgages do it, and its bad when georgists roll up and propose the same.
I get the impression that maybe you are not aware of what is implied by the 'buy, borrow, die' tax strategy that parent is referring to: in effect it completely eliminates taxes on capital gains (in the US). [0] and [1] below are first two Google hits.
[0]: https://www.reddit.com/r/BuyBorrowDieExplained/comments/1f26... [1]: https://www.wsj.com/finance/investing/buy-borrow-die-how-ric...
There being a loophole in a single country doesn't seem to invalidate anything I have said. Capital Gains and Death Taxes are their own issues.
I mentioned the tax strategy just to point out that borrowing against unrealised gains is common. (You can also do it in jurisdictions that don't have capital gains taxes. But there you do it for reasons other than optimising your taxes. Eg you might want to mortgage your house (without selling it) to buy a car.)
They are almost completely opposite concepts.
Borrowing literally defers payment to the future. Taxation on your now land value occurs now.
Why does the ability to borrow against unrealised gains (with the lender speculating on the return on those gains) matter compared to paying a tax on unrealised gains (which is due now, not deferred and barely speculative)
You can borrow to pay the taxes. Or you can 'realise' your gains via a sale to pay the taxes. That avoids the leverage that you point out.
Thats insane, you know that right? You may have invented a worse financial instrument than the subprime mortgage crisis.
Taxation is an ongoing cost. you pay it every year.
Under LVT, the LVT price is entirely subjective.
If I am a bank, and joe blo has a 200k tax bill, and 20k income, I am already disinclined to lend him money to cover that tax bill because of his income. I think this is where you fall over, and the rest of this is just making fun of your nonsense.
The great thing about joe is he is going to get another tax bill next year, even if he parts with 95% of his land portfolio, I have no idea what the value of the remainder is going to be, subjectively, next year. Its an open ended liability. If I was a good banker who wanted to be nice to Joe I would ask him to leave.
However a normal bank might lend him the money just to receive his land as collateral to take it on when he inevitably defaults. But I thought LVT was about the reduction of land banking, not shifting ownership of land to the banks?
Yes, just like you gain the land rent from the land you own every year.
> If I am a bank, and joe blo has a 200k tax bill, and 20k income, [...]
My broker doesn't care about my income one bit when they lend me money: they lend against my stock portfolio. Similar, here you could lend against the real estate. Why would the lender care about income?
> However a normal bank might lend him the money just to receive his land as collateral to take it on when he inevitably defaults. But I thought LVT was about the reduction of land banking, not shifting ownership of land to the banks?
No, not at all. That's a common misconception, especially prevalent amongst fans of LVT.
As I said earlier, the LVT changes no opportunity costs between land uses at all. So if for some reason it's a good idea to 'land bank' without an LVT, then it'll still be a good reason to 'land bank' with an LVT.
However, being able to finance the government with an LVT might have second order effects on other taxes and regulations, that might make land banking less (or even more?) appealing. I don't know, it depends on what else is happening.
But we arent discussing a renter, right? You know that? The example was som
If your "solution" is for the land owner who cant afford his massive tax bill on his land (a tax bill that he incurred because of a subjective valuation) your solution is that he moves off his land, somehow pays to make it suitable for the rental market and then rent it out? And then what? Rents a place himself? How is this desirable?
>My broker doesn't care about my income one bit when they lend me money: they lend against my stock portfolio. Similar, here you could lend against the real estate. Why would the lender care about income?
No one lends money without an expectation of a return. Yes you can lend on collateral. That works once unless it is paid back. That "paid back" needs to be accounted for in your analysis.
>No, not at all. That's a common misconception, especially prevalent amongst fans of LVT.
So we have struck down at least one of the touted benefits of LVT. Thats something. Thats a small amount of progress.
Land Value Tax is simply an efficient tax system that minimalises dead weight losses. Yes, Henry George was a big fan of them, but he was just one proponent. LVT does not live and fall with Henry George.
> Borrowing and taxation are completely different concepts. Unless I am the only idiot who hasn't asked for their tax back with interest. Possible.
I am saying that your specific objections to taxing unrealised gains do not apply.
> They aren't poor in that they have at least one valuable asset. The kind of asset that helps people stay afloat when they have issues with income or domestic violence. Regressive taxes are regressive because they simply do not look at income. Someone can be retired, living on nearly no income, and have a single valuable asset. It is not the role of government to significantly disrupt peoples lives because they have 1 good thing going. IIRC home ownership is the single best indicator of mental health.
You are proving too much. Holding down a steady job is also a great indicator of mental health. So the government shouldn't tax your job either? Ie income tax bad?
You have to tax something to run the government.
Btw, you could run a land value tax but give everyone a universal basic income equivalent to the LVT paid by the median person. That means only people who sit on more than the median amount of land (by value) would pay a net tax. Everyone else would see a net income from the system. That would immediately knock out all of your arguments about those poor widows and orphans.
(In taxation and income, medians tend to be lower than averages, so the above system would leave money left over to use for general government revenue. If you want more of that, instead of paying the median amount, you could pay UBI at eg the 20%-ile level. That would still protect those people who only 'have 1 good thing going' from net outflowing payments.)
I dont see how referencing borrowing is relevant to taxation.
>Ie income tax bad?
Yes its horrible. But if you tax 10% on income, you are left with 90% of your income on an ongoing basis, and that can accrue. People can become wealthier. People without income dont pay the tax so arent negatively affected. If you tax someone with 5 bucks in their bank account and no job, 10% of their 200K property, they arent going to accrue 90% of their property on an ongoing basis. Their wealth will shrink. Which is bad on average.
>Btw, you could run a land value tax but give everyone a universal basic income equivalent to the LVT paid by the median person.
I often see these joined but IIRC I did some math on this, and UBI would make your LVT extremely punishing. I wouldnt group them together as proposals.
Again, that's the whole idea behind LVT: it minimizes non-productive use of land, like housing.
I like LVT just as much as the next guy, but we can't have it both ways: _either_ LVT has no deadweight losses, because it doesn't change any opportunity costs for land use and thus has no (direct) influence on land use. _Or_ LVT does have an influence, and you want to argue that it's the 'correct' one.
However: with or without LVT, the opportunity cost differences in different land uses are exactly the same. The same amount of LVT is due no matter what you do with the land or who owns it.
LVT might have an indirect influence on land use, because financing your government via LVT means you can potentially lower other less efficient taxes. Removing these other more distorting taxes can have an influence on land uses.
How is housing a non-productive use of land? Why would housing be something to be minimized?
But see my reply at https://news.ycombinator.com/item?id=44189482
What's with you and punishment?
LVT should be set to approximately tax all land rents. Given current prevailing interest rates, setting LVT to, say, a yearly 10% of land value should accomplish that. (But the exact value doesn't matter too much, because of arbitrage. I can explain that, if you want to. Basically, as LVT goes up, market prices for land go down. So even setting an LVT of 50% per year won't get you more of a tax take then saner values.)
Just to be clear, I don't propose the UBI above as something anyone could live off. I proposed to mechanically set it to eg the 20%-ile of LVT payments, so that the land-poorest 20% of the population have no net LVT payments to make. Thus forestalling only your very specific objection.
That suggestion was not meant to pay for any specific living standard on its own.
> Yes its horrible. But if you tax 10% on income, you are left with 90% of your income on an ongoing basis, and that can accrue.
Why are you so obsessed with income that's measured in money? There's also plenty of in-kind income. Eg when you have an apple tree, you get apples. If you have a house, you get housing.
It's generally good, if the tax system doesn't care, if you rent his house and she rents yours, or if both of you live in your own home. (Neither scenario has any net flows of money, but the first one has gross flows of money.)
Interestingly, in Switzerland people actually pay taxes on the imputed rental income they get from being owner-occupiers.
>LVT should be set to approximately tax all land rents.
What does this even mean?
>so that the land-poorest 20% of the population have no net LVT payments to make.
Right but you just added a huge cost that you have to tax from somewhere. So the LVT rate goes up again.
(Very common experience discussing LVT - New taxes, regulations and handouts that will randomly make criticism go away)
>Why are you so obsessed with income that's measured in money?
Why are you against it lmao?
>There's also plenty of in-kind income. Eg when you have an apple tree, you get apples. If you have a house, you get housing.
How is this relevant to anything being discussed?
And under an LVT, having a house or apple tree gets you a tax bill, measured in money. Of course economic calculation is relevant.
>What's with you and punishment?
I don't have a better description for what you want to happen to people with income lower than their LVT bill. Feel free to suggest something. "Economic Defenstration" maybe.
No, it doesn't.
>> LVT should be set to approximately tax all land rents.
> What does this even mean?
A sketch: suppose a piece of land gives a land-rent of $100 a year. At 5% prevailing interest rates, that piece of land would trade for about $100/5% = $2,000. That's because arbitrage will roughly make it trade at the same price as a bond that pays $100 a year. (For simplicity of illustration assume no taxes, no risk, etc.)
Now if you add a 15%-a-year LVT, you get the following no-arbitrage condition:
(land price) * (tax rate + interest rate) = land rent
Solving for the new land price gives you (land price) = $100 / (15% + 5%) = $500. That market price gives you a $75 LVT bill. That's 75% of our land rent.
You can directly calculate the proportion of land rent that goes to LVT as a function of the tax rate and interest rate as (tax rate) / (tax rate + interest rate). As you can see, assuming non-negative interest rates, this can get arbitrary close to but will never reach 100% of land lent. There are some practical limits to how high you can set the LVT per year. But you can get pretty close to 100% of the land rent. And the limits are of a practical nature, they don't have anything to do with what you are doing with the revenue (ie UBI or whatever).
I know, it's a bit confusing: we are charging a specific rate on the price of the land, but what we are actually interested in is the proportion of land rent we are capturing.
Land prices adjust to the taxes we are charging. So jacking up the LVT rates won't really give you an increase in the tax take.
(That's one way to implement LVT. You could also instead auction off leases to use plots of land for eg 20 years at a time to the highest bidder. There it's also clear that you take approximately 100% of the land rent as a tax, and it's also clear that there's not much the government can do to jack up the rates: they are already getting the whole proceeds of the auction.)
> And under an LVT, having a house or apple tree gets you a tax bill, measured in money. Of course economic calculation is relevant.
Yes, the tax bill is measured in money. But that doesn't mean the only thing that's admissible to be taxed should be income measured in money.
> I don't have a better description for what you want to happen to people with income lower than their LVT bill.
You have to sit on a lot of valuable land to have a high LVT bill. Those are rich people.
In any case, you are right that changing the tax system will always create winners and losers, even if you create many more winners than losers.
So you could do what the British did when they freed the slaves in the Empire without causing a civil war: you could pay out the old landowners. (The British paid off the previous slave owners.)
By itself, acquiring all the land will be fiscally neutral, so the government hasn't gained anything. (In reality, there will be some inefficiencies and friction, so you'll actually lose money.) However, once you start lowering other taxes, land rents will go up and thus the LVT take with it.
You have to make sure to pay for what the land traded _before_ the market started pricing-in the anticipation of lowering other taxes later.
Instead of paying off the old owners, you could also gradually introduce the LVT to soften the blow of the impact a bit.
Lmao, so you either collect less money, or you collect enough money to pay for your new dividend + other government services. you cant have it both ways.
You must account for the cost of the random new UBI you addressed to cover your other arguments.
>You have to sit on a lot of valuable land to have a high LVT bill. Those are rich people.
This is one of my favourite parts of LVT, the magically tiny tax.
If you take <national budget> and apply it proportionally across land as it is valued, the most <national budget> is extracted from inner city residential and commercial land. This is literally the stated intention.
You have stopped caring about a persons income, and started caring only about the value of the land beneath their house. By design and intention.
That value will rise and fall based on subjective third party determinations. By design and intention.
Its highly likely that people will end up with a significantly increased tax bill, especially if they had low/no income previously. Again this is stated intention, its just the flip side of encouraging more efficient use, is discouraging people from living within their means on a block of land they own that's near things property evaluators value.
Rich people with high incomes and expensive property wont give a shit. People who fall outside of your hypothetical, plenty of whom exist lots of them former income tax payers, will be significantly worse off.
>By itself, acquiring all the land will be fiscally neutral
Land value as it stands is fucked in large part because the government holds so much of it. The solution is to release more land, not lock more of it up in state ownership.
>I know, it's a bit confusing: we are charging a specific rate on the price of the land, but what we are actually interested in is the proportion of land rent we are capturing.
You need to solve for the entire budget, not a number you made up.
The market cap of the US housing market is 50 trillion. That includes developments on the land, and it excludes all the commercial and agricultural land. Lets assume it averages out to 60 trillion.
US government spent 6.8 trillion last year.
You aren't going to be able to tax rents 10%, you will need to tax value 10% to reach that number.
If someone lives in a caravan sitting on a 200k valued piece of land that they own outright (hoping to develop one day), making minimum wage, and they get a tax bill for 20k, or even 10 or 5k their life just ended. If you want them to borrow with no income to offset their tax, they wont get that loan.
I dont understand how you dont understand the actual cost of an LVT or how it is likely to affect people.
I already accounted for that in the original comment https://news.ycombinator.com/item?id=44188857 so I see that it was perhaps a bit too implicit:
> (In taxation and income, medians tend to be lower than averages, so the above system would leave money left over to use for general government revenue. If you want more of that, instead of paying the median amount, you could pay UBI at eg the 20%-ile level. That would still protect those people who only 'have 1 good thing going' from net outflowing payments.)
The less UBI you pay, the more you have left over for general government revenue. The more UBI you pay, the less you have left over for general government revenue.
> Land value as it stands is fucked in large part because the government holds so much of it. The solution is to release more land, not lock more of it up in state ownership.
It doesn't really matter, as long as they lease it out to the highest bidder.
> Its highly likely that people will end up with a significantly increased tax bill, especially if they had low/no income previously. Again this is stated intention, its just the flip side of encouraging more efficient use, is discouraging people from living within their means on a block of land they own that's near things property evaluators value.
LVT does not encourage (or discourage) any land use, efficient or otherwise. It makes no change to opportunity costs between different uses.
> You need to solve for the entire budget, not a number you made up.
I have no clue what you are on about?
If you want a clear suggestion of what I would prefer:
Auction off all the plots of land for eg 30 years at a time. Do the auction for the next lease 5 years before the old lease ends. Stagger the auctions to have around 0.28% of plots being auctioned off every month.
(Don't bother with UBI etc, unless you want UBI for other reasons anyway. Those were just suggestions to solve specific concerns about orphans and widows you brought up. I would suggest to just use the regular, existing means-tested social safety net for them, instead of spinning up something bespoke.)
Singapore does something reasonably similar, but I think 99 year leases are too long, especially since the country is young enough that the giving back at the end of leases has essentially never been tested.
I'm not sure why you bring up the US government spending? I don't know how much LVT could raise in the US. But some people have tried to figure that one out.
> If someone lives in a caravan sitting on a 200k valued piece of land that they own outright (hoping to develop one day), making minimum wage, and they get a tax bill for 20k, or even 10 or 5k their life just ended. If you want them to borrow with no income to offset their tax, they wont get that loan.
That's fine. They can sell the land to get rid of those hopes and dreams and tax obligations.
You can write similar sob stories about any tax at all. And most are worse than what you get with LVT.
With an established LVT, your caravan dweller would never get this weird idea in the first place.
And I admit that whenever you make an adjustment to the tax system, the people who made plans based on the previous system will have those plans torpedoed. Them's the breaks.
So we have to decide what we want to discuss: how an LVT system would work in the steady state, or how we could (or could not) transition to one.
Most of income from employment is "unrealised". Employment comes with expenses such as car for commuting, rent in expensive part of town (where jobs are), clothes... Big part of "income" does not even land on a bank account (mandatory insurances, taxes, child support, alimony....)
If we will apply logic from property tax, to employment income tax, everyone would pay 100 USD tax every year. Because that was tax of 20 years old in their first job, and raising taxes is horrible!
What? You realise income in trade for your labor. Its immediately realised. It is a realised gain.
Some positions have negative net income!
Still, you're right that you need to think about how to avoid harming those interests in a way that's actively unfair or overly disruptive. I don't think people talk about this very much, because not many people are seriously talking about solving the problems LVT targets.
E.g. everyone says "tackle the housing crisis, build more houses!" but very few people actually seem interested in doing anything that would have any downside at all. At least with e.g. climate change people say "we have to make some sacrifices".
Anyway I guess the basic solution has to be that you solve the problem very slowly so people have a chance to adjust to the new regime?
Obviously?! Phasing in changes over long periods would solve lots of problems - at usually low cost to society it seems. You could - if anyone cared - educate the population on the time frame for the deployment, and you could - if anyone cared - advertise the time-value of the change, for example on the valuation of property before, through and after the change. And things would be fine.
But the reality of things seems to be that a politician will be in power for just a few years. So that either they need the change to go in effect so they can claim the deed and the effects (alleged - because who cares if it's real?), or they prefer the change to happen just after they have left (so the change / effect can be blamed on the next guy? or can be postponed should they get re-elected.)
Nobody (?) looks to make the change "fair" to the population. There is no electoral value in that.
This shows up everywhere: agricultural subsidies, tax rate changes, property tax changes, construction / permitting / zoning changes, usage of an area (similar to zoning see construction or extension of an airport and residential nuisance), planned future freeway path, legalization or criminalization of any activity, climate change rules. So that some industries become perpetually on the lookout for the next cycle (mining, oil, finance?), while others constantly get away with claiming unawareness (zoning, permitting?)