Comment by AnthonyMouse | Hacker News Reader

Comment by AnthonyMouse | Hacker News Reader

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> 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.

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.

> 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.

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.

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