In what sense can't it be passed to renters? Esp if all landlords in the market were faced with a new land tax that they had not previously planned for, why would it not be passed on?
Taxes can be passed on when the tax induces a change in supply. Conventional property taxes are partially passed through because the component of the tax that falls on the building. Tax buildings, get less buildings.
Taxes on land do not affect the supply of the land, this implies they are not passed on and the research literature largely agrees with this.
> We also don't see landlords who own their properties outright (and thus don't have mortgage interest costs) charging lower rents than landlords in the neighborhood with identical properties who have mortgages. When landlords' costs drop, do they drop the rent in response?
If costs are uniform for each landlord (they have to pay for), it limits the amount of money they can invest in new capacity, and you will see the effects over a decade. If one landlord has cost advantage over another, then they will of course probably just take the extra money as extra profit.
> Taxes on land do not affect the supply of the land, this implies they are not passed on and the research literature largely agrees with this.
They provide friction with what can be done with the land, because the cost of owning the land has to be paid. If it is just a land tax, however, you can game it by building as much as possible on it so the landowners who can't build as much as you can subsidize your usage (long term, you either have to build as much as you can on your land, or sell the land to someone who can).
That's not gaming it, that's the tax working as intended. We need more housing, so if that gets people to build more of it, that's a win.
In fact - although that logic is usually correct - in the case of a land value tax it isn't useful because landlords do not supply land. Someone is still going to own the land and it is still going to be used for something. There is no incentive to leave it unused. There aren't any less resources in the overall system and resources haven't been diverted from a productive use to an unproductive use (quite the reverse, they're being redirected away from someone who was doing nothing to earn them). That is the theoretical advantage of taxing the land.
If it were anything else (eg, taxing the houses on the land) then the argument would be useful because the tax was on transforming less valuable resources into more valuable and there would be less productive economic activity and losses leading to less supply of something that the economy was signalling a need for.
There might be a reallocation from housing to some other purpose if an LVT is bought in, who knows. But it is a context-dependent change and not possible to reason about as a general outcome. It might be that the economy produces exactly the same amount of housing before and after. Less resources overall will be allocated to landlords, obviously, but not in a fashion that penalises building houses. Maybe that means house prices drop and more people own their houses outright. Maybe there is even more housing because resources move from landlords to housebuilders.
> If it is just a land tax, however, you can game it by building as much as possible...
I've never heard an entirely satisfactory process for valuing the land either. Although to some extent all tax systems have questionable underpinnings and compliance.
I was on the fence but your advocacy in favor of the land value tax has convinced me. Well played.
This is true, but the degree depends on elasticity of supply, and that depends a lot on profitability of the sector.
Taxes may not affect the amount of land that physically exists, but they absolutely can and do affect the amount of land available for rent as opposed to other income-generating use cases.
On top of that, a tax that applies equivalently to all of the land available to the rental market in a given area will simply push prices upwards across the board, which is likely to just be absorbed by renters given the usually low price elasticity of demand for housing.
Most research asserts that a land value tax decreases the selling price of land.
If I buy land for $100k today, I can assume I'm going to make say $6k a year from renting it to someone and $2k a year from it increasing in value, giving me a 8% roi
If I instead had to pay just $4k a year in LVT, the price would reduce to $50k to keep that 8% roi. I'll still be making money for doing nothing.
Now if that LVT was returned to the population at large, it's quite possible the population has more money to spend on land, so I could increase the rental price from $6k a year, but then the LVT would increase, because the idea is it reduces unimproved land value to zero -- nobody should make money from occupying land, they should make money through improving it.
In reality though any LVT implemented would be full of loopholes which would introduce absurd incentives. Just like taxing income, and worse taxing earned income more than non-earned income.
You're right that some people will get squeezed out, but in high demand markets there are enough people willing to pay that it doesn't matter. The number of properties available for rent in California isn't growing as fast as the total population is growing. Property owners will eat the 5% increase for a while - at least until the existing leases expire - but eventually they'll incorporate that 5% increase into the rent.
In fact, I'd argue the majority of landlords are shit investors sat on fairly low yields
In fact, they are indeed arguments derived from applying well-understood economic principles to the specific -- and purely speculative -- claims posited by the preceding comment.
> Be sure you understand them first; your assertions do not hold in the case of LVT.
Indeed I have, and indeed they do. Rather, your own response attempting to dismiss rather than engage with counter-arguments betrays a likely ideological rather than pragmatic interest in the concept of LVT.
Why would they as long as they find a renter? The market always charges the marginal cost.
1) Cost of land per year (which won't change as you'd be paying $10k a year tax rather than $10k a year in interest on the loan taken to buy the land)
2) Cost of building per year (which won't change)
Not to mention that many real estate investors don't use loans, and that the banks giving out loans understand the lack of equity being built and demand higher interest given the inherently lower collateral (greater risk).
Currently the purchase price of the property includes a good deal of future land rent, you just pay the current owner.
If you spend $50k on some land and pay 5% a year you're paying $2500 a year in rent, but you're paying that to the existing owner.
Under an LVT you'd be paying $2500 in rent, but the land itself would cost basically nothing.
Whether it's a loan, or the opportunity cost from not putting the capital elsewhere, doesn't matter.
Land speculators profit from land values increasing, and they do nothing other than gamble. They don't increase the value of their own land, that's what their neighbours do. LVT removes that speculation, and indeed risk. If the area goes downhill (say in Detroit), your taxes lower
The downside of this is if you have taxes funding the government, you end up in a death spiral. That's what the UK has with council tax (which is very regressive, a 10m house in one area can pay less than a 100k flat in another, and even in the same area would only pay about 3 times the price), and I believe it's the case in the US.
That's why I'd rather see a citizens dividend than just cutting taxes.
I think there are cases where we are in between for significant periods of time. Consider a positive shock to wages. Can landlords put up prices overnight? I don't think so, unless the landlords all co-ordinate to do so, prices will be sticky as there are always some properties in the market, so it's difficult to be the first to increase rent. Unlike a purchase, a landlord who waits for a buyer at the right price is forgoing income during the void. So the market price can be a Schelling Point.
A tax increase, however, happens at the same time to all landlords. All of them would prefer to pass it on, and they know that so they can assume all other landlords will try to pass it on. If the rent is currently below the maximum possible, they will succeed.
How long it takes prices to adjust I don't know. It is an empirical question, but I don't know what data would answer it. But it seems like it took decades for landlords to capture the two-income surplus after it became common for women to have a career.
Do you really believe that landlords will subsidize tenants for a long time?
More to the point, if landlords are losing money, why would anyone build rental housing? Instead, why wouldn't they take housing off the market?
This literally happens all the time in California.
You buy a house in CA. You move somewhere else. You hold on to the house because your property taxes are fixed and housing prices grow like crazy here. Maybe your kids will want it. Maybe you'll want to move back..
You can't charge enough rent to cover the mortgage and taxes os you end up taking a loss monthly.
These aren't a universal cost. When rates change, some landlords' costs go up. But some don't. That lets the latter set the marginal price.
If everyone's costs go up the same amount, it's collusion without communication. In an inelastic market like San Francisco's, you'd expect prices to rise.
If you think that's morally unobjectionable, fine, but I'd love to know what happens when all the landowners who own rural land that doesn't have a profitable development path attached to it can't pay their tax bills. Have the state seize it all?
Or do they just claim it's of negligible value and avoid the tax?
The market will bare it because people have no choice. The choice is homelessness or paying the higher rent.
It's principally the same when mortgage rates rise. Landlords with mortgages put up rent. Only it would be worse, since not all landlords have mortgages.
If it doesn't have a profitable development path attached, the price(and therefore "value") will go down, as will the tax burden.
Property is already taxed based on its assessed value in California.
Labour in the UK introduced a 20% inheritance tax on >£2M rural property.
https://www.theguardian.com/uk-news/2024/nov/01/farmers-shoc...
Although the rules were later somewhat changed. Perhaps after pressure due to terminally ill farmers committing suicide (before the tax came into effect so that they could pass on their inheritance).
Only in one direction. If that rent, based on supply and demand, does not cover all of the owner's costs (+profit) then that rental property simply disappears off the market. No owner is going to rent out at a loss, so either the renter is paying for all expenses (+profit), or they get kicked out.
Demand for apartments will be constant. Supply of apartments will be constant.
But I think what's going on here is that we are way off the equilibrium point. The supply of good places to rent is far outpaced by demand for them, at most price points, and especially so where all the value is (on the coast). So, this means if you're a landlord and you know you'll owe another $1200 tax to Sacramento this year, you should be very confident that if you raise rent by $100 a month, even if an individual tenant would rather move than pay it, someone who can afford $100 more exists and will almost certainly fill that vacancy promptly. It may represent a slight step down in what their buying power would buy. Like, they may have rented a $3000 apartment before, and they'll now rent what used to be a $2900 apartment from you for $3000.
This absolutely happens in the UK where variable interest rates affect more people.
> When landlords' costs drop, do they drop the rent in response?
The price of everything is pretty much a ratchet. They never go down again absent some kind of competitive pressure.
Of course it does. The landlord's costs factor into the supply made available by landlords.
> When landlords' costs drop, do they drop the rent in response?
Competition says they do.
A landlord is usually in a different position. If their personal costs drop (eg, they paid off their mortgage) but the market price stays the same, how do they benefit by reducing the price they offer? Only by reducing the time it takes to rent out, which isn't a significant factor in exactly case when tenants would most like rents to go down - when prices are high because of demand.
The details of these mechanisms matter. Market can be out of equilibrium for a long time; maybe indefinitely.
Arbitrage forces say otherwise.
Thats an incentive to rent out the property or sell up to somebody who will.
It would apply harsh market discipline on landlords - a demographic that has usually been rather coddled.
That doesn't follow. If LVT reduces the net return on rentals, it will disincentivize construction and maintenance of housing in the first place. If it creates a net negative or zero return on property ownership, it may lead to abandoned/undeveloped property instead of housing development, or more property being used for other purposes than housing.
It's also worth pointing out that the existing ad valorem tax system used for property taxes is functionally equivalent to LVT, and does have these influences on the housing market. LVT proposals are distinguished by their being rooted in (fundamentally flawed) Georgist theory, not by being unique as a form of taxation in practice.
The existence of property tax (which on a single house in some areas of the state is upwards of $15,000 a year already) already makes it absolutely ruinous to just sit on an extra house you don't need and not rent it out.
> or who don't make efficient use of land
A little more convincing. Though I suspect most empty land in places where anyone would be willing to live in California, is empty because our insane zoning laws don't allow what would otherwise make sense there (I don't care that it's like what most areas have -- it's insane to have laws that would make it illegal to build a place like San Francisco, Brooklyn, or Boston).
The funny thing about those zoning laws though is that they're held up by a rare case of bipartisanship:
- The MAGA Boomer set who doesn't want any more development near them because "it'll bring traffic" or noise or crime
- And most of the "progressives" who don't want any more development anywhere because "we hate greedy developers" and "Not enough of this proposed development is low-income housing for the government to dole out in lotteries to a few lucky families."
15k/2M is 75 basis points. Its definitely profitable to just sit on land especially if you turned it into a parking lot or some other barely improved thing.
But for that to happen, land values need to go down. Landlords need to bid less.
Is there really a market dynamic in rent pricing anymore? I thought that algorithmic collusion had eliminated the need for landlords to compete on price.
What sustains 'algorithmic collusion' in a non-market-clearing situation when landlords ultimately just want to rent their property out?
To put it another way, why would a property owner who has a vacant house leave it unrented in order to benefit other property owners at his own expense?
Well, that and non-enforcement of antitrust which is a big part of many of our current economic problems.
Massive corporate landlords like Greystar and Morgan Properties own so much of the market they can do a lot of pricing damage even without colluding with others (but of course they do that too).
The government, society, municipalities in the US do not build housing. They allow it to be built. Housing is built by developers, who are businesses that insist on making a profit.
So lets say you are one of the only couple of companies that can build a new 100 unit apartment in an area with tight housing supply. Great, you love money, you will look to invest in a development to capture some of that market and make money.
Do you build 100 cheap units for $X and make 5% profit over your planned ROI term, or do you build 100 absurdly upmarket units for $X + 10% dollars and make 10% profit over the same ROI term?
You already know the answer. The normal response is that "All new build is good and will lower price" but no, the rich people buying McMansions and $3000 per month condos in states they haven't ever been to can just absorb far more supply than actual local workers. And, well, they are so fucking rich compared to the average person that they can simply not care about how many of these properties they own, so there isn't downward pressure on them to sell off some of those locations.
The rich are just too rich and can easily outbid the rest of us forever for anything. They are so rich and their marginal value of a dollar is so low that they can happily buy up expensive housing basically for shits and giggles and sit on it and forget they even have it. They own ten properties they never visit. Because they can literally own a property just because they might some day want to visit.
Developers have mostly decided to only serve that clientele because they are so goddamned profitable, because they will negotiate less, will happily pay for box checking features meant to increase the price (like really really bad smart home implementations that they never even experience because they never go to that home). The rich guy who hired my dad to be his general contractor doesn't care what my dad charges and doesn't look at the bill, so my dad abandoned his plan to build 10 houses and instead just lives a relaxing life off of that man's excess, because why the fuck would you do a hundred times the work for less money?
That's one of the reason income inequality on it's own is so bad. Money doesn't work in a linear way, so having 2X the dollars as the next guy is more than 2X as "powerful". The uber rich can just own everything and you have no hope of outbidding or competing. You simply have no other choice than finding what little scraps they ignore.
Capitalism optimizes for best profit per effort. In a society where a tiny percent own the majority of all resources, why would you ever fight for the scraps the little guys have?
Profitable businesses in Portland are being forcibly evicted to be replaced with brand new hotels meant for Executives to visit once a year, all over the area, because providing any service to the uberwealthy is just that much more profitable than providing very necessary service to the average person. It doesn't matter how desperate normal people get, they can't afford to outbid the uberwealthy.
And one of the functions of supply is cost.
If they can't be raised, and the costs end up being ruinous to the landlords, they will find other solutions like mass arson. That isn't hyperbole; this was a serious problem in the 1970s: https://en.wikipedia.org/wiki/1970s_South_Bronx_building_fir...
That was obviously not acceptable... but it was predictable.
All legal proposals should be viewed like a chess move. Presume others will respond, and make sure you're ok with that response. In a sense that's also the point of the original article too, a law was passed without adequqtely thinking through what would happen.
Land's assessed value is based on what you could do with it. If can be rented at a profit, that's something you can do with it, and its potential matters. If it can't, then that is no longer a potential value of it.
That doesn't make lvt a bad idea, it's just that I think there's not enough acknowledgement of the trade-offs and limitations.
True, but an LVT is a cost. Changes in cost can change what is financially viable to do with a property, regardless of what is currently done with the lot, and thus can impact the land value.
The idea of cost-plus pricing is folk economics.
Tax incidence is very well understood in economics and has to do with relative supply and demand elasticity (supply of land is perfectly inelastic) and marginal costs which land value tax does not touch.
It's accurate to say LVT changes the price of land. But it doesn't change the profit maximizing productive use of land.
Other taxes that scale with production (sales tax, income tax, property tax) do change profit maximizing productive use.
In fact it mentions insurance fraud as the cause...
Additionally it certainly wasn't increasing cost but reduced income which is a very different issue
Landlords who have their entitlements to land rents or other natural resource rents they've captured ripped away from them would almost assuredly endorse the use of violence.
Land redistribution (of which this is a form) from the landed rentiers to the landless has historically resulted in brutal violence in order to protect their privileged claim on non-human created wealth.
Or the more likely option is they will no longer do investment properties as the return it too low vs the risk.
But in reality a land value tax incentivizes higher density housing. A single house and an apartment complex pay the exact same amount of tax, while the apartment building can split it up over many occupants. Land value taxes are a very natural hands off way of encouraging the right use of land, empty lots and car parks become unaffordable in highly desirable areas while apartments become relatively very cheap.
In theory the land value tax could be set so the overall taxation is the same as before, but but the distribution is such that the people with massive blocks of land in highly desirable areas foot most of the bill. This would over time make housing cheaper over time as more housing is built to reduce the tax burden.
That would only be true if the LVT replaced the existing property tax structure, which is not what TFA is calling for.
Why would a land tax make the state more attractive to higher income renters than where they currently live?
if landlords were able to raise rent, they would have done that already as its pure profit for them. The fact that they can't, means they will have to eat any marginal tax imposed on them
If I’m understanding the argument you’re making here correctly, wouldn’t what you’re saying be equally true for a property tax?
I’m not saying you’re wrong, but I don’t think the author would agree with your point since I don’t see how your argument could be true for a land tax, but not for a property tax.
if they hike rents, whoever is more inelastic will eat the rent increase to the degree of her inelasticity.
the cost increase is shared between renters/landlords in the ratio of their elasticities. Whoever is more inelastic, will eat the cost.
Inealstic renters will pay up increased rent (like techbros in SF are eating up all rent increases).
Elastic renters will get up and move to Texas, if renter swill hike rent.
Elastic landlords will lever down and decrease number of low margin properties like rent-controlled properties, or unprofitable properties.
Inelastic landlords will eat the taxes and take a hit to profitability.
The author seems to say that costs can be passed on to the renters when the costs are a property tax, but they cannot be passed on when it’s a land tax. That seems like a really odd position to take and it doesn't align with your "costs are irrelevant" statement. I fully admit that I could be missing something, but I don’t understand how it can be true that only certain types of taxes can be passed on to renters.
I fully understand the argument you’re making and I’m neither agreeing nor disagreeing with it. It sounds logical, but I frankly don’t know enough about this topic really process it. What I’m saying is that regardless of whether you’re right or wrong, I don’t think your argument is the same one the author is making unless I’m missing something in your argument about why that only applies to land taxes and not property taxes.
My company rents a space in a commercial lot, and the contract states the property tax is split among the tenants. It's separate from the rent.
Apparently this is common in commercial settings. I wouldn't be surprised to see this start happening for consumers.
From economics we know that increase in cost is split between Landlords/Renters in accordance to their elasticities. Whoever is more elastic - will eat the tax.
the cost increase is shared between renters/landlords in the ratio of their elasticities. Whoever is more inelastic, will eat the cost.
Inealstic renters will pay up increased rent (like techbros in SF are eating up all rent increases).
Elastic renters will get up and move to Texas, if renter swill hike rent.
Elastic landlords will lever down and decrease number of low margin properties like rent-controlled properties, or unprofitable properties.
Inelastic landlords will eat the taxes and take a hit to profitability.
https://en.wikipedia.org/wiki/Tax_incidence
It's literally econ 101 that says landowners will bear the burden of a land value tax.
Supply of land is perfectly inelastic and land value tax is not a marginal cost of production so does not change MR=MC.
renters rent apartments/houses, and these things are very elastic.
the cost increase is shared between renters/landlords in the ratio of their elasticities. Whoever is more inelastic, will eat the cost.
Inealstic renters will pay up increased rent (like techbros in SF are eating up all rent increases).
Elastic renters will get up and move to Texas, if renter swill hike rent.
Elastic landlords will lever down and decrease number of low margin properties like rent-controlled properties, or unprofitable properties.
Inelastic landlords will eat the taxes and take a hit to profitability.
You can feel free to solve the profit maximization problem of the apartment owner if you want.
A conversation with an LLM where you paste this exchange into the context is likely to clear up the reasons for your misconception.
If these communists succeed, they will use the very fact that a landlord cannot synthesize money to prove the landlord passed the cost to the tenant and seize the land.
Essentially taken to the logical conclusion, there will be people competing for more cash to pay their increasing taxes on the same land, it doesn't fundamentally solve the problem. It's such a joke.
You don’t seem to understand how it works or what it does.
It’s not wishful thinking it’s just a fact. Zoning exists because landowners want it. As soon as they don’t want it, it’s gone.