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Comment by epistasis | Hacker News Reader

Landlords tend to raise rent to the maximum value they can.

If they could raise rents, why haven't they already?

And if their costs go up and they can't make ends meet, they will sell the property, possibly at a loss, and the lower value will lower taxes.

But this won't happen, because the landlord's taxes won't rise. They'll almost certainly fall, as shown in the abundant data. And if for some reason the landlord's property tax does rise, it's because it's a ridiculously underused parcel in an area of really really high value, like a duplex next to 10+ story buildings. Which means it may be best to let 100-300 people use that parcel rather than ~10.

The LVT shifts tax burden away from homes and businesses and towards empty lots and parking lots.

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They haven't raised rents because they are in competition with other landlords. If all landlords' costs go up (e.g. taxes) then all landlords will raise rents to maintain the same previously optimal profit margin they were extracting.

To put it another way, why not raise taxes to $1M/sq.ft.? $1B/sq.ft.? If if were true that it wouldn't be passed on to tenants then you've found the magic money tree.

Excellent point, and nobody has ever brought it up to me despite me talking this way many times! I think the "competition" angle is really good at pointing out why a land value tax is very different from a property tax here.

A property tax affects all square footage of apartments quite equally, which is very well correlated to rental prices, so a property tax is roughly equally a rise in all landlord's costs. So in the very few housing markets where rental prices have fallen to near the cost level, and there's very near zero profit in renting, property taxes could easily cause a rise in rents.

However when switching to a land value tax from the current property tax system, the incidence is quite different than a broad property tax increase. Some landlord's taxes fall quite a bit, some landlord's tax bills might increase.

> If all landlords' costs go up (e.g. taxes) then all landlords will raise rents to maintain the same previously optimal profit margin they were extracting.

And then all landlords will see a surge in vacancies, and not all landlords are able to tolerate paying LVT on empty units for very long before they're forced to drop their rents back to the actual market value.

> why not raise taxes to $1M/sq.ft.? $1B/sq.ft.?

Same reason why landlords can't raise rents to $1M/sq.ft or $1B/sq.ft: because nobody in their right mind would pay that much.

Thanks. I like this response. I might phrase it a little more verbosely: what forces currently limit rent prices, and will any of those forces be lessened if land value is taxed?

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