This is a nice idea, but I'm skeptical it would ever work for most places, and for the cases it would work, e.g. the cities are already developed enough to warrant its existence -- it will be politically killed.
Case A:
-------
Undeveloped, small city. LVT kills any incentive for developers to purchase and build.
Case B:
-------
Developed, large city. LVT hurts existing landowners, they become politically active and shut it down.
Also, land is already taxed as a part of property taxes.
> Case A: ------- Undeveloped, small city. LVT kills any incentive for developers to purchase and build.
I'm not sure this is right.
There would be an incentive to purchase unused or underused land -- the price will be lower! Relatively high taxes will encourage the landowner to sell the underperforming property rather than hold onto it for years waiting for its value to increase (speculation).
There would also be an incentive to build -- the developer can build as extravagantly as he wishes without dramatically increasing taxes. Want to build a giant tower? Tax is almost the same as if you built a parking lot.
Additionally, in Case A, LVT will act as an incentive to further NIMBY-ize the current property owning citizens. Not only will additional growth cause issues with traffic, overcrowded schools, parks, restaurants, it may make their properties higher in value which will increase the likelihood they will be priced out of their property.
Can someone explain how current property taxes don't cover this already? Aren't you taxed relative to the value of the property which is both the land and buildings combined? When my parents owned undeveloped land they still paid taxes. They were still disincentived from holding land indefinitely without using it.
Property taxes also tax improvements to (and structures on) the land itself. Land value tax does not.
So, an empty acre of land across the street from Central Park (I know, I know, but pretend it exists) is taxed the same, under an LVT, as that same acre sitting under a big mixed-use apartment/retail building. The building itself isn't taxed (though its presence will likely have a small effect on the overall rate in the area, provided it acts to increase the value of surrounding land).
The problem is if you tax both the land & the buildings, you are discouraging development on the land. A pure land tax avoids that problem. It may be a subtle difference but if you are looking to increase land tax rates above current levels you want to minimize disruption to economic activity.
The part that people tiptoe around is the goal: a tax rate high enough that owning land leads to near-zero returns. Only the structures would be an investment. Land ownership would be biased towards the owners who can serve the most of our needs with the land, which would end our urban crisis.
Property taxes tax the value of land plus buildings. I think the argument is that taxing only the value of the land aligns incentives a bit better, since it encourages the most profitable use of the land.
The driving force behind this idea is a tax cut for people who own large buildings. "No, my land at 5th Avenue and 42nd St in Manhattan is not valuable; all the value is in the building, you see." "Okay, we accept your argument - your property taxes are now $12.94. We accept cash."
Introduces confusion into a system that otherwise can't get too out of whack; after all, any arms-length sale of a property gets you a darn good idea of how much it is worth for taxation purposes. But since land is not usually sold separate from the buildings on it, an LVT allows perpetual divergence, and in the end you'll have ultra-valuable properties whose worth is, supposedly, all in the building and thus not taxed at all.
Many proponents are talking about LVT as if it were certain to work. They can even cite some arguments to explain why it should work. But economics is full of second- and third-order effects. Saying that this will produce faster growth is far more certainty than we have at the moment.
The article cites a mixed bag of experience (failure in Altoona, success but then abandoned in Pittsburgh). That's... not very much. It's far too early to talk about this as if the actual effects were certain. (And the article doesn't mention why Pittsburgh abandoned that approach, which I consider to be important data.)
The article (and the proponents) talk about LVT as if it were going to be a certain success and an unalloyed benefit. It may in fact be so, but it assumes facts that are not yet in evidence.
A key component of implementing a land value tax would that it would need to be coupled with reduced zoning restrictions. If a property owner decides to build 20 story apartment next to my property which increases my property value and property taxes, but the council blocks my proposals for apartment development then that seems like it could get unfair pretty quickly.
> If a property owner decides to build 20 story apartment next to my property which increases my property value and property taxes
I'd bet that if your property has a single-family home on it and someone builds a huge 20-story block next to it, it will kill the value of your property, not rise it - shadow from the building, noise from construction, traffic, kids...
IMHO "disruptive" buildings like this should not be allowed without careful thought. In this case, for example, the infrastructure simply might not be there to support a 20-story (or for what its worth even a small 4-story!) building: electricity, telco, water and sewage feeds will need expansion which means months of ripped-open roads, the roads themselves usually won't support the amount of additional cars or public transportation.
If you were prohibited from building a 20 story apartment block on your land but your neighbour was not, then your land would be worth less and subsequently you would be taxed less.
Known a few people retired in Seattle, and now their home is worth a million bucks, and gets tax'ed accordingly.
This was the problem california had, paid off homes property tax became the same as renting an apartment, driving elderly out, and thus laws had to be passed to protect them.
There was a new stop light put in near my work, it cost 750k. For a stop light, the city waited years due to the cost. More expensive since it was on a main road, and part of the cost was flagers and lane reduction.
Costs are too expensive, even maintain streets in some areas due to low income homes and less property taxes, and the cure has been roundabouts instead of stop lights (or over passes on urban highways.
Its crazy. Don't even get me started on waste of an impact studies for homes but doesn't include roads.
And saw another report Vancover homes will be around 2.1 million average by 2030. Crazy.
> This was the problem california had, paid off homes property tax became the same as renting an apartment, driving elderly out, and thus laws had to be passed to protect them.
Oh, is that why Prop 13 also applies to commercial property, people who can easily afford the increased property taxes, second homes, and heirs?
Prop 13 was a giant mistake. A narrow version to prevent grandma from getting kicked out of her longtime home would be fine, but the real thing is insanely broader than that.
Yet another "solution" that focusses on "affordable" housing, not market rate housing.
The world needs affordable housing, so don't get me wrong. But what's infuriating is how often the conversation stops there. It's always about building more housing and creating affordability programs for the poor. Meanwhile forgetting that even middle class workers are being priced out of the market!
When your middle class can't afford (or can barely afford) the cost of housing, your problem extends beyond just that class.
I don't believe in "trickle down" economies, where consolidation of wealth into the hands of a few "lifts everyone up". What I do believe is important - for everyone - is a healthy, educated, middle class. In a way, the health and success of your middle class is like a barometer for the health of your society as a whole. When your middle class cannot afford to buy a home, cannot afford to begin a family, and cannot afford to live at or above the quality of life of the generation before them something is wrong.
Yes, we need to help the poor. Yes, we SHOULD have programs for that. But the conversation all too often stops there, and market rates are taken for granted.
A key point is taxation rules need to put in place a priori of significant development/investments or implemented over an extended phase in timeframes of decades so developers/investors can plan/adapt appropriately.
What you don't want to become is city (or county, state or country for that matter) known for changing the rules of the game when its convenient.
Investors make what can be transformational improvements to a city. However the payback periods for a building can be on the order of decades (think Salesforce Tower - cost to build $1.1B, Salesforce lease will pay $560M but over 15 years).
The developer or investor takes on the risk and will by definition be in the red for the first decade or two (historically a 7% cap rate is expected - which is about a 15 year payback period). And that doesn't even including the planning period before the building gets built.
If a city suddenly changes the rules on a populist whim because suddenly the city is popular with the tech industry, future investors will definitely take notice and it will absolutely stifle any future investments in the city.
> a land-value tax is an efficient and fair way to take a city that now works only for lucky prosperous landowners
And what happens if you cannot afford the land tax? Does your home get taken away? The idea that only rich people own land is baseless. There are many poor people that own moderate/cheap homes on prime real estate in places like LA and San Diego. Most of these homes were built several decades and their property taxes were capped allowing them to stay in their homes. There needs to be a provision that certain individuals can avoid this land tax based on their income otherwise many people will lose their home because they can't pay the tax.
> And what happens if you cannot afford the land tax? Does your home get taken away?
That can happen with property tax too though.
If the land tax goes that high, it means more value could be extracted from that land by building more densely on it. One way this could play out for a cash-poor landowner is to sell the land to a condo developer in exchange for a couple of condos in the new building and payment for temporary housing while construction is going on. I've known this kind of exchange to happen in many Indian cities. It works out very well for both parties.
People already pay property taxes on their homes, though. LVT would eliminate taxing the improvements and structures and instead just tax the land itself, so the maximum assessed value would decrease.
Additionally, this would ideally be implemented while also eliminating income taxes (and general sales taxes). One of the biggest benefits of this is that we would no longer _need_ to track everyone's income, and could even eliminate vasts amounts of bureaucracy like the IRS and state-level departments.
>And what happens if you cannot afford the land tax? Does your home get taken away?
There's usually an exemption on some dollar amount of LVT for your primary residence, provided that the municipality can verify it's actually your primary residence.
I'm excited that you're stumbled into "taxation is theft" :) Yup, taxation is inherently immoral, and they will lock you in a cage if you don't pay.
But. As long as we're comfortable taxing people, then why is it unjust to tax in this way? We're taxing in a way that allows the land to be better utilized for _everyone_.
Additionally, this person who bought this property decades can probably sell the property for a pretty penny, and move to a cheaper area, and have plenty of cash leftover.
That's the point. We want them to do that. That means they have tenants to pass it off to. If they're sitting on undeveloped or underdeveloped land, they have to pay it themselves. The LVT creates incentives for them to develop land and rent out units. And of course the more rental units they are available, the cheaper the units are...
LVT can't be passed on to tenants like a tax on a commodity can be.
Quoting Henry George:
"The way taxes raise prices is by increasing the cost of production and checking supply. But land is not a thing of human production, and taxes upon rent cannot check supply. Therefore, though a tax upon rent compels owners to pay more, it gives them no power to obtain more for the use of their land, as it in no way tends to reduce the supply of land. On the contrary, by compelling those who hold land for speculation to sell or let for what they can get, a tax on land values tends to increase the competition between owners, and thus to reduce the price of land."
In numerous cities there are foreign investors who buy mansions and let them sit empty as investment properties. You can stroll through these "rich" neighborhoods and see how sparsely populated they are.
Investments like that would look a lot less desirable if the land was taxed in the proposed fashion.
They're incentivized to build taller buildings so they can have more tenants split the cost of the tax, lowering the cost of their building's offering and staying competitive.
That's the whole point of the land tax... if you want to plop a single-family home on a given parcel of land, you can if the single family wants to pay for the whole thing. But there's a strong incentive to build taller so more people competitively split the tax.
I think we should also be looking into progressive property/land taxes. Let's say everyone's first $100-200k in property is untaxed. Or you could make even more brackets.
Another problem is super dense developments not paying their fair share. A skyscraper's residents are using way more of the city's resources than the small building next door, but with the same footprint they are paying the city the same amount. I suppose this would have to be fixed with some kind of income tax.
>Therefore, a land-value tax is an efficient and fair way to take a city that now works only for lucky prosperous landowners, and turn it into a place where the working class can afford to make a decent life.
basically a mild version of Lenin's "the main issue of revolution is the issue of land". Was very popular at the time.
False equivalence - Lenin would have said all land is to be owned by the state.
This is arguing for increased taxation of idle assets. Society writ large benefits. Think about the people who can't think of starting a company now because it's too expensive to live here in Silicon Valley. Never mind the teachers and nurses and firefighters who are needed to make for a well-rounded society.
The idea of a land-value tax has plenty of proponents less controversial than Lenin.
Invoking Lenin doesn't really serve any purpose in this debate, it's just one rung above pointing your finger and shrieking about "communism" and "preserving judeo-christian civilization."
That wasn't just Lenin. That was every single rebel on behalf of the lower classes for the last 6,000 years or so. Next time, it'll be about land and AWS servers.
[+] [-] _m8fo|8 years ago|reply
Case A: ------- Undeveloped, small city. LVT kills any incentive for developers to purchase and build.
Case B: ------- Developed, large city. LVT hurts existing landowners, they become politically active and shut it down.
Also, land is already taxed as a part of property taxes.
[+] [-] no_protocol|8 years ago|reply
I'm not sure this is right.
There would be an incentive to purchase unused or underused land -- the price will be lower! Relatively high taxes will encourage the landowner to sell the underperforming property rather than hold onto it for years waiting for its value to increase (speculation).
There would also be an incentive to build -- the developer can build as extravagantly as he wishes without dramatically increasing taxes. Want to build a giant tower? Tax is almost the same as if you built a parking lot.
[+] [-] jpao79|8 years ago|reply
[+] [-] seanalltogether|8 years ago|reply
[+] [-] ashark|8 years ago|reply
So, an empty acre of land across the street from Central Park (I know, I know, but pretend it exists) is taxed the same, under an LVT, as that same acre sitting under a big mixed-use apartment/retail building. The building itself isn't taxed (though its presence will likely have a small effect on the overall rate in the area, provided it acts to increase the value of surrounding land).
[+] [-] o_nate|8 years ago|reply
[+] [-] natrius|8 years ago|reply
[+] [-] Simon_says|8 years ago|reply
[+] [-] jellicle|8 years ago|reply
Introduces confusion into a system that otherwise can't get too out of whack; after all, any arms-length sale of a property gets you a darn good idea of how much it is worth for taxation purposes. But since land is not usually sold separate from the buildings on it, an LVT allows perpetual divergence, and in the end you'll have ultra-valuable properties whose worth is, supposedly, all in the building and thus not taxed at all.
[+] [-] AnimalMuppet|8 years ago|reply
The article cites a mixed bag of experience (failure in Altoona, success but then abandoned in Pittsburgh). That's... not very much. It's far too early to talk about this as if the actual effects were certain. (And the article doesn't mention why Pittsburgh abandoned that approach, which I consider to be important data.)
The article (and the proponents) talk about LVT as if it were going to be a certain success and an unalloyed benefit. It may in fact be so, but it assumes facts that are not yet in evidence.
[+] [-] jpao79|8 years ago|reply
[+] [-] mschuster91|8 years ago|reply
I'd bet that if your property has a single-family home on it and someone builds a huge 20-story block next to it, it will kill the value of your property, not rise it - shadow from the building, noise from construction, traffic, kids...
IMHO "disruptive" buildings like this should not be allowed without careful thought. In this case, for example, the infrastructure simply might not be there to support a 20-story (or for what its worth even a small 4-story!) building: electricity, telco, water and sewage feeds will need expansion which means months of ripped-open roads, the roads themselves usually won't support the amount of additional cars or public transportation.
[+] [-] tmnvix|8 years ago|reply
[+] [-] IronWolve|8 years ago|reply
This was the problem california had, paid off homes property tax became the same as renting an apartment, driving elderly out, and thus laws had to be passed to protect them.
There was a new stop light put in near my work, it cost 750k. For a stop light, the city waited years due to the cost. More expensive since it was on a main road, and part of the cost was flagers and lane reduction.
Costs are too expensive, even maintain streets in some areas due to low income homes and less property taxes, and the cure has been roundabouts instead of stop lights (or over passes on urban highways.
Its crazy. Don't even get me started on waste of an impact studies for homes but doesn't include roads.
And saw another report Vancover homes will be around 2.1 million average by 2030. Crazy.
[+] [-] TulliusCicero|8 years ago|reply
Oh, is that why Prop 13 also applies to commercial property, people who can easily afford the increased property taxes, second homes, and heirs?
Prop 13 was a giant mistake. A narrow version to prevent grandma from getting kicked out of her longtime home would be fine, but the real thing is insanely broader than that.
[+] [-] swendoog|8 years ago|reply
The world needs affordable housing, so don't get me wrong. But what's infuriating is how often the conversation stops there. It's always about building more housing and creating affordability programs for the poor. Meanwhile forgetting that even middle class workers are being priced out of the market!
When your middle class can't afford (or can barely afford) the cost of housing, your problem extends beyond just that class.
I don't believe in "trickle down" economies, where consolidation of wealth into the hands of a few "lifts everyone up". What I do believe is important - for everyone - is a healthy, educated, middle class. In a way, the health and success of your middle class is like a barometer for the health of your society as a whole. When your middle class cannot afford to buy a home, cannot afford to begin a family, and cannot afford to live at or above the quality of life of the generation before them something is wrong.
Yes, we need to help the poor. Yes, we SHOULD have programs for that. But the conversation all too often stops there, and market rates are taken for granted.
[+] [-] jpao79|8 years ago|reply
What you don't want to become is city (or county, state or country for that matter) known for changing the rules of the game when its convenient.
Investors make what can be transformational improvements to a city. However the payback periods for a building can be on the order of decades (think Salesforce Tower - cost to build $1.1B, Salesforce lease will pay $560M but over 15 years).
The developer or investor takes on the risk and will by definition be in the red for the first decade or two (historically a 7% cap rate is expected - which is about a 15 year payback period). And that doesn't even including the planning period before the building gets built.
If a city suddenly changes the rules on a populist whim because suddenly the city is popular with the tech industry, future investors will definitely take notice and it will absolutely stifle any future investments in the city.
[+] [-] PatientTrades|8 years ago|reply
And what happens if you cannot afford the land tax? Does your home get taken away? The idea that only rich people own land is baseless. There are many poor people that own moderate/cheap homes on prime real estate in places like LA and San Diego. Most of these homes were built several decades and their property taxes were capped allowing them to stay in their homes. There needs to be a provision that certain individuals can avoid this land tax based on their income otherwise many people will lose their home because they can't pay the tax.
[+] [-] jogjayr|8 years ago|reply
That can happen with property tax too though.
If the land tax goes that high, it means more value could be extracted from that land by building more densely on it. One way this could play out for a cash-poor landowner is to sell the land to a condo developer in exchange for a couple of condos in the new building and payment for temporary housing while construction is going on. I've known this kind of exchange to happen in many Indian cities. It works out very well for both parties.
[+] [-] EddieRingle|8 years ago|reply
Additionally, this would ideally be implemented while also eliminating income taxes (and general sales taxes). One of the biggest benefits of this is that we would no longer _need_ to track everyone's income, and could even eliminate vasts amounts of bureaucracy like the IRS and state-level departments.
[+] [-] eli_gottlieb|8 years ago|reply
There's usually an exemption on some dollar amount of LVT for your primary residence, provided that the municipality can verify it's actually your primary residence.
[+] [-] civilian|8 years ago|reply
But. As long as we're comfortable taxing people, then why is it unjust to tax in this way? We're taxing in a way that allows the land to be better utilized for _everyone_.
Additionally, this person who bought this property decades can probably sell the property for a pretty penny, and move to a cheaper area, and have plenty of cash leftover.
[+] [-] to3m|8 years ago|reply
Land Doesn't Generate Income: http://kaalvtn.blogspot.co.uk/2013/01/c-land-doesnt-generate...
[+] [-] damnyou|8 years ago|reply
Then they aren't poor.
[+] [-] IncRnd|8 years ago|reply
[+] [-] jjoonathan|8 years ago|reply
[+] [-] theBuess|8 years ago|reply
[+] [-] bryanlarsen|8 years ago|reply
[+] [-] rukittenme|8 years ago|reply
Quoting Henry George:
"The way taxes raise prices is by increasing the cost of production and checking supply. But land is not a thing of human production, and taxes upon rent cannot check supply. Therefore, though a tax upon rent compels owners to pay more, it gives them no power to obtain more for the use of their land, as it in no way tends to reduce the supply of land. On the contrary, by compelling those who hold land for speculation to sell or let for what they can get, a tax on land values tends to increase the competition between owners, and thus to reduce the price of land."
[+] [-] iaw|8 years ago|reply
Investments like that would look a lot less desirable if the land was taxed in the proposed fashion.
[+] [-] floatrock|8 years ago|reply
That's the whole point of the land tax... if you want to plop a single-family home on a given parcel of land, you can if the single family wants to pay for the whole thing. But there's a strong incentive to build taller so more people competitively split the tax.
[+] [-] jrochkind1|8 years ago|reply
Presumably rental, not ownership, cause the poor won't be able to pay the land tax!
I suppose there could be a homestead and/or income based exemption/reduction.
[+] [-] unabridged|8 years ago|reply
Another problem is super dense developments not paying their fair share. A skyscraper's residents are using way more of the city's resources than the small building next door, but with the same footprint they are paying the city the same amount. I suppose this would have to be fixed with some kind of income tax.
[+] [-] virmundi|8 years ago|reply
[+] [-] trhway|8 years ago|reply
basically a mild version of Lenin's "the main issue of revolution is the issue of land". Was very popular at the time.
[+] [-] not_that_noob|8 years ago|reply
This is arguing for increased taxation of idle assets. Society writ large benefits. Think about the people who can't think of starting a company now because it's too expensive to live here in Silicon Valley. Never mind the teachers and nurses and firefighters who are needed to make for a well-rounded society.
[+] [-] trgv|8 years ago|reply
Invoking Lenin doesn't really serve any purpose in this debate, it's just one rung above pointing your finger and shrieking about "communism" and "preserving judeo-christian civilization."
[+] [-] eli_gottlieb|8 years ago|reply
[+] [-] unknown|8 years ago|reply
[deleted]