[nmhancoc]

> Taxing land will be passed through 100% to the renter

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.

[AnthonyMouse]

> 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.

"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.

[nmhancoc]

This actually gets at one of the main criticisms land value tax (LVT) proponents have of traditional property taxes, which tax both land and buildings.

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.

[chii]

> So when new people move in, there is an increase in demand

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.

[Ekaros]

>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.

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.

[genewitch]

Let's assume what you say is true. Then the reason it's impossible in the US is because landlords would do everything in their power to stop it, because they'd be the ones eating the cost.

[nmhancoc]

I don’t think so, actually. Real estate is a pretty small sector of the economy (maybe 13 or 14% of GDP according to Google. That’s about as much as manufacturing, but not politically unassailable.

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.

[protocolture]

>they’re set as high as the market allows.

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.

[eru]

> 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.

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?

[6510]

Or we could simply see you paying as much rent as possible as the most efficient use of the land. That would simplify the plot considerably.

[nmhancoc]

This was a long reply and I’d like to honor it by addressing what you bring up, but there’s a lot so forgive me for jumping around.

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.