[polalavik]

We need land value tax bad [1]

In Los Angeles I’ve watched business after business close because their rent was increased by their commercial landlord only for the property to sit vacant in some cases (no exaggeration) for over 5 years!

Thats absurd. Also as a business owner who would like some space to work out of your only options are endless swaths of vacant industrial buildings that are tens of thousands in rent a month. I don’t quite get how anyone runs a brick and mortar or has space to do anything profitable.

[1] https://en.wikipedia.org/wiki/Land_value_tax

[harmmonica]

I’d support a land value tax myself so don’t take this following comment as criticism, but you don’t even need a land value tax in the case of LA. You do need to repeal Prop 13 for investment properties. I wager most of those years-vacant properties have a generous Prop 13 assessment and so the owner can just sit on it because their carrying cost is closer to zero than what it would be in any other tax regime. Then all of us folks around them continue to make the adjacent area nicer and they just ride off into the sunset while the absurd delta between their taxable value and market value increases.

Prop 13 is like the anti land value tax. Makes places like Texas look downright progressive.

[epistasis]

We were very close to repealing Prop 13 on commercial property a few years ago (via Prop 15).

One of the biggest objections to a straight repeal Prop 13 on commercial property is that most commercial leases are triple-net, meaning that the businesses directly pay the taxes. Which means that a bunch of small businesses that are just barely on the edge of profitability will shut down when they finally have to pay their fair share of property tax.

Agreed on the need to do it though (and also Texas typically has higher taxes for a normal person, with worse services than California). We might just want to pass a gradual phase in or a requirement that landowners pay it without increasing rent )and doing reach through to modify all those triple net leases... or something. Or we just let the businesses fail, but the public tends to not like lots of small businesses failing.

[spankalee]

We need to repeal Prop 13 completely. The fact that my neighbors pay 1/10th the property tax that I do, despite being younger and less at risk of being forced out of their home due to going fixed income or some financial crisis, is absurd.

[PaulHoule]

The article points that adding any more costs just costs the operator money and won't change their behavior unless the costs are so high that the bank is forced to foreclose. Maybe on some that level that is a good thing and clears the market but in the current situation the banks just won't make loans unless this happens.

It makes me think of the "poker game" model of nuclear power plant construction where the vendor is quoting a price lower than they know it will cost because otherwise they wouldn't make the sale. If commercial buildings were properly priced at the outset, banks would be financing fewer of them.

[marcosdumay]

Yes, the idea of a land value tax is to make it high enough to for banks to foreclose. The entire thing is about making sure land is used on the most socially benefiting way possible.

[estearum]

> The article points that adding any more costs just costs the operator money and won't change their behavior unless the costs are so high that the bank is forced to foreclose.

That is assuming operators are roughly zero-IQ automatons who can't factor future costs into present decisions?

[atoav]

And I don't even think it is controversial. People who squat on needed resources without using them are a drain on society, thus society should try to create an incentive structure for using spaces. A tax can be part of this.

[danjl]

What about incentivizing switching the building from commercial to residential? Given that commercial brick and mortar are generally on a downward trend, and the need for housing continues to increase, it would seem better to switch the property zoning in the long run. Since I'm clueless about the financial details of commercial real estate, I'm sure this proposal is full of holes, but, as a rule, I prefer incentives rather than penalties to motivate change.

[dec0dedab0de]

Don't underestimate how many businesses are supplementing their income with dirty money.

[coliveira]

Some businesses survive because they already own the property or have long time leases.

[kcplate]

Sometimes the last lessee is still on the hook for the remainder of the lease due to landlord improvements for the tenant. Had a friend lease a retail storefront, his business failed, but he still was coughing up rent to the landlord until the space was leased again. He was a sole proprietor and had to personally guarantee the lease. It was in his best interests to pay it rather than take the hit to his credit by defaulting on the lease.

My guess is a already wealthy landlord would probably be motivated to ride out the remainder of an existing lease and write off any unpaid amount as a loss before lowering the price to attract another business into the space.

[scifi]

True. What I don’t get, is how is vacancy a good move for the landlord? Wouldn’t it make more sense to have a tenant during that time?

[bobthepanda]

Commercial loans are not like residential mortgages and often the loan is based on a minimum rent. If you go below that then you are in default.

[duskwuff]

I don't like just saying "read the article", but this is precisely what the article explains. In short: the rental rates are a condition of the property owner's loan.

[seanmcdirmid]

Is it because of Prop 13 that commercial property owners aren't paying adequate property taxes that would act to encourage use?

[spwa4]

How does land value tax change the scenario in the article? It plays out exactly the same way with and without land value tax.

[spankalee]

Land value tax mainly helps with severely under-utilized properties like parking lots. Right now a parking lot is taxed far, far lower than a lot with a building, so the owner can keep it for parking when it would be better utilized as residential, commercial, or office space.

If it didn't pencil out to just site on empty land, we'd get better development.

[zem]

same thing happens in SF, often to businesses that have been a valued part of the local neighbourhood for years. it's infuriating.

[anigbrowl]

Yep, this has wiped out my favorite deli, local cinemas, and bookstores in the east bay. Basically non-capital-intensive businesses seem to pay the price for the market signal falsification engaged in by landlords and banks. But nobody wants to bite the bullet and risk setting off a repeat of the 2008 financial crisis, so we've ended up with some kind of hypernormalization-style fake economy which is being 'run' by a former reality TV star and a bunch of TV personalities and political entrepreneurs.