The issue with property is that they are being used as an investment opportunity, which undermines the purpose that most people want property for, which is as an affordable place to live.
What we want to discourage is people using property to invest, but without penalising those who want somewhere to live. Therefore, if we're going to have a land use tax it should be based on how someone uses it. If a property is your only home anywhere in the world, then it should be exempt, but anything outside your main home could be taxed. That should discourage those people who buy property but barely live there from driving up prices for the people who want to live there.
Rental prices are already as high as the market will bear (people can't choose not to have a house, so demand is pretty inelastic). A land value tax does exactly what we want: it will keep the net rental price the same, but push down the ownership price. So we'd see a lot less buy-to-let, and more people able to buy homes. As a bonus, it would make it harder for corrupt foreigners to hold empty property as emergency funds, since someone would have to be paying the taxes on it.
How is that creating a perverse incentive? If someone seeks to transform their primary residence from somewhere they live to somewhere they make money, then what's the problem in taxing them?
Also, with regards to the rules of the proposed tax exemption, quoting jrs235... "*2b and only .25 acres of land would be exempt. (Of some other generally agreed amount)""
Furthermore, as has been pointed out already, we could make it so that only properties that sit within a predetermined land mass size would be exempt from tax.
A large estate in the middle of nowhere is still potentially wasteful. For example, could that land not be used for farming or wildlife? How many bathrooms does one person need?
Tax-free primary residences causes at least two problems:
1. People want places to work and shop, too.
2. You end up having to regulate what counts as a primary residence so that Mr. O'Billionaire doesn't get an entire city block tax free. How does working from home affect your tax rate, etc.
To put it another way, why don't people sit on their cash? They're taxed on most cash transactions, right?
Sure, but as long as it can be used to extract rent at no cost, the value of land is going to keep going up.
> why don't people sit on their cash? They're taxed on most cash transactions, right?
Inflation is a de facto tax on holding cash. Without it people probably would sit on their cash.
2. A primary residence is where you live most of the year. To have any property qualify you would need to spend more than 6 months in a year within a country, and would also need to specify which of the properties you own in that country is your primary residence. Problem solved.
Tax exemption for primary residences (under a certain size) + basic income is a far more flexible arrangement, and you lose none of the benefits of determining basic income on land use.
It's a land value tax, not land usage tax. So it would be independent on what you do with the land. (Basically it would be driven by the opportunity costs of what someone else could be doing with the land instead.)
> Tax exemption for primary residences (under a certain size) + basic income is a far more flexible arrangement, and you lose none of the benefits of determining basic income on land use.
Why? That's much more complicated, and full of loopholes.
I do agree that tying land value tax to financing basic income is only potentially a good idea, not necessarily.
Generalising land value tax effectively makes everyone a tenant —land property is abolished. This sounds revolutionary, but since this affects only a minority, I'm not sure how much of a change this would really be. I'm pretty sure for instance that it wouldn't rise the renting prices in big cities.
Pro-forma the land will still be in private hands, thus encouraging people to improve it. (Remember: buildings are not taxed, only the land.)
The government will be very interested in improving the value of land, eg by making saner infrastructure investments, because they automatically get more tax money to play with that way.
With regards to the rental market, people will only rent where they can afford, which is exactly the same as now, what it does change is the amount of profit that landlords can make from each property. If we have a land use tax I'd like to see it increase based on the number of properties you own, which would discourage people buying large numbers of properties just to rent them out.
Again, the purpose of the tax should be to curb the demand for property as an investment. If you do that the increase in house prices should come down, and as a side benefit there's less incentive for companies to expand nationally, which would increase diversity in the marketplace.
Preventing bubbles is another problem. I think in London the problem is that brits have this curious obsession with owning property and be willing to bid as much as they legally can, burrying themselves into debt, in order to achieve that. This is compounded with the lack of supply and foreigners using London property as a safe. But unless this obsession ceases, adding taxes or limits to borrowing isn't going to prevent bubbles. In fact the recent increase in stamp duty on expensive properties does not seem to have any effect.
This is key. A land value tax would have to go hand-in-hand with measures to allow density to increase. That would mean changes in planning laws, and also building of infrastructure like transport, doctors' surgeries, schools, etc. The former can be done at the stroke of a pen, the latter can be funded from the increased tax receipts that come with higher density.
You seem to equate "densification" and "better using the land". That is a narrow definition of "better using the land".
In strictly utilitarian terms any change that increases total utility would be "better using the land", so if a tax increase on land makes some current residents reprioritise their money and decide to move, giving space to other people who value the location more, then that is "better using the land".
I'd argue the other way, that taxing income is discouraging production. We should be taxing consumption more than we are. If you see deeded property as a non-renewable resource, then ensuring good use through taxation seems essential, not just a good idea. Now, land is not exactly non-renewable since we can build up, as you point out, but in densely developed urban areas, it's pretty close to non-renewable.
We just had a land bubble, and many think the bubble is reinflating, at least in some areas. Putting a check on irrational pricing by adding a consumption tax here seems like a plan worth discussing to me.