This is distinct from a property tax in that it only measures the value of the soil it sits on, so doesn't punish the landlord for improvements. The value of the land itself is almost entirely outside of the landlord's control, it's determined by the community around it. As a result, this is one of the least distortive taxes.
When land value is taxed at a higher rate than property value, it creates a perverse incentive for landlords - especially those who don't live in the area in which they own property - to encourage blighting and sabotage the value of the land, while instead reinvesting this money into improvements on the property itself. That concentrates wealth even further in the hands of people who can afford to own these insular properties in otherwise "undesirable" areas.
Actively blighting a neighborhood to depress values and make it easier to purchase land for new properties (either on the market or via eminent domain) is already a problem, and one that significantly skews power towards the extremely wealthy and massively-capitalized institutions. Taxing the value of the land separately from the property that sits on it (and at a higher rate) would exacerbate this unbelievably.
Murder also hurts property values. Fortunately, we have the ability to create laws to punish destructive behavior.
Why would a landlord destroy the value of their own property, harming their own ability to draw rent?
They haven't. That's why taxing land value at a higher rate than property values doesn't have support from mainstream economists.
> Murder also hurts property values. Fortunately, we have the ability to create laws to punish destructive behavior.
Murder is a lot easier to identify and prosecute than blighting. We already have laws against blighting. They don't seem to work. Increasing the incentive to blight is unlikely to make blighting less attractive.
> Why would a landlord destroy the value of their own property, harming their own ability to draw rent?
You're missing the point. They wouldn't destroy the value of their property; they'd extract value from the land (and neighboring land) to build up the value of their property. Land-value taxes encourage consolidating wealth in improvements to private property that have zero impact on anybody other than the property owner (or tenant). That's the exact opposite of the desired outcome, because it clearly works against the public benefit.
There are plenty of areas where this already happens, because there's enough of an incentive for property owners to do this even without skewing the tax code specifically to reward them for this behavior.
I admire the cashflow of trailer parks, and the ease to remove and replace distressed properties.
For example, the capitalization and sophistication of commercial players lets them efficiently and systematically harangue tax assessors into lowering property taxes far below what normal individuals with just their own residential property can accomplish. Those kinds of advantages accrue in many other areas, and are out of reach of individuals due to sheer scaling differences. But it's the individuals that incur lots of collateral damage over the course of a long period.
LVT is part of a solution, but I'm still looking for a way to address that scaling differential. I think housing co-ops are onto the start of such a solution, but I'm not convinced in their current form that they are appropriate to use for addressing the scaling issue.
This comes up a lot in discussions involving income inequality. If the proposed solution is "tax the rich", you have to be really careful to tax them in a way that's not trivially easy to pass back onto the less-rich.
https://en.m.wikipedia.org/wiki/Land_value_tax#Real_estate_v...
"Because the supply of land is essentially fixed, land rents depend on what tenants are prepared to pay, rather than on landlord expenses, preventing landlords from passing LVT to tenants."
Land value taxes are so attractive because they avoid changing the incentives to build.
Some employers might try to raise compensation accordingly, but they're going to have higher rental costs too since most employers have to rent their office space. So it's more likely that they'd be forced to reduce the size of their workforce to reduce costs and spread compensation among fewer, somewhat better-paid employees.
The impact on landlords would be immediate, and the impact on renters would be as soon as they get or renew a lease. Employers and employees would see an impact somewhat later, since it takes a while before a business is forced to downsize. Any new housing would be a long way off, well after all of the negative impacts have occurred. New housing may never come, if businesses and workers are forced out of the area to someplace that doesn't have an LVT.
As a landlord, I have a mortgage of $X and taxes of $Y, and insurances, maintenance and other liabilities that total up to $Z, for operating costs on a piece of property.
For this to make any sense at all, $Rent >= $X + Y$ + $Z.
If you increase the taxes $Y (and this would, realistically, be done more or less uniformly across a town or municipal region, so all properties are going to be in the same boat), all you've done is make me have to charge a correspondingly higher rent. Rounded up to the nearest $25 or $50, because that's how it is always done. Meanwhile all the other owners of rental properties are in the same position.
Hooray!
It is an incentive to build. Furthermore, it is an incentive build with higher density.
More density and more houses reduces the cost of rent. It also reduces the building and maintaining infrastructure.
1.) Tax on land value
2.) Tax on improvements (building, landscaping)
http://www.lao.ca.gov/reports/2012/tax/property-tax-primer-1...
Here's a brief description of how the increase in land value is calculated: "Under this system, when real property is purchased, the county assessor assigns it an assessed value that is equal to its purchase price, or “acquisition value.” Each year thereafter, the property’s assessed value increases by 2 percent or the rate of inflation, whichever is lower."
I think what the 2% appreciation cap is attempting to mitigate is if all your tech millionaire IPO neighbors decide to remodel their houses at once, you won't be stuck with a huge tax bill and have to move.
A phased, gradual raising of the 2% cap probably would make sense over a couple of decades. That way homeowners and developers can adequately prepare and build in that rate increase into their economic models. Building lifetimes span multi-decades.
1.) Tax on land value
2.) Tax on improvements (building, landscaping)
so Georgism already exists somewhat.
An land value tax increase would need to be phased over decades to account for the building lifetimes which can span 50 or more years. Developers use multi-decode economic models for their developments based on assumptions including worst case property tax scenarios. But if that can change at moment's notice.
It also would need to account for zoning restrictions. If some parcels get re-developed as ultra high density housing but NIMBY's block similar developments in neighboring parcels, that could lead to lawsuits against the county.
* No depreciation allowance on rental property that is almost always going to appreciate [1]
* No 1031 exchanges, deferring capital gains forever [2]
* No mortgage interest deduction, which encourages the wealthy to bid up real estate since their leverage is tax advantaged. [3]
* Co-Ops acquiring property for renting to citizens when possible [4]
[1] https://www.biggerpockets.com/blogs/2728/41560-understanding...
[2] https://en.wikipedia.org/wiki/Internal_Revenue_Code_section_...
[3] https://www.theatlantic.com/business/archive/2017/05/shame-m...
[4] http://www.yesmagazine.org/people-power/in-berlin-a-model-fo...
EDIT: @ mcbruiser3: When I say "we" (which I removed above), people who share my progressive political view that people/humans/"labor" should be treated with priority over capital and rentseeking.
In exchange, I would request a dramatically simplified tax code that avoids mechanisms such as these across the board. And reduced zoning regulations to allow more housing supply.
Coops acquiring property for renting to citizens when possible
Yes, this sounds like a good idea. As a Libertarian, I like this model because it is compatible with private property rights, and doesn't demand some sort of government intervention.
and who is "we" exactly?
Yes. Land should be held by housing cooperatives or by private owner-occupiers. Rentiers can go find a line of business that contributes to society.
edit: apparently some people don't like this comment because it means you have to help yourself instead of the gov't giving you other people's money. get a life.
Would you please not create accounts to break HN's rules with?
Tax income from rents at a higher rate than wage and salary incomes.
The landlords will obviously just raise rents to pay the tax, but this allows you to gather data on who owns/manages all the rental properties, which are the sort of data you need to determine if rents or absentee-landlordism is even a problem anywhere.
In response to the parent, the landlord is not providing housing. The people who live in the housing provide the demand for housing. The home construction industry provide new supply, and owners of existing housing stocks may be enticed to sell once their price point is reached. A landlord that buys a house with the intention to rent to someone else is acting as a middleman. If they did not bid up the price of that particular house, the price might have remained low enough for someone who intended to live in it to buy it.
So what the landlord actually provides is the ability to buy a small interval of living in a home, rather than having to buy all the years of living there--from now until the fall of civilization--all at once. Mortgages are a different sort of middleman. They provide the ability to spread out that payment for all the remaining years over a fixed number of years. But the interest on a home mortgage is mostly just another form of rent-seeking. Without the availability of the mortgages, the houses would have to sell at lower prices, to those who could afford to pay for them.
The problem, if there is one, is not that rent-seekers take rents, but that they do not spend those rents close enough to the people who give them for them to easily earn them back. If you rent out the loft above your garage to a single student, you're likely to spend some of that money at the restaurant where they bus tables part-time. That money circulates back through the local community. If you live in St. Louis and own a 3/2 in Tulsa, maybe the customer support line of the juice press you bought runs its call center out of there. That money leaves faster than it comes back. And if your retirement plan owns part of a REIT that owns rental property all over, and also has a bit invested in Freddie Mac and Fannie Mae, that's basically a diffuse sucking of money out of the entire rest of the country to feed a diffuse scattering of investors that don't necessarily live anywhere near the sources. The circulation loop is totally broken. People stand at the nexus ("Wall Street") and skim off the top, then don't spend that money back into the communities where the rents come from.
This is how an Appalachian ex-miner family can rent a drafty barn with no furniture for $300 a month, and not see any local jobs available to recirculate that money back to them. The owner doesn't live there, or spend money there, or even spare a single thought when their plane flies overhead. The only reason they own the barn is to extract the Social Security Disability money that flies in from Washington, DC, briefly touches earth, and then immediately flies away to a community where people own things for their living.
Something like a Georgist land-value tax does not meaningfully distinguish between a landlord that lives next door and spends all their rent locally and one that lives 12 time zones away and spends it all to people much more distant on the money-circulation graph. Perhaps it would be more appropriate to tax rents based on the distance between the beneficial owner's legal domicile and the property? Composite entities like corporations and partnerships would then have to report their domicile and distance calculations for distributions and dividends though. Seems like a mess for reporting.
Personally I've paid over $115,000 in rent over the past 12 years, but I don't begrudge my landlord their money. I attained utility in exchange for the rent I paid, and have no problem with the arrangement. Not, of course, to say that I'm happy when rent goes up. But it's a conscious choice I make to live this way, not some sort of exploitation.
He renders no service to the community, he contributes nothing to the general welfare
Housing isn't a service that contributes to the general welfare? I call bollocks.