The prices for rights of use are determined by market, but usually bundled together with prices of buildings on it.
One way to look at Georgist critique of current land system is that the rights of use are sold once but held infinitely long. If you got lucky and bought a piece of land in downtown Manhattan 200 years ago for 20 bucks, now you wouldn't need to pay anyone for granting you that ownership right. Basically land (and natural resources) are owned by people who got lucky, not by people who actually use it (such as a restaurant which has to rent it from that lucky holder). If the ownership rights were not given for infinite amount of time but reentered into an auction every, say 7 years, the allocation of land would then go to people who actually need it. It is the same economical problem as Domain Name allocation on web.
People 'own' land on paper only. The government actually owns it no matter if you are in China, Europe or United States.
Similarly, if you "bought" a piece of land you just use for a single story home near downtown SF 30 years ago, are you still paying the same LVT you got at action back then? Or will the price keep going up and price you out of your longtime house?
In reality that is how majority of people and business operate because they rent from somebody else. Your apartment lease usually expires after a year and you can be 'evicted' by your landlord. Businesess have contracts for longer periods (about 10years) of time because they put more investment into it.
Instead of renting from lucky private landowners, the business owners could just as easily lease from a government for 7 years.
The only question really is how long the auction should repeat after. Every year would mean people would not invest much for risk of non renewal of the contract next year. On the other hand too long between auctions (such as infinite time like in present day situation) and you get huge underutilization because the lucky winner in the first auction is not pressured to sell.
LVT (or this auction mechanism) is based on market price of the land in that area so it changes in time. To prevent sudden spikes in price, the valuation of land should happen in intervals of several years like I described above in the case of an auction.
While the specific auction mechanism and expropriation of all land is obviously fantasy, substantiatively the same effect can be obtained with property taxes assessed based only on the value of the underlying land and updated frequently (land value tax), with the added benefit of avoiding the distortions of worrying that a lease will expire and someone will outbid you to seize the value of the capital you have invested in improving the property.
If noone else wished to take over the land on which the factory stood, well then the factory owner renews the lease for another 50 years.
If there was somebody who wished to own that land and offered higher price, well they'd win the auction. However they wouldn't suddenly own the factory. They would still have to pay the price of the factory to the previous owner, much like it is done today.
If they didn't want the factory, only the land under it, and they won the auction but didn't pay for the factory, then that would result in a deadlock situation.
The original factory owner would stop production, but the new owner would be prevented from using it either, but would be stuck with the rent payments for the land under the factory.
Most likely he would sell it back to the previous owner or just not bid for it in the first place.
Only if he really wanted it that much that he would pay for the land rent to the government and price of the factory to the previous owner, he would get it.
And that is pretty much how it works today, so nothing really would change.
It’s hard for me to think of a way to square this without a concept of land ownership and exclusive property rights.
I guess some type of lifelong lease from the government could be OK, but some land is more valuable than other land for living, so then how to allocate the best livable land?
At any rate, I do view the capability to be evicted as a moral wrong.
These two ideals of yours are contradictory. The right to not be evicted (in order to better develop the land) can directly prevent the availability of housing with the qualities you require. With the help of zoning boards, which are really just an embodiment of their constituent land owners, isn't this more or less the sum of the housing issue in the bay area? You certainly cannot say that there's any semblance of comfortable hosting with a reasonable commute...
It’s important to focus on solutions that solve both sides of the problem, and to deny arguments that it’s functionally not possible (which would be an unacceptable outcome).
I don’t mind the contradictory positions in terms of market theory and efficient allocation, and believe it’s important to pursue anyway, that this technical contradiction is fine... necessary even.
an outcome can be unacceptable, but you have no choice but to accept it. It's like gravity will pull down, whether you accept it or not.
When you lose the ability to evict, you also lose the ability to rebuild (since you'd need to evict to rebuild).
What is desirable is balance. Where that balance lies is up to the populous, and in san fran, the populous have spoken (by their actions) - they prefer to keep it less dense, and suffer the consequences of high property prices.
the expectation to live on a specific piece of land indefinitely has always seemed one of the more bizarre entitlements to me. it's basically the only thing we can't make more of.
Unfortunately it cannot be a universal benefit since not everybody lives in their own. Implementing this non-eviction right would vastly benefit one part of the society at the expense of the other. The benefiting half of society would then proceed to collect vast sums of money from the other half through rent payments.
I personally think if there is a class divide in society then it is exactly because of this supposedly universal 'moral good'.
If Marx lived couple more decades he would see that those capitalists used their hard earned money to buy.. real estate and land. Therefore just becoming new aristocracy displacing the old one. It was not the Marx's capitalist who was the exploiting bad guy. It was the landowner after all. Industrial revolution during Marx era was just a transition of aristocratic titles to the new generation of aristocrats that we now call.. well we call them just 'billionaires'.
The entire point is for the price to keep going up and to eventually price people out of their longtime homes. It is the specific intent of this sort of policy to force people out of their single story homes near downtown SF. Whether you think it's good policy or bad policy can be debated, but proponents of these sorts of policies consider it bad public policy to allow scarce resources to be monopolized by people using them inefficiently, regardless of who those people are or how they came to possess those scarce resources.
If we don't have a problem with elderly renters getting priced out and not receiving a windfall (public concern for this issue is pretty muted) I don't see why homeowners getting priced out and receiving a windfall is worse.
I always found it deeply ironic that the Howard Jarvis Taxpayers foundation successfully lobbied for prop 13 on the "won't think of the pensioners homeowners" argument and then turned around and lobbied to slash pensions... yet their propaganda still carries weight today.
but what is the value of the land if it's not the improvements upon the land?
If i left the land wild and free and un-used, what would the the value? Is it the value someone else would've paid?
Following this line of reasoning would suggest that all unimproved land is always worthless, which is obviously not true given that people buy unimproved land all the time. Moreover, it would suggest that knocking down a building on a piece of land is never a correct decision, since land with a building on it would always be worth more than that same land with the building removed, which is also obviously not the case.
> Is it the value someone else would've paid?
Yup, the market value of the land were it unimproved. There are various ways to estimate this value.
The problem is what counts as an "improvement". LVT proponents tend to go with the technical/legal definition, which is basically permanent structures built on the property, and consider everything else which contributes to the market value of the property to be part of the "unimproved" value. However, that "unimproved" value was still created by human beings, not an inherent part of the land. Some or all of that "unimproved" value may even be due to the efforts of the owner of the land, without involving any structures on the land itself.
To illustrate, let's say a developer buys some vacant land and, after reserving space for residential lots, adds roads, electricity, water, sewer, communications, convenience stores, etc. Those residential lots are now worth quite a bit more than the original land, despite having no "improvements" as yet. That increase in value is 100% due to the efforts of the developer, and yet a LVT would call it "unearned" and attempt to tax it away. Where is the fairness in that?
Location.
A free and un-used plot in SF is worth a lot.
but the value (including the location) only exists if the eventual goal of adding improvement to the land is possible (or is doable). If i stipulate that the land is forever unused (e.g., i contaminated it with poison which cannot be removed), then the land would become worthless, regardless of the location!
They care about what a currently empty lot (perhaps with necessary building permissions) fetches on the market.
I came up with a scenario about why I thought this would hinder property improvement, but I think I solved it within the Georgian system:
Let's say Alice buys a piece of property zoned for 10 story buildings at 2mm/year LVT. She invests 30M and 3 years of construction into building a 10 story building that can generate 4mm/year in rent. It will pay itself off in 21 years plus start generating profit. Alice has specialized in being a great property develop but not a property manager. However, she is now TIED to this property -- if she lets it go up for auction, she loses the profits from her improvements. Sure, she can contract out property managers and eat into the profit, but this just increases the time until she can afford to build the next building.
In a capitalist system, Alice can sell the building upon successful completion and immediately profit to the exact degree the market thinks she improved the land's value. That capital can immediately go into the next project and allow better specialization of human resources.
However, I now suppose that the party who "bought" the land from the feds doesn't have to be the specialist who gets contracted to develop it. She can still be paid 30M upon completion and go straight into the next project with a different owner, without ever dealing with an auction.
I potentially like this system a lot, as long as it allows wealth and non-land property rights, and market pricing, but I do need to think about it more. Thanks for helping to explain.
If a power station opens next door and price drops, you pay less tax
If LVT is subject to arbitrary changes outside of precise terms negotiated during the initial auction (which should cover the annual cost plus cost increase schedule).
Ultimately, nothing will incentivize the improvement of the value of the property as much as owning the property. I think it's apparent that total infrastructure development would go down significantly under this system, even if there are other advantages. We can minimize risk by including length of lease in the auction, but if there is a maximum lease length, the end part of that lease will always be devoid of infrastructure improvements.
There should be a much more active market in land (land would change hands much more frequently because it doesn't make sense to hold as an investment), which then makes it easy to assess land value.
> And if you risk other people pricing you out of property you currently hold a lease for (especially because they think the value is going up because of your investments in it) I can't imagine that would encourage any development at all.
You're discouraged from building more than you need on land you can barely afford, and in an area that's rapidly changing you're encouraged to build things that you can either easily move, or sell on to future buyer of the land. The intent isn't to encourage development for development's sake, and the result might be less development in areas that are rapidly changing.
This concern is usually addressed by ditching the distorting effects of the periodic auction and of the incentive to try to "steal" capital improvements by abandoning the auction framework and just assessing a yearly property tax proportional to the value of the underlying land were it unimproved. Since ownership and sale of land would still exist in this system, the value of the land for assessing land value tax can be determined by the market value of the land.
If the concern is that poor people might be unable to afford to stay in their homes, why not target poverty or house prices directly rather than adjusting the tax?
You can use an auction.
Eg you can auction the land off to the highest bidder for a few years at a time.
(1) the automobile which increased the accessibility and productivity of formerly-marginal land, lessening the problem of equitable access to land, and
(2) the introduction of the income tax as an alternative to land value taxes. Notable, land monopolists preferred income taxes because as long as their land is unused or underused they are not producing as much income. The Georgist movement then split between those who thought that income tax was a good enough replacement and those who "knew" it wasn't.
There's also a kind of conspiracy theory which claims that (to a certain extent) neo-classical economics (which developed at about the same time that Georgism become popular) was promoted by wealthy and biased land owners and monopolists at the time with an intent to discredit Henry George and obfuscate the role of land in the economy, folding it under the definition of 'capital' to reduce the factors of production to just two, along with labor.
That’s all Georgism is. When I agree to pay $3000/mo for a crappy studio to be close to a particular park/subway station/employer/school, some large portion of my rent should go to fund the things that enticed me to move there.
There are lots of reasons great ideas may not take off, including the difficulty of grokking them and/or entrenched interests.
Who determines what land is worth? In a society with property rights, the market bids up land that is undervalued according to society's current needs and expectations and bids down land that is overvalued. When not significantly hindered by government zoning policy, it is pretty good at generating more buildings where there is high demand (see Dallas, TX). If the answer is a bureaucracy, it seems like a system of price controls where prices will inevitably be wrong and misallocate assets. I'm not aware of any country that has yet demonstrated the ability to successfully set direct prices of important economic assets for more than a decade without causing huge surpluses or (more commonly) shortages. A direct price control removes all input information from the market, whereas existing price floors (minimum wages), price ceilings, and subsidies tend to create smaller scale problems.