Making property not a form of investment is a feature not a bug. See the article about Tokyo a few days ago for example (how rent is relatively affordable & Japanese don’t expect home value to hold).

Japan is hardly a great example. “Japanese Government Is Selling Houses for $500”, “There are more than 8 million empty homes in rural Japan”, “Housing stock in Japan. 62.41m”, “Vacancy rate of dwellings in Japan. 13.6%”.

That's due to rural depopulation, which is a rather different problem from lack of housing in desirable cities. And Japan has, more or less, solved the housing affordability problem in cities too.

Well Japan’s population is decreasing at 0.5% per year at present.

It is pointless trying to compare a country with population growth against a country (like Japan) where housing availability is increasing due to population decline.

Greater Tokyo's population is increasing: https://en.wikipedia.org/wiki/Tokyo#Demographics

It has not had a decrease in population since 1995 and the latest data point (2020) shows an increase of +3.5% compared to 2015.

Not in Tokyo - which what I was talking about!

You can say the same about Germany (and probably most western countries) - vast rural (or depressed urban) areas are depopulating because people move to Berlin/Munich/Hamburg/Frankfurt/etc. And yet Japan solved affordable housing to a much greater extent than us.

But watch the dynamics in New Zealand: retirees sell up in expensive places and retire to cheap places. That is the driver for house prices in lots of places outside of Auckland? The same thing must happen with retirees moving away from Tokyo?

Japanese invest in other things not in their housing (as housing is cheap, they can). Also I believe retirees do not as a rule move away from Tokyo? Here in Germany it's neither expected nor common for people to leave the cities they live in when they retire.

It’s common for urban Japanese to have a big old family home waiting for them in the countryside when they retire.

Yes, LVT pushes prices down. A 100% LVT on a property with a present land value of $1M won't collect $1M in taxes every year, it'll depress the price until the amount in LVT is at a low enough level that someone's willing to pay that to have the property.

High property prices aren't axiomatically good, if that's what you're going for, and the fact that people spend millions on construction as well suggests that sometimes properties are worth more than their raw land value. People will be able to make a ROI for the actual productive investment in building and maintaining property, even if speculation and economic rent are cut off.

that is, to proponents of the LVT, a feature, not a bug: it discourages rent-seeking, thereby incentivising other uses (e.g. actually living in the property).

Perhaps you could explain this glaring problem better. "Take the rent" and "leaves a property worth a pittance" makes me suspect you have an incorrect understanding of what a land value tax is.

Reply to your edit.

Yes, If something that is untaxed previously is now taxed then it's value will probably go down. There are winners and losers with every tax change.

The rate of a Land Tax is usually proposed to be around 1% of the value of the land. So if you own a $1m block of land in a prime area thats just $10,000/year.

The issue is that 1% sounds deceptively low.

If you have built on the property and are getting a rental of 5%, you are now getting 4%. That is a 20% decrease in property valuation, ignoring expenses (which make the figures much much worse). And the few articles I have read don’t talk about anything nearly as low as 1%. That is why I called it “communist” (I shouldn’t have been so inflammatory), because the government is taking money from a long term investment. Maybe it would be possible to introduce it slowly and fairly, but I can’t see how a government could actually do it and stay elected.

The simple mechanics of “just 1%” are usually just glossed over in the articles I have read.

Remember the Tax is just on the Land Value. You should be getting rent proportional to the builds and other improvement on the property. Thats half the point of a Land tax. It encourages you to build.

1% is typically the value most people talk about for a land tax. If anything often it is less. This makes it similar to other property taxes that are already out there.

I have no idea where you live but in many countries it is common for taxes to be introduced, raised and lowered as different political parties get in power.

Also the assumption is that income and other taxes will be reduced as land taxes are introduced to the amount the government makes would be about the same. It would just mean those with property would pay more while those earning wages would pay less.

The average home price in New Zealand is nearly $1 million. Let’s say that $500k of that is land.

So you are proposing to increase average taxes by $5000, and you appear to talk about that as though that is some trivial amount the anverage New Zealander can afford. A land tax as you propose is an absolutely massive taxation increase.

Say that a land tax takes 50% of all rental income (a large amount) in New Zealand and puts that into the government - how can you believe that is equitable for renters or owners?

The point of a land tax is to take the land profits from private owners, and put it into government coffers. Note that it doesn’t change the amount that renters pay. You think that it would correct rent prices in New Zealand?

$1 million of land is not extreme wealth - it is only 2 or 3 times an average home. Where do you live that $10000 after tax is not a huge amount of money annually?

Maybe I'm misunderstanding something but I think the point of Land Value Tax is that it is set based on the value of the things that could be built on that land, not ones that currently are located there.

So, you have a lot of land with a single family home, but you are taxed for it as if 20-unit apartment building was standing there. Which, in the long run, incentivizes you to sell your home to some developer that would actually build such building.

Now you can discuss if that's fair approach, or just a way to force people out of their homes.

> Land Value Tax is that it is set based on the value of the things that could be built on that land, not ones that currently are located there

Everything I have read just uses nearby property prices. Very similar to GV valuations as we currently do in New Zealand with our council rates (just use that figure rather than another). As market prices shift, your Capital Value remains relatively constant (maybe inflation less depreciation), and the Land Value shifts to meet market value (usually upwards, whenever your property rating is updated).

In New Zealand we currently have a partial land-value-tax called rates, although they are usually far below LVT suggested taxation rates. Rates are low, but still a significant drain. Mortgages are also similar to a LVT - your mortgage has to pay the land value - and that is certainly more than suggested LVT. Apparently the point of an LVT is not to get revenues, so I don’t quite understand how that works. A tax that is less than a mortgage already is - hmmmmmm - how can that help?

Ironically house prices are set by people bidding against each other for how big their mortgage can be. The tax won’t shift house prices, just shift money from private equity to government? See: https://news.ycombinator.com/item?id=34097478

The arguments I have read are usually so vague and seem to always miss critical details. I am not a property or economics specialist, yet I see glaring problems and omissions in well received blogs: that doesn’t bode well IMHO.

> If you have built on the property and are getting a rental of 5%, you are now getting 4%. That is a 20% decrease in property valuation, ignoring expenses (which make the figures much much worse).

In developed countries the government takes around 30%-40% of your labor income if you work. In that sense taking 20% of capital income (rent, dividends, capital gains) is still on the low side.

Your “capital income” sounds like revenue - flagrantly ignoring expenses. In New Zealand, income on a property is what you get after expenses, and then you are taxed on your income (I think profits-before-taxes and income almost mean the same thing in businesses).

Apparently I just don’t understand what you are saying.

> Maybe it would be possible to introduce it slowly and fairly, but I can’t see how a government could actually do it and stay elected.

Australia's ACT is in the middle of introducing a land value tax to replace stamp duty over 20 years; it's perhaps not the largest land value tax that could exist but they're ~10 years in and it's having a good effect on increasing home ownership rates and decreasing rents. You can read about it here: https://www.prosper.org.au/campaigns/stamp-duty-to-land-tax/...

Interesting.

  [The ACT Government] also promised that the reforms would be revenue neutral, reassuring residents that this was not a tax grab.

But hardly relevant to the point of how to introduce a new tax without being grossly unfair to people and businesses who have made long-term life decisions based on the current system in New Zealand.

If we had a stamp-tax, then relevant.

The only land tax proposal we have in New Zealand currently is from The Opportunities Party, which proposes a revenue-neutral tax shift away from income tax and onto land tax (0.75% land tax per year, with a shifting of the income tax brackets to reduce those significantly for everyone).

In terms of fairness, the reality is that it's actually really fair for those who have owned land for a long time, because they currently benefit disproportionately from land values going up (they don't cause the land values to rise much, but society as a whole does). The current system is grossly unfair for renters, because they contribute to society just like everyone else but don't benefit from land value increases.

Land only goes up in value because of the improvements that society makes around it, which is why land in cities is very expensive. It isn't fair for landowners to benefit from this and renters to not benefit. Of course the biggest beneficiaries of all this are the banks, but most landowners didn't work for the value of their land, so losing the value of their land is fair.

Recent buyers are the most screwed over by land values dropping, because they did work very hard for their deposit and mortgage but then without working less they suddenly lose out a lot.

That means over the course of a lifetime you have to pay twice and then perhaps a third time depending on how inheritance works in your country. That seems too much for any long term planning or investment.

You obviously plan to live a long time.

I'm unsure as to how this would prevent long term planning or investment. A one million dollar piece of land presumably has buildings on it worth at least as much.

If it is bringing in something like $100,000 per year how would a $10,000/year tax completely make it impossible to build or invest.

Land Taxes and Property taxes exist the world over. They rarely prevent development from happening and a pure land tax is designed to encourage development.

> You obviously plan to live a long time.

Per [1] if you're paying $10000 in tax/yr, being able to invest the same money would take 41 years at 5% interest (long term S&P 500 has been just shy of 10%) to reach $1m, 29 years with 8% interest (compounded annually).

1. https://www.investor.gov/financial-tools-calculators/calcula...

I don't think it's communist to tax land rent; Adam Smith, David Ricardo and Henry George aren't exactly communists and they all recognized the problem with land rents draining the productivity of society. Rather, it is much better for productivity and prosperity if we move tax away from income and sales taxes and company taxes, and place it onto land and other natural resources.

This is why people like Milton Friedman thought it was the least-bad tax, because it doesn't create deadweight loss and instead stimulates productivity.

The issue is that as stated, most land taxes would cause a massive reduction in property values (I mean, that’s the point, right?). Doing that equitably is hard. Plenty of people are leveraged (that is what a mortgage is), so reducing property prices necessarily takes their savings and gives them nothing. I used the word “communism” because the government is effectively stealing away half the value of private property from people that own land.

You can argue about the details, but most proponents of land tax seem happy that we should fuck over many people that have worked and saved, and that they deserve to be fucked over because they are somehow bad people for playing the game by the rules that we have been given.

I don’t disagree with taxes, I just think that suggesting facile solutions is dangerous.

Give me a reference for a land tax policy in New Zealand, that considers how to fairly manage the problem of existing owners, and I am interested. Links to articles that ignore the glaringly obvious issues are pointless.

https://www.top.org.nz/higher-incomes-policy this is the closest we have currently. If you're a pensioner you can defer payment until sale of the property, which is technically "unfair" in that non-pensioners miss out on access to that cashflow, but it isn't politically viable to kick old people out of their homes for non-payment of the tax.

I don't think that landowners are to blame for the problems we have, but you're not considering that about half of the population of NZ do not own their own home. They are currently being screwed over by the system, and landowners on the other hand are benefiting disproportionately. Resetting the system to be more fair does result in some people losing, yes, but equality tends to feel like oppression when you've been benefiting from inequality.

Of course, most people that would start paying the land value tax would get a reduction in income tax, and would also gain intangible benefits like their children and grandchildren being able to afford to live in the same city as them. Currently the government is stealing away large amounts of the profit of our labour (income tax), so we are reducing "communism" by allowing people to keep more of the fruit of their labour.

----

I know it's a fairly extreme analogy and probably invoking Godwin's Law, but slaveholders in the UK and USA made similar arguments about losing their investment when they were just working within the system and slavery was in the process of being abolished. They worked and saved to purchase slaves, and then the government was proposing to simply destroy all that investment by freeing the slaves.

The UK government actually ended up compensating slaveowners for their loss of investment, which I think was wrong even if politically expedient.

The analogy works sufficiently if you can answer two questions: 1) why does land increase in value, and 2) is it fair for tenants to miss out of land value gains but landowners to get land value gains?

Is it a 'communist idea' for governments to impose a levy on use of the radio spectrum or mineral resources? Why is land so different?

I hardly think allowing someone to purchase a portion of the radio spectrum and own it in perpetuity is a good idea. Yet we pretty much do this with land.

You picked two examples where the levy was built in from the start.

Introducing a tax that crashes property prices is what I disagree with - most proponents of land tax seem to be happy with the government just appropriating the land value (literally - because taking the interest payment IS similar to taking the principal).

Edit: If you own an annuity like a bond that pays a coupon amount every period for infinity with no maturity value, that bond has a fixed current value fn(inflation, risk, time). If the government takes 100% of the coupon, then the bond has zero value. A land value tax would severely reprice property (that’s the purpose), by the government “taking” the coupon.

Perhaps a tax can be introduced just covering the capital gains over time or some other fairish scheme (although even that is just taxing on inflation).

> Introducing a tax that crashes property prices is what I disagree with

And yet NIMBYs introducing laws to accumulate wealth in property at the expense of non property owners was another interference in the market that this is balancing out.

Creating situations so bad that legislation is introduced to reduce the gains is a risk people take when they try to take advantage of horrible systems.

> NIMBYs

I think the core of your argument distills down to “tax them”.

Maybe you get an inheritance, or a job at Google, or win the lottery, but at some point “them” most likely becomes you.

I am middle aged and I bought my first home a few years ago. I have wealthy friends and I have poor friends. Real estate is fucked, and I would love to see solutions to make homes affordable for everybody. I don’t appreciate the commonly regurgitated one-eyed political arguments.

To see it from the other side, I’d suggest trying to reframe your mindset about rent.

As an example, let’s take a homeowner who rents their old house to someone when they purchase a second home. The question is, what value are they providing to the renter to justify the huge cost? The rent payment must cover the mortgage payment and maintenance or else the landlord would be loosing money. The landlord essentially ends up with a free house, while the renter ends up loosing many tens or hundreds of thousands of dollars, and at the end of the lease, they have nothing.

The only value the landlord provided was happening to own an asset that’s in huge demand. If that asset was abundant, the renter would very likely be able to buy their own and be much better off.

Rent-seeking behavior (which is drastically incentivized when houses are such a valuable asset) is pretty much only a negative for society for two reasons:

1. It makes many people poorer without any equity to show for their huge financial commitment.

2. It makes housing more expensive, which also makes people poorer.

3. A poorer society means people have less money to spend on products that someone actually put in work/effort to produce.

The basic idea is that a landlord is generally not producing a product or putting in any meaningful effort. (The actual work is contracted out and paid for by rent.) They’re just profiting off of an asset they got lucky / rich enough to own —- which by itself isn’t that much of a problem, except housing is a basic human necessity/right.

So why shouldn’t society be profiting off of the asset’s (land’s) value?

But this line of thinking means you have to turn off that “capitalist greed” mindset that everyone gets by default.

> what value are they providing to the renter to justify the huge cost?

Um, a place to live? That’s something that obviously has huge value to people.

I rented 5 different places for a cumulative ~12 years post-college and each of them were in circumstances where I didn’t want the commitment and hassles of property ownership. One place I lived for 6 years a knowingly and happily paid more than the investor’s mortgage for that time. (He is a real estate agent/investor and we talked several times about the topic.) He got economic benefit; I got shelter without a long commitment and without tying up much money up-front.

If I need two years’ worth of shelter, it’s convenient to be able to buy that amount rather than buying a property that yields an infinite series of it and selling that two years later.

> The question is, what value are they providing to the renter to justify the huge cost?

Seriously? They took on the risk of a mortgage for the house! They have to service that debt for decades. Renters can go wherever they want.

Imagine a world with no landlords…now you have to purchase a property to not be homeless.

I actually believe rent is often terrible for society, and I have seen the horrific social problems caused by investors in my own suburbs (Brighton, Christchurch).

I have heard it said “rotten houses filled with rotten people”: wooden houses with zero maintenance left to rot by investors waiting for market to improve so they can make a profit, terrible houses results in desperate people renting, resulting in a broken society. I don’t blame poor people, but there are definite problems that they come with.

Same problem with Brighton Mall (majority owned by two wealthy Christchurch families) that have zero incentive to invest their own money and every incentive to get local government to develop the area. If shops in Brighton Mall were owned by individuals, I suspect it would be a pretty nice place (not a wasteland).

If more homes in Brighton were owned by individuals, they spend time and money to make them better, and they have incentives to create a common community for themselves.

My point is not “capitalist greed”, it is that taking an individuals lifetime savings away from them is very bad I think.

Every time I go through Brighton I am struck by how if it was anywhere else in the world it would be an expensive neighbourhood. I never knew about the ownership of the mall.

My theory is the dynamics I mentioned above. Investors waiting for it to boom so they can cash in, however investors allow decay so values never rise.

Meanwhile be very careful buying anything in Brighton within the 1:50 year floodzone which is a huge percentage of the homes (And beware in much of Christchurch). You think your odds are okay, but sea level rise means the risk increases over 20 years, and the sum of the risk ends up very freaking high over decades.

If there is flooding, it will be like the earthquake. Prices will drop drastically within whole suburbs, houses will become uninsurable, and as-is prices will occur. Some suburbs will become very undesirable, which will have severe negative value. If you have a mortgage, you can lose all your money due to gearing.

Meanwhile over time insurance premiums are going sky-high - mine went up 33% last year and I’m on a higher part!

Don’t buy in floodzone areas.

I am going to buy a bare property on the hills to hedge my potential losses since I can’t insure against sea level rise. If there is sea level rise, my property will decrease in value, but hopefully that is offset by an increase in value of a hillside property.

Cheers

> So why shouldn’t society be profiting off of the asset’s (land’s) value?

> But this line of thinking means you have to turn off that “capitalist greed” mindset that everyone gets by default.

That sounds idealistic. Society won't be benefitting from a LVT. The ones who benefit are the rich outsiders who can now push out longtime residents from an area so they can take over and build some highrises for profit. So capitalist greed at its finest.

Marx did not liked land value tax https://merionwest.com/2019/06/02/through-letters-the-gap-be...

Such a communist idea, that (checks notes) Karl Marx hated the movement and Milton Friedman endorsed it.

> That is actually a communist idea

wtf I suddenly love communist ideas (is it really tho?)

A better critique of land value tax is like the one GMU economics professor Bryan Caplan explained to me a couple of months ago:

He used the example of the newly developed Dreamworld out in Dripping Springs outside of Austin. Its construction led to a rise in property value because it made Dripping Springs a more appealing place to visit and live. So in theory an LVT could disincentive development of underutilized land because improvements would be “punished” with more taxation.

The dynamic plays out differently in area with a higher population density.

Tangential, I would like more legislation written around population density. It means the same general policies can be put in place but in a way that smoothly scales… LVT is one example. Gun control is another… firing a weapon out your front door in a densely populated neighborhood is much different than firing a weapon out your front door at the end of a long dirt road.