[breischl]

You're assuming that the tax is so onerous as to make rental housing unprofitable. Not just less profitable, but a flat-out cash drain. That's a pretty big assumption.

If you assume that it just captures a fraction of the profit, then the existing stock would remain, because it's still profitable. New build rentals would be affected, and would probably push towards more land-efficient form factors.

Take your example, with the added assumption that the landlord is netting out $200/mo after expenses, repairs, vacancy, etc. If the land tax was 100/mo, he'd still be taking home $100/mo. ROI is cut in half, but it's still positive, so it will probably stay a rental. Certainly some of the marginal units will get turned into for-sale housing, but not all of them, and probably none would be abandoned.

[fweespeech]

> You're assuming that the tax is so onerous as to make rental housing unprofitable. Not just less profitable, but a flat-out cash drain. That's a pretty big assumption

Many, many landlords in this country are single property landlords or landlords that own a small number of "single family homes" [1-4 unit homes].

The gross cash flow of such properties is ~1% of the property value in cash flow. A 1% property tax equivalent increase wipes out all cashflow and guarantees an overall negative return given real estate stays about even with inflation, barring bubbles/speculation.

However, the positive per-unit cashflow is about $100/month/unit in the real world if you picked a good investment. $100. You raise the tax burden by $1200/year/unit, the unit is worthless and must be sold. Pretty much all "land value tax" proposals require that much of an increase as they replace other revenue streams.

> ROI is cut in half

You've basically admitted the problem. If you cut ROI in half, you are better off investing in the market.

Real estate investing is very, very narrow in its advantage over other forms of investment [if you are good at it and can find good deals] to the tune of fractions of a percentage point. Perhaps as much as a whole percentage point.

If this wasn't the case, everyone would plow their money into real estate instead of stocks/bonds/etc.

[breischl]

Many consider the "1% Rule" as the minimum bar. You're probably right that there are a lot rentals around that level, but those are the marginal rentals that I mentioned would likely become for-sale housing.

Also, since you define the tax increase as 1% of property value, then your math is correct. But I believe the proposition is to charge it on the value of the land, not including the value of the improvements, which is typically a much lower number. For single family homes it would still be a hit, but not as severe as your math indicates. For higher density developments it would be even less onerous - which is pretty much the point.

Tangentially, I believe your estimate on ROI from rentals is inaccurate. Long term average stock returns are in the range of 7%, it's not uncommon to find rentals about 10%. As they should be, given the illiquidity, lack of diversification, various extra risks, and the work involved. All of which explains why stocks are more popular.

[fweespeech]

> Tangentially, I believe your estimate on ROI from rentals is inaccurate. Long term average stock returns are in the range of 7%, it's not uncommon to find rentals about 10%. As they should be, given the illiquidity, lack of diversification, various extra risks, and the work involved. All of which explains why stocks are more popular.

Let me put it this way, we both agree there are extra risks. I think, after those risks, RE is worth +.5%-1% on equivalent assets in a different asset class. [e.g. Stocks]

You think its worth the "paper value" of 10%.

Fair enough. I just am never going to agree that RE is worth the risk at -1% of what the current real returns is vs. Stocks.

> Many consider the "1% Rule" as the minimum bar. You're probably right that there are a lot rentals around that level, but those are the marginal rentals that I mentioned would likely become for-sale housing.

Yes. Its also the bar used for relatively safe real estate investments. Generally, when you hit 2%+ you are engaging in a greater level of risk. I believe the market prices assets accurately in regards to risk v. reward for the capital.

That being the case, greater than "1% rule" returns are gained through taking on larger risks.

> Also, since you define the tax increase as 1% of property value, then your math is correct. But I believe the proposition is to charge it on the value of the land, not including the value of the improvements, which is typically a much lower number. For single family homes it would still be a hit, but not as severe as your math indicates. For higher density developments it would be even less onerous - which is pretty much the point.

In major metro areas with heavy zoning, the land is worth more than the improvements on it. Literally every piece of residential real estate I have rental income from, this is the case. Sometimes its as high as 2:1 [land:improvement].

In situations where land is the "lower number", you have to recoup the losses from removing improvements from the equation which effectively makes the "tax on real estate" equivalent to the government as a source of revenue. You can't say "Well, we'll just take in 33% of the revenue we did before because the land is only worth 1/3rd of the value of the improvement." You've got to keep the tax revenue roughly the same, so its a tax swap.

Yes, you'll get better returns under a land value tax with highly dense construction...however, if you double the density of a city, that means the land outside that denser urban center is going to lose value and that compaction is going to require higher land taxes to recoup the loss from the less valuable land.

Ultimately, even the proponents of a LVT agree that land abandonment is a concern [although they in theory can fix this with a properly designed LVT regimee] when introducing into an area that previously only had a property tax and/or the LVT is used to replace other taxes. [e.g. income, sales]

So...I get you don't agree but until someone proves me wrong in practice, I don't have faith in it.