[natrius]

Most poor people rent. They are already forced to move when the land they live on gets more valuable and they can't afford the new lease. Taxing land redirects part of the rent they already pay to serve their interests (assuming good government).

Land value taxes are politically impossible in America, so there's no need to make the people who like LVT look bad. We already look bad!

[protocolture]

>Taxing land redirects part of the rent they already pay

Taxing land will be passed through 100% to the renter.

>We already look bad!

With good reason.

[nmhancoc]

> Taxing land will be passed through 100% to the renter

Replies like this genuinely confuse me. How do you think rent prices are set now? I’ll tell you, they’re generally set to maintain a given occupancy rate, which is to say, they’re set as high as the market allows. The market being a group of renters which make an income, of which landlords generally take a third or more.

If we implemented a LVT tomorrow, the renters don’t get additional capacity to pay rent as mana from heaven. The rents wouldn’t budge.

Any claim otherwise requires it be the case that there’s capacity to raise rents that landlords aren’t currently utilizing, i.e. that landlords are undercharging renters en masse. I have never seen evidence in support of such a claim.

[AnthonyMouse]

> How do you think rent prices are set now? I’ll tell you, they’re generally set to maintain a given occupancy rate, which is to say, they’re set as high as the market allows.

"What the market allows" is affected by taxes.

Suppose the risk-adjusted return to investing in real estate in some area is equivalent to the overall market, and rents are currently $1000/mo. Then if new people move into the area, rents start to go up from higher demand, but that brings rents above the overall market rate of return, which makes it profitable for developers to invest money in building new buildings, which increases supply to match the increase in demand and acts to mitigate the increase in rents.

Now suppose you raise taxes on property ownership, so that to match the overall market rate of return, rents would have to be $1500/mo in order to cover all the existing costs plus the new taxes. Then nobody is building anything new until rents hit $1500/mo, because new construction isn't profitable until then. So when new people move in, there is an increase in demand but no corresponding increase in supply, and that persists until rents get above $1500/mo. By which point the renters are paying the new taxes.

Notice that this is effectively the same thing that happens when you impose restrictive zoning rules like single family zoning. They effectively act as a tax because now you have to buy a lot more land for each housing unit you want to add, so the cost of construction goes up and rents with it.

[nmhancoc]

This actually gets at one of the main criticisms land value tax (LVT) proponents have of traditional property taxes, which tax both land and buildings.

Let’s unpack your example with some rough numbers to see where the logic leads.

You assume rents are currently $1,000/month and that a new tax causes them to rise to $1,500/month to maintain the same return. That implies an added tax burden of $500/month per lot. If the lot is 10,000 sq-ft (common for single-family homes where I live), that’s about $0.05/sq-ft/month, or $0.60/sq-ft/year in land tax.

Now let’s look at whether this disincentivizes development.

Say a developer replaces that single-family home with a fourplex:

* Each unit is ~1,000 sq-ft - Construction cost is ~$270/sq-ft, so total is ~$1.08M * Required rent for a 5% return = $1,125/month per unit - The land tax ($500/month) is now split over 4 units = $125/month per unit * Total required rent = $1,250/month per unit, or $1.25/sq-ft/month

Compare that to the single-family home:

Rent = $1,500/month, also $1.25/sq-ft/month

So the developer earns the same return per square foot, and houses more people on the same land. Renters gain a cheaper overall option at the same cost per square foot. New development isn't disincentivized — it's neutral or even encouraged under a pure LVT.

Where your argument usually does apply is with regular property taxes, because those are assessed on both the land and the structure:

Single-family home is taxed on $240K (structure) + land Fourplex is taxed on $1.08M (structure) + land Per unit, that’s $270K in taxable improvements vs. $240K Unless the land is very expensive, higher-density development pays more tax per unit, even though it uses the land more efficiently. And that penalty grows with scale (e.g. high-rises).

That's the core issue LVT proponents focus on: property taxes tend to penalize building, while land value tax does not. In fact, LVT often makes better use of land more attractive by decoupling the tax burden from how much you invest in construction.

[AnthonyMouse]

> You assume rents are currently $1,000/month and that a new tax causes them to rise to $1,500/month to maintain the same return. That implies an added tax burden of $500/month per lot.

That implies an added tax burden of $500/month per unit. It's only $500/month per lot if the lot is only expected to have one unit.

> New development isn't disincentivized — it's neutral or even encouraged under a pure LVT.

You're getting this result by comparing it to existing property tax, which even more heavily disincentivizes new development.

Consider what happens if you only compare LVT to itself, i.e. to see what happens if you raise the amount of LVT by $500/lot.

If you build the fourplex, the amount of LVT increases by $500/lot or $125/unit. Now incentive to build the fourplex is lost unless the tenants are going to eat another $125/mo in rent.

And wait a minute here, under the existing property tax system the government was getting $500/mo/unit in property tax. If the typical plot is going to have a fourplex on it and the tax is expected to raise the same amount of revenue as the old property tax then it needs to be $2000/lot and thereby likewise increase the required rents by $500/mo/unit.

Where the incentive changes is that now you'll want to build not just fourplexes but highrises to try to dilute the LVT over more units. But now you've got a weird incentive: If existing rents are high enough then you want to build a highrise. But as soon as they drop below the point that building a highrise is profitable -- and highrises have a higher construction cost per unit -- you certainly don't want to build anything smaller than that, because the higher LVT per unit for smaller structures outweighs the lower construction cost per unit for smaller structures. So as soon as prevailing rents can't justify any more highrises, you get no more construction at all. Even if there are still a bunch of abandoned lots.

[nmhancoc]

> That implies an added tax burden of $500/month per unit. It's only $500/month per lot if the lot is only expected to have one unit.

In the starting scenario the housing supply are single family homes, so there's one unit per lot to begin with. That it happens to be $500/unit is a coincidence of math rather than a fixed statement. Governments don't levy taxes (particularly an LVT) on a per unit basis, it's only ever on a per lot basis.

> Consider what happens if you only compare LVT to itself, i.e. to see what happens if you raise the amount of LVT by $500/lot.

The point of an LVT isn't to raise it by itself, it's to trail changes in land value.

Even if you were to arbitrarily raise it by $500/lot, the price is still more affordable for the fourplex renters than the house renters. So you should still expect less negative profit from the fourplex than the single family home. That the profit is negative will disincentivize future development, but it would also includes maintenance on the single family homes. And it'd be least bad for the fourplexes, because it's more spread out.

> And wait a minute here, under the existing property tax system the government was getting $500/mo/unit in property tax.

They were getting $500/lot, that happened to coincide with per unit but is non essential. And can't be, an LVT can only ever be charged at lot level. It's a _land_ value tax, not a unit value tax.

> If the typical plot is going to have a fourplex on it and the tax is expected to raise the same amount of revenue as the old property tax then it needs to be $2000/lot and thereby likewise increase the required rents by $500/mo/unit.

Huh? The government is overseeing a certain number of lots. Total revenue given a certain tax per lot is independent of the number of units on the lot. Also the costs, for local government, are largely per lot, in the sense that the maintenance on infrastructure dominated by lot level servicing rather than incremental uses of it. The exception to this would be schools. There's no reason to think that the tax needs to increase to be equal per uni.

> Where the incentive changes is that now you'll want to build not just fourplexes but highrises to try to dilute the LVT over more units.

This implies that the tax is not set per unit, which contradicts your previous paragraph. I happen to think this is correct, incidentally.

> So as soon as prevailing rents can't justify any more highrises, you get no more construction at all. Even if there are still a bunch of abandoned lots.

Construction is generally less discrete than you're suggesting. There's generally various buildings of various degrees of age (and various levels of depreciation) in a city at a given time. Also, most cities have a spread of land values, with land being most highly valued (and thus incentivized to be most dense) in the core and less so as you spread out.

And LVT would, rather than the discrete steps you suggest, probably look like: as it increases there's an incentive to sprawl, and as long as that population is still bringing traffic and receipts into the urban core the urban core will be incentivized to redevelop to higher density. That will bring people in from the previous sprawl, until there's additional demand at which point the sprawl either increases in density or moves further out, etc.

[chii]

> So when new people move in, there is an increase in demand

but the presumption that there will be a stream of people moving in is false. The people would just not move to a place with high rent (all else being quite equal).

So high rents will lower the incoming demand. Aka, the current rent is almost always the max the market will bear, regardless of people moving in (or out) - so you can assume it's at some sort of equilibrium.

A new tax on the land will cause the owner to obsorb it, and under that equilibrium assumption above, they will not be able to raise the rent to compensate. Unless, the new tax has an equal and opposite tax credit to renters! Who now have more money, and would be able to accept a higher rent as they've become slightly richer.

[AnthonyMouse]

> but the presumption that there will be a stream of people moving in is false. The people would just not move to a place with high rent (all else being quite equal).

People move into places where there are jobs. All else is not equal, because other places don't have those jobs. Notice that higher rents correlate with population growth. Under your theory, if rents went up, shouldn't the local population decline rather than increase?

Also notice that the overall population increases over time as a result of births and immigration, and that existing structures are occasionally damaged in various ways and have to be renovated or rebuilt. The result is that the steady-state is rents going up unless you have active investment in new housing.

> So high rents will lower the incoming demand. Aka, the current rent is almost always the max the market will bear, regardless of people moving in (or out) - so you can assume it's at some sort of equilibrium.

"What the market will bear" is supply and demand. If you add costs to supplying more housing, supply won't increase until the price matches the new costs. It changes the intersection point with the same demand curve.

> Unless, the new tax has an equal and opposite tax credit to renters! Who now have more money, and would be able to accept a higher rent as they've become slightly richer.

Your assumption is that renters can't pay higher rents. It's that they won't pay higher rents if lower rents are available, which is caused by competition between landlords and increases in supply from new construction. Take that away and people have to outbid each other for the now more constrained number of units, and then people have to pay higher rents and have it come out of their other spending, or take on more debt. Because you pay for housing or you're homeless.

[Ekaros]

>If we implemented a LVT tomorrow, the renters don’t get additional capacity to pay rent as mana from heaven. The rents wouldn’t budge.

Isn't idea of LVT to replace other taxes? Like income tax. So they would get more capacity as their other tax burden would be lesser.

Obviously if it was entirely new additional tax it would take more time for rents to creep up.

[genewitch]

Let's assume what you say is true. Then the reason it's impossible in the US is because landlords would do everything in their power to stop it, because they'd be the ones eating the cost.

[nmhancoc]

I don’t think so, actually. Real estate is a pretty small sector of the economy (maybe 13 or 14% of GDP according to Google. That’s about as much as manufacturing, but not politically unassailable.

The real reason these sorts of reforms will never kick in is that roughly 2/3 of Americans are in owner occupied housing, it’s the largest asset on most of their balance sheets, and an LVT will in many cases effectively zero that out.

So it’s the homeowners (particularly the older cohorts) which will vote against this policy to the detriment of the younger cohort.

[sokoloff]

Which amounts to: “We propose to fix this problem by seizing the value embodied in the homes of 2/3 of Americans, while leaving their mortgages intact.”

That being not politically tenable is a feature of democracy, not a bug.

[AnthonyMouse]

It is kind of a bug, because otherwise how do you fix it?

Housing got set up as a pyramid scheme where the price keeps going up because supply is constrained, so younger people have to take out ever-bigger mortgages in order to have somewhere to live. Nobody wants the prices to be unaffordable until they buy a house, but once they do they're locked in to the high price they bought in at and want prices to go up even more. When you have a majority of people on the hellbound side of the line then you're locked into a death spiral that violently explodes once the prices get so high that the majority can no longer afford a home.

[chgs]

Old rich people want young working people to pay for their lives.

No surprise there.

[actionfromafar]

I wonder what may happen when that generation fades away.

[protocolture]

>they’re set as high as the market allows.

Huge red flag, this isnt the case. It isnt a perfectly liquid market.

>If we implemented a LVT tomorrow, the renters don’t get additional capacity to pay rent as mana from heaven.

No of course not, the process would probably take 12 months, as home owners identify their losses, and instruct rental agencies to end leases and increase prices. Accepting that while the house might be on the market for longer than usual, attracting a higher income tenant and getting them to sign for term is going to long term resolve the new hole in their budget.

>that landlords are undercharging renters en masse. I have never seen evidence in support of such a claim.

I am living this discussion right now. So this is amusing me.

I rented my current property in 2020 for 320 p/w. It was probably worth 400 p/w I had a handshake agreement with the rental agency that they would leave the price where it is, and I would complete as much maintenance myself before raising a fuss.

In 2022, the owners had to sell the property to pay for medical treatment. The old owners had no mortgage, and loved having a fixed stable income. Their biggest risk was having the property untenanted for any length of time. So they left the price alone while the world moved on.

The new owner has raised the rent every 12 months since. The previous owners sold at a massive gain, and the new owner was struggling to pay the mortgage. My calculation based on sale price is that their mortgage payments were in excess of 380 p/w and, considering the sale grandfathered my no maintenance agreement, are looking at considerable maintenance costs.

Current cost to me is ~500 per week.

Issues: Market is currently roughly (we have big discussions about this) permitting 520 - 540 pw for similar properties.

My barrier is that its a substantial cost to move. So I negotiate all the price rises with the real estate in terms of property improvements.

If they saw a taxation increase imposed by an LVT, they would not hesitate to pass it on to me over 12 months. I would have to reevaluate the costs to move. If the same increase occurred roughly evenly across where I want to live, I would probably just have to make it work. I cant go anywhere to avoid the LVT increase, and it costs money to relocate. I would have to further erode my spending in other areas to account for it. And I could.

This really comes back to what the LVT is designed to do. Its designed to enforce the most efficient use of the land. The outcome is intrinsic to the goal. The land is not being used most efficiently (I rue the day that my landlord figures out that we have the exact amount of land required to battleaxe the block, turning my backyard into another property) which for humans, as opposed to spherical cows, is actually fantastic in a lot of cases. Under an LVT my landlord would be required to run the property in the most taxation efficient manner, which is counter to my interests as a renter.

But yeah, the rental market is not liquid. There's costs to move. Costs for having the property on the market untenanted for significant time. Costs to bring a property up to spec between renters etc etc. And lots of people live in that gap. To the point where our local real estate industry body actually issued guidance to real estates that they should raise the rent as frequently as possible because it wasn't getting done very often, suppressing prices.

[eru]

> No of course not, the process would probably take 12 months, as home owners identify their losses, and instruct rental agencies to end leases and increase prices.

Why don't home owners just instruct rental agencies right now to end leases and increase prices? Why do they need to wait for some hypothetical tax to kick in?

[sokoloff]

Because their tenant can just go down the street and rent from another landlord whose costs did not increase by $10-20K/yr.

In a world where LVTs increased taxes on all nearby landlords, that threat is an empty one. Sure, they can threaten to go move 10 miles away or eventually to go move into a beehive apartment that will be built 3 years from now to optimally house humans while not leaving a shred of land under-used.

[eru]

> Because their tenant can just go down the street and rent from another landlord whose costs did not increase by $10-20K/yr.

Well, that only works iff landlords can pass down these taxes. That's exactly what we are discussing. So this is begging the question.

> In a world where LVTs increased taxes on all nearby landlords, that threat is an empty one. [...]

It doesn't matter. Even if only left-handed landlords paid LVT, rents wouldn't change depending on the handedness of your landlord. (However, left-handed landlords would likely sell to righthanded landlords, because the property is worth more to them.)

[notahacker]

Fixed term rental contracts in many jurisdictions, and lack of motivation, particularly for landlords buying property primarily for anticipated capital gains who are quite happy with a "reliable" tenant paying no much more than their costs, but won't be prepared to do the same thing when the monthly cost goes up (and most of the anticipated capital gain disappears...)

[eru]

Sure. But how do any of these factors suddenly change with an LVT?

An LVT doesn't change any of the opportunity costs here. Getting more rent is exactly as useful (or not) as without an LVT.

[protocolture]

Because they dont have a need to risk long term vacancies.

[chgs]

If you live in an in demand area there is no risk. Price can be increased until people move out.

If you live where there’s no demand and r prey houses already you can force prices down just as easily.

Mortgages prove costs aren’t passed on. A landlord with a lot gage doesn’t on the whole charge a higher rent than one without.

[eru]

Sure. But how does this change with an LVT?

[6510]

Or we could simply see you paying as much rent as possible as the most efficient use of the land. That would simplify the plot considerably.

[protocolture]

I mean yeah it is the most efficient use of the land. One of the reasons most efficient use isnt a good metric for everyone.

[nmhancoc]

This was a long reply and I’d like to honor it by addressing what you bring up, but there’s a lot so forgive me for jumping around.

Let’s start by noting that we’ve now shifted the argument from “100% of this tax will be charged to renters” to, “this will get passed through to renters who were previously being undercharged.”

It’s hard to directly argue with your anecdote because I don’t know where you are or what your rental market is like, so I’ll address the argument more broadly.

Let’s examine how common that arrangement is. To the best of my search small time landlords of the variety you mention own something on the order of 35 and 40% of rental units. The rest, primarily multifamily (apartments) are owned by corporate landlords.

The corporate landlords were sued by the last admin for price fixing using realpage. I don’t know if or how that case was resolved but I think it’s safe to conclude they’re probably not undercharging.

For the small time landlords, probably some aren’t undercharging and some are. After all, how hard is checking neighborhood rents on Zillow once a year? Even if none are, we’re still admitting at least 60% of renters aren’t getting the kind of deals you mention. So this is a minority case, and probably shouldn’t be the basis of policy.

Addressing this point: > Under an LVT my landlord would be required to run the property in the most taxation efficient manner, which is counter to my interests as a renter.

Even granting that that’s true, I’d argue it’s not persuasive. The government needs some amount of money to function. LVT is one source of that money, income taxes are another, sales taxes are another, wealth taxes are another, etc.

So your argument fundamentally resolves down to “other members of society should make up the deficit in taxes I would otherwise pay so that I (and others in my situation) can enjoy a yard or more space than I otherwise would.”

And the basic question here is, why? In what way does it benefit literally anyone else in society that you have a bigger yard? This is a blunt and perhaps impolite way to put it, but it’s true.

Going back to those alternatives, we can counterfactually raise income taxes on some waiter bussing tables or a SWE slinging code at Facebook, on an author with a copyright, or on someone who owns a business. But, if we do, we should expect less of all of those services. That serves as a reason to avoid such a tax.

In contrast, with the yard, I can’t think of a single such service provided or reason to avoid the tax. And that’s the crux of the Georgist argument more than railroads or slumlords. It’s the empty lot, or the lawn as we now call it.

[protocolture]

>The government needs some amount of money to function.

The issue at hand isnt "Does the government need money to function" unless we are going full MMT derp we can all accept a level of taxation is necessary.

The issue at hand is whether LVT is a better distribution of the burden of taxation.

>So your argument fundamentally resolves down to “other members of society should make up the deficit in taxes I would otherwise pay so that I (and others in my situation) can enjoy a yard or more space than I otherwise would.”

My argument is largely that by shifting the burden of tax from a progressive tax regime, that is only targeting those by an amount calculated on what they can afford, to a tax regime thats largely dictated by circumstance and subjective valuation, you will hurt a lot of people who dont deserve it.

If we go too far in this direction we will have to define basic moral principles, because that seems to be where you are heading. I dont necessarily think that earning income should mark you for punishment either. But just as not taxing the homeless is fairly universal, not taxing people who organised their retirement and arent a burden is also fairly universal. Your mileage may vary.

[chii]

> passed through 100% to the renter.

it can't, because the value of the land must be judged on how much income it brings - such as rent. If rents grew, so will the tax.

[sokoloff]

Not under an LVT. The amount of rent a property does bring is more a property of the buildings and improvements and only minorly of the land.

The amount of rent that it could bring if maximally used is relevant to an LVT, but not what it actually does. (This is the entire point of an LVT vs a property tax.)

[protocolture]

Another huge issue is LVT setting off inflation good point.

[eru]

Huh? In the US inflation is entirely controlled by the Fed.

[protocolture]

Thats a much deeper topic than I care to get into now.

You are thinking of monetary inflation, I am referring to the most common use of the word, price inflation.

>Inflation most commonly refers to a rise in the general price level over a period of time (also known as price inflation).

https://en.wikipedia.org/wiki/Inflation_(disambiguation)

[eru]

Yes, the Fed controls how much money is worth, ie the price level. They 'print' more or less money so that the change in the general price level (aka 'inflation') hits their target.

[chii]

Inflation is not entirely controlled by the Feds, they merely respond, and can make nudges to it in the direction they want (sometimes futilely).

[eru]

They are sometimes a bit clumsy, yes. But they manage to get long running inflation to 2%.

(Especially they can always create more inflation by just buying more and more stuff with freshly printed money. If that ever fails, that means they have unlocked an 'infinite wealth' cheat: just keep printing and buying until you own the whole world. Obviously, the dollar would lose value before that, hence proving that they can always create inflation.

Lowering inflation isn't always possible, yes. But it's always possible as long as they have any assets on their balance sheet: incrementally sell those assets and 'bury' the money received in the sale.

As long as the Fed ain't out of assets, they can lower inflation.)

[const_cast]

> Taxing land will be passed through 100% to the renter.

Taxing land, though, forcing more economical use of said land. It's wasteful to spend your land on single units to rent, and then you're not going to be competitive when other developers are putting in apartments around you.

So, you're going to be smart and try to score a better unit/land ratio. Maybe you'll build apartments, or dingbats, or townhomes. The end result is that, per tenant, they're going to be paying significantly less rent.

The reason we build sparse and stupid housing is because it works and it makes money for the builder. But it really, really shouldn't - at least not all the time. We have the wrong incentives.

[energy123]

> Taxing land will be passed through 100% to the renter.

Then I suppose it's settled. All that economic theory, and all those left-wing and right-wing economists that unanimously agree with that research, is all meaningless, because of your declarative statement.