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So, where exactly does the wealthy landlord get the money to pay the land-value tax? From their own labor? From their savings? From after-tax interest earned on

So, where exactly does the wealthy landlord get the money to pay the land-value tax? From their own labor? From their savings? From after-tax interest earned on their other investments? Of course not! They're going to raise the rent to cover the additional tax, and if the renter can't afford it screw them; they'll be kicked out and replaced with someone who can. 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.

xvedejas 9y ago
The effect of a tax on land works differently than other taxes do. Because the land value tax will free up supply (which was previously held for speculation), the result could just as easily be that rents drop. This is the entire reason that this tax is attractive, and you are right that without this feature, the tax would not make sense. https://en.m.wikipedia.org/wiki/Land_value_tax#Real_estate_values https://en.m.wikipedia.org/wiki/Land_value_tax#Real_estate_v...
- DougWebb 9y ago
  That link is talking about the effects an LVT would have on unused land that's being held for appreciation, and land that's being held as an investment. I'm talking about landlords renting property to tenants. Increasing the taxes on the landlord increases their cost, which would force them to raise the rent they charge. This is just like anything else that would raise their costs: higher insurance rates, increased maintenance costs, increased homeowners fees, etc.
  - xvedejas 9y ago
    Those other increases in cost do not simultaneously open up supply, though. When there can be more landlords renting out their properties, prices will fall in response. I agree it is counter-intuitive. "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." https://en.wikipedia.org/wiki/Land_value_tax#Efficiency https://en.wikipedia.org/wiki/Land_value_tax#Efficiency
natrius 9y ago
Landlords do not set market rents. Renters and their employers do. Tax changes do not raise or lower rents. They make it more or less likely that new housing will be built, which affects future rents. Land value taxes are so attractive because they avoid changing the incentives to build.
- DougWebb 9y ago
  Of course landlords set the rent they're going to charge for their property. They're free to do so, within certain bounds established by the market and based upon the value of the property they are renting. A land value tax, which would be applied to ALL landlords in the area, increases ALL of their costs at the same time, which forces ALL of them to raise their rents at the same time. It would shift the entire market up, raising the cost of living for everyone who lives there. 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.
  - DeRock 9y ago
    Your premise doesn’t make sense. A land value tax would not “increase all of their costs at the same time”, unless the tax was implemented in such a way. More realistic would be that the tax would be revenue neutral, such that taxes would increase per unit dwelling on land with poor utilization, but decrease on land with better utilization (i.e denser). This would be reflected in rents and would encourage people to move to denser neighborhoods because the rents would be cheaper.

xvedejas 9y ago

The effect of a tax on land works differently than other taxes do. Because the land value tax will free up supply (which was previously held for speculation), the result could just as easily be that rents drop. This is the entire reason that this tax is attractive, and you are right that without this feature, the tax would not make sense. https://en.m.wikipedia.org/wiki/Land_value_tax#Real_estate_values https://en.m.wikipedia.org/wiki/Land_value_tax#Real_estate_v...

DougWebb 9y ago
That link is talking about the effects an LVT would have on unused land that's being held for appreciation, and land that's being held as an investment. I'm talking about landlords renting property to tenants. Increasing the taxes on the landlord increases their cost, which would force them to raise the rent they charge. This is just like anything else that would raise their costs: higher insurance rates, increased maintenance costs, increased homeowners fees, etc.
- xvedejas 9y ago
  Those other increases in cost do not simultaneously open up supply, though. When there can be more landlords renting out their properties, prices will fall in response. I agree it is counter-intuitive. "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." https://en.wikipedia.org/wiki/Land_value_tax#Efficiency https://en.wikipedia.org/wiki/Land_value_tax#Efficiency

natrius 9y ago

Landlords do not set market rents. Renters and their employers do. Tax changes do not raise or lower rents. They make it more or less likely that new housing will be built, which affects future rents. Land value taxes are so attractive because they avoid changing the incentives to build.

DougWebb 9y ago
Of course landlords set the rent they're going to charge for their property. They're free to do so, within certain bounds established by the market and based upon the value of the property they are renting. A land value tax, which would be applied to ALL landlords in the area, increases ALL of their costs at the same time, which forces ALL of them to raise their rents at the same time. It would shift the entire market up, raising the cost of living for everyone who lives there. 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.
- DeRock 9y ago
  Your premise doesn’t make sense. A land value tax would not “increase all of their costs at the same time”, unless the tax was implemented in such a way. More realistic would be that the tax would be revenue neutral, such that taxes would increase per unit dwelling on land with poor utilization, but decrease on land with better utilization (i.e denser). This would be reflected in rents and would encourage people to move to denser neighborhoods because the rents would be cheaper.