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Emotionally loaded example: woman buys a modest home in the 1970’s in a poor neighborhood from her savings working at the local packaging plant, fast forward to

by cascom 7y ago

Emotionally loaded example: woman buys a modest home in the 1970’s in a poor neighborhood from her savings working at the local packaging plant, fast forward to today she is living on a fixed income in a neighborhood that has gentrified around her, with many developers and yuppies moving in and building new homes and apartments. Your proposal would force this woman from her home as her land value tax rose (As she has no ability to pay for this increasing tax burden)

snarf21 7y ago
Genuinely curious, I thought the purpose of LVT was to split the current valuation into land and improvements and move most of it to the land. It is not intended to increase taxes on land that is already being used effectively. I think the bigger issue with LVT is figuring out what the right values are for taxing land vs improvements. As a first pass, I would aim to keep taxes the same just split it more like 80 (land) and 20 (improvements). This at least forces undeveloped property to be turned into a money making project very quickly.
bunderbunder 7y ago
There was a proposal in Chicago to put a cap on how quickly your taxes could go up relative to what you originally paid for your house. The motive was explicitly to protect homeowners in rapidly gentrifying neighborhoods. I assume there would be limited capacity for abuse just so long as the break only applies to your primary residence.
- pcwalton 7y ago
  That's Prop 13, and it's one of the worst public policies in the United States. The tax break wouldn't be so bad if it only applied to primary residence, was means-tested, and couldn't be passed down to children. Regardless, though, homeowners tend to be more well-off than tenants; they shouldn't be receiving tax breaks in the first place.
- klipt 7y ago
  California did that 40 years ago and just look at how affordable California housing is now. Also public schools' ratings have tanked due to shrinking property tax revenue. Prop 13 empowers NIMBYs to vote to kill new construction, strangling supply and pushing prices up, without facing any of the consequences of those rising prices.
i_am_proteus 7y ago
The "person forced from home bought 30 years ago by rising taxes" bit must include "and collects a profit from the increase in value of home." Property taxes pegged to market value are an incentive for liquidity in the real estate market.
- MattSayar 7y ago
  Well, this hypothetical woman isn't collecting any profit while she still owns the home. Equity is useless until you sell.
- SilasX 7y ago
  Very true, but in the context of an LVT, it shows a possible downside: if it's high enough, you're taxing away the majority of the site value, and so these people don't even have the silver lining of a big increase in home value to cushion them when they move.
  - klipt 7y ago
    Well by design, LVT discourages having land be the majority of your home's value. E.g. Single Family Homes are fine in the outskirts of the city where land is less valuable, but LVT encourages building up the more valuable parts of the city (e.g. downtown, next to the subway station). In both cases (SFH on less valuable land, condos on more valuable land) the land shouldn't end up being the majority of the value, since with condos the land value is effectively split among all units in the building.
    - SilasX 7y ago
      Yes, I was agreeing with that and pointing out that the defense of "at least they have the gain in home value" wouldn't apply to the high LVT case. Whether it's good for pricing to work like that is a separate question.
cletus 7y ago
This sort of "logic" was used to justify efforts like Prop 13 in California. It creates a massive windfall to incumbents and little more. It also ignores the most basic of solutions to solving this "problem", if it even is a problem: You can provide land tax subsidies or rebates to targeted individuals (eg the disabled, the retired) without providing massive tax breaks to everyone else. What's more, this system makes it impossible for, say, retired people to downsize or move because that resets their tax base to a much higher level on their new property (in the Prop 13 case).
- sagarm 7y ago
  IMO it's more efficient to allow a means-tested tax deferral until sale, at a low interest rate.
tom_ 7y ago
This is 'The Poor Widow': http://kaalvtn.blogspot.com/2013/01/a-poor-widow-bogey.html http://kaalvtn.blogspot.com/2013/01/a-poor-widow-bogey.html (entire site is interesting)
deleted 7y ago
[deleted]

by cascom 7y ago

snarf21 7y ago

Genuinely curious, I thought the purpose of LVT was to split the current valuation into land and improvements and move most of it to the land. It is not intended to increase taxes on land that is already being used effectively. I think the bigger issue with LVT is figuring out what the right values are for taxing land vs improvements. As a first pass, I would aim to keep taxes the same just split it more like 80 (land) and 20 (improvements). This at least forces undeveloped property to be turned into a money making project very quickly.

bunderbunder 7y ago

There was a proposal in Chicago to put a cap on how quickly your taxes could go up relative to what you originally paid for your house. The motive was explicitly to protect homeowners in rapidly gentrifying neighborhoods. I assume there would be limited capacity for abuse just so long as the break only applies to your primary residence.

pcwalton 7y ago
That's Prop 13, and it's one of the worst public policies in the United States. The tax break wouldn't be so bad if it only applied to primary residence, was means-tested, and couldn't be passed down to children. Regardless, though, homeowners tend to be more well-off than tenants; they shouldn't be receiving tax breaks in the first place.
klipt 7y ago
California did that 40 years ago and just look at how affordable California housing is now. Also public schools' ratings have tanked due to shrinking property tax revenue. Prop 13 empowers NIMBYs to vote to kill new construction, strangling supply and pushing prices up, without facing any of the consequences of those rising prices.

i_am_proteus 7y ago

The "person forced from home bought 30 years ago by rising taxes" bit must include "and collects a profit from the increase in value of home." Property taxes pegged to market value are an incentive for liquidity in the real estate market.

MattSayar 7y ago
Well, this hypothetical woman isn't collecting any profit while she still owns the home. Equity is useless until you sell.
SilasX 7y ago
Very true, but in the context of an LVT, it shows a possible downside: if it's high enough, you're taxing away the majority of the site value, and so these people don't even have the silver lining of a big increase in home value to cushion them when they move.
- klipt 7y ago
  Well by design, LVT discourages having land be the majority of your home's value. E.g. Single Family Homes are fine in the outskirts of the city where land is less valuable, but LVT encourages building up the more valuable parts of the city (e.g. downtown, next to the subway station). In both cases (SFH on less valuable land, condos on more valuable land) the land shouldn't end up being the majority of the value, since with condos the land value is effectively split among all units in the building.
  - SilasX 7y ago
    Yes, I was agreeing with that and pointing out that the defense of "at least they have the gain in home value" wouldn't apply to the high LVT case. Whether it's good for pricing to work like that is a separate question.

cletus 7y ago

This sort of "logic" was used to justify efforts like Prop 13 in California. It creates a massive windfall to incumbents and little more. It also ignores the most basic of solutions to solving this "problem", if it even is a problem: You can provide land tax subsidies or rebates to targeted individuals (eg the disabled, the retired) without providing massive tax breaks to everyone else. What's more, this system makes it impossible for, say, retired people to downsize or move because that resets their tax base to a much higher level on their new property (in the Prop 13 case).

sagarm 7y ago
IMO it's more efficient to allow a means-tested tax deferral until sale, at a low interest rate.

tom_ 7y ago

This is 'The Poor Widow': http://kaalvtn.blogspot.com/2013/01/a-poor-widow-bogey.html http://kaalvtn.blogspot.com/2013/01/a-poor-widow-bogey.html (entire site is interesting)

deleted 7y ago

[deleted]