5 ms·

I'm dense. Can you explain "another reason you’d not build is speculation"?

ethanbond 6y ago
You have land and are choosing not to utilize it (rent it out or sell it) in the belief that you will get a higher price for that same land tomorrow. Today, your tax liability is tiny when you do this. This incentivizes landlords in hot markets to keep their land off the market, thus making the market hotter, this further incentivizing speculation, etc. This is why you see empty storefronts or empty lots in incredibly expensive areas. The owner can sustain the cash flow loss today in exchange for higher prices tomorrow. LVT would mean your tax burden is the same (moderate to high) whether you rent it out or do not rent it out, thus making it infeasible to sit and wait for a higher price tomorrow. This would bring more units onto the market and more efficient uses, thus bringing prices down. Since LVT is often proposed as replacing other forms of taxation (or at least dramatically reducing them), the cost of actually building a dwelling or storefront also goes down — thus further incentivizing non-speculative behavior.
- fastball 6y ago
  Yep, I'm definitely a supporter of LVT. My only issue is that you end up making the govt more of an arbiter of what "value" is than it already is, which can end up causing issues.
  - ethanbond 6y ago
    Indeed! A few points just so people who haven’t heard of LVT before don’t walk with easily addressed misconceptions: 1. The government today assesses land value. It also must assess the value of far, far more nebulous things that can be hidden, transfigured, created/destroyed, or moved offshore. Yes more importance would be tied to this singular assessment, but this assessment is singularly easy to assess! 2. The price/value itself would be set by the market. The assessment of that value, of course, would be by the government and you are correct there is risk of differential here (though mitigated by point 1) 3. Lastly, because land cannot be created, destroyed, or moved, a tax upon it is uniquely unable to either incur inefficiencies (deadweight loss) or to be passed onto tenants/consumers. This is contrast to every other form of taxation, which incur inefficiencies then get passed onto the consumer in the form of price increases anyway.
- nybble41 6y ago
  > This is why you see empty storefronts or empty lots in incredibly expensive areas. The reason why the speculator leaves the storefronts or lots empty is that putting them to use right now would prevent them from being used for something even more valuable in the future. If they could use the property for something productive now without impacting the expected future use they would happily do so and collect the extra income. Coercing them into putting the property to use immediately, via LVT or zoning rules or whatever, is thus inefficient and economically destructive. The speculation serves a useful purpose.
  - snidane 6y ago
    Wrong. The "productive" activity for land holders under system without LVT is preventing others from utilizing it. Without LVT you only achieve massive resource underutilization and favoritism of the first who grabbed it.
    - nybble41 6y ago
      If the landowners aren't using the land, and they're not letting anyone else use it, then no one is making any money–least of all the landowners, who also have an ongoing opportunity cost due to the capital they've tied up in the land itself. That's hardly productive. Or rationale. There is no profit in leaving land idle when it could be put to productive use without impairing its future earning potential. Are you claiming that landowners would maliciously prevent the land from being used, at their own expense? Please be specific.
      - snidane 6y ago
        Yes there are landlords who hold land out of use because they know there are or will be others who will eventually want to use it. There is very clear profit in buying land for cheap and sitting on it until somebody wants it. Land doesn't depreciate unlike buildings. Building something on that land is often more risky for landowners whose business is pure speculation because at sell time the building will have to be torn down by the next user. This is consistently evident in real world. It might not be in economic theories and textbooks which are designed only for utopia-land.
- mac01021 6y ago
  What effect, if any, would you expect an LVT to have on the amount of land that remains wild?

You have land and are choosing not to utilize it (rent it out or sell it) in the belief that you will get a higher price for that same land tomorrow. Today, your tax liability is tiny when you do this. This incentivizes landlords in hot markets to keep their land off the market, thus making the market hotter, this further incentivizing speculation, etc. This is why you see empty storefronts or empty lots in incredibly expensive areas. The owner can sustain the cash flow loss today in exchange for higher prices tomorrow. LVT would mean your tax burden is the same (moderate to high) whether you rent it out or do not rent it out, thus making it infeasible to sit and wait for a higher price tomorrow. This would bring more units onto the market and more efficient uses, thus bringing prices down. Since LVT is often proposed as replacing other forms of taxation (or at least dramatically reducing them), the cost of actually building a dwelling or storefront also goes down — thus further incentivizing non-speculative behavior.

fastball 6y ago
Yep, I'm definitely a supporter of LVT. My only issue is that you end up making the govt more of an arbiter of what "value" is than it already is, which can end up causing issues.
- ethanbond 6y ago
  Indeed! A few points just so people who haven’t heard of LVT before don’t walk with easily addressed misconceptions: 1. The government today assesses land value. It also must assess the value of far, far more nebulous things that can be hidden, transfigured, created/destroyed, or moved offshore. Yes more importance would be tied to this singular assessment, but this assessment is singularly easy to assess! 2. The price/value itself would be set by the market. The assessment of that value, of course, would be by the government and you are correct there is risk of differential here (though mitigated by point 1) 3. Lastly, because land cannot be created, destroyed, or moved, a tax upon it is uniquely unable to either incur inefficiencies (deadweight loss) or to be passed onto tenants/consumers. This is contrast to every other form of taxation, which incur inefficiencies then get passed onto the consumer in the form of price increases anyway.
nybble41 6y ago
> This is why you see empty storefronts or empty lots in incredibly expensive areas. The reason why the speculator leaves the storefronts or lots empty is that putting them to use right now would prevent them from being used for something even more valuable in the future. If they could use the property for something productive now without impacting the expected future use they would happily do so and collect the extra income. Coercing them into putting the property to use immediately, via LVT or zoning rules or whatever, is thus inefficient and economically destructive. The speculation serves a useful purpose.
- snidane 6y ago
  Wrong. The "productive" activity for land holders under system without LVT is preventing others from utilizing it. Without LVT you only achieve massive resource underutilization and favoritism of the first who grabbed it.
  - nybble41 6y ago
    If the landowners aren't using the land, and they're not letting anyone else use it, then no one is making any money–least of all the landowners, who also have an ongoing opportunity cost due to the capital they've tied up in the land itself. That's hardly productive. Or rationale. There is no profit in leaving land idle when it could be put to productive use without impairing its future earning potential. Are you claiming that landowners would maliciously prevent the land from being used, at their own expense? Please be specific.
    - snidane 6y ago
      Yes there are landlords who hold land out of use because they know there are or will be others who will eventually want to use it. There is very clear profit in buying land for cheap and sitting on it until somebody wants it. Land doesn't depreciate unlike buildings. Building something on that land is often more risky for landowners whose business is pure speculation because at sell time the building will have to be torn down by the next user. This is consistently evident in real world. It might not be in economic theories and textbooks which are designed only for utopia-land.
mac01021 6y ago
What effect, if any, would you expect an LVT to have on the amount of land that remains wild?