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How is “a hefty tax on a good reduces it’s value” a controversial claim requiring substantial evidence? Nobody is willing to pay as much up front for housing t

How is “a hefty tax on a good reduces it’s value” a controversial claim requiring substantial evidence? Nobody is willing to pay as much up front for housing that has higher ongoing costs.

fleddr 4y ago
Because a suppression of price would also suppress new development? Why would a builder build anything in an area of low profitability, in a backdrop of rising costs and worker shortages? So how come there's ample low cost high quality housing in Chicago? The same remark applies to home owners. Your property won't rise in value, so why buy it? You must really want to live in the area, I guess. And yes, I know the point of a house is to live in it, but almost everywhere it has a double function in also being an appreciating retirement fund. For now my theory is that a lot of speculative supply got dumped, leading to a one time effect.
- klipt 4y ago
  I think there are higher order effects at play. For example low property taxes encourages NIMBYism which results in lower density zoning which reduces new supply. If high property taxes reduce NIMBYism by making homeowners feel the housing crisis themselves, that alone could ultimately increase affordability.
- danielheath 4y ago
  > almost everywhere it has a double function in also being an appreciating retirement fund. That's true, but it's also a looming economic disaster as it prices out the younger generation and entrenches generational wealth. Chicago are famous for their highest rate of 2.5% per annum, grown smoothly over 15+ years. Thought experiment: What happens if the land value tax rate keeps growing smoothly? What does it look like at 10% per annum? 20%? 100%? At 100% per annum, the average land value of a house needs to be below $50k or so in current dollars (most would need to be much less). Any higher, and ~nobody is willing to pay the taxes. A large home costs $200k or so to build vs a small/cheap home at 80k, so property prices now range from 50k (old cheap home) to 250k (new, high-end home). That's a huge result for housing affordability! People are currently saving deposits of 80k to get a mortgage. Instead of paying mortgage costs to capital holders, you're paying tax to a government that ostensibly exists to serve you. Instead of buying "the most I can afford so I get a retirement fund", now people are buying housing based on their willingness to pay an ongoing cost for access to amenities.
  - presentation 4y ago
    Sounds almost like "have the government own all the housing stock and rent it to the people"
    - danielheath 4y ago
      That’s an extreme case, yeah. I think at that point you’re disincentivising capital works too strongly, since there’s a higher risk you’ll lose the property via default on taxes, but it’s not clear to me that the same effect would exist even at a 20% rate.

How is “a hefty tax on a good reduces it’s value” a controversial claim requiring substantial evidence? Nobody is willing to pay as much up front for housing that has higher ongoing costs.

fleddr 4y ago

Because a suppression of price would also suppress new development? Why would a builder build anything in an area of low profitability, in a backdrop of rising costs and worker shortages? So how come there's ample low cost high quality housing in Chicago? The same remark applies to home owners. Your property won't rise in value, so why buy it? You must really want to live in the area, I guess. And yes, I know the point of a house is to live in it, but almost everywhere it has a double function in also being an appreciating retirement fund. For now my theory is that a lot of speculative supply got dumped, leading to a one time effect.

klipt 4y ago
I think there are higher order effects at play. For example low property taxes encourages NIMBYism which results in lower density zoning which reduces new supply. If high property taxes reduce NIMBYism by making homeowners feel the housing crisis themselves, that alone could ultimately increase affordability.
danielheath 4y ago
> almost everywhere it has a double function in also being an appreciating retirement fund. That's true, but it's also a looming economic disaster as it prices out the younger generation and entrenches generational wealth. Chicago are famous for their highest rate of 2.5% per annum, grown smoothly over 15+ years. Thought experiment: What happens if the land value tax rate keeps growing smoothly? What does it look like at 10% per annum? 20%? 100%? At 100% per annum, the average land value of a house needs to be below $50k or so in current dollars (most would need to be much less). Any higher, and ~nobody is willing to pay the taxes. A large home costs $200k or so to build vs a small/cheap home at 80k, so property prices now range from 50k (old cheap home) to 250k (new, high-end home). That's a huge result for housing affordability! People are currently saving deposits of 80k to get a mortgage. Instead of paying mortgage costs to capital holders, you're paying tax to a government that ostensibly exists to serve you. Instead of buying "the most I can afford so I get a retirement fund", now people are buying housing based on their willingness to pay an ongoing cost for access to amenities.
- presentation 4y ago
  Sounds almost like "have the government own all the housing stock and rent it to the people"
  - danielheath 4y ago
    That’s an extreme case, yeah. I think at that point you’re disincentivising capital works too strongly, since there’s a higher risk you’ll lose the property via default on taxes, but it’s not clear to me that the same effect would exist even at a 20% rate.