2 ms·

I'm sorry that I'm frustrated, but the end result doesn't really make sense. No, the amount agreed to pay 60 years ago does not necessarily match current marke

by mlyle 4y ago

I'm sorry that I'm frustrated, but the end result doesn't really make sense. No, the amount agreed to pay 60 years ago does not necessarily match current market value of the land right. The amount agreed to pay -now- doesn't necessarily equal market value. E.g. say I have a piece of land, and I agree to lease building rights on it for 99 years to my buddy (or son, or..) for $1/year. The value anyone is willing to bid on the land should be the NPV of the remaining $99-n plus the NPV of the estimated land value in 99-n years. The tax is nearly completely escaped. All of the land value has been smuggled into the lease right, which isn't taxable. When there's lots of degenerate cases like this, it become pretty clear the way of assessing LVTs you propose doesn't capture current market values of the land itself, since the value of each piece of land can be artificially impaired or captured by a leaseholder. Indeed, even in the absence of avoidant lease schemes, the very fact that your scheme encourages capturing a past lease value undoes one of the cited advantages of LVTs: it no logner incents land to quickly turn over to more efficient uses. Instead, the scheme you propose explicitly incentivizes ownership structures that maintain inefficient uses, even worse than the current property tax regime that includes improvements.

brigandish 4y ago
Any law will need provisions to prevent corrupt practices. Whether that is easy or difficult should be taken into account, but in this case I don't see the difficulty, because a) Like Japan's lease law[1], it would be possible (and preferable) to limit lease periods b) As I pointed out at the start, someone else can buy the land at at a very low price. > However, if someone bids on the land for that price you must sell. So even if you follow that avoidance strategy, I'm going to buy your land on the cheap. Perhaps I'll have to raise the tax in the meantime without the comparable rent coming in because of the lease agreement you set, but I get your buildings at the end so that's basically become a mortgage. Of course, that possibility could be removed by a rule like having a period where a lease is in the offing where prospective buyers can buy and cancel the lease, punishing those setting low rates. Still, I think this a digression, it's hardly a steel man, which would be more interesting. We may as well say that income tax is rubbish because people can lie to the tax man about their income. [1] https://resources.realestate.co.jp/buy/leasehold-rights-in-japan-advantages-and-disadvantages/ https://resources.realestate.co.jp/buy/leasehold-rights-in-j...
- mlyle 4y ago
  > a) Like Japan's lease law[1], it would be possible (and preferable) to limit lease periods Your source effectively says the opposite-- some leases are limited, but "With an ordinary land lease right, the lease contract period is fixed but in practice can be renewed almost in perpetuity." and "The lease contract period under the Old Land Lease law is fixed, but the lease can be renewed almost in perpetuity." Even the fixed terms for non-commercial use are generally very long-- "Land leased out to be used for single-family homes and condominiums can be leased out with a fixed-term land lease. The contract period is 50 years or more. " > So even if you follow that avoidance strategy, I'm going to buy your land on the cheap. I bid the NPV of the lease + the NPV of the land after the lease. If you outbid me, you're taking an economic loss. I can even afford to overbid a little, because I'm just paying a small percentage of my bid. E.g. say a sane discount rate is 5% per year. Lease is 50 years. Lease payment is $1/year. True value of the underlying land is $500k. Value of land in 50 years is estimated to be $1M. Tax rate 1%. NPV of the lease payments is $19. NPV of the land is $92,000. I bid $200k and pay $2k in tax (compared to $5k). Sure, you could bid $200,001 and get the land, to get an asset with a net present value of $92,019. This is not a favorable transaction-- even if there's some building residual value at the end. In the end, the only way to value the independent value of the land is going to be from some kind of assessment process. A bidding based scheme is not practical: separating the value of the land and building is really hard. (And if we start having people judge whether the pricing of leases, etc, is fair-- that's effectively assessment).
  - brigandish 4y ago
    > Your source effectively says the opposite It's saying what is customary and possible. The landlord does not have to renew, I think that is quite clear from what was written in that article. > Even the fixed terms for non-commercial use are generally very long Because they have a land tax and a property tax. I didn't suggest to use Japan's law verbatim, nor would I, their system has a lot of unwanted side effects but it does encourage a lot of building. > I bid the NPV of the lease + the NPV of the land after the lease. If you outbid me, you're taking an economic loss. I can even afford to overbid a little, because I'm just paying a small percentage of my bid. Yes, but you didn't get to sign over that lease because I outbid you and it's now my land and the lease will not go forward because, to quote myself: > 1 point by brigandish 21 hours ago | parent | context | favorite | on: High property taxes are good Any law will need provisions to prevent corrupt practices. Whether that is easy or difficult should be taken into account, but in this case I don't see the difficulty, because a) Like Japan's lease law[1], it would be possible (and preferable) to limit lease periods b) As I pointed out at the start, someone else can buy the land at at a very low price. > However, if someone bids on the land for that price you must sell. So even if you follow that avoidance strategy, I'm going to buy your land on the cheap. Perhaps I'll have to raise the tax in the meantime without the comparable rent coming in because of the lease agreement you set, but I get your buildings at the end so that's basically become a mortgage. Of course, that possibility could be removed by a rule like having a period where a lease is in the offing where prospective buyers can buy and cancel the lease, punishing those setting low rates. Your calculations are moot.

by mlyle 4y ago

brigandish 4y ago

Any law will need provisions to prevent corrupt practices. Whether that is easy or difficult should be taken into account, but in this case I don't see the difficulty, because a) Like Japan's lease law[1], it would be possible (and preferable) to limit lease periods b) As I pointed out at the start, someone else can buy the land at at a very low price. > However, if someone bids on the land for that price you must sell. So even if you follow that avoidance strategy, I'm going to buy your land on the cheap. Perhaps I'll have to raise the tax in the meantime without the comparable rent coming in because of the lease agreement you set, but I get your buildings at the end so that's basically become a mortgage. Of course, that possibility could be removed by a rule like having a period where a lease is in the offing where prospective buyers can buy and cancel the lease, punishing those setting low rates. Still, I think this a digression, it's hardly a steel man, which would be more interesting. We may as well say that income tax is rubbish because people can lie to the tax man about their income. [1] https://resources.realestate.co.jp/buy/leasehold-rights-in-japan-advantages-and-disadvantages/ https://resources.realestate.co.jp/buy/leasehold-rights-in-j...

mlyle 4y ago
> a) Like Japan's lease law[1], it would be possible (and preferable) to limit lease periods Your source effectively says the opposite-- some leases are limited, but "With an ordinary land lease right, the lease contract period is fixed but in practice can be renewed almost in perpetuity." and "The lease contract period under the Old Land Lease law is fixed, but the lease can be renewed almost in perpetuity." Even the fixed terms for non-commercial use are generally very long-- "Land leased out to be used for single-family homes and condominiums can be leased out with a fixed-term land lease. The contract period is 50 years or more. " > So even if you follow that avoidance strategy, I'm going to buy your land on the cheap. I bid the NPV of the lease + the NPV of the land after the lease. If you outbid me, you're taking an economic loss. I can even afford to overbid a little, because I'm just paying a small percentage of my bid. E.g. say a sane discount rate is 5% per year. Lease is 50 years. Lease payment is $1/year. True value of the underlying land is $500k. Value of land in 50 years is estimated to be $1M. Tax rate 1%. NPV of the lease payments is $19. NPV of the land is $92,000. I bid $200k and pay $2k in tax (compared to $5k). Sure, you could bid $200,001 and get the land, to get an asset with a net present value of $92,019. This is not a favorable transaction-- even if there's some building residual value at the end. In the end, the only way to value the independent value of the land is going to be from some kind of assessment process. A bidding based scheme is not practical: separating the value of the land and building is really hard. (And if we start having people judge whether the pricing of leases, etc, is fair-- that's effectively assessment).
- brigandish 4y ago
  > Your source effectively says the opposite It's saying what is customary and possible. The landlord does not have to renew, I think that is quite clear from what was written in that article. > Even the fixed terms for non-commercial use are generally very long Because they have a land tax and a property tax. I didn't suggest to use Japan's law verbatim, nor would I, their system has a lot of unwanted side effects but it does encourage a lot of building. > I bid the NPV of the lease + the NPV of the land after the lease. If you outbid me, you're taking an economic loss. I can even afford to overbid a little, because I'm just paying a small percentage of my bid. Yes, but you didn't get to sign over that lease because I outbid you and it's now my land and the lease will not go forward because, to quote myself: > 1 point by brigandish 21 hours ago | parent | context | favorite | on: High property taxes are good Any law will need provisions to prevent corrupt practices. Whether that is easy or difficult should be taken into account, but in this case I don't see the difficulty, because a) Like Japan's lease law[1], it would be possible (and preferable) to limit lease periods b) As I pointed out at the start, someone else can buy the land at at a very low price. > However, if someone bids on the land for that price you must sell. So even if you follow that avoidance strategy, I'm going to buy your land on the cheap. Perhaps I'll have to raise the tax in the meantime without the comparable rent coming in because of the lease agreement you set, but I get your buildings at the end so that's basically become a mortgage. Of course, that possibility could be removed by a rule like having a period where a lease is in the offing where prospective buyers can buy and cancel the lease, punishing those setting low rates. Your calculations are moot.