13 ms·

They are loading the tax burden on the land rather than on structures. So, you can build the Taj Mahal or leave the lot a burned out wreck-- either way you pay

They are loading the tax burden on the land rather than on structures. So, you can build the Taj Mahal or leave the lot a burned out wreck-- either way you pay the same tax. Many comments on the thread overstate what this is. I happen to think it's interesting, but for reasons unrelated to the article-- it's kinda goofy for the state to tax personal property that happens to be fixed to a location, like a fireplace, stained glass window or chandelier. Tax a house on a foundation; no tax for a house on wheels? This "LVT" scheme does away with those issues so folks can fix whatever they want to the location, so it makes more sense logically even if the connection to Detroit's problems is very unclear.

marcell 3y ago
Property taxes can apply to all types of property. The idea is the more valuable the property, the more expensive it is for the state to defend it for you (via police, etc.) In practice, real estate is the 20x more valuable than any other personal property, so it doesn't make sense to tax anything else. Cars are subject to a registration fee. If you own expensive business machinery, that may be subject to tax in some states. My county also taxes boats and airplanes.
- Loughla 3y ago
  You have to pay personal property tax on pretty much anything with a motor in Missouri. It's how they sell the population on low land property taxes.
- tyingq 3y ago
  My state levies taxes on businesses for the address they are leasing/renting, based on some estimation of the value of the "stuff" in it.
tzs 3y ago
What's the tax used for, though? In many places a large part of what property tax is for is things like roads, water, sewer, police, fire, and schools. For most of those how much money is needed for them depends a lot more on what is on the land than on the land itself. E.g., the amount of sewer capacity needed for a lot is proportional to the number of people who live on the lot. It thus seems sensible to have a tax that includes as a factor what is built on the lot.
- maxerickson 3y ago
  It's easy to charge a use fee for wastewater (my city bills based on water consumption). If the demand for a service increases dramatically, it's likely practical to make more of it available.
- Mechanical9 3y ago
  I think the idea is those roads and sewers have the same capacity downtown whether next to an apartment building or a surface-level parking lot. There will be the same number of lanes, street lamps, sidewalks, etc. I would go further and actually argue that you need more road and sewer capacity because someone inserted a blank patch of land between dense areas. The tax is an incentive to develop when the land's value is high. The city is basically saying that you have an obligation to build something useful or sell the land to someone who will. I'm interested to see what happens. I'm hopeful that it will be good for urbanization. Surrounding towns will probably not do LVT, which will also be interesting.
- yumbaya 3y ago
  It’s system length that’s the bigger cost. If people are disincentivized from developing land, then the result is sprawl, with far greater infrastructure costs due to the enormous system lengths. Same goes for road costs, police, fire, schools, etc.
- knappa 3y ago
  The rest are different, but in the several US localities I've lived in, water and sewer are paid as separate metered services. (Only the water is metered, the sewer is billed proportionally to the water usage.)
- QuarterReptile 3y ago
  Of your list, only police and schools are (probably) driven by people rather than land area. Fire stations are decided by distances to stations, which is why any actual fire sees enormous overkill response (finally a chance to use the toys!) Surface streets are obviously proportional to land area. So are water and sewage infrastructure, and they're massively more expensive than streets. As others have pointed out, water treatment and supply are handled by usage charges.
eru 3y ago
> I happen to think it's interesting, but for reasons unrelated to the article-- it's kinda goofy for the state to tax personal property that happens to be fixed to a location, like a fireplace, stained glass window or chandelier. The 'goofiness' is on purpose: you tend to get less of what you tax. Most taxes are taxes on some kind of economic activity. The supply of land is fixed, so you can tax it all you want without impacting economic activity, like working a job or investing capital or even just shopping. > [...] even if the connection to Detroit's problems is very unclear. Detroit suffers from a lack of economic activity.
- tprice7 3y ago
  I think that unyttigfjelltol was saying that taxing the value of improvements is goofy, not LVT. The comment was in favor of LVT.
  - eru 3y ago
    Thanks, that makes sense!
zip1234 3y ago
Detroit has blight. LVT addresses property speculators that buy land to sit on it for 10 years and do nothing with it. With LVT they have to either pay up, develop it, or sell it. All options good for the city.
- PaulDavisThe1st 3y ago
  > With LVT they have to either pay up, develop it, or sell it Not quite. They have to pay up while they own the land. They can develop it in ways that may generate revenue sufficient to cover the tax (e.g. a landlord-developer) They can develop it in ways that won't generate revenue, but that satisfies their own goals, and pay the tax from some other source (e.g. a homeowner) They can sell it to drop the tax liability.
  - caminante 3y ago
    You just agreed with the parent. The carry cost has gone up, forcing action!
    - SoftTalker 3y ago
      If the carry cost is too high, who would buy the land? The thing missing from the above scenarios is: Owner can't afford the tax, can't find renters, can't find a buyer, so just walks away. This is why so many properties are vacant now. The owners just walked away.
      - tmnvix 3y ago
        ...the land value then drops. That drop is reflected in the cost of the LVT. A value is found that works for someone.
      - caminante 3y ago
        You're skipping a few steps. Tax lien/default sale would reset the land value. > This is why so many properties are vacant now. In Detroit...? People don't walk away because they can't afford taxes. It's because any dollar spent is negative NPV!
boppo1 3y ago
>even if the connection to Detroit's problems is very unclear. Child of lifelong Detroiter here. iirc a big problem in detroit is some ultra wealth like Matty Moroun owning a huge portion of the land and just sitting on it, doing nothing with it. If that's still true, the LVT makes plenty of sense.
RhysU 3y ago
What happens to a lot with an old gas station with leaky tanks? The land is ruined. Land is not fungible.
- tmnvix 3y ago
  > The land is ruined And so the value of the land is less and the LVT drops along with it. Of course for someone planning on putting another service station there maybe not...
  - bombcar 3y ago
    The land can go negative in value; does the LVT start paying you at that point? But that would make the land valuable again … It’s quite possible to have a plot of land (especially in more rural areas) that is “worth” $10k but has state mandated cleanup required that costs $60k.
- epistasis 3y ago
  The LVT was originally envisioned for exactly this scenario, but for agrarian settings. What happens when there are different agricultural fields with different productivity? Where does economic rent come from in that situation? Ricardo saw LVT as a way to make agriculture fair when some land is fantastic, and other land has very few economic upsides. Land with environmental problems is like land with a structure with negative value on it. People are still really good at valuing this. Check out home sales of the small 1000sqft cottages in Palo Alto that go for millions; the sale price is pretty much always exactly the cost of the land minus the cost to tear down the cottage. Gas spills will function similarly.
olalonde 3y ago
Is the tax just a function of area or does it account for location as well?
snapplebobapple 3y ago
That sounds like a really, really good idea because it would shift tax burden from people that have done socially positive things in a city context like adding population density building multiresidential and shift it to people leaving dead zones of low density decrepit garbage. On the theory of making things you don't want cost more and incentivizing things you do want my making them cost less, that's a great idea. My only concern would be rezoning land into a higher tax bracket causing distress to the original owner, which they could do by grandfathering zoning for tax purposes until a property is sold.
pdonis 3y ago
> Tax a house on a foundation; no tax for a house on wheels? Most states do tax mobile homes, they just classify them as vehicles. Whether that actually makes a difference in the tax rate depends on the state.
ComputerGuru 3y ago
LVT doesn’t punish people for making improvements to their homes.

marcell 3y ago

Property taxes can apply to all types of property. The idea is the more valuable the property, the more expensive it is for the state to defend it for you (via police, etc.) In practice, real estate is the 20x more valuable than any other personal property, so it doesn't make sense to tax anything else. Cars are subject to a registration fee. If you own expensive business machinery, that may be subject to tax in some states. My county also taxes boats and airplanes.

Loughla 3y ago
You have to pay personal property tax on pretty much anything with a motor in Missouri. It's how they sell the population on low land property taxes.
tyingq 3y ago
My state levies taxes on businesses for the address they are leasing/renting, based on some estimation of the value of the "stuff" in it.

tzs 3y ago

What's the tax used for, though? In many places a large part of what property tax is for is things like roads, water, sewer, police, fire, and schools. For most of those how much money is needed for them depends a lot more on what is on the land than on the land itself. E.g., the amount of sewer capacity needed for a lot is proportional to the number of people who live on the lot. It thus seems sensible to have a tax that includes as a factor what is built on the lot.

maxerickson 3y ago
It's easy to charge a use fee for wastewater (my city bills based on water consumption). If the demand for a service increases dramatically, it's likely practical to make more of it available.
Mechanical9 3y ago
I think the idea is those roads and sewers have the same capacity downtown whether next to an apartment building or a surface-level parking lot. There will be the same number of lanes, street lamps, sidewalks, etc. I would go further and actually argue that you need more road and sewer capacity because someone inserted a blank patch of land between dense areas. The tax is an incentive to develop when the land's value is high. The city is basically saying that you have an obligation to build something useful or sell the land to someone who will. I'm interested to see what happens. I'm hopeful that it will be good for urbanization. Surrounding towns will probably not do LVT, which will also be interesting.
yumbaya 3y ago
It’s system length that’s the bigger cost. If people are disincentivized from developing land, then the result is sprawl, with far greater infrastructure costs due to the enormous system lengths. Same goes for road costs, police, fire, schools, etc.
knappa 3y ago
The rest are different, but in the several US localities I've lived in, water and sewer are paid as separate metered services. (Only the water is metered, the sewer is billed proportionally to the water usage.)
QuarterReptile 3y ago
Of your list, only police and schools are (probably) driven by people rather than land area. Fire stations are decided by distances to stations, which is why any actual fire sees enormous overkill response (finally a chance to use the toys!) Surface streets are obviously proportional to land area. So are water and sewage infrastructure, and they're massively more expensive than streets. As others have pointed out, water treatment and supply are handled by usage charges.

eru 3y ago

> I happen to think it's interesting, but for reasons unrelated to the article-- it's kinda goofy for the state to tax personal property that happens to be fixed to a location, like a fireplace, stained glass window or chandelier. The 'goofiness' is on purpose: you tend to get less of what you tax. Most taxes are taxes on some kind of economic activity. The supply of land is fixed, so you can tax it all you want without impacting economic activity, like working a job or investing capital or even just shopping. > [...] even if the connection to Detroit's problems is very unclear. Detroit suffers from a lack of economic activity.

tprice7 3y ago
I think that unyttigfjelltol was saying that taxing the value of improvements is goofy, not LVT. The comment was in favor of LVT.
- eru 3y ago
  Thanks, that makes sense!

zip1234 3y ago

Detroit has blight. LVT addresses property speculators that buy land to sit on it for 10 years and do nothing with it. With LVT they have to either pay up, develop it, or sell it. All options good for the city.

PaulDavisThe1st 3y ago
> With LVT they have to either pay up, develop it, or sell it Not quite. They have to pay up while they own the land. They can develop it in ways that may generate revenue sufficient to cover the tax (e.g. a landlord-developer) They can develop it in ways that won't generate revenue, but that satisfies their own goals, and pay the tax from some other source (e.g. a homeowner) They can sell it to drop the tax liability.
- caminante 3y ago
  You just agreed with the parent. The carry cost has gone up, forcing action!
  - SoftTalker 3y ago
    If the carry cost is too high, who would buy the land? The thing missing from the above scenarios is: Owner can't afford the tax, can't find renters, can't find a buyer, so just walks away. This is why so many properties are vacant now. The owners just walked away.
    - tmnvix 3y ago
      ...the land value then drops. That drop is reflected in the cost of the LVT. A value is found that works for someone.
    - caminante 3y ago
      You're skipping a few steps. Tax lien/default sale would reset the land value. > This is why so many properties are vacant now. In Detroit...? People don't walk away because they can't afford taxes. It's because any dollar spent is negative NPV!

boppo1 3y ago

>even if the connection to Detroit's problems is very unclear. Child of lifelong Detroiter here. iirc a big problem in detroit is some ultra wealth like Matty Moroun owning a huge portion of the land and just sitting on it, doing nothing with it. If that's still true, the LVT makes plenty of sense.

RhysU 3y ago

What happens to a lot with an old gas station with leaky tanks? The land is ruined. Land is not fungible.

tmnvix 3y ago
> The land is ruined And so the value of the land is less and the LVT drops along with it. Of course for someone planning on putting another service station there maybe not...
- bombcar 3y ago
  The land can go negative in value; does the LVT start paying you at that point? But that would make the land valuable again … It’s quite possible to have a plot of land (especially in more rural areas) that is “worth” $10k but has state mandated cleanup required that costs $60k.
epistasis 3y ago
The LVT was originally envisioned for exactly this scenario, but for agrarian settings. What happens when there are different agricultural fields with different productivity? Where does economic rent come from in that situation? Ricardo saw LVT as a way to make agriculture fair when some land is fantastic, and other land has very few economic upsides. Land with environmental problems is like land with a structure with negative value on it. People are still really good at valuing this. Check out home sales of the small 1000sqft cottages in Palo Alto that go for millions; the sale price is pretty much always exactly the cost of the land minus the cost to tear down the cottage. Gas spills will function similarly.

olalonde 3y ago

Is the tax just a function of area or does it account for location as well?

snapplebobapple 3y ago

That sounds like a really, really good idea because it would shift tax burden from people that have done socially positive things in a city context like adding population density building multiresidential and shift it to people leaving dead zones of low density decrepit garbage. On the theory of making things you don't want cost more and incentivizing things you do want my making them cost less, that's a great idea. My only concern would be rezoning land into a higher tax bracket causing distress to the original owner, which they could do by grandfathering zoning for tax purposes until a property is sold.

pdonis 3y ago

> Tax a house on a foundation; no tax for a house on wheels? Most states do tax mobile homes, they just classify them as vehicles. Whether that actually makes a difference in the tax rate depends on the state.

ComputerGuru 3y ago

LVT doesn’t punish people for making improvements to their homes.