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Land Value Tax being the main method of taxation would encourage municipalities to adopt things like this.

• bequanna 3y ago
  I have yet to understand why people have made land value tax a thing. As I understand it, land value and improvements are already taxed but a land value tax would only tax land value. Can someone make this make sense? Why would this promote development?
  • ok_dad 3y ago
    The classic example is the lot that sits empty or has a parking structure on it in Manhattan. Today, you pay very little tax on the empty land or parking lot because you’re taxed on that total value of the land and improvements. This discourages building stuff sometimes. With land value tax, you’d be taxed on what someone would pay you for that land with improvements similar to surrounding, so it’s advantageous to build something there instead of nothing, since you’re paying the same tax as the sky scraper next door. In other words, the taxable value of the land is what it would be if it had similar improvements to surrounding lands, rather than taxing it based on actual improvements.
    • RandomLensman 3y ago
      So if the most valuable use is luxury apartments and stores that would be what everything needs to converge to? Feels like a tax always looking towards the most valuable use could actually be very regressive and push anything but the richest out of economically attractive cities. Maybe I am missing something?
      • ok_dad 3y ago
        I mean, it might be that there’s an empty lot outside your own home that could use some houses built on it but no one does because it’s easier to pay a pittance for taxes and leave it sit until it’s worth more. There are many cases where land could be put to better use but it’s not. A few people might get priced out of an area, but they’ll be able to sell their land and buy something elsewhere easily. The downside is certainly there but I think the upsides outweigh those.
        • RandomLensman 3y ago
          Maybe. I'd like to see something like that run as a simulation over a city to see effects for varying high value uses.
      • Aunche 3y ago
        Luxury apartments will depreciate into regular apartments over time. Allowing demand for luxury apartments to be pent up just means that rich people will capture more regular apartments instead.
        • RandomLensman 3y ago
          Why would that happen? Demand will be satisfied as that would be the most high value thing to do, driving the land tax wherever the process starts.
          • Aunche 3y ago
            You mean why luxury apartments will become regular apartments? Most of the "luxury" apartments these days aren't really that special besides being newer and trendier. Of course, the truly iconic buildings will always be considered luxurious, but even the above average ones depreciate. In Manhattan, you can see a lot of buildings from a century ago with degraded ornamentation that would have been beautiful in their heyday, but they're actually more affordable than their neighbors that are plainer, but more renovated.
            • krisoft 3y ago
              It is clear that ornamentation is not what makes a luxury apartment. I would say the biggest component of a luxury apartment is the layout. A huge open space is amazing if you want to throw large parties, and can easily use up as much space as 3 studio flats. But the one huge luxury apartment will never realistically degrade into 3 studio flats.
    • toast0 3y ago
      > Today, you pay very little tax on the empty land or parking lot because you’re taxed on that total value of the land and improvements. This discourages building stuff sometimes. With land value tax, you’d be taxed on what someone would pay you for that land with improvements similar to surrounding, so it’s advantageous to build something there instead of nothing, since you’re paying the same tax as the sky scraper next door. If you're being taxed on hypothetical improvements and not just the value of the land, why is it called a Land Value Tax, rather than a Hypothetical Best Use Tax? People assume the name means what it says and get confused.
      • ok_dad 3y ago
        I don’t know why they name stuff what they do, but it’s dumb to simply read the name of something and then make assumptions based on no further information about that thing. Maybe you should have read the Wikipedia about it before assuming stuff?
        • toast0 3y ago
          Well, that doesn't really help, because Wikipedia says > A land value tax (LVT) is a levy on the value of land without regard to buildings, personal property and other improvements upon it. In my mind, the value of the land without regard to buildings, etc, is what you would pay for an empty lot. But you said the value is what you would pay for the lot with improvements. Theoretically, real estate property taxes I've paid have been divided into the land value and the improvements value (although it's mostly conjecture; the total value is all that matters and that generally approximates market value of the lot with the improvements, at least in CA and WA, where I've paid property taxes; although CA has Prop 13 that distorts assessments over time). Washington even states the land portion is assessed based on the best use, not the current use, unless it's in some special categories like farm, forestry, and open space. Now I'm even more confused. Which speaks to the GP's confusion. > I have yet to understand why people have made land value tax a thing. If the whole concept is so confusing, starting with the name, it's no wonder advocacy isn't effective.
        • AnimalMuppet 3y ago
          Not everybody does a half-hour of research before every HN comment. Nor should they be expected to. LVT was named (I presume) by the advocates of it. If their name is misleading, don't blame the people reading it who are getting confused.
    • oh_sigh 3y ago
      That's a classic example used by proponents of LVT. But what is another example? Terry buys a house in a run down, blighted, poor/cheap neighborhood, and along with other neighbors, starts to revitalize it. 15 years later, the formerly blighted neighborhood has become hip, due to the work and care Terry and others put in to it. Property prices increase as rich people want to move to the cool neighborhood, and now Terry has a hard time affording the taxes, and is forced to sell and essentially evicted from the neighborhood he helped build, because a rich person would rather live there.
      • idontpost 3y ago
        [dead]
      • Aunche 3y ago
        First of all, LVT are designed to be replacement for property taxes, which already have the problem you describe. Also, Terry isn't forced to sell to a rich person. He is a rich person. The type of people who like to live in hip neighborhoods tends to be recent graduates starting their high paying career. While they may have more income than Terry, Terry is significantly wealthier than most of them. If he really wants to stay on there, he can easily pay off any property/land taxes with the equity of his home.
        • oh_sigh 3y ago
          They have that problem, but there are frequently programs or legislation designed to reduce that burden. Eg, >10% of Americans are (theoretically) covered by Prop 13. Other municipalities may have laws on the books limiting property tax increases to a certain percent per year. Many other places offer property tax relief programs for people with low income, or the disabled, or the elderly, or generally by increasing exemptions. As I understand it though, you wouldn't want these programs with a LVT system, because they would just distort the market in a similar manner that it is now? Yes, because of the property appreciation, Terry can say that on paper, he is rich-ish, but a weird kind of rich where he has nothing but a house in a nice neighborhood, and otherwise has very little money. How does he pay off the taxes with the equity of his home? A HELOC could work, but he already can't afford the increased taxes with his income alone, so a HELOC would just delay the inevitable and based on his income he probably wouldn't qualify for one. Or he could do a reverse mortgage, be able to pay the taxes, but put himself at a major risk of losing his home entirely if he lives long enough. Also, reverse mortgages are only available to people over 62.
  • renewiltord 3y ago
    Well, one system taxes land value and improvement and the other taxes only land value. In the first system, all improvements have a tax cost of x * value(improvement). In the second system, they have a tax cost of 0. There's three possible outcomes: this increases improvements, this keeps them the same, and this decreases improvements. It depends on whether you think moving one cost component from positive to zero puts us in the first, the second, or the third worlds there. I just tried it out and ChatGPT helps if you want to understand this. It is quite patient and will provide instant responses.
  • kilotaras 3y ago
    Someone buys a property: +-------------+------------+-------------+-------------+ | Type | Land Value | Cover Value | Total Value | +-------------+------------+-------------+-------------+ | Parking Lot | 100 | 0 | 100 | | Dump | 100 | -20 | 80 | | Skyscrapper | 100 | 100 | 200 | +-------------+------------+-------------+-------------+ Land increases in price and buyer sells it: +-------------+------------+-------------+-------------+ | Type | Land Value | Cover Value | Total Value | +-------------+------------+-------------+-------------+ | Parking Lot | 150 | 0 | 150 | | Dump | 150 | -20 | 130 | | Skyscrapper | 150 | 100 | 250 | +-------------+------------+-------------+-------------+ In all 3 cases there's a profit of 50, but dump payed the least taxes followed by parking lot and then skyscrapper. In places where land increases in value it incentives to hold the land while NOT developing it.
    • AnimalMuppet 3y ago
      When money is growing on trees, pick it. If you have an undeveloped piece of land worth X, and it becomes worth Y if you put a skyscraper on it, then you do it as long as the cost of construction is less than Y-X. Sure, you can make money by doing nothing, if the price of land is going up. But you can make that money plus the money you make by building the skyscraper by, you know, building the skyscraper. If you're not willing to do that because of the increased taxes on the skyscraper, then either you're refusing dollars to avoid spending a dime, or the tax regime in your city is really out of control. So I'm not buying your argument here at all. Developers develop because they make money doing it. The absence of a land-value tax isn't what stops them.
      • kilotaras 3y ago
        > Developers develop because they make money doing it Not all property is owned by developers. I would go even further and say that most properties are owned by non-developers. Some people use land as store of value. We as a society would be better off if they used, e.g. gold instead.
      • 3y ago
  • jlhawn 3y ago
    it would increase the tax rate on land to be much higher. In the most extreme case, the annual tax on land value would so high that vacant land could be purchased for close to zero purchase price because the holding cost of the tax is high enough to capture all the value which is capitalized into a purchase price.
    • ProfessorLayton 3y ago
      Correct, but that's the point really. In an extreme case, such as an empty lot in Manhattan, it would cause the property to change hands to someone who could be more productive with it. Even though it wouldn't be worth as much without LVT, it would still be worth a lot in such an extreme case, so it's not devastating for the owner either.
  • idontpost 3y ago
    Because improvements aren't taxed. So if you add improvements (read: more housing), you don't pay taxes and you become more profitable (more rent, same taxes). So you move all tax to just the land value at a higher rate than present, then let people build to offset the tax.
  • nostrademons 3y ago
    It's about incentives. In general, the best incentive scheme is one where people are incentivized to do things that other people find valuable. The worst incentive scheme is one where you get punished by a third party for doing things that others find valuable. Economists call this "deadweight loss", the number of beneficial transactions that do not happen because with the addition of a tax, the transaction is no longer beneficial for both parties. Ideally, the perfect tax is one where you are taxed on things that are negatively valuable for society (an externality or sin tax, as a way of disincentivizing you from doing those activities) or that you don't have control over (i.e. it doesn't alter your behavior at all), while not taxing any activities that are beneficial for others. LVT is very close in structure to this perfect tax. There is a finite amount of land available, and no way to make more of it; taxes on land don't disincentivize land production, they just take a cut of the rent that you get from having conquered that land first or bought it from someone who did. And the land value (exclusive of improvements) is usually set by its location - what else is nearby, what community improvements have been made, is it in a pretty place, is there lots of pollution or crime? These too are things that the owner has no control of; arguably they are reaping the benefits of things that the rest of the community has built, and so they should be taxed on it so the fruits of those labor go back to the community. By excluding the improvements, you let the land owner capture the fruits of their actual labor. So if they build a new apartment building and provide housing to those who need it, they can charge rent, and they won't be taxed on that rent, and so they capture the full benefit of those improvements. If it's a nice apartment building, they get to charge more in rent, and they can capture that money too.