> The land value tax can’t be dodged by leaving nor can it be passed on to renters.
In what sense can't it be passed to renters? Esp if all landlords in the market were faced with a new land tax that they had not previously planned for, why would it not be passed on?
Rent is a function of supply and demand, not a landlord's costs, otherwise we would expect changes in e.g. mortgage interest costs to be passed on to, but in practice we don't see this effect. We also don't see landlords who own their properties outright (and thus don't have mortgage interest costs) charging lower rents than landlords in the neighborhood with identical properties who have mortgages. When landlords' costs drop, do they drop the rent in response?
Taxes can be passed on when the tax induces a change in supply. Conventional property taxes are partially passed through because the component of the tax that falls on the building. Tax buildings, get less buildings.
Taxes on land do not affect the supply of the land, this implies they are not passed on and the research literature largely agrees with this.
LVT would push up the supply of rental properties by ensuring that property owners who don't rent out their properties or who don't make efficient use of land lose money.
Thats an incentive to rent out the property or sell up to somebody who will.
It would apply harsh market discipline on landlords - a demographic that has usually been rather coddled.
A property loses ~30% of its value when rented out and maintenance cost and insurance cost goes up significantly. Plenty of landlords rather have their property be empty and just collect on the equity gains over the years without putting in any effort.
> property owners who don't rent out their properties
The existence of property tax (which on a single house in some areas of the state is upwards of $15,000 a year already) already makes it absolutely ruinous to just sit on an extra house you don't need and not rent it out.
> or who don't make efficient use of land
A little more convincing. Though I suspect most empty land in places where anyone would be willing to live in California, is empty because our insane zoning laws don't allow what would otherwise make sense there (I don't care that it's like what most areas have -- it's insane to have laws that would make it illegal to build a place like San Francisco, Brooklyn, or Boston).
The funny thing about those zoning laws though is that they're held up by a rare case of bipartisanship:
- The MAGA Boomer set who doesn't want any more development near them because "it'll bring traffic" or noise or crime
- And most of the "progressives" who don't want any more development anywhere because "we hate greedy developers" and "Not enough of this proposed development is low-income housing for the government to dole out in lotteries to a few lucky families."
Idk, I’ve seen plenty of houses get torn down and replaced by a $2M house and just sit vacant years until they sell.
15k/2M is 75 basis points. Its definitely profitable to just sit on land especially if you turned it into a parking lot or some other barely improved thing.
> LVT would push up the supply of rental properties by ensuring that property owners who don't rent out their properties or who don't make efficient use of land lose money.
That doesn't follow. If LVT reduces the net return on rentals, it will disincentivize construction and maintenance of housing in the first place. If it creates a net negative or zero return on property ownership, it may lead to abandoned/undeveloped property instead of housing development, or more property being used for other purposes than housing.
It's also worth pointing out that the existing ad valorem tax system used for property taxes is functionally equivalent to LVT, and does have these influences on the housing market. LVT proposals are distinguished by their being rooted in (fundamentally flawed) Georgist theory, not by being unique as a form of taxation in practice.
> otherwise we would expect changes in e.g. mortgage interest costs to be passed on
These aren't a universal cost. When rates change, some landlords' costs go up. But some don't. That lets the latter set the marginal price.
If everyone's costs go up the same amount, it's collusion without communication. In an inelastic market like San Francisco's, you'd expect prices to rise.
> Taxes on land do not affect the supply of the land, this implies they are not passed on and the research literature largely agrees with this.
Taxes may not affect the amount of land that physically exists, but they absolutely can and do affect the amount of land available for rent as opposed to other income-generating use cases.
On top of that, a tax that applies equivalently to all of the land available to the rental market in a given area will simply push prices upwards across the board, which is likely to just be absorbed by renters given the usually low price elasticity of demand for housing.
These are assertions, not arguments. Respond to points in the post you replied to. Be sure you understand them first; your assertions do not hold in the case of LVT.
In fact, they are indeed arguments derived from applying well-understood economic principles to the specific -- and purely speculative -- claims posited by the preceding comment.
> Be sure you understand them first; your assertions do not hold in the case of LVT.
Indeed I have, and indeed they do. Rather, your own response attempting to dismiss rather than engage with counter-arguments betrays a likely ideological rather than pragmatic interest in the concept of LVT.
> On top of that, a tax that applies equivalently to all of the land available to the rental market in a given area will simply push prices upwards across the board
Most research asserts that a land value tax decreases the selling price of land.
In a fully functioning spherical chicken market, once balancing in
If I buy land for $100k today, I can assume I'm going to make say $6k a year from renting it to someone and $2k a year from it increasing in value, giving me a 8% roi
If I instead had to pay just $4k a year in LVT, the price would reduce to $50k to keep that 8% roi. I'll still be making money for doing nothing.
Now if that LVT was returned to the population at large, it's quite possible the population has more money to spend on land, so I could increase the rental price from $6k a year, but then the LVT would increase, because the idea is it reduces unimproved land value to zero -- nobody should make money from occupying land, they should make money through improving it.
In reality though any LVT implemented would be full of loopholes which would introduce absurd incentives. Just like taxing income, and worse taxing earned income more than non-earned income.
All property owners can increase rental prices now anyway. They can only increase them to the maximum someone will pay for it. That's why average rental prices tends to track average income. If you have 5 homes and 6 people, each able to pay 2100, 2200... 2600, then the worst home will rent for 2200, and the one who can only afford 2100 will live in a box.
They can only increase rents as much as the next guy. If you're charging $2500 but next door is $2400, nobody will rent from you. But if everybody's charging $2500, then that's what people will have to pay.
You're right that some people will get squeezed out, but in high demand markets there are enough people willing to pay that it doesn't matter. Property owners will eat the 5% increase for a while, like until the existing leases expire, but eventually they'll incorporate that 5% increase into the rent.
Why would a land value tax shift the allocation of land between uses? The amount of the tax doesn't depend on what the land's being used for. If renting is the highest-value use without the tax, it will still be the highest-value use with the tax.
> Why would a land value tax shift the allocation of land between uses?
For the same reason that inflation shifts the allocation of money between investment opportunities.
When there's an increased baseline cost that has to be overcome by whatever use the underlying asset is put to, it shifts the incentives and the risk-reward calculations of people deciding what to do with their assets.
Why would land be any different from cash in this regard?
Most mortgages are fixed interest. So it makes since that today's rate change doesn't impact a renter cost in the near future. Probably not until the next time the property is sold.
If I own £100K worth of land, and the government announces a 1% annual land tax, it's likely the value of my land will fall by about ~25-33% overnight.
If you think that's morally unobjectionable, fine, but I'd love to know what happens when all the landowners who own rural land that doesn't have a profitable development path attached to it can't pay their tax bills. Have the state seize it all?
Or do they just claim it's of negligible value and avoid the tax?
You would sell the development for as much as you can get, regardless of tax. The people buying from you aren't going to pay you more just because the government raised your taxes.
A land tax would effect every single landlord though. Every single landlord would put up rent.
The market will bare it because people have no choice. The choice is homelessness or paying the higher rent.
It's principally the same when mortgage rates rise. Landlords with mortgages put up rent. Only it would be worse, since not all landlords have mortgages.
Do you have data for this? The data I've seen in the past is that landlords are not in aggregate able to pass on mortgage rate increases as rent increases, possibly because their tenants are already squeezed to the limit and there is simply no more money to be had. So when mortgage rates go up rents stay roughly constant and property values go down.
Although the rules were later somewhat changed. Perhaps after pressure due to terminally ill farmers committing suicide (before the tax came into effect so that they could pass on their inheritance).
Is there really a market dynamic in rent pricing anymore? I thought that algorithmic collusion had eliminated the need for landlords to compete on price.
> I thought that algorithmic collusion had eliminated the need for landlords to compete on price.
Well, that and non-enforcement of antitrust which is a big part of many of our current economic problems.
Massive corporate landlords like Greystar and Morgan Properties own so much of the market they can do a lot of pricing damage even without colluding with others (but of course they do that too).
There's a somewhat non-conglomerate reason though too:
The government, society, municipalities in the US do not build housing. They allow it to be built. Housing is built by developers, who are businesses that insist on making a profit.
So lets say you are one of the only couple of companies that can build a new 100 unit apartment in an area with tight housing supply. Great, you love money, you will look to invest in a development to capture some of that market and make money.
Do you build 100 cheap units for $X and make 5% profit over your planned ROI term, or do you build 100 absurdly upmarket units for $X + 10% dollars and make 10% profit over the same ROI term?
You already know the answer. The normal response is that "All new build is good and will lower price" but no, the rich people buying McMansions and $3000 per month condos in states they haven't ever been to can just absorb far more supply than actual local workers. And, well, they are so fucking rich compared to the average person that they can simply not care about how many of these properties they own, so there isn't downward pressure on them to sell off some of those locations.
The rich are just too rich and can easily outbid the rest of us forever for anything. They are so rich and their marginal value of a dollar is so low that they can happily buy up expensive housing basically for shits and giggles and sit on it and forget they even have it. They own ten properties they never visit. Because they can literally own a property just because they might some day want to visit.
Developers have mostly decided to only serve that clientele because they are so goddamned profitable, because they will negotiate less, will happily pay for box checking features meant to increase the price (like really really bad smart home implementations that they never even experience because they never go to that home). The rich guy who hired my dad to be his general contractor doesn't care what my dad charges and doesn't look at the bill, so my dad abandoned his plan to build 10 houses and instead just lives a relaxing life off of that man's excess, because why the fuck would you do a hundred times the work for less money?
That's one of the reason income inequality on it's own is so bad. Money doesn't work in a linear way, so having 2X the dollars as the next guy is more than 2X as "powerful". The uber rich can just own everything and you have no hope of outbidding or competing. You simply have no other choice than finding what little scraps they ignore.
Capitalism optimizes for best profit per effort. In a society where a tiny percent own the majority of all resources, why would you ever fight for the scraps the little guys have?
Profitable businesses in Portland are being forcibly evicted to be replaced with brand new hotels meant for Executives to visit once a year, all over the area, because providing any service to the uberwealthy is just that much more profitable than providing very necessary service to the average person. It doesn't matter how desperate normal people get, they can't afford to outbid the uberwealthy.
> I thought that algorithmic collusion had eliminated the need for landlords to compete on price.
What sustains 'algorithmic collusion' in a non-market-clearing situation when landlords ultimately just want to rent their property out?
To put it another way, why would a property owner who has a vacant house leave it unrented in order to benefit other property owners at his own expense?
> We also don't see landlords who own their properties outright (and thus don't have mortgage interest costs) charging lower rents than landlords in the neighborhood with identical properties who have mortgages.
Why would they as long as they find a renter? The market always charges the marginal cost.
1) Cost of land per year (which won't change as you'd be paying $10k a year tax rather than $10k a year in interest on the loan taken to buy the land)
2) Cost of building per year (which won't change)
I don't think that logic works because if I'm paying for a loan, I'm not just paying interest, I'm also paying against principal. So in the new, landtax world, I'm building less equity for the same rental cashflow. If I'm thinking of building a unit for rental, I look at all the costs over the next 10-30 years, and all the expected revenue, including eventually owning an asset with some perpetual value. If we have higher taxes in perpetuity then that final asset has lower value and I need to charge more rent to make the same profit in that timespan.
Not to mention that many real estate investors don't use loans, and that the banks giving out loans understand the lack of equity being built and demand higher interest given the inherently lower collateral (greater risk).
You're assuming that the loan repayments of interest plus capital are the same as the land tax. That wouldn't be the case.
Currently the purchase price of the property includes a good deal of future land rent, you just pay the current owner.
If you spend $50k on some land and pay 5% a year you're paying $2500 a year in rent, but you're paying that to the existing owner.
Under an LVT you'd be paying $2500 in rent, but the land itself would cost basically nothing.
Whether it's a loan, or the opportunity cost from not putting the capital elsewhere, doesn't matter.
Land speculators profit from land values increasing, and they do nothing other than gamble. They don't increase the value of their own land, that's what their neighbours do. LVT removes that speculation, and indeed risk. If the area goes downhill (say in Detroit), your taxes lower
The downside of this is if you have taxes funding the government, you end up in a death spiral. That's what the UK has with council tax (which is very regressive, a 10m house in one area can pay less than a 100k flat in another, and even in the same area would only pay about 3 times the price), and I believe it's the case in the US.
That's why I'd rather see a citizens dividend than just cutting taxes.
Landlord costs affect supply in the long term, so you will see changes, just not necessarily immediately over a one year period, but definitely over a 5-10 year period.
> We also don't see landlords who own their properties outright (and thus don't have mortgage interest costs) charging lower rents than landlords in the neighborhood with identical properties who have mortgages. When landlords' costs drop, do they drop the rent in response?
If costs are uniform for each landlord (they have to pay for), it limits the amount of money they can invest in new capacity, and you will see the effects over a decade. If one landlord has cost advantage over another, then they will of course probably just take the extra money as extra profit.
> Taxes on land do not affect the supply of the land, this implies they are not passed on and the research literature largely agrees with this.
They provide friction with what can be done with the land, because the cost of owning the land has to be paid. If it is just a land tax, however, you can game it by building as much as possible on it so the landowners who can't build as much as you can subsidize your usage (long term, you either have to build as much as you can on your land, or sell the land to someone who can).
> Landlord costs affect supply in the long term, so you will see changes, just not necessarily immediately over a one year period, but definitely over a 5-10 year period.
This is true, but the degree depends on elasticity of supply, and that depends a lot on profitability of the sector.
> Landlord costs affect supply in the long term, so you will see changes, just not necessarily immediately over a one year period, but definitely over a 5-10 year period.
In fact - although that logic is usually correct - in the case of a land value tax it isn't useful because landlords do not supply land. Someone is still going to own the land and it is still going to be used for something. There is no incentive to leave it unused. There aren't any less resources in the overall system and resources haven't been diverted from a productive use to an unproductive use (quite the reverse, they're being redirected away from someone who was doing nothing to earn them). That is the theoretical advantage of taxing the land.
If it were anything else (eg, taxing the houses on the land) then the argument would be useful because the tax was on transforming less valuable resources into more valuable and there would be less productive economic activity and losses leading to less supply of something that the economy was signalling a need for.
There might be a reallocation from housing to some other purpose if an LVT is bought in, who knows. But it is a context-dependent change and not possible to reason about as a general outcome. It might be that the economy produces exactly the same amount of housing before and after. Less resources overall will be allocated to landlords, obviously, but not in a fashion that penalises building houses. Maybe that means house prices drop and more people own their houses outright. Maybe there is even more housing because resources move from landlords to housebuilders.
> If it is just a land tax, however, you can game it by building as much as possible...
I've never heard an entirely satisfactory process for valuing the land either. Although to some extent all tax systems have questionable underpinnings and compliance.
> If it is just a land tax, however, you can game it by building as much as possible on it
That's not gaming it, that's the tax working as intended. We need more housing, so if that gets people to build more of it, that's a win.
> If it is just a land tax, however, you can game it by building as much as possible on it so the landowners who can't build as much as you can subsidize your usage (long term, you either have to build as much as you can on your land, or sell the land to someone who can).
I was on the fence but your advocacy in favor of the land value tax has convinced me. Well played.
A transaction can occur if the price is >= the seller's cost, and <= the value to the buyer. If it's at the minimum, the seller must pass on the tax or not trade, at the maximum (down to the max minus the tax) , the seller can't pass on (all of) the tax and still trade. We observe that landlords make profit, so we are not at the minimum. Are we at the maximum?
I think there are cases where we are in between for significant periods of time. Consider a positive shock to wages. Can landlords put up prices overnight? I don't think so, unless the landlords all co-ordinate to do so, prices will be sticky as there are always some properties in the market, so it's difficult to be the first to increase rent. Unlike a purchase, a landlord who waits for a buyer at the right price is forgoing income during the void. So the market price can be a Schelling Point.
A tax increase, however, happens at the same time to all landlords. All of them would prefer to pass it on, and they know that so they can assume all other landlords will try to pass it on. If the rent is currently below the maximum possible, they will succeed.
How long it takes prices to adjust I don't know. It is an empirical question, but I don't know what data would answer it. But it seems like it took decades for landlords to capture the two-income surplus after it became common for women to have a career.
I do acknowledge that rent is a function of supply and demand in the big picture, at least. I don't think the whole foundation of economics is wrong.
Demand for apartments will be constant.
Supply of apartments will be constant.
But I think what's going on here is that we are way off the equilibrium point. The supply of good places to rent is far outpaced by demand for them, at most price points, and especially so where all the value is (on the coast). So, this means if you're a landlord and you know you'll owe another $1200 tax to Sacramento this year, you should be very confident that if you raise rent by $100 a month, even if an individual tenant would rather move than pay it, someone who can afford $100 more exists and will almost certainly fill that vacancy promptly. It may represent a slight step down in what their buying power would buy. Like, they may have rented a $3000 apartment before, and they'll now rent what used to be a $2900 apartment from you for $3000.
> Do you really believe that landlords will subsidize tenants for a long time?
This literally happens all the time in California.
You buy a house in CA. You move somewhere else. You hold on to the house because your property taxes are fixed and housing prices grow like crazy here. Maybe your kids will want it. Maybe you'll want to move back..
You can't charge enough rent to cover the mortgage and taxes os you end up taking a loss monthly.
Competition is not one thing. For a producer of widgets, competition means that there is immense instantaneous leverage if you can reduce the price, because buyers will switch to you, increasing your market share until your competitor can match - if they can.
A landlord is usually in a different position. If their personal costs drop (eg, they paid off their mortgage) but the market price stays the same, how do they benefit by reducing the price they offer? Only by reducing the time it takes to rent out, which isn't a significant factor in exactly case when tenants would most like rents to go down - when prices are high because of demand.
The details of these mechanisms matter. Market can be out of equilibrium for a long time; maybe indefinitely.
> Rent is a function of supply and demand, not a landlord's costs
Only in one direction. If that rent, based on supply and demand, does not cover all of the owner's costs (+profit) then that rental property simply disappears off the market. No owner is going to rent out at a loss, so either the renter is paying for all expenses (+profit), or they get kicked out.
abeppu · · focus · HN ↗
In what sense can't it be passed to renters? Esp if all landlords in the market were faced with a new land tax that they had not previously planned for, why would it not be passed on?
larsiusprime · · focus · HN ↗
Taxes can be passed on when the tax induces a change in supply. Conventional property taxes are partially passed through because the component of the tax that falls on the building. Tax buildings, get less buildings.
Taxes on land do not affect the supply of the land, this implies they are not passed on and the research literature largely agrees with this.
EgregiousCube · · focus · HN ↗
skybrian · · focus · HN ↗
But for that to happen, land values need to go down. Landlords need to bid less.
tomrod · · focus · HN ↗
pydry · · focus · HN ↗
Thats an incentive to rent out the property or sell up to somebody who will.
It would apply harsh market discipline on landlords - a demographic that has usually been rather coddled.
retired · · focus · HN ↗
xp84 · · focus · HN ↗
The existence of property tax (which on a single house in some areas of the state is upwards of $15,000 a year already) already makes it absolutely ruinous to just sit on an extra house you don't need and not rent it out.
> or who don't make efficient use of land
A little more convincing. Though I suspect most empty land in places where anyone would be willing to live in California, is empty because our insane zoning laws don't allow what would otherwise make sense there (I don't care that it's like what most areas have -- it's insane to have laws that would make it illegal to build a place like San Francisco, Brooklyn, or Boston).
The funny thing about those zoning laws though is that they're held up by a rare case of bipartisanship:
- The MAGA Boomer set who doesn't want any more development near them because "it'll bring traffic" or noise or crime
- And most of the "progressives" who don't want any more development anywhere because "we hate greedy developers" and "Not enough of this proposed development is low-income housing for the government to dole out in lotteries to a few lucky families."
lesuorac · · focus · HN ↗
15k/2M is 75 basis points. Its definitely profitable to just sit on land especially if you turned it into a parking lot or some other barely improved thing.
xp84 · · focus · HN ↗
Gormo · · focus · HN ↗
That doesn't follow. If LVT reduces the net return on rentals, it will disincentivize construction and maintenance of housing in the first place. If it creates a net negative or zero return on property ownership, it may lead to abandoned/undeveloped property instead of housing development, or more property being used for other purposes than housing.
It's also worth pointing out that the existing ad valorem tax system used for property taxes is functionally equivalent to LVT, and does have these influences on the housing market. LVT proposals are distinguished by their being rooted in (fundamentally flawed) Georgist theory, not by being unique as a form of taxation in practice.
JumpCrisscross · · focus · HN ↗
These aren't a universal cost. When rates change, some landlords' costs go up. But some don't. That lets the latter set the marginal price.
If everyone's costs go up the same amount, it's collusion without communication. In an inelastic market like San Francisco's, you'd expect prices to rise.
Gormo · · focus · HN ↗
Taxes may not affect the amount of land that physically exists, but they absolutely can and do affect the amount of land available for rent as opposed to other income-generating use cases.
On top of that, a tax that applies equivalently to all of the land available to the rental market in a given area will simply push prices upwards across the board, which is likely to just be absorbed by renters given the usually low price elasticity of demand for housing.
jeremyjh · · focus · HN ↗
cltby · · focus · HN ↗
Gormo · · focus · HN ↗
In fact, they are indeed arguments derived from applying well-understood economic principles to the specific -- and purely speculative -- claims posited by the preceding comment.
> Be sure you understand them first; your assertions do not hold in the case of LVT.
Indeed I have, and indeed they do. Rather, your own response attempting to dismiss rather than engage with counter-arguments betrays a likely ideological rather than pragmatic interest in the concept of LVT.
larsiusprime · · focus · HN ↗
Most research asserts that a land value tax decreases the selling price of land.
EgregiousCube · · focus · HN ↗
iso1631 · · focus · HN ↗
If I buy land for $100k today, I can assume I'm going to make say $6k a year from renting it to someone and $2k a year from it increasing in value, giving me a 8% roi
If I instead had to pay just $4k a year in LVT, the price would reduce to $50k to keep that 8% roi. I'll still be making money for doing nothing.
Now if that LVT was returned to the population at large, it's quite possible the population has more money to spend on land, so I could increase the rental price from $6k a year, but then the LVT would increase, because the idea is it reduces unimproved land value to zero -- nobody should make money from occupying land, they should make money through improving it.
In reality though any LVT implemented would be full of loopholes which would introduce absurd incentives. Just like taxing income, and worse taxing earned income more than non-earned income.
jlarocco · · focus · HN ↗
iso1631 · · focus · HN ↗
nly · · focus · HN ↗
In fact, I'd argue the majority of landlords are shit investors sat on fairly low yields
jlarocco · · focus · HN ↗
You're right that some people will get squeezed out, but in high demand markets there are enough people willing to pay that it doesn't matter. Property owners will eat the 5% increase for a while, like until the existing leases expire, but eventually they'll incorporate that 5% increase into the rent.
iso1631 · · focus · HN ↗
Gormo · · focus · HN ↗
aesthesia · · focus · HN ↗
Gormo · · focus · HN ↗
For the same reason that inflation shifts the allocation of money between investment opportunities.
When there's an increased baseline cost that has to be overcome by whatever use the underlying asset is put to, it shifts the incentives and the risk-reward calculations of people deciding what to do with their assets.
Why would land be any different from cash in this regard?
iso1631 · · focus · HN ↗
malfist · · focus · HN ↗
nly · · focus · HN ↗
jen20 · · focus · HN ↗
This absolutely happens in the UK where variable interest rates affect more people.
> When landlords' costs drop, do they drop the rent in response?
The price of everything is pretty much a ratchet. They never go down again absent some kind of competitive pressure.
nly · · focus · HN ↗
If you think that's morally unobjectionable, fine, but I'd love to know what happens when all the landowners who own rural land that doesn't have a profitable development path attached to it can't pay their tax bills. Have the state seize it all?
Or do they just claim it's of negligible value and avoid the tax?
lesam · · focus · HN ↗
nly · · focus · HN ↗
The market will bare it because people have no choice. The choice is homelessness or paying the higher rent.
It's principally the same when mortgage rates rise. Landlords with mortgages put up rent. Only it would be worse, since not all landlords have mortgages.
lesam · · focus · HN ↗
lesam · · focus · HN ↗
jayd16 · · focus · HN ↗
Property is already taxed based on its assessed value in California.
invalidOrTaken · · focus · HN ↗
If it doesn't have a profitable development path attached, the price(and therefore "value") will go down, as will the tax burden.
[deleted] · · focus · HN ↗
[deleted]
robocat · · focus · HN ↗
Labour in the UK introduced a 20% inheritance tax on >£2M rural property.
<a href="https://www.theguardian.com/uk-news/2024/nov/01/farmers-shocked-budget-inheritance-tax-estates" rel="nofollow">https://www.theguardian.com/uk-news/2024/nov/01/farmers-shoc...
Although the rules were later somewhat changed. Perhaps after pressure due to terminally ill farmers committing suicide (before the tax came into effect so that they could pass on their inheritance).
anon373839 · · focus · HN ↗
Is there really a market dynamic in rent pricing anymore? I thought that algorithmic collusion had eliminated the need for landlords to compete on price.
georgemcbay · · focus · HN ↗
Well, that and non-enforcement of antitrust which is a big part of many of our current economic problems.
Massive corporate landlords like Greystar and Morgan Properties own so much of the market they can do a lot of pricing damage even without colluding with others (but of course they do that too).
mrguyorama · · focus · HN ↗
The government, society, municipalities in the US do not build housing. They allow it to be built. Housing is built by developers, who are businesses that insist on making a profit.
So lets say you are one of the only couple of companies that can build a new 100 unit apartment in an area with tight housing supply. Great, you love money, you will look to invest in a development to capture some of that market and make money.
Do you build 100 cheap units for $X and make 5% profit over your planned ROI term, or do you build 100 absurdly upmarket units for $X + 10% dollars and make 10% profit over the same ROI term?
You already know the answer. The normal response is that "All new build is good and will lower price" but no, the rich people buying McMansions and $3000 per month condos in states they haven't ever been to can just absorb far more supply than actual local workers. And, well, they are so fucking rich compared to the average person that they can simply not care about how many of these properties they own, so there isn't downward pressure on them to sell off some of those locations.
The rich are just too rich and can easily outbid the rest of us forever for anything. They are so rich and their marginal value of a dollar is so low that they can happily buy up expensive housing basically for shits and giggles and sit on it and forget they even have it. They own ten properties they never visit. Because they can literally own a property just because they might some day want to visit.
Developers have mostly decided to only serve that clientele because they are so goddamned profitable, because they will negotiate less, will happily pay for box checking features meant to increase the price (like really really bad smart home implementations that they never even experience because they never go to that home). The rich guy who hired my dad to be his general contractor doesn't care what my dad charges and doesn't look at the bill, so my dad abandoned his plan to build 10 houses and instead just lives a relaxing life off of that man's excess, because why the fuck would you do a hundred times the work for less money?
That's one of the reason income inequality on it's own is so bad. Money doesn't work in a linear way, so having 2X the dollars as the next guy is more than 2X as "powerful". The uber rich can just own everything and you have no hope of outbidding or competing. You simply have no other choice than finding what little scraps they ignore.
Capitalism optimizes for best profit per effort. In a society where a tiny percent own the majority of all resources, why would you ever fight for the scraps the little guys have?
Profitable businesses in Portland are being forcibly evicted to be replaced with brand new hotels meant for Executives to visit once a year, all over the area, because providing any service to the uberwealthy is just that much more profitable than providing very necessary service to the average person. It doesn't matter how desperate normal people get, they can't afford to outbid the uberwealthy.
Gormo · · focus · HN ↗
What sustains 'algorithmic collusion' in a non-market-clearing situation when landlords ultimately just want to rent their property out?
To put it another way, why would a property owner who has a vacant house leave it unrented in order to benefit other property owners at his own expense?
echoangle · · focus · HN ↗
Why would they as long as they find a renter? The market always charges the marginal cost.
iso1631 · · focus · HN ↗
bagacrap · · focus · HN ↗
iso1631 · · focus · HN ↗
1) Cost of land per year (which won't change as you'd be paying $10k a year tax rather than $10k a year in interest on the loan taken to buy the land)
2) Cost of building per year (which won't change)
bagacrap · · focus · HN ↗
Not to mention that many real estate investors don't use loans, and that the banks giving out loans understand the lack of equity being built and demand higher interest given the inherently lower collateral (greater risk).
iso1631 · · focus · HN ↗
Currently the purchase price of the property includes a good deal of future land rent, you just pay the current owner.
If you spend $50k on some land and pay 5% a year you're paying $2500 a year in rent, but you're paying that to the existing owner.
Under an LVT you'd be paying $2500 in rent, but the land itself would cost basically nothing.
Whether it's a loan, or the opportunity cost from not putting the capital elsewhere, doesn't matter.
Land speculators profit from land values increasing, and they do nothing other than gamble. They don't increase the value of their own land, that's what their neighbours do. LVT removes that speculation, and indeed risk. If the area goes downhill (say in Detroit), your taxes lower
The downside of this is if you have taxes funding the government, you end up in a death spiral. That's what the UK has with council tax (which is very regressive, a 10m house in one area can pay less than a 100k flat in another, and even in the same area would only pay about 3 times the price), and I believe it's the case in the US.
That's why I'd rather see a citizens dividend than just cutting taxes.
seanmcdirmid · · focus · HN ↗
> We also don't see landlords who own their properties outright (and thus don't have mortgage interest costs) charging lower rents than landlords in the neighborhood with identical properties who have mortgages. When landlords' costs drop, do they drop the rent in response?
If costs are uniform for each landlord (they have to pay for), it limits the amount of money they can invest in new capacity, and you will see the effects over a decade. If one landlord has cost advantage over another, then they will of course probably just take the extra money as extra profit.
> Taxes on land do not affect the supply of the land, this implies they are not passed on and the research literature largely agrees with this.
They provide friction with what can be done with the land, because the cost of owning the land has to be paid. If it is just a land tax, however, you can game it by building as much as possible on it so the landowners who can't build as much as you can subsidize your usage (long term, you either have to build as much as you can on your land, or sell the land to someone who can).
Gareth321 · · focus · HN ↗
This is true, but the degree depends on elasticity of supply, and that depends a lot on profitability of the sector.
roenxi · · focus · HN ↗
In fact - although that logic is usually correct - in the case of a land value tax it isn't useful because landlords do not supply land. Someone is still going to own the land and it is still going to be used for something. There is no incentive to leave it unused. There aren't any less resources in the overall system and resources haven't been diverted from a productive use to an unproductive use (quite the reverse, they're being redirected away from someone who was doing nothing to earn them). That is the theoretical advantage of taxing the land.
If it were anything else (eg, taxing the houses on the land) then the argument would be useful because the tax was on transforming less valuable resources into more valuable and there would be less productive economic activity and losses leading to less supply of something that the economy was signalling a need for.
There might be a reallocation from housing to some other purpose if an LVT is bought in, who knows. But it is a context-dependent change and not possible to reason about as a general outcome. It might be that the economy produces exactly the same amount of housing before and after. Less resources overall will be allocated to landlords, obviously, but not in a fashion that penalises building houses. Maybe that means house prices drop and more people own their houses outright. Maybe there is even more housing because resources move from landlords to housebuilders.
> If it is just a land tax, however, you can game it by building as much as possible...
I've never heard an entirely satisfactory process for valuing the land either. Although to some extent all tax systems have questionable underpinnings and compliance.
DreadY2K · · focus · HN ↗
That's not gaming it, that's the tax working as intended. We need more housing, so if that gets people to build more of it, that's a win.
MaysonL · · focus · HN ↗
bjustin · · focus · HN ↗
I was on the fence but your advocacy in favor of the land value tax has convinced me. Well played.
ajb · · focus · HN ↗
I think there are cases where we are in between for significant periods of time. Consider a positive shock to wages. Can landlords put up prices overnight? I don't think so, unless the landlords all co-ordinate to do so, prices will be sticky as there are always some properties in the market, so it's difficult to be the first to increase rent. Unlike a purchase, a landlord who waits for a buyer at the right price is forgoing income during the void. So the market price can be a Schelling Point.
A tax increase, however, happens at the same time to all landlords. All of them would prefer to pass it on, and they know that so they can assume all other landlords will try to pass it on. If the rent is currently below the maximum possible, they will succeed.
How long it takes prices to adjust I don't know. It is an empirical question, but I don't know what data would answer it. But it seems like it took decades for landlords to capture the two-income surplus after it became common for women to have a career.
sroussey · · focus · HN ↗
jayd16 · · focus · HN ↗
xp84 · · focus · HN ↗
Demand for apartments will be constant. Supply of apartments will be constant.
But I think what's going on here is that we are way off the equilibrium point. The supply of good places to rent is far outpaced by demand for them, at most price points, and especially so where all the value is (on the coast). So, this means if you're a landlord and you know you'll owe another $1200 tax to Sacramento this year, you should be very confident that if you raise rent by $100 a month, even if an individual tenant would rather move than pay it, someone who can afford $100 more exists and will almost certainly fill that vacancy promptly. It may represent a slight step down in what their buying power would buy. Like, they may have rented a $3000 apartment before, and they'll now rent what used to be a $2900 apartment from you for $3000.
parineum · · focus · HN ↗
anamax · · focus · HN ↗
Do you really believe that landlords will subsidize tenants for a long time?
More to the point, if landlords are losing money, why would anyone build rental housing? Instead, why wouldn't they take housing off the market?
lkjdsklf · · focus · HN ↗
This literally happens all the time in California.
You buy a house in CA. You move somewhere else. You hold on to the house because your property taxes are fixed and housing prices grow like crazy here. Maybe your kids will want it. Maybe you'll want to move back..
You can't charge enough rent to cover the mortgage and taxes os you end up taking a loss monthly.
WalterBright · · focus · HN ↗
Of course it does. The landlord's costs factor into the supply made available by landlords.
> When landlords' costs drop, do they drop the rent in response?
Competition says they do.
ajb · · focus · HN ↗
A landlord is usually in a different position. If their personal costs drop (eg, they paid off their mortgage) but the market price stays the same, how do they benefit by reducing the price they offer? Only by reducing the time it takes to rent out, which isn't a significant factor in exactly case when tenants would most like rents to go down - when prices are high because of demand.
The details of these mechanisms matter. Market can be out of equilibrium for a long time; maybe indefinitely.
WalterBright · · focus · HN ↗
Arbitrage forces say otherwise.
ajb · · focus · HN ↗
jjav · · focus · HN ↗
Only in one direction. If that rent, based on supply and demand, does not cover all of the owner's costs (+profit) then that rental property simply disappears off the market. No owner is going to rent out at a loss, so either the renter is paying for all expenses (+profit), or they get kicked out.
LastTrain · · focus · HN ↗
And one of the functions of supply is cost.