> 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.
> 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.
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.
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.