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.
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.
They should implement a blight tax or a vacant land tax instead.
I don't see how this helps Detroit's problems - unless they arbitrarily set high values on land where land is possibly already worthless. The areas with the most blight have the lowest land values already.
The city already owns 75k out of 380k lots (~20% of the city - most of it vacant) - and instead of trying to sell the lots - the Detroit Land Bank holds onto them to arbitrarily inflate land values.
This seems like another recipe for a negative feedback loop that makes bad areas even worse.
Just tax blight outright.
Give away the damn land to anyone that will build something on it and live there - or get someone else to live there, pay taxes, and be a valuable part of the community - rather than a vacant lot that's a breeding ground for crime.
> They should implement a blight tax or a vacant land tax instead.
A land value tax is a much more elegant solution. For one, it doesn't introduce the problem of needing to define 'vacant land'. Is a parking lot vacant land? etc
> For one, it doesn't introduce the problem of needing to define 'vacant land'.
But it introduces, unless I'm completely misunderstanding, the need to establish a theoretical value for a plot of land that's unrelated to any sale or use value we can objectively measure today.
At best, it seems the assesment will be very wrong often. At worst, it'll be a political tool for local government to drive out whoever they want by overvaluing plots on purpose.
A lot of the land around Detroit is nearly worthless given the blight. Will it be taxed at $0 or will they say that in an alternate universe someone could build a skyscraper there so it's worth millions? Even though nobody would actually fund that work.
Taxing based on sale price isn't perfect, but at least it is much harder to game since it's based on a concrete market-clearing price that isn't up for debate.
While it's not trivial, assessing un-improved land value does not seem too different from other complicated accounting tasks that both governments and private organisations have been performing for a long time. Cost segregation studies are already a thing.
A good starting point can be the relevant part of the Georgist primer published on ACX:
There are theoretical difficulties, yes. The elegant way out is to have the person owning the land self-assess its value, set the LVT at x% of that value, and be legally bound to sell it to anyone who comes up to them offering that price.
Now how do we determine that x%? That's a good question. I think there's no way out of some empiricism even if someone did try this approach. But you can always start it low and raise it incrementally to see how it affects the land economy of an area.
> The elegant way out is to have the person owning the land self-assess its value, set the LVT at x% of that value, and be legally bound to sell it to anyone who comes up to them offering that price.
That doesn't make any sense in the context of a land value tax.
The whole point of a land value tax is that a parcel of city center land is taxed at the same rate whether it's got a parking lot on it or an apartment block.
But the owner of an apartment block would self-assess their land as much more valuable than a parking lot, not wanting to be forced to sell their apartment block for the price of a parking lot. So you'd be back to having a property tax, not a land value tax.
The x% does not value with the use of the land. An apartment block owner would self assess their land as much more valuable, and then also pay back x% of that much higher land assessment in taxes each year, yes. And if someone came by and decided that e.g. that $5 million apartment land unit would be better as a $5 million parking lot, they could certainly pay them $5 million to do so.
But they may later find out that the parking lot isn't really worth $5 million, because it's harder to make the money to justify the x% of $5 million tax you're paying on it with a parking lot than with an apartment complex. They may then drop their valuation to $3 million, or $2 million, to reduce the total amount they pay in tax each year. But then of course they may run a greater risk of being forced to sell themselves -- perhaps even back to the original apartment runner they paid $5 million to before.
> and be legally bound to sell it to anyone who comes up to them offering that price
Why? This just seems to create yet another perverse incentive structure that people have to invest time into understanding (and some into exploiting), rather than adding any actual value. Taxes mean nothing if everyone is too busy figuring out this sort of scheme to do anything valuable.
I'm glad you ask. There's a whole 100-or-so page paper on this form of taxation with enforced sale on the books which explains why this approach is in fact far less perverse than our current system (which might be degenerately modeled as a 0% system, where every good has a forced sale point of $∞.∞∞).
I'm only a few pages in, and perhaps this paper redeems itself later, but here's my problem:
> To put this problem starkly: allocative efficiency and thus an efficient
market economy is impossible in the presence of private ownership.
What the paper's early pages are saying is that study A found that things could be allocated more efficiently, and study B found that sometimes people hold out from selling things now to gain more later, therefore to increase the efficiency of global (literally) allocation of resources, people should be forced to sell things or pay more taxes to keep them.
This seems to have several problems on its face, that might be dealt with later, but still:
- This is all theory. There is no global optimum to observe, no matter how many papers might be written. Only to theorise about.
- This is relative, and time-sensitive. I might value a property at X because at that moment it's worth that much to me. It might change in the future, or depend on how markets are doing. Should I instantly sell because I have an ice cream shop and people are all eating gelato, and I can't afford the tax so I reduce the valuation to a point where some shark can grab the building?
- Perfect is the enemy of good, particularly when perfect is so poorly defined. This can get a lot worse much more easily than it can get a bit better.
> I might value a property at X because at that moment it's worth that much to me. It might change in the future, or depend on how markets are doing. Should I instantly sell because I have an ice cream shop and people are all eating gelato?
Think at the margin here. You're not saying you should instantly sell because the gelato/ice cream enthusiast ratio has increased slightly. You're saying everyone all at once decided en masse to start eating gelato instead of ice cream. Yes, as an entrepreneur you need to respond to that. That's an enormous and sudden change in not just the long- but even the short-term viability of your endeavor.
Indeed the forced price mechanic improves the short term responsivity of the local economy to such a change, because your scenario suggests a recent total upset in the established order of things. I would rather see you walk away today, from a venture that you realized yesterday was doomed to fail, with an extra $X in your pocket from the shark who bought you out than to see you driven to bankruptcy because you were the last ice cream boy in this mad, gelato crazed new world. Who knows -- maybe you'll start an ice cream stand in a cheaper, more sane part of the world with it.
I like this subthread; both of you seem respectful and clear and I'm doing my best to follow the arguments.
But I'm having trouble as a result of the choice of icecream/gelato words.
I interpreted @robertlagrant to be in the "gelato is icecream" camp (which seems reasonable to me in a "baguettes are bread" sense).
But @hiAndrewQuinn, you seem to be in the "gelato is not icecream" camp. I would call this is an arguably correct position similar to "chicken tikka masala is not Indian food," but I doubt most people holding either of these positions would consider these kinds of small differences likely to be the trigger for a business becoming unviable. So perhaps you didn't know what gelato was?
In either case, I think you two need to be using the same definitions for your illustrations to make sense. And I really want them to make sense because I want to understand :)
It's not a complicated scheme: there's a semi-fixed price you pay to the public for removing land from its use, and you can do whatever you want in order to overcome that fixed price and keep whatever profit you achieve.
In real estate property value is constantly being corrected by an actual market. Prices aren't set by bureaucrats; they're paid by people for whom that price is worth it.
This measure will be harmful. Not just due to the person being a bureaucrat who can be bad at their job and/or influenced to achieve certain outcomes; not just because the info is instantly out of date on purchasing decisions; not just because the pricing info is specific to that purchaser. But because everything like this adds more drag into systems that have enough drag already. People can't do anything useful if they're constantly coping with bad systems voted for and put in place by people who don't understand unintended consequences.
As I understand it, property tax is simple when there's been a recent sale. The complexity comes from a similar issue to land value: no recent sale. In this case it's worse because valuing the land outside of what it's used for is a mess.
But this problem already exists. Many people live in homes for 30+ years and pay property tax on the land + improvement (physical home) value. Why would it be so much harder to hypothetically value the land without a recent sale (required for a LVT) than to hypothetically value the land + improvements without a recent sale (required for property taxes which currently exist in almost every city in America)?
Because their neighbours have sold their houses recently. So using similar sales as a baseline and then factoring in a few differences between those properties and the one that is being assessed is much easier than doing that and then subtracting the built-up value.
Basically all of your data points are the built-up prices. So it is going to be easier to estimate the built-up value than the raw property value. Maybe not much easier, but definitely not harder.
Do you think taxing by sub components of land would be simpler yet? Maybe we should tax by rock content.
Or maybe a tax based on more things has nothing to do with complexity. The largest market is for land and structures. That makes it the simplest to value.
Is it common to sell the land without selling the improvements located on top of it? If that's common, it's straightforward to use that market to value the land.
At worst the assesment will be dysfunctional often and at best this can empower local governance (ideally, "the people") to decide, as you say, on what businesses they'd like to host.
Maybe that's a sign that the "city" is too big? Much of what we call Dallas is not in Dallas, they are a different city. It makes sense to have a flat rate for all of Frisco and that tax rate will be different from that of Waxahachie.
you can use equivalents in the are. burned out abandoned building on the lot? what could that lot be worth reasonably? oh, there are 9 houses down the street or 1 block over that are all worth 200k...
I don't think tax law fears complexity. You make a table and there is an entry for "parcel of land with grass taller than 6 inches and containing one or more 1980s automobile with 3 or more tires" right alongside "parking lot" or "hospital".
Of course it does. Complexity in the tax law is regressive. It lets wealthier people and businesses take advantage of more deductions and writeoffs to lower their tax burden, due to the ability to hire accountants full time to work on it. Simple taxes that are difficult to avoid (such as LVT) are best if you want a progressive tax regime.
One of the best features of LVT is that it taxes unearned increases in the value of land. While you can do any improvements you want to the property without increasing the LVT, improvements made by the city or other private interests to the area around your land absolutely will increase its value, thus increasing your tax burden.
Simpler is not only less regressive, but also more efficient. Those lawyers and accountants freed up by simplicity can then go on to contribute to the economy in meaningful ways.
One implication of what you write seems to be that every property owner is incentevized to NIMBY any improvements to the area that they don't care about. For example, if I am "child free" I will now oppose the building of schools and playgrounds on the basis that they make my LVT go up with no benefit to me.
This looks more like a way to destroy society than prudent tax policy.
> For example, if I am "child free" I will now oppose the building of schools and playgrounds on the basis that they make my LVT go up with no benefit to me.
I think the problem is, for many people, the value of their land is kind of irrelevant. If you are using land by living on it, and want to live on it because it's near your friends, family, community, place of work etc, then the value of that land to someone else doesn't really matter. Maybe when you die and pass it to your kids, it would be great if it was valuable. But in the mean time (which for most people is many decades), an increase in value only really means an increase in monthly outgoings with no financial benefit to you.
Perhaps that's the point - in order for cities to stay dynamic and fair, we need to make everyone pay something close to market value for their land - even those who bought it a long time ago. But doing so is unlikely to make those people very happy.
You can’t make everyone happy all the time. I’m a lot more okay with a situation in which a person is compelled to sell their very valuable property because they can’t afford the taxes than I am with people being unable to afford housing.
If LVT helps to loosen up some undeveloped/underdeveloped land and get it into the hands of a willing developer then that is a big win for the fight against the housing crisis.
That's the kind of fine print that would kill any popular support for LVT.
It's also a false dichotomy. We don't need LVT to solve housing. We don't even know if LVT would solve housing. On the other hand, we know exactly how to solve housing. People just don't want to.
> I think the problem is, for many people, the value of their land is kind of irrelevant.
Well that's a problem with those people if they think their most valuable capital asset is irrelevant.
It is relevant, because without LVT, the tax code is literally encouraging inefficient use of land. Housing prices consistently rising five times faster than salaries is a huge problem, and it is caused by inefficient land use.
> One implication of what you write seems to be that every property owner is incentevized to NIMBY any improvements to the area that they don't care about. For example, if I am "child free" I will now oppose the building of schools and playgrounds on the basis that they make my LVT go up with no benefit to me.
This already happens just with more economic inefficiency under a property-tax regime. People already vote against improvements that would cause their taxes to go up.
This benefit is hypothetical as long as you are not selling your land.
So, up to the point where you would actually sell your land, LVT is simply a liability. Even if eventually you sell are not guranteed to actually make the amount implied by the LVT you have been paying.
Let's think about what structures and incentives and ways of thinking we would foster here. Everyone a property speculator! That worked out so well with housing.
Meanwhile the people who just want to raise a family in peace and stability can now be priced out of their homes because their neighborhood got too "good". And that's just the goldilocks analysis.
In grim reality, city councils can use this to soft-evict anyone, anywhere without giving a reason by simply raising the estimated land value. The corruption is going to be off the charts.
The point of LVT is to punish you if you could sell for less. That is if you own a small house next to sky scrapers, if you would sell someone would snatch up your house, tear it down, and build another sky scrapper.
Which is also why I don't think it helps Detroit today as they don't have the problem problem of land that someone else would build up on
> Simple taxes that are difficult to avoid (such as LVT)
Can you explain how is it simple? Who gets to set the theoretical value of a plot of land, disconnected from all current uses? Since it's theoretical, it's very subjective. Who do we give this power to make or destroy the owners based on purely subjective speculation on what it might be worth? How do we guarantee that this entity won't abuse the power to set arbitrary tax valuations?
> How do we guarantee that this entity won't abuse the power to set arbitrary tax valuations?
We don't. They already do that with "normal" property taxes. This wouldn't change that.
Soon-to-be gentrified neighborhoods are often ignored by property tax assessors and code enforcement for many years, then one day a developer reaches out to the tax assessors and says "hey the taxable assessment values in this neighborhood should really be higher". Then the people living there have taxes raised 10-20% every year until they are forced to sell for low prices because they can't afford to hold onto their property until the gentrification is actually well underway when they'd finally see their property value actually go up.
At least, that's how it goes in Texas.
I don't think this system would be worse in that sense, probably roughly equivalent. But it makes sense to at least attempt to tax undeveloped and under-developed land at high enough rates to encourage at least some healthy amount of development. It won't be perfect, but it shouldn't be worse either.
> I don't think this system would be worse in that sense, probably roughly equivalent. But it makes sense to at least attempt to tax undeveloped and under-developed land at high enough rates to encourage at least some healthy amount of development. It won't be perfect, but it shouldn't be worse either.
I don't see how it can't not be much worse.
If the tax is based on the actual value of the property, there are two important factors:
1- You can easily prove or disprove whether the valuation makes sense. Just look at comparable sales nearby. If in a neighborhood of similar houses, ten have been sold in the past year for 200K and your very similar house receives a tax bill saying it's worth 2M, you can easily protest and win since the sales records show it's only worth +/- 200K.
2- If it really is worth 2M based on comparable sales, in worst case you can then sell it for 2M. While it's terrible to kick people out of their homes via property taxes, at least the consolation is that it's actually worth that. So you don't go bankrupt, you can sell it for that price.
With LVT the tax is supposed to be based on some theoretical projection of what it might be worth if a non-existing structure were to be there. What prevents the county from telling you that if only you built a ten story highrise there, it would be worth 10M? So now you have to pay tax on 10M.
You can't easily disprove it because, well perhaps maybe it's true that if the highrise was there it might be worth 10M. But of course the building doesn't exist so it's all speculation. Also, since the building doesn't actually exist, you can't sell the property for 10M to pay the tax bill.
> You can easily prove or disprove whether the valuation makes sense. Just look at comparable sales nearby.
In the Houston area the appraisal board just doesn’t care. They raise taxes across the board for the whole neighborhood by the same amount every year and appealing has limited effect. You cant really argue comparables because the whole neighborhood raises in lockstep by a shocking amount every year (since well before the big housing bubble)
> You cant really argue comparables because the whole neighborhood raises in lockstep
Comparables refers to actual sales of similar homes nearby. If all sales in the neighborhood have been +/- $200K over the last year, they should not be able to claim the property is worth 500K. Or they could, but should be easy to disprove.
When you get a mortgage, it's based on a theoretical value of the property as determined by an assessment.
The bank will lend you up to, for example, 90% of the assessed value. Thats how you get a morthgage on a property that maybe you already own for 20 years.
Complexity introduces additional chances of creating loopholes and allowing people with enough resources to game the definitions to avoid the LVT. More basic implementations are also preferable because they're easier to administer, with your definition (or any that depends on the current year to year usage of the lot) you have to create a whole cadre of inspectors to check on the lots to ensure compliance and check people aren't just lying on their taxes.
BRB setting up dewheelr.io, which will help you, a landowner besieged by toxic regulations threatening your eyesore vacant landbank, sorry, useful and beautiful community recycling zone. For a small monthly fee, we'll connect you with local freelance tax compliance consultants who will happily remove tyres from the vehicles until they slip through the gaps in the table in your local jurisdiction. We'll keep on top of the regulatory complexity (in fact, we lobbied to ensure that only we are allowed to, so you can trust that we know the rules), deal with the grotty human workers (we've never actually met or talked to any of them person-to-person, so we don't feel bad paying them below a living wage and withholding payment when we can get away with it) leaving you to focus on what matters most: letting that dead possum stuck in the frayed chainlink fence grow a really interesting plant in an eyesocket.
Land value taxes are generally set arbitrarily high. Localities are incentivized to set values as high as they can attempt to justify. They end up modeling what they think could be the most profitable or valuable development on the land then tax you as if that were already done.
Eventually the land ends up in the hands of the few willing and able to abuse the land to that level, prioritizing profit above all else.
If that were true it would not be the case that Detroit will be the first to do it. Land Value Taxation is a concept with a history going back to the Gilded Age when someone realized that NY's prosperity was in fact related to its higher levels of homelessness, and that that was due to the land rents that were free-riding on the economic production of the urban area, as they do to this day.
your first paragraph applies pretty much equally to taxing land+developments. Also, in the context of a city building to the maximum of the zoning is a good thing in nearly all instances because higher density means you need less land to provide shelter for the inhabitants and it's way, way easier to provide most services to higher density.
Property taxes that factor in existing improvements doesn't leave the owner as far behind chasing potential value that they are already being taxed for. When your tax burden is a factor of expected market value of the land plus permanent improvements they're taxing you on what you already have. When it's based on an expected optimal value of the lad they're taxing you on what *they* think your land *should* be worth if fully developed.
Assuming that higher density is always better ignores the externalities required to maintain such a system. Higher density cities require more outside inputs brought in from outside the city. Those inputs strip resources from other lands, require input to process the raw materials, and require fuel and vehicles to transport the goods into the city frequently. The city's waste must be transported and processed somewhere, again adding impacts to the environment even if those impacts aren't directly felt within city limits.
If the goal is to minimize impact, cities would only be as large and as dense as they can reasonably be self sufficient. That doesn't preclude trade between cities, states, and countries, but it does mean the city isn't entirely dependent on a constant churn of bringing in resources from elsewhere and shipping out waste.
Last two paragraphs first: You are making a logic error here. A human at a certain level of (whatever you want to call it, productivity, success, wealth, whatever) will want a certain lifestyle level and will use vastly more resources to achieve that lifestyle in a less dense city. You can see that comparing pretty much any set of cities in the world if you stratify by income and look at resource usage/co2 output/whatever. Environmental cost of importing resources is also pretty low as long as you have good transportation methods in use (i.e. shipping or train with trucks minimized). So, if you actually want minimize impact the correct thing to do is to expand and densify cities until the decrease in environmental damage per capita from increasing density equals the increase in environmental damage from importing resources. This means the best setup is a dense city with a decent resource feeder area around it, not a self sufficient area with a less dense/more suburban city.
Now for the first paragraph: This is kind of the point because maximizing use generally means more density, which means more opportunity to minimize use elsewhere. I did outline one situation that I thought was unfair and should be addressed, which is the situation where you buy land zoned one way with a much lower value only to have it zoned another way on you that makes it a lot more valuable. Other than that specific situation, I don't agree with you that your first paragraph is a problem, it's a positive feature.
I'm honestly not sure if the logical error is on me there. If a majority of people honestly believe that humans are causing serious harm to the planet and still set a high bar for a certain level of lifestyle, environmental impact be damned, I think that's the error.
As far as shipping goes, it can definitely be comparably affordable to ship in products. Though you still have to factor in costs of everything from making and maintaining those vehicles, the oil and gas that moves them, and the costs on the area that actually produced the products.
My point isn't that everything should be magically fixed with more rural living or a perfect balance of density in cities. I'm simply trying to raise the other side to point out that things aren't simple or clean enough to actually run the math on whether dense cities are better or worse at reducing impact on the environment. There are simply too many factors and hidden costs along the way to calculate accurately.
> Higher density cities require more outside inputs brought in from outside the city.
Surely, it can't possibly be that simple. Sometimes that's true, sometimes it is not. If I want fiber to my house in the country I might be paying $30k to get that line all the way to my one house whether I want 100MB/sec or 10GB/sec. In the city it might be shared with hundreds and only need to run a few yards. Same for sewage. Same for police and fire.
Oh it's definitely not simple, I don't mean to input that.
Your examples only really touch on one relevant example though, sewage. Sewage isn't really an issue in rural areas, off grid seltic systems process waste on site and more compelling systems can even compost human waste with very little effort. Modern central sewage system only exist because of dense cities, they weren't needed before that.
High speed internet is purely a convenience and really shouldn't be a concern if there's any meaningful environmental impact from it. Police and fire similarly are conveniences that may turn into necessities in highs density areas. I live in a rural area where police may show up tomorrow if I call them now and our fire is mostly volunteer.
I've never heard of anyone having real issues from either. Volunteer fire still respond quickly enough and it's amazing how much less import policing is when people are more spread out and the expectation of turning to police for every problem isn't the norm.
Your environmental footprint for transport is higher though right unless you're cycling everywhere, because you need to travel further? Which involves everything you need that you don't produce yourself. Or you're all entirely self sufficient and never leave your smallholdings? I don't mean to sound like a dick, just trying to engage :-)
Many “rural” people actually live in small towns where it is entirely possible to drive less or not at all. I certainly put less miles on our vehicles even though we have more of them and kids now vs living in “the big city”.
However if all you ever do is drive to the big city I can see how that would take more time and distance.
Yes! And we can home school kids, hunt and fish and fix our own broken bones like they show in the movies. Just need alcohol for the pain (grow your own moonshine?).
Sure, more people should have the opportunity to gone school their children and hunting, fishing, and foraging is a great way to feed your family with less environmental impact. Knowing how to set a bone is great in an emergency, but I wouldn't recommend leaning only on that if you have other options. Alcohol does work for pain, though be careful with moonshine as poorly stilled liquor can have nasty side effects.
Resources are for a certain quality of life are the same regardless of location. Unless, you are willing to for a lower quality of lifestyle.
These resources can be transported to high density living, or spread out across 100x - 1000x area. Which do you think is more efficient?
Building roads, water, electricity costs millions/mile. All this must be built before you even think about shipping resources to support. Then services (schools, hospitals, dentist) -- all of these and services only make sense at scale.
I think the same tax should be on vacant rental properties. If you're still sitting on a rental property after 6 months to a year, you're charging too much for it since its apparently above market rate. At the very least you shouldn't be able to claim write off the loss on your taxes past a certain period. Maybe depreciation is another thing that should be fixed.
Pretty sure you can't write off missing rent as a business loss.
Depreciation definitely needs to be fixed. You shouldn't be able to claim 3% of a structures value as business loss every year, without some sort of evidence that you will actually tear down the structure in 33 years. And perhaps after it has been counted as depreciated once, future owners shouldn't be allowed to deduct the depreciation either.
Well most structures will need repairs and updates over 33 years. Materials degrade for instance one the most common roofing materials asphalt shingles depending on the style has a life time of about 20 to 30 years. You also have things like heating and cooling system and such (they don't last forever) Plus just generally wear and tear and things like carpet that eventually just become and nasty and needs replaced.
Let alone things just getting dated.
If you look at typical house most of the labor and expense for materials is in the finishing not the rough structure like the framing. Look at the price of 8 ft 1x4 trim piece compared to just 8' 2x4 despite the 2x4 having twice the amount of wood. Then look at what generally needs to be replaced its not the framing unless the building was neglected or poorly built.
I'm intrigued by this. In the UK depreciation is reversed out in tax calculations and replaced by capital allowances. I don't think there are capital allowances for residential buildings.
Equalization of tax burden and transparency in reporting. To put it very simply: when you buy a thing you spend money and gain value. No change in books. Then after some time you sell said thing for generally less and experience sharp loss. Think of P&L report of a public company. Such maneuver will artificially increase profits during ownership and deflate, potentially up to incurring book loss, them in period of sale. Depreciation/amortization simply spreads this loss of value over the period of ownership. Tax implications are mostly incidental and come from reporting.
It's because the 'value' of something (eg a machine) is 'used up' over time until eg the machine eventually wears out and needs replacing.
Depreciation reflects that the asset's value is used up over time by allowing the owner to deduct part of its value each period to reflect the reduction in asset value in their financial statements.
> LVT addresses property speculators that buy land to sit on it for 10 years and do nothing with it.
Didn’t Detroit raze the lots in the first place, since they considered an empty lot to be better than one with a decaying house? I really doubt many of these lots will ever actually be developed to any reasonable extent, since they aren’t exactly in nice areas. And likewise I bet there won’t be many people dying to buy these lots either. My guess is the city will be taking ownership of a decent amount of land in the not-so-distant future.
Some of the 'nicest' areas of UK cities are redevelopments of some of the worst areas. Just because they are not nice now does not stop them being nice later.
Yeah... "not nice" doesn't really describe it. "Ruin" is the better word for the condition of a lot of the lots. Search for "Ruins of detroit" to get an idea of what we're talking about. (Although a lot of the image results will be focused on large buildings, there are plenty that show what the smaller lots look like.)
I think you are underestimating the difference being in range of German bombing has made to our respective countries attitude to urban resilience, and to the other commenter, our attitude to real ruins. Detroit has but a flesh wound.
I wish they would do that here. Our nearest city has tons of derelict and decaying buildings that sit on the books of faceless organisations far away staffed by people who've never set eyes on them, and don't have to live in the resulting s** hole next to them.
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.
Imagine a scenario where land purchase prices hover very close to $0. This is the end result of an effective LVT.
It means that you only pay for the structures, or the cost to remove a blighted structure, etc. It makes real estate more liquid, and allows more people to try their hand at development without having a massive land bank worth millions of dollars.
It decentralizes these decisions and lets more local players get involved. It rewards those who are productive, and encourages those who are squatting on resources to let somebody else give it a shot.
The point is, currently if you build things then you pay higher tax. The current tax structure disincentivizes building things. We don't know what people would build without that disincentive - maybe still nothing, as you are suggesting.
This argument has often confused me when so many people are concerned with global warming. Why should a city incentive land owners to develop and commoditize their land?
If we want to reduce human impacts on the planet, why not incentive the opposite and incentive leaving the land natural?
Land value taxes prioritize GDP and profit above all else. Isn't that how we got into this mess in the first place?
How do those small urban footprints survive though? They bring in outside resources, external zing the impact elsewhere and adding in the cost of transporting goods into and waste out of the urban centers.
There isn't a magic answer to it, but simply saying dense areas use less footprint for shelter ignores all the other necessities and conveniences consumed by the people living there.
5 single-family homes will consume the same amount of food and water as 5 units in a few duplexes or a five-over-one. The SFHs will consume more energy for heating and cooling (related to larger footprints) and use more resources to send power and water (larger distances to send power and water.) An SFH consumes more resources than a multifamily-housing unit holding the same number of people.
That really does entirely depend on the size and style of the SFH, location on the land, lifestyle, etc.
Single family homes are often easier to power off-grid with solar if that's on the table, though again with regards to externalities the solar power equipment likely sends those costs to multiple countries on the other side of the planet.
They would still use more energy in total, since flats insulate themselves to a certain extent due to having less outside walls & tend to be smaller requiring less energy to heat the space. You can also power flats with renewable energy. At this point less total energy is good regardless.
Suburbs also bring in outside resources. The difference is that distributing those resources and collecting waste within the city is less costly than distributing resources and collecting waste within the suburb.
Spread-out suburbs require more heating, transportation infrastructure, and more physical land to exist than alternatives. You can argue for them based on other gactors, but they use more resources, full stop.
Spread out rural housing does not mean less transport to bring in outside resources, but vastly more because most goods are still "outside resources" even if you literally live on a farm, and most people don't.
Yes but the sewage from a block of flats takes less transportation for the equivalent amount of people living in suburbs with thousands of square m for a single house
LVT doesn't encourage infinite development on all land - it encourages the efficient use of land.
If you replaced property taxes with land value taxes and held revenue equal:
For rural areas, not much would change. Land is cheap and taxes would remain low.
For suburban areas, there would be a moderate shift in tax burden. People with homes on large plots of land would pay more; people with homes on smaller plots of land would pay less.
For urban areas, the changes would be drastic. Because land is limited in urban cores and appreciates in value every year, there's an absurd amount of speculation. An LVT would discourage this by making it costly to hold onto undeveloped or underdeveloped land just for future price gains. As a result, we could expect a surge in the development of vacant or underutilized plots, leading to a potential increase in housing availability and a decrease in rental prices. This would both alleviate housing shortages and reduce the speculative bubbles that can distort urban real estate markets.
With %100 LVT, city will be owner of most land in 1 year. With 10% LVT - in 10 years. Value based tax means that value is transferred from owner to a new owner no matter what. Owner is just working for a new owner.
From memory, the Georgist belief is that whoever collects the tax will spend it, and the spending will distribute the value in a way which is...not necessarily equal, but is closer to equality than the status quo was.
The wealth transfer is a feature rather than a bug, in this case. Speculators sitting on unimproved or underutilised land are seen as literal rent-seekers, and taxing them is seen as reclaiming a natural monopoly at the same time as removing the leeches who're sucking up big chunks of a city's growth.
Well, property taxes in my city are around 1% currently. Does that mean the city will own 100% of land in 100 years? Probably not. For lots of reasons.
From a climate perspective, cities should incentivize people to develop their land into dense/efficient usages because urban dwellers have the lowest per capita environmental impact. The alternative is suburban or rural dwelling which requires more resources and more duplication.
Duplication often leads to resilience in a system, and can lower the infrastructure required since the centralized resources aren't being shipped across the country.
Optimizing for profit in urban land use excludes the production of raw materials almost entirely. Meaning that raw materials have to be grown or raised elsewhere, transported into the city, and the waste has to be removed afterward.
Wouldn't it be more beneficial purely from an environmental angle to produce more food and resources in the urban areas to minimize external costs? And if so, wouldn't the current system disincentivize this in favor of higher profit per square foot businesses, regardless of the environmental impact?
> Why should a city incentive land owners to develop and commoditize their land?
Because otherwise newcomers are stuck paying high rents to people who got there first, causing misery and impoverishing young people to the benefit of the old. And when young people lack opportunity, violence happens.
> why not incentive the opposite and incentive leaving the land natural?
We do. All over the place. But for the cost of a square mile of Central London being natural, we could have a dozen square miles of natural land just 50 miles away. Because way more people want to live in Central London than a commuter town.
Generally, land is valuable (and therefore under this scheme highly taxed) because people want to live there. And if they can't live there, they'll live somewhere else, likely involving a longer commute that is worse for the environment.
Wanting to live somewhere and reducing climate impact are different though. If you build a city full of dense housing, where does all the food and water come from? Or the electricity, furniture, and clothing?
Costs can be externalized, but at the environment level they still exist even if outside the city of consumers. It's also often the case that externalizing those costs adds even more impact as the product has to be shipped in and the waste shipped back out.
> If you build a city full of dense housing, where does all the food and water come from? Or the electricity, furniture, and clothing?
I don't understand your argument. Are you saying that people that don't live in cities don't consume, or consume less of, food, water, electricity, furniture and clothing?
> It's also often the case that externalizing those costs adds even more impact as the product has to be shipped in and the waste shipped back out.
They have to be shipped to fewer places and thus save resources. The only way what you are saying makes any sense is either if shipping things to more places somehow save resources or if people that don't live in cities don't need anything shipped.
It's still more efficient for a single factory to fell 20 trees and produce 20 chairs than it is for 20 people to fell their own tree and produce their own chair. Not to mention one person can't specialise enough to produce everything to the same standard as someone who does the same thing all day long, or an automated process which is optimised to do that exact thing at scale.
> 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.
>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.
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.
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.
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.
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.
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.
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.)
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.
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.
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.
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.
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.